EX-99.1 11 d171479dex991.htm EX-99.1 EX-99.1
Table of Contents

Exhibit 99.1

LOGO

4400 BISCAYNE BOULEVARD

MIAMI, FLORIDA 33137

[●], 2021

Dear Stockholder:

I am pleased to report that the previously announced spin-off by Vector Group Ltd., which we refer to as “Vector,” of all of the outstanding shares of common stock of its Douglas Elliman Inc. subsidiary is expected to become effective on [●], 2021. Douglas Elliman Inc., a Delaware corporation, which we refer to as “Spinco,” will become a public company on that date and will own the real estate services and property technology (“PropTech”) investment business currently owned and operated by Vector through its subsidiary New Valley LLC, and will be capitalized with approximately $200 million in net cash and cash equivalents (as defined herein), as described in this information statement. It is expected that Spinco’s common stock will be listed on the New York Stock Exchange, which we refer to as the “NYSE,” under the symbol “DOUG”.

Holders of record of Vector’s common stock (including Vector common stock underlying outstanding stock option awards and restricted stock awards) as of the close of business, New York City time, on [●], 2021, which will be the record date, will receive one share of Spinco common stock for every two shares of Vector’s common stock held. No action is required on your part to receive your Spinco shares. You will not be required either to pay anything for the new shares or to surrender any shares of Vector stock.

No fractional shares of Spinco stock will be issued. If you otherwise would be entitled to a fractional share you will receive a check for the cash value thereof, which generally will be taxable to you. Vector expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution of Spinco common stock to the holders of Vector common stock will qualify as a tax-free distribution for U.S. federal income tax purposes.

The enclosed information statement describes the distribution of shares of Spinco stock and contains important information about Spinco, including financial statements. I suggest that you read it carefully. If you have any questions regarding the Distribution, please contact Vector’s transfer and distribution agent, American Stock Transfer & Trust Company, at (800) 937-5449.

Sincerely,

Howard M. Lorber

President and Chief Executive Officer


Table of Contents

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission.

 

PRELIMINARY INFORMATION STATEMENT

SUBJECT TO COMPLETION, DATED NOVEMBER 10, 2021

INFORMATION STATEMENT

 

LOGO

Douglas Elliman Inc.

Distribution of

Common Stock

Par Value, $0.01 Per Share

 

 

This information statement is being furnished in connection with the distribution by Vector Group Ltd. (“Vector”) to holders of its common stock (including Vector common stock underlying outstanding stock option awards and restricted stock awards) of all of the outstanding shares of Douglas Elliman Inc. (collectively, “we,” “us,” “our,” “Spinco,” “Douglas Elliman,” or the “Company”) common stock. Prior to such distribution, we will enter into a series of transactions with Vector pursuant to which we will own the real estate services and property technology (“PropTech”) investment business currently owned and operated by Vector through its subsidiary New Valley LLC (“New Valley”), and will be capitalized with approximately $200 million in net cash and cash equivalents (as defined herein), as described in this information statement.

Shares of our common stock will be distributed to holders of Vector common stock (including Vector common stock underlying outstanding stock option awards and restricted stock awards) of record as of the close of business, New York City time, on [●], 2021, which will be the record date. Each such holder will receive one share of our common stock for every two shares of Vector common stock held or underlying an outstanding equity award on the record date. We refer to this distribution of securities as the “Distribution.” The Distribution will be effective at 11:59 p.m., New York City time, on [●], 2021. For Vector stockholders who own common stock in registered form, in most cases the transfer and distribution agent will credit their shares of Spinco common stock to book entry accounts established to hold their Vector common stock. Our transfer and distribution agent will send these stockholders a statement reflecting their Spinco common stock ownership shortly after [●], 2021. For stockholders who own Vector common stock through a broker or other nominee, their shares of Spinco common stock will be credited to their accounts by the broker or other nominee. Stockholders will receive a cash payment in lieu of fractional shares, which generally will be taxable. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.”

No stockholder approval of the Distribution is required or sought. We are not asking you for a proxy and you are requested not to send us a proxy. Vector stockholders will not be required to pay for the shares of our common stock to be received by them in the Distribution, or to surrender or to exchange shares of Vector common stock in order to receive our common stock, or to take any other action in connection with the Distribution. There is currently no trading market for our common stock.

We have applied to list our common stock on the New York Stock Exchange (the “NYSE”) under the symbol “DOUG”.

 

 

IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE CAPTION “RISK FACTORS” BEGINNING ON PAGE 30.

WE ARE AN EMERGING GROWTH COMPANY AS DEFINED IN THE JUMPSTART OUR BUSINESS STARTUPS ACT OF 2012. REFER TO “RISK FACTORS — RISKS RELATING TO THE DISTRIBUTION — THE REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO US AS AN ‘EMERGING GROWTH COMPANY’ MAY MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS” AND “BUSINESS — EMERGING GROWTH COMPANY STATUS.”

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.

Stockholders of Vector with inquiries related to the Distribution should contact Vector’s transfer and distribution agent, American Stock Transfer & Trust Company, at (800) 937-5449.

 

 

The date of this information statement is [], 2021.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Summary

     1  

Summary Risk Factors

     11  

The Distribution

     13  

Selected Historical and Unaudited Pro Forma Condensed Combined Consolidated Financial Data

     17  

Questions and Answers about the Distribution

     19  

The Distribution

     24  

Risk Factors

     30  

Special Note on Forward-Looking Statements

     50  

Business

     52  

Dividend Policy

     64  

Unaudited Pro Forma Condensed Combined Consolidated Financial Information

     65  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     71  

Corporate Governance and Management

     90  

Executive Compensation

     99  

Certain Relationships and Related Party Transactions

     113  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     118  

Shares Eligible For Future Sale

     121  

Description of Capital Stock

     122  

Indemnification of Directors and Officers

     127  

Available Information

     128  

Index To Combined Consolidated Financial Statements

     F-1  

 

-i-


Table of Contents

SUMMARY

The following is a summary of certain of the information contained in this information statement. This summary is included for convenience only and should not be considered complete. This summary is qualified in its entirety by more detailed information contained elsewhere in this information statement, which should be read in its entirety.

Unless the context otherwise requires, all references to “we,” “us,” “our,” “Spinco,” “Douglas Elliman” or the “Company” refer to Douglas Elliman Inc., together with its direct and indirect subsidiaries. Where we describe in this information statement our business activities, we do so as if the transfer of the real estate services and property technology (“PropTech”) investment business currently owned and operated by Vector through its subsidiary New Valley LLC (“New Valley”) to Spinco and the capitalization of Spinco with approximately $200 million in cash and cash equivalents, net of each of the current and long-term portion of “Notes payable and other obligations,” which we refer to in this information statement as “net cash and cash equivalents,” has already occurred.

Overview

With a leading luxury brand and a comprehensive suite of technology-enabled real estate services and investments, Spinco is well positioned to capitalize on opportunities in the large and growing U.S. residential real estate market. Since the beginning of 2020, U.S. homeowner equity has grown 17.6% to $23.6 trillion. Further, new and existing home sales in the U.S. are forecast to grow to approximately 7.4 million units in 2022, compared to approximately 6.9 million, 6.5 million and 6.0 million units in 2021, 2020 and 2019, respectively, according to the Mortgage Bankers Association—MBA Mortgage Finance Forecast. We believe increased homeowner equity and growth in home sales are benefiting from several factors, including low mortgage interest rates, historically low inventory, and increased mobility resulting from the novel coronavirus pandemic (“COVID-19”). This expanding market presents opportunities for significant commission income with national commission rates averaging approximately 5.8% as of September 30, 2021, according to HomeLight, while our actual commission rates have ranged between 5.27% in 2017 and 4.93% in 2020 due to our sales mix, which consists of higher-priced homes. Despite various “agentless” models such as “iBuying,” approximately 88% of buyers purchased their home through a real estate agent or broker and 89% of sellers were assisted by a real estate agent when selling their home, according to the National Real Estate Association (“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 67% of home sellers and 60% of home buyers in 2020 choosing to work with an agent they had used in the past or through a referral, according to NAR. Repeat business, as well the ability to provide ancillary services, allows agents to extend their client relationships and generate significant lifetime value.

Since its inception in 1911, Douglas Elliman has challenged the status quo of the real estate industry. The company was 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 the nine months ended September 30, 2021 was approximately $1.60 million — significantly higher than our principal competitors. Douglas Elliman is one of the largest residential brokerage companies in the New York metropolitan area, which includes New York City, Long Island, Westchester and the Hamptons, and the sixth largest in the U.S. We also operate leading property management, title and escrow companies, among other ancillary services.

Today, 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,

 

-1-


Table of Contents

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 New Valley Ventures, LLC, which we refer to as “New Valley Ventures.” 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 know-how 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 new solutions and services that can be integrated into our technology foundation, 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.

We have a track record of generating profitable growth. For the year ended December 31, 2020, despite the unprecedented impact of the COVID-19 pandemic on many of our markets, we had total revenues of $774.0 million, a net loss of $46.4 million and Adjusted EBITDA of $22.1 million. Our management responded to the profound impact of the COVID-19 pandemic by adjusting Douglas Elliman’s expense structure and introducing additional technology to improve the efficiency of our agents. Consequently, as markets reopened and vaccinations for COVID-19 became available, Douglas Elliman’s business rapidly improved and, for the twelve months ended September 30, 2021, our revenues were $1.29 billion, our net income was $92.7 million and our Adjusted EBITDA was $106.1 million. For the nine months ended September 30, 2021, our revenues were $1.02 billion, representing a 101% increase from the prior year period, and for the three months ended September 30, 2021, our revenues were $354.2 million, on track for our highest yearly revenue ever. We are experiencing strong momentum in many of our markets and we believe we are well positioned to continue capitalizing on the attractive market opportunity. Douglas Elliman’s gross transaction value increased from $29.1 billion for the year ended December 31, 2020 to $47.7 billion for the twelve months ended September 30, 2021. The number of Douglas Elliman agents who are either leaders of their respective agent teams or individual agents operating independently on our platform (“Principal Agents”) was 5,246 as of September 30, 2021, an increase from 4,996 as of December 31, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Business Metrics and Non-GAAP Financial Measures” for information regarding our non-GAAP financial measures and reconciliations to the most comparable GAAP measures.

We believe 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. We will 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 employ a disciplined capital allocation strategy aimed at generating sustainable long-term value for our stockholders.

Our Company

We are presently a subsidiary of Vector, a Delaware corporation engaged principally in the tobacco and real estate businesses. On November 8, 2021, Vector announced its plans to separate into two public companies, Vector and Spinco. The transaction, expected to be structured as a distribution of the Spinco business to the stockholders of Vector, is expected to qualify as a tax-free distribution for U.S. federal income tax purposes for Vector and its stockholders with respect to Spinco stock that is distributed with respect to the stock of Vector. Upon conclusion of the spin-off, Spinco will be headquartered in Miami, Florida.

 

-2-


Table of Contents

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, Westchester and the Hamptons, and the sixth largest in the U.S. Douglas Elliman has approximately 100 offices with approximately 6,600 real estate agents in the New York metropolitan area, as well as in Florida, California, Connecticut, Massachusetts, Colorado, New Jersey, and Texas. The Douglas Elliman name is synonymous with luxury.

In August 2021, Douglas Elliman increased its ownership in Real Estate Associates of Houston LLC (d/b/a Douglas Elliman Real Estate Texas, which we refer to as “Douglas Elliman Texas”) from 1% to 50% and is fully integrating the Texas business with the rest of our operations. We believe that the Texas market will be complementary to Douglas Elliman’s markets as several of its major cities are densely populated international finance and technology hubs with premium-priced housing inventory. Texas continues to be a top destination for many different demographics from across the country, which has supported the housing market and the number of real estate transactions in the state. According to the Texas Real Estate Research Center at Texas A&M University, the Texas median home price reached a record-breaking $305,400 in August 2021, up 16.8% year-over-year. Texas’ average days on market (“DOM”) fell to a record-breaking 27 days, according to the same report, indicating strong demand.

Prominent new development sales and marketing firm. Douglas Elliman’s Development Marketing (“DEDM”) division 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. The firm ranks among New York City’s most prominent sales and marketing firms, with approximately 75 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 revenue commission 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 360 properties representing approximately 56,500 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, a newly-formed entity, which will be engaged in the provision of title insurance services in Florida. Douglas Elliman is actively exploring similar ventures in other of its 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

 

-3-


Table of Contents

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.

Provider of mortgage services. In April 2021, we acquired a 50% interest in Biscayne Mortgage LLC, which conducts business as Clear Path Mortgage. Clear Path Mortgage will originate mortgage loans, including both purchase and refinancing transactions, to be sold in the market to mortgage companies and the governmental-sponsored enterprises. Clear Path Mortgage will originate and market its mortgage lending services to real estate agents across Douglas Elliman’s Florida market as well as a broad consumer audience.

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 then limits the value of the emerging product to the company’s 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 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 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 (“AI”), 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 recently integrated 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 6,600 agents and 775

 

-4-


Table of Contents

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.

Currently integrating a new client and customer lifetime concierge solution. We are incorporating seasoned third-party products into a new white-glove homeowners engagement solution that provides access to services such as insurance, moving, telecommunications, utilities, solar, home security and home services to facilitate all of clients’ and customers’ moving and home management needs. This fully automated, contextual, end-to-end homeowner engagement platform includes more than 40 direct partnerships and integrations across multiple industries. It will leverage PropTech startups such as MoveEasy, Humming Homes, Fyxify and more.

 

-5-


Table of Contents

LOGO

 

-6-


Table of Contents

PropTech Investments

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 will 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 September 30, 2021, New Valley Ventures has investments (at a carrying value) of approximately $7.1 million in PropTech companies. This amounts to approximately 1% of the value of Douglas Elliman’s total assets, which totaled approximately $534 million, as of September 30, 2021. As of September 30, 2021 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 for single-family homeowners with a digital-first experience, offering 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.

 

-7-


Table of Contents
   

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 accurately, dynamically, and regularly measure their carbon footprint across all operations.

 

   

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.

 

   

MetaProp Venture Capital Fund: a fund advised or managed by a New York-based venture capital firm. This investment provides 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.

Other than the four 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, the Company has not recognized revenue from these investments and does not anticipate recognizing revenue from these non-controlling PropTech investments. However, the Company targets earning an attractive rate of return from the capital appreciation of its 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 U.S. luxury real estate markets, including New York, Florida, California, Texas, Colorado 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 775 employees and approximately 6,600 agents (including 5,246 Principal Agents) as of September 30, 2021 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

 

-8-


Table of Contents

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, Colorado and Texas, where the Elliman brand has strong awareness and brand equity.

Continue executing on DEDM growth strategy. 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, both as a result of recovery from COVID-19 and also through expansion into new markets (e.g., Texas).

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 Spinco stakeholders with early and differentiated access to new technology built in entrepreneurial environments, while enabling PropTech investee companies to access our know-how 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 will 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. Beginning in the second quarter of 2020, we began significant expense reduction initiatives at Douglas Elliman, which continue today.

Maintain a disciplined capital allocation framework to create value for our stockholders. We are profitable and generate significant operating cash flow which provides financial flexibility with respect to investments for growth and return of capital to shareholders. We will seek to deploy a significant portion of our operating cash flow to fund growth opportunities to create stockholder value, such as PropTech investments, recruiting efforts, acquisitions (acqui-hires), and we also contemplate paying a quarterly dividend, initially $0.05 per share of our common stock, subject to approval by our Board of Directors, as described under “Dividend Policy” on page 64.

 

-9-


Table of Contents

COVID-19 Pandemic

The COVID-19 pandemic continues to evolve and disrupt normal activities in many segments of the U.S. economy even as COVID-19 vaccines have been and continue to be administered. Many uncertainties continue to surround the pandemic, including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic and the length of immunity.

During the nine months ended September 30, 2021, we believe sustained high levels of demand in the markets in which we operate have been supported by beneficial consumer trends such as relaxation of social distancing measures and office re-openings coupled with further adoption of remote work trends, which we believe enhance consumers’ propensity to relocate to attractive tax and weather destinations, coupled with a favorable mortgage rate environment. In addition, continued high demand and low housing inventory levels in the markets in which we operate have driven increased average home prices throughout such markets in 2021, and we believe limited inventory contributed to the decline in our gross transaction volume from the second quarter to the third quarter. Nonetheless, we anticipate that our markets, and in particular, New York City, will continue to improve from 2020 levels for the remainder of 2021 and into 2022, with average existing home prices increasing and existing home transaction growth remaining strong.

The circumstances around the potential impact of the COVID-19 pandemic on our business remain fluid, and we continue to actively monitor the impact of the pandemic, including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic and how long immunity lasts. Based on the most recent data, the emergence of the COVID-19 Delta variant has not impacted the key U.S. markets Douglas Elliman serves. Nevertheless, we are unable to predict the ultimate impact of the COVID-19 pandemic and related macroeconomic trends (including, in particular, relaxation of social distancing measures and office re-openings coupled with further adoption of remote work trends) or other factors resulting therefrom on our future financial condition, results of operations and cash flows. See “Risk Factors — Risks Associated with Our Real Estate Services Business — We are impacted by the performance of the real estate market in the New York metropolitan area, which has been adversely impacted by COVID-19” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — COVID-19 Pandemic and Current Business and Industry Trends” for additional information.

Company Information

We are a Delaware corporation with our principal executive offices at 4400 Biscayne Boulevard, Miami, Florida 33137. Our telephone number is (305) 579-8000 and our website is www.elliman.com. The information contained in or accessible through our website is not part of this information statement or the registration statement of which this information statement forms a part. Spinco is a holding company and conducts substantially all of its operations through its subsidiaries.

Spinco was incorporated on August 13, 2021 and is a direct, wholly owned subsidiary of New Valley LLC, which in turn is a direct, wholly owned subsidiary of Vector. Vector’s board of directors approved the Distribution on [●], 2021. Prior to the Distribution, Spinco will acquire DER Holdings LLC, New Valley Ventures LLC, NV Mortgage LLC and NV Title LLC, which are the subsidiaries of Vector that own, directly and indirectly, the subsidiaries, businesses and other assets described in this information statement. In addition, Vector will capitalize Spinco with approximately $200 million in net cash and cash equivalents immediately prior to the Distribution. Where we describe in this information statement our business activities, we do so as if these transfers have already occurred.

We have applied for our common stock to be listed on the NYSE under the symbol “DOUG”.

 

-10-


Table of Contents

SUMMARY RISK FACTORS

Ownership of our common stock is subject to numerous risks, including risks relating to the Distribution. The following list of risk factors is not exhaustive. Please read the information in the section entitled “Risk Factors” beginning on page 30 of this information statement for a more thorough description of these and other risks.

 

   

We are subject to risks relating to the real estate industry.

 

   

A significant portion of our business is concentrated in the states of New York, California, Connecticut, New Jersey and Massachusetts, and changes in U.S. tax laws could impact these markets.

 

   

Lack of financing for homebuyers in the U.S. residential real estate market at favorable rates and on favorable terms (including higher interest rates or tighter mortgage underwriting standards) could have a material adverse effect on our financial performance and results of operations.

 

   

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 its real estate brokerage business.

 

   

The real estate brokerage business in the New York City metropolitan area, Florida, California, Massachusetts, Colorado, New Jersey, Connecticut, and Texas is extremely competitive.

 

   

The financial results of our real estate brokerage business are affected directly by the success of our agents.

 

   

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.

 

   

Maintaining the integrity of our computer systems and protecting confidential information and personal identifying information has become increasingly costly, as cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

 

   

There are risks inherent in PropTech Investments.

 

   

We are impacted by the performance of the real estate market in New York City, which has been adversely impacted by COVID-19.

 

   

Following the Distribution, we will be materially dependent on Vector’s performance under various agreements.

 

   

Because there has not been any public market for our common stock, the market price and trading volume of our common stock may be volatile and you may not be able to resell your shares at or above the initial market price of our stock following the Distribution.

 

   

The combined post-Distribution value of Vector and Spinco shares may not equal or exceed the pre-Distribution value of Vector shares.

 

   

The Distribution could result in significant tax liability.

 

   

We could be subject to future tobacco-related lawsuits.

 

   

We do not have an operating history as a stand-alone public company.

 

   

Our historical financial results and our unaudited pro forma condensed combined consolidated financial statements may not be representative of our results as a separate, stand-alone company.

 

   

We may incur material costs and expenses as a result of our separation from Vector.

 

   

If, following the Distribution, 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.

 

-11-


Table of Contents
   

The reduced disclosure requirements applicable to us as an “emerging growth company” may make our common stock less attractive to investors.

 

   

Future stock sales could adversely affect the trading price of our common stock.

 

   

Our overlapping directors and officers with Vector may result in the diversion of corporate opportunities to Vector, and other conflicts, and provisions in our amended and restated certificate of incorporation may provide us no remedy in that circumstance.

 

   

Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

 

-12-


Table of Contents

THE DISTRIBUTION

Please see “The Distribution” for a more detailed description of the matters described below.

 

Distributing Company

Vector is a holding company engaged principally in two business segments. In addition to the New Valley real estate business, a substantial portion of which is being transferred to Spinco, Vector also is engaged in the manufacture and sale of cigarettes in the United States through two subsidiaries, Liggett Group LLC and Vector Tobacco Inc.

 

Distributed Company

Spinco is a wholly owned subsidiary of Vector, which will own and operate the real estate services and PropTech investment business currently owned and operated by Vector through its New Valley subsidiary, as described in this information statement. In addition, Spinco will be capitalized with at least $200 million in net cash and cash equivalents. Please see “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information concerning this business.

 

Distribution Ratio

Each holder of Vector common stock (including each holder of outstanding Vector stock option awards and restricted stock awards) will receive a distribution of one share of our common stock for every two shares of Vector common stock held or underlying Vector equity awards on the record date.

 

Securities to be Distributed

Based on 153,959,427 shares of Vector common stock outstanding on September 30, 2021 (as well as 3,822,819 shares of Vector common stock underlying Vector stock option awards and restricted stock awards), approximately 77,628,949 shares of our common stock will be distributed (net of shares surrendered in respect of Vector stock option awards and restricted stock awards). The shares of our common stock to be distributed will constitute all of the outstanding shares of our common stock immediately after the Distribution. Vector stockholders will not be required to pay for the shares of our common stock to be received by them in the Distribution, or to surrender or exchange shares of Vector common stock in order to receive our common stock, or to take any other action in connection with the Distribution.

 

Fractional Shares

Fractional shares of our common stock will not be distributed. Fractional shares of our common stock will be aggregated and sold in the public market by the transfer and distribution agent, and stockholders will receive a cash payment in lieu of a fractional share. The aggregate net cash proceeds of these sales will be distributed ratably to holders of Vector common stock who would otherwise have received fractional interests. These proceeds generally will be taxable to those stockholders.

 

Distribution Agent, Transfer Agent and Registrar for the Shares

American Stock Transfer & Trust Company will be the distribution agent, transfer agent and registrar for the shares of our common stock.

 

Record Date

The record date is the close of business, New York City time, on [●], 2021.

 

-13-


Table of Contents

Distribution Date

11:59 p.m., New York City time, on [●], 2021.

