Equity-Based Compensation Plan (RMCO)

9 Months Ended

Sep. 30, 2013

RMCO

Equity-Based Compensation Plan

(7)Equity-Based Compensation Plan

During 2012, the Company adopted an equity-based compensation plan (the“Plan”) pursuant to which the Company’s Board of Managers may grant unit options. Through September30, 2013, the Company had only granted options settleable in units. The Plan authorizes grants to purchase up to 52,500 units of authorized but unissued common units. Under the terms of the Plan, the exercise price of options granted under the Plan can be no less than the fair value of the underlying security on the date of grant. The term of the option cannot exceed 10years, and the options will vest as specified in the option grant agreement. At September30, 2013, there were 21,000 additional unit options available for the Company to grant under the Plan.

The grant-date fair value of each option award was estimated using the Black-Scholes-Merton option pricing model. No option awards were granted during the nine monthsended September30, 2013. The assumptions for 2012 grants are provided in the following table. On the grant date, the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term of the option. As such, the “simplified” method as outlined in the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin No.110 was used to derive the expected term. Since the Company’s units were not publicly traded and its units were not traded privately, 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.

	2012
Valuation assumptions:
Expected dividend yield		—	%
Expected volatility		78.0	%
Expected term (years)		5.1
Risk-free interest rate		0.75	%

The grant-date estimated fair value of options granted during the year ended 2012 was $56.83. A portion of the options granted in 2012 vested on the grantdate, and the remaining options vested on June15, 2013. Total compensation expense on the options granted in 2012 recognized during the nine months ended September30, 2013 was $701,000. As the options were granted in the fourth quarter of 2012, no compensation expense was recognized during the nine months ended September30, 2012. As of September30, 2013, there was no unrecognized compensation cost related to unit options granted under the Plan. In October 2013 and in connection with the IPO and the Reorganization Transactions, the unit options were split 25 for1 and then substituted for787,500 options to acquire shares of RE/MAX Holdings, Inc.’s ClassA common stock.