Douglas Elliman Inc 10-K for FY2022
Douglas Elliman Inc. (DOUG)
10-K
2023-03-16
For: 2022-12-31
View Original
Added on
April 12, 2026
About this 10-K
Douglas Elliman Inc filed this 10-K on March 16, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.15B
- down 14.8% from $1.35B a year earlier
- Net loss
- $5.62M
- compared with net income of $98.84M a year earlier
- Diluted EPS
- -$0.08
- compared with $1.27 a year earlier
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31 , 2022
SECURITIES EXCHANGE ACT OF 1934
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(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation incorporation or organization) | Commission File Number | (I.R.S. Employer Identification No.) | ||||||||||||
(Address, including zip code and telephone number, including area code,
of the principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes þ No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes o No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☑ | ☐ | Non-accelerated filer | Smaller reporting company | Emerging Growth Company | |||||||||||||||||||||||
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b) ☐
Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. ☐ Yes þ No
The aggregate market value of the common stock held by non-affiliates of Douglas Elliman Inc. as of June 30, 2022 was approximately $359.0 million.
At March 14, 2023, Douglas Elliman Inc. had 84,416,022 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Douglas Elliman Inc.
FORM 10-K
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS
Overview
Douglas Elliman Inc. is engaged in the real estate services and property technology investment business and is seeking to acquire or invest in additional real estate services and property technology, or PropTech, companies. Douglas Elliman owns Douglas Elliman Realty, LLC, one of the largest residential brokerage companies in the New York metropolitan area, which includes New York City, Long Island, the Hamptons, Westchester, Connecticut and New Jersey, and the sixth-largest in the United States with operations in Florida, California, Texas, Colorado, Nevada, Massachusetts, Maryland, Virginia and Washington D.C. We also offer, including through our subsidiaries and ventures, ancillary services, such as property management, title and escrow services.
We are a Delaware corporation and were incorporated in 2021 in connection with the separation of Douglas Elliman from Vector Group Ltd., as an independent, publicly-traded company, listed on the New York Stock Exchange (the “Distribution”). On December 29, 2021, Vector Group completed the Distribution of the common stock of Douglas Elliman to its stockholders and we began trading on the New York Stock Exchange under the symbol “DOUG” on December 30, 2021.
Strategy
Since its inception in 1911, Douglas Elliman has challenged the status quo of the real estate industry. We were founded on Douglas L. Elliman’s vision that New Yorkers would shift their preference for traditional homes to favor luxury apartments that were both sold and managed by comprehensive real estate companies. More than a century later, the Douglas Elliman brand is still associated with service, luxury and forward thinking — our markets are primarily international finance and technology hubs that are densely populated and offer housing inventory at premium price points. The average transaction value of a home we sold in 2022 was approximately $1.62 million — significantly higher than our principal competitors.
We are building on our record of innovation. Douglas Elliman is focused on digitizing, integrating and simplifying real estate activities for agents and elevating their clients’ experiences. We are bringing innovative, technology-driven PropTech solutions to Douglas Elliman by adopting new PropTech solutions for agents and their clients and also investing in select PropTech opportunities through our subsidiary, New Valley Ventures LLC. Our model is to source and use best-of-breed products and services that we believe will increase our efficiency. In addition to entering into business relationships with PropTech companies, as described further below, we are committed to creating over time a portfolio of PropTech companies that, through our business and investment relationship, have access to our agents and their clients, as well as our knowledge and experience, to grow their own businesses, while benefiting our operations. This keeps Douglas Elliman and our agents on the cutting edge of the industry with innovative solutions and services that can be integrated into our technology, while also remaining asset-light. Furthermore, we maintain upside potential in the success of our PropTech partners in which we invest through minority stakes in their capital structures.
Douglas Elliman is well positioned to capitalize on opportunities in the U.S. residential real estate market with a leading luxury brand and a comprehensive suite of technology-enabled real estate services and investments. Despite various “agentless” models such as “iBuying,” approximately 86% of both buyers and sellers were assisted by a real estate agent or broker when purchasing or selling their home between July 2021 and June 2022, according to the National Association of Realtors (“NAR”), highlighting the central role agents continue to play in real estate transactions. Agents are able to generate significant repeat business from clients and referrals, with 63% of home sellers and 50% of home buyers between July 2021 and June 2022 choosing to work with an agent they had used in the past or from a referral, according to the NAR. Repeat business, as well the ability to provide ancillary services, allows agents to extend their client relationships and generate significant lifetime value.
After a strong 2021, when existing home sales reported by the NAR reached their highest level since 2006, the residential real estate brokerage industry encountered significant challenges in 2022. These challenges began during the second quarter of 2022 and included, among other things, a reduced inventory of homes available for sale as well as higher mortgage rates. According to the NAR, sales of existing homes declined by 34.0% in December 2022 from December 2021 and total homes sold in 2022 (5.03 million) was the lowest since 2014 (4.94 million). By comparison, our Gross Transaction Value declined only 16.2% in 2022 compared to 2021, reflecting the relative strength of the luxury markets in which we operate. In addition, our transactions of homes sold declined by 18% to 26,573 in 2022 from 32,400 in 2021. In the fourth quarter of 2022, our Gross Transaction Value and transactions of homes sold declined by approximately 40% and 43%, respectively, compared to the 2021 fourth quarter. We anticipate that the results for the first quarter of 2023 will reflect these same trends of significant year over year declines and the NAR and other real estate industry consortiums are forecasting continued challenges for the U.S. residential real estate market in 2023.
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Despite these recent changes, we believe our competitive advantages in the luxury markets distinguish us from our competitors and our comprehensive suite of real estate solutions, our industry-leading brand name, and our talented team of employees and agents set us apart in the industry. As the real estate brokerage industry evolves and addresses challenges related to constrained inventory of homes as well as higher mortgage rates, we continue to pursue profitable growth opportunities through the expansion of our footprint, investments in cutting-edge PropTech companies through New Valley Ventures, continued recruitment of best-in-class talent, acquisitions (acqui-hires), and operational efficiencies. We will continue to employ a disciplined capital allocation strategy aimed at generating sustainable long-term value for our stockholders.
Real Estate Services
Large residential brokerage company with a recognized luxury brand. Douglas Elliman is one of the largest residential brokerage companies in the New York metropolitan area, which includes New York City, Long Island, the Hamptons, Westchester, Connecticut and New Jersey, and the sixth-largest in the United States. Douglas Elliman has approximately 120 offices with approximately 6,900 real estate agents in the New York metropolitan area, as well as in Florida, California, Texas, Colorado, Nevada, Massachusetts, Maryland, Virginia and Washington, D.C. The Douglas Elliman name is synonymous with luxury.
Prominent new development sales and marketing firm. Douglas Elliman’s Development Marketing division, or DEDM, distinguishes our positioning and reputation in the luxury real estate segment. DEDM is sought after by well-known real estate developers as it offers expertise in sales, leasing, and marketing for new developments throughout key markets in the United States and internationally. Drawing upon decades of experience and market-specific knowledge, DEDM offers a multidisciplinary approach that includes comprehensive in-house research, planning and design, marketing and sales. DEDM ranks among the most prominent sales and marketing firms in New York and Florida, as well as Douglas Elliman’s other luxury markets, and employs approximately 84 in-house development professionals. Through a strategic global alliance with Knight Frank Residential, the world’s largest privately-owned property consultancy, DEDM markets properties to international audiences. We employ a hybrid broker model where our traditional residential real estate agents work in tandem with our DEDM professionals and leverage their extensive industry relationships for the benefit of DEDM clients. Agents are able to market and sell high profile developments that enhance their brands and provide additional commission revenue potential. We believe this model provides a competitive advantage to our DEDM business while also increasing the attractiveness of the Douglas Elliman platform to current and prospective agents.
Premium residential property management business. Douglas Elliman is also engaged in the management of cooperative, condominium and rental apartment buildings though its subsidiary, Residential Management Group, LLC, which conducts business as Douglas Elliman Property Management. Residential Management Group provides a full range of fee-based management services for approximately 353 properties representing approximately 46,000 units in New York City, Nassau County, Long Island City and Westchester County.
Full-service title insurance business. Douglas Elliman is also engaged in the provision of title insurance services through its subsidiary DE Title Services. DE Title Services acts in the capacity of a title insurance agent and sells title insurance to property buyers and mortgage lenders. DE Title Services is licensed as a title insurance agent in New York. In addition to DE Title Services, in June 2021, we acquired a 50% interest in Partners Land Services LLC, which is engaged in the provision of title insurance services in Florida. Douglas Elliman is actively exploring similar ventures in other real estate markets.
Leading provider of escrow services. In November 2020, Douglas Elliman acquired Portfolio Escrow, an escrow company that is a leader in the California escrow market. After execution of a home purchase contract, purchase funds are deposited by the buyer into a Portfolio Escrow trust account. After all parties agree that all contingencies of the sale contract have been satisfied, Portfolio Escrow delivers all pertinent documents for recording to the appropriate county clerk’s office, then releases funds to the seller and any other agreed-upon entity. Portfolio Escrow, as an escrow holder, is paid a fee equal to a percentage of the sales price.
PropTech Solutions Supporting Real Estate Services
Our general approach to PropTech solutions is to leverage best-of-breed, proven legacy technologies while also selectively partnering with early-stage, disruptive PropTech companies to support our real estate brokerage and services operations. This strategy gives our stakeholders, including our agents, their clients and our management team, access to fast-changing and industry-leading technology. Hiring technology talent to develop new products inside of a large company such as Douglas Elliman is costly, takes longer to bring new technology to market, rarely generates the most cutting-edge solutions, and limits the value of the emerging product to our own usage. Instead, we believe technology innovation is best fostered in smaller, purpose-built PropTech companies. We operate an open architecture technology infrastructure that allows for a “plug and play” environment where new features and functionality can be quickly added for the benefit of our agents and their clients. This
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ensures our technology remains state-of-the-art, vendor optionality is maintained, and our costs are minimized. Examples of our PropTech platform for Douglas Elliman’s agents and their clients are summarized below.
MyDouglas portal supports our agents in managing their business anytime, anywhere and on any device. Our MyDouglas agent portal is built on a native cloud SaaS technology foundation that is designed to rapidly adjust and incorporate new innovative solutions. The user-friendly portal incorporates automated and simplified workflows for agent interactions, expansive data-rich dashboards and reports backed by artificial intelligence, or AI, and integrated data assets. The technology is completely “plug and play” enabled, which supports our ability to quickly adjust our solutions in concert with the digital transformation happening in PropTech today.
Components of our MyDouglas solution include integrated customer relationship management, email marketing, marketing content creation and management, transaction management, video creation and virtual tours, comparative market analysis, home valuation tools, listing analytics, digital ad campaigns, open house management, new development sales and digital marketing, artificial intelligence, predictive analytics and more.
Elliman Everywhere offers robust virtual and mobile resources. Our Elliman Everywhere effort seeks to provide agents with the robust virtual and mobile resources they desire and will need to transact business from anywhere in the world, including markets where we do not have offices. This cloud-based agent portal includes workflow processing, a commission system, customer acquisition tools, an Innovation Lab and more, enhancing the agent experience and agents’ efficiency.
MyLearning provides our agents and employees with additional development and growth opportunities. Our MyLearning platform enables Douglas Elliman agents and employees to access and participate in live and recorded on-demand training sessions directed at various experience levels and subjects, including professional development, entrepreneurialism, business writing, public speaking and marketing.
Elliman Essentials provides agents and employees with enhanced vendor access. Elliman Essentials provides a curated list of offerings from preferred vendors that Douglas Elliman’s approximately 6,900 agents and approximately 957 employees access to source products, services and experiences in order to enhance business practices and purchase closing gifts for customers. Elliman Essentials can be accessed on our intranet portal, MyDouglas.
Launched and expanded a new client and customer lifetime concierge solution. We are offering seasoned third-party products into Elliman Showroom, a white-glove homeowners engagement solution that provides access to services such as insurance, moving, telecommunications, utilities, solar home security and home services and facilitates the moving and home management needs of our agents. This simple, “do-it-yourself,” end-to-end digital homeowner engagement platform includes more than 40 direct partnerships and integrations across multiple industries. It leverages our investee and growing PropTech startup, MoveEasy.
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PropTech Investments
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In addition to leveraging PropTech solutions to support our real estate brokerage and services operations, we believe that by investing in early-stage PropTech companies, Douglas Elliman can gain differentiated access to innovative PropTech services while benefiting from the expected growth and valuations of these firms without the need to build or fully acquire them. We believe investing in these PropTech companies and investment funds enables us to establish relationships with these companies (and funds’ portfolio companies) to seek preferred terms, become an early adopter of emerging technologies and achieve greater product integration with our users and IT systems. At the same time, we are actively seeking to capitalize on our unique real estate knowledge and experience by investing in PropTech companies that will both supplement and enhance the technology-based experience of Douglas Elliman’s agents and the general real estate industry as well as improve our operating efficiency. For example, the foundation for our agent communications platform and customer relationship management system was developed in consultation with one of our PropTech investee companies. We believe that these investments provide us with unique access to cutting-edge and industry-leading technology, providing us with valuable technology systems to improve the efficiency of Douglas Elliman’s businesses while also capturing some of the value created by the combination of our expertise in the real estate industry and the PropTech companies with which we partner.
As of December 31, 2022, New Valley Ventures had investments (at a carrying value) of approximately $14.8 million in PropTech companies. This amounts to approximately 3% of the value of Douglas Elliman’s total assets, which totaled approximately $550 million, as of December 31, 2022. As of December 31, 2022 our PropTech investments include:
• Rechat: a lead-to-close fully-mobile technology dashboard for real estate agents including marketing, customer relationship management and transaction-management software. Douglas Elliman has a multi-year services agreement with Rechat for its agents, who are increasingly requesting and requiring superior access to technology and back-office support services. The Rechat technology is a key element of MyDouglas, Douglas Elliman’s primary agent portal designed to be our agents’ technology front door, and StudioPro, the cloud-based agent portal and marketing tool recently launched by Douglas Elliman that helps integrate all agent resources in one user-friendly suite.
• Purlin: an automated intelligence platform to aid in home buying, an agent “paid social media” integration in MyDouglas and Portfolio Escrow client and agent portals that also integrate with MyDouglas.
• Humming Homes: a tech-enabled home management service that is creating a new category of end-to-end home management. It has built a solution that provides single-family homeowners a digital experience and offers a dedicated in-person home management team with a single point of contact and 24/7 support. The service employs data and insights to avoid reactive and expensive home maintenance issues. The investment will complement Douglas Elliman’s business in the Hamptons and align Humming Homes’ geographical growth with Douglas Elliman’s footprint in locations such as Aspen, Florida and Southern California.
• MoveEasy: a client- and customer-facing digital concierge service designed to assist clients and customers moving into and “setting up” their new homes, while offering additional services to maintain their homes. In partnership with residential real estate brokerages, MoveEasy is delivered in a white-labeled format that features the name and contact information of the selling agent.
• Fyxify: a tech-enabled platform that utilizes direct scheduling and operating technology to avoid the inefficiencies of home repairs (for example: calling around, mystery repair costs and wasting time).
• EVPassport: an entity that offers complete electronic vehicle charging solutions including hardware and software.
• Bilt: a leading loyalty program and co-branded credit card for renters to earn points on their rent payments. Douglas Elliman has joined the Bilt Rewards Alliance, a network of more than 2 million rental units across the country where renters can enroll in the loyalty program to earn points on rent paid. This platform enhances Douglas Elliman’s suite of offerings for both the renters and landlords it represents.
• Persefoni AI: a software-as-a-service (“SaaS”) platform built to enable enterprises of all sizes to measure their carbon footprint accurately, dynamically, and regularly across all operations.
• Envoy: a shared mobility company that sets up fleets of electric vehicles that can be shared by residents of a condominium development, hotel, or shared space.
• Audience: a subscription-based platform built around proprietary robotic arms that generate hand-written notes on behalf of sales-oriented professionals.
• Tongo: a financial program that gives real estate agents instant access to future commissions up to 60 days before closing.
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• Guest House: a tech-enabled company focused on the home staging market.
• Alpaca: investment in Getaway House, Inc., a start-up company that provides cabin rental services in rural areas throughout the United States.
•PropTech Venture Capital Funds: investments in the following venture capital funds providing New Valley Ventures with exposure to opportunities in the emerging PropTech industry.
◦Camber Creek Venture Capital Funds: two funds that invest in a diversified pipeline of new PropTech ventures. Camber Creek’s portfolio includes Notarize, a digitized notary service, and Curbio, a renovation firm designed to increase a property’s selling price.
◦Sum Ventures: a fund that invests in growth companies in PropTech, FinTech, and CleanTech industries.
◦MetaProp Venture Capital Fund: a fund advised or managed by a New York-based venture capital firm.
◦The Lab PropTech Fund: a fund advised or managed by a Miami-based firm that aims to invest in emerging technologies with a focus on residential real estate and construction services.
Other than the five private funds listed above in which New Valley Ventures invests as a limited partner, all of these companies currently provide technology or services to Douglas Elliman. To date, we have not recognized revenue from these investments and do not anticipate recognizing revenue from these non-controlling PropTech investments. However, we target earning an attractive rate of return from the capital appreciation of our PropTech investments.
Our Competitive Strengths
Leading luxury brand with a strong presence in markets where we have brand recognition and brand equity. We have a presence in most major luxury real estate markets in the United States, including New York, Florida, California, Texas, Colorado, Nevada, Massachusetts, Maryland, Virginia and Washington D.C. and others. Further, we have established a reputation for luxury and trust, which we believe has differentiated our brand from those of our peers. To build on this established brand presence, Douglas Elliman produces owned content and generates earned media regarding a range of relevant topics — including brand initiatives, exclusive listings, new development projects and closed deals — that resonate with our clients and contribute to a strong share of voice across all major markets in which we operate, as compared to our principal real estate competitors, and enhances the professional credibility of agents and executives whose thought leadership is often sought by major global media outlets.
Experienced team of talented agents and employees. The residential real estate business is built upon personal relationships, and we have long believed Douglas Elliman’s team of approximately 957 employees and approximately 6,900 agents (including 5,407 Principal Agents) as of December 31, 2022 distinguishes us from other residential real estate brokerage firms. Forbes recognized Douglas Elliman in its 2021 list of America’s best large employers.
Leading new development marketing platform. DEDM offers leading expertise in sales, leasing, and marketing for new developments in New York City, Long Island, the Hamptons, New Jersey, South Florida, California, Massachusetts and Texas, as well as throughout the United States and internationally. We believe Douglas Elliman’s “hybrid” platform of involving both experienced new development experts and skilled brokerage professionals provides highly differentiated expertise and real-time market intelligence to its clients.
Technology that we believe is industry-leading and supports recruitment and retention of agents. We provide our agents with what we believe is the most advanced set of digital- and mobile-enabled tools and resources in the residential brokerage industry, including: cloud-based agent portal, workflow processing, commission system, customer acquisition tools, Innovation Lab, customer relationship management (“CRM”) and marketing tools. These tools are designed to support agent productivity, earnings potential and satisfaction and we believe they enhance our efforts to recruit and retain high-performing agents.
Growth Strategy
Expand our footprint into adjoining markets. We aim to build on our leadership position in the New York metropolitan area, including New York City, Long Island, Westchester and the Hamptons, while entering and expanding in adjoining markets as well as key markets in Florida, California, Texas, Colorado, Nevada, Massachusetts, Maryland, Virginia and Washington, D.C., where the Elliman brand has strong awareness and brand equity.
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Continue executing the growth strategy of DEDM. Our hybrid DEDM platform matches experienced new development experts with skilled brokerage professionals to provide differentiated expertise and real time market intelligence to DEDM’s developer clients. We believe there is a clear path to growth through expansion into new markets.
Provide ancillary services to enhance the client experience and drive growth. We are seeking, through investment and acquisition, to expand and optimize our ancillary real estate services that allow our agents and our other businesses to enhance the client experience and drive growth in revenues and earnings. These services include escrow, title, mortgage finance, property management, notary, staging, renovation, security, moving, capital fundraising for developers, and more. We expect technology to be a key differentiator as we grow our ancillary services businesses, in terms of adoption by our agents, delivery to their clients and disruption of traditional business models not yet transformed by technology.
Invest in compelling PropTech opportunities that facilitate our growth and competitive differentiation. Our goal is to create over time a portfolio of PropTech companies in which we are invested and also leverage their technology for the benefit of our agents and their clients. We believe that investing strategically in disruptive, early-stage PropTech companies equips Douglas Elliman stakeholders with early and differentiated access to new technology built in entrepreneurial environments, while enabling PropTech investee companies to access our knowledge and experience through our commercial relationships in order to grow their own businesses. Concurrently, we believe investing in these PropTech companies enables us to establish relationships with these companies to seek preferred terms, become an early adopter of emerging technologies and achieve greater product integration with our users and IT systems, which enhances our competitive differentiation with agents and their clients. Furthermore, we maintain upside potential in the success of our PropTech partners in which we invest through minority stakes in their capital structures.
Continue to recruit best-in-class agents. Our recognized brand, combined with DEDM and the PropTech resources provided to our agents, support our ability to recruit experienced, high-performing agents. Leveraging regional recruiting teams, along with CRM and other necessary technology support, we seek to continue recruiting best-in-class talent at all levels.
Relentlessly pursue operational efficiencies. We have an ongoing, firm-wide focus on expense control, operational efficiency and profitability.
Human Capital
We have long believed that the diversity and talent of our people provides a competitive advantage to Douglas Elliman. As of December 31, 2022, we employed approximately 957 employees, of which 693 were employed by Douglas Elliman Realty LLC, 256 were employed at Douglas Elliman Property Management and eight were employed at Douglas Elliman’s corporate headquarters.
Real Estate Brokerage. The residential real estate business is built upon personal relationships and we have long believed Douglas Elliman’s team of approximately 693 employees and approximately 6,900 agents distinguish us from other residential real estate brokerage firms. Forbes recognized Douglas Elliman in its 2021 list of America’s best large employers and we believe this recognition is a testament to the hard work and resiliency of the Douglas Elliman family.
While most of Douglas Elliman’s employees are located in the New York and Miami metropolitan areas, our agents are located in New York, Florida, California, Texas, Colorado, Nevada, Massachusetts, Maryland, Virginia and Washington, D.C. In an effort to continue to foster relationships with our employees and agents, Douglas Elliman’s management implemented the following initiatives:
•Hosted, and continue to host, company-wide virtual town halls, podcasts and communications across all regions. These town halls are intended to promote a spirit of camaraderie and educate our employees and agents.
•In response to the COVID-19 pandemic, we converted all of its training and educational courses to its online platform in 2020.
•In 2023, we launched the inaugural “Agents of Change” initiative. “Agents of Change” is a series of conversations designed to spotlight pressing social issues and celebrate the Douglas Elliman agents who are actively working to increase diversity and spark change in the real estate industry and society at large. The initial event, held in honor of Black History Month, involved listening to five members of the Douglas Elliman community discussing their personal and professional experiences as people of color working in residential real estate and highlighted the scope of the diversity, equity and inclusion challenges facing the industry. The series will be an ongoing process designed to foster a respectful and supportive workplace that enables Douglas Elliman to attract and retain a diverse workforce that represents its customers and its communities.
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•Continued to support diversity efforts, including sponsoring Aspen Gay Ski Week, matching employees’ and agents’ contributions to NAACP Legal and Education Fund, the AAPI Community Fund and various other health and social charitable organizations.
•Continued to support organizations benefiting victims of various Florida hurricanes, California wildfires, Texas and Puerto Rico flood disasters and the Ukraine Humanitarian Crisis Fund of the American Red Cross. Douglas Elliman also supports health driven organizations including God’s Love We Deliver, Project Angel Food, and the American Cancer Society.
Douglas Elliman offers comprehensive benefit programs to its employees which provide them with, among other things, medical, dental, and vision healthcare; 401(k) matching contributions; paid parental leave; and paid vacation time.
We will continue to listen, while engaging and connecting with our employees and Douglas Elliman’s agents, to further our human capital management objectives by continuing the initiatives we first began during the COVID-19 pandemic.
Available Information
Our website address is www.elliman.com. We make available free of charge on the Investor Relations section of our website (https://investors.elliman.com/overview/default.aspx) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. We also make available through our website other reports filed with the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act. Copies of these filings are also available on the SEC’s website. Copies of our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Audit Committee charter, Compensation Committee charter and Corporate Responsibility and Nominating Committee charter have been posted on the Investor Relations section of our website and are also available in print to any stockholder who requests it. We do not intend for information contained in, or available through, our website to be part of this Annual Report on Form 10-K.
ITEM 1A.RISK FACTORS
Our business faces many risks. We have described below the known material risks that we and our subsidiaries face. There may be additional risks that we do not yet know of or that we do not currently perceive to be significant that may also impact our business or the business of our subsidiaries. Each of the risks and uncertainties described below could lead to events or circumstances that have a material adverse effect on the business, results of operations, cash flows, financial condition or equity of us or one or more of our subsidiaries, which in turn could negatively affect the value of our common stock. You should carefully consider and evaluate all of the information included in this report and any subsequent reports that we may file with the SEC or make available to the public before investing in our securities.
Risks Associated with Our Real Estate Business
We are subject to risks relating to the real estate industry.
The health of the U.S. real estate industry impacts our success and the industry is significantly affected by changes in economic and political conditions of the United States as well as real estate markets, which could adversely impact our real estate business, returns on our investments, trigger defaults in project financing, cause cancellations of property sales, reduce the value of our properties or investments and could affect our results of operations and liquidity. The real estate industry is cyclical and is significantly affected by changes in general and local economic conditions which are beyond our control. Because our revenue primarily consists of sales commissions and transaction fees, any industry slowdown could result in a decline in the total number of residential real estate transactions executed by our agents and could adversely affect our business, financial condition and results of operations.
These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets, levels of unemployment, consumer confidence and the general economic condition of the United States and the global economy. The real estate market also depends upon the strength of financial institutions, which are sensitive to changes in the general macroeconomic environment. Lack of available credit or lack of confidence in the financial sector could adversely impact the real estate market.
Any of the following could be associated with cyclicality in the real estate market by halting or limiting a recovery in the residential real estate market, and have an adverse effect on our business by causing periods of lower growth or a decline in the number of home sales and/or property prices which in turn could adversely affect our revenue and profitability:
• periods of economic slowdown or recession;
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• rising interest rates and inflation;
• the general availability of and cost of mortgage financing;
• a negative perception of the market for residential real estate;
• commission pressure from brokers who discount their commissions;
• an increase in the cost of homeowners’ insurance for owners of single-family homes and condominium associations;
• weak credit markets;
• a low level of consumer confidence in the economy and/or the real estate market;
• instability of financial institutions;
• legislative, tax or regulatory changes that would adversely impact the real estate market, including, but not limited to, potential reform relating to Fannie Mae, Freddie Mac and other government sponsored entities that provide liquidity to the U.S. housing and mortgage markets, and potential limits on, or elimination of, the deductibility of certain mortgage interest expense and property taxes;
•adverse changes in economic and general business conditions in the New York metropolitan area or the other markets in which we operate;
• a decline in the affordability of homes;
• declining demand for real estate;
• declining home ownership rates, declining demand for real estate and changing social attitudes toward home ownership;
• acts of God, such as hurricanes, earthquakes and other natural disasters, or acts or threats of war or terrorism; and/or
• adverse changes in global, national, regional and local economic and market conditions, particularly in the New York metropolitan area and the other markets where we operate, including those relating to pandemics and health crises, such as the COVID-19 pandemic.
We are impacted by the performance of the real estate markets in the New York metropolitan area and there may be a reduction in the attractiveness of those markets as well as the other markets in which we operate.
Our business significantly depends on sales transactions for residential property in the New York metropolitan area, and we derived approximately 55% of our revenues in 2022, 52% of our revenues in 2021 and 55% of our revenues in 2020 from the New York metropolitan area. There may be a reduction in the attractiveness of the real estate markets of the New York metropolitan area and the other markets in which we operate.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) limited mortgage interest deductions as well as state and local income and property tax deductions. The loss of the use of these deductions has encouraged residents of states with high income and property taxes and costs of housing to migrate to states with lower tax rates and housing costs. In 2022, approximately 70.0% of our closed sales occurred in New York, California, Connecticut, New Jersey and Massachusetts, and a migration of residents from these markets or a reduction in the attractiveness of these markets as a place to live could adversely impact demand for our products and services.
We are also impacted by the attractiveness of New York City as a place to live and invest in and its status as an international center for business and commerce. If New York City’s economy stagnates or contracts or if there are significant concerns or uncertainty regarding the strength of New York City’s economy due to domestic, international or global macroeconomic trends, or other factors (including, in particular, any matters which adversely affect New York City’s status as an international center for business and commerce or the economic benefits of New York City’s financial services industry), the New York metropolitan area may become a less attractive place to live, work, study or to own residential property for investment purposes. The attractiveness of New York City may also be negatively affected by other factors, including high residential property sales prices or rents (or a risk or perceived risk of a fall in sales prices in the future), high costs of living, the impact of the Tax Act, the impact of changes in state tax law, such as the real estate transfer tax on luxury property, and negative perceptions surrounding quality of life, safety and security (including the risk or perceived risk of acts of terrorism or protests).
Any reduction in the attractiveness of New York City as a place to live or a place to invest in residential real estate and any matters which adversely affect New York City’s status as an international center for business and commerce could result in a reduction, by volume and/or by value, in residential property sales transactions in the New York metropolitan area.
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There could be a lack of financing for homebuyers in the U.S. residential real estate market at favorable rates and on favorable terms.
The monetary policy of the U.S. government, and particularly the Federal Reserve Board, which regulates the supply of money and credit in the United States, significantly affects the availability of financing at favorable rates and on favorable terms, which in turn significantly affects the domestic real estate market.
We believe that low mortgage rates were a significant factor in the trend in increased homeowner equity and growth in home prices and sales in 2021, in particular. The historically low mortgage interest rates recently available to potential homebuyers have been adversely affected by the policies of the Federal Reserve Board, which began increasing its primary policy interest rate in March 2022 as well as reducing the size of its balance sheet, and such initiatives are expected to continue. Consequently, mortgage interest rates have significantly and rapidly increased, and may continue to increase. Changes in the Federal Reserve Board’s policies, the interest rate environment and mortgage market are beyond our control and difficult to predict. In 2022, the cost of financing for homebuyers increased significantly, which resulted in higher monthly payment costs that make homes less affordable to purchasers. We believe these higher interest rates also reduced home inventory because many sellers considering a move faced higher monthly payment costs as a result of moving. Consequently, both of these trends resulted in a decline of transaction volume from 2021 to 2022 and, if these trends continue, could eventually result in lower home prices.
In addition, the imposition of more stringent mortgage underwriting standards or a reduction in the availability of alternative mortgage products could also reduce homebuyers’ ability to access the credit markets on reasonable terms and adversely affect the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes. This could result in a decline in the number of home sale transactions or mortgage and refinancing activity.
Declining home inventory levels have resulted in insufficient supply, which has negatively impacted home sale transactions.
The success of our business depends on the ability of our brokers and agents to sell homes. Home inventory levels have been declining in certain markets in recent years due to factors outside our control, including the pace of new housing construction, macroeconomic conditions, and, recently, the reluctance of sellers to move due to increases in mortgage costs of new homes and real estate industry businesses that purchase homes for long-term rental or corporate use. This decline has caused more homeowners to remain in their homes, reducing the volume of home sale transactions closed by our brokers and agents. The continuing decline in home inventory levels could have a material adverse effect on our business, financial condition and results of operations.
Consumers may adopt alternatives to full service agents.
A significant change in consumer sales that eliminates or minimizes the role of the agent in the real estate transaction process could have an adverse effect on our business. These options may include direct-buyer companies (also called iBuyers) that purchase directly from the seller at below-market rates in exchange for speed and convenience and then resell them shortly thereafter at market prices, and discounters who reduce the role of the agent in order to offer sellers a low commission or a flat fee while giving rebates to buyers. Consumer preferences regarding buying or selling houses and financing their home purchase will determine if these models reduce or replace the long-standing preference for full-service agents.
We depend on a strong brand, and any failure to maintain, protect and enhance the Douglas Elliman brand would have an adverse effect on our ability to grow our real estate brokerage business.
We have developed a strong brand that we believe has contributed significantly to the success of our business. Maintaining, protecting and enhancing Douglas Elliman as a premium real estate brokerage brand is critical to growing our business. If we do not successfully build and maintain a strong brand, our real estate brokerage business could be negatively impacted. Preserving and increasing the quality of the Douglas Elliman brand may require us to make substantial investments in areas such as marketing, community relations, outreach technology and employee training. Douglas Elliman actively engages in print and online advertisements, social media, targeted promotional mailings and email communications and engages on a regular basis in public relations and sponsorship activities. There is no assurance that those activities will maintain or enhance Douglas Elliman’s brand awareness.
Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity or result in litigation. Some of these incidents may relate to the way we manage our relationship with our agents, our growth strategies or the ordinary course of our business or our brokerage business. Other incidents may arise from events that are or may be beyond our ability to control and may damage our brand, such as actions taken (or not taken) by one
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or more agents relating to health, safety, welfare or other matters; cybersecurity incidents; litigation and claims; failure to maintain high ethical and social standards for all of our operations and activities; failure to comply with local laws and regulations; and illegal activity targeted at Douglas Elliman or others. Douglas Elliman’s brand value could diminish significantly if any such incidents or other matters erode consumer confidence in it.
The failure of third-party vendors or partners to perform as we expect or appropriately manage risks, or our failure to adequately monitor third-party performance, could result in harm to our reputation and generate revenue.
We engage with third-party vendors and partners in a variety of ways, including strategic collaborations and the development and delivery of applications, employing key internal operational processes and critical client systems. In many instances, these third parties are in direct contact with our agents and customers in order to deliver services on our behalf or to fulfill their role in the applicable collaboration. In some instances, these third parties may be in possession of personal information of our customers, agents or employees. In other instances, these third parties may play a critical role in developing products and services central to our business strategy. Our third-party partners may encounter difficulties in the provision of required deliverables or may fail to provide us with timely services, which may delay us, and also may make decisions that may harm us or that are contrary to our best interests, including by pursuing opportunities outside of the applicable Company project or program, to the detriment of such project or program.
If our third-party partners or vendors (or their respective vendors) were to fail to perform as we expect, fail to appropriately manage risks, provide diminished or delayed services to our customers or face cybersecurity breaches of their information technology systems, or if we fail to adequately monitor their performance, our operations and reputation could be materially adversely affected, in particular any such failures related to the development of key products. Depending on the function involved, vendor or third-party application failure or error may lead to increased costs, business disruption, distraction to management, processing inefficiencies, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, effects on financial reporting, loss of customers, damage to our reputation, or litigation, regulatory claims and/or remediation costs (including claims based on theories of breach of contract, vicarious liability, negligence or failure to comply with laws and regulations). Third-party vendors and partners (or their respective vendors) may also fail to maintain or keep adequate levels of insurance, which could result in a loss to us or expose us to litigation. The actions of our third party vendors and unaffiliated third-party developers are beyond our control. We face the same risks with respect to subcontractors that might be engaged by our third-party vendors and partners or their subcontractors.
The real estate brokerage business in our markets is extremely competitive.
We compete with other multi-office independent real estate organizations and with franchise real estate organizations competing in local areas. Competition is particularly intense in the densely populated metropolitan areas of New York City, South Florida and Los Angeles in which we operate. In addition, in the real estate brokerage industry, new participants face minimal barriers to entry into the market. We also compete for the services of qualified licensed agents. The ability of our brokerage offices to retain agents is generally subject to numerous factors, including the sales commissions they receive, advertising support and perception of brand value.
Our real estate brokerage business depends on the success of our agents.
Our real estate brokerage offices generate revenue in the form of commissions and service fees. Accordingly, our financial results depend upon the operational and financial success of our brokerage offices and our agents. As mentioned above, there is significant competition among brokerage firms for the services of high producing agents and we may be unable to recruit and retain agents.
Contractual obligations related to confidentiality and noncompetition may be ineffective or unenforceable against departing employees.
Our operations are dependent on the efforts, abilities and experience of our employees, and we compete for their services. We have contracts with certain employees that include provisions preventing these persons from competing with us both during and after the term of our employment contracts with them. Enforceability of the non-compete agreements that we have in place is not guaranteed, and contractual restrictions could be breached without discovery or adequate remedies.
On July 9, 2021, President Biden signed an executive order encouraging the Federal Trade Commission (“FTC”) to curtail unfair use of non-compete agreements and other agreements that may unfairly limit worker mobility. While we cannot predict how the initiatives set forth in the executive order will be implemented or, as a result, the impact that the executive order will have on our operations, there is now increased uncertainty regarding the long-term enforceability of our non-compete agreements. In January 2023, the FTC proposed a rule that, if enacted, would prohibit employers from entering into non-compete clauses with workers and require employers to rescind existing non-complete clauses.
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Douglas Elliman is subject to risks and operational limitations associated with its strategic alliance with Knight Frank Residential.
Douglas Elliman has entered into a strategic alliance with Knight Frank Residential, the world’s largest privately-owned property consultancy, to market certain luxury residential properties of at least $2 million to international audiences through co-branded offices, located in the various luxury markets where Douglas Elliman operates, and select top-tier agents. The agreement provides for sharing of commissions and certain other payments in respect of jointly marketed properties. This strategic alliance subjects Douglas Elliman to a number of risks, including risks associated with the sharing of proprietary information between parties, non-performance by Douglas Elliman or Knight Frank Residential of obligations under the strategic alliance agreement, disputes over strategic or operational decisions or other matters and reputational risks, as well as litigation risks associated therewith. In particular, Douglas Elliman is subject to certain exclusivity and non-compete provisions in connection with marketing and selling properties outside the United States in various markets in which Knight Frank Residential operates, subject to certain exceptions. Although Douglas Elliman believes that the strategic alliance enhances its ability to serve its luxury customers, such restrictions could limit Douglas Elliman’s growth prospects.
Any decrease in our gross commission income or the percentage of commissions that we collect may harm our business, results of operations and financial condition. Our gross commission income or the percentage of commissions that we collect may decline.
Our business model depends upon our agents’ success in generating gross commission income, which we collect and from which we pay to them net commissions. Real estate commission rates vary somewhat by market, and although historical rates have been relatively consistent over time across markets, there can be no assurance that prevailing market practice will not change in a given market, or across the industry, in the future. Customary commission rates could change due to market forces locally or industry-wide, as well as due to regulatory or legal changes in such markets, including as a result of litigation or enforcement actions. See "Industry structure changes that disrupt the functioning of the residential real estate market could materially adversely affect our operations and financial results."
In addition, there can be no assurance that we will be able to maintain the percentage of commission income that we collect from our agents. If industry conditions change, we may be forced to reduce the percentage of commissions that we collect from our agents.
Negligence or intentional actions of real estate agents engaged by us could materially and adversely affect our reputation and subject us to liability.
Our operations rely on the performance of real estate agents. If our agents were to provide lower quality services to our customers or engage in negligent or intentional misconduct, our image and reputation could be materially adversely affected. In addition, we could also be subject to litigation and regulatory claims arising out of their performance of brokerage services, which if adversely determined, could result in substantial financial or legal penalties.
There may be adverse financial and operational consequences to us if independent real estate agents are reclassified as employees.
Although the legal relationship between residential real estate brokers and licensed real estate agents throughout most of the real estate industry historically has been that of independent contractor, newer rules and interpretations of state and federal employment laws and regulations, including those governing employee classification and wage and hour regulations in our and other industries, may impact industry practices and our company owned brokerage operations.
Significant agent reclassification determinations in the absence of available exemptions from minimum wage or overtime laws, including damages and penalties for prior periods (if assessed), could be disruptive to our business or constrain our operations in certain jurisdictions.
We may not be able to maintain or establish relationships with multiple listing services (“MLSs”) and third-party listing services, which could limit the information we are able to provide to our agents and clients.
