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As filed with the Securities and Exchange Commission on August 16, 2013
Registration No. 333-            

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

RE/MAX Holdings, Inc.
(Exact name of registrant as specified in its charter)

 
					
Delaware	 	6531	 	80-0937145	
(State or other jurisdiction of
incorporation or organization)	 	(Primary Standard Industrial
Classification Code Number)	 	(I.R.S. Employer
Identification Number)	
5075 South Syracuse Street
Denver, Colorado 80237
(303) 770-5531
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Geoffrey D. Lewis
Senior Vice President and Chief Legal Officer
5075 South Syracuse Street
Denver, Colorado 80237
(303) 770-5531
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Gavin B. Grover, Esq.
David B. Strong, Esq.
John M. Rafferty, Esq.
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Tel: (415) 268-7000
Fax: (415) 268-7522	 	Deanna L. Kirkpatrick, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Tel: (212) 450-4000
Fax: (212) 701-5800	

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.     ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	 	¨	  	Accelerated filer	 	¨	
				
Non-accelerated filer	 	x   (Do not check if a smaller reporting company)	  	Smaller reporting company	 	¨	

CALCULATION OF REGISTRATION FEE

 	
Title of Each Class of
Securities to be Registered	 	Proposed Maximum
Aggregate Offering
Price(1)(2)	 	Amount of
Registration Fee	
Class A common stock, $0.0001 par value	 	$100,000,000	 	$13,640	

(1)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.	
(2)	Includes offering price of shares that the underwriters have the option to purchase.	

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
 
Subject to Completion. Dated August 16, 2013.
                Shares

RE/MAX Holdings, Inc.
Class A Common Stock

RE/MAX Holdings, Inc. is offering             shares of its Class A common stock. This is our initial public offering of shares of Class A common stock and prior to this offering, there has been no public market for our Class A common stock. We estimate that the initial public offering price will be between $             and $         per share. We intend to apply to list our Class A common stock on the New York Stock Exchange under the symbol “RMAX.”
Immediately following this offering, the holders of our Class A common stock will collectively own 100% of the economic interests in RE/MAX Holdings, Inc. and have     % of the voting power of RE/MAX Holdings, Inc. RIHI, Inc. and Weston Presidio V, L.P. will have the remaining     % and     %, respectively, of the voting power of RE/MAX Holdings, Inc. through ownership of 100% of the outstanding shares of our Class B common stock. We will be a holding company and our sole asset will be approximately     % of the common units of RMCO, LLC. RIHI, Inc. and Weston Presidio V, L.P. will own the remaining     % and     %, respectively, of the common units of RMCO, LLC.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act and, as such, may elect to comply with certain reduced reporting requirements after this offering.
Investing in our Class A common stock involves significant risks. See “ Risk Factors ” beginning on page 25 to read about factors you should consider before buying shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 
									
 	  	Per Share	 	  	Total	 	
Initial public offering price	  	$	            	  	  	$	            	  	
Underwriting discount	  	$	 	  	  	$	 	  	
Proceeds, before expenses, to us(1)	  	$	 	  	  	$	 	  	

(1)	We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriters.”	
We have granted the underwriters the right to purchase up to an additional             shares of Class A common stock to cover over-allotments at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares of Class A common stock to purchasers on                 , 2013.

Morgan Stanley	 	BofA Merrill Lynch	 	J.P. Morgan	

                , 2013.

Table of Contents
 TABLE OF CONTENTS

 	  	Page	 	
Prospectus Summary	  	 	1	  	
Risk Factors	  	 	25	  	
Special Note Regarding Forward-Looking Statements	  	 	49	  	
Organizational Structure and Reorganization	  	 	52	  	
Use of Proceeds	  	 	62	  	
Dividend Policy	  	 	63	  	
Capitalization	  	 	64	  	
Dilution	  	 	65	  	
Unaudited Pro Forma Condensed Consolidated Financial Information	  	 	67	  	
Selected Historical Consolidated Financial and Operating Data	  	 	76	  	
Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	79	  	
Business	  	 	113	  	
Management	  	 	132	  	
Executive Compensation	  	 	138	  	
Certain Relationships and Related Party Transactions	  	 	146	  	
Principal Stockholders	  	 	150	  	
Description of Certain Indebtedness	  	 	153	  	
Description of Capital Stock	  	 	154	  	
Shares Eligible for Future Sale	  	 	158	  	
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders	  	 	161	  	
Underwriters	  	 	165	  	
Legal Matters	  	 	172	  	
Experts	  	 	172	  	
Where You Can Find Additional Information	  	 	172	  	
Index to Consolidated Financial Statements	  	 	F-1	  	

Through and including                 , 2013 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
Neither we nor any of the underwriters have done anything that would permit a public offering of the shares of our common stock or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. Persons outside the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the U.S.
 
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 PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. Before making an investment decision, you should read the entire prospectus carefully, including the section entitled “Risk Factors” and our consolidated financial statements and related notes included elsewhere in this prospectus.
Unless we state otherwise, the terms “we,” “us,” “our,” “RE/MAX,” and the “Company,” refer to RE/MAX Holdings, Inc., a newly formed Delaware corporation, and its consolidated subsidiaries after giving effect to the reorganization transactions to be completed in connection with the consummation of this offering (the “Reorganization Transactions”) as described in “Organizational Structure and Reorganization.” Prior to the Reorganization Transactions, these terms refer to RMCO, LLC (“RMCO”), a Delaware limited liability company, and its consolidated subsidiaries. We refer to RIHI, Inc., a Delaware corporation (“RIHI”), and to Weston Presidio V, L.P. (“Weston Presidio”), in their capacities as the current owners of RMCO prior to the Reorganization Transactions, collectively, as our “existing owners.” RIHI is majority owned and controlled by Dave Liniger, our Chairman and Co-Founder, and by Gail Liniger, our Vice Chair and Co-Founder. Margaret Kelly, our Chief Executive Officer and a director, and Vincent Tracey, our President and a director, hold minority ownership interests in RIHI. Unless we state otherwise, the information in this prospectus gives effect to the Reorganization Transactions described in “Organizational Structure and Reorganization.”
In this prospectus, when we refer to our activities relating to the franchising of real estate brokerage services, this includes franchising of both residential and commercial real estate brokerage services. When we refer to a “transaction side” in this prospectus, we mean acting as the buying agent or the selling agent on a real estate sales transaction; if the agent acted as both the buyer’s agent and the seller’s agent on a particular real estate sales transaction, then that agent would have served on two transaction sides for such sale. Additionally, we use the terms “franchisee”, “broker” and “broker-owner” interchangeably to refer to the owner of the right to operate a RE/MAX-branded brokerage office.
Our Company
We are one of the world’s leading franchisors of real estate brokerage services. Our business strategy is to recruit and retain agents and sell franchises. Our franchisees operate under the RE/MAX brand name, which has held the number one market share in the U.S. and Canada since 1999 as measured by total residential transaction sides completed by our agents. Accordingly, our company slogan is “Nobody sells more real estate than RE/MAX.” The RE/MAX brand has the highest level of unaided brand awareness in the U.S. and Canada according to a 2013 survey by MMR Strategy Group, and our iconic red, white and blue RE/MAX hot air balloon is one of the most recognized real estate logos in the world.
The RE/MAX brand is built on the strength of our global franchise network which is designed to attract and retain the best-performing and most experienced agents by maximizing their opportunity to retain a larger portion of their commissions in exchange for fixed fees and a share of the offices’ overhead expense. As a result of this agent-centric approach, we believe that our agents are substantially more productive than the industry average. We consider agent count and agent productivity to be key measures of our business performance as the majority of our revenue is derived from fixed, contractual fees and dues paid to us based on the number of agents in our franchise network.
RE/MAX was founded in 1973 by Dave and Gail Liniger with an innovative, entrepreneurial culture affording our agents and franchisees the flexibility to operate their businesses with great independence. This business strategy led to a 33-year period of uninterrupted growth, highlighted in the charts below, as RE/MAX added large numbers of franchises and agents in the U.S., Canada and around the world. Today, the RE/MAX brand operates in more countries than any other real estate brokerage brand in the world.

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Over 90,000 Agents	  	Over 6,300 Offices	  	Over 90 Countries	
Number of Agents	  	Number of Offices	  	Number of Countries	

 
*	Through July 31, 2013	
We grew our total agent count at a compound annual growth rate (“CAGR”) of 30% from our founding to a peak of approximately 120,000 agents in 2006. Our agent count declined approximately 26.8% from 2006 through 2011 as real estate transaction activity declined during the U.S. real estate downturn and economic recession, but we have returned to growth with a net gain of 1,532 agents during 2012 (of which 651 agents were in the U.S.), as the U.S. housing recovery took hold and real estate transaction activity began to rebound. We have accelerated our growth in 2013 with a net gain of 3,231 agents through July 31, 2013 (of which 1,797 agents were in the U.S.), as the upturn has gained momentum.
With approximately 74% of our 2012 revenue coming from the U.S., we believe that we are well positioned to benefit from a continuing recovery in the U.S. housing market. Further, with approximately 17% of our 2012 revenue coming from Canada, where RE/MAX has the leading market share among residential brokerage firms, we also expect to benefit from a continuation of generally stable Canadian housing market trends.
As a franchisor, we maintain a low fixed-cost structure, which enables us to generate high margins and helps us drive significant operating leverage through incremental revenue growth.

 

(1)	Adjusted EBITDA includes adjustments to EBITDA for (gain) loss on sale of assets and sublease, loss on extinguishment of debt, stock based compensation, deferred rent adjustments, salaries paid to Dave and Gail Liniger that we will not continue to pay following the consummation of this offering, and acquisition transaction costs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss).	

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(2)	Net loss in the year ended December 31, 2010 was primarily attributable to (i) a loss on the early extinguishment of debt resulting from the repayment of our prior senior debt facility stemming from issuance costs and the unamortized debt discount related to such facility and (ii) a loss incurred in the sale of our corporate headquarters office building. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 2010 vs. Year Ended December 31, 2011.”	
Market Opportunity
We operate in the real estate brokerage franchise industry in more than 90 countries, including the U.S. and Canada.
U.S. and Canadian Real Estate Brokerage Industry Overview. Based upon U.S. Census and Federal Reserve data and existing home sales information from the National Association of Realtors (“NAR”), the U.S. residential real estate industry is an approximately $1.15 trillion market based on 2012 sales volume and represents the largest single asset class in the U.S. with a value of approximately $18 trillion. The U.S. housing market has entered a period of recovery in 2012 which has accelerated during 2013.
Following a brief downturn in 2008, the real estate industry in Canada has remained relatively steady over the last four years, which is a trend we expect will continue.
Cyclical Nature . The residential real estate industry is cyclical in nature but has shown strong long-term growth. From the second half of 2005 through 2011, the U.S. real estate industry experienced a significant downturn, with existing home sale transactions declining by 40% and the median home sale price declining by 24%.
NAR is forecasting that (i) in 2013, existing home sales will increase by 8.3% to 5.0 million units and median existing home sale prices will increase by 10.6%, each as compared to 2012; and (ii) in 2014, existing home sales will increase by 2.5% to 5.2 million units and median existing home sale prices will increase by 5.7%, each as compared to 2013.

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We believe we are well-positioned to benefit from an increase in our agent count as a result of the current U.S. economic recovery and the rebound in the U.S. housing sector which appears to be gaining momentum. As illustrated below, the number of existing home sale transactions in the U.S. has generally increased during periods of economic recovery:
U.S. Existing Home Sales
(in thousands)
Existing Home Sales

Source: National Association of Realtors
Favorable Long-term Demand . We believe that long-term demand for housing in the U.S. is primarily driven by the economic health of the domestic economy, low interest rates, and local factors such as demand relative to supply, and that the residential real estate market in the U.S. will also benefit over the long term from the following fundamental factors:
 
 	•	 	a return to levels of historical norms in home sales;	
 
 	•	 	improved home affordability;	
 
 	•	 	increasing household formations, including as a result of immigration and population growth;	
 
 	•	 	an increase in home values; and	
 
 	•	 	generational housing shifts related to retirement and adult children moving out of parents’ homes.	

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Our Franchise Structure
Franchise Organizational Model . We function under the following franchise organizational model, with nearly all of the RE/MAX branded brokerage office locations being operated by franchisees:

Franchise Tier	  	Description	
		
RE/MAX	  	Owns the right to the RE/MAX brand and sells franchises and franchising rights.	
 	 	
Regional
Franchise Owner	  	Owns rights to sell brokerage franchises in a specified region. Current network of 162 regions globally. In the U.S. and Canada, RE/MAX owns 10 of 32 regional franchises, representing 46% of our U.S. and Canada agent count (each a “Company-owned Region”). The remaining 22 regional franchises, representing 54% of our U.S. and Canada agent count, are regions where regional franchise rights are held by independent owners (each an “Independent Region”). We intend to use a portion of the proceeds of this offering to reacquire regional RE/MAX franchise rights in the Central Atlantic and Southwest regions, increasing Company-owned Regions to approximately 54% of our U.S. and Canada agent count.	
 	 	
Franchisee
(or Broker-Owner)	  	Owns the right to operate a RE/MAX-branded brokerage office, list properties and recruit agents. Over 6,300 offices globally.	
 	 	
Agent
(or Sales Associate)	  	Branded independent contractors who operate out of local franchise brokerage offices. Approximately 90,000 agents globally.	
Our Market Position. We attribute our success to our ability to recruit and retain experienced and productive agents and sell franchises. Our approach to sustained agent recruiting and retention and franchise sales is dependent upon two key elements of our unique business model: (i) creating and maintaining a premier market presence in the real estate brokerage industry worldwide, and (ii) creating and maintaining RE/MAX’s unique “growth engine.”
Premier Market Presence . We believe that we offer agents and franchisees a compelling market presence in the real estate brokerage industry through the combination of the following six attributes:
 
 	•	 	leading unaided brand awareness;	
 
 	•	 	highly experienced and productive agents;	
 
 	•	 	leading market share;	
 
 	•	 	world-class web presence;	
 
 	•	 	high level of customer satisfaction; and	
 
 	•	 	strong community citizenship.	

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RE/MAX “Growth Engine.” The RE/MAX Growth Engine is a virtuous circle whereby all of the key stakeholders in our franchise network—our franchisees, agents and RE/MAX—benefit from mutual investment and participation in the RE/MAX network or, as we say in RE/MAX, “Everybody wins.” By building our leading brand around an agent-centric model, we believe we are able to attract and retain highly productive agents and motivated franchisees. As a result, our agents and franchisees help to further enhance our brand and market share, expand our franchise network, and ultimately grow our revenue, as illustrated below:

The RE/MAX Growth Engine leads to the following unique benefits for our franchisees and agents and RE/MAX:

RE/MAX Franchisee and Agent Benefits	  	RE/MAX Benefits	
•   Affiliation with the best brand in the real estate industry
 
•   Entrepreneurial culture
 
•   High agent commission split and low franchise fees
 
•   Access to our lead referral system which is supported by our high traffic websites
 
•   Comprehensive, award-winning training programs	  	•   Network effect drives brand awareness
 
•   Franchise fee structure provides recurring revenue streams
 
•   Franchise model—highly profitable with low capital requirements—leads to strong cash flow generation and high margins	

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Our Revenue Model
The majority of our revenue is derived from a stable set of fees paid by our agents, franchisees and regional franchise owners.
Our revenue streams are illustrated in the following chart:
Revenue Streams as Percentage of 2012 Total Revenue

Continuing Franchise Fees . In the U.S. and Canada, continuing franchise fees are fixed contractual fees paid monthly by regional franchise owners in Independent Regions or franchisees in Company-owned Regions to RE/MAX based on the number of agents in the franchise region or the franchisee’s office.
Annual Dues . Annual dues are the membership fees which agents pay to be a part of the RE/MAX network and brand. Annual dues are a flat fee of US$390 for U.S. agents and C$390 for Canadian agents, paid directly to RE/MAX. Annual dues revenue is driven by the number of agents in our network.
Broker Fees . Broker fees are assessed to the broker against real estate commissions paid by customers when an agent sells a home. Agents pay a negotiated percentage of these earned commissions to the broker in whose office they work. Broker fees vary based upon the overall health of the real estate industry and the volume of existing home sales in particular. While this revenue stream is more variable than our continuing franchise fees and annual agent dues, it provides us with incremental upside during a real estate market recovery.
Franchise Sales and Other Franchise Revenue . Franchise sales and other franchise revenue is primarily comprised of:
 
 	•	 	Franchise Sales. Franchise sales consists of revenue from sales and renewals of individual franchises from Company-owned Regions and Independent Regions, as well as regional master franchises in the U.S. and Canada and in international markets. We receive only a portion of the revenue from the sales and renewals of individual franchises from Independent Regions.	
 
 	•	 	Other Franchise Revenue. Other franchise revenue includes revenue from preferred marketing arrangements and approved supplier programs with third parties, including mortgage lenders and other real estate service providers, as well as event-based revenue from training and other programs, including our annual convention in the U.S.	
Brokerage Revenue . Brokerage revenue principally represents fees assessed by our owned brokerages for services provided to their affiliated real estate agents. We have owned brokerage offices solely in the U.S. that represent less than 1% of the over 3,300 real estate brokerage offices that operate under the RE/MAX brand name in the U.S.

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International Revenue . Outside the U.S. and Canada, revenue earned from all the aforementioned revenue streams is substantially lower.
Revenue Per Agent in U.S. and Canada Owned and Independent Regions . We receive a higher amount of revenue per agent in our Company-owned Regions than in our Independent Regions. In 2012, the annual revenue per agent in our Company-owned Regions in the U.S. and Canada was approximately $2,288, whereas the average annual revenue per agent in our Independent Regions was approximately $803.

 
*	Based on actual revenue per agent for the year ended December 31, 2012 and does not take into account the acquisition of certain assets of RE/MAX of Texas.	
Our Agent-Centric Approach
We believe that our agent-centric approach enables us to attract and retain highly effective agents and motivated franchisees to our network and drive growth in our business and profitability.
 
 	•	 	High Value Proposition to Agents and Franchisees. We have built a franchise model designed to provide the following unique combination of benefits to our franchisees and agents:	
 
 	•	 	Affiliation with the Best Brand in Residential Real Estate . The RE/MAX brand has held number one market share as measured by total residential transaction sides completed by our agents in both the U.S. and Canada since 1999.	
 
 	•	 	Entrepreneurial , High Performance Culture . We provide our franchisees and agents with a vast array of industry leading tools, resources and support, but allow them autonomy to run their businesses independently. Our approach gives them the freedom generally to set commission rates and oversee local advertising in order to best meet the needs of their particular markets and circumstances. As we say to our agents, they are “in business for themselves, but not by themselves.”	
 
 	•	 	High Agent Commission Fee Split and Low Franchise Fees . In the RE/MAX franchise network, the agent generally retains a high percentage of commissions in exchange for paying a pre-agreed sum to share in overhead and other fixed costs of the brokerage, a model that is highly attractive to high-producing agents.	

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 	•	 	Lead Referral Systems Supported by High Traffic Websites . We provide an attractive lead referral system to our agents free of referral fees and believe this is a major competitive advantage in that no other national real estate brand provides their agents with comparable access to free leads. Our lead referral system, LeadStreet ® is supported by our award winning high-traffic websites, including remax.com, global.remax.com, theremaxcollection.com and remaxcommercial.com, which collectively attracted over 52 million visits in 2012 according to Experian Marketing Services Hitwise data and have generated over 12.4 million free leads for our agents since 2006.	
 
 	•	 	RE/MAX University ® Training Programs . RE/MAX is an industry leader in providing comprehensive education programs for franchisees and agents that are aimed at helping our global network of agents deliver the best service possible to their existing and potential new customers.	
 
 	•	 	Highly Productive and Experienced Agents. Our franchise model is designed to attract and retain the most productive and experienced network of agents in real estate. The productivity of our agents is a key driver in the success of our franchisees. This dynamic reinforces itself as high performing agents benefit from being associated with successful brokerage offices in their local markets.	
 
 	•	 	High Performing Agents . The RE/MAX network has sold more real estate than any other brand every year since 1999. We have achieved this level of productivity with fewer agents and offices than some major competitors. Closely-tracked surveys of large brokerages, such as the Real Trends 500 survey and the Real Trends Canadian 250 survey have for several years demonstrated that RE/MAX agents average more transactions per agent than any other national brand in both the U.S. and Canada.	

2013 Real Trends U.S. 500 Survey:
Transactions Per Agent	  	2013 Real Trends Canadian 250 Survey:
Transactions Per Agent	

Source : 2013 Real Trends 500 Survey of the largest brokerages, containing 2012 data	  	Source : 2013 Real Trends Canadian 250 Survey of the largest brokerages, containing 2012 data	
 
 	•	 	Agent Experience . Our agents average nearly 13 years of real estate experience and seven and a half years as a RE/MAX agent.	
 
 	•	 	Agent Expertise . RE/MAX agents lead the industry in many key professional designations, and RE/MAX University further enhances our agent expertise by equipping agents with advanced training in specialty areas of real estate. Across our agent base, professional designations correlate with higher median agent commissions.	

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 	•	 	High-earning agents. We believe RE/MAX agents earn among the highest median gross incomes in the industry.	
 
 	•	 	In 2012, the median annual commission income for U.S. RE/MAX agents was $63,482, which was 46% higher than the median annual income for U.S. realtors according to NAR.	
 
 	•	 	In Canada, the median annual commission income for RE/MAX agents in 2012 was C$92,271.	
Our Competitive Strengths
We attribute our success to the following competitive strengths:
Premier Market Presence. We believe we have the best brand worldwide in the real estate brokerage industry, which allows us to attract the most experienced and productive agents and to grow our market presence both in the U.S. and worldwide. We further believe that we offer agents and franchisees a compelling Premier Market Presence in the real estate brokerage industry through the combination of:
 
 	•	 	leading brand name awareness;	
 
 	•	 	highly experienced and productive agents;	
 
 	•	 	leading market share;	
 
 	•	 	high-traffic web presence;	
 
 	•	 	high level of customer satisfaction; and	
 
 	•	 	strong community citizenship.	
Premier Global Brand. Our presence in over 90 countries provides a unique competitive advantage, as no other real estate network matches our global footprint. We believe we have established the leading global brand in residential real estate and that our scale and market penetration create top of mind awareness with consumers and potential agents throughout the world. Our international scale provides opportunities for us to grow agent counts in fast growing markets around the globe. In addition, our network of agents and listings around the world benefits our franchise network in the U.S. and Canada through access to international listings and lead generation. Our website global.remax.com allows sellers around the world to promote their properties to potential buyers using local language and currency conversion to enhance a listing’s effectiveness.
Growing Agent and Franchise Presence. We believe that our history of sustained agent and franchise growth coupled with our position as the leading residential real estate brand in the U.S. enables us to capitalize on the continuing recovery in the U.S. housing market.
Sustained Increases in Agent Count . From our founding in 1973, we grew our total agent count at a CAGR of 30% to approximately 120,000 agents at the peak of the most recent housing cycle in 2006. We have recently returned to a period of agent growth in the U.S. in 2012 and 2013. We believe this trend will continue as the U.S. housing recovery gains momentum.
Franchise Growth . We have a successful record of long term growth in the number of our franchises globally, with more than 6,300 offices and a presence in more than 90 countries. We increase our franchises through the sale of both individual offices and regional master franchises. In 2012, we sold 739 franchises globally, and we expect to sell an equal or greater number of franchises in 2013.
Benefits of Our Franchise Financial Model. The majority of our revenue is derived from fixed contractual fees and dues paid by our agents, franchisees and regional franchise owners. As a franchisor, we maintain a low fixed cost structure which requires little additional investment as we add franchisees and agents. Accordingly, incremental

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increases in agents and franchisees drive additional revenue and Adjusted EBITDA. This also allows us to deliver consistently high margins over market cycles and in 2012, our Adjusted EBITDA and net income margins were 47% and 23%, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss). Further, given that our franchise model requires little capital investment, we are able to generate strong cash flow as well.
Committed, Experienced and Passionate Leadership Team. Our senior management leadership team has an average of 18 years of experience working together as a team while building RE/MAX into the global organization it is today. Margaret Kelly, who has served as our Chief Executive Officer since 2005, started with the company in 1987, and Vincent Tracey, who has served as our President since 2005, started with the company in 1977. David Metzger, Executive Vice President, Chief Operating Officer and Chief Financial Officer joined RE/MAX in 2007. Our senior management leadership team also includes Mike Ryan, our Executive Vice President, Global Communications and Branding, who joined us in 1994, and Geoff Lewis, our Senior Vice President, Chief Legal Officer, who joined us in 2004. We believe our senior management team and our founders, Dave and Gail Liniger, have been key drivers of our success and position us well for continued long-term growth.
Our Growth Strategy
We intend to leverage our market leadership in the residential real estate brokerage industry in the U.S. and Canada through various growth initiatives. The key elements of our growth strategy include:
Capitalize on the Recovery in the U.S. Residential Real Estate Market and Increase Our Agent Count. The number of agents in the residential real estate industry is highly correlated to overall transaction activity. Since 2006, the residential real estate industry across the globe, and especially in the U.S., experienced a historic downturn, including a significant decline in the number of agents in the business. Based on our experience, we believe strengthening market conditions in the U.S. will enable us to sell more franchises and recruit and retain higher numbers of productive agents, increasing our revenue and profitability. We experienced agent losses during the downturn, but we returned to a period of net agent growth in 2012 and our growth in agent count has accelerated in 2013.
Drive Continuing Franchise Sales Growth and Agent Recruitment and Retention. Our business strategy is to continue to sell franchises and recruit and retain agents:
 
 	•	 	We sold 739 franchises in 2012 and intend to continue adding franchises in new and existing markets, and as a result, increase our global market share and brand awareness. In the U.S., we believe we will increase the sales of our franchises as the U.S. housing recovery continues. We believe we are also well-positioned to further grow the number of our franchises outside the U.S. and Canada, where the growth potential for the RE/MAX brand is substantial, particularly in faster growing international markets. In 2012 and 2013, we expanded into several new markets outside of the U.S. and Canada, including China and Hong Kong in 2012 and South Korea in July 2013.	
 
 	•	 	We intend to continue to focus on recruitment and retention of agents, as each incremental agent leverages our existing infrastructure allowing us to drive additional revenue at little incremental cost.	

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Reacquire Independent RE/MAX Regional Franchises . We intend to continue to pursue reacquisitions of the regional RE/MAX franchise rights in a number of Independent Regions in the U.S. and Canada. The reacquisition of a regional franchise substantially increases our revenue per agent and provides an opportunity for us to drive enhanced profitability, as we receive a higher amount of revenue per agent in our Company-owned Regions than in our Independent Regions. For example, we can establish operational efficiencies and improvements in financial performance of a reacquired region by leveraging our existing infrastructure and experience.

We currently franchise directly in Company-owned Regions representing 46% of our agents in the U.S. and Canada combined, while the remaining 54% of our U.S. and Canada combined agent count operate in 22 Independent Regions. We intend to use a portion of the proceeds of this offering to acquire the Central Atlantic and Southwest regional franchises in the U.S., which had an aggregate of 5,821 agents as of July 31, 2013. These acquisitions will increase our Company-owned Regions to approximately 54% of our U.S. and Canada agent count and 12 out of 32 regions in the U.S. and Canada.
Franchise and Agent Fee Increases. Given the low fixed infrastructure cost of our franchise model, modest increases in aggregate fees per agent have a significant impact on our profitability. We are pursuing opportunities to increase our aggregate fees per agent over time in order to improve our results of operations.
Summary of Risk Factors
We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider the following risks, including the risks discussed in “Risk Factors,” before buying shares of our Class A common stock.
 
 	•	 	The residential real estate market is cyclical and we are negatively impacted by downturns in this market and general global economic conditions.	
 
 	•	 	The 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.	
 
 	•	 	We may fail to successfully execute our strategies to grow our business, including growing our agent count.	

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 	•	 	Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to grow our business, particularly in new markets where we have limited brand recognition.	
 
 	•	 	Loss or attrition among our senior management, including our Chief Executive Officer and our Chairman and Co-Founder, could adversely affect our operations.	
 
 	•	 	Competition in the residential real estate business is intense and may adversely affect our financial performance.	
 
 	•	 	The failure to attract and retain highly qualified franchisees could compromise our ability to pursue our growth strategy.	
 
 	•	 	Our financial results are affected directly by the operating results of franchisees and agents, over whom we may not have direct control.	
 
 	•	 	Our franchisees and agents could take actions that could harm our business.	
 
 	•	 	We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business and financial condition.	
Corporate Information
RE/MAX Holdings, Inc., the issuer of Class A common stock in this offering, is a Delaware corporation. Our principal executive offices are located at 5075 South Syracuse Street, Denver, Colorado 80237. Our telephone number is (303) 770-5531. Our website is www.remax.com. Our website is provided as an inactive textual reference. The contents of our website are not incorporated by reference herein or otherwise a part of this prospectus.
Organizational Structure and Reorganization
Immediately following this offering and the related Reorganization Transactions, the holders of our Class A common stock will collectively own 100% of the economic interests in RE/MAX Holdings, Inc. and have     % of the voting power of RE/MAX Holdings, Inc. RIHI and Weston Presidio will have the remaining     % and     %, respectively, of the voting power of RE/MAX Holdings, Inc. through ownership of 100% of the outstanding shares of our Class B common stock.
We will be a holding company and our sole asset will be approximately     % of the common units in RMCO. Our existing owners, RIHI and Weston Presidio, will own the remaining     % and     %, respectively, of the common units in RMCO, each of which will be redeemable at the holder’s election for, at our option, newly issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of our common stock. Our only business will be acting as the sole manager of RMCO and, in that capacity, we will operate and control all of the business and affairs of RMCO and we will consolidate the financial results of RMCO and its subsidiaries.
We intend to use approximately $27.3 million of the net proceeds of this offering to reacquire regional RE/MAX franchise rights in the Southwest and Central Atlantic regions of the U.S. through the acquisition of the business assets of HBN, Inc. (“HBN”) and Tails, Inc. (“Tails”). See “Use of Proceeds” and “Certain Relationships and Related Party Transactions—Managed Region Acquisitions.” Following our acquisition of the business assets of HBN and Tails, we will contribute such assets to RMCO in exchange for a number of newly issued common units of RMCO worth approximately $27.3 million. We intend to use the remainder of the net proceeds of this offering to purchase newly issued common units of RMCO from RMCO.

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RMCO will use a portion of the net proceeds it receives from us to first redeem all of the outstanding preferred membership units in RMCO held by Weston Presidio and to satisfy a $                 liquidation preference associated with those preferred membership units. Following RMCO’s redemption of all of the outstanding preferred membership units in RMCO from Weston Presidio, RMCO will use the remaining net proceeds of this offering to redeem common units of RMCO from our existing owners, RIHI and Weston Presidio, on a pro-rata basis.
The diagram below depicts our organizational structure immediately after this offering and the related Reorganization Transactions.

 

(1)	Weston Presidio is a Delaware limited partnership.	
(2)	RIHI is a Delaware corporation that is majority owned and controlled by Dave Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder. Margaret Kelly, our Chief Executive Officer and a director, Vincent Tracey, our President and a director, and Daryl Jesperson, a director, hold minority ownership interests in RIHI.	
(3)	Weston Presidio will have     % of the voting power of RE/MAX Holdings, Inc. through its ownership of                 shares of Class B common stock of RE/MAX Holdings, Inc. (or     % if the underwriters exercise their over-allotment option in full).	
(4)	RIHI will have     % of the voting power of RE/MAX Holdings, Inc. through its ownership of shares of Class B common stock of RE/MAX Holdings, Inc. (or     % if the underwriters exercise their over-allotment option in full).	

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(5)	Public investors holding 100% of the shares of Class A common stock of RE/MAX Holdings, Inc. will collectively own 100% of the initial economic interests in RE/MAX Holdings, Inc. and have     % of the voting power of RE/MAX Holdings, Inc. (or     % of the voting power if the underwriters exercise their over-allotment option in full). Immediately following the offering,                 shares of Class A common stock will be reserved for issuance to our employees, directors and consultants and to employees, directors and consultants of any affiliated entity, including RMCO under the RE/MAX Holdings, Inc. 2013 Omnibus Incentive Plan (the “2013 Stock Incentive Plan”), a stock incentive plan that we intend to adopt in connection with this offering.	
(6)	RE/MAX Holdings, Inc. is a Delaware corporation.	
(7)	Weston Presidio will hold                  common units in RMCO, representing     % of the total number of common units in RMCO that will be outstanding immediately after the offering (or     % if the underwriters exercise their over-allotment option in full). Each common unit held by Weston Presidio will be redeemable, at the election of Weston Presidio, for, at RE/MAX Holdings, Inc.’s option, newly issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of Class A common stock (subject to customary adjustments, including conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends and reclassifications). If, immediately after this offering, Weston Presidio had all of its common units in RMCO redeemed for newly issued shares of Class A common stock, Weston Presidio would own approximately     % shares of our Class A common stock (or     % if the underwriters exercise their over-allotment option in full).	
(8)	RIHI will hold                 common units in RMCO, representing     % of the total number of common units in RMCO that will be outstanding immediately after the offering (or     % if the underwriters exercise their over-allotment option in full). Each common unit held by RIHI will be redeemable, at the election of RIHI, for, at RE/MAX Holdings, Inc.’s option, newly issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of Class A common stock (subject to customary adjustments, including conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends and reclassifications). If, immediately after this offering, RIHI had all of its common units in RMCO redeemed for newly issued shares of Class A common stock, RIHI would own approximately     % shares of our Class A common stock (or     % if the underwriters exercise their over-allotment option in full).	
(9)	RE/MAX Holdings, Inc. will be the managing member of RMCO and will hold                 common units in RMCO, representing     % of the total number of common units in RMCO that will be outstanding immediately after the offering (or     % if the underwriters exercise their over-allotment option in full). If, immediately after this offering, Weston Presidio had all of its common units in RMCO redeemed for newly issued shares of Class A common stock, RE/MAX Holdings, Inc. would own     % of the common units in RMCO (or     % if the underwriters exercise their over-allotment option in full). If, immediately after this offering, RIHI had all of its common units in RMCO redeemed for newly issued shares of Class A common stock, RE/MAX Holdings, Inc. would own     % of the common units in RMCO (or     % if the underwriters exercise their over-allotment option in full).	
(10)	RMCO is a Delaware limited liability company.	
(11)	RE/MAX conducts its business activities through its various domestic and international operating subsidiaries.	
For more information regarding our historical organizational structure and the Reorganization Transactions that will occur in connection with the completion of this offering, see “Organizational Structure and Reorganization.”
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth

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companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.
Under the JOBS Act, we will remain an “emerging growth company” until the earliest of:
 
 	•	 	the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;	
 
 	•	 	the last day of the fiscal year following the fifth anniversary of the completion of this offering;	
 
 	•	 	the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and	
 
 	•	 	the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (we will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in market value of outstanding common equity held by our non-affiliates, as measured on the last day of our second fiscal quarter of the previous fiscal year, (ii) been public for at least 12 months and (iii) filed at least one annual report under the Exchange Act).	
The JOBS Act also provides that an “emerging growth company” can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, or the Securities Act, for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.” Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

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THE OFFERING
 
Class A common stock offered by us	                shares.	
 
Option to purchase additional shares	If the underwriters sell more shares than the total number set forth above, the underwriters have an option to buy up to an additional                 shares from us to cover such sales. They may exercise that option for 30 days.	
 
Class A common stock to be outstanding after this offering	                shares (or                 shares if all outstanding RMCO common units held by our existing owners were redeemed for newly issued shares of Class A common stock on a one-for-one basis).	
 
Class B common stock to be outstanding after this offering	                shares.	
 
Voting power held by holders of Class A common stock after giving effect to this offering	    % (or     % if all outstanding RMCO common units held by our existing owners were redeemed for newly issued shares of Class A common stock on a one-for-one basis).	
 
Voting power held by holders of Class B common stock after giving effect to this offering	    % (or 0% if all outstanding RMCO common units held by our existing owners were redeemed for newly issued shares of Class A common stock on a one-for-one basis).	
 
Use of proceeds	The net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), assuming an initial public offering price of $         per share of Class A common stock (the midpoint of the price range set forth on the cover of this prospectus).	
 
 	We intend to use approximately $27.3 million of the net proceeds of this offering to reacquire regional RE/MAX franchise rights in the Southwest and Central Atlantic regions of the U.S. through the acquisition of the business assets of HBN and Tails. Following our acquisition of the business assets of HBN and Tails, we will contribute such assets to RMCO in exchange for a number of newly issued common units of RMCO worth approximately $27.3 million, at a price per common unit equal to the public offering price per share of our Class A common stock, less underwriting discounts. See “Use of Proceeds” and “Certain Relationships and Related Party Transactions—Managed Region Acquisitions.”	
We intend to use all of the remaining net proceeds of this offering (including net proceeds received if the underwriters exercise their option to purchase additional shares of Class A common stock) to

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purchase newly issued common units of RMCO from RMCO at a price per common unit equal to the public offering price per share of our Class A common stock, less underwriting discounts. RMCO will use a portion of the net proceeds it receives from us to first redeem all of the outstanding preferred membership units in RMCO held by Weston Presidio and to satisfy the $         million liquidation preference associated with those preferred membership units. Following RMCO’s redemption of all of the outstanding preferred membership units in RMCO from Weston Presidio, RMCO will use $         million, which represents the remaining net proceeds of this offering (or $         million if the underwriters exercise in full their option to purchase additional shares of our Class A common stock), to redeem common units of RMCO from our existing owners, RIHI and Weston Presidio, on a pro-rata basis. The price per common unit of RMCO paid by RMCO to our existing owners will equal the public offering price per share of our Class A common stock, less underwriting discounts. See “Organizational Structure and Reorganization—Reorganization Transactions” and “Use of Proceeds.”
 
Principal stockholders	Upon completion of this offering, RIHI will own                 shares, or     %, of our outstanding Class B common stock, representing     % of the voting power of our common stock. Weston Presidio will own             shares, or     %, of our outstanding Class B common stock, representing     % of the voting power of our common stock.	
 
Voting rights	Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders.	
 
 	The shares of Class B common stock have no economic rights but entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes on matters presented to stockholders of RE/MAX Holdings, Inc. that is equal to two times the aggregate number of common units of RMCO held by such holder. See “Description of Capital Stock—Common Stock—Class B Common Stock.”	
 
 	Holders of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.	
 
Dividend policy	We currently intend to declare                 dividends of approximately $         per share of Class A common stock after the completion of this offering. We currently expect the first                 dividend will be paid after completion of the             of             . We expect that any dividends we declare will be funded by proportionate distributions by RMCO to us, Weston Presidio and RIHI in accordance with respective ownership percentages of common units. Whether we will declare such dividends, however, and their timing and amount, will be	

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 	subject to approval and declaration by our board of directors and will depend on a variety of factors, including our financial results, cash requirements and financial condition, our ability to pay dividends under our debt financing agreements and any other applicable contracts, and other factors deemed relevant by our board of directors.	
 
 	Because we are a holding company, our cash flow and ability to pay dividends are dependent upon the financial results and cash flows of our operating subsidiaries and the distribution or other payment of cash to us in the form of dividends or otherwise.	
 
Redemption rights of holders of common units	Each common unit in RMCO held by our existing owners (RIHI and Weston Presidio) may be redeemed at the election of the holder in exchange for, at our option, newly issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of our Class A common stock (subject to customary adjustments, including conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends and reclassifications). If, immediately following this offering, our existing owners had all of their common units in RMCO redeemed in exchange for newly issued shares of our Class A common stock, they would own an aggregate of approximately     % of all outstanding shares of our Class A common stock (or     % if the underwriters exercise their over-allotment option in full).	
 
Risk factors	See “Risk Factors” and the other information included in this prospectus for a discussion of the factors you should consider carefully before deciding to invest in our Class A common stock.	
 
Proposed NYSE trading symbol	“RMAX.”	
Unless otherwise indicated, the information in this prospectus assumes that:
 
 	•	 	the Reorganization Transactions have occurred; and	
 
 	•	 	our amended and restated certificate of incorporation and amended and restated bylaws were adopted in connection with the completion of this offering, pursuant to which our board of directors will be divided into three classes, and other provisions described under “Description of Capital Stock” will become operative.	
In this prospectus, unless otherwise indicated, the number of shares of our Class A common stock to be outstanding after this offering and other information based thereon excludes:
 
 	•	 	                shares of our Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares;	
 
 	•	 	                shares of our Class A common stock issuable upon the exercise of currently exercisable options (upon substitution of options to acquire our Class A common stock for currently outstanding RMCO unit options), at a weighted average exercise price of $         per share (see “Executive Compensation—Equity Grants in Conjunction with this Offering”);	

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 	•	 	                shares of our Class A common stock that will underlie awards we expect to grant under the 2013 Stock Incentive Plan in connection with the completion of this offering. See “Executive Compensation—Equity Grants in Conjunction with this Offering”;	
 
 	•	 	                shares of our Class A common stock reserved for future grants under the 2013 Stock Incentive Plan. See “Executive Compensation—Employee Benefit and Stock Plans—2013 Stock Incentive Plan”; or	
 
 	•	 	                shares of our Class A common stock issuable upon redemption of                 common units of RMCO (or, if the underwriters exercise in full their option to purchase additional shares of Class A common stock,                 shares of Class A common stock issuable upon redemption of common units of RMCO) that will be held by our existing owners immediately following this offering.	

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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents our summary historical consolidated financial data and operating statistics. The consolidated statement of operations data for the years ended December 31, 2010, 2011, and 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2012 and 2013 and the consolidated balance sheet data as of June 30, 2013 have been prepared on the same basis as the audited consolidated financial statements and have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations as of the dates and for the periods indicated.
The summary historical consolidated financial data and operating statistics presented below should be read in conjunction with “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period. RMCO will be considered the predecessor of RE/MAX Holdings, Inc. for accounting purposes and the consolidated financial statements of RMCO will be the historical financial statements of RE/MAX Holdings, Inc. following this offering.
The summarized unaudited pro forma condensed consolidated financial data as of June 30, 2013 and for the year ended December 31, 2012 and six months ended June 30, 2013 have been prepared to give pro forma effect to the Reorganization Transactions described in “Organizational Structure and Reorganization”, the acquisition of certain assets of RE/MAX of Texas, the sale of shares in this offering, the reacquisition of regional franchise rights in the Southwest and Central Atlantic regions in the U.S. and the application of the net proceeds from this offering, as if they had been completed as of January 1, 2012 with respect to the pro forma consolidated statement of operations data and June 30, 2013 with respect to the pro forma balance sheet data. This data is subject, and gives effect, to the assumptions and adjustments described in the notes accompanying the unaudited pro forma condensed consolidated financial information included elsewhere in this prospectus. The summary unaudited pro forma condensed consolidated financial data is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the Reorganization Transactions, the acquisition of certain assets of RE/MAX of Texas, the reacquisition of regional franchise rights in the Southwest and Central Atlantic regions in the U.S. and this offering been consummated on the dates indicated, and do not purport to be indicative of statements of financial condition data or results of operations as of any future date or for any future period.

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 	 	Years Ended December 31,	 	 	Pro Forma	 	 	Six Months Ended
June 30,	 	 	Pro Forma	 	
 	 			 	Year Ended
December 31,
2012	 	 			 	Six
Months
Ended
June 30,
2013	 	
 	 	2010	 	 	2011	 	 	2012	 	 			 	2012	 	 	2013	 	 			
 	 	 	 	 	 	 	 	 	 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	
 	 	(in thousands, except agent data)	 	
Consolidated Statement of Operations Data:	 				 				 				 				 				 				 				
Revenue:	 				 				 				 				 				 				 				
Continuing franchise fees	 	$	60,865	  	 	$	57,200	  	 	$	56,350	  	 	$	            	  	 	$	27,875	  	 	$	30,944	  	 	$	            	  	
Annual dues	 	 	30,472	  	 	 	28,922	  	 	 	28,909	  	 				 	 	14,168	  	 	 	14,597	  	 				
Broker fees	 	 	16,021	  	 	 	16,764	  	 	 	19,579	  	 				 	 	9,116	  	 	 	11,500	  	 				
Franchise sales and other franchise revenue	 	 	15,709	  	 	 	19,354	  	 	 	22,629	  	 				 	 	11,000	  	 	 	12,747	  	 				
Brokerage revenue	 	 	17,150	  	 	 	16,062	  	 	 	16,210	  	 				 	 	8,009	  	 	 	8,528	  	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	$	140,217	  	 	$	138,302	  	 	$	143,677	  	 	$	 	  	 	$	70,168	  	 	$	78,316	  	 	$	 	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 				 				 				 				 				 				 				
Selling, operating and administrative expenses	 	 	81,353	  	 	 	85,291	  	 	 	84,337	  	 				 	 	43,214	  	 	 	47,983	  	 				
Depreciation and amortization	 	 	16,735	  	 	 	14,473	  	 	 	12,090	  	 				 	 	6,443	  	 	 	7,432	  	 				
Loss (gain) on sale of assets, net	 	 	3,719	  	 	 	67	  	 	 	1,704	  	 				 	 	(18	) 	 	 	44	  	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	101,807	  	 	 	99,831	  	 	 	98,131	  	 				 	 	49,639	  	 	 	55,459	  	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	38,410	  	 	 	38,471	  	 	 	45,546	  	 				 	 	20,529	  	 	 	22,857	  	 				
Other income (expenses):	 				 				 				 				 				 				 				
Interest expense	 	 	(22,295	) 	 	 	(12,203	) 	 	 	(11,686	) 	 				 	 	(5,861	) 	 	 	(6,925	) 	 				
Interest income	 	 	538	  	 	 	372	  	 	 	286	  	 				 	 	129	  	 	 	142	  	 				
Foreign currency transaction gains (losses) net	 	 	167	  	 	 	(266	) 	 	 	208	  	 				 	 	(36	) 	 	 	(416	) 	 				
Loss on early extinguishment of debt	 	 	(18,161	) 	 	 	(384	) 	 	 	(136	) 	 				 	 	(136	) 	 	 	(134	) 	 				
Equity in earnings of investees	 	 	643	  	 	 	431	  	 	 	1,244	  	 				 	 	314	  	 	 	462	  	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expenses), net	 	 	(39,108	) 	 	 	(12,050	) 	 	 	(10,084	) 	 				 	 	(5,590	) 	 	 	(6,871	) 	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss (income) before provision for income taxes	 	 	(698	) 	 	 	26,421	  	 	 	35,462	  	 				 	 	14,939	  	 	 	15,986	  	 				
Provision for income taxes	 	 	(2,049	) 	 	 	(2,172	) 	 	 	(2,138	) 	 				 	 	(1,104	) 	 	 	(1,031	) 	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income	 	 	(2,747	) 	 	 	24,249	  	 	 	33,324	  	 				 	 	13,835	  	 	 	14,955	  	 				
Net loss attributable to noncontrolling interests	 	 	10,059	  	 	 	—  	  	 	 	—  	  	 				 	 	—  	  	 	 	—  	  	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to controlling interests	 	 	7,312	  	 	 	24,249	  	 	 	33,324	  	 				 	 	13,835	  	 	 	14,955	  	 				
Accretion of Class A Preferred Units to estimated redemption amounts	 	 	23,453	  	 	 	10,307	  	 	 	15,288	  	 				 	 	6,831	  	 	 	79,672	  	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income related to common stockholders/unitholders	 	$	(16,141	) 	 	$	13,942	  	 	$	18,036	  	 	$	 	  	 	$	7,004	  	 	$	(64,717	) 	 	$	 	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income per share:	 				 				 				 				 				 				 				
Basic	 				 				 				 	$	 	  	 				 				 	$	 	  	
Diluted	 				 				 				 	$	 	  	 				 				 	$	 	  	
Weighted average shares outstanding:	 				 				 				 				 				 				 				
Basic	 				 				 				 				 				 				 				
Diluted	 				 				 				 				 				 				 				
Other data:	 				 				 				 				 				 				 				
Adjusted EBITDA(1)	 	$	62,368	  	 	$	59,281	  	 	$	66,744	  	 				 	$	29,405	  	 	$	36,700	  	 				
Agent count at period end	 	 	89,628	  	 	 	87,476	  	 	 	89,008	  	 				 	 	88,487	  	 	 	91,809	  	 				

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 	  	As of June 30, 2013	 	
 	  	Actual	 	 	Pro Forma As
Adjusted(2)	 	
 	  	(unaudited)	 	 	(unaudited)	 	
Consolidated Balance Sheet Data:	  				 				
Cash and cash equivalents	  	$	58,582	  	 	$	                  	  	
Franchise agreements, net	  	 	72,406	  	 				
Goodwill	  	 	70,817	  	 				
Total assets	  	 	238,070	  	 				
Long-term debt, including current portion	  	 	223,230	  	 				
Redeemable preferred units	  	 	145,400	  	 				
Total members’ deficit	  	 	(169,094	) 	 				

(1)	A reconciliation of Adjusted EBITDA to net income (loss) under accounting principles generally accepted in the U.S. (“GAAP”) is set forth below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”	
We define Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes, adjusted for the impact of certain items that we do not consider representative of our ongoing operating performance. Because Adjusted EBITDA omits certain non-cash items and other infrequent cash charges, we believe that it is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and other infrequent cash charges and is more reflective of other factors that affect our operating performance. We present Adjusted EBITDA because we believe it is useful as a supplemental measure in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. Our management uses Adjusted EBITDA as a factor in evaluating the performance of our business. Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) or other statement of operations data prepared in accordance with GAAP.
Adjusted EBITDA includes adjustments to consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes, for (gain) loss on sale of assets and sublease, loss on extinguishment of debt, stock based compensation, deferred rent adjustments, salaries paid to Dave and Gail Liniger that we will not continue to pay following the consummation of this offering, expenses incurred in connection with this offering and acquisition transaction costs.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider Adjusted EBITDA either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:
 
 	•	 	this measure does not reflect changes in, or cash requirement for, our working capital needs;	
 
 	•	 	this measure does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our debt;	
 
 	•	 	this measure does not reflect our income tax expense or the cash requirements to pay our taxes;	
 
 	•	 	this measure does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;	
 
 	•	 	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements; and	
 
 	•	 	other companies may calculate this measure differently so they may not be comparable.	

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(2)	Pro Forma as Adjusted amounts give effect to: (i) the Reorganization Transactions, including the substitution of outstanding options under the 2011 Unit Option Plan; (ii) this offering and the use of a portion of the proceeds as described in “Use of Proceeds”, including the reacquisition of regional franchise rights in the Southwest and Central Atlantic regions in the U.S.; (iii) the tax receivable agreements we will enter into with the existing owners; and (iv) the awards we expect to grant under the 2013 Stock Incentive Plan at the time of this offering.	

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 RISK FACTORS
The purchase of our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the risks described elsewhere in this prospectus, including our consolidated financial statements and the related notes, before making a decision to invest in our Class A common stock. If any of these risks actually occur, our business, financial condition, operating results, cash flow and prospects may be materially and adversely affected. As a result, the trading price of our Class A common stock could decline and you could lose some or all of your investment.
Risks Related to Our Business and Industry
The residential real estate market is cyclical and we are negatively impacted by downturns in this market and general global economic conditions.
The residential real estate market tends to be cyclical and typically is affected by changes in general 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 condition of the U.S. and the global economy. The residential 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 residential real estate market, which in turn could materially and adversely affect our business, financial condition and results of operations.
For example, the U.S. residential real estate market has only recently shown signs of recovery after having been in a significant and prolonged downturn, which began in the second half of 2005. Due to the cyclicality of the real estate market, we cannot predict whether the recovery will continue or if and when the market and related economic forces will return the U.S. residential real estate industry to a period of sustained growth. If the residential real estate market or the economy as a whole does not improve, we may experience adverse effects on our business, financial condition and liquidity, including our ability to access capital and grow our business.
Any of the following could be associated with cyclicality in the housing market by halting or limiting a recovery in the housing market, and have a material adverse effect on our business by causing periods of lower growth or a decline in the number of home sales and/or home prices which, in turn, could adversely affect our revenue and profitability:
 
 	•	 	continued high unemployment;	
 
 	•	 	a period of slow economic growth or recessionary conditions;	
 
 	•	 	weak credit markets;	
 
 	•	 	a low level of consumer confidence in the economy and/or the residential real estate market;	
 
 	•	 	instability of financial institutions;	
 
 	•	 	legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to potential reform relating to Fannie Mae, Freddie Mac and other government sponsored entities (“GSEs”) that provide liquidity to the U.S. housing and mortgage markets;	
 
 	•	 	increasing mortgage rates and down payment requirements and/or constraints on the availability of mortgage financing, including but not limited to the potential impact of various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) or other legislation and regulations that may be promulgated thereunder relating to mortgage financing, including restrictions imposed on mortgage originators as well as retention levels required to be maintained by sponsors to securitize certain mortgages;	
 
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 	•	 	excessive or insufficient regional home inventory levels;	
 
 	•	 	renewed high levels of foreclosure activity, including but not limited to the release of homes already held for sale by financial institutions;	
 
 	•	 	adverse changes in local or regional economic conditions;	
 
 	•	 	the inability or unwillingness of homeowners to enter into home sale transactions due to negative equity in their existing homes;	
 
 	•	 	a decrease in the affordability of homes;	
 
 	•	 	local, state and federal government laws or regulations that burden residential real estate transactions or ownership, including but not limited to changes in the tax laws, such as potential limits on, or elimination of, the deductibility of certain mortgage interest expense, the application of the alternative minimum tax, and real property taxes and employee relocation expense;	
 
 	•	 	decreasing home ownership rates, declining demand for real estate and changing social attitudes toward home ownership; and/or	
 
 	•	 	acts of God, such as hurricanes, earthquakes and other natural disasters that disrupt local or regional real estate markets.	
The failure of the U.S. residential real estate market recovery to be sustained or a prolonged decline in the number of home sales and/or home sale prices could adversely affect our revenue and profitability.
The U.S. residential real estate market has recently shown signs of recovery after having been in a significant and prolonged downturn, which began in the second half of 2005. However, we do not know if this recovery will continue in the future or if and when the market and related economic forces will return the U.S. residential real estate industry to a period of sustained growth. A lack of a continued recovery or a prolonged decline in existing home sales, a decline in home sale prices or a decline in commission rates charged by our franchisees/brokers could adversely affect our results of operations by reducing the ongoing monthly fees we receive from our franchisees and our company owned brokerages and reduce the management fees charged by our company owned brokerages.
The 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 for homebuyers, which may be affected by government regulations and policies. Certain potential reforms such as the U.S. federal government’s conservatorship of Fannie Mae and Freddie Mac, proposals to reform the U.S. housing market, attempts to increase loan modifications for homeowners with negative equity, monetary policy of the U.S. government, any rising interest rate environment and the Dodd-Frank Act may adversely impact the housing industry, including homebuyers’ ability to finance and purchase homes.
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 affects the domestic real estate market. Policies of the Federal Reserve Board can affect interest rates available to potential homebuyers. Further, we are affected by any rising interest rate environment. 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 on reasonable terms for homebuyers, which could have a material adverse effect on our business, results of operations and financial condition. Additionally, the possibility of the elimination of the mortgage interest deduction could have an adverse effect on the housing market by reducing incentives for buying or refinancing homes and negatively affecting property values.
 
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In addition, the reduction in government support for housing finance, including the winding down of Fannie Mae and Freddie Mac, further reduces the availability of financing for homebuyers in the U.S. residential real estate market. In connection with the U.S. federal government’s conservatorship of Fannie Mae and Freddie Mac, it has provided billions of dollars of funding to these entities in the form of preferred stock investments to backstop shortfalls in their capital requirements. The U.S. Treasury announced that it would accelerate the winding down of these entities, but no consensus has emerged in Congress concerning a successor, if any. Given the current uncertainty with respect to the current and further potential reforms relating to Fannie Mae and Freddie Mac, we cannot predict either the short or long term effects of such regulation and its impact on homebuyers’ ability to finance and purchase homes. In an effort to assist recovery of the housing market, the U.S. government has also attempted to increase loan modifications for homeowners with negative equity, but there can be no assurance that such measures will be effective.
Furthermore, during the past several years, many lenders have significantly tightened their underwriting standards, and many subprime and other alternative mortgage products are no longer being made available in the marketplace. If these trends continue and mortgage loans continue to be difficult to obtain, including in the jumbo mortgage markets, the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes will be adversely affected, which will adversely affect our operating results.
The Dodd-Frank Act, which was passed to more closely regulate the financial services industry, created an independent federal bureau of consumer financial protection, which enforces consumer protection laws, including mortgage finance. The Dodd-Frank Act also established new standards and practices for mortgage originators, including determining a prospective borrower’s ability to repay their mortgage, removing incentives for higher cost mortgages, prohibiting prepayment penalties for non-qualified mortgages, prohibiting mandatory arbitration clauses, requiring additional disclosures to potential borrowers and restricting the fees that mortgage originators may collect. In addition, the Dodd-Frank Act contained provisions that require GSEs, including Fannie Mae and Freddie Mac, to retain an interest in the credit risk arising from the assets they securitize. This may serve to reduce GSEs’ interest in or demand for mortgage loans, which could have a material adverse effect on the mortgage industry, which may reduce the availability of mortgages to certain borrowers.
While we are continuing to evaluate all aspects of the current state of legislation, regulations and policies affecting the domestic real estate market, we cannot predict whether or not such legislation, regulation and policies may result in increased down payment requirements, increased mortgage costs, and result in increased costs and potential litigation for housing market participants, any of which could have a material adverse effect on our financial condition and results of operations.
We may fail to successfully execute our strategies to grow our business, including increasing our agent count, expanding our network of franchises and agents, pursuing reacquisitions of the regional franchise rights in a number of RE/MAX regions in the U.S. and Canada and increasing franchise and agent fees, or we may fail to manage our growth effectively, which could have a material adverse effect on our brand, our financial performance and results of operations.
We intend to pursue a number of different strategies to grow our revenue and earnings. However, we may not be able to successfully execute these strategies. We intend to pursue a strategy of increasing our agent count in correlation to overall transaction activity. Based on our experience, we believe strengthening market conditions in the U.S. will enable us to sell more franchises and recruit and retain higher numbers of agents, increasing our revenue and profitability. As the housing market recovery continues, we expect the growth in our agent count to continue. However, competition for qualified and effective agents is intense, and we may be unable to recruit and retain enough qualified and effective agents to satisfy our growth strategies.
An additional key growth strategy is to expand our network of franchises and agents in the U.S., Canada and globally. However, we may face many challenges in adding franchises and attracting agents in new markets, such as:
 
 	•	 	selection and availability of suitable markets;	
 
 	•	 	finding franchisees in these markets that are interested in opening franchises on terms that are favorable to us;	
 
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 	•	 	significant competition in new markets;	
 
 	•	 	increasing our local brand awareness in new markets;	
 
 	•	 	employment and training of qualified local agents;	
 
 	•	 	impact of inclement weather, natural disasters and other acts of nature; and	
 
 	•	 	general economic and business conditions.	
We are also pursuing a key growth strategy of reacquiring select RE/MAX regional franchises in the U.S. and Canada. The reacquisition of a regional franchise increases our revenue and provides an opportunity for us to drive enhanced profitability. This growth strategy depends on our ability to find franchisees willing to sell their regions on favorable terms and to finance and complete these transactions. In addition, we may encounter higher than expected integration costs associated with the reacquisitions of Independent Regions.
Integrating acquired regions involves complex operational and personnel-related challenges. Future acquisitions may present similar challenges and difficulties, including:
 
 	•	 	the possible departure of a significant number of key employees;	
 
 	•	 	the possible defection of franchisees and agents to other brands or independent real estate companies;	
 
 	•	 	the disruption of our respective ongoing business;	
 
 	•	 	possible inconsistencies in standards, controls, procedures and policies, including accounting controls and procedures;	
 
 	•	 	the failure to maintain important business relationships and contracts of the selling region;	
 
 	•	 	impairment of acquired assets;	
 
 	•	 	unanticipated expenses related to integration; and	
 
 	•	 	potential unknown liabilities associated with acquired businesses.	
A prolonged diversion of management’s attention and any delays or difficulties encountered in connection with the integration of any acquired region or region that we may acquire in the future could prevent us from realizing the anticipated cost savings and revenue growth from our acquisitions.
An additional key growth strategy is to pursue opportunities to increase our aggregate fees per agent over time. We may fail to pursue any such opportunities effectively or in a timely manner. If that occurs, we may not be able to realize any improved profitability from any increases in aggregate fees per agent.
With the anticipated recovery of the U.S. housing market, it is our objective to enter into another period of renewed growth in our business. If we do not effectively manage our growth, the maintenance of our brand equity could suffer. In order to successfully expand our business, we must effectively recruit, develop and motivate new franchisees, and we must maintain the beneficial aspects of our corporate culture. We may not be able to hire new employees and our franchisees may not be able to recruit new agents necessary to manage our growth quickly enough to meet our needs. If we fail to effectively manage our hiring needs and successfully develop our franchisees, our franchisee and employee morale, productivity and retention could suffer, and our brand and results of operations could be harmed. We also need to continue to improve our existing systems for operational and financial management, including our reporting systems, procedures and controls. See “—We plan to implement a new information technology infrastructure for certain key aspects of our operations, which may be more costly than anticipated or take more time to complete and integrate than we expect, which could distract our management from our business and have an adverse impact on our results of operations.” These improvements could require significant capital expenditures and place increasing demands on our management. We may not be successful in managing or expanding our operations or in maintaining adequate financial and operating systems and controls. If we do not successfully manage these processes, our brand and results of operations could be adversely affected.
 