 

Material U.S. Federal Income Tax Consequences of the Distribution

Vector expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by Vector of our common stock to the holders of Vector common stock will qualify as a tax-free distribution under the Internal Revenue Code of 1986, as amended (the “Code”). The Distribution is expected to qualify as a tax-free distribution for U.S. federal income tax purposes for Vector and its stockholders with respect to Spinco stock that is distributed with respect to the stock of Vector and, except to the extent a stockholder receives 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 and the above discussed consequences do not apply to the distribution of Spinco common stock with respect to Vector stock option awards and restricted stock awards. The opinion will not be binding on the Internal Revenue Service (“IRS”) or the courts. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.” Certain transactions related to the Distribution that are not addressed by the opinion could result in the recognition of income or gain by Vector. The opinion will rely on factual representations and reasonable assumptions, which, if incorrect or inaccurate, may jeopardize the ability to rely on such opinion.

 

Stock Exchange Listing

There is not currently a public market for our common stock. We have applied for our common stock to be listed on the NYSE under the symbol “DOUG”. Assuming that such listing application is approved, it is anticipated that trading will commence on a when-issued basis prior to the Distribution. On the first trading day following the date of the Distribution, when-issued trading in respect of our common stock will end and regular way trading will begin.

 

Relationship Between Vector and Us After the Distribution

Following the Distribution, we will be a separate public company. We and Vector will enter into a distribution agreement (the “Distribution Agreement”) and several ancillary agreements for the purpose of accomplishing the distribution of our common stock to Vector’s stockholders. These agreements also will govern our relationship with Vector subsequent to the Distribution and will 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 will include arrangements with respect to transition services (the “Transition Services Agreement”) and a number of ongoing commercial relationships. The Distribution Agreement includes an agreement that we and Vector will provide each other with appropriate indemnities with respect to liabilities arising out of the business being transferred to us by Vector. We will be party to other arrangements with Vector and its subsidiaries. See “Certain Relationships and Related Party Transactions — Relationship Between Vector and Us After the Distribution.”

 

-14-


Table of Contents

Overlapping Directors and Officers and Potential Conflicts of Interest

Following the Distribution, there will be an overlap between certain officers of the Company and of Vector. Howard M. Lorber will serve as the President and Chief Executive Officer of the Company and of Vector. Richard J. Lampen will serve as the Chief Operating Officer of the Company and of Vector, J. Bryant Kirkland III will serve as the Chief Financial Officer and Treasurer of the Company and of Vector, and Marc N. Bell will serve as the General Counsel of the Company and of Vector. Furthermore, immediately following the Distribution, three of the members of the Board of Directors of the Company (the “Board of Directors” or the “Board”), Mr. Lorber, Mr. Lampen and Wilson L. White, will also serve as directors of Vector.

 

  The overlapping directors and officers may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. In addition, after the Distribution, certain of our directors and officers will continue to own stock and/or stock options or other equity awards of Vector. 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 for Vector and its subsidiaries.

 

  The Company’s amended and restated certificate of incorporation will acknowledge that directors and officers of the Company may also be serving as directors, officers, employees or agents of Vector or any subsidiary thereof (the “Overlap Persons”), and that the Company may engage in material business transactions with Vector. The Company will renounce its rights to certain business opportunities and the Company’s amended and restated certificate of incorporation will provide that no Overlap Person will be liable to the Company or its 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 instead of the Company, or does not refer or communicate information regarding such corporate opportunities to the Company. These provisions in our amended and restated certificate of incorporation will also expressly validate certain contracts, agreements, arrangements and transactions (and amendments, modifications or terminations thereof) between the Company and Vector and, to the fullest extent permitted by law, will provide that the actions of the Overlap Persons in connection therewith are not breaches of fiduciary duties owed to the Company, any of its subsidiaries or their respective stockholders.

 

  See “Certain Relationships and Related Party Transactions — Certain Relationships and Potential Conflicts of Interest” and “Description of Capital Stock — Certain Corporate Opportunities and Conflicts.”

 

Post-Distribution Dividend Policy

We currently contemplate paying a quarterly cash dividend of $0.05 per share of our common stock in the foreseeable future to the extent we have adequate cash to fund such dividends and subject to the future tax treatment of dividends generally. The declaration and

 

-15-


Table of Contents
 

payment of future dividends to holders of our common stock will fall within the sole discretion of our Board and will depend upon many factors, including our financial condition, earnings, capital requirements of our business, legal requirements (including potential changes to tax laws), regulatory constraints, industry practice and other factors that the Board deems relevant. We cannot guarantee that we will continue to pay any dividend even if we commence the payment of dividends. See “Dividend Policy”.

 

Risk Factors

Stockholders should carefully consider the matters discussed under “Risk Factors.”

 

-16-


Table of Contents

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA

The historical operating and balance sheet data included in the following selected financial data table have been derived from the unaudited condensed combined consolidated financial statements as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020 and the audited combined consolidated financial statements as of December 31, 2020, 2019 and 2018 and for the three years ended December 31, 2020, 2019 and 2018 of Spinco. The historical financial information presented below does not necessarily reflect what our results of operations and financial position would have been if we had operated as a separate publicly-traded entity during those periods. The selected historical financial data presented below should be read in conjunction with the combined consolidated financial statements included elsewhere in this information statement and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Also set forth below are summary unaudited pro forma condensed combined consolidated balance sheet data as of September 30, 2021 and summary unaudited pro forma condensed combined consolidated statements of income data for the nine months and twelve months ended September 30, 2021 and the year ended December 31, 2020. See “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” for more information.

 

    Pro Forma Combined     Historical  
    Nine
Months
Ended
September 30,
    Last Twelve
Months
Ended
September 30,
    Year
Ended
December 31,
    Nine Months
Ended September 30,
    Years Ended December 31,  
    2021     2021     2020     2021     2020     2020     2019     2018(1)  
    (in thousands)  

Operating Data:

               

Revenue

  $ 1,018,912     $ 1,286,373     $ 773,987     $ 1,018,912       506,526     $ 773,987     $ 784,108     $ 754,089  

Operating expenses

    948,362       1,206,626       839,772       935,987       569,133       823,272       787,588       750,122  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    70,550       79,747     $ (65,785     82,925       (62,607     (49,285     (3,480     3,967  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

    513       1,369       808       (2,739     2,034       2,957       12,293       1,630  

Income (loss) before taxes

    71,063       81,116       (64,977     80,186       (60,573     (46,328     8,813       5,597  

Income tax expense (benefit)

    22,409       25,626       (17,580     1,656       (168     44       354       400  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    48,654       55,490       (47,397     78,530       (60,405     (46,372     8,459       5,197  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss (income) attributed to non-controlling interest

    120       120       —         120       —         —         —         (1,528
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributed to Douglas Elliman Inc.

  $ 48,774     $ 55,610     $ (47,397   $ 78,650     $
(60,405

  $ (46,372   $ 8,459     $ 3,669  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

               

Basic

  $ 0.63     $ 0.72     $ (0.61          
 

 

 

   

 

 

   

 

 

           

Diluted

  $ 0.63     $ 0.72     $ (0.61          
 

 

 

   

 

 

   

 

 

           

Weighted average shares outstanding(2)

               

Basic

    77,628,949       77,628,949       77,628,949            
 

 

 

   

 

 

   

 

 

           

Diluted

    77,628,949       77,628,949       77,628,949            
 

 

 

   

 

 

   

 

 

           

 

-17-


Table of Contents
     Pro Forma
Combined
     Historical  
     September 30,      September 30,      As of December 31,  
     2021      2021      2020      2019      2018(1)  
     (in thousands)  

Balance Sheet Data:

              

Cash and cash equivalents

   $ 212,500      $ 158,804      $ 94,421      $ 71,485      $ 85,514  

Working capital(3)

     131,083        99,138        48,716        34,677        75,894  

Total assets

     588,136        534,440        453,982        488,607        358,023  

Total liabilities

     329,607        297,743        290,392        284,324        141,941  

Parent’s net investment/ stockholders’ equity

     258,529        236,697        163,590        204,283        216,082  

 

(1)

We adopted ASC 842, Leases, effective January 1, 2019, using the modified retrospective transition method.

(2)

“Weighted average shares outstanding” refers to the approximate number of shares of common stock of the Company expected to be outstanding immediately following the Distribution.

(3)

Working capital is calculated as current assets minus current liabilities.

 

-18-


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION

The following is a brief summary of the terms of the Distribution. Please see “The Distribution” for a more detailed description of the matters described below.

 

Q:

What is the Distribution?

 

A:

The Distribution is the method by which Vector will separate the business of our Company from Vector’s other business, creating two separate, publicly-traded companies. In the Distribution, Vector will distribute to its stockholders shares of the Company’s common stock. Following the Distribution, the Company will be a separate company from Vector and Vector will not retain any ownership interest in the Company. The number of shares of Vector common stock you own will not change as a result of the Distribution.

 

Q:

What is being distributed in the Distribution?

 

A:

Approximately 77,628,949 shares of our common stock will be distributed in the Distribution, based upon the number of shares of Vector common stock outstanding on the record date (including the number of shares underlying outstanding Vector stock option awards and restricted stock awards). The shares of our common stock to be distributed by Vector will constitute all of the issued and outstanding shares of our common stock immediately after the Distribution. For more information on the shares being distributed in the Distribution, see “Description of Capital Stock — Common Stock.”

 

Q:

Which business and assets will remain with Vector and which business and assets will transfer to the Company?

 

A:

Following the Distribution, the Company will own and operate the real estate services and technology businesses currently operated through Vector’s subsidiary, New Valley LLC, which (i) owns Douglas Elliman and (ii) is seeking to acquire or invest in additional real estate services, technologies, properties or projects. In addition, the Company will be capitalized with at least $200 million in net cash and cash equivalents.

Following the Distribution, Vector will continue to own, through New Valley LLC, interests in numerous properties and real estate projects across the United States and operate the tobacco segment of its business, which includes the manufacture and sale of cigarettes in the United States through Vector’s subsidiaries Liggett Group LLC and Vector Tobacco Inc.

 

Q:

What will I receive in the Distribution?

 

A:

Holders of Vector common stock will receive a distribution of one share of our common stock for every two shares of Vector common stock held by them on the record date. As a result of the Distribution, your proportionate interest in Vector will not change. For a more detailed description, see “The Distribution.”

 

Q:

What is the record date for the Distribution?

 

A:

Record ownership will be determined as of the close of business, New York City time, on [●], 2021, which we refer to as the “record date.” The person in whose name shares of Vector common stock are registered as of the close of business on the record date is the person to whom shares of the Company’s common stock will be issued in the Distribution. As described below, if a record holder of Vector common stock sells those shares regular way after the record date and on or prior to the Distribution date, the seller will be obligated to deliver to the purchaser the shares of our common stock that are issued in respect of the transferred Vector common stock.

 

-19-


Table of Contents
Q:

When will the Distribution occur?

 

A:

Shares of our common stock will be distributed by the transfer and distribution agent, on behalf of Vector, effective at 11:59 p.m., New York City time, on [●], 2021, which we refer to as the “Distribution date.”

 

Q:

What will the relationship between Vector and us be following the Distribution?

 

A:

Following the Distribution, we will be a separate public company and Vector will have no continuing stock ownership interest in us. In connection with the Distribution, we and Vector will enter into a Distribution Agreement, Transition Services Agreement, Tax Disaffiliation Agreement, Employee Matters Agreement (as defined herein) and several other agreements for the purpose of accomplishing the Distribution of our common stock to Vector’s stockholders. These agreements also will govern our relationship with Vector subsequent to the Distribution and will 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 will include arrangements with respect to transition services under the Transition Services Agreement and a number of ongoing commercial relationships. The Distribution Agreement will provide that we and Vector will provide each other with appropriate indemnities with respect to liabilities arising out of the business being transferred to us by Vector. We will also be party to other arrangements with Vector. See “Certain Relationships and Related Party Transactions.”

Following the Distribution, there will be an overlap between certain officers of the Company and of Vector. Howard M. Lorber will serve as the President and Chief Executive Officer of the Company and of Vector. Richard J. Lampen will serve as the Chief Operating Officer of the Company and of Vector, J. Bryant Kirkland III will serve as the Chief Financial Officer and Treasurer of the Company and of Vector, and Marc N. Bell will serve as the General Counsel of the Company and of Vector. Furthermore, immediately following the Distribution, three of the members of our Board of Directors, Messrs. Lorber, Lampen and White, will also be directors of Vector.

See “Certain Relationships and Related Party Transactions — Certain Relationships and Potential Conflicts of Interest” for a discussion of the policy that will be in place for dealing with potential conflicts of interest that may arise from our ongoing relationships with Vector.

 

Q:

What do I have to do to participate in the Distribution?

 

A:

No action is required on your part. Stockholders of Vector on the record date for the Distribution are not required to pay any cash or deliver any other consideration, including any shares of Vector common stock, for the shares of our common stock distributable to them in the Distribution.

 

Q:

If I sell, on or before the Distribution date, shares of Vector common stock that I held on the record date, am I still entitled to receive shares of Spinco common stock distributable with respect to the shares of Vector common stock I sold?

 

A:

It depends on the market in which you sell your shares. Beginning on [●], 2021 and continuing until the occurrence of the Distribution, Vector expects that the Vector common stock will trade in two markets on the NYSE: in the “regular way” market under the symbol “VGR” and in the “ex-distribution” market under the symbol “VGR WI”. If you own shares of Vector common stock on the record date and thereafter sell those shares regular way on or prior to the Distribution date, you will also be selling the shares of our common stock that would have been distributed to you in the Distribution with respect to the shares of Vector common stock you sell. Conversely, a person who purchases shares of Vector common stock after the record date and on or prior to the Distribution date will be entitled to receive from the seller of those shares the shares of our common stock issued in the Distribution with respect to the transferred Vector common stock.

However, if you own shares of Vector common stock on the record date and thereafter sell those shares in the ex-distribution market on or prior to the Distribution date, you will not be selling the shares of our

 

-20-


Table of Contents

common stock that will be distributed to you in the Distribution with respect to the shares of Vector common stock you sell. Conversely, a person who purchases shares of Vector common stock in the ex-distribution market after the record date and on or prior to the Distribution date will not be entitled to receive from the seller of those shares the shares of our common stock issued in the Distribution with respect to the transferred Vector common stock.

 

Q:

How will fractional shares be treated in the Distribution?

 

A:

If you would be entitled to receive a fractional share of our common stock in the Distribution, you will instead receive a cash payment. See “The Distribution — Manner of Effecting the Distribution” for an explanation of how the cash payments will be determined and “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution” for an explanation of the tax consequences of such cash payments.

 

Q:

How will Vector distribute shares of Spinco common stock to me?

 

A:

Holders of shares of Vector common stock on the record date will receive shares of our common stock, in book entry form. See “The Distribution — Manner of Effecting the Distribution” for a more detailed explanation.

 

Q:

What is the reason for the Distribution?

 

A:

The potential benefits considered by Vector’s board of directors in making the determination to consummate the Distribution included the following:

 

   

to provide each of Vector and the Company with increased flexibility to fully pursue and fund its business plan, including capital expenditures, investments and acquisitions that would be more difficult to consider or effectuate in the absence of the Distribution. This increased financial flexibility reflects the belief that investors in a company with the mix of assets that each of Vector and the Company will own following the Distribution will be more receptive to strategic initiatives that Vector and the Company may respectively pursue;

 

   

to create distinct and clear financial profiles and compelling investment cases. Investment in one or the other company may appeal to investors with different goals, interests and expectations. The Distribution will allow investors to make independent investment decisions with respect to Vector and the Company and may result in greater alignment between the interests of each company’s stockholder base and the characteristics of its respective business, capital structure and financial results;

 

   

to create independent equity securities and increased strategic opportunities. The Distribution will afford Vector and the Company the ability to offer their independent equity securities to the capital markets and enable each standalone company to use its own industry-focused stock to pursue portfolio enhancing acquisitions or other strategic opportunities that are more closely aligned with each company’s strategic goals and expected growth opportunities;

 

   

to facilitate incentive compensation arrangements for employees of each business more directly tied to the performance of the relevant company’s business and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives of each of Vector and the Company; and

 

   

to increase the aggregate value of the stock of Vector and the Company above the value that the stock of Vector would have had if it had continued to represent an interest in both the businesses of Vector and the Company, so as to: (i) allow each company to use its stock to pursue and achieve strategic objectives, including evaluating and effectuating acquisitions and increasing the long-term attractiveness of equity compensation programs in a significantly more efficient and effective manner with significantly less dilution to existing stockholders; and (ii) allow each company to offer a more focused investment profile to investors.

 

-21-


Table of Contents

Vector’s board of directors also considered several factors that might have a negative effect on Vector as a result of the Distribution. Vector’s common stock may come under initial selling pressure as certain Vector stockholders sell their shares because they are not interested in holding an investment in Vector’s remaining business. In addition, the Distribution would separate from Vector the business and assets of the Company, which represent significant value. Finally, following the Distribution, Vector and its remaining business will need to absorb certain corporate and administrative costs previously allocated to Douglas Elliman.

Vector’s board of directors considered certain aspects of the Distribution that may be adverse to the Company. The Company’s common stock may come under initial selling pressure as certain Vector stockholders sell their shares in the Company because they are not interested in holding an investment in the Company’s business. In addition, after the Distribution, the Company’s results will not reflect the generally more predictable cash flow from Vector’s tobacco and real estate investment businesses, which may result in more volatile and less predictable operating results and cash flow for the Company. As a result of the Distribution, the Company will bear significant incremental costs associated with being a publicly-held company and will need to absorb certain corporate and operational support costs previously allocated to Vector. Refer to the “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” section for further details.

 

Q:

What are the federal income tax consequences to me of the Distribution?

 

A:

Vector expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by Vector of our common stock will qualify as a tax-free distribution under the Code. The Distribution is expected qualify as a tax-free distribution for U.S. federal income tax purposes for Vector and its stockholders with respect to Spinco stock that is distributed with respect to the stock of Vector and, except to the extent that you receive cash in lieu of fractional shares of our common stock, you will not recognize income, gain or loss, and no amount will be included in your income upon the receipt of shares of our common stock pursuant to the Distribution. The opinion and the above discussed consequences do not apply to the distribution of Spinco common stock with respect to Vector stock option awards and restricted stock awards. The opinion will not be binding on the IRS or the courts. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.” Certain transactions related to the Distribution that are not addressed by the opinion could result in the recognition of income or gain by Vector. The opinion will rely on factual representations and reasonable assumptions, which, if incorrect or inaccurate, may jeopardize the ability to rely on such opinion.

 

Q:

Does Spinco intend to pay cash dividends?

 

A:

We currently contemplate paying a quarterly cash dividend of $0.05 per share of our common stock in the foreseeable future to the extent we have adequate cash to fund such dividends and subject to the future tax treatment of dividends generally. The declaration and payment of future dividends to holders of our common stock will fall within the sole discretion of our Board and will depend upon many factors, including our financial condition, earnings, capital requirements of our business, legal requirements (including potential changes to tax laws), regulatory constraints, industry practice and other factors that the Board deems relevant. We cannot guarantee that we will continue to pay any dividend even if we commence the payment of dividends. See “Dividend Policy.”

 

Q:

How will Spinco common stock trade?

 

A:

Currently, there is no public market for our common stock. We have applied for our common stock to be listed on the NYSE under the symbol “DOUG”. Assuming that such listing application is approved, it is anticipated that trading will commence on a when-issued basis prior to the Distribution. On the first trading day following the Distribution date, when-issued trading in respect of our common stock will end and regular way trading will begin.

 

-22-


Table of Contents
Q:

Will the Distribution affect the trading price of my Vector common stock?

 

A:

Yes. After the initial distribution of our common stock, the trading price of Vector common stock may be lower than the trading price of the Vector common stock immediately prior to the Distribution. Moreover, until the market has evaluated the operations of Vector without the operations of the real estate services and PropTech business that was owned and operated by New Valley, the trading price of Vector common stock may fluctuate significantly. Vector believes that the separation of the Company from Vector offers its stockholders the greatest long-term value. However, the combined trading prices of Vector common stock and Spinco common stock after the Distribution may be lower than the trading price of Vector common stock prior to the Distribution. See “Risk Factors” beginning on page 30.

 

Q:

Can Vector decide to cancel the Distribution?

 

A:

Yes. The occurrence of the Distribution will be subject to certain conditions, including the final approval of the Vector board of directors. The Vector board of directors may, in its sole and absolute discretion, determine to impose or waive conditions to the Distribution or abandon the Distribution. If the Vector board of directors decides to cancel the Distribution or otherwise materially amend the terms of the Distribution, Vector will notify stockholders of such decision by issuing a press release and/or filing a current report on Form 8-K.

 

Q:

Do I have appraisal rights?

 

A:

No. Holders of Vector common stock are not entitled to appraisal rights in connection with the Distribution.

 

Q:

Who is the transfer and distribution agent for Spinco common stock?

 

A:

American Stock Transfer & Trust Company, 6201 15th Ave, Brooklyn, NY 11219. Telephone: (800) 937-5449. Corporate website: www.astfinancial.com.

 

Q:

Where can I get more information?

 

A:

If you have questions relating to the mechanics of the Distribution of shares of Spinco common stock, you should contact the transfer and distribution agent:

American Stock Transfer & Trust Company, 6201 15th Ave, Brooklyn, NY 11219. Telephone: (800) 937-5449. Corporate website: www.astfinancial.com.

If you have questions relating to the Distribution or Spinco, you should contact:

Vector Group Ltd.

Investor Relations Department

4400 Biscayne Boulevard

Miami, Florida 33137

Telephone: (305) 579-8000

 

-23-


Table of Contents

THE DISTRIBUTION

General

Vector will distribute all of the outstanding shares of our common stock to the holders of Vector’s common stock (including Vector common stock underlying outstanding Vector stock option awards and restricted stock awards). We refer to this distribution of securities as the “Distribution.”

In the Distribution, each holder of Vector common stock (including Vector common stock underlying outstanding Vector stock option awards and restricted stock awards) will receive a distribution of one share of our common stock for every two shares of Vector common stock held as of the close of business, New York City time, on [●], 2021, which will be the record date.

Manner of Effecting the Distribution

The general terms and conditions relating to the Distribution will be set forth in the Distribution Agreement between us and Vector. Under the Distribution Agreement, the Distribution will be effective at 11:59 p.m., New York City time, on [●], 2021. For most Vector stockholders who own Vector common stock in registered form on the record date, our transfer and distribution agent will credit their shares of our common stock to book entry accounts established to hold these shares. Our transfer and distribution agent will send these stockholders a statement reflecting their ownership of our common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are used. For stockholders who own Vector common stock through a broker or other nominee, their shares of our common stock will be credited to these stockholders’ accounts by the broker or other nominee. As further discussed below, fractional shares will not be distributed. Following the Distribution, stockholders whose shares are held in book entry form may request that their shares of our common stock be transferred to a brokerage or other account at any time, as well as delivery of physical stock certificates for their shares, in each case without charge.

VECTOR STOCKHOLDERS WILL NOT BE REQUIRED TO PAY FOR SHARES OF OUR COMMON STOCK RECEIVED IN THE DISTRIBUTION, OR TO SURRENDER OR EXCHANGE SHARES OF VECTOR COMMON STOCK IN ORDER TO RECEIVE OUR COMMON STOCK, OR TO TAKE ANY OTHER ACTION IN CONNECTION WITH THE DISTRIBUTION. NO VOTE OF VECTOR STOCKHOLDERS IS REQUIRED OR SOUGHT IN CONNECTION WITH THE DISTRIBUTION, AND VECTOR STOCKHOLDERS HAVE NO APPRAISAL RIGHTS IN CONNECTION WITH THE DISTRIBUTION.