Our ability to attract agents and to appeal to clients depends upon providing a robust number of listings. To provide these listings, we maintain relationships with multiple listing services and other third-party listing providers and aggregators, as well as our agents themselves to include listing data in our services. Certain of our agreements with real estate listing providers are short-term agreements that may be terminated with limited notice. The loss of some of our existing relationships with listing providers, whether due to termination of agreements or otherwise, changes to our rights to use listing data, or an inability to continue to add new listing providers, may cause our listing data to omit information important to our agents or clients. Any
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loss or changes to our rights to use listing data or add listings, or any similar loss of rights in the markets we serve, could negatively impact agent and client confidence in the listing data we provide and reduce our ability to attract and retain agents.
Industry structure changes that disrupt the functioning of the residential real estate market could materially adversely affect our operations and financial results.
Through our brokerages, we participate in MLS and are a member of the NAR and state real estate associations and, accordingly, are subject to each group’s rules, policies, data licenses, and terms of service. The rules of each MLS to which we belong can vary widely and are complex.
From time to time, certain industry practices, including NAR and MLS rules, have come under regulatory scrutiny. There can be no assurances as to whether the Department of Justice (the “DOJ”) or FTC, their state counterparts, or other governmental body will determine that any industry practices or developments have an anti-competitive effect on the industry. Any such determination could result in industry investigations, legislative or regulatory action, private litigation or other actions, any of which could have the potential to disrupt our business.
On July 1, 2021, the DOJ announced its withdrawal from a settlement agreement reached during the prior administration with the NAR in relation to claims of anticompetitive behavior with respect to commissions received by buyers’ agents from sellers’ agents. The settlement previously required NAR to adopt certain rule changes, such as increased disclosure of commission offers from sellers’ agents to buyers’ agents. In January 2023, a federal court ruled that the DOJ must uphold the settlement agreement, although the ruling may be appealed. Although we did not experience a material erosion of our commission percentage rates from 2017 and 2021, the withdrawal of the DOJ from this settlement and the executive order signed by President Biden on July 9, 2021, which, among other things, directs the Federal Trade Commission to consider additional rule making pertaining to the real estate industry indicates increased regulatory scrutiny of the real estate industry. In addition, private litigants have filed multiple antitrust suits against NAR, some of which the DOJ has intervened in, that allege certain NAR and MLS rules are anti-competitive and result in increased costs to consumers. This litigation or subsequent regulatory action, if successful, could result in significant changes or disruptions to industry practices of the residential real estate market, including changes or disruptions to buyer's agent's commissions, and could negatively affect our financial condition and results of operations. Such increased focus may reduce the fees we receive, require additional expenditure, or distract our management’s attention from pursuing our growth strategy.
We could experience meaningful changes in industry operations or structure, as a result of governmental pressures, the result of litigation, changes to NAR or MLS rules, the actions of certain competitors or the introduction or growth of certain competitive models.
Infringement, misappropriation or dilution of the intellectual property of Douglas Elliman could harm our business.
We believe the trademark portfolio of Douglas Elliman has significant value and is an important factor in the marketing of our brand. We believe that this and other intellectual property are valuable assets that are critical to our success. We rely on a combination of protections provided by contracts, as well as copyright, trademark, and other laws, to protect our intellectual property from infringement, misappropriation or dilution. We have registered certain trademarks and service marks and have other trademark and service mark registration applications pending in the U.S. and foreign jurisdictions. Although we monitor our trademark portfolio both internally and through external search agents and impose an obligation on agents to notify us upon learning of potential infringement, there can be no assurance that we will be able to adequately maintain, enforce and protect our trademarks or other intellectual property rights.
We are not aware of any challenges to our right to use any of our brand names or trademarks. We are commonly involved in numerous proceedings, generally on a small scale, to enforce our intellectual property and protect our brand. Unauthorized uses or other infringement of our trademarks or service marks, including ones that are currently unknown to us, could diminish the value of our brand and may adversely affect our business. Failure to adequately protect our intellectual property rights could damage our brand and impair our ability to compete effectively. Even where we have effectively secured statutory protection for our trademarks and other intellectual property, our competitors may misappropriate our intellectual property. Defending or enforcing our trademark rights, branding practices and other intellectual property, and seeking an injunction and/or compensation for misappropriation of confidential information, could result in the expenditure of significant resources and divert the attention of management.
Moreover, unauthorized third parties may use Douglas Elliman’s intellectual property to trade on the goodwill of our brand, resulting in consumer confusion or dilution. Any reduction of our brand’s goodwill, consumer confusion, or dilution is likely to impact sales.
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We rely on licenses to use the intellectual property rights of third parties which are incorporated into our products and services. Failure to renew or expand existing licenses may require us to modify, limit or discontinue certain offerings.
We rely on products, technologies and intellectual property that we license from third parties for use in our services. We cannot assure that these third-party licenses, or support for such licensed products and technologies, will continue to be available to us on commercially reasonable terms, if at all. In the event that we cannot renew and/or expand existing licenses, we may be required to discontinue or limit our use of the products and technologies that include or incorporate licensed intellectual property.
We cannot be certain that our licensors are not infringing the intellectual property rights of others or that our suppliers and licensors have sufficient rights to the technology in all jurisdictions in which we may operate. Some of our license agreements may be terminated by our licensors for convenience. If we are unable to obtain or maintain rights to any of this technology because of intellectual property infringement claims brought by third parties against our suppliers and licensors or against us, or if we are unable to continue to obtain the technology or enter into new agreements on commercially reasonable terms, our ability to develop our services containing that technology could be severely limited and our business could be disrupted or otherwise harmed. Additionally, if we are unable to obtain necessary technology from third parties, we may be forced to acquire or develop alternate technology, which may require significant time and effort and may be of lower quality or performance standards. This would limit and delay our ability to provide new or competitive offerings and increase our costs. If alternate technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our offerings.
We rely on traffic to our websites, including our flagship website, elliman.com, directed from search engines. If these websites fail to rank prominently in unpaid search results, traffic to these websites could decline and our business would be adversely affected.
Our success depends in part on our ability to attract users through unpaid internet search results on search engines. The number of users we attract to our websites, including our flagship website elliman.com, from search engines is due in large part to how and where our websites rank in unpaid search results. These rankings can be affected by a number of factors, many of which are not under our direct control, and they may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to our websites may not be prominent enough to drive traffic to our websites, and we may not know how or otherwise be in a position to influence the results. In some instances, search engine companies may change these rankings in order to promote their own competing services or the services of one or more of our competitors. Our websites have experienced fluctuations in search result rankings in the past, and we anticipate fluctuations in the future. Any reduction in the number of users directed to our websites could adversely affect our real estate brokerage business and results of operations. Further, a failure of our websites or website-based technology, either due to malfunction, outside intrusion through hacking or otherwise, could significantly disrupt our business and lead to reduced revenue and reputational damage as we may not be able to effectively scale and adapt our existing technology and network infrastructure to ensure our platforms are accessible.
Cybersecurity incidents could disrupt our business operations or could result in the loss of critical and confidential information, which may adversely impact our reputation and harm our business.
Global cybersecurity threats and incidents can range from uncoordinated individual attempts that gain unauthorized access to information technology systems, both internally and externally, to sophisticated and targeted measures, known as advanced persistent threats, directed at us and our affiliated agents. In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and intellectual property, and personally identifiable information of our customers. Additionally, we increasingly rely on third-party providers, including cloud storage solution providers. The secure processing, maintenance and transmission of this information are critical to our operations and with respect to information collected and stored by our third-party service providers, we are reliant upon their security procedures. Our systems and the confidential information on them may also be compromised by employee misconduct or employee error. We and our third-party service providers have experienced, and expect to continue to experience, these types of internal and external threats and incidents, which can result, and have resulted, in the misappropriation and unavailability of critical data and confidential or proprietary information (our own and that of third parties, including personally identifiable information), the disruption of business operations and the loss of funds. For example, in April 2021, we determined that an unauthorized party gained access to Douglas Elliman Property Management’s IT network, temporarily disrupted business operations and obtained certain files that contained personal information pertaining to owners and others in buildings managed by and employees of Douglas Elliman Property Management. Douglas Elliman Property Management took steps to secure its systems, contacted law enforcement, investigated and enhanced its security protocols to help prevent a similar incident from occurring in the future. Depending on their nature and scope, these incidents could potentially also result in the destruction or corruption of such data and information. Our business interruption insurance may be insufficient to compensate us for losses that may occur. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution
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in the value of the services we provide to our customers, increased cybersecurity protection and remediation costs, business disruption and the loss of funds or revenue which in turn could adversely affect our competitiveness and results of operations. Developments in the laws and regulations governing the handling and transmission of personal identifying information in the United States may require us to devote more resources to protecting such information.
Some of our products and services contain open source software, which may pose particular risks to our proprietary software, products, and services.
We use open source software in our products and services and anticipate using open source software in the future. Some open source software licenses require those who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open source code on unfavorable terms or at no cost, and we may be subject to such terms. The terms of certain open source licenses to which our business is subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. Additionally, we could face claims from third parties alleging ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. The use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage.
We may fail to successfully complete or integrate acquisitions and joint ventures into our existing operations, or to complete or effectively manage divestitures.
We regularly review and evaluate potential acquisitions, joint ventures, divestitures, and other strategic transactions. Potential issues associated with these activities could include, among other things: our ability to complete or effectively manage such transactions on terms commercially favorable to us or at all; our ability to realize the full extent of the expected returns, benefits, cost savings or synergies as a result of a transaction, within the anticipated time frame, or at all; and diversion of management’s attention from day-to-day operations. In addition, the success of any future acquisition strategy we may pursue will depend upon our ability to fund such acquisitions given our total outstanding indebtedness, find suitable acquisition candidates on favorable terms and for target companies to find our acquisition proposals more favorable than those made by other competitors. We may not be able to complete or integrate an acquisition or joint venture into our existing operations (including our internal controls and compliance environment), or complete, manage or realize cost savings from a divestiture.
Risks Associated with our PropTech Investments
There are risks inherent in PropTech Investments.
Our PropTech investments involve a high degree of risk. In general, financial and operating risks confronting portfolio companies can be significant. While targeted returns should reflect the perceived level of risk in any investment, there can be no assurance that New Valley Ventures will be adequately compensated for risks taken, and the loss of its entire investment is possible. The investments may be difficult to value, and the timing of any profit realization is highly uncertain. Losses are likely to occur.
Early-stage and development-stage companies often experience unexpected problems in the areas of product development, manufacturing, marketing, financing and general management, which, in some cases, cannot be adequately solved. In addition, such companies may require substantial amounts of financing which may not be available through institutional private placements or the public markets. The percentage of companies that survive and prosper can be small.
Investments in more mature companies in the expansion or profitable stage also involves substantial risks. Such companies typically have obtained capital in the form of debt and/or equity to expand rapidly, reorganize operations, acquire other businesses, or develop new products and markets. These activities by definition involve a significant amount of change in a company and could give rise to significant problems in sales, manufacturing, and general management of these activities.
We may engage in business activities that could result in us holding investment interests in a number of entities which could subject us to regulation under the Investment Company Act of 1940.
Although we are subject to regulation under the Securities Act and the Exchange Act, we believe we are not subject to regulation under the Investment Company Act of 1940 (the “Investment Company Act”) insofar as we are not engaged in the business of investing or trading in securities within the definitions and parameters which would make us subject to the Investment Company Act, or holding unconsolidated minority interests in multiple companies and cash that might fall within the “holding company” definitions under the Investment Company Act. We maintain controls and procedures designed to
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ensure that we will not be subject to regulation under the Investment Company Act. In the event we engage in business activities that result in us holding minority interests in a number of nonconsolidated entities with significant value, we might become subject to regulation under the Investment Company Act. In such event, we would be required to register as an investment company and incur significant registration and compliance costs. Additionally, the Investment Company Act requires that a number of structural safeguards, such as an independent board of directors and a separate investment adviser whose contract must be approved by a majority of our stockholders, be put in place within such companies. The Investment Company Act also imposes significant disclosure and reporting requirements beyond those found in the Securities Act and the Exchange Act. Likewise, the Investment Company Act contains its own anti-fraud provisions and private remedies, and it strictly limits investments made by one investment company in another to prevent pyramiding of investment companies, leading to consolidated investment companies acting in the interest of other investment companies rather than in the interest of securities holders. Regulation of Douglas Elliman as an investment company would significantly impair our business plan and operations.
Risks Relating to Our Structure and Other Business Risks
Our quarterly results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.
Our results of operations have fluctuated in the past and are likely to fluctuate significantly from quarter-to-quarter and year-to-year in the future for a variety of reasons, many of which are outside of our control and difficult to predict. As a result, you should not rely upon our historical results of operations as indicators of future performance. Numerous factors can influence our results of operations, including:
◦our ability to attract and retain agents;
◦our ability to develop innovative solutions and offer new services on our platform;
◦ changes in interest rates or mortgage underwriting standards;
◦ the actions of our competitors;
◦ costs and expenses related to the strategic acquisitions, investments and joint ventures;
◦increases in and timing of operating expenses that we may incur to grow and expand our operations and to remain competitive;
◦changes in the legislative or regulatory environment, including with respect to real estate commission rates and disclosures;
◦system failures or outages, or actual or perceived breaches of security or privacy, and the costs associated with preventing, responding to, or remediating any such outages or breaches;
◦adverse judgments, settlements, or other litigation-related costs and the fees associated with investigating and defending claims;
◦the overall tax rate for our business and the impact of any changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period;
◦the application of new or changing financial accounting standards or practices; and
◦changes in real estate market conditions;
◦changes in regional or national business or macroeconomic conditions, including as a result of a pandemic, which may impact the other factors described above.
In addition, our results of operations are tied to certain key business metrics and non-GAAP financial measures that have fluctuated in the past and are likely to fluctuate in the future. As a result of such variability, our historical performance, including from recent quarters or years, may not be a meaningful indicator of future performance and period-to-period comparisons also may not be meaningful.
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We are a holding company and depend on cash payments from our subsidiaries in order to pay dividends on our common stock.
We are a holding company and have no operations of our own. We hold our interests in our business through our wholly-owned subsidiaries. In addition to our own cash resources, our ability to pay dividends on our common stock depends on the ability of our subsidiaries to make cash available to us. Our receipt of cash payments, as dividends or otherwise, from our subsidiaries is an important source of our liquidity and capital resources. If we do not have sufficient cash resources of our own and do not receive payments from our subsidiaries in an amount sufficient to repay our debts and to pay dividends on our common stock, we must obtain additional funds from other sources. There is a risk that we will not be able to obtain additional funds at all or on terms acceptable to us. Our inability to continue to pay dividends on our common stock would significantly harm us and the value of our common stock.
Our liquidity could be adversely affected by conditions in the financial markets or the negative performance of financial institutions.
Our available cash and cash equivalents are held in accounts with or managed by financial institutions and consist of cash in our operating accounts and cash and cash equivalents invested in money market funds. The amount of cash in our operating accounts exceeds the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor our accounts regularly and adjust our balances as appropriate, the valuation of or our access to these accounts could be negatively impacted if the underlying financial institutions fail or become subject to other adverse conditions in the financial markets. The operations of U.S. and global financial services institutions are interconnected and the performance and financial strength of specific institutions are subject to rapid change, the timing and extent of which cannot be known. To date, we have experienced no material realized losses on or lack of access to our cash held in operating accounts or our invested cash or cash equivalents, however, we can provide no assurances that access to our cash held in operating accounts or our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets or the negative performance of financial institutions.
Our property management and ancillary real estate services businesses also manage assets owned by our clients in accounts with financial institutions where deposits routinely exceed the FDIC insurance limits. Should the financial institutions with which these assets are deposited experience insolvency or other financial difficulties, access to such deposits could be limited, deposit insurance may be inadequate and we could be exposed to liability from our clients and our relationships with our agents and with our clients could be negatively impacted. Any of these events would negatively impact our liquidity, results of operations and our reputation.
Goodwill and indefinite-lived intangible asset impairment charges may adversely affect our operating results and financial condition.
We have a substantial amount of goodwill and other intangible assets on our balance sheet, primarily comprised of goodwill and trademarks. Goodwill, trademarks and other identifiable intangible assets must be tested for impairment at least annually. The fair value of the goodwill assigned to a reporting unit could decline if projected revenues or cash flows were to be lower in the future due to the effects of the global economy or other causes. If the carrying value of intangible assets or of goodwill were to exceed its fair value, the asset would be written down to its fair value, with the impairment loss recognized as a non-cash charge in our combined consolidated statement of operations.
As of December 31, 2022, we had approximately $32.2 million of goodwill and $73.7 million of trademarks and other intangible assets related to Douglas Elliman. During the first quarter of 2020, we determined that a triggering event occurred related to Douglas Elliman due to a decline in sales and profitability projections for the reporting unit driven by the COVID-19 pandemic and related economic disruption. We utilized third-party valuation specialists to prepare a quantitative assessment of goodwill and trademark intangible assets related to Douglas Elliman. The quantitative assessments resulted in impairment charges to goodwill of $46.3 million and to the trademark intangible asset of $12.0 million. Changes in our future outlook of the Douglas Elliman Realty, LLC reporting unit could result in an impairment loss.
Investors’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
There is an increasing focus from certain investors, employees and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance factors. Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement of corporate responsibility performance. The criteria by which companies’ corporate responsibility practices are assessed may change, which could result in greater expectations of us and
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cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate. We may face reputational damage in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies.
Furthermore, if our competitors’ corporate responsibility performance is perceived to be greater than ours, potential or current investors may elect to invest with our competitors instead. In addition, in the event that we communicate certain initiatives and goals regarding environmental, social and governance matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. We may fail to satisfy the expectations of investors, employees and other stakeholders or execute our initiatives as planned.
We are periodically subject to claims, lawsuits, government investigations and other proceedings.
We may be subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedings in the ordinary course of business, including those involving labor and employment, anti- discrimination, commercial disputes, competition, professional liability and consumer complaints, intellectual property disputes, compliance with regulatory requirements, antitrust and anti-competition claims (including claims related to NAR or MLS rules regarding buyer-broker commissions), securities laws and other matters, and we may become subject to additional types of claims, lawsuits, government investigations and legal or regulatory proceedings if the regulatory landscape changes or as our business grows and as we deploy new offerings, including proceedings related to our acquisitions, securities issuances or business practices.
The results of any such claims, lawsuits, arbitration proceedings, government investigations or other legal or regulatory proceedings cannot be predicted with certainty. Any claims against us or investigations involving us, whether meritorious or not, could be time-consuming, result in significant defense and compliance costs, be harmful to our reputation, require significant management attention and divert significant resources. Determining reserves for our pending litigation is a complex and fact-intensive process that requires significant subjective judgment and speculation. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines and penalties that could adversely affect our business, financial condition and results of operations. These proceedings could also result in harm to our reputation and brand, sanctions, consent decrees, injunctions or other orders requiring a change in our business practices. Any of these consequences could adversely affect our business, financial condition and results of operations. Furthermore, under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of our business and commercial partners and current and former directors, officers and employees.
Adverse decisions in litigation or regulatory actions against companies unrelated to us could impact our business practices.
Litigation, investigations, claims and regulatory proceedings against other participants in the residential real estate or relocation industry may impact us when the rulings or settlements in those cases cover practices common to the broader industry and which may generate litigation. Examples may include claims associated with Real Estate Settlement Procedures Act (“RESPA”) compliance (including, but not limited to, those related to the broker-to-broker exception, marketing agreements or consumer rebates), broker fiduciary duties, multiple listing service practices, sales agent classification, federal and state fair housing laws, and state laws limiting or prohibiting inducements, cash rebates and gifts to consumers. Similarly, we may be impacted by litigation and other claims against companies in other industries. To the extent plaintiffs are successful in these types of litigation matters, and we cannot distinguish our or their practices (or our industry’s practices), we could face significant liability and could be required to modify certain business relationships.
Some of our potential losses may not be covered by insurance. We may not be able to obtain or maintain adequate insurance coverage.
We maintain insurance to cover costs and losses from certain risk exposures in the ordinary course of our operations, but our insurance does not cover all of the costs and losses from all events. We are responsible for certain retentions and deductibles that vary by policy, and we may suffer losses that exceed our insurance coverage limits by a material amount. We may also incur costs or suffer losses arising from events against which we have no insurance coverage. In addition, large-scale market trends or the occurrence of adverse events in our business may raise our cost of procuring insurance or limit the amount or type of insurance we are able to secure. We may not be able to maintain our current coverage, or obtain new coverage in the future, on commercially reasonable terms or at all.
Our fraud detection processes and information security systems may not successfully detect all fraudulent activity by third parties aimed at our employees or agents.
We make a large number of wire transfers in connection with loan and real estate closings and process sensitive personal data in connection with these transactions. Although we have sophisticated fraud detection processes and have taken
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other measures to continuously improve controls to identify fraudulent activity, we have not been and may not be able to detect and prevent all such activity. Persistent or pervasive fraudulent activity may cause agents or clients to lose trust in us and decrease or terminate their usage of our platform.
If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned and our stock price may suffer.
Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting requirements of the U.S. securities laws to conduct a comprehensive evaluation of its and its consolidated subsidiaries’ internal control over financial reporting. To comply with this statute, we are required to document and test our internal control procedures, our management is required to assess and issue a report concerning its internal control over financial reporting, and our independent auditors are required to issue an opinion on our internal controls over financial reporting. The rules governing the standards that must be met for management to assess its internal control over financial reporting are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal control over financial reporting or our auditors identify material weaknesses in our internal controls, investor confidence in our financial results may weaken, and our stock price may suffer.
Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have an adverse effect on our reported results.
Generally accepted accounting principles in the United States of America, or GAAP, and related accounting pronouncements, implementation guidance and interpretations with regard to a wide range of matters, such as revenue recognition, lease accounting, stock-based compensation, asset impairments, valuation reserves, income taxes and the fair value and associated useful lives of acquired long-lived assets, intangible assets and goodwill, are highly complex and involve many subjective assumptions, estimates and judgments made by management. Changes in these rules or their interpretations or changes in underlying assumptions, estimates or judgments made by management could significantly change our reported results.
Risks Relating to the Distribution
Following the Distribution, we are materially dependent on Vector Group’s performance under various agreements.
We entered into various agreements with Vector Group related to the Distribution, including a Distribution Agreement, a Tax Disaffiliation Agreement, a Transition Services Agreement, an Employee Matters Agreement and Aviation Agreements.
These agreements included the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to, at and after the Distribution. In connection with the Distribution, we provided Vector Group with indemnities with respect to liabilities arising out of our business, and Vector Group provided us with indemnities with respect to liabilities arising out of the business retained by Vector Group.
Vector Group provides Douglas Elliman with certain business services that were performed by Vector Group prior to the Distribution, such as information technology, accounts payable, payroll, tax, certain legal and accounting functions, human resources, insurance and risk management, government affairs, investor relations, corporate communications, benefit plan administration and reporting, and internal audit functions as well as certain marketing functions. These services include the collection and storage of certain personal information regarding employees and/or customers as well as information regarding Douglas Elliman, Vector Group and our counter-parties. We pay Vector Group $350,000 per month for these services as well as office space and secretarial and administrative services provided to members of our management team.
Douglas Elliman relies on Vector Group to perform its obligations under all of these agreements. If Vector Group were to breach or be unable to satisfy its material obligations under these agreements, including a failure to satisfy its indemnification or other financial obligations, or these agreements otherwise terminate or expire and we do not enter into replacement agreements, we could suffer operational difficulties and/or significant losses.
The Distribution could result in significant tax liability.
Vector Group obtained an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, and subject to the assumptions and limitations described therein, the distribution by Vector Group of our common stock to the
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holders of Vector Group common stock will qualify as a tax-free distribution under the Internal Revenue Code of 1986, as amended. Accordingly, for U.S. federal income tax purposes, the Distribution, excluding the distribution of our common stock with respect to Vector Group stock option awards and restricted stock awards, together with certain related transactions is not expected to result in the recognition of gain to Vector Group with respect to the distribution of our common stock to the Vector Group stockholders in respect of such Vector Group common stock and, except to the extent a stockholder received cash in lieu of fractional shares of our common stock, no income, gain or loss will be recognized by, and no amount will be included in the income of such holder upon the receipt of shares of our common stock pursuant to the Distribution. The opinion will not be binding on the Internal Revenue Service or the courts and there can be no assurance that the IRS will not challenge the validity of the Distribution and such related transactions as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code eligible for tax-free treatment, or that any such challenge ultimately will not prevail. Certain transactions related to the Distribution that are not addressed by the opinion could result in the recognition of income or gain by Vector Group.
The opinion of Sullivan & Cromwell was based on, among other things, certain assumptions as well as on the continuing accuracy of certain factual representations and statements that we and Vector Group made to Sullivan & Cromwell. In rendering its opinion, Sullivan & Cromwell also relied on certain covenants that we and Vector Group entered into, including the adherence by us and by Vector Group to certain restrictions on future actions contained in the Tax Disaffiliation Agreement. If any of the representations or statements that we or Vector Group made are or become inaccurate or incomplete, or if we or Vector Group breach any of such covenants, the Distribution and such related transactions might not qualify for such tax treatment. See our Registration Statement on Form S-1, initially filed on December 7, 2021, “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.”
The opinion and above discussed consequences do not apply to the distribution of our common stock with respect to Vector Group stock option awards and restricted stock awards.
If the Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes for any reason, including as a result of a breach of a representation or covenant, then, generally, Vector Group would recognize a substantial gain for U.S. federal income tax purposes. In addition, the receipt by Vector Group stockholders of common stock of ours would be a taxable distribution, and each U.S. holder that receives our common stock in the Distribution would be treated as if the U.S. holder had received a distribution equal to the fair market value of our common stock that was distributed to it, which generally would be treated first as a taxable dividend to the extent of such holder’s pro rata share of Vector Group’s earnings and profits, then as a non-taxable return of capital to the extent of the holder’s tax basis in its Vector Group common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to Vector Group stockholders and Vector Group would be substantial. See our Registration Statement on Form S-1, initially filed on December 7, 2021, “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.”
We may have a significant indemnity obligation to Vector Group if the Distribution is treated as a taxable transaction.
We entered into a Tax Disaffiliation Agreement with Vector Group, which sets out each party’s rights and obligations with respect to federal, state, local or foreign taxes for periods before and after the Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify Vector Group for its losses and taxes resulting from the breach of certain covenants and for certain taxable gain recognized by Vector Group, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify Vector Group under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities.
The tax rules applicable to the Distribution may restrict us from engaging in certain corporate transactions or from raising equity capital beyond certain thresholds for a period of time after the Distribution.
The U.S. federal income tax laws that apply to transactions like the Distribution generally create a presumption that the Distribution would be taxable to Vector Group (but not to Vector Group stockholders) if we engage in, or enter into an agreement to engage in, an acquisition of all or a significant portion of our common stock beginning two years before the Distribution date, unless it is established that the transaction is not pursuant to a plan or series or transactions related to the Distribution. U.S. Treasury regulations currently in effect generally provide that whether an acquisition transaction and a distribution are part of a plan is determined based on all of the facts and circumstances, including specific factors listed in the Treasury regulations. In addition, these Treasury regulations provide several “safe harbors” for acquisition transactions that are not considered to be part of a plan that includes a distribution.
Pursuant to the Tax Disaffiliation Agreement, we have allocated, between Vector Group and ourselves, responsibility for U.S. federal as well as state and local income and other taxes relating to taxable periods before and after the Distribution and provided for computing and apportioning tax liabilities and tax benefits between the parties. In the Tax Disaffiliation
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Agreement, we agreed that, among other things, we may not take, or fail to take, any action following the Distribution if such action or failure to act would be inconsistent with or prohibit the Distribution and certain related transactions from qualifying as a tax-free reorganization under Sections 368(a)(1)(D) and 355 and related provisions of the Code to Vector Group and Vector Group stockholders (except with respect to the receipt of cash in lieu of fractional shares of Vector Group stock).
To preserve the tax-free treatment of the Distribution to Vector Group and its stockholders, under the Tax Disaffiliation Agreement with Vector Group, for the two-year period following the Distribution, we are subject to restrictions with respect to:
•entering into any transaction pursuant to which 35% or more of our shares or 50% or more of our assets would be acquired, whether by merger or otherwise, unless certain tests are met;
•issuing equity securities, if any such issuances would, in the aggregate, constitute 35% or more of the voting power or value of our capital stock;
•certain repurchases of our common shares;
•ceasing to actively conduct our business;
•selling or otherwise disposing of assets outside the ordinary course of business or materially changing the manner of operating our business;
•amendments to our organizational documents (i) affecting the relative voting rights of our stock or (ii) converting one class of our stock to another;
•liquidating or partially liquidating; and
•taking any other action that prevents the Distribution and certain related transactions from being tax-free.
These restrictions may limit our ability during such period to pursue strategic transactions of a certain magnitude that involve the issuance or acquisition of our stock or engage in new businesses or other transactions that might increase the value of our business. These restrictions may also limit our ability to raise significant amounts of cash through the issuance of stock, especially if our stock price were to suffer substantial declines, or through the sale of certain of our assets. We also agreed to indemnify Vector Group for certain tax liabilities resulting from any such transactions. Further, our stockholders may consider these covenants and indemnity obligations unfavorable as they might discourage, delay or prevent a change of control. For more information, see our Registration Statement on Form S-1 initially filed on December 7, 2021 and the sections entitled “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution” and “Certain Relationships and Related Party Transactions — Relationship Between Vector Group and Us After the Distribution — Tax Disaffiliation Agreement.”
We share certain key directors and officers with Vector Group, which means those officers do not devote their full time and attention to our affairs and the overlap may give rise to conflicts.
Following the Distribution, there is an overlap between certain key directors and officers of ours and of Vector Group. Howard M. Lorber serves as our President and Chief Executive Officer and of Vector Group. Richard J. Lampen serves as our Chief Operating Officer and of Vector Group, J. Bryant Kirkland III serves as our Chief Financial Officer and Treasurer and of Vector Group, Marc N. Bell serves as our General Counsel and Secretary and of Vector Group, and J. David Ballard serves as our Senior Vice President, Enterprise Efficiency and Chief Technology Officer and of Vector Group. As a result, not all of our executive officers devote their full time and attention to our affairs. In addition, three members of our Board, Messrs. Lorber, Lampen and White, are also directors of Vector Group. These overlap persons may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. For example, there will be the potential for a conflict of interest when we on the one hand, and Vector Group and its respective subsidiaries and successors on the other hand, are party to commercial transactions concerning the same or adjacent real property investments. In addition, after the Distribution, certain of our directors and officers continue to own stock and/or stock options or other equity awards of Vector Group. These ownership interests could create actual, apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for our Company and Vector Group. Concurrently, we depend on the efforts of these and other executive officers and other key personnel. While we believe that we could find replacements for these key personnel, the loss of their services could have a significant adverse effect on our operations.
Our overlapping directors and officers with Vector Group may result in the diversion of corporate opportunities to Vector Group, and other conflicts and provisions in our amended and restated certificate of incorporation may provide us no remedy in that circumstance.
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Our amended and restated certificate of incorporation acknowledges that directors and officers of ours may also be serving as directors, officers, employees or agents of Vector Group or any subsidiary thereof, and that we may engage in material business transactions with Vector Group. We renounced our rights to certain business opportunities and our amended and restated certificate of incorporation provides that no overlap person will be liable to us or our stockholders for breach of any fiduciary duty that would otherwise occur by reason of the fact that any such individual directs a corporate opportunity (other than certain limited types of opportunities set forth in our amended and restated certificate of incorporation) to Vector Group or any subsidiary thereof instead of us, or does not refer or communicate information regarding such corporate opportunities to us. These provisions in our amended and restated certificate of incorporation also expressly validate certain contracts, agreements, arrangements and transactions (and amendments, modifications or terminations thereof) between us and Vector Group and, to the fullest extent permitted by law, provide that the actions of the overlap persons in connection therewith are not breaches of fiduciary duties owed to us, any of its subsidiaries or their respective stockholders.
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 2.PROPERTIES
Our principal executive offices are located in Miami, Florida.
Douglas Elliman leases 128 offices and its leases expire at various times between 2023 and 2033. As of December 31, 2022, the properties leased by Douglas Elliman are as follows:
| Type | Number of Offices | Location | Owned or Leased | Approximate Total Square Footage | ||||||||||||||||||||||
| Offices | 27 | New York City, NY | Leased | 255,000 | ||||||||||||||||||||||
| Offices | 38 | Long Island, NY | Leased | 123,000 | ||||||||||||||||||||||
| Offices | 20 | Florida | Leased | 52,000 | ||||||||||||||||||||||
| Offices | 4 | Westchester County, NY | Leased | 7,000 | ||||||||||||||||||||||
| Offices | 16 | California | Leased | 85,000 | ||||||||||||||||||||||
| Offices | 23 | Other | Leased | 47,500 | ||||||||||||||||||||||
ITEM 3.LEGAL PROCEEDINGS
Reference is made to Note 14 to our combined consolidated financial statements included elsewhere in this report which is incorporated by reference and contains a general description of certain legal proceedings to which we, or our subsidiaries, are a party and certain related matters.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed and traded on the New York Stock Exchange under the symbol “DOUG.” At February 23, 2023, there were approximately 1,172 holders of record of our common stock.
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Performance Graph
The following graph compares the cumulative total annual return of our Common Stock, the S&P 500 Index, the S&P Small Cap 600 Index, and our Peer Group Index by assuming that $100 was invested in each investment as of December 30, 2021, which represents the day our common stock began trading on the NYSE, and that all cash dividends and distributions were reinvested.
We are a constituent of the S&P 600 SmallCap Index and selected it and the S&P 500 as our broad-based market indices and our Peer Group Index as a group of peer companies.
Our Peer Group Index consists of Anywhere Real Estate Inc. (HOUS), Compass, Inc. (COMP), Zillow Group, Inc. (ZG), loanDepot, Inc. (LDI), Opendoor Technologies Inc. (OPEN), Colliers International Group Inc. (CIGI), eXp World Holdings, Inc. (EXPI), Stewart Information Services Corporation (STC), Newmark Group, Inc. (NMRK), Redfin Corporation (RFIN), Offerpad Solutions Inc. (OPAD), Radian Group Inc. (RDN), Walker & Dunlop Inc. (WD), Lending Tree, Inc. (TREE), Marcus & Millichap, Inc. (MMI), Doma Holdings Inc. and RE/MAX Holdings, Inc. (RMAX). We selected our Peer Group Index based on the peer group used by our compensation and human committee, as recommended by its outside consultant, which consists of 17 publicly traded, national and regional companies conducting business in the real estate and financial services industry.
The chart does not reflect the Company’s forecast of future financial performance.
| 12/30/21 | 12/31/21 | 12/31/22 | |||||||||
| Douglas Elliman Inc. | 100 | 95 | 35 | ||||||||
| S&P 500 | 100 | 100 | 82 | ||||||||
| S&P 600 | 100 | 100 | 84 | ||||||||
| Peer Group Index | 100 | 100 | 41 | ||||||||
Unregistered Sales of Equity Securities and Use of Proceeds
No securities of ours which were not registered under the Securities Act of 1933 were issued or sold by us during the three months ended December 31, 2022.
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Issuer Purchase of Equity Securities
Our purchases of our common stock during the three months ended December 31, 2022 were as follows:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||
| October 1 to October 31, 2022 | — | $ | — | — | — | ||||||||||||||||||
| November 1 to November 30, 2022 | — | — | — | — | |||||||||||||||||||
| December 1 to December 31, 2022 | 367,141 | 3.99 | (1) | — | — | ||||||||||||||||||
| Total | 367,141 | $ | 3.99 | — | — | ||||||||||||||||||
(1) Represents withholdings of shares as payment of payroll tax liabilities incident to the vesting of an employee’s shares of restricted stock. The shares were immediately canceled.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The table below, together with the accompanying text, presents certain information regarding all our current executive officers as of March 16, 2023. Each of the executive officers serves until the election and qualification of such individual’s successor or until such individual’s death, resignation or removal by the Board of Directors.
| Name | Age | Position | Year Individual Became an Executive Officer | |||||||||||||||||
| Howard M. Lorber | 74 | Chairman, President and Chief Executive Officer | 2021 | |||||||||||||||||
| Richard J. Lampen | 69 | Executive Vice President and Chief Operating Officer | 2021 | |||||||||||||||||
| J. Bryant Kirkland III | 57 | Senior Vice President, Chief Financial Officer and Treasurer | 2021 | |||||||||||||||||
| Marc N. Bell | 62 | Senior Vice President, General Counsel and Secretary | 2021 | |||||||||||||||||
| J. David Ballard | 55 | Senior Vice President, Enterprise Efficiency and Chief Technology Officer | 2021 | |||||||||||||||||
| Scott J. Durkin | 60 | President and Chief Executive Officer, Douglas Elliman Realty, LLC | 2021 | |||||||||||||||||
| Stephen T. Larkin | 53 | Vice President of Communications | 2021 | |||||||||||||||||
| Daniel A. Sachar | 47 | Vice President Innovation and Managing Director of New Valley Ventures LLC | 2021 | |||||||||||||||||
| Lisa M. Seligman | 46 | Vice President of Human Resources | 2023 | |||||||||||||||||
Howard M. Lorber is our Chairman, President and Chief Executive Officer and is Executive Chairman of Douglas Elliman Realty, LLC. He has served as President and Chief Executive Officer of Vector Group since January 2006, and, as a director of Vector Group since January 2001. From November 1994 to December 2005, Mr. Lorber served as President and Chief Operating Officer of New Valley Corporation, where he also served as a director. New Valley was merged into Vector Group in December 2005. Mr. Lorber has served as Chairman of the Board of Directors of Nathan’s Famous, Inc. (NASDAQ: NATH), a chain of fast food restaurants, since 1987 and Chief Executive Officer from November 1993 to December 2006; and a director of Clipper Realty, Inc. (NYSE: CLPR), a real estate investment trust, since July 2015. Mr. Lorber was a member of the Board of Directors of Morgans Hotel Group Co. from March 2015 until November 2016, and Chairman from May 2015 to November 2016 and was Chairman of the Board of Ladenburg Thalmann Financial Services from May 2001 to July 2006 and Vice Chairman from July 2006 to February 2020. He is also a trustee of Long Island University.
Richard J. Lampen is our Executive Vice President and Chief Operating Officer. He was appointed as a director of Vector Group as well as its Chief Operating Officer on January 14, 2021 and has served as Vector Group’s Executive Vice President since 1995. From October 1995 to December 2005, Mr. Lampen served as the Executive Vice President and General Counsel of New Valley, where he also served as a director. From September 2006 to February 2020, he served as President and Chief Executive Officer as well as a director of Ladenburg Thalmann Financial Services. Mr. Lampen also served as Chairman of Ladenburg Thalmann Financial Services from September 2018 to February 2020. From October 2008 to October 2019, Mr. Lampen served as President and Chief Executive Officer as well as a director of Castle Brands Inc.
J. Bryant Kirkland III is our Senior Vice President, Chief Financial Officer and Treasurer. He has served as Chief Financial Officer and Treasurer of Vector Group since April 2006 and as Vector Group’s Senior Vice President since May 2016. Mr. Kirkland served as a Vice President of Vector Group from January 2001 to April 2016 and served as New Valley’s Vice President and Chief Financial Officer from January 1998 to December 2005. He has served since July 1992 in various financial capacities with us, Vector Group, Liggett and New Valley. Mr. Kirkland has served as Chairman of the Board of Directors, President and Chief Executive Officer of Multi Soft II, Inc. and Multi Solutions II, Inc. since July 2012.
Marc N. Bell is our Senior Vice President, General Counsel and Secretary. He has served as Vector Group’s General Counsel and Secretary since May 1994 and Vector Group’s Senior Vice President since May 2016. Mr. Bell served as a Vice President of Vector Group from January 1998 to April 2016. From November 1994 to December 2005, Mr. Bell served as Associate General Counsel and Secretary of New Valley and from February 1998 to December 2005, as a Vice President of New Valley. Mr. Bell previously served as Liggett’s General Counsel and currently serves as an officer, director or manager for many of Vector Group’s and New Valley’s subsidiaries.