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The failure to attract and retain highly qualified franchisees could compromise our ability to pursue our growth strategy.
Our most important asset is our people, and the success of our franchisees depends largely on the efforts and abilities of franchisees and their agents, which are subject to numerous factors, including the fees or sales commissions they receive, as applicable, and their perception of our brand value. If our franchisees do not continue to recognize or believe in the value proposition we offer with our brand, believe that our franchise fees are too high, or decide not to renew their franchise agreements with us for any other reason, our business may be materially adversely affected. Additionally, if our franchisees fail to attract and retain agents, they may fail to generate the revenue necessary to pay the contractual fees and dues owed to us.
Our financial results are affected by the ability of our franchisees to attract and retain agents.
Our financial results are heavily dependent upon the number of agents in our global network. The majority of our revenue is derived from recurring, contractual fees and dues paid by our agents and by our franchisees or regional franchise owners based on the number of agents within the franchisee’s or regional franchise owner’s network. If our franchisees are not able to attract and retain agents, our revenue may decline. In addition, our competitors may attempt to recruit the agents of our franchisees.
Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to grow our business, particularly in new markets where we have limited brand recognition.
We have developed a strong brand that we believe has contributed significantly to the success of our business. Maintaining, protecting and enhancing the “RE/MAX” brand is critical to growing our business, particularly in new markets where we have limited brand recognition. If we do not successfully build and maintain a strong brand, our business could be materially harmed. Maintaining and enhancing the quality of our brand may require us to make substantial investments in areas such as marketing, community relations, outreach and employee training. We actively engage in print and online advertisements, targeted promotional mailings and email communications, and engage on a regular basis in public relations and sponsorship activities. These investments may be substantial and may not ultimately be successful.
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 franchisees, our growth strategies or the ordinary course of our business or our franchisees’ 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 franchisees or their employees relating to health, safety, welfare or other matters; 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 us or others. Our brand value could diminish significantly if any such incidents or other matters erode consumer confidence in us, which may result in a decrease in our total agent count and, ultimately, lower continuing franchise fees and annual dues, which in turn would materially and adversely affect our business and operating results.
Competition in the residential real estate franchising business is intense and may adversely affect our financial performance.
We generally face strong competition in the residential real estate services business. As a real estate brokerage franchisor, one of our primary assets is our brand name. Upon the expiration of a franchise agreement, a franchisee may choose to renew their franchise with us, operate as an independent broker or to franchise with one of our competitors. Competing franchisors may offer franchises monthly ongoing fees that are lower than those we charge, or that are more attractive in particular market environments.
Further, our largest competitors in this industry in the U.S. and Canada include Realogy Holdings, Corp., which franchises the Coldwell Banker and Century 21 brands, among others, Berkshire Hathaway Home
 
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Services, which acquired Prudential Real Estate and Relocation Services in 2012, and operates the brand Real Living, Keller Williams Realty, Inc. and Royal LePage. Some of these companies may have greater financial resources and larger budgets than we do. To remain competitive in the sale of franchises and to retain our existing franchisees at the time of the renewal of their franchise agreements, we may have to reduce the cost of renewals and/or the ongoing monthly fees we charge our franchisees. Further, in certain areas, regional and local franchisors provide additional competitive pressure.
Our company owned brokerage business operates in the real estate brokerage business, which is highly competitive.
Our company owned brokerage business, like that of our franchisees, is generally subject to intense competition. We compete with other national and independent real estate organizations including our franchisees and those of other national real estate franchisors, franchisees of local and regional real estate franchisors, regional independent real estate organizations, discount brokerages, Internet-based brokerages and smaller niche companies competing in local areas. Competition is particularly intense in the densely populated metropolitan areas 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 as well as franchisees, as discussed further below. The ability of our company owned brokerage offices to retain agents is generally subject to numerous factors, including the sales commissions they receive and their perception of brand value.
Our franchisees or agents may become dissatisfied with their relationship with us.
Although we believe our relationship with our franchisees and agents is open and strong, the nature of such relationships can give rise to conflict. For example, franchisees or agents may become dissatisfied with the amount of contractual fees and dues owed under franchise or other applicable arrangements, particularly in the event that we decide to further increase fees and dues. They may disagree with certain network-wide policies and procedures, including policies such as those dictating brand standards, affecting their marketing efforts, or they may be disappointed with any national marketing campaigns designed to develop our brand. There are a variety of reasons why our franchisor franchisee relationship can give rise to conflict. If we experience any conflicts with our franchisees on a large scale, our franchisees may file lawsuits against us or they may seek to disaffiliate with us, which could also result in litigation. These events may, in turn, materially and adversely affect our business and operating results.
Regional master and broker franchisees, as independent business operators, may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under our franchise and other agreements. This may lead to disputes and we expect such disputes to occur from time to time in the future as we continue to offer franchises. To the extent we have such disputes, the attention of our management, regional master franchisees and broker franchisees will be diverted, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Our financial results are affected directly by the operating results of franchisees and agents, over whom we do not have direct control.
Our real estate franchises generate revenue in the form of monthly ongoing fees, including monthly management fees and broker service fees (which are tied to gross commissions) charged by our franchisees. Our agents pay us dues out of their income from real estate transactions. Accordingly, our financial results depend upon the operational and financial success of our franchisees and their agents, whom we do not control, particularly in Independent Regions where we exercise less control over franchisees than in Company-owned Regions. If industry trends or economic conditions are not sustained or do not continue to improve, our franchisees’ financial results may worsen and our revenue may decline. We may also have to terminate franchisees more frequently in the future due to non-reporting and non-payment. Further, if franchisees fail to renew their franchise agreements, or if we decide to restructure franchise agreements in order to induce
 
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franchisees to renew these agreements, then our revenue from ongoing monthly fees may decrease, and profitability from new franchisees may be lower than in the past due to reduced ongoing monthly fees and other non-standard incentives we may need to provide.
Our franchisees and agents could take actions that could harm our business.
Our regional franchisees and brokerages are independent businesses and the agents who work with our company owned brokerage operations are independent contractors, and, as such, neither are our employees, and we do not exercise control over their day-to-day operations. Broker franchisees may not operate real estate brokerage businesses in a manner consistent with industry standards, or may not attract and retain qualified independent contractor agents. If broker franchisees and agents were to provide diminished quality of service to customers, our image and reputation may suffer materially and adversely affect our results of operations.
Additionally, broker franchisees and agents may engage or be accused of engaging in unlawful or tortious acts such as violating the anti-discrimination requirements of the Fair Housing Act. Such acts or the accusation of such acts could harm our business and our brand, reputation and goodwill.
The failure of Independent Region owners to successfully develop or expand within their respective regions could adversely impact our revenue.
We have sold and continue to sell regional master franchises in certain regions in the U.S. and Canada as well as in our international locations outside of Canada. While in recent years, we have pursued a strategy to reacquire the regional franchise rights in a number of regions in the U.S., we still rely on independent regional master franchises in Independent Regions, and in all regions located outside the U.S. and Canada (except for Central America and the Caribbean). We derive only a limited portion of our revenue directly from master franchises. However, Independent Regions have the right to grant franchises within a particular region. The failure of any of these Independent Region owners to successfully develop or expand within their respective regions could result in the delay of the development of a particular region or an interruption in the operation of our brand in a particular market or markets. Any such delay or interruption would result in a delay in, or loss of, fee income to us, which would adversely impact our revenue, business and results of operations.
In addition, the termination of an agreement with a regional master franchisee could also result in the delay of the development of a franchised area, or an interruption in the operation of our brand in a particular market or markets, while we seek alternative methods to develop our franchises in the area. Such an event could result in lower revenue for us, which would adversely impact our business and results of operations.
We are subject to a variety of additional risks associated with our franchisees.
Our franchise system subjects us to a number of risks, any one of which may impact our ability to collect recurring, contractual fees and dues from our franchisees, may harm the goodwill associated with our brand, and/or may materially and adversely impact our business and results of operations.
Bankruptcy of U.S. Franchisees. A franchisee bankruptcy could have a substantial negative impact on our ability to collect fees and dues owed under such franchisee’s franchise arrangements. In a franchisee bankruptcy, the bankruptcy trustee may reject its franchise arrangements pursuant to Section 365 under the U.S. bankruptcy code, in which case there would be no further payments for fees and dues from such franchisee, and there can be no assurance as to the proceeds, if any, that may ultimately be recovered in a bankruptcy proceeding of such franchisee in connection with a damage claim resulting from such rejection.
Franchisee Insurance. The franchise arrangements require each franchisee to maintain certain insurance types and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits or the franchisee could lack the required insurance at the time the
 
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claim arises, in breach of the insurance requirement, and policy payments made to franchisees may not be made on a timely basis. Any such loss or delay in payment could have a material and adverse effect on a franchisee’s ability to satisfy its obligations under its franchise arrangement, including its ability to make payments for contractual fees and dues or to indemnify us.
Franchise Arrangement Termination; Nonrenewal. Each franchise arrangement is subject to termination by us as the franchisor in the event of a default, generally after expiration of applicable cure periods, although under certain circumstances a franchise arrangement may be terminated by us upon notice without an opportunity to cure. The default provisions under the franchise arrangements are drafted broadly and include, among other things, any failure to meet operating standards and actions that may threaten the licensed intellectual property.
In addition, each franchise agreement has an expiration date. Upon the expiration of the franchise arrangement, we or the franchisee may or may not elect to renew the franchise arrangement. If the franchisee arrangement is renewed, such renewal is generally contingent on the franchisee’s execution of the then-current form of franchise arrangement (which may include terms the franchisee deems to be more onerous than the prior franchise agreement), the satisfaction of certain conditions and the payment of a renewal fee. If a franchisee is unable or unwilling to satisfy any of the foregoing conditions, the expiring franchise arrangement will terminate upon expiration of the term of the franchise arrangement.
We may experience significant claims relating to our operations and losses resulting from fraud, defalcation, misconduct or negligence of our franchisees or agents.
Fraud, defalcation, misconduct and negligence by employees are risks inherent in our business. We may also from time to time be subject to liability claims based upon the fraud, misconduct or negligence of our franchisees and agents. To the extent that any loss or theft of funds substantially exceeds our insurance coverage, our business could be materially adversely affected.
In addition, we rely on the collection and use of personally identifiable information from consumers to conduct our business. We disclose our information collection and dissemination practices in a published privacy statement on our websites, which we may modify from time to time. We may be subject to legal claims, government action and damage to our reputation if we act or are perceived to be acting inconsistently with the terms of our privacy statement, consumer expectations, or the law. In the event we or the vendors with which we contract to provide services on behalf of our customers were to suffer a breach of personally identifiable information, our customers could terminate their business with us. Further, we may be subject to claims to the extent individual employees or independent contractors breach or fail to adhere to company policies and practices and such actions jeopardize any personally identifiable information.
The real estate brokerage business is highly regulated and any failure to comply with such regulations or any changes in such regulations could adversely affect our business.
Our company owned real estate brokerage business and the businesses of our franchisees are highly regulated and must comply with the requirements governing the licensing and conduct of real estate brokerage and brokerage-related businesses in the jurisdictions in which we and they do business. These laws and regulations contain general standards for and prohibitions on the conduct of real estate brokers and agents, including those relating to licensing of brokers and agents, fiduciary and agency duties, administration of trust funds, collection of commissions, advertising and consumer disclosures. Under state law, the franchisees and our real estate brokers have certain duties to supervise and are responsible for the conduct of their brokerage business.
Our company owned real estate brokerage business and the businesses of our franchisees (excluding commercial brokerage transactions) must comply with the Real Estate Settlement Procedures Act (“RESPA”). RESPA and comparable state statutes, among other things, restrict payments which real estate brokers, agents and other settlement service providers may receive for the referral of business to other settlement service
 
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providers in connection with the closing of real estate transactions. Such laws may to some extent restrict preferred vendor arrangements involving our franchisees and our company owned brokerage business. RESPA and similar state laws also require timely disclosure of certain relationships or financial interests that a broker has with providers of real estate settlement services. Pursuant to the Dodd-Frank Act, administration of RESPA has been moved from the Department of Housing and Urban Development (“HUD”) to the new Consumer Financial Protection Bureau (the “CFPB”) and it is possible that the practice of HUD taking very expansive readings of RESPA will continue or accelerate at the CFPB, which creates an increased regulatory risk.
There is a risk that we could be adversely affected by current laws, regulations or interpretations or that more restrictive laws, regulations or interpretations will be adopted in the future that could make compliance more difficult or expensive. There is also a risk that a change in current laws could adversely affect our business or our franchisees’ business.
Regulatory authorities also have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend our company owned brokerages or our franchisees from carrying on some or all of our activities or otherwise penalize them if their financial condition or our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could limit our ability to renew current franchisees or sign new franchisees or otherwise have a material adverse effect on our operations.
We are also, to a lesser extent, subject to various other rules and regulations such as:
 
 	•	 	the Gramm-Leach-Bliley Act which governs the disclosure and safeguarding of consumer financial information;	
 
 	•	 	various state and federal privacy laws protecting consumer data;	
 
 	•	 	the USA PATRIOT Act;	
 
 	•	 	restrictions on transactions with persons on the Specially Designated Nationals and Blocked Persons list promulgated by the Office of Foreign Assets Control of the Department of the Treasury;	
 
 	•	 	federal and state “Do Not Call,” “Do Not Fax,” and “Do Not E-Mail” laws;	
 
 	•	 	the Fair Housing Act;	
 
 	•	 	laws and regulations, including the Foreign Corrupt Practices Act, that impose sanctions on improper payments;	
 
 	•	 	laws and regulations in jurisdictions outside the U.S. in which we do business;	
 
 	•	 	state and federal employment laws and regulations, including any changes that would require classification of independent contractors to employee status, and wage and hour regulations;	
 
 	•	 	increases in state, local or federal taxes that could diminish profitability or liquidity; and	
 
 	•	 	consumer fraud statutes that are broadly written.	
Our failure to comply with any of the foregoing laws and regulations may subject us to fines, penalties, injunctions and/or potential criminal violations. Any changes to these laws or regulations or any new laws or regulations may make it more difficult for us to operate our business and may have a material adverse effect on our operations.
Our internal control over financial reporting may not be effective and, if required, our management and our independent registered public accounting firm may not be able to certify as to its effectiveness, which could have a significant and adverse effect on our business and reputation.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs
 
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to be re-evaluated frequently. Following the completion of this offering, we will be required to comply with Section 404 of the Sarbanes-Oxley Act and related rules and regulations. Pursuant to Section 404, beginning with our Annual Report on Form 10-K for the year ending December 31, 2014, our management will be required to report on, and, if we cease to be an “emerging growth company,” our independent registered public accounting firm will have to attest to the effectiveness of, our internal control over financial reporting.
We are currently in the process of reviewing, documenting and testing our internal control over financial reporting. We may need additional finance and accounting personnel with certain skill sets to assist us with the reporting requirements we will encounter as a public company and to support our anticipated growth. Additionally, we may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting, including but not limited to problems or delays resulting from our acquisitions. In addition, in connection with the attestation process by our independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. Implementing changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete.
Under rules of the Securities and Exchange Commission (the “SEC”), a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We cannot assure you that material weaknesses will not be identified in the future.
If material weaknesses or other deficiencies occur in the future, or if we fail to fully maintain effective internal controls in the future, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis, which could require a restatement, cause investors to lose confidence in our financial information or cause our stock price to decline.
Our franchising activities are subject to a variety of state and federal laws and regulations regarding franchises, and any failure to comply with such existing or future laws and regulations could adversely affect our business.
The sale of franchises is regulated by various state laws as well as by the Federal Trade Commission (the “FTC”). The FTC requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. A number of states require registration and/or disclosure in connection with franchise offers and sales. In addition, several states have “franchise relationship laws” or “business opportunity laws” that limit the ability of franchisors to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements. We believe that our franchising procedures, as well as any applicable state-specific procedures, comply in all material respects with both the FTC guidelines and all applicable state laws regulating franchising in those states in which we offer new franchise arrangements. However, noncompliance could reduce anticipated revenue, which in turn may materially and adversely affect our business and operating results.
Most of our domestic and international regional franchisees self-report their agent counts, agent commissions and fees due to us, and we have limited tools to validate or verify these reports and a few of our domestic and international master franchise agreements do not contain audit rights. If a material number of our regional master franchisees were to under report or erroneously report their agent counts, agent commissions or fees due to us, it could have a material adverse effect on our financial performance and results of operations.
Under our regional franchise agreements, our Independent Regions owners report the number of agents, monthly management fees and broker service fees received by the brokers from the agents and the monthly ongoing fees (continuing franchise fees and broker fees) payable to us by the brokers. Generally, our regional agreements provide that the regional franchisee provide us with certain financial reports, including reports that
 
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we may reasonably request from time to time. Additionally, most of these agreements also provide us with audit rights. For those agreements that do not, we may have limited methods of validating the monthly ongoing fees due to us from these regions and must rely on reports submitted by such regional franchisees and our internal protocols for verifying agent counts. If such regional franchisees were to under report or erroneously report these amounts payable, even if unintentionally, we may not receive all of the annual agent dues or monthly ongoing fees due to us. In addition, to the extent that we were underpaid, we may not have a definitive method for determining such underpayment. If a material number of our regional franchisees were to under report or erroneously report their agent counts, agent commissions or fees due to us, it could have a material adverse effect on our financial performance and results of operations.
We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business and financial condition.
We cannot predict with certainty the costs of defense, the costs of prosecution, insurance coverage or the ultimate outcome of litigation and other proceedings filed by or against us, including remedies or damage awards, and adverse results in such litigation and other proceedings may harm our business and financial condition.
Such litigation and other proceedings may include, but are not limited to, complaints from or litigation by franchisees, usually related to alleged breaches of contract or wrongful termination under the franchise arrangements, actions relating to intellectual property, commercial arrangements, franchising arrangements, negligence and fiduciary duty claims arising from franchising arrangements or company owned brokerage operations, breaches of fiduciary duty by our licensed brokers, standard brokerage disputes like the failure to disclose hidden defects in the property such as mold, vicarious liability based upon conduct of individuals or entities outside of our control, including franchisees and agents, antitrust claims, false advertising claims, general fraud claims and employment law claims, including claims challenging the classification of our agents as independent contractors, violations of state laws relating to business practices or consumer disclosures, and claims alleging violations of RESPA or state consumer fraud statutes. We may also be subject to employee claims based on, among other things, discrimination, harassment or wrongful termination.
Franchisees are subject to a variety of litigation risks, including, but not limited to, customer claims, personal injury claims, environmental claims, agent allegations of improper termination and discrimination, claims related to violations of the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and intellectual property claims. Litigation against a franchisee or its affiliates by third parties, whether in the ordinary course of business or otherwise, may include claims against us by virtue of the franchise relationship. In addition to increasing costs and limiting the funds available to pay contractual fees and dues and reducing the execution of new franchise arrangements, such claims divert our management resources and could cause adverse publicity which may materially and adversely affect us and our brand, regardless of whether such allegations are valid or whether we are liable.
Our international operations may be subject to additional risks related to litigation, including difficulties in enforcement of contractual obligations governed by foreign law due to differing interpretations of rights and obligations, compliance with multiple and potentially conflicting laws, new and potentially untested laws and judicial systems and reduced or diminished protection of intellectual property. A substantial unsatisfied judgment against us or one of our subsidiaries could result in bankruptcy, which would materially and adversely affect our business and operating results.
Our international operations, including Canada, are subject to risks not generally experienced by our U.S. operations.
We have international regional franchisees and master franchisees. For the year ended December 31, 2012, revenue from these operations represented approximately 26.0% of our total revenue. Our international operations are subject to risks not generally experienced by our U.S. operations. The risks involved in our
 
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international operations and relationships that could result in losses against which we are not insured and therefore affect our profitability include:
 
 	•	 	fluctuations in foreign currency exchange rates and foreign exchange restrictions;	
 
 	•	 	exposure to local economic conditions and local laws and regulations, including those relating to the agents of our franchisees;	
 
 	•	 	economic and/or credit conditions abroad;	
 
 	•	 	potential adverse changes in the political stability of foreign countries or in their diplomatic relations with the U.S.;	
 
 	•	 	restrictions on the withdrawal of foreign investment and earnings;	
 
 	•	 	government policies against businesses owned by foreigners;	
 
 	•	 	investment restrictions or requirements;	
 
 	•	 	diminished ability to legally enforce our contractual rights in foreign countries;	
 
 	•	 	difficulties in registering, protecting or preserving trade names and trademarks in foreign countries;	
 
 	•	 	restrictions on the ability to obtain or retain licenses required for operation;	
 
 	•	 	withholding and other taxes on remittances and other payments by subsidiaries; and	
 
 	•	 	changes in foreign tax laws.	
Our international operations outside Canada generally generate substantially lower average revenue per agent and therefore lower margins than our U.S. and Canadian operations.
Loss or attrition among our senior management or other key employees or the inability to hire additional qualified personnel could adversely affect our operations, our brand and our financial performance.
Our future success is largely dependent on the efforts and abilities of our Chief Executive Officer, Margaret Kelly, our Chairman and Co-Founder, Dave Liniger, our senior management and other key employees. The loss of the services of these two individuals and our other key employees could make it more difficult to successfully operate our business and achieve our business goals. In addition, we do not maintain key employee life insurance policies on either of these two individuals or our other key employees. As a result, we may not be able to cover the financial loss we may incur in losing the services of any of these individuals.
Our ability to retain our employees is generally subject to numerous factors, including the compensation and benefits we pay, the mix between the fixed and variable compensation we pay our employees and prevailing compensation rates. As such, we could suffer significant attrition among our current key employees. Competition for qualified employees in the real estate franchising industry is intense. We may be unable to retain existing employees that are important to our business or hire additional qualified employees. The process of locating employees with the combination of skills and attributes required to carry out our goals is often lengthy. We cannot assure you that we will be successful in attracting and retaining qualified employees.
If we were to lose key employees and not promptly fill their positions with comparably qualified individuals, our business may be materially adversely affected.
We only have one primary facility, which serves as our corporate headquarters, and are in the process of implementing disaster recovery procedures. If we encounter difficulties associated with this facility, we could face management issues that could have a material adverse effect on our business operations.
We only have one primary facility, in Denver, Colorado, which serves as our corporate headquarters where most of our employees are located. A significant portion of our computer equipment and senior management, including critical resources dedicated to financial and administrative functions, is also located at our corporate
 
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headquarters. Our management and employees would need to find an alternative location if we were to encounter difficulties at our corporate headquarters, including by fire or other natural disaster, which would cause disruption and expense to our business and operations.
We recognize the need for, and are in the process of, developing disaster recovery, business continuity and document retention plans that would allow us to be operational despite casualties or unforeseen events impacting our corporate headquarters. If we encounter difficulties or disasters at our corporate headquarters without disaster recovery, business continuity and document retention plans in place, our critical systems, operations and information may not be restored in a timely manner, or at all, and this would have a material adverse effect on our business.
Infringement, misappropriation or dilution of our intellectual property could harm our business.
We regard our RE/MAX ® trademark, balloon logo and sign design trademarks 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. However, not all of the trademarks or service marks that we currently use have been registered in all of the countries in which we do business, and they may never be registered in all of those countries. Although we monitor trademark portfolios both internally and through external search agents and impose an obligation on franchisees 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. Effective intellectual property protection may not be available in every market in which we have franchised or intend to franchise. 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 materially and adversely affect our business and operating results.
Although we monitor and restrict our franchisees’ activities through our franchise agreements, franchisees may refer to our brand improperly in writings or conversations, resulting in the dilution of our intellectual property. Franchisee noncompliance with the terms and conditions of our franchise agreements and our brand standards may reduce the overall goodwill of our brand, whether through the failure to meet the FTC guidelines or applicable state laws, or through the participation in improper or objectionable business practices. Moreover, unauthorized third parties may use our 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 materially and adversely impact our business and operating results.
We plan to implement a new information technology infrastructure for certain key aspects of our operations, which may be more costly than anticipated or take more time to complete and integrate than we expect, which could distract our management from our business and have an adverse impact on our results of operations.
We plan to implement a new information technology infrastructure for certain key aspects of our operations. In the process of designing, developing and integrating such infrastructure, we may experience cost overages, delays or other factors that may distract our management from our business, which could have an adverse impact on our results of operations.
 
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Further, we may not be able to obtain such new technologies and systems, or to replace or introduce new technologies and systems as quickly as our competitors or in a cost-effective manner. Also, we may not achieve the benefits anticipated or required from any new technology or system, and we may not be able to devote financial resources to new technologies and systems in the future.
We rely on traffic to our websites, including our flagship website, remax.com, directed from search engines like Google, Yahoo! and Bing. 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 like Google, Yahoo! and Bing. The number of users we attract to our websites, including our flagship website remax.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 impact our business and results of operations.
A failure of our websites or website-based technology, including our lead referral system LeadStreet ® , which are subject to factors beyond our control, could significantly disrupt our business and lead to reduced revenue and reputational damage.
We operate LeadStreet ® which is a lead referral system that provides leads to our agents free of referral fees. LeadStreet ® is supported by our websites, including remax.com, global.remax.com, theremaxcollection.com and remaxcommercial.com, which collectively attracted over 52 million visits in 2012 according to Experian Marketing Services Hitwise data. When a prospective buyer views a property listed on our websites by a specific RE/MAX agent, the agent gets this lead through LeadStreet ® without a referral fee. However, we are vulnerable to certain additional risks and uncertainties associated with websites, including changes in required technology interfaces, website downtime and other technical failures, security breaches and consumer privacy concerns. Our failure to successfully address these risks and uncertainties could reduce our Internet exposure, generate less leads for our agents and damage our brand.
Many of the risks relating to our website operations, such as governmental regulation of the Internet, increased competition from websites that facilitate private sales and online security breaches, are beyond our control.
We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our platform is accessible.
It is important to our success that users in all geographies be able to access our website at all times. We may experience, in the future, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our platform simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If our website is unavailable when users attempt to access it or it does not load as quickly as they expect, users may seek other services to obtain the information for which they are looking, and may not return to our website as often in the future, or at all. This would negatively impact our ability to attract customers and decrease the frequency with which they use our website. We expect to continue to make ongoing investments to maintain and improve the availability of our website and to enable rapid releases of new features. To the extent
 
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that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
Any disruption or reduction in our information technology capabilities or other threats to our cybersecurity could harm our business.
Our information technologies and systems and those of our suppliers are vulnerable to breach, damage or interruption from various causes, including: (i) natural disasters, war and acts of terrorism, (ii) power losses, computer systems failure, Internet and telecommunications or data network failures, operator error, losses and corruption of data, and similar events and (iii) computer viruses, penetration by individuals seeking to disrupt operations or misappropriate information and other physical or electronic breaches of security. We may not be able to successfully prevent a disruption to or material adverse effect on our business or operations in the event of a disaster, theft of data or other business interruption. Any extended interruption in our technologies or systems or significant breach could significantly curtail our ability to conduct our business and generate revenue. Additionally, our business interruption insurance may be insufficient to compensate us for losses that may occur.
A significant increase in private sales of residential property, including through the internet, could have a material adverse effect on our business, prospects and results of operations.
As of 2012, NAR estimated that 12% of existing home sales, and 11% of home purchases transactions in the U.S. are completed without the involvement of a real estate agent. Although the NAR survey indicates that the percentage of sales using agents has increased in recent years, a significant increase in the volume of private sales due to, for example, increased access to the internet and the proliferation of websites that facilitate such sales, and a corresponding decrease in the volume of sales through real estate agents could have a material adverse effect on our business, prospects and results of operations.
The terms of RE/MAX, LLC’s senior secured credit facility restrict the current and future operations of RMCO, RE/MAX, LLC and their subsidiaries, which could adversely affect their ability to respond to changes in business and to manage operations.
RE/MAX, LLC’s senior secured credit facility includes a number of customary restrictive covenants. These covenants could impair the financing and operational flexibility of RMCO, RE/MAX, LLC and their subsidiaries and make it difficult for them to react to market conditions and satisfy their ongoing capital needs and unanticipated cash requirements. Specifically, such covenants may restrict their ability to, among other things:
 
 	•	 	incur additional debt;	
 
 	•	 	make certain investments, acquisitions and joint ventures;	
 
 	•	 	enter into certain types of transactions with affiliates;	
 
 	•	 	pay dividends or make distributions or other payments to us;	
 
 	•	 	use assets as security in certain transactions;	
 
 	•	 	repurchase their equity interests;	
 
 	•	 	sell certain assets or merge with or into other companies;	
 
 	•	 	guarantee the debts of others;	
 
 	•	 	enter into new lines of business; and	
 
 	•	 	make certain payments on subordinated debt.	
In addition, so long as any revolving loans are outstanding under the senior secured credit facility, RE/MAX, LLC is required to maintain specified financial ratios. As of July 31, 2013, there were no outstanding revolving loans.
 
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The ability to comply with the covenants and other terms of the senior secured credit facility will depend on future operating performance of RE/MAX, LLC and its subsidiaries. If RE/MAX, LLC fails to comply with such covenants and terms, it would be required to obtain waivers from the lenders or agree with the lenders to an amendment of the facility’s terms to maintain compliance under the facility. If RE/MAX, LLC is unable to obtain any necessary waivers or amendments and the debt under our senior secured credit facility is accelerated or the lenders bring other remedies, it would likely have a material adverse effect on our financial condition and future operating performance.
We have significant debt service obligations and may incur additional indebtedness in the future which could adversely affect our financial health and our ability to react to changes to our business.
We have significant debt service obligations. Our currently existing indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. In 2011 and 2012, we had total debt service obligations of $16.5 million and $8.4 million, respectively. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue additional equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all. Our level of indebtedness has important consequences to you and your investment in our Class A common stock.
For example, our level of indebtedness may:
 
 	•	 	require us to use a substantial portion of our cash flow from operations to pay interest and principal on our debt, which would reduce the funds available to us for working capital, capital expenditures and other general corporate purposes;	
 
 	•	 	limit our ability to pay future dividends;	
 
 	•	 	limit our ability to obtain additional financing for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy;	
 
 	•	 	heighten our vulnerability to downturns in our business, the housing industry or in the general economy and limit our flexibility in planning for, or reacting to, changes in our business and the housing industry; or	
 
 	•	 	prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our store base and product offerings.	
We cannot assure you that our business will generate sufficient cash flow from operations or that future financing will be available to us in amounts sufficient to enable us to make payments on our indebtedness or to fund our operations.
As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs.
Future indebtedness may impose various additional restrictions and covenants on us which could limit our ability to respond to market conditions, to make capital investments or to take advantage of business opportunities. Our ability to make payments to fund working capital, capital expenditures, debt service, and strategic acquisitions will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
At June 30, 2013, $223.2 million in term loans were outstanding under our senior secured credit facility net of unamortized discount, which was at variable rates of interest, thereby exposing us to interest rate risk. We
 
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currently do not engage in any interest rate hedging activity and we have no intention to do so in the foreseeable future. As such, if interest rates increase, our debt service obligations on our outstanding indebtedness would increase even if the amount borrowed remained the same, and our net income would decrease.
Our operating results are subject to quarterly fluctuations, and results for any quarter may not necessarily be indicative of the results that may be achieved for the full fiscal year.
Historically, we have realized, and expect to continue to realize, lower Adjusted EBITDA margins in the first and fourth quarters due primarily to the impact of lower broker fees and other revenue as a result of lower overall transaction volume, and higher selling, operating and administrative expenses in the first quarter for expenses incurred in connection with our annual convention. Accordingly, our results of operations may fluctuate on a quarterly basis, which would cause period to period comparisons of our operating results to not be necessarily meaningful and cannot be relied upon as indicators of future annual performance.
Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have a material adverse effect on our financial performance and results of operations.
Generally accepted accounting principles in the U.S. and related accounting pronouncements, implementation guidance and interpretations with regard to a wide range of matters, such as revenue recognition, accounting for leases, stock-based compensation, asset impairments, valuation reserves, income taxes and fair value accounting, 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.
We will incur new costs as a result of becoming a public company, and such costs will likely increase when we are no longer an “emerging growth company.”
As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect compliance with these public reporting requirements and associated rules and regulations to increase our legal and financial costs, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act, which reduces certain disclosure requirements for “emerging growth companies,” thereby decreasing related regulatory compliance costs, and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Further, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and, potentially, civil litigation.
Risks Related to Our Organizational Structure
RIHI will continue to have substantial control over us after this offering including over decisions that require the approval of stockholders, and its interest in our business may conflict with yours.
Immediately after the consummation of this offering, RIHI, an entity controlled by Dave and Gail Liniger, our Chairman and Co-Founder and Vice-Chair and Co-Founder, respectively, (with Margaret Kelly, our Chief Executive Officer and a director, Vincent Tracey, our President and a director, and Daryl Jesperson, a director, who hold minority ownership interests in RIHI), will hold a majority of the combined voting power of the different classes of our capital stock through its ownership of     % of our outstanding Class B common stock. Additionally, the shares of Class B common stock entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes on matters presented to stockholders of RE/MAX Holdings, Inc. that is equal to two times the aggregate number of common units of RMCO held by such holder.
 
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Accordingly, RIHI, acting alone, will have the ability to approve or disapprove substantially all transactions and other matters submitted to a vote of our stockholders, such as a merger, consolidation, dissolution or sale of all or substantially all of our assets, the issuance or redemption of certain additional equity interests, and the election of directors. These voting and class approval rights may enable RIHI to consummate transactions that may not be in the best interests of holders of our Class A common stock or, conversely, prevent the consummation of transactions that may be in the best interests of holders of our Class A common stock. In addition, although RIHI will have voting control of us, RIHI’s entire economic interest in us will be in the form of its direct interest in RMCO through the ownership of RMCO common units, the payments it may receive from us under the tax receivable agreements, and the proceeds it may receive upon any redemption of its RMCO common units, including issuance of shares of our Class A common stock upon any such redemption and any subsequent sale of such Class A common stock. As a result, RIHI’s interests may conflict with the interests of our Class A common stockholders. For example, our existing owners, including RIHI, may have different tax positions from us which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, especially in light of the existence of the tax receivable agreements that we will enter in connection with this offering, and whether and when we should terminate the tax receivable agreements and accelerate our obligations thereunder. In addition, the structuring of future transactions may take into consideration our existing owners’ tax or other considerations, even in situations where no similar considerations are relevant to us. See “Organizational Structure and Reorganization—Tax Receivable Agreements.”
We are a “controlled company” within the meaning of the NYSE listing requirements and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.
Because of the voting power over our Company held by RIHI, we are considered a “controlled company” for the purposes of the New York Stock Exchange (“NYSE”) listing requirements. As such, we are exempt from certain corporate governance requirements, including:
 
 	•	 	the requirement that the majority of directors on our board be independent;	
 
 	•	 	the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;	
 
 	•	 	the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and	
 
 	•	 	the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.	
The corporate governance requirements and specifically the independence standards are intended to ensure that directors who are considered independent are free of any conflicting interest that could influence their actions as directors. Following this offering, we intend to utilize these exemptions afforded to a “controlled company.” As a result, the majority of directors on our board will not be independent nor will our nominating/corporate governance and compensation committees consist entirely of independent directors. We also will not be required to conduct an annual performance evaluation of the nominating/corporate governance and compensation committees. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
We will depend on distributions from RMCO to pay taxes and expenses, including payments under the tax receivable agreements, but RMCO’s ability to make such distributions may be subject to various limitations and restrictions.
We intend to use approximately $27.3 million of the net proceeds of this offering to reacquire regional RE/MAX franchise rights in the Southwest and Central Atlantic regions of the U.S. through the acquisition of the
 
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business assets of HBN and Tails. See “Use of Proceeds” and “Certain Relationships and Related Party Transactions—Managed Region Acquisitions.” Following our acquisition of the business assets of HBN and Tails, we will contribute such assets to RMCO in exchange for a number of newly issued common units of RMCO worth approximately $27.3 million. We intend to use the remainder of the net proceeds of this offering to purchase newly issued common units of RMCO from RMCO.
RMCO will use a portion of the net proceeds it receives from us to first redeem all of the outstanding preferred membership units in RMCO held by Weston Presidio and to satisfy a $             liquidation preference associated with those preferred membership units. Following RMCO’s redemption of all of the outstanding preferred membership units in RMCO from Weston Presidio, RMCO will use the remaining net proceeds of this offering to redeem common units of RMCO from our existing owners on a pro-rata basis. Accordingly, upon the consummation of this offering, we will have no material assets other than our ownership of common units of RMCO and will have no independent means of generating revenue.
RMCO will be treated as a partnership for U.S. federal income tax purposes and, as such, will not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of its common units, including us. As a result, we will incur income taxes on our allocable share of any net taxable income of RMCO. Under the terms of RMCO’s fourth amended and restated limited liability company operating agreement, which will become effective upon the completion of this offering (the “restated RMCO, LLC agreement”), RMCO will be obligated to make tax distributions to holders of its units, including us. In addition to tax expenses, we will also incur expenses related to our operations, including expenses under the tax receivable agreements, which we expect will be significant. See “Organizational Structure and Reorganization—Tax Receivable Agreements.” We intend, as its managing member, to cause RMCO to make distributions in an amount sufficient to allow us to pay our taxes and operating expenses, including any payments due under the tax receivable agreements. However, RMCO’s ability to make such distributions may be subject to various limitations and restrictions including, but not limited to, restrictions on distributions that would either violate any contract or agreement to which RMCO is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering RMCO insolvent. If RMCO does not have sufficient funds to pay tax or other liabilities to fund our operations, we may have to borrow funds, which could adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the tax receivable agreements for any reason, such payments will be deferred and will accrue interest until paid. If RMCO does not have sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired. See “—Risks Related to This Offering and Ownership of Our Class A Common Stock.”
Our tax receivable agreements with our existing owners requires us to make cash payments to them in respect of future tax benefits to which we may become entitled, and the amounts that we may be required to pay could be significant.
In connection with the consummation of this offering, we will enter into a tax receivable agreements with our existing owners (RIHI and Weston Presidio). Pursuant to the tax receivable agreements, we will be required to make cash payments to our existing owners equal to 85% of the applicable cash savings, if any, in U.S. federal, state and local tax that we actually realize, or in some circumstances are deemed to realize, as a result of certain future tax benefits to which we may become entitled. The amount of the cash payments that we may be required to make under the tax receivable agreements could be significant and will depend, in part, upon facts and circumstances that are beyond our control. Any payments made by us to our existing owners under the tax receivable agreements will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make timely payments under the tax receivable agreements for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us. Furthermore, our future obligation to make payments under the tax receivable agreements could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the tax receivable agreements. The payments under the tax receivable agreements are also not necessarily conditioned upon one or more of our existing owners maintaining a continued ownership interest in either RMCO or us. See “Organizational Structure and Reorganization—Tax Receivable Agreements.”
 
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The amounts that we may be required to pay to our existing owners under the tax receivable agreements may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.
The tax receivable agreements provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur, or that if, at any time, we elect an early termination of the tax receivable agreements, then our obligations, or our successor’s obligations, to make payments under the tax receivable agreements would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the tax receivable agreements.
As a result, (i) we could be required to make cash payments to our existing owners that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the tax receivable agreements, and (ii) if we elect to terminate the tax receivable agreements early, we would be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the tax receivable agreements, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the tax receivable agreements could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the tax receivable agreements.
We will also not be reimbursed for any cash payments previously made to our existing owners pursuant to the tax receivable agreements if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and ultimately disallowed. Instead, any excess cash payments made by us to an existing owner will be netted against any future cash payments that we might otherwise be required to make under the terms of the tax receivable agreements. However, we might not determine that we have effectively made an excess cash payment to our existing owners for a number of years following the initial time of such payment. As a result, it is possible that we could make cash payments under the tax receivable agreements that are substantially greater than our actual cash tax savings. See “Organizational Structure and Reorganization—Tax Receivable Agreements.”
If we were deemed an investment company under the Investment Act of 1940, as amended (the “1940 Act”) as a result of our ownership of RMCO, applicable restrictions could make it impractical for us to continue our business as contemplated and could have an adverse effect on our business.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and, absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.
As the sole managing member of RMCO, we will control and operate RMCO. On that basis, we believe that our interest in RMCO is not an “investment security” as that term is used in the 1940 Act. However, if we were to cease participation in the management of RMCO, our interest in RMCO could be deemed an “investment security” for purposes of the 1940 Act.
We and RMCO intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
 
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Risks Related to this Offering and Ownership of Our Class A Common Stock
Immediately following the consummation of this offering, RIHI and other owners of RMCO will directly (through Class B common stock) and indirectly (through ownership of RMCO common units) own interests in us, and they will have the right to redeem and cause us to redeem, as applicable, such interests pursuant to the terms of the restated RMCO, LLC agreement.
After this offering we will have an aggregate of more than              shares of Class A common stock authorized but unissued, including approximately              shares of Class A common stock issuable upon redemption of RMCO common units that will be held by RIHI and Weston Presidio. RMCO will enter into the restated RMCO, LLC agreement, and subject to certain restrictions set forth therein and as described elsewhere in this prospectus, certain stockholders will be entitled to redeem such units for an aggregate of up to              shares of our Class A common stock, subject to customary adjustments. We also intend to enter into a registration rights agreement pursuant to which the shares of Class A common stock issued upon such redemption will be eligible for resale, subject to certain limitations set forth therein. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”
We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock, including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.
You will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase.
The price you pay for shares of our Class A common stock sold in this offering is substantially higher than our net tangible book value per share, after giving effect to this offering. Based on the initial public offering price for our Class A common stock of $             per share (the midpoint of the price range set forth on the cover of this prospectus), you will incur immediate dilution in net tangible book value per share of $            . Dilution is the difference between the offering price per share and the net tangible book value per share of our Class A common stock immediately after the offering. As a result of this dilution, investors purchasing stock in this offering may receive significantly less than the full purchase price that they paid for the stock purchased in this offering in the event of liquidation. See “Dilution.”
The dual class structure of our common stock will have the effect of concentrating voting control with our Chairman and Founder.
The shares of Class B common stock have no economic rights but entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes on matters presented to stockholders of RE/MAX Holdings, Inc. that is equal to two times the aggregate number of common units of RMCO held by such holder. See “Description of Capital Stock—Common Stock—Class B Common Stock.” Our Class A common stock, which is the stock we are offering in our initial public offering, has one vote per share.
Based on the voting rights associated with shares of our Class B common stock, and the number of common units of RMCO that RIHI will own following the offering, RIHI will hold approximately     % of the voting power of our outstanding capital stock following the offering (or approximately     % if the underwriters exercise their over-allotment option). As a result, RIHI will control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval following our initial public offering. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future.
RIHI is a Delaware corporation that is majority owned and controlled by Dave Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder. Margaret Kelly, our Chief Executive Officer and
 
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a director, Vincent Tracey, our President and a director, and Daryl Jesperson, a director, hold minority ownership interests in RIHI.
For a description of the various rights and privileges associated with shares of our Class A and Class B common stock, see “Description of Capital Stock—Common Stock.”
You may be diluted by future issuances of additional Class A common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Our certificate of incorporation authorizes us to issue these shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. We have reserved              shares for issuance under our 2013 Stock Incentive Plan, including shares issuable upon the exercise of vested stock options that we will grant in substitution of options that were granted by RMCO, and              stock options and              restricted stock units we expect to grant in connection with the completion of this offering). Any Class A common stock that we issue, including under our 2013 Stock Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase Class A common stock in this offering.
Our Class A common stock price may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.
Prior to this offering, there has not been a public trading market for shares of our Class A common stock. It is possible that after this offering an active trading market will not develop or continue or, if developed, that any market will be sustained, which could make it difficult for you to sell your shares of Class A common stock at an attractive price or at all. The initial public offering price of our common stock will be determined by negotiations between us and the underwriters based upon a number of factors and may not be indicative of prices that will prevail following the consummation of this offering.
Many factors, which are outside our control, may cause the market price of our Class A common stock to fluctuate significantly, including those described elsewhere in this “Risk Factors” section and this prospectus, as well as the following:
 
 	•	 	our operating and financial performance and prospects;	
 
 	•	 	our quarterly or annual earnings or those of other companies in our industry compared to market expectations;	
 
 	•	 	conditions that impact demand for our services, including the condition of the U.S. residential housing market unrelated to our performance;	
 
 	•	 	future announcements concerning our business or our competitors’ businesses;	
 
 	•	 	the public’s reaction to our press releases, other public announcements and filings with the SEC;	
 
 	•	 	the size of our public float;	
 
 	•	 	coverage by or changes in financial estimates by securities analysts or failure to meet their expectations;	
 
 	•	 	market and industry perception of our success, or lack thereof, in pursuing our growth strategy;	
 
 	•	 	strategic actions by us or our competitors, such as acquisitions or restructurings;	
 
 	•	 	changes in government and environmental regulation;	
 
 	•	 	housing and mortgage finance markets;	
 
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 	•	 	changes in accounting standards, policies, guidance, interpretations or principles;	
 
 	•	 	changes in senior management or key personnel;	
 
 	•	 	issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock;	
 
 	•	 	adverse resolution of new or pending litigation against us;	
 
 	•	 	changes in general market, economic and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events; and	
 
 	•	 	material weakness in our internal control over financial reporting.	
Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the initial public offering price. In addition, price volatility may be greater if the public float and trading volume of our common stock is low. As a result, you may suffer a loss on your investment.
We cannot assure you that we will declare dividends or have the available cash to make dividend payments.
Because we are a holding company with no material assets other than our ownership of common units of RMCO and no independent means of generating revenue our cash flow and ability to pay dividends will be dependent upon the financial results and cash flows of RMCO and its subsidiaries and distributions we receive from RMCO. We expect to cause RMCO to make distributions to fund our expected dividend payments, subject to applicable law and any restrictions contained in RMCO’s or its subsidiaries’ current or future debt agreements.
We intend to pay              cash dividends initially in an amount equal to $             per share of Class A common stock following the completion of this offering. Whether we will do so, however, and the timing and amount of those dividends, will be subject to approval and declaration by our board of directors and will depend upon on a variety of factors, including our financial results, cash requirements and financial condition, our ability to pay dividends under our senior secured credit facility and any other applicable contracts, and other factors deemed relevant by our board of directors. Any dividends declared and paid will not be cumulative.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
Our certificate of incorporation and bylaws, as each will be in effect upon completion of this offering, will contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors. These provisions:
 
 	•	 	establish a classified board of directors so that not all members of our board of directors are elected at one time;	
 
 	•	 	authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of common stock;	
 
 	•	 	provide that our board of directors is expressly authorized to make, alter or repeal our bylaws;	
 
 	•	 	delegate the sole power to a majority of the board of directors to fix the number of directors;	
 
 	•	 	provide the power of our board of directors to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;	
 
 	•	 	eliminate the ability of stockholders to call special meetings of stockholders; and	
 
 	•	 	establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.	
 
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Our certificate of incorporation will also contain a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law (“DGCL”), and will prevent us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock unless board or stockholder approval is obtained prior to the acquisition, except that Dave and Gail Liniger will be deemed to have been approved by our board of directors, and thereby not subject to these restrictions. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our Company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. See “Description of Capital Stock . ”
Our business and stock price may suffer as a result of our lack of public company operating experience.
We have been a privately-held company since we began operations in 1973. Our lack of public company operating experience may make it difficult to forecast and evaluate our future prospects. If we are unable to execute our business strategy, either as a result of our inability to effectively manage our business in a public company environment or for any other reason, our prospects, financial condition and results of operations may be harmed and our stock price may decline from our public offering price.
As an “emerging growth company,” we cannot be certain whether taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.
The JOBS Act provides that, so long as a company qualifies as an “emerging growth company,” it will, among other things, be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.
We currently intend to take advantage of the reduced disclosure requirements regarding executive compensation. 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 107(b) of the JOBS Act. We cannot predict whether investors will find our Class A common stock less attractive if we rely on these exemptions, or whether taking advantage of these exemptions would result in less active trading or more volatility in the price of our Class A common stock. Also, we intend to take advantage of some of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as an “emerging growth company.”
The historical and pro forma financial information in this prospectus may make it difficult to accurately predict our costs of operations in the future.
The historical financial information in this prospectus does not reflect the added costs we expect to incur as a public company or the resulting changes that will occur in our capital structure and operations. In preparing our pro forma financial information we have given effect to, among other items, our recent acquisition of certain assets of RE/MAX of Texas and the Reorganization Transactions. The estimates we used in our pro forma financial information may not be similar to our actual experience as a public company. For more information on our historical financial information and pro forma financial information, see “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus.
 
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 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, forward-looking statements include statements we make relating to:
 
 	•	 	our expectations regarding consumer trends in residential real estate transactions;	
 
 	•	 	our expectations regarding overall economic and demographic trends, including the continued recovery of the U.S. residential real estate market;	
 
 	•	 	our expectations regarding our performance during future downturns in the housing sector;	
 
 	•	 	our growth strategy of increasing our agent count;	
 
 	•	 	our ability to expand our network of franchises at higher than average rates in both new and existing but underpenetrated markets;	
 
 	•	 	our expectations regarding agent productivity;	
 
 	•	 	our growth strategy of increasing our number of closed transaction sides and transaction sides per agent;	
 
 	•	 	our expectations of the effects of the reacquisition of the Texas region on our results of operations;	
 
 	•	 	the continued strength of our brand both in the U.S. and Canada and in the rest of the world;	
 
 	•	 	the pursuit of future reacquisitions of Independent Regions, including the assets of HBN and Tails;	
 
 	•	 	our intention to pay dividends;	
 
 	•	 	the benefits to our business resulting from the effects of the Reorganization Transactions;	
 
 	•	 	our future financial performance;	
 
 	•	 	the effects of laws applying to our business;	
 
 	•	 	our ability to retain our senior management and other key employees;	
 
 	•	 	our intention to pursue additional intellectual property protections;	
 
 	•	 	our future compliance with U.S. or state franchise regulations; and	
 
 	•	 	other plans and objectives for future operations, growth, initiatives or strategies.	
These and other forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements, as well as other cautionary statements in this prospectus.
 
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We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
 
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TRADEMARKS AND SERVICE MARKS
We protect the RE/MAX brand through a combination of trademarks and copyrights.
We own the principal trademarks, service marks and trade names that we use in conjunction with operating our business. We have registered “RE/MAX” as a trademark in the U.S., Canada, and over 150 other countries and territories, and have registered various versions of the RE/MAX balloon logo and real estate sign design in numerous countries and territories as well. Other marks registered in the U.S. and Canada, and in certain other jurisdictions, include the “RE/MAX Commercial” logo and our luxury brand, “The RE/MAX Collection.” We have filed other trademark applications in the U.S. and certain other jurisdictions, and will pursue additional trademark registrations and other intellectual property protection to the extent we believe it would be beneficial and cost effective.
We also are the registered holder of a variety of domain names that include “remax” and similar variations.
Each trademark, trade name or service mark of any other company appearing in this prospectus is owned by such company.
MARKET AND INDUSTRY DATA AND FORECASTS
This prospectus includes data, forecasts and information obtained from independent trade associations, industry publications and surveys and other information available to us. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. As noted in this prospectus, NAR is the primary source for third-party industry data. In addition, we have used third-party industry data from Real Trends, MMR Strategy Group, the Canadian Real Estate Association, CoreLogic, Inc. and certain other sources, as well as general demographic, economic and real estate data from the U.S. Census Bureau and the Federal Reserve. While data provided by NAR is one indicator of the direction of the residential housing market, we believe that home sale statistics will continue to vary between us and NAR because they use survey data in their historical reports and forecasting models whereas we use data based on actual reported results. In addition to the differences in calculation methodologies, there are geographical differences and concentrations in the markets in which we operate versus the national market. For instance, comparability is impaired due to NAR’s utilization of seasonally adjusted annualized rates whereas we report actual period over period changes and NAR’s use of median price for its forecasts compared to our average price. Additionally, NAR data and data from certain other sources used herein are subject to periodic review and revision. While we believe that the industry data presented herein is derived from the most widely recognized sources for reporting U.S. residential housing market statistical data, we do not endorse or suggest reliance on this data alone.
Forecasts regarding mean and median sales price, volume of home sales, and other metrics included in this prospectus to describe the housing industry are inherently uncertain or speculative in nature and actual results for any period may materially differ. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but such information may not be accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on market data currently available to us. While we are not aware of any misstatements regarding industry data provided herein, our estimates involve risks and uncertainties and are subject to change based upon various factors, including those discussed under the headings “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.
 
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 ORGANIZATIONAL STRUCTURE AND REORGANIZATION
Our Existing Owners
RIHI
RIHI (formerly named RE/MAX International Holdings, Inc.) is a Delaware corporation that is majority owned and controlled by Dave Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder. Margaret Kelly, our Chief Executive Officer and a director, Vincent Tracey, our President and a director, and Daryl Jesperson, a director, hold minority ownership interests in RIHI. RIHI’s primary business activity relates to the management of its ownership interest in RMCO.
Weston Presidio
Weston Presidio is a private equity firm that provides growth capital to companies in the consumer, business services and industrial growth sectors. Since its founding in 1991, the firm has managed five investment funds aggregating over $3.3 billion in total commitments. Investments by Weston Presidio typically range in size from $10 million to $50 million. The firm focuses its investment activities on lower middle market growth companies, including growth financings, recapitalizations and management-led buyouts. The firm has particular expertise in closely-held and family-controlled businesses and in investing in minority, non-controlling positions. Weston Presidio holds its interest in RMCO through its fifth investment fund, Weston Presidio V, L.P., a Delaware limited partnership.
Organizational Structure Prior to the Offering
Prior to the completion of this offering, Weston Presidio holds 150,000 Class A preferred units in RMCO, which represents all of the currently authorized, issued and outstanding Class A preferred units of RMCO. Prior to the completion of this offering, RIHI holds 847,500 Class B common units of RMCO, which represents all of the currently issued and outstanding Class B common units of RMCO (out of a total of 900,000 authorized Class B common units). The remaining 52,500 authorized but unissued Class B common units of RMCO are reserved for issuance under RMCO’s existing Amended RMCO, LLC, 2011 Unit Option Plan (the “2011 Unit Option Plan”). Prior to the completion of this offering, RMCO issued compensatory options to employees to purchase an aggregate of up to 31,500 Class B common units of RMCO. In connection with the completion of this offering, and as a result of the Reorganization Transactions, any outstanding compensatory options that have been issued in respect of the Class B common units of RMCO and that remain unexercised will be substituted with options granted under our 2013 Stock Incentive Plan in respect of shares of our Class A common stock. See “Executive Compensation—Employee Benefit and Stock Plans—2013 Stock Incentive Plan—Substitution of RMCO Unit Options.”
Our current organizational structure was created in connection with Weston Presidio’s investment in RMCO in April 2010. In connection with Weston Presidio’s investment, RIHI transferred all of its assets to RMCO in exchange for 847,500 Class B common units and 37,500 Class A preferred units. RMCO then issued 112,500 Class A preferred units to Weston Presidio for an aggregate purchase price of $30.0 million and RIHI sold 37,500 Class A preferred units of RMCO to Weston Presidio for an aggregate purchase price of $10.0 million. See “Certain Relationships and Related Party Transactions—Transactions With Our Existing Owners.”
The relative rights and privileges currently associated with the Class A preferred units and Class B common units of RMCO are defined by and subject to the terms of RMCO’s Third Amended and Restated Limited Liability Company Agreement, dated February 1, 2013. The Class A preferred units currently held by Weston Presidio have a liquidation preference of $        . Following the satisfaction of Weston Presidio’s liquidation preference, the Class A preferred units and Class B common units of RMCO have a right to share distributions made in respect of the common units of RMCO on a pro-rata basis including in connection with an initial public offering.
For additional information regarding the April 2010 transactions among RIHI, RMCO and Weston Presidio and the current relative rights and privileges associated with the Class A preferred units and Class B common units of RMCO, see Note 10 to our audited consolidated financial statements included elsewhere in this prospectus.
 
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The diagram below depicts our organizational structure prior to the consummation of the Reorganization Transactions in connection with the completion of this offering.

 

(1)	Weston Presidio V, L.P. is a Delaware limited partnership.	
(2)	RIHI is a Delaware corporation that is majority owned and controlled by Dave Liniger, our Chairman and Co-Founder, and by Gail Liniger, our Vice Chair and Co-Founder. Margaret Kelly, our Chief Executive Officer and a director, Vincent Tracey, our President and a director, and Daryl Jesperson, a director, hold minority ownership interests in RIHI.	
(3)	Prior to the completion of this offering, Weston Presidio holds 150,000 Class A preferred units in RMCO, which represents all of the currently authorized, issued, and outstanding Class A preferred units of RMCO.	
(4)	Prior to the completion of this offering, RIHI holds 847,500 Class B common units of RMCO, which represents all of the currently issued and outstanding Class B common units of RMCO (out of a total of 900,000 authorized Class B common units). The remaining 52,500 authorized but unissued Class B common units of RMCO are reserved for issuance under RMCO’s existing 2011 Unit Option Plan. Prior to the completion of this offering, RMCO issued compensatory options to employees to purchase an aggregate of up to 31,500 Class B common units of RMCO. These RMCO unit options will be replaced by substitution with options to purchase shares of our Class A common stock under the 2013 Stock Incentive Plan.	
(5)	RMCO is a Delaware limited liability company.	
(6)	RE/MAX conducts its business activities through its various domestic and international operating subsidiaries.	
Reorganization Transactions
The following transactions, which we refer to collectively as the Reorganization Transactions, will occur in connection with the completion of this offering:
 
 	•	 	RMCO’s Third Amended and Restated Limited Liability Company Agreement, dated as of February 1, 2013 will be amended and restated as described below under “—RMCO Operating Agreement—Agreement in Effect After the Offering”;	
 
 	•	 	RMCO will recapitalize so that Weston Presidio’s existing Class A preferred membership interest is exchanged for (i) a new preferred membership interest that reflects Weston Presidio’s current liquidation preference of $         and (ii) a common interest that reflects Weston Presidio’s current pro-rata share of the residual equity value of RMCO;	
 
 	•	 	RMCO will split the current number of outstanding common units so that one common unit can be acquired with the net proceeds received in the initial offering from the sale of one share of our Class A common stock, after the deduction of underwriting discounts and commissions;	
 
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 	•	 	RE/MAX Holdings, Inc. will become a member and the sole manager of RMCO following (i) its acquisition of the business assets of HBN and Tails and the contribution of such assets to RMCO in exchange for              newly issued common units of RMCO worth approximately $27.3 million and (ii) its purchase from RMCO of                      newly issued common units for $        , which represents all of the remaining net proceeds we will receive in this offering from the sale of              shares of our Class A common stock, after the deduction of underwriting discounts and commissions and the approximately $27.3 million of proceeds used to acquire the business assets of HBN and Tails;	
 
 	•	 	RMCO will use $        from the net proceeds received from RE/MAX Holdings, Inc. to first completely redeem the preferred membership interest held by Weston Presidio and to eliminate Weston Presidio’s liquidation preference;	
 
 	•	 	RMCO will then redeem on a pro-rata basis         common units from RIHI for $         and                      common units from Weston Presidio for $        , which will equal, in the aggregate, $        , and constitute the remaining amount of net proceeds received from RE/MAX Holdings, Inc. after the complete redemption of Weston Presidio’s preferred membership interest in RMCO; and	
 
 	•	 	options to acquire shares of our Class A common stock will be substituted for any such unexercised compensatory options to acquire common units in RMCO.	
Immediately following the Reorganization Transactions, we will own     % of the outstanding common units in RMCO. If the underwriters exercise their over-allotment option to purchase additional shares of our Class A common stock in full, we will promptly issue              additional shares of our Class A common stock pursuant to the over-allotment option and use all of the net proceeds to purchase newly issued common units of RMCO for $            , and our aggregate ownership of RMCO will increase to     %. RMCO will then use all of the net proceeds received in respect of the over-allotment option to redeem on a pro-rata basis              common units from RIHI for $             and              common units from Weston Presidio for $            .
Organizational Structure Following the Offering
Immediately following this offering and the related Reorganization Transactions, the holders of shares of our Class A common stock will collectively own 100% of the economic interests in RE/MAX Holdings, Inc. and have     % of the voting power of RE/MAX Holdings, Inc. RIHI and Weston Presidio will have the remaining     % and     %, respectively, of the voting power of RE/MAX Holdings, Inc.
We will be a holding company and our sole asset will be approximately     % of the common units in RMCO. Our existing owners, RIHI and Weston Presidio, will own the remaining     % and     %, respectively, of the common units in RMCO, each of which will be redeemable at the election of the holder for, at our option, shares of our newly issued Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of our common stock. Our only business will be acting as the sole manager of RMCO and, in that capacity, we will operate and control all of the business and affairs of RMCO and we will consolidate the financial results of RMCO and its subsidiaries. Our only source of cash flow from operations will be distributions from RMCO and management fees pursuant to a management services agreement between us and RMCO.
 
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The diagram below depicts our organizational structure immediately after this offering and the related Reorganization Transactions.

 

(1)	Weston Presidio is a Delaware limited partnership.	
(2)	RIHI is a Delaware corporation that is majority owned and controlled by Dave Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder. Margaret Kelly, our Chief Executive Officer and a director, Vincent Tracey, our President and a director and Daryl Jesperson, a director, hold minority ownership interests in RIHI.	
(3)	Weston Presidio will have     % of the voting power of RE/MAX Holdings, Inc. through its ownership of             shares of Class B common stock of RE/MAX Holdings, Inc. (or     % if the underwriters exercise their over-allotment option in full).	
(4)	RIHI will have     % of the voting power of RE/MAX Holdings, Inc. through its ownership of shares of Class B common stock of RE/MAX Holdings, Inc. (or     % if the underwriters exercise their over-allotment option in full).	
(5)	Public investors holding 100% of the shares of Class A common stock of RE/MAX Holdings, Inc. will collectively own 100% of the initial economic interests in RE/MAX Holdings, Inc. and have     % of the voting power of RE/MAX Holdings, Inc. (or     % of the voting power if the underwriters exercise their over-allotment option in full). Immediately following the offering,             shares of Class A common stock will be reserved for issuance to our employees, directors and consultants and to employees, directors and consultants of any affiliated entity, including RMCO, under the 2013 Stock Incentive Plan.	
(6)	RE/MAX Holdings, Inc. is a Delaware corporation.	
 
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(7)	Weston Presidio will hold             common units in RMCO, representing     % of the total number of common units in RMCO that will be outstanding immediately after the offering (or     % if the underwriters exercise their over-allotment option in full). Each common unit held by Weston Presidio will be redeemable, at the election of Weston Presidio, for, at RE/MAX Holdings, Inc.’s option, newly issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of Class A common stock (subject to customary adjustments, including conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends and reclassifications). If, immediately after this offering, Weston Presidio had all of its common units in RMCO redeemed in exchange for shares of newly issued Class A common stock, Weston Presidio would own approximately     % shares of our Class A common stock (or     % if the underwriters exercise their over-allotment option in full).	
(8)	RIHI will hold             common units in RMCO, representing     % of the total number of common units in RMCO that will be outstanding immediately after the offering (or     % if the underwriters exercise their over-allotment option in full). Each common unit held by RIHI will be redeemable, at the election of RIHI, for, at RE/MAX Holdings, Inc.’s option, newly issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of Class A common stock (subject to customary adjustments, including conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends and reclassifications). If, immediately after this offering, RIHI had all of its common units in RMCO redeemed in exchange for newly issued shares of Class A common stock, RIHI would own approximately     % shares of our Class A common stock (or     % if the underwriters exercise their over-allotment option in full).	
(9)	RE/MAX Holdings, Inc. will be the managing member of RMCO and will hold common units in RMCO, representing     % of the total number of common units in RMCO that will be outstanding immediately after the offering (or     % if the underwriters exercise their over-allotment option in full). If, immediately after this offering, Weston Presidio had all of its common units in RMCO redeemed, RE/MAX Holdings, Inc. would own     % of the common units in RMCO (or     % if the underwriters exercise their over-allotment option in full). If, immediately after this offering, RIHI had all of its common units in RMCO redeemed, RE/MAX Holdings, Inc. would own     % of the common units in RMCO (or     % if the underwriters exercise their over-allotment option in full).	
(10)	RMCO is a Delaware limited liability company.	
(11)	RE/MAX conducts its business activities through its various domestic and international operating subsidiaries.	
RMCO Operating Agreement
Agreement in Effect Before the Completion of the Offering
Our existing owners are parties to a Third Amended and Restated Limited Liability Company Agreement dated as of February 1, 2013, which governs the business operations of RMCO and defines the relative rights and privileges associated with the existing Class A preferred units and Class B common units of RMCO held by Weston Presidio and RIHI, respectively. We refer to this agreement as the current RMCO, LLC agreement. The day-to-day business operations of RMCO are overseen and implemented by officers of RMCO, subject to limitations imposed by the Board of Managers. Under the current RMCO, LLC agreement, RMCO is governed by a thirteen-member Board of Managers, who qualify as “managers” for purposes of the Delaware limited liability company statute. RIHI is entitled to appoint eleven managers and Weston Presidio is entitled to appoint two managers. Each existing owner’s rights under the current RMCO, LLC agreement continue for as long as that member owns membership units in RMCO. Each member of the Board of Managers has one vote on all matters submitted to the board, and board actions require a vote of the majority of managers.
Agreement in Effect After the Offering
In connection with the completion of this offering, we and our existing owners will enter into RMCO’s fourth amended and restated LLC agreement. We refer to this agreement as the restated RMCO, LLC agreement.
 
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Appointment as Manager . Under the restated RMCO, LLC agreement, we will become a member and the sole manager of RMCO. As the sole manager, we will be able to control all of the day-to-day business affairs and decision-making of RMCO without the approval of any other member. As such, we, through our officers and directors, will be responsible for all operational and administrative decisions of RMCO and the day-to-day management of RMCO’s business. Pursuant to the terms of the restated RMCO, LLC agreement, we also cannot, under any circumstances, be removed as the sole manager of RMCO. Except as necessary to avoid being classified as an investment company or with the approval of RIHI and Weston Presidio, as long as we are the sole manager of RMCO, our business will be limited to owning and dealing with our common units of RMCO, managing the business of RMCO, and fulfilling our obligations under the Exchange Act and activities incidental to the foregoing.
Compensation . We will not be entitled to compensation for our services as manager except as provided in the management services agreement described below under “—Management Services Agreement,” or as otherwise approved by a vote of the members holding a majority of the outstanding common units plus each existing owner. We will be entitled to reimbursement by RMCO for our reasonable out-of-pocket expenses incurred on its behalf.
Distributions . The restated RMCO, LLC agreement will require “tax distributions” to be made by RMCO to its members, as that term is defined in the agreement. Tax distributions will be made pro rata on a quarterly basis to each member of RMCO, including us, such that each member will receive a tax distribution that is proportionate to its percentage interest in RMCO (based on the number of common units in RMCO that it holds relative to the total number of outstanding common units of RMCO) and that is sufficient to satisfy its tax liability based on such member’s allocable share of the taxable income of RMCO and an assumed tax rate that will be determined by us. For this purpose, the taxable income of RMCO, and RE/MAX Holdings, Inc.’s allocable share of such taxable income, shall be determined without regard to any current or future (i) tax basis adjustments that RE/MAX Holdings, Inc. may receive under Section 743(b) of the Code and (ii) amortization deductions attributable to RE/MAX Holdings, Inc.’s proportionate share of RMCO’s existing tax basis in previously acquired assets that result, in each case, from RE/MAX Holdings, Inc.’s deemed or actual purchase of an equity interest in RMCO from our existing owners (as described below under “—Tax Receivable Agreements”). The assumed tax rate that we expect to use for purposes of determining tax distributions from RMCO to its members will approximate our reasonable estimate of the highest combined federal, state, and local tax rate that may potentially apply to any one of RMCO’s members, regardless of the actual final tax liability of any such member. Tax distributions will also be made only to the extent all distributions from RMCO for the relevant period were otherwise insufficient to enable each member to cover its tax liabilities as calculated in the manner described above. The restated RMCO, LLC agreement will also allow for distributions to be made by RMCO to its members out of “distributable cash,” as that term is defined in the agreement. We expect that distributions out of distributable cash will be made pro rata on a quarterly basis to the extent necessary to enable RE/MAX Holdings, Inc. to cover its operating expenses and other obligations, including any obligations that RE/MAX Holdings, Inc. may have under the tax receivable agreements that it will enter into with the existing owners (as described below under “—Tax Receivable Agreements”), and to make anticipated dividend payments to the holders of its Class A common stock.
Transfer Restrictions . The restated RMCO, LLC agreement generally permits transfers of common units of RMCO, subject to limited exceptions. Any transferee of common units must assume, by operation of law or written agreement, all of the obligations of a transferring member with respect to the transferred units, even if the transferee is not admitted as a member of RMCO. In the event of a transfer of common units by an existing owner, the transferee will not have the rights and powers of an existing owner (such as voting rights by reason of an existing owner’s ownership of shares of our Class B common stock), unless the transferee is an entity that is affiliated with the existing owner or that is controlled by certain owners of an existing owner.
Recapitalization and Preferred Unit Redemption Right . The restated RMCO, LLC agreement recapitalizes the existing Class A preferred units currently held by Weston Presidio in RMCO into new preferred units and
 
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new RMCO common units. The preferred units are entitled to a distribution and liquidation preference of $            , which we intend to cause RMCO to satisfy through RMCO’s redemption of such preferred units in connection with this offering and as described above under “—Reorganization Transactions.” Upon the redemption of the preferred units held by Weston Presidio, each preferred unit will be cancelled and Weston Presidio will cease to have any rights as a member of RMCO with respect to its preferred units. The restated RMCO, LLC agreement will also reflect a reclassification and split of existing Class B common units of RMCO held by RIHI, and related issuance of new RMCO common units to Weston Presidio, such that one common unit can be acquired with the net proceeds received in the initial offering from the sale of one share of our Class A common stock, after the deduction of underwriting discounts and commissions.
Common Unit Redemption Right . The restated RMCO, LLC agreement provides a redemption right to our existing owners which entitles them to have their common units of RMCO redeemed for our newly issued shares of Class A common stock on a one-for-one basis (subject to customary adjustments, including conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends, and reclassifications), or at our option, a cash payment equal to the market price of one share of our common stock. If we decide to make a cash payment, the member has the option to rescind its redemption request within a specified time period. If we decide to make a cash payment and the member has not rescinded, we are obligated to sell to a third party a number of shares of our Class A common stock equal to the number of redeemed common units, so as to ensure that the number of common units in RMCO that we own will equal the number of our outstanding shares of Class A common stock. Upon the exercise of the redemption right, the redeeming member will surrender common units to RMCO for cancellation. Pursuant to our amended and restated certificate of incorporation, we will then contribute cash or shares of our Class A common stock to RMCO in exchange for an amount of newly issued common units in RMCO equal to the number of common units redeemed by the existing owner. RMCO will then distribute the cash or shares of our Class A common stock to the redeeming member to complete the redemption. In connection with an existing owner’s exercise of its redemption right, RE/MAX Holdings, Inc. may also, in its sole discretion, elect to acquire an existing owner’s common units in RMCO from an existing owner. In the event of such an election, and as an alternative to an existing owner engaging in a redemption transaction with RMCO, RE/MAX Holdings, Inc. would instead directly acquire an existing owner’s RMCO common units on the same terms as if the existing owner had engaged in a redemption transaction with RMCO as previously described above.
Issuance of Common Units Upon Exercise of Options or Issuance of Other Equity Compensation . Upon the exercise of options we have issued or the issuance of other types of equity compensation (such as the issuance of restricted or non-restricted stock, payment of bonuses in stock or settlement of stock appreciation rights in stock), we will have the right to acquire from RMCO a number of common units equal to the number of our shares of Class A common stock being issued in connection with the exercise of options or issuance of other types of equity compensation. We will contribute to RMCO the amount of any consideration we receive for the exercise of options or for shares issued pursuant to other types of equity compensation.
Dissolution . The restated RMCO, LLC agreement will provide that the unanimous consent of all members holding common units will be required to voluntarily dissolve RMCO. In addition to a voluntary dissolution, RMCO will be dissolved upon the entry of a decree of judicial dissolution in accordance with Delaware law. Upon a dissolution event, the proceeds of a liquidation will be distributed in the following order: (i) first, to pay the expenses of winding up RMCO; (ii) second, to pay debts and liabilities owed to creditors of RMCO, other than members; (iii) third, to pay debts and liabilities owed to members; and (iv) fourth, to the members pro-rata in accordance with their respective percentage ownership interests in RMCO (as determined based on the number of common units held by a member relative to the aggregate number of all outstanding common units).
Confidentiality . Each member will agree to maintain the confidentiality of RMCO’s intellectual property and other confidential information for a period of         years following the date of dissolution of RMCO or such earlier date as such member ceases to be a member. This obligation covers information provided to RMCO by the members and their affiliates, and excludes disclosures required by law or judicial process.
 
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Indemnification . The restated RMCO, LLC agreement provides for indemnification of the manager, members and officers of RMCO and their respective subsidiaries or affiliates.
Tax Receivable Agreements
The following transactions are expected to have the effect of reducing the amounts that RE/MAX Holdings, Inc. would otherwise pay in the future to various tax authorities as a result of increasing its share of tax basis in RMCO’s tangible and intangible assets:
 
 	•	 	as described above under “—Reorganization Transactions” and in “Use of Proceeds,” RE/MAX Holdings, Inc.’s purchase of common units from RMCO and RMCO’s related redemption of all outstanding preferred units from Weston Presidio (which we intend to treat as RE/MAX Holdings, Inc.’s direct purchase of preferred units from Weston Presidio for U.S. federal income and other applicable tax purposes, and for which RE/MAX Holdings, Inc. will obtain an upward tax basis adjustment or “step-up” under Section 743(b) of the Code as a result of RMCO’s tax election under Section 754 of the Code);	
 
 	•	 	as described above under “—Reorganization Transactions” and in “Use of Proceeds,” RE/MAX Holdings, Inc.’s purchase of common units from RMCO and RMCO’s related redemption of common units from RIHI and Weston Presidio on a pro rata basis, including in connection with the underwriters’ potential exercise of their over-allotment option (which we intend to treat as RE/MAX Holdings, Inc.’s direct purchase of common units from RIHI and Weston Presidio for U.S. federal income and other applicable tax purposes, and for which RE/MAX Holdings, Inc. will obtain an upward tax basis adjustment or “step-up” under Section 743(b) of the Code as a result of RMCO’s tax election under Section 754 of the Code);	
 
 	•	 	as described above under “—RMCO Operating Agreement—Agreement in Effect After the Offering—Common Unit Redemption Right,” the receipt of shares of our Class A common stock or cash at our election by an existing owner in connection with an exercise of its right to redeem common units in RMCO held by the existing owner (which we intend to treat as RE/MAX Holdings, Inc.’s direct purchase of common units from an existing owner for U.S. federal income and other applicable tax purposes, regardless of whether such common units are surrendered by an existing owner to RMCO for redemption or sold to RE/MAX Holdings, Inc. upon the exercise of its election to acquire such common units directly, and for which RE/MAX Holdings, Inc. may obtain an upward tax basis adjustment or “step-up” under Section 743(b) of the Code as a result of RMCO’s tax election under Section 754 of the Code); and	
 
 	•	 	as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions and Divestitures,” our historical acquisitions of regional franchise rights that were treated as taxable asset acquisitions for U.S. federal income and other applicable tax purposes, including our recent acquisition of certain assets of RE/MAX of Colorado, Inc. and RE/MAX of Texas (for which RE/MAX Holdings, Inc. will obtain a proportionate share of RMCO’s existing tax basis in such acquired assets).	
In connection with the transactions described above, RE/MAX Holdings, Inc. will enter into a separate tax receivable agreement with each of our existing owners that will provide for the payment by RE/MAX Holdings, Inc. to the existing owners of 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax or franchise tax that RE/MAX Holdings, Inc. actually realizes, or in some circumstances is deemed to realize, as a result of an expected increase in its share of tax basis in RMCO’s tangible and intangible assets, including increases attributable to payments made under the tax receivable agreements and deductions attributable to imputed interest. These tax benefit payments are not necessarily conditioned upon one or more of the existing owners maintaining a continued ownership interest in either RMCO or RE/MAX Holdings, Inc. RE/MAX Holdings, Inc. expects to benefit from the remaining 15% of cash savings, if any, that it may actually realize. The substantive provisions of the separate tax receivable agreements that we will enter into with each of our existing
 
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owners will be identical and for purposes of the following discussion we refer to these separate agreements as “the tax receivable agreement.”
Initially, any amounts that may be paid to our existing owners under the tax receivable agreement will be attributable to the first, second, and fourth transactions described above and such amounts will be allocated in accordance with each existing owner’s share of the tax benefits that arise from such transactions. Over time, any amounts that may be paid to our existing owners under the tax receivable agreement may be attributable to a combination of one or more of the transactions described above, and the allocation of such amounts will depend, among other things, upon whether and to what extent any existing owner has participated in the third transaction described above.
With respect to the fourth transaction described above, we will be obligated to make payments under the tax receivable agreement only with respect to RE/MAX Holdings Inc.’s proportionate share of RMCO’s existing tax basis in previously acquired assets that results from RE/MAX Holdings Inc.’s deemed or actual purchase of an equity interest in RMCO from our existing owners (as described in the first, second and third transactions described above). We will not be obligated to make payments under the tax receivable agreement with respect to RE/MAX Holdings Inc.’s proportionate share of RMCO’s existing tax basis in previously acquired assets that results from RE/MAX Holdings Inc.’s contribution of cash or property to RMCO in exchange for an equity interest in RMCO (including, initially, with respect to RE/MAX Holdings Inc.’s expected contribution of the business assets of HBN and Tails to RMCO in exchange for approximately $27.3 million of additional common units in RMCO, as described under “Certain Relationships and Related Party Transactions—Managed Region Acquisitions”).
For purposes of the tax receivable agreement, cash savings in income and franchise tax will be computed by comparing RE/MAX Holdings, Inc.’s actual income and franchise tax liability to the amount of such taxes that RE/MAX Holdings, Inc. would have been required to pay had there been no increase in RE/MAX Holdings, Inc.’s share of tax basis in RMCO’s tangible and intangible assets and had the tax receivable agreement not been entered into. The tax receivable agreement will generally apply to each of RE/MAX Holdings, Inc.’s taxable years, beginning with the first taxable year ending after the consummation of the offering. There is no maximum term for the tax receivable agreement; however, the tax receivable agreement may be terminated by us pursuant to an early termination procedure that requires us to pay the existing owners an agreed upon amount equal to the estimated present value of the remaining payments to be made under the agreement.
Although the actual timing and amount of any payments that may be made under the tax receivable agreement will vary depending upon a number of facts and circumstances that are beyond our control (including the timing and amount of any redemption of common units by our existing owners, the trading price of our shares of Class A common stock at the time of any such redemptions, and the amount and timing of our taxable income and the applicable tax rate), we expect that the payments that we may be required to make to our existing owners could be substantial. Any payments made by us to our existing owners under the tax receivable agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us or to RMCO and, to the extent that we are unable to make payments under the tax receivable agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us.
The tax receivable agreement provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur, or that if, at any time, we elect an early termination of the tax receivable agreement, then our obligations, or our successor’s obligations, under the tax receivable agreement would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the tax receivable agreement.
As a result, (i) we could be required to make cash payments to our existing owners that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the tax receivable agreement, and (ii) if we elect to terminate the tax receivable agreement early, we would be
 
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required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the tax receivable agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the tax receivable agreement.
We will also not be reimbursed for any cash payments previously made to our existing owners pursuant to the tax receivable agreement if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and ultimately disallowed. Instead, any excess cash payments made by us to an existing owner will be netted against any future cash payments that we might otherwise be required to make under the terms of the tax receivable agreement. However, we might not determine that we have effectively made an excess cash payment to our existing owners for a number of years following the initial time of such payment. As a result, it is possible that we could make cash payments under the tax receivable agreement that are substantially greater than our actual cash tax savings. Although we are not currently aware of any reason why any tax basis increases or other tax benefits would be challenged by a taxing authority, if we subsequently determine that any tax basis increases or other tax benefits may be subjected to a reasonable challenge by a taxing authority, we may withhold payments to our existing owners under the tax receivable agreement related to such tax basis increases or other tax benefits in an interest-bearing escrow account until such a challenge is no longer possible.
If we receive a formal notice or assessment from a taxing authority with respect to any cash savings covered by the tax receivable agreement, we will place any subsequent tax benefit payments that would otherwise be made to the existing owners into an interest-bearing escrow account until there is a final determination. We will have full responsibility for, and sole discretion over, all RE/MAX Holdings, Inc. tax matters, including the filing and amendment of all tax returns and claims for refund and defense of all tax contests, subject to certain participation and approval rights held by the existing owners.
Payments are generally due under the tax receivable agreement within a specified period of time following the filing of our tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR plus              basis points from the due date (without extensions) of such tax return. Any late payments that may be made under the tax receivable agreement will continue to accrue interest at LIBOR plus              basis points until such payments are made, including any late payments that we may subsequently make because we did not have enough available cash to satisfy our payment obligations at the time at which they originally arose.
Management Services Agreement
We will enter into a management services agreement with RMCO pursuant to which we will agree to provide certain specific management services to RMCO, including those services typically provided for by the individuals serving in the positions of president, chief executive officer, chief financial officer, and general counsel. In exchange for the services we will provide, RMCO will reimburse us for compensation and other expenses of our officers and employees and for certain out-of-pocket costs. RMCO will also provide administrative and support services to us, such as office facilities, equipment, supplies, payroll and accounting and financial reporting. The management services agreement also provides that our employees may participate in RMCO’s benefit plans, and that RMCO employees may participate in our 2013 Stock Incentive Plan. RMCO will indemnify us for any losses arising from our performance under the management services agreement, except that we will indemnify RMCO for any losses caused by our willful misconduct or gross negligence.
 