Fractional shares of our common stock will not be issued to Vector stockholders as part of the Distribution or credited to book entry accounts. In lieu of receiving fractional shares, each holder of Vector common stock who would otherwise be entitled to receive a fractional share of our common stock will receive cash for the fractional interest, which generally will be taxable to such holder. An explanation of the tax consequences of the Distribution can be found below in the subsection captioned “— Material U.S. Federal Income Tax Consequences of the Distribution.” The transfer and distribution agent will, as soon as practicable after the Distribution date, aggregate fractional shares of our common stock into whole shares and sell them in the open market at the prevailing market prices and distribute the aggregate proceeds, net of brokerage fees, ratably to stockholders otherwise entitled to fractional interests in our common stock. The amount of such payments will depend on the prices at which the aggregated fractional shares are sold by the transfer and distribution agent in the open market shortly after the Distribution date.

See “Executive Compensation — Treatment of Outstanding Awards,” for a discussion of how outstanding Vector stock options and restricted stock awards will be affected by the Distribution.

In order to be entitled to receive shares of our common stock in the Distribution, Vector stockholders must be stockholders of record of Vector common stock at the close of business, New York City time, on the record date, [●], 2021.

 

-24-


Table of Contents

Reasons for the Distribution

Vector’s board of directors has determined that separation of our business from Vector’s other business is in the best interests of Vector and its stockholders. The potential benefits considered by Vector’s board of directors in making the determination to consummate the Distribution included the following:

 

   

to provide each of Vector and the Company with increased flexibility to fully pursue and fund its business plan, including capital expenditures, investments and acquisitions that would be more difficult to consider or effectuate in the absence of the Distribution. This increased financial flexibility reflects the belief that investors in a company with the mix of assets that each of Vector and the Company will own following the Distribution will be more receptive to strategic initiatives that Vector and the Company may respectively pursue;

 

   

to create distinct and clear financial profiles and compelling investment cases. Investment in one or the other company may appeal to investors with different goals, interests and expectations. The Distribution will allow investors to make independent investment decisions with respect to Vector and the Company and may result in greater alignment between the interests of each company’s stockholder base and the characteristics of its respective business, capital structure and financial results;

 

   

to create independent equity securities and increased strategic opportunities. The Distribution will afford Vector and the Company the ability to offer their independent equity securities to the capital markets and enable each standalone company to use its own industry-focused stock to pursue portfolio enhancing acquisitions or other strategic opportunities that are more closely aligned with each company’s strategic goals and expected growth opportunities;

 

   

to facilitate incentive compensation arrangements for employees of each business more directly tied to the performance of the relevant company’s business and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives of each of Vector and the Company; and

 

   

to increase the aggregate value of the stock of Vector and the Company above the value that the stock of Vector would have had if it had continued to represent an interest in both the businesses of Vector and the Company, so as to: (i) allow each company to use its stock to pursue and achieve strategic objectives, including evaluating and effectuating acquisitions and increasing the long-term attractiveness of equity compensation programs in a significantly more efficient and effective manner with significantly less dilution to existing stockholders; and (ii) allow each company to offer a more focused investment profile to investors.

Vector’s board of directors also considered several factors that might have a negative effect on Vector as a result of the Distribution. Vector’s common stock may come under initial selling pressure as certain Vector stockholders sell their shares because they are not interested in holding an investment in Vector’s remaining business. In addition, the Distribution would separate from Vector the business and assets of the Company, which represent significant value. Finally, following the Distribution, Vector and its remaining business will need to absorb certain corporate and administrative costs previously allocated to Douglas Elliman.

Vector’s board of directors considered certain aspects of the Distribution that may be adverse to the Company. The Company’s common stock may come under initial selling pressure as certain Vector stockholders sell their shares in the Company because they are not interested in holding an investment in the Company’s business. In addition, after the Distribution, the Company’s results will not reflect the generally more predictable cash flow from Vector’s tobacco and real estate investment businesses, which may result in more volatile and less predictable operating results and cash flow for the Company. As a result of the Distribution, the Company will bear significant incremental costs associated with being a publicly-held company and will need to absorb certain corporate and operational support costs previously allocated to Vector. Refer to the “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” section for further details.

 

-25-


Table of Contents

Results of the Distribution

After the Distribution, we will be a public company owning and operating the real estate services and PropTech investment business currently owned and operated by Vector through New Valley. Immediately after the Distribution, we expect to have approximately 1,558 holders of record of our common stock and approximately 77,628,949 shares of common stock outstanding, based on the number of stockholders of record and outstanding shares of Vector common stock (including shares of Vector common stock underlying outstanding Vector stock option awards and restricted stock awards) on September 30, 2021 and after giving effect to the delivery to stockholders of cash in lieu of fractional shares of our common stock and surrender of shares in respect of Vector stock option awards and restricted share awards. The actual number of shares to be distributed will be determined on the record date.

In connection with the Distribution, we will enter into a number of agreements with Vector (and certain of its subsidiaries) covering such areas as employee matters, tax and other services.

The Distribution will not affect the number of outstanding shares of Vector common stock (including the number of shares of Vector common stock underlying outstanding Vector stock option awards and restricted stock awards) or any rights of Vector stockholders.

Material U.S. Federal Income Tax Consequences of the Distribution

The following is a summary of the material U.S. federal income tax consequences of the Distribution to us, Vector and Vector stockholders. This summary is based on the Code, the regulations promulgated under the Code by the Department of the Treasury, and interpretations of such authorities by the courts and the IRS, all as of the date of this information statement and all of which are subject to change at any time, possibly with retroactive effect. Unless otherwise noted, this summary is limited to holders of Vector common stock that are U.S. holders, as defined below, that hold their shares of Vector common stock as capital assets, within the meaning of Section 1221 of the Code. Further, this summary does not discuss all tax considerations that may be relevant to holders of Vector common stock in light of their particular circumstances, nor does it address the consequences to holders of Vector common stock subject to special treatment under the U.S. federal income tax laws, such as tax-exempt entities, partnerships (including arrangements treated as partnerships for U.S. federal income tax purposes), persons who acquired such shares of Vector common stock pursuant to the exercise of employee stock options or otherwise as compensation, persons who were distributed Spinco common stock with respect to their Vector stock option awards and restricted stock awards, financial institutions, insurance companies, dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, persons liable for the alternative minimum tax, persons who hold their shares of Vector common stock as part of a straddle, hedge, conversion, constructive sale, synthetic security, integrated investment or other risk-reduction transaction for U.S. federal income tax purposes, and persons whose functional currency is not the U.S. dollar. This summary does not address any U.S. federal estate, gift or other non-income tax consequences or any applicable state, local, foreign, or other tax consequences. Each stockholder’s individual circumstances may affect the tax consequences of the Distribution.

For purposes of this summary, a “U.S. holder” is a beneficial owner of Vector common stock that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or a resident of the United States;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state or political subdivision thereof;

 

   

an estate, the income of which is subject to United States federal income taxation regardless of its source; or

 

   

a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) it has a valid election in place under applicable U.S. Department of Treasury regulations to be treated as a U.S. person.

 

-26-


Table of Contents

A “non-U.S. holder” is a beneficial owner of Vector common stock that is not a U.S. holder for U.S. federal income tax purposes.

If a partnership (including any arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Vector common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding shares of Vector common stock should consult its tax advisor regarding the tax consequences of the Distribution.

Vector expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by Vector of our common stock will qualify as a tax-free distribution under the Code. The opinion will not be binding on the IRS or the courts. Certain transactions related to the Distribution that are not addressed by the opinion could result in the recognition of income or gain by Vector. The opinion will rely on factual representations and reasonable assumptions, which, if incorrect or inaccurate, may jeopardize the ability to rely on such opinion.

On the basis of the opinion Vector expects to receive, and assuming that Vector common stock is a capital asset in the hands of a Vector stockholder on the Distribution date:

 

   

Except for any cash received in lieu of a fractional share of our common stock, a Vector stockholder will not recognize any income, gain or loss as a result of the receipt of our common stock in the Distribution.

 

   

A Vector stockholder’s holding period for our common stock received (including, for this purpose, any fractional share of our common stock for which cash is received) in the Distribution will include the period for which that stockholder’s Vector common stock was held.

 

   

A Vector stockholder’s tax basis for our common stock received in the Distribution will be determined by allocating to that common stock, on the basis of the relative fair market values of Vector common stock and our common stock at the time of the Distribution, a portion of the stockholder’s tax basis in its Vector common stock. A Vector stockholder’s tax basis in its Vector common stock will be decreased by the portion allocated to our common stock.

 

   

The receipt of cash in lieu of a fractional share of our common stock generally will be treated as a sale of the fractional share of our common stock, and a Vector stockholder will recognize gain or loss equal to the difference between the amount of cash received and the stockholder’s tax basis in the fractional share of our common stock, as determined above. The gain or loss will be long-term capital gain or loss if the holding period for the fractional share of our common stock, as determined above, is more than one year.

 

   

The Distribution will not be a taxable transaction to us or Vector. However, certain transactions related to the Distribution that are not expected to be addressed by the opinion could result in the recognition of income or gain by Vector.

If the Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, Vector would recognize taxable gain in an amount equal to the excess of the fair market value of our common stock distributed in the Distribution over Vector’s tax basis therein (i.e., as if it had sold such common stock in a taxable sale for its fair market value). In addition, the receipt by Vector stockholders of our common stock 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’s earnings and profits, then as a non-taxable return of capital to the extent of the holder’s tax basis in its Vector common stock, and thereafter as capital gain with respect to any remaining value.

Even if the Distribution otherwise qualifies for tax-free treatment under the Code, the Distribution may be taxable to Vector and would result in a significant U.S. federal income tax liability to Vector (but not to the

 

-27-


Table of Contents

Vector stockholders) under Section 355(e) of the Code if the Distribution were deemed to be part of a plan (or a series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest, by vote or value, in Vector or us. For this purpose, any acquisitions of Vector’s stock or our stock within the period beginning two years before the Distribution and ending two years after the Distribution are presumed to be part of such a plan, although Vector or we may be able to rebut that presumption. The process for determining whether a prohibited acquisition has occurred under the rules described in this paragraph is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. Vector or we might inadvertently cause or permit a prohibited change in the ownership of Vector or us to occur, thereby triggering tax to Vector, which could have a material adverse effect. If such an acquisition of our stock or Vector’s stock triggers the application of Section 355(e) of the Code, Vector would recognize taxable gain equal to the excess of the fair market value of our common stock distributed in the Distribution over Vector’s tax basis therein, but the Distribution would be tax-free to each Vector stockholder. In certain circumstances, under the tax disaffiliation agreement between Vector and us (the “Tax Disaffiliation Agreement”), we would be required to indemnify Vector against certain taxes imposed on Vector if they resulted from certain actions by us after the Distribution, and Vector would be required to indemnify us against certain taxes imposed on us if they resulted from certain actions by Vector after the Distribution. Please see “Certain Relationships and Related Party Transactions — Relationship Between Vector and Us After the Distribution — Tax Disaffiliation Agreement” for a more detailed discussion of the Tax Disaffiliation Agreement between Vector and us.

Payments of cash in lieu of a fractional share of our common stock made in connection with the Distribution may, under certain circumstances, be subject to backup withholding, unless a holder provides proof of an applicable exception or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not additional tax and may be refunded or credited against the holder’s U.S. federal income tax liability, provided that the holder furnishes the required information to the IRS.

U.S. Treasury regulations require certain Vector stockholders with significant ownership in Vector that receive shares of our stock in the Distribution to attach to their U.S. federal income tax return for the year in which such stock is received a detailed statement setting forth such data as may be appropriate to show that the Distribution is tax-free under the Code. Upon request, Vector will provide its stockholders who receive our common stock pursuant to the Distribution with the information necessary to comply with such requirement.

A non-U.S. holder generally will be subject to U.S. federal income tax with respect to gain realized on a sale or other taxable disposition of our common stock if we are or have been a “United States real property holding corporation” (a “USRPHC”) within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or the holder’s holding period in our common stock. In general, we would be a USRPHC if “United States real property interests” (as defined in the Code and Treasury Regulations) constituted (by fair market value) at least half of our assets. We believe that we are not, and do not anticipate becoming, a USRPHC. However, because this belief is based on factual evaluations that are dependent upon a number of factors, some of which are beyond our control (including, for example, fluctuations in the value of our assets), there can be no assurance that we are not or will not become a USRPHC. Even if we were to be treated as a USRPHC, gain realized by a non-U.S. holder on a disposition of our common stock will not be subject to U.S. federal income tax so long as (i) the non-U.S. holder owned, directly, indirectly, or constructively, no more than five percent of our common stock at all times within the shorter of (x) the five-year period preceding the disposition or (y) the holder’s holding period and (ii) our common stock is “regularly traded” (as defined in the applicable Treasury Regulations) on an established securities market. There can be no assurance that our common stock will qualify as regularly traded for such purposes.

EACH VECTOR STOCKHOLDER SHOULD CONSULT ITS TAX ADVISOR ABOUT THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.

 

-28-


Table of Contents

Listing and Trading of Our Common Stock

There is not currently a public market for our common stock. We have applied for our common stock to be listed on the NYSE under the symbol “DOUG”. Assuming that such listing application is approved, it is anticipated that trading will commence on a when-issued basis prior to the Distribution. On the first trading day following the Distribution date, when-issued trading in our common stock will end and regular way trading will begin. “When-issued trading” refers to trading which occurs before a security is actually issued. These transactions are conditional with settlement to occur if and when the security is actually issued and the NYSE determines transactions are to be settled. “Regular way trading” refers to normal trading transactions, which are settled by delivery of the securities against payment on the third business day after the transaction.

We cannot assure you as to the price at which our common stock will trade before, on or after the Distribution date. Until our common stock is fully distributed and an orderly market develops in our common stock, the price at which such stock trades may fluctuate significantly. In addition, the combined trading prices of our common stock and Vector common stock held by stockholders after the Distribution may be less than, equal to, or greater than the trading price of the Vector common stock prior to the Distribution.

The shares of our common stock distributed to Vector stockholders will be freely transferable, except for shares received by people who may have a special relationship or affiliation with us or shares subject to contractual restrictions. People who may be considered our affiliates after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with us. This may include certain of our officers and directors. Persons who are our affiliates will be permitted to sell their shares only pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from the registration requirements of the Securities Act, or in compliance with Rule 144 under the Securities Act.

Reason for Furnishing this Information Statement

This information statement is being furnished by Vector solely to provide information to stockholders of Vector who will receive shares of our common stock in the Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of our securities. We and Vector will not update the information in this information statement except in the normal course of our and Vector’s respective public disclosure obligations and practices.

 

-29-


Table of Contents

RISK FACTORS

You should carefully consider the following risk factors and all the other information contained in this information statement in evaluating us and our common stock.

Risks Associated with Our Real Estate Services Business.

We are subject to risks relating to the real estate industry.

The real estate industry is significantly affected by changes in economic and political conditions as well as real estate markets, which could adversely impact 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.

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 impact the real estate market, which in turn could adversely affect our business, financial condition and results of operations.

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;

 

   

rising interest rates;

 

   

the general availability 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;

 

   

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;

 

   

a decline in the affordability of homes;

 

   

declining demand for real estate;

 

   

decreasing 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

 

-30-


Table of Contents
   

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.

A reduction in the attractiveness of the real estate markets of New York City and the other markets in which we operate could affect our business, financial condition and results of operations.

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) placed new limits on mortgage interest deductions as well as state and local income and property tax deductions. The loss of the use of these deductions may encourage 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 2020, approximately 73.0% 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 our business, financial condition and results of operations.

We are 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 (including, in particular, relaxation of social distancing measures and office re-openings coupled with further adoption of remote work 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, which would adversely affect our business, financial condition and results of operations.

Lack of financing for homebuyers in the U.S. residential real estate market at favorable rates and on favorable terms could have a material adverse effect on our financial performance and results of operations.

Our business is significantly impacted by the availability of financing at favorable rates or on favorable terms (including interest rates and mortgage underwriting standards) for homebuyers, which may be affected by government regulations and monetary policies of the federal government and its agencies.

The monetary policy of the U.S. government, and particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S., 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 has been a significant factor in the trend in increased homeowner equity and growth in home prices and sales. Policies of the Federal Reserve Board affect interest rates available to potential homebuyers. Changes in the Federal Reserve Board’s policies, the interest rate environment and mortgage market are beyond our control, are difficult to predict, and could restrict the availability of financing for homebuyers, which could result in lower transaction prices or volume, that would, if realized, have a material adverse effect on our business, results of operations and financial condition.

 

-31-


Table of Contents

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. A decline in the number of home sale transactions or mortgage and refinancing activity due to the foregoing would adversely affect our operating results.

A significant adoption by consumers of alternatives to full-service agents could have an adverse effect on our business, financial condition and results of operations.

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, financial condition and results of operations. 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 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 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, which may result in a decrease in our total agent count and, ultimately, could adversely affect our business and operating results.

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 have a material adverse effect on our business and results of operations.

We engage with third-party vendors and partners in a variety of ways, ranging from strategic collaborations and product development to running 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

 

-32-


Table of Contents

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 the New York City metropolitan area, Florida, California, Massachusetts, Colorado, New Jersey, Connecticut, and Texas 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.

The financial results of our real estate brokerage business are affected directly by 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. The failure to recruit and retain these agents could negatively impact the financial success of our brokerage business.

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 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.

 

-33-


Table of Contents

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, through co-branded offices across New York City; Westchester, Nassau and Suffolk counties in New York State; Miami-Dade, Broward and Palm Beach counties in South Florida; the greater City of Los Angeles metropolitan area, including Malibu; Eagle and Pitkin counties in the State of Colorado; and Fairfield County in the State of Connecticut, as well as to select top-tier agents, certain luxury residential properties of at least $2 million to international audiences. 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 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 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. If any such decrease in commission rates were to occur, our business, financial condition, and results of operations may be adversely impacted.

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, and our business, financial condition, and results of operations may be adversely impacted.

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 materially and adversely affect us.

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.

 

-34-


Table of Contents

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, constrain our operations in certain jurisdictions and could have a material adverse effect on the operational and financial performance of the Company.

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 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, which could harm our business, financial condition, and results of operations.

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 MLSs and are a member of the National Association of Realtors (“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 Federal Trade Commission, 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 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. Although Douglas Elliman has not experienced a material erosion of commission percentage rates during 2017 and 2021, the withdrawal of the DOJ from this settlement and the executive order signed by President Biden on July 9, 2021 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. Such increased focus may reduce the fees we receive, require additional expenditure, or distract our management’s attention from pursuing our growth strategy, each of which, in turn, could adversely affect our financial condition and results of operations.

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, or otherwise could materially adversely affect our operations, revenues, earnings and financial results.

We are impacted by the performance of the real estate market in the New York metropolitan area, which has been adversely impacted by COVID-19.

Our business significantly depends on sales transactions for residential property in the New York City market, and we derived approximately 29% of our revenues in 2020 and 46% of our revenues in 2019 and 2018 from the

 

-35-


Table of Contents

New York City market. Published reports and data indicate that the New York metropolitan area was impacted more than any other area in the United States by the COVID-19 pandemic. Various governmental agencies in the New York metropolitan area and other markets where we operate and where our real estate investments are located instituted, and may institute again in the future, quarantines, “pause” orders, “shelter-in-place” rules, restrictions on travel and restrictions on the types of businesses that can operate. For example, our agents were restricted from performing personal showings of properties or conducting open houses in most of our markets from March 2020 to June 2020. As a result of such measures, volumes of residential property sales transactions in New York City declined significantly in 2020, and the aggregate sales commissions we earned on sales transactions in the New York City area correspondingly declined. Although the suburban New York markets have improved and, recently, we have seen significant improvement in the New York City market, these measures have had, and if such measures are imposed again in the future, may have, a significant effect on our financial condition and results of operations, notwithstanding the mitigating actions we initiated (including employee-related and other expense-reduction measures) and expect to continue during and immediately following this pandemic.

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. In response to the COVID-19 pandemic, we made significant operating adjustments in our real estate brokerage business, including staff reductions, which could negatively impact the financial success of our brokerage business in the future. Although certain of these measures have been reversed, these actions may have adversely affected employee morale, our culture, our ability to attract and retain employees and the success of our brokerage business.

The COVID-19 pandemic could continue to have a material impact on our business; the likelihood and magnitude of a material impact increases with the amount of time the virus impacts activity levels in locations in which we operate. Therefore, we are unable to predict the ultimate impact of the COVID-19 pandemic on our future financial condition, results of operations and cash flows.

Infringement, misappropriation or dilution of the Douglas Elliman intellectual property could harm our business.

We regard the Douglas Elliman trademark portfolio as having significant value and as being 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, which in turn may adversely affect our business and operating results.

 

-36-


Table of Contents

Moreover, unauthorized third parties may use the Douglas Elliman 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, and could adversely affect our business and operating results.

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.

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, which could materially affect our business, financial condition and results of operations.

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 the 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, which could adversely affect our business, financial condition and results of operations.

Some of our products and services contain open source software, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative effect on our business.

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

 

-37-


Table of Contents

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, and, if not addressed, could have a negative effect on our business, financial condition and results of operations.

Failure to successfully complete or integrate acquisitions and joint ventures into our existing operations, or to complete or effectively manage divestitures, could adversely affect our business, financial condition or results of operations.

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. If an acquisition or joint venture is not successfully completed or integrated into our existing operations (including our internal controls and compliance environment), or if a divestiture is not successfully completed or managed or does not result in the benefits or cost savings we expect, our business, financial condition or results of operations may be adversely affected.

Risks Associated with our PropTech Investments

There are risks inherent in PropTech Investments.

Our PropTech investments may 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 situation, 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 may involve 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.

 

-38-


Table of Contents

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 will be subject to regulation under the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we believe we will not be subject to regulation under the Investment Company Act of 1940 (the “Investment Company Act”) insofar as we will not be 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 will maintain controls and procedures designed to 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 the company’s shareholders, 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 and could have a material adverse effect on our financial condition.

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 new 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 and partnerships;

 

   

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;

 

-39-


Table of Contents
   

the application of new or changing financial accounting standards or practices; and

 

   

changes in regional or national business or macroeconomic conditions, including as a result of the COVID-19 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.

We are a holding company and depend on cash payments from our subsidiaries, which are subject to contractual and other restrictions, in order to service our debt and 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 service these obligations and to continue to pay dividends on our common stock would significantly harm us and the value of our common stock.

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 related to Douglas Elliman. 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 Consolidated Statement of Operations.

As of September 30, 2021, we had approximately $32.6 million of goodwill and $74.6 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. Vector 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 the future outlook of the Douglas Elliman reporting unit could result in an impairment loss, which could have a material adverse effect on our results of operations and financial condition.

Maintaining the integrity of our computer systems and protecting confidential information and personal identifying information has become increasingly costly, as cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

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

 

-40-


Table of Contents

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) and the disruption of business operations. 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, conducted an investigation 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 in the value of the services we provide to our customers, and increased cybersecurity protection and remediation costs, 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, which could in turn adversely affect our results of operations and financial condition.

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 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. If we fail to satisfy the expectations of investors, employees and other stakeholders or our initiatives are not executed as planned, our reputation and financial results could be materially and adversely affected.