J. David Ballard is our Senior Vice President, Enterprise Efficiency and Chief Technology Officer. He has been Vector Group’s Senior Vice President, Enterprise Efficiency and Chief Technology Officer since July 2020 and, from February 2020
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to July 2020, served as a consultant to Vector Group. Prior to joining Vector Group, Mr. Ballard served as Senior Vice President, Enterprise Services of Ladenburg Thalmann Financial Services Inc. from April 2019 to February 2020. Prior to joining Ladenburg, he served as President and Chief Operating Officer for Docupace Technologies, a leading digital operations technology provider in the wealth management space from March 2018 to April 2019. Mr. Ballard was Executive Vice President and Chief Operating Officer at Cetera Financial Group from April 2015 to March 2018. Prior to his role at Cetera, Mr. Ballard spent more than two decades working in executive and management positions at several firms in the independent financial advisory and asset management industries, including AIG Advisor Group, SunAmerica Mutual Funds and AIG Retirement Services.
Scott J. Durkin has served as President of Douglas Elliman since December 2017 and was named as Chief Executive Officer of Douglas Elliman Realty, LLC in August 2021, after serving as Chief Operating Officer since October 2016. His expertise in Douglas Elliman’s markets spans the past three decades. He served as Executive Vice President of Douglas Elliman from January 2016 to October 2016. Prior to 2016, Mr. Durkin enjoyed a 26-year tenure at The Corcoran Group.
Stephen T. Larkin serves as Vice President of Communications. With nearly two decades of experience in the real estate industry, Mr. Larkin is known as a trusted media source for trends in luxury living and market information and analysis. He has served as Executive Vice President and Chief Communications Officer of Douglas Elliman since September 2020, after serving as Vice President of Public Relations from December 2016 to September 2020. Prior to beginning his tenure at Douglas Elliman, Mr. Larkin served as a Director of Relevance International, an international public relations firm, from February 2015 to December 2016. Mr. Larkin previously served as a principal of Larkin Public Relations from October 2005 to February 2013 and a Vice President of The Corcoran Group from August 2003 to October 2005. Mr. Larkin graduated from Wheaton College in Massachusetts and received a Master of Science from the Columbia University Graduate School of Journalism.
Daniel A. Sachar serves as Vice President Innovation and Managing Director of New Valley Ventures. He joined Vector Group in September 2020 as Vice President Innovation after serving as Vice President of Enterprise Innovation at Ladenburg Thalmann Financial Services Inc. from January 2018 to February 2020, after serving as a full-time consultant to Ladenburg Thalmann since October 2015. Mr. Sachar led Ladenburg’s innovation platform, created a new division called the “Innovation Lab” and launched an industry-leading initiative to modernize and grow the nationwide network of independent financial advisors, until February 2020. Prior to joining Ladenburg, he spent seven years in management consulting at a New York-based firm focused on innovation and growth, helping publicly-traded companies launch new businesses. Mr. Sachar received a Bachelor of Arts degree from Swarthmore College and an MBA from Columbia Business School.
Lisa M. Seligman serves as Vice President of Human Resources. Ms. Seligman’s experience includes more than 20 years in Human Resources leadership roles at a diverse group of companies with luxury brand names, which include Dow Jones, Chanel, Shiseido and Tiffany. Most recently, she has served as Vice President and Global Head of HR at Arcade Beauty, a private equity-owned company engaged in the manufacture of sampling materials for the beauty industry.
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ITEM 6.RESERVED
Reserved.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts included herein are presented in thousands, except as otherwise noted)
The following discussion should be read in conjunction with the combined consolidated financial statements and corresponding notes, elsewhere in this Form 10-K. Any forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Any forward-looking statements are subject to a number of important factors, including those factors discussed under “Risk Factors” and “Special Note on Forward-Looking Statements,” that could cause our actual results to differ materially from those indicated in such forward-looking statements.
Overview
Douglas Elliman Inc. is a holding company and is engaged principally in two business segments:
Real Estate Brokerage: the residential real estate brokerage services through our subsidiary Douglas Elliman Realty, which operates the largest residential brokerage company in the New York metropolitan area and also conducts residential real estate brokerage operations in Florida, California, Texas, Colorado, Nevada, Massachusetts, Connecticut, Maryland, Virginia and Washington, D.C.
Corporate and other: the operations of our holding company as well as our investment business that invests in select PropTech opportunities through our New Valley Ventures subsidiary.
See Item 1. “Business” for detailed overview and description of our principal operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from our management’s perspective. Our MD&A is organized as follows:
Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.
Critical Accounting Estimates. This section includes a discussion of accounting estimates considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. In addition, our significant accounting estimates, including our critical accounting estimates, are discussed in the notes to our audited combined consolidated annual financial statements included elsewhere in this Form 10-K.
Results of Operations. This section provides an analysis of our results of operations for the years ended December 31, 2022 and 2021. Certain discussions of the changes in our results of operations and liquidity and capital resources from the year ended December 31, 2021 as compared to the year ended December 31, 2020 have been omitted from this Form 10-K and may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on March 31, 2022.
Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the years ended December 31, 2022 and 2021, as well as certain contractual obligations and off-balance sheet arrangements that existed at December 31, 2022.
Business Overview
Since its inception in 1911, Douglas Elliman has challenged the status quo of the real estate industry. We were founded on Douglas L. Elliman’s vision that New Yorkers would shift their preference for traditional homes to favor luxury apartments that were both sold and managed by comprehensive real estate companies. More than a century later, the Douglas Elliman brand is still associated with service, luxury and forward thinking — our markets are primarily international finance and technology hubs that are densely populated and offer housing inventory at premium price points. The average transaction value of a home we sold in 2022 was approximately $1.62 million — significantly higher than our principal competitors.
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We are building on our record of innovation. Douglas Elliman is focused on digitizing, integrating and simplifying real estate activities for agents and elevating their clients’ experiences. We are bringing innovative, technology-driven PropTech solutions to Douglas Elliman by adopting new PropTech solutions for agents and their clients and also investing in select PropTech opportunities through our subsidiary, New Valley Ventures LLC. Our model is to source and use best-of-breed products and services that we believe will increase our efficiency. In addition to entering into business relationships with PropTech companies, as described further below, we are committed to creating over time a portfolio of PropTech companies that, through our business and investment relationship, have access to our agents and their clients, as well as our knowledge and experience, to grow their own businesses, while benefiting our operations. This keeps Douglas Elliman and our agents on the cutting edge of the industry with innovative solutions and services that can be integrated into our technology, while also remaining asset-light. Furthermore, we maintain upside potential in the success of our PropTech partners in which we invest through minority stakes in their capital structures.
Douglas Elliman is well positioned to capitalize on opportunities in the U.S. residential real estate market with a leading luxury brand and a comprehensive suite of technology-enabled real estate services and investments. Despite various “agentless” models such as “iBuying,” approximately 86% of buyers and sellers were assisted by a real estate agent or broker when purchasing or selling their home between July 2021 and June 2022, according to the National Association of Realtors (“NAR”), highlighting the central role agents continue to play in real estate transactions. Agents are able to generate significant repeat business from clients and referrals, with 63% of home sellers and 50% of home buyers between July 2021 and June 2022 choosing to work with an agent they had used in the past or through a referral, according to the NAR. Repeat business, as well the ability to provide ancillary services, allows agents to extend their client relationships and generate significant lifetime value.
Industry trends in 2022. After a strong 2021, when existing home sales reported by the NAR reached their highest level since 2006, the residential real estate brokerage industry encountered significant challenges in 2022. These challenges began during the second quarter of 2022 and included, among other things, a reduced inventory of homes available for sale as well as higher mortgage rates. According to the NAR, sales of existing homes declined by 34.0% in December 2022 from December 2021 and total homes sold in 2022 was the lowest since 2014. By comparison, our Gross Transaction Value declined by 16.2% in 2022 compared to 2021, from $51,200,000 in 2021 to $42,900,000 in 2022, reflecting the relative strength of the luxury markets in which we operate. In addition, our transactions of homes sold declined by 18% to 26,573 in 2022 from 32,400 in 2021. In the fourth quarter of 2022, our Gross Transaction Value and transactions of homes sold declined by approximately 40% and 43%, respectively, compared to the 2021 fourth quarter. We anticipate that the results for the first quarter of 2023 will reflect these same trends of significant year over year declines and the NAR and other real estate industry consortiums are forecasting continued challenges for the U.S. residential real estate market in 2023. We have maintained stable agent retention and our Principal Agents increased to 5,407 as of December 31, 2022 from 5,189 as of December 31, 2021. See Item 7, “Key Business Metrics and Non-GAAP Financial Measures.”
Despite these recent changes, we believe our competitive advantages in the luxury markets distinguish us from our competitors and our comprehensive suite of real estate solutions, our industry-leading brand name, and our talented team of employees and agents set us apart in the industry. As the real estate brokerage industry evolves and addresses challenges related to constrained inventory of homes as well as higher mortgage rates, we continue to pursue profitable growth opportunities through the expansion of our footprint, investments in cutting-edge PropTech companies through New Valley Ventures, continued recruitment of best-in-class talent, acquisitions (acqui-hires), and operational efficiencies. We will continue to employ a disciplined capital allocation strategy aimed at generating sustainable long-term value for our stockholders.
Distribution and Basis of Presentation
On December 29, 2021, Vector Group distributed all our common stock to its stockholders. Prior to the Distribution, we were a subsidiary of Vector Group and incurred indirect general and administrative costs allocated to us by Vector Group for certain functions and services including, but not limited to, executive office, finance and other administrative support. These expenses were allocated to us based on direct usage, when identifiable. After the Distribution, we are incurring expenses necessary to operate a standalone public company, including pursuant to a Transition Services Agreement entered into with Vector Group in connection with the Distribution.
Key Business Metrics and Non-GAAP Financial Measures
In addition to our financial results, we use the following business metrics to evaluate our business and identify trends affecting our business. To evaluate our operating performance, we also use Adjusted EBITDA attributed to Douglas Elliman and Adjusted EBITDA attributed to Douglas Elliman Margin and financial measures for the year ended December 31, 2022 (“Non-GAAP Financial Measures”), which are financial measures not prepared in accordance with GAAP.
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| Year ended December 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Key Business Metrics | |||||||||||||||||
Total transactions (1) | 26,573 | 32,400 | |||||||||||||||
Gross transaction value (in billions) (2) | $ | 42.9 | $ | 51.2 | |||||||||||||
Average transaction value per transaction (in thousands) (3) | $ | 1,616.3 | $ | 1,580.0 | |||||||||||||
Number of Principal Agents (4) | 5,407 | 5,189 | |||||||||||||||
Annual Retention (5) | 87 | % | 94 | % | |||||||||||||
| Net (loss) income attributed to Douglas Elliman Inc. | $ | (5,622) | $ | 98,838 | |||||||||||||
| Net (loss) income margin | (0.49) | % | 7.30 | % | |||||||||||||
| Non-GAAP Financial Measures | |||||||||||||||||
| Adjusted EBITDA attributed to Douglas Elliman Inc. | $ | 14,951 | $ | 110,699 | |||||||||||||
| Adjusted EBITDA margin attributed to Douglas Elliman Inc. | 1.30 | % | 8.18 | % | |||||||||||||
_____________________________
(1)We calculate total transactions by taking the sum of all transactions closed in which our agent represented the buyer or seller in the purchase or sale of a home (excluding rental transactions). We include a single transaction twice when one or more of our agents represent both the buyer and seller in any given transaction. Total transactions by quarter for the year ended December 31, 2022 were 7,212 for the three months ended March 31, 2022, 7,789 for the three months ended June 30, 2022, 6,796 for the three months ended September 30, 2022 (previously reported 7,212) and 4,776 for the three months ended December 31, 2022.
(2)Gross transaction value is the sum of all closing sale prices for homes transacted by our agents (excluding rental transactions). We include the value of a single transaction twice when our agents serve both the home buyer and home seller in the transaction. Gross transaction value by quarter for the year ended December 31, 2022 was $11.7 billion for the three months ended March 31, 2022, $13.6 billion for the three months ended June 30, 2022, $10.2 billion for the three months ended September 30, 2022 (previously reported $11.0 billion) and $7.5 billion for the three months ended December 31, 2022.
(3)Average transaction value per transaction is the quotient of (x) gross transaction value divided by (y) total transactions.
(4)The number of Principal Agents is determined as of the last day of the specified period. We use the number of Principal Agents, in combination with our other key business metrics such as total transactions and gross transaction value, as a measure of agent productivity.
(5)Annual Retention is the quotient of (x) the prior year revenue generated by agents retained divided by (y) the prior year revenue generated by all agents. We use Annual Retention as a measure of agent stability.
Non-GAAP Financial Measures
Adjusted EBITDA attributed to Douglas Elliman is a non-GAAP financial measure that represents our net income adjusted for depreciation and amortization, investment and other income, stock-based compensation expense, benefit from income taxes, and other items. Adjusted EBITDA attributed to Douglas Elliman Margin is the quotient of (x) Adjusted EBITDA attributed to Douglas Elliman divided by (y) revenue.
We believe that Non-GAAP Financial Measures are important measures that supplement analysis of our results of operations and enhance an understanding of our operating performance. We believe Non-GAAP Financial Measures provide a useful measure of operating results unaffected by non-recurring items, differences in capital structures and ages of related assets among otherwise comparable companies. Management uses Non-GAAP Financial Measures as measures to review and assess operating performance of our business, and management and investors should review both the overall performance (GAAP net income) and the operating performance (Non-GAAP Financial Measures) of our business. While management considers Non-GAAP Financial Measures to be important, they should be considered in addition to, but not as substitutes for or superior to, other measures of financial performance prepared in accordance with GAAP, such as operating income, and net income. In addition, Non-GAAP Financial Measures are susceptible to varying calculations and our measurement of Non-GAAP Financial Measures may not be comparable to those of other companies.
Reconciliations of these non-GAAP measures have been provided in the table below.
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Computation of Adjusted EBITDA attributed to Douglas Elliman
| Year ended December 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Net (loss) income attributed to Douglas Elliman Inc. | $ | (5,622) | $ | 98,838 | |||||||||||||
| Interest income, net | (1,779) | (83) | |||||||||||||||
| Income tax expense | 6,503 | 2,133 | |||||||||||||||
| Net loss attributed to non-controlling interest | (777) | (186) | |||||||||||||||
| Depreciation and amortization | 8,012 | 8,561 | |||||||||||||||
Stock-based compensation (a) | 11,138 | — | |||||||||||||||
Equity in losses from equity method investments (b) | 563 | 278 | |||||||||||||||
| Change in fair value of contingent liability | — | 1,647 | |||||||||||||||
| Other, net | (3,429) | (529) | |||||||||||||||
| Adjusted EBITDA | 14,609 | 110,659 | |||||||||||||||
| Adjusted EBITDA attributed to non-controlling interest | 342 | 40 | |||||||||||||||
| Adjusted EBITDA attributed to Douglas Elliman | $ | 14,951 | $ | 110,699 | |||||||||||||
| Real estate brokerage segment | |||||||||||||||||
| Operating income | $ | 21,993 | $ | 102,098 | |||||||||||||
| Depreciation and amortization | 8,012 | 8,561 | |||||||||||||||
| Stock-based compensation | 4,195 | — | |||||||||||||||
| Adjusted EBITDA | 34,200 | 110,659 | |||||||||||||||
| Adjusted EBITDA attributed to non-controlling interest | 342 | 40 | |||||||||||||||
| Adjusted EBITDA attributed to Douglas Elliman | $ | 34,542 | $ | 110,699 | |||||||||||||
| Corporate and other segment | |||||||||||||||||
| Operating loss | $ | (26,534) | $ | — | |||||||||||||
| Stock-based compensation | 6,943 | — | |||||||||||||||
| Adjusted EBITDA attributed to Douglas Elliman | $ | (19,591) | $ | — | |||||||||||||
| Total adjusted EBITDA attributed to Douglas Elliman | $ | 14,951 | $ | 110,699 | |||||||||||||
_____________________________
(a)Represents amortization of stock-based compensation. $4,195 is attributable to the Real estate brokerage segment and $6,943 is attributable to the Corporate and other segment.
(b)Represents equity in losses recognized from the Company’s investment in an equity method investment that is accounted for under the equity method and is not consolidated in the Company’s financial results.
Critical Accounting Estimates
General. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant estimates subject to material changes in the near term include revenue recognition, impairment charges, valuation of intangible assets, deferred tax liabilities, and valuation of investments, including other-than-temporary impairments to such investments. Actual results could differ from those estimates.
Revenue Recognition. Revenue is measured based on a consideration specified in a contract with a customer and excludes any sales incentives. Revenue is recognized when (a) an enforceable contract with a customer exists, that has commercial substance, and collection of substantially all consideration for services is probable; and (b) the performance obligations to the customer are satisfied either over time or at a point in time.
Real estate commissions earned by our Real Estate brokerage businesses are recognized as revenue when the real estate sale is completed or lease agreement is executed, which is the point in time that the performance obligation is satisfied. Any commission and other payments received in advance are deferred until the satisfaction of the performance obligation.
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Corresponding agent commission expenses, including any advance commission or other direct expense payments, are deferred and recognized as cost of sales concurrently with related revenues.
Contracts in our development marketing business provide us with the exclusive right to sell units in a subject property for a commission fee per unit sold calculated as a percentage of the sales price of each unit. Accordingly, a performance obligation exists for each unit in the development marketing property under contract, and a portion of the total contract transaction price is allocated to and recognized at the time each unit is sold.
Under development marketing service arrangements, dedicated staff are required for a subject property and these costs are typically reimbursed from the customer through advance payments that are recoupable from future commission earnings. Advance payments received and associated direct costs paid are deferred, allocated to each unit in the subject property, and recognized at the time of the completed sale of each unit.
Development marketing service arrangements also include direct fulfillment costs incurred in advance of the satisfaction of the performance obligation. We capitalize costs incurred in fulfilling a contract with a customer if the fulfillment costs 1) relate directly to an existing contract or anticipated contract, 2) generate or enhance resources that will be used to satisfy performance obligations in the future, and 3) are expected to be recovered. These costs are amortized over the estimated customer relationship period which is the contract term. We use an amortization method that is consistent with the pattern of transfer of goods or services to its customers by allocating these costs to each unit in the subject property and expensing these costs as each unit sold is closed over the contract.
Commission revenue is recognized at the time the performance obligation is met for our Real Estate commercial leasing contracts, which is when the lease agreement is executed, as there are no further performance obligations, including any amounts of future payments under extended payment terms.
Our Real Estate property management revenue arrangements consist of providing operational and administrative services to manage a subject property. Fees for these services are typically billed and collected monthly. Property management service fees are recognized as revenue over time using the output method as the performance obligations under the customer arrangement are satisfied each month. Our Real Estate title insurance commission fee revenue is earned when the sale of the title insurance is completed, which corresponds to the point in time when the underlying real estate sale transaction closes and the payment is received.
Accounting for Leases. Under Accounting Standards Committee (“ASC”) 842, we determine if an arrangement is a lease at contract inception. At lease commencement, we record and recognize right-of-use (“ROU”) assets for the lease liability amount and initial direct costs incurred, offset by lease incentives received. We record lease liabilities for the net present value of future lease payments over the lease term. The discount rate we use is generally our estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable. We calculate discount rates periodically to estimate the rate we would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We recognize operating lease expense on a straight-line basis over the lease term. Operating leases are included in operating lease ROU assets and lease liabilities on the combined consolidated balance sheets.
Stock-Based Compensation. In connection with the Distribution, we granted stock-based compensation to employees and recognized expense on such grants. Our stock-based compensation uses a fair-value-based method to recognize non-cash compensation expense for share-based transactions. Under the fair value recognition provisions, we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award.
Current Expected Credit Losses. We are exposed to credit losses for various amounts due from real estate agents, which are included in other current assets on the combined consolidated balance sheets, net of an allowance for credit losses. We historically estimated our allowance for credit losses on receivables from agents based on an evaluation of aging, agent sales in pipeline, any security, specific exposures, and historical experience of collections from the individual agents. Based on our historical credit losses on receivables from agents, current and expected future market trends, it was determined that the requirements of Accounting Standards Update (“ASU”) No. 2016-13 did not result in a material impact on our allowance for credit losses as of January 1, 2020 of $6,132, we estimated that the credit losses for these receivables were $10,916 and $8,607 at December 31, 2022 and 2021, respectively.
Goodwill and Indefinite Life Assets. Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment on an annual basis, or whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. We follow ASC 350, Intangibles — Goodwill and Other, and subsequent updates including ASU 2011-08, Testing Goodwill for Impairment and ASU 2017-14, Simplifying the Test for Goodwill Impairment. The amendments permit entities to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that a reporting unit’s
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fair value is less than its carrying value or choose to bypass the optional qualitative assessment, we will then assess recoverability by comparing the fair value of the reporting unit to our carrying amount; otherwise, no further impairment test would be required. The fair value of the intangible asset associated with the Douglas Elliman trademark is determined using a “relief from royalty payments” method. This approach involves two steps: (i) estimating reasonable royalty rates for its trademark associated with the Douglas Elliman trademark and (ii) applying these royalty rates to a net sales stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of the trademark. As discussed in Note 9 to our combined consolidated financial statements, during the first quarter of 2020, we performed quantitative assessments of our goodwill and our trademark intangible asset in conjunction with our quarterly review for indicators of impairment. The quantitative assessments resulted in impairment charges to goodwill of $46,252 and to the trademark intangible asset of $12,000. We performed a qualitative assessment for the year ended December 31, 2022, which did not result in additional impairment charges related to our goodwill or trademark.
Income Taxes. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. Therefore, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time and, as a result, changes in our subjective assumptions and judgments may materially affect amounts recognized in our combined consolidated financial statements.
Before the Distribution (and during the year ended December 31, 2021), we calculated our provision for income taxes by using a separate-return method and elected not to allocate tax expense to single-member limited liability companies or partnerships that did not incur income tax liability because they were not severally liable for the taxes of their owners. Before the Distribution, Douglas Elliman of California, Inc. and DER Holdings II LLC were the only two entities taxed as corporations for U.S. Income Tax purposes while the remaining entities were pass through entities for federal income tax purposes. Therefore, no income tax expense was allocated to entities other than DER Holdings II LLC, Douglas Elliman of California, Inc. and, for purposes of New York City Unincorporated Business Tax (“UBT”) only, Douglas Elliman Realty, LLC.
After the Distribution, we calculate our provision for income taxes based upon the taxable income attributable to our activity and the activity of our subsidiaries because after the Distribution, we are taxed as a corporation for purposes of U.S. and state and local income taxes. Therefore, after the Distribution, we have recorded an income tax provision at current income tax rates.
Results of Operations
The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our combined consolidated financial statements and related notes included elsewhere in this annual report on Form 10-K.
The primary components of our operating expenses, the changes in which are described in the following discussion of our results of operations, are defined below:
•Sales and marketing. Sales and marketing expense consists primarily of marketing and advertising expenses, compensation and other personnel-related costs for employees supporting sales, marketing, expansion and related functions, occupancy-related costs and agent acquisition incentives.
•Operations and support. Operations and support expense consists primarily of compensation and other personnel-related costs for employees supporting agents, third-party consulting and professional services costs (not included in general and administrative or technology), fair value adjustments to contingent consideration for our acquisitions and other related expenses.
•General and administrative. General and administrative expense consists primarily of compensation, stock-based compensation expense and other personnel-related costs for executive management and administrative employees, including finance and accounting, legal, human resources and communications, the occupancy costs for our headquarters and other offices supporting our administrative functions and, after the Distribution (beginning in 2022), include transition services paid to our former parent, Vector Group, for the use of office space and employees, professional services fees for legal and finance, insurance expenses and talent acquisition expenses.
•Technology. Technology expense consists primarily of compensation and other personnel-related costs for employees in the product, engineering and technology functions, website hosting expenses, software licenses and equipment, third-party consulting costs, data licenses of PropTech and other related expenses associated with the implementation of our technology initiatives.
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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
The following table sets forth our revenue and operating (loss) income by segment for the year ended December 31, 2022 compared to the year ended December 31, 2021:
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Revenues by segment: | |||||||||||
| Real estate brokerage segment | $ | 1,153,177 | $ | 1,353,138 | |||||||
| Operating (loss) income by segment: | |||||||||||
| Real estate brokerage segment | $ | 21,993 | $ | 102,098 | |||||||
| Corporate and other segment | (26,534) | — | |||||||||
| Total operating (loss) income | $ | (4,541) | $ | 102,098 | |||||||
| Real estate brokerage segment | |||||||||||
| Operating income | $ | 21,993 | $ | 102,098 | |||||||
| Depreciation and amortization | 8,012 | 8,561 | |||||||||
| Stock-based compensation | 4,195 | — | |||||||||
| Adjusted EBITDA | 34,200 | 110,659 | |||||||||
| Adjusted EBITDA attributed to non-controlling interest | 342 | 40 | |||||||||
| Adjusted EBITDA attributed to Douglas Elliman | $ | 34,542 | $ | 110,699 | |||||||
| Corporate and other segment | |||||||||||
| Operating loss | $ | (26,534) | $ | — | |||||||
| Stock-based compensation | 6,943 | — | |||||||||
| Adjusted EBITDA attributed to Douglas Elliman | $ | (19,591) | $ | — | |||||||
Year ended December 31, 2022 Compared to Year ended December 31, 2021
Revenues. Our revenues were $1,153,177 for the year ended December 31, 2022 compared to $1,353,138 for the year ended December 31, 2021. The $199,961 (14.8%) decline in revenues was primarily due to a $199,961 decline in the Real Estate Brokerage segment’s revenues because of lower revenues from existing home sales caused, in part, by lower listing inventory and the volatility in the financial markets as well as increases in mortgage rates. These factors were partially offset by increased revenues from the Texas market, which we began consolidating in August 2021.
Operating expenses. Our operating expenses were $1,157,718 for the year ended December 31, 2022 compared to $1,251,040 for the year ended December 31, 2021. The decline of $93,322 was due primarily to declines in real estate brokerage commissions of $148,720. This was offset by increases in expenses associated with Douglas Elliman operating as a standalone public company after the Distribution, which occurred on December 29, 2021, as well as increased expenses associated with our expansion into new markets and enhancements to our agent-facing technology platform.
Operating (loss) income. Operating loss was $4,541 for the year ended December 31, 2022 compared to operating income of $102,098 for the year ended December 31, 2021. The $106,639 decline in operating income was due to the net impact of declines in commission and other brokerage revenues, Douglas Elliman operating as a standalone public company after the Distribution, incremental expenses associated to support our business growth and agents as well as non-cash stock compensation expense.
Other income (expenses). Other income was $4,645 for the year ended December 31, 2022 compared to other expenses of $1,313 for the year ended December 31, 2021. For the year ended December 31, 2022, other income primarily consisted of investment and other income, primarily associated with our PropTech investments of $2,839, income from the indemnification by Vector Group under the Tax Disaffiliation Agreement of $589, and interest income, net of $1,779. This was offset by equity losses from equity method investments of $563.
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Income before provision for income taxes. Income before income taxes was $104 and $100,785 for the years ended December 31, 2022 and 2021, respectively.
Income tax expense. Income tax expense was $6,503 and $2,133 for the years ended December 31, 2022 and 2021, respectively. The difference is primarily related to income tax expense before and after the Distribution offset by lower income before provision for income taxes for the year ended December 31, 2022. Specifically, income tax expense calculated before the Distribution when we used a separate return method for the year ended December 31, 2021 resulted in a lower income tax rate in the 2021 period and is described below.
After the Distribution, we calculate our provision for income taxes based upon the taxable income attributable to our activity and the activity of our subsidiaries.
Before the Distribution during the year ended December 31, 2021, we calculated our provision for income taxes by using a separate-return method and elected not to allocate tax expense to single-member limited liability companies or partnerships that did not incur income tax liability because they were not severally liable for the taxes of their owners. Before the Distribution, Douglas Elliman of California, Inc. and DER Holdings II LLC were the only two entities taxed as corporations for U.S. Income Tax purposes while the remaining entities were pass through entities for federal income tax purposes. Therefore, no income tax expense was allocated to entities other than DER Holdings II LLC, Douglas Elliman of California, Inc. and, for purposes of New York City UBT only, Douglas Elliman Realty, LLC.
Real Estate Brokerage.
The following table sets forth our combined consolidated statements of operations data for the Real Estate Brokerage segment for the year ended December 31, 2022 compared to the year ended December 31, 2021:
| Year Ended December 31, | |||||||||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Commissions and other brokerage income | $ | 1,099,885 | 95.4% | $ | 1,292,416 | 95.5% | |||||||||||||||||||||||
| Property management | 36,022 | 3.1% | 37,345 | 2.8% | |||||||||||||||||||||||||
| Other ancillary services | 17,270 | 1.5% | 23,377 | 1.7% | |||||||||||||||||||||||||
| Total revenues | $ | 1,153,177 | 100% | $ | 1,353,138 | 100% | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Real estate agent commissions | $ | 836,803 | 72.6% | $ | 985,523 | 72.8% | |||||||||||||||||||||||
| Sales and marketing | 85,763 | 7.4% | 77,174 | 5.7% | |||||||||||||||||||||||||
| Operations and support | 72,946 | 6.3% | 71,641 | 5.3% | |||||||||||||||||||||||||
| General and administrative | 104,887 | 9.1% | 92,798 | 6.9% | |||||||||||||||||||||||||
| Technology | 22,773 | 2.0% | 15,343 | 1.1% | |||||||||||||||||||||||||
| Depreciation and amortization | 8,012 | 0.7% | 8,561 | 0.6% | |||||||||||||||||||||||||
| Operating income | $ | 21,993 | 1.9% | $ | 102,098 | 7.5% | |||||||||||||||||||||||
Revenues. Our revenues were $1,153,177 for the year ended December 31, 2022 compared to $1,353,138 for the year ended December 31, 2021. The decline of $199,961 (14.8%) was primarily related to a decline of $192,531 in our commission and other brokerage income because of lower revenues from existing home sales caused, in part, by lower listing inventory and the volatility in the financial markets as well as increases in mortgage rates. These factors were partially offset by increased revenues from the Texas market, which we began consolidating in August 2021. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations Business - Overview - Industry Trends in 2022.”
Our revenues from commission and other brokerage income were $1,099,885 for the year ended December 31, 2022 compared to $1,292,416 for the year ended December 31, 2021, a decline of $192,531. In 2022, our commission and other brokerage income generated from the sales of existing homes declined by $91,738 in our Florida market, $41,263 in the Northeast region, which excludes New York City, $32,594 in New York City and $16,394 in the West region (which includes $29,499 related to our Texas market, which we began consolidating in August 2021), in each case compared to the 2021 period. In addition, our revenues from DEDM declined by $10,542 in 2022 compared to 2021.
Operating Expenses. Our operating expenses were $1,131,184 for the year ended December 31, 2022 compared to $1,251,040 for the year ended December 31, 2021, a decline of $119,856, due primarily to declines in real estate brokerage
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commissions. This was offset by increases in sales and marketing, general and administrative and technology expenses. The primary components of operating expenses are described below.
Real Estate Agent Commissions. As a result of declines in commissions and other brokerage income, our real estate agent commissions expense was $836,803 for the year ended December 31, 2022 compared to $985,523 for the year ended December 31, 2021, a decline of $148,720 (15.1%). Real estate agent commissions expense, as a percentage of revenues, decreased to 72.6% for the year ended December 31, 2022 compared to 72.8% for the year ended December 31, 2021.
Sales and Marketing. Sales and marketing expenses were $85,763 for the year ended December 31, 2022 compared to $77,174 for the year ended December 31, 2021. The increase was primarily due to additional promotional sponsorships and events in the 2022 period because of the reopening of the economy.
Operations and support. Operations and support expenses were $72,946 for the year ended December 31, 2022 compared to $71,641 for the year ended December 31, 2021. The increase related increased compensation expense associated with additional personnel required to support our business growth and agents as well as wage inflation and non-cash stock compensation partially offset by lower incentive compensation expense in the 2022 period.
General and administrative. General and administrative expenses were $104,887 for the year ended December 31, 2022 compared to $92,798 for the year ended December 31, 2021. The increase in expenses was primarily because of non-cash stock compensation, the expansion into the Texas region and incremental expenses to support business growth and wage inflation.
Technology. Technology expenses were $22,773 for the year ended December 31, 2022 compared to $15,343 for the year ended December 31, 2021. The increase in the 2022 period was related to technology enhancements, incremental refinements and additional functionality of our cloud-based “MyDouglas” agent portal that included social media grading widget via Real Grader, new enhanced video capabilities from Videobolt, and newly introduced Tongo and AdPro. Tongo enables our agents to obtain instant access to future income from pending deals. AdPro is an easy-to-navigate interface to promote properties on social media platforms. There was also increased utilization of our StudioPro Customer Relationship Management marketing application as well as transaction system and the integration of our newly announced Elliman Showroom, a complimentary personal assistant platform that will guide home purchasers through a high-touch and streamlined move-in process.
Operating income. Operating income was $21,993 for the year ended December 31, 2022 compared to $102,098 for the year ended December 31, 2021. The decline in operating income is primarily associated with the decline in revenues, expenses associated with non-cash stock compensation, business growth, agent support, expansion into new markets and technology.
Corporate and Other.
Corporate and Other loss. The operating loss at the Corporate and Other segment was $26,534 for the year ended December 31, 2022 due to expenses, including non-cash stock compensation, associated with Douglas Elliman operating as a standalone publicly traded company after the Distribution.
Summary of PropTech Investments
As of December 31, 2022, New Valley Ventures had investments (at a carrying value) of approximately $14.8 million in PropTech companies. This amounts to approximately 3% of the value of Douglas Elliman’s total assets, which totaled approximately $550 million, as of December 31, 2022. As of December 31, 2022 our PropTech investments include:
■Rechat: a lead-to-close fully-mobile technology dashboard for real estate agents including marketing, customer relationship management and transaction-management software. Douglas Elliman has a multi-year services agreement with Rechat for its agents, who are increasingly requesting and requiring superior access to technology and back-office support services. The Rechat technology is a key element of MyDouglas, Douglas Elliman’s primary agent portal designed to be our agents’ technology front door, and StudioPro, the cloud-based agent portal and marketing tool recently launched by Douglas Elliman that helps integrate all agent resources in one user-friendly suite.
■Purlin: an automated intelligence platform to aid in home buying, an agent “paid social media” integration in MyDouglas and Portfolio Escrow client and agent portals that also integrate with MyDouglas.
■Humming Homes: a tech-enabled home management service that is creating a new category of end-to-end home management. It has built a solution that provides single-family homeowners with a digital experience and offers a dedicated in-person home management team with a single point of contact and 24/7 support. The service employs data and insights to avoid reactive and expensive home maintenance issues. The investment will complement Douglas Elliman’s business in the Hamptons and align Humming Homes’ geographical growth with Douglas Elliman’s footprint in locations such as Aspen, Florida and Southern California.
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■MoveEasy: a client- and customer-facing digital concierge service designed to assist clients and customers moving into and “setting up” their new homes, while offering additional services to maintain their homes. In partnership with residential real estate brokerages, MoveEasy is delivered in a white-labeled format that features the name and contact information of the selling agent.
■Fyxify: a tech-enabled platform that utilizes direct scheduling and operating technology to avoid the inefficiencies of home repairs (for example: calling around, mystery repair costs and wasting time).
■EVPassport: an entity that offers complete electronic vehicle charging solutions including hardware and software.
■Bilt: a leading loyalty program and co-branded credit card for renters to earn points on their rent payments. Douglas Elliman has joined the Bilt Rewards Alliance, a network of more than 2 million rental units across the country where renters can enroll in the loyalty program to earn points on rent paid. This platform enhances Douglas Elliman’s suite of offerings for both the renters and landlords it represents.
■Persefoni AI: a software-as-a-service (“SaaS”) platform built to enable enterprises of all sizes to measure their carbon footprint accurately, dynamically, and regularly across all operations.
■Envoy: a shared mobility company that sets up fleets of electric vehicles that can be shared by residents of a condominium development, hotel, or shared space.
■Audience: a subscription-based platform built around proprietary robotic arms that generate hand-written notes on behalf of sales-oriented professionals.
■Tongo: a financial program that gives real estate agents instant access to future commissions up to 60 days before closing.
■Guest House: a tech-enabled company focused on the home staging market.
■Alpaca: investment in Getaway House, Inc., a start-up company that provides cabin rental services in rural areas throughout the United States.
■PropTech Venture Capital Funds: investments in the following venture capital funds providing New Valley Ventures exposure to opportunities in the emerging PropTech industry.
■Camber Creek Venture Capital Funds: two funds that invest in a diversified pipeline of new PropTech ventures. Camber Creek’s portfolio includes Notarize, a digitized notary service, and Curbio, a renovation firm designed to increase a property’s selling price.
■Sum Ventures: a fund that invests in growth companies in PropTech, FinTech, and CleanTech industries.
■MetaProp Venture Capital Fund: a fund advised or managed by a New York-based venture capital firm.
■The Lab PropTech Fund: a fund advised or managed by a Miami-based firm that aims to invest in emerging technologies with a focus on residential real estate and construction services.
Other than the five private funds listed above in which New Valley Ventures invests as a limited partner, all of these companies currently provide technology or services to Douglas Elliman. To date, we have not recognized revenue from these investments and do not anticipate recognizing revenue from these non-controlling PropTech investments. However, we target earning an attractive rate of return from the capital appreciation of our PropTech investments.
Liquidity and Capital Resources
Cash and cash equivalents declined by $57,484 and increased by $122,164 in 2022 and 2021, respectively. Restricted Cash, which is included in cash and cash equivalents, was $7,523 and $17,243 as of December 31, 2022 and 2021, respectively.
Cash used in operations was $14,744 in 2022 and cash provided from operations was $127,826 in 2021. The decline in the 2022 period was related to lower operating income as a result of the decline in revenues and inclusion of expenses associated with Douglas Elliman operating as a standalone public company and increased expenses in our brokerage segment. We also incurred increased income tax payments and increased discretionary compensation payments in 2022 compared to 2021. Our income tax payments increased in 2022 because we became a full taxpayer after the Distribution. Our discretionary
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compensation payments increased in the 2022 period because our compensation accruals at December 31, 2021 were more than our compensation accruals at December 31, 2020 as a result of improved operating income for the year ended December 31, 2021 when compared to the year ended December 31, 2020.
Cash used in investing activities was $12,737 and $8,858 in 2022 and 2021, respectively. In 2022, cash used in investing activities was comprised of capital expenditures of $8,537, purchase of investments of $3,875 in our PropTech business, and investments of $400 in equity-method investments. This was offset by $75 of distributions from equity-method investments. In 2021, cash used in investing activities was comprised of capital expenditures of $4,106, the purchase of investments of $4,340, and $500 in connection with the acquisition of the controlling interest in Douglas Elliman Texas. This was offset by $88 of distributions from equity-method investments.
Our investment philosophy is to maximize return on investments using a reasonable expectation for return when investing in equity-method investments and PropTech investments as well as making capital expenditures.
Cash used in financing activities was $30,003 in 2022 and cash provided by financing activities was $3,196 in 2021. In 2022, cash used in financing activities was comprised of dividends and distributions on common stock of $16,250, repayment of debt of $12,528, and earn-out payments, associated with acquisitions, of $1,600. These amounts were partially offset by contributions from a non-controlling interest associated with Douglas Elliman Texas of $375. In 2021, cash provided by financing activities was comprised of net contributions from Vector Group, our former parent, of $2,062 and contributions from non-controlling interest associated with Douglas Elliman Texas of $1,625. These amounts were offset by $361 for repayment of debt and earn-out payments, associated with acquisitions, of $130.
In March 2022, we began paying a quarterly cash dividend of $0.05 per share. We contemplate continuing to pay a quarterly cash dividend of $0.05 per share, subject to approval of our Board of Directors, which would result in annual dividends of approximately $16,900. We had cash and cash equivalents of approximately $163,859 as of December 31, 2022 and, in addition to cash provided from operations, such cash is available to be used to fund such liquidity requirements as well as other anticipated liquidity needs in the normal course of business. Management currently anticipates that these amounts, as well as expected cash flows from our operations and proceeds from any financings to the extent available, should be sufficient to meet our liquidity needs over the next twelve months. We may acquire or seek to acquire additional operating businesses through merger, purchase of assets, stock acquisition or other means, or to make or seek to make other investments, which may limit our liquidity otherwise available.