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 USE OF PROCEEDS
We estimate that the net proceeds we will receive from this offering will be $            million, or $            million if the underwriters exercise their over-allotment option in full, at an assumed initial public offering price of $            per share, which is the midpoint of the range listed on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
A $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease the net proceeds from this offering by approximately $            million, assuming no exercise of the underwriters’ over-allotment option and that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use approximately $27.3 million of the net proceeds of this offering to reacquire regional RE/MAX franchise rights in the Southwest and Central Atlantic regions of the U.S. through the acquisition of the business assets of HBN and Tails. Following our acquisition of the business assets of HBN and Tails, we will contribute such assets to RMCO in exchange for a number of newly issued common units of RMCO worth approximately $27.3 million, at a price per common unit equal to the public offering price per share of our Class A common stock, less underwriting discounts. Certain of our directors and executive officers (and their family members), including Dave Liniger, Gail Liniger, Margaret Kelly, Vincent Tracey and Daryl Jesperson, own shares of HBN and Tails. We engaged a third-party valuation firm to assist in the evaluation of the fair market value of 100% of the equity of each of HBN and Tails and used this firm’s analysis as the basis for determining the purchase price for these acquisitions. These transactions are described in greater detail in “Certain Relationships and Related Party Transactions—Managed Region Acquisitions.”
We intend to use all of the remaining net proceeds of this offering (including net proceeds received if the underwriters exercise their option to purchase additional shares of Class A common stock) to purchase newly issued common units from RMCO at a price per common unit equal to the public offering price per share of our Class A common stock, less underwriting discounts, as described under “Organizational Structure and Reorganization—Reorganization Transactions.” RMCO will use a portion of the net proceeds it receives from us to first redeem all of the outstanding preferred membership units in RMCO held by Weston Presidio and to satisfy the $            million liquidation preference associated with those preferred membership units. Following RMCO’s redemption of all of the outstanding preferred membership units in RMCO from Weston Presidio, RMCO will use $            million, which represents the remaining net proceeds of this offering (or $            million if the underwriters exercise their over-allotment option in full) to redeem common units of RMCO from our existing owners, RIHI and Weston Presidio, on a pro-rata basis. The price per common unit of RMCO paid by RMCO to our existing owners will equal the public offering price per share of our Class A common stock, less underwriting discounts.
 
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 DIVIDEND POLICY
We currently intend to declare             dividends of approximately $            per share on all outstanding shares of Class A common stock. We determined this dividend rate in an effort to provide our stockholders with an attractive annual return on their investment and after taking into consideration our projected free cash flow. We generally consider our free cash flow for any particular period to be our net earnings plus any non-cash charges and expenses incurred in such period after subtracting our capital expenditures and mandatory debt repayments for that period.
We currently expect the first            dividend will be paid after the            of            . The declaration of this and any other dividends, and, if declared, the amount of any such dividend, will be subject to our actual future earnings and capital requirements and to the discretion of our board of directors. Our board of directors may take into account such matters as general business conditions, our financial results, capital requirements, contractual, legal and regulatory restrictions and such other factors as our board of directors may deem relevant. For example, our ability to pay cash dividends on our common stock will be subject to our continued compliance with the terms of our senior secured credit facility. Because any future payment of dividends will be at the discretion of our board of directors, we do not expect that any such dividend payments will have an adverse impact on our liquidity or otherwise limit our ability to fund capital expenditures or otherwise pursue our business strategy over the long-term. We intend to fund any future dividends out of our projected free cash flow and, as a result, we do not expect to incur any indebtedness to fund such payments.
Because we are a holding company with no material assets other than our ownership of common units of RMCO and no independent means of generating revenue or cash flow and ability to pay dividends will be dependent upon the financial results and cash flows of RMCO and its subsidiaries and distributions we receive from RMCO. We expect to cause RMCO to make distributions to fund our expected dividend payments. Any distributions by RMCO will be funded by proportionate distributions by RMCO to us, Weston Presidio and RIHI in accordance with respective ownership percentages of common units. However, RMCO’s ability to pay dividends, including making distributions to us, is limited by the terms of our senior secured credit facility, which may in turn limit our ability to pay dividends on our common stock. Our ability to pay dividends may also be restricted by the terms of any future credit agreement, debt or preferred securities issued by us, RMCO’s or its subsidiaries in the future.
RMCO paid tax-related distributions and other cash distributions to our existing owners during the years ended December 31, 2011 and 2012 and the six month period ended June 30, 2013. Tax-related distributions paid, in the aggregate, were $6.6 million, $3.5 million and $12.7 million during the years ended December 31, 2011 and 2012 and the six month period ended June 30, 2013, respectively. Other cash distributions paid, in the aggregate, were $8.7 million, $6.1 million and $8.0 million during the years ended December 31, 2011 and 2012 and the six month period ended June 30, 2013, respectively.
 
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 CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2013:
 
 	•	 	on an actual basis for RMCO;	
 
 	•	 	on a pro forma basis for RE/MAX Holdings, Inc., giving effect to the Reorganization Transactions, including the substitution of outstanding options under the 2011 Unit Option Plan; and	
 
 	•	 	on a pro forma as adjusted basis for RE/MAX Holdings, Inc., giving further effect to the issuance and sale by us of            shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the mid-point of the range set forth on the cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.	
You should read this table together with “Organizational Structure and Reorganization,” “Selected Historical Consolidated Financial and Operating Data,” “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

 	 	Actual
RMCO	 	 	Pro Forma
RE/MAX
Holdings, Inc.	 	 	Pro Forma  As
Adjusted
RE/MAX
Holdings, Inc.(1)	 	
 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	
 	 	(in thousands, except share data)	 	
Cash and cash equivalents	 	$	58,582	  	 	$	            	  	 	$	            	  	
	 	 	 	 	 	 	 	 	 	 	 	 	
Debt, including current portion:	 				 				 				
Senior secured credit facility	 	$	223,230	  	 				 				
Redeemable preferred units:	 				 				 				
Class A Preferred Units, no par value per unit, 150,000 units authorized, 150,000 units issued and outstanding, actual;             units authorized, units issued and outstanding, pro forma; units authorized,            units issued and outstanding, pro forma as adjusted	 	 	145,400	  	 				 				
Members’ capital/Stockholders’ equity:	 				 				 				
RMCO Class B Common Units, no par value per unit, 900,000 units authorized, 847,500 units issued and outstanding, actual; units authorized,            units issued and outstanding, pro forma; units authorized,            units issued and outstanding, pro forma as adjusted	 	 	(170,543	) 	 				 				
Class A common stock, $0.0001 par value per share, none authorized, issued or outstanding, actual;            shares authorized,            shares issued and outstanding, pro forma;            shares authorized,            shares issued and outstanding, pro forma as adjusted	 	 	—  	  	 				 				
Class B common stock, no par value per unit, none authorized, issued or outstanding, actual;            units authorized,             units issued and outstanding, pro forma;             units authorized,            units issued and outstanding, pro forma as adjusted	 	 	—  	  	 				 				
Additional paid-in capital	 	 	—  	  	 				 				
Accumulated other comprehensive income	 	 	1,449	  	 				 				
	 	 	 	 	 	 	 	 	 	 	 	 	
Total Members’ capital/Stockholders’ equity	 	 	(169,094	) 	 				 				
	 	 	 	 	 	 	 	 	 	 	 	 	
Total capitalization	 	$	199,536	  	 				 				

(1)	A $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease pro forma as adjusted stockholders’ equity by $        , assuming no exercise of the underwriters’ over-allotment option and that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same.	
 
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 DILUTION
If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the amount per share paid by new investors in our shares of our Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after completion of this offering.
As of June 30, 2013, our pro forma net tangible book value was approximately $         million, or $          per share of Class A common stock. Pro forma net tangible book value per share represents the amount of our tangible assets less our liabilities, divided by the pro forma shares of Class A common stock outstanding as of June 30, 2013, including the effect of the Reorganization Transactions, as if each had occurred on June 30, 2013. Our pro forma as adjusted net tangible book value further includes the impact of our sale of             shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the mid-point of the price range set forth on the front cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our pro forma as adjusted net tangible book value as of June 30, 2013, would have been $         million, or $         per share of Class A common stock. This represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution of $         per share to new investors.
The following table illustrates this dilution to new investors on a per share basis assuming the underwriters do not exercise their option to purchase additional shares:

Assumed initial public offering price per share	  				  	$	        	  	
Pro forma net tangible book value per share as of June 30, 2013, before giving effect to this offering	  	$	        	  	  				
Increase in pro forma net tangible book value per share attributable to new investors purchasing shares from us in this offering	  				  				
	  	 	 	 	  				
Pro forma as adjusted net tangible book value per share after this offering	  				  				
	  				  	 	 	 	
Dilution per share to new investors	  				  	$	 	  	
	  				  	 	 	 	
The following table summarizes, on a pro forma as adjusted basis, as June 30, 2013:
 
 	•	 	the total number of shares of common stock purchased from us by existing stockholders and by the new investors purchasing shares in this offering;	
 
 	•	 	the total consideration paid or to be paid to us by existing stockholders and by the new investors purchasing shares in this offering, assuming an initial public offering price of $             per share (before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering); and	
 
 	•	 	the average price per share paid by existing stockholders and by the new investors purchasing shares in this offering.	

 	  	Shares Purchased	  	Total
Consideration	  	Average
Price Per
Share	 	
 	  	Number	 	  	Percent	  	Amount	 	  	Percent	  			
Existing stockholders	  	$	                    	  	  		  	$	                    	  	  		  	$	                    	  	
New investors	  				  		  				  		  				
	  	 	 	 	  	 	  	 	 	 	  	 	  				
Total	  	$	                    	  	  		  	$	                    	  	  		  				

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A $1.00 increase or decrease in the assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease the total consideration paid to us by new investors by $            million, increase or decrease the percent of total consideration paid to us by new investors by approximately     % and increase or decrease dilution per share for new investors by approximately $            , assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same.
Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters’ option to purchase additional shares and no exercise of any outstanding options to purchase our common stock.
 
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 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
We derived the unaudited pro forma condensed consolidated financial information set forth below by the application of pro forma adjustments to the audited and unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma condensed consolidated statements of income for the year ended December 31, 2012 and the six month period ended June 30, 2013 and the unaudited pro forma condensed consolidated balance sheet as of June 30, 2013 present our consolidated results of operations and financial position to give pro forma effect to the Reorganization Transactions described in “Organizational Structure and Reorganization” and the sale of shares in this offering (excluding shares issuable upon exercise of the underwriters’ option to purchase additional shares), and the application of the net proceeds from this offering, as if all such transactions had been completed as of January 1, 2012 with respect to the unaudited combined condensed consolidated pro forma statements of income and as of June 30, 2013 with respect to the unaudited pro forma condensed consolidated balance sheet. The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2012 also gives effect to our acquisition of certain assets of RE/MAX of Texas as if the acquisition had occurred on January 1, 2012. The unaudited pro forma condensed consolidated financial information reflects pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions we believe are reasonable, but are subject to change. We have made, in our opinion, all adjustments that are necessary to present fairly the unaudited pro forma condensed consolidated financial information.
The pro forma adjustments principally give effect to the following items:
 
 	•	 	the acquisition of certain assets of RE/MAX/KEMCO Partnership L.P. (d/b/a RE/MAX of Texas and for purposes of the unaudited pro forma condensed consolidated financial information, referred to as the RE/MAX of Texas Transaction) which include the regional franchise rights that permit the sale of RE/MAX franchises in the state of Texas. The acquisition of RE/MAX of Texas was deemed significant as defined in Rule 3-05 of Regulation S-X and separate financial statements for RE/MAX of Texas are included elsewhere in this prospectus;	
 
 	•	 	the Reorganization Transactions described in “Organizational Structure and Reorganization,” including the substitution of outstanding options under the 2011 Unit Option Plan;	
 
 	•	 	the tax receivable agreements we will enter into with the existing owners as described in “Organizational Structure and Reorganization—Tax Receivable Agreements.” In the case of the unaudited pro forma condensed consolidated statements of income, a provision for corporate income taxes on the income of RE/MAX Holdings, Inc. at an effective rate of         % which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction;	
 
 	•	 	this offering and the use of a portion of the proceeds as described in “Use of Proceeds,” including the acquisitions of the business assets of HBN and Tails (collectively referred to herein as the “Managed Region Acquisitions”), which will be completed in connection with this offering. The Managed Region Acquisitions are not expected to be significant as defined in Rule 3-05 of Regulation S-X; and	
 
 	•	 	the awards we expect to grant under our proposed stock incentive plan at the time of this offering. See “Executive Compensation—Employee Benefit and Stock Plans—2013 Stock Incentive Plan.”	
The unaudited pro forma condensed consolidated financial information is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the Reorganization Transactions and this offering been consummated on the dates indicated, and do not purport to be indicative of the financial condition or results of operations as of any future date or for any future period. You should read our unaudited pro forma condensed consolidated financial information and the accompanying notes in conjunction with the consolidated historical financial statements and related notes included elsewhere in this prospectus and the financial and other information appearing elsewhere in this prospectus, including information contained in “Risk Factors,” “Selected Historical Consolidated Financial and Operating Data,” “Use of Proceeds,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
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RE/MAX Holdings, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 2012
(Amounts in thousands)

 	 	Historical
RMCO,
LLC(1)	 	 	Historical
RE/MAX
of Texas
(2)	 	 	Pro Forma
Adjustments
for RE/
MAX of
Texas
Transaction
(2)	 	 	Notes	 	Pro Forma
RMCO,
LLC	 	 	Pro Forma
Adjustments
for Re-
organization
Transactions
(3)	 	Notes	 	Pro Forma
RMCO,
LLC and
Re-
organization
Transactions
(3)	 	Pro Forma
Adjustments
for Pro
Forma
Offering(4)	 	Historical
HBN and
Tails (4)	 	Pro Forma
Adjustments
for HBN
and Tails
Transactions(4)	 	Notes	 	Pro Forma
RE/MAX
Holdings,
Inc.(4)	 	
Revenue:	 				 				 				 		 				 		 		 		 		 		 		 		 				
Continuing franchise fees	 	$	56,350	  	 	$	5,879	  	 	$	(872	) 	 		 	$	61,357	  	 		 		 		 		 		 		 		 				
Annual dues	 	 	28,909	  	 	 	—  	  	 	 	—  	  	 		 	 	28,909	  	 		 		 		 		 		 		 		 				
Broker fees	 	 	19,579	  	 	 	2,508	  	 	 	(446	) 	 		 	 	21,641	  	 		 		 		 		 		 		 		 				
Franchise sales and other franchise revenue	 	 	22,629	  	 	 	692	  	 	 	(154	) 	 		 	 	23,167	  	 		 		 		 		 		 		 		 				
Brokerage revenue	 	 	16,210	  	 	 	—  	  	 	 	—  	  	 		 	 	16,210	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Total revenue	 	 	143,677	  	 	 	9,079	  	 	 	(1,472	) 	 	2(a)	 	 	151,284	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Operating expenses:	 				 				 				 		 				 		 		 		 		 		 		 		 				
Selling, operating and administrative expenses	 	 	84,337	  	 	 	4,613	  	 	 	(1,696	) 	 	2(a)(b)	 	 	87,254	  	 		 		 		 		 		 		 		 				
Depreciation and amortization	 	 	12,090	  	 	 	416	  	 	 	3,255	  	 	2(c)	 	 	15,761	  	 		 		 		 		 		 		 		 				
Loss on sale of assets, net	 	 	1,704	  	 	 	—  	  	 	 	—  	  	 		 	 	1,704	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Total operating expenses	 	 	98,131	  	 	 	5,029	  	 	 	1,559	  	 		 	 	104,719	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Operating income	 	 	45,546	  	 	 	4,050	  	 	 	(3,031	) 	 		 	 	46,565	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Other income (expenses):	 				 				 				 		 				 		 		 		 		 		 		 		 				
Interest expense	 	 	(11,686	) 	 	 	(20	) 	 	 	(2,687	) 	 	2(d)	 	 	(14,393	) 	 		 		 		 		 		 		 		 				
Interest income	 	 	286	  	 	 	38	  	 	 	—  	  	 		 	 	324	  	 		 		 		 		 		 		 		 				
Foreign currency transaction gains, net	 	 	208	  	 	 	—  	  	 	 	—  	  	 		 	 	208	  	 		 		 		 		 		 		 		 				
Loss on early extinguishment of debt	 	 	(136	) 	 				 	 	—  	  	 		 	 	(136	) 	 		 		 		 		 		 		 		 				
Equity in earnings of investees	 	 	1,244	  	 	 	—  	  	 	 	—  	  	 		 	 	1,244	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Total other income (expenses), net	 	 	(10,084	) 	 	 	18	  	 	 	(2,687	) 	 		 	 	(12,753	) 	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Income before provision for income taxes	 	 	35,462	  	 	 	4,068	  	 	 	(5,718	) 	 		 	 	33,812	  	 		 		 		 		 		 		 		 				
Provision for income taxes	 	 	(2,138	) 	 	 	—  	  	 	 	—  	  	 		 	 	(2,138	) 	 		 	3(a)	 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Net income from continuing operations	 	 	33,324	  	 	 	4,068	  	 	 	(5,718	) 	 		 	 	31,674	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Loss from discontinued operations	 	 	—  	  	 	 	(38	) 	 	 	38	  	 	2(e)	 				 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 		 		 		 		 		 		 		 				
Net income attributable to controlling and non-controlling interests	 	$	33,324	  	 	$	4,030	  	 	$	(5,680	) 	 		 	$	31,674	  	 		 		 		 		 		 		 		 				
	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 		 		 		 		 		 		 		 				
Less: Net income attributable to non-controlling interest	 				 				 				 		 				 		 	3(b)	 		 		 		 		 		 				
	 				 				 				 		 				 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Net income attributable to RE/MAX Holdings, Inc.	 				 				 				 		 				 		 		 		 		 		 		 		 				
	 				 				 				 		 				 	 	 		 	 	 	 	 	 	 	 	 		 	 	 	 	
Weighted average shares of Class A common stock outstanding	 				 				 				 		 				 		 		 		 		 		 		 		 				
Basic	 				 				 				 		 				 		 		 		 		 		 		 		 				
Diluted	 				 				 				 		 				 		 		 		 		 		 		 		 				
Net income available to Class A common stock per share	 				 				 				 		 				 		 		 		 		 		 		 		 				
Basic	 				 				 				 		 				 		 		 		 		 		 		 		 	$	 	  	
Diluted	 				 				 				 		 				 		 		 		 		 		 		 		 	$	 	  	
Pro forma net income available to Class A common stock per share	 				 				 				 		 				 		 		 		 		 		 		 		 				
Basic	 				 				 				 		 				 		 		 		 		 		 		 		 	$	 	  	
Diluted	 				 				 				 		 				 		 		 		 		 		 		 		 	$	 	  	
The accompanying notes are an integral part of, and should be read together with, this unaudited pro forma condensed consolidated financial information.
 
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RE/MAX Holdings, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
Six months ended June 30, 2013
(Amounts in thousands)

 	 	Historical
RMCO,
LLC(1)	 	 	Pro Forma
Adjustments for
Re-organization
Transactions(3)	 	Notes	 	 	Pro Forma for
Reorganization
Transactions(3)	 	Pro Forma
Adjustments for
Pro Forma
Offering(4)	 	Historical
HBN and
Tails(4)	 	Pro Forma
Adjustments for
HBN and Tails
Transactions(4)	 	Notes	 	Pro Forma
RE/MAX
Holdings, Inc.(4)	 	
Revenue:	 				 		 				 		 		 		 		 		 				
Continuing franchise fees	 	$	30,944	  	 		 				 		 		 		 		 		 				
Annual dues	 	 	14,597	  	 		 				 		 		 		 		 		 				
Broker fees	 	 	11,500	  	 		 				 		 		 		 		 		 				
Franchise sales and other franchise revenue	 	 	12,747	  	 		 				 		 		 		 		 		 				
Brokerage revenue	 	 	8,528	  	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	78,316	  	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 				 		 				 		 		 		 		 		 				
Selling, operating and administrative expenses	 	 	47,983	  	 		 				 		 		 		 		 		 				
Depreciation and amortization	 	 	7,432	  	 		 				 		 		 		 		 		 				
Loss on sale of assets, net	 	 	44	  	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	55,459	  	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	22,857	  	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expenses):	 				 		 				 		 		 		 		 		 				
Interest expense	 	 	(6,925	) 	 		 				 		 		 		 		 		 				
Interest income	 	 	142	  	 		 				 		 		 		 		 		 				
Foreign currency transaction gains, net	 	 	(416	) 	 		 				 		 		 		 		 		 				
Loss on early extinguishment of debt	 	 	(134	) 	 		 				 		 		 		 		 		 				
Equity in earnings of investees	 	 	462	  	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expenses), net	 	 	(6,871	) 	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before provision for income taxes	 	 	15,986	  	 		 				 		 		 		 		 		 				
Provision for income taxes	 	 	(1,031	) 	 		 	 	3	(c) 	 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	14,955	  	 		 				 		 		 		 		 		 				
	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net income attributable to non-controlling interest	 				 		 	 	3	(d) 	 		 		 		 		 		 				
	 				 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to RE/MAX Holdings, Inc.	 				 		 				 		 		 		 		 		 				
	 				 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares of Class A common stock outstanding	 				 		 				 		 		 		 		 		 				
Basic	 				 		 				 		 		 		 		 		 				
Diluted	 				 		 				 		 		 		 		 		 				
Net income available to Class A common stock per share	 				 		 				 		 		 		 		 		 				
Basic	 				 		 				 		 		 		 		 		 	$	 	  	
Diluted	 				 		 				 		 		 		 		 		 	$	 	  	
Pro forma net income available to Class A common stock per share	 				 		 				 		 		 		 		 		 				
Basic	 				 		 				 		 		 		 		 		 	$	 	  	
Diluted	 				 		 				 		 		 		 		 		 	$	 	  	
The accompanying notes are an integral part of, and should be read together with, this unaudited pro forma condensed consolidated financial information.
 
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RE/MAX Holdings, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2013
(Amounts in thousands, except units)

 	 	Historical
RMCO,
LLC(1)	 	 	Pro Forma
Adjustments
for
Reorganization
Transactions(3)	 	Notes	 	Pro  Forma
for
Reorganization
Transactions(3)	 	Pro Forma
Adjustments
for
Pro Forma
Offering(4)	 	Historical
HBN and
Tails(4)	 	Pro Forma
Adjustments
for HBN
and Tails
Transactions(4)	 	Notes	 	Pro  Forma
RE/MAX
Holdings,
Inc.(4)	
Assets	 				 		 		 		 		 		 		 		 		
Current assets:	 				 		 		 		 		 		 		 		 		
Cash and cash equivalents	 	$	58,582	  	 		 		 		 		 		 		 		 		
Escrow cash—restricted	 	 	1,224	  	 		 		 		 		 		 		 		 		
Accounts and notes receivable, current portion, less allowances	 	 	17,121	  	 		 		 		 		 		 		 		 		
Accounts receivable from affiliates	 	 	10	  	 		 		 		 		 		 		 		 		
Other current assets	 	 	2,202	  	 		 		 		 		 		 		 		 		
	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	
Total current assets	 	 	79,139	  	 		 		 		 		 		 		 		 		
Property and equipment, net	 	 	2,645	  	 		 		 		 		 		 		 		 		
Franchise agreements, net	 	 	72,406	  	 		 		 		 		 		 		 		 		
Other intangible assets, net	 	 	2,533	  	 		 		 		 		 		 		 		 		
Goodwill	 	 	70,817	  	 		 		 		 		 		 		 		 		
Deferred tax asset	 	 	—  	  	 		 	3(aa)	 		 		 		 		 		 		
Investments in equity method investees	 	 	3,698	  	 		 		 		 		 		 		 		 		
Debt issuance costs, net	 	 	2,430	  	 		 		 		 		 		 		 		 		
Other assets	 	 	4,402	  	 		 		 		 		 		 		 		 		
	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	
Total assets	 	$	238,070	  	 		 		 		 		 		 		 		 		
	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	
Liabilities, Redeemable Preferred Units and Members’ Deficit/Stockholders’ Equity	 				 		 		 		 		 		 		 		 		
Current liabilities:	 				 		 		 		 		 		 		 		 		
Accounts payable	 	$	690	  	 		 		 		 		 		 		 		 		
Accounts payable to affiliates	 	 	2,473	  	 		 		 		 		 		 		 		 		
Escrow liabilities	 	 	1,224	  	 		 		 		 		 		 		 		 		
Accrued liabilities	 	 	9,378	  	 		 		 		 		 		 		 		 		
Income taxes payable	 	 	314	  	 		 		 		 		 		 		 		 		
Deferred revenue and deposits	 	 	16,200	  	 		 		 		 		 		 		 		 		
Current portion of debt	 	 	17,300	  	 		 		 		 		 		 		 		 		
Other current liabilities	 	 	87	  	 		 		 		 		 		 		 		 		
	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	
Total current liabilities	 	 	47,666	  	 		 		 		 		 		 		 		 		
Debt, net of current portion	 	 	205,930	  	 		 		 		 		 		 		 		 		
Payable to related parties pursuant to tax receivable agreements	 	 	—  	  	 		 	3(aa)	 		 		 		 		 		 		
Deferred revenue, net of current portion	 	 	457	  	 		 		 		 		 		 		 		 		
Other liabilities, net of current portion	 	 	7,711	  	 		 		 		 		 		 		 		 		
	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	
Total liabilities	 	 	261,764	  	 		 		 		 		 		 		 		 		
Redeemable preferred units:	 				 		 		 		 		 		 		 		 		
Class A preferred units, at estimated redemption value (no par value, 150,000 units authorized, issued and outstanding as of June 30, 2013; liquidation preference of $49,300 at June 30, 2013)	 	 	145,400	  	 		 		 		 		 		 		 		 		

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 	 	Historical
RMCO,
LLC(1)	 	 	Pro Forma
Adjustments
for
Reorganization
Transactions(3)	 	Notes	 	Pro  Forma
for
Reorganization
Transactions(3)	 	Pro Forma
Adjustments
for
Pro Forma
Offering(4)	 	Historical
HBN and
Tails(4)	 	Pro Forma
Adjustments
for HBN and
Tails
Transactions(4)	 	Notes	 	Pro  Forma
RE/MAX
Holdings,
Inc.(4)	
Members’ deficit/Stockholders’ equity:	 				 		 		 		 		 		 		 		 		
Class B common units (no par value, 900,000 units authorized, 847,500 units issued and outstanding as of June 30, 2013)	 	 	(170,543	) 	 		 		 		 		 		 		 		 		
Accumulated other comprehensive income	 	 	1,449	  	 		 		 		 		 		 		 		 		
Class A common stock, par value $0.0001 per share, shares authorized;                 shares issued and outstanding on a pro forma basis	 	 	—  	  	 		 		 		 		 		 		 		 		
Class B common stock, par value $0.0001 per share, shares authorized;                 shares issued and outstanding on a pro forma basis	 	 	—  	  	 		 		 		 		 		 		 		 		
Additional paid-in capital	 	 	—  	  	 		 		 		 		 		 		 		 		
	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	
Total members’ deficit/stockholders’ equity attributable to RE/MAX Holdings, Inc.	 	 	(169,094	) 	 		 		 		 		 		 		 		 		
Non-controlling interest	 				 		 	3(bb)	 		 		 		 		 		 		
Total equity	 				 		 		 		 		 		 		 		 		
	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 		 	 	
Total liabilities, redeemable preferred units and members’ deficit/stockholders’ equity	 	$	238,070	  	 		 		 		 		 		 		 		 		

The accompanying notes are an integral part of, and should be read together with, this unaudited pro forma condensed consolidated financial information.
 
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RE/MAX Holdings, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
1. Basis of Presentation and Description of Transactions
Effective December 31, 2012, we acquired certain assets of RE/MAX/KEMCO Partnership L.P. d/b/a RE/MAX of Texas (RE/MAX of Texas), including its rights under the regional franchise agreements, issued by the Company, permitting the sale of RE/MAX franchises in the state of Texas. The Company acquired these assets in order to expand its owned and operated regional franchising operations. The purchase price was $45,500,000 and was paid in cash using proceeds provided from borrowings. For further information about the RE/MAX of Texas Transaction, see Note 6 to our audited consolidated financial statements included elsewhere in this prospectus. For purposes of the unaudited pro forma condensed consolidated financial information, the acquisition of RE/MAX of Texas is referred to as the RE/MAX of Texas Transaction.
The historical RMCO, LLC (RMCO) results of operations for the year ended December 31, 2012 are derived from our audited consolidated financial statements included elsewhere in this prospectus. Consolidated statement of income data for the six-month period ended June 30, 3013 and consolidated balance sheet data as of June 30, 2013 for RMCO, LLC are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The historical RE/MAX of Texas results of operations for the year ended December 31, 2012 were derived from the RE/MAX of Texas audited consolidated financial statements included elsewhere in this prospectus.
2. Pro Forma RMCO, LLC
The historical results of operations of RE/MAX of Texas have been adjusted to give pro forma effect to events that are (i) directly attributable to the RE/MAX of Texas Transaction; (ii) factually supportable and (iii) expected to have a continuing impact on the combined results, as if the RE/MAX of Texas Transaction occurred on January 1, 2012 (referred to as “Pro Forma Adjustments for RE/MAX of Texas Transaction”) and are combined with the historical results of RMCO, LLC to present Pro Forma RMCO, LLC. Due to the fact that the RE/MAX of Texas Transaction occurred on December 31, 2012, the results of operations of RE/MAX of Texas are included in the consolidated statement of income for RMCO for the six-month period ended June 30, 2013.
Unaudited Pro Forma Condensed Consolidated Statement of Income—Year Ended December 31, 2012
Pro forma Adjustments for the RE/MAX of Texas Transaction consist of the following:
 
 	(a)	The pro forma adjustment to total revenue reflects the elimination of continuing franchise fees, broker fees and franchise fees of $1,360 paid by RE/MAX of Texas to RMCO during 2012. As a result, also reflected is a reduction in RE/MAX of Texas’ selling, operating and administrative expenses for the same amount. Also reflected in the pro forma adjustment to total revenue is a decrease to franchise sales and other franchise revenue of $112 related to rental income recognized by RE/MAX of Texas on an asset not acquired by RMCO.	
 
 	(b)	The pro forma adjustment to selling, operating and administrative expenses reflects a reduction of $336 relating to direct acquisition costs incurred during 2012 related to the acquisition of RE/MAX of Texas.	
 
 	(c)	The pro forma adjustment to depreciation and amortization reflects an increase of $3,648 in amortization expense related to the regional franchise agreement intangible asset acquired, which was determined to have an acquisition date fair value of $15,200. The regional franchise agreement is being amortized over a period of 50 months. This amount is offset by a reduction of $351 related to amortization expense recognized by RE/MAX of Texas during 2012 on historical intangible assets and $42 of depreciation expense recognized by RE/MAX of Texas in 2012 related to an asset of RE/MAX of Texas not acquired by RMCO, LLC.	
 
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 	(d)	The components of the pro forma adjustment to interest expense include an increase to interest expense of $2,475 related to additional borrowings of $45,000 used to finance the RE/MAX of Texas acquisition and $212 related to the amortization of additional deferred financing costs incurred in connection with such additional borrowings. The interest rate on our senior secured credit facility is currently subject to a floor of 4.0%, based on current LIBOR rates. A hypothetical increase of  1 / 8 % on existing LIBOR rates would not currently result in an increase in the Company’s effective interest rate and therefore would not have an impact on our pro forma interest expense.	
 
 	(e)	Reflects pro forma adjustment to eliminate the loss from discontinued operations of RE/MAX of Texas as these operations were not acquired by RMCO.	
3. Pro Forma RMCO, LLC and Reorganization Transactions
In connection with the completion of this offering, the following actions will occur as discussed in the “Reorganization Transactions” included elsewhere in this prospectus:
 
 	•	 	RMCO’s Third Amended and Restated Limited Liability Company Agreement, dated as of February 1, 2013 will be amended and restated;	
 
 	•	 	RMCO will recapitalize so that Weston Presidio’s existing Class A preferred membership interest is exchanged for (i) a new preferred membership interest that reflects Weston Presidio’s current liquidation preference of $         and (ii) a common interest that reflects Weston Presidio’s current prorated share of the residual equity value of RMCO;	
 
 	•	 	RMCO will split the current number of outstanding common units so that one common unit can be acquired with the net proceeds received in the initial offering from the sale of one share of our Class A common stock, after the deduction of underwriting discounts and commissions;	
 
 	•	 	RE/MAX Holdings, Inc. will become a member and the sole manager of RMCO following (i) its acquisition of the business assets of HBN and Tails and the contribution of such assets to RMCO in exchange for              newly issued common units of RMCO worth approximately $27.3 million and (ii) its purchase from RMCO of          newly issued common units for $        , which represents all of the remaining net proceeds we will receive in this offering from the sale of shares of our Class A common stock, after the deduction of underwriting discounts and commissions and the approximately $27.3 million of proceeds used to acquire the business assets of HBN and Tails;	
 
 	•	 	RMCO will use $         from the net proceeds received from RE/MAX Holdings, Inc. to first completely redeem the preferred membership interest held by Weston Presidio and to eliminate Weston Presidio’s liquidation preference;	
 
 	•	 	RMCO will then redeem on a pro-rata basis common units from RIHI for $         and common units from Weston Presidio for $        , which will equal, in the aggregate, $        , and constitute the remaining amount of net proceeds received from RE/MAX Holdings, Inc. after the complete redemption of Weston Presidio’s preferred membership interest in RMCO; and	
 
 	•	 	options to acquire shares of our Class A common stock will be substituted for any such unexercised compensatory options to acquire common units in RMCO.	
For purposes of the unaudited pro forma condensed consolidation financial information, these transactions are collectively referred to as “The Reorganization Transactions.”
Unaudited Pro Forma Condensed Consolidated Statement of Income—Year Ended December 31, 2012
Pro Forma RMCO, LLC and for the Reorganization Transactions for the year ended December 31, 2012 includes Pro Forma Adjustments for RE/MAX of Texas Transaction along with pro forma adjustments to reflect
 
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the Reorganization Transactions as if those transactions occurred on January 1, 2012 (referred to as “Pro Forma Adjustments for the Reorganization Transactions”) as follows:
 
 	(a)	RE/MAX Holdings, Inc. will be subject to U.S. federal income taxes, in addition to state, local and international taxes, with respect to our allocable share of any net taxable income of RMCO, which will result in higher income taxes. As a result, the pro forma statements of income reflect an adjustment to our provision for corporate income taxes to reflect an estimated effective rate of 38%, which includes provisions for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction.	
 
 	(b)	As described in “Organizational Structure and Reorganization,” RE/MAX Holdings, Inc. will become the sole managing member of RMCO. RE/MAX Holdings, Inc. will initially have a minority (non-controlling) economic interest in RMCO but will have 100% of the voting power and control the management of RMCO. Immediately following this offering, the non-controlling interest will be     %. Net income attributable to the non-controlling interest represents     % of income before provision for income taxes             . These amounts have been determined based on an offering price of             and the assumption that the underwriter’s option to purchase additional shares is not exercised. If the assumed offering price increased by $1.00 to $         per share, the ownership percentage held by the non-controlling interest would decrease to     %, or     % if the over-allotment is exercised. If the assumed offering price decreased by $1.00 to $         per share, the ownership percentage held by the non-controlling interest would increase to     % or     % if the over-allotment is exercised. Net income available to Class A common stock per share would not be significantly different if the assumed offering price changed by $1.00.	
Unaudited Pro Forma Condensed Consolidated Statement of Income—Six months ended June 30, 2013
The Pro Forma for the Reorganization Transactions for the six months ended June 30, 2013 include pro forma adjustments to reflect the Pro Forma Adjustments for Reorganization Transactions as follows:
 
 	(c)	RE/MAX Holdings, Inc. will be subject to U.S. federal income taxes, in addition to state, local and international taxes, with respect to our allocable share of any net taxable income of RMCO, which will result in higher income taxes. As a result, the pro forma statements of income reflect an adjustment to our provision for corporate income taxes to reflect an effective rate of 38%, which includes provisions for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction.	
 
 	(d)	As described in “Organizational Structure and Reorganization,” RE/MAX Holdings, Inc. will become the sole managing member of RMCO. RE/MAX Holdings, Inc. will initially have a minority economic interest in RMCO but will have 100% of the voting power and control the management of RMCO. Immediately following this offering, the non-controlling interest will be     %. Net income attributable to the non-controlling interest represents     % of income before provision for income taxes             . These amounts have been determined based on an offering price of             and the assumption that the underwriter’s option to purchase additional shares is not exercised. If the assumed offering price increased by $1.00 to $         per share, the ownership percentage held by the non-controlling interest would decrease to     %, or     % if the over-allotment is exercised. If the assumed offering price decreased by $1.00 to $         per share, the ownership percentage held by the non-controlling interest would increase to     % or     % if the over-allotment is exercised. Net income available to Class A common stock per share would not be significantly different if the assumed offering price changed by $1.00.	
Unaudited Pro Forma Condensed Consolidated Balance Sheet—As of June 30, 2013
 
 	(aa)	Pro forma adjustments reflect the effects of the tax receivable agreements on our consolidated balance sheet as a result of RE/MAX Holdings, Inc.’s purchase of common units from RMCO and RMCO’s	
 
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 	related redemption of preferred units from Weston Presidio with the net proceeds from this offering. Pursuant to the tax receivable agreements, RE/MAX Holdings, Inc. will be required to make cash payments to our existing owners equal to 85% of the amount of cash savings, if any, in U.S. federal, state and local tax that RE/MAX Holdings, Inc. actually realizes, or in some circumstances is deemed to realize, as a result of certain future tax benefits to which RE/MAX Holdings, Inc. may become entitled. These tax benefit payments are not necessarily conditioned upon one or more of the existing owners maintaining a continued ownership interest in either RMCO or RE/MAX Holdings, Inc. RE/MAX Holdings, Inc. expects to benefit from the remaining 15% of cash savings, if any, that it may actually realize.	
 
 	    	As a result, as of the date of the purchase of the Class A common stock, on a cumulative basis, the net effect of accounting for income taxes and the tax receivable agreements on our financial statements will be a net increase in stockholders’ equity of     % of the estimated realizable tax benefit. The amounts to be recorded for both the deferred tax assets and the liability for our obligations under the tax receivable agreements have been estimated. All of the effects of changes in any of our estimates after the date of the purchase will be included in net income. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income.	
 
 	(bb)	As described in “Organizational Structure and Reorganization,” RE/MAX Holdings, Inc. will become a member and the sole manager of RMCO. As the sole manager, RE/MAX Holdings, Inc. will control all of the day-to-day business affairs and decision-making of RMCO without the approval of any other member. As such, RE/MAX Holdings, Inc., through its officers and directors, will be responsible for all operational and administrative decisions of RMCO and the day-to-day management of RMCO’s business. As a result, we will consolidate the financial results of RMCO and will record an amount as non-controlling interest on our consolidated balance sheet.	
4. Pro Forma RE/MAX Holdings, Inc.
The Pro Forma RE/MAX Holdings, Inc. condensed consolidated statement of income data for the year ended December 31, 2012 includes Pro Forma RMCO, LLC, Pro Forma for the Reorganization Transactions and gives further effect to: (i) the issuance and sale by us of             shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the mid-point of the range set for on the cover of this prospectus after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us; (ii) the Managed Region Acquisitions as discussed in the “Use of Proceeds” and (iii) the awards we expect to grant under our proposed stock incentive plan at the time of this offering. See “Executive Compensation—Employee Benefit and Stock Plans—2013 Stock Incentive Plan.”
 
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 SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents our selected historical consolidated financial data and certain operating data. The consolidated statement of operations data for the years ended December 31, 2010, 2011, and 2012 and the consolidated balance sheet data as of December 31, 2011 and 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 2008 and 2009 and the consolidated balance sheet data as of December 31, 2008, 2009 and 2010 have been derived from our consolidated financial statements not included in this prospectus.
The consolidated statement of operations data for the six months ended June 30, 2012 and 2013 and the consolidated balance sheet data as of June 30, 2013 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations as of the dates and for the periods indicated.
The selected historical consolidated financial data and operating data presented below should be read in conjunction with “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period.

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 	 	Year Ended December 31,	 	 	Six Months Ended
June 30,	 	
 	 	2008	 	 	2009	 	 	2010	 	 	2011	 	 	2012	 	 	2012	 	 	2013	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(unaudited)	 	 	(unaudited)	 	
 	 	(in thousands, except for agent data)	 	
Consolidated Statements of Operations Data:	 				 				 				 				 				 				 				
Total revenue:	 				 				 				 				 				 				 				
Continuing franchise fees	 	$	75,706	  	 	$	62,623	  	 	$	60,865	  	 	$	57,200	  	 	$	56,350	  	 	$	27,875	  	 	$	30,944	  	
Annual dues	 	 	37,888	  	 	 	31,627	  	 	 	30,472	  	 	 	28,922	  	 	 	28,909	  	 	 	14,168	  	 	 	14,597	  	
Broker fees	 	 	16,401	  	 	 	16,010	  	 	 	16,021	  	 	 	16,764	  	 	 	19,579	  	 	 	9,116	  	 	 	11,500	  	
Franchise sales and other franchise revenue	 	 	18,025	  	 	 	17,841	  	 	 	15,709	  	 	 	19,354	  	 	 	22,629	  	 	 	11,000	  	 	 	12,747	  	
Brokerage revenue	 	 	29,280	  	 	 	21,569	  	 	 	17,150	  	 	 	16,062	  	 	 	16,210	  	 	 	8,009	  	 	 	8,528	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	$	177,300	  	 	$	149,670	  	 	$	140,217	  	 	$	138,302	  	 	$	143,677	  	 	$	70,168	  	 	$	78,316	  	
Operating expenses:	 				 				 				 				 				 				 				
Selling, operating and administrative expenses	 	 	112,583	  	 	 	78,882	  	 	 	81,353	  	 	 	85,291	  	 	 	84,337	  	 	 	43,214	  	 	 	47,983	  	
Depreciation and amortization	 	 	23,437	  	 	 	20,861	  	 	 	16,735	  	 	 	14,473	  	 	 	12,090	  	 	 	6,443	  	 	 	7,432	  	
Impairment of goodwill	 	 	79,654	  	 	 	17,137	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 				 				
Loss on sale of assets, net	 	 	110	  	 	 	2,686	  	 	 	3,719	  	 	 	67	  	 	 	1,704	  	 	 	(18	) 	 	 	44	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	215,784	  	 	 	119,566	  	 	 	101,807	  	 	 	99,831	  	 	 	98,131	  	 	 	49,639	  	 	 	55,459	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating (loss) income	 	 	(38,484	) 	 	 	30,104	  	 	 	38,410	  	 	 	38,471	  	 	 	45,546	  	 	 	20,529	  	 	 	22,857	  	
Other income (expenses):	 				 				 				 				 				 				 				
Interest expense	 	 	(35,683	) 	 	 	(29,805	) 	 	 	(22,295	) 	 	 	(12,203	) 	 	 	(11,686	) 	 	 	(5,861	) 	 	 	(6,925	) 	
Interest income	 	 	958	  	 	 	770	  	 	 	538	  	 	 	372	  	 	 	286	  	 	 	129	  	 	 	142	  	
Foreign currency transaction gains (losses) net	 	 	(1,422	) 	 	 	1,163	  	 	 	167	  	 	 	(266	) 	 	 	208	  	 	 	(36	) 	 	 	(416	) 	
Loss on early extinguishment of debt	 	 	(313	) 	 	 	(2,833	) 	 	 	(18,161	) 	 	 	(384	) 	 	 	(136	) 	 	 	(136	) 	 	 	(134	) 	
Equity in earnings of investees	 	 	669	  	 	 	1,428	  	 	 	643	  	 	 	431	  	 	 	1,244	  	 	 	314	  	 	 	462	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expenses), net	 	 	(35,791	) 	 	 	(29,277	) 	 	 	(39,108	) 	 	 	(12,050	) 	 	 	(10,084	) 	 	 	(5,590	) 	 	 	(6,871	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Loss) income before provision for income taxes	 	 	(74,275	) 	 	 	827	  	 	 	(698	) 	 	 	26,421	  	 	 	35,462	  	 	 	14,939	  	 	 	15,986	  	
Provision for income taxes	 	 	(1,897	) 	 	 	(2,278	) 	 	 	(2,049	) 	 	 	(2,172	) 	 	 	(2,138	) 	 	 	(1,104	) 	 	 	(1,031	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income	 	 	(76,172	) 	 	 	(1,451	) 	 	 	(2,747	) 	 	 	24,249	  	 	 	33,324	  	 	 	13,835	  	 	 	14,955	  	
Net loss attributable to noncontrolling interests	 	 	3,103	  	 	 	2,078	  	 	 	10,059	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income attributable to controlling interests	 	 	(73,069	) 	 	 	627	  	 	 	7,312	  	 	 	24,249	  	 	 	33,324	  	 	 	13,835	  	 	 	14,955	  	
Accretion of Class A Preferred Units to estimated redemption amounts	 	 	—  	  	 	 	—  	  	 	 	23,453	  	 	 	10,307	  	 	 	15,288	  	 	 	6,831	  	 	 	79,672	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income related to common stockholders/unitholders	 	$	(73,069	) 	 	$	627	  	 	$	(16,141	) 	 	$	13,942	  	 	$	18,036	  	 	$	7,004	  	 	$	(64,717	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other data:	 				 				 				 				 				 				 				
Agent count at period end	 	 	100,331	  	 	 	92,071	  	 	 	89,628	  	 	 	87,476	  	 	 	89,008	  	 	 	88,487	  	 	 	91,809	  	
 
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 	  	As of December 31,	 	 	As of
June 30,
2013	 	
 	  	2008	 	 	2009	 	 	2010	 	 	2011	 	 	2012	 	 			
 	  	(in thousands)	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(unaudited)	 	
Consolidated Balance Sheet Data:	  				 				 				 				 				 				
Cash	  	$	42,264	  	 	$	37,129	  	 	$	44,569	  	 	$	38,611	  	 	$	68,501	  	 	$	58,582	  	
Franchise agreements, net	  	 	105,971	  	 	 	94,727	  	 	 	83,452	  	 	 	72,217	  	 	 	78,338	  	 	 	72,406	  	
Goodwill	  	 	58,108	  	 	 	41,867	  	 	 	41,963	  	 	 	41,882	  	 	 	71,039	  	 	 	70,817	  	
Total assets	  	 	353,914	  	 	 	292,838	  	 	 	206,160	  	 	 	186,465	  	 	 	251,512	  	 	 	238,070	  	
Long-term debt, including current portion	  	 	339,942	  	 	 	297,075	  	 	 	211,366	  	 	 	195,340	  	 	 	232,326	  	 	 	223,230	  	
Redeemable preferred units	  	 	—  	  	 	 	—  	  	 	 	62,200	  	 	 	66,500	  	 	 	78,400	  	 	 	145,400	  	
Total members’ deficit	  	 	(47,356	) 	 	 	(61,102	) 	 	 	(97,946	) 	 	 	(109,524	) 	 	 	(96,769	) 	 	 	(169,094	) 	
 
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 MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in thousands.
The historical financial data discussed below reflects the historical results of operations and financial condition of RMCO and its consolidated subsidiaries and does not give effect to the Reorganization Transactions. See “Organizational Structure and Reorganization” and “Unaudited Pro Forma Condensed Consolidated Financial Information” included elsewhere in this prospectus for a description of the Reorganization Transactions and its effect on our historical results of operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.
Overview
We are one of the world’s leading franchisors of real estate brokerage services. Our business strategy is to recruit and retain agents and sell franchises. Our franchisees operate under the RE/MAX brand name which has held the number one market share in the U.S. and Canada since 1999 as measured by total residential transaction sides completed by our agents. Accordingly, our company slogan is “Nobody sells more real estate than RE/MAX.” The RE/MAX brand has the highest level of unaided brand awareness in the U.S. and Canada according to a 2013 survey by MMR Strategy Group, and our iconic red, white and blue RE/MAX hot air balloon is one of the most recognized real estate logos in the world.
RE/MAX was founded in 1973 by Dave and Gail Liniger with an innovative, entrepreneurial culture affording our agents and franchisees the flexibility to operate their businesses with great independence. This business strategy led to a 33-year period of uninterrupted growth, as RE/MAX added large numbers of franchises and agents in the U.S., Canada and around the world. Today, the RE/MAX brand operates in more countries than any other real estate brokerage brand in the world.
Our financial results are driven by the number of agents in our global network. The majority of our revenue is derived from fixed, contractual fees and dues paid to us based on the number of agents in our franchise network.
We grew our total agent count at a CAGR of 30% from our founding to a peak of approximately 120,000 agents in 2006. Our agent count declined approximately 26.8% from 2006 through 2011 as real estate transaction activity declined during the U.S. real estate downturn and economic recession. We returned to growth with a net gain of 1,532 agents during 2012 (of which 651 agents were in the U.S.), as the U.S. housing recovery took hold and real estate transaction activity began to rebound. We have accelerated our growth in 2013 with a net gain of 3,231 agents through July 31, 2013 (of which 1,797 agents were in the U.S.), as the upturn has gained momentum.
With approximately 74% of our 2012 revenue coming from the U.S., we believe that we are well positioned to benefit from a continuing recovery in the U.S. housing market. Existing home sale transactions in the U.S. rose 9.4% in 2012 compared to 2011, according to NAR. During the first quarter of 2013, existing home sale transactions rose 9.9% compared to the first quarter of 2012 and are expected to rise an aggregate of 8.3% in 2013, according to NAR. We expect that our U.S. agent count will continue to increase as part of the ongoing U.S. housing recovery and that we will continue to attract productive agents who recognize the strength of the
 
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RE/MAX brand and our agent-centric value proposition. With approximately 17% of our 2012 revenue coming from Canada, where RE/MAX has the leading market share among residential brokerage firms, we also expect to benefit from a continuation of generally stable Canadian housing market trends.
Our current growth strategies include the following initiatives:
 
 	•	 	Capitalize on the U.S. housing recovery and increase our total agent count.	
 
 	•	 	Continue to drive franchise sales growth and agent recruitment and retention.	
 
 	•	 	Reacquire select RE/MAX regional franchises in the U.S. and Canada.	
 
 	•	 	Increase franchise and agent fees.	
We function under the following franchise organizational model, with nearly all of the RE/MAX branded brokerage office locations being operated by franchisees:

Franchise Tier	  	Description	
		
RE/MAX	  	Owns the right to the RE/MAX brand and sells franchises and franchising rights.	
		
Regional
Franchise Owner	  	Owns rights to sell brokerage franchises in a specified region. Current network of 162 regions globally. In the U.S. and Canada, RE/MAX owns 10 of 32 regional franchises, representing 46% of our U.S. and Canada agent count. The remaining 22 regional franchises, representing 54% of our U.S. and Canada agent count, are Independent Regions. We intend to use a portion of the proceeds of this offering to reacquire regional RE/MAX franchise rights in the Central Atlantic and Southwest regions, increasing Company-owned Regions to approximately 54% of our U.S. and Canada agent count.	
		
Franchisee
(or Broker-Owner)	  	Owns right to operate a RE/MAX-branded brokerage office, list properties and recruit agents. Over 6,300 offices globally.	
		
Agent
(or Sales Associate)	  	Branded independent contractors who operate out of local franchise brokerage offices. Approximately 90,000 agents globally.	
In the early years of our expansion in the U.S. and Canada, we sold regional franchise rights to independent owners for certain Independent Regions while retaining rights to other regions. In recent years, we have pursued a strategy to reacquire regional franchise rights, such as the California, Hawaii, Florida and Carolinas regions in 2007, the Mountain States region in 2011 and the Texas region in 2012. We intend to reacquire regional RE/MAX franchise rights in the Central Atlantic and Southwest regions concurrently with the completion of this offering.
As a franchisor with less than 1% owned brokerage offices in the U.S., we maintain a low fixed-cost structure which enables us to generate high margins and helps us drive significant operating leverage through incremental revenue growth as reflected in our financial results.
 
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We have multiple revenue streams, with the majority of our revenue derived from fixed contractual fees and dues paid by our agents, franchisees and regional franchise owners. Our revenue consists of (i) continuing franchise fees from regional franchise owners and franchisees as a fixed amount per agent, (ii) fixed annual dues from agents, (iii) broker fees derived from a percentage of agent commissions, (iv) franchise fees from the sale or renewal of franchises and other franchise revenue and (v) brokerage revenue, which principally represents fees assessed by our owned brokerages for services provided to their affiliated real estate agents. Our revenue streams are illustrated in the following chart:

We operate in two reportable segments, Real Estate Franchise Services, and Brokerage and Other. The Real Estate Franchise Services reportable segment comprises the operations of our owned and independent global franchising operations. The Brokerage and Other reportable segment contains the operations of our 21 owned brokerage offices in the U.S. which represent less than 1% of RE/MAX brokerages in the U.S., the results of operations of a mortgage brokerage company in which we own a non-controlling interest, the elimination of intersegment revenue and other consolidation entities, as well as corporate and professional services expenses. Our reportable segments represent our operating segments for which separate financial information is available and which is utilized on a regular basis by our management to assess performance and to allocate resources. For more information about our reportable segments, see Notes 16 and 11 of our audited consolidated financial statements and our unaudited condensed consolidated financial statements, respectively.
The historical results of operations discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are those of RMCO and its consolidated subsidiaries. Prior to the Reorganization Transactions and our initial public offering, RMCO has been wholly-owned by our existing owners. Following the completion of the Reorganization Transactions and in connection with this offering, we will purchase both newly issued and previously outstanding common units of RMCO representing a     % equity interest in RMCO and we will become a member and the sole manager of RMCO. As the sole manager of RMCO, we will control its business and affairs and, therefore, consolidate its financial results with ours. Immediately after the Reorganization Transactions and this offering, our existing owners will retain common units in RMCO representing a collective     % equity interest in RMCO, and we will reflect their collective interest as a non-controlling interest in our consolidated financial statements. As a result, our net income, after excluding the non-controlling interest of our existing owners, will represent     % of RMCO’s net income and our sole asset will be our corresponding     % controlling equity interest in RMCO. Upon the consummation of the offering, the holders of our Class A common stock will collectively own 100% of our economic interests and have     % of our voting power. The holders of our Class B common stock will have the remaining     % of our voting power. For more information on the pro forma impact of the Reorganization Transactions and this offering, as well as the other aspects of the Reorganization Transactions, see “Unaudited Pro Forma Condensed Consolidated Financial Information.” Following this offering and the completion of the Reorganization Transactions, our principal equity holder will be RIHI. See “Organizational Structure and Reorganization.”
 
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Our financial results for the years ended December 31, 2010, 2011 and 2012 were as follows:

 	  	Years Ended December 31,	 	
 	  	2010	 	  	2011	 	  	2012	 	
Revenue	  	$	140.2 million	  	  	$	138.3 million	  	  	$	143.7 million	  	
Adjusted EBITDA*	  	$	62.4 million	  	  	$	59.3 million	  	  	$	66.7 million	  	
Net (loss) income	  	$	(2.7) million	  	  	$	24.2 million	  	  	$	33.3 million	  	

*	See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss).	
Factors Affecting Our Consolidated Operating Results
Various factors affected our results for the periods presented in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including the following:
Changes in Agent Count . The majority of our revenue is derived from fees and dues based on the number of agents in the RE/MAX network. Due to the low fixed cost structure of our franchise model, the addition of new agents generally requires little incremental investment in capital or infrastructure. Accordingly, the number of agents in our network (particularly in our owned U.S. and Canadian regions) is the most important factor affecting our results of operations and the addition of new agents can favorably impact our revenue and Adjusted EBITDA. Historically, the number of agents in the residential real estate industry has been highly correlated with overall home sale transaction activity. Our agent count decreased during the downturn in the U.S. housing sector, but has recently returned to growth as the market has started to recover.
Cyclical Residential Real Estate Market . The residential real estate industry in which we operate is cyclical and, consequently, our revenue is affected by general conditions within the residential real estate market.
 
 	•	 	U.S. Real Estate Downturn . From the second half of 2005 through 2011, the U.S. real estate industry experienced a significant downturn, with existing home transactions declining by 40% from 7.1 million in 2005 to 4.3 million in 2011 and the median home sale price declining by 24% from $219,600 in 2005 to $166,100 in 2011, according to NAR. The majority of our revenue is derived from recurring, fixed contractual fees and dues paid by our agents, franchisees and regional franchise owners, which we believe provides for a more stable revenue stream than a model based upon real estate transaction activity, which would be impacted more significantly during industry downturns. For example, during the downturn in the U.S. housing sector discussed above, our total revenue declined by approximately 20% between the peak level in 2007 and the recent low point in 2011, which represented our highest and lowest revenue periods during the most recent cycle.	
 
 	•	 	U.S. Real Estate Recovery . The U.S. real estate industry experienced a strong rebound in 2012, with a total of 5.0 million home sale transactions according to NAR, of which approximately 4.7 million are estimated to represent existing home sale transactions, which increased 9.4% over 2011. In addition, NAR is forecasting that (i) in 2013, existing home sales will increase by 8.3% to 5.0 million units and median existing home sale prices will increase by 10.6%, each as compared to 2012; and (ii) in 2014, existing home sales will increase by 2.5% to 5.2 million units and median existing home sale prices will increase by 5.7%, each as compared to 2013. Historically, an increase in overall transaction activity is highly correlated with a subsequent increase in the number of agents in the residential real estate brokerage industry. We believe that a continuation of the housing recovery in the U.S. will support our efforts to increase our agent count in the U.S., which in turn should increase our revenue and Adjusted EBITDA.	
Changes in Aggregate Fee Revenue Per Agent . A significant portion of our revenue is tied to various fees that are ultimately tied to the number of agents, including annual dues, continuing franchise fees and certain
 
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transaction or service based fees. Our average annual revenue per agent in 2012 for our Company-owned Regions in the U.S. and Canada was approximately $1,485 greater than for our Independent Regions. Our average revenue per agent in regions outside the U.S. and Canada is substantially lower than the average revenue per agent in the U.S. and Canada. We have expanded our owned regional franchising operations through acquisitions of Independent Regions in the U.S. and Canada. We reacquired the regional franchise rights for the Mountain States region in 2011 and for the Texas region in 2012. We intend to reacquire regional RE/MAX franchise rights in the Central Atlantic and Southwest regions concurrently with the completion of this offering, and intend to pursue reacquisition of other regions in the future. In addition, other changes in our aggregate revenue per agent are derived from changes in our fee arrangements with our franchisees and agents over time. Our revenue per agent also increases in other ways including when transaction sides and transaction sizes increase since a portion of our revenue comes from fees tied to the number and size of real estate transactions closed by our agents. Given the low fixed cost structure of our franchise model, modest increases in revenue per agent can have a significant impact on our profitability.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of financial and operating measures that affect our operating results, including agent count, revenue and Adjusted EBITDA.
Agent Count . Agent count reflects the number of licensed agents who have active, independent contractual relationships with RE/MAX offices at a particular time. The majority of our revenue is derived from recurring fixed fee streams we receive from our franchisees and agents that are closely correlated to our aggregate agent count.
The following table shows our agent count at the end of, and the net change in agent count for the periods indicated:

 	  	As of December 31,	 	 	As of
June 30,	 	
 	  	2010	 	 	2011	 	 	2012	 	 	2012	 	  	2013	 	
Agent Count:	  				 				 				 				  				
U.S.	  				 				 				 				  				
Company-owned	  	 	22,165	  	 	 	21,050	  	 	 	25,819	(1)  	 	 	21,355	  	  	 	26,846	  	
Independent	  	 	32,483	  	 	 	30,102	  	 	 	25,984	  	 	 	30,135	  	  	 	26,482	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
U.S. Total	  	 	54,648	  	 	 	51,152	  	 	 	51,803	  	 	 	51,490	  	  	 	53,328	  	
Canada	  				 				 				 				  				
Company-owned	  	 	5,936	  	 	 	5,976	  	 	 	6,070	  	 	 	6,106	  	  	 	6,106	  	
Independent	  	 	12,392	  	 	 	12,594	  	 	 	12,796	  	 	 	12,746	  	  	 	12,939	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Canada Total	  	 	18,328	  	 	 	18,570	  	 	 	18,866	  	 	 	18,852	  	  	 	19,045	  	
Outside U.S. and Canada	  				 				 				 				  				
Company-owned	  	 	1,377	  	 	 	1,276	  	 	 	336	  	 	 	1,252	  	  	 	316	  	
Independent	  	 	15,275	  	 	 	16,478	  	 	 	18,003	(2)  	 	 	16,893	  	  	 	19,120	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Outside U.S. and Canada Total	  	 	16,652	  	 	 	17,754	  	 	 	18,339	  	 	 	18,145	  	  	 	19,436	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total	  	 	89,628	  	 	 	87,476	  	 	 	89,008	  	 	 	88,487	  	  	 	91,809	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net Change in agent count compared to previous period end	  	 	(2,443	) 	 	 	(2,152	) 	 	 	1,532	  	 	 	1,011	  	  	 	2,801	  	

(1)	As of December 31, 2012, U.S. Company-owned Regions include 4,214 agents in the Texas region which converted from an Independent to a Company-owned Region in connection with the reacquisition of the regional franchise rights of RE/MAX of Texas on December 31, 2012.	
(2)	As of December 31, 2012, Independent Regions outside of the U.S. and Canada include 863 agents in the Australia and New Zealand regions which converted from Company-owned Regions to Independent	
 
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 	Regions in connection with the divestiture of the Australia and New Zealand regions during the fourth quarter of 2012.	
Substantially all of our revenue is derived from the U.S. and Canada. Our agent count decreased during the U.S. housing sector downturn, but has recently returned to growth as the market started to rebound in 2012.
Revenue . The majority of our revenue is derived from recurring, fixed contractual fees and dues paid by our agents, franchisees and regional franchise owners with a smaller percentage of our revenue being based on transaction activity derived from a percentage of agent commissions. For the year ended December 31, 2012, we derived approximately 91% of our revenue from the U.S. and Canada. For information about our various revenue streams, see “—Description of Our Revenue” and “—Critical Accounting Policies, Judgments and Estimates” below.
Adjusted EBITDA . We present Adjusted EBITDA because we believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our business and provides greater transparency into our results of operations. Our management uses Adjusted EBITDA as a factor in evaluating the performance of our business. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. See below under “—Non-GAAP Financial Measures” for further discussion of our presentation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss).
We define Adjusted EBITDA as EBITDA (consolidated net income (loss) before depreciation and amortization, interest expense, net and income taxes, each of which is presented in our consolidated financial statements included elsewhere in this prospectus), adjusted for the impact of the following items that we do not consider representative of our ongoing operating performance: (gain) loss on sale of assets and sublease, (gain) loss on extinguishment of debt, stock based compensation, deferred rent adjustments, salaries paid to Dave and Gail Liniger that we will not continue to pay following the consummation of this offering, expenses incurred in connection with this offering and acquisition transaction costs. See “—Non-GAAP Financial Measures.” Because Adjusted EBITDA omits certain non-cash items and other infrequent cash charges, we feel that it is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and other infrequent cash charges and is more reflective of other factors that affect our operating performance.
The following table shows our Adjusted EBITDA and Adjusted EBITDA margins on a consolidated basis and for our reportable segments for the periods presented:

 	  	Years Ended December 31,	 	 	Six Months Ended
June  30,	 	
 	  	2010	 	 	2011	 	 	2012	 	 	    2012    	 	 	    2013    	 	
 	  	(in thousands, except margin data)	 	
Consolidated:	  				 				 				 				 				
Adjusted EBITDA	  	$	62,368	  	 	$	59,281	  	 	$	66,744	  	 	$	29,405	  	 	$	36,700	  	
Adjusted EBITDA margins	  	 	44.5	% 	 	 	42.9	% 	 	 	46.5	% 	 	 	41.9	% 	 	 	46.9	% 	
						
Real Estate Franchise Services:	  				 				 				 				 				
Adjusted EBITDA	  	 	65,053	  	 	 	60,590	  	 	 	66,776	  	 	 	30,123	  	 	 	36,782	  	
Adjusted EBITDA margins	  	 	52.2	% 	 	 	49.0	% 	 	 	51.8	% 	 	 	47.9	% 	 	 	52.1	% 	
						
Brokerage and Other:	  				 				 				 				 				
Adjusted EBITDA	  	 	(2,685	) 	 	 	(1,309	) 	 	 	(32	) 	 	 	(718	) 	 	 	(82	) 	
Adjusted EBITDA margins	  	 	(17.3	)% 	 	 	(9.0	)% 	 	 	(0.2	)% 	 	 	(9.9	)% 	 	 	(1.1	)% 	
We generally experience lower Adjusted EBITDA margins in the first and fourth quarters of the fiscal year primarily due to lower transaction volume in the residential housing market in the U.S. and Canada, which results in lower broker fees in these quarters. Generally, our margins in the first quarter are lower also because of higher
 
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selling, operating and administrative expenses incurred in connection with our annual convention. See “Risk Factors—Our operating results are subject to quarterly fluctuations and results for any quarter may not necessarily be indicative of the results that may be achieved for the full fiscal year.”
Our Adjusted EBITDA margins result from our high margin real estate franchise segment, offset slightly by our owned real estate brokerage operations, which have much lower margins, and lower company-wide professional services expenses. Our owned real estate brokerage operations have lower Adjusted EBITDA margins than our real estate franchise segment due primarily to higher fixed costs resulting from rent expense, which in turn adversely impacts our consolidated margins and franchise fees paid to regional franchise owners.
Description of Our Revenue
The majority of our revenue is derived from recurring, fixed contractual fees and dues paid by our agents, franchisees and regional franchise owners, with a smaller percentage of our revenue being based on transaction activity derived from a percentage of agent commissions. See “—Critical Accounting Policies, Judgments and Estimates—Revenue Recognition” for a discussion of when revenue is recognized.

We have five main revenue streams as follows:
 
 	•	 	Continuing Franchise Fees*. In the U.S. and Canada, continuing franchise fees are fixed contractual fees paid monthly by regional franchise owners in Independent Regions, or franchisees in Company-owned Regions, to RE/MAX based on the number of agents in the franchise region or the franchisee’s office. Continuing franchise fees are typically approximately $120 per month per agent. In our Company-owned Regions, we receive the entire amount of the continuing franchise fee. In Independent Regions, we generally receive 15%, 20% or 30% of the continuing franchise fee, which is a fixed rate in each particular Independent Region established by the terms of the applicable contract with the Independent Region. For the year ended December 31, 2012, continuing franchise fees made up approximately 39% of our total revenue.	
 
 	•	 	Annual Dues*. Annual dues are the membership fees which agents pay to be a part of the RE/MAX network and brand and are due on the anniversary date of the agent’s joining RE/MAX and are recognized ratably over the following twelve-month period. Annual dues revenue may be impacted by the fact that annual dues are deferred and recognized over a twelve-month period from the agent’s anniversary date as well as the related timing of agent losses and agent gains during that period. Annual dues are currently a flat fee of US$390 for U.S. agents and C$390 for Canadian agents and are paid directly to RE/MAX. Annual dues revenue is driven by the number of agents in our network. We receive 100% of the annual dues fee, regardless of whether the agent is in a Company-owned Region or	
 
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 	Independent Region. For the year ended December 31, 2012, annual dues made up approximately 20% of our total revenue.	
 
 	•	 	Broker Fees*. Broker fees are assessed to the broker against real estate commissions paid by customers when an agent sells a home. Agents pay a negotiated percentage of these earned commissions to the broker in whose office they work. Broker-owners in turn pay a percentage of the commission to the regional franchisor. Generally the amount paid by broker-owners to the regional franchisor, which we refer to as the “broker fee,” is 1% of the total commission on the transaction. In our Company-owned Regions, we receive the entire amount of the broker fee. In Independent Regions, we generally receive 15%, 20% or 30% of the broker fee, which is a fixed rate in each particular Independent Region established by the terms of the applicable franchise agreement with the Independent Region.	
The amount of commission collected by franchisees is based primarily on the sales volume of RE/MAX agents and real estate commissions earned by agents on these transactions. These broker fees therefore depend upon the overall volume of existing residential home sales and home sale prices. Because there are little incremental variable costs associated with this revenue stream, increased home sales provide us with incremental upside during a real estate market recovery. For the year ended December 31, 2012, broker fees made up approximately 14% of our total revenue.
 
 	•	 	Franchise Sales and Other Franchise Revenue. Franchise sales and other franchise revenue is primarily comprised of:	
Franchise Sales . Franchise sales consists of revenue from sales and renewals of individual franchises from Company-owned Regions and Independent Regions, as well as regional master franchises in the U.S., Canada and international markets. We receive only a portion of the revenue from the sales and renewals of individual franchises from Independent Regions.
Other Franchise Revenue . Other franchise revenue includes revenue from preferred marketing arrangements and approved supplier programs with third parties, including mortgage lenders and other real estate service providers, as well as event-based revenue from training and other programs, including our annual convention in the U.S.
For the year ended December 31, 2012, franchise sales and other franchise revenue made up approximately 16% of our total revenue.
 
 	•	 	Brokerage Revenue. Brokerage revenue principally represents fees assessed by our owned brokerages for services provided to their affiliated real estate agents. We have 21 owned brokerage offices solely in the U.S. that represent less than 1% of our over 3,300 real estate brokerage offices that operate under the RE/MAX brand name in the U.S. For the year ended December 31, 2012, brokerage revenue made up approximately 11% of our total revenue.	

*	We base our continuing franchise fees, agent dues and broker fees outside the U.S. and Canada on generally the same structure as our U.S. and Canadian Independent Regions, except that revenue earned by us in those regions is substantially lower than in our U.S. and Canadian Independent Regions.	
Description of Our Expenses
Operating Expenses
Operating expenses include selling, operating and administrative expenses, depreciation and amortization and the gains and losses on sales of assets. Set forth below is a brief discussion of some of the key operating expenses that impact our results of operations:
 
 	•	 	Selling, operating and administrative expenses . Selling, operating and administrative expenses primarily consists of salaries, benefits and other compensation expenses paid to our personnel as well	
 
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 	as certain marketing and production costs that are not paid by our advertising funds, including travel and entertainment costs, costs associated with our annual convention and other events, rent expense and professional fee expenses.	
In connection with the completion of this offering, we may recognize certain compensation expenses including stock-based compensation expense related to the substitution of options granted by us under the 2011 Unit Option Plan with new options granted under our 2013 Stock Incentive Plan and expenses of approximately $          related to a bonus plan that is tied to successful completion of the offering. See “Executive Compensation—Employee Benefit and Stock Plans—2013 Stock Incentive Plan—Substitution of RMCO Unit Options.” In addition, we expect to grant options and restricted stock units to acquire shares of our Class A common stock to our employees and directors in connection with the completion of this offering under our 2013 Stock Incentive Plan and will incur a charge of $         million related to stock-based compensation for the remainder of 2013. We will incur additional charges in the future related to additional equity grants under our 2013 Stock Incentive Plan. We also expect our selling, operating and administrative expenses to increase in the near-term as we add additional personnel and incur additional expenses that we did not incur as a private company, including costs related to becoming a public company and compliance with related governance and disclosure requirements.
More specifically, we expect our selling, operating and administrative expenses to increase related to obligations associated with becoming a public company including compliance with the Sarbanes-Oxley Act, as well as legal, accounting, tax and other expenses that we did not incur as a private company.
 
 	•	 	Depreciation and amortization . Depreciation and amortization expense consists of our depreciation expense related to our investments in property and equipment and our amortization of long-lived assets and intangibles, which consists principally of capitalized software, trademarks and franchise agreement amortization. Depreciation and amortization expense may increase as we continue to pursue acquisitions.	
 