We are periodically subject to claims, lawsuits, government investigations and other proceedings that may adversely affect our business, financial condition and results of operations.

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

 

-41-


Table of Contents

property disputes, compliance with regulatory requirements, antitrust and anti-competition claims, securities laws and other matters, and we may become subject to additional types of claims, lawsuits, government investigations and legal or regulatory proceedings 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 in a manner that adversely impacts our financial condition and results of operations.

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, either of which could materially and adversely impact our financial condition and results of operations.

We depend on our key personnel.

We depend on the efforts of our 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.

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. Incurring uninsured or underinsured costs or losses could harm our business.

 

-42-


Table of Contents

Our fraud detection processes and information security systems may not successfully detect all fraudulent activity by third parties aimed at our employees or agents, which could adversely affect our reputation and business results.

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 other measures to continuously improve controls to identify fraudulent activity, we 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, which could materially harm our operations, business, results, and financial condition.

Failure to maintain effective internal control over financial reporting could adversely affect us.

The accuracy of our financial reporting depends on the effectiveness of our internal control over financial reporting, the implementation of which requires significant management attention. Internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect misstatements because of its inherent limitations. These limitations include, among others, the possibility of human error, inadequacy or circumvention of controls and fraud. If we do not maintain effective internal control over financial reporting or design and implement controls sufficient to provide reasonable assurance with respect to the preparation and fair presentation of our financial statements, including in connection with controls executed for us by third parties, we might fail to timely detect any misappropriation of corporate assets or inappropriate allocation or use of funds and could be unable to file accurate financial reports on a timely basis. As a result, our reputation, results of operations and stock price could be materially adversely affected.

Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have an adverse effect on our business, financial condition and results of operations.

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 and adversely impact our business, financial condition and results of operations.

Risks Relating to the Distribution

Following the Distribution, we will be materially dependent on Vector’s performance under various agreements.

We will enter into various agreements with Vector related to the Distribution, including a Distribution Agreement, a Tax Disaffiliation Agreement, a Transition Services Agreement and an Employee Matters Agreement, and will enter into certain other arrangements (including other support services). These agreements include 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 will provide Vector with indemnities with respect to liabilities arising out of our business, and Vector will provide us with indemnities with respect to liabilities arising out of the business retained by Vector.

Vector will provide the Company with certain business services that were performed by Vector prior to the Distribution, such as information technology, accounts payable, payroll, tax, certain legal and accounting

 

-43-


Table of Contents

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 the Company, Vector and our counter-parties. The Company will also pay Vector $350,000 per month for office space and secretarial and administrative services provided to members of our management team.

The Company and Vector will each rely on the other to perform its obligations under all of these agreements. If Vector 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.

Because there has not been any public market for our common stock, the market price and trading volume of our common stock may be volatile and you may not be able to resell your shares at or above the initial market price of our stock following the distribution.

Prior to the Distribution, there will have been no regular way trading market for our common stock. We cannot predict the extent to which investors’ interest will lead to a liquid trading market or whether the market price of our common stock will be volatile. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risk factors listed in this information statement or for reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or negative developments for our customers, competitors or suppliers, as well as general economic and industry conditions.

The combined post-Distribution value of Vector and Spinco shares may not equal or exceed the pre-Distribution value of Vector shares.

After the Distribution, Vector common stock will continue to be listed and traded on the NYSE. We cannot assure you that the combined trading prices of Vector common stock and Spinco common stock after the Distribution, as adjusted for any changes in the combined capitalization of these companies, will be equal to or greater than the trading price of Vector common stock prior to the Distribution. Until the market has fully evaluated the business of Vector without the business of Spinco, the price at which Vector common stock trades may fluctuate significantly. Similarly, until the market has fully evaluated the business of Spinco, the price at which shares of Spinco common stock trade may fluctuate significantly.

The Distribution could result in significant tax liability.

Vector expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by Vector of our common stock to the holders of Vector common stock will qualify as a tax-free distribution under the Code. Accordingly, for U.S. federal income tax purposes, the Distribution is not expected to result in the recognition of gain to Vector with respect to the distribution of our common stock to the Vector stockholders in respect of such Vector common stock and, except to the extent a stockholder receives 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 and above discussed consequences do not apply to the distribution of Spinco common stock with respect to Vector stock option awards and restricted stock awards. The opinion will not be binding on the IRS or the courts. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.” Certain transactions related to the Distribution that are not addressed by the opinion could result in the recognition of income or gain by Vector. The opinion will rely on factual representations and reasonable assumptions, which, if incorrect or inaccurate, may jeopardize the ability to rely on such opinion.

If the Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, Vector would recognize taxable gain in an amount equal to the excess of the fair market value of our common stock distributed in the Distribution over Vector’s tax basis therein (i.e., as if it had sold such common stock in a

 

-44-


Table of Contents

taxable sale for its fair market value). In addition, the receipt by Vector stockholders of common stock of our Company 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’s earnings and profits, then as a non-taxable return of capital to the extent of the holder’s tax basis in its Vector 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 stockholders and Vector would be substantial. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.”

We may have a significant indemnity obligation to Vector if the Distribution is treated as a taxable transaction.

We will enter into a Tax Disaffiliation Agreement with Vector, which will set 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 will be required to indemnify Vector for its losses and taxes resulting from the breach of certain covenants and for certain taxable gain recognized by Vector, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify Vector under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities, which could materially adversely affect our financial position.

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.

To preserve the tax-free treatment of the Distribution to Vector and its stockholders, under the Tax Disaffiliation Agreement with Vector, for the two-year period following the Distribution, we will be 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;

 

   

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. For more information, see 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 and Us After the Distribution — Tax Disaffiliation Agreement.”

We could be subject to future tobacco-related lawsuits.

In connection with Vector’s tobacco business, from time to time we may be named as a defendant in tobacco-related lawsuits, notwithstanding the completion of the Distribution. Pursuant to the Distribution Agreement we

 

-45-


Table of Contents

will enter into with Vector in connection with the Distribution, Vector and each of its subsidiaries has agreed to indemnify us for liabilities related to Vector’s tobacco business, including liabilities that we may incur for tobacco-related litigation. While we do not believe that we have any liability for tobacco-related claims, an adverse decision in a tobacco-related lawsuit against us could, if the indemnification is deemed for any reason to be unenforceable or any amounts owed to us thereunder are not collectible, in whole or in part, have a material adverse effect on us.

We do not have an operating history as a stand-alone public company.

In the past, our operations have been a part of Vector and Vector provided us with various financial, operational and managerial resources for conducting our business. Following the Distribution, we will maintain our own credit and banking relationships and perform certain of our own financial and operational functions. We cannot assure you that we will be able to successfully put in place the financial, operational and managerial resources necessary to operate as a public company or that we will be able to be profitable doing so.

Our historical financial results and our unaudited pro forma condensed combined consolidated financial statements may not be representative of our results as a separate, stand-alone company.

The historical financial information we have included in this information statement has been derived from the combined consolidated financial statements and accounting records of Vector and does not necessarily reflect what our financial position, results of operations or cash flows would have been had we been a separate, stand-alone company during the periods presented. Although Vector did account for our business as a separate business segment, we were not operated as a separate, stand-alone company for the historical periods presented. The historical costs and expenses reflected in our combined consolidated financial statements include an allocation for certain corporate functions historically provided by Vector, including general corporate expenses and employee benefits and incentives. These allocations were based on what we and Vector considered to be reasonable reflections of the historical utilization levels of these services required in support of our business. The historical information does not necessarily indicate what our results of operations, financial position, cash flows or costs and expenses will be in the future. Our pro forma financial information set forth under “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” reflects changes to our operations as a result of the separation. However, there can be no assurances that this unaudited pro forma condensed combined consolidated financial information will appropriately reflect our financial position or results of operations as a separate, stand-alone company.

We may incur material costs and expenses as a result of our separation from Vector.

We may incur costs and expenses greater than those we currently incur as a result of our separation from Vector. These increased costs and expenses may arise from various factors, including financial reporting and costs associated with complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”)). In addition, we expect to either maintain similar or have increased corporate and administrative costs and expenses to those we incurred while part of Vector, even though following the Distribution we will be a smaller, stand-alone company. We cannot assure you that these costs will not be material to our business.

If, following the Distribution, 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 do a comprehensive evaluation of its and its consolidated subsidiaries’ internal control over financial reporting. To comply with this statute, we will eventually be required to document and test our internal control procedures, our management will be required to assess and issue a report concerning our internal control

 

-46-


Table of Contents

over financial reporting, and our independent auditors will be required to issue an opinion on the Company’s internal controls over financial reporting. The rules governing the standards that must be met for management to assess our 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.

The reduced disclosure requirements applicable to us as an “emerging growth company” may make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may avail ourselves of certain exemptions from various reporting requirements of public companies that are not “emerging growth companies,” including, but not limited to, an exemption from complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and, like smaller reporting companies, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirement of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may remain an emerging growth company for up to five full fiscal years following the Distribution. We would cease to be an emerging growth company, and, therefore, become ineligible to rely on the above exemptions, if we: (a) have more than $1.07 billion in annual revenue in a fiscal year; (b) issue more than $1 billion of non-convertible debt over a three-year period; or (c) become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would generally occur after: (i) we have filed at least one annual report; (ii) we have been a Securities and Exchange Commission (“SEC”) reporting company for at least twelve months; and (iii) the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.

If some investors find our common stock less attractive as a result of the exemptions available to us as an emerging growth company, there may be a less active trading market for our common stock and our value may be more volatile than that of an otherwise comparable company that does not avail itself of the same or similar exemptions.

Future stock sales could adversely affect the trading price of our common stock.

All of the shares of common stock will be freely tradable without restriction or further registration under the Securities Act unless the shares are owned by our “affiliates” as that term is defined in the rules under the Securities Act. Shares held by “affiliates” may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144, which is summarized under “Shares Eligible for Future Sale.”

Sales of a substantial number of shares of common stock could adversely affect the market price of the common stock and could impair our future ability to raise capital through an offering of our equity securities.

We will share certain key directors and officers with Vector, which means those officers will not devote their full time and attention to our affairs and the overlap may give rise to conflicts.

Following the Distribution, there will be an overlap between certain key directors and officers of the Company and of Vector. Howard M. Lorber will serve as the President and Chief Executive Officer of the Company and of Vector. Richard J. Lampen will serve as the Chief Operating Officer of the Company and of Vector, J. Bryant Kirkland III will serve as the Chief Financial Officer and Treasurer of the Company and of Vector, and Marc N. Bell will serve as General Counsel of the Company and of Vector. As a result, following the Distribution,

 

-47-


Table of Contents

not all of our executive officers will be devoting their full time and attention to the Company’s affairs. In addition, immediately following the Distribution, three members of our Board, Messrs. Lorber, Lampen and White, will also be directors of Vector. The 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 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 will continue to own stock and/or stock options or other equity awards of Vector. 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. See “Certain Relationships and Related Party Transactions — Related Party Transaction Approval Policy” for a discussion of certain procedures we will institute to help ameliorate such potential conflicts that may arise.

Our overlapping directors and officers with Vector may result in the diversion of corporate opportunities to Vector, and other conflicts and provisions in our amended and restated certificate of incorporation may provide us no remedy in that circumstance.

The Company’s amended and restated certificate of incorporation will acknowledge that directors and officers of the Company may also be serving as directors, officers, employees or agents of Vector or any subsidiary thereof, and that the Company may engage in material business transactions with Vector. The Company will renounce its rights to certain business opportunities and the Company’s amended and restated certificate of incorporation will provide that no Overlap Person will be liable to the Company or its 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 or any subsidiary thereof instead of the Company, or does not refer or communicate information regarding such corporate opportunities to the Company. These provisions in our amended and restated certificate of incorporation will also expressly validate certain contracts, agreements, arrangements and transactions (and amendments, modifications or terminations thereof) between the Company and Vector and, to the fullest extent permitted by law, will provide that the actions of the Overlap Persons in connection therewith are not breaches of fiduciary duties owed to the Company, any of its subsidiaries or their respective stockholders. See “Description of Capital Stock — Certain Corporate Opportunities and Conflicts.”

Our amended and restated certificate of incorporation will provide, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our amended and restated certificate of incorporation will require, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (1) any derivative action or proceeding brought on the Company’s behalf; (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of the Company’s directors, officers, employees, or agents to us or the Company’s stockholders; (3) any action asserting a claim against the Company arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws; (4) any action to interpret, apply, enforce, or determine the validity of the Company’s amended and restated certificate of incorporation or amended and restated bylaws; or (5) any action asserting a claim governed by the internal affairs doctrine.

Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or employees, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder and may therefore bring a claim in another appropriate

 

-48-


Table of Contents

forum. We cannot be certain that a court will decide that this provision is either applicable or enforceable, and if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

Our amended and restated certificate of incorporation will provide that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both federal and state courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, the amended and restated certificate of incorporation will provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act and the rules and regulations thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions:

 

   

prohibit our stockholders from calling special stockholder meetings, or taking action by written consent;

 

   

permit the Board to establish the number of directors and fill any vacancies and newly-created directorships;

 

   

provide for a classified board of directors, with each director serving a staggered three-year term;

 

   

provide that each director may be removed by the stockholders only for cause;

 

   

disallow the use of cumulative voting for the election of directors;

 

   

authorize the issuance of preferred stock which can be created and issued by our Board without prior stockholder approval, with rights senior to those of the common stock;

 

   

require at least a supermajority vote of our stockholders to amend our bylaws or certain provisions of our certificate of incorporation; and

 

   

provide for advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our Board could cause the market price of our common stock to decline.

 

-49-


Table of Contents

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

In addition to historical information, this information statement contains “forward-looking statements” within the meaning of the federal securities laws. 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) and our potential spin-off from Vector.

We identify forward-looking statements in this information statement 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, due to acts of war and terrorism or otherwise;

 

   

governmental regulations and policies;

 

   

adverse changes in global, national, regional and local economic and market conditions, including those related to pandemics and health crises, such as the outbreak of COVID-19 and the impact of potential COVID-19 variants;

 

   

the extent and timing of COVID-19 vaccine administration and the duration of the COVID-19 pandemic;

 

   

our ability to effectively manage the impacts of the COVID-19 pandemic and any government-mandated or encouraged suspension of our business operations;

 

   

the impacts of the Tax Cuts and Jobs Act of 2017, including its impact on the markets of our business;

 

   

effects of industry competition;

 

   

severe weather events or natural or man-made disasters, including increasing the severity or frequency of such events due to climate change or otherwise, or other catastrophic events may disrupt our business and have an unfavorable impact on home sale activity;

 

   

the level of our expenses, including our corporate expenses as a stand-alone publicly-traded company;

 

   

our status as an emerging growth company;

 

   

the tax-free treatment of the Distribution;

 

   

our lack of operating history as a public company and costs associated with being an independent public company;

 

   

potential dilution to holders of our common stock as a result of issuances of additional shares of common stock to fund our financial obligations and other financing activities;

 

   

the failure of the Company or Vector to satisfy its 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 information statement.

 

-50-


Table of Contents

Further information on the risks and uncertainties to our business include the risk factors discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this information statement.

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, and we disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.

 

-51-


Table of Contents

BUSINESS

We are a Delaware corporation with our principal executive offices at 4400 Biscayne Boulevard, Miami, Florida 33137. Our telephone number is (305) 579-8000 and our website is www.elliman.com. The information contained in or accessible through our website is not part of this information statement or the registration statement of which this information statement forms a part. Spinco is a holding company and conducts substantially all of its operations through its subsidiaries.

Spinco was incorporated on August 13, 2021 and is a direct, wholly owned subsidiary of New Valley LLC, which in turn is a direct, wholly owned subsidiary of Vector. Vector’s board of directors approved the Distribution on [●], 2021. Prior to the Distribution, Spinco will acquire DER Holdings LLC, New Valley Ventures LLC, NV Mortgage LLC and NV Title LLC, which are the subsidiaries of Vector that own, directly and indirectly, the subsidiaries, businesses and other assets described in this information statement. In addition, Vector will capitalize Spinco with approximately $200 million in net cash and cash equivalents immediately prior to the Distribution. Where we describe in this information statement our business activities, we do so as if these transfers have already occurred.

We have applied for our common stock to be listed on the NYSE under the symbol “DOUG”.

Overview

With a leading luxury brand and a comprehensive suite of technology-enabled real estate services and investments, Spinco is well positioned to capitalize on opportunities in the large and growing U.S. residential real estate market. Since the beginning of 2020, U.S. homeowner equity has grown 17.6% to $23.6 trillion. Further, new and existing home sales in the U.S. are forecast to grow to approximately 7.4 million units in 2022, compared to approximately 6.9 million, 6.5 million and 6.0 million units in 2021, 2020 and 2019, respectively, according to the Mortgage Bankers Association – MBA Mortgage Finance Forecast. We believe increased homeowner equity and growth in home sales are benefiting from several factors including low mortgage interest rates, historically low inventory, and increased mobility resulting from COVID-19. This expanding market presents opportunities for significant commission income with national commission rates averaging approximately 5.8% as of September 30, 2021, according to HomeLight, while our actual commission rates have ranged between 5.27% in 2017 and 4.93% in 2020 due to our sales mix, which consists of higher-priced homes. Despite various “agentless” models such as “iBuying,” approximately 88% of buyers purchased their home through a real estate agent or broker and 89% of sellers were assisted by a real estate agent when selling their home, according to the 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 67% of home sellers and 60% of home buyers in 2020 choosing to work with an agent they had used in the past or through a referral, according to NAR. Repeat business, as well the ability to provide ancillary services, allows agents to extend their client relationships and generate significant lifetime value.

Since its inception in 1911, Douglas Elliman has challenged the status quo of the real estate industry. The company was 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 the nine months ended September 30, 2021 was approximately $1.60 million – significantly higher than our principal competitors. Douglas Elliman is one of the largest residential brokerage companies in the New York metropolitan area, which includes New York City, Long Island, Westchester and the Hamptons, and the sixth largest in the U.S. We also operate leading property management, title and escrow companies, among other ancillary services.

 

-52-


Table of Contents

Today, 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 New Valley Ventures. 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, 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 know-how 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 new solutions and services that can be integrated into our technology foundation, 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.

We have a track record of generating profitable growth. For the year ended December 31, 2020, despite the unprecedented impact of the COVID-19 pandemic on many of our markets, we had total revenues of $774.0 million, a net loss of $46.4 million and Adjusted EBITDA of $22.1 million. Our management responded to the profound impact of the COVID-19 pandemic by adjusting Douglas Elliman’s expense structure and introducing additional technology to improve the efficiency of our agents. Consequently, as markets reopened and vaccinations for COVID-19 became available, Douglas Elliman’s business rapidly improved and, for the twelve months ended September 30, 2021, our revenues were $1.29 billion, our net income was $92.7 million and our Adjusted EBITDA was $106.1 million. For the nine months ended September 30, 2021, our revenues were $1.02 billion, representing a 101% increase from the prior year period, and for the three months ended September 30, 2021, our revenues were $354.2 million, on track for our highest yearly revenue ever. We are experiencing strong momentum in many of our markets and we believe we are well positioned to continue capitalizing on the attractive market opportunity. Douglas Elliman’s gross transaction value increased from $29.1 billion for the year ended December 31, 2020 to $47.7 billion for the twelve months ended September 30, 2021. The number of Principal Agents was 5,246 as of September 30, 2021, an increase from 4,996 as of December 31, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Business Metrics and Non-GAAP Financial Measures” for information regarding our non-GAAP financial measures and reconciliations to the most comparable GAAP measures.

We believe 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. We will 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 employ a disciplined capital allocation strategy aimed at generating sustainable long-term value for our stockholders.

Our Company

We are presently a subsidiary of Vector, a Delaware corporation engaged principally in the tobacco and real estate businesses. On November 8, 2021, Vector announced its plans to separate into two public companies, Vector and Spinco. The transaction, expected to be structured as a distribution of the Spinco business to the stockholders of Vector, is expected to qualify as a tax-free distribution for U.S. federal income tax purposes for Vector and its stockholders with respect to Spinco stock that is distributed with respect to the stock of Vector. Upon conclusion of the spin-off, Spinco will be headquartered in Miami, Florida.

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, Westchester and the Hamptons, and the sixth largest in the U.S. Douglas Elliman has approximately 100

 

-53-


Table of Contents

offices with approximately 6,600 real estate agents in the New York metropolitan area, as well as in Florida, California, Connecticut, Massachusetts, Colorado, New Jersey, and Texas. The Douglas Elliman name is synonymous with luxury.

In August 2021, Douglas Elliman increased its ownership in Douglas Elliman Texas from 1% to 50% and is fully integrating the Texas business with the rest of our operations. We believe that the Texas market will be complementary to Douglas Elliman’s markets as several of its major cities are densely populated international finance and technology hubs with premium-priced housing inventory. Texas continues to be a top destination for many different demographics from across the country, which has supported the housing market and the number of real estate transactions in the state. According to the Texas Real Estate Research Center at Texas A&M University, the Texas median home price reached a record-breaking $305,400 in August 2021, up 16.8% year-over-year. Texas’ average DOM fell to a record-breaking 27 days, according to the same report, indicating strong demand.

Prominent new development sales and marketing firm. Douglas Elliman’s DEDM division 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. The firm ranks among New York City’s most prominent sales and marketing firms, with approximately 75 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 revenue commission 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 360 properties representing approximately 56,500 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, a newly-formed entity, which will be engaged in the provision of title insurance services in Florida. Douglas Elliman is actively exploring similar ventures in other of its 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.

Provider of mortgage services. In April 2021, we acquired a 50% interest in Biscayne Mortgage LLC, which conducts business as Clear Path Mortgage. Clear Path Mortgage will originate mortgage loans, including both purchase and refinancing transactions, to be sold in the market to mortgage companies and the governmental-sponsored enterprises. Clear Path Mortgage will originate and market its mortgage lending services to real estate agents across Douglas Elliman’s Florida market as well as a broad consumer audience.

 

-54-


Table of Contents

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 then limits the value of the emerging product to the company’s 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 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 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, AI, 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 recently integrated 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 6,600 agents and 775 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.

Currently integrating a new client and customer lifetime concierge solution. We are incorporating seasoned third-party products into a new white-glove homeowners engagement solution that provides access to services such as insurance, moving, telecommunications, utilities, solar, home security and home services to facilitate all of clients’ and customers’ moving and home management needs. This fully automated, contextual, end-to-end homeowner engagement platform includes more than 40 direct partnerships and integrations across multiple industries. It will leverage PropTech startups such as MoveEasy, Humming Homes, Fyxify and more.

 

-55-


Table of Contents

LOGO

 

-56-


Table of Contents

PropTech Investments

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 will 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 September 30, 2021, New Valley Ventures has investments (at a carrying value) of approximately $7.1 million in PropTech companies. This amounts to approximately 1% of the value of Douglas Elliman’s total assets, which totaled approximately $534 million, as of September 30, 2021. As of September 30, 2021 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 for single-family homeowners with a digitalfirst experience, offering 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

 

-57-


Table of Contents
 

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 SaaS platform built to enable enterprises of all sizes to accurately, dynamically, and regularly measure their carbon footprint across all operations.

 

   

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.

 

   

MetaProp Venture Capital Fund: a fund advised or managed by a New York-based venture capital firm. This investment provides 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.