Off-Balance Sheet Arrangements
We have various agreements in which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations related to such matters as title to assets sold and licensed or certain intellectual property rights. Payment by us under such indemnification clauses is generally conditioned on the other party making a claim that is subject to challenge by us and dispute resolution procedures specified in the particular contract. Further, our obligations under these arrangements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, payments made by us under these agreements have not been material. As of December 31, 2022, we were not aware of any indemnification agreements that would or are reasonably expected to have a current or future material adverse impact on our financial position, results of operations or cash flows.
As of December 31, 2022, we had outstanding approximately $3,107 of letters of credit, collateralized by certificates of deposit. The letters of credit have been issued as security deposits for leases of office space, to secure the performance of our subsidiaries under various insurance programs and to provide collateral for various subsidiary borrowing and capital lease arrangements.
Market Risk
We are exposed to market risks principally from fluctuations in interest rates and could be exposed to market risks from foreign currency exchange rates and equity prices in the future. We seek to minimize these risks through our regular operating and financing activities and our long-term investment strategy. Our market risk management procedures cover material market risks for our market risk sensitive financial instruments.
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New Accounting Pronouncements
Refer to Note 1, Summary of Significant Accounting Policies, to our combined consolidated financial statements for further information on New Accounting Pronouncements.
Legislation, Regulation, Taxation and Litigation
See Item 1. “Business,” Item 1A. “Risk Factors,” Item 3. “Legal Proceedings” and Note 14 to our combined consolidated financial statements, which contain a description of litigation.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information included in this annual report on Form 10-K, this report contains “forward-looking statements” within the meaning of the federal securities law. Forward-looking statements include information relating to our intent, belief or current expectations, primarily with respect to, but not limited to, economic outlook, capital expenditures, cost reduction, cash flows, operating performance, growth expectations, competition, legislation and regulations, litigation, and related industry developments (including trends affecting our business, financial condition and results of operations).
We identify forward-looking statements in this report by using words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may be,” “objective,” “opportunistically,” “plan,” “potential,” “predict,” “project,” “prospects,” “seek,” and “will be” and similar words or phrases or their negatives.
Forward-looking statements involve important risks and uncertainties that could cause our actual results, performance or achievements to differ materially from our anticipated results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, without limitation, the following:
•general economic and market conditions and any changes therein, including due to macroeconomic conditions, interest rate fluctuations, inflation, acts of war and terrorism or otherwise,
•governmental regulations and policies, including with respect to regulation of the real estate market or monetary and fiscal policy and its effect on overall economic activity, in particular, mortgage interest rates,
•litigation risks,
•adverse changes in global, national, regional and local economic and market conditions, including those related to pandemics and health crises,
•our ability to effectively manage the impacts of any government-mandated or encouraged suspension of our business operations,
•the impacts of the Inflation Reduction Act of 2022 and the Tax Cuts and Jobs Act of 2017, including the continued impact on the markets of our business,
•effects of industry competition,
•severe weather events or natural or man-made disasters, including the increasing severity or frequency of such events due to climate change or otherwise, or other catastrophic events that may disrupt our business and have an unfavorable impact on home sale activity,
•the level of our expenses, including our corporate expenses as a standalone public company,
•the tax-free treatment of the Distribution,
•our lack of operating history as a public company and costs associated with being a standalone public company,
•the failure of Vector Group to satisfy its respective obligations under the Transition Services Agreement or other agreements entered into in connection with the Distribution; and
•the additional factors described under “Risk Factors” in this report.
Further information on the risks and uncertainties to our business includes the risk factors discussed above under Item 1A. “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, there is a risk that these expectations will not be attained and that any deviations will be material. The forward-looking statements speak only as of the date they are made.
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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” is incorporated herein by reference.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our combined consolidated financial statements and notes thereto, together with the report thereon of Deloitte & Touche LLP dated March 16, 2023, are set forth beginning on page F-1 of this report.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed, in the reports the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Form 10-K, the Company evaluated under the supervision of and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as of December 31, 2022, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2022, the Company’s disclosure controls and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, 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 generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) 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 (iii) 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 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.
Management, including the Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, based on the criteria in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022 based on the criteria in Internal Control - Integrated Framework (2013) issued by COSO. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which appears herein.
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Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the year ended December 31, 2022 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Douglas Elliman Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Douglas Elliman Inc. and subsidiaries (the “Company”) as of December 31, 2022, 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, 2022, 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 combined consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated March 16, 2023, expressed an unqualified opinion on those 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 Annual Report on Internal Control 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
Miami, Florida
March 16, 2023
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ITEM 9B.OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained under the following headings in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders (the “2023 Proxy Statement”), to be filed with the SEC not later than 120 days after the end of our fiscal year covered by this report pursuant to Regulation 14A under the Securities Exchange Act of 1934, is incorporated herein by reference: “Board Proposal 1 — Nomination and Election of Directors.” See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase Equity Securities. Executive Officers of the Registrant" for information regarding our executive officers. We have adopted a policy statement entitled Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. In the event that an amendment to, or a waiver from, a provision of the Code of Business Conduct and Ethics is made or granted, we intend to post such information on our web site, which is investors.elliman.com.
ITEM 11.EXECUTIVE COMPENSATION
The information contained under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in our 2023 Proxy Statement is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information contained under the headings “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in our 2023 Proxy Statement is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information contained under the headings “Certain Relationships and Related Party Transactions” and “Board of Directors and Committees” in our 2023 Proxy Statement is incorporated herein by reference.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained under the headings “Audit and Non-Audit Fees” and “Pre-Approval Policies and Procedures” in our 2023 Proxy Statement is incorporated herein by reference.
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PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) INDEX TO 2022 COMBINED CONSOLIDATED FINANCIAL STATEMENTS:
Our combined consolidated financial statements and the notes thereto, together with the report thereon of Deloitte & Touche LLP for the three years ended December 31, 2022, dated March 16, 2023 appear beginning on page F-1 of this report.
(a)(2) FINANCIAL STATEMENT SCHEDULES:
| Schedule II — Valuation and Qualifying Accounts Page | F-33 | ||||
(a)(3) EXHIBITS:
(a) The following is a list of exhibits filed herewith as part of this Annual Report on Form 10-K:
INDEX OF EXHIBITS
| EXHIBIT NO. | DESCRIPTION | |||||||
* 2.1 | Distribution Agreement, originally dated as of December 21, 2021 and amended and restated as of December 28, 2021, between Vector Group Ltd. and Douglas Elliman Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K dated December 28, 2021). | |||||||
* 3.1 | Amended and Restated Certificate of Incorporation of Douglas Elliman Inc., dated December 29, 2021. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K dated December 29, 2021). | |||||||
| Amended and Restated Bylaws of Douglas Elliman Inc., dated November 30, 2022. | ||||||||
* 10.1 | Employee Matters Agreement, dated as of December 21, 2021 between Vector Group Ltd. and Douglas Elliman Inc. (incorporated by reference to Exhibit 2.2 to the Company’s Form 8-K dated December 28, 2021). | |||||||
* 10.2 | Form of Restricted Stock Award Agreement under Douglas Elliman Inc. 2021 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated December 28, 2021). | |||||||
* 10.3 | Transition Services Agreement, dated as of December 21, 2021 between Vector Group Ltd. and Douglas Elliman Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated December 28, 2021). | |||||||
* 10.4 | Tax Disaffiliation Agreement, dated as of December 21, 2021 between Vector Group Ltd. and Douglas Elliman Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated December 28, 2021). | |||||||
* 10.5 | 2021 Management Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, initially filed on December 7, 2021). | |||||||
* 10.6 | 2021 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1, initially filed on December 7, 2021). | |||||||
* 10.7 | Employment Agreement between Douglas Elliman Inc. and Howard M. Lorber, dated January 10, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated January 10, 2022). | |||||||
*10.8 | Amendment to Employment Agreement, dated as of March 18, 2022 between Douglas Elliman Inc. and Howard M. Lorber (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-K for the year ended December 31, 2021). | |||||||
* 10.9 | Employment Agreement between Douglas Elliman Inc. and Richard J. Lampen, dated January 10, 2022. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated January 10, 2022). | |||||||
* 10.10 | Form of Indemnification Agreement between Douglas Elliman Inc. and its Directors and Officers (incorporated by reference to Exhibit 10.6 the Company’s Registration Statement on Form S-1, initially filed on December 7, 2021). | |||||||
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| EXHIBIT NO. | DESCRIPTION | |||||||
| Douglas Elliman Inc. Executive Compensation Clawback Policy. | ||||||||
| Non-exclusive Aircraft Lease Agreement dated as of December 21, 2021 between VT Equipment Leasing LLC and Douglas Elliman Inc. | ||||||||
| Non-exclusive Aircraft Lease Agreement dated as of December 21, 2021 between VT Aviation Leasing LLC and Douglas Elliman Inc. | ||||||||
| Subsidiaries of Douglas Elliman Inc. | ||||||||
| Consent of Deloitte & Touche LLP. | ||||||||
| Certification of Chief Executive Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Financial Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
_____________________________
*Incorporated by reference
Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(b) is listed in exhibit numbers 10.5 through 10.11.
ITEM 16.FORM 10-K SUMMARY.
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| Douglas Elliman Inc. | |||||||||||
| (Registrant) | |||||||||||
| By: | /s/ J. Bryant Kirkland III | ||||||||||
| J. Bryant Kirkland III | |||||||||||
| Senior Vice President, Chief Financial Officer and Treasurer | |||||||||||
| Date: | March 16, 2023 | ||||||||||
POWER OF ATTORNEY
The undersigned directors and officers of Douglas Elliman Inc. hereby constitute and appoint Richard J. Lampen, J. Bryant Kirkland III and Marc N. Bell, and each of them, with full power to act without the other and with full power of substitution and resubstitutions, our true and lawful attorneys-in-fact with full power to execute in our name and behalf in the capacities indicated below, this Annual Report on Form 10-K and any and all amendments thereto and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby ratify and confirm all that such attorneys-in-fact, or any of them, or their substitutes shall lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 16, 2023.
| SIGNATURE | TITLE | |||||||
| /s/ Howard M. Lorber | Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) | |||||||
| Howard M. Lorber | ||||||||
| /s/ J. Bryant Kirkland III | Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||||
| J. Bryant Kirkland III | ||||||||
| /s/ Richard J. Lampen | Director | |||||||
| Richard J. Lampen | ||||||||
| /s/ Ronald J. Kramer | Director | |||||||
| Ronald J. Kramer | ||||||||
| /s/ Michael S. Liebowitz | Director | |||||||
| Michael S. Liebowitz | ||||||||
| /s/ Lynn Mestel | Director | |||||||
| Lynn Mestel | ||||||||
| /s/ Wilson L. White | Director | |||||||
| Wilson L. White | ||||||||
| /s/ Mark D. Zeitchick | Director | |||||||
| Mark D. Zeitchick | ||||||||
49
DOUGLAS ELLIMAN INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2022
ITEMS 8, 15(a)(1) AND (2), 15(c)
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Financial Statements and Schedules of the Registrant and its subsidiaries required to be included in Items 8, 15(a) (1) and (2), 15(c) are listed below:
| Page | ||||||||
| FINANCIAL STATEMENTS: | ||||||||
| Douglas Elliman Inc. Combined Consolidated Financial Statements | ||||||||
Report of Independent Registered Public Accounting Firm (PCAOB ID No. | F-2 | |||||||
| Combined Consolidated Balance Sheets as of December 31, 2022 and 2021 | F-4 | |||||||
| Combined Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 | F-5 | |||||||
| Combined Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020 | F-6 | |||||||
| Combined Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 | F-7 | |||||||
| Notes to Combined Consolidated Financial Statements | F-8 | |||||||
| FINANCIAL STATEMENT SCHEDULE: | ||||||||
| Schedule II — Valuation and Qualifying Accounts | F-33 | |||||||
Financial Statement Schedules not listed above have been omitted because they are not applicable or the required information is contained in our combined consolidated financial statements or accompanying notes.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Douglas Elliman Inc.
Opinion on the Financial Statements
We have audited the accompanying combined consolidated balance sheets of Douglas Elliman Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related combined consolidated statements of operations, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Leases - Refer to Notes 1 and 5 to the financial statements
Critical Audit Matter Description
At December 31, 2022, the Company’s operating lease right-of-use assets and operating lease liabilities were $117.8 million and $142.8 million, respectively. Lease liabilities are recorded at commencement for the net present value of future lease payments over the lease term. The discount rate used is generally the Company’s estimated incremental borrowing rate (“IBR”) unless the lessor’s implicit rate is readily determinable. Discount rates are calculated periodically to estimate the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security. Since the rate implicit to most leases is not readily determinable, the Company estimated its IBR used to calculate its right-of-use assets and lease liabilities.
We identified the IBR used to calculate the Company’s right-of-use assets and lease liabilities as a critical audit matter because of the significant assumptions management makes to reflect the rate the Company would pay to borrow the funds to obtain an asset of similar value, over a similar term, with a similar security. Changes in these significant assumptions in the IBR determination can have a significant effect on the recorded right-of-use assets and related lease liabilities. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s assumptions related to estimates of the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security.
F-2
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the IBRs used to calculate the Company’s right-of-use assets and lease liabilities included the following, among others:
–We tested the effectiveness of controls over right-of-use assets and lease liabilities, including management’s controls over the determination of the IBR.
–We evaluated the methods and assumptions used by management to estimate the IBRs based on the definition and guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 842, Leases, other reference materials, and generally accepted procedures.
–We tested the inputs used by management to develop the IBRs by independently assessing the reasonableness of the inputs using third party market data and underlying lease terms as follows:
–We evaluated the reasonableness of the credit rating ascribed to the Company.
–We evaluated the reasonableness of the base rate and spreads applied in determining the IBR.
–We evaluated the accuracy of the model(s) and mathematical calculations used to estimate the IBR.
/s/ Deloitte & Touche LLP
March 16, 2023
We have served as the Company’s auditor since 2020.
F-3
DOUGLAS ELLIMAN INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED BALANCE SHEETS
| December 31, 2022 | December 31, 2021 | ||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||
| ASSETS: | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables | |||||||||||
| Agent receivables, net | |||||||||||
| Income taxes receivables, net | |||||||||||
| Restricted cash and cash equivalents | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
Long-term investments (includes $ | |||||||||||
| Contract assets, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Equity-method investments | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY: | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of notes payable and other obligations | $ | $ | |||||||||
| Current operating lease liabilities | |||||||||||
| Income taxes payable, net | |||||||||||
| Accounts payable | |||||||||||
| Commissions payable | |||||||||||
| Accrued salaries and benefits | |||||||||||
| Contract liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Notes payable and other obligations less current portion | |||||||||||
| Deferred income taxes, net | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Contract liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 14) | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| (Accumulated deficit) retained earnings | ( | ||||||||||
| Total Douglas Elliman Inc. stockholders' equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of the combined consolidated financial statements.
F-4
DOUGLAS ELLIMAN INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Commissions and other brokerage income | $ | $ | $ | ||||||||||||||
| Property management | |||||||||||||||||
| Other ancillary services | |||||||||||||||||
| Total revenues | |||||||||||||||||
| Expenses: | |||||||||||||||||
| Real estate agent commissions | |||||||||||||||||
| Sales and marketing | |||||||||||||||||
| Operations and support | |||||||||||||||||
| General and administrative | |||||||||||||||||
| Technology | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Loss on disposal of assets | |||||||||||||||||
| Impairments of goodwill and other intangible assets | |||||||||||||||||
| Restructuring | |||||||||||||||||
| Operating (loss) income | ( | ( | |||||||||||||||
| Other income (expenses): | |||||||||||||||||
| Interest income | |||||||||||||||||
| Equity in losses from equity-method investments | ( | ( | ( | ||||||||||||||
| Change in fair value of contingent liability | ( | ||||||||||||||||
| Investment and other income | |||||||||||||||||
| Income (loss) before provision for income taxes | ( | ||||||||||||||||
| Income tax expense | |||||||||||||||||
| Net (loss) income | ( | ( | |||||||||||||||
| Net loss attributed to non-controlling interest | |||||||||||||||||
| Net (loss) income attributed to Douglas Elliman Inc. | $ | ( | $ | $ | ( | ||||||||||||
| Per basic common share: | |||||||||||||||||
| Net (loss) income applicable to common shares attributed to Douglas Elliman Inc. | $ | ( | $ | $ | ( | ||||||||||||
| Per diluted common share: | |||||||||||||||||
| Net (loss) income applicable to common shares attributed to Douglas Elliman Inc. | $ | ( | $ | $ | ( | ||||||||||||
The accompanying notes are an integral part of the combined consolidated financial statements.
F-5
DOUGLAS ELLIMAN INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Former Parent’s Net Investment | Non-controlling Interest | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Net transfers from Former Parent | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net transfers from Former Parent | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Transfer of net investment to additional paid-in capital | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock grants | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Acquisition of subsidiary | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net transfers from non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
Distributions and dividends on common stock ($ | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Restricted stock grants | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Withholding of shares as payment of tax liabilities in connection with restricted stock vesting | ( | ( | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the combined consolidated financial statements.
F-6
DOUGLAS ELLIMAN INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | ||||||||||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Non-cash stock-based compensation expense | |||||||||||||||||
| Impairments of goodwill and other intangible assets | |||||||||||||||||
| Loss on sale of assets | |||||||||||||||||
| Deferred income taxes | ( | ||||||||||||||||
| Net gains on investment securities | ( | ( | |||||||||||||||
| Equity in losses from equity-method investments | |||||||||||||||||
| Distributions from equity-method investments | |||||||||||||||||
| Non-cash lease expense | |||||||||||||||||
| Non-cash portion of restructuring | |||||||||||||||||
| Change in fair value of contingent liability | ( | ||||||||||||||||
| Provision for credit losses | |||||||||||||||||
| Other | ( | ||||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Receivables | ( | ( | |||||||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||||||||
| Operating right-of-use assets and operating lease liabilities, net | ( | ( | ( | ||||||||||||||
| Accrued salary and benefits | ( | ( | |||||||||||||||
| Other | ( | ||||||||||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Investments in equity-method investments | ( | ||||||||||||||||
| Distributions from equity-method investments | |||||||||||||||||
| Purchase of debt securities | ( | ||||||||||||||||
| Purchase of equity securities | ( | ( | |||||||||||||||
| Purchase of long-term investments | ( | ( | |||||||||||||||
| Purchase of subsidiaries | ( | ( | |||||||||||||||
| Cash acquired in purchase of subsidiaries | |||||||||||||||||
| Capital expenditures | ( | ( | ( | ||||||||||||||
| Net cash used in investing activities | ( | ( | ( | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Repayment of debt | ( | ( | ( | ||||||||||||||
| Contributions from Former Parent | |||||||||||||||||
| Distributions to Former Parent | ( | ||||||||||||||||
| Dividends on common stock | ( | ||||||||||||||||
| Contributions from non-controlling interest | |||||||||||||||||
| Earn out payments | ( | ( | ( | ||||||||||||||
| Net cash (used in) provided by financing activities | ( | ( | |||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of year | |||||||||||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of the combined consolidated financial statements.
F-7
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation:
Douglas Elliman Inc. (“Douglas Elliman” or the “Company”) is engaged in the real estate services and property technology investment business and is seeking to acquire or invest in additional real estate services and property technology, or PropTech, companies. Douglas Elliman owns Douglas Elliman Realty, LLC, one of the largest residential brokerage companies in the New York metropolitan area and the sixth largest in the U.S. Douglas Elliman has approximately 120 offices with approximately 6,900 real estate agents in the New York metropolitan area as well as in Florida, California, Connecticut, Massachusetts, Colorado, New Jersey, and Texas. In August 2021, Douglas Elliman increased its ownership in Douglas Elliman Texas from 1 % to 50 %. Prior to December 29, 2021, the Company was wholly owned by Vector Group Ltd. (“Vector Group” and collectively, with its consolidated subsidiaries, “Former Parent”).
In December 2021, the Vector Group board of directors approved the distribution of the operations of its real estate services and property technology business through a pro rata distribution of the Company’s stock to existing Vector Group stockholders. On December 29, 2021, Vector Group stockholders received one share of Douglas Elliman common stock for every two shares of Vector Group common stock held as of the close of business on December 20, 2021 (the “Distribution”).
The accompanying combined consolidated financial statements include the accounts and transactions of Douglas Elliman, as well as the entities in which Douglas Elliman directly or indirectly has a controlling financial interest. These entities include DER Holdings LLC and New Valley Ventures LLC (“New Valley Ventures”), directly and indirectly wholly-owned subsidiaries of Vector Group. DER Holdings LLC owns Douglas Elliman Realty, LLC and Douglas Elliman of California, Inc. New Valley Ventures consists of minority investments in innovative and cutting-edge Property Technology companies (“PropTech”). The accompanying combined consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Douglas Elliman’s combined consolidated financial statements include certain indirect general and administrative costs allocated to it by Former Parent for certain functions and services including, but not limited to, executive office, finance and other administrative support. These expenses have been allocated to Douglas Elliman on the basis of direct usage, when identifiable, or a quarterly management fee of $500 , which was charged quarterly until March 31, 2020. The management fee was suspended in connection with the impact of the COVID-19 pandemic.
Douglas Elliman’s combined consolidated results of operations, financial position and cash flows may not be indicative of its future performance and do not necessarily reflect what its combined consolidated results of operations, financial position and cash flows would have been had Douglas Elliman operated as a separate, stand- alone entity during the periods presented, including changes in its operations and capitalization as a result of the separation and distribution from Vector Group.
In presenting the combined consolidated financial statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates.
(b) Principles of Consolidation:
The combined consolidated financial statements presented herein have been prepared on a standalone basis and, prior to December 29, 2021, are derived from the combined consolidated financial statements and accounting records of Vector Group. The combined consolidated financial statements include the assets, liabilities, revenues, expenses and cash flows of DER Holdings LLC and New Valley Ventures as well as all other entities in which Douglas Elliman has a controlling financial interest. All intercompany balances and transactions have been eliminated in the combined consolidated financial statements.
When evaluating an entity for consolidation, Douglas Elliman first determines whether an entity is within the scope of the guidance for consolidation of variable interest entities (“VIE”) and if it is deemed to be a VIE. If the entity is considered to be a VIE, Douglas Elliman determines whether it would be considered the entity’s primary beneficiary. Douglas Elliman consolidates those VIEs for which it has determined that it is the primary beneficiary. If Douglas Elliman determines it does not have a controlling financial interest in an entity that is a VIE, it does not consolidate the entity. For entities where Douglas Elliman does not have a controlling financial interest, the investments in such entities are classified as available-for-sale securities or accounted for using the equity or cost method, as appropriate.
F-8
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(c) Former Parent’s Net Investment:
(d) Estimates and Assumptions:
(e) Cash and Cash Equivalents:
(f) Reconciliation of Cash, Cash Equivalents and Restricted Cash:
The components of “Cash, cash equivalents and restricted cash” in the combined consolidated statements of cash flows were as follows:
| December 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||
| Restricted cash and cash equivalents included in current assets | |||||||||||||||||
| Restricted cash and cash equivalents included in other assets | |||||||||||||||||
| Total cash, cash equivalents, and restricted cash shown in the combined consolidated statements of cash flows | $ | $ | $ | ||||||||||||||
(g) Investment Securities:
(h) Significant Concentrations of Credit Risk:
(i) Receivables:
F-9
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(j) Property and equipment, net:
Property and equipment, net are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets, which are 3 to 10 years for furniture and equipment.
The cost and related accumulated depreciation of property and equipment, net are removed from the accounts upon retirement or other disposition and any resulting gain or loss is reflected in operations.
The cost of leasehold improvements is amortized over the lesser of the related leases or the estimated useful lives of the improvements. Costs of major additions and betterments are capitalized, while expenditures for routine maintenance and repairs are charged to expense as incurred.
(k) Investments accounted for under the equity-method of accounting:
In accounting for its equity-method investments, the Company identified its participation in Variable Interest Entities (“VIE”), which are defined as (a) entities in which the equity investment at risk is not sufficient to finance its activities without additional subordinated financial support; (b) as a group, the equity investors at risk lack 1) the power to direct the activities of a legal entity that most significantly impact the entity’s economic performance, 2) the obligation to absorb the expected losses of the entity, or 3) the right to receive the expected residual returns of the entity; or (c) as a group, the equity investors have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.
The Company’s interest in VIEs is primarily in the form of equity ownership. The Company examines specific criteria and uses judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights exclusive of protective rights or voting rights and level of economic disproportionality between the Company and its other partner(s).
Accounting guidance requires the consolidation of VIEs in which the Company is the primary beneficiary. The guidance requires consolidation of VIEs that an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company’s maximum exposure to loss in its investments in unconsolidated VIEs is limited to its investment in the VIE, any unfunded capital commitments to the VIE, and, in some cases, guarantees in connection with debt on the specific project.
(l) Goodwill and Other Intangible Assets:
F-10
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$46,252 and to the trademark intangible asset of $12,000 . The Company performed a qualitative assessment for the year ended December 31, 2022, which did not result in additional impairment charges related to its goodwill or trademark.
Goodwill from acquisitions represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. Factors that contribute to the recognition of goodwill in the Company’s acquisitions include (i) expected growth rates and profitability of the acquired companies, (ii) securing buyer-specific synergies that increase revenue and profits and are not otherwise available to market participants, (iii) significant cost savings opportunities, (iv) experienced workforce and (v) the Company’s strategies for growth in sales, income and cash flows.
Intangible assets with finite lives are amortized over their respective estimated useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets described below.
(m) Impairment of Long-Lived Assets:
(n) Leases:
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and lease liabilities on the Company’s combined consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the duration of the lease term. Lease liabilities represent the Company’s obligation to make lease payments as determined by the lease agreement. Lease liabilities are recorded at commencement for the net present value of future lease payments over the lease term. The discount rate used is generally the Company’s estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable. Discount rates are calculated periodically to estimate the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security. ROU assets are recorded and recognized at commencement for the lease liability amount, initial direct costs incurred and are reduced for lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.
(o) Stock Awards:
F-11
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(p) Income Taxes:
The Company accounts for income taxes under the liability method and records deferred taxes for the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes as well as tax credit carryforwards and loss carryforwards. These deferred taxes are measured by applying the enacted tax rates relative to when the deferred item is expected to reverse. A valuation allowance reduces deferred tax assets when it is deemed more likely than not that some portion or all deferred tax assets will not be realized. A current tax provision is recorded for income taxes currently payable.
In 2021, the Company calculated its provision for income taxes for the two days subsequent to the Distribution based upon the taxable income attributable to its activity and the activity of its subsidiaries during this period. The Company’s principal subsidiaries, Douglas Elliman Realty, LLC and New Valley Ventures LLC, are limited liability companies. The members of a limited liability company are taxed on their proportionate share of the Company’s taxable income. Accordingly, prior to the Distribution, no provision or liability for Federal income taxes was included in the financial statements, except for Douglas Elliman of California, Inc. which is taxed as a corporation and has net operating loss carryforwards, which have been fully reserved for with a valuation allowance. The Company is, however, subject to New York City Unincorporated Business Tax (“UBT”) and accordingly has recorded a provision for UBT in its combined consolidated financial statements.
(q) Contingencies:
(r) Distributions and Dividends on Common Stock:
(s) Revenue Recognition:
Commissions and other brokerage income: Real estate commissions earned by the Company’s real estate brokerage businesses are recognized as revenue when the real estate sale is completed or lease agreement is executed, which is the point in time that the performance obligation is satisfied. Any commission and other payments received in advance are deferred until the satisfaction of the performance obligation. Corresponding agent commission expenses, including any advance commission or other direct expense payments, are deferred and recognized as agent commission expenses concurrently with related revenues. The accounting for these commissions and other brokerage income under Topic 606 are largely consistent with the previous accounting for these transactions under Topic 605, except for customer arrangements in the development marketing business and extended payments terms that exist in some commercial leasing contracts.
Property management: Property management revenue arrangements consist of providing operational and administrative services to manage a subject property. Fees for these services are typically billed and collected monthly. Property management service fees are recognized as revenue over time using the output method as the performance obligations under the customer arrangement are satisfied each month.
Ancillary services: Ancillary services revenue earned by the Company related primarily to title and escrow services. These services are recognized as revenue when the real estate sale is completed, which is the point in time that the performance obligation is satisfied.
See Note 2 — Revenue Recognition for additional information.
F-12
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(t) Real estate agent commissions:
(u) Sales and marketing expenses:
Real estate advertising costs, which are expensed as incurred and included within sales and marketing expenses, were $29,937 , $26,091 and $18,875 for the years ended December 31, 2022 and 2021 and 2020, respectively.
(v) Operations and support expenses:
(w) General and administrative expenses:
(x) Technology expenses:
(y) Restructuring:
The following table summarizes amounts expensed for the year ended December 31, 2020:
| Year Ended December 31, 2020 | |||||||||||
| Cash Charges: | |||||||||||
| Employee severance and benefits | $ | ||||||||||
| Other restructuring expenses | |||||||||||
| Non-Cash: | |||||||||||
| Loss on fixed assets associated with consolidation of sales offices | |||||||||||
| Total restructuring charges | $ | ||||||||||
All amounts expensed for the year ended December 31, 2020 are included as restructuring charges in the Company’s combined consolidated statements of operations.
F-13
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Employee severance and benefits expensed for the year ended December 31, 2020 relate entirely to the reduction in staff.
The following table presents the activity under the restructuring plan for the year ended December 31, 2020:
| Employee Severance and Benefits | Other | Non-Cash Loss on Fixed Assets | Total | |||||||||||||||||||||||
| Accrual balance as of January 1, 2020 | $ | $ | $ | $ | ||||||||||||||||||||||
| Restructuring charges | ||||||||||||||||||||||||||
| Utilized | ( | ( | ( | ( | ||||||||||||||||||||||
| Accrual balance as of December 31, 2020 | $ | $ | $ | $ | ||||||||||||||||||||||
(z) Investments and Other Income:
Investment and other income consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net gains recognized on PropTech convertible trading debt securities. | $ | $ | $ | ||||||||||||||
| Net gains recognized on long-term investments at fair value | |||||||||||||||||
| Other income | |||||||||||||||||
| Income related to Tax Disaffiliation indemnification | |||||||||||||||||
| Investment and other income | $ | $ | $ | ||||||||||||||
(aa) Other Comprehensive Income:
(ab) Acquisitions:
On August 6, 2021, the Company acquired an additional 49 % ownership in Douglas Elliman Texas, a licensed real estate service provider in Houston, Texas, for a purchase price of $500 . The purchase price allocation for this acquisition resulted in the recognition of $6,527 of intangible assets related to a non-compete agreement, $5,047 of assets, $11,389 of liabilities and $815 of goodwill. The goodwill is not expected to be deductible for income tax purposes. The non-compete agreement is expected to be amortized over ten years . The Company controls the board of Douglas Elliman Texas and consolidates its ownership interest under the voting interest model in accordance with ASC 810, resulting in a non-controlling interest for the remaining 50 % of Douglas Elliman Texas not owned by the Company on its combined consolidated financial statements.
The assets, liabilities and results of operations of Douglas Elliman Texas were not material to the Company’s combined consolidated financial position, results of operations, or cash flows and therefore pro forma financial information for the acquisition was not presented.
(ab) Subsequent Events:
(ac) New Accounting Pronouncements:
Accounting Standards Updates (“ASUs”) to be adopted in future periods:
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires that an acquirer recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies the guidance in Topic 820, Fair Value Measurement,
F-14
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The standard also requires certain disclosures for equity securities that are subject to contractual restrictions. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
SEC Proposed Rule Changes
On March 21, 2022, the SEC proposed rule changes that would require registrants to provide certain climate-related information in their registration statements and annual reports. The proposed rules would require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks would also include disclosure of a registrant's greenhouse gas emissions, which have become a commonly used metric to assess a registrant's exposure to such risks. In addition, under the proposed rules, certain climate-related financial metrics would be required in a registrant's audited financial statements. The Company is currently evaluating the impact of the proposed rule changes.
2. REVENUE RECOGNITION
Revenue Recognition Policies
Revenue is measured based on a consideration specified in a contract with a customer less any sales incentives. Revenue is recognized when (a) an enforceable contract with a customer exists, that has commercial substance, and collection of substantially all consideration for services is probable; and (b) the performance obligations to the customer are satisfied either over time or at a point in time.
Real estate sales: Real estate commissions earned by the Company’s real estate brokerage businesses are recognized as revenue when the real estate sale is completed or lease agreement is executed, which is the point in time that the performance obligation is satisfied. Any commission and other payments received in advance are deferred until the satisfaction of the performance obligation. Corresponding agent commission expenses, including any advance commission or other direct expense payments, are deferred and recognized as cost of sales concurrently with related revenues.
The Company’s revenue contracts with customers do not have multiple material performance obligations to customers under Topic 606, except for contracts in the Company’s development marketing business. Contracts in the development marketing business provide the Company with the exclusive right to sell units in a subject property for a commission fee per unit sold calculated as a percentage of the sales price of each unit. Accordingly, a performance obligation exists for each unit in the development marketing property under contract, and a portion of the total contract transaction price is allocated to and recognized at the time each unit is sold. The Company applies the optional exemption in paragraph 606-10-50-14A of Topic 606 and does not disclose the amount of the transaction price allocated to the remaining performance obligations for the Real Estate development marketing business because the transaction prices in these contracts are comprised entirely of variable consideration based on the ultimate selling price of each unit in the subject property. The total contract transaction price is allocated to each unit in the subject property and recognized when the performance obligation, i.e., the sale of each unit, is satisfied. Accordingly, the transaction price allocated to the remaining performance obligations for the development marketing business represents variable consideration allocated entirely to wholly unsatisfied performance obligations.
Under development marketing service arrangements, dedicated staff are required for a subject property and these costs are typically reimbursed from the customer through advance payments that are recoupable from future commission earnings. Advance payments received and associated direct costs paid are deferred, allocated to each unit in the subject property, and recognized at the time of the completed sale of each unit.
Development marketing service arrangements also include direct fulfillment costs incurred in advance of the satisfaction of the performance obligation. The Company capitalizes costs incurred in fulfilling a contract with a customer if the fulfillment costs 1) relate directly to an existing contract or anticipated contract, 2) generate or enhance resources that will be used to satisfy performance obligations in the future, and 3) are expected to be recovered. These costs are amortized over the estimated customer relationship period which is the contract term. The Company uses an amortization method that is consistent with the pattern of transfer of goods or services to its customers by allocating these costs to each unit in the subject property and expensing these costs as each unit sold is closed over the contract.
Commission revenue is recognized at the time the performance obligation is met for commercial leasing contracts, which is when the lease agreement is executed, as there are no further performance obligations, including any amounts of future payments under extended payment terms.
F-15
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property management revenue arrangements consist of providing operational and administrative services to manage a subject property. Fees for these services are typically billed and collected monthly. Property management service fees are recognized as revenue over time using the output method as the performance obligations under the customer arrangement are satisfied each month. The Company applies the optional exemption in paragraph 606-10-50-14 of Topic 606 and does not disclose the amount of the transaction price allocated to the remaining performance obligations for the Real Estate property management business because the contracts to provide property management services are typically annual contracts and provide cancellation rights to customers.
Title insurance commission fee revenue is earned when the sale of the title insurance policy is completed, which corresponds to the point in time when the underlying real estate sale is completed, which is when the performance obligation is satisfied. Escrow commission fee revenue is recorded at a point in time which occurs at the time a home sale transaction or refinancing closes.
Disaggregation of Revenue
In the following table, revenue is disaggregated by major services line and primary geographical market:
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Total | New York City | Northeast | Southeast | West | |||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||
| Commission and other brokerage income - existing home sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Commission and other brokerage income - development marketing | |||||||||||||||||||||||||||||||||||
| Property management revenue | |||||||||||||||||||||||||||||||||||
| Escrow and title fees | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Total | New York City | Northeast | Southeast | West | |||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||
| Commission and other brokerage income - existing home sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Commission and other brokerage income - development marketing | |||||||||||||||||||||||||||||||||||
| Property management revenue | |||||||||||||||||||||||||||||||||||
| Escrow and title fees | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Year Ended December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Total | New York City | Northeast | Southeast | West | |||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||
| Commission and other brokerage income - existing home sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Commission and other brokerage income - development marketing | |||||||||||||||||||||||||||||||||||
| Property management revenue | |||||||||||||||||||||||||||||||||||
| Escrow and title fees | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
F-16
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contract Balances
The following table provides information about contract assets and contract liabilities from development marketing and commercial leasing contracts with customers:
| December 31, 2022 | December 31, 2021 | ||||||||||
| Receivables, which are included in receivable | $ | $ | |||||||||
| Contract assets, net, which are included in other current assets | |||||||||||
| Contract assets, net, which are in other assets | |||||||||||
| Payables, which are included in other current liabilities | |||||||||||
| Contract liabilities, which are in current liabilities | |||||||||||
| Contract liabilities, which are in other liabilities | |||||||||||
Receivables and payables relate to commission receivables and commissions payable from the Real Estate commercial leasing contracts for which the performance obligation has been satisfied, have extended payment terms and are expected to be received and paid in the next twelve months . Receivables increased $314 for the year ended December 31, 2022 primarily due to revenue accrued as performance obligations are satisfied of $3,985 offset by cash collections. Correspondingly, payables increased by $221 primarily due to additional expense accruals as performance obligations are satisfied of $3,007 offset by cash payments.
Contract assets increased by $12,183 during the year ended December 31, 2022 due to $26,884 of payments made for direct fulfillment costs incurred in advance of the satisfaction of the performance obligations for Real Estate development marketing contracts, offset by costs recognized for units closed during the quarter.
Contract liabilities relate to payments received in advance of the performance obligations being satisfied under the Real Estate development marketing contracts and are recognized as revenue at the points in time when the Company performs under the contracts. Performance obligations related to the Real Estate development marketing contracts are considered satisfied when each unit is closed. Development marketing projects tend to span to six years from the time the Company enters into the contract with the developer to the time that all of the sales of the units in a subject property are closed. The timing for sales closings is dependent upon several external factors outside the Company’s control, including, but not limited to, economic factors, seller and buyer actions, construction timing and other real estate market factors. Accordingly, all contract liabilities and contract costs associated with development marketing are considered long-term until closing dates for unit sales are scheduled. As of December 31, 2022, the Company estimates approximately $8,222 of contract liabilities will be recognized as revenue within the next twelve months .
Contract liabilities increased by $16,682 during the year ended December 31, 2022 due to $38,461 of advance payments received from customers prior to the satisfaction of performance obligations for Real Estate development marketing contracts, offset by revenue recognized for units sold during the year. The Company recognized revenue of $6,776 for the year ended December 31, 2022 that were included in the contract liabilities balances at December 31, 2021. The Company recognized revenue of $9,988 for the year ended December 31, 2021 that were included in the contract balances at December 31, 2020. The Company recognized revenue of $8,846 for the year ended December 31, 2020 that were included in the contract balances at January 1, 2020.
F-17
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. CURRENT EXPECTED CREDIT LOSSES
Real estate broker agent receivables: Douglas Elliman Realty is exposed to credit losses for various amounts due from real estate agents, which are included in Other current assets on the combined consolidated balance sheets, net of an allowance for credit losses. The Company estimates its allowance for credit losses on receivables from agents based on an evaluation of aging, agent sales in pipeline, any security, specific exposures, historical experience of collections from the individual agents, and current and expected future market trends. The Company estimated that the credit losses for these receivables were $10,916 and $8,607 at December 31, 2022 and December 31, 2021, respectively.
The following table summarizes changes in the allowance for credit losses for the year ended December 31, 2022:
| January 1, 2022 | Current Period Provision | Write-offs | Recoveries | December 31, 2022 | |||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||
| Real estate broker agent receivables | $ | $ | (1) | $ | $ | ||||||||||||||||||||||||
_____________________________
(1)The current period provision for the real estate broker agent receivables is included in “General and administrative expenses” in the Company’s combined consolidated statements of operations.
The following table summarizes changes in the allowance for credit losses for the year ended December 31, 2021:
| January 1, 2021 | Current Period Provision | Write-offs | Recoveries | December 31, 2021 | |||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||
| Real estate broker agent receivables | $ | $ | (1) | $ | $ | ||||||||||||||||||||||||
_____________________________
(1)The current period provision for the real estate broker agent receivables is included in “General and administrative expenses” in the Company’s combined consolidated statements of operations.