 	•	 	Gains and losses on sale of assets . Gains and losses on sale of assets are recognized when assets are disposed of for amounts greater than or less than their carrying values.	
Other Income (Expenses), Net
Other income (expenses), net include interest expense, interest income, foreign currency transactions gains and losses, losses on the early extinguishment of debt and equity in earnings of investees.
The most significant items that are included in other income (expenses), net are interest expense and interest income, which consist primarily of interest on borrowings under our senior secured credit facility and income earned on our cash and cash equivalents. Our interest expense depends on the level of our outstanding indebtedness as well as the applicable interest rate with respect to outstanding indebtedness which is a variable rate tied to prevailing interest rates. We recently increased our outstanding indebtedness and interest expense as a result of the acquisition of certain assets of RE/MAX of Texas.
Provision for Income Taxes
RMCO is classified as a partnership for U.S. federal income tax purposes and thus, is treated as a “flow-through entity.” As a result, our business was not generally subject to direct U.S. federal income tax and certain state income tax obligations. Our subsidiaries that operate in foreign jurisdictions are, however, taxable entities. Income taxes incurred by the subsidiaries that operate in foreign jurisdictions are recorded in the provision for income taxes. RE/MAX Holdings, Inc. is organized as a corporation for tax purposes that will be generally subject to direct U.S. federal corporate income tax and certain state corporate income tax obligations. Following this offering, these corporate tax obligations will generally arise with respect to, and be payable in respect of, our allocable share of net income attributable to the business operations of RMCO. For more information on pro forma corporate income taxes applicable to our business as a result of our status as a corporation for tax purposes, see “Unaudited Pro Forma Condensed Consolidated Financial Information.”
 
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Acquisitions and Divestitures
One of our strategies is to pursue reacquisitions of regional franchise rights in Independent Regions in the U.S. and Canada. We receive a higher amount of revenue per agent in our Company-owned Regions than in our Independent Regions. While both Company-owned Regions and Independent Regions charge relatively similar fees to RE/MAX brokerages and agents, we receive the entire amount of the continuing franchise fee, broker fee, initial franchise fee and franchise renewal fee in Company-owned Regions, whereas we receive only a portion of these fees in Independent Regions. We generally receive 15%, 20% or 30% of the amount of such fees in Independent Regions, which is a fixed rate in each particular Independent Region established by the terms of the applicable regional franchise agreement. In 2012, the annual revenue per agent in our Company-owned Regions was approximately $2,288, whereas the average annual revenue per agent in Independent Regions was approximately $803. By reacquiring regional franchise rights, we can capture 100% of the fees referred to above and substantially increase the average revenue per agent for agents in the reacquired region, which, as a result of our low fixed-cost structure, further increases our overall margins.
As a part of this strategy, effective December 31, 2011, we acquired the assets of RE/MAX of Colorado, Inc. (which we refer to as the Mountain States region) for consideration paid of $15.9 million, including the regional franchise agreement permitting the sale of RE/MAX franchises in the states of Colorado, Utah, Wyoming, North Dakota and South Dakota. We accounted for the transfer of assets as a combination of entities under common control. All acquired assets and liabilities recognized in the balance sheets of RE/MAX of Colorado, Inc. were carried forward to the balance sheet of RE/MAX, LLC, at their respective carrying amounts, and no other assets were recognized as a result of the combination. In addition, the combination of entities under common control was presented in the accompanying consolidated financial statements as if it had always been combined. The consideration paid was recognized at December 31, 2011, with an offsetting adjustment to equity.
Effective December 31, 2012, we acquired certain assets of RE/MAX of Texas, including the regional franchise agreements permitting the sale of RE/MAX franchises in the state of Texas. The purchase price was $45.5 million and was paid in cash primarily using proceeds from borrowings. We recorded $30.2 million of goodwill in connection with this acquisition, which consisted of the excess of the purchase price over the fair value of the identifiable assets acquired.
Effective November 30, 2012, we sold substantially all of the assets of owned and operated regional franchising operations located in Eastern Australia and New Zealand and entered into regional franchising agreements with new independent owners of these regions. We decided to sell these operations following our determination that due to the costs, logistics and differences in local markets, we were not able to efficiently operate these foreign regions given their remoteness from our U.S. headquarters. We sold these regions for a net purchase price of approximately $0.2 million. We recognized losses on the sale of the assets amounting to approximately $1.7 million, as the consideration received in the transactions was lower than the value of the assets of these operations as reflected in our consolidated financial statements prior to the sale transaction.
We may pursue additional acquisitions or investments in other complementary businesses, services and technologies that would provide access to new markets or customers, or otherwise complement our existing operations.
 
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Six Months Ended June 30, 2012 vs. Six Months Ended June 30, 2013

 	  	Six months ended June 30,	 	 	Change	 	
 	  	2012	 	 	2013	 	 	($)	 	 	(%)	 	
 	  	(unaudited)	 	 	(unaudited)	 	 	 	 	 	 	 	
 	  	(in thousands, except percentages)	 	 	 	 	
Revenue:	  				 				 				 				
Continuing franchise fees	  	$	27,875	  	 	$	30,944	  	 	$	3,069	  	 	 	11.0	  	
Annual dues	  	 	14,168	  	 	 	14,597	  	 	 	429	  	 	 	3.0	  	
Broker fees	  	 	9,116	  	 	 	11,500	  	 	 	2,384	  	 	 	26.2	  	
Franchise sales and other franchise revenue	  	 	11,000	  	 	 	12,747	  	 	 	1,747	  	 	 	15.9	  	
Brokerage revenue	  	 	8,009	  	 	 	8,528	  	 	 	519	  	 	 	6.5	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	  	 	70,168	  	 	 	78,316	  	 	 	8,148	  	 	 	11.6	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	  				 				 				 				
Selling, operating and administrative expenses	  	 	43,214	  	 	 	47,983	  	 	 	4,769	  	 	 	11.0	  	
Depreciation and amortization	  	 	6,443	  	 	 	7,432	  	 	 	989	  	 	 	15.3	  	
(Gain) loss on sale of assets	  	 	(18	) 	 	 	44	  	 	 	62	  	 	 	*	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	  	 	49,639	  	 	 	55,459	  	 	 	5,820	  	 	 	11.7	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	20,529	  	 	 	22,857	  	 	 	2,328	  	 	 	11.3	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expenses):	  				 				 				 				
Interest expense	  	 	(5,861	) 	 	 	(6,925	) 	 	 	(1,064	) 	 	 	(18.2	) 	
Interest income	  	 	129	  	 	 	142	  	 	 	13	  	 	 	10.1	  	
Foreign currency translation losses, net	  	 	(36	) 	 	 	(416	) 	 	 	(380	) 	 	 	*	  	
Loss on early extinguishment of debt	  	 	(136	) 	 	 	(134	) 	 	 	2	  	 	 	1.5	  	
Equity in earnings of investees	  	 	314	  	 	 	462	  	 	 	148	  	 	 	47.1	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expenses), net	  	 	(5,590	) 	 	 	(6,871	) 	 	 	(1,281	) 	 	 	(22.9	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before provision for income taxes	  	 	14,939	  	 	 	15,986	  	 	 	1,047	  	 	 	7.0	  	
Provision for income taxes	  	 	(1,104	) 	 	 	(1,031	) 	 	 	73	  	 	 	6.6	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	13,835	  	 	$	14,955	  	 	$	1,120	  	 	 	8.1	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA(1)	  	$	29,405	  	 	$	36,700	  	 	$	7,295	  	 	 	24.8	  	

*	Calculation not meaningful	
(1)	See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss).	
Total Revenue
Continuing Franchise Fees
Revenue from continuing franchise fees increased $3.1 million, or 11.0%, from the six months ended June 30, 2012 to the six months ended June 30, 2013. The acquisition and subsequent growth of RE/MAX of Texas, which resulted in agents within an Independent Region being converted to agents within a Company-owned Region, gave us the right to earn 100% of the fixed continuing franchise fee per agent. This resulted in an increase of $2.7 million in continuing franchise fee revenue. This increase was offset partially by a net decrease of $0.7 million in continuing franchise fees for the Australia and New Zealand regions, which were sold during the fourth quarter of 2012 and, as a result, the agents in Australia and New Zealand are no longer agents of a Company-owned Region. Excluding acquisition and divestiture activity, continuing franchise fees earned from Company-owned regions in the U.S. and Canada, where we receive a higher continuing franchise fee per agent, increased $1.0 million due to an increase in agent count primarily in the U.S.
 
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Annual Dues
Revenue from annual dues increased $0.4 million, or 3.0%, from the six months ended June 30, 2012 to the six months ended June 30, 3013 primarily due to an overall increase in total agent count of 3,322.
Broker Fees
Revenue from broker fees increased $2.4 million, or 26.2%, from the six months ended June 30, 2012 to the six months ended June 30, 2013, principally due to additional broker fees of $1.5 million that resulted from the acquisition of certain assets of RE/MAX of Texas which converted agents from an Independent Region to a Company-owned Region resulting in a higher portion of broker fees for these agents being retained by us. Broker fees also increased $1.8 million due to an overall increase in U.S. home sale transaction volume by increasing commissions earned by our U.S. agents and subsequently increased broker fees which are derived from commissions earned. These increases were partially offset by a net decrease in broker fees of $1.1 million in Australia and New Zealand as these regions were sold during the fourth quarter of 2012 resulting in agents in those regions no longer being agents of a Company-owned Region.
Franchise Sales and Other Franchise Revenue
Franchise sales and other franchise revenue increased $1.7 million, or 15.9%, from the six months ended June 30, 2012 to the six months ended June 30, 2013, relating primarily to an increase of $1.2 million in registration income due to higher attendance at the 2013 annual convention held in February. Revenue recognized in connection with the sale of master franchise rights increased $0.2 million from the six months ended June 30, 2012 to the six months ended June 30, 2013 as a result of an increase in both the number of sales and the dollar amount of the transactions. Additionally, franchise renewal and transfer revenue increased $0.2 million due to an increase in the average franchise renewal price.
Brokerage Revenue
Brokerage revenue, which principally represents fees assessed by our owned brokerages for services provided to their affiliated real estate agents, increased $0.5 million, or 6.5%, from the six months ended June 30, 2012 to the six months ended June 30, 2013 as a result of higher sales transaction volume.
Operating Expenses
Total operating expenses were 70.7% and 70.8% of our consolidated revenue for the six month periods ended June 30, 2012 and 2013, respectively. Total operating expenses increased $5.8 million, or 11.7%, from $49.6 million during the six months ended June 30, 2012 to $55.5 million during the six months ended June 30, 2013. This increase was primarily due to:
 
 	•	 	$3.5 million in increased professional fee expenses incurred in preparation for this offering;	
 
 	•	 	$1.8 million of additional amortization expense related to intangible assets acquired from RE/MAX of Texas, offset by a reduction in amortization expense of $0.6 million related to certain intangible asset franchise agreements that became fully amortized; and	
 
 	•	 	$1.2 million of increased personnel expenses, which includes $0.7 million of stock based compensation expense and $0.5 million in additional bonus and 401k accruals.	
These increases were partially offset by a $0.6 million decrease in sponsorship fees paid to Sanctuary, a private golf course owned by a related party. See “Certain Relationships and Related Party Transactions— Sanctuary Golf Course.” Additionally, any cost savings realized from the sale of the Australia and New Zealand regions were offset by expenses incurred as a result of the integration and acquisition of RE/MAX of Texas.
 
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Other Income (Expenses), Net
Other income (expenses), net decreased $1.3 million, or 22.9%, from the six months ended June 30, 2012 to the six months ended June 30, 2013 primarily due to increased interest expense of $1.1 million as a result of the incremental $45.0 million of long-term debt borrowed at December 31, 2012 to finance the acquisition of certain assets of RE/MAX of Texas, and an increase in foreign currency translation losses of $0.4 million as a result of appreciation in the value of the U.S. dollar against the Canadian dollar. These decreases were partially offset by additional income of $0.1 million from equity in earnings of investees.
Provision for Income Taxes
Our provision for income taxes consists of income taxes on the net taxable earning of our consolidated foreign subsidiaries. Income tax expense for each of the six months ended June 30, 2012 and 2013 was $1.1 million and $1.0 million, respectively.
Adjusted EBITDA
Adjusted EBITDA and Adjusted EBITDA margins were $29.4 million and 41.9%, and $36.7 million and 46.9% for the six months ended June 31, 2012 and 2013, respectively. The increase in Adjusted EBITDA of $7.3 million, or 24.8%, was principally the result of an increase in total revenue of $8.1 million arising from the acquisition of RE/MAX of Texas, agent growth, increased franchise sales and other franchise revenue resulting from increased sales of master franchise rights and an increase in franchise renewal revenue and higher broker fees. Operating expenses adjusted for certain non-cash items such as amortization expense and stock based compensation expense and other infrequent cash charges, including professional fee expenses incurred in preparation for this offering, increased due to higher personnel costs of $1.2 million. A reconciliation of Adjusted EBITDA to net income (loss) under GAAP is set forth below in “—Non-GAAP Financial Measures.”
 
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Year Ended December 31, 2011 vs. Year Ended December 31, 2012
Our consolidated results comprised the following:

 	  	Years Ended
December 31,	 	 	Change	 	
 	  	2011	 	 	2012	 	 	($)	 	 	(%)	 	
 	  	(in thousands, except percentages)	 	
Revenue:	  				 				 				 				
Continuing franchise fees	  	$	57,200	  	 	$	56,350	  	 	$	(850	) 	 	 	(1.5	) 	
Annual dues	  	 	28,922	  	 	 	28,909	  	 	 	(13	) 	 	 	0.0	  	
Broker fees	  	 	16,764	  	 	 	19,579	  	 	 	2,815	  	 	 	16.8	  	
Franchise sales and other franchise revenue	  	 	19,354	  	 	 	22,629	  	 	 	3,275	  	 	 	16.9	  	
Brokerage revenue	  	 	16,062	  	 	 	16,210	  	 	 	148	  	 	 	0.9	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Total revenue	  	 	138,302	  	 	 	143,677	  	 	 	5,375	  	 	 	3.9	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Operating expenses:	  				 				 				 				
Selling, operating and administrative expenses	  	 	85,291	  	 	 	84,337	  	 	 	(954	) 	 	 	(1.1	) 	
Depreciation and amortization	  	 	14,473	  	 	 	12,090	  	 	 	(2,383	) 	 	 	(16.5	) 	
Loss on sale of assets, net	  	 	67	  	 	 	1,704	  	 	 	1,637	  	 	 	*	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Total operating expenses	  	 	99,831	  	 	 	98,131	  	 	 	(1,700	) 	 	 	(1.7	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Operating income	  	 	38,471	  	 	 	45,546	  	 	 	7,075	  	 	 	18.4	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Other income (expenses):	  				 				 				 				
Interest expense	  	 	(12,203	) 	 	 	(11,686	) 	 	 	517	  	 	 	4.2	  	
Interest income	  	 	372	  	 	 	286	  	 	 	(86	) 	 	 	(23.1	) 	
Foreign currency transaction gains (losses), net	  	 	(266	) 	 	 	208	  	 	 	474	  	 	 	178.2	  	
Loss on early extinguishment of debt	  	 	(384	) 	 	 	(136	) 	 	 	248	  	 	 	64.6	  	
Equity in earnings of investees	  	 	431	  	 	 	1,244	  	 	 	813	  	 	 	188.6	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Total other income (expenses), net	  	 	(12,050	) 	 	 	(10,084	) 	 	 	1,966	  	 	 	16.3	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Income before provision for income taxes	  	 	26,421	  	 	 	35,462	  	 	 	9,041	  	 	 	34.2	  	
Provision for income taxes	  	 	(2,172	) 	 	 	(2,138	) 	 	 	34	 	 	 	1.6	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Net income	  	$	24,249	  	 	$	33,324	  	 	$	9,075	  	 	 	37.4	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Adjusted EBITDA(1)	  	 	59,281	  	 	 	66,744	  	 	 	7,463	  	 	 	12.6	  	

*	Calculation is not meaningful.	
(1)	See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss).	
Total Revenue
Continuing Franchise Fees
Revenue from continuing franchise fees decreased $0.9 million, or 1.5%, from the year ended December 31, 2011 to the year ended December 31, 2012. For Company-owned Regions in the U.S., continuing franchise fees decreased $0.2 million primarily resulting from the full year impact of the loss of 1,115 U.S. agents that occurred in 2011 not being fully offset by 555 U.S. agent gains during 2012 reflecting the overall U.S. real estate market rebounding. For Independent Regions in the U.S., continuing franchise fees decreased $0.3 million primarily resulting from the full year impact of the loss of 2,381 U.S. agents that occurred in 2011 not being fully offset by 96 U.S. agent gains during 2012 reflecting the overall U.S. real estate market rebounding. Continuing franchise fees also decreased $0.4 million as a result of reduced continuing franchise fees for the Australia and New Zealand regions, which were sold during the fourth quarter of 2012 coupled with decreases in agent count and changes in foreign currency exchange rates in our other non-U.S. regions.
 
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Annual Dues
Annual dues was consistent for the year ended December 31, 2011 compared to the year ended December 31, 2012 at $28.9 million. While agent count increased from 87,476 as of December 31, 2011 to 89,008 as of December 31, 2012, annual dues remained flat due primarily to 3,496 U.S. agent losses that occurred in 2011 not being fully offset by 651 U.S. agent gains during 2012 as a result of the U.S. real estate market rebounding.
Broker Fees
Revenue from broker fees increased $2.8 million, or 16.8%, from the year ended December 31, 2011 to the year ended December 31, 2012 due to an overall increase in the U.S. home sale transaction volume, thereby increasing commissions earned by our U.S. agents from which we are paid a percentage.
Franchise Sales and Other Franchise Revenue
Franchise sales and other franchise revenue increased $3.3 million, or 16.9%, from the year ended December 31, 2011 to the year ended December 31, 2012 primarily attributable to an incremental increase in franchise sales of $1.8 million, from the sale of master franchise rights for China/Hong Kong/Macau in 2012. Other franchise revenue also increased $1.8 million from preferred marketing arrangements and approved supplier programs with two third parties. These increases were offset by decreases in franchise renewal revenue, training income and registration revenue resulting from a fewer number of events in 2012.
Brokerage Revenue
Brokerage revenue increased $0.1 million, or 0.9%, from the year ended December 31, 2011 to the year ended December 31, 2012 driven by increased revenue from our owned brokerage offices due to an increase in real estate transaction volume.
Operating Expenses
Total operating expenses were 72.2% and 68.3% of our consolidated revenue for the years ended December 31, 2011 and 2012, respectively. Total operating expenses decreased $1.7 million, or 1.7%, from $99.8 million for the year ended December 31, 2011 to $98.1 million for the year ended December 31, 2012. This decrease was primarily due to:
 
 	•	 	a $1.5 million decrease in marketing expenses primarily due to a reduced number of events and a decrease in travel and entertainment expenses;	
 
 	•	 	a $1.9 million decrease in rent expense due to the loss recorded in 2011 as a result of a sublease of a portion of our corporate headquarters office building; and	
 
 	•	 	a $2.4 million decrease in depreciation and amortization expense as certain property and equipment and franchise agreements became fully depreciated and amortized.	
These decreases were partially offset by:
 
 	•	 	$2.5 million of higher salary and related benefits expense comprised primarily of $1.1 million of severance payments for employees that were terminated in 2012 and $1.1 million of stock-based compensation expense recorded for equity awards granted in 2012; and	
 
 	•	 	a $1.6 million increase in the loss on sale of assets, net due to the loss on the sale of the Australia and New Zealand regions in 2012.	
 
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Other Income (Expenses), Net
Total other income (expenses), net increased $2.0 million, or 16.3%, from the year ended December 31, 2011 to the year ended December 31, 2012 due to decreased interest expense of $0.5 million as a result of a declining debt balance during most of the year, a $0.2 million decrease in the loss on early extinguishment of debt because of differences in the timing and amount of loan repayments, an increase in foreign currency translation gains of $0.5 million due to fluctuations in the exchange rates between the U.S. dollar and the Australian, Canadian and New Zealand dollars and an increase of $0.8 million in equity in earnings of investees.
Provision for Income Taxes
Our provision for income taxes consists of income taxes on the net taxable earnings of our consolidated foreign subsidiaries. Income tax expense was $2.2 million and $2.1 million for the years ended December 31, 2011 and 2012, respectively. The slight reduction in income tax expense was the result of lower taxable earnings of our foreign subsidiaries in 2012, partially driven by the sale of the Australia and New Zealand operations in the fourth quarter of 2012.
Adjusted EBITDA
Adjusted EBITDA and Adjusted EBITDA margins were $59.3 million and 42.9%, and $66.7 million and 46.5% for the years ended December 31, 2011 and 2012, respectively. The increase in Adjusted EBITDA of $7.4 million, or 12.6%, was primarily the result of an increase in total revenue of $5.4 million principally due to increased broker fee revenue and the sale of master franchise rights for China/Hong Kong/Macau recorded in franchise sales and other franchise revenue. In addition, there was a $2.1 million reduction in selling, operating and administrative expenses, excluding $1.1 million of non-cash stock-based compensation expense. A reconciliation of Adjusted EBITDA to net income (loss) under GAAP is set forth below in “—Non-GAAP Financial Measures.”
 
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Year Ended December 31, 2010 vs. Year Ended December 31, 2011
Our consolidated results comprised the following:

 	  	Years Ended
December 31,	 	 	Change	 	
 	  	2010	 	 	2011	 	 	($)	 	 	(%)	 	
 	  	(in thousands, except percentages)	 	
Revenue:	  				 				 				 				
Continuing franchise fees	  	$	60,865	  	 	$	57,200	  	 	$	(3,665	) 	 	 	(6.0	) 	
Annual dues	  	 	30,472	  	 	 	28,922	  	 	 	(1,550	) 	 	 	(5.1	) 	
Broker fees	  	 	16,021	  	 	 	16,764	  	 	 	743	  	 	 	4.6	  	
Franchise sales and other franchise revenue	  	 	15,709	  	 	 	19,354	  	 	 	3,645	  	 	 	23.2	  	
Brokerage revenue	  	 	17,150	  	 	 	16,062	  	 	 	(1,088	) 	 	 	(6.3	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Total revenue	  	 	140,217	  	 	 	138,302	  	 	 	(1,915	) 	 	 	(1.4	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Operating expenses:	  				 				 				 				
Selling, operating and administrative expenses	  	 	81,353	  	 	 	85,291	  	 	 	3,938	  	 	 	4.8	  	
Depreciation and amortization	  	 	16,735	  	 	 	14,473	  	 	 	(2,262	) 	 	 	(13.5	) 	
Loss on sale of assets, net	  	 	3,719	  	 	 	67	  	 	 	(3,652	) 	 	 	(98.2	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Total operating expenses	  	 	101,807	  	 	 	99,831	  	 	 	(1,976	) 	 	 	(1.9	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Operating income	  	 	38,410	  	 	 	38,471	  	 	 	61	  	 	 	0.2	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Other income (expenses):	  				 				 				 				
Interest expense	  	 	(22,295	) 	 	 	(12,203	) 	 	 	10,092	  	 	 	45.3	  	
Interest income	  	 	538	  	 	 	372	  	 	 	(166	) 	 	 	(30.9	) 	
Foreign currency transaction gains (losses), net	  	 	167	  	 	 	(266	) 	 	 	(433	) 	 	 	(259.3	) 	
Loss on early extinguishment of debt	  	 	(18,161	) 	 	 	(384	) 	 	 	17,777	  	 	 	97.9	  	
Equity in earnings of investees	  	 	643	  	 	 	431	  	 	 	(212	) 	 	 	(33.0	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Total other income (expenses,) net	  	 	(39,108	) 	 	 	(12,050	) 	 	 	27,058	  	 	 	69.2	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
(Loss) income before provision for income taxes	  	 	(698	) 	 	 	26,421	  	 	 	27,119	  	 	 	*	  	
Provision for income taxes	  	 	(2,049	) 	 	 	(2,172	) 	 	 	(123	) 	 	 	(6.0	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Net (loss) income	  	 	(2,747	) 	 	 	24,249	  	 	 	26,996	  	 	 	*	  	
Net loss attributable to noncontrolling interests	  	 	10,059	  	 	 	—  	  	 	 	(10,059	) 	 	 	(100.0	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Net income attributable to RMCO, LLC	  	$	7,312	  	 	$	24,249	  	 	$	16,937	  	 	 	231.6	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 				
Adjusted EBITDA(1)	  	 	62,368	  	 	 	59,281	  	 	 	(3,087	) 	 	 	(4.9	) 	

*	Calculation is not meaningful.	
(1)	See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss).	
Total Revenue
Continuing Franchise Fees
Revenue from continuing franchise fees decreased $3.7 million, or 6.0%, from the year ended December 31, 2010 to the year ended December 31, 2011 primarily due to a decrease in agent count from 89,628 at December 31, 2010 to 87,476 at December 31, 2011. The decrease was significantly impacted by the U.S. Company-owned Regions where agent count decreased by 1,115 agents resulting in a $3.5 million decrease of continuing franchise fees from 2010 to 2011. Additionally, our agent count in U.S. Independent Regions
 
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decreased by 2,381 which resulted in a reduction in continuing franchise fees of $1.0 million. These reductions in the U.S. were primarily offset by an increase of 242 agents in Canada, which resulted in an increase in continuing franchise fee revenue for Company-owned Regions and Independent Regions of $0.4 million and $0.3 million, respectively.
Annual Dues
Revenue from annual dues decreased $1.6 million, or 5.1%, from the year ended December 31, 2010 to the year ended December 31, 2011 primarily due to an overall decrease in agent count of 2,152. Total agent count was 89,628 at December 31, 2010 compared to 87,476 at December 31, 2011.
Broker Fees
Revenue from broker fees increased $0.7 million, or 4.6%, from the year ended December 31, 2010 to the year ended December 31, 2011 primarily due to an overall increase in U.S. home sale transaction volume, thereby increasing the commissions earned by our U.S. agents from which we are paid a percentage.
Franchise Sales and Other Franchise Revenue
Franchise sales and other franchise revenue increased $3.6 million, or 23.2%, from the year ended December 31, 2010 to the year ended December 31, 2011. Franchise sales increased $0.9 million from the year ended December 31, 2010 to the year ended December 31, 2011 due to an increase in the average franchise sales price. Additionally, registration income increased $0.8 million due to higher attendance at the 2011 U.S. convention and an increased number of events in 2011. There was also an increase of $1.6 million from 2010 to 2011 in revenue from preferred marketing arrangements and approved supplier programs with third parties.
Brokerage Revenue
Brokerage revenue decreased $1.1 million, or 6.3%, from the year ended December 31, 2010 to the year ended December 31, 2011 driven by decreased revenue from our owned brokerage offices, which also experienced agent count losses.
Operating Expenses
Total operating expenses were 72.6% and 72.2% of our consolidated revenue for the years ended December 31, 2010 and 2011, respectively. Total operating expenses decreased $2.0 million, or 1.9%, from $101.8 million for the year ended December 31, 2010 to $99.8 million for the year ended December 31, 2011 primarily due to:
 
 	•	 	a $1.4 million decrease in amortization expense as certain franchise agreements became fully amortized; and	
 
 	•	 	a $3.7 million decrease in the loss on sale of assets, net and a $0.9 million decrease in depreciation expense, each primarily resulting from the sale of our corporate headquarters office building that occurred in April 2010.	
These decreases were primarily offset by:
 
 	•	 	a $1.6 million increase in marketing expenses for the annual U.S. convention and bi-annual convention in Canada, and for travel and entertainment costs for real estate franchise marketing activities and commission expenses as a result of higher franchise sales; and	
 
 	•	 	a $1.9 million increase in rent expense related to the loss recorded as a result of a 2011 sublease of a portion of our corporate headquarters office building.	
 
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Other Income (Expenses), Net
Other income (expenses), net increased $27.1 million, or 69.2%, from the year ended December 31, 2010 to the year ended December 31, 2011 principally due to decreased interest expense of $10.1 million as a result of an overall decrease in the debt balances during most of 2011 when compared to 2010, including the repayment of real estate indebtedness related to our corporate headquarters building, the repayment of other outstanding indebtedness in connection with the refinancing of our outstanding indebtedness in 2010 and use of proceeds from an equity financing. Additionally, loss on early extinguishment of debt decreased $17.8 million primarily due to losses on the repayment of our prior senior debt facility during 2010 stemming from unamortized debt discount and issuance costs related to such facility as well as repayment of real estate indebtedness related to the sale transaction in 2010 with respect to our corporate headquarters building.
These reductions were offset by increased foreign currency translation losses of $0.4 million due to the fluctuations of the U.S. dollar against the Australian, Canadian and New Zealand dollars, a $0.2 million decrease in equity in earnings of investees, and a $0.2 million reduction in interest income resulting from lower interest yield.
Provision for Income Taxes
Our provision for income taxes consists of income taxes on the net taxable earnings of our consolidated foreign subsidiaries. Income tax expense was $2.0 million and $2.2 million for the years ended December 31, 2010 and 2011, respectively, and was comparable for each period due to consistent taxable earnings of our foreign subsidiaries.
Adjusted EBITDA
Adjusted EBITDA and Adjusted EBITDA margins were $62.4 million and 44.5%, and $59.3 million and 42.9% for the years ended December 31, 2010 and 2011, respectively. The decrease in Adjusted EBITDA of $3.1 million, or 4.9%, was primarily the result of a decrease in total continuing franchise fees and annual dues revenue of $5.2 million due to a decrease in agent count and increased selling, operating and administrative expenses, partially offset by a $2.3 million increase in other franchising revenue from new preferred marketing and approved supplier agreements and higher broker fees. A reconciliation of Adjusted EBITDA to net income (loss) under GAAP is set forth below in “—Non-GAAP Financial Measures.”
 
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Quarterly Results
The following table sets forth our historical quarterly consolidated statements of income for each of the last eight fiscal quarters ended through June 30, 2013. This quarterly information has been prepared on the same basis as our annual audited financial statements appearing elsewhere in this prospectus and includes all adjustments that we consider necessary to present fairly the financial information for the fiscal quarters presented. The quarterly data should be read in conjunction with our consolidated financial statements and the related notes included herein.

 	 	Three Months Ended	 	
 	 	September 30,
2011	 	 	December 31,
2011	 	 	March 31,
2012	 	 	June 30,
2012	 	 	September 30,
2012	 	 	December 31,
2012	 	 	March 31,
2013	 	 	June 30,
2013	 	
 	 	(Unaudited)	 	
 	 	(in thousands)	 	
Revenue:	 				 				 				 				 				 				 				 				
Continuing franchise fees	 	$	14,601	  	 	$	13,682	  	 	$	13,878	  	 	$	13,997	  	 	$	14,418	  	 	$	14,057	  	 	$	15,105	  	 	$	15,839	  	
Annual dues	 	 	7,274	  	 	 	7,179	  	 	 	7,050	  	 	 	7,118	  	 	 	7,208	  	 	 	7,533	  	 	 	7,553	  	 	 	7,044	  	
Broker fees	 	 	4,689	  	 	 	4,023	  	 	 	3,743	  	 	 	5,375	  	 	 	5,686	  	 	 	4,775	  	 	 	4,673	  	 	 	6,827	  	
Franchise sales and other franchise revenue	 	 	5,354	  	 	 	4,809	  	 	 	7,009	  	 	 	3,989	  	 	 	6,805	  	 	 	4,826	  	 	 	8,153	  	 	 	4,594	  	
Brokerage revenue	 	 	4,097	  	 	 	3,754	  	 	 	3,321	  	 	 	4,688	  	 	 	4,312	  	 	 	3,889	  	 	 	3,591	  	 	 	4,937	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	36,015	  	 	 	33,447	  	 	 	35,001	  	 	 	35,167	  	 	 	38,429	  	 	 	35,080	  	 	 	39,075	  	 	 	39,241	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 				 				 				 				 				 				 				 				
Selling, operating and administrative expenses	 	 	20,156	  	 	 	20,985	  	 	 	23,517	  	 	 	19,697	  	 	 	20,614	  	 	 	20,509	  	 	 	25,991	  	 	 	21,992	  	
Depreciation and amortization	 	 	3,709	  	 	 	3,573	  	 	 	3,559	  	 	 	2,884	  	 	 	2,788	  	 	 	2,859	  	 	 	3,725	  	 	 	3,707	  	
(Gain) loss on sale of assets	 	 	(1	) 	 	 	137	  	 	 	(2	) 	 	 	(16	) 	 	 	(2	) 	 	 	1,724	  	 	 	(1	) 	 	 	45	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	23,864	  	 	 	24,695	  	 	 	27,074	  	 	 	22,565	  	 	 	23,400	  	 	 	25,092	  	 	 	29,715	  	 	 	25,744	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	12,151	  	 	 	8,752	  	 	 	7,927	  	 	 	12,602	  	 	 	15,029	  	 	 	9,988	  	 	 	9,360	  	 	 	13,497	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expenses):	 				 				 				 				 				 				 				 				
Interest expense	 	 	(3,019	) 	 	 	(3,015	) 	 	 	(2,979	) 	 	 	(2,882	) 	 	 	(2,913	) 	 	 	(2,912	) 	 	 	(3,514	) 	 	 	(3,411	) 	
Interest income	 	 	91	  	 	 	86	  	 	 	74	  	 	 	55	  	 	 	78	  	 	 	79	  	 	 	74	  	 	 	68	  	
Foreign currency translation gains (losses), net	 	 	(479	) 	 	 	36	  	 	 	190	  	 	 	(226	) 	 	 	394	  	 	 	(150	) 	 	 	(71	) 	 	 	(345	) 	
Loss on early extinguishment of debt	 	 	—  	  	 	 	—  	  	 	 	(136	) 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(134	) 	 	 	—  	  	
Equity in earnings of investees	 	 	123	  	 	 	167	  	 	 	59	  	 	 	255	  	 	 	398	  	 	 	532	  	 	 	146	  	 	 	316	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expenses), net	 	 	(3,284	) 	 	 	(2,726	) 	 	 	(2,792	) 	 	 	(2,798	) 	 	 	(2,043	) 	 	 	(2,451	) 	 	 	(3,499	) 	 	 	(3,372	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before provision for income taxes	 	 	8,867	  	 	 	6,026	  	 	 	5,135	  	 	 	9,804	  	 	 	12,986	  	 	 	7,537	  	 	 	5,861	  	 	 	10,125	  	
Provision for income taxes	 	 	(579	) 	 	 	(611	) 	 	 	(466	) 	 	 	(638	) 	 	 	(636	) 	 	 	(398	) 	 	 	(454	) 	 	 	(577	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	8,288	  	 	$	5,415	  	 	$	4,669	  	 	$	9,166	  	 	$	12,350	  	 	$	7,139	  	 	$	5,407	  	 	$	9,548	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA(1)	 	$	16,574	  	 	$	13,835	  	 	$	12,960	  	 	$	16,445	  	 	$	19,485	  	 	$	17,854	  	 	$	15,433	  	 	$	21,267	  	

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(1)	The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, for the periods indicated below. For further discussion of the use of Adjusted EBITDA, see “—Non-GAAP Financial Measures” below.	

 	 	Three Months Ended	 	
 	 	September 30,
2011	 	 	December 31,
2011	 	 	March 31,
2012	 	 	June 30,
2012	 	 	September 30,
2012	 	 	December 31,
2012	 	 	March 31,
2013	 	 	June 30,
2013	 	
 	 	(Unaudited)	 	
 	 	(in thousands)	 	
Net income	 	$	8,288	  	 	$	5,415	  	 	$	4,669	  	 	$	9,166	  	 	$	12,350	  	 	$	7,139	  	 	$	5,407	  	 	$	9,548	  	
Depreciation and amortization	 	 	3,709	  	 	 	3,573	  	 	 	3,559	  	 	 	2,884	  	 	 	2,788	  	 	 	2,859	  	 	 	3,725	  	 	 	3,707	  	
Interest expense	 	 	3,019	  	 	 	3,015	  	 	 	2,979	  	 	 	2,882	  	 	 	2,913	  	 	 	2,912	  	 	 	3,514	  	 	 	3,411	  	
Interest income	 	 	(91	) 	 	 	(86	) 	 	 	(74	) 	 	 	(55	) 	 	 	(78	) 	 	 	(79	) 	 	 	(74	) 	 	 	(68	) 	
Provision for income taxes	 	 	579	  	 	 	611	  	 	 	466	  	 	 	638	  	 	 	636	  	 	 	398	  	 	 	454	  	 	 	577	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA	 	 	15,504	  	 	 	12,528	  	 	 	11,599	  	 	 	15,515	  	 	 	18,609	  	 	 	13,229	  	 	 	13,026	  	 	 	17,175	  	
(Gain) loss on sale of assets and sublease(a)	 	 	(102	) 	 	 	151	  	 	 	(133	) 	 	 	(165	) 	 	 	(144	) 	 	 	1,794	  	 	 	(143	) 	 	 	(105	) 	
Loss on extinguishment of debt(b)	 	 	—  	  	 	 	—  	  	 	 	136	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	134	  	 	 	—  	  	
Stock-based compensation(c)	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	1,089	  	 	 	380	  	 	 	321	  	
Deferred rent adjustments(d)	 	 	422	  	 	 	406	  	 	 	608	  	 	 	345	  	 	 	270	  	 	 	656	  	 	 	339	  	 	 	371	  	
Executive costs(e)	 	 	750	  	 	 	750	  	 	 	750	  	 	 	750	  	 	 	750	  	 	 	750	  	 	 	750	  	 	 	750	  	
Acquisition integration costs(f)	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	336	  	 	 	—  	  	 	 	222	  	
Initial public offering expenses(g)	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	947	  	 	 	2,533	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	 	$	16,574	  	 	$	13,835	  	 	$	12,960	  	 	$	16,445	  	 	$	19,485	  	 	$	17,854	  	 	$	15,433	  	 	$	21,267	  	

(a)	Represents (gains) and losses on the sale of assets as well as the loss on the sublease of our corporate headquarters office building that occurred in 2011.	
(b)	Represents losses incurred on early extinguishment of debt on our senior secured credit facility in 2011 and 2012.	
(c)	Stock-based compensation includes non-cash compensation expense recorded related to unit options granted to employees pursuant to our 2011 Unit Option Plan during the year ended December 31, 2012. See Note 11 to our audited financial statements.	
(d)	Represents the non-cash charge to appropriately record rent expense on a straight-line basis over the term of the lease agreement taking into consideration escalation in monthly cash payments.	
(e)	Represents the elimination of annual salaries we paid to Dave Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chairman and Co-Founder, that we will not pay following the consummation of this offering.	
(f)	Acquisition integration costs include fees incurred in connection with our acquisition of certain assets of RE/MAX of Texas in December 2012, including legal, accounting and advisory fees as well as consulting fees for integration services.	
(g)	Represents costs incurred in connection with this offering.	
Non-GAAP Financial Measures
The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of non-GAAP financial measures, such as Adjusted EBITDA and the ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with GAAP.
 
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We define Adjusted EBITDA as EBITDA (consolidated net income (loss) before depreciation and amortization, interest expense, net and income taxes, each of which is presented in our consolidated financial statements included elsewhere in this prospectus), adjusted for the impact of the following items that we do not consider representative of our ongoing operating performance: (gain) loss on sale of assets and sublease, (gain) loss on extinguishment of debt, stock based compensation, deferred rent adjustments, salaries paid to Dave and Gail Liniger that we will not continue to pay following the consummation of this offering, expenses incurred in connection with this offering and acquisition transaction costs.
Because Adjusted EBITDA omits certain non-cash items and other infrequent cash charges, we believe that it is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and other infrequent cash charges and is more reflective of other factors that affect our operating performance. We present Adjusted EBITDA because we believe it is useful as a supplemental measure in evaluating the performance of our operating businesses and provides greater transparency into our results of operations. Our management uses Adjusted EBITDA as a factor in evaluating the performance of our business. Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider Adjusted EBITDA either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:
 
 	•	 	this measure does not reflect changes in, or cash requirement for, our working capital needs;	
 
 	•	 	this measure does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our debt;	
 
 	•	 	this measure does not reflect our income tax expense or the cash requirements to pay our taxes;	
 
 	•	 	this measure does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;	
 
 	•	 	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements; and	
 
 	•	 	other companies may calculate this measure differently so they may not be comparable.	
 
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A reconciliation of Adjusted EBITDA to net income attributable to controlling interests for our consolidated results and reportable segments for the periods presented is set forth in the following tables:

 	 	Years Ended December 31,	 	 	Six Months Ended
June  30,	 	
 	 	2010	 	 	2011	 	 	2012	 	 	2012	 	 	2013	 	
 	 	(in thousands)	 	
Consolidated:	 				 				 				 				 				
Net income attributable to RMCO, LLC	 	$	7,312	  	 	$	24,249	  	 	$	33,324	  	 	$	13,835	  	 	$	14,955	  	
Depreciation and amortization(1)	 	 	15,870	  	 	 	14,473	  	 	 	12,090	  	 	 	6,443	  	 	 	7,432	  	
Interest expense(1)	 	 	17,224	  	 	 	12,203	  	 	 	11,686	  	 	 	5,861	  	 	 	6,925	  	
Interest income	 	 	(538	) 	 	 	(372	) 	 	 	(286	) 	 	 	(129	) 	 	 	(142	) 	
Provision for income taxes	 	 	2,049	  	 	 	2,172	  	 	 	2,138	  	 	 	1,104	  	 	 	1,031	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA	 	 	41,917	  	 	 	52,725	  	 	 	58,952	  	 	 	27,114	  	 	 	30,201	  	
(Gain) loss on sale of assets and sublease(1)(2)	 	 	(249	) 	 	 	1,595	  	 	 	1,352	  	 	 	(298	) 	 	 	(248	) 	
Loss on extinguishment of debt(1)(3)	 	 	17,486	  	 	 	384	  	 	 	136	  	 	 	136	  	 	 	134	  	
Stock-based compensation(4)	 	 	—  	  	 	 	—  	  	 	 	1,089	  	 	 	—  	  	 	 	701	  	
Deferred rent adjustments(5)	 	 	214	  	 	 	1,577	  	 	 	1,879	  	 	 	953	  	 	 	710	  	
Executive costs(6)	 	 	3,000	  	 	 	3,000	  	 	 	3,000	  	 	 	1,500	  	 	 	1,500	  	
Acquisition-related expenses(7)	 	 	—  	  	 	 	—  	  	 	 	336	  	 	 	—  	  	 	 	222	  	
Initial public offering expenses(8)	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	3,480	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	 	$	62,368	  	 	$	59,281	  	 	$	66,744	  	 	$	29,405	  	 	$	36,700	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real Estate Franchise Services:	 				 				 				 				 				
Net income	 	$	11,367	  	 	$	26,583	  	 	$	33,747	  	 	$	14,895	  	 	$	15,175	  	
Depreciation and amortization	 	 	14,721	  	 	 	13,574	  	 	 	11,575	  	 	 	6,168	  	 	 	7,221	  	
Interest expense	 	 	17,135	  	 	 	12,189	  	 	 	11,677	  	 	 	5,857	  	 	 	6,922	  	
Interest income	 	 	(537	) 	 	 	(372	) 	 	 	(284	) 	 	 	(129	) 	 	 	(142	) 	
Provision for income taxes	 	 	2,049	  	 	 	2,172	  	 	 	2,138	  	 	 	1,104	  	 	 	1,031	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA	 	 	44,735	  	 	 	54,146	  	 	 	58,853	  	 	 	27,895	  	 	 	30,207	  	
(Gain) loss on sale of assets and sublease(1)(2)	 	 	(113	) 	 	 	1,561	  	 	 	1,637	  	 	 	(149	) 	 	 	(172	) 	
Loss on extinguishment of debt(1)(3)	 	 	17,486	  	 	 	384	  	 	 	136	  	 	 	136	  	 	 	134	  	
Stock-based compensation(4)	 	 	—  	  	 	 	—  	  	 	 	1,089	  	 	 	—  	  	 	 	701	  	
Deferred rent adjustments(5)	 	 	(55	) 	 	 	1,499	  	 	 	1,725	  	 	 	741	  	 	 	710	  	
Executive costs(6)	 	 	3,000	  	 	 	3,000	  	 	 	3,000	  	 	 	1,500	  	 	 	1,500	  	
Acquisition-related expenses(7)	 	 	—  	  	 	 	—  	  	 	 	336	  	 	 	—  	  	 	 	222	  	
Initial public offering expenses(8)	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	3,480	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	 	$	65,053	  	 	$	60,590	  	 	$	66,776	  	 	$	30,123	  	 	$	36,782	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Brokerage and Other:	 				 				 				 				 				
Net loss	 	$	(4,055	) 	 	$	(2,334	) 	 	$	(423	) 	 	$	(1,060	) 	 	$	(220	) 	
Depreciation and amortization	 	 	1,149	  	 	 	899	  	 	 	515	  	 	 	275	  	 	 	211	  	
Interest expense	 	 	89	  	 	 	14	  	 	 	9	  	 	 	4	  	 	 	3	  	
Interest income	 	 	(1	) 	 	 	—  	  	 	 	(2	) 	 	 	—  	  	 	 	—  	  	
Provision for income taxes	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA	 	 	(2,818	) 	 	 	(1,421	) 	 	 	99	  	 	 	(781	) 	 	 	(6	) 	
(Gain) loss on sale of assets and sublease(1)(2)	 	 	(136	) 	 	 	34	  	 	 	(285	) 	 	 	(149	) 	 	 	(76	) 	
Deferred rent adjustments(5)	 	 	269	  	 	 	78	  	 	 	154	  	 	 	212	  	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	 	$	(2,685	) 	 	$	(1,309	) 	 	$	(32	) 	 	$	(718	) 	 	$	(82	) 	

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(1)	Depreciation expense of $865, interest expense of $5,071, loss on sale of assets, net of $3,762 and loss on extinguishment of debt of $675 related to non-controlling interest for the year ended December 31, 2010 are excluded as these amounts were already excluded from the net income attributable to RMCO.	
(2)	Represents (gains) and losses on the sale of assets as well as the loss on the sublease of our corporate headquarters office building during the year ended December 31, 2012.	
(3)	Represents losses incurred on early extinguishment of debt on our senior secured credit facility in 2011 and 2012 and the entire repayment of debt of our pre-existing debt facility in 2010.	
(4)	Stock-based compensation includes non-cash compensation expense recorded related to unit options granted to employees pursuant to our 2011 Unit Option Plan during the year ended December 31, 2012. See Note 11 to our audited financial statements.	
(5)	Represents the non-cash charge to appropriately record rent expense on a straight-line basis over the term of the lease agreement taking into consideration escalation in monthly cash payments.	
(6)	Represents the elimination of annual salaries we paid to Dave Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chairman and Co-Founder, that we will not continue to pay following the consummation of this offering.	
(7)	Acquisition integration costs include fees incurred in connection with our acquisition of certain assets of RE/MAX of Texas in December 2012, including legal, accounting and advisory fees as well as consulting fees for integration services.	
(8)	Represents costs incurred in connection with this offering.	
Liquidity and Capital Resources
General Overview
Our liquidity position has been positively affected by the growth of our agent base and improving conditions in the real estate market, which have contributed to increasing annual operating cash flows. In this regard, our short-term liquidity position from time to time has been, and will continue to be, affected by the number of agents in the RE/MAX network. Our liquidity position has been negatively affected by the principal payments and related interest expense on our senior secured credit facility.
We experienced an increase in the number of our agents during the year ended December 31, 2012 and the six month period ended June 30, 2013. However, we cannot predict when the real estate market will return to a period of sustainable growth or be certain agent growth will continue. Moreover, if the real estate market or the economy as a whole deteriorates, we may experience adverse effects on our business, financial condition and liquidity, including our ability to access capital and grow our business.
Our primary liquidity needs historically have been to service our debt, finance our working capital, and finance acquisition activity. We have historically satisfied these needs with cash flows from operations and funds available under our senior secured credit facility.
We will continue to evaluate potential financing transactions, including refinancing our senior secured credit facility and extending maturities. There can be no assurance that financing or refinancing will be available to us on acceptable terms or at all. Future indebtedness may impose various additional restrictions and covenants on us which could limit our ability to respond to market conditions, to make capital investments or to take advantage of business opportunities. Our ability to make payments to fund debt service and strategic acquisitions will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive and other factors that are beyond our control.
 
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Cash Flows
Six Months Ended June 30, 2012 and 2013
Cash and cash equivalents decreased $9.9 million from $68.5 million as of December 31, 2012 to $58.6 million as of June 30, 2013. The following table summarizes our cash flows for the six months ended June 30, 2012 and 2013:

 	  	Six Months Ended June 30,	 	
 	  	2012	 	 	2013	 	 	Change	 	
 	  	(in thousands)	 	
 	  	(unaudited)	 	
Cash provided by (used in):	  				 				 				
Operating activities	  	$	21,543	  	 	$	23,455	  	 	$	1,912	  	
Investing activities	  	 	(1,221	) 	 	 	(570	) 	 	 	651	 	
Financing activities	  	 	(13,760	) 	 	 	(32,652	) 	 	 	(18,892	) 	
Effect of exchange rate changes on cash	  	 	15	 	 	 	(152	) 	 	 	(167	) 	
Net change in cash and cash equivalents	  	$	6,577	  	 	$	(9,919	) 	 	$	(16,496	) 	
Cash provided by operating activities increased $1.9 million from the six months ended June 30, 2012 to the six months ended June 30, 2013. Cash provided by operating activities increased as a result of an increase of $8.1 million in revenue arising from the acquisition of certain assets of RE/MAX of Texas and an increase in agent count. Cash provided by such increase in revenue was offset by a corresponding increase in accounts receivable of $1.1 million. In addition, cash provided by operating activities was adversely affected by an increase in selling, operating and administrative expenses of $4.8 million, of which $3.5 million was attributable to expenses incurred in connection with this offering.
Cash used in investing activities decreased $0.7 million from the six months ended June 30, 2012 to the six months ended June 30, 2013 due to a decrease in the purchase of property, plant and equipment relating to acquired software, offset partially by an increase in leasehold improvement during the six months ended June 30, 2013.
Cash used in financing activities increased $18.9 million from the six months ended June 30, 2012 to the six months ended June 30, 2013 due primarily to a $14.3 million increase in distributions paid to our members pursuant to the terms of the current RMCO, LLC agreement. The increase in member distributions is primarily the result of an increase in taxable income in 2012 compared to 2011, which is the basis for determining the amount of distributions paid to our members. Furthermore, distributions made related to 2012 taxable income were made exclusively during the six months ended June 30, 2013 and distributions related to 2011 taxable income were not made during the six months ended June 30, 2012. Cash used in financing activities also increased as a result of a $2.5 million increase in capitalized costs incurred in connection with this offering and a $2.1 million increase in the amount of repayments made on our senior secured credit facility.
 
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Years Ended December 31, 2011 and 2012
Cash and cash equivalents increased $29.9 million from $38.6 million as of December 31, 2011 to $68.5 million as of December 31, 2012. The following table summarizes our cash flows for the years ended December 31, 2011 and 2012:

 	  	Years Ended December 31,	 	
 	  	2011	 	 	2012	 	 	Change	 	
 	  	(in thousands)	 	
Cash provided by (used in):	  				 				 				
Operating activities	  	$	43,589	  	 	$	51,259	  	 	$	7,670	  	
Investing activities	  	 	(1,347	) 	 	 	(47,390	) 	 	 	(46,043	) 	
Financing activities	  	 	(48,139	) 	 	 	25,953	  	 	 	74,092	  	
Effect of exchange rate changes on cash	  	 	(61	) 	 	 	68	  	 	 	129	  	
Net change in cash and cash equivalents	  	$	(5,958	) 	 	$	29,890	  	 	$	35,848	  	
For the year ended December 31, 2012, we generated $7.7 million more cash from operations compared to the year ended December 31, 2011. The increase in cash provided by operating activities was primarily the result of an increase in net income of $9.1 million offset by increases in working capital of $1.0 million. The increase in net income was primarily the result of a $5.4 million increase in revenue, a $1.7 million decrease in operating expenses, a $0.8 million increase in equity in earnings of investees and a $0.5 million decrease in interest expense. The reduction in cash used in working capital was primarily the result of an increase in other liabilities for the increase in deferred rent in 2011 from the loss recorded from the sublease of a portion of the headquarters building that did not recur in 2012. This reduction was partially offset by a larger increase in deferred revenue related to higher registration fees received and deferred in 2012 for our 2013 annual convention as compared to registration fees received and deferred in 2011.
Cash used in investing activities increased $46.0 million for the year ended December 31, 2012 compared to the year ended December 31, 2011, primarily as a result of the acquisition of certain assets of RE/MAX Texas for $45.5 million on December 31, 2012.
For the year ended December 31, 2012, we generated $74.1 million more cash through financing activities compared to the year ended December 31, 2011. For the year ended December 31, 2012, $26.0 million of cash was provided by financing activities primarily due to proceeds from the additional term loan of $45.0 million borrowed under our senior secured credit facility, which was used to acquire certain assets of RE/MAX of Texas, partially offset by payments made on the senior secured credit facility of $8.4 million and distributions to members of $9.6 million. For the year ended December 31, 2011, $48.1 million of cash was used in financing activities due to payments made on the senior secured credit facility of $16.5 million, distributions to members of $15.4 million and a distribution of $15.9 million to a member in connection with the acquisition of certain assets of the Mountain States region, which was an entity under common control.
 
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Years Ended December 31, 2010 and 2011
Cash and cash equivalents decreased $6.0 million from $44.6 million as of December 31, 2010 to $38.6 million as of December 31, 2011. The following table summarizes our cash flows for the years ended December 31, 2010 and 2011:

 	  	Years Ended
December 31,	 	
 	  	2010	 	 	2011	 	 	Change	 	
 	  	(in thousands)	 	
Cash provided by (used in):	  				 				 				
Operating activities	  	$	36,422	  	 	$	43,589	  	 	$	7,167	  	
Investing activities	  	 	72,958	  	 	 	(1,347	) 	 	 	(74,305	) 	
Financing activities	  	 	(102,199	) 	 	 	(48,139	) 	 	 	54,060	  	
Effect of exchange rate changes on cash	  	 	258	  	 	 	(61	) 	 	 	(319	) 	
Net change in cash and cash equivalents	  	$	7,439	  	 	$	(5,958	) 	 	$	(13,397	) 	
For the year ended December 31, 2011, we generated $7.2 million more cash from operations compared to the year ended December 31, 2010. The increase in cash provided by operating activities resulted from a reduction in cash paid for interest during 2011 as a result of the repayment of our prior senior debt facility in April 2010, primarily offset by a reduction in revenue.
For the year ended December 31, 2011, we used $1.3 million in cash from investing activities compared to cash provided by investing activities of $73.0 million during the year ended December 31, 2010. This reduction was primarily due to the sale of an office building and the related land for $75.5 million, net of costs, during the year ended December 31, 2010 that did not recur in 2011.
For the year ended December 31, 2011, cash used in financing activities decreased $54.1 million compared to the year ended December 31, 2010. This reduction was due to reduced debt service requirements of $98.7 million during the year ended December 31, 2011 compared to the year ended December 31, 2010, offset by the net proceeds of $28.8 million in 2010 from the issuance of Class A preferred units to Weston Presidio in 2010 that did not recur in 2011 and a cash deemed distribution of $15.9 million in 2011 to a member in connection with the acquisition of certain assets of the Mountain States region.
Senior Secured Credit Facility
The following is a summary of the material terms of the RE/MAX, LLC revolving line of credit and term loan facility, which we refer to collectively as our senior secured credit facility. This summary is qualified in its entirety by reference to the agreement which is filed as an exhibit to the registration statement, of which this prospectus forms a part.
In July 2013, RE/MAX, LLC entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto. Under the credit agreement, RE/MAX, LLC has a revolving line of credit available of up to $10.0 million. On the closing date of the credit agreement, RE/MAX, LLC borrowed $230.0 million of term loans thereunder. The proceeds provided by these term loans were used to refinance and repay existing indebtedness and for working capital, capital expenditures, acquisitions and general corporate purposes.
Term loans are repaid in quarterly installments of 0.25% of the aggregate principal amount of the term loans, with the balance of the term loan due at maturity. The maturity date of all of the term loans under the credit agreement is July 31, 2020. Term loans may be optionally prepaid by RE/MAX, LLC at any time. All amounts outstanding under the revolving line of credit must be repaid on July 31, 2018.
 
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The credit agreement requires RE/MAX, LLC to repay term loans and reduce revolving commitments with (i) 100% of proceeds of any incurrence of additional debt not permitted by the credit agreement, (ii) 100% of proceeds of asset sales and 100% of amounts recovered under insurance policies, subject to certain exceptions and a reinvestment right, and (iii) 50% of excess cash flow at the end of the applicable fiscal year, with such percentage decreasing as RE/MAX, LLC’s leverage ratio decreases.
The senior secured credit facility is guaranteed by RMCO and RE/MAX of Western Canada (1998), LLC, a subsidiary of RE/MAX, LLC, and is secured by a lien on substantially all of the assets of RMCO, RE/MAX, LLC and each guarantor.
Borrowings under the term loans and revolving loans accrue interest, at RE/MAX, LLC’s option, at either an alternate base rate or LIBOR plus an applicable margin rate. Applicable margin for alternate base rate loans is 1.75% per annum increasing to 2.00% per annum at any time RE/MAX, LLC’s leverage ratio is greater than or equal to 2.25 to 1.00, and applicable margin for LIBOR loan is 2.75% per annum increasing to 3.00% per annum at any time RE/MAX, LLC’s leverage ratio is greater than or equal to 2.25 to 1.00. A commitment fee of 0.50% per annum accrues on the amount of unutilized revolving line of credit.
The credit agreement provides for customary restrictions on, among other things, additional indebtedness, liens, dispositions of property, dividends, transactions with affiliates and fundamental changes such as mergers, consolidations and liquidations. We do not anticipate that the restriction on the payment of dividends will prevent us from being able to pay regular dividends with respect to our Class A common stock at rates we establish from time to time. With certain exceptions, any default under any of our other agreements evidencing indebtedness in the amount of $10.0 million or more shall constitute an event of default under the credit agreement.
The credit agreement restricts the aggregate acquisition consideration for permitted acquisitions to $50.0 million in any fiscal year. Any unused amounts may be carried over to subsequent years to be used towards additional expenditures for permitted acquisitions, with an aggregate cap of $100.0 million in any fiscal year. Aggregate outstanding indebtedness consisting of (i) the deferred purchase price of permitted acquisitions may not exceed $15.0 million at any time and (ii) earn-outs arising out of permitted acquisitions may not exceed $15.0 million at any time.
At any time revolving loans are outstanding, the credit agreement requires compliance with a leverage ratio and an interest coverage ratio. As of July 31, 2013, we had no revolving loans outstanding.
As of June 30, 2013, we had $223.2 million of term loans outstanding, net of an unamortized discount, and no revolving loans outstanding under our senior secured credit facility.
Contractual Obligations
The following table summarizes our contractual obligations as of June 30, 2013 and the effect such obligations are expected to have on our liquidity and cash flows in future periods:

 	 	Payments due by Period	 	
 	 	Total	 	 	Remaining
2013	 	 	2014	 	 	2015	 	 	2016	 	 	2017	 	 	Thereafter	 	
 	 	(in thousands)	 	
Long-term debt (including current portion)(1)(2)	 	$	224,218	  	 	$	1,150	  	 	$	17,300	  	 	$	2,300	  	 	$	2,300	  	 	$	2,300	  	 	$	198,868	  	
Interest payments on debt facilities(3)	 	 	61,399	  	 	 	4,001	  	 	 	9,074	  	 	 	8,837	  	 	 	8,757	  	 	 	8,677	  	 	 	22,053	  	
Lease obligations(4)	 	 	136,891	  	 	 	5,524	  	 	 	10,305	  	 	 	10,499	  	 	 	9,628	  	 	 	8,935	  	 	 	92,000	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	422,508	  	 	$	10,675	  	 	$	36,679	  	 	$	21,636	  	 	$	20,685	  	 	$	19,912	  	 	$	312,921	  	

(1)	We are required to make quarterly principal payments on our senior secured credit facility of $0.6 million through July 2020. We have reflected full payment of long-term debt at maturity of our senior secured credit facility in 2020.	
 
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(2)	Final payment amount in 2020 of $198.9 million will be reduced by any excess cash flow principal payments and optional prepayments made subsequent to 2014. For purposes of this table, we have included the 2014 estimated excess cash flow payment of $15 million. We did not include the excess cash flow payment for 2015 and thereafter as these amounts are conditioned on achieving future financial figures that are not determinable at this time.	
(3)	The interest payments in the above table are determined assuming that principal payments on the debt are made on their scheduled dates and on the applicable maturity dates. The variable interest rate on the senior secured credit facility is assumed at the current interest rate of 4.2%.	
(4)	We are obligated under non-cancelable leases for offices and equipment. Future payments under these leases and commitments, net of payments to be received under sublease agreements of $1.5 million in the aggregate, are included in the table above.	
Off Balance Sheet Arrangements
Other than the guarantee of a performance agreement and a line of credit agreement disclosed in Notes 13 and 9 of our audited and unaudited consolidated financial statements, respectively, we have no material off balance sheet arrangements as of June 30, 2013.
Critical Accounting Policies, Judgments and Estimates
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base estimates on historical experience and other assumptions believed to be reasonable under the circumstances and evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies and estimates discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Revenue Recognition
We generate revenue primarily from five sources: (i) continuing franchise fees; (ii) annual dues; (iii) broker fees; (iv) franchise sales and other franchise revenue; and (v) brokerage revenue.
Revenue is recognized when all of the following conditions have been met:
 
 	•	 	there is persuasive evidence of an arrangement;	
 
 	•	 	the service has been provided or the product has been delivered;	
 
 	•	 	the price is fixed or determinable; and	
 
 	•	 	collection of the fees is sufficiently assured.	
We provide operational, training, and administrative services and systems to franchisees, which include systems and tools that are designed to help our franchisees and their sales associates serve their customers and attract new or retain existing independent sales associates. Continuing franchise fee revenue principally consists of fixed-fee amounts earned monthly from franchisees on a per agent basis. Continuing franchise fees are recognized in revenue when earned and become due and payable, as stipulated in the related franchise agreements.
Annual dues revenue represents amounts assessed to agents for membership affiliation in the RE/MAX network and are billed one year in advance. We defer the annual dues revenue when billed and recognize the revenue ratably over the 12 month period to which it relates.
 
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Broker fee revenue represents fees received from our franchise offices that are primarily based on a percentage of an agent’s gross commission income. Broker fees are determined upon close of the home-sale transaction and recognized as revenue when the fees become due and payable, as stipulated in the related franchise agreements.
Upon the sale of a real estate franchise, we recognize franchise revenue when we have no significant continuing operational obligations, substantially all of the services have been performed, and other conditions affecting consummation of the sale have been met. In the event the franchise fails to perform under the franchise agreement or defaults on the purchase obligations, we have the right to reacquire the franchise and to resell or operate that specific franchise. Other franchise revenue is recognized when all revenue recognition criteria are met, typically upon payment.
Brokerage revenue is composed primarily of brokerage management fee revenue, which represents fees assessed to affiliated RE/MAX real estate agents by the owned brokerages for services provided by the brokerage to assist the associate with real estate activities. We recognize broker management fee revenue when all revenue recognition criteria are met.
Allowances for Accounts and Notes Receivable
Trade accounts and notes receivables from our franchise operations are recorded at the time we are entitled to bill under the terms of the franchise agreements and other contractual arrangements. In circumstances where we have the contractual right to bill our franchisees, but where collectability is not sufficiently assured, we record a receivable and deferred revenue. We record reserves against our accounts and notes receivable balances. These reserves consist of allowances for doubtful accounts and notes receivables and reserves for accounts and notes receivables where collectability is remote. Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality of receivables for which revenue has been recognized. The allowance for doubtful accounts and notes receivables represent our best estimate of the amount of probable credit losses, and is based on historical experience, industry and general economic conditions, and the attributes of specific accounts. Our reserve for accounts and notes receivable where collectability is remote is increased, with a corresponding reduction to deferred revenue, after we have determined that the potential for recovery is considered remote. To the extent that actual loss experience differs significantly from historical trends, the required allowance amounts could differ from our estimate, which could have an adverse material effect on our financial condition and results of operations.
Goodwill
Goodwill is an asset representing the future economic benefits arising from the other assets acquired in a business combination that are not individually identified and separately recognized. The initial determination of goodwill involves substantial judgments and estimates. Subsequently, we assess goodwill for impairment at least annually on August 31, or whenever an event occurs or circumstances change that would indicate an impairment may have occurred at the reporting unit level. Reporting units are driven by the level at which management reviews operating results and are one level below the operating segment.
Our impairment assessment begins with a qualitative assessment to determine if it is more likely than not that a reporting unit’s fair value is less than the carrying amount. The initial qualitative assessment includes comparing the overall financial performance of the reporting units against the planned results as well as other factors which might indicate that the reporting unit’s value has declined since the last assessment date. If it is determined in the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the standard two-step quantitative impairment test is performed. First, the fair value of the reporting units is calculated as described below, which is then compared to its carrying value. If the fair value is less than the carrying value, we would then determine the implied fair value of a reporting unit’s goodwill by allocating the determined fair value to all of the reporting unit’s assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination. The
 
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remaining fair value of the reporting unit, if any, is deemed to be the implied fair value of the goodwill and an impairment is recognized in an amount equal to the excess of the carrying amount of goodwill above its implied fair value, if any.
We determine the fair value of our reporting units using an income-based approach (discounted cash flows) which requires management to make assumptions about long-range business plans. These assumptions require us to make judgments and estimates of future revenue, agent growth, operating expenses, cash flows, market and general economic conditions as well as assumptions that we believe marketplace participants would utilize, including discount rates, cost of capital, and long term growth rates. When available and as appropriate, we use comparative market multiples and other factors in our analyses. Any changes in key assumptions about future cash flows, or changes in market conditions or other external events, could result in future impairment charges and such charges could have a material adverse effect on our consolidated financial statements.
We could be required to evaluate the recoverability of goodwill if we experience disruptions to the business, unexpected significant declines in operating results, a divestiture of a significant component of our business, or other triggering events. In addition, as our business or the way we manage our business changes, our reporting units may also change.
The amount reflected as goodwill in the accompanying consolidated balance sheet as of December 31, 2012 was $71.0 million which represented approximately 28% of our consolidated assets. The fair value of our reporting units, all of which are included in the Real Estate Franchise Services operating segment, collectively exceeded their carrying values by 52% in 2012. A hypothetical decline in the fair value of approximately 20% would not result in an impairment.
Franchise Agreements and Other Intangible Assets
Franchise agreements of reacquired regions are recorded initially based on the remaining contractual term and do not consider potential renewal periods in the determination of fair value. The value ascribed to the franchise agreements requires management to make assumptions and apply judgment in the carrying value determination, primarily through the use of a discounted cash flow analysis. With respect to the discounted cash flow analysis, the timing and amount of expected future cash flows requires estimates, among other items, of revenue and agent growth rates, operating expenses, and expected operating cash flow margins. The development of these cash flows, and the discount rate applied to the cash flows, is subject to inherent uncertainties. The franchise agreements are amortized on a straight-line basis over their remaining contractual term.
We also purchase and develop software for internal use. Software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when we have completed all planning and design activities that are necessary to determine that the software can be produced to meet our design specifications, including functions, features and technical performance requirements. Such determination requires management to exercise its judgment. Capitalization of costs ceases when the product is available for general use. Software development costs are generally amortized over a term of three years, its estimated useful life. Purchased software licenses are amortized over their estimated useful lives.
We review our franchise agreements and other intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated from such assets. Undiscounted cash flow analyses require us to make estimates and assumptions, including, among other things, revenue growth rates and operating margins based on our financial budgets and business plans.
Significant declines in cash flows could result in the carrying amount of an asset to exceed its estimated cash flows, which could result in an impairment charge. The net carrying value of our franchise agreements and other intangible assets was $81.2 million as of December 31, 2012.
 
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Stock-Based Compensation
Determining the estimated fair value of unit option awards at the grant date requires judgment. We recognize stock-based compensation in accordance with Financial Accounting Standards Board Accounting Standards Codification No. 718, Compensation – Stock Compensation, which requires the fair value of the unit option awards to be recognized in the consolidated financial statements as compensation expense over the requisite service period. We recognize compensation expense related to unit option awards as part of selling, operating and administrative expenses. During 2012, we granted unit option awards to purchase 31,500 Class B common units of RMCO to our employees at an exercise price of $90.08, which was determined to be the estimated fair value of the underlying unit on that date. We did not grant any unit option awards during the years ended December 31, 2011 and 2010.
These awards were measured at the estimated grant-date fair value of the award. The grant-date fair value was estimated by management using the Black-Scholes-Merton option pricing model. The fair value assumptions required management to exercise judgment related to the expected term of the options, our expected stock price volatility, risk-free interest rates and expected dividends, which were estimated as follows:
 
 	•	 	Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we have based our expected term on the simplified method, which represents the average period from vesting to the expiration of the award.	
 
 	•	 	Expected volatility. As we do not have a trading history for our common units, we used an average historical volatility of similar publicly traded companies over the expected term.	
 
 	•	 	Risk-free rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.	
 
 	•	 	Dividend yield. The expected dividend yield at the grant date was zero based upon the Company’s analysis of factors that may impact the payment of future distributions, if any.	
We granted unit option awards with an exercise price equal to the grant-date fair value of our Class B common units based on a valuation study performed by a third party valuation firm. The valuation methodology established an enterprise value using generally accepted valuation methodologies, including discounted cash flow analysis, comparable public company analysis and, when data deemed relevant was available, comparable acquisitions analysis. Because our Class B common units are not publicly traded, significant judgment and numerous objective and subjective factors were incorporated into the valuation methodology. Total equity value was determined by adding cash and deducting debt from the enterprise value. The equity value was allocated to the Class B common units after taking into account the liquidity preference of our Class A preferred units.
The following table presents the valuation assumptions used to estimate the fair value of Class B common unit options granted in 2012:

 	  	Year Ended
December 31, 2012	 	
Valuation assumptions:	  				
Expected dividend yield	  	 	—  	% 	
Expected volatility	  	 	78.0	% 	
Expected term (years)	  	 	5.1	  	
Risk-free interest rate	  	 	0.75	% 	
Recently Issued Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-05: Foreign Currency Matters (Topic 830)—Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity
 
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or of an Investment in a Foreign Entity (“ASU 2013-05”). This amendment clarifies the applicable guidance for the release of cumulative translation adjustment into net earnings. When an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the entity is required to apply the guidance in FASB Accounting Standards Codification (ASC) Topic 830-30 to release any related cumulative translation adjustment into net earnings. ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In June 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under this ASU, an entity has the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option in U.S. GAAP to present other comprehensive income in the statement of changes in equity. An entity should apply the ASU retrospectively. In December 2011, the FASB decided to defer the effective date of those changes in ASU 2011-05 that relate only to the presentation of reclassification adjustments in the statement of operations by issuing ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. As permitted, we early adopted the provisions of ASU 2011-05 as of December 31, 2011, except for changes that relate only to the presentation of reclassification adjustments, for which we adopted the provisions of ASU 2013-02: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income in the first quarter of 2013. Components of net income and comprehensive income are presented in the accompanying consolidated financial statements.
Jumpstart Our Business Startups Act of 2012
The JOBS Act permits us, as an “emerging growth company,” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Quantitative and Qualitative Disclosures about Market Risks
Interest Rate Risk
We are subject to interest rate risk in connection with borrowings under our senior secured credit facility which bear interest at variable rates. At June 30, 2013, $223.2 million in term loans were outstanding under our senior secured credit facility net of an unamortized discount. As of June 30, 2013, the undrawn borrowing availability under the revolving line of credit under our senior secured credit facility was $10 million. We currently do not engage in any interest rate hedging activity and we have no intention to do so in the foreseeable future. The interest rate on RE/MAX, LLC’s senior secured credit facility entered into in July 2013 is currently subject to a LIBOR rate floor of 1%, plus an applicable margin. If LIBOR rates rise above the floor, then each hypothetical  1 / 8 % increase would result in additional annual interest expense of $0.3 million.
Currency Risk
We have a network of international franchisees in Canada and over 90 other countries. Fees imposed on franchisees and agents in foreign countries are charged in the local currency. Fluctuations in exchange rates of the U.S. dollar against foreign currencies can result, and have resulted, in foreign exchange translation gains and losses. We had foreign currency translation gains and (losses) of approximately $0.2 million, $(0.3) million, $0.2 million and $(0.4) million in the years ended December 31, 2010, 2011 and 2012 and for the six months ended June 30, 2013, respectively. We currently do not engage in any foreign exchange hedging activity and we have no intention to do so in the foreseeable future. If exchange rates on such currencies were to fluctuate 10%, we believe that our consolidated financial position, results of operations and cash flows would not be materially affected.
 
