12. Equity-Based Compensation

On September 30, 2013, the Company’s Board of Directors adopted the RE/MAX Holdings, Inc. 2013 Omnibus Incentive Plan (the “2013 Incentive Plan”). The 2013 Incentive Plan became effective on September 30, 2013 and provides for the grant of incentive stock options to the Company’s employees, and for the grant of shares of the RE/MAX Holdings Class A common stock, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and any combination thereof to employees, directors and consultants of RE/MAX Holdings and RMCO.

RE/MAX Holdings Shares of Class A Common Stock and Restricted Stock Units

On June 24, 2015, RE/MAX Holdings granted 2,941 shares of RE/MAX Holdings’ Class A common stock to an employee at a grant-date fair value of $34.01. Of this amount, 940 shares were withheld and cancelled with an estimated value of $32,000 to cover the Company’s minimum statutory tax withholding obligation.

On March 11, 2015, RE/MAX Holdings granted an aggregate of 74,893 restricted stock units at a value of $32.45 per unit to certain employees, which vest over a three-year period beginning on April 1, 2016, and an aggregate of 10,787 restricted stock units at a value of $32.45 per unit to its directors, excluding David Liniger, the Company’s Chief Executive Officer, Chairman and Co-Founder, and Gail Liniger, the Company’s Vice Chair and Co-Founder, which vest on April 1, 2016. The grant-date fair value of $32.45 per unit equaled the closing price of RE/MAX Holdings’ Class A common stock on March 11, 2015.

On October 7, 2013, RE/MAX Holdings granted 115,699 restricted stock units at a value of $22.00 per unit to certain employees, which vest over a three-year period beginning on December 1, 2014 and 18,184 restricted stock units at a value of $22.00 per unit to its directors, which vested on December 1, 2014. The grant-date fair value of $22.00 per unit equaled the public offering price of RE/MAX Holdings’ Class A common stock.

During the years ended December 31, 2015, 2014 and 2013, the Company recognized equity-based compensation expense of $1,453,000, $2,002,000 and $247,000, respectively, associated with the restricted stock units mentioned above. As of December 31, 2015, $2,141,000 of total unrecognized compensation cost, net of assumed forfeitures, related to non-vested restricted stock units is expected to be recognized over a weighted-average period of 2.0 years. This excludes $59,000 of incremental compensation cost to be recognized during the first quarter of 2016 for 12,109 unvested restricted stock units expected to vest in April 2016 on an accelerated timeline in connection with a separation and transition agreement entered into with the Company’s current Co-Chief Financial Officer and former Chief Operating Officer as described in Note 13, Leadership Changes and Restructuring Activities. The total recorded tax benefit related to the restricted stock units granted by RE/MAX Holdings was $54,000 and $92,000 for the year ended December 31, 2015 and 2014, respectively, and was recorded in “Additional paid-in capital” in the accompanying Consolidated Balance Sheets and Consolidated Statements of Redeemable Preferred Units and Stockholders’ Equity/Members’ Deficit.

In addition, on October 7, 2013 RE/MAX Holdings granted 107,971 restricted stock units with a weighted average grant-date fair value of $18.96, which reflects a discount for the lack of marketability of the restricted stock units, to certain employees in connection with the IPO that vested upon grant. The underlying shares were issued on May 20, 2014, of which 30,519 shares were withheld and cancelled to cover the Company’s minimum statutory tax withholding obligation. The estimated value of the withheld shares was $818,000. Concurrently, 30,519 common units in RMCO owned by RE/MAX Holdings were cancelled. The related corporate income tax benefit realized upon the issuance of the underlying shares was approximately $125,000 and was recorded in “Additional paid-in capital” in the accompanying Consolidated Balance Sheets and Consolidated Statements of Redeemable Preferred Units and Stockholders’ Equity/Members’ Deficit. Non-cash compensation expense of $2,047,000 associated with these restricted stock units was recognized during the year ended December 31, 2013. The total associated tax benefit was $345,000 and was recorded in “Deferred tax assets, net” in the accompanying Consolidated Balance Sheets during 2013.

The following table summarizes the Company’s activity for restricted stock units for the year ended December 31, 2015:


		Restricted Stock
		Units
Balance, January 1, 2015		40,472
Granted		85,680
Forfeited		(6,588)
Delivered and exchanged for shares of Class A common stock (a)		(14,866)
Cancelled (b)		(7,933)
Balance, December 31, 2015		96,765

As of December 31, 2015
Vested		—
Unvested		96,765

(a)

In connection with a retirement agreement entered into with the Company’s former President as described in Note 13, Leadership Changes and Restructuring Activities, 7,576 unvested restricted stock units granted in October 2013 vested in August 2015 on an accelerated timeline. As such, incremental equity-based compensation expense of $216,000 was recognized during the year ended December 31, 2015.