4. EARNINGS (LOSS) PER SHARE
On December 29, 2021, the date of the Distribution, 77,720,626 shares of the Common Stock, par value $0.01 per share, were distributed to Vector Group stockholders of record as of December 20, 2021. This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Distribution as all shares were owned by Vector Group prior to the Distribution. For the 2020 calculation, these shares are treated as issued and outstanding at January 1, 2020 for purposes of calculating historical basic and diluted earnings per share.
The Company has restricted stock awards which will provide cash dividends at the same rate as paid on the common stock with respect to the shares underlying the restricted stock awards. These outstanding restricted stock awards would represent participating securities under authoritative guidance. The Company would recognize payments of the cash dividends on these awards as reductions in additional paid-in-capital on the Company’s combined consolidated balance sheets. The Company did not pay any dividends for the years ended December 31, 2021 and 2020, respectively.
As a result, in its calculation of basic and dilutive EPS for the years ended December 31, 2022, 2021 and 2020, respectively, the Company did not adjust its net (loss) income for the effect of these participating securities because the adjustment was negligible.
| For the year ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net (loss) income attributed to Douglas Elliman Inc. | $ | ( | $ | $ | ( | ||||||||||||
| Income attributable to participating securities | ( | ( | |||||||||||||||
| Net (loss) income available to common stockholders attributed to Douglas Elliman Inc. | $ | ( | $ | $ | ( | ||||||||||||
F-18
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basic and diluted EPS were calculated using the following common shares for the years ended December 31, 2022, 2021 and 2020:
| For the year ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Weighted-average shares for basic and diluted EPS | |||||||||||||||||
5. LEASES
The Company has operating leases for corporate and sales offices and equipment. The leases have remaining lease terms of less than one year to eleven years , some of which include options to extend for up to five years , and some of which include options to terminate the leases within one year . However, the Company in general is not reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are not considered in the lease term or the ROU asset and lease liability balances. The Company’s lease population includes purchase options on equipment leases that are included in the lease payments when reasonably certain to be exercised. The Company’s lease population does not include any residual value guarantees. The Company’s lease population does not contain any material restrictive covenants.
The Company has leases with variable payments, most commonly in the form of Common Area Maintenance (“CAM”) and tax charges which are based on actual costs incurred. These variable payments were excluded from the ROU asset and lease liability balances since they are not fixed or in-substance fixed payments. Variable payments are expensed as incurred.
The components of lease expense were as follows:
| Year Ended December 31, | |||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||
| Operating lease cost | $ | $ | $ | ||||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Less: Sublease income | ( | ( | ( | ||||||||||||||||||||
| Total lease cost | $ | $ | $ | ||||||||||||||||||||
Supplemental cash flow information related to leases was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash paid for amounts included in measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | ||||||||||||||
| ROU assets obtained in exchange for lease obligations: | |||||||||||||||||
| Operating leases | |||||||||||||||||
Supplemental balance sheet information related to leases was as follows:
| December 31, | December 31, | |||||||||||||
| 2022 | 2021 | |||||||||||||
| Weighted average remaining lease term in years: | ||||||||||||||
| Operating leases | ||||||||||||||
| Weighted average discount rate: | ||||||||||||||
| Operating leases | % | % | ||||||||||||
F-19
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2022, maturities of lease liabilities were as follows:
| Operating Leases | ||||||||
| Year Ending December 31: | ||||||||
| 2023 | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less imputed interest | ( | |||||||
| Total | $ | |||||||
As of December 31, 2022, the Company had $217 undiscounted lease payments relating to leases that have not yet commenced.
The Company’s rental expense for the years ended December 31, 2022, 2021 and 2020 was $33,248 , $32,692 and $32,937 , respectively. Rent expense for the year ended December 31, 2022 consisted of $20,621 of amortization and $12,627 of lease expense for interest accretion on operating lease liabilities. Rent expense for the year ended December 31, 2021 consisted of $18,667 of amortization and $14,025 of lease expense for interest accretion on operating lease liabilities. Rent expense for the year ended December 31, 2020 consisted of $17,326 of amortization and impairment of ROU assets and $15,611 of lease expense for interest accretion on operating lease liabilities.
6. LONG-TERM INVESTMENTS
Long-term investments consisted of the following:
| December 31, 2022 | December 31, 2021 | ||||||||||
| PropTech convertible trading debt securities | $ | $ | |||||||||
Long-term investment securities at fair value (1) | |||||||||||
| PropTech investments at cost | |||||||||||
| Total investments | |||||||||||
PropTech current convertible trading debt securities (2) | |||||||||||
| Total long-term investments | $ | $ | |||||||||
_____________________________
(1) These assets are measured at net asset value (“NAV”) as a practical expedient under ASC 820.
(2) These amounts are included in “Other current assets” on the combined consolidated balance sheets.
Net gains recognized on long-term investment securities were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net gains recognized on PropTech convertible trading debt securities | $ | $ | $ | ||||||||||||||
| Net gains recognized on long-term investment securities at fair value | |||||||||||||||||
| Net gains recognized on long-term investment securities | $ | $ | $ | ||||||||||||||
(a) PropTech Convertible Trading Debt Securities:
During the year ended December 31, 2022, New Valley Ventures invested $701 into convertible notes of two PropTech ventures. The securities are classified as trading debt securities and are accounted for at fair value. The maturities of all convertible notes range from March 2023 to February 2025.
F-20
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(b) Long-Term Investment Securities at Fair Value:
The following is a summary of unrealized and realized net gains recognized in net income on long-term investment securities at fair value during the years ended December 31, 2022, 2021 and 2020, respectively:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net gains recognized on long-term investment securities | $ | $ | $ | ||||||||||||||
| Less: Net gains recognized on long-term investment securities sold | |||||||||||||||||
| Net unrealized gains recognized on long-term investment securities still held at the reporting date | $ | $ | $ | ||||||||||||||
The Company has unfunded commitments of $1,085 related to long-term investment securities at fair value as of December 31, 2022. During the year ended December 31, 2022, New Valley Ventures invested $500 into one additional investment that is classified as a long-term investment security at fair value.
(c) Equity Securities Without Readily Determinable Fair Values That Do Not Qualify for the NAV Practical Expedient
During the year ended December 31, 2022, New Valley Ventures invested $1,500 into four additional PropTech ventures, which do not qualify for the NAV practical expedient. During the year ended December 31, 2022, one of the convertible trading debt securities was converted and it was classified as an equity security without a readily determinable fair value. The total carrying value of these investments was $8,588 and $4,338 as of December 31, 2022 and 2021, respectively. No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the year ended December 31, 2022.
7. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
| December 31, 2022 | December 31, 2021 | ||||||||||
| Leasehold improvements | $ | $ | |||||||||
| Furniture and equipment | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| $ | $ | ||||||||||
Depreciation and amortization expense related to property and equipment, net for the years ended December 31, 2022, 2021 and 2020 was $7,257 , $8,144 and $8,373 , respectively.
8. EQUITY METHOD INVESTMENTS
Equity-method investments consisted of the following:
| December 31, 2022 | December 31, 2021 | ||||||||||
| Ancillary services ventures | $ | $ | |||||||||
At December 31, 2022, the Company’s ownership percentages in these investments ranged from 17.0 % to 50.0 %; therefore, the Company accounts for these investments under the equity method of accounting.
VIE Consideration:
The Company has determined that the Company is not the primary beneficiary of any of its equity method investments because it does not control the activities that most significantly impact the economic performance of each investment. The Company determined that the entities were VIEs but the Company was not the primary beneficiary. Therefore, the Company’s equity method investments have been accounted for under the equity method of accounting.
F-21
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Maximum Exposure to Loss:
The Company’s maximum exposure to loss from its equity method investments consists of the net carrying value of the investments adjusted for any future capital commitments and/or guarantee arrangements and was $1,629 as of December 31, 2022.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
The components of Goodwill and other intangible assets were as follows:
| December 31, 2022 | December 31, 2021 | |||||||||||||
| Goodwill | $ | $ | ||||||||||||
| Indefinite-life intangibles: | ||||||||||||||
| Trademark - Douglas Elliman | $ | $ | ||||||||||||
| Intangibles with a finite life, net | ||||||||||||||
| Total other intangible assets, net | $ | $ | ||||||||||||
The carrying amounts of goodwill and intangibles with a finite life, net related to acquisitions made in 2022 were as follows:
| Goodwill | Intangibles with a finite life, net | |||||||||||||
| Balance as of January 1, 2022 | $ | $ | ||||||||||||
Purchase price adjustment (1) | ( | |||||||||||||
| Amortization | — | ( | ||||||||||||
| Balance as of December 31, 2022 | $ | $ | ||||||||||||
_____________________________
(1) Purchase price adjustment related to the Douglas Elliman Texas acquisition. Refer to Note 1, Summary of Significant Accounting Policies, for further information.
The carrying amounts of goodwill and intangibles with a finite life, net related to the August 6, 2021 acquisition of an additional 49 % ownership in Douglas Elliman Texas were as follows:
| Goodwill | Intangibles with a finite life, net | |||||||||||||
| Balance as of January 1, 2021 | $ | $ | ||||||||||||
Acquisitions (1) | ||||||||||||||
| Amortization | — | ( | ||||||||||||
| Balance as of December 31, 2021 | $ | $ | ||||||||||||
_____________________________
(1) Refer to Note 1, Summary of Significant Accounting Policies, for further information.
Goodwill is evaluated for impairment annually or whenever the Company identifies certain triggering events or circumstances that would more likely than not reduce the fair value of the Company below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, macro and reporting unit specific economic factors (for example, interest rate and foreign exchange rate fluctuations, and loss of key personnel), supply costs, unanticipated competitive activities, and acts by governments and courts.
During the first quarter of 2020, the Company determined that a triggering event occurred due to a decline in sales and profitability projections for the Company driven by the COVID-19 pandemic and related economic disruption. The Company utilized third-party valuation specialists to prepare a quantitative assessment of goodwill and trademark intangible asset related to Douglas Elliman.
For the goodwill testing, the Company utilized an income approach (a discounted cash flows method) to estimate the fair value of the Douglas Elliman business. The estimated fair value of the trademark indefinite-life intangible asset related to the
F-22
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Douglas Elliman brand name was determined using an approach that values the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trade name.
The third-party quantitative assessments of the goodwill and trademark intangible asset reflected management’s assumptions regarding revenue growth rates, economic and market trends including current expectations of deterioration resulting from the COVID-19 pandemic, changes to cost structures and other expectations about the anticipated short-term and long-term operating results of the Company. The quantitative assessments resulted in impairment charges to goodwill of $46,252 and to the trademark intangible asset of $12,000 .
The Company determined that there have not been any triggering events since the first quarter of 2020. If the Company fails to achieve the financial projections used in the quantitative assessments of fair value, additional impairment charges could result in future periods, and such impairment charges could be material.
Other intangible assets and contract liabilities assumed were as follows:
| Useful Lives in Years | December 31, 2022 | December 31, 2021 | |||||||||||||||
| Trademark - Douglas Elliman | Indefinite | $ | $ | ||||||||||||||
| Other intangibles | |||||||||||||||||
| Less: Accumulated amortization on amortizable intangibles | ( | ( | |||||||||||||||
| Other intangibles, net | $ | $ | |||||||||||||||
The trademark intangible has been attributed to the acquisition of the Douglas Elliman brand name which the Company plans to continue using. The fair value of the intangible asset associated with the Douglas Elliman trademark is determined using a “relief from royalty payments” method. This approach involves two steps: (i) estimating reasonable royalty rates for its Douglas Elliman trademark and (ii) applying these royalty rates to a net sales stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of the trademark. The Company performed its impairment test for the year ended December 31, 2022, which did not result in additional impairment charges related to the Company’s trademark. If the Company fails to achieve the financial projections used in the quantitative assessments of fair value, additional impairment charges could result in future periods, and such impairment charges could be material.
As of December 31, 2022, other intangibles with finite lives included non-compete agreements recognized business combinations. Other intangibles in prior periods included backlog and listing inventory for Development sales.
For the years ended December 31, 2022, 2021, and 2020, respectively, amortization of other intangibles was $755 , $416 and $164 .
10. NOTES PAYABLE AND OTHER OBLIGATIONS
Notes payable and other obligations consisted of the following:
| December 31, 2022 | December 31, 2021 | ||||||||||
| Notes payable | $ | $ | |||||||||
| Other | |||||||||||
| Total notes payable and other obligations | |||||||||||
| Less: | |||||||||||
| Current maturities | ( | ||||||||||
| Amount due after one year | $ | $ | |||||||||
Notes Payable:
The notes payable in the amount of $30,000 were issued by DER Holdings LLC on December 31, 2018, in connection with the acquisition of the 29.41 % interest in Douglas Elliman. The remaining $12,500 of notes were repaid in full during 2022.
F-23
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value of Notes Payable and Other Obligations:
The estimated fair value of the Company’s notes payable and long-term debt was as follows:
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Notes payable | $ | $ | $ | $ | |||||||||||||||||||
| Other | |||||||||||||||||||||||
| Notes payable and other obligations | $ | $ | $ | $ | |||||||||||||||||||
Notes payable and other obligations are recorded at amortized cost. The fair value determinations disclosed above would be classified as Level 2 under the fair value hierarchy disclosed in Note 17 if such liabilities were recorded on the combined consolidated balance sheets at fair value.
Considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein is not necessarily indicative of the amount that could be realized in a current market exchange.
11. EMPLOYEE BENEFIT PLANS
F-24
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. INCOME TAXES
The financial statements of Douglas Elliman Inc. include the tax accounts of the following entities: (i) DER Holdings LLC, the parent of Douglas Elliman Realty LLC, is a single-member limited liability company that is a disregarded entity for U.S. income tax purposes, (ii) Douglas Elliman Realty LLC is a limited liability company that files as a partnership for U.S. income tax purposes, (iii) Douglas Elliman of California, Inc. is a corporation that reported on a separate company basis until February 28, 2019, then elected to become a consolidated subsidiary included in Vector Group’s consolidated U.S. income tax return until the Distribution, and thereafter is a consolidated subsidiary of Douglas Elliman Inc., (iv) DER Holdings II LLC, a subsidiary of DER Holdings LLC, which has elected to be taxed as corporation for U.S. income tax purposes, and (v) certain single member limited liability companies that are treated as disregarded entities for U.S. income tax purposes. Upon completion of the Distribution, Douglas Elliman Inc. and its subsidiaries detailed above became a separate taxable entity for federal and state income tax purposes.
After the Distribution, the Company calculates its provision for income taxes based upon the taxable income attributable to its activity and the activity of its subsidiaries. The net deferred tax liabilities attributable to the Company and its subsidiaries were transferred from Vector Group to the Company in connection with the tax-free Distribution.
For the periods presented prior to the Distribution, the Company calculated its provision for income taxes by using a separate-return method and elected not to allocate tax expense to single-member limited liability companies or partnerships that did not incur income tax liability because they were not severally liable for the taxes of their owners. Prior to the Distribution, Douglas Elliman of California, Inc. and DER Holdings II LLC were the only two entities taxed as a corporation for U.S. Income Tax purposes while the remaining entities were pass through entities for federal income tax purposes. Therefore, no income tax expense was allocated to entities other than DER Holdings LLC, Douglas Elliman of California, Inc. and, for purposes of New York City UBT only, Douglas Elliman Realty, LLC.
The amounts provided for income taxes were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. Federal | $ | $ | ( | $ | ( | ||||||||||||
| State and local | ( | ||||||||||||||||
| ( | |||||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. Federal | ( | ||||||||||||||||
| State and local | ( | ||||||||||||||||
| ( | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
F-25
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tax effect of temporary differences which give rise to a significant portion of deferred tax assets and liabilities is as follows:
| December 31, 2022 | December 31, 2021 | ||||||||||
| Deferred tax assets: | |||||||||||
| Allowance for doubtful accounts | $ | $ | |||||||||
| Basis differences on fixed and intangible assets | |||||||||||
| Various U.S. federal and state tax loss carryforwards | |||||||||||
| Operating lease liabilities | |||||||||||
| Other | |||||||||||
| Less: Valuation allowance | ( | ( | |||||||||
| Net deferred tax assets | $ | $ | |||||||||
| Deferred tax liabilities: | |||||||||||
| Basis differences on prepaid assets | $ | ( | $ | ( | |||||||
| Revenue recognition | ( | ( | |||||||||
| Basis differences on long-term investments | ( | ||||||||||
| Basis differences on acquisition | ( | ( | |||||||||
| Operating lease right-of-use assets | ( | ( | |||||||||
| Other | ( | ||||||||||
| $ | ( | $ | ( | ||||||||
| Net deferred tax liabilities | $ | ( | $ | ( | |||||||
The Company’s subsidiary, Douglas Elliman of California, Inc., files a consolidated U.S. income tax return that includes its wholly-owned U.S. subsidiaries. Standalone subsidiaries had tax-effected federal and state net operating loss (“NOL”) carryforwards of $6,417 and $5,196 at December 31, 2022 and 2021, respectively, with $4,388 expiring through tax year 2040 and the remaining carried forward indefinitely. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company had valuation allowances of $6,417 and $5,196 at December 31, 2022 and 2021, respectively. The valuation allowances at December 31, 2022 and 2021 related to federal and state net operating loss carryforwards and the deferred tax assets of Douglas Elliman of California, Inc. prior to March 1, 2019, which are limited for use in the future to the extent of the taxable income of Douglas Elliman of California, Inc. under the “Separate Return Limitation Year” rules of Internal Revenue Code Section 381.
The combined consolidated balance sheets of the Company include deferred income tax assets and liabilities, which represent temporary differences in the application of accounting rules established by GAAP and income tax laws.
F-26
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Differences between the amounts provided for income taxes and amounts computed at the federal statutory tax rate are summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Income (loss) before provision for income taxes | $ | $ | $ | ( | |||||||||||||
| Federal income tax expense (benefit) at statutory rate | ( | ||||||||||||||||
| Less Federal income tax (expense) benefit attributable to pass through entities | ( | ||||||||||||||||
| State and local income taxes, net of federal income tax benefits | ( | ||||||||||||||||
| Impact of non-controlling interest | |||||||||||||||||
| Non-deductible expenses | |||||||||||||||||
| Excess tax benefits on stock-based compensation | |||||||||||||||||
| Loss carryforwards from tax consolidation of subsidiary | ( | ||||||||||||||||
| Changes in valuation allowance, net of equity and tax audit adjustments | ( | ||||||||||||||||
| Other | |||||||||||||||||
| Income tax expense | $ | $ | $ | ||||||||||||||
The Company’s income tax expense is principally attributable to the Company’s federal, state and local income taxes based on the Company’s earnings.
The Company files U.S. and state and local income tax returns in jurisdictions with varying statutes of limitations. Liabilities for uncertain tax positions reflected as of December 31, 2022 and 2021 were not significant and it is not anticipated that they will materially change in the next 12 months. Douglas Elliman Realty, LLC is under an IRS audit for its 2018 tax return. Although the outcome of tax audits is always uncertain, Douglas Elliman Realty, LLC believes that its tax positions will generally be sustained under audit.
13. STOCK COMPENSATION
On December 31, 2021, the Company granted equity compensation under its 2021 Plan. The 2021 Plan was adopted on December 22, 2021 and approved by the Company’s stockholder on December 24, 2021. The 2021 Plan provides for the Company to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted shares, restricted stock units, performance share awards, other stock-based awards and cash-based awards. Shares available for issuance under the 2021 Plan are 6,839,604 shares as of December 31, 2022. The Company may satisfy its obligations under any award granted under the 2021 Plan by issuing new shares.
On December 31, 2021, the Company granted 3,490,000 restricted shares of the Company’s common stock (“the 2021 grants”) pursuant to the 2021 Plan to its executive officers, directors and certain employees. The shares vest over a period of four years and the Company will recognize $40,135 of expense over the vesting period of the 2021 grants. The Company recognized expense of $11,042 for the year ended December 31, 2022.
In 2022, the Company granted 65,000 restricted shares, net of forfeitures, of the Company’s common stock (“the 2022 grants”) pursuant to the 2021 Plan. The shares vest over a period of four years and the Company will recognize $487 of expense over the vesting period. The Company recognized expense of $96 for the year ended December 31, 2022.
F-27
DOUGLAS ELLIMAN INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of employee restricted stock award transactions is presented below:
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Nonvested at January 1, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Nonvested at December 31, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
| Nonvested at December 31, 2022 | $ | ||||||||||
As of December 31, 2022, there was $29,484 of total unrecognized compensation costs related to nonvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of approximately 1.93 years.
14. CONTINGENCIES
15. SUPPLEMENTAL CASH FLOW INFORMATION
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash paid during the period for: | |||||||||||||||||
| Interest | $ | $ | $ | ||||||||||||||
| Income taxes, net | |||||||||||||||||
| Non-cash investing and financing activities: | |||||||||||||||||
| Capital expenditures incurred but not paid | |||||||||||||||||
| Transfers from Former Parent, net | |||||||||||||||||
F-28
16. RELATED PARTY TRANSACTIONS
On December 29, 2021, Vector Group completed the Distribution and the Company and Vector Group entered into a distribution agreement (the “Distribution Agreement”) and several ancillary agreements for the purpose of accomplishing the Distribution. The Distribution Agreement includes an agreement that the Company and Vector Group will provide each other with appropriate indemnities with respect to liabilities arising out of the business retained by Vector Group and the business transferred to Douglas Elliman by Vector Group. These agreements also govern the Company’s relationship with Vector Group subsequent to the Distribution and provide for the allocation of employee benefit, tax and some other liabilities and obligations attributable to periods prior to, at and after the Distribution. These agreements also include arrangements with respect to transition services (the “Transition Services Agreement”). The Company and Vector Group entered into a Transition Services Agreement with respect to transition services and a number of ongoing commercial relationships. Under the agreement, the Company paid Vector Group $4,200 in 2022. The Company and Vector Group also entered into Aircraft Lease Agreements for the right to lease on a flight-by-flight basis certain aircraft owned by Vector. Under the agreements, the Company paid Vector Group $2,418 in 2022. Vector Group has agreed to indemnify the Company for certain tax matters under the Tax Disaffiliation Agreement. The Company received $589 and recorded the amount in Investment and other income in its combined consolidated statements of operations for the year ended December 31, 2022 related to the tax indemnifications.
Following the Distribution, there is an overlap between certain officers of the Company and Vector Group. The President and Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and Treasurer, and the General Counsel and Secretary of Douglas Elliman serve in the same role at Vector Group. Furthermore, three of the members of Douglas Elliman’s Board of Directors also serve as directors of Vector Group.
The Company has been engaged by certain developers as the sole broker or the co-broker for several of the real estate development projects that New Valley owns an interest in through its real estate venture investments. The Company had gross commissions of approximately $1,709 , $8,956 and $10,783 from these projects for the years ended December 31, 2022, 2021 and 2020, respectively.
The Company and a director each owned a 50 654 in May 2022 as a final distribution of an earn-out payment based on the performance of the entity in 2020 and 2021. The Company recorded equity in earnings from this equity-method investment of $654 , $75 and $30 for the years ended December 31, 2022, 2021 and 2020, respectively.
A son of the Company’s President and Chief Executive Officer is an associate broker with the Company and he received commissions and other payments of $1,490 , $925 and $870 , respectively, in accordance with brokerage activities in 2022, 2021 and 2020, respectively.
The spouse of the President and Chief Executive Officer of Douglas Elliman Realty, LLC is a real estate agent whose license is held at a subsidiary of the Company, and who received commissions and other payments of $230 , $420 and $40 in accordance with brokerage activities in 2022, 2021 and 2020, respectively.
F-29
17. INVESTMENTS AND FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities subject to fair value measurements were as follows:
| Fair Value Measurements as of December 31, 2022 | ||||||||||||||||||||||||||||||||
| Description | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
Money market funds (1) | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Certificates of deposit (2) | ||||||||||||||||||||||||||||||||
| PropTech convertible trading debt securities | ||||||||||||||||||||||||||||||||
| Long-term investments | ||||||||||||||||||||||||||||||||
| PropTech convertible trading debt securities | ||||||||||||||||||||||||||||||||
Long-term investment securities at fair value (3) | ||||||||||||||||||||||||||||||||
| Total long-term investments | ||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||||||||
_____________________________
(1)Amounts included in Cash and cash equivalents on the combined consolidated balance sheets, except for $4,985 that is included in current restricted cash and cash equivalents and $2,538 that is included in non-current restricted assets.
(2)Amounts included in current restricted assets and non-current restricted assets on the combined consolidated balance sheets.
(3)In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.
| Fair Value Measurements as of December 31, 2021 | ||||||||||||||||||||||||||||||||
| Description | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
Money market funds (1) | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Certificates of deposit (2) | ||||||||||||||||||||||||||||||||
| Long-term investments | ||||||||||||||||||||||||||||||||
| PropTech convertible trading debt securities | ||||||||||||||||||||||||||||||||
Long-term investment securities at fair value (3) | ||||||||||||||||||||||||||||||||
| Total long-term investments | ||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||||||||
_____________________________
(1)Amounts included in Cash and cash equivalents on the combined consolidated balance sheets, except for $15,336 that is included in current restricted assets and $1,907 that is included in non-current restricted assets.
(2)Amounts included in current restricted assets and non-current restricted assets on the combined consolidated balance sheets.
(3)In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.
The fair value of the Level 2 certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is the rate offered by the financial institution. The fair value of investment securities at fair value included in Level 1 is based on quoted market prices from various stock exchanges. The Level 2 investment securities at fair value are based on quoted market prices of securities that are thinly traded, quoted prices for identical or similar assets in markets that are not active or inputs other than quoted prices such as interest rates and yield curves.
F-30
The fair values of the Level 3 PropTech convertible trading debt securities were derived using a discounted cash flow model utilizing a probability-weighted expected return method based on the probabilities of different potential outcomes for the convertible trading debt securities.
The long-term investments are based on NAV per share provided by the partnerships based on the indicated market value of the underlying assets or investment portfolio. In accordance with Subtopic 820-10, these investments are not classified under the fair value hierarchy disclosed above because they are measured at fair value using the NAV practical expedient.
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2022:
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||||||||||||||
| Fair Value at | ||||||||||||||||||||||||||
| December 31, 2022 | Valuation Technique | Unobservable Input | Range (Actual) | |||||||||||||||||||||||
| PropTech convertible trading debt securities | $ | Discounted cash flow | Interest rate | |||||||||||||||||||||||
| Maturity | Mar 2023 - Feb 2025 | |||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||
| Discount rate | ||||||||||||||||||||||||||
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2021:
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||||||||||||||
| Fair Value at | ||||||||||||||||||||||||||
| December 31, 2021 | Valuation Technique | Unobservable Input | Range (Actual) | |||||||||||||||||||||||
| PropTech convertible trading debt securities | $ | Discounted cash flow | Interest rate | |||||||||||||||||||||||
| Maturity | Feb 2023 - Mar 2023 | |||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||
| Discount rate | ||||||||||||||||||||||||||
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record assets and liabilities at fair value on a nonrecurring basis. Generally, assets and liabilities are recorded at fair value on a nonrecurring basis as a result of impairment charges. The Company had no nonrecurring nonfinancial assets subject to fair value measurements as of December 31, 2022 and 2021, respectively.
F-31
18. SEGMENT INFORMATION
The Company’s business segments were Real Estate Brokerage and Corporate and Other. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
Financial information for the Company’s operations before taxes and non-controlling interests for the years ended December 31, 2022, 2021, and 2020 was as follows:
| Real Estate Brokerage | Corporate and Other | Total | |||||||||||||||
| 2022 | |||||||||||||||||
| Revenues | $ | $ | $ | ||||||||||||||
| Operating income (loss) | ( | ( | |||||||||||||||
| Identifiable assets | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Capital expenditures | |||||||||||||||||
| 2021 | |||||||||||||||||
| Revenues | $ | $ | $ | ||||||||||||||
| Operating income | |||||||||||||||||
| Identifiable assets | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Capital expenditures | |||||||||||||||||
| 2020 | |||||||||||||||||
| Revenues | $ | $ | $ | ||||||||||||||
Operating loss (1) | ( | ( | |||||||||||||||
| Identifiable assets | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Capital expenditures | |||||||||||||||||
_____________________________
(1)Operating loss includes $58,252 of charges related to impairments of goodwill and intangible assets, $3,382 of restructuring charges and $1,169 of loss on sale of assets.
F-32
DOUGLAS ELLIMAN INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
| Description | Balance at Beginning of Period | Additions Charged to Costs and Expenses | Deductions | Balance at End of Period | ||||||||||||||||||||||
| Year Ended December 31, 2022 | ||||||||||||||||||||||||||
| Allowances for: | ||||||||||||||||||||||||||
| Deferred tax valuation allowance | $ | $ | $ | $ | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Year Ended December 31, 2021 | ||||||||||||||||||||||||||
| Allowances for: | ||||||||||||||||||||||||||
| Deferred tax valuation allowance | $ | $ | $ | $ | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Year Ended December 31, 2020 | ||||||||||||||||||||||||||
| Allowances for: | ||||||||||||||||||||||||||
| Doubtful accounts | $ | $ | $ | $ | ||||||||||||||||||||||
| Deferred tax valuation allowance | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
F-33
EX 3.2
AMENDED AND RESTATED BYLAWS
OF
DOUGLAS ELLIMAN INC. EFFECTIVE NOVEMBER 30, 2022
(a Delaware corporation) ARTICLE I OFFICES
SECTION 1. Registered Office. The address of the Corporation’s registered office and registered agent for service of process in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle.
SECTION 2. Other Offices. The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors (“Board”) shall from time to time determine or the business of the Corporation may require.
ARTICLE II MEETINGS OF STOCK HOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders for the election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board and stated in the notice of meeting or in a duly executed waiver thereof. In lieu of holding a meeting of stockholders at a designated place, the Board may, in its sole discretion, determine that any meeting of stockholders may be held solely by means of remote communication.
SECTION 2. Annual Meeting. The annual meeting of stockholders shall be held at such date and time as shall be designated from time to time by the Board and stated in the notice of meeting or in a duly executed waiver thereof. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board and transact such other business as may properly be brought before the meeting.
SECTION 3. Special Meetings. (a) Special meetings of stockholders, unless otherwise prescribed by statute, may be called at any time by, and only by, the Board, the Chairman of the Board or the President.
SECTION 4. Notice of Meetings. (a) The Corporation shall give notice of any annual or special meeting of stockholders. Notices of meetings of the stockholders shall state the place, if any, date, and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting. In the case of a special meeting, the notice shall state the purpose or purposes for which the meeting is called. No business other than that specified in the notice thereof shall be transacted at any special meeting. Unless otherwise provided by applicable law or the Certificate of
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Incorporation of the Corporation (as the same may be amended and/or restated from time to time, the “Certificate of Incorporation”), notice shall be given to each stockholder entitled to vote at such meeting not fewer than 10 days nor more than 60 days before the date of the meeting.
(2)Notice to stockholders may be given by personal delivery, mail, or, with the consent of the stockholder entitled to receive notice, by facsimile or other means of electronic transmission. If mailed, such notice shall be delivered by postage-prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the Corporation and shall be deemed given when deposited in the United States mail. Notice shall be deemed to have been given to all stockholders of record who share an address if notice is given in accordance with the “householding” rules set forth in the rules of the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 233 of the Delaware General Corporation Law. Notice given by electronic transmission pursuant to this subsection shall be deemed given: (i) if by facsimile, when directed to a facsimile number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the Secretary of the Corporation (the “Secretary”), Assistant Secretary, the Corporation’s transfer agent or other agent of the Corporation that the notice has been given by personal delivery, mail, or a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(3)Notice of any meeting of stockholders need not be given to any stockholder if
(1)waived by such stockholder either in a writing signed by such stockholder or by electronic transmission, whether such waiver is given before or after such meeting is held, or (ii) if such stockholder shall attend such meeting, except when he or she shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. If such a waiver is given by electronic transmission, the electronic transmission must either set forth or be submitted with information from which it can be reasonably determined that the electronic transmission was authorized by the stockholder. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws.
SECTION 5. List of Stockholders. The Corporation’s transfer agent or the officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Nothing contained in this section shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting; or (b) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an
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electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation.
SECTION 6. Quorum, Adjournments. The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. To the fullest extent provided by law, the Board may postpone, reschedule or cancel any previously scheduled annual or special meeting of stockholders. Any meeting of stockholders, annual or special, may be adjourned from time to time, for any reason or no reason, by the chairman of a meeting, on the chairman’s own motion and without the approval of stockholders, regardless of whether a quorum is present, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken or are provided in any other manner permitted by the Delaware General Corporation Law. At the adjourned meeting, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than 30 days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 7. Organization. At each meeting of stockholders, the Chairman of the Board or, in his or her absence, the President, or such other executive officer of the Corporation designated by the Chairman or the President, shall act as chairman of the meeting. The Secretary or, in his or her absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof.
SECTION 8. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, the determination that one or more proposed nominations or other proposed item of business was not brought before a meeting in accordance with appropriate procedures or applicable law, or to otherwise reject any such proposed nomination or other proposed item of business as provided by these Bylaws or applicable law and the opening and closing of the voting polls, for each item on which a vote is to be taken.
SECTION 9. Voting. Except as otherwise provided by statute or the Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his or her name in the record of stockholders of the Corporation:
(a)on the date fixed pursuant to the provisions of Section 7 of ARTICLE V as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or
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(b)if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him or her by a proxy signed by such stockholder or his or her attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting prior to the time designated in the order of business for so delivering such proxies. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon that is present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. For purposes of this Bylaw, to the extent permitted by the listing rules of the New York Stock Exchange, votes cast “for” or “against” with respect to a given matter shall be counted as shares of stock of the Corporation entitled to vote on such matter, while “abstentions” with respect to a given matter and “broker nonvotes” (or other shares of stock of the Corporation similarly not entitled to vote) shall not be counted as shares entitled to vote on such matter. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his or her proxy, if by such proxy, and shall state the number of shares voted.
SECTION 10. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and
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time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a stockholder who submits a proxy by electronic transmission from which it can be determined that the proxy was authorized by the stockholder, any written ballot or, if authorized by the Board, a ballot submitted by electronic transmission together with any information from which it can be determined that the electronic transmission was authorized by the stockholder, any information provided in a record of a vote if such vote was taken at the meeting by means of remote communication along with any information used to verify that any person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder, ballots and the regular books and records of the corporation, and they may also consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.
SECTION 11. Remote Communication. For the purposes of these Bylaws, if authorized by the Board in its sole discretion, and subject to such guidelines and procedures as the Board may adopt, stockholders and proxyholders may, by means of remote communication:
(1)participate in a meeting of stockholders; and
(2)be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
SECTION 12. Action by Consent. No action shall be taken by stockholders of the Corporation except at an annual or special meeting of stockholders duly called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent.
SECTION 13. Advance Notice of Stockholder Nominees for Director and Other Stockholder Proposals. (a) The matters to be considered and brought before any annual or special meeting of stockholders of the Corporation shall be limited to only such matters, including the nomination and election of directors, as shall be brought properly before such meeting in
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compliance with the procedures set forth in this Section 13 of ARTICLE II or in Section 14 of ARTICLE II.
(2)For any matter to be brought properly before the annual meeting of stockholders, the matter must be (i) specified in the notice of the annual meeting given by or at the direction of the Board, (ii) otherwise brought before the annual meeting by or at the direction of the Board, (iii) brought before the annual meeting by a stockholder who is a stockholder of record of the Corporation on the date the notice provided for in this Section 13 of ARTICLE II is delivered to the Secretary, who is entitled to vote at the annual meeting and who complies with the procedures set forth in this Section 13 of ARTICLE II or (iv) in the case of a stockholder nomination to be included in the Corporation’s proxy statement for such annual meeting, by any Nominating Stockholder (as defined in Section 14 of ARTICLE II) who satisfies the requirements set forth in Section 14 of ARTICLE II. The forgoing clauses (iii) and (iv) shall be the exclusive means for a stockholder to make director nominations at an annual meeting of stockholders and clause (iii) shall be the exclusive means for a stockholder to submit proposals for other business at an annual meeting of stockholders (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Corporation’s proxy statement that has been prepared to solicit proxies for such annual meeting) before an annual meeting of stockholders.
In addition to any other requirements under applicable law and the Certificate of Incorporation and these Bylaws, written notice (the “Stockholder Notice”) of any nomination or other proposal must be timely and any proposal, other than a nomination, must constitute a proper matter for stockholder action and must not, if implemented, cause the Corporation to violate any state, federal or foreign law or regulation. To be timely, the Stockholder Notice must be delivered to the Secretary at the principal executive office of the Corporation not less than 90 nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year; provided, however, that if (and only if) the annual meeting is not scheduled to be held within a period that commences 30 days before such anniversary date and ends within 60 days after such anniversary date (an annual meeting date outside such period being referred to for the purposes of this Section 13 of ARTICLE II as an “Other Meeting Date”), the Stockholder Notice shall be given in the manner provided herein by the later of the close of business on
(i) the date 90 days prior to such Other Meeting Date or (ii) the 10th day following the date such Other Meeting Date is first publicly announced or disclosed.
A Stockholder Notice must contain the following information: (i) whether the stockholder is providing the notice at the request of one or more beneficial holders of shares, naming such holders; (ii) whether the stockholder or any of its beneficial owners has any agreement, arrangement or understanding with, or has received any financial assistance, funding or other consideration from, any Stockholder Associated Person (as defined below) or any other person (naming such person) with respect to the investment by the stockholder or such Stockholder Associated Person in the Corporation or the matter the Stockholder Notice relates to, and the details thereof, including any agreements, arrangements or understandings with respect to compensation, indemnification or voting of the Corporation’s securities or any stock lending, rights of recall, stock borrowing, short selling or hedging arrangements with respect to any shares owned beneficially or of record by such person or any of its affiliates, (iii) the name and address of all Stockholder Associated Persons, (iv) a complete listing of the record and beneficial
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ownership positions (including number or amount) of all equity securities and debt instruments, whether held in the form of loans or capital market instruments, of the Corporation or any of its subsidiaries held by all Stockholder Associated Persons, (v) whether and the extent to which, within the prior 6 months preceding the date of delivery of the Stockholder Notice, the stockholder or any Stockholder Associated Person, has directly or indirectly entered into a Derivative Instrument (as defined below) with respect to the Corporation or its subsidiaries or any of their respective securities, debt instruments or credit ratings, and if so, a summary of the material terms thereof, (vi) a representation that the stockholder is a holder of record of stock of the Corporation that would be entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose the matter set forth in the Stockholder Notice, (vii) a description of any performance-related fees (other than an asset-based fee) to which the stockholder and any Stockholder Associated Person may be entitled as a result of any increase or decrease in the value of any securities of the Corporation or any Derivative Instrument (as defined below), (viii) in the event that the Stockholder Notice relates to the nomination of directors for election, a representation and warranty that the stockholder has not nominated and will not nominate for election to the Board at the applicable annual meeting of stockholders any person other than its nominee(s) specified in the stockholder’s Stockholder Notice, (ix) the name and address of any other stockholders (including beneficial owners) known by the stockholder giving the Stockholder Notice (or any beneficial holder on whose behalf the stockholder is acting) to support such nomination or business on the date of such Stockholder Notice, and to the extent known, the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by such other stockholders, (x) any material interest of the stockholder, any Stockholder Associated Person in the business to be brought at the applicable meeting of stockholders, (xi) any other information relating to the stockholder, any Stockholder Associated Person or their affiliates that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitation of proxies pursuant to
Section 14 of the Exchange Act, (xii) a written agreement that the stockholder intends to appear in person or by proxy at the meeting to nominate the nominee or propose the business specified in its Stockholder Notice and an acknowledgment that if the stockholder (or a qualified representative (as defined below) of the stockholder) does not appear to nominate such nominee or propose such business at such meeting, the Corporation need not present such person or proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation (with the determination as to whether to present such nomination to be made by the Board, the Chairman or chairman of the meeting in his, her or its sole discretion), (xiii) a written representation whether the stockholder or any Stockholder Associated Person intends or is part of a group that intends (A) deliver a proxy statement to, and solicit proxies from, holders of, in the case of a business proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation sufficient to elect such nominee(s), (B) otherwise solicit proxies from stockholders in support of that proposal or nomination, and/or (C) solicit proxies in support of any proposed nominee in accordance with Rule 14a-19 under the Exchange Act; provided that if the stockholder (or any beneficial owner of stock on whose behalf the stockholder is acting) is part of such a group, the Stockholder Notice shall also include the name and address of each participant (as defined in Item 4 of Schedule 14A of the Exchange Act), and (xiv) a written representation and agreement, signed by
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the stockholder giving notice and any person on whose behalf the nomination is being made, to update the Stockholder Notice as required by the penultimate paragraph of this Section 13(b) of ARTICLE II. The information described in this paragraph, collectively, is referred to in these Bylaws as the “Stockholder Information”.