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Internal Control over Financial Reporting
The process of improving our internal controls has required and will continue to require us to expend significant resources to design, implement and maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. There can be no assurance that any actions we take will be completely successful. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis.
We have not begun testing or documenting our internal control procedures in order to comply with the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent auditors addressing these assessments. We will be required to comply with Section 404(a), which requires an annual management assessment of the effectiveness of our internal control over financial reporting, at the time we file our annual report for fiscal year ended December 31, 2014. We will not be required to comply with Section 404(b), which requires a report by our independent registered public accounting firm addressing these assessments, as long as we continue to qualify as an “emerging growth company” under the JOBS Act. As part of this process, we may identify specific internal controls as being deficient. We anticipate retaining additional personnel to assist us in complying with our Section 404 obligations. We are currently evaluating whether such personnel will be retained as consultants or as employees.
 
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 BUSINESS
Our Company
We are one of the world’s leading franchisors of real estate brokerage services. Our business strategy is to recruit and retain agents and sell franchises. Our franchisees operate under the RE/MAX brand name, which has held the number one market share in the U.S. and Canada since 1999 as measured by total residential transaction sides completed by our agents. Accordingly, our company slogan is “Nobody sells more real estate than RE/MAX.” The RE/MAX brand has the highest level of unaided brand awareness in the U.S. and Canada according to a 2013 survey by MMR Strategy Group, and our iconic red, white and blue RE/MAX hot air balloon is one of the most recognized real estate logos in the world.
The RE/MAX brand is built on the strength of our global franchise network which is designed to attract and retain the best-performing and most experienced agents by maximizing their opportunity to retain a larger portion of their commissions in exchange for fixed fees and a share of the offices’ overhead expense. As a result of this agent-centric approach, we believe that our agents are substantially more productive than the industry average. We consider agent count and agent productivity to be key measures of our business performance as the majority of our revenue is derived from fixed, contractual fees and dues paid to us based on the number of agents in our franchise network.
RE/MAX was founded in 1973 by Dave and Gail Liniger with an innovative, entrepreneurial culture affording our agents and franchisees the flexibility to operate their businesses with great independence. This business strategy led to a 33-year period of uninterrupted growth, highlighted in the charts below, as RE/MAX added large numbers of franchises and agents in the U.S., Canada and around the world. Today, the RE/MAX brand operates in more countries than any other real estate brokerage brand in the world.

Over 90,000 Agents	  	Over 6,300 Offices	  	Over 90 Countries	
			
Number of Agents
 	  	Number of Offices
 	  	Number of Countries

 
*	Through July 31, 2013	
We grew our total agent count at a CAGR of 30% from our founding to a peak of approximately 120,000 agents in 2006. Our agent count declined approximately 26.8% from 2006 through 2011 as real estate transaction activity declined during the U.S. real estate downturn and recession. We have returned to growth with a net gain of 1,532 agents during 2012 (of which 651 agents were in the U.S.), as the U.S. housing recovery took hold and real estate transaction activity began to rebound. We have accelerated our growth in 2013 with a net gain of 3,231 agents through July 31, 2013 (of which 1,797 agents were in the U.S.), as the upturn has gained momentum.
With approximately 74% of our 2012 revenue coming from the U.S., we believe that we are well positioned to benefit from a continuing recovery in the U.S. housing market. Existing home sale transactions in the U.S. rose 9.4% in 2012 compared to 2011, according to NAR. During the first quarter of 2013, existing home sale
 
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transactions rose 9.9% compared to the first quarter of 2012 and are expected to rise an aggregate of 8.3% in 2013 according to NAR. We expect that our U.S. agent count will continue to increase as part of the ongoing U.S. housing recovery, and that we will continue to attract productive agents who recognize the strength of the RE/MAX brand and our agent-centric value proposition. With approximately 17% of our 2012 revenue coming from Canada, where RE/MAX has the leading market share among residential brokerage firms, we also expect to benefit from a continuation of generally stable Canadian housing market trends.
The RE/MAX network extends to commercial real estate brokerage as well, with over 2,700 RE/MAX Commercial ® practitioners in over 45 countries. With $7 billion in 2012 sales and lease volume, RE/MAX Commercial ® is perennially named one of the top 25 commercial brokerage networks by National Real Estate Investor magazine.
As a franchisor with less than 1% owned brokerage offices in the U.S., we maintain a low fixed-cost structure, which enables us to generate high margins and helps us drive significant operating leverage through incremental revenue growth.

 

(1)	Adjusted EBITDA includes adjustments to EBITDA for (gain) loss on sale of assets and sublease, (gain) loss on extinguishment of debt, stock based compensation, deferred rent adjustments, salaries paid to Dave and Gail Liniger that we will not continue to pay following the consummation of this offering, and acquisition transaction costs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss).	
(2)	Net loss in the year ended December 31, 2010 was primarily attributable to (i) a loss on the early extinguishment of debt resulting from the repayment of our prior senior debt facility stemming from issuance costs and the unamortized debt discount related to such facility and (ii) a loss incurred in the sale of our corporate headquarters office building. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 2010 vs. Year Ended December 31, 2011.”	
Market Opportunity
We operate in the real estate brokerage franchise industry in more than 90 countries, including the U.S. and Canada.
U.S. and Canadian Real Estate Brokerage Industry Overview . Based upon U.S. Census and Federal Reserve data and existing home sales information from NAR, the U.S. residential real estate industry is an approximately $1.15 trillion market based on 2012 sales volume and represents the largest single asset class in the U.S. with a value of approximately $18 trillion.
Residential real estate brokerages typically realize revenue by charging a commission based on a percentage of the price of the home sold. The real estate brokerage industry generally benefits in periods of rising home
 
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prices and transaction activity (with the number of licensed real estate agents generally increasing during such periods), and is adversely impacted in periods of falling prices and home sale transactions (with the number of licensed real estate agents generally decreasing during such periods).
We believe that the traditional agent-assisted business model compares favorably to alternative channels of the residential brokerage industry, such as discount brokers and “for sale by owner,” because full-service brokerages are the best-suited to address many of the key characteristics of real estate transactions, including: (i) the large monetary value involved in home sale transactions, (ii) the infrequency of home sale transactions, (iii) the high price variability in the home market and (iv) the consumer’s need for a high degree of personalized advice and support in light of the complexity of the transaction. For these reasons, we believe that consumers will continue to use the agent-assisted model for residential real estate transactions. In addition, although listings are available for viewing on a wide variety of real estate websites, we believe an agent’s local market expertise provides consumers with the ability to better understand the inventory of for-sale homes and the interests of potential buyers. This knowledge allows the agent to customize the pool of potential homes they show to a buyer as well as help a seller to professionally present their home to best attract potential buyers. According to NAR, 88% of existing homes were sold using an agent or broker in 2012 compared to 82% in 2004.
Although NAR membership has experienced year-to-year declines since peaking at 1.4 million members in 2006, the greatest such decline occurred between 2007 and 2008. NAR had 1.02 million members as of the end of July 2013.
Following a brief downturn in 2008, the real estate industry in Canada has remained relatively steady over the last four years (as measured by home sales and home sale price data published by CREA), which is a trend we expect will continue. In addition, the Multiple Listing Service Home Price Index has experienced positive year-over-year growth since 2010. Although CREA forecasts a 2.5% decline in national sales activity in Canada for 2013, they predict a 4.7% increase for 2014.
Cyclical Nature . The residential real estate industry is cyclical in nature but has shown strong long-term growth. From the second half of 2005 through 2011, the U.S. real estate industry experienced a significant downturn, with existing home sale transactions declining by 40% from 7.1 million in 2005 to 4.3 million in 2011 and the median home sale price declining by 24% from $219,600 in 2005 to $166,100 in 2011 according to NAR.
However, the U.S. real estate industry experienced a strong rebound in 2012, with a total of 5.0 million home sale transactions according to NAR, of which approximately 4.7 million are estimated to represent existing home sale transactions, a 9.4% increase in existing home sale transactions over 2011. Existing home sales in 2012 were the highest since 2007 and represent the greatest year-over-year increase since 2004.
The growth in the U.S. real estate industry during the first quarter of 2013 was particularly strong. NAR is reporting year-over-year increases of 9.9% in existing home sale transactions in the first quarter of 2013 compared to the first quarter of 2012. In addition, NAR is forecasting that (i) in 2013, existing home sales will increase by 8.3% to 5.0 million units and median existing home sale prices will increase by 10.6%, each as compared to 2012; and (ii) in 2014, existing home sales will increase by 2.5% to 5.2 million units and median existing home sale prices will increase by 5.7%, each as compared to 2013.
Further, according to NAR, an easing of mortgage lending standards could result in an incremental increase in transaction activity.
 
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We believe we are well-positioned to benefit from an increase in our agent count as a result of the current U.S. economic recovery and the rebound in the U.S. housing sector, which appears to be gaining momentum. As illustrated below, the number of existing home sale transactions in the U.S. has generally increased during periods of economic recovery:
U.S. Existing Home Sales
(in thousands)
Existing Home Sales

Source: National Association of Realtors
Favorable Long-term Demand . We believe that long-term demand for housing in the U.S. is primarily driven by the economic health of the domestic economy, low interest rates, and local factors such as demand relative to supply, and that the residential real estate market in the U.S. will also benefit over the long term from the following fundamental factors:
 
 	•	 	Return to Levels of Historical Norms in Home Sales . From 1991 through 2012, the number of existing home sale transactions per year averaged approximately 4.5% of total U.S. households, compared to an average transactions per year of approximately 3.9% of total U.S. households from 2007 through 2011. We believe that as the U.S. economic recovery continues and U.S. job growth and consumer confidence rise, the number of existing home sale transactions as a percentage of U.S. households will progress toward the historical average level of 4.5%, and the number of annual existing home sale transactions will therefore increase (along with industry agent counts in line with these trends).	
 
 	•	 	Improved Home Affordability . Owning a home has become more affordable than renting in many U.S. markets where rental rates have outpaced income growth. NAR’s housing affordability index reached an annual record high in 2012. In addition, the number of renters that would qualify to buy a median priced home increased from 9 million in 2005 to 20.1 million in 2012 according to NAR.	
 
 	•	 	Increasing Household Formations, Including as a Result of Immigration and Population Growth . According to the 2012 State of the Nation’s Housing Report compiled by the Joint Center for Housing Studies, the number of U.S. households is projected to grow by an annual average of 1.18 million annually from 2010 to 2020. In particular, according to a 2013 report by the Research Institute for	
 
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 	Housing America, the growth in foreign-born homeowners has increased in the U.S. for the last several decades and is expected to continue to increase:	
 
 	•	 	the number of foreign-born homeowners increased from 1990 to 2000 from 3.9 million to 6.0 million;	
 
 	•	 	the number of foreign-born homeowners increased from 2000 to 2010 from 6.0 million to 8.4 million;	
 
 	•	 	the number of foreign-born homeowners is expected to increase from 2010 to 2020 from 8.4 million to 11.3 million; and	
 
 	•	 	the U.S. Census Bureau also projects that the U.S. will continue to experience long-term population growth and predicts total net immigration of 68 million individuals between 2010 and 2050.	
 
 	•	 	Increase in Home Values . CoreLogic has estimated that a five percent increase in home values would cause an additional 1.6 million U.S. homeowners to gain positive equity value in their homes and thereby enable more of those homeowners to sell their homes, which we believe will also unlock pent-up market demand for sales of existing homes.	
 
 	•	 	Generational Housing Shifts Related to Retirement and Adult Children Moving Out of Parents’ Homes . We believe that there is also pent-up selling demand from many retirement age homeowners who are likely to take advantage of improving housing market conditions in order to sell their existing residences and relocate to new areas of the country for retirement purposes or in order to purchase smaller homes. We believe there is also pent-up buying demand among adult children currently living in their parents’ homes who are likely to take advantage of more affordable housing prices.	
Our Franchise Structure
Franchise Organizational Model . We function under the following franchise organizational model, with nearly all of the RE/MAX branded brokerage office locations being operated by franchisees:

Franchise Tier	    	Description	
RE/MAX	    	Owns the right to the RE/MAX brand and sells franchises and franchising rights.	
 	 	
Regional
Franchise Owner	    	Owns rights to sell brokerage franchises in a specified region. Current network of 162 regions globally. In the U.S. and Canada, RE/MAX owns 10 of 32 regional franchises, representing 46% of our U.S. and Canada agent count. The remaining 22 regional franchises, representing 54% of our U.S. and Canada agent count, are Independent Regions. We intend to use a portion of the proceeds of this offering to reacquire regional RE/MAX Franchise rights in the Central Atlantic and Southwest regions, increasing Company-owned Regions to approximately 54% of our U.S. and Canada agent count.	
 	 	
Franchisee
(or Broker-Owner)	    	Owns right to operate a RE/MAX-branded brokerage office, list properties and recruit agents. Over 6,300 offices globally.	
 	 	
Agent
(or Sales Associate)	    	Branded independent contractors who operate out of local franchise brokerage offices. Approximately 90,000 agents globally.	
In the early years of our expansion in the U.S. and Canada, we sold regional franchise rights to independent owners for certain Independent Regions while retaining rights to other regions. In recent years, we have pursued a strategy to reacquire regional franchise rights, such as the California, Hawaii, Florida and Carolinas regions in 2007, the Mountain States region in 2011 and the Texas region in December 2012. We intend to reacquire regional RE/MAX Franchise rights in the Central Atlantic and Southwest regions concurrently with the completion of this offering.
 
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Franchise Agreements and Relationship Terms . In those regions that are owned by us in the U.S. and Canada, we typically enter into a five-year renewable franchise agreement with franchisees covering a standard set of terms and conditions. For those regions that are independently owned, we enter into a long-term agreement (typically between 15 and 20 years) with the Independent Region owner pursuant to which the regional franchise owner is authorized to enter into franchise agreements with individual franchisees in that region.
In general, the franchisees (or broker-owners) do not receive an exclusive territory except under certain limited circumstances. Prior to opening an office, a franchisee or principal owner is required to attend a four to five day training program at our global headquarters. We maintain a close relationship with our franchisees and provide them with ongoing training via our RE/MAX University to help them better attract and train agents, market, and operate more effectively. Prospective franchisees, renewing franchisees, and transferees of a franchise are subject to a criminal background check and must meet certain subjective and objective standards, including those related to relevant experience, education, licensing, background, financial capacity, skills, integrity and other qualities of character.
Our Market Position . We attribute our success to our ability to recruit and retain experienced and productive agents and sell franchises. Our approach to sustained agent recruiting and retention and franchise sales is dependent upon two key elements of our unique business model: (i) creating and maintaining a premier market presence in the real estate brokerage industry worldwide, and (ii) creating and maintaining RE/MAX’s unique “growth engine.”
Premier Market Presence . The strength of our brand worldwide in the real estate brokerage industry is the result of our ability to successfully create and maintain “Premier Market Presence.” We believe that we offer agents and franchisees a compelling market presence in the real estate brokerage industry through the combination of the following six attributes:
 
 	•	 	leading unaided brand awareness;	
 
 	•	 	highly experienced and productive agents;	
 
 	•	 	leading market share;	
 
 	•	 	world-class web presence;	
 
 	•	 	high level of customer satisfaction; and	
 
 	•	 	strong community citizenship.	
We believe our focus on creating and maintaining Premier Market Presence has led to a sustained growth of our global franchise network and the RE/MAX brand.
 
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RE/MAX “Growth Engine.” The RE/MAX Growth Engine is a virtuous circle whereby all of the key stakeholders in our franchise network—our franchisees, agents and RE/MAX—benefit from mutual investment and participation in the RE/MAX network, or, as we say in RE/MAX, “Everybody wins.” By building our leading brand around an agent-centric model, we believe we are able to attract and retain highly productive agents and motivated franchisees. As a result, our agents and franchisees help to further enhance our brand and market share, expand our franchise network, and ultimately grow our revenue, as illustrated below:

The RE/MAX Growth Engine leads to the following unique benefits for our franchisees and agents and RE/MAX:

RE/MAX Franchisee and Agent Benefits	  	RE/MAX Benefits	
•   Affiliation with the best brand in the real estate industry
 
•   Entrepreneurial culture
 
•   High agent commission split and low franchise fees
 
•   Access to our lead referral system which is supported by our high traffic websites
 
•   Comprehensive, award-winning training programs	  	•   Network effect drives brand awareness
 
•   Franchise fee structure provides recurring revenue streams
 
•   Franchise model—highly profitable with low capital requirements—leads to strong cash flow generation and high margins	
 
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Our Revenue Model
The majority of our revenue is derived from a stable set of fees paid by our agents, franchisees and regional franchise owners.
Revenue Streams . Our revenue streams are illustrated in the following chart:
Revenue Streams as Percentage of 2012 Total Revenue

Continuing Franchise Fees . In the U.S. and Canada, continuing franchise fees are fixed contractual fees paid monthly by regional franchise owners in Independent Regions or franchisees in Company-owned Regions to RE/MAX based on the number of agents in the franchise region or the franchisee’s office.
Annual Dues . Annual dues are the membership fees which agents pay to be a part of the RE/MAX network and brand. Annual dues are a flat fee of US$390 for U.S. agents and C$390 for Canadian agents, paid directly to RE/MAX. Annual dues revenue is driven by the number of agents in our network.
Broker Fees . Broker fees are assessed to the broker against real estate commissions paid by customers when an agent sells a home. Agents pay a negotiated percentage of these earned commissions to the broker in whose office they work. Broker-owners in turn pay a percentage of the commission to the regional franchisor. Generally the amount paid by broker-owners to the regional franchisor, which we refer to as the “broker fee,” is 1% of the total commission on the transaction. The amount of commission collected by brokers is based primarily on the sales volume of RE/MAX agents, home sale prices in such sales and real estate commissions earned by agents on these transactions. Broker fees therefore vary based upon the overall health of the real estate industry and the volume of existing home sales in particular. This revenue stream is based on transaction volume and provides us with incremental upside during a real estate market recovery.
Franchise Sales and Other Franchise Revenue . Franchise sales and other franchise revenue is primarily comprised of the following items:
 
 	•	 	Initial Franchise Fees and Renewal Fees. In order to purchase a franchise in the U.S. and Canada, the franchisee pays an initial fee typically ranging from $12,500 to $35,000 in Company-owned Regions and $2,500 to $30,000 in Independent Regions, depending predominantly on the region and size of market. A lower fee (typically about one-half) is paid at the time of a franchise renewal.	
 
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 	•	 	Regional Franchise Fees . We sell regional master franchises in regions we do not own in the U.S. and Canada as well as in international locations outside of Canada, the Caribbean and Central America. In the case of international master franchise sales, we sell master franchises at either a regional or country level (in some cases our international master franchise agreement allows further grants of sub-master franchises). In the Independent Regions in the U.S. and Canada, we have experienced almost 100% renewal rates among our master franchisees.	
 
 	•	 	Preferred Marketing Arrangements and Approved Supplier Programs . We receive revenue from marketing arrangements with third parties and approved suppliers for the opportunity to promote their goods and services to our franchisees and agents.	
Brokerage Revenue . Brokerage revenue principally represents fees assessed by our owned brokerages for services provided to their affiliated real estate agents. We have owned brokerage offices solely in the U.S. that represent less than 1% of the over 3,300 real estate brokerage offices that operate under the RE/MAX brand name in the U.S.
Revenue Per Agent in U.S. and Canada Owned and Independent Regions . We receive a higher amount of revenue per agent in our Company-owned Regions than in our Independent Regions. While both Company-owned Regions and Independent Regions charge relatively similar fees to RE/MAX brokerages and agents, we receive the entire amount of the continuing franchise fee, broker fee and initial franchise and renewal fee in Company-owned Regions, whereas we receive only a portion of these fees in Independent Regions. We generally receive 15%, 20% or 30% of the amount of such fees in Independent Regions, which is a fixed rate in each particular Independent Region established by the terms of the applicable regional franchise agreement. In 2012, the annual revenue per agent in our Company-owned Regions was approximately $2,288, whereas the average annual revenue per agent in Independent Regions was approximately $803.

 
*	Based on actual revenue per agent for the year ended December 31, 2012 and does not take into account the acquisition of certain assets of RE/MAX of Texas.	
International Revenue. We base our continuing franchise fees, agent dues and broker fees outside the U.S. and Canada on the same structure as our Independent Regions, except that the aggregate level of such fees is substantially lower in these markets than in the U.S. and Canada.
 
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Our revenue and agent count by geography is illustrated in the following chart:

Revenue by Geography
 
Percent of 2012 Revenue
 	 	Agents by Geography
 
As of June 2013

	 		
Our Agent-Centric Approach
We believe that our agent-centric approach enables us to attract and retain highly effective agents and motivated franchisees to our network and drive growth in our business and profitability.
 
 	•	 	High Value Proposition to Agents and Franchisees. We have built a franchise model designed to provide the following unique combination of benefits to our franchisees and agents:	
 
 	•	 	Affiliation with the Best Brand in Residential Real Estate . We believe buyers and sellers of real estate are most comfortable doing business with an entity and brand with which they are familiar. We drive brand awareness through transaction activity and visibility in the market. The RE/MAX brand has held number one market share as measured by total residential transaction sides completed by our agents in both the U.S. and Canada since 1999. We reinforce brand awareness through national and regional marketing and advertising programs that are supported by promotional campaigns of our franchisees and agents in their local markets. RE/MAX has surpassed all U.S. real estate franchises in television advertising every year from 2002 to 2012, according to Nielsen Monitor-Plus total ad impressions among adults of ages from 25 to 54 for ads purchased through nationwide buys.	
 
 	•	 	Entrepreneurial, High Performance Culture . We attract highly driven professionals through our recruiting and franchise sales efforts. We provide our franchisees and agents with a vast array of industry leading tools, resources and support, but allow them autonomy to run their businesses independently. Our approach gives them the freedom generally to set commission rates and oversee local advertising in order to best meet the needs of their particular markets and circumstances. As we say to our agents, they are “in business for themselves, but not by themselves.”	
 
 	•	 	High Agent Commission Fee Split and Low Franchise Fees . In the RE/MAX franchise network, we recommend to our franchisees an agent-favorable commission split of 95%/5% (with the agent receiving 95%). In exchange for the agent generally retaining a high percentage of commissions, our agents pay the franchise broker a pre-agreed sum to share in overhead and other fixed costs of the brokerage. This model is highly attractive to high-producing agents because it allows them to earn a higher commission compared to traditional brokerages where the broker typically takes 30% to 40% of the agent’s commission.	
 
 	•	 	Lead Referral Systems Supported by High Traffic Websites . We provide an attractive lead referral system to our agents free of referral fees. We believe that this system is attractive to our agents and franchisees and that no other national real estate brand provides their real estate agents comparable access to free leads. Our lead referral system, LeadStreet ® , is supported by our award	
 
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 	winning high-traffic websites, including remax.com, global.remax.com, theremaxcollection.com and remaxcommercial.com, which collectively attracted over 52 million visits in 2012 according to Experian Marketing Services Hitwise data. When a prospective buyer inquires about a property displayed on our websites, a RE/MAX agent receives this lead through LeadStreet ® without a referral fee. In addition, the high traffic across our websites provides sellers and agents comfort that listed properties are receiving significant exposure to potential buyers. Our flagship website, remax.com, has generated over 12.4 million free leads for our agents since 2006. Our expansive global network of agents also generates traditional agent-to-agent leads, such as when a relocating home seller wants their RE/MAX agent’s referral for an agent to help them buy in their new area, or a customer’s business needs the specialized assistance of a RE/MAX Commercial ® practitioner.	
 
 	•	 	RE/MAX University ® Training Programs . RE/MAX is an industry leader in providing comprehensive education programs for franchisees and agents. RE/MAX agents and brokers have earned credit toward more than 70,000 professional designations or certifications through our proprietary education systems. In 1994, RE/MAX created the revolutionary RE/MAX Satellite Network, which was the only real estate related educational and training system of its kind for over a decade. In 2007, RE/MAX introduced RE/MAX University ® , or RU, which offers worldwide, 24/7, on-demand access to the latest information on key industry topics and is aimed at helping our global network of agents deliver the best service possible to their existing and potential new customers.	
 
 	•	 	Highly Productive and Experienced Agents . Our franchise model is designed to attract and retain the most productive and experienced network of agents in real estate. The productivity of our agents is a key driver in the success of our franchisees. This dynamic reinforces itself as high performing agents benefit from being associated with successful brokerage offices in their local markets.	
 
 	•	 	High Performing Agents . The RE/MAX network has sold more real estate than any other brand every year since 1999. We have achieved this level of productivity with fewer agents and offices than some major competitors. Closely-tracked surveys of large brokerages, such as the Real Trends 500 survey and the Real Trends Canadian 250 survey have for several years demonstrated that RE/MAX agents from participating brokerages average more transactions per agent than any other national brand in both the U.S. and Canada.	
Among the largest and most productive U.S. residential brokerage offices as measured by transaction sides, RE/MAX franchises averaged 17.1 transaction sides per agent for 2012 according to the 2013 REAL Trends 500 survey, and more than double the average of 8.1 transaction sides per agent reported for all other participating brokerages. Further, RE/MAX franchises in the U.S. survey accounted for 118 of these top 500 firms. Similarly, in Canada, RE/MAX franchises averaged 16.7 transaction sides per agent for 2012, which is the highest figure among national franchises in the comparable 2013 REAL Trends Canadian 250 survey of the largest and most productive Canadian residential brokerages as measured by transaction sides and substantially higher than the average of 9.3 transaction sides per agent reported for all other participating brokerages. RE/MAX franchises accounted for 159 of these top 250 residential brokerages in the 2013 REAL Trends Canadian survey.
 
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2013 Real Trends U.S. 500 Survey:
Transactions Per Agent	  	2013 Real Trends Canadian 250 Survey:
Transactions Per Agent	

		
Source: 2013 Real Trends 500 Survey of the largest
brokerages, containing 2012 data	  	Source : 2013 Real Trends Canadian 250 Survey of the largest brokerages, containing 2012 data	
 
 	•	 	Agent Experience . Our recruiting strategy targets highly productive agents. As a result of this strategy, RE/MAX brokerages attract and retain experienced agents. Our agents average nearly 13 years of real estate experience and seven and a half years as a RE/MAX agent.	
 
 	•	 	Agent Expertise . RE/MAX agents lead the industry in many key professional designations, and RE/MAX University further enhances our agent expertise by equipping agents with advanced training in areas such as distressed properties, luxury properties, senior clients, buyer agency and many other specialty areas of real estate. For example, 36% of the 42,000 real estate agents in the U.S. who had acquired the Certified Distressed Property Expert (“CDPE”) designation were RE/MAX agents, while the closest competitor comprised only 11% of the total. Among Certified Residential Specialists (“CRS”), which is often considered the premier advanced education designation in the residential real estate space, RE/MAX has more designees than the next two national franchises combined. Across our agent base, professional designations correlate with higher median agent commissions, which we believe is true across the industry.	
 
 	•	 	High-earning agents . We believe RE/MAX agents earn among the highest median gross incomes in the industry.	
 
 	•	 	In 2012, the median annual commission income for U.S. RE/MAX agents was $63,482, which was 46% higher than the median annual income for U.S. realtors according to NAR.	
 
 	•	 	In Canada, the median annual commission income for RE/MAX agents in 2012 was C$92,271.	
 
 	•	 	The median annual commission income for RE/MAX agents with recognized professional designations in 2012 was even higher:	
 
 	•	 	$94,145 for an agent with a CRS designation;	
 
 	•	 	$86,994 for an agent with a CDPE designation; and	
 
 	•	 	$149,707 for an agent with a Certified Luxury Home Marketing Specialist designation.	
We believe that this potential for increased incomes contributes to a focus on education within our network.
 
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Our Competitive Strengths
We attribute our success to the following competitive strengths:
Premier Market Presence . We believe we have the best brand worldwide in the real estate brokerage industry, which allows us to attract the most experienced and productive agents and to grow our market presence both in the U.S. and worldwide. We further believe that we offer agents and franchisees a compelling Premier Market Presence in the real estate brokerage industry through the combination of:
 
 	•	 	leading brand name awareness;	
 
 	•	 	highly experienced and productive agents;	
 
 	•	 	leading market share;	
 
 	•	 	high-traffic web presence;	
 
 	•	 	high level of customer satisfaction; and	
 
 	•	 	strong community citizenship.	
Premier Global Brand . Our presence in over 90 countries provides a unique competitive advantage, as no other real estate brand matches our global footprint. We believe we have established the leading global brand in residential real estate and that our scale and market penetration create top-of-mind awareness with consumers and potential agents around the world. Our international scale provides opportunities for us to grow agent counts in fast growing markets around the globe. In addition, our network of agents and listings around the world benefits our franchise network in the U.S. and Canada through access to international listings and lead generation. Our website global.remax.com allows sellers around the world to promote their properties to potential buyers using local language and currency conversion to enhance a listing’s effectiveness. The site displayed over 725,000 RE/MAX listings as of June 2013. This also benefits our global buyers as they can find properties in countries across the globe and connect with a local RE/MAX agent who can facilitate the purchase.
A comparison of the number of countries we operate in to our competitors is illustrated below:

RE/MAX’s vs. Competitors’ Countries	
Number of Countries*	

*	Competitor counts based on lists of countries claimed at each franchisor website as of July 31, 2013 excluding claimed locations that are not independent countries (i.e. territories, etc.)	
Growing Agent and Franchise Presence . We believe that our history of sustained agent and franchise growth coupled with our position as the leading residential real estate brand in the U.S. enables us to capitalize on the continuing recovery in the U.S. housing market.
 
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Sustained Increases in Agent Count . From our founding in 1973, we grew our total agent count at a CAGR of 30% to approximately 120,000 agents at the peak of the most recent housing cycle in 2006. We have recently returned to a period of agent growth in the U.S. in 2012 and 2013. We believe this trend will continue as the U.S. housing recovery gains momentum. With approximately 74% of our revenue in 2012 coming from the U.S., we believe that we are well positioned to benefit from a continuing recovery in the U.S. housing market.
Franchise Growth . We have a successful record of long term growth in the number of our franchises globally, with more than 6,300 offices and a presence in more than 90 countries. We increase our franchises through the sale of both individual offices and regional master franchises. In 2012, we sold 739 franchises globally and expect to sell an equal or greater number of franchises in 2013. In the U.S., as the U.S. housing recovery continues, we believe that sales of our franchises will continue to increase. Outside of the U.S., we believe we are also well-positioned to continue to grow.
Benefits of Our Franchise Financial Model . The majority of our revenue is derived from fixed contractual fees and dues paid by our agents, franchisees and regional franchise owners. As a franchisor, we maintain a low fixed cost structure which requires little additional investment as we add franchisees and agents. Accordingly, incremental increases in agents and franchisees drive additional revenue and Adjusted EBITDA. This also allows us to deliver consistently high margins over market cycles and in 2012, our Adjusted EBITDA and net income margins were 47% and 23%, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of Adjusted EBITDA and a reconciliation of the differences between Adjusted EBITDA and net income (loss). Further, given that our franchise model requires little capital investment, we are able to generate strong cash flow as well.
Committed, Experienced and Passionate Leadership Team . Our senior management leadership has an average of 18 years of experience working together as a team while building RE/MAX into the global organization it is today. Margaret Kelly, who has served as our Chief Executive Officer since 2005, started with the company in 1987, and Vincent Tracey, who has served as our President since 2005, started with the company in 1977. David Metzger, Executive Vice President, Chief Operating Officer and Chief Financial Officer joined RE/MAX in 2007. Our senior management leadership team also includes Mike Ryan, our Executive Vice President, Global Communications and Branding, who joined us in 1994, and Geoff Lewis, our Senior Vice President and Chief Legal Officer, who joined us in 2004. We believe our senior management team and our founders, Dave and Gail Liniger, have been key drivers of our success and position us well for continued long-term growth.
Our Growth Strategy
We intend to leverage our market leadership in the residential real estate brokerage industry in the U.S. and Canada through various growth initiatives. The key elements of our growth strategy include:
Capitalize on the Recovery in the U.S. Residential Real Estate Market and Increase Our Agent Count . The number of agents in the residential real estate industry is highly correlated to overall transaction activity. Since 2006, the residential real estate industry across the globe, and especially in the U.S., experienced a historic downturn, including a significant decline in the number of agents in the business. The residential real estate market in the U.S. has recently commenced a recovery and we are well positioned to capitalize on the continuation of this trend due, in large part, to our leading brand and the quality of our agent and franchise network. Based on our experience, we believe strengthening market conditions in the U.S. will enable us to sell more franchises and recruit and retain higher numbers of productive agents, increasing our revenue and profitability. We experienced agent losses during the downturn, but we returned to a period of net agent growth in 2012 and our growth in agent count has accelerated in 2013. As the housing market recovery continues, we expect the growth in our agent count to continue.
 
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Agent Count
Number of Agents at Quarter-End

We believe our high-performing agent network has led to higher than average growth in the number of closed transaction sides and that we will continue to capitalize on the performance of our network as the U.S. residential real estate market rebounds. For example, existing U.S. home transactions rose 9.4% in 2012 according to NAR, while RE/MAX agents increased closed transaction sides by 11.7% in our U.S. franchise network during the same period. NAR forecasts that existing U.S. home sale transactions will rise by another 8.3% in 2013, which we believe we are well-positioned to outpace.
Drive Continuing Franchise Sales Growth and Agent Recruitment and Retention . Our business strategy is to continue to sell franchises and recruit and retain agents:
 
 	•	 	We sold 739 franchises in 2012 and intend to continue adding franchises in new and existing markets, and as a result, increase our global market share and brand awareness. In the U.S., we believe we will increase the sales of our franchises as the U.S. housing recovery continues. We believe we are also well-positioned to further grow the number of our franchises outside the U.S. and Canada, where the growth potential for the RE/MAX brand is substantial, particularly in faster growing international markets. In 2012 and 2013, we expanded into several new markets outside of the U.S. and Canada, including China and Hong Kong in 2012 and South Korea in July 2013.	
 
 	•	 	We intend to continue to focus on recruitment and retention of agents, as each incremental agent leverages our existing infrastructure allowing us to drive additional revenue at little incremental cost. We intend to focus on recruitment and retention of agents through a range of new and existing programs and tools, including increased marketing and promotional efforts, additional hiring of franchise sales representatives, improved training and development programs for agents, and enhanced benefits to both agents and franchisees from our network infrastructure such as our high-traffic websites and lead referral system.	
Reacquire Independent RE/MAX Regional Franchises . We intend to continue to pursue reacquisitions of the regional RE/MAX franchise rights in a number of Independent Regions in the U.S. and Canada. The reacquisition of a regional franchise substantially increases our revenue per agent and provides an opportunity for us to drive enhanced profitability, as we receive a higher amount of revenue per agent in our Company-owned Regions than in our Independent Regions. For example, we can establish operational efficiencies and improvements in financial performance of a reacquired region by leveraging our existing infrastructure and experience.
 
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While both Company-owned Regions and Independent Regions charge relatively similar fees to RE/MAX brokerages and agents, we receive the entire amount of the continuing franchise fee, broker fee and initial franchise and renewal fee in Company-owned Regions, whereas we receive only a portion of these fees in Independent Regions. We generally receive 15%, 20% or 30% of the amount of such fees in Independent Regions, which is a fixed rate in each particular Independent Region established by the terms of the applicable regional franchise agreement. In 2012, the annual revenue per agent in our Company-owned Regions was approximately $2,288, whereas the average annual revenue per agent in Independent Regions was approximately $803. By reacquiring regional franchise rights, we can capture 100% of the fees referred to above and substantially increase the average revenue per agent for agents in the reacquired region, which, as a result of our low fixed-cost structure, further increases our overall margins.

We currently franchise directly in Company-owned Regions representing 46% of our agents in the U.S. and Canada combined, while the remaining 54% of our U.S. and Canada combined agent count operate in 22 Independent Regions. We intend to use a portion of the proceeds of this offering to reacquire regional RE/MAX franchise rights in the Central Atlantic and Southwest regions in the U.S., which had an aggregate of 5,821 agents as of July 31, 2013. These acquisitions will increase our Company-owned Regions to approximately 54% of our U.S. and Canada agent count and 12 out of 32 regions in the U.S. and Canada.
Franchise and Agent Fee Increases . Given the low fixed infrastructure cost of our franchise model, modest increases in aggregate fees per agent have a significant impact on our profitability. We are pursuing opportunities to increase our aggregate fees per agent over time in order to improve our results of operations.
Competition
The real estate brokerage franchise business is highly competitive. We primarily compete against other real estate franchisors seeking to grow their franchise system. Our largest national competitors in the U.S. include Realogy Holdings Corp. (which operates several brands including Century 21 and Coldwell Banker), Berkshire Hathaway Home Services (which acquired Prudential Real Estate and Relocation Services in 2012) and Keller Williams Realty, Inc. In most markets we also compete against regional chains and against independently operating, non-franchise brokerages. In addition, we face competition from internet-based and other brokers offering deeply discounted commissions. We believe that competition in the real estate brokerage franchise business is based principally upon the reputational strength of the brand, the quality of the services offered to franchises, and the amount of franchise-related fees to be paid by franchisees.
 
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The ability of our franchisees to compete with other real estate brokerages—both franchised and unaffiliated real estate brokerages—is an important aspect of our growth strategy. A franchisee’s ability to compete may be affected by a variety of factors, including the quality of the franchisee’s independent agents, the location of the franchisee’s offices and the number of competing offices in the area. A franchisee’s success may also be affected by general, regional and local housing conditions as well as overall economic conditions.
Preferred Marketing and Supplier Arrangements
We have entered into preferred marketing arrangements providing various third parties, including mortgage lenders and other real estate service providers, with the opportunity to market their products and services to our franchisees and agents. Through these arrangements, we receive additional revenue in the form of fees paid for marketing access to our network of franchisees and agents.
In addition, with the collective buying power of company-owned and franchised brokerages, we have established a network of preferred suppliers whose products may be purchased directly by franchisees and agents. These relationships provide group discount prices, marketing materials that have been pre-vetted to comply with RE/MAX brand standards and higher quality materials that may not be cost-effective to procure on an individual office basis.
Marketing and Promotion
We believe that the strength of the RE/MAX brand and our iconic red, white and blue RE/MAX hot air balloon logo help to drive brand awareness. RE/MAX advertising, marketing and promotion campaigns increase the strength of our brand and generate leads for our agents. We believe the widespread recognition of our brand is a key aspect of our value proposition to agents and franchisees.
A variety of programs build our brand, including leading websites such as remax.com, media campaigns using television, print, billboards and signs, flyers, advertising inserts, Internet, email, social media and mobile applications. Event-based marketing programs, sponsorships, sporting activities and other similar functions also promote our brand. These include the RE/MAX World Long Drive Championship (which is currently in its nineteenth season) and our charitable fundraising and sponsorship relationships with Children’s Miracle Network Hospitals and Susan G. Komen for the Cure.
Nearly all of the advertising, marketing and promotion to support the RE/MAX brand is funded by our agents and franchisees. In the U.S. and Canada, there are three primary levels of advertising and promotion of our brand based on the source of funding for the activity: (i) a national advertising fund that spearheads brand efforts on a national level, (ii) regional advertising funds that focus on regional activities, and (iii) local campaigns that are paid for directly by agents and franchisees within their local markets. The national and regional advertising funds are funded by our agents through fees that our brokers collect and pay to the regional advertising funds, which remit a portion to the national advertising fund.
 
 	•	 	National Advertising Fund . The national advertising fund builds and maintains brand awareness through national campaigns that drive real estate consumers to use RE/MAX agents. A council made up of U.S. and Canadian regional franchise owners directs the national advertising fund’s activities. For the national advertising fund’s fiscal year ended January 31, 2013, aggregate U.S. franchisee contributions were $22.5 million.	
 
 	•	 	Regional Advertising Funds . Regional advertising funds primarily support advertising campaigns focused on building and maintaining brand awareness at the regional level, in coordination with Company-owned Regions. For the fiscal year ended January 31, 2013, franchisee contributions to the regional advertising funds that promote the RE/MAX brand in Company-owned Regions were $31.2 million. The RE/MAX brand is promoted in Independent Regions by other regional advertising funds.	
 
 	•	 	Local Campaigns. Our franchisees and agents engage in extensive promotional efforts within their local markets to attract customers and drive agent and brand awareness within the local market. These	
 
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 	programs are subject to brand guidelines and quality standards that we establish for use of the RE/MAX brand, but we allow our franchisees and agents substantial flexibility to create advertising, marketing and promotion programs that are tailored to local market conditions. We believe that the marketing, advertising and promotion expenditures by our agents and franchisees at the local level substantially exceed the amounts allocated to the national and regional advertising funds each year.	
Intellectual Property
We protect the RE/MAX brand through a combination of trademarks and copyrights. We have registered “RE/MAX” as a trademark in the U.S., Canada, and over 150 other countries and territories, and have registered various versions of the RE/MAX balloon logo and real estate sign design in numerous countries and territories as well. We also have filed other trademark applications in the U.S. and certain other jurisdictions, and will pursue additional trademark registrations and other intellectual property protection to the extent we believe it would be beneficial and cost effective. We also are the registered holder of a variety of domain names that include “remax” and similar variations.
Employees
As of June 30, 2013, we had approximately 439 employees, including 21 employees located in Western Canada, 316 in our corporate headquarters in Colorado and 102 in our owned brokerage offices throughout the U.S. Other than with respect to our owned brokerage offices, our franchisees are independent businesses and their employees and independent contractor sales associates are therefore not included in our employee count. None of our employees are represented by a union. We believe our relations with our employees are good.
Seasonality
The residential housing market is seasonal with transactional activity in the U.S. and Canada peaking in the second and third quarter of each year. Our results of operations are somewhat affected by these seasonal trends. Our Adjusted EBITDA margins are often lower in the first and fourth quarters due primarily to the impact of lower broker fees and other revenue as a result of lower overall transaction volume, as well as higher selling, operating and administrative expenses in the first quarter for expenses incurred in connection with our annual convention.
Properties
Our corporate headquarters is located in leased offices in Denver, Colorado. The lease consists of approximately 231,000 square feet and expires in April 2028. As of May 31, 2013, our company-owned real estate brokerage business leases approximately 210,702 square feet of office space in the U.S. and Canada under approximately 27 leases. These offices are generally located in shopping centers and small office parks, generally with lease terms of 3 to 10 years. We believe that all of our properties and facilities are well maintained.
Government Regulation
Franchise Regulation . The sale of franchises is regulated by various state laws, as well as by the FTC. The FTC requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. A number of states require registration or disclosure by franchisors in connection with franchise offers and sales. Several states also have “franchise relationship laws” or “business opportunity laws” that limit the ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements. The states with relationship or other statutes governing the termination of franchises include Arkansas, California, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, Virginia, Washington and Wisconsin. Some franchise relationship statutes require a mandated notice period for termination; some require a notice and cure period; and some require that
 
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the franchisor demonstrate good cause for termination. Although we believe that our franchise agreements comply with these statutory requirements, failure to comply with these laws could result in our company incurring civil liability. In addition, while historically our franchising operations have not been materially adversely affected by such regulation, we cannot predict the effect of any future federal or state legislation or regulation.
Real Estate Regulation . The Real Estate Settlement Procedures Act (“RESPA”) and state real estate brokerage laws restrict payments which real estate brokers and other service providers in the real estate industry may receive or pay in connection with the sales of residences and referral of settlement services, such as mortgages, homeowners insurance and title insurance. Such laws may to some extent restrict preferred vendor programs involving our real estate franchise and real estate brokerage businesses. In addition, with respect to our company-owned real estate brokerages, RESPA and similar state laws require timely disclosure of certain relationships or financial interests with providers of real estate settlement services. Our company-owned real estate brokerage business is also subject to numerous federal, state and local laws and regulations that provide standards for and prohibitions on the conduct of real estate brokers and agents.
Legal Proceedings
From time to time we are involved in litigation, claims and other proceedings relating to the conduct of our business. Such litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, commercial arrangements, franchising arrangements, brokerage disputes, vicarious liability based upon conduct of individuals or entities outside of our control including franchisees and independent agents, and employment law claims. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur. Often these cases raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant management time. Litigation and other claims and regulatory proceedings against us could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation.
 
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 MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information about our executive officers, directors and key employees as of the date of this prospectus:

Name	  	Age	 	  	Position	
Dave L. Liniger.	  	 	67	  	  	Chairman of the Board and Co-Founder	
Gail A. Liniger	  	 	67	  	  	Vice Chair of the Board and Co-Founder	
Margaret M. Kelly	  	 	53	  	  	Chief Executive Officer and Director	
Vincent J. Tracey	  	 	60	  	  	President and Director	
David M. Metzger	  	 	58	  	  	Executive Vice President, Chief Operating Officer and Chief Financial Officer	
Geoffrey D. Lewis	  	 	56	  	  	Senior Vice President and Chief Legal Officer	
Michael P. Ryan	  	 	55	  	  	Executive Vice President, Global Communications and Branding	
Gilbert (Chip) Baird III	  	 	41	  	  	Director	
Scott M. Bell	  	 	37	  	  	Director	
Richard O. Covey	  	 	66	  	  	Director	
Kathleen J. Cunningham	  	 	66	  	  	Director	
Roger J. Dow	  	 	66	  	  	Director	
David L. Ferguson	  	 	58	  	  	Director	
Ronald E. Harrison	  	 	77	  	  	Director	
Daryl L. Jesperson	  	 	65	  	  	Director	
Daniel J. Predovich	  	 	66	  	  	Director	
Executive Officers
Dave L. Liniger is our Chairman and Co-Founder. He has been a director of RE/MAX Holdings, Inc. since July 2013 and a member of RMCO’s Board of Managers since April 2010. Mr. Liniger was Chairman of RE/MAX, LLC from 1974 to April 2010. He has served in a variety of leadership roles within the RE/MAX organization over the past 40 years. Mr. Liniger is married to Gail Liniger, who serves as our Vice Chair and is a Co-Founder. Mr. Liniger was selected to our board of directors because of his role in founding our company and his intimate knowledge of our company and the real estate industry.
Gail A. Liniger is our Vice Chair and Co-Founder. She has been a director of RE/MAX Holdings, Inc. since July 2013 and a member of RMCO’s Board of Managers since April 2010. Mrs. Liniger is married to Dave Liniger, who serves as our Chairman and is a Co-Founder. Mrs. Liniger became a Vice President of RE/MAX in 1973, Executive Vice President in 1978 and President in 1979. In 1991, she was named Chief Executive Officer and in 2002 became Vice Chair of the Board of Managers. Mrs. Liniger was selected to our board of directors because of her role in founding our company with Mr. Liniger and her intimate knowledge of our company and the real estate industry.
Margaret M. Kelly has served as our Chief Executive Officer since 2005. In addition, she has been a director of RE/MAX Holdings, Inc. since July 2013 and a member of RMCO’s Board of Managers since April 2010. Prior to being appointed Chief Executive Officer, she served in a variety of leadership roles within the RE/MAX organization since she joined us in 1987, including serving as President from 2002 to 2005. Since January 2010, she has served as a director of the Federal Reserve Board of Kansas City—Denver Branch. She was selected to our board of directors due to her familiarity with our company and in light of her ability to provide valuable insight to our board of directors as to the day-to-day business issues we face in her role as our Chief Executive Officer.
Vincent J. Tracey has served as our President since 2004. In addition, he has been a director of RE/MAX Holdings, Inc. since July 2013 and a member of RMCO’s Board of Managers since April 2010. He has served
 
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in a variety of roles in the RE/MAX organization since joining us in 1977 as a Marketing Representative in the Tennessee and Kentucky Region, including Executive Vice President, Corporate Development from 2002 to 2004 and Executive Vice President, Franchising from 2004 to 2005. Mr. Tracey was selected to our Board of Managers because of his particular knowledge of and experience in the real estate industry.
David M. Metzger is our Executive Vice President, Chief Operating Officer and Chief Financial Officer. Mr. Metzger joined RE/MAX in 2007 as our Chief Financial Officer, and was named Chief Operating Officer in 2011. Mr. Metzger has an extensive and varied background as an attorney and a Certified Public Accountant, with more than 25 years of experience in the corporate financial arena. Mr. Metzger has previously worked for a large bank-holding company on the East Coast in the areas of auditing and corporate finance, Piper and Marbury (now known as DLA Piper), and Semmes, Bowen & Semmes, specializing in ERISA and corporate tax matters.
Geoffrey D. Lewis is our Senior Vice President and Chief Legal Officer. Mr. Lewis joined RE/MAX in 2004 as Senior Vice President, General Counsel, and in 2005, became Senior Vice President, Chief Legal Officer. Mr. Lewis was previously with the law firm of Jones Day. Subsequent to that, he was the Vice President and General Counsel of American Health Properties, and Senior Vice President, Corporate Development and General Counsel for Hyster-Yale, Inc.
Michael P. Ryan was appointed Executive Vice President, Global Communications and Branding in April 2011, and is also responsible for overseeing business alliances. Prior to that, he was a Senior Vice President at RE/MAX from February 2008 to April 2011. Mr. Ryan joined RE/MAX in 1994 and since that time, has helped launch RE/MAX University. In addition, he serves on education and finance committees of NAR.
Directors
Gilbert (Chip) Baird III was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since April 2010. Mr. Baird has been a Partner at an affiliate of Perella Weinberg Partners LP (“Perella Weinberg”) since February 2012, and prior to that was a Partner at Weston Presidio from December 2006 to October 2011. Prior to that, he was at The Beacon Group and Merrill Lynch. Mr. Baird is currently a director at Trench Plate Rental Co. and B. Lane Inc. He has previously served as a Director on a number of boards, including WP Evenflo Holdings, Inc., Advisors Excel and Summit Energy Services. He was selected to our board of directors because of his vast experience in finance and capital structure.
Scott M. Bell was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since October 2011. Mr. Bell has been with Weston Presidio since 2004, most recently as a Partner since 2011. Prior to that, he was an analyst and associate with Goldman, Sachs & Co. He is currently a member of the boards of WP Evenflo Holdings and Lone Mountain Children’s Center. He served as a member of the boards of Micro Power Electronics between March 2006 and December 2011 and Cellu Tissue Holdings between June 2006 and October 2009. He was selected to our board of directors because of his extensive experience in finance, evaluating investment opportunities and advising clients in a variety of fiscal matters.
Richard O. Covey was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since April 2010. Mr. Covey is a retired U.S. Air Force officer and former NASA astronaut. Between October 2007 and March 2010, he was President and Chief Executive Officer of United Space Alliance, LLC. He has been a Director and member of the Executive Committee of the Astronaut Scholarship Foundation since May 2013. Mr. Covey was selected to our board of directors because of his leadership insight and his experience in management roles.
Kathleen J. Cunningham was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since February 2013. Ms. Cunningham has been retired since 2009. From October 2005 to May 2009, she was Chief Financial Officer of Novatix Corporation. She was previously
 
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Chief Financial Officer at Webroot Software and U.S. West Information Systems. She has been a board member of Chileno Bay LLC since December 2011 and Q Advisors, LLC since 2003. Previously, she served on the boards of The Assist Group from June 2011 to March 2013 and Novatix Corporation from 2005 to 2009. Ms. Cunningham was selected to our board of directors because of her particular knowledge of and experience in finance, capital structure and board governance practices of other major organizations.
Roger J. Dow was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since April 2010. Since January 1, 2005, he has been the President and Chief Executive Officer of the U.S. Travel Association. He previously served in various roles at Marriot International, including as Senior Vice President, Global Sales. Mr. Dow was selected to our board of directors because of his particular knowledge of and experience in strategic planning and leadership of complex organizations.
David L. Ferguson was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since April 2010. Mr. Ferguson has been a Partner at an affiliate of Perella Weinberg since February 2012. Between 2003 and October 2011, he was a Partner at Weston Presidio. Prior to that, he was a partner with JPMorgan Partners. Mr. Ferguson is currently a Director at MacDermid Group Inc., Trench Plate Rental and B. Lane Inc. He has previously served as a Director on a number of boards, including at WP Evenflo Holdings, Inc., Robbins Brothers and Cellu Tissue Holdings, Inc. He is also a Certified Public Accountant. He was selected to our board of directors because of his experience serving on the boards of a variety of other companies, and his extensive knowledge and experience in finance.
Ronald E. Harrison was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since April 2010. Since 2004, Mr. Harrison has been Chief Executive Officer and Managing Director of Harrison & Associates LLC. Prior to that, he served in various roles over his 40 years with PepsiCo, Inc., including as Senior Vice President, External Relations, and Special Assistant to the Chairman until April 2004. Mr. Harrison is currently the Chair Emeritus of the Diversity Institute of the International Franchise Association’s Education Foundation, he served as the International Franchise Association’s Chairman in 1999. He was selected to our board of directors because of his vast experience in leadership roles of complex organizations and knowledge in strategic planning.
Daryl L. Jesperson was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since April 2010. Mr. Jesperson was a director of RE/MAX, LLC from 1981 to April 2010. Mr. Jesperson has served in a number of roles within the RE/MAX organization and related entities since joining RE/MAX in 1975, including various leadership roles at RE/MAX, LLC, most recently as Chief Executive Officer between 2002 and 2005. He has been retired since 2005. He was selected to our board of directors because of his familiarity with our company, and his knowledge of and vast experience in the real estate industry.
Daniel J. Predovich was appointed a director of RE/MAX Holdings, Inc. in July 2013 and has been a member of RMCO’s Board of Managers since April 2010. Mr. Predovich is a Certified Public Accountant, a Certified Fraud Examiner, Certified in Financial Forensics and a Certified Information Technology Professional. Since 1986, he has been the President of Predovich & Company. He previously served as president and as a member of the Board of Governors, Colorado chapter of the Association of Certified Fraud Examiners. He was selected to our board of directors because of his extensive experience and knowledge in accounting and financial matters.
Corporate Governance
Composition of Board of Directors
Our board of directors currently consists of thirteen members. Messrs. Bell and Ferguson were elected to our board of directors pursuant to the current RMCO, LLC agreement described in “Organizational Structure and Reorganization—RMCO Operating Agreement—Agreement in Effect Before the Completion of the Offering.”
 
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In accordance with our amended and restated certificate of incorporation and bylaws to become effective immediately prior to the completion of this offering, our board of directors will be divided into three classes with staggered three-year terms. At each annual general meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors will be divided among the three classes as follows:
 
 	•	 	The Class I directors will be Chip Baird, Scott Bell, David Ferguson and Vincent Tracey and their terms will expire at the annual general meeting of stockholders to be held in 2014;	
 
 	•	 	The Class II directors will be Roger Dow, Ronald Harrison, Daryl Jesperson and Daniel Predovich and their terms will expire at the annual general meeting of stockholders to be held in 2015; and	
 
 	•	 	The Class III directors will be Richard Covey, Kathleen Cunningham, Margaret Kelly, Dave Liniger and Gail Liniger and their terms will expire at the annual general meeting of stockholders to be held in 2016.	
Upon completion of this offering, our existing owners will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” under the corporate governance standards of the NYSE. As a controlled company, exemptions under the standards will mean that we are not required to comply with certain corporate governance requirements, including the requirements that:
 
 	•	 	a majority of our board of directors consists of “independent directors,” as defined under the rules of the NYSE;	
 
 	•	 	we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and	
 
 	•	 	we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.	
These exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the applicable requirements of the Sarbanes-Oxley Act and rules with respect to our audit committee within the applicable time frame.
Director Independence
Prior to the completion of this offering, our board of directors will undertake a review of its composition, the composition of its committees and the independence of each director and consider whether any 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. Our board of directors will also review whether the directors that will comprise our audit committee at the time of the completion of this offering satisfy the independence standards for those committees established by the applicable SEC rules and NYSE rules. In making this determination, our board of directors will consider the relationships that each of these non-employee directors has with our company and all other facts and circumstances our board of directors deems relevant in determining their independence, including the beneficial ownership of our capital stock held by each non-employee director.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, which have the composition and responsibilities described below.
Audit Committee
The audit committee will be responsible for, among other matters: (i) appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm; (ii) discussing with our independent registered public accounting firm the independence of its members from its management;
 
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(iii) reviewing with our independent registered public accounting firm the scope and results of their audit; (iv) approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; (v) overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; (vi) reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; (vii) establishing procedures for the confidential and/or anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters; and (viii) reviewing and approving related-person transactions.
Upon completion of this offering, our audit committee will consist of Kathleen Cunningham, Roger Dow, Ronald Harrison and Daniel Predovich. Rule 10A-3 of the Exchange Act and NYSE rules require us to have one independent audit committee member upon the listing of our Class A common stock, a majority of independent directors within 90 days of the date of this prospectus and all independent audit committee members within one year of the date of this prospectus. Our board of directors has affirmatively determined that Kathleen Cunningham, Roger Dow, Ronald Harrison and Daniel Predovich meet the definition of “independent director” for purposes of serving on an audit committee under Rule 10A-3 and NYSE rules. In addition, our board of directors has determined that Kathleen Cunningham will qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Our board of directors will adopt a new written charter for the audit committee, which will be available on our investor relations website, accessible through our principal corporate website at www.remax.com prior to the completion of this offering.
Compensation Committee
The compensation committee will be responsible for, among other matters: (i) reviewing key employee compensation goals, policies, plans and programs; (ii) reviewing and approving the compensation of our directors and executive officers; (iii) reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and (4) appointing and overseeing any compensation consultants.
Upon completion of this offering, our compensation committee will consist of Chip Baird, Richard Covey, David Ferguson, Ronald Harrison, Dave Liniger and Gail Liniger. As a controlled company, we will rely upon the exemption from the requirement that we have a separate compensation committee composed entirely of independent directors. Our board of directors will adopt a new written charter for the compensation committee, which will be available on our investor relations website, accessible through our principal corporate website at www.remax.com prior to the completion of this offering.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee will be responsible for, among other matters: (i) identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors; (ii) overseeing the organization of our board of directors to discharge the board’s duties and responsibilities properly and efficiently; and (iii) developing and recommending to our board of directors a set of corporate governance guidelines and principles.
Upon completion of this offering, our nominating and corporate governance committee will consist of Kathleen Cunningham, Daryl Jesperson, Margaret Kelly and Vincent Tracey. As a controlled company, we will rely upon the exemption from the requirement that we have a separate nominating and corporate governance committee composed entirely of independent directors. Our board of directors will adopt a new written charter for the nominating and corporate governance committee, which will be available on our investor relations website, accessible through our principal corporate website at www.remax.com prior to the completion of this offering.
 
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Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves or in the past year has served as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving on our board of directors.
Director Compensation
The following table presents information regarding compensation paid to RMCO’s Board of Managers in the year ended December 31, 2012:

Name	  	Fees earned or
paid in cash
($)	 	
Gilbert (Chip) Baird III	  	 	60,000	  	
Scott M. Bell	  	 	—  	  	
Richard O. Covey	  	 	60,000	  	
Kathleen J. Cunningham(1)	  	 	—  	  	
Roger J. Dow	  	 	60,000	  	
David L. Ferguson	  	 	60,000	  	
Ronald E. Harrison	  	 	60,000	  	
Daryl L. Jesperson.	  	 	60,000	  	
Daniel J. Predovich	  	 	60,000	  	

(1)	Ms. Cunningham did not receive compensation in the year ended December 31, 2012 because she joined RMCO’s Board of Managers in 2013.	
Messrs. Liniger and Tracey and Ms. Kelly receive compensation for their services as executive officers, as reported in “Executive Compensation—Summary Compensation Table.” Additionally, Mrs. Liniger receives compensation as an employee. None of them receive additional compensation for services provided as members of RMCO’s Board of Managers.
Additionally, in connection with the completion of this offering, we intend to grant restricted stock units to directors under our 2013 Stock Incentive Plan.
All directors receive reimbursement for reasonable out-of-pocket expenses incurred in connection with meetings of our board of directors.
Code of Business Conduct and Code of Ethics
We have adopted a code of business conduct applicable to all employees and a code of ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of each code will be available on our investor relations website, accessible through our principal corporate website at www.remax.com prior to completion of this offering. We expect that any amendments to either code, or any waivers of their requirements, that apply to our directors or executive officers will be disclosed to the extent required by applicable law or NYSE listing requirements.
 
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 EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents information regarding compensation earned by or awards to our named executive officers during fiscal year 2012.

Name and Principal Position	  	Fiscal
Year	 	  	Salary	 	  	Option
Awards(1)	 	  	Non-Equity
Incentive Plan
Compensation(2)	 	  	All Other
Compensation(3)	 	  	Total	 	
Dave Liniger
    Chairman and Co-Founder	  	 	2012	  	  	$	2,100,000	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	$	2,100,000	  	
Margaret M. Kelly
    Chief Executive Officer and Director	  	 	2012	  	  	$	732,313	  	  	$	1,193,430	  	  	$	421,460	  	  	$	5,625	  	  	$	2,352,828	  	
David M. Metzger
    Executive Vice President, Chief Operating Officer and Chief Financial Officer	  	 	2012	  	  	$	540,894	  	  	$	596,715	  	  	$	335,944	  	  	$	5,625	  	  	$	1,479,178	  	
Vincent J. Tracey
    President	  	 	2012	  	  	$	489,250	  	  	 	—  	  	  	$	67,680	  	  	$	5,625	  	  	$	562,555	  	

(1)	Reflects the aggregate grant date fair value of the grants of options on November 15, 2012 to purchase RMCO Class B units, at an exercise price of $90.08, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC 718”). See Note 11 to our audited consolidated financial statements.	
(2)	Reflect the cash awards that our named executive officers received under our 2012 RE/MAX Performance Incentive Plan (the “2012 Bonus Plan”) for fiscal 2012 performance. The 2012 Bonus Plan was a cash based-incentive compensation program designed to motivate and reward annual performance for eligible employees, including our named executive officers. Under the 2012 Bonus Plan, the threshold, target and stretch levels for each eligible employee’s bonus opportunity are based upon the achievement of specified company results with respect to corporate EBITDA, as defined in the 2012 Bonus Plan. Once company-wide EBITDA targets are met, each eligible employee, including our named executive officers, has individualized strategic objectives and the payment and amount of any bonus is dependent upon whether such employee achieves these strategic objectives. The 2012 Bonus Plan includes various incentive levels based on the participant’s position.	
(3)	Reflects matching contributions made under our 401(k) plan.	
Outstanding Equity Awards at the End of Fiscal Year 2012
The following table provides information regarding unexercised stock options held by each of the named executive officers as of the end of fiscal year 2012.

 	  	Option awards(1)	 	
Name	  	Number of
securities
underlying
unexercised
options
(#)
exercisable	 	  	Number of
securities
underlying
unexercised
options
(#)
unexercisable(2)	 	  	Option
exercise  price
($)	 	  	Option
expiration
date(3)	 	
Dave Liniger	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Margaret M. Kelly	  	 	10,500	  	  	 	10,500	  	  	 	90.08	  	  	 	11/15/2022	  	
David M. Metzger	  	 	5,250	  	  	 	5,250	  	  	 	90.08	  	  	 	11/15/2022	  	
Vincent Tracey	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
 
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(1)	Reflects options held by our named executive officers to purchase RMCO Class B units, which will be substituted with options granted under the 2013 Stock Incentive Plan. See “—Employee Benefit and Stock Plans—2013 Stock Incentive Plan—Substitution of RMCO Unit Options.”	
(2)	These options fully vested on June 15, 2013.	
(3)	Options expire upon the earlier of 90 days after the termination of the named executive officer or November 15, 2022.	
Option Exercises and Stock Vested
No options were exercised by named executive officers in fiscal year 2012.
Equity Grants in Conjunction with this Offering
In connection with the completion of this offering, any outstanding options under the 2011 Unit Option Plan will be equitably adjusted and substituted with options granted under the 2013 Stock Incentive Plan. See “—Employee Benefit and Stock Plans—2013 Stock Incentive Plan—Substitution of RMCO Unit Options” for additional information. In addition, under our 2013 Stock Incentive Plan, we expect to grant options to acquire             shares of our Class A common stock and restricted stock units relating to              shares of our Class A common stock to our employees, including our named executive officers, and directors in connection with the completion this offering, which we refer to as the “IPO awards.”
Employment Agreements
We have entered into employment agreements with two of our named executive officers, each as described below.
Margaret M. Kelly
We entered into an employment agreement with Ms. Kelly on March 1, 2010. Ms. Kelly’s employment agreement provides for an initial term through March 1, 2013, but is automatically renewed for one year periods on each annual anniversary date of the agreement. Pursuant to her employment agreement, Ms. Kelly is entitled to an annual base salary of $669,500 (which was increased to $770,000 on May 16, 2012), which is reviewed annually, and is eligible to receive an annual performance-based bonus. Additionally, the agreement provides that Ms. Kelly is eligible for tax adjustment “gross-up” payments in the event that Ms. Kelly becomes entitled to any amount that is determined to be subject to a tax penalty.
If Ms. Kelly’s employment is terminated (i) by us other than for cause, death or disability (each as defined in the agreement), or (ii) by Ms. Kelly for good reason (as defined in the agreement), she is entitled to severance benefits consisting of (a) all payments and benefits which have been earned but not yet provided, (b) payments equal to 24 months of base salary paid on our regular payroll schedule, (c) any declared bonus payment that has not yet been paid to be provided in a lump sum within 30 days of termination, and (d) continued standard employee benefits for 24 months, including but not limited to, life insurance, medical insurance and dental insurance.
Additionally, Ms. Kelly is entitled to a stay-on bonus in the event that she remains actively employed by us for a 12-month period immediately following the date of a change in control (as defined in the agreement). The stay-on bonus is to be determined in the successor’s discretion, but in no event will it be less than six months’ base salary as of the day before the change in control.
Ms. Kelly agreed that during her employment with us and the 12 months following the termination of her employment, she will not, directly or indirectly, on her own behalf or on behalf of others, solicit or recruit, or attempt to solicit or recruit, any person employed by us to end their employment, or to provide services to
 
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Ms. Kelly or to any other business that directly competes with us in the areas of franchising real estate brokerages, real estate brokerage, insurance brokerage or any other defined business in which we are engaged. Additionally, during this period, she has agreed not to directly or indirectly solicit any of our clients that she has had direct or indirect contact with or any of our franchisees to cease doing business with us or to otherwise do business with her or any directly competing entity.
Ms. Kelly has also agreed not to (a) accept employment or perform services on behalf of herself or any individual or entity that directly competes with us for a period of three months after termination, or (b) accept employment as a senior executive officer or perform services that are similar to the services she performed for us on behalf of herself or any individual or entity that directly competes with us for a period of 12 months after termination. Except if we terminate Ms. Kelly for cause (as defined in the agreement), these restrictions are only enforceable to the extent we tender to Ms. Kelly payment at a rate equal to Ms. Kelly’s final base salary. Payment of the severance benefits described above would discharge this payment obligation. If severance benefits are not required to be paid, then we can tender this supplemental consideration at any point in the 12-month period immediately following termination.
David M. Metzger
We entered into an employment agreement with Mr. Metzger on March 1, 2010. Mr. Metzger’s employment agreement provides for an initial term through March 1, 2013, but is automatically renewed for one year periods on each annual anniversary date of the agreement. Pursuant to his employment agreement, Mr. Metzger is entitled to an annual base salary of $484,100 (which was increased to $575,000 on May 16, 2012), which is reviewed annually, and is eligible to receive an annual performance-based bonus. Additionally, the agreement provides that Mr. Metzger is eligible for tax adjustment “gross-up” payments in the event that Mr. Metzger becomes entitled to any amount that is determined to be subject to a tax penalty.
If Mr. Metzger’s employment is terminated (i) by us other than for cause, death or disability (each as defined in the agreement), or (ii) by Mr. Metzger for good reason (as defined in the agreement), he is entitled to severance benefits consisting of (a) all payments and benefits which have been earned but not yet provided, (b) payments equal to 24 months of base salary paid on our regular payroll schedule, (c) any declared bonus payment that has not yet been paid to be provided in a lump sum within 30 days of termination, and (d) continued standard employee benefits for 24 months, including but not limited to, life insurance, medical insurance and dental insurance.
Additionally, Mr. Metzger is entitled to a stay-on bonus in the event that he remains actively employed by us for a 12-month period immediately following the date of a change in control (as defined in the agreement). The additional bonus is to be determined in the successor’s discretion, but in no event will it be less than six months’ base salary as of the day before the change in control.
Mr. Metzger agreed that during his employment with us and the 12 months following the termination of his employment, he will not, directly or indirectly, on his own behalf or on behalf of others, solicit or recruit, or attempt to solicit or recruit, any person employed by us to end their employment, or to provide services to Mr. Metzger or to any other business that directly competes with us in the areas of franchising real estate brokerages, real estate brokerage, insurance brokerage or any other defined business in which we are engaged. Additionally, during this period, he has agreed not to directly or indirectly solicit any of our clients that he has had direct or indirect contact with or any of our franchisees to cease doing business with us or to otherwise do business with him or any competing entity.
Mr. Metzger has also agreed not to (a) accept employment or perform services on behalf of himself or any individual or entity that directly competes with us for a period of three months after termination, or (b) accept employment as a senior executive officer or perform services that are similar to the services he performed for us on behalf of himself or any individual or entity that directly competes with us for a period of 12 months after
 
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termination. Except if we terminate Mr. Metzger for cause (as defined in the agreement), these restrictions are only enforceable to the extent we tender to Mr. Metzger payment at a rate equal to Mr. Metzger’s final base salary. Payment of the severance benefits described above would discharge this payment obligation. If severance benefits are not required to be paid, then we can tender this supplemental consideration at any point in the 12-month period immediately following termination.
Compensation Risk Management
We have considered the risk associated with our compensation policies and practices for all employees, and we believe we have designed our compensation policies and practices in a manner that does not create incentives that could lead to excessive risk taking that would have a material adverse effect on our company.
Employee Benefit and Stock Plans
2011 Unit Option Plan
Historically, we have granted options to our employees to acquire Class B common units of RMCO under the 2011 Unit Option Plan. We have made two grants under this plan, both on November 15, 2012. In connection with the completion of this offering, any outstanding options will be equitably adjusted and substituted with options to acquire shares of our Class A common stock granted under the 2013 Stock Incentive Plan. Following the completion of this offering and the substitution of the RMCO unit options, no further awards will be granted under the 2011 Unit Option Plan and the plan will be terminated. The following is a description of the material terms of the 2011 Unit Option Plan and the RMCO Class B common unit options that will be equitably adjusted and substituted in the offering.
The 2011 Unit Option Plan was administered by RMCO’s Board of Managers. The objectives of the plan included attracting, motivating and retaining key personnel and promoting our success by linking the interests of our officers, employees, directors and consultants or other service providers of RMCO or its subsidiaries with our success.
Units Subject to Plan
Prior to this offering, there were 52,500 Class B common units authorized for issuance under the 2011 Unit Option Plan. Options covering 31,500 Class B common units were granted under the plan. These options will be replaced by substitution of options to acquire shares of our Class A common stock under our 2013 Stock Incentive Plan.
Term of Options
The term of each option is 10 years from the date of the grant of the option.
Vesting
The vesting schedule is set forth in each option agreement. Options granted on November 15, 2012 vested 50% on the grant date and 50% on June 15, 2013.
Adjustments
The 2011 Unit Option Plan provides for adjustments to the number of units for which grants may be made under the plan, to the number of units covered by an option and to the option exercise price in the event of a reorganization, recapitalization, merger and other changes in RMCO Class B common units.
Amendment and Termination
The board may amend, suspend or terminate the plan, subject to approval by Weston Presidio and a majority of the holders of Class B common units under certain circumstances. No grants may be made after the plan is
 
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terminated. The board has the authority to amend outstanding grants, if necessary, to avoid any additional tax under Code section 409A that may otherwise be imposed on a grantee.
2013 Stock Incentive Plan
Prior to the completion of this offering, our board of directors will adopt the RE/MAX Holdings, Inc. 2013 Stock Incentive Plan, which we refer to as the 2013 Stock Incentive Plan. The 2013 Stock Incentive Plan will become effective on the date of the completion of this offering. The 2013 Stock Incentive Plan will provide for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and any parent and subsidiary employees, and for the grant shares of our Class A common stock, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards (including annual cash incentives and long-term cash incentives) and any combination thereof to our employees, directors and consultants and to employees, directors and consultants of any affiliated entity, including RMCO.
Share Reserve
After giving effect to expected grants made in connection with this offering, we will have reserved a total of             shares of our Class A common stock for issuance pursuant to the 2013 Stock Incentive Plan. In addition, the 2013 Stock Incentive Plan provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with our fiscal year following the year of this offering, equal to the lowest of (x)          shares, (y)          percent of the number of shares of our common stock outstanding on the last day of our immediately preceding fiscal year; or (z) a lower number of shares determined by the plan’s administrators.
Administration
Our board of directors or a committee of our board of directors will administer the 2013 Stock Incentive Plan and is referred to as the “administrator.” In the case of awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, to the extent required to so qualify, the committee will consist of two or more “outside directors” within the meaning of Section 162(m) of the Code. The administrator has the power to determine and interpret the terms and conditions of the awards, including the employees, directors and consultants who will receive awards, the exercise price, the number of shares subject to each such award, the vesting schedule and exercisability of the awards, the restrictions on transferability of awards and the form of consideration payable upon exercise. The administrator also has the authority to reduce the exercise prices of outstanding stock options and the base appreciation amount of any stock appreciation right if the exercise price or base appreciation amount exceeds the fair market value of the underlying          shares, and to cancel such options and stock appreciation rights in exchange for new awards, in each case without stockholder approval.
Stock Options
The 2013 Stock Incentive Plan allows for the grant of incentive stock options that qualify under Section 422 of the Code only to our employees and employees of any parent or subsidiary of ours. Non-qualified stock options may be granted to our employees and directors and those of any affiliate of ours, including RMCO. The exercise price of all options granted under the 2013 Stock Incentive Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any employee who owns more than 10% of the voting power of all classes of our outstanding stock or any parent or subsidiary corporation as of the grant date, the term must not exceed five years, and the exercise price must equal at least 110% of the fair market value on the grant date.
After the continuous service of an employee or director terminates, he or she may exercise his or her option, to the extent vested, for the period of time specified in the option agreement. However, an option may not be exercised later than the expiration of its term.
 