Other than the four 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, the Company has not recognized revenue from these investments and does not anticipate recognizing revenue from these non-controlling PropTech investments. However, the Company targets earning an attractive rate of return from the capital appreciation of its 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 U.S. luxury real estate markets, including New York, Florida, California, Texas, Colorado 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 775 employees and approximately 6,600 agents (including 5,246 Principal Agents) as of September 30, 2021 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, 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.

 

-58-


Table of Contents

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, Colorado and Texas, where the Elliman brand has strong awareness and brand equity.

Continue executing on DEDM growth strategy. 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, both as a result of recovery from COVID-19 and also through expansion into new markets (e.g., Texas).

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 Spinco stakeholders with early and differentiated access to new technology built in entrepreneurial environments, while enabling PropTech investee companies to access our know-how 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 will 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. Beginning in the second quarter of 2020, we began significant expense reduction initiatives at Douglas Elliman, which continue today.

Maintain a disciplined capital allocation framework to create value for our stockholders. We are profitable and generate significant operating cash flow which provides financial flexibility with respect to investments for growth and return of capital to shareholders. We will seek to deploy a significant portion of our operating cash flow to fund growth opportunities to create stockholder value, such as PropTech investments, recruiting efforts, acquisitions (acqui-hires), and we also contemplate paying a quarterly dividend, initially $0.05 per share of our common stock, subject to approval by our Board of Directors, as described under “Dividend Policy” on page 64.

COVID-19 Pandemic

The COVID-19 pandemic continues to evolve and disrupt normal activities in many segments of the U.S. economy even as COVID-19 vaccines have been and continue to be administered. Many uncertainties continue to surround the pandemic, including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic and the length of immunity.

 

-59-


Table of Contents

During the nine months ended September 30, 2021, we believe sustained high levels of demand in the markets in which we operate have been supported by beneficial consumer trends such as relaxation of social distancing measures and office re-openings coupled with further adoption of remote work trends, which we believe enhance consumers’ propensity to relocate to attractive tax and weather destinations, coupled with a favorable mortgage rate environment. In addition, continued high demand and low housing inventory levels in the markets in which we operate have driven increased average home prices throughout such markets in 2021, and we believe limited inventory contributed to the decline in our gross transaction volume from the second quarter to the third quarter. Nonetheless, we anticipate that our markets, and in particular, New York City, will continue to improve from 2020 levels for the remainder of 2021 and into 2022, with average existing home prices increasing and existing home transactions growth remaining strong.

The circumstances around the potential impact of the COVID-19 pandemic on our business remain fluid, and we continue to actively monitor the impact of the pandemic, including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic and how long immunity lasts. Based on the most recent data, the emergence of the COVID-19 Delta variant has not impacted the key U.S. markets Douglas Elliman serves. Nevertheless, we are unable to predict the ultimate impact of the COVID-19 pandemic and related macroeconomic trends (including, in particular, relaxation of social distancing measures and office re-openings coupled with further adoption of remote work trends) or other factors resulting therefrom on our future financial condition, results of operations and cash flows. See “Risk Factors — Risks Associated with Our Real Estate Services Business — We are impacted by the performance of the real estate market in the New York metropolitan area, which has been adversely impacted by COVID-19” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — COVID-19 Pandemic and Current Business and Industry Trends” for additional information.

Regulation

Several facets of real estate brokerage businesses are subject to government regulation. For example, the real estate brokerage divisions are licensed as real estate brokers in the states in which they conduct their real estate brokerage businesses. In addition, real estate sales associates must be licensed as real estate brokers or salespersons in the states in which they do business. Future expansion of our real estate brokerage operations of Douglas Elliman into new geographic markets may subject Douglas Elliman to similar licensing requirements in other states.

RESPA and state real estate brokerage laws restrict payments that real estate brokers, title agencies, mortgage bankers, mortgage brokers and other settlement service providers may receive or pay in connection with the sales of residences and referral of settlement services (e.g., mortgages, homeowners insurance and title insurance). Such laws may, to some extent, restrict preferred alliance and other arrangements involving our real estate franchise, real estate brokerage, settlement services and relocation businesses. In addition, RESPA and similar state laws require timely disclosure of certain relationships or financial interests with providers of real estate settlement services.

Pursuant to the Dodd-Frank Act, administration of RESPA was transferred from the United States Department of Housing and Urban Development (“HUD”) to the new Consumer Financial Protection Bureau (“CFPB”), and it is possible that the practices of HUD, taking very expansive broad readings of RESPA, will continue or accelerate at the CFPB creating increased regulatory risk. RESPA also has been invoked by plaintiffs in private litigation for various purposes.

Competition

The real estate brokerage business is highly competitive. However, we believe that our ability to offer our customers a range of inter-related services and our level of residential real estate sales and marketing help position us to meet the competition and improve our market share.

 

-60-


Table of Contents

We compete with multi-office independent real estate organizations and, to some extent, with franchise real estate organizations, such as RE/MAX, Century 21 Real Estate, Coldwell Banker Real Estate, Keller Williams, Sotheby’s International Realty, EXIT Realty, ERA, United Country, Weichert, Better Homes and Gardens, and other privately-owned companies. We believe that our principal competitors in 2021 will also increasingly include multi-office real estate organizations, such as Realogy Brokerage Group (formerly NRT LLC, whose affiliates include the New York City-based Corcoran Group as well as Coldwell Banker and Sotheby’s International offices owned by Realogy), Berkshire Hathaway HomeServices of America, Inc., Compass, eXp Realty, Redfin and other privately-owned companies. Specific to New York City, our principal competitors include Corcoran, Compass, Brown Harris Stevens, Sotheby’s International and Warburg Realty. Residential brokerage firms compete for business primarily on the basis of reputation, personal contacts, marketing and public relations services; and, recently, technological innovations and, to a greater degree, commission.

Human Capital

We have long believed that the diversity and talent of our people provide a competitive advantage to Douglas Elliman. As of December 31, 2020, we employed approximately 775 people with 750 people employed by our real estate brokerage business and 25 people employed at our corporate headquarters.

The residential real estate business is built upon personal relationships and we have long believed Douglas Elliman’s team of approximately 775 employees and approximately 6,600 agents (including 5,246 Principal Agents) as of September 30, 2021 distinguishes us from other residential real estate brokerage firms. Forbes recently 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, its agents are located throughout the United States in New York, Florida, California, Colorado and New England. In an effort to continue to foster relationships with our employees and agents, as well as to address the social and economic impact of COVID-19, Douglas Elliman’s management implemented the following initiatives:

 

   

Hosted, and continue to host, more than 20 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 about working in a COVID-19 environment, among other things.

 

   

Converted all of our real estate brokerage training and educational courses to its online platform.

 

   

Continued to support diversity efforts, including sponsoring Aspen Gay Ski Week, matching employees’ and agents’ contributions to the NAACP Legal and Education Fund, the Asian American and Pacific Islander community and various other health and social charitable organizations.

We offer comprehensive benefit programs to our employees which provide them with, among other things, medical, dental, and vision healthcare; 401K 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.

Properties

Our principal executive offices are located in Miami, Florida in offices leased by Vector. The lease is for 12,390 square feet and expires in April 2023, subject to another five-year renewal option. Lease expense will be included in the computation of fees Spinco pays Vector.

 

 

-61-


Table of Contents

We also have an executive office in New York, New York in an office leased by Vector. The lease is for approximately 9,000 square feet of office space and expires in 2025. Spinco’s operating properties are discussed above under the description of Spinco’s business and in Note 4 to our combined consolidated financial statements.

We lease 102 offices throughout New York, Connecticut, Florida, California, Colorado, Massachusetts and New Jersey. Leases expire at various times between 2021 and 2033. As of December 31, 2020, the properties leased are as follows:

 

Type

   Number of Offices   

Location

   Owned or Leased    Approximate
Square Footage
    

Offices

   25    New York City, NY    Leased    162,000   

Offices

   36    Long Island, NY    Leased    89,000   

Offices

   19    Florida    Leased    43,000   

Offices

   4    Westchester County, NY    Leased    3,000   

Offices

   12    California    Leased    84,000   

Offices

   6    Other    Leased    1,000   

Legal Proceedings

The Company and its subsidiaries are subject to numerous proceedings, lawsuits and claims in connection with their ordinary business activities. Many of these matters are covered by insurance or, in some cases, the Company is indemnified by third parties. The Company is a defendant in various lawsuits. Although the outcome of these lawsuits cannot be predicted with certainty, management of the Company does not believe that resolution of these lawsuits will have a material adverse effect on the Company.

In connection with Vector’s tobacco business, from time to time we may be named as a defendant in tobacco-related lawsuits, notwithstanding the completion of the Distribution. Pursuant to the Distribution Agreement we will enter into with Vector in connection with the Distribution, Vector and each of its subsidiaries has agreed to indemnify us for liabilities related to Vector’s tobacco business, including liabilities that we may incur for tobacco-related litigation. While we do not believe that we have any liability for tobacco-related claims, an adverse decision in a tobacco-related lawsuit against us could, if the indemnification is deemed for any reason to be unenforceable or any amounts owed to us thereunder are not collectible, in whole or in part, have a material adverse effect on us.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions generally include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Although we are still evaluating the JOBS Act, we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as an emerging growth company, except that we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act.

 

-62-


Table of Contents

We will, in general, remain as an emerging growth company for up to five full fiscal years following the Distribution. We would cease to be an emerging growth company and, therefore, become ineligible to rely on the above exemptions, if we:

 

   

have more than $1.07 billion in annual revenue in a fiscal year;

 

   

issue more than $1 billion of non-convertible debt during the preceding three-year period; or

 

   

become a “large accelerated filer” as defined in Exchange Act Rule 12b-2, which would occur after: (i) we have filed at least one annual report pursuant to the Exchange Act; (ii) we have been an SEC-reporting company for at least twelve months; and (iii) the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.

 

-63-


Table of Contents

DIVIDEND POLICY

While we currently contemplate paying a quarterly cash dividend of $0.05 per share of our common stock following the Distribution, we have not yet determined the extent to which we will pay dividends on our common stock. The payment of any dividends in the future, and the timing and amount thereof, to our shareholders will fall within the sole discretion of our Board of Directors and will depend on many factors, such as our financial condition, results of operations and capital requirements, debt service obligations, restrictive covenants in the agreements governing our debt or debt we may incur in the future, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we commence paying dividends.

 

-64-


Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined consolidated financial information presented below consists of an unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2021 and unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2021, the year ended December 31, 2020 and the last twelve months ended September 30, 2021. The unaudited pro forma condensed combined consolidated financial statements presented below have been derived from the historical annual and interim condensed combined consolidated financial statements of Douglas Elliman Inc., including the unaudited condensed combined consolidated balance sheet as of September 30, 2021, the unaudited condensed combined consolidated statement of operations for the nine months ended September 30, 2021 and September 30, 2020, and the audited combined consolidated statement of operations for the year ended December 31, 2020, included elsewhere in this information statement.

The following unaudited pro forma condensed consolidated combined financial statements have been prepared to reflect adjustments to Douglas Elliman Inc.’s historical financial information for the following autonomous entity adjustments and transaction accounting adjustments (the “Pro Forma Transactions”):

 

   

The contribution by Vector to Spinco of all the assets and liabilities that comprise the real estate services and PropTech investment business currently owned and operated by Vector through New Valley, together with approximately $200 million cash and cash equivalents, net of each of the current and long-term portion of “Notes payable and other obligations,” which we refer to in this information statement as “net cash and cash equivalents;” and

 

   

The impact of, and transactions contemplated by, the Distribution Agreement, Tax Disaffiliation Agreement, Transition Services Agreement and Employee Matters Agreement. See “Certain Relationships and Related Party Transactions — Relationship Between Vector and Us After the Distribution.”

The unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2021 has been prepared giving effect to the Pro Forma Transactions as if the Pro Forma Transactions had occurred as of September 30, 2021. The unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2021, the year ended December 31, 2020 and the last twelve months ended September 30, 2021 have been prepared giving effect to the Pro Forma Transactions as if the Pro Forma Transactions had occurred on January 1, 2020. We present unaudited pro forma condensed combined consolidated financial information for the last twelve months ended September 30, 2021 because unusual events, primarily as a result of the COVID-19 pandemic in 2020, have occurred and, as a result of those unusual events, we believe that the most recent twelve month period is more representative of normal operations of Douglas Elliman than the year ended December 31, 2020.

The unaudited pro forma condensed combined consolidated financial statements presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical annual and interim condensed combined consolidated financial statements and corresponding notes thereto included elsewhere in this information statement. The unaudited pro forma condensed combined consolidated financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Cautionary Statement Concerning Forward-Looking Statements and Information.”

 

-65-


Table of Contents

DOUGLAS ELLIMAN INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

BALANCE SHEET

As of September 30, 2021 (in thousands, except share and per share data)

 

     September 30,
2021
     Autonomous
Entity
Adjustments
     Transaction
Accounting
Adjustments
    Note     Pro
Forma
 

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ 158,804         $ 53,696       (a   $ 212,500  

Receivables

     26,531               26,531  

Income taxes receivable, net

     —                 —    

Agent receivables, net

     11,127               11,127  

Restricted cash and cash equivalents

     12,548                                  12,548  

Other current assets

     9,512               9,512  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total current assets

     218,522           53,696         272,218  

Property, plant and equipment, net

     40,132               40,132  

Operating lease right-of-use assets

     124,797               124,797  

Long-term investments at fair value

     3,566               3,566  

Contract assets, net

     28,688               28,688  

Goodwill

     32,571               32,571  

Other intangible assets, net

     74,619               74,619  

Equity-method investments

     2,790               2,790  

Other assets

     8,755               8,755  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total assets

   $ 534,440         $ 53,696       $ 588,136  
  

 

 

    

 

 

    

 

 

     

 

 

 

LIABILITIES AND NET INVESTMENT

            

Current liabilities:

            

Current portion of notes payable and other obligations

   $ 12,526             $ 12,526  

Current operating lease liabilities

     22,503               22,503  

Income taxes payable, net

     1,143         $ 24,058       (b     25,201  

Accounts payable

     8,228               8,228  

Commissions payable

     25,648               25,648  

Accrued salaries and benefits

     23,293               23,293  

Contract liabilities

     5,843               5,843  

Other current liabilities

     20,200               20,200  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total current liabilities

     119,384           24,058         143,442  

Notes payable and other obligations, less current portion

     3,309               3,309  

Non-current operating lease liabilities

     131,923               131,923  

Contract liabilities

     38,734               38,734  

Deferred income taxes

     143           14,363       (c     14,506  

Other liabilities

     4,250           (4,250     (d     —    
  

 

 

    

 

 

    

 

 

     

 

 

 

Total liabilities

     297,743           34,171         331,914  
  

 

 

    

 

 

    

 

 

     

 

 

 

Commitments and contingencies

            

Stockholders’ equity/net investment

            

Common stock, $0.01 par value

     —             776       (e     776  

Additional paid-in-capital

     —             253,566       (e     253,566  

Parent’s net investment

     234,817           (234,817     (e     —    

Non-controlling interest

     1,880               1,880  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total stockholders’ equity/net investment

     236,697           19,525         256,222  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total liabilities and net investment

   $ 534,440         $ 53,696       $ 588,136  
  

 

 

    

 

 

    

 

 

     

 

 

 

 

-66-


Table of Contents

DOUGLAS ELLIMAN INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

STATEMENT OF OPERATIONS

For the year ended December 31, 2020 (in thousands, except share and per share data)

 

     Year ended
December 31, 2020
    Autonomous
Entity
Adjustments
    Transaction
Accounting
Adjustments
    Note     Pro Forma  

Revenues

          

Commissions and other brokerage income

   $ 733,751           $ 733,751  

Property management

     35,115             35,115  

Other ancillary services

     5,121             5,121  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total revenues

     773,987             773,987  
  

 

 

   

 

 

   

 

 

     

 

 

 

Expenses

          

Real estate agent commissions

     546,948             546,948  

Sales and marketing

     64,097             64,097  

Operations and support

     49,895             49,895  

General and administrative

     76,134     $ 16,500         (f     92,634  

Technology

     14,858             14,858  

Depreciation and amortization

     8,537             8,537  

Loss on disposal of assets

     1,169             1,169  

Impairments of goodwill and intangible assets

     58,252             58,252  

Restructuring expenses

     3,382             3,382  
  

 

 

   

 

 

   

 

 

     

 

 

 

Operating loss

     (49,285     (16,500         (65,785
  

 

 

   

 

 

   

 

 

     

 

 

 

Other income

          

Interest income, net

     190             190  

Equity (losses) in from equity-method investments

     (225           (225

Change in fair value of contingent liability

     2,149       $ (2,149     (d     —    

Investment income

     843             843  
  

 

 

   

 

 

   

 

 

     

 

 

 

Loss before provision for income taxes

     (46,328     (16,500     (2,149       (64,977

Income tax provision

     44       (4,734     (12,890     (b     (17,580
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income attributed to Douglas Elliman Inc.

   $ (46,372   $ (11,766   $ 10,741       $ (47,397
  

 

 

   

 

 

   

 

 

     

 

 

 

Earnings per share

          

Basic

                     
 

            

 
 
 

            

 
    $ (0.61
          

 

 

 

Diluted

  
 

            

 
 
 

            

 
 
 

            

 
    $ (0.61
          

 

 

 

Weighted average shares outstanding(g)

          

Basic

  
 

                

 
 
 

                

 
 
 

                

 
      77,628,949  
          

 

 

 

Diluted

  
 

                

 
 
 

                

 
 
 

                

 
      77,628,949  
          

 

 

 

 

-67-


Table of Contents

DOUGLAS ELLIMAN INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

STATEMENT OF OPERATIONS

For the nine months ended September 30, 2021 (in thousands, except share and per share data)

 

     Nine months
ended September 30,
2021
    Autonomous
Entity
Adjustments
    Transaction
Accounting
Adjustments
    Note     Pro Forma  

Revenues

          

Commissions and other brokerage income

   $ 974,048           $ 974,048  

Property management

     28,289             28,289  

Other ancillary services

     16,575             16,575  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total revenues

     1,018,912             1,018,912  
  

 

 

   

 

 

   

 

 

     

 

 

 

Expenses

          

Real estate agent commissions

     737,767             737,767  

Sales and marketing

     59,331             59,331  

Operations and support

     56,697             56,697  

General and administrative

     64,481     $ 12,375         (f     76,856  

Technology

     11,302             11,302  

Depreciation and amortization

     6,409             6,409  

Loss on disposal of assets

     —               —    

Impairments of goodwill and intangible assets

     —               —    

Restructuring expenses

     —               —    
  

 

 

   

 

 

   

 

 

     

 

 

 

Operating income

     82,925       (12,375         70,550  
  

 

 

   

 

 

   

 

 

     

 

 

 

Other income

          

Interest income

     65             65  

Equity in earnings from equity-method investments

     (118           (118

Change in fair value of contingent liability

     (3,252     $ 3,252       (d     —    

Investment income

     566         —           566  
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) before provision for income taxes

     80,186       (12,375     3,252         71,063  

Income tax provision

     1,656       (3,551     24,304       (b     22,409  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

     78,530       (8,824     (21,052       48,654  

Net loss attributed to non-controlling interest

     120       —         —           120  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) attributed to Douglas Elliman Inc.

   $ 78,650     $ (8,824   $ (21,052     $ 48,774  
  

 

 

   

 

 

   

 

 

     

 

 

 

Earnings per share

          

Basic

           $ 0.63  
          

 

 

 

Diluted

           $ 0.63  
          

 

 

 

Weighted average shares outstanding

          

Basic

             77,628,949  
          

 

 

 

Diluted

             77,628,949  
          

 

 

 

 

-68-


Table of Contents

DOUGLAS ELLIMAN INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

STATEMENT OF OPERATIONS

For the twelve months ended September 30, 2021 (in thousands, except share and per share data)

 

    A     B     C     A-B+C = D     E     F           D+E+F  
    Year ended
December 31,
2020
    Nine
months ended
September 30,
2020
    Nine
months ended
September 30,
2021
    Twelve
months ended
September 30,
2021
    Autonomous
Entity
Adjustments
    Transaction
Accounting
Adjustments
    Note     Pro Forma  

Revenues

               

Commissions and other brokerage income

  $ 733,751     $ 477,720     $ 974,048     $ 1,230,079           $ 1,230,079  

Property management

    35,115       26,195       28,289       37,209             37,209  

Other ancillary services

    5,121       2,611       16,575       19,085             19,085  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total revenues

    773,987       506,526       1,018,912       1,286,373             1,286,373  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Expenses

               

Real estate agent commissions

    546,948       351,325       737,767       933,390             933,390  

Sales and marketing

    64,097       40,649       59,331       82,779             82,779  

Operations and support

    49,895       35,809       56,697       70,783             70,783  

General and administrative

    76,134       62,275       64,481       78,340     $ 16,500         (f     94,840  

Technology

    14,858       11,137       11,302       15,023             15,023  

Depreciation and amortization

    8,537       6,405       6,409       8,541             8,541  

Loss on disposal of assets

    1,169       —         —         1,169             1,169  

Impairments of goodwill and intangible assets

    58,252       58,252       —         —               —    

Restructuring expenses

    3,382       3,281       —         101             101  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating (loss) income

    (49,285     (62,607     82,925       96,247       (16,500         79,747  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Other income

               

Interest income, net

    190       148       65       107             107  

Equity in (losses) earnings from equity-method investments

    (225     (196     (118     (147           (147

Change in fair value of contingent liability

    2,149       2,082       (3,252     (3,185     $ 3,185       (d     —    

Investment income

    843       —         566       1,409         —           1,409  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) before provision for income taxes

    (46,328     (60,573     80,186       94,431       (16,500     3,185         81,116  

Income tax provision

    44       (168     1,656       1,868       (4,734     28,492       (b     25,626  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

    (46,372     (60,405     78,530       92,563       (11,766     (25,307       55,490  

Net loss attributed to non-controlling interest

    —         —         120       120       —         —           120  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income attributed to Douglas Elliman Inc.

  $ (46,372   $ (60,405   $ 78,650     $ 92,683     $ (11,766   $ (25,307     $ 55,610  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Earnings per share

               

Basic

                $ 0.72  
               

 

 

 

Diluted

                $ 0.72  
               

 

 

 

Weighted average shares outstanding

               

Basic

                  77,628,949  
               

 

 

 

Diluted

                  77,628,949  
               

 

 

 

 

-69-


Table of Contents

DOUGLAS ELLIMAN INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

 

(a)

Reflects cash received from Vector to effect the capitalization of Douglas Elliman in connection with the transaction.

 

(b)

Reflects the change in the provision for income tax expense as a result of the Company’s incorporation as a stand-alone corporation. The Company’s provision will include its distributable share of income from Douglas Elliman Realty, LLC which will continue to be taxed as a partnership for US income tax purposes. The provision for income taxes was calculated applying a blended statutory tax rate of 28.69% to the Company’s income before tax, adjusted for permanent items. The deferred tax impact from changes in temporary differences was also calculated using a blended statutory tax rate of 28.69%. These rates reflect the blended statutory tax rates in the U.S. as well as the states in which the Company operates.

 

(c)

Reflects the transfer of differences in financial statement carrying value and income tax basis in Vector’s investment in the Company.

 

(d)

Reflects the change in the fair value of the contingent liability associated with the acquisition of the 29.41% non-controlling interest of Douglas Elliman Realty, LLC in December 2018. In connection with the spin-off, Vector will assume such liability.