(b)

During the year ended December 31, 2015, 22,799 restricted stock units vested, of which 7,933 shares were withheld and cancelled with an estimated value of $295,000 to cover the Company’s minimum statutory tax withholding obligation.

At December 31, 2015, there were 1,936,215 additional shares available for the Company to grant under the 2013 Incentive Plan.

RMCO Common Unit Options

During 2012, RMCO adopted an equity-based compensation plan (the “Plan”) pursuant to which RMCO’s Board of Managers granted 31,500 RMCO Class B common unit options to certain employees. On October 1, 2013 and in connection with the IPO and the Reorganization Transactions, the aforementioned Class B common unit options were split 25 for 1 and then substituted for 787,500 options to acquire shares of RE/MAX Holdings’ Class A common stock. The options outstanding and exercisable as of December 31, 2013 to purchase shares of RE/MAX Holdings’ Class A common stock were fully vested, have an exercise price of $3.60 and a remaining contractual term of 8.9 years. No incremental compensation cost was recognized because the fair value of the RMCO Class B common unit options exchanged was equal to the fair value of RE/MAX Holdings’ Class A common stock options received.

The grant-date fair value of each Class B common unit option was estimated using the Black-Scholes-Merton option pricing model. At the grant date, RMCO did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term of the common unit options. As such, the “simplified” method as outlined in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 110 was used to derive the expected term. As the grant date was prior to the IPO, expected volatility was estimated based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option was based on the U.S. Treasury yield curve at the date of grant.


	2013
Valuation assumptions:
Expected dividend yield	—	%
Expected volatility	78.0	%
Expected term (years)	5.1
Risk-free interest rate	0.75	%

A portion of the Class B common unit options granted in 2012 vested on the grant date, and the remaining options vested on June 15, 2013. Compensation expense of $701,000 was recognized during the year ended December 31, 2013. The weighted average grant-date fair value of the Class B common unit options was $56.83. The total fair value of the Class B common unit options that vested during the year ended December 31, 2013 was approximately $895,000. As of December 31, 2015, there was no unrecognized compensation cost related to Class B common unit options granted under the Plan.

Additionally, in connection with the retirement of the Company’s former Chief Executive Officer and pursuant to the terms of the Separation Agreement, the remaining contractual term of the related RE/MAX Holdings’ Class A common stock options outstanding was reduced to two years as of December 31, 2014. No related incremental compensation cost was recognized and no such stock options were outstanding as of December 31, 2015.

The following table summarizes the Company’s stock option activity for the year ended December 31, 2015 (weighted average remaining contractual term in years and aggregate intrinsic value in thousands):


				Weighted Average
		Weighted Average		Remaining	Aggregate
	Options	Exercise Price		Contractual Term	Intrinsic Value
Balance at January 1, 2015	652,500
Granted	—
Exercised	(624,443)	$	3.60
Forfeited	—
Forfeited	—
Balance at December 31, 2015 (a)	28,057			6.9	$	946
Exercisable at December 31, 2015	28,057			6.9	$	946

(a)

In connection with a separation and transition agreement entered into with the Company’s Co-Chief Financial Officer and former Chief Operating Officer as described in Note 13, Leadership Changes and Restructuring Activities, the remaining contractual term of the related RE/MAX Holdings’ Class A common stock options outstanding was reduced to approximately 6 months as of January 7, 2016. This modification is not reflected in the weighted average remaining contractual term included in this table.

The Company received $2,248,000 and $486,000 in cash proceeds related to the exercise of stock options for the years ended December 31, 2015 and 2014, respectively. Upon the exercise of stock options, shares of Class A common stock are issued from authorized common shares. The Company recorded a corporate income tax benefit relating to the options exercised during the years ended December 31, 2015 and 2014 of $2,716,000 and $519,000, respectively, in “Additional paid-in capital” in the accompanying Consolidated Balance Sheets and Consolidated Statements of Redeemable Preferred Units and Stockholders’ Equity/Members’ Equity. The total intrinsic value of stock options exercised during the years ended December 31, 2015 and 2014 were $19,154,000 and $3,839,000, respectively. No options were exercised during the year ended December 31, 2013.