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Stock Appreciation Rights
The 2013 Stock Incentive Plan allows for the grant of stock appreciation rights. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the date of grant and the exercise date. The administrator will determine the terms of stock appreciation rights, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the base appreciation amount used to determine the cash or shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant. After the continuous service of an employee or director terminates, he or she may exercise his or her stock appreciation right, to the extent vested, only to the extent provided in the stock appreciation right agreement.
Restricted Stock Awards
The 2013 Stock Incentive Plan allows for the grant of restricted stock. Restricted stock awards are shares of our Class A common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee or director. The administrator may impose whatever conditions on vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Restricted Stock Units
The 2013 Stock Incentive Plan allows for the grant of restricted stock units. Restricted stock units are awards that will result in payment to a recipient at the end of a specified period only if the vesting criteria established by the administrator are achieved or the award otherwise vests. The administrator may impose whatever conditions to vesting, or restrictions and conditions to payment that it determines to be appropriate. The administrator may set restrictions based on the achievement of specific performance goals or on the continuation of service or employment. Payments of earned restricted stock units may be made, in the administrator’s discretion, in cash, with shares of our common stock or other securities, or a combination thereof.
Cash-Based Awards
The 2013 Stock Incentive Plan also allows for the grant of cash incentive awards based on terms determined in the discretion of the 2013 Stock Incentive Plan administrator. We anticipate granting our annual cash incentive awards to our executive officers under the 2013 Stock Incentive Plan. Prior to the first shareholder meeting at which directors are to be elected to our board of directors that occurs after the close of the third calendar year following the calendar year in which this offering occurs, the maximum aggregate amount of cash that may be issued pursuant to awards under the plan, including annual cash incentive awards, to employees who would otherwise be covered by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) is $40,000,000. Section 162(m) generally applies to a public company’s chief executive officer and its three other most highly compensated executive officers, other than its chief financial officer.
Terms of Awards and Performance Goals
The 2013 Stock Incentive Plan administrator determines the provisions, terms, and conditions of each award including vesting schedules, forfeiture provisions, form of payment (cash, shares, or other consideration) upon settlement of the award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the administrator for any awards intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, will be one of, or combination of, the following: net earnings or net income (before or after taxes); agent sales; franchise sales; earnings per share; revenue or sales (including net sales or revenue growth); net operating profit; return measures (including return on assets, net
 
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assets, capital, invested capital, equity, sales, or revenue); cash flow (including operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); earnings before or after taxes, interest, depreciation, and/or amortization; gross or operating margins; productivity ratios; share price (including growth measures and total stockholder return); expense targets; margins; operating efficiency; market share; working capital targets and change in working capital; economic value added (net operating profit after tax minus the sum of capital multiplied by the cost of capital); or net operating income. The performance criteria established by the administrator for any awards not intended to be performance-based compensation may be based on any one of, or combination of, the foregoing or any other performance criteria established by the administrator. The performance criteria may be applicable to RE/MAX Holdings, Inc., affiliates and/or any individual business units of RE/MAX Holdings, Inc. or any affiliate and may be measured annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the administrator.
Transferability of Awards
The 2013 Stock Incentive Plan allows for the transfer of awards under the 2013 Stock Incentive Plan only (i) by will, (ii) by the laws of descent and distribution and (iii) for awards other than incentive stock options, to the extent authorized by the administrator. Only the recipient of an incentive stock option may exercise such award during his or her lifetime.
Certain Adjustments
In the event of certain changes in our capitalization, to prevent enlargement of the benefits or potential benefits available under the 2013 Stock Incentive Plan, the administrator will make adjustments to one or more of the number of shares that are covered by outstanding awards, the exercise or purchase price of outstanding awards, the numerical share limits contained in the 2013 Stock Incentive Plan, and any other terms that the administrator determines require adjustment. In the event of our complete liquidation or dissolution, all outstanding awards will terminate immediately upon the consummation of such transaction.
Corporate Transactions and Changes in Control
The 2013 Stock Incentive Plan provides that in the event of certain corporate transactions, as such terms are defined in the 2013 Stock Incentive Plan, the portion of each outstanding award that is neither continued by us or assumed by the successor entity or its parent will automatically terminate. In connection with a corporate transaction, the administrator has the authority to provide for the full or partial automatic vesting and exercisability of one or more outstanding unvested awards under the 2013 Stock Incentive Plan and the release from restrictions on transfer or forfeiture rights of such awards on such terms and conditions as the administrator may specify. In addition, any incentive stock option, as defined in the 2013 Stock Incentive Plan, accelerated in connection with a corporate transaction or change in control, will remain exercisable as an incentive stock option to the extent the dollar limitation under the Code is not exceeded, with any excess becoming a nonqualified stock option.
Plan Amendments and Termination
The 2013 Stock Incentive Plan will automatically terminate ten years following the date it becomes effective, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate the 2013 Stock Incentive Plan provided such action does not impair the rights under any outstanding award.
RMCO Unit Options
In connection with the completion of this offering, options previously granted by RMCO to its employees under the 2011 Unit Option Plan that remain outstanding as of the date of the completion of the offering will be replaced with options granted under the 2013 Stock Incentive Plan.
 
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Substitution of RMCO Unit Options
RMCO has issued to its employees options to purchase units of RMCO. In connection with the completion of this offering, we will issue stock options to holders of outstanding unit options in substitution of the RMCO unit options under the following terms and conditions:
 
 	•	 	the individual’s rights with respect to the RMCO unit option will be cancelled;	
 
 	•	 	the total spread (the excess of the aggregate fair market value of the stock subject to the option over the aggregate option exercise price) of the option after substitution cannot exceed the total spread of the option that existed immediately prior to the substitution;	
 
 	•	 	on a share by share comparison, the ratio of the option exercise price to the fair market value of the shares subject to the option immediately after the substitution cannot be greater than the ratio of the option exercise price to the fair market value of the units subject to the option that existed immediately prior to the substitution;	
 
 	•	 	the substituted option must contain all of the terms of the unit option, except to the extent such terms are rendered inoperative by the corporate transaction; and	
 
 	•	 	the substituted option must not provide the option holder with additional benefits that the option holder did not have under the unit option.	
We will provide an option substitution agreement to each RMCO unit option holder that sets forth the terms and conditions related to the substitution of the option.
401(k) Plan
RE/MAX, LLC maintains a tax-qualified 401(k) retirement savings plan for participants who satisfy certain eligibility requirements, including requirements relating to age and length of service. The 401(k) plan participants, including certain of our named executive officers, may elect to defer up to 60% of their eligible regular compensation and 100% of bonuses, subject to applicable annual limits set pursuant to the Code. RE/MAX, LLC may make discretionary matching and profit sharing contributions on behalf of plan participants. Plan participants may elect to invest their contributions in various established funds. All amounts contributed to the plan and earnings on these contributions are fully vested at all times.
 
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 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We describe below the transactions and series of similar transactions, since December 31, 2009, to which we were a participant or will be a participant, in which:
 
 	•	 	the amounts involved exceeded or will exceed $120,000; and	
 
 	•	 	any of our directors, executive officers, holders of more than 5% of our capital stock (which we refer to as 5% stockholders) or any member of their immediate family had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described where required under the section titled “Executive Compensation.”	
Reorganization Transactions
In connection with the Reorganization Transactions, we will engage in certain transactions with certain of our directors, executive officers and other persons and entities which are or will become holders of 5% or more of our voting securities upon the consummation of the Reorganization Transactions, including entering into tax receivable agreements. These transactions are described in “Organizational Structure and Reorganization.”
Transactions with Our Existing Owners
On April 16, 2010, RMCO issued 112,500 Class A preferred units to Weston Presidio for an aggregate purchase price of $30.0 million. Additionally, RIHI sold 37,500 Class A preferred units to Weston Presidio for an aggregate purchase price of $10.0 million. In connection with this transaction, Weston Presidio and RIHI, as members of RMCO, entered into the current RMCO, LLC agreement, pursuant to which Weston Presidio is entitled to nominate two managers to RMCO’s Board of Managers. Additionally, Weston Presidio’s consent is required, among other things, to amend the current RMCO, LLC agreement, issue equity or debt (with certain exceptions which include issuances under an approved option plan), modify an option plan, make distributions, amend the senior secured credit facility and for company reorganizations. Weston Presidio has preemptive rights upon transfers of membership interests with certain exceptions. The current RMCO, LLC agreement also provides for payments to Weston Presidio and RIHI upon the occurrence of a change of control transaction.
In connection with the completion of this offering, and as part of the Reorganization Transactions, RMCO will use a portion of the net proceeds that it will receive from RE/MAX Holdings, Inc. to first redeem the preferred membership interest in RMCO held by Weston Presidio and to satisfy a $             liquidation preference associated with those units. Following RMCO’s redemption of all of the outstanding preferred membership units in RMCO held by Weston Presidio, RMCO will use the remaining net proceeds that it will receive from RE/MAX Holdings, Inc. to redeem common units of RMCO held by our existing owners, RIHI and Weston Presidio, on a pro-rata basis. See “Organizational Structure and Reorganization.” In April 2010, Weston Presidio paid $40.0 million for its Class A preferred units. 
Managed Regions
We currently manage two franchisees, Tails and HBN. Dave Liniger, our Chairman and Co-Founder, Gail Liniger, our Vice Chair and Co-Founder, and Daryl Jesperson, a member of our board of directors, beneficially own more than 10% of the voting securities of Tails and HBN.
Our regional franchise agreement with Tails covers Virginia, West Virginia, Maryland and the District of Columbia, and our regional franchise agreement with HBN covers Arizona, Nevada and New Mexico. Under these regional agreements, Tails and HBN each pay monthly franchise fees to us in amounts equal to 30% of continuing franchise fees, broker fees, franchise sales and other revenue from brokerage offices the respective region receives or $30 per agent, whichever is greater. Additionally, we have a management agreement with both Tails and HBN under which we undertake to operate and develop the franchise network in the region in exchange for reimbursement of all direct costs and allocated overhead expenses that we incur under the agreement. During the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2013, we received,
 
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approximately $1.3 million, $1.2 million, $1.1 million and $0.6 million, respectively, in revenue from HBN, and $2.2 million, $2.1 million, $2.2 million and $1.1 million, respectively, in revenue from Tails, each as related to franchise fees under the regional agreements.
Additionally, our owned real estate brokerage operations in the Washington, DC area pay to Tails continuing franchise fees, broker fees and franchise fees on initial sales and renewals of franchisees (as do all other RE/MAX franchisees covered by the Tails regional franchise). During the years ended December 31, 2010, 2011, and 2012 and the six months ended June 30, 2013, the real estate brokerage operations expensed approximately $0.4 million, $0.2 million, $0.3 million and $0.2 million, respectively, in fees to Tails. Our owned real estate brokerage operations in the Washington DC area also record a payable to Tails and its affiliated regional ad fund, which, as of December 31, 2010, 2011 and 2012 and June 30, 2013, was $1.2 million, $1.8 million, $2.3 million and $2.4 million, respectively.
Furthermore, in July 2012, we entered into a guarantee of performance by Tails of all of the obligations under the franchise registration in the Commonwealth of Virginia, and all of the preopening obligations under the franchise agreements executed between July 23, 2012 and such time that this guarantee is no longer required by the Commonwealth of Virginia. As of the date of this prospectus, we have not incurred any payments under this guarantee.
Managed Region Acquisitions
On August 9, 2013, we entered into agreements to reacquire regional RE/MAX franchise rights in two regions in the U.S. which we refer to as the Southwest Region (consisting of the States of Arizona, New Mexico and Nevada) and the Central Atlantic Region (consisting of the States of Maryland, West Virginia and Virginia and the District of Columbia). Pursuant to these agreements, we intend to acquire the business assets of Tails in the Central Atlantic Region for aggregate consideration of approximately $20.2 million and the business assets of HBN in the Southwest Region for aggregate consideration of approximately $7.1 million. These acquisitions, which are subject to various closing conditions, are expected to close substantially concurrently with this offering.
We intend to use approximately $27.3 million of the net proceeds of the offering to fund the aggregate consideration that will be required to acquire the business assets of HBN and Tails. Following our acquisition of the business assets of HBN and Tails, we will contribute such assets to RMCO in exchange for a number of newly issued common units of RMCO worth approximately $27.3 million, at a price per common unit equal to the public offering price per share of our Class A common stock, less underwriting discounts.
Certain of our directors and executive officers and their family members, including Dave Liniger, Gail Liniger, Margaret Kelly, Vincent Tracey and Daryl Jesperson, own shares of HBN and Tails. In connection with these acquisitions, Dave and Gail Liniger together will receive approximately $8.9 million in aggregate acquisition proceeds and Margaret Kelly, Vincent Tracey and Daryl Jesperson will receive approximately $0.5 million, $0.6 million and $5.3 million, respectively, in aggregate acquisition proceeds from these transactions.
Mountain States Region Acquisition
Effective December 31, 2011, we acquired the assets of RE/MAX of Colorado, Inc. for consideration paid of $15.9 million, including the regional franchise rights permitting the sale of RE/MAX franchises in the states of Colorado, Utah, Wyoming, North Dakota, and South Dakota. Mr. and Mrs. Liniger were the sole stockholders of RE/MAX of Colorado, Inc. As a result, in connection with the acquisition, Mr. and Mrs. Liniger received $12.9 million and $3.0 million, respectively, from the sale.
Sale and Leaseback Transaction
BMFB Partners, LLC (“BMFB”) previously owned our corporate headquarters building. Mr. and Mrs. Liniger were the sole members of BMFB. We leased our office space from BMFB pursuant to a master
 
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lease until April 2010. In April 2010, BMFB sold our corporate headquarters building and related land to an unrelated third party for $75.0 million and terminated the master lease with us. BMFB used the proceeds from the sale to repay, in full, the debt it incurred for the construction of the corporate headquarters building. Subsequently, we entered into a new lease with the third party purchaser with no lapse in occupancy. BMFB was considered a variable interest entity and as such, was consolidated into our financial statements. For the year ended December 31, 2010, we paid approximately $2.7 million in lease payments to BMFB under the terms of the master lease.
Sanctuary Golf Course
Sanctuary is a company owned by Mr. and Mrs. Liniger that owns and manages Sanctuary, a private golf course located near Denver, Colorado. We pay Sanctuary for certain activities, including: (i) participation as the presenting sponsor for approximately 25 charity golf tournaments per year; (ii) golfing by our employees, officers, directors, brokers/agents and vendors, such as RE/MAX business related golfing events, employee golf days for our employees, and gift certificates provided to certain officers; and (iii) corporate meetings or events. During the years ended December 31, 2010, 2011 and 2012, we paid $0.9 million, $1.0 million and $0.7 million, respectively, to Sanctuary for such activities, including sponsorship fees of $0.4 million, $0.4 million and $0.3 million, respectively. During the six-month period ended June 30, 2013, the majority stockholders of RIHI who own Sanctuary, Inc. allowed the Company to use the golf course for business purposes at no charge.
Financial Advisor
We have engaged Perella Weinberg, a FINRA member, to serve as our financial advisor in connection with this offering. Perella Weinberg will receive aggregate fees from us in connection with this service of $            . We have also agreed to reimburse Perella Weinberg for certain expenses incurred in connection with the engagement. Perella Weinberg is not acting as an underwriter and will not sell or offer to sell any securities and will not identify, solicit or engage directly with potential investors. In addition, Perella Weinberg will not underwrite or purchase any of the offered securities or otherwise participate in any such undertaking.
Chip Baird and David Ferguson, partners at an affiliate of Perella Weinberg, have served as members of our board of managers since April 2010. The engagement of Perella Weinberg as our financial advisor was approved by the independent members of our Board of Managers after full disclosure of the affiliation of Messrs. Baird and Ferguson with respect to the transaction. Messrs. Baird and Ferguson did not participate in the approval process. We have been advised by Messrs. Baird and Ferguson that they will not receive any special compensation from Perella Weinberg based on its participation in this offering.
Registration Rights Agreement
We intend to enter into a registration rights agreement with Weston Presidio, RIHI and certain other stockholders in connection with this offering. The registration rights agreement will provide Weston Presidio and RIHI certain registration rights whereby, at any time following our initial public offering and the expiration of any related lock-up period, they can require us to register under the Securities Act shares owned by them as of the date of this prospectus and not sold in this offering. The registration rights agreement will also provide for piggyback registration rights for all stockholders that are parties to the agreement.
Equity Grants in Conjunction with this Offering
In connection with the completion of this offering, any outstanding options under the 2011 Unit Option Plan will be substituted with options granted under the 2013 Stock Incentive Plan. We intend to provide option substitution agreements. See “Executive Compensation—Employee Benefit and Stock Plans—2013 Stock
 
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Incentive Plan—Substitution of RMCO Unit Options” for additional information. In addition, under our 2013 Stock Incentive Plan, we expect to grant options to acquire             shares of our Class A common stock and restricted stock units relating to              shares of our Class A common stock to our employees, including our named executive officers, and directors in connection with the completion this offering.
Executive Compensation and Employment Arrangements
Please see “Executive Compensation” for information on compensation arrangements with our executive officers and agreements with, and offer letters to, our executive officers containing compensation and termination provisions, among others.
Director and Officer Indemnification and Insurance
We have entered into indemnification agreements with certain of our directors and executive officers, and purchased directors’ and officers’ liability insurance. Effective upon the completion of this offering, we intend to enter into new indemnification agreements with our directors and certain of our executive officers. The indemnification agreements and our amended and restated certificate of incorporation and bylaws will require us to indemnify our directors and officers to the fullest extent permitted by Delaware law.
Policies and Procedures Regarding Related Party Transactions
In connection with this offering, we will adopt a written policy with respect to related party transactions. Under our related party transaction policies and procedures, a “Related Party Transaction” is any financial transaction, arrangement or relationship (or series of similar transactions, arrangements or relationships) in which we are or any of our subsidiaries is a participant and in which a Related Party has or will have a direct or indirect interest, other than any transactions, arrangements or relationships in which the aggregate amount involved will not or may not be expected to exceed $120,000 in any calendar year, subject to certain exceptions. A “Related Party” is any of our executive officers, directors or director nominees, any stockholder directly or indirectly beneficially owning in excess of 5% of our stock or securities exchangeable for our stock, or any immediate family member of any of the foregoing persons.
Pursuant to our related person transaction policies and procedures, any Related Party Transaction must be reviewed by the audit committee. In connection with its review of a Related Party Transaction, the audit committee may take into account, among other factors it deems appropriate, whether the Related Party Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the Related Party Transaction. Management shall present to the audit committee the following information, to the extent relevant, with respect to actual or potential Related Party Transactions:
 
 	•	 	A general description of the transaction(s), including the material terms and conditions;	
 
 	•	 	The name of the related party and the basis on which such person or entity is a related party;	
 
 	•	 	The related party’s interest in the transaction(s), including the related party’s position or relationship with, or ownership of, any entity that is a party to or has an interest in the transaction(s);	
 
 	•	 	The approximate dollar value of the transaction(s), and the approximate dollar value of the related party’s interest in the transaction(s) without regard to amount of profit or loss;	
 
 	•	 	In the case of a lease or other transaction providing for periodic payments or installments, the aggregate amount of all periodic payments or installments expected to be made;	
 
 	•	 	In the case of indebtedness, the aggregate amount of principal to be outstanding and the rate or amount of interest to be payable on such indebtedness; and	
 
 	•	 	Any other material information regarding the transaction(s) or the related party’s interest in the transaction(s).	
 
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 PRINCIPAL STOCKHOLDERS
The following table sets forth information as of             , 2013 regarding the beneficial ownership of our Class A common stock and Class B common stock, and of common units in RMCO, by (i) each person known to us to beneficially own more than 5% of our voting securities, (ii) each of our directors, (iii) each of our named executive officers and (iv) all directors and executive officers as a group.
The number of shares and common units outstanding and percentage of beneficial ownership before the offering of Class A common stock set forth below are based on the number of shares and common units to be issued and outstanding prior to the offering of Class A common stock after giving effect to the other elements of the Reorganization Transactions as described in “Organizational Structure and Reorganization.” Pursuant to the RMCO fourth restated LLC agreement, each common unit of RMCO will be redeemable at the holder’s election for, at our option, shares of our Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of our common stock.
The number of shares and common units and percentage of beneficial ownership after this offering set forth below are based on shares and common units to be issued and outstanding immediately after this offering.
We have determined beneficial ownership in accordance with SEC rules. The information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options held by the respective person or group that may be exercised or converted within 60 days after             , 2013. For purposes of calculating each person’s or group’s percentage ownership, stock options and warrants exercisable within 60 days after             , 2013 are included for that person or group but not the stock options of any other person or group.
For purposes of the table below, we have assumed that                 shares of common stock will be outstanding upon completion of this offering, based on (i)                shares outstanding as of                 , 2013 and (ii)                shares of Class A common stock that will be sold by us in the offering.
 
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Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed. Unless otherwise noted below, the address of each person listed on the table is c/o RE/MAX Holdings, Inc., 5075 South Syracuse Street, Denver, Colorado 80237.

 	 	Class A Common Stock
Beneficially Owned	 	Class B Common Stock
Beneficially Owned(1)	 	Common Units of RMCO
Beneficially Owned(2)	 	Combined Voting Power(3)	
 	 	Prior to
This
Offering	 	After This
Offering
Assuming
No
Exercise
of
Option to
Purchase
Additional
Shares	 	After This
Offering
Assuming
Full
Exercise
of Option
to
Purchase
Additional
Shares	 	Prior to
This
Offering	 	After This
Offering
Assuming
No
Exercise
of
Option to
Purchase
Additional
Shares	 	After This
Offering
Assuming
Full
Exercise
of Option
to
Purchase
Additional
Shares	 	Prior to
This
Offering	 	After This
Offering
Assuming
No
Exercise
of
Option to
Purchase
Additional
Shares	 	After This
Offering
Assuming
Full
Exercise
of Option
to
Purchase
Additional
Shares	 	Prior to
This
Offering	 	After This
Offering
Assuming
No
Exercise
of
Option to
Purchase
Additional
Shares	 	After This
Offering
Assuming
Full
Exercise
of Option
to
Purchase
Additional
Shares	
5% Stockholders:	 		 		 		 		 		 		 		 		 		 		 		 		
Weston Presidio(4)	 		 		 		 		 		 		 		 		 		 		 		 		
RIHI(5)	 		 		 		 		 		 		 		 		 		 		 		 		
													
Directors and Named Executive Officers:	 		 		 		 		 		 		 		 		 		 		 		 		
Dave Liniger.	 		 		 		 		 		 		 		 		 		 		 		 		
Gail Liniger	 		 		 		 		 		 		 		 		 		 		 		 		
Margaret M. Kelly	 		 		 		 		 		 		 		 		 		 		 		 		
Vincent Tracey	 		 		 		 		 		 		 		 		 		 		 		 		
David M. Metzger	 		 		 		 		 		 		 		 		 		 		 		 		
Gilbert Baird III	 		 		 		 		 		 		 		 		 		 		 		 		
Scott Bell(6)	 		 		 		 		 		 		 		 		 		 		 		 		
Richard Covey	 		 		 		 		 		 		 		 		 		 		 		 		
Kathleen Cunningham	 		 		 		 		 		 		 		 		 		 		 		 		
Roger Dow	 		 		 		 		 		 		 		 		 		 		 		 		
David Ferguson	 		 		 		 		 		 		 		 		 		 		 		 		
Ronald Harrison	 		 		 		 		 		 		 		 		 		 		 		 		
Daryl Jesperson.	 		 		 		 		 		 		 		 		 		 		 		 		
Dan Predovich	 		 		 		 		 		 		 		 		 		 		 		 		
Directors and executive officers as a group (15 persons)	 		 		 		 		 		 		 		 		 		 		 		 		

*	Less than 1%.	
(1)	RIHI and Weston Presidio will hold 100% of the shares of our Class B common stock. RIHI and Weston Presidio, as the holders of the Class B common stock, are entitled to, without regard to the number of shares of Class B common stock held, a number of votes on matters presented to stockholders of RE/MAX Holdings, Inc. that is equal to two times the aggregate number of common units of RMCO they hold.	
(2)	Pursuant to the RMCO fourth restated LLC agreement, our existing owners may redeem their common units at their election for, at our option, shares of Class A common stock of RE/MAX Holdings, Inc. on a one-for-one basis (subject to customary adjustments, including conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends and reclassifications) or cash. See “Organizational Structure and Reorganization—RMCO Operating Agreement—Agreement in Effect After the Offering.” Beneficial ownership of common units reflected in this table has not been also reflected as beneficial ownership of shares of our Class A common stock for which such units may be redeemed.	
(3)	Represents percentage of voting power of the Class A common stock and Class B common stock voting together as a single class. See “Description of Capital Stock—Common Stock.”	
(4)	The address for Weston Presidio V, L.P. is One Ferry Building, Suite 350, San Francisco, CA. The general partner of Weston Presidio V, L.P. is Weston Presidio Management V, LLC, which exercises voting control and investment power over such shares. The managing members of Weston Presidio Management V, L.P. are Michael P. Lazarus and Michael F. Cronin, each of whom could be deemed to beneficially own the shares held by Weston Presidio V, L.P., but disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.	
 
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(5)	RIHI is majority owned and controlled by Dave Liniger, our Chairman and Co-Founder, and Gail Liniger, our Vice Chair and Co-Founder. Margaret Kelly, our Chief Executive Officer and a director, Vincent Tracey, our President and a director, and Daryl Jesperson, a director, hold minority ownership interests in RIHI. As such, Mr. and Mrs. Liniger have dispositive, voting and investment control over the common units held by RIHI.	
(6)	The address for Mr. Bell is One Ferry Building, Suite 350, San Francisco, CA. Mr. Bell is a non-managing member of the general partner of Weston Presidio and, as such, may be deemed to have shared voting and investment power (along with other members of the general partner) as to the common units beneficially owned directly by Weston Presidio. Mr. Bell disclaims beneficial ownership with respect to the common units beneficially owned by Weston Presidio, except to the extent of his pecuniary interest therein.	
 
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 DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of the material terms of the RE/MAX, LLC revolving line of credit and term loan facility, which we refer to collectively as our senior secured credit facility. This summary is qualified in its entirety by reference to the agreement which is filed as an exhibit to the registration statement, of which this prospectus forms a part.
In July 2013, RE/MAX, LLC entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lenders party thereto. Under the credit agreement, RE/MAX, LLC has a revolving line of credit available of up to $10 million. On the closing date of the credit agreement, RE/MAX, LLC borrowed $230.0 million of term loans thereunder. The proceeds provided by these term loans were used to refinance and repay existing indebtedness and for working capital, capital expenditures, acquisitions and general corporate purposes.
Term loans are repaid in quarterly installments of 0.25% of the aggregate principal amount of the term loans, with the balance of the term loan due at maturity. The maturity date of all of the term loans under the credit agreement is July 31, 2020. Term loans may be optionally prepaid by RE/MAX, LLC at any time. All amounts outstanding under the revolving line of credit must be repaid on July 31, 2018.
The credit agreement requires RE/MAX, LLC to repay term loans and reduce revolving commitments with (i) 100% of proceeds of any incurrence of additional debt not permitted by the credit agreement, (ii) 100% of proceeds of asset sales and 100% of amounts recovered under insurance policies, subject to certain exceptions and a reinvestment right, and (iii) 50% of excess cash flow at the end of the applicable fiscal year, with such percentage decreasing as RE/MAX, LLC’s leverage ratio decreases.
The senior secured credit facility is guaranteed by RMCO and RE/MAX of Western Canada (1998), LLC, a subsidiary of RE/MAX, LLC, and is secured by a lien on substantially all of the assets of RMCO, RE/MAX, LLC and each guarantor.
Borrowings under the term loans and revolving loans accrue interest, at RE/MAX, LLC’s option, at either an alternate base rate or LIBOR plus an applicable margin rate. Applicable margin for alternate base rate loans is 1.75% per annum increasing to 2.00% per annum at any time RE/MAX, LLC’s leverage ratio is greater than or equal to 2.25 to 1.00, and applicable margin for LIBOR loan is 2.75% per annum increasing to 3.00% per annum at any time RE/MAX, LLC’s leverage ratio is greater than or equal to 2.25 to 1.00. A commitment fee of 0.50% per annum accrues on the amount of unutilized revolving line of credit.
The credit agreement provides for customary restrictions on, among other things, additional indebtedness, liens, dispositions of property, dividends, transactions with affiliates and fundamental changes such as mergers, consolidations and liquidations. We do not anticipate that the restriction on the payment of dividends will prevent us from being able to pay regular dividends with respect to our Class A common stock at rates we establish from time to time. With certain exceptions, any default under any of our other agreements evidencing indebtedness in the amount of $10.0 million or more shall constitute an event of default under the credit agreement.
The credit agreement restricts the aggregate acquisition consideration for permitted acquisitions to $50.0 million in any fiscal year. Any unused amounts may be carried over to subsequent years to be used towards additional expenditures for permitted acquisitions, with an aggregate cap of $100.0 million in any fiscal year. Aggregate outstanding indebtedness consisting of (i) the deferred purchase price of permitted acquisitions may not exceed $15.0 million at any time and (ii) earn-outs arising out of permitted acquisitions may not exceed $15.0 million at any time.
At any time revolving loans are outstanding, the credit agreement requires compliance with a leverage ratio and an interest coverage ratio. As of July 31, 2013, we had no revolving loans outstanding.
 
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 DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock as it will be in effect upon the consummation of this offering is a summary and is qualified in its entirety by reference to our amended and restated certificate of incorporation and bylaws, the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part, and by applicable law.
Upon consummation of this offering, our authorized capital stock will consist of              shares of Class A common stock, par value $0.0001 per share,              shares of Class B common stock, par value $0.0001 per share, and              shares of preferred stock, par value $0.0001 per share. Unless our board of directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.
Common Stock
Class A common stock
Holders of shares of our Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders.
Holders of shares of our Class A common stock are entitled to receive dividends when and if declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.
Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of our Class A common stock will be entitled to receive pro rata our remaining assets available for distribution.
Holders of shares of our Class A common stock do not have preemptive, subscription, redemption or conversion rights.
Class B common stock
Each holder of Class B common stock shall be entitled, without regard to the number of shares of Class B common stock held by such holder, to two votes for each common unit in RMCO held by such holder. Accordingly, the unitholders of RMCO collectively have a number of votes in RE/MAX Holdings, Inc. that is equal to two times the aggregate number of common units that they hold.
The voting rights of the Class B common stock shall be reduced to one times the aggregate number of RMCO common units held by a holder from and after any of the following events: (i) the fifth anniversary of this initial public offering; (ii) the death of our Chairman and Founder David L. Liniger; or (iii) at such time as RIHI’s ownership of RMCO common units is below 30% of the number of RMCO common units held by RIHI immediately after this offering.
Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.
Holders of our Class B common stock do not have any right to receive dividends or to receive a distribution upon a dissolution or liquidation or the sale of all or substantially all of our assets. Additionally, holders of shares of our Class B common stock do not have preemptive, subscription, redemption or conversion rights.
 
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Preferred Stock
Our certificate of incorporation will authorize our board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by you. Our board of directors is able to determine, with respect to any series of preferred stock, the terms and rights of that series, including:
 
 	•	 	the designation of the series;	
 
 	•	 	the number of shares of the series, which our board may, except where otherwise provided in the preferred stock designation, increase or decrease, but not below the number of shares then outstanding;	
 
 	•	 	whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;	
 
 	•	 	the dates at which dividends, if any, will be payable;	
 
 	•	 	the redemption rights and price or prices, if any, for shares of the series;	
 
 	•	 	the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;	
 
 	•	 	the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of our company;	
 
 	•	 	whether the shares of the series will be convertible into shares of any other class or series, or any other security, of our company or any other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made;	
 
 	•	 	restrictions on the issuance of shares of the same series or of any other class or series; and	
 
 	•	 	the voting rights, if any, of the holders of the series.	
We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of you might believe to be in your best interests or in which you might receive a premium for your shares of Class A common stock over the market price of the shares of Class A common stock.
Options and Other Equity Awards
In connection with the completion of this offering, options granted by RMCO under the 2011 Unit Option Plan that remain outstanding as of the date of the completion of the offering will be substituted with options granted under our 2013 Stock Incentive Plan. We intend to enter into option substitution agreements with holders of outstanding options of RMCO to cancel each RMCO unit option and substitute the option with an option to purchase Class A common stock of RE/MAX Holdings, Inc. In addition, we expect to grant options to acquire                  shares of our Class A common stock and restricted stock units relating to                  shares of our Class A common stock to our employees and directors in connection with the completion of this offering under our 2013 Stock Incentive Plan. Upon completion of this offering, options to purchase a total of                  shares of our Class A common stock and restricted stock units relating to                  shares of our Class A common stock will be outstanding. See “Executive Compensation—Employee Benefit and Stock Plans—2013 Stock Incentive Plan.”
Antitakeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Our certificate of incorporation and bylaws, as they will be in effect upon completion of this offering, also contain provisions that may delay, defer or discourage another party from acquiring control of us. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate
 
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takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give our board of directors the power to discourage acquisitions that some stockholders may favor.
Undesignated Preferred Stock
The authorization of undesignated preferred stock in our certificate of incorporation will make it possible for our board of directors to issue preferred stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Classified Board of Directors
Our certificate of incorporation will provide that our board of directors will be divided into three classes, with each class serving three-year staggered terms. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Requirements for Advance Notification of Stockholder Meetings, Nominations and Proposals
Our certificate of incorporation will provide that, upon completion of this offering, special meetings of the stockholders may be called only by a resolution adopted by the affirmative vote of the majority of the directors then in office. Our bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. In addition, any stockholder who wishes to bring business before an annual meeting or nominate directors must comply with the requirements set forth in our bylaws. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers or changes in control or management of our company.
Stockholder Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our stock entitled to vote thereon were present and voted, unless our company’s certificate of incorporation provides otherwise. Our certificate of incorporation will provide that, after the date on which the existing owners no longer hold a majority of the outstanding shares of our common stock, any action required or permitted to be taken by our stockholders may be effected at a duly called annual or special meeting of our stockholders and may not be effected by consent in writing by such stockholders.
No Cumulative Voting
The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our certificate of incorporation does not expressly provide for cumulative voting.
Business Combinations with Interested Stockholders
We will elect in our certificate of incorporation not to be subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for
 
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a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Accordingly, we will not be subject to any anti-takeover effects of Section 203. However, our certificate of incorporation will contain provisions that have the same effect as Section 203, except that they will provide that our existing owners and any person to whom our existing owners sell their common stock will be deemed to have been approved by our board of directors, and thereby not subject to the restrictions set forth in these provisions.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock is                 .
Exchange Listing
We will apply to list our common stock on the NYSE under the symbol “RMAX.”
 
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 SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for shares of our Class A common stock. We cannot predict the effect, if any, future sales of shares of Class A common stock, or the availability for future sale of shares of Class A common stock, will have on the market price of shares of our Class A common stock prevailing from time to time. The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock.
Immediately after the Reorganization Transactions but prior to the completion of this offering, no shares of our Class A common stock will be outstanding and              shares of our Class B common stock will be outstanding, all of which will be held by our existing owners. There are currently two unitholders of RMCO.
Upon completion of this offering we will have a total of              shares of our Class A common stock outstanding (or              shares of Class A common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock). All of these shares of Class A common stock will have been sold in this offering and will be freely tradable without restriction or further registration under the Securities Act by persons other than our “affiliates.” Under the Securities Act, an “affiliate” of an issuer is a person that directly or indirectly controls, is controlled by or is under common control with that issuer.
In addition, subject to certain limitations and exceptions, pursuant to the terms of the RMCO fourth restated LLC agreement, unitholders of RMCO may redeem common units at the holder’s election for, at our option, shares of our Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of our common stock, subject to customary adjustments for conversion rate adjustments, underwriting discounts, commissions and adjustments for stock splits, stock dividends and reclassifications. Upon consummation of this offering, our existing owners will hold              common units (or              common units if the underwriters exercise in full their option to purchase additional shares of Class A common stock), all of which will be redeemable for shares of our Class A common stock. The shares of Class A common stock we issue upon such redemptions would be “restricted securities” as defined in Rule 144 unless we register such issuances. However, we have entered into one and may enter into one or more registration rights agreements with our existing owners that will require us to register under the Securities Act these shares of Class A common stock. See “—Registration Rights” and “Certain Relationships and Related Person Transactions—Registration Rights Agreement.”
We also may issue additional shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion. In accordance with the DGCL and the provisions of our certificate of incorporation, we may also issue preferred stock that has designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to shares of Class A common stock. See “Description of Capital Stock.”
Rule 144
In general, under Rule 144 under the Securities Act, as in effect on the date of this prospectus, a person who is one of our affiliates and has beneficially owned shares of our common stock for at least six months would be entitled to sell within any three-month period, beginning on the date 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
 
 	•	 	one percent of the number of shares of common stock then outstanding, which will equal approximately              shares immediately after the completion of this offering; or	
 
 	•	 	the average weekly trading volume of our common stock on              during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.	
 
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Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to a certain manner of sale provisions and notice requirements and to the availability of current public information about us.
In general, under Rule 144 under the Securities Act, as in effect on the date of this prospectus, a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, is entitled to sell the shares beginning on the 91st day after the date of this prospectus without complying with the manner of sale, volume limitation or notice provisions of Rule 144, and will be subject only to the public information requirements of Rule 144. If such person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.
Rule 701
Any of our employees, officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to sell them in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. However, substantially all of the shares issued under Rule 701 are subject to the lock-up agreements described below and will only become eligible for sale when the lock-up period expires.
Lock-Up Agreements
We and all of our directors and officers, as well as the holders of all of our outstanding stock and stock options (including securities exercisable or convertible into our common stock) have agreed that, without the prior written consent of each of Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC on behalf of the underwriters, during the period ending on the date 180 days after the date of this prospectus (the “restricted period”), we and they will not:
 
 	•	 	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or redeemable for shares of common stock;	
 
 	•	 	file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or redeemable for common stock; or	
 
 	•	 	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock.	
This agreement is subject to certain exceptions. See “Underwriters” below for additional discussion.
Registration Rights
We intend to enter into a registration rights agreement with Weston Presidio and RIHI in connection with this offering. See “Certain Relationships and Related Person Transactions—Registration Rights Agreement.”
 
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Registration Statements
We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our Class A common stock subject to options outstanding or reserved for issuance under our 2013 Stock Incentive Plan and shares of our Class A common stock issued upon the exercise of options by employees. We expect to file this registration statement as soon as practicable after the completion of this offering. However, the shares registered on Form S-8 will be subject to Rule 144 limitations applicable to our affiliates and will not be eligible for resale until expiration of the lock-up agreements to which they are subject.
 
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 MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of the material U.S. federal income tax consequences applicable to “non-U.S. holders” (as defined below) with respect to the ownership and disposition of shares of our Class A common stock, but does not purport to be a complete analysis of all potential tax considerations related thereto. This summary is based on current provisions of the Code, final, temporary or proposed Treasury regulations promulgated thereunder, administrative rulings and judicial opinions, all of which are subject to change, possibly with retroactive effect. We have not sought any ruling from the U.S. Internal Revenue Service (the “IRS”) with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.
This summary is limited to non-U.S. holders who purchase our Class A common stock issued pursuant to this offering and who hold shares of our Class A common stock as “capital assets” (within the meaning of Section 1221 of the Code).
This discussion does not address all aspects of U.S. federal income taxation that may be important to a particular non-U.S. holder in light of that non-U.S. holder’s particular circumstances, nor does it address any aspects of U.S. federal estate or gift tax laws or tax considerations arising under the laws of any non-U.S., state or local jurisdiction. This discussion also does not address tax considerations applicable to a non-U.S. holder subject to special treatment under the U.S. federal income tax laws, including, without limitation:
 
 	•	 	banks, insurance companies or other financial institutions;	
 
 	•	 	tax-exempt organizations;	
 
 	•	 	tax-qualified retirement plans;	
 
 	•	 	brokers, dealers or traders in securities, commodities or currencies;	
 
 	•	 	U.S. expatriates and certain former citizens or long-term residents of the U.S.;	
 
 	•	 	“controlled foreign corporations” or “passive foreign investment companies” within the meaning of the Code;	
 
 	•	 	foreign estates and trusts with U.S. beneficiaries;	
 
 	•	 	persons that own, or have owned, actually or constructively, more than 5% of our Class A common stock; and	
 
 	•	 	persons that will hold Class A common stock as a position in a “straddle”, “conversion transaction” or other risk reduction transaction.	
If a partnership (or entity classified as a partnership for U.S. federal income tax purposes) is a beneficial owner of our Class A common stock, the tax treatment of a partner in such partnership (or member in such entity) generally will depend upon the status of the partner and the activities of the partnership. Any such partner or partnership should consult its own tax advisors.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
 
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Definition of Non-U.S. Holder
For purposes of this discussion, a “non-U.S. holder” is any beneficial owner of our Class A common stock that is not, for U.S. federal income tax purposes:
 
 	•	 	an individual citizen or resident of the U.S.;	
 
 	•	 	a corporation (or entity treated as such for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof or the District of Columbia;	
 
 	•	 	an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source;	
 
 	•	 	a trust if (a) a court within the U.S. is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person; or	
 
 	•	 	a partnership (or entity treated as such for U.S. federal income tax purposes).	
Distributions on Our Class A Common Stock
Any distribution of cash or other property (other than certain stock distributions) with respect to our Class A common stock (and certain redemptions treated as distributions with respect to our Class A common stock) will be treated as a dividend for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Dividends paid to a non-U.S. holder of our Class A common stock generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends, or such lower rate specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct by a non-U.S. holder of a trade or business within the U.S. (and, if required by an applicable income tax treaty, that are attributable to a permanent establishment maintained by the non-U.S. holder in the U.S.) will be exempt from such withholding tax. Instead, such dividends generally will be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the U.S. Such dividends received by a corporate non-U.S. holder also may be subject to an additional “branch profits” tax at a 30% rate (or such lower rate specified by an applicable income tax treaty).
If the amount of a distribution paid on our Class A common stock exceeds our current and accumulated earnings and profits, such excess will be treated first as a nontaxable return of capital to the extent of a non-U.S. holder’s adjusted tax basis of such stock, and thereafter as capital gain from the sale or other taxable disposition of such stock, which gain will be taxed as described below under the heading “Gain on Sale or Other Disposition of Our Class A Common Stock.” A non-U.S. holder’s adjusted tax basis in a share of our Class A common stock generally is the purchase price of such share, reduced by the amounts of any nontaxable returns of capital.
A non-U.S. holder that claims exemption from withholding or the benefit of an applicable income tax treaty generally will be required to satisfy applicable certification and other requirements prior to the distribution date, including the furnishing of a properly executed IRS Form W-8 BEN, IRS Form W-8 ECI or other appropriate form. Non-U.S. holders that do not timely provide us or our paying agent with the required certification may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty or applicability of other exemptions from withholding.
A non-U.S. holder eligible for a reduced rate of withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
 
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Gain on Sale or Other Disposition of Our Class A Common Stock
Subject to the discussion below regarding backup withholding, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our Class A common stock unless:
 
 	•	 	we are or have been a U.S. real property holding corporation (a “USRPHC”) for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition and the non-U.S. holder’s holding period for our Class A common stock, and our Class A common stock has ceased to be traded on an established securities market prior to the beginning of the calendar year in which the sale or other disposition occurs;	
 
 	•	 	the gain is effectively connected with a trade or business carried on by the non-U.S. holder in the U.S. and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment of the non-U.S. holder maintained in the U.S.; or	
 
 	•	 	the non-U.S. holder is an individual present in the U.S. for 183 days or more in the taxable year of disposition and certain other requirements are met.	
We believe we currently are not, and we do not anticipate becoming, a USRPHC for U.S. federal income tax purposes.
Gain described in the second bullet point above will be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates generally in the same manner as if the non-U.S. holder were a resident of the U.S. A corporate non-U.S. holder also may be subject to an additional “branch profits” tax equal at a 30% rate (or such lower rate specified by an applicable income tax treaty).
Gain described in the third bullet point above will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty) but may be offset by U.S.-source capital losses provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. holder. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Backup withholding, currently at a 28% rate, generally will not apply to distributions to a non-U.S. holder of our Class A common stock provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient.
Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of our Class A common stock within the U.S. or conducted through certain U.S.-related financial intermediaries, unless the beneficial owner furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person as defined under the Code), or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
 
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Foreign Account Tax Compliance Act
Legislation and administrative guidance, commonly referred to as “FATCA”, may impose a 30% withholding tax on any dividends paid after June 30, 2014 and the proceeds of a sale of our Class A common stock paid after December 31, 2016 to a “foreign financial institution”, as specially defined under such rules, and certain other foreign entities, unless various information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in, or accounts with, those entities) have been met or an exemption applies. If FATCA withholding is imposed, a beneficial owner that is not a foreign financial institution generally will be entitled to a refund of any amounts withheld by filing a U.S. federal income tax return (which may entail significant administrative burden). Prospective investors should consult their tax advisors regarding FATCA.
 
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 UNDERWRITERS
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:

Name	  	Number of Shares	
Morgan Stanley & Co. LLC	  		
Merrill Lynch, Pierce, Fenner & Smith
     Incorporated	  		
J.P. Morgan Securities LLC	  		
	  	 	
Total	  		
	  	 	
The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives ,” respectively. The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of Class A common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.
The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of Class A common stock, the offering price and other selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to            additional shares of Class A common stock from us at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares of Class A common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional            shares of Class A common stock.

 	  	 	 	  	Total	 	
 	  	Per
Share	 	  	No
Exercise	 	  	Full
Exercise	 	
Public offering price	  	$	        	  	  	$	        	  	  	$	        	  	
Underwriting discounts and commissions to be paid by us(1)	  				  				  				
Proceeds, before expenses, to us	  	$	 	  	  	$	 	  	  	$	 	  	

(1)	This amount does not include payment of an advisory fee in an aggregate amount of $             we expect to pay Perella Weinberg, a FINRA member affiliated with Messrs. Baird and Ferguson, members of our board of directors, for advising us in connection with this offering. See “Certain Relationships and Related Party Transactions—Financial Advisor.”	
 
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The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $            . We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $            .
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of Class A common stock offered by them.
We intend to apply to have our Class A common stock be approved for listing on the NYSE under the trading symbol “RMAX.”
We and all directors and officers and the holders of all of our outstanding stock and stock options have agreed that, without the prior written consent of the representatives on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:
 
 	•	 	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or redeemable for shares of common stock;	
 
 	•	 	file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or redeemable for common stock; or	
 
 	•	 	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock,	
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of the representatives on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or redeemable for common stock.
The restrictions described in the immediately preceding paragraph to do not apply to:
 
 	•	 	the sale of shares to the underwriters;	
 
 	•	 	the transfer or redemption of any RMCO securities pursuant to the Reorganization Transactions;	
 
 	•	 	transactions relating to shares of our common stock or other securities acquired in open market transactions after the consummation of this offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with transfers or dispositions of such shares of common stock or other securities acquired in such open market transactions (other than a filing on Form 5 made after the expiration of the restricted period);	
 
 	•	 	transfers of our common stock or any security convertible into common stock to the spouse, domestic partner, parent, sibling, child or grandchild of such person or to a trust formed for the benefit of such person or of an immediate family member; transfers of shares of our common stock or any security convertible into common stock as a bona fide gift; distributions of shares of our common stock or any security convertible into common stock to limited partners, members, stockholders or affiliates of such person or to any investment fund or other entity controlled or managed by, or under common control or management with, such person; or as a distribution by a trust to its beneficiaries, provided that each donee or distributee agree to be bound by the same restrictions set forth above and no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made during the restricted period;	
 
 	•	 	the issuance by us of shares of our common stock upon the exercise of an option to purchase our common stock pursuant to our equity incentive plans as described in this prospectus provided that any	
 
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 	securities received upon such vesting event or exercise will also be subject to the restrictions above and no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made during the restricted period in connection with such vesting event or exercise;	
 
 	•	 	transfers of our common stock or any securities convertible into or exercisable or exchangeable for common stock to us, pursuant to agreements under which we have the option to repurchase such shares or securities or a right of first refusal with respect to transfers of such shares or securities, provided that unless such transfers are pursuant to our option to repurchase in the event of termination or resignation of an employee, no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with such transfers (other than a filing on Form 5 made after the expiration of the restricted period); or	
 
 	•	 	the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act, for the transfer of shares of our common stock, provided that (i) such plan does not provide for the transfer of common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period.	
The representatives, in their sole discretion, may release the Class A common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.
In order to facilitate the offering of the Class A common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of Class A common stock in the open market to stabilize the price of the Class A common stock. The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the underwriters repurchase shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases. These activities may raise or maintain the market price of the Class A common stock above independent market levels or prevent or delay a decline in the market price of the Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
 
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Relationship with Perella Weinberg
Pursuant to an engagement agreement, we have engaged Perella Weinberg, a FINRA member, to serve as our financial advisor in connection with this offering. Perella Weinberg will receive aggregate fees from us in connection with this service of $            . We have also agreed to reimburse Perella Weinberg for certain expenses incurred in connection with the engagement. The services provided by Perella Weinberg included customary business and financial analysis, assistance in preparing information materials regarding the offering and advising us with respect to the marketing and structuring of this offering. Perella Weinberg is not acting as an underwriter and will not sell or offer to sell any securities and will not identify, solicit or engage directly with potential investors. In addition, Perella Weinberg will not underwrite or purchase any of the offered securities or otherwise participate in any such undertaking.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses. Affiliates of J.P. Morgan Securities LLC are lenders under our senior secured credit facility.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
Pricing of the Offering
Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.
Selling Restrictions
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”) in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares of Class A common stock may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares of Class A common stock without disclosure to investors under Chapter 6D of the Corporations Act.
 
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The shares of Class A common stock applied for by Exempt Investors in Australia must not be offered for sale in Australia for a period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares of Class A common stock to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer to the public of any shares of our Class A common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our Class A common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
 
 	(a)	to any legal entity which is a qualified investor as defined in the Prospectus Directive;	
 
 	(b)	to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or	
 
 	(c)	in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our Class A common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.	
For the purposes of this provision, the expression an “offer to the public” in relation to any shares of our Class A common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our Class A common stock to be offered so as to enable an investor to decide to purchase any shares of our Class A common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
 
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Hong Kong
Each underwriter has represented and agreed that:
 
 	(a)	it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Class A common stock other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and	
 
 	(b)	it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to any shares of Class A common stock, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of Class A common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.	
Japan
The shares of Class A common stock have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares of Class A common stock are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of which is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in the trust, as applicable, shall not be transferable for 6 months after the corporation or trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A) and in accordance with the conditions specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
 
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Switzerland
The shares of Class A common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, us or the shares of Class A common stock have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and any offers of shares of Class A common stock have not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
United Kingdom
Each underwriter has represented and agreed that:
 
 	(a)	it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of the shares of our Class A common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and	
 
 	(b)	it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our Class A common stock in, from or otherwise involving the United Kingdom.	
 
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 LEGAL MATTERS
The validity of our Class A common stock offered hereby will be passed upon for us by Morrison & Foerster LLP, San Francisco, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.
 EXPERTS
The balance sheet of RE/MAX Holdings, Inc. as of July 8, 2013 has been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of RMCO, LLC as of December 31, 2011 and 2012, and for each of the years in the three-year period ended December 31, 2012, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of RE/MAX/KEMCO Partnership, L.P. for the year ended December 31, 2012 have been included herein in reliance upon the report of KPMG LLP, independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
 WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to this offering of our Class A common stock. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some items of which are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our Class A common stock, we refer you to the registration statement, including the exhibits and the financial statements and notes filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The exhibits to the registration statement should be referenced for the complete contents of these contracts and documents. You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above.
 
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 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 	  	Page	 	
RE/MAX Holdings, Inc.	  				
Report of Independent Registered Public Accounting Firm	  	 	F-2	  	
Balance Sheet as of July 8, 2013	  	 	F-3	  	
Notes to Balance Sheet	  	 	F-4	  	
		
RMCO, LLC	  				
Consolidated Financial Statements	  				
Report of Independent Registered Public Accounting Firm	  	 	F-5	  	
Consolidated Balance Sheets, December 31, 2011 and 2012	  	 	F-6	  	
Consolidated Statements of Operations and Comprehensive Income (Loss), Years Ended December  31, 2010, 2011 and 2012	  	 	F-7	  	
Consolidated Statements of Redeemable Preferred Units and Members’ Deficit, Years Ended December 31, 2010, 2011 and 2012	  	 	F-8	  	
Consolidated Statements of Cash Flows, Years Ended December 31, 2010, 2011 and 2012	  	 	F-9	  	
Notes to Consolidated Financial Statements	  	 	F-10	  	
		
Unaudited Condensed Consolidated Financial Statements	  				
Unaudited Condensed Consolidated Balance Sheets, December 31, 2012 and June 30, 2013	  	 	F-37	  	
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income (Loss), Six Months Ended June 30, 2012 and 2013	  	 	F-38	  	
Unaudited Condensed Consolidated Statements of Redeemable Preferred Units and Members’ Deficit, Six Months Ended June 30, 2013	  	 	F-39	  	
Unaudited Condensed Consolidated Statements of Cash Flows, Six Months Ended June 30, 2012 and 2013	  	 	F-40	  	
Notes to Unaudited Condensed Consolidated Financial Statements	  	 	F-41	  	
		
RE/MAX/KEMCO Partnership, L.P.	  				
Independent Auditors’ Report	  	 	F-55	  	
Consolidated Statement of Income, Year Ended December 31, 2012	  	 	F-56	  	
Consolidated Statement of Partners’ Capital and Noncontrolling Interests, Year Ended December 31, 2012	  	 	F-57	  	
Consolidated Statement of Cash Flows, Year Ended December 31, 2012	  	 	F-58	  	
Notes to Consolidated Financial Statements	  	 	F-59	  	
 
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 Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder
RE/MAX Holdings, Inc.
We have audited the accompanying balance sheet of RE/MAX Holdings, Inc. (the Company) as of July 8, 2013. This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of RE/MAX Holdings, Inc. as of July 8, 2013, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
July 12, 2013
 
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RE/MAX Holdings, Inc.
 Balance Sheet
As of July 8, 2013

Assets	  				
Cash	  	$	1	  	
	  	 	 	 	
Total assets	  	$	1	  	

Commitments and contingencies	  				
		
Stockholder’s Equity	  				
Common stock, $0.01 par value, 100 shares authorized, 1 share issued and outstanding	  	$	—	  	
Additional paid in capital	  	 	1	  	
	  	 	 	 	
Total stockholder’s equity	  	$	1	  	
	  	 	 	 	
See accompanying notes to Balance Sheet
 
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RE/MAX Holdings, Inc.
 Notes to Balance Sheet
1. ORGANIZATION
RE/MAX Holdings, Inc. (the Corporation) was formed as a Delaware corporation on June 25, 2013. Pursuant to a reorganization into a holding corporation structure, the Corporation will become a holding corporation and its sole asset is expected to be a percentage of the common membership units in RMCO, LLC (RMCO). The Corporation’s only business will be to act as the sole manager of RMCO and, in that capacity, the Corporation will operate and control all of the business and affairs of RMCO. As a result, the Corporation will consolidate the financial results of RMCO and its subsidiaries. The Corporation’s only source of cash flow from operations will be distributions from RMCO and management fees pursuant to a management services agreement between the Corporation and RMCO.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Balance Sheet has been prepared in accordance with accounting principles generally accepted in the United States of America. Separate statements of income, changes in stockholders’ equity and cash flows have not been presented in the financial statements because there have been no activities of this entity.
3. STOCKHOLDER’S EQUITY
The Corporation is authorized to issue 100 shares of common stock, par value $0.01 per share (Common Stock). Under the Corporation’s certificate of incorporation as in effect as of June 25, 2013, all shares of Common stock are identical. On July 8, 2013, the Company issued 1 share of Common stock in exchange for $1.00.
 
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 Report of Independent Registered Public Accounting Firm
The Board of Managers
RMCO, LLC:
We have audited the accompanying consolidated balance sheets of RMCO, LLC (a Delaware limited liability company) and subsidiaries (the Company) as of December 31, 2011 and 2012, and the related consolidated statements of operations and comprehensive income (loss), redeemable preferred units and members’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RMCO, LLC and subsidiaries as of December 31, 2011 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
July 12, 2013
 
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RMCO, LLC
AND SUBSIDIARIES
 Consolidated Balance Sheets
December 31, 2011 and 2012
(Amounts in thousands, except units)

 	  	December 31,	 	
 	  	2011	 	 	2012	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents	  	$	38,611	 	 	$	68,501	 	
Escrow cash—restricted	  	 	671	 	 	 	780	 	
Accounts and notes receivable, current portion, less allowance for doubtful accounts of $4,853 and $3,913, respectively	  	 	15,086	 	 	 	15,034	 	
Accounts receivable from affiliates	  	 	—  	 	 	 	55	 	
Other current assets	  	 	2,310	 	 	 	2,707	 	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	56,678	 	 	 	87,077	 	
Property and equipment, net of accumulated depreciation of $19,493 and $20,426, respectively	  	 	5,166	 	 	 	3,332	 	
Franchise agreements, net of accumulated amortization of $57,108 and $61,489, respectively	  	 	72,217	 	 	 	78,338	 	
Other intangible assets, net of accumulated amortization of $6,513 and $7,053, respectively	  	 	2,252	 	 	 	2,821	 	
Goodwill	  	 	41,882	 	 	 	71,039	 	
Investments in equity method investees	  	 	3,517	 	 	 	3,900	 	
Debt issuance costs, net	  	 	2,932	 	 	 	2,930	 	
Other assets	  	 	1,821	 	 	 	2,075	 	
	  	 	 	 	 	 	 	 	
Total assets	  	$	186,465	 	 	$	251,512	 	
	  	 	 	 	 	 	 	 	
Liabilities, Redeemable Preferred Units and Members’ Deficit	  				 				
Current liabilities:	  				 				
Accounts payable	  	$	707	 	 	$	530	 	
Accounts payable to affiliates	  	 	2,076	 	 	 	2,385	 	
Escrow liabilities	  	 	671	 	 	 	780	 	
Accrued liabilities	  	 	8,012	 	 	 	9,397	 	
Income taxes payable	  	 	349	 	 	 	400	 	
Deferred revenue and deposits	  	 	14,167	 	 	 	15,996	 	
Current portion of debt	  	 	8,274	 	 	 	10,600	 	
Other current liabilities	  	 	345	 	 	 	234	 	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	34,601	 	 	 	40,322	 	
Debt, net of current portion	  	 	187,066	 	 	 	221,726	 	
Deferred revenue, net of current portion	  	 	1,385	 	 	 	514	 	
Other liabilities, net of current portion	  	 	6,437	 	 	 	7,319	 	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	229,489	 	 	 	269,881	 	
	  	 	 	 	 	 	 	 	
Commitments and contingencies	  				 				
			
Redeemable preferred units:	  				 				
Redeemable Class A Preferred Units at estimated redemption value (no par value, 150,000 units authorized, issued and outstanding as of December 31, 2011 and 2012, liquidation preference of $52,900 and $49,500 as of December 31, 2011 and 2012)	  	 	66,500	 	 	 	78,400	 	
	  	 	 	 	 	 	 	 	
Members’ deficit:	  				 				
Class B Common Units (no par value, 900,000 units authorized, 847,500 units issued and outstanding as of December 31, 2011 and 2012)	  	 	(111,426	) 	 	 	(98,516	) 	
Accumulated other comprehensive income	  	 	1,902	 	 	 	1,747	 	
	  	 	 	 	 	 	 	 	
Total members’ deficit	  	 	(109,524	) 	 	 	(96,769	) 	
	  	 	 	 	 	 	 	 	
Total liabilities, redeemable preferred units and members’ deficit	  	$	186,465	 	 	$	251,512	 	
	  	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
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RMCO, LLC
AND SUBSIDIARIES
 Consolidated Statements of Operations and Comprehensive Income (Loss)
Years Ended December 31, 2010, 2011, and 2012
(Amounts in thousands)

 	  	Years Ended December 31,	 	
 	  	2010	 	 	2011	 	 	2012	 	
Revenue:	  				 				 				
Continuing franchise fees	  	$	60,865	 	 	$	57,200	 	 	$	56,350	 	
Annual dues	  	 	30,472	 	 	 	28,922	 	 	 	28,909	 	
Broker fees	  	 	16,021	 	 	 	16,764	 	 	 	19,579	 	
Franchise sales and other franchise revenue	  	 	15,709	 	 	 	19,354	 	 	 	22,629	 	
Brokerage revenue	  	 	17,150	 	 	 	16,062	 	 	 	16,210	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	  	 	140,217	 	 	 	138,302	 	 	 	143,677	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	  				 				 				
Selling, operating and administrative expenses	  	 	81,353	 	 	 	85,291	 	 	 	84,337	 	
Depreciation and amortization	  	 	16,735	 	 	 	14,473	 	 	 	12,090	 	
Loss on sale of assets, net	  	 	3,719	 	 	 	67	 	 	 	1,704	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	  	 	101,807	 	 	 	99,831	 	 	 	98,131	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	38,410	 	 	 	38,471	 	 	 	45,546	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Other income (expenses):	  				 				 				
Interest expense	  	 	(22,295	) 	 	 	(12,203	) 	 	 	(11,686	) 	
Interest income	  	 	538	 	 	 	372	 	 	 	286	 	
Foreign currency transaction gains (losses), net	  	 	167	 	 	 	(266	) 	 	 	208	 	
Loss on early extinguishment of debt	  	 	(18,161	) 	 	 	(384	) 	 	 	(136	) 	
Equity in earnings of investees	  	 	643	 	 	 	431	 	 	 	1,244	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expenses), net	  	 	(39,108	) 	 	 	(12,050	) 	 	 	(10,084	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
(Loss) income before provision for income taxes	  	 	(698	) 	 	 	26,421	 	 	 	35,462	 	
Provision for income taxes	  	 	(2,049	) 	 	 	(2,172	) 	 	 	(2,138	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income	  	 	(2,747	) 	 	 	24,249	 	 	 	33,324	 	
Net loss attributable to noncontrolling interests	  	 	10,059	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to controlling interests	  	 	7,312	 	 	 	24,249	 	 	 	33,324	 	
Accretion of Class A Preferred Units to estimated redemption amounts	  	 	23,453	 	 	 	10,307	 	 	 	15,288	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income related to common stockholders/unitholders	  	 	(16,141	) 	 	 	13,942	 	 	 	18,036	 	
				
Other comprehensive income (loss):	  				 				 				
Change in cumulative translation adjustment	  	 	417	 	 	 	(156	) 	 	 	68	 	
Reclassification of translation adjustment to loss on sale of assets	  	 	—  	 	 	 	(107	) 	 	 	(223	) 	
Reclassification of unrealized losses on derivatives	  	 	4,366	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Other comprehensive income (loss)	  	 	4,783	 	 	 	(263	) 	 	 	(155	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive (loss) income related to common stockholders/unitholders	  	$	(11,358	)	 	$	13,679	 	 	$	17,881	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
F-7

Table of Contents
RMCO, LLC
AND SUBSIDIARIES
 Consolidated Statements of Redeemable Preferred Units and Members’ Deficit
Years Ended December 31, 2010, 2011, and 2012
(Amounts in thousands, except units/shares)

 	 	Redeemable Class A
preferred units	 	 	   	 	Series A common
stock and
additional paid in
capital	 	 	Series B common
stock and
additional paid in
capital	 	 	Class B common
units	 	 	Accumulated
other
comprehensive
income (loss)	 	 	Accumulated
deficit	 	 	Total
members’
deficit	 	 	Noncontrolling
interest	 	
 	 	Units	 	 	Amt	 	 	   	 	Shares	 	 	Amt	 	 	Shares	 	 	Amt	 	 	Units	 	 	Amt	 	 			 			 			 			
Balances, January 1, 2010	 	 	—  	 	 	$	—  	  	 	 	 	 	2,657,777	  	 	$	884	 	 	 	531,330	  	 	$	2,505	 	 	 	—  	  	 	$	—  	  	 	 	(2,618	) 	 	$	(66,873	) 	 	$	(66,102	) 	 	$	4,665	 	
Net income attributable to Series A and Series B Common Stockholders interests	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	2,065	 	 	 	2,065	 	 	 	—  	  	
Change in accumulated other comprehensive (loss) income	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	4,625	 	 	 	—  	  	 	 	4,625	 	 	 	—  	  	
Net loss attributable to noncontrolling interests	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(10,059	) 	
Noncontrolling interest holder forgiveness of subordinated debt, related accrued interests, and other	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	5,394	 	
Assumption of line of credit by RIHI, Inc.	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	5,816	 	 	 	5,816	 	 	 	—  	  	
Shareholder distributions	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(14,878	) 	 	 	(14,878	) 	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances, April 15, 2010 prior to conversion from a Subchapter S Corporation to a limited liability company	 	 	—  	  	 	 	—  	  	 	 	 	 	2,657,777	  	 	 	884	 	 	 	531,330	 	 	 	2,505	 	 	 	—  	  	 	 	—  	  	 	 	2,007	 	 	 	(73,870	)	 	 	(68,474	) 	 	 	—  	  	
Conversion from a Subchapter S Corporation to a limited liability company	 	 	37,500	  	 	 	10,000	  	 	 	 	 	(2,657,777	) 	 	 	(884	) 	 	 	(531,330	) 	 	 	(2,505	)	 	 	847,500	 	 	 	(80,481	) 	 	 	—  	  	 	 	73,870	 	 	 	(10,000	) 	 	 	—  	  	
Proceeds from issuance of redeemable Class A preferred units, net of $1,244 of issuance costs	 	 	112,500	  	 	 	28,756	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Member distributions	 	 	—  	  	 	 	(9	) 	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(1,424	) 	 	 	—  	  	 	 	—  	  	 	 	(1,424	) 	 	 	—  	  	
Accretion of Class A Preferred Units to estimated redemption amounts	 	 	—  	  	 	 	23,453	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Net income related to RMCO, LLC Class B Common Unitholders (post conversion to a limited liability company)	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(18,206	) 	 	 	—  	  	 	 	—  	  	 	 	(18,206	) 	 	 	—  	  	
Change in accumulated other comprehensive (loss) income	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	158	 	 	 	—  	  	 	 	158	 	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances, December 31, 2010	 	 	150,000	 	 	 	62,200	 	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	847,500	 	 	 	(100,111	) 	 	 	2,165	 	 	 	—  	  	 	 	(97,946	) 	 	 	—  	  	
Member distributions	 	 	—  	  	 	 	(6,007	) 	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(9,363	) 	 	 	—  	  	 	 	—  	  	 	 	(9,363	) 	 	 	—  	  	
Distribution to member in connection with combination of entity under common control	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(15,894	) 	 	 	—  	  	 	 	—  	  	 	 	(15,894	) 	 	 	—  	  	
Accretion of Class A Preferred Units to estimated redemption amounts	 	 	—  	  	 	 	10,307	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Net income related to RMCO, LLC Class B Common Unitholders	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	13,942	  	 	 	—  	  	 	 	—  	  	 	 	13,942	 	 	 	—  	  	
Change in accumulated other comprehensive (loss) income	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(263	) 	 	 	—  	  	 	 	(263	) 	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances, December 31, 2011	 	 	150,000	  	 	 	66,500	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	847,500	 	 	 	(111,426	) 	 	 	1,902	 	 	 	—  	  	 	 	(109,524	) 	 	 	—  	  	
Member distributions	 	 	—  	  	 	 	(3,388	) 	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(6,215	) 	 	 	—  	  	 	 	—  	  	 	 	(6,215	) 	 	 	—  	  	
Accretion of Class A Preferred Units to estimated redemption amounts	 	 	—  	  	 	 	15,288	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Net income related to RMCO, LLC Class B Common Unitholders	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	18,036	 	 	 	—  	  	 	 	—  	  	 	 	18,036	 	 	 	—  	  	
Change in accumulated other comprehensive (loss) income	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(155	) 	 	 	—  	  	 	 	(155	) 	 	 	—  	  	
Equity-based compensation awards issued	 	 	—  	  	 	 	—  	  	 	 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	1,089	 	 	 	—  	  	 	 	—  	  	 	 	1,089	 	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances, December 31, 2012	 	 	150,000	 	 	$	78,400	 	 	 	 	 	—  	  	 	$	—  	  	 	 	—  	  	 	$	—  	  	 	 	847,500	 	 	$	(98,516	) 	 	 	1,747	 	 	$	—  	  	 	$	(96,769	) 	 	$	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
F-8

Table of Contents
RMCO, LLC
AND SUBSIDIARIES
 Consolidated Statements of Cash Flows
Years Ended December 31, 2010, 2011, and 2012
(Amounts in thousands)

 	 	Years Ended December 31,	 	
 	 	2010	 	 	2011	 	 	2012	 	
Cash flows from operating activities:	 				 				 				
Net (loss) income	 	$	(2,747	) 	 	$	24,249	 	 	$	33,324	 	
Adjustments to reconcile net (loss) income to net cash provided by operating activities:	 				 				 				
Depreciation and amortization	 	 	16,735	 	 	 	14,473	 	 	 	12,090	 	
Bad debt expense	 	 	899	 	 	 	728	 	 	 	611	 	
Loss on sale or disposition of assets	 	 	3,719	 	 	 	67	 	 	 	1,704	 	
Loss on early extinguishment of debt	 	 	18,161	 	 	 	384	 	 	 	136	 	
Equity in earnings of investees	 	 	(643	) 	 	 	(431	) 	 	 	(1,244	) 	
Distributions received from equity investees	 	 	727	 	 	 	469	 	 	 	861	 	
Equity-based compensation	 	 	—  	  	 	 	—  	  	 	 	1,089	 	
Noncash interest expense	 	 	2,361	 	 	 	930	 	 	 	936	 	
Changes in operating assets and liabilities:	 				 				 				
Escrow cash	 	 	1,263	 	 	 	(18	) 	 	 	(109	) 	
Accounts and notes receivable	 	 	1,805	 	 	 	(1,169	) 	 	 	(1,349	) 	
Advances from affiliates	 	 	1,001	 	 	 	313	 	 	 	252	 	
Other current assets	 	 	(855	) 	 	 	(402	) 	 	 	(491	) 	
Other assets	 	 	185	 	 	 	64	 	 	 	59	 	
Accounts payable	 	 	276	 	 	 	159	 	 	 	(173	) 	
Escrow liabilities	 	 	(1,263	) 	 	 	18	 	 	 	109	 	
Accrued liabilities	 	 	(4,705	) 	 	 	1,256	 	 	 	1,369	 	
Income taxes payable	 	 	(173	) 	 	 	5	 	 	 	42	 	
Deferred revenue	 	 	(587	)	 	 	125	  	 	 	958	  	
Other liabilities	 	 	263	 	 	 	2,369	 	 	 	1,085	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	36,422	 	 	 	43,589	 	 	 	51,259	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from investing activities:	 				 				 				
Purchase of property and equipment	 	 	(742	) 	 	 	(819	) 	 	 	(465	) 	
Acquired software	 	 	(378	) 	 	 	(99	) 	 	 	(1,145	) 	
Proceeds from sale of property and equipment	 	 	75,458	 	 	 	57	 	 	 	32	 	
Cost to sell assets	 	 	(1,062	) 	 	 	—  	  	 	 	(106	) 	
Capitalization of trademark costs	 	 	(258	) 	 	 	(486	) 	 	 	(206	) 	
Acquisition of covenant not to compete	 	 	(60	) 	 	 	—  	  	 	 	—  	  	
Acquisition	 	 	—  	  	 	 	—  	  	 	 	(45,500	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash (used in) provided by investing activities	 	 	72,958	 	 	 	(1,347	) 	 	 	(47,390	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing activities:	 				 				 				
Proceeds from the issuance of debt	 	 	212,750	 	 	 	—  	  	 	 	45,000	 	
Payments on debt	 	 	(309,555	) 	 	 	(16,484	) 	 	 	(8,386	) 	
Debt issuance costs	 	 	(4,217	) 	 	 	—  	  	 	 	(697	) 	
Payments on subordinated debt instruments	 	 	(13,890	) 	 	 	—  	  	 	 	—  	  	
Repayments of line of credit, net	 	 	(257	) 	 	 	—  	  	 	 	—  	  	
Proceeds from issuance of Class A preferred units	 	 	30,000	 	 	 	—  	  	 	 	—  	  	
Cost to issue Class A preferred units	 	 	(1,244	) 	 	 	—  	  	 	 	—  	  	
Member distributions	 	 	(16,311	) 	 	 	(15,370	) 	 	 	(9,603	) 	
Cash received from noncontrolling interest holders	 	 	782	 	 	 	—  	  	 	 	—  	  	
Payments on capital lease obligations	 	 	(257	) 	 	 	(391	) 	 	 	(361	) 	
Distribution to member in connection with combination of entity under common control	 	 	—  	  	 	 	(15,894	) 	 	 	—  	  	
	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash (used in) provided by financing activities	 	 	(102,199	) 	 	 	(48,139	) 	 	 	25,953	 	
Effect of exchange rate changes on cash	 	 	258	 	 	 	(61	) 	 	 	68	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	 	7,439	 	 	 	(5,958	) 	 	 	29,890	 	
Cash and cash equivalents, beginning of year	 	 	37,130	 	 	 	44,569	 	 	 	38,611	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents, end of year	 	$	44,569	 	 	$	38,611	 	 	$	68,501	 	
	 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow information:	 				 				 				
Cash paid during the year for interest, excluding capitalized interest	 	$	22,888	 	 	$	11,245	 	 	$	10,688	 	
Cash paid during the year for income taxes	 	 	2,026	 	 	 	2,192	 	 	 	2,008	 	
Schedule of noncash investing and financing activities:	 				 				 				
Note receivable related to sale of assets of regional franchising operations	 	$	—  	  	 	$	—  	  	 	$	217	 	
Capital leases for furniture and equipment	 	 	703	 	 	 	268	 	 	 	40	 	
See accompanying notes to consolidated financial statements.
 