 

(e)

Upon Distribution, for purposes of the September 30, 2021 condensed combined consolidated balance sheet, Vector’s net investment in the Company will be redesignated as Douglas Elliman Inc.’s stockholders’ equity. Common stock, at par value, will be $776 to common stock and $253,566 to additional paid-in-capital based on the number of shares of Douglas Elliman Inc. common stock outstanding at the Distribution date. This adjustment also reflects the impact of the other pro forma adjustments reflected within the balance sheet. The adjustments are summarized below:

 

Impact of pro forma adjustments

   $ 19,525  

Redesignation of net parent investment

     234,817  

Common stock adjustment

     (776
  

 

 

 

Total additional paid-in-capital adjustment

   $  253,566  

 

(f)

Amounts allocated reflect management’s estimate of expenses allocable of Vector’s corporate headquarters operations and will be established in the Transition Services Agreement to be filed in an amendment to this information statement.

 

(g)

“Weighted average shares outstanding” refers to the approximate number of shares of common stock of the Company expected to be outstanding immediately following the Distribution.

 

-70-


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the combined consolidated financial statements and corresponding notes, and the unaudited pro forma condensed combined consolidated financial statements and corresponding notes included elsewhere in this information statement. 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. We believe the assumptions underlying the unaudited pro forma condensed combined consolidated financial statements and corresponding notes are reasonable.

(All dollar amounts included herein are presented in thousands, except as otherwise noted.)

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of the Company’s financial statements with a narrative from our management’s perspective. Our MD&A is organized as follows:

 

   

COVID-19 Pandemic and Current Business and Industry Trends. This section discusses the effects of the COVID-19 pandemic on our business and the steps we have taken to address such effects, including current business and industry trends.

 

   

Proposed Distribution and Basis of Presentation. This section provides a general description of the proposed spin-off that would separate our business from the other businesses of Vector.

 

   

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 information statement.

 

   

Results of Operations. This section provides an analysis of our results of operations for the nine months ended September 30, 2021 and 2020 and the years ended December 31, 2020, 2019 and 2018.

 

   

Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the nine months ended September 30, 2021 and 2020 and the years ended December 31, 2020, 2019 and 2018, as well as certain contractual obligations and off-balance sheet arrangements that existed at December 31, 2020.

COVID-19 Pandemic and Current Business and Industry Trends

The COVID-19 pandemic continues to evolve and disrupt normal activities in many segments of the U.S. economy even as COVID-19 vaccines have been and continue to be administered. Many uncertainties continue to surround the pandemic, including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic and the length of immunity. The following provides a summary of our actions since COVID-19 was declared a pandemic in March 2020.

We are one of the largest residential real estate brokers in the New York City market and approximately 46% of our brokerage revenues were derived from the New York City market in 2018 and 2019. Published reports and

 

-71-


Table of Contents

data indicate that the New York metropolitan area was initially impacted more than any other area in the United States. Consequently, various governmental agencies in the New York metropolitan area and in other markets where we operate instituted quarantines, “pause” orders, “shelter-in-place” rules, restrictions on travel and restrictions on the types of businesses that could operate. These restrictions adversely impacted our ability to conduct business during the year ended December 31, 2020 and, in particular from March 2020 to October 2020. For example, our agents were restricted from performing in-person showings of properties or conducting open houses in most of our markets from March 2020 to June 2020. We experienced a severe decline in closed sales volume in New York City from March 2020 to October 2020. As a result of the impact of the COVID-19 pandemic on the New York City market, and combined with the increased demand for existing homes in other areas of the U.S., the percentage of our brokerage revenues from the New York City market declined from approximately 46% in 2019 to approximately 32% for the twelve months ended September 30, 2021.

Beginning in April 2020, as a response to the impact of the COVID-19 pandemic, we made significant operating adjustments, including a reduction of brokerage personnel of approximately 25% and reductions of other administrative expenses, as well as a reduction, deferral or elimination of certain office lease expenses. As markets have reopened and our revenues have significantly increased, our expenses have increased in 2021 from the comparable 2020 periods. These increases were primarily the result of increased personnel expenses (associated with both discretionary compensation as well as the reinstatement of salary levels) and advertising expenses (associated with increased listing volume) in 2021.

A strong recovery in markets complementary to New York City, including Long Island, Westchester County, the Hamptons, Connecticut, Palm Beach, Miami, Los Angeles, and Aspen began late in the second quarter of 2020, following a period of sharp decline in existing home transactions that began in the final weeks of the first quarter of 2020 due to the COVID-19 crisis. More recently, we have experienced a recovery in New York City as well.

During the nine months ended September 30, 2021, we believe sustained high levels of demand in the markets in which we operate have been supported by beneficial consumer trends such as relaxation of social distancing measures and office re-openings coupled with further adoption of remote work trends, which we believe enhance consumers’ propensity to relocate to attractive tax and weather destinations, coupled with a favorable mortgage rate environment. In addition, continued high demand and low housing inventory levels in the markets in which we operate have driven increased average existing home prices throughout such markets in 2021, and we believe limited inventory contributed to the decline in our gross transaction volume from the second quarter to the third quarter. Nonetheless, we anticipate that our markets, and in particular, New York City, will continue to improve from 2020 levels for the remainder of 2021 and into 2022, with average existing home prices increasing and existing homes transaction growth remaining strong.

There remain significant uncertainties regarding whether the beneficial consumer trends discussed above, partially offset by low housing inventory levels, will be maintained, and whether such trends will continue to have a positive effect on our results of operations, financial position and cash flow, as well as significant uncertainties related to the COVID-19 pandemic, including the impact of COVID-19 variants, the duration of the pandemic and the length of immunity. See “Risk Factors.”

Proposed Distribution and Basis of Presentation

On August 13, 2021, the newly formed registrant, Douglas Elliman Inc. (together with its subsidiaries, “Spinco” or the “Company”), was incorporated in the State of Delaware. At a meeting on November 3, 2021, the board of directors of Vector authorized Vector’s management to proceed with the public filing of this information statement and prepare for the separation of the Vector real estate services and technology business from its tobacco and real estate investment businesses. The spin-off is expected to be completed through a tax-free pro rata distribution of all the common stock of Spinco to Vector stockholders.

Completion of the transaction is subject to various conditions, including final approval by the board of directors of Vector, receipt of a tax opinion from counsel and the effectiveness of the registration statement with the SEC.

 

-72-


Table of Contents

References to “we,” “us,” “our,” “Spinco,” “Douglas Elliman” or the “Company” include the subsidiaries of Vector that will be subsidiaries of Spinco at the time of the Distribution.

The combined consolidated financial statements of the Company (the “combined consolidated financial statements”) were prepared on a stand-alone basis derived from the combined consolidated financial statements and accounting records of Vector. These financial statements reflect the combined historical results of operations, financial position and cash flows of the Company in accordance with GAAP and SEC Staff Accounting Bulletin Topic 1-B, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity. References to GAAP issued by the Financial Accounting Standards Board (“FASB”) are to the FASB Accounting Standards Codification, also referred to as the “Codification” or “ASC.”

Historically, separate financial statements have not been prepared for the Company, and it has not operated as a stand-alone business from Vector. The combined consolidated financial statements include certain assets and liabilities that have historically been held by Vector or by other Vector subsidiaries but are specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions and balances between Vector and the Company have been included as components of Parent’s net investment in the combined consolidated financial statements, as they are to be considered effectively settled upon effectiveness of the Distribution. The combined consolidated financial statements are presented as if the Spinco businesses had been combined for all periods presented. The assets and liabilities in the combined consolidated financial statements have been reflected on a historical cost basis, as immediately prior to the Distribution all of the assets and liabilities presented are wholly owned by Vector and are being transferred to the Company at carry-over basis.

The combined consolidated statements of operations include allocations for certain support functions that are provided on a centralized basis and not historically recorded at the business unit level by Vector, such as expenses related to executive management, finance, legal, human resources, government affairs, information technology, and venue operations, among others. As part of the Distribution, certain corporate and operational support functions are being transferred to Spinco, and therefore, charges were reflected in order to properly burden all business units comprising Vector’s historical operations. These expenses have been allocated to Spinco on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of combined revenues, headcount or other measures of Spinco or Vector, which is recorded as an increase to general and administrative expense.

Management believes the assumptions underlying the combined consolidated financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the combined consolidated financial statements may not include all of the actual expenses that would have been incurred by the Company and may not reflect its combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. The Company is unable to quantify the amounts that it would have recorded during the historical periods on a stand-alone basis as it is not practicable to do so.

Business Overview

With a leading luxury brand and a comprehensive suite of technology-enabled real estate services and investments, Spinco is well positioned to capitalize on opportunities in the large and growing U.S. residential real estate market. Since the beginning of 2020, U.S. homeowner equity has grown 17.6% to $23.6 trillion. Further, new and existing home sales in the U.S. are forecast to grow to approximately 7.4 million units in 2022, compared to approximately 6.9 million, 6.5 million and 6.0 million units in 2021, 2020 and 2019, respectively, according to the Mortgage Bankers Association – MBA Mortgage Finance Forecast. We believe increased homeowner equity and growth in home sales are benefiting from several factors including low mortgage interest rates, historically low inventory, and increased mobility resulting from COVID-19. This expanding market

 

-73-


Table of Contents

presents opportunities for significant commission income with national commission rates averaging approximately 5.8% as of September 30, 2021, according to HomeLight, while our actual commission rates have ranged between 5.27% in 2017 and 4.93% in 2020 due to our sales mix, which consists of higher-priced homes. Despite various “agentless” models such as “iBuying,” approximately 88% of buyers purchased their home through a real estate agent or broker and 89% of sellers were assisted by a real estate agent when selling their home, according to 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 67% of home sellers and 60% of home buyers in 2020 choosing to work with an agent they had used in the past or through a referral, according to NAR. Repeat business, as well the ability to provide ancillary services, allows agents to extend their client relationships and generate significant lifetime value.

Since its inception in 1911, Douglas Elliman has challenged the status quo of the real estate industry. The company was 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 the nine months ended September 30, 2021 was $1,598—significantly higher than our principal competitors. Douglas Elliman is one of the largest residential brokerage companies in the New York metropolitan area, which includes New York City, Long Island, Westchester and the Hamptons, and the sixth largest in the U.S. We also operate leading property management, title and escrow companies, among other ancillary services.

Today, 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 New Valley Ventures. 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 know-how 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 new solutions and services that can be integrated into our technology foundation, 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.

We have a track record of generating profitable growth. For the year ended December 31, 2020, despite the unprecedented impact of the COVID-19 pandemic on many of our markets, we had total revenues of $774,000, net loss of $46,400 and Adjusted EBITDA of $22,100. Our management responded to the profound impact of the COVID-19 pandemic by adjusting Douglas Elliman’s expense structure and introducing additional technology to improve the efficiency of our agents. Consequently, as markets reopened and vaccinations for COVID-19 became available, Douglas Elliman’s business rapidly improved and, for the twelve months ended September 30, 2021, our revenues were $1,290,000, our net income was $92,700 and our Adjusted EBITDA was $106,100. For the nine months ended September 30, 2021, our revenues were $1,019,000, representing a 101% increase from the prior year period, and for the three months ended September 30, 2021, our revenues were $354,000. We are experiencing strong momentum in many of our markets and we believe we are well positioned to continue capitalizing on the attractive market opportunity. Douglas Elliman’s gross transaction value increased from $29,100,000 for the year ended December 31, 2020 to $47,700,000 for the twelve months ended September 30, 2021. The number of Principal Agents was 5,246 as of September 30, 2021, an increase from 4,996 as of December 31, 2020. During this period of growth, we have maintained stable agent retention. See “— Key Business Metrics and Non-GAAP Financial Measures” for information regarding our non-GAAP financial measures and reconciliations to the most comparable GAAP measures.

 

-74-


Table of Contents

We believe 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. We will 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 employ a disciplined capital allocation strategy aimed at generating sustainable long-term value for our stockholders.

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 and Adjusted EBITDA Margin and financial measures for the last twelve months (“LTM”) ended September 30, 2021 (“Non-GAAP Financial Measures”), which are financial measures not prepared in accordance with GAAP.

 

     Nine months ended September 30,            Years ended December 31,  
            2021                   2020                   2020     2019     2018  

Key Business Metrics

             

Total transactions (absolute) (1)

     23,299       15,135          22,686       23,479       22,990  

Gross transaction value (in billions)(2)

   $ 37.2     $ 18.6        $ 29.1     $ 28.8     $ 28.1  

Average transaction value per transaction (in thousands)(3)

   $ 1,598.2     $ 1,232.2        $ 1,281.2     $ 1,226.9     $ 1,222.4  

Number of Principal Agents(4)

     5,246 (5)      5,231          4,996       5,370       5,498  

Annual Retention(6)

            90     91     89

Net income (loss) attributed to Douglas Elliman Inc.

   $ 78,650     $ (60,405      $ (46,372   $ 8,459     $ 3,669  

Net income (loss) margin

     7.7     (11.9 %)         (5.99 %)      1.08     0.49

Adjusted EBITDA

   $ 89,334     $ 5,331        $ 22,055     $ 5,158     $ 12,331  

Adjusted EBITDA margin

     8.77     1.05        2.85     0.66     1.64

 

(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.

(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.

(3)

Average transaction value per transaction is calculated as gross transaction value divided by 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)

Includes the Principal Agents acquired in connection with increased ownership from 1% to 50% in Douglas Elliman Texas in August 2021.

(6)

Annual Retention is calculated as 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 is a non-GAAP financial measure that represents our net income adjusted for depreciation and amortization, investment income, net, stock-based compensation expense, benefit from income taxes, and other items. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue. LTM financial measures are non-GAAP financial measures that are calculated by reference to the trailing four-quarter performance for the relevant metric.

 

-75-


Table of Contents

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.

Computation of Adjusted EBITDA

 

     (e)
Last twelve
months ended
    Nine months ended September 30,     Years ended December 31,  
     September 30, 2021          2021               2020          2020     2019     2018  

Net income (loss) attributed to Douglas Elliman Inc.

   $ 92,683     $  78,650     $  (60,405)     $ (46,372   $ 8,459     $ 3,669  

Interest income, net

     (107     (65     (148     (190     (600     (387

Income tax expense (benefit)

     1,868       1,656       (168     44       354       400  

Depreciation and amortization

     8,541       6,409       6,405       8,537       8,638       8,364  

Equity in losses (earnings) from equity-method investments(a)

     147       118       196       225       (8,472     (1,243

Restructuring(b)

     101       —         3,281       3,382       —         —    

Loss on disposal of assets

     1,169       —         —         1,169       —         —    

Impairments of goodwill and other intangible assets(c)

     —         —         58,252       58,252       —         —    

Change in fair value of contingent liability

     3,185       3,252       (2,082     (2,149     (3,157     —    

Other, net

     (1,529     (686     —         (843     (64     1,528  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(d)

   $ 106,058     $ 89,334     $ 5,331     $ 22,055     $ 5,158     $ 12,331  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents equity in losses (earnings) 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.

(b)

Represents restructuring related to Douglas Elliman Realty, LLC’s realignment of administrative support functions, office locations and business model.

(c)

Represents non-cash intangible asset impairment charges related to the goodwill and trademark of Douglas Elliman Realty, LLC.

(d)

“Adjusted EBITDA”, as used throughout this information statement, refers to adjusted EBITDA attributed to Douglas Elliman Inc.

(e)

The results for the last twelve months ended September 30, 2021 are computed by adding results from the year ended December 31, 2020 to the results from the nine months ended September 30, 2021 and subtracting the results from the nine months ended September 30, 2020.

 

-76-


Table of Contents

Computation of LTM Non-GAAP Financial Measures as of September 30, 2021

 

     (d)
Last twelve
months ended
     Year ended     Nine months ended
September 30,
 
     September 30,
2021
     December 31, 2020     2021      2020  

Revenues

   $  1,286,373      $ 773,987     $  1,018,912      $  506,526  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss) attributed to Douglas Elliman Inc.

   $ 92,683      $ (46,372   $ 78,650      $  (60,405
  

 

 

    

 

 

   

 

 

    

 

 

 

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, valuation of investments, and including other-than-temporary impairments to such investments. Actual results could differ from those estimates.

Revenue Recognition. Revenue is measured based on 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 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.

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 the transfer of goods or services to our 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 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.

 

-77-


Table of Contents

Our 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 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. On January 1, 2019, we adopted ASU No. 2016-02- Leases (Topic 842), therefore, our lease accounting policy has been modified as discussed in Note 4 to our combined consolidated financial statements. Under 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 will grant stock-based compensation to employees and will recognize expense on such grants. Our stock-based compensation will use a fair-value-based method to recognize non-cash compensation expense for share-based transactions. Under the fair value recognition provisions, we will 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. On January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, therefore, our measurement of credit losses for most financial assets and certain other instruments has been modified as discussed in Note 3 to our combined consolidated financial statements. 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 (such as the current and expected impact of COVID-19 on the real estate market), it was determined that the requirements of 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 $7,038 at December 31, 2020.

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 fair value is less than its carrying value or choose to bypass the optional qualitative assessment, we would 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

 

-78-


Table of Contents

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 7 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, 2020, which did not result in additional impairment charges related to our goodwill or trademark.

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 report.

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 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, will include transition services paid to our former parent, Vector, 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.

Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

The following table sets forth our consolidated statements of operations data for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020:

 

     Three months ended September 30,     Nine months ended September 30,  
     2021     2020     2021     2020  

Revenue

                    

Commissions and other brokerage income

   $ 338,915        95.7   $ 198,500        95.4   $ 974,048        95.6   $ 477,720        94.3

Property management

     9,120        2.6     8,584        4.1     28,289        2.8     26,195        5.2

Other

     6,126        1.7     912        0.4     16,575        1.6     2,611        0.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Revenue

     354,161        100.0     207,996        100.00     1,018,912        100.0     506,526        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

-79-


Table of Contents
     Three months ended September 30,     Nine months ended September 30,  
     2021     2020     2021     2020  

Operating expenses

                   

Real estate agent commissions

   $ 257,098        72.6   $ 149,010        71.6   $ 737,767        72.4   $ 351,325       69.4

Sales and marketing

     20,237        5.7     10,522        5.1     59,331        5.8     40,649       8.0

Operations and support

     22,448        6.3     10,277        4.9     56,697        5.6     35,809       7.1

General and administrative

     22,287        6.3     20,280        9.8     64,481        6.3     62,275       12.3

Technology

     4,388        1.2     3,707        1.8     11,302        1.1     11,137       2.2

Depreciation and amortization

     2,189        0.6     2,093        1.0     6,409        0.6     6,405       1.3

Impairments of goodwill and other intangible assets

     —          0.0     —          0.0     —          0.0     58,252       11.5

Restructuring

     —          0.0     320        0.2     —          0.0     3,281       0.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating Expenses

     328,647          196,209          935,987          569,133    

Operating income (loss)

   $ 25,514        7.2   $ 11,787        5.7   $ 82,925        8.1   $ (62,607     (-12.4 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Revenues. Our revenues increased by $146,165 (70.3%), for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, which was primarily related to an increase of $140,415 in our commission and other brokerage income, which increased as a result of increased existing home sales caused by home-buying trends in our markets.

In 2020, and, in particular, the second quarter of 2020, we experienced a severe decline in closed sales volume in New York City. Therefore, as a result of the impact of the COVID-19 pandemic on the New York City market and combined with the increased demand for existing-homes in other areas of the U.S., the percentage of our brokerage revenues from the New York City market declined from approximately 46% in 2019 to approximately 32% for the twelve months ended September 30, 2021.

In particular, the New York City market continued to improve in the third quarter of 2021. For the three months ended September 30, 2021, the percentage of our brokerage revenues from the New York City market increased from 24.0% from the comparable 2020 period to 38.9%. The three months ended September 30, 2021 demonstrated continued strength in the residential real estate market, which has improved markedly from a sharp decline in transactions, primarily in the second quarter of 2020, due to factors related to the COVID-19 pandemic. As our markets began reopening and vaccines for COVID-19 have become available, and consistent with home-buying trends in the U.S., our business improved significantly in markets complementary to New York City, including South Florida (Miami and Palm Beach), the New York City suburbs (Long Island, Westchester County and Connecticut), the Hamptons, Los Angeles, and Aspen. More recently, we have experienced a recovery in New York City as well. For the three months ended September 30, 2021, our commission and other brokerage income generated from the sales of existing homes increased by $74,449 in New York City, $32,021 in the Southeast region, $19,487 in the West (California and Colorado) region, and $4,806 in the Northeast region, which excludes New York City. In addition, our revenues from Development Marketing increased by $9,652 for the three months ended September 30, 2021 compared to the comparable 2020 period.

 

-80-


Table of Contents

Operating Expenses

Our operating expenses in 2020 and 2021 were significantly impacted by the COVID-19 pandemic and, beginning in the second half of 2020, home buying trends. In the second quarter of 2020, in response to the COVID-19 pandemic, we made operating adjustments to reduce expenses and, in 2021, home-buying trends, which began in the second half of 2020, resulted in significantly increased demand for existing homes and, thus, an increase in associated expenses. As our business improved with market re-opening, beginning in the fourth quarter of 2020, we relinquished certain expense-reduction initiatives implemented in 2020. In addition, the increases in business also resulted in increased personnel expenses (associated with both discretionary compensation as well as the reinstatement of salary levels) and advertising expenses (associated with increased listing volume) in the 2021 period.

Real Estate Agent Commissions. As a result of our growth in commissions and other brokerage income, our real estate agent commissions expense increased from $149,010 for the three months ended September 30, 2020 to $257,098, or $108,088 (72.5%). Commission expenses, as a percentage of revenues, increased from 71.6% in the 2020 period to 72.6% in the 2021 period as a result of a higher percentage of revenues being generated in the Southeast (Florida) and Western (primarily California), which traditionally pay higher commission rates than other regions.

Sales and Marketing. Sales and marketing expense increased from $10,522 for the three months ended September 30, 2020 to $20,237 in the comparable 2021 period. The increase was the result of increased demand for our active listings in 2021 (caused by home-buying trends and reopened markets after the COVID-19 pandemic) as well as significant growth in revenues associated with increased demand for existing homes in our markets in 2021.

Operations and support. Operations and support expense increased from $10,277 for the three months ended September 30, 2020 to $22,448 in the comparable 2021 period. The increase was primarily attributable to the acquisition of our interest in Portfolio Escrow in the fourth quarter of 2020.

General and administrative. General and administrative expenses increased from $20,280 for the three months ended September 30, 2020 to $22,287 in the comparable 2021 period. The increase was primarily due to increases in expenses associated with significant growth in revenues during the second quarter of 2021 as well as the relinquishment of certain expense-reduction initiatives that were implemented during the second quarter of 2020.

Technology. Technology expenses increased from $3,707 for the three months ended September 30, 2020 to $4,388 for the comparable 2021 period, primarily related to further investment in our technology platform.

Operating income. Operating income increased from $11,787 (5.7% of revenues) to $25,514 (7.2% of revenues). The increase is associated with increased revenues as well as continued relinquishment of expense-reduction initiatives that began in the second quarter of 2020. While variable expenses, such as discretionary compensation expense and advertising expense, have increased in 2021, we continue to analyze our expense structure for additional efficiencies.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Revenues. Our revenues increased by $512,386 (101.2%), for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, from $506,526 to $1,018,912, which was primarily related to an increase of $496,328 in our commission and other brokerage income, which increased as a result of increased revenues from existing home sales caused by home-buying trends in our markets.