As used in these Bylaws: (x) “beneficially owned” has the meaning provided in Rules 13d-3 and 13d-5 under the Exchange Act and (y) “qualified representative” shall mean a person who is a duly authorized officer, manager, or partner of the absent stockholder, or another individual who is authorized in a writing signed by the absent stockholder, or an electronic transmission delivered to the Secretary by the absent stockholder, to act as its proxy at the stockholder meeting and who produces the writing or the electronic transmission or a reliable reproduction of either.
In addition to the Stockholder Information, any Stockholder Notice relating to the nomination of directors must contain (i) the information regarding each proposed nominee required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the SEC (or the corresponding provisions of any successor regulation), (ii) each proposed nominee’s signed consent to serve as a director of the Corporation if elected, (iii) whether each proposed nominee is eligible for consideration as an independent director under the relevant standards contemplated by Item 407(a) of Regulation S-K (or the corresponding provisions of any successor regulation),
(4)the class and number of shares of common stock of the Corporation that are owned beneficially or of record by such proposed nominee, the date(s) on which such shares were acquired, the investment intent of such acquisition and evidence of such beneficial or record ownership, (v) details of any shares of the Corporation owned by such proposed nominee that are
(a)pledged by the proposed nominee or otherwise subject to a lien, charge or other encumbrance or (B) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar instrument or agreement entered into by such proposed nominee, whether any such instrument or agreement described in this clause (B) is to be settled with shares or with cash based on the notional amount or value of outstanding shares of the Corporation, in any such case which instrument or agreement described in this clause (B) has, or is intended to have, the purpose or effect of (x) reducing or increasing in any manner, to any extent or at any time in the future, such proposed nominee’s full right to vote or direct the voting of any such shares, and/or (y) hedging, offsetting, or altering to any degree, gain or loss arising from the full economic ownership of such shares by such proposed nominee (collectively, “Derivative Instruments”), (vi) a written questionnaire with respect to the background and qualifications of such proposed nominee in the form required by the Corporation, which the stockholder proposing to nominate a person for election as director shall request in writing from the Secretary, and which the Secretary shall provide to any stockholder proposing to nominate a person for election as director within 10 days after receiving such written request, (vii) details of any compensatory, payment, reimbursement, indemnification or other financial agreement, arrangement or understanding with any person or entity in connection with service or action as a director of the Corporation, (viii) any other information relating to the proposed nominee that is required to be disclosed in solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, (ix) details of any position of where such proposed nominee has served as an officer or director of any competitor of the Corporation (that is, any entity that produces products that compete with or are alternatives to the principal products produced or services provided by the Corporation or its affiliates) within the three years preceding the submission of
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the Stockholder Notice, (x) details of any relationship between such proposed nominee and any entity that would require disclosure on Schedule 13D as if such proposed nominee was required to file a Schedule 13D with respect to the Corporation, and (xi) a written representation and agreement, signed by each proposed nominee, in a form reasonably satisfactory to the Board that: (A) such proposed nominee will comply with the Corporation’s processes for evaluating any person being considered for nomination to the Board, including an agreement to meet with the corporate responsibility and nominating committee, if requested to discuss matters relating to the nomination of such proposed nominee to the Board, including the information provided by such proposed nominee to the Corporation in connection with his or her nomination and such proposed nominee’s eligibility to serve as a member of the Board; (B) such proposed nominee consents to the running of a background check in accordance with the Corporation’s policy for prospective directors and will provide any information requested by the Corporation that is necessary to run such background check; (C) such proposed nominee’s candidacy or, if elected, membership on the Board would not violate applicable state or federal law or the rules of any stock exchange on which the Corporation’s securities are traded; (D) such proposed nominee will, if elected as a director, comply with applicable state or federal law, the rules of any stock exchange on which any of the Corporation’s securities are traded, all of the Corporation’s corporate governance, ethics, conflict of interest, confidentiality and stock ownership and trading policies and guidelines applicable generally to the Corporation’s directors (including, without limitation, the Corporation’s Corporate Governance Guidelines and Code of Ethics) and applicable fiduciary duties under state law and, if elected as a director, such proposed nominee would be in compliance with any such policies and guidelines that have been publicly disclosed;
(5)such proposed nominee and the stockholder is not and will not become a party to (x) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such proposed nominee would vote or act on any issue or question as a director (a “Voting Commitment”) that has not been disclosed to the Corporation, or (y) or any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director, with his or her fiduciary duties or other obligations under applicable law; (F) such proposed nominee and the stockholder is not and will not become a party to any compensatory, payment or other financial agreement, arrangement or understanding with any person or entity other than the Corporation in connection with service or action as a director that has not been disclosed to the Corporation; (G) such proposed nominee intends to serve a full term if elected as a director; (H) such proposed nominee will provide facts, statements and other information in all communications with the Corporation and its stockholders that are or will be true and correct in all material respects and that do not and will not omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; (I) such proposed nominee shall comply with all applicable laws, rules and regulations in connection with his, her or its nomination, solicitation and election; and (J) such proposed nominee will update the Stockholder Notice as required by the penultimate paragraph of Section 13(b) (the information described in this paragraph collectively, the “Nomination Information”).
The Corporation may also, as a condition of any proposed nomination being deemed properly brought by a stockholder before a stockholder meeting, require any proposed nominee, the stockholder giving notice and any other person on whose behalf the nomination is being made to furnish such other information (a) such person has agreed to furnish under the stockholder notice, questionnaire, representation and agreement delivered to the Corporation,
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including to update/supplement information previously provided to the Corporation pursuant to this Section 13(b), and (b) that could (as determined by the Corporation in its reasonable judgment) be (x) required by the Corporation to determine whether the proposed nominee would be considered “independent” as a member of the Board of Directors or meet the requirements for membership on the Board of Directors or any committee thereof or (y) material to a reasonable stockholder’s understanding of the qualifications and, fitness and/or independence, or lack thereof, of any proposed nominee.
Any Stockholder Notice with respect to a matter other than the nomination of directors must contain (i) the text of the proposal to be presented, including the text of any resolutions to be proposed for consideration by stockholders, (ii) a brief written statement of the reasons why such stockholder favors the proposal and (iii) any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made.
A stockholder providing notice must update the Stockholder Notice delivered and information previously provided to the Corporation pursuant to this Section 13 of ARTICLE II or the Nomination Notice delivered and information previously provided to the Corporation pursuant to Section 14 of ARTICLE II, as applicable, if necessary, so that the information provided or required to be provided in such Stockholder Notice or Nomination Notice shall continue to be true and correct (i) as of the record date for the annual meeting and (ii) as of the date that is ten business days prior to such meeting (or any adjournment or postponement thereof), and such update must be received by the Secretary not later than five business days after the record date for such meeting (in the case of an update required to be made as of the record date) and not later than five business days prior to the date for such meeting (in the case of an update required to be made as of ten business days prior to such meeting or any adjournment or postponement thereof). For the avoidance of doubt, no supplement or update made pursuant to this paragraph may include any new proposed nominee who was not named in the original notice or be deemed to cure any defects or limit the remedies (including under these Bylaws) available to the Corporation relating to any defect.
For any matter to be brought properly before a special meeting of stockholders, the matter must be set forth in the Corporation’s notice of the meeting given by or at the direction of the Board. In the event that the Corporation calls a special meeting of stockholders for the purpose of electing one or more persons to the Board, any stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of the meeting, if the Stockholder Notice required by Section 13(b) of ARTICLE II shall be delivered to the Secretary at the principal executive office of the Corporation not later than the close of business on the 10th day following the day on which the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting is publicly announced or disclosed; provided that the number of proposed nominees shall not exceed the number of directors proposed for election.
(3)For purposes of this Section 13 of ARTICLE II, a matter shall be deemed to have been “publicly announced or disclosed” if such matter is disclosed in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the SEC.
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(4)Notwithstanding anything to the contrary in these Bylaws, at the time its Stockholder Notice is delivered to the Secretary and at all times thereafter, a stockholder, as well as the stockholder’s nominee, shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Bylaws (including Regulation 14A and Rule 14a-9 promulgated under the Exchange Act). Without limiting the foregoing, unless otherwise required by law, if any stockholder or its affiliate (i) provides notice pursuant to Rule 14a-19(b) under the Exchange Act with respect to any proposed nominee and (ii) subsequently fails to comply with the requirements of Rule 14a-19(a)(2) or Rule 14a-19(a)(3) under the Exchange Act (or fails to timely provide reasonable evidence sufficient to satisfy the Corporation that such stockholder or its applicable affiliates has met the requirements of Rule 14a-19(a)(3) under the Exchange Act in accordance with the following sentence), then the nomination of each such proposed nominee shall be disregarded, notwithstanding that proxies or votes in respect of the election of such proposed nominees may have been received by the Corporation (which proxies and votes shall be disregarded). If any stockholder or its affiliate provides notice pursuant to Rule 14a-19(b) under the Exchange Act, such stockholder or affiliate shall deliver to the Corporation, no later than 5 business days prior to the applicable meeting, a written certification (and upon request by the Corporation, reasonable evidence) that it has met the requirements of Rule 14a-19 under the Exchange Act. Nothing in this Section 13 or Section 14 of ARTICLE II of these Bylaws shall be deemed to limit any rights of stockholders with respect to stockholder proposals made pursuant to Rule 14a- 8 under the Exchange Act.
(5)Only persons who are nominated in accordance with the procedures set forth in this Section 13 of ARTICLE II or, if applicable, Section 14 of ARTICLE II, of these Bylaws shall be eligible for election as directors of the Corporation and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the requirements set forth in these Bylaws. If the Board, the Chairman or the chairman of the meeting determines that one or more proposed nominations or other proposed item of business was not brought before a stockholder meeting in accordance with such procedures set forth in this Section 13 of ARTICLE II or, if applicable, Section 14 of ARTICLE II, then the chairman of the meeting shall declare to the meeting that the nomination or other proposed item of business, as applicable, was defective and such defective nomination or proposed item of business shall be disregarded. Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the meeting of stockholders to nominate the individual set forth in the stockholder’s Stockholder Notice, then the Corporation need not present such nomination for a vote at such meeting, notwithstanding that proxies or votes may have been received by the Corporation (which proxies and votes shall be disregarded) (with the determination as to whether to present such nomination to be made by chairman of the meeting in his, her or its sole discretion). In no event shall the postponement or adjournment of an annual meeting already publicly noticed, or any announcement of such postponement or adjournment, commence a new period (or extend any time period) for the giving of notice as provided in this Section 13 of ARTICLE II. This Section 13 of ARTICLE II shall not apply to stockholders proposals made pursuant to Rule 14a-8 under the Exchange Act.
(6)If the Board determines that any requirement under the Bylaws or any other applicable legal requirement has not been satisfied as to any proposed nomination or other business proposed to be transacted at a meeting, then it may elect to (x) waive the deficiency
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with respect to such director nomination or other proposed business, (y) notify the stockholder of, and provide the stockholder with an opportunity to cure, such deficiency, or (z) disregard any defective nomination or decline to allow the proposed nomination or other business to be transacted at the meeting, notwithstanding that proxies or votes in respect thereof may have been received by the Corporation (which proxies and votes shall be disregarded). Notwithstanding the foregoing provisions of this Section 13 of ARTICLE II, if the stockholder or a qualified representative of the stockholder does not appear at the annual or special meeting of stockholders of the Corporation to present any such nomination, or make any such proposal, such nomination or proposal shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation.
(7)Any stockholder directly or indirectly soliciting proxies from other stockholders must use a proxy card color other than white, which shall be reserved for the exclusive use for solicitation by the Board.
(8)For purposes of these Bylaws, a “Stockholder Associated Person” of any stockholder proposing business to be brought at a meeting of stockholders or nominating a person for election as a director, as applicable, shall mean (i) any person who is a member of a “group” (as such term is used in Rule 13d-5 of the Exchange Act) with or otherwise acting in concert with such stockholder, (ii) any beneficial owner of shares of capital stock of the Corporation beneficially owned or of record by such stockholder (other than a stockholder that is a depositary), (iii) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such stockholder or such person identified in the foregoing clauses (i) and (ii) and beneficially owns, directly or indirectly, shares of capital stock of the Corporation and (iv) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A, or any successor instructions) with such stockholder or such person identified in the foregoing clauses (i), (ii) and (iii) in respect of any proposals or nominations, as applicable.
SECTION 14. Stockholder Nominations Included in the Corporation’s Proxy Materials.
(1)Inclusion of Proxy Access Nominees in Proxy Statement. Subject to the provisions of this Section 14 of ARTICLE II, if expressly requested in the relevant Nomination Notice (as defined below), the Corporation shall include in its proxy statement for any annual meeting of stockholders:
(a)the names of any person or persons nominated for election, which shall also be included on the Corporation’s form of proxy and ballot, by any Eligible Holder (as defined below) or group of up to 20 Eligible Holders that has (individually and collectively, in the case of a group) satisfied, as determined by the Board, all applicable conditions and complied with all applicable procedures set forth in this Section 14 of ARTICLE II (such Eligible Holder or group of Eligible Holders being a “Nominating Stockholder” and each person so nominated, a “Proxy Access Nominee”);
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(b)disclosure about each Proxy Access Nominee and the Nominating Stockholder required under the rules of the SEC or other applicable law to be included in the proxy statement;
(c)any statement in support of the Proxy Access Nominee’s (or Proxy Access Nominees’, as applicable) election to the Board included by the Nominating Stockholder in the Nomination Notice for inclusion in the proxy statement (subject, without limitation, to Section 14(e)(2) of ARTICLE II), provided that such statement does not exceed 500 words and fully complies with Section 14 of the Exchange Act and the rules and regulations thereunder, including Rule 14a-9 (the “Statement”); and
(d)any other information that the Corporation or the Board determines, in their discretion, to include in the proxy statement relating to the nomination of the Proxy Access Nominee(s), including, without limitation, any statement in opposition to the nomination, any of the information provided pursuant to this Section 14 of ARTICLE II and any solicitation materials or related information with respect to the Proxy Access Nominee(s).
For purposes of this Section 14 of ARTICLE II, any determination to be made by the Board may be made by the Board, a committee of the Board or any officer of the Corporation designated by the Board or a committee of the Board, and any such determination shall be final and binding on the Corporation, any Eligible Holder, any Nominating Stockholder, any Proxy Access Nominee and any other person so long as made in good faith (without any further requirements).
(2)Maximum Number of Nominees.
(a)The Corporation shall not be required to include in the proxy statement for an annual meeting of stockholders more Proxy Access Nominees than that number of directors constituting the greater of (i) two and (ii) 20% of the total number of directors of the Corporation on the last day on which a Nomination Notice may be submitted pursuant to this Section 14 of ARTICLE II (rounded down to the nearest whole number) (the “Maximum Number”). The Maximum Number for a particular annual meeting of stockholders shall be reduced by: (i) the number of Proxy Access Nominees who are subsequently withdrawn or that the Board itself decides to nominate for election at such annual meeting of stockholders and (ii) the number of incumbent directors who had been Proxy Access Nominees with respect to any of the preceding two annual meetings of stockholders and whose reelection at the upcoming annual meeting of stockholders is being recommended by the Board. In the event that one or more vacancies for any reason occurs on the Board after the deadline for submitting a Nomination Notice as set forth in Section 14(d) of ARTICLE II but before the date of the Corporation’s applicable annual meeting of
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stockholders, and the Board resolves to reduce the size of the Board in connection therewith, the Maximum Number shall be calculated based on the number of directors in office as so reduced.
(b)If the number of Proxy Access Nominees pursuant to this Section 14 of ARTICLE II for any annual meeting of stockholders exceeds the Maximum Number then, promptly upon notice from the Corporation, each Nominating Stockholder will select one Proxy Access Nominee for inclusion in the proxy statement until the Maximum Number is reached, going in order of the amount (largest to smallest) of the ownership position as disclosed in each Nominating Stockholder’s Nomination Notice, with the process repeated if the Maximum Number is not reached after each Nominating Stockholder has selected one Proxy Access Nominee. If, after the deadline for submitting a Nomination Notice as set forth in Section 14(d) of ARTICLE II, a Nominating Stockholder ceases to satisfy the eligibility requirements in this Section 14 of ARTICLE II, as determined by the Board, or withdraws its nomination or a Proxy Access Nominee ceases to satisfy the eligibility requirements in this Section 14 of ARTICLE II, as determined by the Board, or becomes unwilling or unable to serve on the Board, whether before or after the mailing of the Corporation’s proxy statement for such annual meeting of stockholders, then the nomination shall be disregarded, and the Corporation: (i) shall not be required to include in its proxy statement for such annual meeting of stockholders or on any ballot or form of proxy for such annual meeting of stockholders the disregarded Proxy Access Nominee or any successor or replacement nominee proposed by the applicable Nominating Stockholder or by any other Nominating Stockholder and
(ii) may otherwise communicate to its stockholders, including without limitation by amending or supplementing its proxy statement or ballot or form of proxy, that the Proxy Access Nominee will not be included as a Proxy Access Nominee in the proxy statement or on any ballot or form of proxy for such annual meeting of stockholders and will not be voted on at such annual meeting of stockholders.
(3)Eligibility of Nominating Stockholder.
(a)An “Eligible Holder” is a person who has either (i) been a record holder of the shares of the Corporation’s common stock used to satisfy the eligibility requirements in this Section 14(c) of ARTICLE II continuously for the three-year period specified in Subsection (2) below or (ii) provides to the Secretary, within the time period referred to in Section 14(d) of ARTICLE II, evidence of continuous ownership of such shares for such three-year period from one or more securities intermediaries in a form that the Board determines would be deemed acceptable for purposes of a shareholder proposal under Rule 14a- 8(b)(2) under the Exchange Act (or any successor rule).
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(b)An Eligible Holder or group of up to 20 Eligible Holders may submit a nomination in accordance with this Section 14 of ARTICLE II only if the person or group (in the aggregate) has continuously owned at least the Minimum Number (as defined below) of shares of the Corporation’s common stock throughout the three-year period preceding and including the date of submission of the Nomination Notice, and continues to own at least the Minimum Number of such shares through the date of the Corporation’s applicable annual meeting of stockholders. Two or more funds or accounts that are (i) under common management and investment control, (ii) under common management and funded primarily by the same employer (or by a group of related employers that are under common control) or (iii) a “group of investment companies,” as such term is defined in
Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended, shall be treated as one Eligible Holder if such Eligible Holder shall provide together with the Nomination Notice documentation reasonably satisfactory to the Board that demonstrates the satisfaction of any of the foregoing criteria. For the avoidance of doubt, in the event of a nomination by a group of Eligible Holders, any and all requirements and obligations for an individual Eligible Holder that are set forth in this Section 14 of ARTICLE II, including the minimum holding period, shall apply to each member of such group; provided, however, that the Minimum Number shall apply to the ownership of the group in the aggregate. Should any stockholder cease to satisfy the eligibility requirements in this Section 14 of ARTICLE II, as determined by the Board, or withdraw from a group of Eligible Holders at any time prior to the applicable annual meeting of stockholders, the group of Eligible Stockholders shall only be deemed to own the shares held by the remaining members of the group. As used in this Section 14 of ARTICLE II, any reference to a “group” or “group of Eligible Holders” refers to any Nominating Stockholder that consists of more than one Eligible Holder and to all the Eligible Holders that make up such Nominating Stockholder.
(c)The “Minimum Number” of shares of the Corporation’s common stock means 3% of the number of outstanding shares of common stock calculated as of the most recent date for which the total number of outstanding shares of common stock of the Corporation is given in any filing by the Corporation with the SEC prior to the submission of the Nomination Notice.
(d)For purposes of this Section 14 of ARTICLE II, an Eligible Holder “owns” only those outstanding shares of the Corporation as to which the Eligible Holder possesses both: (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit and risk of loss on) such shares; provided that the number of shares calculated in accordance with
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clauses (i) and (ii) shall not include (and shall be reduced by the amount of) any shares: (A) sold by such Eligible Holder or any of its affiliates in any transaction that has not yet been settled or closed,
(B) purchased by such Eligible Holder or any of its affiliates in a transaction that has not yet been settled or closed, (C) borrowed by such Eligible Holder or any of its affiliates for any purpose or purchased by such Eligible Holder or any of its affiliates pursuant to an agreement to resell or subject to any other obligation to resell to another person, or (D) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such Eligible Holder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of outstanding shares of the Corporation, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of: (x) reducing in any manner, to any extent or at any time in the future, such Eligible Holder’s or any of its affiliates’ full right to vote or direct the voting of any such shares, and/or (y) hedging, offsetting, or altering to any degree, gain or loss arising from the full economic ownership of such shares by such Eligible Holder or any of its affiliates. An Eligible Holder “owns” shares held in the name of a nominee or other intermediary so long as the Eligible Holder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has delegated any voting power by means of a proxy, power of attorney, or other similar instrument or arrangement that is revocable at any time by the Eligible Holder. An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has loaned such shares provided that the Eligible Holder has the power to recall such loaned shares on not more than five business days’ notice and has recalled such loaned shares as of (i) the record date for the Corporation’s applicable annual meeting of stockholders and (ii) the date of the Corporation’s applicable annual meeting of stockholders (it being understood that the Eligible Holder shall be entitled to loan such shares during the period that falls between the dates referenced in clauses (i) and (ii)). The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings. Whether outstanding shares of the Corporation are “owned” for these purposes shall be determined by the Board.
(e)No Eligible Holder shall be permitted to be in more than one group constituting a Nominating Stockholder, and if any Eligible Holder appears as a member of more than one group, it shall be deemed to be a member of the group that has the largest net long position as reflected in the Nomination Notice.
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(4)Nomination Notice. To nominate a Proxy Access Nominee, the Nominating Stockholder must, no earlier than 150 calendar days and no later than the close of business 120 calendar days before the anniversary of the date that the Corporation mailed its proxy statement for the prior year’s annual meeting of stockholders, submit to the Secretary at the principal executive office of the Corporation all of the following information and documents (collectively, the “Nomination Notice”); provided, however, that if (and only if) the applicable annual meeting of stockholders is not scheduled to be held within a period that commences 30 days before such anniversary date and ends 30 days after such anniversary date (an annual meeting date outside such period being referred to for the purposes of this Section 14 of ARTICLE II as an “Other Meeting Date”), the Nomination Notice shall be given in the manner provided in this Section 14(d) of ARTICLE II by the later of the close of business on the date that is 180 days prior to such Other Meeting Date or the tenth day following the date such Other Meeting Date is first publicly announced or disclosed:
(a)a Schedule 14N (or any successor form) relating to the Proxy Access Nominee, completed and filed with the SEC by the Nominating Stockholder as applicable, in accordance with SEC rules;
(b)a written notice, in a form deemed satisfactory by the Board, of the nomination of such Proxy Access Nominee that includes the following additional information, agreements, representations and warranties by the Nominating Stockholder (including, in the case of a group, each Eligible Holder included in the group):
(i)all information relating to the Proxy Access Nominee that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act and/or Rule 14a-11 (as if such rule were still in effect) thereunder (including such Proxy Access Nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);
(ii)the Nomination Information (for each Proxy Access Nominee) and the Stockholder Information required pursuant to Section 13 of this ARTICLE II.
(iii)the details of any relationship that existed within the past three years and that would have been described pursuant to Item 6(e) of Schedule 14N (or any successor item) if it existed on the date of submission of the Schedule 14N;
(iv)a representation and warranty that the Nominating Stockholder acquired the securities of the Corporation in the ordinary course of business and did not acquire, and is not holding, securities of the Corporation for the purpose or with the effect of influencing or changing control of the Corporation;
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(v)a representation and warranty that the Proxy Access Nominee:
(1)does not have any direct or indirect relationship with the Corporation that will cause the Proxy Access Nominee to be deemed not independent pursuant to the Corporation’s Corporate Governance Guidelines as most recently published on its website and otherwise qualifies as independent under the rules of the principal national securities exchange on which the Corporation’s shares of common stock are traded; (B) meets the audit committee independence requirements under the rules of the principal national securities exchange on which the Corporation’s shares of common stock are traded; (C) is a “non- employee director” for the purposes of Rule 16b-3 under the Exchange Act (or any successor rule); (D) is an “outside director” for the purposes of Section 162(m) of the Internal Revenue Code (or any successor provision); and (E) is not and has not been subject to any event specified in Rule 506(d)(1) of Regulation D (or any successor rule) under the Securities Act of 1933 or Item 401(f) of Regulation S-K (or any successor rule) under the Exchange Act, without reference to whether the event is material to an evaluation of the ability or integrity of the Proxy Access Nominee;
(vi)a representation and warranty that the Nominating Stockholder satisfies the eligibility requirements set forth in Section 14(c) of ARTICLE II and has provided evidence of ownership to the extent required by Section 14(c)(1) of ARTICLE II;
(vii)a representation and warranty that the Nominating Stockholder intends to continue to satisfy the eligibility requirements described in Section 14(c) of ARTICLE II through the date of the applicable annual meeting of stockholders;
(viii)a statement as to the Nominating Stockholder’s intentions with respect to maintaining qualifying ownership of the Minimum Number of shares for at least one year following the applicable annual meeting of stockholders;
(ix)a representation and warranty that the Nominating Stockholder will not engage in a “solicitation” within the meaning of Rule 14a-1(l) (without reference to the exception in Section 14a- 1(l)(2)(iv)) (or any successor rules) under the Exchange Act in support of the election of any individual as a director at the applicable annual meeting of stockholders, other than its Proxy Access Nominee(s) or any nominee of the Board;
(x)a representation and warranty that the Nominating Stockholder will not use any proxy card other than the Corporation’s proxy
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card in soliciting stockholders in connection with the election of a director of the Corporation at the applicable annual meeting of stockholders;
(xi)if desired, a Statement; and
(xii)in the case of a nomination by a group, the designation by all Eligible Holders included in the group of one such Eligible Holder that is authorized to act on behalf of all Eligible Holders included in the group with respect to matters relating to the nomination, including withdrawal of the nomination;
(c)an executed agreement, in a form deemed satisfactory by the Board, pursuant to which the Nominating Stockholder (in the case of a group, including, and binding upon, each Eligible Holder included in the group) agrees:
(i)to file any written solicitation or other communication with the Corporation’s stockholders relating to one or more of the Corporation’s directors or director nominees or any Proxy Access Nominee with the SEC, regardless of whether any such filing is required under any rule or regulation or whether any exemption from filing is available for such materials under any rule or regulation;
(ii)to assume all liability stemming from an action, suit or proceeding concerning any actual or alleged legal or regulatory violation arising out of any communication by the Nominating Stockholder or any of its Proxy Access Nominees with the Corporation, its stockholders or any other person in connection with the nomination or election of one or more of the Corporation’s directors, including, without limitation, the Nomination Notice;
(iii)to indemnify and hold harmless (jointly with all other Eligible Holders, in the case of a group of Eligible Holders) the Corporation and each of its directors, officers and employees individually against any liability, loss, damages, expenses or other costs (including attorneys’ fees) incurred in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of or relating to (A) the Nominating Stockholder’s nomination pursuant to Section 14 of ARTICLE II or any efforts by the Nominating Stockholder to elect its Proxy Access Nominee(s) or (B) a failure or alleged failure of the Nominating Stockholder or any of its Proxy Access Nominees to comply
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with, or any breach or alleged breach of, its respective obligations, agreements or representations under this Section 14 of ARTICLE II; and
(iv)in the event that (A) any information included in the Nomination Notice or in any other communication by the Nominating Stockholder (including with respect to any Eligible Holder included in a group), any of its Proxy Access Nominees or any of their respective agents or representatives with the Corporation, its stockholders or any other person in connection with the nomination or election of a Proxy Access Nominee ceases to be true and accurate in all material respects (or omits a material fact necessary to make the statements made not misleading) or (B) the Nominating Stockholder (including any Eligible Holder included in a group) has failed to continue to satisfy the eligibility requirements described in Section 14(c) of ARTICLE II, to promptly (and in any event within 48 hours of discovering such misstatement, omission or failure) notify the Corporation and, in the case of clause (A), any other recipient of such communication of the misstatement or omission in such previously provided information and of the information required to correct the misstatement or omission; and
(d)an irrevocable letter of resignation, in a form deemed satisfactory by the Board, executed by the Proxy Access Nominee in advance of the Corporation’s applicable annual meeting of stockholders resigning his or her candidacy for director election and, if applicable at the time the determination set forth in either of clauses (i) and (ii) below is made by the Board, resigning from his or her position as a director, which shall in each case become effective upon a determination by the Board that (i) the information provided to the Corporation with respect to such Proxy Access Nominee pursuant to this Section 14 of ARTICLE II was untrue in any material respect or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading or (ii) that such Proxy Access Nominee, or the Nominating Stockholder who nominated such Proxy Access Nominee, committed a material violation or breach of any obligation, agreement, representation or warranty of such Proxy Access Nominee or Nominating Stockholder under this Section 14 of ARTICLE II; provided that such resignation letter shall expire upon the certification of the voting results of the Corporation’s applicable annual meeting of stockholders.
The information and documents required by this Section 14(d) of ARTICLE II to be provided by the Nominating Stockholder shall be: (i) provided with respect to and executed by each Eligible Holder, in the case of information applicable to group members; and (ii) provided with respect to the persons specified in Instruction 1 to Item 6(c) and (d) of Schedule 14N (or any successor
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item) in the case of a Nominating Stockholder or Eligible Holder included in a group that is an entity. The Nomination Notice shall be deemed submitted on the date on which all of the information and documents referred to in this Section 14(d) of ARTICLE II (other than such information and documents contemplated to be provided after the date the Nomination Notice is provided) have been delivered to or, if sent by mail, received by the Secretary.
(5)Exceptions.
(a)Notwithstanding anything to the contrary contained in this Section 14 of ARTICLE II, the Corporation may omit from its proxy statement any Proxy Access Nominee and any information concerning such Proxy Access Nominee (including a Nominating Stockholder’s Statement) and no vote on such Proxy Access Nominee will occur (notwithstanding that proxies in respect of such vote may have been received by the Corporation), and the Nominating Stockholder may not, after the last day on which a Nomination Notice would be timely, cure in any way any defect preventing the nomination of the Proxy Access Nominee, if:
(i)the Corporation receives a notice, whether or not subsequently withdrawn, that a stockholder intends to nominate a candidate for director at the applicable annual meeting of stockholders;
(ii)another person is engaging in a “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the applicable annual meeting of stockholders other than a nominee of the Board and other than as permitted by this Section 14 of ARTICLE II;
(iii)the Nominating Stockholder or the Eligible Holder that is designated to act on behalf of a group of Eligible Holders, as applicable, or any qualified representative thereof, does not appear at the applicable annual meeting of stockholders to present the nomination submitted pursuant to this Section 14 of ARTICLE II or the Nominating Stockholder withdraws its nomination;
(iv)the Board determines that such Proxy Access Nominee’s nomination or election to the Board would result in the Corporation violating or failing to be in compliance with the Corporation’s bylaws or certificate of incorporation or any applicable law, rule or regulation to which the Corporation is subject, including any rules or regulations of the principal national securities exchange on which the Corporation’s shares of common stock are traded;
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(v)the Proxy Access Nominee was nominated for election to the Board pursuant to this Section 14 of ARTICLE II at one of the Corporation’s two preceding annual meetings of stockholders and either (A) withdrew or became ineligible or (B) received a vote of less than 20% of the Corporation’s shares of common stock entitled to vote for such Proxy Access Nominee;
(vi)the Proxy Access Nominee has been, within the past three years, an officer or director of a competitor, as defined for purposes of Section 8 of the Clayton Antitrust Act of 1914, as amended; or
(vii)the Corporation is notified, or the Board determines, that a Nominating Stockholder or such Proxy Access Nominee has failed to continue to satisfy the eligibility requirements described in this Section 14 of ARTICLE II, any of the representations and warranties made in the Nomination Notice ceases to be true and accurate in all material respects (or omits a material fact necessary to make the statements made not misleading), the Proxy Access Nominee becomes unwilling or unable to serve on the Board or any material violation or breach occurs of the obligations, agreements, representations or warranties of the Nominating Stockholder or the Proxy Access Nominee under this Section 14 of ARTICLE II.
(b)Notwithstanding anything to the contrary contained in this Section 14 of ARTICLE II, the Corporation may omit from its proxy statement, or may supplement or correct, any information, including all or any portion of the statement in support of the Proxy Access Nominee(s) included in the Nomination Notice, if the Board determines that:
(i)such information is not true in all material respects or omits a material statement necessary to make the statements made not misleading;
(ii)such information directly or indirectly impugns the character, integrity or personal reputation of, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation, with respect to any person; or
(iii)the inclusion of such information in the proxy statement would otherwise violate the SEC proxy rules or any other applicable law, rule or regulation.
The Corporation may solicit against, and include in the proxy statement its own statement relating to, any Proxy Access Nominee.
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ARTICLE III BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The number of directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board. The Board shall be divided into three (3) classes, designated as Class I, Class II, and Class III. Each class shall consist, as nearly as possible, of one-third of the entire Board. The initial term of Class I directors will expire at the annual meeting of stockholders to be held in 2022. The initial term of Class II directors will expire at the annual meeting of stockholders to be held in 2023. The initial term of Class III directors will expire at the annual meeting of stockholders to be held in 2024. Following each such initial term, each director will serve for a term of three years. All vacancies occurring in the Board and any newly created directorships resulting from any increase in the authorized number of directors shall be filled in the manner set forth in the Certificate of Incorporation.
SECTION 3. Place of Meetings. Meetings of the Board shall be held at such place or places, within or without the State of Delaware, as the Board may from time to time determine or as shall be specified in the notice of any such meeting.
SECTION 4. Annual Meeting. The Board shall meet for the purpose of the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders. In the event such annual meeting is not so held, the annual meeting of the Board may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of ARTICLE III.
SECTION 5. Regular Meetings. Regular meetings of the Board shall be held at such time and place as the Board may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board need not be given except as otherwise required by statute or these Bylaws.
SECTION 6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board or by two or more directors of the Corporation or by the President.
SECTION 7. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these Bylaws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him or her at his or her residence or usual place of business, by first class mail, at least two days before the day on which such meeting is to be held, or shall be sent addressed to
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him or her at such place by facsimile, electronic mail or other similar means, or be delivered to him or her personally or be given to him or her by telephone, at least 24 hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he or she shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board or members of a committee of the Board need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws.
SECTION 8. Quorum and Manner of Acting. A majority of the entire Board shall constitute a quorum for the transaction of business at any meeting of the Board and, except as otherwise expressly required by statute or the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such.
SECTION 9. Organization. At each meeting of the Board, the Chairman of the Board or, in the absence of the Chairman of the Board, the President (or, in his or her absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat. The Secretary or, in his or her absence, any person appointed by the Chairman of the Board shall act as secretary of the meeting and keep the minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may resign at any time by giving notice in writing or by electronic transmission of his or her resignation to the Corporation; provided, however, that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be reasonably determined that the electronic transmission was authorized by the director. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Any vacancy in the Board, whether arising from death, resignation, removal (with cause), an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director. Each director so elected shall hold office until his or her successor shall have been elected and qualified.
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SECTION 12. Removal of Directors. Any director may be removed, only with cause, at any time, by the holders of two-thirds of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of directors.
SECTION 13. Compensation. The Board shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.
SECTION 14. Committees. The Board may, by resolution passed by a majority of the entire Board, designate one or more committees, including an executive committee, an audit committee, a compensation and human capital committee, and a corporate responsibility and nominating committee, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board and may authorize the seal of the Corporation to be affixed to all papers which require it; but no such committee shall have the power or authority in reference to the following matters:
(a)approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by law to be submitted to stockholders for approval, (ii) adopting, amending or repealing these Bylaws or (iii) indemnifying directors. Each such committee shall serve at the pleasure of the Board and have such name as may be determined from time to time by resolution adopted by the Board. Each committee shall keep regular minutes of its meetings and report the same to the Board. Unless the Board otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to ARTICLE II.
SECTION 15. Action by Consent. Unless restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or electronic transmission, and the writing or electronic transmission are filed with the minutes of the proceedings of the Board or such committee, as the case may be; provided, however, that such electronic transmission must either set forth or be submitted with information from which it can be reasonably determined that the electronic transmission was authorized by the director. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
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SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of Incorporation or these Bylaws, any one or more members of the Board or any committee thereof may participate in a meeting of the Board or such committee telephonically or by similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation shall be elected
by the Board and shall include the Chairman of the Board (who may be designated Executive Chairman of the Board if serving as an employee of the Corporation), the President, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), the Secretary and the Treasurer. If the Board wishes, it may also elect other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person, and no officers except the Chairman of the Board and the President need be a director. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, or until his or her death, or until he or she shall have resigned or have been removed, as hereinafter provided in these Bylaws. The Board may give any officer such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person and directors may hold any office unless the Certificate of Incorporation or these Bylaws otherwise provide.
SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective.
SECTION 3. Removal Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board at any meeting thereof. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights.
SECTION 4. Chairman of the Board. The Chairman of the Board, if present, shall preside at each meeting of the Board or the stockholders. He or she shall perform all duties incident to the office of Chairman of the Board, and shall perform such other duties as may from time to time be assigned to him or her by the Board.
SECTION 5. The President. The President shall be the chief executive officer of the Corporation. He or she shall, in the absence of the Chairman of the Board, preside at each meeting of the Board or the stockholders. He or she shall perform all duties incident to the office of President and chief executive officer of the Corporation and such other duties as may from time to time be assigned to him or her by the Board. During the absence or disability of the
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Chairman of the Board, the President shall, except as otherwise directed by the Board, perform the duties and exercise the powers of the Chairman of the Board.
SECTION 6. Vice President. Each Vice President shall perform all such duties as from time to time may be assigned to him or her by the Board, the Chairman of the Board or the President. The Board may add to the title of any Vice President such distinguishing designation as may be desirable, which may reflect seniority, duties or responsibilities of such Vice President. During the absence or disability of the Chairman of the Board and the President, one or more Vice Presidents may be designated by the Board, Chairman of the Board or President to perform the duties and exercise the powers of the Chairman of the Board and the President.
SECTION 7. Treasurer. The Treasurer shall:
(i)have charge and custody of, and be responsible for, all the funds and securities of the Corporation;
(ii)keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;
(iii)deposit or cause to be deposited all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board or pursuant to its direction;
(iv)receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;
(v)disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor;
(vi)render to the Board, whenever the Board may require, an account of the financial condition of the Corporation; and
(vii)in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Board.
SECTION 8. Secretary. The Secretary shall:
(1)keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders;
(2)see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law;
(3)be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;
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(4)see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and
(5)in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Board.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board.
SECTION 10. The Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board.
SECTION 11. Officers’ Bonds or Other Security. If required by the Board, any officer of the Corporation shall give a bond or other security for the faithful performance of his or her duties, in such amount and with such surety as the Board may require.
SECTION 12. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. Certificates; Uncertificated Shares. The shares of the stock in the Corporation shall be uncertificated shares. Notwithstanding the foregoing, the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be certificated shares. Every holder of stock represented by certificates shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares registered in certificate form owned by him or her in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation may issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the
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Corporation may issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
SECTION 2. Facsimile Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board may direct a new certificate or uncertificated shares to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or uncertificated shares, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his or her legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate or evidence of the issuance of uncertificated shares to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Upon the receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled, issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded in the books of the Corporation; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates or evidence of uncertificated shares are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.