F-9

Table of Contents
RMCO, LLC
AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 
(1)	Basis of Presentation	
RMCO, LLC (a Delaware limited liability company) and subsidiaries (collectively, the Company) are one of the world’s leading franchisors of residential and commercial real estate services throughout the United States and globally. The Company also operates real estate brokerage businesses in the United States. The Company’s revenue is derived from continuing franchise fees, annual dues from agents, broker fees, franchise sales and other franchise revenue (which consist of fees from initial sales of and renewals of franchises, regional franchise fees, preferred marketing arrangements and approved supplier programs) and brokerage revenue (which consists of fees assessed to our own brokerages for services provided to their affiliated real estate agents). A franchise grants the broker-owner a license to use the RE/MAX brand, trademark, promotional and operating materials, and concepts. A portion of these revenues is derived from regions that are owned by stockholders of a member of the Company and other affiliates of the Company.
The Company reports its operations in two reportable segments, Real Estate Franchise Services and Brokerage and Other. The Company’s Real Estate Franchise Services reportable segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX ® brand name. The Company’s Brokerage and Other reportable segment includes the Company’s brokerage services business, and reflects the elimination of intersegment revenue and other consolidation entries as well as corporate-wide professional services expenses.
The residential real estate market tends to be cyclical and typically is affected by changes in general economic conditions which are beyond the Company’s control. Declines in the residential real estate market as well as other macro-economic conditions, including fluctuations in debt and equity capital markets, levels of unemployment, consumer confidence and the general condition of the U.S. and the global economy have and may continue to impact the consolidated financial results of the Company.
 
(2)	Significant Accounting Policies	
Principles of Consolidation
The Company’s accompanying consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries, and variable interest entities (VIEs) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Also, the Company consolidates an entity not deemed a VIE if its ownership, direct or indirect, exceeds 50% of the outstanding voting shares of an entity and/or that it has the ability to control the financial or operating policies through its voting rights, board representation or other similar rights. As of December 31, 2011 and 2012, there were no greater-than-50%-owned affiliates whose financial statements were not consolidated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas in which management uses assumptions include, among other things, the establishment of the allowance for doubtful trade accounts and notes receivable, the determination of the estimated lives of intangible assets, the estimates of the fair value of liabilities related to facility exit costs, unit-based compensation, the estimates of the fair value of reporting units used in the annual assessment of goodwill, and the fair value of assets acquired. Actual results could differ from those estimates.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Revenue Recognition
The Company generates revenue primarily from continuing franchise fees, annual dues, broker fees, franchise sales and other franchise revenue income, and other income. Revenue is recognized when there is persuasive evidence of an arrangement, the service has been provided, the price is fixed or determinable, and collection of the fees is sufficiently assured.
Continuing Franchise Fees
The Company provides operational, training, and administrative services and systems to franchisees, which include systems and tools that are designed to help the Company’s franchisees and their agents serve their customers and attract new or retain existing independent agents. Continuing franchise fee revenue principally consists of fixed fees earned monthly from franchisees on a per agent basis. Continuing franchise fees are recognized in income when earned and become due and payable, as stipulated in the related franchise agreements.
Annual Dues
Annual dues revenue represents amounts assessed to agents for membership affiliation in the RE/MAX network. The Company defers the annual dues revenue when billed and recognizes the revenue ratably over the 12-month period to which it relates. As of December 31, 2011 and 2012, the Company had deferred annual dues revenue totaling approximately $11,874,000 and $11,599,000, respectively.
Broker Fees
Broker fee revenue represents fees received from the Company’s franchise offices that are primarily based on a percentage of an agent’s gross commission income. Broker fees are determined upon close of the home-sale transaction and recognized as revenue when the fees become due and payable, as stipulated in the related franchise agreements.
Franchise Sales and Other Franchise Revenue
Franchise sales and other franchise revenue are primarily comprised of revenue from the sale or renewal of franchises, as well as other income including revenue from preferred marketing arrangements and affinity programs with various suppliers.
Upon the sale of a real estate franchise, the Company recognizes revenue from franchise sales when it has no significant continuing operational obligations, substantially all of the initial Company services have been performed, and other conditions affecting consummation of the sale have been met. In the event the franchisee fails to perform under the franchise agreement or defaults on the purchase obligations, the Company has the right to reacquire the franchise and to resell or operate that specific franchise. Franchise sales revenue recognized during the years ended December 31, 2010, 2011, and 2012 was $6,018,000, $7,369,000 and $9,392,000, respectively. Other franchise revenue is recognized when all revenue recognition criteria are met.
Brokerage Revenue
Brokerage revenue principally represents fees assessed by the Company-owned brokerages for services provided to their affiliated real estate agents. The Company recognizes broker management fee revenue when all revenue recognition criteria are met.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Selling, Operating and Administrative Expenses
Selling, operating and administrative expenses primarily consist of salaries, benefits and other compensation expenses as well as certain marketing and production costs, including travel costs, costs associated with the Company’s annual convention and other events, rent expense and professional fees that are incurred in connection with marketing, expanding, and supporting the Company’s franchise and brokerage operations.
Cash and Cash Equivalents
Cash and cash equivalents includes bank deposits, money market funds and other highly liquid investments purchased with an original purchase maturity of three months or less.
Escrow Cash—Restricted and Escrow Liabilities
Escrow cash—restricted and escrow liabilities on the Consolidated Balance Sheets reflect cash deposits received and held in escrow on pending sales of real estate properties prior to closing.
Accounts and Notes Receivable
Trade accounts receivable from the Company’s franchise operations are recorded at the time the Company is entitled to bill under the terms of the franchise agreements and other contractual arrangements and do not bear interest. The Company provides limited financing of certain franchise sales through the issuance of notes receivable that generally bear interest at a rate of prime plus 2%, which is fixed at the inception of the note with the associated earnings recorded in “Interest income” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Amounts collected on notes receivable are included in “Net cash provided by operating activities” in the Consolidated Statements of Cash Flows.
In circumstances where the Company has the contractual right to bill its franchisees, but where collectability is not sufficiently assured, the Company records a receivable and deferred revenue, which amounted to $1,870,000 and $1,820,000 as of December 31, 2011 and 2012, respectively.
The Company records allowances against its accounts and notes receivable balances for estimated probable losses. Increases and decreases in the allowance for doubtful accounts are established based upon changes in the credit quality of receivables for which revenue has been recognized and are included as a component of “Selling, operating and administrative expenses” in the Consolidated Statements of Operations and Comprehensive Income (Loss). The allowance for doubtful accounts and notes receivables are the Company’s best estimate of the amount of probable credit losses, and is based on historical experience, industry and general economic conditions, and the attributes of specific accounts. The Company’s reserve for accounts and notes receivable where collectability is remote is related to accounts and notes receivables for which revenue has not been recognized and is increased, with a corresponding reduction to deferred revenue, after the Company has determined that the potential for recovery is considered remote. Subsequently, if amounts contractually due from such accounts are collected, revenue is recognized on a cash basis. During the years ended December 31, 2010, 2011, and 2012, the Company recognized revenue of $868,000, $376,000 and $628,000, respectively upon the receipt of cash payments related to amounts that were contractually billed but for which collectability was either not sufficiently assured or considered remote.
 
F-12

Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
The activity in the Company’s allowances against accounts and notes receivable consists of the following:

 	  	Balance at
beginning
of period	 	  	Additions
Charges to cost and
expense for allowances
for doubtful accounts	 	  	Adjustments
Adjustments (to)/from
deferred revenue, net,
for accounts where
collectibility is remote	 	  	Deductions
Write-offs	 	 	Balance at
end of
period	 	
Year ended December 31, 2010	  	 	4,791	  	  	 	899	  	  	 	618	  	  	 	(1,830	) 	 	 	4,478	  	
Year ended December 31, 2011	  	 	4,478	  	  	 	728	  	  	 	444	  	  	 	(797	) 	 	 	4,853	  	
Year ended December 31, 2012	  	 	4,853	  	  	 	611	  	  	 	170	  	  	 	(1,721	) 	 	 	3,913	  	
For the years ended December 31, 2010, 2011, and 2012, bad debt expense related to trade accounts and notes receivable was $899,000, $728,000, and $611,000, respectively, and is reflected in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
Foreign Operations and Foreign Currency Translation
The Company, directly and through franchisees, conducts operations in the United States, Canada, Mexico, the Caribbean, Central America, South America, the Middle East, Europe, India, China, Thailand, Indonesia, South Africa, Australia, New Zealand, and Singapore. During 2012, the Company sold substantially all of the assets of its previously owned and operated regional franchising operations located in Eastern Australia and New Zealand. As a result, as of December 31, 2012, the only consolidated foreign subsidiaries where the Company directly conducted franchise operations were in Western Canada, the Caribbean and Central America.
The functional currency for the Company’s consolidated foreign subsidiaries is the applicable local currency for each foreign subsidiary. Assets and liabilities of foreign subsidiaries are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of operations and cash flows are translated at the average exchange rates in effect during the applicable period. Exchange rate fluctuations on translating consolidated foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded as a component of “Accumulated other comprehensive income”, a separate component of member’s deficit, and periodic changes are included in comprehensive income (loss). When the Company sells a part or all of its investment in a foreign entity resulting in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, it releases any related cumulative translation adjustment into net income.
Transactions denominated in currencies other than the Company’s or the Company’s consolidated foreign subsidiaries functional currencies are recorded based on exchange rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in the accompanying Consolidated Balance Sheets related to these non-functional currency transactions result in transaction gains and losses that are reflected in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) as “Foreign currency transaction (gains) losses, net.”
Property and Equipment
Property and equipment (including leasehold improvements) are initially recorded at cost. Depreciation is provided for on a straight-line method over the estimated useful lives of each asset class and commences
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
when property is placed in service. Amortization of leasehold improvements is provided on a straight-line method over the estimated benefit period of the related assets or the lease term, if shorter.
Franchise Agreements and Other Intangible Assets
The Company’s franchise agreements result from reacquired franchise rights, and are initially recorded based on the remaining contractual term of the franchise agreement and do not consider potential renewals in the determination of fair value. The Company amortizes the franchise agreements over their remaining contractual term on a straight-line basis.
The Company also purchases and develops software for internal use. Software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has completed all planning and design activities that are necessary to determine that the software can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the product is available for general use. Software development costs are generally amortized over a term of three years, its estimated useful life. Purchased software licenses are amortized over their estimated useful lives.
In addition, the Company has trademark intangible assets related to the RE/MAX brand. The Company’s trademarks are amortized on a straight-line basis over their estimated useful lives.
The Company reviews its franchise agreements and other intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated from such asset. Any excess of the carrying amount of an asset that exceeded its estimated cash flows would be charged to operations as an impairment loss. As of December 31, 2010, 2011 and 2012, there were no impairments indicated for such assets.
Goodwill
Goodwill is an asset representing the future economic benefits arising from the other assets acquired in a business combination that are not individually identified and separately recognized. The Company assesses goodwill for impairment at least annually or whenever an event occurs or circumstances change that would indicate an impairment may have occurred at the reporting unit level. Reporting units are driven by the level at which management reviews operating results and are one level below the operating segment. The Company performs its required impairment testing annually on August 31.
During 2011, the Company early adopted the provisions of Accounting Standards Update (ASU) 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment , which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If the Company determines in the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the standard two-step quantitative impairment test is performed.
Under the quantitative impairment test, the Company determines the fair value of its reporting units utilizing the Company’s best estimate of future revenue, operating expenses, cash flows, market and general economic conditions as well as assumptions that it believes marketplace participants would utilize,
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
including discount rates, cost of capital, and long term growth rates. When available and as appropriate, the Company uses comparative market multiples and other factors in its analyses. If the carrying value of a reporting unit were to exceed its fair value, the Company would then compare the implied fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying amount would be charged to operations as an impairment loss. Any changes in key assumptions about future cash flows, or changes in market conditions or other external events, could result in future impairment charges and such charges could have a material adverse effect on the Company’s consolidated financial statements.
During 2010, 2011 and 2012, the Company performed its annual assessment of goodwill and the fair value of the Company’s reporting units significantly exceeded the carrying value. Thus, no indicators of impairment existed.
Investments in Equity-Method Investees
The investments in entities in which the Company does not have a controlling interest (financial or operating), but where it has the ability to exercise significant influence over operating and financial policies of an investee are accounted for using the equity method.
The primary equity-method investment of the Company is a 50% interest in a residential mortgage operation and is recorded as “Investments in equity investees” in the accompanying Consolidated Balance Sheets. As the Company exerts significant influence over this investment, but does not control it, the Company records its share of earnings and distributions from this investment using the equity method of accounting. The excess of cost of the investment over the Company’s share of the investee’s net assets at the acquisition date is considered to be goodwill. The Company would recognize an impairment loss when there is a loss in value in the equity-method investment, which is other than temporary.
Fair Value Measurements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
 
 	•	 	Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.	
 
 	•	 	Level 2 Inputs: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.	
 
 	•	 	Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability as of the measurement date.	
The carrying amounts for many of the Company’s financial instruments, including cash and cash equivalents, escrow cash – restricted, accounts receivable and notes receivable, accounts payable, and escrow liabilities approximate fair value due to their short maturities. The estimated fair value of the Company’s debt represents the amounts that would be paid to transfer or redeem the debt in an orderly
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
transaction between market participants and maximizes the use of observable inputs. For disclosures related to the fair value measurement of the Company’s debt, see Note 9, Debt. No non-recurring fair value adjustments were recorded during the years ended December 31, 2011 and 2012, except those associated with acquisitions, as disclosed in Note 6, Acquisitions and Dispositions.
Derivative Instruments and Hedging Activities
Subsequent to April 16, 2010, the Company had no derivative instruments. Prior to that date, the Company used derivatives designated as a hedge of the variability of cash flows to be paid related to a recognized liability to minimize its exposure to changes in interest rates. All derivative instruments were recorded as either assets or liabilities in the Consolidated Balance Sheets at their respective fair values and the effective portion of the gain or loss on the derivative was reported as a component of “Other Comprehensive Income (Loss)” and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness were recognized in current earnings.
For all hedging relationships, the Company formally documented the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk would be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Company also formally assessed, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that were used in the hedging relationships were highly effective in offsetting changes in cash flows of hedged items.
Income Taxes
The Company is a “flow-through” entity for tax purposes. As such, U.S. federal and state income taxes on net domestic taxable earnings are the obligation of the Company’s members. Accordingly, no provision for U.S. income taxes has been made in the accompanying consolidated financial statements. In contrast to the Company’s domestic entities, the Company’s subsidiaries that operate in foreign jurisdictions are taxable entities. Income taxes incurred by the subsidiaries that operate in foreign jurisdictions are recorded in the “Provision for income taxes” line item in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Pre-tax income from subsidiaries that operate in foreign jurisdictions was $6,478,000, $7,063,000 and $5,498,000 for the years ended December 31, 2010, 2011, and 2012, respectively. Deferred income taxes of the Company’s consolidated subsidiaries that operate in foreign jurisdictions are determined under the asset and liability method, under which deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statement carrying amounts and income tax bases of the foreign subsidiaries’ assets and liabilities using currently enacted tax rates. The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that all or some portion of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The Company does not currently have any significant deferred tax assets or liabilities associated with its foreign subsidiaries.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
change in judgment occurs. The Company does not believe it has any significant uncertain tax positions. Accordingly, the Company did not record any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2010, 2011, and 2012. In the future, if uncertain tax positions arise, interest and penalties will be accrued and included in the “Provision for Income Taxes.”
Unit Option Plan
The Company recognizes compensation expense associated with unit option awards as a cost in the financial statements. Unit option awards are measured at the estimated grant-date fair value of the award. The Company estimates grant-date fair value using the Black-Scholes-Merton option pricing model and recognizes compensation cost on a straight-line basis over the requisite service period of the award. Equity-based compensation cost amounting to approximately $1,089,000 is included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2012. Prior to 2012, there were no unit options issued under the unit option plan.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act (JOBS Act), the Company believes it meets the definition of an emerging growth company. The Company has irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05). This amendment clarifies the applicable guidance for the release of cumulative translation adjustment into net earnings. When an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the entity is required to apply the guidance in FASB Accounting Standards Codification (ASC) Topic 830-30 to release any related cumulative translation adjustment into net earnings. ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income . Under this ASU, an entity has the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option in U.S. GAAP to present other comprehensive income in the statement of changes in equity. An entity should apply the ASU retrospectively. In December 2011, the FASB decided to defer the effective date of those changes in ASU 2011-05 that relate only to the presentation of reclassification adjustments in the statement of operations by issuing ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 . As permitted, the Company early adopted the provisions of ASU 2011-05 as of December 31, 2011, except for changes that relate only to the presentation of reclassification adjustments, for which the Company adopted the provisions of ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income in the first quarter of 2013. Components of net income and comprehensive income are presented in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
(3)	Variable Interest Entities	
BMFB Partners, LLC
During 2005, BMFB Partners, LLC (BMFB) was formed for the purpose of constructing an office building. The members of BMFB are also controlling stockholders of RIHI, Inc. (RIHI), one of the Company’s members. The Company executed a master lease for the building with BMFB and took occupancy in January 2007.
Through April 15, 2010, BMFB was dependent on the Company, via the master lease, for its primary source of revenue; as such, BMFB was considered a VIE. The Company determined that it was the primary beneficiary of the VIE and, therefore, included the accounts of BMFB in its consolidated financial statements through April 15, 2010. Effective April 15, 2010, BMFB sold the office building and related land to an unrelated third party and terminated the master lease with the Company. As a result, the Company deconsolidated BMFB as of April 15, 2010. See Note 5, Property and Equipment, for additional information related to the sale of the office building and related land.
For the period from January 1, 2010 to April 15, 2010, the income statement for BMFB is summarized as follows (in thousands):

 	  	BMFB	 	
Revenues:	  				
Other income	  	$	1,329	  	
	  	 	 	 	
Total revenues	  	 	1,329	  	
	  	 	 	 	
Operating costs and expenses:	  				
Operating expenses	  	 	1,015	  	
Depreciation	  	 	865	  	
	  	 	 	 	
Total operating costs and expenses	  	 	1,880	  	
	  	 	 	 	
Operating loss	  	 	(551	) 	
Other expenses:	  				
Interest expense	  	 	(5,071	) 	
Loss on extinguishment of debt	  	 	(675	) 	
Loss on sale of assets, net	  	 	(3,762	) 	
	  	 	 	 	
Net loss	  	$	(10,059	) 	

(4)	Derivative Instruments and Hedging Activities	
Prior to April 16, 2010, the Company used interest-rate-related derivative instruments to manage interest rate exposure on certain variable-rate debt instruments, which were repaid in full during 2010. In connection therewith, the Company was subject to credit and market risks. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. The Company minimized counterparty credit risk in derivative instruments by entering into transactions with counterparties with high credit quality. As part of the Company’s ongoing control procedures, it monitored the credit ratings of counterparties and the Company’s exposure to any single counterparty, which the Company believes minimized credit risk concentration. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest rate contracts was managed by limiting the types and degree of market risk undertaken.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Changes in the fair value of interest rate derivatives designated as hedging instruments that effectively offset the variability of cash flows associated with variable-rate, long-term debt obligations were reported in accumulated other comprehensive income. These amounts subsequently were reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affected earnings.
The Company entered into a LIBOR-based interest rate swap agreement with a notional amount of $147,500,000 to manage fluctuations in cash flows resulting from changes in the benchmark LIBOR interest rate associated with the Company’s previous debt facility. The swap expired in April 2010 within three days of the Company’s repayment of all amounts outstanding under its previous debt facility. As a result, the termination payment was minimal.
During 2005, BMFB entered into an interest rate swap and interest rate cap, with a notional amount of $59,300,000 in the aggregate, to hedge forecasted cash flows associated with the variable-rate interest payments on BMFB’s note payable. The expiration dates of the swap and cap were April 1, 2014 and 2012, respectively. During the first quarter of 2010, the Company discontinued hedge accounting prospectively when the derivatives were de-designated as a hedging instrument because the hedged forecasted transactions were no longer probable of occurring. As a result, the Company reclassified $3,289,000 of unrealized losses previously deferred in other comprehensive income (loss) into earnings as an increase to interest expense in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). The Company recognized a loss of $399,000 in earnings as an increase to interest expense for the changes in fair value from the time hedge accounting was discontinued until the date the derivative contract was terminated. The interest rate swap was terminated, as of April 16, 2010, upon repayment of BMFB’s related note payable, resulting in a net cash payment of $3,720,000.
During 2010, the Company discontinued hedge accounting prospectively when the aforementioned derivatives were dedesignated as hedging instruments because the hedged forecasted transactions were either terminated or no longer probable of occurring.
The following table presents the effect of derivative instruments on the Company’s Consolidated Statements of Operations and Comprehensive Income for the year ended December 31 (in thousands):

 	  	2010	 	
Interest rate derivatives:	  				
Amount of loss recognized in other comprehensive income on derivatives	  	$	                     722	  	
Location of amount reclassified from accumulated other comprehensive income into income (effective and ineffective portions)	  	 	Interest expense	  	
Amount of loss reclassified from accumulated other comprehensive income into income (effective portion)	  	$	1,798	  	
Amount of loss recognized in income on derivative (reclassification due to forecasted transactions no longer probable of occurring)	  	$	3,289	  	
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
(5)	Property and Equipment	
Property and equipment consist of the following at December 31 (in thousands):

 	 	Depreciable life	 	2011	 	 	2012	 	
Leasehold improvements	 	Shorter of estimated useful life or life of lease	 	$	2,409	  	 	$	2,388	  	
Office furniture, fixtures, and equipment	 	3–10 years	 	 	20,135	  	 	 	19,274	  	
Equipment under capital leases	 	3–5 years	 	 	2,115	  	 	 	2,096	  	
	 		 	 	 	 	 	 	 	 	
	 		 	 	24,659	  	 	 	23,758	  	
Less accumulated depreciation	 		 	 	(19,493	) 	 	 	(20,426	) 	
	 		 	 	 	 	 	 	 	 	
	 		 	$	5,166	  	 	$	3,332	  	
	 		 	 	 	 	 	 	 	 	
During 2010, BMFB sold its office building, and related land, to an unrelated third party and terminated the master lease with the Company. Subsequently, the Company entered into a new lease with an unrelated third-party purchaser, with no lapse in occupancy. See Note 12, Commitments and Contingencies, for additional information related to the Company’s new lease. The transaction was accounted for as a normal sale-leaseback and BMFB recorded a loss on the sale of the office building of approximately $3,762,000. Proceeds received by the Company from the sale were used to pay off the related real estate note payable, with the remainder used to repay a portion of the subordinated debt. See Note 9, Debt, for additional information related to the subordinated debt facility.
Depreciation expense was $3,535,000, $2,654,000 and $2,319,000 for the years ended December 31, 2010, 2011 and 2012, respectively.
 
(6)	Acquisitions and Dispositions	
Acquisitions
Acquisition of RE/MAX of Texas
Effective December 31, 2012, the Company acquired certain assets of RE/MAX/KEMCO Partnership L.P. d/b/a RE/MAX of Texas (RE/MAX of Texas), including its rights under the regional franchise agreements, issued by the Company, permitting the sale of RE/MAX franchises in the state of Texas. The Company acquired these assets in order to expand its owned and operated regional franchising operations. The purchase price was $45,500,000 and was paid in cash using proceeds provided from borrowings. The assets acquired constitute a business that was accounted for using the acquisition method of accounting, whereby the total purchase price was allocated to the assets acquired based on their estimated fair values. The excess of the total purchase price over the fair value of the identifiable assets acquired was recorded as goodwill. The goodwill recognized for RE/MAX of Texas is attributable to expected synergies and projected long-term revenue growth and relates entirely to the Real Estate Franchise Services segment.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Purchase Price Allocation
The following table summarizes the estimated fair value of the assets acquired at the acquisition date (in thousands):

Accounts and notes receivable, net	  	$	122	  	
Franchise agreements	  	 	15,200	  	
Goodwill	  	 	30,178	  	
	  	 	 	 	
Total purchase price	  	$	45,500	  	
	  	 	 	 	
The valuation of acquired regional franchise agreements was derived using primarily unobservable Level 3 inputs, which require significant management judgment and estimation. The regional franchise agreements acquired were valued using an income approach and are being amortized over the remaining contractual terms of approximately four years, using the straight-line method. For the remaining assets acquired, fair value approximated carrying value.
Unaudited Pro Forma Financial Information
The following Unaudited Pro Forma Financial Information reflects the consolidated results of operations of the Company as if the acquisition of RE/MAX Texas had occurred as of the beginning of each of the periods presented. The historical financial information has been adjusted to give effect to events that are (1) directly attributed to the acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the combined results. Such items include interest expense related to debt issued to fund the acquisition as well as additional amortization expense associated with the valuation of acquired franchise agreement. This unaudited pro forma financial information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisition had actually occurred in the respective period, nor of the results that may be obtained in the future.

 	  	(Unaudited)
Twelve months ended
December 31,	 	
 	  	2011	 	  	2012	 	
 	  	(in thousands)	 	
Total revenue	  	$	146,223	  	  	$	151,284	  	
Net income	  	 	22,101	  	  	 	31,664	  	
Acquisition of RE/MAX of Colorado, Inc.
Effective December 31, 2011, the Company acquired the net assets, excluding cash, of RE/MAX of Colorado, Inc. for consideration paid of $15,894,000. The Company acquired the net assets in order to expand its owned and operated regional franchising operations. The net assets acquired included the regional franchise agreement issued by the Company, permitting the sale of RE/MAX franchises in the states of Colorado, Utah, Wyoming, North Dakota, and South Dakota. The Company’s Chairman and Vice Chairman were the sole stockholders of RE/MAX of Colorado, Inc. Accordingly, the Company accounted for the transfer of net assets as a combination of entities under common control. All acquired assets and liabilities recognized in the balance sheets of each combining entity were carried forward to the balance sheet of the combined entity, at their respective carrying amounts, and no other assets were recognized as a result of the combination. In addition, the combination of entities under common control was presented in the accompanying consolidated financial statements as if it had always been combined. The consideration paid was recognized at December 31, 2011, with an offsetting adjustment to equity.
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Dispositions
Disposition of RE/MAX Australia Franchising Pty Ltd. and RE/MAX New Zealand Ltd.
During 2012, the Company sold substantially all of the assets of its owned and operated regional franchising operations located in Eastern Australia and New Zealand for a net purchase price of approximately $217,000. The Company recognized losses on the sale of the assets of the two regions amounting to approximately $1,111,000 and $612,000, respectively, which are reflected in (loss) gain on sale of assets in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) ended December 31, 2012. The losses recorded include approximately $1,149,000 related to goodwill derecognized upon the sale of the related assets. In connection with the sale of the assets, the Company entered into separate regional franchise agreements with the purchaser, under which the Company will receive ongoing monthly continuing franchise fees, broker fees, and franchise sales revenue. The term of each of the regional franchise agreements is 20 years with an option by the Company to renew for an additional 20-year term.
 
(7)	Intangible Assets and Goodwill	
The following table provides the components of the Company’s intangible assets (in thousands):

 	  	 	 	  	December 31, 2011	 	 	December 31, 2012	 	
 	  	Initial Weighted
Average
Amortization
Period (in years)	 	  	Initial Cost	 	  	Accumulated
Amortization	 	 	Initial Cost	 	  	Accumulated
Amortization	 	
Franchise agreements	  	 	11.8	  	  	$	129,325	  	  	$	(57,108	) 	 	$	139,827	  	  	$	(61,489	) 	
Other intangible assets:	  				  				  				 				  				
Software	  	 	4.3	  	  	$	6,211	  	  	$	(5,559	) 	 	$	7,158	  	  	$	(5,942	) 	
Trademarks	  	 	15.0	  	  	 	2,554	  	  	 	(954	) 	 	 	2,716	  	  	 	(1,111	) 	
	  				  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total other intangible assets	  				  	$	8,765	  	  	$	(6,513	) 	 	$	9,874	  	  	$	(7,053	) 	
	  				  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Amortization expense was $13,200,000, $11,819,000 and $9,771,000 for the years ended December 31, 2010, 2011, and 2012, respectively.
The estimated future amortization of intangible assets, other than goodwill, is as follows (in thousands):

Year ending December 31:	  				
2013	  	$	12,570	  	
2014	  	 	12,464	  	
2015	  	 	12,253	  	
2016	  	 	12,015	  	
2017	  	 	8,154	  	
Thereafter	  	 	23,703	  	
	  	 	 	 	
	  	$	81,159	  	

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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Amounts recorded as goodwill in the Company’s accompanying Consolidated Balance Sheets are attributable to the Real Estate Franchise Services segment. The following table presents changes to goodwill for the years ended December 31, 2011 and 2012 (in thousands):

Balance, January 1, 2011	  	$	41,963	  	
Effect of changes in foreign currency exchange rates	  	 	(81	) 	
	  	 	 	 	
Balance, December 31, 2011	  	 	41,882	  	
Goodwill derecognized upon sale of related assets	  	 	(1,149	) 	
Goodwill recognized in acquisition	  	 	30,178	  	
Effect of changes in foreign currency exchange rates	  	 	128	  	
	  	 	 	 	
Balance, December 31, 2012	  	$	71,039	  	

(8)	Accrued Liabilities	
Accrued liabilities consist of the following at December 31 (in thousands):

 	  	2011	 	  	2012	 	
Accrued payroll and related employee costs	  	$	3,603	  	  	$	4,542	  	
Accrued taxes	  	 	1,477	  	  	 	1,609	  	
Lease-related accruals	  	 	928	  	  	 	776	  	
Accrued professional fees	  	 	478	  	  	 	693	  	
Other	  	 	1,526	  	  	 	1,777	  	
	  	 	 	 	  	 	 	 	
	  	$	8,012	  	  	$	9,397	  	

(9)	Debt	
Debt consists of the following as of December 31 (in thousands):

 	  	2011	 	 	2012	 	
Senior secured credit facility, principal of $650 payable quarterly, matures in April 2016, net of unamortized discount of $1,564 and $1,192, respectively	  	$	195,340	  	 	$	232,326	  	
Less current portion	  	 	(8,274	) 	 	 	(10,600	) 	
	  	 	 	 	 	 	 	 	
	  	$	187,066	  	 	$	221,726	  	
	  	 	 	 	 	 	 	 	
Maturities of debt are as follows (in thousands):

Year ending December 31:	  				
2013	  	$	10,600	  	
2014	  	 	2,600	  	
2015	  	 	2,600	  	
2016	  	 	217,718	  	
2017	  	 	—  	  	
Thereafter	  	 	—  	  	
	  	 	 	 	
	  	$	233,518	  	

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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Senior Secured Credit Facility
On April 16, 2010, the Company entered into a credit agreement with several lenders and administered by a bank, collectively referred to herein as “The Senior Secured Credit Facility.” The Senior Secured Credit Facility consists of a $215,000,000 term loan facility and a $10,000,000 revolving loan facility. The proceeds provided by the term loan facility along with Company cash on hand, including cash contributed by a member, were used by the Company to extinguish the Senior Debt Facility previously held.
On December 31, 2012, the Senior Secured Credit Facility was amended providing for an additional term loan in an aggregate principal amount equal to $45,000,000. The proceeds were used to fund the acquisition of certain assets of RE/MAX of Texas. See Note 6, Acquisitions and Dispositions , for additional disclosures regarding this acquisition. The Senior Secured Credit Facility, as amended in December 2012, restricts the aggregate acquisition consideration for permitted acquisitions to $15,000,000 in any of the fiscal years ended in 2010, 2011, and 2012 or $25,000,000 in any fiscal year thereafter. Any unused amounts may be carried over to subsequent years to be used as additional expenditures for permitted acquisitions. The amended credit agreement excludes the acquisition of certain assets of RE/MAX of Texas from the $15,000,000 acquisition consideration limit.
The Company capitalized $697,000 in costs in connection with the amending the Senior Secured Credit Facility during 2012. The fees are classified as Debt Issuance Costs within the accompanying Consolidated Balance Sheets and are amortized using the effective interest method as an adjustment to interest expense over the remaining life of the Senior Secured Credit Facilities.
Interest rates with respect to the term and revolving loans under the Senior Secured Credit Facility are based, at the Company’s option, on (a) adjusted LIBOR, provided that LIBOR shall be no less than 1.75%, plus an applicable margin of 3.75% or (b) the greater of the (1) JPMorgan Chase Bank, N.A.’s prime rate, (2) Federal Funds Effective Rate plus 0.5%, or (3) calculated Eurodollar Rate plus 1.0% (ABR); in each instance, plus an applicable margin of 2.75%. Any loans based on the Eurodollar rate or LIBOR (Eurodollar loan), the longest interest rate period that may be selected by the Company is 180 days. However, if agreed to by all lenders, a period of 270 or 360 days may be selected. The interest rate payable on the term loan facility at December 31, 2011 and 2012 was 5.5%, which was based on the minimum LIBOR 1.75% plus the applicable margin of 3.75%. The weighted average interest rate payable on the term loan facility, including amortization of the debt discount and issuance costs, was 6.30%, 6.23%, and 6.23% for the years ended December 31, 2010, 2011, and 2012, respectively.
Mandatory quarterly principal payments of $650,000 are due through April 16, 2016, at which time a final payment of approximately $217,068,000 is due. This final payment is reduced by any Excess Cash Flow principal payments or optional prepayments. Additionally, the Company is required to make principal payments out of Excess Cash Flow, as defined, as well as from the proceeds of certain asset sales, proceeds from the issuance of indebtedness and from insurance recoveries.
During 2011 and 2012, the Company made an Excess Cash Flow principal payment, in conjunction with the Senior Secured Credit Facility, amounting to approximately $14,333,500 and $6,123,500, respectively. The Company accounted for the Excess Cash Flow principal payment as an early extinguishment of debt and recorded a loss during 2011 and 2012 of approximately $384,000 and $136,000, respectively, related to unamortized debt discount and issuance costs. The amended credit agreement requires the Company to make an Excess Cash Flow principal payment during 2013 amounting to the greater of (i) the amount calculated as defined by the credit agreement and (ii) $8,000,000. The Company made the Excess Cash
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Flow payment in the amount of $8,000,000 during the first quarter of 2013. These amounts are included in the current portion of debt on the accompanying consolidated balance sheets as of December 31, 2011 and 2012. Such payments reduce the amount of the final payment due upon maturity.
The Company may make optional prepayments of the term loan at any time; however, no such optional prepayments were made during the years ended December 31, 2011 and 2012.
The Senior Secured Credit Facility is secured by substantially all assets of the Company. Additionally, the repayments are guaranteed, jointly and severally, by specific subsidiaries of the Company, generally the Company’s owned regional franchise operations.
The Senior Secured Credit Facility requires compliance with certain operational covenants (including restrictions on, among other things, capital expenditures, additional indebtedness, advances to affiliated companies, fundamental changes such as mergers, consolidations or liquidations, disposition of property, and making restricted payments) and financial covenants (including interest coverage and leverage ratios), commencing with the quarter ended June 30, 2010 and ending on the term loan maturity date. The Senior Secured Credit Facility contains certain provisions that constitute an event of default including default on other debt agreements held by the Company. At December 31, 2012, and through the date that these consolidated financial statements were issued, the Company was in compliance with all such covenants.
The Company had no borrowings drawn on the revolving loan facility during the years ended December 31, 2010, 2011, and 2012. The Company must pay a quarterly commitment fee equal to 0.5% on the average daily amount of the unused portion of the revolving loan facility.
The fair value of the Company’s debt was estimated using a market approach based on the amount at the measurement date that the Company would receive to enter into the identical liability, since quoted prices for the Company’s debt instruments are not available. As a result, the Company has classified the fair value of its senior secured credit facility as Level 2 of the fair value hierarchy. The carrying amounts of the Company’s Senior Secured Credit Facility are included in the Consolidated Balance Sheets in “Current portion of debt,” and “Debt, net of current portion.” The carrying value of the Senior Secured Credit Facility was $195,340,000 and $232,326,000 as of December 31, 2011 and 2012, respectively. The fair value of the Senior Secured Credit Facility was $194,935,000 and $233,046,000 as of December 31, 2011 and 2012, respectively.
Senior Debt Facility
As of April 16, 2010, the Senior Debt Facility entered into on December 17, 2007 was repaid in full using the proceeds of the new Senior Secured Credit Facility, along with Company cash on hand. The Company accounted for the repayment as an early extinguishment of debt and recorded a loss of approximately $17,051,000 related to unamortized debt discount and issuance costs.
During 2010, the Company made an Excess Cash Flow principal payment, in conjunction with the repaid Senior Debt Facility, amounting to approximately $6,700,000. The Company accounted for the Excess Cash Flow principal payment as an early extinguishment of debt and recorded a loss of approximately $435,000 related to unamortized debt discount and issuance costs.
Real Estate Note Payable
As of April 16, 2010, the real estate note payable entered into by BMFB in March 2007 was repaid in full using the proceeds received from the sale of the office building, and related land. The Company accounted
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
for the repayment as an early extinguishment of debt and recorded a loss of approximately $675,000 related to unamortized debt issuance costs.
Subordinated Debt
During April 2010, the subordinated debt, payable to the members of a consolidated VIE who are controlling stockholders of RIHI, Inc. as described in Note 3, Variable Interest Entities , was partially repaid using proceeds from the sale of the office building, and related land. The remaining unpaid balance and accrued interest amounting to approximately $4,718,000 was forgiven by the members of the consolidated VIE and recorded as a capital transaction, therefore, increasing the noncontrolling interest of the Company.
 
(10)	Redeemable Preferred Units and Members’ Deficit	
During April 2010, RIHI (formerly named “RE/MAX International Holdings, Inc.”) transferred all of its ownership interests to RMCO, LLC in exchange for 847,500 Class B common units and 37,500 Class A preferred units. The Company accounted for the transaction as a transfer of assets among entities under common control. All assets and liabilities recognized in the balance sheet were carried forward, at their respective carrying amounts, and no other assets were recognized as a result of the transfer. In addition, the transfer of ownership interests between the entities under common control was accounted for as if the transfer occurred prior to the earliest period presented in the accompanying consolidated financial statements.
On April 16, 2010, the Company issued 112,500 preferred units to Weston Presidio, an investment firm, for proceeds of $30,000,000. In addition, RIHI sold 37,500 preferred units to Weston Presidio for proceeds of $10,000,000.
Redeemable Preferred Units
At December 31, 2012, the Company had one series of redeemable preferred units outstanding (Class A preferred units) with an initial optional redemption date of April 16, 2014. The total number of authorized Class A preferred units is 150,000. All authorized Class A preferred units are issued and outstanding with no par value and are held by Weston Presidio. As the holder of the outstanding Class A preferred units, Weston Presidio has voting rights and is entitled to receive a cumulative preferential yield of 10% per annum. Additionally, Weston Presidio has a liquidation preference of $52,900,000 and $49,500,000 as of December 31, 2011 and 2012, respectively, plus a pro rata percentage of the value of the Company after taking into account the Class A preference. As of December 31, 2011 and 2012, the accumulated unpaid preferential yield amounted to $2,695,000 and $4,282,000 or $17.97 per unit and $28.55 per unit, respectively. The preferred units also carry a stated return amounting to approximately $882,000 or $5.88235 per unit. Weston Presidio has preferential treatment related to distributions, with certain exceptions defined by the Agreement. In general, the order and priority of distributions, as defined by and as specified in the Agreement, is as follows: first, to the Class A preferred unitholders, an amount equal to the aggregate unpaid Class A preferred yield; second, to the Class A preferred unitholders, an amount equal to the aggregate unreturned capital; third, to the Class A preferred unitholders, an amount equal to the excess, if any of $58,564,000, over the aggregate amount of prior distributions constituting a payment of Class A preferred yield or unreturned capital; and fourth, to the holders of Class A and Class B units in proportion to the number of units held by such holder.
For purposes of determining the relative distribution entitlements of the Company’s Class A preferred units and Class B common units, certain exceptions exist that account for previous tax distributions and adjusted excess cash flow distributions, as defined by the RMCO, LLC Third Amended and Restated Limited Liability Company
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Agreement (the Agreement). Pursuant to the Agreement, the Company is obligated to make tax distributions to members to enable each member to discharge such member’s annual United States federal, state and local income tax liabilities arising from allocations made pursuant to the Agreement. In general, subject to certain exceptions set forth in the Agreement, any tax distribution made by the Company to a member shall be applied against and reduce the amount which any member would otherwise be entitled to receive.
The Agreement also provides that adjusted excess cash flow distributions shall be made to the holders of Class B common units in an amount equal to the lesser of (1) the amount of excess cash flow not required to be paid as a mandatory prepayment pursuant to the senior secured credit facility and (2) $5,000,000 for fiscal year 2010 and $8,000,000 for subsequent fiscal years. In connection with each adjusted excess cash flow distribution, Weston Presidio, in its capacity as the only holder of the Class A preferred units, is entitled to receive an increase in aggregate unreturned capital with respect to the Class A preferred units outstanding equal to the product of the adjusted excess cash flow distribution and a fraction, the numerator of which is the aggregate number of Class A preferred units outstanding, and the denominator of which is the aggregate number of Class B common units outstanding immediately prior to such adjusted excess cash flow distribution. The increases in Class A preferred units unreturned capital related to its portion of the adjusted excess cash flow distribution were $0, $882,000, and $1,081,000 as of December 31, 2010, 2011, and 2012, respectively. Distributions on the Class A preferred units are payable when, and if, they have been declared by the Board of Managers, out of funds available for the payment of distributions.
Issuance costs amounting to approximately $1,244,000 were recorded as a reduction to the proceeds of the preferred units.
The Class A preferred units may be redeemed, at the option of Weston Presidio, four years after the issuance of those units. The cash redemption price with respect to Class A preferred units is based on the unpaid preferred yield, unreturned capital, and the then-current remaining fair market value of the Company, as defined by the Agreement, as adjusted for certain tax distributions treated as advances. The Company may fund the redemption price by initiating an initial public offering, a change of control transaction, or other financing arrangement. Upon either the occurrence of an initial public offering or a change of control transaction, distributions shall be made in the amounts and in the order and priority, as defined by the Agreement. In the event the Company initiates an initial public offering in order to fund the redemption of the Class A preferred units, a majority of the holders of Class A preferred unit may elect to maintain their percentage interest in the equity securities of the Company or of its successor corporation in lieu of cash payment. Redeemable preferred stock units in the accompanying consolidated financial statements are recorded based upon the estimated fair value of the Company as of each reporting date and the application of specific provisions as defined by the Agreement. Changes in the estimated redemption amount are recorded as accretion and charged against net income attributable to RMCO, LLC Class B common unitholders.
Common Units
The total number of authorized Class B common units is 900,000 of which 52,500 were reserved for issuance under a unit option plan. As of December 31, 2012, the Company has granted options for 31,500 Class B common units under its 2011 Unit Option Plan (the Plan) to certain employees of one of its wholly owned subsidiaries. See Note 11, Equity-Based Compensation, for further disclosure regarding the unit options granted by the Company during 2012. The remaining 847,500 authorized Class B common units are issued and outstanding with no par value and are held by RIHI. RIHI, in its capacity as a holder of Class B common units, has voting rights, is entitled to receive distributions, subject to certain limitations as defined by the Agreement, and, upon liquidation or dissolution, is entitled to receive assets available for distribution. All unit holders, including Weston Presidio as the holder of the Class A preferred units, have certain
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
preemptive rights as defined by the Agreement. There are no mandatory redemption or sinking fund provisions with respect to such Class B common units. The Class B common units are subordinate to the Class A preferred units, to the extent of the preference associated with such Class A units, with respect to distributions and rights upon liquidation, winding up, and dissolution of the Company.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income includes all changes in equity during a period that have yet to be recognized in income, except those resulting from transactions with shareholders. The major components include foreign currency translation adjustments and gains or losses from cash flow hedging activities. The assets and liabilities of the Company’s consolidated foreign subsidiaries whose functional currency is not the United States dollar are translated using the appropriate exchange rate as of the end of the year. Foreign currency translation adjustments represent unrealized gains and losses on assets and liabilities arising from the difference in the foreign country currency compared to the United States dollar. These gains and losses are accumulated in Comprehensive Income (Loss). When a foreign subsidiary is substantially liquidated, the cumulative translation gain or loss is removed from “Accumulated other comprehensive income” and is recognized as a component of the gain or loss on the sale of the subsidiary. The effective portion of the change in fair value of derivatives that qualified as cash flow hedges are recorded in “Accumulated other comprehensive income.” Generally, amounts are recognized in income when the related forecasted transaction affects earnings. See Note 4 for further discussion.
As of December 31, 2011 and 2012, the ending balance in “Accumulated other comprehensive income” of $1,902,000 and $1,747,000, respectively, was entirely related to foreign currency translation adjustments.
 
(11)	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. As of December 31, 2012, the Company has 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 10 years, and the options will vest as specified in the respective option grant agreements. At December 31, 2012, 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. The assumptions for 2012 grants are provided in the following table. The Company does 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 Securities and Exchange Commission’s Staff Accounting Bulletin No. 110 was used to derive the expected term. Since the Company’s units are not publicly traded and its units are not traded privately, expected volatility is 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 is 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	% 	
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Unit option activity during the period indicated is as follows:

 	  	Number
of units	 	  	Exercise
price	 	  	Remaining
contractual
term	 	
Balance at January 1, 2012	  	 	—  	  	  	$	—  	  	  	 	—  	  	
Granted	  	 	31,500	  	  	 	90.08	  	  	 	9.9 years	  	
Exercised	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Forfeited	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Expired	  	 	—  	  	  	 	—  	  	  	 	—  	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Balance at December 31, 2012	  	 	31,500	  	  	$	90.08	  	  	 	9.9 years	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Exercisable at December 31, 2012	  	 	15,750	  	  	$	90.08	  	  	 	9.9 years	  	
A portion of the options granted in 2012 was vested on the grant date, with the remaining options vesting on June 15, 2013. The total fair value of options vested during the year ended December 31, 2012 was approximately $895,000. As of December 31, 2012, there was approximately $701,000 of total unrecognized compensation cost related to unit options granted under the Plan. The cost is expected to be recognized over a period of 5.5 months. The grant-date estimated fair value of options granted during the year ended 2012 was $56.83.
 
(12)	Commitments and Contingencies	
Commitments
The Company leases offices and equipment under noncancelable operating leases, subject to certain provisions for renewal options and escalation clauses. Future minimum payments (including those allocated to an affiliate) under these leases and commitments, net of payments under sublease agreements, are as follows (in thousands):

 	  	Rent
payments	 	  	Sublease
receipts	 	 	Total cash
outflows	 	
Year ending December 31:	  				  				 				
2013	  	$	11,791	  	  	$	(743	) 	 	$	11,048	  	
2014	  	 	10,849	  	  	 	(544	) 	 	 	10,305	  	
2015	  	 	10,693	  	  	 	(194	) 	 	 	10,499	  	
2016	  	 	9,774	  	  	 	(146	) 	 	 	9,628	  	
2017	  	 	8,965	  	  	 	(30	) 	 	 	8,935	  	
Thereafter	  	 	92,000	  	  	 	—  	  	 	 	92,000	  	
	  	 	 	 	  	 	 	 	 	 	 	 	
	  	$	144,072	  	  	$	(1,657	) 	 	$	142,415	  	
	  	 	 	 	  	 	 	 	 	 	 	 	
Minimum rent payments under noncancelable operating leases are recognized on a straight-line basis over the terms of the leases. Total rent expense excluding amounts related to loss on sublease was $11,279,000, $12,560,000, and $12,268,000 for the years ended December 31, 2010, 2011, and 2012, respectively, net of amounts recorded under sublease agreements of $792,000, $1,041,000, and $773,000, for the years ended December 31, 2010, 2011, and 2012, respectively.
During 2010, BMFB sold its office building and related land to an unrelated third party and terminated the master lease with the Company. Subsequently, the Company entered into a new eighteen (18) year lease with an unrelated third-party purchaser, with no lapse in occupancy (the Master Lease). The Company may,
 
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AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
at its option, extend the Master Lease for two renewal periods of 10 years. Under the terms of the lease, the Company pays an annual base rent, which escalates 3% each year, including the first optional renewal period. The first year of the second optional renewal period is at a fair market rental value, and the rent escalates 3% each year until expiration. The Company pays for operating expenses in connection with the ownership, maintenance, operation, upkeep, and repair of the leased space. The Company may assign or sublet an interest in the lease only with the approval of the landlord.
Upon entering into the Master Lease, the Company became the primary lessee for all facilities located on the headquarter property and issued subleases to two retail tenants already established on the property. The subleases range from 4,000 square feet to 10,500 square feet, have initial lease terms ranging from 5 to 10 years and renewal options ranging from two 5-year renewal options to nine 5-year renewal options. Anticipated revenue from these subleases exceeds the expected costs that will be incurred by the Company.
During March 2011, the Company entered into a sublease agreement with an unrelated third party to lease up to 20,000 square feet of the office space under its Master Lease. The estimated costs the Company expected to incur related to the subleased space exceeded the anticipated revenue the Company expected to receive under the sublease agreement. As such, the Company recorded a liability with the related loss on the sublease of approximately $1,932,000 recorded to “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2011. The aforementioned loss and associated liability was attributable to the Company’s Real Estate Franchise Services operating segment. The liability was determined using a risk-free rate to discount the estimated future net cash flows, consisting of the minimum lease payments to the lessor, under the Master Lease, estimated executory costs related to the subleased space, and anticipated payments the Company expected to receive under the sublease agreement. In November 2012, the sublease was terminated prior to its expiration date. As a result, the Company commenced efforts to market the office space for sublease with a new tenant. As of December 31, 2012, a sublease agreement was not executed, as such, the Company did not record an adjustment to the existing liability related to the office space. As of December 31, 2011 and 2012, the short-term portion of the liability was approximately $256,000 and $351,000, respectively, and is included in “Accrued liabilities” in the accompanying Consolidated Balance Sheets. As of December 31, 2011 and 2012, the long-term portion of the liability was approximately $1,323,000 and $972,000, respectively, and is included in “Other liabilities” in the accompanying Consolidated Balance Sheets.
During 2008, the Company closed several real estate brokerage offices in the Pacific Northwest and Washington, DC areas of the United States of America. Subsequent to 2008, the Company closed four additional real estate brokerage offices in the Pacific Northwest and Washington, DC areas. In connection with these office closures, the Company abandoned office leases with remaining lease terms of 11 months to eight years. The Company recorded a liability, initially measured at its estimated fair value, for costs that will continue to be incurred under these contracts for the remaining lease terms with the related charge recorded to “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Further, during 2010, the Company agreed with the respective landlords to terminate four leases, which were previously abandoned and reoccupy a previously abandoned office space after the expiration of an active lease. The liability recorded related to these offices was reversed with the related recovery recorded to “Selling, operating and administrative expenses” in the accompanying consolidated financial statements. At December 31, 2011 and 2012, total future cash payments were estimated to be $2,583,000 and $1,061,000, respectively. This liability will be increased by accreting charges over the terms of the leases via charges to rent expense, based on discount rates ranging from 2.75% to 18.03%, and will be reduced by the actual lease payments made. The following table presents
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
a rollforward of the estimated fair value liability established for these costs, which are attributable to the Company’s Brokerage and Other activity, from January 1, 2011 to December 31, 2012 (in thousands):

Accruals at January 1, 2011	  	$	2,010	  	
Additional charges	  	 	132	  	
Extinguishments	  	 	—  	  	
Accretion and adjustments	  	 	179	  	
Payments	  	 	(1,146	) 	
	  	 	 	 	
Accruals at December 31, 2011	  	 	1,175	  	
Additional charges	  	 	—  	  	
Extinguishments	  	 	(301	) 	
Accretion and adjustments	  	 	268	  	
Payments	  	 	(722	) 	
	  	 	 	 	
Accruals at December 31, 2012	  	$	420	  	
	  	 	 	 	
Litigation
The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters as appropriate. The Company records litigation accruals for legal matters which are both probable and estimable. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), the Company has determined that it does not have material exposure, or it is unable to develop a range of reasonably possible losses.
Other Contingencies
The Company maintains a self-insurance program for health benefits. As of December 31, 2011 and 2012, the Company recorded a liability of $235,000 and $360,000, respectively, related to this program.
 
(13)	Guarantees	
In July 2012, a subsidiary of the Company entered into a guarantee of performance by Tails, Inc. (d/b/a RE/MAX Central Atlantic Region) of all of the obligations under the franchise registration in the Commonwealth of Virginia, and all of the preopening obligations under the franchise agreements executed between July 23, 2012 and such time that this guarantee is no longer required by the Commonwealth of Virginia. The Company did not incur any payments under this guarantee in 2011 or 2012 and does not anticipate that it will incur any payments through the duration of the guarantee.
In May 2012, the Company entered into a guarantee of the full and prompt payment and performance when due of all obligations due to a financial institution under a commercial line-of-credit agreement and note entered into by the Company’s equity-method investee, in which the Company has a 50% interest. The term of the line-of-credit agreement is twelve months and the total amount of advances requested and unpaid principal balance cannot exceed $12,500,000. The line of credit bears interest at 0.50% over the financial institution’s base rate with a floor of 4.0%. The Company had entered into a similar guarantee during May 2011, which expired as of May 2012. The outstanding balance on the line of credit was approximately $1,893,000 and $9,285,000 as of December 31, 2011 and 2012, respectively. The Company did not incur any payments under this guarantee in 2012 or 2011 and does not anticipate that it will incur any payments through the duration of the guarantee.
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
(14)	Defined-Contribution Savings Plan	
The Company sponsors an employee retirement plan (401(k) Plan) that provides certain eligible employees of the Company an opportunity to accumulate funds for retirement. The Company provides matching contributions on a discretionary basis. During the years ended December 31, 2010, 2011, and 2012, the Company expensed $422,000, $397,000, and $462,000, respectively, for matching contributions to the 401(k) Plan.
 
(15)	Related-Party Transactions	
The Company’s real estate brokerage operations pay advertising fees to regional and international advertising funds, which promote the RE/MAX brand. These advertising funds are corporations owned by a majority stockholder of RIHI, Inc. as trustee for RE/MAX agents. This stockholder does not receive any compensation from these corporations, as all funds received by the corporations are required to be spent on advertising for the respective regions. During the years ended December 31, 2010, 2011, and 2012, the Company’s real estate brokerage operations paid $1,386,000, $1,190,000, and $1,153,000 , respectively, to these advertising funds. These payments are included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company’s real estate brokerage operations in the Washington, DC area pay regional continuing franchise fees, broker fees, and franchise sales revenue, as do all other RE/MAX franchisees, to a regional franchisor, Tails, Inc. dba RE/MAX Central Atlantic Region, Inc. Several of the Company’s officers and stockholders of RIHI, Inc. are also stockholders and officers of Tails, Inc. During the years ended December 31, 2010, 2011, and 2012, the real estate brokerage operations expensed $363,000, $227,000, and $267,000, respectively, in fees to Tails, Inc. These payments are included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, the Company’s owned real estate brokerage operations in the Washington, DC area record a corresponding payable to Tails, Inc. and its affiliated regional ad fund. As of December 31, 2011 and 2012, the amount of the payable was $1,815,000 and $2,270,000, respectively, and is included in “Accounts payable to affiliates” in the accompanying Consolidated Balance Sheets.
The Company receives continuing franchise fees, broker fees, franchise sales and other franchise revenue from regional franchisors. Several of the Company’s officers and stockholders of RIHI, Inc. are also stockholders and officers of two of these regional franchisors. During the years ended December 31, 2010, 2011, and 2012, the Company received $3,478,000, $3,299,000, and $3,364,000, respectively, in revenue from these entities. These amounts are included in continuing franchise fees, broker fees, and franchise sales and other franchise revenue in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company pays an annual sponsorship fee to Sanctuary, Inc., a private golf course owned by majority stockholders of RIHI, Inc. The Company is named as the presenting sponsor of all charity golf tournaments held at Sanctuary, Inc. Further, the majority stockholders make the golf course available to the Company for business purposes. During the years ended December 31, 2010, 2011, and 2012, the Company paid $893,000, $960,000, and $709,000, respectively, in sponsorship fees and green fees to Sanctuary, Inc. These payments are included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company provides services to certain affiliated entities such as accounting, legal, marketing, technology, human resources, and public relations as well as allows these companies to share its leased
 
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AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
office space. During the years ended December 31, 2010, 2011, and 2012, the total amounts allocated for services rendered and rent for office space provided on behalf of affiliated entities were $3,462,000, $3,325,000, and $3,354,000, respectively. In these cases, the Company bills affiliated companies for their actual or pro rata share of such expenses. Such amounts are generally paid within 30 days and no such amounts were outstanding at December 31, 2011 and 2012. In addition, affiliated regional franchisors have current outstanding continuing franchise fees, broker fees, and franchise sales revenue amounts due to the Company. Such amounts are included in “Accounts receivable from affiliates” and “Accounts payable to affiliates” in the accompanying Consolidated Balance Sheets and comprise the balances from the following entities (in thousands):

 	  	2011	 	 	2012	 	
Accounts receivable from affiliates:	  				 				
RE/MAX Southwest Region	  	$	(3	) 	 	$	11	  	
RE/MAX Central Atlantic Region, Inc.	  	 	(2	) 	 	 	21	  	
Other	  	 	2	  	 	 	23	  	
	  	 	 	 	 	 	 	 	
Total accounts receivable from affiliates	  	 	(3	) 	 	 	55	  	
	  	 	 	 	 	 	 	 	
Accounts payable to affiliates:	  				 				
Other	  	 	(2,073	) 	 	 	(2,385	) 	
	  	 	 	 	 	 	 	 	
Total accounts payable to affiliates	  	 	(2,073	) 	 	 	(2,385	) 	
	  	 	 	 	 	 	 	 	
Net accounts payable to affiliates	  	$	(2,076	) 	 	$	(2,330	) 	

(16)	Segment information	
The Company has two reportable segments: Real Estate Franchise Services and Brokerage and Other. The chief operating decision maker (CODM) evaluates the operating results of its reportable segments based upon revenue and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). The Company’s presentation of Adjusted EBITDA may not be comparable to similar measures used by other companies. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
Adjusted EBITDA for the reportable segments excludes depreciation, amortization, interest expense, net, taxes and is then adjusted for items also used in calculating the Company’s compliance with debt covenants. Adjusted EBITDA for the reportable segments is also a key factor that is used by the Company’s internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of management for purposes of annual and other incentive compensation plans. The additional items that are adjusted to determine EBITDA for the reportable segments include gains and losses on the sale of assets and sublease activity, gains and losses on the early extinguishment of debt, depreciation expense, interest expense, loss on sale of assets and loss on extinguishment of debt from non-controlling interest, stock based compensation, non-cash deferred rent expense, and acquisition transaction costs. The Company’s Real Estate Franchise Services segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX ® brand name. All of the Company’s brokerage offices in its Real Estate Franchise Services segment are franchised. The Company’s Brokerage and Other reportable segment includes the Company’s brokerage services business, the elimination of intersegment revenue and other consolidation entries as well as corporate-wide professional services expenses.
 
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AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
The following tables present the results of the Company’s reportable segments for the years ended December 31, 2010, 2011 and 2012, respectively (in thousands):

 	  	Revenue(a)	 	
 	  	For the Year Ended December 31,	 	
 	  	2010	 	  	2011	 	  	2012	 	
Real Estate Franchise Services	  	$	124,732	  	  	$	123,696	  	  	$	128,945	  	
Brokerage and Other(b)	  	 	15,485	  	  	 	14,606	  	  	 	14,732	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total segment reporting revenue	  	$	140,217	  	  	$	138,302	  	  	$	143,677	  	

 	(a)	Transactions between the Real Estate Franchise Services and the Brokerage and Other reportable segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services segment include intercompany amounts paid from the Company’s Brokerage Services business of $3.5 million, $1.7 million and $1.7 million, for the years ended December 31, 2010, 2011 and 2012, respectively. Such amounts are eliminated through the Brokerage and Other.	
 	(b)	Includes the elimination of transactions between the Real Estate Franchise Services and the Brokerage and Other reportable segments and $1.3 million of other revenue related to the Company’s variable interest entity for the year ended December 31, 2010. See Note 3 for additional information.	

 	  	Adjusted EBITDA	 	
 	  	For the Year Ended December 31,	 	
 	  	2010	 	 	2011	 	 	2012	 	
Real Estate Franchise Services	  	$	65,053	  	 	$	60,590	  	 	$	66,776	  	
Brokerage and Other(c)	  	 	(2,685	) 	 	 	(1,309	) 	 	 	(32	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total segment reporting adjusted EBITDA	  	$	62,368	  	 	$	59,281	  	 	$	66,744	  	

 	(c)	Includes the elimination of transactions between the Real Estate Franchise Services and the Brokerage and Other reportable segments and $314 of Adjusted EBITDA related to the Company’s variable interest entity for the year ended December 31, 2010. See Note 3 for additional information.	
 