In 2020, and, in particular, the second quarter of 2020, we experienced a severe decline in closed sales volume in New York City. Therefore, as a result of the impact of the COVID-19 pandemic on the New York City market,

 

-81-


Table of Contents

and combined with the increased demand for existing-homes in other areas of the U.S., the percentage of our brokerage revenues from the New York City market declined from approximately 46% in 2019 to approximately 32% for the twelve months ended September 30, 2021.

In particular, the New York City market continued to improve in the second and third quarters of 2021. For the nine months ended September 30, 2021, the percentage of our brokerage revenues from the New York City market increased from 30.8% from the comparable 2020 period to 34.1%. The nine months ended September 30, 2021 demonstrated continued strength in the residential real estate market, which has improved markedly from a sharp decline in transactions, primarily in the second quarter of 2020, due to factors related to the COVID-19 pandemic. As our markets began reopening and vaccines for COVID-19 have become available, and consistent with home buying trends in the U.S., our business improved significantly in markets complementary to New York City, including South Florida (Miami and Palm Beach), the New York City suburbs (Long Island, Westchester County and Connecticut), the Hamptons, Los Angeles, and Aspen. More recently, we have experienced a recover in New York City as well. For the nine months ended September 30, 2021, our commission and other brokerage income generated from the sales of existing homes increased by $176,130 in the Southeast region, $164,466 in New York City, $66,359 in the West region, and $57,120 in the Northeast region, which excludes New York City, in each case compared to the comparable 2020 period. In addition, our revenues from Development Marketing increased by $32,253 for the nine months ended September 30, 2021.

Operating Expenses

Our operating expenses in 2020 and 2021 were significantly impacted by the COVID-19 pandemic in 2020 and, beginning in the second half of 2020, home buying trends. In the second quarter of 2020, in response to the COVID-19 pandemic, we made operating adjustments that resulted in reduced expenses and, in 2021, home-buying trends, which began in the second half of 2020, resulted in significantly increased demand for existing homes and, thus, an increase in associated expenses. As our business improved with market re-opening, beginning in the fourth quarter of 2020, we relinquished certain expense-reduction initiatives implemented during 2020. In addition, the increases in business also resulted in increased personnel expenses (associated with both discretionary compensation as well as the reinstatement of salary levels) and advertising expenses (associated with increased listing volume) in the 2021 period.

Real Estate Agent Commissions. As a result of our growth in commissions and other brokerage income, our real estate agent commissions expense increased from $351,325 for the nine months ended September 30, 2020 to $737,767, or $386,442 (110%). Real estate agent commissions expense, as a percentage of revenues, increased from 69.4% in the 2020 period to 72.4% in the 2021 period as a result of a higher percentage of revenues being generated in the Southeast (Florida) and Western (primarily California) regions, which traditionally pay higher commission rates than other regions.

Sales and Marketing. Sales and marketing expense increased from $40,649 for the nine months ended September 30, 2020 to $59,331 in the comparable 2021 period. The increase was the result of increased demand for our active listings in 2021 (caused by home buying trends and reopened markets after the COVID-19 pandemic) as well as significant growth in revenues associated with increased demand for existing homes in our markets in 2021.

Operations and support. Operations and support expense increased from $35,809 for the nine months ended September 30, 2020 to $56,697 in the comparable 2021 period. The increase was primarily attributable to the acquisition of our interest in Portfolio Escrow in the fourth quarter of 2020.

General and administrative. General and administrative expenses increased slightly from $62,275 for the nine months ended September 30, 2020 to $64,481 in the comparable 2021 period. The increase in expenses was the result of the relinquishment of certain expense-reduction initiatives that were implemented during the second quarter of 2020 as our markets reopened and our revenues increased significantly. The increases in 2021 were offset by the favorable impact of our expense reductions that began in 2020 as we continue to more efficiently serve our agents and their clients.

 

-82-


Table of Contents

Technology. Technology expenses increased slightly from $11,137 for the nine months ended September 30, 2020 to $11,302 for the comparable 2021 period.

Operating income (loss). Operating income increased from a loss of $62,607 (negative 12.4% of revenues) to income of $82,925 (8.1% of revenues). The increase is associated with the absence of a one-time non-cash impairment charge of $58,252 and restructuring charges of $3,281 in the 2020 period as well as increased revenues in 2021 and continued expense-reduction initiatives that began in the second quarter of 2020. The non-cash impairment related to the evaluation of potential impacts of the COVID-19 pandemic, including the possibility of an economic recession, on our business. The restructuring charges were the result of realigning our administrative support functions, and office locations as well as adjusting our business model to more efficiently serve our agents and clients. While variable expenses, such as discretionary compensation expense and advertising expense, have increased in 2021, we continue to analyze our expense structure for additional efficiencies.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The following table sets forth our consolidated statements of operations data for the year ended December 31, 2020 compared to the year ended December 31, 2019:

 

     2020     2019  

Revenues

        

Commissions and other brokerage income

   $ 733,751       94.8   $ 742,414       94.7

Property management

     35,115       4.5     35,461       4.5

Other ancillary services

     5,121       0.7     6,233       0.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     773,987       100.0     784,108       100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Real estate agent commissions

   $ 546,948       70.7   $ 525,233       67.0

Sales and marketing

     64,097       8.3     76,897       9.8

Operations and support

     49,895       6.4     65,044       8.3

General and administrative

     76,134       9.8     96,540       12.3

Technology

     14,858       1.9     15,236       1.9

Depreciation and amortization

     8,537       1.1     8,638       1.1

Loss on sale of assets

     1,169       0.2     —         0.0

Impairments of goodwill and intangible assets

     58,252       7.5     —         0.0

Restructuring

     3,382       0.4     —         0.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

   $ (49,285     (6.4 %)    $ (3,480     (0.4 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues. Our revenues declined by $10,121, in 2020 compared to 2019, which was primarily related to declines in existing-home sales in New York City of $106,780, as well as declines in revenues from development marketing of $25,563. This was offset by increases in existing-home sales in the Southeast market (Florida) of $53,817, the Northeast market (primarily Long Island, the Hamptons, Westchester and Connecticut) of $40,090 and the West market (California and Colorado) of $31,130.

The COVID-19 pandemic had a significant effect on the economy in 2020 and, especially, in the New York City market, where approximately 46% of our real estate commissions revenues were derived in 2018 and 2019. In response to the pandemic, various governmental agencies in the markets where we operate instituted restrictions on individuals and on the types of businesses that were permitted to operate from March 2020 to September 2020, which adversely impacted our business and real estate commissions income declined by 46.5% in the second quarter of 2020 compared to the second quarter of 2019. When the economy reopened, our business improved significantly in markets complementary to New York City, including South Florida (Miami and Palm

 

-83-


Table of Contents

Beach), the New York City suburbs (Long Island, Westchester County and Connecticut), the Hamptons, Los Angeles, and Aspen and, consequently, real estate commissions income increased by 52.9% in the fourth quarter of 2020.

Consequently, as a result of the declines in the second quarter of 2020, which were offset by increases in the fourth quarter of 2020, commission and other brokerage income declined by 1.0% for the year ended December 31, 2020 compared to 2019.

Operating Expenses

Beginning in April 2020, as a response to the impact of the COVID-19 pandemic, we made significant operating adjustments, including a reduction of brokerage personnel of approximately 25% and reductions of other administrative expenses, as well as a reduction, deferral or elimination of certain office lease expenses.

Real Estate Agent Commissions. As a result of our growth in commissions and other brokerage income in the Southeast (Florida) and West (primarily California) regions, our real estate agent commissions expense increased from $525,233 for the year ended December 31, 2019 to $546,948 in 2020, or $21,715. Real estate agent commissions expense, as a percentage of revenues, increased from 67.0% in the 2019 period to 70.7% in the 2020 period as a result of a higher percentage of revenues being generated in the Southeast (Florida) and Western (primarily California) regions, which traditionally pay higher commission rates than other regions.

Sales and Marketing. Sales and marketing expense declined from $76,897 in 2019 to $64,097 in 2020, primarily as a result of lower advertising expense associated with a decline in revenues in the second quarter of 2020 as well as lower marketing expenses associated with expense-reduction initiatives, which began in the second quarter of 2020.

Operations and support. Operations and support expense declined from $65,044 in 2019 to $49,895 in 2020 as a result of expense reduction initiatives, which began in the second quarter of 2020, and are discussed above.

General and administrative. General and administrative expenses declined from $96,540 in 2019 to $76,134 in 2020 as a result of expense reduction initiatives, which began in the second quarter of 2020, and are discussed above.

Technology. Technology expenses declined from $15,236 in 2019 to $14,858 in 2020. The decline in technology expenses in 2020 was associated with the absence of incremental expenses in 2019 related to the implementation of a cloud-based accounting system. In 2020, this decline was offset by investments in the enhancements to the technology-based experience of our agents and other technology initiatives to improve efficiencies.

Operating Income (loss). Operating loss increased from a loss of $3,480 in 2019 to $49,285 in 2020. The increase is associated with the non-cash impairment charge associated with goodwill and other intangible assets of $58,252 and restructuring charges of $3,382 in the 2020 period offset by expense reduction initiatives that began in the second quarter of 2020 as described in Note 1 to our combined consolidated financial statements. The non-cash impairment related to the evaluation of potential impacts of the COVID-19 pandemic, including the possibility of an economic recession, on Douglas Elliman’s business. The restructuring charges were the result of realigning our administrative support functions, and office locations as well as adjusting our business model to more efficiently serve our agents and clients.

 

-84-


Table of Contents

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

The following table sets forth our consolidated statements of operations data for the year ended December 31, 2019 compared to the year ended December 31, 2018:

 

     2019     2018  

Revenues

        

Commissions and other brokerage income

   $ 742,414       94.7   $ 715,458       94.9

Property management

     35,461       4.5     33,350       4.4

Other ancillary services

     6,233       0.8     5,281       0.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     784,108       100.00     754,089       100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Real estate agent commissions

   $ 525,233       67.0   $ 500,369       66.4

Sales and marketing

     76,897       9.8     72,419       9.6

Operations and support

     65,044       8.3     70,957       9.4

General and administrative

     96,540       12.3   $ 91,682       12.2

Technology

     15,236       1.9     8,799       1.2

Depreciation and amortization

     8,638       1.1     8,364       1.1

Litigation settlement and judgment income

     —         0.0     (2,468     (0.3 %) 

Impairments of goodwill and intangible assets

     —         0.0     —         0.0

Restructuring

     —         0.0     —         0.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

   $ (3,480     (0.4 %)    $ 3,967       0.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues. Our revenues increased by $30,019, in 2019 compared to 2018, which was primarily related to increases of commission and other brokerage income of $26,956. This increase in commission and other brokerage income was primarily related to increased existing-home sales in the New York City of $7,684, the Southeast market of $6,867 and the West market of $5,143, as well as increased revenues from development marketing of $8,638. This was offset by declines in the Northeast market of $1,376. Effective July 1, 2019, New York State increased its transfer tax and “mansion” tax associated with resales of homes of more than $1,000.

We believe that the July 1, 2019 tax increase resulted in an acceleration of home sales and, therefore, our commission and other brokerage income, in New York City, before June 30, 2019 and, consequently, may have increased commission and other brokerage income for the year ended December 31, 2019.

Operating Expenses

Real Estate Agent Commissions. As a result of increases in commissions and other brokerage income, our real estate agent commissions expense increased to $525,233 in 2019 from $500,369 in 2018, or $24,864. Real estate agent commissions expense, as a percentage of revenues, was flat at 66.4% in the 2018 period to 67.0% in the 2019 period.

Sales and Marketing. Sales and marketing expense increased to $76,897 in 2019 from $72,419 in 2018, primarily as a result of increased expenses associated with marketing the Douglas Elliman brand name. 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 declined to $65,044 in 2019 from $70,957 in 2018 as a result of lower personnel expenses in 2019 and other operational improvements.

General and administrative. General and administrative expenses increased to $96,540 in 2019 from $91,682 in 2018 as a result of increased personnel expense, professional service expenses and agent events.

 

-85-


Table of Contents

Technology. Technology expenses increased to $15,236 in 2019 from $8,799 in 2018 due to incremental technology expenses in 2019 associated with the implementation of a cloud-based accounting system in 2019.

Operating Income (loss). Operating income declined from $3,967 in 2018 to an operating loss of $3,480 in 2019. Real estate operating income for the year ended December 31, 2018 included $2,468 of litigation and settlement income. The remaining difference of $4,979 was the result of increased sales and marketing and general and administrative expenses offset by the increase in our commissions and other brokerage income in excess of real estate agent commissions expense and lower operations and support expense.

Summary of PropTech Investments

As of September 30, 2021, New Valley Ventures has investments (at a carrying value) of approximately $7.1 million in PropTech companies. This amounts to approximately 1% of the value of Douglas Elliman’s total assets, which totaled approximately $534 million as of September 30, 2021. As of September 30, 2021 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 for single-family homeowners with a digital-first experience, offering 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 accurately, dynamically, and regularly measure their carbon footprint across all operations.

 

-86-


Table of Contents
   

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.

 

   

MetaProp Venture Capital Fund: a fund advised or managed by a New York-based venture capital firm. This investment provides 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.

Other than the four 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, cash equivalents and restricted cash increased by $65,988 and $5,746 for the nine months ended September 30, 2021, and 2020 and by $27,634 in 2020 and declined by $13,062 and $3,252 in 2019 and 2018, respectively. Restricted Cash, which is included in cash, was $13,886, $9,131, $10,374, $4,423 and $6,550 as of September 30, 2021 and 2020, December 31, 2020, 2019 and 2018, respectively.

Cash provided from operations was $93,436 and $10,962 for the nine months ended September 30, 2021 and 2020. Cash provided from operations was $31,865, $7,568 and $13,212 in 2020, 2019 and 2018, respectively. The increase in the nine months ended September 30, 2021 period compared to the nine months ended September 30, 2020 related to increased operating income associated with increased home buying trends in 2021 as well as an improvement of our business as a result of markets reopening and COVID-19 vaccines have become available. The increase in 2020 related primarily to increases in operating income (taking into account the exclusion of the $58,252 non-cash impairment charge and non-cash loss on disposal of assets of $1,169). The decline in 2019 related primarily to declines in operating income. The increase in 2018 related primarily to increases in operating income, including the litigation settlement, compared to the 2019 period.

Cash used in investing activities was $6,553 for the nine months ended September 30, 2021 and $5,073 for the nine months ended September 30, 2020. In addition to capital expenditures of $2,693, cash used for investments for the nine months ended September 30, 2021 related to investments of $3,390 in the Corporation’s PropTech business, and $500 for the acquisition of the controlling interest in Douglas Elliman Texas. This was offset by $30 of distributions from equity-method investments. Cash used in investing activities for the nine months ended September 30, 2020 related entirely to capital expenditures. Cash used in investing activities was $4,088 in 2020, $1,509 in 2019 and $12,715 in 2018. In 2020, cash used in investing activities was comprised of capital expenditures of $6,126 and the purchase of our Portfolio Escrow subsidiary of $722 and these amounts were partially offset by cash acquired from the purchase of the Portfolio Escrow subsidiary of $2,760. In 2019, cash used in investing activities was comprised of capital expenditures of $8,079, equity-method investments of $1,667 and purchases of subsidiaries of $380 and these amounts were offset by distributions received from an equity-method investment, which was sold in 2019, of $8,617. In 2018, cash used in investing activities was $12,715 and it comprised primarily of capital expenditures of $12,965 and purchase of subsidiaries of $404 and these amounts were partially offset by cash acquired in the purchase of subsidiaries of $654.

Our investment philosophy is to maximize return on investments using a reasonable expectation for return when investing in non-consolidated real estate businesses and PropTech investments as well as making capital expenditures.

 

-87-


Table of Contents

Cash used in financing activities was $20,895 for the nine months ended September 30, 2021 compared to $143 for the nine months ended September 30, 2020. The cash used in financing activities in the 2021 period consisted of $25,520 of distributions to Vector, $354 for repayment of debt and $102 of earn-out payments. These amounts were offset by capital contributions to New Valley Ventures by Vector of $3,581 and contributions from non-controlling interest associated with Douglas Elliman Texas of $1,500. Cash used for financing activities for the nine months ended September 30, 2020 consisted of $63 for repayment of debt and $80 of earn-out payments. Cash used in financing activities was $143 in 2020, $19,121 in 2019 and $3,749 in 2018. In 2020, cash used in financing activities was $143 and comprised of the repayments of debt of $63 and earn-out payments, associated with acquisitions, of $80. In 2019, cash used in financing activities was $19,121 and primarily related to dividends paid to Vector of $18,750, the repayment of debt of $155 and earn-out payments, associated with acquisitions, of $216. In 2018, cash used in financing activities was $3,749 and related to dividends paid to Vector of $2,558, the repayment of debt of $125 and, prior to Vector’s acquisition of the 29.41% interest on December 31, 2018, $1,066 of distributions to the owner of 29.41% of Douglas Elliman. We believe that our operations are positive cash-flow-generating units and will continue to be able to sustain their operations without any significant liquidity concerns.

We contemplate paying a quarterly cash dividend of $0.05 per share, which would result in annual dividends of approximately $15,500. In order to meet the above liquidity requirements as well as other anticipated liquidity needs in the normal course of business, in addition to our cash from operations, we had cash and cash equivalents of approximately $173,000 as of September 30, 2021. At the time of the Distribution, Vector will capitalize Douglas Elliman so that it has approximately $200,000 in net cash and cash equivalents (as defined herein). Management currently anticipates that these amounts, as well as expected cash flows from our operations, proceeds from public and/or private debt and equity financing to the extent available, management fees and other payments from subsidiaries 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 September 30, 2021, 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 September 30, 2021, we had outstanding approximately $10,800 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.

 

-88-


Table of Contents

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 all market risk sensitive financial instruments.

New Accounting Pronouncements

Refer to Note 1, Summary of Significant Accounting Estimates, to our interim condensed combined consolidated financial statements and annual combined consolidated financial statements for further information on New Accounting Pronouncements.

 

-89-


Table of Contents

CORPORATE GOVERNANCE AND MANAGEMENT

Corporate Governance

General

We have applied for our common stock to be listed on the NYSE under the symbol “DOUG”. As a result, we are generally subject to NYSE corporate governance listing standards.

In connection with the consideration of the Distribution by Vector’s board of directors, the corporate governance and nominating committee of Vector’s board of directors recommended to the full Vector board of directors the principal elements of our governance structure, including our amended and restated certificate of incorporation, which the Vector board adopted as part of its approval of the filing with the SEC of the registration statement, of which this information statement forms a part.

Director Independence

Under NYSE rules, independent directors must comprise a majority of a listed company’s board of directors. In addition, rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent. Under NYSE rules, a director will only qualify as an “independent director” if, in the opinion of the company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 as of the date of the Distribution.

Our Board of Directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that Ms. Mestel and Messrs. Kramer, Liebowitz, White and Zeitchick are “independent directors” as defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the NYSE. In making these determinations, our Board of Directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and current and prior relationships as they may relate to us and our management, including the beneficial ownership of Vector’s and our capital stock by each non-employee director and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”

Corporate Governance Guidelines

Our Board of Directors has adopted our Corporate Governance Guidelines (“Governance Guidelines”). These guidelines set forth our practices and policies with respect to Board composition and selection, Board meetings, executive sessions of the Board, Board committees, the expectations we have of our directors, selection of the Executive Chairman and the Chief Executive Officer, management succession, Board and executive compensation, and Board self-assessment requirements. Upon completion of the Distribution, the full text of our Governance Guidelines may be viewed at our website at www.elliman.com under Investors — Corporate Governance. A copy may be obtained by writing to Douglas Elliman Inc., 4400 Biscayne Boulevard, Miami, Florida 33137; Attention: Corporate Secretary.

 

-90-


Table of Contents

Executive Sessions of Non-Management and Independent Board Members

Under our Governance Guidelines, either our directors who are not also executive officers of our Company (the “non-management directors”) or our directors who are independent under the NYSE rules are required to meet regularly in executive sessions with no members of management present. If non-management directors who are not independent participate in these executive sessions, the independent directors under the NYSE rules are required to meet separately in executive sessions at least once each year.

Communicating with Our Directors

Our Board has adopted policies designed to allow our stockholders and other interested parties to communicate with our directors. Any interested party who wishes to communicate directly with the Board or any director or the non-management directors as a group should send communications in writing to the director, c/o the Company’s Secretary, at Douglas Elliman Inc., 4400 Biscayne Boulevard, Miami, Florida 33137. The secretary will forward these communications directly to the director(s) in question. The independent directors of the Board review and approve this communication process periodically to ensure effective communication with stockholders and other interested parties.

Code of Business Conduct and Ethics

Our Board has adopted a Code of Business Conduct and Ethics for our directors, officers and employees. A portion of this Code of Business Conduct and Ethics also serves as a code of conduct and ethics for our senior financial officers, including our principal accounting officer and controller. Among other things, our Code of Business Conduct and Ethics covers conflicts of interest, disclosure responsibilities, legal compliance, reporting and compliance with the Code of Conduct and Ethics, confidentiality, corporate opportunities, fair dealing, and protection and proper use of Company assets. Upon completion of the Distribution, the full text of the Code of Conduct and Ethics will be available on our website at www.elliman.com under Investors — Corporate Governance. In addition, a copy may be obtained by writing to Douglas Elliman Inc., 4400 Biscayne Boulevard, Miami, Florida 33137; Attention: Corporate Secretary.

Our Directors

The following individuals are expected to be elected to serve as directors of the Company commencing on the Distribution date:

 

Name    Age    Position
Howard M. Lorber    73    Chairman, President, Chief Executive Officer
Richard J. Lampen    68    Director, Executive Vice President, Chief Operating Officer
Ronald J. Kramer    63    Director
Michael S. Liebowitz    52    Director
Lynn Mestel    68    Director
Wilson L. White    40    Director
Mark D. Zeitchick    56    Director

Howard M. Lorber — Chairman, President and Chief Executive Officer

Following the Distribution, Howard M. Lorber will serve as Chairman, President and Chief Executive Officer of the Company, and as Executive Chairman of its subsidiary Douglas Elliman Realty, LLC. Mr. Lorber has served as President and Chief Executive Officer of Vector since January 2006. Mr. Lorber has been with Vector and its diversified interests since 1994 and is actively involved in the management of all of Vector’s assets. In addition to his role at Vector, Mr. Lorber was President, Chief Operating Officer and a Director of New Valley Corporation from November 1994 until its merger with Vector in December 2005. Mr. Lorber was Chairman of the Board of Hallman & Lorber Assoc., Inc., consultants and actuaries of qualified pension and profit sharing

 

-91-


Table of Contents

plans, and various of its affiliates from 1975 until December 2004 and has been a consultant to these entities since January 2005; Chairman of the Board of Directors since 1987 and Chief Executive Officer from November 1993 to December 2006 of Nathan’s Famous, Inc. (NASDAQ: NATH), a chain of fast food restaurants; a director of United Capital Corp., a real estate investment and diversified manufacturing company, since May 1991; Vice Chairman of the Board of Ladenburg Thalmann Financial Services (NYSE American: LTS) from May 2001 to February 2020; a member of the Board of Directors of Morgans Hotel Group Co. (NASDAQ: MHGC) from March 2015 until November 2016, and Chairman from May 2015 to November 2016; and a director of Clipper Realty Inc. (NYSE: CLPR), a real estate investment company that acquires, owns, manages, operates and repositions multi-family residential and commercial properties in the New York metropolitan area, since July 2015. In 2017, Mr. Lorber received a Presidential appointment to serve as Chairman of the U.S. Holocaust Memorial Museum. He has served on the board of Garden of Dreams, as Chairman of Southampton Hospital Foundation, and Co-Chairman of the Silver Shield Foundation — a non-profit organization that provides financial assistance towards the educational costs of children of police officers and firefighters killed in the line of duty. Mr. Lorber holds a Bachelor of Arts degree, a Master of Science degree in Taxation and an Honorary Doctorate from Long Island University, where he is also a trustee. Mr. Lorber’s pertinent experience, qualifications, attributes and skills include the knowledge and experience in the real estate and property services industry he has attained through his service as our President and a member of our Board of Directors since 2001 as well as his service as a director of other publicly-traded corporations.