SECTION 6. Regulations. The Board may make such additional rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of stock of the Corporation, and may authorize its transfer agent and registrar to make such additional rules and regulations deemed expedient
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concerning the issue, transfer and registration of certificated or uncertificated shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 or fewer than 10 days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of this Section 7 of ARTICLE V at the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution, or allotment of any rights, or the stockholders entitled to exercise any rights in respect of any change, conversion, or exchange of capital stock, or for the purpose of any other lawful action, except as may otherwise be provided in these Bylaws, the Board may fix a record date. Such record date shall not precede the date upon which the resolution fixing such record date is adopted, and shall not be more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be the close of business on the day on which the Board adopts the resolution relating thereto.
SECTION 8. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered in its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered in its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 1. General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of
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another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, service as a trustee or administrator of an employee benefit plan of the Corporation) or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, service as a trustee or administrator of an employee benefit plan of the Corporation), or by reason or any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys’ fees) actually and reasonably incurred by him or her or on his or her behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper.
SECTION 3. Indemnification in Certain Cases. Notwithstanding the other provisions of ARTICLE VI, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of ARTICLE VI, or in defense of any claim, issue or matter therein, he or she shall be indemnified against all costs, charges and expenses (including attorneys’ fees) actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of ARTICLE VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set
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forth in Sections 1 and 2. Such determination shall be made, with respect to a person who is a director, officer, or employee of the Corporation at the time of such determination: (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum; (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum; (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or (d) by the stockholders. Such determination shall be made, with respect to any person who is not a director, officer, employee or agent of the Corporation at the time of such determination, in the manner determined by the Board (including in such manner as may be set forth in any general or specific action of the Board applicable to indemnification claims by such person) or in the manner set forth in any agreement to which such person and the Corporation are parties.
SECTION 5. Advances for Expenses. Costs, charges and expenses (including attorneys’ fees) incurred by a person referred to in Sections 1 and 2 of ARTICLE VI in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay all amounts so advanced in the event that it shall ultimately be determined that such director, officer, employee or agent is not entitled to be indemnified by the Corporation as authorized in ARTICLE VI. Such costs, charges and expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. The Board may, in the manner set forth above, and upon approval of such director, officer, employer, employee or agent of the Corporation, authorize the Corporation’s counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 6. Procedure for Indemnification. Any indemnification under Sections 1, 2 and 3, or advance of costs, charges and expenses under Section 5 of ARTICLE VI, shall be made promptly, and in any event within 60 days upon the written request of the director, officer, employee or agent. The right to indemnification or advances as granted by ARTICLE VI shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person’s costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charge and expenses under Section 5 of ARTICLE VI where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Sections 1 or 2 of ARTICLE VI, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Sections 1 or 2 of ARTICLE VI, nor the fact that there has been an actual determination by the Corporation (including its Board, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met such applicable standard of conduct.
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SECTION 7. Other Rights; Continuation of Right to Indemnification. The indemnification and advancement of expenses provided by ARTICLE VI shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), bylaw, agreement, vote of stockholders, or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. If the Delaware General Corporation Law is hereafter amended to permit the Corporation to indemnify directors and officers to a greater extent than otherwise permitted by ARTICLE VI, the Corporation shall indemnify directors and officers to such greater extent. All rights to indemnification under ARTICLE VI shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity at any time while ARTICLE VI is in effect. Any repeal or modification of ARTICLE VI or any repeal or modification of relevant provisions of Delaware General Corporation Law or any other applicable laws shall not in any way diminish any rights to indemnification of such director, officer, employee or agent of the Corporation who serves or served in such capacity at any time while ARTICLE VI is in effect. Any repeal or modification of ARTICLE VI or any repeal or modification of relevant provisions of Delaware General Corporation Law or any other applicable laws shall not in any way diminish any rights to indemnification of such director, officer, employee or agent or the obligations of the Corporation arising hereunder with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal. For the purposes of ARTICLE VI, references to the “Corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of ARTICLE VI, with respect to the resulting or surviving corporation, as he or she would have if the separate existence of the constituent corporation had continued.
SECTION 8. Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her or on his or her behalf in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of ARTICLE VI; provided, however, that such insurance is available on acceptable terms, which determination shall be made by a vote of the Board.
SECTION 9. Savings Clause. If ARTICLE VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee and agent of the Corporation as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative,
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including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of ARTICLE VI that shall not have been invalidated and to the full extent permitted by applicable law.
ARTICLE VII GENERAL PROVISIONS
SECTION 1. Dividends. Subject to the provisions of statute and the Certificate of
Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board may think conducive to the interests of the Corporation. The Board may modify or abolish any such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation, which shall have the name of the Corporation inscribed thereon, shall be in such form as shall be approved by the Board. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board.
SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board or by an officer or officers authorized by the Board to make such designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The Board may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.
SECTION 7. Voting of Stock in Other Corporations Etc. Unless otherwise provided by resolution of the Board, the Chairman of the Board, the President, any Vice President or the Secretary, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes or give the consents which the Corporation may be entitled to cast or give as a shareholder, member, partner or otherwise in any other corporation, limited liability company, partnership or other entity, any of whose shares, securities or interests may be held by the Corporation, whether at meetings of the holders of the shares, securities or interests of such other corporation, limited
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liability company, partnership or other entity, or otherwise. In the event one or more attorneys or agents are appointed, the Chairman of the Board, the President, any Vice President or the Secretary may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board, the President, any Vice President or the Secretary may, or may instruct the attorneys or agents appointed, to execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances.
SECTION 8. Electronic Transmission. For purposes of these Bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
SECTION 9. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because such director’s or officer’s votes are counted for such purpose, if: (a) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.
SECTION 10. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or by means of, or be in the form of, any information storage device, or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records in accordance with law.
SECTION 11. Laws and Regulations; Close of Business. (a) For purposes of these Bylaws, any reference to a statute, rule or regulation of any governmental body means such statute, rule or regulation (including any successor thereto) as the same may be amended from time to time.
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(b) Any reference in these Bylaws to the close of business on any day shall be deemed to mean 5:00 P.M. New York time on such day, whether or not such day is a business day.
ARTICLE VIII AMENDMENTS
Notwithstanding any other provision of these Bylaws, any alteration, amendment
or repeal of these Bylaws, and any adoption of new Bylaws, shall require the approval of the Board or the stockholders of the Corporation as expressly provided in the Certificate of Incorporation.
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IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated Bylaws to be duly executed and acknowledged in its name and on its behalf by an authorized officer as of the date first set forth above.
/s/ Marc N. Bell
CORPORATE SEAL | Marc N. Bell | ||||
Senior Vice President, Secretary and General Counsel | |||||
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EXHIBIT 10.11
DOUGLAS ELLIMAN INC.
EXECUTIVE COMPENSATION CLAWBACK POLICY
(ADOPTED AS OF DECEMBER 22, 2021)
GENERAL
As a condition to receiving bonus and incentive-based compensation from Douglas Elliman Inc.
(the “Company”) and its subsidiaries, each executive officer named in the summary compensation table of the Company’s proxy statement (a “NEO”) shall enter into an agreement with the Company providing that any performance-based compensation awarded, paid or payable by the Company or any of its subsidiaries subsequent to the date of adoption of this Policy shall be subject to recovery or “clawback” by the Company pursuant to this policy.
II. PROCEDURE
| a. In the event of a restatement of the Company’s financial results (other than due to a change in applicable accounting methods, rules or interpretations) the result of which is that any performance-based compensation paid would have been lower had it been calculated based on such restated results, the Compensation and Human Capital Committee of the Board of Directors (the “Committee”) shall review such performance-based compensation. | ||
| b. If the Committee determines that the amount of any such performance-based compensation actually paid or awarded to a NEO (the “Awarded Compensation”) would have been a lower amount had it been calculated based on such restated financial statement (the “Actual Compensation”), and that such NEO engaged in fraud, material financial or ethical misconduct or recklessness in the performance of the NEO’s duties, which materially contributed to the need for such restatement, then the Committee shall, except as provided below, seek to recover for the benefit of the Company the after-tax portion of the difference between the Awarded Compensation and the Actual Compensation (such difference, the “Excess Compensation”). In determining the after-tax portion of such Excess Compensation, the Committee shall take into account its good faith estimate of the value of any tax deduction available to the NEO in respect of such repayment. | ||
| c. The Committee shall not seek recovery to the extent it determines (i) that to do so would be unreasonable or (ii) that it would be better for the Company not to do so. In making such determination, the Committee shall take into account such considerations as it deems appropriate, including without limitation (A) the likelihood of success under governing law versus the cost and effort involved, (B) whether the assertion of a claim may prejudice the interests of the Company, including in any related proceeding or investigation, (C) the passage of time since the occurrence of the act in respect of the applicable fraud or intentional illegal conduct and (D) any threatened or pending legal proceeding relating to the applicable fraud or intentional illegal conduct. | ||
d. Before the Committee determines to seek recovery pursuant to this policy, it shall provide to the applicable NEO prior written notice and the opportunity to be heard, at a meeting of the Committee (which may be in-person or telephonic, as determined by the Committee) held after a reasonable time period. | ||
| e. If the Committee determines to seek a recovery pursuant to this policy, it shall make a written demand for repayment from the NEO and, if the NEO does not within a reasonable period tender repayment in response to such demand, and the Committee determines that he or she is unlikely to do so, the Committee may initiate legal proceedings against the NEO for such repayment. | ||
f. For the purposes of this policy the term “performance-based compensation” means all bonuses and other incentive and equity compensation awarded to each of the Company’s NEOs, the amount, payment and/or vesting of which was calculated based wholly or in part on the application of objective, financial performance criteria measured during any part of the period covered by the restatement. | ||
Any determination, modification, interpretation or other action by the Committee pursuant to this policy shall be made and taken by a vote of a majority of its members. The Committee has the sole authority to construe, interpret and implement this policy, make any determination necessary or advisable in administering this policy, and modify, supplement, rescind or replace all or any portion of this policy.
Exhibit 10.12
LESSOR’S CHECKLIST/SUMMARY
Parties: Lessor: VT Equipment Leasing LLC
Lessee: Douglas Elliman Inc.
Aircraft: Make/Model: Bombardier Inc. Challenger 605
Serial Number: 5905
Registration: N97NP
Effective Date: December 21, 2021
Term: 1 Year
Auto-Renewal (Check One) Yes: X No: _____
Rental Type (Check One): Monthly Rental: ___
Please Read Section 3.2 Hourly Rental: X
Rental Appraisal Date: November 10, 2020
First Invoice Date: _________________________
First Rent Payment Date: _________________________
Subject to Sales/Use Tax (Check One) Yes: X No: _____
If Yes: Taxing State: Florida
Vendor’s License No.: _________________________
First Return Due Date: _________________________
Complete, Executed Copies of Lease Provided to (Check when Provided):
Lessor: _____; Lessee: _____; GKG Law: _____; CPA/Accountant: _____
INSTRUCTIONS AND CHECKLIST FOR COMPLIANCE WITH
"TRUTH IN LEASING" REQUIREMENTS UNDER FAR § 91.23
Check When Complete:
_____ Within 24 hours after execution of this Aircraft Lease Agreement:
mail a copy of the executed document, without the Schedules to the
following address via certified mail, return receipt requested:
Federal Aviation Administration
Aircraft Registration Branch
ATTN: Technical Section
P.O. Box 25724
Oklahoma City, Oklahoma 73125
_____ At least 48 hours prior to the first flight to be conducted under this Agreement:
deliver a completed Schedule C containing the departure airport and proposed
time of departure of said first flight by facsimile to the Flight Standards
District Office located nearest the departure airport.
_____ Place a copy of this Aircraft Lease Agreement on board the aircraft.
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This AIRCRAFT LEASE AGREEMENT (the "Agreement") is entered into as of this 21st day of December, 2021 (the "Effective Date"), by and between VT Equipment Leasing LLC, a Delaware limited liability company ("Lessor"), and Douglas Elliman Inc., a Delaware limited liability company ("Lessee").
W I T N E S S E T H:
WHEREAS, title to the Aircraft described and referred to herein is held by Lessor;
WHEREAS, Lessee desires to lease from the Lessor, and Lessor desires to lease to Lessee, the Aircraft, without crew, upon and subject to the terms and conditions of this Agreement;
WHEREAS, Lessee intends to operate the Aircraft under Part 91 of the FAR within the scope of and incidental to its own business and for personal use; and
WHEREAS, during the term of this Agreement, the Aircraft will be subject to concurrent leases to one (1) or more Other Non-Exclusive Lessee(s).
NOW, THEREFORE, in consideration of the mutual promises herein contained and other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 The following terms shall have the following meanings for all purposes of this Agreement:
"Aircraft" means the Airframe, the Engines, the Parts, and the Aircraft Documents. The Engines shall be deemed part of the "Aircraft" whether or not from time to time attached to the Airframe or removed from the Airframe.
"Aircraft Documents" means all flight records, maintenance records, historical records, modification records, overhaul records, manuals, logbooks, authorizations, drawings and data relating to the Airframe, any Engine, or any Part, or that are required by Applicable Law to be created or maintained with respect to the maintenance and/or operation of the Aircraft.
"Airframe" means that certain Bombardier Inc. Challenger 605 aircraft bearing U.S. registration number N97NP, and manufacturer's serial number 5905, together with any and all Parts (including, but not limited to, landing gear and auxiliary power units but excluding Engines or engines) so long as such Parts shall be either incorporated or installed in or attached to the Airframe.
"Applicable Law" means, without limitation, all applicable laws, treaties, international agreements, decisions and orders of any court, arbitration or governmental agency or authority and rules, regulations, orders, directives, licenses and permits of any governmental body, instrumentality, agency or authority, including, without limitation, the FAR and 49 U.S.C. § 41101, et seq., as amended.
"DOT" means the United States Department of Transportation or any successor agency.
"Engines" means two (2) General Electric model CF34-3B engines bearing manufacturer's serial numbers 801158 and 801159, together with any and all Parts so long as the same shall be either incorporated or installed in or attached to such Engine. Any engine which may be, from time to time, substituted for an Engine shall be deemed to be an Engine and subject to this Agreement for so long as it remains attached to the Airframe.
"FAA" means the Federal Aviation Administration or any successor agency.
"FSDO Notice" means an FSDO Notification Letter in the form of Schedule C attached hereto.
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"Flight Hour" means one (1) hour of use of the Aircraft in flight operations, as recorded on the Aircraft hour meter and measured from the time the Aircraft takes off at the beginning of a flight, to the time the Aircraft lands at the end of a flight in one-tenth (1/10th) of an hour increments.
"FAR" means collectively the Aeronautics Regulations of the FAA and the DOT, as codified at Title 14, Parts 1 to 399 of the United States Code of Federal Regulations.
"Lien" means any mortgage, security interest, lease or other charge or encumbrance or claim or right of others, including, without limitation, rights of others under any airframe or engine interchange or pooling agreement, except for mechanics liens to be discharged in the ordinary course of business.
"Operating Base" means Fontainebleau Aviation Airport, 14200 NW 42nd Avenue, Opa-locka, FL 33054.
"Operational Control" has the same meaning given the term in Section 1.1 of the FAR.
"Other Non-Exclusive Lessee" means any other person or entity possessing a non-exclusive leasehold interest in the Aircraft either directly from Lessor or from any other tenants in common interest owner of the Aircraft.
"Parts" means all appliances, components, parts, instruments, appurtenances, accessories, furnishings or other equipment of whatever nature (other than complete Engines or engines) which may from time to time be incorporated or installed in or attached to the Airframe or any Engine and includes replacement parts.
"Pilot in Command" has the same meaning given the term in Section 1.1 of the FAR.
"Rent Payment Date" means the 15th day of each calendar month.
"Taxes" means all taxes of every kind (excluding any tax measured by or assessed against a taxpayer's income, including, without limitation, any income tax, gross income tax, net income tax, or capital gains tax) assessed or levied by any federal, state, county, local, airport, district, foreign, or other governmental authority, including, without limitation, sales taxes, use taxes, retailer taxes, federal air transportation excise taxes, federal aviation fuel excise taxes, and other similar duties, fees, and excise taxes.
"Term" means the entire period from the Effective Date to the date this Agreement is terminated pursuant to Section 3.1.
SECTION 2. LEASE AND DELIVERY OF THE AIRCRAFT
2.1 Lease. Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the Aircraft, on the terms and conditions of this Agreement.
2.2 Delivery. The Aircraft shall be delivered to the Lessee on a mutually agreed date at the Operating Base, or such other location as the parties may mutually agree, and "AS IS," "WHERE IS," AND SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN SECTION 4 HEREOF. Lessor shall not be liable for delay or failure to furnish the Aircraft pursuant to this Agreement when such failure is caused by government regulation or authority, mechanical difficulty, war, civil commotion, strikes or labor disputes, weather conditions, or acts of God.
2.3 Non-Exclusivity. Lessee and Lessor acknowledge that the Aircraft is leased to Lessee on a non-exclusive basis, and that during the Term the Aircraft may be otherwise subject to lease to other lessees of Lessor. During any period during which another lessee of Lessor or any other person or entity leasing an interest in the Aircraft has scheduled use of the Aircraft, Lessee's leasehold rights to possession of the Aircraft under this Agreement shall temporarily abate, but all other provisions of this Agreement shall nevertheless continue in full force and effect.
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2.4 Coordination with Other Non-Exclusive Lessees. Lessee and all Other Non-Exclusive Lessee(s) shall agree on terms and conditions pursuant to which Lessee and the Other Non-Exclusive Lessee(s) will share use and operation of the Aircraft, and which terms and conditions shall include, without limitation, the provisions addressing priority rights and procedures for scheduling use of the Aircraft; allocation of responsibility for servicing, storing, inspecting, maintaining, and repairing the Aircraft; allocation of responsibility for insuring the Aircraft; and allocation of responsibility for payment of costs and expenses of operating, insuring, servicing, storing, inspecting, maintaining, and repairing the Aircraft.
2.5 FSDO Notice. At least 48 hours prior to the first flight to be conducted under this Agreement, Lessee shall have completed the FSDO Notice, substantially in the form attached hereto as Schedule C, and delivered the completed FSDO Notice by facsimile to the FAA Flight Standards District Office located nearest to the departure airport of said first flight.
SECTION 3. TERM AND RENT
3.1 Term. This Agreement shall become effective on the Effective Date, and shall continue in effect for a period of one (1) year, unless terminated sooner pursuant to the express provisions herein contained. At the end of the first one (1) year period or any subsequent one (1) year period, this Agreement shall automatically be renewed for an additional one (1) year period. Each party shall have the right to terminate this Agreement without cause on thirty (30) days written notice to the other party.
3.2 Rent. Lessee shall pay rent in arrears in an amount equal to the Hourly Rent specified in Schedule A attached hereto for each Flight Hour of use of the Aircraft by Lessee. Within three (3) Business Days after the last day of each calendar month during the Term, Lessee shall provide to Lessor a written report of the total number of Flight Hours flown during the month just ended. As soon as reasonably practicable after receipt of each such written report, Lessor shall invoice Lessee in arrears for all Hourly Rent due for the month just ended, together with any Taxes or other amounts due and payable hereunder with respect to such calendar month. Lessee shall pay the full amount of any such invoice within ten (10) Business Days. All Hourly Rent, Taxes and other invoiced amounts shall be paid to the Lessor in immediately available U.S. funds and in form and manner as the Lessor in its sole discretion may instruct Lessee from time to time.
3.3 Taxes. Neither the rent nor any other payments to be made by Lessee under this Agreement includes the amount of any Taxes which may be assessed or levied by any taxing jurisdictions as a result of the lease of the Aircraft to Lessee, or the use of the Aircraft by Lessee, or the provision of a taxable transportation service by Lessee using the Aircraft. Lessee shall be responsible for, shall indemnify and hold harmless Lessor against, and Lessee shall pay all such Taxes when due. Lessee shall have the right to dispute or contest in good faith and at Lessee's sole expense the amount of any Taxes assessed or imposed directly against Lessee and/or Lessor. During the period that any such Taxes are being disputed or contested in good faith, payment of such Taxes in accordance with the terms of this Agreement may be delayed until a final determination of the amount due has been made.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Lessee. Lessee represents and warrants as of the date hereof and during the entire Term hereof as follows:
4.1.1 All pilots who operate the Aircraft for Lessee's flights shall have at least the minimum total pilot hours required by any policy of insurance covering the Aircraft and will meet or exceed all requirements under any policy of insurance covering the Aircraft, and all Applicable Law.
4.1.2 Lessee is a validly organized corporation or limited liability company under the laws of the State of Delaware, and the person executing on behalf of Lessee has full power and authority to execute this Agreement on behalf of Lessee and by such execution shall bind Lessee under this Agreement.
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4.1.3 No action, suit, or proceeding is currently pending or threatened against Lessee which shall in any material way affect Lessee's financial status as of the date thereof, or impair the execution, delivery, or performance by Lessee of this Agreement.
4.1.4 The execution and delivery of this Agreement by Lessee and the performance of its obligations hereunder have been duly authorized by all necessary corporate or limited liability company action, and do not conflict with any provision of Lessee's articles of organization, bylaws, operating agreement, any governmental regulations, or any other agreements that Lessee may now have with other parties.
4.1.5 Lessee is not subject to any restriction, which with or without the giving of notice, the passage of time, or both, prohibits or would be violated by or be in conflict with this Agreement.
4.1.6 Lessee will not permit the Aircraft to be operated in any unsafe manner or contrary to any manual or instructions for the Aircraft or in violation of the terms or conditions of any insurance policy covering the Aircraft or any Applicable Law.
4.2 Representations and Warranties of Lessor. Lessor represents and warrants as of the date hereof and during the entire Term hereof as follows:
4.2.1 Lessor is a validly organized corporation or limited liability company under the laws of the State of Delaware, and the person executing on behalf of Lessor has full power and authority to execute this Agreement on behalf of Lessor and by such execution shall bind Lessor under this Agreement.
4.2.2 No action, suit, or proceeding is currently pending or threatened against Lessor which shall in any material way affect Lessor's financial status as of the date hereof, or impair the execution, delivery, or performance by Lessor of this Agreement.
4.2.3 The execution and delivery of this Agreement by Lessor and the performance of its obligations hereunder have been duly authorized by all necessary corporate or limited liability company action, and do not conflict with any provision of Lessor's articles of organization, bylaws, operating agreement, any governmental regulations, or any other agreements that Lessor may now have with other parties.
4.2.4 Lessor is not subject to any restriction, which with or without the giving of notice, the passage of time, or both, prohibits or would be violated by or be in conflict with this Agreement.
4.3 DISCLAIMER OF WARRANTIES. THE AIRCRAFT IS BEING LEASED BY THE LESSOR TO THE LESSEE HEREUNDER ON A COMPLETELY "AS IS," "WHERE IS," BASIS, WHICH IS ACKNOWLEDGED AND AGREED TO BY THE LESSEE. THE WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS SECTION 4 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR HAS NOT MADE AND SHALL NOT BE CONSIDERED OR DEEMED TO HAVE MADE (WHETHER BY VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER THIS AGREEMENT, OR HAVING ACQUIRED THE AIRCRAFT, OR HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE) ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR TO ANY PART THEREOF, AND SPECIFICALLY, WITHOUT LIMITATION, IN THIS RESPECT DISCLAIMS ALL REPRESENTATIONS AND/OR WARRANTIES AS TO THE TITLE, AIRWORTHINESS, VALUE, CONDITION, DESIGN, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONSTRUCTION AND CONDITION OF THE AIRCRAFT OPERATION, OR FITNESS FOR A PARTICULAR USE OF THE AIRCRAFT AND AS TO THE ABSENCE OF LATENT AND OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OR THE LIKE, HEREUNDER OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE
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OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF. THE LESSEE HEREBY WAIVES, RELEASES, DISCLAIMS AND RENOUNCES ALL EXPECTATION OF OR RELIANCE UPON ANY SUCH AND OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF LESSOR AND RIGHTS, CLAIMS AND REMEDIES OF THE LESSEE AGAINST LESSOR, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO (I) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE, (II) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (III) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF LESSOR, ACTUAL OR IMPUTED, AND (IV) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO THE AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
SECTION 5. REGISTRATION, USE, OPERATION, MAINTENANCE AND POSSESSION
5.1 Title and Registration. Lessee acknowledges that Lessor owns all legal, beneficial, and equitable title to the Aircraft, and that said title shall remain vested in Lessor during the Term hereof. Lessee shall undertake, to the extent permitted by Applicable Law, to do all such further acts, deeds, assurances or things as may, in the opinion of the Lessor, be necessary or desirable in order to protect or preserve Lessor's title to the Aircraft.
5.2 Use and Operation. Lessee shall operate the Aircraft in accordance with the provisions of Part 91 of the FAR and shall not operate the Aircraft in commercial service, as a common carrier, or otherwise for compensation or hire except to the extent permitted under Sections 91.321 and 91.501 of the FAR, if applicable. Lessee shall be solely and exclusively responsible for the use, operation and control of the Aircraft at all times during which the Aircraft is in Lessee's possession during the Term. Lessee agrees not to operate or locate the Airframe or any Engine, or permit the Airframe or any Engine to be operated or located, in any area excluded from coverage by any insurance policy in effect or required to be maintained hereunder with respect to the Airframe or Engines, or in any war zone. Lessee agrees not to operate the Airframe or any Engine or permit the Airframe or any Engine to be operated during the Term except in operations for which Lessee is duly authorized, or to use or permit the Aircraft to be used for a purpose for which the Aircraft is not designed or reasonably suitable. Lessee will not permit the Airframe or any Engine to be maintained, used or operated during the Term in violation of any Applicable Law, or contrary to any manufacturer's operating manuals or instructions. Lessee shall not knowingly permit the Aircraft to be used for the carriage of any persons or property prohibited by Applicable Law, nor shall Lessee permit the Aircraft to be used during the existence of any known defect except in accordance with the FAR. Lessee may carry on the Aircraft on all flights under this Agreement such passengers, baggage, and cargo as Lessee in its sole but reasonable discretion shall determine; provided, however, that the number of passengers on any flight shall in no event exceed the number of seats legally available in the Aircraft, and the total load carried on any flight, including passengers, crew, baggage, and fuel and oil in such quantities as the Pilot in Command shall determine to be required, shall not exceed the legally permissible maximum load for the Aircraft. Lessee will abide by and conform to, be responsible for causing and cause others to abide by and conform to, all Applicable Laws now existing or hereafter enacted, that control or in any way affect the operation, use, maintenance, or occupancy of the Aircraft, or the use of any airport by the Aircraft.
5.3 Aircraft Leased without Services. The Aircraft is leased by Lessor to Lessee hereunder without any additional services of any kind, and Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, shall obtain or supply all services and supplies necessary to the operation, maintenance, and storage of the Aircraft. Without limiting the generality of the
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foregoing, Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, and at no cost or expense to Lessor, shall:
5.3.1 obtain all fuel, oil, lubricants, and other services and supplies required for Lessee's operations of the Aircraft;
5.3.2 pay the fixed hourly cost of any maintenance service plans that may be in effect with respect to the Aircraft that become due and payable as a result of Lessee's operations of the Aircraft;
5.3.3 maintain the Aircraft, or cause the Aircraft to be maintained, in a good and airworthy operating condition and in compliance with all applicable FAR and the Aircraft Operating Manual;
5.3.4 ensure that all mechanics assigned to the maintenance of the Aircraft are competent with respect to the type of aircraft, and fully familiar with applicable maintenance and preventative repair programs for the Aircraft's specific type;
5.3.5 store the Aircraft when not in use in an appropriate and adequate indoor facility at the Operating Base;
5.3.6 obtain the services of pilots for all of Lessee's operations of the Aircraft;
5.3.7 ensure that all pilots serving on any flight conducted by Lessee possess current and valid Airline Transport Pilot and First Class Medical Certificates issued by the FAA, and are fully competent, trained, experienced, and qualified in accordance with Applicable Law and all insurance policies covering the Aircraft;
5.3.8 maintain and preserve, or cause to be maintained and preserved, in the English language, all Aircraft Documents in a complete, accurate, and up-to-date manner; and
5.3.9 maintain, or cause to be maintained, all insurance required by Section 8 of this Agreement.
5.4 Operational Control.
5.4.1 Lessee's Flights. Lessee shall exercise Operational Control of the Aircraft during all flight operations conducted by Lessee. Further, at all times while the Aircraft is in the possession of Lessee, Lessee shall have exclusive possession, command, and control of the Aircraft, and the pilots of any flight by Lessee shall be under the exclusive command of Lessee. The parties acknowledge and agree that no Other Non-Exclusive Lessee shall have any right or obligation to exercise Operational Control of the Aircraft in connection with any flight conducted by Lessee.
5.4.2 Other Non-Exclusive Lessee's Flights. Other Non-Exclusive Lessee shall exercise Operational Control of the Aircraft during all flight operations conducted by such Other Non-Exclusive Lessee. Further, at all times while the Aircraft is in the possession of any Other Non-Exclusive Lessee, such Other Non-Exclusive Lessee shall have exclusive possession, command, and control of the Aircraft, and the pilots of any such flight by such Other Non-Exclusive Lessee shall be under the exclusive command of such Other Non-Exclusive Lessee. The parties acknowledge and agree that Lessee shall have no right or obligation to exercise Operational Control of the Aircraft in connection with any flight conducted by any Other Non-Exclusive Lessee.
5.5 Authority of Pilot in Command. Notwithstanding that Lessee shall have operational control of the Aircraft during any flight conducted by Lessee, the parties acknowledge that pursuant to Section 91.3 of the FAR, the Pilot in Command of such flight is responsible for, and is obligated and entitled to exercise final authority over, the safe operation of the flight, and the parties agree that the Pilot in Command may, in the exercise of such authority, refuse to commence such flight, terminate such flight, or take any other flight-related action that, in the judgment of the Pilot in
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Command, is required to ensure the safety of the Aircraft, the flight crew, the passengers, and any other persons and/or property.
5.6 Right to Inspect. Lessor and/or Lessor's agents shall have the right to inspect the Aircraft or the Aircraft Documents at any reasonable time, upon giving Lessee reasonable notice, to ascertain the condition of the Aircraft and to satisfy Lessor that the Aircraft is being properly repaired and maintained in accordance with the requirements of this Agreement. All required repairs shall be performed as soon as practicable after such inspection.
5.7 Modification of Aircraft. Lessee shall not make or permit to be made any modification, alteration, improvement, or addition to the Aircraft without the express written consent of Lessor, except for those modifications, alterations, improvements, or additions that are necessary to comply with any applicable Airworthiness Directive or mandatory manufacturer's service bulletin. Any modifications, alterations, improvements, or additions to the Aircraft shall be accomplished at the sole cost and expense of Lessee and the Other Non-Exclusive Lessee(s), and shall be the property of Lessor.
5.8 Fines, Penalties, and Forfeitures. Lessee shall be solely responsible for any fines, penalties, or forfeitures relating in any manner to the operation, maintenance, or use of the Aircraft by Lessee under this Agreement.
SECTION 6. RETURN OF AIRCRAFT
6.1 Return. On the last day of the Term or the date of earlier termination hereof, Lessee shall return the Aircraft to Lessor by delivering the same at Lessee's expense to Lessor at the Operating Base or such other location within the 48 contiguous United States as Lessor may designate, fully equipped with all Engines and Parts installed thereon.
6.2 Condition of Aircraft. The Aircraft, at the time of its return to Lessor, shall have, and be in compliance with, a current valid certificate of airworthiness issued by the FAA, and shall be airworthy according to manufacturer's specifications and FAA regulations, shall have been maintained and repaired in accordance with the provisions of this Agreement, and shall be in the same condition as it was in on the Effective Date of this Agreement, ordinary wear and tear excepted.
6.3 Aircraft Documents. Lessee shall return or cause to be returned to Lessor, at the time the Aircraft is returned to Lessor, all of the Aircraft Documents, updated and maintained by Lessee through the date of return of the Aircraft.
SECTION 7. LIENS
7.1 Lessee Liens. Lessee shall ensure that no Liens are created or placed against the Aircraft by Lessee or third-parties as a result of Lessee's actions. Lessee shall notify Lessor promptly upon learning of any Liens not permitted by these terms. Lessee shall, at its own cost and expense, take all such actions as may be necessary to discharge and satisfy in full any such Lien promptly after the same becomes known to it.
SECTION 8. INSURANCE
8.1 Liability. Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, and at no cost or expense to Lessor, shall maintain, or cause to be maintained, bodily injury and property damage, liability insurance in an amount no less than Three Hundred Million United States Dollars (US$300,000,000.00) Combined Single Limit. Said policy shall be an occurrence policy naming Lessee, Lessor, and the Other Non-Exclusive Lessee(s) as Named Insureds.
8.2 Hull. Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, and at no cost or expense to Lessor, shall maintain, or cause to be maintained, all risks aircraft hull insurance in the amount of no less than Eight Million United States Dollars
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(US$8,000,000.00), and such insurance shall name Lessor and any first lien mortgage holder as loss payees as their interests may appear.
8.3 Insurance Certificates. Lessee will provide Lessor with a Certificate of Insurance upon execution of this Agreement and at any time thereafter as Lessor may reasonably request.
8.4 Conditions of Insurance. Each insurance policy required under this Section 8 shall insure the interests of Lessor regardless of any breach or violation by Lessee or any Other Non-Exclusive Lessee(s) of any warranties, declarations or conditions contained in such policies. Each such policy shall be primary without any right of contribution from any insurance maintained by Lessor. Each such policy shall insure Lessee's contractual liability to Lessor contained in this Agreement (with a Breach of Warranty endorsement). The geographic limits, if any, contained in each and every such policy of insurance shall include at the minimum all territories over which Lessee and each Other Non-Exclusive Lessee will operate the Aircraft for which the insurance is placed. Each policy shall contain an agreement by the insurer that notwithstanding the lapse of any such policy for any reason or any right of cancellation by the insurer or Lessee, whether voluntary or involuntary, such policy shall continue in force for the benefit of Lessor, and the Other Non-Exclusive Lessee(s) for at least thirty (30) days (or such lesser time as may be permitted in the case of War Risk Insurance, if such War Risk Insurance so requires) after written notice of such lapse or cancellation shall have been given to Lessor and each Other Non-Exclusive Lessee. Each policy shall contain an agreement by the insurer to provide Lessor and each Other Non-Exclusive Lessee with thirty (30) days' advance written notice of any deletion, cancellation or material change in coverage.
8.5 Insurance Companies. Each insurance policy required under this Section 8 shall be issued by a company or companies who are qualified to do business in the United States and who (i) will submit to the jurisdiction of any competent state or federal court in the United States with regard to any dispute arising out of the policy of insurance or concerning the parties herein; and (ii) will respond to any claim or judgment against Lessor in any competent state or federal court in the United States or its territories.
SECTION 9. DEFAULTS AND REMEDIES
9.1 Upon the occurrence of any failure of Lessee to duly observe or perform any of its obligations hereunder, and at any time thereafter so long as the same shall be continuing, Lessor may, at its option, declare in writing to the Lessee that this Agreement is in default; and at any time thereafter, so long as Lessee shall not have remedied the outstanding default, Lessor may cancel, terminate, or rescind this Agreement.
SECTION 10. NOTICES
10.1 All communications, declarations, demands, consents, directions, approvals, instructions, requests and notices required or permitted by this Agreement shall be in writing and shall be deemed to have been duly given or made when delivered personally or transmitted electronically by e-mail receipt acknowledged, or in the case of documented overnight delivery service or registered or certified mail, return receipt requested, delivery charge or postage prepaid, on the date shown on the receipt therefor, in each case at the address set forth below:
If to Lessor: VT Equipment Leasing LLC
c/o Fontainebleau Aviation
14200 NW 42nd Avenue
Opa-locka, FL 33054
Attn: Chief Financial Officer
With a copy to: GKG Law, P.C.
1055 Thomas Jefferson Street, N.W.
Suite 500
Washington, D.C. 20007
Attn: Keith G. Swirsky, Esq.
Email: kswirsky@gkglaw.com
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If to Lessee: Douglas Elliman Inc.
4400 Biscayne Blvd.
Miami, FL 33137
Attn: Marc N. Bell
Email: mbell@vectorgroupltd.com
With a copy to: Vector Group Ltd.
4400 Biscayne Blvd.
Miami, FL 33137
Attn: Marc Bell
Email: mbell@vectorgroupltd.com
SECTION 11. EVENT OF LOSS AND INDEMNIFICATION
11.1 Notification of Event of Loss. In the event any damage to or destruction of, the Aircraft shall occur, or in the event of any whole or partial loss of the Aircraft, including, without limitation, any loss resulting from the theft, condemnation, confiscation or seizure of, or requisition of title to or use of, the Aircraft by private persons or by any governmental or purported governmental authority, Lessee shall immediately:
11.1.1report the event of loss to Lessor, the insurance company or companies, and to any and all applicable governmental agencies; and
11.1.2 furnish such information and execute such documents as may be required and necessary to collect the proceeds from any insurance policies.
11.2 Repair or Termination. In the event the Aircraft is partially destroyed or damaged, Lessor shall have the option, in its sole discretion, to either (i) fully repair the Aircraft in order that it shall be placed in at least as good condition as it was prior to such partial destruction or damage; or (ii) terminate this Agreement. Within five (5) days after the date of such partial destruction or damage, Lessor shall give written notice to Lessee specifying whether Lessor has elected to fully repair the Aircraft or to terminate this Agreement, which termination shall be effective immediately upon such written notice from Lessor to Lessee setting forth Lessor's election to so terminate this Agreement.
11.3 Indemnification. Lessee hereby releases, and shall defend, indemnify and hold harmless Lessor and Lessor's shareholders, members, directors, officers, managers, employees, successors and assigns, from and against, any and all claims, damages, losses, liabilities, demands, suits, judgments, causes of action, civil and criminal legal proceedings, penalties, fines, and other sanctions, and any attorneys' fees and other reasonable costs and expenses, directly or indirectly arising from this Agreement, and/or Lessee's operation, maintenance, storage, or other use of the Aircraft.
SECTION 12. MISCELLANEOUS
12.1 Entire Agreement. This Agreement, and all terms, conditions, warranties, and representations herein, are for the sole and exclusive benefit of the signatories hereto. This Agreement constitutes the entire agreement of the parties as of its Effective Date and supersedes all prior or independent, oral or written agreements, understandings, statements, representations, commitments, promises, and warranties made with respect to the subject matter of this Agreement.
12.2 Other Transactions. Except as specifically provided in this Agreement, none of the provisions of this Agreement, nor any oral or written statements, representations, commitments, promises, or warranties made with respect to the subject matter of this Agreement shall be construed or relied upon by any party as the basis of, consideration for, or inducement to engage in, any separate agreement, transaction or commitment for any purpose whatsoever.
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12.3 Prohibited and Unenforceable Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. To the extent permitted by Applicable Law, each of Lessor and Lessee hereby waives any provision of Applicable Law which renders any provision hereof prohibited or unenforceable in any respect.
12.4 Enforcement. This Agreement, including all agreements, covenants, representations and warranties, shall be binding upon and inure to the benefit of, and may be enforced by Lessor, Lessee, and each of their agents, servants and personal representatives.
12.5 Headings. The section and subsection headings in this Agreement are for convenience of reference only and shall not modify, define, expand, or limit any of the terms or provisions hereof.
12.6 Counterparts. This Agreement may be executed by the parties hereto in two (2) separate counterparts, each of which when so executed and delivered shall be an original, and both of which shall together constitute but one and the same instrument.
12.7 Amendments. No term or provision of this Agreement may be amended, changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by Lessor and Lessee.
12.8 No Waiver. No delay or omission in the exercise or enforcement or any right or remedy hereunder by either party shall be construed as a waiver of such right or remedy. All remedies, rights, undertakings, obligations, and agreements contained herein shall be cumulative and not mutually exclusive, and in addition to all other rights and remedies which either party possesses at law or in equity.
12.9 No Assignments. Neither party may assign its rights or obligations under this Agreement without the prior written permission of the other.
12.10 Governing Law. This Agreement has been negotiated and delivered in the State of Florida and shall in all respects be governed by, and construed in accordance with, the laws of the State of Florida, including all matters of construction, validity and performance, without giving effect to its conflict of laws provisions.
12.11 Jurisdiction and Venue. Exclusive jurisdiction and venue over any and all disputes between the parties arising under this Agreement shall be in, and for such purpose each party hereby submits to the jurisdiction of, the state and federal courts serving the State of Florida.
SECTION 13. TRUTH IN LEASING
13.1 TRUTH IN LEASING STATEMENT UNDER SECTION 91.23 OF THE FAR's.
WITHIN THE TWELVE (12) MONTH PERIOD PRECEDING THE DATE OF THIS AGREEMENT, THE AIRCRAFT HAS BEEN INSPECTED AND MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE FAR 91.409(f).
LESSEE CERTIFIES THAT DURING THE TERM OF THIS AGREEMENT AND FOR OPERATIONS CONDUCTED HEREUNDER, THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED BY LESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE FAR 91.409(f).
LESSEE ACKNOWLEDGES THAT WHEN IT OPERATES THE AIRCRAFT UNDER THIS AGREEMENT, IT SHALL BE KNOWN AS, CONSIDERED, AND IN FACT WILL BE THE OPERATOR OF SUCH AIRCRAFT. EACH PARTY HERETO CERTIFIES THAT IT UNDERSTANDS THE EXTENT OF ITS RESPONSIBILITIES, SET FORTH HEREIN, FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
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AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FEDERAL AVIATION ADMINISTRATION FLIGHT STANDARDS DISTRICT OFFICE.
THE PARTIES HERETO CERTIFY THAT A TRUE COPY OF THIS AGREEMENT SHALL BE CARRIED ON THE AIRCRAFT AT ALL TIMES AND SHALL BE MADE AVAILABLE FOR INSPECTION UPON REQUEST BY AN APPROPRIATELY CONSTITUTED IDENTIFIED REPRESENTATIVE OF THE ADMINISTRATOR OF THE FAA.
* * * Signature Page Follows * * *
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IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Aircraft Lease Agreement to be duly executed as of the Effective Date.
LESSOR:
VT Equipment Leasing LLC
By: _/s/ J. Bryant Kirkland III
Print: J. Bryant Kirkland III
Title: Manager
LESSEE:
Douglas Elliman Inc.
By: /s/ Richard J. Lampen
Print: Richard J. Lampen
Title: Executive Vice President and Chief Operating Officer
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AIRCRAFT LEASE AGREEMENT
Schedule A
Hourly Rent: $___________________________ per Flight Hour
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AIRCRAFT LEASE AGREEMENT
Schedule B
Form of Invoice
{Lessor Letterhead}
Date: __________________
Bill to: ________________________________
________________________________
________________________________
________________________________
RE: Aircraft Lease Agreement Invoice of Rent Due
Rent due for period ______________, 20___ to ______________, 20___:
Flight Hours: _______________
x Hourly Rent: $______________
Total Rent Due: $______________
+ Sales Tax Due: $______________
Total Due: $______________
Date Due: _______________
[Payment Option 1: Check]
Make Checks Payable to:
________________________________
________________________________
________________________________
________________________________
[Payment Option 2: Wire]
Wire Payment to:
________________________________
________________________________
________________________________
________________________________
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AIRCRAFT LEASE AGREEMENT
Schedule C
FSDO Notification Letter
Date: _________________
Via Facsimile
Fax: __________________
Federal Aviation Administration
__________________________
__________________________
__________________________
RE: FAR Section 91.23 FSDO Notification
First Flight Under Lease of Bombardier Inc. Challenger 605 Aircraft
s/n 5905, Registration N97NP
To whom it may concern:
Pursuant to the requirements of Federal Aviation Regulation Section 91.23(c)(3), please accept this letter as notification that the undersigned, will acquire and take delivery of a leasehold interest in the above referenced aircraft on the ___ day of December, 2021, and that the first flight of the aircraft under the lease will depart from _______________________________ Airport on the _____ day of _____________________, 20______, at approximately ______ (am / pm) local time.
Sincerely,
Douglas Elliman Inc.
By: _______________________
Print: _______________________
Title: _________________________
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Exhibit 10.13
LESSOR’S CHECKLIST/SUMMARY
Parties: Lessor: VT Aviation Leasing LLC
Lessee: Douglas Elliman Inc.
Aircraft: Make/Model: Learjet Inc. 60
Serial Number: 349
Registration: N62VG
Effective Date: December 21, 2021
Term: 1 Year
Auto-Renewal (Check One) Yes: X No: _____
Rental Type (Check One): Monthly Rental: ___
Please Read Section 3.2 Hourly Rental: X
Rental Appraisal Date: June 22, 2021
First Invoice Date: _________________________
First Rent Payment Date: _________________________
Subject to Sales/Use Tax (Check One) Yes: X No: _____
If Yes: Taxing State: Florida
Vendor’s License No.: _________________________
First Return Due Date: _________________________
Complete, Executed Copies of Lease Provided to (Check when Provided):
Lessor: _____; Lessee: _____; GKG Law: _____; CPA/Accountant: _____
INSTRUCTIONS AND CHECKLIST FOR COMPLIANCE WITH
"TRUTH IN LEASING" REQUIREMENTS UNDER FAR § 91.23
Check When Complete:
_____ Within 24 hours after execution of this Aircraft Lease Agreement:
mail a copy of the executed document, without the Schedules to the
following address via certified mail, return receipt requested:
Federal Aviation Administration
Aircraft Registration Branch
ATTN: Technical Section
P.O. Box 25724
Oklahoma City, Oklahoma 73125
_____ At least 48 hours prior to the first flight to be conducted under this Agreement:
deliver a completed Schedule C containing the departure airport and proposed
time of departure of said first flight by facsimile to the Flight Standards
District Office located nearest the departure airport.
_____ Place a copy of this Aircraft Lease Agreement on board the aircraft.
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This AIRCRAFT LEASE AGREEMENT (the "Agreement") is entered into as of 21st day of December, 2021 (the "Effective Date"), by and between VT Aviation Leasing LLC, a Delaware limited liability company ("Lessor"), and Douglas Elliman Inc., a Delaware Corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, title to the Aircraft described and referred to herein is held by Lessor;
WHEREAS, Lessee desires to lease from the Lessor, and Lessor desires to lease to Lessee, the Aircraft, without crew, upon and subject to the terms and conditions of this Agreement;
WHEREAS, Lessee intends to operate the Aircraft under Part 91 of the FAR within the scope of and incidental to its own business and for personal use; and
WHEREAS, during the term of this Agreement, the Aircraft will be subject to concurrent leases to one (1) or more Other Non-Exclusive Lessee(s).
NOW, THEREFORE, in consideration of the mutual promises herein contained and other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 The following terms shall have the following meanings for all purposes of this Agreement:
"Aircraft" means the Airframe, the Engines, the Parts, and the Aircraft Documents. The Engines shall be deemed part of the "Aircraft" whether or not from time to time attached to the Airframe or removed from the Airframe.
"Aircraft Documents" means all flight records, maintenance records, historical records, modification records, overhaul records, manuals, logbooks, authorizations, drawings and data relating to the Airframe, any Engine, or any Part, or that are required by Applicable Law to be created or maintained with respect to the maintenance and/or operation of the Aircraft.
"Airframe" means that certain Learjet Inc. 60 aircraft bearing U.S. registration number N62VG, and manufacturer's serial number 349, together with any and all Parts (including, but not limited to, landing gear and auxiliary power units but excluding Engines or engines) so long as such Parts shall be either incorporated or installed in or attached to the Airframe.
"Applicable Law" means, without limitation, all applicable laws, treaties, international agreements, decisions and orders of any court, arbitration or governmental agency or authority and rules, regulations, orders, directives, licenses and permits of any governmental body, instrumentality, agency or authority, including, without limitation, the FAR and 49 U.S.C. § 41101, et seq., as amended.
"DOT" means the United States Department of Transportation or any successor agency.
"Engines" means two (2) Pratt & Whitney Canada model PW305A engines bearing manufacturer's serial numbers PCE-CA0534 and PCE-CA0558, together with any and all Parts so long as the same shall be either incorporated or installed in or attached to such Engine. Any engine which may be, from time to time, substituted for an Engine shall be deemed to be an Engine and subject to this Agreement for so long as it remains attached to the Airframe.
"FAA" means the Federal Aviation Administration or any successor agency.
"FSDO Notice" means an FSDO Notification Letter in the form of Schedule C attached hereto.
"Flight Hour" means one (1) hour of use of the Aircraft in flight operations, as recorded on the Aircraft hour meter and measured from the time the Aircraft takes off at the beginning of a flight, to the time the Aircraft lands at the end of a flight in one-tenth (1/10th) of an hour increments.
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"FAR" means collectively the Aeronautics Regulations of the FAA and the DOT, as codified at Title 14, Parts 1 to 399 of the United States Code of Federal Regulations.
"Lien" means any mortgage, security interest, lease or other charge or encumbrance or claim or right of others, including, without limitation, rights of others under any airframe or engine interchange or pooling agreement, except for mechanics liens to be discharged in the ordinary course of business.
"Operating Base" means Fontainebleau Aviation Airport, 14200 NW 42nd Avenue, Opa-locka, FL 33054.
"Operational Control" has the same meaning given the term in Section 1.1 of the FAR.
"Other Non-Exclusive Lessee" means any other person or entity possessing a non-exclusive leasehold interest in the Aircraft either directly from Lessor or from any other tenants in common interest owner of the Aircraft.
"Parts" means all appliances, components, parts, instruments, appurtenances, accessories, furnishings or other equipment of whatever nature (other than complete Engines or engines) which may from time to time be incorporated or installed in or attached to the Airframe or any Engine and includes replacement parts.
"Pilot in Command" has the same meaning given the term in Section 1.1 of the FAR.
"Rent Payment Date" means the 15th day of each calendar month.
"Taxes" means all taxes of every kind (excluding any tax measured by or assessed against a taxpayer's income, including, without limitation, any income tax, gross income tax, net income tax, or capital gains tax) assessed or levied by any federal, state, county, local, airport, district, foreign, or other governmental authority, including, without limitation, sales taxes, use taxes, retailer taxes, federal air transportation excise taxes, federal aviation fuel excise taxes, and other similar duties, fees, and excise taxes.
"Term" means the entire period from the Effective Date to the date this Agreement is terminated pursuant to Section 3.1.
SECTION 2. LEASE AND DELIVERY OF THE AIRCRAFT
2.1 Lease. Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the Aircraft, on the terms and conditions of this Agreement.
2.2 Delivery. The Aircraft shall be delivered to the Lessee on a mutually agreed date at the Operating Base, or such other location as the parties may mutually agree, and "AS IS," "WHERE IS," AND SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN SECTION 4 HEREOF. Lessor shall not be liable for delay or failure to furnish the Aircraft pursuant to this Agreement when such failure is caused by government regulation or authority, mechanical difficulty, war, civil commotion, strikes or labor disputes, weather conditions, or acts of God.
2.3 Non-Exclusivity. Lessee and Lessor acknowledge that the Aircraft is leased to Lessee on a non-exclusive basis, and that during the Term the Aircraft may be otherwise subject to lease to other lessees of Lessor. During any period during which another lessee of Lessor or any other person or entity leasing an interest in the Aircraft has scheduled use of the Aircraft, Lessee's leasehold rights to possession of the Aircraft under this Agreement shall temporarily abate, but all other provisions of this Agreement shall nevertheless continue in full force and effect.
2.4 Coordination with Other Non-Exclusive Lessees. Lessee and all Other Non-Exclusive Lessee(s) shall agree on terms and conditions pursuant to which Lessee and the Other Non-Exclusive Lessee(s) will share use and operation of the Aircraft, and which terms and conditions
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shall include, without limitation, the provisions addressing priority rights and procedures for scheduling use of the Aircraft; allocation of responsibility for servicing, storing, inspecting, maintaining, and repairing the Aircraft; allocation of responsibility for insuring the Aircraft; and allocation of responsibility for payment of costs and expenses of operating, insuring, servicing, storing, inspecting, maintaining, and repairing the Aircraft.
2.5 FSDO Notice. At least 48 hours prior to the first flight to be conducted under this Agreement, Lessee shall have completed the FSDO Notice, substantially in the form attached hereto as Schedule C, and delivered the completed FSDO Notice by facsimile to the FAA Flight Standards District Office located nearest to the departure airport of said first flight.
SECTION 3. TERM AND RENT
3.1 Term. This Agreement shall become effective on the Effective Date, and shall continue in effect for a period of one (1) year, unless terminated sooner pursuant to the express provisions herein contained. At the end of the first one (1) year period or any subsequent one (1) year period, this Agreement shall automatically be renewed for an additional one (1) year period. Each party shall have the right to terminate this Agreement without cause on thirty (30) days written notice to the other party.
3.2 Rent. Lessee shall pay rent in arrears in an amount equal to the Hourly Rent specified in Schedule A attached hereto for each Flight Hour of use of the Aircraft by Lessee. Within three (3) Business Days after the last day of each calendar month during the Term, Lessee shall provide to Lessor a written report of the total number of Flight Hours flown during the month just ended. As soon as reasonably practicable after receipt of each such written report, Lessor shall invoice Lessee in arrears for all Hourly Rent due for the month just ended, together with any Taxes or other amounts due and payable hereunder with respect to such calendar month. Lessee shall pay the full amount of any such invoice within ten (10) Business Days. All Hourly Rent, Taxes and other invoiced amounts shall be paid to the Lessor in immediately available U.S. funds and in form and manner as the Lessor in its sole discretion may instruct Lessee from time to time.
3.3 Taxes. Neither the rent nor any other payments to be made by Lessee under this Agreement includes the amount of any Taxes which may be assessed or levied by any taxing jurisdictions as a result of the lease of the Aircraft to Lessee, or the use of the Aircraft by Lessee, or the provision of a taxable transportation service by Lessee using the Aircraft. Lessee shall be responsible for, shall indemnify and hold harmless Lessor against, and Lessee shall pay all such Taxes when due. Lessee shall have the right to dispute or contest in good faith and at Lessee's sole expense the amount of any Taxes assessed or imposed directly against Lessee and/or Lessor. During the period that any such Taxes are being disputed or contested in good faith, payment of such Taxes in accordance with the terms of this Agreement may be delayed until a final determination of the amount due has been made.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Lessee. Lessee represents and warrants as of the date hereof and during the entire Term hereof as follows:
4.1.1 All pilots who operate the Aircraft for Lessee's flights shall have at least the minimum total pilot hours required by any policy of insurance covering the Aircraft and will meet or exceed all requirements under any policy of insurance covering the Aircraft, and all Applicable Law.
4.1.2 Lessee is a validly organized corporation or limited liability company under the laws of the State of Delaware, and the person executing on behalf of Lessee has full power and authority to execute this Agreement on behalf of Lessee and by such execution shall bind Lessee under this Agreement.
4.1.3 No action, suit, or proceeding is currently pending or threatened against Lessee which shall in any material way affect Lessee's financial status as of the date thereof, or impair the execution, delivery, or performance by Lessee of this Agreement.
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4.1.4 The execution and delivery of this Agreement by Lessee and the performance of its obligations hereunder have been duly authorized by all necessary corporate or limited liability company action, and do not conflict with any provision of Lessee's articles of organization, bylaws, operating agreement, any governmental regulations, or any other agreements that Lessee may now have with other parties.
4.1.5 Lessee is not subject to any restriction, which with or without the giving of notice, the passage of time, or both, prohibits or would be violated by or be in conflict with this Agreement.
4.1.6 Lessee will not permit the Aircraft to be operated in any unsafe manner or contrary to any manual or instructions for the Aircraft or in violation of the terms or conditions of any insurance policy covering the Aircraft or any Applicable Law.
4.2 Representations and Warranties of Lessor. Lessor represents and warrants as of the date hereof and during the entire Term hereof as follows:
4.2.1 Lessor is a validly organized corporation or limited liability company under the laws of the State of Delaware, and the person executing on behalf of Lessor has full power and authority to execute this Agreement on behalf of Lessor and by such execution shall bind Lessor under this Agreement.
4.2.2 No action, suit, or proceeding is currently pending or threatened against Lessor which shall in any material way affect Lessor's financial status as of the date hereof, or impair the execution, delivery, or performance by Lessor of this Agreement.
4.2.3 The execution and delivery of this Agreement by Lessor and the performance of its obligations hereunder have been duly authorized by all necessary corporate or limited liability company action, and do not conflict with any provision of Lessor's articles of organization, bylaws, operating agreement, any governmental regulations, or any other agreements that Lessor may now have with other parties.
4.2.4 Lessor is not subject to any restriction, which with or without the giving of notice, the passage of time, or both, prohibits or would be violated by or be in conflict with this Agreement.
4.3 DISCLAIMER OF WARRANTIES. THE AIRCRAFT IS BEING LEASED BY THE LESSOR TO THE LESSEE HEREUNDER ON A COMPLETELY "AS IS," "WHERE IS," BASIS, WHICH IS ACKNOWLEDGED AND AGREED TO BY THE LESSEE. THE WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS SECTION 4 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR HAS NOT MADE AND SHALL NOT BE CONSIDERED OR DEEMED TO HAVE MADE (WHETHER BY VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER THIS AGREEMENT, OR HAVING ACQUIRED THE AIRCRAFT, OR HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE) ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR TO ANY PART THEREOF, AND SPECIFICALLY, WITHOUT LIMITATION, IN THIS RESPECT DISCLAIMS ALL REPRESENTATIONS AND/OR WARRANTIES AS TO THE TITLE, AIRWORTHINESS, VALUE, CONDITION, DESIGN, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONSTRUCTION AND CONDITION OF THE AIRCRAFT OPERATION, OR FITNESS FOR A PARTICULAR USE OF THE AIRCRAFT AND AS TO THE ABSENCE OF LATENT AND OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OR THE LIKE, HEREUNDER OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
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IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF. THE LESSEE HEREBY WAIVES, RELEASES, DISCLAIMS AND RENOUNCES ALL EXPECTATION OF OR RELIANCE UPON ANY SUCH AND OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF LESSOR AND RIGHTS, CLAIMS AND REMEDIES OF THE LESSEE AGAINST LESSOR, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO (I) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE, (II) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (III) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF LESSOR, ACTUAL OR IMPUTED, AND (IV) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO THE AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
SECTION 5. REGISTRATION, USE, OPERATION, MAINTENANCE AND POSSESSION
5.1 Title and Registration. Lessee acknowledges that Lessor owns all legal, beneficial, and equitable title to the Aircraft, and that said title shall remain vested in Lessor during the Term hereof. Lessee shall undertake, to the extent permitted by Applicable Law, to do all such further acts, deeds, assurances or things as may, in the opinion of the Lessor, be necessary or desirable in order to protect or preserve Lessor's title to the Aircraft.
5.2 Use and Operation. Lessee shall operate the Aircraft in accordance with the provisions of Part 91 of the FAR and shall not operate the Aircraft in commercial service, as a common carrier, or otherwise for compensation or hire except to the extent permitted under Sections 91.321 and 91.501 of the FAR, if applicable. Lessee shall be solely and exclusively responsible for the use, operation and control of the Aircraft at all times during which the Aircraft is in Lessee's possession during the Term. Lessee agrees not to operate or locate the Airframe or any Engine, or permit the Airframe or any Engine to be operated or located, in any area excluded from coverage by any insurance policy in effect or required to be maintained hereunder with respect to the Airframe or Engines, or in any war zone. Lessee agrees not to operate the Airframe or any Engine or permit the Airframe or any Engine to be operated during the Term except in operations for which Lessee is duly authorized, or to use or permit the Aircraft to be used for a purpose for which the Aircraft is not designed or reasonably suitable. Lessee will not permit the Airframe or any Engine to be maintained, used or operated during the Term in violation of any Applicable Law, or contrary to any manufacturer's operating manuals or instructions. Lessee shall not knowingly permit the Aircraft to be used for the carriage of any persons or property prohibited by Applicable Law, nor shall Lessee permit the Aircraft to be used during the existence of any known defect except in accordance with the FAR. Lessee may carry on the Aircraft on all flights under this Agreement such passengers, baggage, and cargo as Lessee in its sole but reasonable discretion shall determine; provided, however, that the number of passengers on any flight shall in no event exceed the number of seats legally available in the Aircraft, and the total load carried on any flight, including passengers, crew, baggage, and fuel and oil in such quantities as the Pilot in Command shall determine to be required, shall not exceed the legally permissible maximum load for the Aircraft. Lessee will abide by and conform to, be responsible for causing and cause others to abide by and conform to, all Applicable Laws now existing or hereafter enacted, that control or in any way affect the operation, use, maintenance, or occupancy of the Aircraft, or the use of any airport by the Aircraft.
5.3 Aircraft Leased without Services. The Aircraft is leased by Lessor to Lessee hereunder without any additional services of any kind, and Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, shall obtain or supply all services and supplies necessary to the operation, maintenance, and storage of the Aircraft. Without limiting the generality of the foregoing, Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, and at no cost or expense to Lessor, shall:
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5.3.1 obtain all fuel, oil, lubricants, and other services and supplies required for Lessee's operations of the Aircraft;
5.3.2 pay the fixed hourly cost of any maintenance service plans that may be in effect with respect to the Aircraft that become due and payable as a result of Lessee's operations of the Aircraft;
5.3.3 maintain the Aircraft, or cause the Aircraft to be maintained, in a good and airworthy operating condition and in compliance with all applicable FAR and the Aircraft Operating Manual;
5.3.4 ensure that all mechanics assigned to the maintenance of the Aircraft are competent with respect to the type of aircraft, and fully familiar with applicable maintenance and preventative repair programs for the Aircraft's specific type;
5.3.5 store the Aircraft when not in use in an appropriate and adequate indoor facility at the Operating Base;
5.3.6 obtain the services of pilots for all of Lessee's operations of the Aircraft;
5.3.7 ensure that all pilots serving on any flight conducted by Lessee possess current and valid Airline Transport Pilot and First Class Medical Certificates issued by the FAA, and are fully competent, trained, experienced, and qualified in accordance with Applicable Law and all insurance policies covering the Aircraft;
5.3.8 maintain and preserve, or cause to be maintained and preserved, in the English language, all Aircraft Documents in a complete, accurate, and up-to-date manner; and
5.3.9 maintain, or cause to be maintained, all insurance required by Section 8 of this Agreement.
5.4 Operational Control.
5.4.1 Lessee's Flights. Lessee shall exercise Operational Control of the Aircraft during all flight operations conducted by Lessee. Further, at all times while the Aircraft is in the possession of Lessee, Lessee shall have exclusive possession, command, and control of the Aircraft, and the pilots of any flight by Lessee shall be under the exclusive command of Lessee. The parties acknowledge and agree that no Other Non-Exclusive Lessee shall have any right or obligation to exercise Operational Control of the Aircraft in connection with any flight conducted by Lessee.
5.4.2 Other Non-Exclusive Lessee's Flights. Other Non-Exclusive Lessee shall exercise Operational Control of the Aircraft during all flight operations conducted by such Other Non-Exclusive Lessee. Further, at all times while the Aircraft is in the possession of any Other Non-Exclusive Lessee, such Other Non-Exclusive Lessee shall have exclusive possession, command, and control of the Aircraft, and the pilots of any such flight by such Other Non-Exclusive Lessee shall be under the exclusive command of such Other Non-Exclusive Lessee. The parties acknowledge and agree that Lessee shall have no right or obligation to exercise Operational Control of the Aircraft in connection with any flight conducted by any Other Non-Exclusive Lessee.
5.5 Authority of Pilot in Command. Notwithstanding that Lessee shall have operational control of the Aircraft during any flight conducted by Lessee, the parties acknowledge that pursuant to Section 91.3 of the FAR, the Pilot in Command of such flight is responsible for, and is obligated and entitled to exercise final authority over, the safe operation of the flight, and the parties agree that the Pilot in Command may, in the exercise of such authority, refuse to commence such flight, terminate such flight, or take any other flight-related action that, in the judgment of the Pilot in Command, is required to ensure the safety of the Aircraft, the flight crew, the passengers, and any other persons and/or property.
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5.6 Right to Inspect. Lessor and/or Lessor's agents shall have the right to inspect the Aircraft or the Aircraft Documents at any reasonable time, upon giving Lessee reasonable notice, to ascertain the condition of the Aircraft and to satisfy Lessor that the Aircraft is being properly repaired and maintained in accordance with the requirements of this Agreement. All required repairs shall be performed as soon as practicable after such inspection.
5.7 Modification of Aircraft. Lessee shall not make or permit to be made any modification, alteration, improvement, or addition to the Aircraft without the express written consent of Lessor, except for those modifications, alterations, improvements, or additions that are necessary to comply with any applicable Airworthiness Directive or mandatory manufacturer's service bulletin. Any modifications, alterations, improvements, or additions to the Aircraft shall be accomplished at the sole cost and expense of Lessee and the Other Non-Exclusive Lessee(s), and shall be the property of Lessor.
5.8 Fines, Penalties, and Forfeitures. Lessee shall be solely responsible for any fines, penalties, or forfeitures relating in any manner to the operation, maintenance, or use of the Aircraft by Lessee under this Agreement.
SECTION 6. RETURN OF AIRCRAFT
6.1 Return. On the last day of the Term or the date of earlier termination hereof, Lessee shall return the Aircraft to Lessor by delivering the same at Lessee's expense to Lessor at the Operating Base or such other location within the 48 contiguous United States as Lessor may designate, fully equipped with all Engines and Parts installed thereon.
6.2 Condition of Aircraft. The Aircraft, at the time of its return to Lessor, shall have, and be in compliance with, a current valid certificate of airworthiness issued by the FAA, and shall be airworthy according to manufacturer's specifications and FAA regulations, shall have been maintained and repaired in accordance with the provisions of this Agreement, and shall be in the same condition as it was in on the Effective Date of this Agreement, ordinary wear and tear excepted.
6.3 Aircraft Documents. Lessee shall return or cause to be returned to Lessor, at the time the Aircraft is returned to Lessor, all of the Aircraft Documents, updated and maintained by Lessee through the date of return of the Aircraft.
SECTION 7. LIENS
7.1 Lessee Liens. Lessee shall ensure that no Liens are created or placed against the Aircraft by Lessee or third-parties as a result of Lessee's actions. Lessee shall notify Lessor promptly upon learning of any Liens not permitted by these terms. Lessee shall, at its own cost and expense, take all such actions as may be necessary to discharge and satisfy in full any such Lien promptly after the same becomes known to it.
SECTION 8. INSURANCE
8.1 Liability. Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, and at no cost or expense to Lessor, shall maintain, or cause to be maintained, bodily injury and property damage, liability insurance in an amount no less than Three Hundred Million United States Dollars (US$300,000,000.00) Combined Single Limit. Said policy shall be an occurrence policy naming Lessee, Lessor, and the Other Non-Exclusive Lessee(s) as Named Insureds.
8.2 Hull. Lessee, in coordination with the Other Non-Exclusive Lessee(s) pursuant to Section 2.4 hereof, and at no cost or expense to Lessor, shall maintain, or cause to be maintained, all risks aircraft hull insurance in the amount of no less than Eight Million United States Dollars (US$8,000,000.00), and such insurance shall name Lessor and any first lien mortgage holder as loss payees as their interests may appear.
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8.3 Insurance Certificates. Lessee will provide Lessor with a Certificate of Insurance upon execution of this Agreement and at any time thereafter as Lessor may reasonably request.
8.4 Conditions of Insurance. Each insurance policy required under this Section 8 shall insure the interests of Lessor regardless of any breach or violation by Lessee or any Other Non-Exclusive Lessee(s) of any warranties, declarations or conditions contained in such policies. Each such policy shall be primary without any right of contribution from any insurance maintained by Lessor. Each such policy shall insure Lessee's contractual liability to Lessor contained in this Agreement (with a Breach of Warranty endorsement). The geographic limits, if any, contained in each and every such policy of insurance shall include at the minimum all territories over which Lessee and each Other Non-Exclusive Lessee will operate the Aircraft for which the insurance is placed. Each policy shall contain an agreement by the insurer that notwithstanding the lapse of any such policy for any reason or any right of cancellation by the insurer or Lessee, whether voluntary or involuntary, such policy shall continue in force for the benefit of Lessor, and the Other Non-Exclusive Lessee(s) for at least thirty (30) days (or such lesser time as may be permitted in the case of War Risk Insurance, if such War Risk Insurance so requires) after written notice of such lapse or cancellation shall have been given to Lessor and each Other Non-Exclusive Lessee. Each policy shall contain an agreement by the insurer to provide Lessor and each Other Non-Exclusive Lessee with thirty (30) days' advance written notice of any deletion, cancellation or material change in coverage.
8.5 Insurance Companies. Each insurance policy required under this Section 8 shall be issued by a company or companies who are qualified to do business in the United States and who (i) will submit to the jurisdiction of any competent state or federal court in the United States with regard to any dispute arising out of the policy of insurance or concerning the parties herein; and (ii) will respond to any claim or judgment against Lessor in any competent state or federal court in the United States or its territories.
SECTION 9. DEFAULTS AND REMEDIES
9.1 Upon the occurrence of any failure of Lessee to duly observe or perform any of its obligations hereunder, and at any time thereafter so long as the same shall be continuing, Lessor may, at its option, declare in writing to the Lessee that this Agreement is in default; and at any time thereafter, so long as Lessee shall not have remedied the outstanding default, Lessor may cancel, terminate, or rescind this Agreement.
SECTION 10. NOTICES
10.1 All communications, declarations, demands, consents, directions, approvals, instructions, requests and notices required or permitted by this Agreement shall be in writing and shall be deemed to have been duly given or made when delivered personally or transmitted electronically by e-mail receipt acknowledged, or in the case of documented overnight delivery service or registered or certified mail, return receipt requested, delivery charge or postage prepaid, on the date shown on the receipt therefor, in each case at the address set forth below:
If to Lessor: VT Aviation Leasing LLC
c/o Fontainebleau Aviation
14200 NW 42nd Avenue
Opa-locka, FL 33054
Attn: Chief Financial Officer
With a copy to: GKG Law, P.C.
1055 Thomas Jefferson Street, N.W.
Suite 500
Washington, D.C. 20007
Attn: Keith G. Swirsky, Esq.
Email: kswirsky@gkglaw.com
If to Lessee: Douglas Elliman Inc.
4400 Biscayne Blvd.
9
Miami, FL 33137
Attn: Marc N. Bell, Esq.
Email: mbell@vectorgroupltd.com
SECTION 11. EVENT OF LOSS AND INDEMNIFICATION
11.1 Notification of Event of Loss. In the event any damage to or destruction of, the Aircraft shall occur, or in the event of any whole or partial loss of the Aircraft, including, without limitation, any loss resulting from the theft, condemnation, confiscation or seizure of, or requisition of title to or use of, the Aircraft by private persons or by any governmental or purported governmental authority, Lessee shall immediately:
11.1.1report the event of loss to Lessor, the insurance company or companies, and to any and all applicable governmental agencies; and
11.1.2 furnish such information and execute such documents as may be required and necessary to collect the proceeds from any insurance policies.
11.2 Repair or Termination. In the event the Aircraft is partially destroyed or damaged, Lessor shall have the option, in its sole discretion, to either (i) fully repair the Aircraft in order that it shall be placed in at least as good condition as it was prior to such partial destruction or damage; or (ii) terminate this Agreement. Within five (5) days after the date of such partial destruction or damage, Lessor shall give written notice to Lessee specifying whether Lessor has elected to fully repair the Aircraft or to terminate this Agreement, which termination shall be effective immediately upon such written notice from Lessor to Lessee setting forth Lessor's election to so terminate this Agreement.
11.3 Indemnification. Lessee hereby releases, and shall defend, indemnify and hold harmless Lessor and Lessor's shareholders, members, directors, officers, managers, employees, successors and assigns, from and against, any and all claims, damages, losses, liabilities, demands, suits, judgments, causes of action, civil and criminal legal proceedings, penalties, fines, and other sanctions, and any attorneys' fees and other reasonable costs and expenses, directly or indirectly arising from this Agreement, and/or Lessee's operation, maintenance, storage, or other use of the Aircraft.
SECTION 12. MISCELLANEOUS
12.1 Entire Agreement. This Agreement, and all terms, conditions, warranties, and representations herein, are for the sole and exclusive benefit of the signatories hereto. This Agreement constitutes the entire agreement of the parties as of its Effective Date and supersedes all prior or independent, oral or written agreements, understandings, statements, representations, commitments, promises, and warranties made with respect to the subject matter of this Agreement.
12.2 Other Transactions. Except as specifically provided in this Agreement, none of the provisions of this Agreement, nor any oral or written statements, representations, commitments, promises, or warranties made with respect to the subject matter of this Agreement shall be construed or relied upon by any party as the basis of, consideration for, or inducement to engage in, any separate agreement, transaction or commitment for any purpose whatsoever.
12.3 Prohibited and Unenforceable Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. To the extent permitted by Applicable Law, each of Lessor and Lessee hereby waives any provision of Applicable Law which renders any provision hereof prohibited or unenforceable in any respect.
12.4 Enforcement. This Agreement, including all agreements, covenants, representations and warranties, shall be binding upon and inure to the benefit of, and may be enforced by Lessor, Lessee, and each of their agents, servants and personal representatives.
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12.5 Headings. The section and subsection headings in this Agreement are for convenience of reference only and shall not modify, define, expand, or limit any of the terms or provisions hereof.
12.6 Counterparts. This Agreement may be executed by the parties hereto in two (2) separate counterparts, each of which when so executed and delivered shall be an original, and both of which shall together constitute but one and the same instrument.
12.7 Amendments. No term or provision of this Agreement may be amended, changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by Lessor and Lessee.
12.8 No Waiver. No delay or omission in the exercise or enforcement or any right or remedy hereunder by either party shall be construed as a waiver of such right or remedy. All remedies, rights, undertakings, obligations, and agreements contained herein shall be cumulative and not mutually exclusive, and in addition to all other rights and remedies which either party possesses at law or in equity.
12.9 No Assignments. Neither party may assign its rights or obligations under this Agreement without the prior written permission of the other.
12.10 Governing Law. This Agreement has been negotiated and delivered in the State of Florida and shall in all respects be governed by, and construed in accordance with, the laws of the State of Florida, including all matters of construction, validity and performance, without giving effect to its conflict of laws provisions.
12.11 Jurisdiction and Venue. Exclusive jurisdiction and venue over any and all disputes between the parties arising under this Agreement shall be in, and for such purpose each party hereby submits to the jurisdiction of, the state and federal courts serving the State of Florida.
SECTION 13. TRUTH IN LEASING
13.1 TRUTH IN LEASING STATEMENT UNDER SECTION 91.23 OF THE FAR's.
WITHIN THE TWELVE (12) MONTH PERIOD PRECEDING THE DATE OF THIS AGREEMENT, THE AIRCRAFT HAS BEEN INSPECTED AND MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE FAR 91.409(f).
LESSEE CERTIFIES THAT DURING THE TERM OF THIS AGREEMENT AND FOR OPERATIONS CONDUCTED HEREUNDER, THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED BY LESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE FAR 91.409(f).
LESSEE ACKNOWLEDGES THAT WHEN IT OPERATES THE AIRCRAFT UNDER THIS AGREEMENT, IT SHALL BE KNOWN AS, CONSIDERED, AND IN FACT WILL BE THE OPERATOR OF SUCH AIRCRAFT. EACH PARTY HERETO CERTIFIES THAT IT UNDERSTANDS THE EXTENT OF ITS RESPONSIBILITIES, SET FORTH HEREIN, FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FEDERAL AVIATION ADMINISTRATION FLIGHT STANDARDS DISTRICT OFFICE.
THE PARTIES HERETO CERTIFY THAT A TRUE COPY OF THIS AGREEMENT SHALL BE CARRIED ON THE AIRCRAFT AT ALL TIMES AND SHALL BE MADE AVAILABLE FOR INSPECTION UPON REQUEST BY AN APPROPRIATELY CONSTITUTED IDENTIFIED REPRESENTATIVE OF THE ADMINISTRATOR OF THE FAA.
* * * Signature Page Follows * * *
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IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Aircraft Lease Agreement to be duly executed as of the Effective Date.
LESSOR:
VT Aviation Leasing LLC
By: _/s/ J. Bryant Kirkland III
Print: J. Bryant Kirkland III
Title: Manager
LESSEE:
Douglas Elliman Inc.
By: /s/ Richard J. Lampen
Print: Richard J. Lampen
Title: Executive Vice President and Chief Operating Officer
12
AIRCRAFT LEASE AGREEMENT
Schedule A
Hourly Rent: $___________________________ per Flight Hour
1
AIRCRAFT LEASE AGREEMENT
Schedule B
Form of Invoice
{Lessor Letterhead}
Date: __________________
Bill to: ________________________________
________________________________
________________________________
________________________________
RE: Aircraft Lease Agreement Invoice of Rent Due
Rent due for period ______________, 20___ to ______________, 20___:
Flight Hours: _______________
x Hourly Rent: $______________
Total Rent Due: $______________
+ Sales Tax Due: $______________
Total Due: $______________
Date Due: _______________
[Payment Option 1: Check]
Make Checks Payable to:
________________________________
________________________________
________________________________
________________________________
[Payment Option 2: Wire]
Wire Payment to:
________________________________
________________________________
________________________________
________________________________
2
AIRCRAFT LEASE AGREEMENT
Schedule C
FSDO Notification Letter
Date: _________________
Via Facsimile
Fax: __________________
Federal Aviation Administration
__________________________
__________________________
__________________________
RE: FAR Section 91.23 FSDO Notification
First Flight Under Lease of Learjet Inc. 60 Aircraft
s/n 349, Registration N62VG
To whom it may concern:
Pursuant to the requirements of Federal Aviation Regulation Section 91.23(c)(3), please accept this letter as notification that the undersigned, will acquire and take delivery of a leasehold interest in the above referenced aircraft on the ___ day of December, 2021, and that the first flight of the aircraft under the lease will depart from _______________________________ Airport on the _____ day of _____________________, 20______, at approximately ______ (am / pm) local time.
Sincerely,
Douglas Elliman Inc.
By: _______________________
Print: _______________________
Title: _________________________
3
EXHIBIT 21.1
SUBSIDIARIES OF DOUGLAS ELLIMAN INC.
| ENTITY NAME | JURISDICTION OF ORGANIZATION | ||||
| DER Holdings LLC | DE | ||||
| Douglas Elliman of California, Inc. | CA | ||||
Douglas Elliman Realty, LLC | NY | ||||
| Douglas Elliman Florida LLC d/b/a Douglas Elliman Real Estate | FL | ||||
| Douglas Elliman of LI, LLC d/b/a Douglas Elliman Real Estate | NY | ||||
| Douglas Elliman, LLC d/b/a Douglas Elliman Real Estate | DE | ||||
Not included above are other subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary, as such term is defined by Rule 1-02(w) of Regulation S-X.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-261959 on Form S-8 of our reports dated March 16, 2023, relating to the financial statements of Douglas Elliman Inc. and the effectiveness of Douglas Elliman Inc.’s internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2022.
/s/ Deloitte & Touche LLP
Miami, Florida
March 16, 2023
EXHIBIT 31.1
RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Howard M. Lorber, certify that:
1.I have reviewed this annual report on Form 10-K of Douglas Elliman Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | March 16, 2023 | |||||||
| /s/ Howard M. Lorber | ||||||||
| Howard M. Lorber | ||||||||
| President and Chief Executive Officer | ||||||||
EXHIBIT 31.2
RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, J. Bryant Kirkland III, certify that:
1.I have reviewed this annual report on Form 10-K of Douglas Elliman Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(c)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(d)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | March 16, 2023 | |||||||
| /s/ J. Bryant Kirkland III | ||||||||
| J. Bryant Kirkland III | ||||||||
| Senior Vice President, Treasurer and Chief Financial Officer | ||||||||
EXHIBIT 32.1
SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
In connection with the Annual Report of Douglas Elliman Inc. (the “Company”) on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Howard M. Lorber, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | March 16, 2023 | |||||||
| /s/ Howard M. Lorber | ||||||||
| Howard M. Lorber | ||||||||
| President and Chief Executive Officer | ||||||||
In connection with the Annual Report of Douglas Elliman Inc. (the “Company”) on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Bryant Kirkland III, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | March 16, 2023 | |||||||
| /s/ J. Bryant Kirkland III | ||||||||
| J. Bryant Kirkland III | ||||||||
| Senior Vice President, Treasurer and Chief Financial Officer | ||||||||