Richard J. Lampen — Director, Executive Vice President and Chief Operating Officer

Following the Distribution, Richard J. Lampen will serve as Executive Vice President and Chief Operating Officer of the Company and as a member of the Company’s Board of Directors. Mr. Lampen was appointed Chief Operating Officer of Vector on January 14, 2021 and has served as Vector’s Executive Vice President since 1995. Mr. Lampen has been a director of Vector since January 2021 and also serves as a member of the Board of Managers of Vector’s subsidiary, Douglas Elliman Realty, LLC. From October 1995 to December 2005, Mr. Lampen served as the Executive Vice President and General Counsel of New Valley Corporation, where he also served as a director. Most recently, Mr. Lampen served as President and Chief Executive Officer of Ladenburg Thalmann Financial Services (NYSE American: LTS), a publicly-traded diversified financial services company, from September 2006 to February 2020 when the company was acquired by Advisor Group, a portfolio company of Reverence Capital Partners, for approximately $1.3 billion. Mr. Lampen also served as Chairman of Ladenburg Thalmann from September 2018 until the company was acquired. From October 2008 until October 2019, Mr. Lampen served as President and Chief Executive Officer and was a member of the Board of Directors of Castle Brands Inc. (NYSE American: ROX), a publicly-traded spirits company, prior to its acquisition by Pernod Ricard for approximately $300 million. Vector held an approximate 10% interest in Ladenburg and an approximate 8% equity interest in Castle. Prior to joining Vector in 1995, Mr. Lampen was a partner at Steel Hector & Davis, a law firm located in Miami, Florida. Previously, Mr. Lampen was a Managing Director at Salomon Brothers Inc. Mr. Lampen has served as a director of a number of companies, including Ladenburg Thalmann Financial Services Inc., Castle Brands Inc., New Valley Corporation, U.S. Can Corporation, Spec’s Music Inc. and The International Bank of Miami, N.A., as well as a court-appointed independent director of Trump Plaza Funding, Inc. Mr. Lampen received a Bachelor of Arts degree from Johns Hopkins University and a Juris Doctorate from Columbia Law School. Mr. Lampen’s pertinent experience, qualifications, attributes and skills include the knowledge and managerial experience in the real estate and property services industry he has attained through his service to our business since 1995 as well as his service as Chief Executive Officer of Ladenburg Thalmann Financial Services and Castle Brands and as a director of other publicly-traded corporations.

Ronald J. Kramer — Director

Following the Distribution, Ronald J. Kramer will serve as a member of the Company’s Board of Directors. Mr. Kramer has been the Chief Executive Officer of Griffon Corporation (NYSE: GFF), a diversified management and holding company, since April 2008, a director since 1993 and Chairman of the Board since

 

-92-


Table of Contents

January 2018. Mr. Kramer was Vice Chairman of the Griffon Board from 2003 until January 2018. From 2002 through March 2008, he was President and a director of Wynn Resorts, Ltd. (NASDAQ: WYNN), a developer, owner and operator of destination casino resorts. From 1999 to 2001, Mr. Kramer was a Managing Director at Dresdner Kleinwort Wasserstein, an investment banking firm, and its predecessor Wasserstein Perella & Co. In addition to Griffon Corporation, he is currently a member of the board of directors of each of Business Development Corporation of America and Franklin BSP Capital Corporation. Mr. Kramer has been a senior executive officer of a number of corporations and brings to the Board extensive experience in all aspects of finance and business transactions.

Michael S. Liebowitz — Director

Following the Distribution, Michael S. Liebowitz will serve as a member of the Company’s Board of Directors. Mr. Liebowitz is an entrepreneur, private investor and seasoned business executive with extensive experience founding, acquiring, and monetizing businesses in the insurance and financial industries. In the past 25 years, Mr. Liebowitz has founded or acquired many companies, including (i) in 1995, Harbor Group Consulting LLC, an insurance and risk management consulting firm where he served as President and Chief Executive Officer from 1995, until its acquisition by Alliant Insurance Services, Inc. (“Alliant”) in 2018, (ii) in 1999, as a founding principal, National Financial Partners Corp. (NYSE: NFP), which was taken public in 2003 and was acquired by a controlled affiliate of Madison Dearborn Partners, LLC in 2013, and is now one of the largest insurance brokers in the world, (iii) in 2006, Innova Risk Management (“Innova”), a boutique real estate insurance firm and leading provider of property and casualty insurance in the co-op and condominium markets in the New York area, which he acquired in a joint venture with Douglas Elliman Real Estate, LLC until its sale in 2019, (iv) in 2017, High Street Valuations, a firm that specializes in providing insurable value calculations for banks, capital market lenders, owners, and property management companies, and (iv) in October 2020, New Beginnings Acquisition Corp. (NYSE American: NBA) (“NBA”), a special purpose acquisition company until its merger with Airspan Networks Holdings Inc. in August 2021. He currently serves as President and Chief Executive of the Harbor Group Division of Alliant (and Managing Director and Executive Vice President of Alliant) and High Street Valuations; and, is the principal shareholder of Open Acq LLC, a firm that provides consultancy and actuarial services to qualified pension plans. He also served as President and Chief Executive Officer of Harbor and Innova until 2018 and 2019, respectively, when they were acquired by Alliant as well as NBA from October 2020 to August 2021. He has served since August 2021 on the board of Airspan Network Holdings Inc. (NYSE American: MIMO), and he served on the board of Ladenburg Thalmann Financial Services Inc. (NYSE American: LTS) from January 2019 to February 2020. He also served on the board of The Hilb Group, a leading middle market insurance agency headquartered in Richmond, Virginia, from 2011 to 2013. Mr. Liebowitz has also acted as an advisor to many of the largest financial services companies around the globe on their complex insurance matters within their investment banking/M&A groups. He was special consultant to GMAC for the World Trade Center financing prior to and after 9/11 and its claims and litigation process and strategy and advised the U.S. Federal Reserve and Goldman Sachs in the depths of the financial crisis in the newly created TALF lending program. Mr. Liebowitz graduated from CW Post College-LI University with a B.S. in Finance. Mr. Liebowitz’s pertinent experience, qualifications, attributes and skills include his strong background as an investor and executive officer of numerous businesses in varied industries.

Lynn Mestel — Director

Following the Distribution, Lynn Mestel will serve as a member of the Company’s Board of Directors. Ms. Mestel is recognized as an entrepreneur and visionary in the legal recruiting and staffing industry, where she founded two companies and served as their Chief Executive Officer for more than two decades. In 1987, she founded Mestel & Company, a consultancy firm placing attorneys in all disciplines as well as advising on law firm mergers and acquisitions and, in 1993, she founded Hire Counsel, which provided temporary legal staffing and e-discovery managed review to a nationwide clientele of law firms, corporations and government agencies. In 2011, Ms. Mestel combined both companies (HCMC Legal, Inc.) brought in private equity investors, Long Point Capital and created a 100% ESOP (Employee Stock Ownership Plan) providing equity participation and profit sharing to both full time and temporary employees. She remained as Chief Executive Officer of both Mestel & Company and Hire Counsel until 2017 and now serves as Non-Executive Chair of the Board of both

 

-93-


Table of Contents

companies and focuses on strategic direction, mergers and acquisitions and long-term planning. Prior to founding Mestel & Company and Hire Counsel, Ms. Mestel was an advertising executive with each of DDB Worldwide Communications Group Ltd. and Saatchi & Saatchi, both of which are internationally respected advertising firms. She earned a Bachelor of Arts from the Virginia Polytechnic Institute and State University, where she was elected Phi Beta Kappa, and a Juris Doctorate from the Benjamin N. Cardozo School of Law. She also attended The Julliard School. Ms. Mestel’s pertinent experience, qualifications, attributes and skills include her background as an entrepreneur and senior executive.

Wilson L. White — Director

Following the Distribution, Wilson L. White will serve as a member of the Company’s Board of Directors. Mr. White has been a director of Vector since June 2021. Mr. White currently serves as Senior Director of Government Affairs and Public Policy at Google, a subsidiary of Alphabet Inc. (NASDAQ: GOOG, GOOGL), where he is the global policy lead for Google’s Android, Hardware and Ads businesses. In addition to his employment at Google, Mr. White is engaged in numerous philanthropic and community activities. He serves as Board Chair of the Black Bank Fund, which aims to raise and invest $250 million into Black banks throughout the United States by 2025. Mr. White also serves on the Boards of the University of North Carolina School of Law Foundation and the South Carolina Governor’s School for Science & Mathematics Foundation. Mr. White earned a Bachelor of Science in Computer Engineering from North Carolina State University, where he was a Park Scholar, and received his Juris Doctor, with honors, from the University of North Carolina at Chapel Hill. Prior to being named to his current position in 2013, he served as Patent Litigation Counsel at Google from 2011 to 2013 and was a Senior Associate at Kilpatrick Townsend & Stockton LLP from 2007 to 2011. He also served as a judicial law clerk to the Honorable Alexander Williams, Jr. of the U.S. District Court of Maryland from 2006 to 2007. Mr. White’s pertinent experience, qualifications, attributes and skills include a strong background in computer engineering and the technology and legal sectors.

Mark D. Zeitchick — Director

Following the Distribution, Mark D. Zeitchick will serve as a member of the Company’s Board of Directors. Mr. Zeitchick has extensive experience as a business executive in the financial services industry where he enjoyed a 27-year career as an executive of Ladenburg Thalmann Financial Services Inc. (NYSE American: LTS) and its predecessors. During his tenure, he served as Executive Vice President of Ladenburg Thalmann from 2006 to February 2020. He also served as director of Ladenburg Thalmann Financial Services from 1999 until February 2020 and of Castle Brands Inc. (NYSE American: ROX) from March 2014 until October 2019. Mr. Zeitchick’s pertinent experience, qualifications, attributes and skills include managerial experience, industry knowledge and the knowledge and experience he has attained through his service as a director of publicly-traded corporations.

Board Structure

Our amended and restated certificate of incorporation that will be in effect immediately prior to the completion of the Distribution provides that, immediately after the completion of the Distribution, our Board will be divided into three classes with staggered three-year terms. Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term expires. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Each director’s term will continue until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal. Our directors will be divided among the three classes as follows:

 

   

Class I directors, whose initial term will expire at the annual meeting of stockholders to be held in 2022, will consist of Messrs. Lampen and White;

 

   

Class II directors, whose initial term will expire at the annual meeting of stockholders to be held in 2023, will consist of Messrs. Liebowitz and Zeitchick; and

 

-94-


Table of Contents
   

Class III directors, whose initial term will expire at the annual meeting of stockholders to be held in 2024, will consist of Ms. Mestel and Messrs. Lorber and Kramer.

Our amended and restated certificate of incorporation and restated bylaws, which will be in effect upon the completion of the Distribution, will provide that only our Board may fill vacancies on our Board. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors.

The classification of our Board may have the effect of delaying or preventing changes in our control or management. See “Description of Capital Stock — Anti-takeover Effects of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.”

Because we did not have any operations during the year ended December 31, 2020, our Board did not hold any meetings during that year.

Director Compensation

We expect to adopt a director compensation program for the Company’s non-employee directors effective immediately following the Distribution that is designed to be fair based on the amount of work required of directors of the Company. Directors who are also employees of the Company are not expected to receive any additional compensation for their services as directors. We have not yet paid any compensation to our non-employee directors.

Following the Distribution, our non-employee directors’ annual compensation is currently expected to consist of the following components:

 

   

annual cash retainer fee of $75,000;

 

   

annual committee retainer fee of $5,000;

 

   

fees for serving as the committee chairperson of $10,000 for each of the audit, compensation and corporate governance and nominating committees;

 

   

an initial grant of 10,000 shares vesting over two years and, afterwards, an annual grant of 10,000 shares vesting over two years, thereafter;

 

   

reimbursement for reasonable out-of-pocket expenses incurred in serving on the Board of Directors; and

 

   

access to and payment for the Company’s health, dental and standard life insurance coverage.

Board Committees

The Board will have four committees established in accordance with the Company’s amended and restated bylaws: an executive committee, an audit committee, a compensation and human capital committee, and a corporate governance and nominating committee.

Executive Committee

The executive committee exercises, in the intervals between meetings of the Board, all the powers of the Board in the management and affairs of the Company, except for matters expressly reserved by law for Board action.

Audit Committee

Following the Distribution, our audit committee will be comprised of Mr. Liebowitz, Ms. Mestel and Mr. White.

Mr. Liebowitz will be the chairperson of our audit committee. The audit committee is governed by a written

 

-95-


Table of Contents

charter which requires that it discuss policies and guidelines to govern the process by which risk assessment and risk management are handled and that it meet periodically with management to review and assess the Company’s major financial risk exposures and the manner in which such risks are being monitored and controlled. Accordingly, in addition to its other duties, the audit committee will periodically review the Company’s risk assessment and management, including in the areas of legal compliance, internal auditing and financial controls. In this role, the audit committee will consider the nature of the material risks the Company faces, and the adequacy of the Company’s policies and procedures designed to respond to and mitigate these risks and receives reports from management and other advisors. The audit committee will oversee the Company’s financial statements, system of internal controls, and auditing, accounting and financial reporting processes and risks related thereto; the audit committee will appoint, compensate, evaluate and, where appropriate, replace the Company’s independent accountants; review annually the audit committee charter; and review and pre-approve audit and permissible non-audit services. Upon completion of the Distribution, the text of our audit committee charter will be available on our website at www.elliman.com under Investors — Corporate Governance. A copy may be obtained by writing to Douglas Elliman Inc., 4400 Biscayne Boulevard, Miami, Florida 33137; Attention: Corporate Secretary.

Compensation and Human Capital Committee

Following the Distribution, our compensation and human capital committee will be comprised of Mr. Kramer, Mr. Liebowitz and Mr. Zeitchick. Mr. Kramer will be the chairperson of our compensation and human capital committee. The compensation and human capital committee will be responsible for risks relating to employment policies and the Company’s compensation and benefits systems. The compensation and human capital committee will review, approve and administer management compensation and executive compensation plans and will be responsible for management development and succession planning, overseeing human capital management initiatives (including diversity and inclusion), overseeing stockholder communications and engagement efforts with stockholders on executive compensation. Upon completion of the Distribution, the text of our compensation and human capital committee charter will be available on our website at www.elliman.com under Investors — Corporate Governance. A copy may be obtained by writing to Douglas Elliman Inc., 4400 Biscayne Boulevard, Miami, Florida 33137; Attention: Corporate Secretary.

Corporate Governance and Nominating Committee

Following the Distribution, our corporate governance and nominating committee will be comprised of Mr. White, Mr. Kramer, Ms. Mestel, and Mr. Zeitchick. Mr. White will be the chairperson of our corporate governance and nominating committee. The corporate governance and nominating committee will be responsible for the oversight of risks relating to Board succession planning. The committee will assist the Board in identifying individuals qualified to become directors and recommend to the Board the nominees for election as directors at the next annual meeting of stockholders, develop and recommend to the Board the corporate governance guidelines and code of business conduct and ethics applicable to the Company, and oversee the evaluation of the Board and management. Upon completion of the Distribution, the text of our corporate governance and nominating committee charter will be available on our website at www.elliman.com under Investors — Corporate Governance. A copy may be obtained by writing to Douglas Elliman Inc., 4400 Biscayne Boulevard, Miami, Florida 33137; Attention: Corporate Secretary.

Our amended and restated bylaws will also permit the Board of Directors to appoint other committees of the Board from time to time which would have such powers and duties as the Board properly determines.

 

-96-


Table of Contents

Our Executive Officers Following the Distribution

The following table sets forth information as of November 10, 2021 regarding the individuals who will be executive officers of the Company following the Distribution. Additional executive officers may be appointed prior to the Distribution.

 

     Age    Position
Howard M. Lorber    73    Chairman, President and Chief Executive Officer
Richard J. Lampen    68    Director, Executive Vice President and Chief Operating Officer
J. Bryant Kirkland III    56    Senior Vice President, Treasurer and Chief Financial Officer
Marc N. Bell    60    Senior Vice President, Secretary and General Counsel
J. David Ballard    53    Senior Vice President, Enterprise Efficiency and Chief Technology Officer
Karen J. Chesleigh    54    Vice President of Human Resources
Stephen T. Larkin    51    Vice President of Communications
Daniel A. Sachar    45    Vice President Innovation and Managing Director of New Valley Ventures LLC
Scott J. Durkin    59    President and Chief Executive Officer, Douglas Elliman Realty, LLC

Howard M. Lorber — Chairman, President and Chief Executive Officer

For a biography of Mr. Lorber, please refer to the section entitled “Directors”.

Richard J. Lampen — Director, Executive Vice President and Chief Operating Officer

For a biography of Mr. Lampen, please refer to the section entitled “Directors”.

J. Bryant Kirkland III. Following the distribution, J. Bryant Kirkland III will serve as our Senior Vice President, Treasurer and Chief Financial Officer. He has been Chief Financial Officer and Treasurer of Vector since April 2006 and Senior Vice President of Vector since May 2016. Mr. Kirkland served as a Vice President of Vector 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, 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. Mr. Kirkland received a Bachelor of Science in Business Administration from the University of North Carolina at Chapel Hill and an MBA from Barry University. Mr. Kirkland is licensed as a Certified Public Accountant in the states of Florida, New York and North Carolina and is licensed as a real estate broker in the state of Florida.

Marc N. Bell. Following the distribution, Marc N. Bell will serve as our Secretary, Senior Vice President and General Counsel. He has served as Secretary and General Counsel of Vector since May 1994 and as Senior Vice President since May 2016. Mr. Bell served as a Vice President of Vector 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’s or New Valley’s subsidiaries. Mr. Bell received a Bachelor of Business Administration from George Washington University and a Juris Doctorate from Villanova Law School. Mr. Bell also received an MBA from The Wharton School, University of Pennsylvania. Mr. Bell is licensed to practice law in Pennsylvania, New York, New Jersey, Washington, D.C., and Florida.

J. David Ballard. Following the distribution, J. David Ballard will serve as our Senior Vice President, Enterprise Efficiency and Chief Technology Officer. He has served as Senior Vice President, Enterprise Efficiency and Chief Technology Officer of Vector since July 2020 and, from February 2020 to July 2020, served as a consultant to the Company. Prior to joining Vector, Mr. Ballard served as Senior Vice President, Enterprise Services of Ladenburg Thalmann Financial Services Inc. from April 2019 to February 2020. Prior to joining

 

-97-


Table of Contents

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.

Karen J. Chesleigh. Following the distribution, Karen J. Chesleigh will serve as our Vice President of Human Resources and continue to serve as Senior Vice President of Human resources of our subsidiary, Douglas Elliman, LLC. For more than two decades, Ms. Chesleigh has been employed in human resources positions at leading New York residential real estate brokerage firms and she provides extensive human capital experience to our employees and affiliated agents. She has been employed and has served as Senior Vice President of Human Resources of Douglas Elliman, LLC since December 2004 and previously served in various management positions at The Corcoran Group from 1998 to 2004.

Stephen T. Larkin. Following the distribution, Stephen T. Larkin will serve as our 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. Following the distribution, Daniel A. Sachar will serve as our Vice President Innovation and Managing Director of New Valley Ventures. He joined Vector 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.

Scott J. Durkin. Scott J. Durkin’s expertise in Douglas Elliman’s markets spans the past three decades. He 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. 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.

 

-98-


Table of Contents

EXECUTIVE COMPENSATION

Introduction

The following discussion relates to the compensation of our principal executive officer and our two other most highly compensated executive officers, as determined under the rules of the SEC, based on compensation paid to or earned by such individuals for the fiscal year ended December 31, 2020. These executive officers, whom we refer to as our “named executive officers” or “NEOs”, are Mr. Howard M. Lorber, who will serve as our President and Chief Executive Officer following the Distribution; Mr. Richard J. Lampen, who will serve as our Chief Operating Officer following the Distribution; and Mr. J. Bryant Kirkland III, who will serve as our Chief Financial Officer and Treasurer following the Distribution.

Each of the named executive officers holds various long-term incentive equity awards that were granted by Vector. Treatment of these in the Distribution is described under “— Treatment of Outstanding Awards.”

Key Elements of Expected Executive Compensation from the Company Following the Distribution

As a newly-formed entity, we did not have any executive officers or pay any compensation during the year ended December 31, 2020. In connection with the Distribution, we expect that our compensation and human capital committee will determine our executive compensation program following the Distribution. The following summarizes the principal components of the annual compensation that we expect to provide following the Distribution to each of our named executive officers, subject to the approval of the compensation and human capital committee following the Distribution. The Company also expects to grant restricted stock awards to each of its NEOs in connection with the Distribution that will vest ratably over four years, subject to continued employment through each vesting date.

 

Name

   Base Salary      Target Bonus  

Howard M. Lorber

   $ 1,800,000        150% of Base Salary  

Richard J. Lampen

   $ 650,000        112.5% of Base Salary  

J. Bryant Kirkland III

   $ 550,000        33.33% of Base Salary  

In addition, the NEOs are expected to receive other benefits and perquisites pursuant to Company benefit plans and arrangements, which the Company expects to establish in connection with the Distribution.

Historical Compensation Paid or Awarded Under Vector Plans and Arrangements

All of the information set forth in the following table reflects historical information regarding compensation earned by our NEOs during the year ended December 31, 2020. The information set forth below only reflects the compensation paid by Vector for services rendered to Vector. References in the tables that follow to “2020” refer to the year ended December 31, 2020. The information below is therefore not necessarily indicative of the compensation these individuals will receive as named executive officers of the Company.

The following section provides compensation information pursuant to the scaled disclosure rules applicable to “emerging growth companies” under the rules of the SEC, including reduced narrative and tabular disclosure obligations regarding executive compensation.

 

-99-


Table of Contents

SUMMARY COMPENSATION TABLE FOR YEAR 2020

 

Name and Principal
Position

  Year     Salary
($)(1)
    Bonus
($)
    Stock
Awards
($)(2)
    Option
Awards
($)(2)
    Non-Equity
Incentive Plan
Compensation
($)(3)
    Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)(4)
    All Other
Compensation
($)
          Total
($)
 

Howard M. Lorber

    2020     $ 3,371,649       —       $ 3,001,250     $ 0     $ 3,898,469     $ 5,153,781     $ 340,104       (5   $ 15,765,253  

President and Chief

                   

Executive Officer

                   

Richard J. Lampen

    2020