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RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
A reconciliation of the Company’s Adjusted EBITDA for its reportable segments to the Company’s consolidated balances is as follows:

 	  	Year ended December 31,	 	
 	  	2010	 	 	2011	 	  	2012	 	
Segment Adjusted EBITDA:	  	 	62,368	  	 	 	59,281	  	  	 	66,744	  	
Less:	  				 				  				
Depreciation and amortization(1)	  	 	15,870	  	 	 	14,473	  	  	 	12,090	  	
Interest expense (income), net(1)	  	 	16,686	  	 	 	11,831	  	  	 	11,400	  	
Loss on early extinguishment of debt(1)	  	 	17,486	  	 	 	384	  	  	 	136	  	
Stock based compensation	  	 	—  	  	 	 	—  	  	  	 	1,089	  	
Non-cash straight-line rent expense adjustment	  	 	214	  	 	 	1,577	  	  	 	1,879	  	
(Gain) loss on sale of assets and sublease(1)	  	 	(249	) 	 	 	1,595	  	  	 	1,352	  	
Acquisition transaction expenses	  	 	—  	  	 	 	—  	  	  	 	336	  	
Chairman executive compensation	  	 	3,000	  	 	 	3,000	  	  	 	3,000	  	
	  	 	 	 	 	 	 	 	  	 	 	 	
Income before income taxes	  	 	9,361	  	 	 	26,421	  	  	 	35,462	  	
Income tax expense	  	 	2,049	  	 	 	2,172	  	  	 	2,138	  	
	  	 	 	 	 	 	 	 	  	 	 	 	
Net income attributable to RMCO, LLC	  	 	7,312	  	 	 	24,249	  	  	 	33,324	  	

 	(1)	Depreciation expense of $865,000, interest expense of $5,071,000, (gain) loss on sale of assets and sublease, net of $3,762,000 and loss on extinguishment of debt of $675,000 related to non-controlling interest for the year ended December 31, 2010 are excluded as these amounts are excluded from the net income attributable to RMCO, LLC.	
Segment long-lived and total assets are as follows (in thousands):

 	  	As of December 31,	 	
 	  	2011	 	  	2012	 	
Long-lived assets:	  				  				
Real Estate Franchise Services	  	$	125,086	  	  	$	159,742	  	
Brokerage and Other	  	 	4,701	  	  	 	4,693	  	
	  	 	 	 	  	 	 	 	
Total long-lived assets:	  	$	129,787	  	  	$	164,435	  	
	  	 	 	 	  	 	 	 	
Total assets:	  				  				
Real Estate Franchise Services	  	$	179,831	  	  	$	244,038	  	
Brokerage and Other	  	 	6,634	  	  	 	7,474	  	
	  	 	 	 	  	 	 	 	
Total assets	  	$	186,465	  	  	$	251,512	  	

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AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Information concerning the Company’s principal geographic areas was as follows (in thousands):

 	  	As of and for the Year Ended December 31,	 	
 	  	2010	 	  	2011	 	  	2012	 	
Revenue:	  				  				  				
United States	  	$	106,928	  	  	$	102,504	  	  	$	106,282	  	
Canada	  	 	22,055	  	  	 	24,284	  	  	 	24,503	  	
Other International	  	 	11,234	  	  	 	11,514	  	  	 	12,892	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	140,217	  	  	$	138,302	  	  	$	143,677	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total assets:	  				  				  				
United States	  	$	195,902	  	  	$	175,832	  	  	$	243,463	  	
Canada	  	 	6,591	  	  	 	6,333	  	  	 	6,731	  	
Other International	  	 	3,667	  	  	 	4,300	  	  	 	1,318	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	206,160	  	  	$	186,465	  	  	$	251,512	  	

(17)	Quarterly Financial Information (unaudited)	
Summarized quarterly results for the years ended December 31, 2011 and 2012 were as follows (in thousands):

 	  	2011 by Quarter	 	
 	  	First	 	  	Second	 	  	Third	 	  	Fourth	 	
Revenue	  	$	34,915	  	  	$	33,925	  	  	$	36,015	  	  	$	33,447	  	
Operating expenses	  	 	28,464	  	  	 	22,808	  	  	 	23,864	  	  	 	24,695	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Operating income	  	 	6,451	  	  	 	11,117	  	  	 	12,151	  	  	 	8,752	  	
Total other expenses	  	 	3,350	  	  	 	2,690	  	  	 	3,284	  	  	 	2,726	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income before provision for income taxes	  	 	3,101	  	  	 	8,427	  	  	 	8,867	  	  	 	6,026	  	
Provision for income taxes	  	 	398	  	  	 	584	  	  	 	579	  	  	 	611	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net income	  	$	2,703	  	  	$	7,843	  	  	$	8,288	  	  	$	5,415	  	

																	
 	  	2012 by Quarter	 	
 	  	First	 	  	Second	 	  	Third	 	  	Fourth	 	
Revenue	  	$	35,001	  	  	$	35,167	  	  	$	38,429	  	  	$	35,080	  	
Operating expenses	  	 	27,074	  	  	 	22,565	  	  	 	23,400	  	  	 	25,092	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Operating income	  	 	7,927	  	  	 	12,602	  	  	 	15,029	  	  	 	9,988	  	
Total other expenses	  	 	2,792	  	  	 	2,798	  	  	 	2,043	  	  	 	2,451	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income before provision for income taxes	  	 	5,135	  	  	 	9,804	  	  	 	12,986	  	  	 	7,537	  	
Provision for income taxes	  	 	466	  	  	 	638	  	  	 	636	  	  	 	398	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net income	  	$	4,669	  	  	$	9,166	  	  	$	12,350	  	  	$	7,139	  	

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AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands, except units)

 	  	December 31,
2012	 	 	June 30,
2013	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents	  	$	68,501	  	 	$	58,582	  	
Escrow cash—restricted	  	 	780	  	 	 	1,224	  	
Accounts and notes receivable, current portion, less allowances of $3,913 and $4,226 respectively	  	 	15,034	  	 	 	17,121	  	
Accounts receivable from affiliates	  	 	55	  	 	 	10	  	
Other current assets	  	 	2,707	  	 	 	2,202	  	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	87,077	  	 	 	79,139	  	
Property and equipment, net of accumulated depreciation of $20,426 and $20,768, respectively	  	 	3,332	  	 	 	2,645	  	
Franchise agreements, net of accumulated amortization of $61,489 and $67,421, respectively	  	 	78,338	  	 	 	72,406	  	
Other intangible assets, net of accumulated amortization of $7,053 and $7,411, respectively	  	 	2,821	  	 	 	2,533	  	
Goodwill	  	 	71,039	  	 	 	70,817	  	
Investments in equity method investees	  	 	3,900	  	 	 	3,698	  	
Debt issuance costs, net	  	 	2,930	  	 	 	2,430	  	
Other assets	  	 	2,075	  	 	 	4,402	  	
	  	 	 	 	 	 	 	 	
Total assets	  	$	251,512	  	 	$	238,070	  	

Liabilities, Redeemable Preferred Units and Members’ Deficit	  				 				
Current liabilities:	  				 				
Accounts payable	  	$	530	  	 	$	690	  	
Accounts payable to affiliates	  	 	2,385	  	 	 	2,473	  	
Escrow liabilities	  	 	780	  	 	 	1,224	  	
Accrued liabilities	  	 	9,397	  	 	 	9,378	  	
Income taxes payable	  	 	400	  	 	 	314	  	
Deferred revenue and deposits	  	 	15,996	  	 	 	16,200	  	
Current portion of debt	  	 	10,600	  	 	 	17,300	  	
Other current liabilities	  	 	234	  	 	 	87	  	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	40,322	  	 	 	47,666	  	
Debt, net of current portion	  	 	221,726	  	 	 	205,930	  	
Deferred revenue, net of current portion	  	 	514	  	 	 	457	  	
Other liabilities, net of current portion	  	 	7,319	  	 	 	7,711	  	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	269,881	  	 	 	261,764	  	
			
Commitments and contingencies	  				 				
			
Redeemable preferred units:	  				 				
Class A Preferred Units, at estimated redemption value (no par value, 150,000 units authorized, issued and outstanding as of December 31, 2012 and June 30, 2013; liquidation preference of $49,500 and $49,300 as of December 31, 2012 and June 30, 2013, respectively)	  	 	78,400	  	 	 	145,400	  	
	  	 	 	 	 	 	 	 	
Members’ deficit:	  				 				
Class B Common Units (no par value, 900,000 units authorized, 847,500 units issued and outstanding as of December 31, 2012 and June 30, 2013)	  	 	(98,516	) 	 	 	(170,543	) 	
Accumulated other comprehensive income	  	 	1,747	  	 	 	1,449	  	
	  	 	 	 	 	 	 	 	
Total members’ deficit	  	 	(96,769	) 	 	 	(169,094	) 	
	  	 	 	 	 	 	 	 	
Total liabilities, redeemable preferred units and members’ deficit	  	$	251,512	  	 	$	238,070	  	
	  	 	 	 	 	 	 	 	
See notes to unaudited condensed consolidated financial statements
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
 Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited)
(Amounts in thousands)

 	  	Six months ended June 30,	 	
 	  	          2012           	 	 	          2013           	 	
Revenue:	  				 				
Continuing franchise fees	  	$	27,875	  	 	$	30,944	  	
Annual dues	  	 	14,168	  	 	 	14,597	  	
Broker fees	  	 	9,116	  	 	 	11,500	  	
Franchise sales and other franchise revenue	  	 	11,000	  	 	 	12,747	  	
Brokerage revenue	  	 	8,009	  	 	 	8,528	  	
	  	 	 	 	 	 	 	 	
Total revenue	  	 	70,168	  	 	 	78,316	  	
	  	 	 	 	 	 	 	 	
Operating expenses:	  				 				
Selling, operating and administrative expenses	  	 	43,214	  	 	 	47,983	  	
Depreciation and amortization	  	 	6,443	  	 	 	7,432	  	
(Gain) loss on sale of assets	  	 	(18	) 	 	 	44	  	
	  	 	 	 	 	 	 	 	
Total operating expenses	  	 	49,639	  	 	 	55,459	  	
	  	 	 	 	 	 	 	 	
Operating income	  	 	20,529	  	 	 	22,857	  	
	  	 	 	 	 	 	 	 	
Other income (expenses):	  				 				
Interest expense	  	 	(5,861	) 	 	 	(6,925	) 	
Interest income	  	 	129	  	 	 	142	  	
Foreign currency translation losses, net	  	 	(36	) 	 	 	(416	) 	
Loss on early extinguishment of debt	  	 	(136	) 	 	 	(134	) 	
Equity in earnings of investees	  	 	314	  	 	 	462	  	
	  	 	 	 	 	 	 	 	
Total other income (expenses), net	  	 	(5,590	) 	 	 	(6,871	) 	
	  	 	 	 	 	 	 	 	
Income before provision for income taxes	  	 	14,939	  	 	 	15,986	  	
Provision for income taxes	  	 	(1,104	) 	 	 	(1,031	) 	
	  	 	 	 	 	 	 	 	
Net income	  	 	13,835	  	 	 	14,955	  	
Accretion of Class A Preferred Units to estimated redemption amounts	  	 	6,831	  	 	 	79,672	  	
	  	 	 	 	 	 	 	 	
Net income (loss) related to RMCO, LLC Class B Unitholders	  	$	7,004	  	 	$	(64,717	) 	
	  	 	 	 	 	 	 	 	
Other comprehensive income:	  				 				
Change in cumulative translation adjustment	  	$	83	  	 	$	(298	) 	
	  	 	 	 	 	 	 	 	
Other comprehensive income (loss)	  	 	83	  	 	 	(298	) 	
	  	 	 	 	 	 	 	 	
Total comprehensive income (loss) related to RMCO, LLC Class B Unitholders	  	$	7,087	  	 	$	(65,015	) 	
	  	 	 	 	 	 	 	 	
See notes to unaudited condensed consolidated financial statements
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
 Condensed Consolidated Statements of Redeemable Preferred Units and Members’ Deficit
(Unaudited)
(Amounts in thousands, except units)

 	  	Redeemable Class A
preferred units	 	  	Class B common
Units	 	 	Accumulated
other
comprehensive
income	 	 	Total
members’
deficit	 	
 	  	Units	 	  	Amount	 	  	Units	 	  	Amount	 	 			 			
Balances, January 1, 2013	  	 	150,000	  	  	$	78,400	  	  	 	847,500	  	  	$	(98,516	) 	 	$	1,747	  	 	$	(96,769	) 	
Member distributions	  	 	—  	  	  	 	(12,672	) 	  	 	—  	  	  	 	(8,011	) 	 	 	—  	  	 	 	(8,011	) 	
Accretion of Class A Preferred Units to estimated redemption amounts	  	 	—  	  	  	 	79,672	  	  	 	—  	  	  	 	—  	  	 	 	—  	  	 	 	—  	  	
Net loss related to RMCO, LLC Class B Common Unitholders	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	(64,717	) 	 	 	—  	  	 	 	(64,717	) 	
Change in accumulated other comprehensive income	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	(298	) 	 	 	(298	) 	
Equity-based compensation awards issued	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	701	  	 	 	—  	  	 	 	701	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balances, June 30, 2013	  	 	150,000	  	  	$	145,400	  	  	 	847,500	  	  	$	(170,543	) 	 	$	1,449	  	 	$	(169,094	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
See notes to unaudited condensed consolidated financial statements
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)

 	  	Six Months ended June 30,	 	
 	  	          2012           	 	 	          2013           	 	
Cash flows from operating activities:	  				 				
Net income	  	$	13,835	  	 	$	14,955	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  				 				
Depreciation and amortization	  	 	6,443	  	 	 	7,432	  	
Bad debt expense	  	 	367	  	 	 	265	  	
Loss on early extinguishment of debt	  	 	136	  	 	 	134	  	
Equity based compensation	  	 	—  	  	 	 	701	  	
Noncash interest expense	  	 	466	  	 	 	571	  	
Other	  	 	(121	) 	 	 	246	  	
Changes in operating assets and liabilities:	  				 				
Escrow cash	  	 	(418	) 	 	 	(444	) 	
Accounts and notes receivable	  	 	(1,142	) 	 	 	(2,259	) 	
Advances to affiliates	  	 	171	  	 	 	249	  	
Other current and noncurrent assets	  	 	109	  	 	 	520	  	
Escrow liabilities	  	 	418	  	 	 	444	  	
Current and noncurrent liabilities	  	 	278	  	 	 	496	  	
Deferred revenue	  	 	1,001	  	 	 	145	  	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	21,543	  	 	 	23,455	  	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Purchases of property, equipment and software	  	 	(1,138	) 	 	 	(482	) 	
Proceeds from sale of property and equipment	  	 	26	  	 	 	3	  	
Capitalization of trademark costs	  	 	(109	) 	 	 	(91	) 	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(1,221	) 	 	 	(570	) 	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Payments on debt	  	 	(7,199	) 	 	 	(9,300	) 	
Member distributions	  	 	(6,382	) 	 	 	(20,683	) 	
Payments on capital lease obligations	  	 	(179	) 	 	 	(158	) 	
Deferred offering costs	  	 	—  	  	 	 	(2,511	) 	
	  	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(13,760	) 	 	 	(32,652	) 	
	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	  	 	15	  	 	 	(152	) 	
	  	 	 	 	 	 	 	 	
Net (decrease) increase in cash and cash equivalents	  	 	6,577	  	 	 	(9,919	) 	
Cash and cash equivalents, beginning of year	  	 	38,611	  	 	 	68,501	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of year	  	$	45,188	  	 	$	58,582	  	
	  	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow information:	  				 				
Cash paid for interest, excluding capitalized interest	  	$	5,398	  	 	$	6,374	  	
Cash paid for income taxes	  	 	1,258	  	 	 	1,149	  	
Schedule of noncash investing and financing activities:	  				 				
Capital leases for furniture and equipment	  	$	14	  	 	$	160	  	
See notes to unaudited condensed consolidated financial statements
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
(1)	Business and Basis of Presentation	
Business
RMCO, LLC (a Delaware limited liability company) and subsidiaries (collectively, the Company) are one of the world’s leading franchisors of residential and commercial real estate services throughout the United States and globally. The Company also operates real estate brokerage services businesses in the United States. The Company’s revenue is derived from continuing franchise fees, annual dues from agents, broker fees, franchise sales and other franchise revenue (which consist of fees from initial sales of and renewals of franchises, regional franchise fees, preferred marketing arrangements and approved supplier programs) and brokerage revenue (which consists of fees assessed to the Company’s owned brokerages for services provided to their affiliated real estate agents). A franchise grants the broker-owner a license to use the RE/MAX brand, trademark, promotional and operating materials, and concepts. A portion of these revenues is derived from regions that are owned by stockholders of a member of the Company and other affiliates of the Company.
The Company reports its operations in two reportable segments, Real Estate Franchise Services and Brokerage and Other. The Company’s Real Estate Franchise Services reportable segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX brand name. The Company’s Brokerage and Other reportable segment includes the Company’s brokerage services business, and reflects the elimination of intersegment revenue and other consolidation entries as well as corporate-wide professional services expenses.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and comprise the condensed consolidated financial statements of the Company and have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) and with Article 10 of Regulation S-X. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The accompanying unaudited condensed consolidated financial statements are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2013 and the results of its operations and cash flows for the six month periods ended June 30, 2012 and 2013. Interim results may not be indicative of full year performance.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas in which management uses assumptions include, among other things, the establishment of the allowances for doubtful trade accounts and notes receivable, the determination of the estimated lives of intangible assets, the
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
estimates of the fair value of liabilities related to facility exit costs, unit-based compensation, the estimates of the fair value of reporting units used in the annual assessment of goodwill, and the fair value of assets acquired. Actual results could differ from these estimates.
Deferred offering costs
Through June 30, 2013, the Company incurred approximately $2,511,000 in costs related to its proposed initial public offering. These costs have been deferred and will be recorded as a reduction to the anticipated proceeds from the offering at the time of closing. Deferred offering costs are included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets. No costs were deferred as of December 31, 2012.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act (JOBS Act), the Company believes it meets the definition of an emerging growth company. The Company has irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, (ASU 2013-05). This amendment clarifies the applicable guidance for the release of cumulative translation adjustment into net earnings. When an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the entity is required to apply the guidance in FASB Accounting Standards Codification (ASC) Topic 830-30 to release any related cumulative translation adjustment into net earnings. ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2013, the Company adopted Accounting Standards Update (ASU) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The adoption of ASU 2013-02 concerns presentation and disclosure only and did not have an impact on the Company’s consolidated financial position or results of operations.
 
(2)	Acquisition	
Acquisition of RE/MAX of Texas
Effective December 31, 2012, the Company acquired certain assets of RE/MAX/KEMCO Partnership L.P. d/b/a RE/MAX of Texas (RE/MAX of Texas), including the regional franchise agreements, issued by the Company, permitting the sale of RE/MAX franchises in the state of Texas. The Company acquired these assets in order to expand its owned and operated regional franchising operations. The purchase price was $45,500,000 and was paid in cash using proceeds provided from borrowings. The assets acquired constitute a business that was accounted for using the fair value acquisition method. The total purchase price was allocated to the assets acquired based on their estimated fair values. The excess of the total purchase price over the fair value of the identifiable assets acquired was recorded as goodwill. The goodwill recognized for RE/MAX of Texas is attributable to expected synergies and projected long-term revenue growth and relates entirely to the Real Estate Franchise Services segment.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
Purchase Price Allocation
The following table summarizes the estimated fair value of the assets acquired at the acquisition date (in thousands):

Accounts and notes receivable, net	  	$	122	  	
Franchise agreements	  	 	15,200	  	
Goodwill	  	 	30,178	  	
	  	 	 	 	
Total purchase price	  	$	45,500	  	
	  	 	 	 	
The valuation of acquired regional franchise agreements was derived using primarily unobservable Level 3 inputs, which require significant management judgment and estimation. The regional franchise agreements acquired were valued using an income approach and are being amortized over the remaining contractual term of approximately four years, using the straight-line method. For the remaining assets acquired, fair value approximated carrying value.
Unaudited Pro Forma Financial Information
The following Unaudited Pro Forma Financial Information reflects the consolidated results of operations of the Company as if the acquisition of RE/MAX Texas had occurred on January 1, 2012. The historical financial information has been adjusted to give effect to events that are (1) directly attributed to the acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the combined results. Such items include interest expense related to debt issued to fund the acquisition as well as additional amortization expense associated with the valuation of the acquired franchise agreement. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisition had actually occurred on that date, nor of the results that may be obtained in the future.

 	  	Unaudited	 	
 	  	Six month
period ended
June 30, 2012	 	
 	  	(in thousands)	 	
Total revenue	  	$	73,932	 	
Net income	  	 	12,757	 	
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
 
(3)	Intangible Assets and Goodwill	
The following table provides the components of the Company’s intangible assets (in thousands):

 	  	December 31, 2012	 	 	June 30, 2013	 	
 	  	Initial Cost	 	  	Accumulated
Amortization	 	 	Initial Cost	 	  	Accumulated
Amortization	 	
Franchise Agreements	  	$	139,827	  	  	$	(61,489	) 	 	$	139,827	  	  	$	(67,421	) 	
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Other Intangibles:	  				  				 				  				
Software	  	$	7,158	  	  	$	(5,942	) 	 	$	7,158	  	  	$	(6,218	) 	
Trademarks	  	 	2,716	  	  	 	(1,111	) 	 	 	2,786	  	  	 	(1,193	) 	
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total other intangible assets	  	$	9,874	  	  	$	(7,053	) 	 	$	9,944	  	  	$	(7,411	) 	
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Amortization expense for the six months ended June 30, 2012 and 2013 was $5,177,000 and $ 6,290,000, respectively.
Based on the Company’s amortizable intangible assets as of June 30, 2013, the Company expects related amortization expense for the remainder of 2013, the four succeeding years and thereafter to approximate $6,281,000, $12,483,000, $12,245,000, $12,017,000, $8,156,000, and $23,757,000 respectively.
Amounts recorded as goodwill in the Company’s accompanying Condensed Consolidated Balance Sheets are attributable to the Real Estate Franchise Services reportable segment. The following table presents changes to goodwill for the six month period ended June 30, 2013 (in thousands):

 	  	Real  Estate
Franchise
Services	 	
Balance, January 1, 2013	  	$	71,039	  	
Effect of changes in foreign currency exchange rates	  	 	(222	) 	
	  	 	 	 	
Balance, June 30, 2013	  	$	70,817	  	

(4)	Accrued Liabilities	
Accrued liabilities consist of the following (in thousands):

 	  	December 31,
2012	 	  	June 30,
2013	 	
Accrued payroll and related employee costs	  	$	4,542	  	  	$	4,108	  	
Accrued taxes	  	 	1,609	 	  	 	784	 	
Accrued professional fees	  	 	776	 	  	 	2,477	 	
Lease-related accruals	  	 	693	 	  	 	796	 	
Other	  	 	1,777	 	  	 	1,213	 	
	  	 	 	 	  	 	 	 	
	  	$	9,397	  	  	$	9,378	  	

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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
(5)	Debt	
Debt consists of the following (in thousands):

 	  	December 31,
2012	 	 	June 30,
2013	 	
Senior secured credit facility, principal of $650 payable quarterly, matures in April 2016, net of unamortized discount of $1,192 and $988, respectively	  	$	232,326	  	 	$	223,230	  	
Less current portion	  	 	(10,600	) 	 	 	(17,300	) 	
	  	 	 	 	 	 	 	 	
	  	$	221,726	  	 	$	205,930	  	
	  	 	 	 	 	 	 	 	
Maturities of debt are as follows (in thousands):

As of June 30, 2013	  				
Remainder of 2013	  	$	1,150	  	
2014	  	 	17,300	 	
2015	  	 	2,300	 	
2016	  	 	2,300	 	
2017	  	 	2,300	 	
Thereafter	  	 	198,868	 	
	  	 	 	 	
	  	$	224,218	  	
	  	 	 	 	
On April 16, 2010, the Company entered into a credit agreement with several lenders and administered by a bank, collectively referred to herein as “The Senior Secured Credit Facility”. The Senior Secured Credit Facility consists of a $215,000,000 term loan facility and a $10,000,000 revolving loan facility. The proceeds provided by the term loan facility along with Company cash on hand, including cash contributed by a member, were used by the Company to extinguish the Senior Debt Facility previously held.
On December 31, 2012, the Senior Secured Credit Facility was amended providing for an additional term loan in an aggregate principal amount equal to $45,000,000. The proceeds were used to fund the acquisition of certain assets of RE/MAX of Texas. See Note 2, Acquisition , for additional disclosures regarding this acquisition. The Company is required to make principal payments out of Excess Cash Flow, as defined, as well as from the proceeds of certain asset sales, proceeds from the issuance of indebtedness and from insurance recoveries. As of June 30, 2013, the Company expects to make an Excess Cash Flow payment of $15,000,000 in the first quarter of 2014. Mandatory principal payments of $575,000 are due quarterly until the facility matures on July 31, 2020.
During the six months ended June 30, 2012 and 2013, the Company made mandatory principal Excess Cash Flow prepayments in accordance with the Senior Secured Credit Facility of $6,123,500 and $8,000,000, respectively. The Company accounted for these mandatory principal prepayments as early extinguishments of debt and recorded a loss during the six month periods ended June 30, 2012 and 2013 of approximately $136,000 and $134,000, respectively, related to unamortized debt discount and issuance costs. The Company may make optional prepayments of the term loan at any time; however, no such optional prepayments were made during the six months ended June 30, 2012 or 2013.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
The estimated fair value of the Company’s debt as of December 31, 2012 and June 30, 2013 represents the amount that would be paid to transfer or redeem the debt in an orderly transaction between market participants at that date and maximizes the use of observable inputs.
The fair value of the Company’s debt was estimated using a market approach based on the amount at the measurement date that the Company would receive to enter into the identical liability, since quoted prices for the Company’s debt instruments are not available. As a result the Company has classified the fair value of its Senior Secured Credit Facility as Level 2 of the fair value hierarchy. The carrying amounts of the Company’s Senior Secured Credit Facility are included in the Condensed Consolidated Balance Sheets in “Current portion of debt,” and “Debt, net of current portion.” The carrying value of the Senior Secured Credit Facility was $232,326,000 and $223,230,000 as of December 31, 2012 and June 30, 2013, respectively. The fair value of the Senior Secured Credit Facility was $233,046,000 and $227,812,000 as of December 31, 2012 and June 30, 2013, respectively.
The Company had no borrowings drawn on the revolving loan facility during the six months ended June 30, 2012 and 2013. The Company must pay a quarterly commitment fee equal to 0.5% on the average daily amount of the unused portion of the revolving loan facility.
On July 31, 2013, the Company entered into a new credit agreement with several lenders and administered by a bank, referred to herein as the 2013 Credit Facility. In connection therewith, a contemporaneous exchange of cash between the Company and its existing lenders occurred and in satisfaction of liabilities previously outstanding pursuant to the pre-existing Senior Secured Credit Facility. The 2013 Credit Facility consists of a $230,000,000 term loan facility and a $10,000,000 revolving loan facility. Interest rates with respect to the term and revolving loans are based, at the Company’s option, on (a) JPMorgan Chase Bank, N.A.’s prime rate; (2) the Federal Funds Effective Rate plus 0.5%; or (3) calculated Eurodollar Rate plus 1.0%, plus an applicable margin, which has a maximum of 3.0% and will be adjusted quarterly between 1.75% and 3.0% beginning in the fourth quarter of 2013 based on the Company’s total leverage ratio as defined by the 2013 Credit Facility.
 
(6)	Redeemable Preferred Units and Members’ Deficit	
Redeemable Preferred Units
At June 30, 2013, the Company had one series of redeemable preferred units outstanding (Class A preferred units) with an initial optional redemption date of April 16, 2014. The total number of authorized Class A preferred units is 150,000. All authorized Class A preferred units are issued and outstanding with no par value and are held by Weston Presidio. As the holder of the outstanding Class A preferred units Weston Presidio has voting rights and is entitled to receive a cumulative preferential yield of 10% per annum. Additionally, Weston Presidio has a liquidation preference of $49,500,000 and $49,300,000 as of December 31, 2012 and June 30, 2013, respectively, plus a pro rata percentage of the remaining value of the Company (after taking into account the Class A preference). As of December 31, 2012 and June 30, 2013, the accumulated unpaid preferential yield amounted to $4,282,000 and $6,327,000 or $28.55 per unit and $42.18 per unit, respectively. The preferred units also carry a stated return amounting to approximately $882,000 or $5.88235 per unit. Weston Presidio has preferential treatment related to distributions, with certain exceptions defined by the RMCO, LLC Third Amended and Restated Limited Liability Company Agreement (the Agreement). In general, the order and priority of distributions, as defined by and as specified in the Agreement, is as follows: first, to the Class A preferred unitholders, an amount equal to the
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
aggregate unpaid Class A preferred yield; second, to the Class A preferred unitholders, an amount equal to the aggregate unreturned capital; third, to the Class A preferred unitholders, an amount equal to the excess, if any of $58,564,000, over the aggregate amount of prior distributions constituting a payment of Class A preferred yield or unreturned capital; and fourth, to the holders of Class A and Class B units in proportion to the number of units held by such holder.
For purposes of determining the relative distribution entitlements of the Company’s Class A preferred units and Class B common units, certain exceptions exist that account for previous tax distributions and adjusted excess cash flow distributions, as defined by the Agreement. Pursuant to the Agreement, the Company is obligated to make tax distributions to members to enable each member to discharge such member’s annual United States federal, state and local income tax liabilities arising from allocations made pursuant to the Agreement. In general, subject to certain exceptions set forth in the Agreement, any tax distribution made by the Company to a member shall be applied against and reduce the amount which any member would otherwise be entitled to receive.
The Agreement also provides that adjusted excess cash flow distributions shall be made to the holders of Class B common units in an amount equal to the lesser of (1) the amount of excess cash flow not required to be paid as a mandatory prepayment pursuant to the Senior Secured Credit Facility and (2) $5,000,000 for fiscal year 2010 and $8,000,000 for subsequent fiscal years. In connection with each adjusted excess cash flow distribution, Weston Presidio, in its capacity as the only holder of the Class A preferred units, is entitled to receive an increase in aggregate unreturned capital with respect to the Class A preferred units outstanding equal to the product of the adjusted excess cash flow distribution and a fraction, the numerator of which is the aggregate number of Class A preferred units outstanding, and the denominator of which is the aggregate number of Class B common units outstanding immediately prior to such adjusted excess cash flow distribution. Distributions on the Class A preferred units are payable when, and if, they have been declared by the Board of Managers, out of funds available for the payment of distributions.
Issuance costs amounting to approximately $1,244,000 were recorded as a reduction to the proceeds of the preferred units.
The Class A preferred units may be redeemed, at the option of Weston Presidio, four years after the issuance of those units. The cash redemption price with respect to Class A preferred units is based on the unpaid preferred yield, unreturned capital, and the then-current remaining fair market value of the Company, as defined by the Agreement, as adjusted for certain tax distributions treated as advances. The Company may fund the redemption price by initiating an initial public offering, a change of control transaction, or other financing arrangement. Upon either the occurrence of an initial public offering or a change of control transaction, distributions shall be made in the amounts and in the order and priority, as defined by the Agreement. In the event the Company initiates an initial public offering in order to fund the redemption of the Class A preferred units, a majority of the holders of Class A preferred unit may elect to maintain their percentage interest in the equity securities of the Company or of its successor corporation in lieu of cash payment. Redeemable preferred units are recorded based upon the estimated fair value of the Company as of each reporting date and other specific provisions as defined by the Agreement. Changes in the estimated redemption amount are recorded as accretion and charged against net income attributable to RMCO, LLC Class B common unitholders. In early 2013, the Company made a decision to pursue an initial public offering. The Company incorporated the possibility of an initial public offering, along with the related assumptions, in its determination of the estimated fair value of the Company at June 30, 2013. This decision resulted in a substantial increase to the estimated fair value of the Company from December 31, 2012, and
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
the estimated redemption amount of the Class A preferred units increased correspondingly. If the fair value established by the proposed offering differs significantly from that estimated by the Company at June 30, 2013, the estimated redemption amount of the Class A preferred units would be adjusted and such adjustment could be significant.
Common Units
The total number of authorized Class B common units is 900,000 of which 52,500 were reserved for issuance under a unit option plan. As of June 30, 2013, the Company has granted options for 31,500 Class B common units under its 2011 Unit Option Plan to certain employees of one of its wholly owned subsidiaries. See Note 7, Equity-Based Compensation Plan, for further disclosure regarding the unit options granted by the Company during 2012. The remaining 847,500 authorized Class B common units are issued and outstanding with no par value and are held by RE/MAX International Holdings, Inc. (RIHI). RIHI, in its capacity as a holder of Class B common units, has voting rights, is entitled to receive distributions subject to certain limitations as defined by the Agreement, and, upon liquidation or dissolution, is entitled to receive assets available for distribution. All unit holders, including Weston Presidio as the holder of the Class A preferred units, have certain preemptive rights as defined by the Agreement. There are no mandatory redemption or sinking fund provisions with respect to such Class B common units. The Class B common units are subordinate to the Class A preferred units, to the extent of the preference associated with such Class A units, with respect to distributions and rights upon liquidation, winding up, and dissolution of the Company.
Accumulated Other Comprehensive Income
As of December 31, 2012 and June 30, 2013, the ending balance in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets of $1,747,000 and $1,449,000, respectively, was entirely related to foreign currency translation adjustments.
 
(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 June 30, 2013, the Company has 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 10 years, and the options will vest as specified in the option grant agreement. At June 30, 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 six-month period ended June 30, 2013. The assumptions for 2012 grants are provided in the following table. The Company does 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 Securities and Exchange Commission’s Staff Accounting Bulletin No. 110 was used to derive the expected term. Since the Company’s units are not publicly traded and its units are not traded privately, expected volatility is 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 is based on the U.S. Treasury yield curve at the date of grant.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

 	  	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 grant-date, and remaining options vested on June 15, 2013. Total compensation expense on the options granted in 2012 recognized during the six months ended June 30, 2013 was $701,000. As the options were granted in the fourth quarter of 2012, no compensation expense was recognized during the six months ended June 30, 2012. As of June 30, 2013, there was no unrecognized compensation cost related to unit options granted under the Plan.
 
(8)	Commitments and Contingencies	
Commitments
The Company leases offices and equipment under noncancelable operating leases, subject to certain provisions for renewal options and escalation clauses.
In 2010, the Company became the primary lessee for all facilities located on its corporate headquarter property and issued subleases to two retail tenants already established on the property. The subleases range from 4,000 square feet to 10,500 square feet, have initial lease terms ranging from 5 to 10 years and renewal options ranging from two 5-year renewal options to nine 5-year renewal options. Anticipated revenue from these subleases exceeds the expected costs that will be incurred by the Company.
During March 2011, the Company entered into a sublease agreement with an unrelated third party to lease up to 20,000 square feet of the office space on its corporate headquarters property. The estimated costs the Company expected to incur related to the subleased space exceeded the anticipated revenue the Company expected to receive under the sublease agreement. As such, the Company recorded a liability with the related loss on the sublease of approximately $1,932,000. The liability was determined using a risk-free rate to discount the estimated future net cash flows, consisting of the minimum lease payments to the lessor, estimated executory costs related to the subleased space, and anticipated payments the Company expected to receive under the sublease agreement. In November 2012, the sublease was terminated prior to its expiration date. As a result, the Company commenced efforts to market the office space for sublease with a new tenant. As of June 30, 2013, a sublease agreement was not executed, as such, the Company did not record an adjustment to the existing liability. As of December 31, 2012 and June 30, 2013, the short-term portion of the liability was approximately $351,000 and $372,000, respectively, and is included in “Accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets. As of December 31, 2012 and June 30, 2013, the long-term portion of the liability was approximately $972,000 and $784,000, respectively, and is included in “Other liabilities” in the accompanying Condensed Consolidated Balance Sheets.
During 2008, the Company closed several real estate brokerage offices in the Pacific Northwest and Washington, DC areas of the United States of America. Subsequent to 2008, the Company closed four additional real estate brokerage offices in the Pacific Northwest and Washington, DC areas. In connection with these office closures, the Company abandoned office leases with remaining lease terms of 11 months to eight years. During the six months ended June 30, 2013, the Company abandoned an additional 2 leases for
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
offices located in the Pacific Northwest with remaining lease terms of three months. The Company recorded a liability, initially measured at its estimated fair value, for costs that will continue to be incurred under these contracts for the remaining lease terms with the related charge recorded to operating expenses in the accompanying consolidated financial statements. At December 31, 2012 and June 30, 2013, total future cash payments were estimated to be $1,061,000 and $823,000, respectively. This liability will be increased by accreting charges over the terms of the leases via charges to rent expense, based on discount rates ranging from 2.75% to 18.03%, and will be reduced by the actual lease payments made. The following table presents a rollforward of the estimated fair value liability established for these costs from January 1, 2013 to June 30, 2013 (in thousands):

Accruals as January 1, 2013	  	$	 420	  	
Additional abandoned leases	  	 	99	 	
Extinguishments	  	 	—  	 	
Accretion and adjustments	  	 	112	 	
Payments	  	 	(316	) 	
	  	 	 	 	
Accruals at June 30, 2013	  	$	315	  	
	  	 	 	 	
Litigation
The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters as appropriate. The Company records litigation accruals for legal matters which are both probable and estimable. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), the Company has determined that it does not have material exposure, or it is unable to develop a range of reasonably possible losses.
Other Contingencies
The Company maintains a self-insurance program for health benefits. As of December 31, 2012 and June 30, 2013, the Company recorded a liability of $360,000 and $432,000, respectively, related to this program.
Tax Matters
The Company is a “flow-through” entity for tax purposes. As such, U.S. federal and state income taxes on net domestic taxable earnings are the obligation of the Company’s members. Accordingly, no provision for U.S. income taxes has been made in the accompanying consolidated financial statements. In contrast to the Company’s domestic entities, the Company’s foreign entities are taxable entities. Income taxes incurred by the foreign subsidiaries are recorded in the “Provision for income taxes,” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of June 30, 2013, the Company does not believe it has any significant uncertain tax positions.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
(9)	Guarantees	
In July 2012, the Company entered into a guarantee of performance by Tails, Inc. (d/b/a RE/MAX Central Atlantic Region) of all of the obligations under the franchise registration in the Commonwealth of Virginia, and all of the preopening obligations under the franchise agreements executed between July 23, 2012 and such time that this guarantee is no longer required by the Commonwealth of Virginia. The Company did not incur any payments under this guarantee in the six month periods ended June 30, 2012 or 2013 and does not anticipate that it will incur any payments through the duration of the guarantee.
In May 2013, the Company entered into a guarantee of the full and prompt payment and performance when due of all obligations due to a financial institution under a commercial line-of-credit agreement and note entered into by the Company’s equity-method investee, in which the Company has a 50% interest. The term of the line-of-credit agreement is twelve months and the total amount of advances requested and unpaid principal balance cannot exceed $12,500,000. The line of credit bears interest at 0.50% over the financial institution’s base rate with a floor of 4.0%. The Company had entered into a similar guarantee during May 2012, which expired as of May 2013. The outstanding balance on the line of credit was approximately $9,285,000 and $7,376,000 as of December 31, 2012 and June 30, 2013, respectively. The Company did not incur any payments under this guarantee in the six-month period ended June 30, 2013 and does not anticipate that it will incur any payments through the duration of the guarantee.
 
(10)	Related-Party Transactions	
The Company’s real estate brokerage operations pay advertising fees to regional and international advertising funds, which promote the RE/MAX brand. These advertising funds are corporations owned by a majority stockholder of RIHI, Inc. as trustee for RE/MAX agents. This stockholder does not receive any compensation from these corporations, as all funds received by the corporations are required to be spent on advertising for the respective regions. During the six month periods ended June 30, 2012 and 2013, the Company’s real estate brokerage operations paid $573,000, and $572,000, respectively, to these advertising funds. These payments are included in “Selling, operating and administrative” expenses in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss).
The Company’s real estate brokerage operations in the Washington, DC area pay regional continuing franchise fees, broker fees, and franchise sales revenue, as do all other RE/MAX franchisees, to a regional franchisor, Tails, Inc. dba RE/MAX Central Atlantic Region, Inc. (Tails, Inc.). Several of the Company’s officers and stockholders of RIHI, Inc. are also stockholders and officers of Tails, Inc. During the six month periods ended June 30, 2012 and 2013, the real estate brokerage operations expensed $123,000 and $147,000 respectively, in fees to Tails, Inc. These payments are included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, the Company’s owned real estate brokerage operations in the Washington DC area record a corresponding payable to Tails, Inc. and its affiliated regional advertising fund. As of December 31, 2012 and June 30, 2013, the amount of the payable was $2,270,000 and $2,388,000, respectively, and is included in “Accounts payable to affiliates” in the accompanying Condensed Consolidated Balance Sheets.
The Company receives continuing franchise fees, broker fees, franchise sales and other franchise revenue from regional franchisors. Several of the Company’s officers and stockholders of RIHI are also stockholders and officers of two of these regional franchisors. During the six month periods ended June 30, 2012 and 2013, the Company received $1,691,000 and $1,736,000, respectively, in revenue from these entities. These
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
amounts are included in continuing franchise fees, broker fees, and franchise sales revenue in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss).
Prior to 2013, the Company paid an annual sponsorship fee to Sanctuary, Inc., a private golf course owned by majority stockholders of RIHI. The Company was named as the presenting sponsor of all charity golf tournaments held at Sanctuary, Inc. Further, the majority stockholders have made and continue to make the golf course available to the Company for business purposes. During the six-month period ended June 30, 2012, the Company paid $595,000 in sponsorship fees and green fees to Sanctuary, Inc. During the six-month period ended June 30, 2013, the majority stockholders of RIHI who own Sanctuary, Inc. allowed the Company to use the golf course for business purposes at no charge.
The Company provides services to certain affiliated entities such as accounting, legal, marketing, technology, human resources, and public relations as well as it allows these companies to share its leased office space. During the six month period ended June 30, 2012 and 2013, the total amounts allocated for services rendered and rent for office space provided on behalf of affiliated entities were $1,687,000 and $1,596,000, respectively. In these cases, the Company bills affiliated companies for their actual or pro rata share of such expenses. Such amounts are generally paid within 30 days and no such amounts were outstanding at December 31, 2012 or June 30, 2013. In addition, affiliated regional franchisors have current outstanding continuing franchise fees, broker fees, and franchise sales revenue amounts due to the Company. Such amounts are included in the “Accounts receivable from affiliates” and “Accounts payable to affiliates” in the accompanying Condensed Consolidated Balance Sheets and comprise the balances from the following entities (in thousands):

 	  	December  31,
2012	 	 	June  30,
2013	 	
Accounts receivable from affiliates:	  				 				
RE/MAX Southwest Region	  	$	11	  	 	$	8	  	
RE/MAX Central Atlantic Region, Inc.	  	 	21	  	 	 	—  	 	
Other	  	 	23	  	 	 	2	  	
	  	 	 	 	 	 	 	 	
Total accounts receivable from affiliates	  	 	55	  	 	 	10	  	
	  	 	 	 	 	 	 	 	
Accounts payable to affiliates:	  				 				
Other	  	 	(2,385	) 	 	 	(2,473	) 	
	  	 	 	 	 	 	 	 	
Total accounts payable to affiliates	  	 	(2,385	) 	 	 	(2,473	) 	
	  	 	 	 	 	 	 	 	
Net accounts payable to affiliates	  	$	(2,330	) 	 	$	(2,463	) 	

(11)	Segment information	
The Company has two reportable segments: Real Estate Franchise Services and Brokerage and Other. Management evaluates the operating results of the Company’s reportable segments based upon revenue and adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA). The Company’s presentation of Adjusted EBITDA may not be comparable to similar measures used by other companies. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
 
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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
Adjusted EBITDA for the reportable segments excludes depreciation, amortization, interest, taxes and is then adjusted for items also used in calculating the Company’s compliance with debt covenants. Adjusted EBITDA for the reportable segments is also a key factor that is used by the Company’s internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of management for purposes of annual and other incentive compensation plans. The additional items that are adjusted to determine Adjusted EBITDA for the reportable segments include gains and losses on the sale of assets and sublease activity, gains and losses on the early extinguishment of debt, depreciation expense, interest expense, loss on sale of assets and loss on extinguishment of debt from non-controlling interest, stock based compensation, non-cash deferred rent expense, and acquisition transaction costs. The Company’s Real Estate Franchise Services segment comprises the operations of the Company’s owned and independent global franchising operations under the RE/MAX ® brand name. All of the Company’s Brokerage offices in the Real Estate Franchise Services segment are franchised. The Company’s Brokerage and Other reportable segment includes the Company’s brokerage services business, the elimination of intersegment revenue and other consolidation entries as well as corporate-wide professional services expenses.
The following tables present the results of the Company’s reportable segments for the six month periods ended June 30, 2012 and 2013, respectively (in thousands):

 	  	Revenue (a)	 	
 	  	For the six months ended
June 30,	 	
 	  	    2012    	 	  	    2013    	 	
Real Estate Franchise Services	  	$	62,892	 	  	$	70,534	 	
Brokerage and Other(b)	  	 	7,276	 	  	 	7,782	 	
	  	 	 	 	  	 	 	 	
Total segment reporting revenues	  	$	70,168	 	  	$	78,316	 	

 	(a)	Transactions between the Real Estate Franchise Services and the Brokerage and Other reportable segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services segment include intercompany amounts paid from the Company’s Brokerage Services business of $883,000 and $867,000 for the six months ended June 30, 2013 and 2012, respectively. Such amounts are eliminated through the Brokerage and Other reportable segment.	
 	(b)	Includes the elimination of transactions between the Real Estate Franchise Services and the Brokerage and Other reportable segments.	

 	  	Adjusted EBITDA	 	
 	  	For the six months  ended
June 30,	 	
 	  	    2012    	 	 	    2013    	 	
Real Estate Franchise Services	  	$	30,123	 	 	$	36,782	 	
Brokerage and Other(c)	  	 	(718	) 	 	 	(82	) 	
	  	 	 	 	 	 	 	 	
Total segment reporting Adjusted EBITDA	  	$	29,405	 	 	$	36,700	 	

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Table of Contents
RMCO, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 
 	(c)	Includes the elimination of transactions between the Real Estate Franchise Services and the Brokerage and Other reportable segments.	

 	  	For the six months  ended
June 30,	 	
 	  	    2012    	 	 	    2013    	 	
Segment Adjusted EBITDA	  	$	29,405	 	 	$	36,700	  	
Less:	  				 				
Depreciation and amortization	  	 	6,443	 	 	 	7,432	 	
Interest expense (income), net	  	 	5,732	 	 	 	6,783	 	
Loss on early extinguishment of debt	  	 	136	 	 	 	134	 	
Stock based compensation	  	 	—  	 	 	 	701	 	
Non-cash straight-line rent expense	  	 	953	 	 	 	710	  	
Gain on sale of assets and sublease	  	 	(298	) 	 	 	(248	) 	
Chairman executive compensation	  	 	1,500	 	 	 	1,500	 	
Acquisition integration costs	  	 	—  	 	 	 	222	  	
Public offering expenses	  	 	—  	 	 	 	3,480	  	
	  	 	 	 	 	 	 	 	
Income before income taxes	  	 	14,939	 	 	 	15,986	  	
Income tax expense	  	 	1,104	 	 	 	1,031	 	
	  	 	 	 	 	 	 	 	
Net income	  	$	13,835	 	 	$	14,955	  	

(12)	Subsequent Event	
On August 9, 2013, RE/MAX Holdings, Inc. entered into agreements to reacquire regional RE/MAX franchise rights in two regions in the U.S., referred to as the Southwest Region (consisting of the States of Arizona, New Mexico and Nevada) and the Central Atlantic Region (consisting of the States of Maryland, West Virginia and Virginia and the District of Columbia), for aggregate consideration of $27,300,000. These acquisitions will enable RE/MAX Holdings, Inc. to continue to expand its owned and operated regional franchising operations. These acquisitions, which are subject to various closing conditions, are expected to close substantially concurrently with RE/MAX Holdings, Inc. initial public offering. RE/MAX Holdings, Inc. intends to use a portion of the net proceeds from its initial public offering to fund the payment of the purchase price for such acquisitions.
 
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Table of Contents
 Independent Auditors’ Report
The Board of Managers
RMCO, LLC:
We have audited the accompanying consolidated financial statements of RE/MAX/KEMCO Partnership, L.P. and its related variable interest entities, which comprise the consolidated statements of income, partners’ capital and noncontrolling interests, and cash flows for the year ended December 31, 2012, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the results of operations and cash flows of RE/MAX/KEMCO Partnership, L.P. and its related variable interest entities for the year ended December 31, 2012, in accordance with U.S. generally accepted accounting principles.
/s/ KPMG, LLP
Denver, Colorado
June 20, 2013
 
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Table of Contents
 RE/MAX/KEMCO PARTNERSHIP, L.P.
Consolidated Statement of Income
Year ended December 31, 2012

 	  	Year Ended
December 31, 2012	 	
Revenue:	  				
Continuing franchise fees	  	$	5,878,619	 	
Broker fees	  	 	2,507,989	 	
Franchise sales	  	 	201,276	 	
Other income	  	 	491,247	 	
	  	 	 	 	
Total revenue	  	 	9,079,131	 	
	  	 	 	 	
Operating expenses:	  				
Selling, general and administrative expenses	  	 	4,547,123	 	
Provision for doubtful accounts and notes receivable	  	 	65,849	 	
Depreciation and amortization	  	 	416,563	 	
	  	 	 	 	
Total operating expenses	  	 	5,029,535	 	
	  	 	 	 	
Operating income	  	 	4,049,596	 	
Other income (expenses):	  				
Interest expense	  	 	(19,628	) 	
Interest income	  	 	38,094	 	
	  	 	 	 	
Net income from continuing operations	  	 	4,068,062	 	
Loss from discontinued operations	  	 	(37,831	) 	
	  	 	 	 	
Net income	  	 	4,030,231	 	
Net income from continuing operations attributable to noncontrolling interests	  	 	(62,138	) 	
Net income from discontinued operations attributable to noncontrolling interests	  	 	(105,520	) 	
	  	 	 	 	
Net income from continuing operations attributable to controlling interests	  	$	3,862,573	 	
	  	 	 	 	
See accompanying notes to financial statements.
 
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Table of Contents
 RE/MAX/KEMCO PARTNERSHIP, L.P.
Consolidated Statement of Partners’ Capital and Noncontrolling Interests
Year ended December 31, 2012

 	  	Partner amount  of
RE/MAX/KEMCO
Partnership, L.P.	 	 	Notes
Receivable
from
Partners	 	 	RE/MAX/
KEMCO
Partners’
Capital	 	 	Noncontrolling
interest	 	  	Total
Partners
Capital	 	
 	  	Units	 	 	Amount	 	 			 			 			  			
Balances at January 1, 2012	  	 	1,080,000	 	 	$	2,777,569	 	 	$	(311,554	) 	 	$	2,466,015	 	 	$	1,304,115	 	  	$	3,770,130	 	
Repurchase of units	  	 	(35,000	) 	 	 	(410,000	) 	 	 	—  	 	 	 	(410,000	) 	 	 	—  	 	  	 	(410,000	) 	
Net income from continuing operations	  	 	—  	 	 	 	4,005,924	 	 	 	—  	 	 	 	4,005,924	 	 	 	62,138	 	  	 	4,068,062	 	
Net income/(loss) from discontinued operations	  	 	—  	 	 	 	(143,351	) 	 	 	—  	 	 	 	(143,351	) 	 	 	105,520	 	  	 	(37,831	) 	
Distributions to partners	  	 	—  	 	 	 	(5,053,739	)	 	 	—  	 	 	 	(5,053,739	)	 	 	—  	 	  	 	(5,053,739	) 	
Payments on notes receivable from partners	  	 	—  	 	 	 	—  	 	 	 	156,704	 	 	 	156,704	 	 	 	—  	 	  	 	156,704	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Balances at December 31, 2012	  	 	1,045,000	 	 	$	1,176,403	 	 	 	(154,850	)	 	$	1,021,553	 	 	$	1,471,773	 	  	$	2,493,326	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
See accompanying notes to financial statements.
 
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 RE/MAX/KEMCO PARTNERSHIP, L.P.
Consolidated Statement of Cash Flows
Year ended December 31, 2012

 	  	Year Ended
December 31, 2012	 	
Cash flows from operating activities:	  				
Net income	  	$	4,030,231	  	
Less: Total (income) loss from discontinued operations	  	 	37,831	  	
	  	 	 	 	
Income from continuing operations	  	 	4,068,062	  	
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:	  				
Depreciation and amortization	  	 	416,563	 	
Provision for doubtful accounts and notes receivable	  	 	65,849	 	
Changes in operating assets and liabilities:	  				
Accounts receivable	  	 	25,118	 	
Notes receivable	  	 	265,232	 	
Accounts and notes receivable from affiliates	  	 	83,920	 	
Prepaid expenses	  	 	(12,521	)	
Accounts payable	  	 	70,584	 	
Accounts payable to affiliates	  	 	499,437	 	
Accrued liabilities	  	 	1,656	 	
Deferred revenue	  	 	28,725	 	
Net cash used in operating activities discontinued operations	  	 	(24,290	) 	
	  	 	 	 	
Net cash provided by operating activities	  	 	5,488,335	 	
	  	 	 	 	
Cash flows from investing activity:	  				
Purchase of property and equipment	  	 	(12,865	) 	
	  	 	 	 	
Net cash used in investing activity	  	 	(12,865	) 	
Cash flows from financing activities:	  				
Payments on debt	  	 	(90,000	) 	
Payments on repurchase of units	  	 	(161,495	) 	
Payments on notes receivable from partners	  	 	156,704	 	
Distributions to partners	  	 	(5,053,739	) 	
Net cash used in financing activities of discontinued operations	  	 	(126,546	) 	
	  	 	 	 	
Net cash used in financing activities	  	 	(5,275,076	) 	
Net increase in cash and cash equivalents	  	 	200,394	 	
Cash and cash equivalents, beginning of year	  	 	292,679	 	
	  	 	 	 	
Cash and cash equivalents, end of year	  	$	493,073	 	
	  	 	 	 	
Supplemental disclosures of cash flow information:	  				
Cash paid during the year for interest, continuing operations	  	$	19,628	 	
Cash paid during the year for interest, discontinued operations	  	 	84,099	 	
Schedule of noncash financing activities:	  				
Repurchase of units for notes payable	  	$	332,839	 	
See accompanying notes to financial statements.
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
 Notes to Consolidated Financial Statements
December 31, 2012
 
(1)	Organization and Summary of Significant Accounting Policies	
 
 	(a)	Organization	
RE/MAX/KEMCO Partnership, L.P. (the Partnership) owns the rights to sell RE/MAX franchises covering the state of Texas under regional franchise agreements issued by RE/MAX, LLC, a wholly owned subsidiary of RMCO, LLC, which expire in 2017. The accompanying consolidated financial statements include the accounts of the Partnership and variable interest entities (VIEs) where the Partnership is the primary beneficiary, collectively referred to as the Company.
The Partnership’s revenues are derived from continuing franchise and broker fees from franchisees and agents and the sale of real estate brokerage franchises. The Partnership grants franchisees a license to use the RE/MAX name, trademark, promotional and operating materials, and concepts. The residential real estate market tends to be cyclical and typically is affected by changes in general economic conditions which are beyond the Company’s control. Declines in the residential real estate market as well as other macro-economic conditions, including fluctuations in debt and equity capital markets, levels of unemployment, consumer confidence and the general condition of the U.S. and the global economy have and may continue to impact the consolidated financial results of the Partnership.
Effective on the close of business on December 31, 2012, RE/MAX, LLC acquired certain assets of the Partnership, including the regional franchise agreements, issued by RE/MAX, LLC, permitting the sale of RE/MAX franchises in the state of Texas. The purchase price was $45,500,000 and was paid in cash.
 
 	(b)	Significant Accounting Policies	
Revenue Recognition
Continuing franchise and broker fees are recognized as income in the month they become contractually due and payable under the terms of the franchise agreements.
A franchise sale is recognized upon the sale of a real estate franchise. Upon the sale, the Partnership has no significant operational obligations; substantially all of the initial company services have been performed and other conditions affecting consummation of the sale have been met. The Partnership provides limited financing of certain franchise sales through the issuance of notes receivable that generally bear interest at a rate of 6%, which is fixed at the inception of the note.
In the event the franchisee fails to perform under the franchise agreement or defaults on the purchase obligations, the Partnership has the right to reacquire the franchise and to resell or operate that specific franchise.
Trade accounts receivable are recorded at the time they become contractually due and payable under the terms of the franchise agreement and do not bear interest. The Partnership has not and does not intend to sell these receivables. Notes receivable represent trade receivables under formal repayment provisions. Amounts collected on notes receivable are included in net cash provided by operating activities in the consolidated statement of cash flows. The allowance for doubtful accounts and notes is the Partnership’s best estimate of the amount of probable credit losses in the Partnership’s existing accounts and notes receivable, and is based on historical experience, industry and general economic conditions, and the attributes of specific accounts. Account and note balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
Notes to Consolidated Financial Statements (continued)
December 31, 2012
 
For the year ended December 31 2012, bad debt expense related to trade accounts and notes receivable was approximately $66,000 and is reflected in provision for doubtful debt and notes in the accompanying consolidated statement of income.
Income Taxes
Federal taxes on net taxable earnings are payable personally by the Company’s partners pursuant to the Company’s elections to be considered flow-through entities for tax purposes under Subchapter K of the Internal Revenue Code. Accordingly, no provision has been made for federal taxes in the accompanying consolidated financial statements.
The Partnership is subject to Texas franchise tax. For the year ended December 31, 2012, the estimated Texas franchise tax expense is $52,000 and is reflected in selling, general and administrative expenses in the accompanying consolidated statement of income.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company does not believe it has any significant uncertain tax positions. Accordingly, the Company did not record any adjustments or recognize interest expense for uncertain tax positions for the year ended December 31, 2012.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant areas in which management uses estimates and assumptions include allowance for doubtful accounts and notes receivable and the determination of revenue to be deferred related to collectability of amounts due. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Partnership and VIEs where the Partnership was considered the primary beneficiary. See Note 2 for disclosure regarding the Partnership’s participation in VIEs. All significant intercompany accounts and transactions have been eliminated in consolidation.
Land, Property and Equipment
Land, property, and equipment are stated at cost. Depreciation is provided for on a straight-line method over the estimated useful life of each asset and commences when property is placed in service.
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
Notes to Consolidated Financial Statements (continued)
December 31, 2012
 
Long-Lived Assets
The Company reviews its long-lived assets and franchise agreements subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of December 31, 2012, there were no impairments indicated for such assets.
Discontinued Operations
In December 2012, RMX Acquisitions, LLC (RMX Acquisitions), a consolidated VIE of the Partnership, committed to a plan to sell its sole operating asset, an aircraft used for business purposes. This entity is wholly owned by a partner of the Partnership. On January 10, 2013, RMX Acquisitions entered into a contract to sell the aircraft and on January 22, 2013 completed the sale. Upon the sale of the aircraft, the Partnership is no longer the primary beneficiary of this entity. The carrying amount of the aircraft at December 31, 2012 approximated the amount for which it is sold. Revenues earned by RMX Acquisitions, net of any expenses paid are allocable to the member of RMX Acquisitions and are considered income from discontinued operations in the accompanying consolidated statement of income. Unless otherwise indicated, amounts and discussions in these notes pertain to the Company’s continuing operations.
 
(2)	Variable Interest Entities	
 
 	(a)	Evermore Real Estate Holdings, LLC	
Evermore Real Estate Holdings, LLC (Evermore) owns an office building leased by the Partnership. The single member of Evermore is also a partner of the Partnership. As Evermore is dependent on the Partnership for its primary source of revenue, Evermore is considered a VIE. Further, the Partnership determined that it is the primary beneficiary of the VIE and, therefore, included the accounts of Evermore in its consolidated financial statements.
 
 	(b)	RMX Acquisitions, LLC	
RMX Acquisitions owned an aircraft leased by the Partnership. The single member of RMX Acquisitions is also a partner of the Partnership. As RMX Acquisitions is dependent on the Partnership for its primary source of revenue, RMX Acquisitions is considered a VIE. Further, the Partnership determined that it is the primary beneficiary of the VIE and, therefore, included the accounts of RMX Acquisitions in its consolidated financial statements.
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
Notes to Consolidated Financial Statements (continued)
December 31, 2012
 
For the year ended December 31, 2012, the income statements for Evermore and RMX Acquisitions are summarized as follows:

 	  	Evermore	 	 	RMX
Acquisitions	 	 	Total	 	
Revenues:	  				 				 				
Other income	  	$	255,196	  	 	$	218,790	  	 	$	473,986	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	255,196	  	 	 	218,790	  	 	 	473,986	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating costs and expenses:	  				 				 				
Selling, general and administrative expenses	  	 	145,170	  	 	 	15,630	  	 	 	160,800	  	
Depreciation and amortization	  	 	42,119	  	 	 	13,541	  	 	 	55,660	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total operating costs and expenses	  	 	187,289	  	 	 	29,171	  	 	 	216,460	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	67,907	  	 	 	189,619	  	 	 	257,526	  	
Other expenses:	  				 				 				
Interest expense	  	 	(5,769	) 	 	 	(84,099	) 	 	 	(89,868	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	62,138	  	 	$	105,520	  	 	$	167,658	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
At December 31, 2012, the member’s interest in Evermore totaled $1,261,843, and the member’s interest in RMX Acquisitions, a discontinued operation, totaled $209,930.
 
(3)	Land, Property and Equipment	
Land, property and equipment consist of the following at December 31, 2012:

 	  	Depreciable life	  	2012	 	
	  	Shorter of estimated useful life or	  				
Leasehold improvements	  	life of lease	  	$	18,065	  	
Land	  	Not depreciable	  	 	85,000	  	
Building and improvements	  	39 years	  	 	1,642,652	  	
Office furniture, fixtures and equipment	  	3 – 7 years	  	 	199,738	  	
	  		  	 	 	 	
	  		  	 	1,945,455	  	
Less accumulated depreciation	  		  	 	(550,500	) 	
	  		  	 	 	 	
	  		  	$	1,394,955	  	
	  		  	 	 	 	
Depreciation expense for the year ended December 31, 2012 was $65,308.
 
(4)	Franchise Agreements	
The Partnership owns the rights to sell RE/MAX franchises covering the state of Texas under regional franchise agreements issued by RE/MAX, LLC. The franchise agreements are being amortized over the remaining terms, which expire in 2017.
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
Notes to Consolidated Financial Statements (continued)
December 31, 2012
 
The estimated future amortization of the franchise agreements is as follows:

Year ending December 31:	  				
2013	  	$	351,255	  	
2014	  	 	351,255	  	
2015	  	 	351,255	  	
2016	  	 	351,255	  	
2017	  	 	68,565	  	
	  	 	 	 	
	  	$	1,473,585	  	
	  	 	 	 	
Amortization expense for the year ended December 31, 2012 was $351,255.
 
(5)	Debt	
Debt consists of the following as of December 31, 2012:

JP Morgan Chase Bank, N.A. loan	  	$	157,500	  	
Allegiance Bank Texas loan	  	 	1,309,326	  	
JPMorgan Chase, N.A. Loan
On October 20, 2009, the Partnership’s VIE, Evermore, entered into a credit agreement with JPMorgan Chase Bank, N.A. for a $450,000 loan. The significant terms and conditions of the credit agreement are as follows:
 
 	•	 	Interest rates with respect to the loan are based on the greater of (a) JPMorgan Chase Bank, N.A.’s prime rate, less 0.50% and (b) adjusted one month LIBOR, equaling 2.5% per annum plus the quotient of (1) the one-month LIBOR divided by (2) one minus the reserve requirement applicable to dollar deposits in the London InterBank market with a maturity equal to one month.	
 
 	•	 	On the 20th of each month, mandatory principal payments of $7,500 are due commencing November 20, 2009 through October 20, 2014.	
 
 	•	 	The interest rate payable on the loan at December 31, 2012 was 2.75%, which was based on the prime rate 3.25% less 0.50%.	
 
 	•	 	The loan is secured by a deed of trust on the building owned by Evermore. There is no recourse to the general credit of the Partnership.	
Allegiance Bank Texas Loan
On October 20, 2010, the Partnership’s VIE, RMX Acquisitions, entered into a credit agreement with Allegiance Bank Texas for a $1,574,867 loan. The significant terms and conditions of the credit agreement are as follows:
 
 	•	 	Interest rate with respect to the loan is 6.0% per annum.	
 
 	•	 	The loan is secured by the aircraft owned by RMX Acquisitions. In conjunction with the sale of the aircraft on January 22, 2013, the loan was paid in full on January 22, 2013. See Note 1 for disclosure regarding the sale of the aircraft.	
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
Notes to Consolidated Financial Statements (continued)
December 31, 2012
 
 	•	 	Prior to early payment on January 22, 2013, mandatory payments of $17,554 were due commencing November 20, 2010 through October 20, 2015, at which time a final payment of approximately $881,000 was due. The monthly payments included both principal and interest.	
 
 	•	 	The loan is guaranteed by the controlling partner of the Partnership. There is no recourse to the general credit of the Partnership.	
 
 	•	 	The credit agreement provides for restrictions on, among other things, additional indebtedness, business activities substantially different than those in which RMX Acquisitions currently operates, consolidations or liquidations, and loans or advances to any person.	
 
(6)	Partners’ Capital	
The Partnership has one general partner and four limited partners with varying partnership interests. Distributions are made monthly and are applied against the partners’ capital balances. During January 2012, a limited partner sold his partnership interest back to the Partnership for $410,000 of notes payable.
 
(7)	Commitments and Contingencies	
Commitments
The Partnership leases office space and equipment under noncancelable operating leases. Future minimum payments under these leases and commitments are as follows:

 	  	Rent
payments	 	
Year ending December 31:	  				
2013	  	$	20,211	  	
2014	  	 	1,881	  	
	  	 	 	 	
	  	$	22,092	  	
	  	 	 	 	
Minimum rent payments under noncancelable operating leases are recognized on a straight-line basis over the terms of the leases. Total rent expense was $47,700 for the year ended December 31, 2012.
During July 2012, the Partnership entered into a two-year lease extension for its office space and storage facility with its consolidated VIE, Evermore. Lease payments made to Evermore during the year ended December 31, 2012 amounted to $141,600.
During February 2010, the Partnership entered into a three-year lease agreement for the use of an aircraft with its consolidated VIE, RMX Acquisitions. Lease and sales tax payments made to RMX Acquisitions during the year ended December 31, 2012 amounted to $219,000. The Partnership was responsible for substantially all operating expenses of the aircraft as well.
Litigation
The Company is subject to litigation claims arising in the ordinary course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
Notes to Consolidated Financial Statements (continued)
December 31, 2012
 
Legal costs incurred in connection with loss contingencies are expensed as incurred. It is the opinion of the Company’s management that all claims and litigation involving the Company are not likely to have a material adverse effect on its financial position or results of operations.
 
(8)	Defined-Contribution Savings Plan	
The Company sponsors a safe harbor employee retirement plan (401(k) Plan) that provides employees of the Company an opportunity to accumulate funds for retirement. The Company provides matching contributions. During the year ended December 31, 2012, the Company expensed approximately $53,000 for matching contributions to the 401(k) Plan.
 
(9)	Related-Party Transactions	
The Company’s administrative personnel are employed by Kemco, L.P., a partner of the Partnership. For the year ended December 31, 2012, Kemco, L.P. charged approximately $2,120,000 in salaries and benefit costs to the Company. These charges are included in selling, general and administrative expenses in the accompanying consolidated statement of income. As of December 31, 2012, Kemco, L.P. owed the Company approximately $61,000.
The Partnership performs administrative tasks for and routinely shares costs with the Institutional Promotional Fund (the IPF), an advertising corporation that promotes the RE/MAX brand. The IPF is a corporation owned by the partners of the Partnership. As of December 31, 2012, the Partnership owed approximately $1,018,000 to the IPF.
The Partnership pays administrative costs for Texas Sentinels Foundation, Inc, a 501(c)(3) nonprofit foundation founded by a partner of the Company. During the year ended December 31, 2012, the Partnership paid approximately $137,000 in payments to Texas Sentinels Foundation, Inc. These payments are included in selling, general and administrative expenses in the accompanying consolidated statement of income.
A partner of the Partnership owns RE/MAX brokerage operations in Texas that pay regional continuing franchise fees, broker fees, and franchise sales, as do all other RE/MAX franchisees, to the Partnership. During the year ended December 31, 2012, the real estate brokerage operations paid approximately $252,000 and $132,000 in continuing franchise fees and broker fees, respectively, to the Partnership. These payments are included in continuing franchise fees and broker fees, respectively, in the accompanying consolidated statement of income. During the year ended December 31, 2012, the real estate brokerage operations paid approximately $10,000 under notes payable to the Partnership. As of December 31, 2012, the real estate brokerage operations owed approximately $7,000 to the Partnership.
On July 1, 2010, the Partnership loaned a limited partner $299,020 with a 5% interest rate, collateralized by partnership units. The loan matures on May 31, 2015. As of December 31, 2012, the limited partner owed the Partnership approximately $124,000 on the loan and is included as an offset to partners’ capital in the accompanying consolidated statement of partners’ capital and noncontrolling interest. For the year ended December 31, 2012, the Partnership recognized approximately $8,000 in interest income related to this loan.
On July 1, 2009, the Partnership loaned a limited partner $299,020 with a 5% interest rate, collateralized by partnership units. The loan matures on June 30, 2014. As of December 31, 2012, the limited partner owed the Partnership approximately $31,000 on the loan and is included as an offset to partners’ capital in the
 
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RE/MAX/KEMCO PARTNERSHIP, L.P.
Notes to Consolidated Financial Statements (continued)
December 31, 2012
 
accompanying consolidated statement of partners’ capital and noncontrolling interest. For the year ended December 31, 2012, the Partnership recognized approximately $4,000 in interest income related to this loan.
The Partnership provides services to certain affiliated entities such as accounting and technology. During the year ended December 31, 2012, $222,000 was paid from the affiliated entities to the Partnership for its services. These payments are included as a reduction to selling, general and administrative expenses in the accompanying consolidated statement of income.
The Partnership’s consolidated VIE, RMX Acquisitions, leases an aircraft to the Partnership. A partner of the Partnership who is also the single member of RMX Acquisitions uses the aircraft for personal use. As of December 31, 2012, personal use of the aircraft totaled $75,439. These payments are included as income from discontinued operations in the accompanying consolidated statement of income.
 
(10)	Subsequent Events	
Management has evaluated all subsequent events through June 20, 2013, the date the consolidated financial statements were available to be issued.
 
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13.	Other Expenses of Issuance and Distribution	
The following table sets forth the costs and expenses, other than the underwriting discount, payable by the registrant in connection with the sale and distribution of the securities being registered. All amounts are estimated except the SEC registration fee, the FINRA filing fee and the          listing fee.

 	  	Amount to be paid	 	
SEC Registration Fee	  	$	13,640	  	
FINRA Filing Fee	  	 	15,500	  	
Initial NYSE Listing Fee	  	 	*	  	
Legal Fees and Expenses	  	 	*	  	
Accounting Fees and Expenses	  	 	*	  	
Printing and Engraving Expenses	  	 	*	  	
Blue Sky Fees and Expenses	  	 	*	  	
Transfer Agent and Registrar Fees	  	 	*	  	
Miscellaneous Expenses	  	 	*	  	
	  	 	 	 	
Total	  	$	*	  	

*	To be filed by amendment.	
 
Item 14.	Indemnification of Directors and Officers	
Section 102(b)(7) of the Delaware General Corporation Law (“DGCL”) provides that a corporation may, in its original certificate of incorporation or an amendment thereto, eliminate or limit the personal liability of a director for violations of the director’s fiduciary duty, except (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends or unlawful stock purchases or redemptions or (4) for any transaction from which a director derived an improper personal benefit. Our certificate of incorporation provides for such limitation of liability.
Section 145 of the DGCL provides that a corporation may indemnify any person, including an officer or director, who is, or is threatened to be made, party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of such corporation, by reason of the fact that such person was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the corporation’s best interest and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify any officer or director in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred.
Our certificate of incorporation as it will be in effect upon the completion of this offering provides for the indemnification of directors to the fullest extent permissible under Delaware law.
 
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Our bylaws as will be in effect upon the completion of this offering provide for the indemnification of officers and directors acting on our behalf if this person acted in good faith and in a manner reasonably believed to be in and not opposed to our best interest, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful.
In addition, we have entered into separate indemnification agreements with each of our executive officers and directors, a form of which is filed as Exhibit 10.2 hereto. Such agreements may require us, among other things, to advance expenses and otherwise indemnify our executive officers and directors against certain liabilities that may arise by reason of their status or service as executive officers or directors, to the fullest extent permitted by law. We intend to enter into indemnification agreements with any new directors and executive officers in the future.
Upon the consummation of this offering, RMCO, LLC intends to enter into its fourth amended and restated limited liability company agreement, which will provide for indemnification of certain of its stockholders for certain liabilities arising under the Securities Act.
The underwriting agreement (filed as Exhibit 1.1 hereto) provides for indemnification by the underwriters of our directors and officers for certain liabilities arising under the Securities Act.
We intend to purchase and maintain insurance on behalf of us and any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in that capacity, subject to certain exclusions and limits of the amount of coverage.
 
Item 15.	Recent Sales of Unregistered Securities	
Since December 31, 2009, we have sold the following unregistered securities:
 
 	1.	On April 16, 2010, RMCO, LLC issued 112,500 Class A preferred units to Weston Presidio V, L.P. for an aggregate purchase price of $30.0 million.	
 
 	2.	On November 15, 2012, RMCO, LLC issued options to purchase 31,500 units of Class B units, at an exercise price of $90.08.	
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the registrant believes that each transaction was exempt from the registration requirements of the Securities Act in reliance on Section 4(2) of the Securities Act (or Rule 506 of Regulation D promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or pursuant to a compensatory benefit plan approved by the registrant’s board of directors. Each recipient of the securities in these transactions represented his, her or its intention to acquire the securities for investment only and not with a view to, or for resale in connection with, any distribution thereof, and appropriate legends were affixed to the share certificates issued in each such transaction. In each case, the recipient received adequate information about the registrant or had adequate access, through his, her or its relationship with the registrant, to information about the registrant. The sales of these securities were made without any general solicitation or advertising.
 
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Item 16.	Exhibits and Financial Statement Schedules	
 
 	(a)	Exhibits	

Exhibit
Number	 	Description of Exhibit	
  1.1*	 	Form of Underwriting Agreement.	
		
  2.1*	 	Asset Purchase Agreement, dated as of December 31, 2012, by and among RE/MAX/KEMCO Partnership, L.P., d/b/a RE/MAX of Texas, RE/MAX, LLC and Richard Filip, Charles El-Moussa, Brian Parker and Philip Leung. (Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any omitted exhibits and schedules upon request by the SEC.)	
		
  3.1*	 	Form of Amended and Restated Certificate of Incorporation of RE/MAX Holdings, Inc., to be in effect upon completion of this offering.	
		
  3.2*	 	Form of Bylaws of RE/MAX Holdings, Inc., to be in effect upon completion of this offering.	
		
  4.1*	 	Form of RE/MAX Holdings, Inc.’s Class A common stock certificate.	
		
  5.1*	 	Opinion of Morrison & Foerster LLP.	
		
10.1*†	 	RE/MAX Holdings, Inc. 2013 Stock Incentive Plan and related documents.	
		
10.2*†	 	Form of Stock Option Grant Agreement.	
		
10.3*†	 	Form of Indemnification Agreement by and between RE/MAX Holdings, Inc. and each of its directors and executive officers.	
		
10.4	 	Credit Agreement, dated as of July 31, 2013, among RMCO, LLC, RE/MAX, LLC, the several lenders from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent.	
		
10.5	 	Lease, dated April 16, 2010, by and between Hub Properties Trust and RE/MAX International, LLC.	
		
10.6*	 	Employment Agreement, dated as of March 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and Margaret M. Kelly.	
		
10.7*	 	Employment Agreement, dated as of March 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and David M. Metzger.	
		
10.8* 	 	Employment Agreement, dated as of July 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and Geoffrey Lewis.	
		
10.9* 	 	Employment Agreement, dated as of October 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and Mike Ryan.	
		
10.10*	 	Form of Registration Rights Agreement by and among RE/MAX Holdings, Inc., Weston Presidio V, L.P., RIHI, Inc. and the stockholders party thereto.	
		
10.11*	 	Form of Management Services Agreement.	
		
10.12*	 	Form of RMCO, LLC fourth amended and restated limited liability company agreement.	
		
10.13*	 	Form of Tax Receivable Agreement.	
		
21.1	 	Subsidiary List of RE/MAX Holdings, Inc.	
		
23.1	 	Consent of Independent Registered Public Accounting Firm for RMCO, LLC.	
		
23.2	 	Consent of Independent Auditors for RE/MAX/KEMCO Partnership.	
		
23.3	 	Consent of Independent Registered Public Accounting Firm for RE/MAX Holdings, Inc.	
		
23.4*	 	Consent of Counsel (included in exhibit 5.1).	
		
24.1‡	 	Power of Attorney (included on signature page).	

*	To be filed by amendment.	
†	Indicates a management contract or compensatory plan or arrangement.	
‡	Previously filed.	
 
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 	(b)	Financial Statement Schedules	
All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted.
 
Item 17.	Undertakings	
Insofar as indemnification for liabilities arising under the Securities Act may be permitted as to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus as filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
 
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on the 16 th day of August, 2013.

RE/MAX HOLDINGS, INC.	
		
By:	 	/s/     Geoffrey D. Lewis	
	 	Geoffrey D. Lewis
Senior Vice President and
Chief Legal Officer	
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

Signature	  	Title	 	Date	
			
    *        
Dave L. Liniger	  	Chairman of the Board and Co-Founder
(Principal Executive Officer)	 	August 16, 2013	
			
    *        
Margaret M. Kelly	  	Chief Executive Officer and Director
(Principal Executive Officer)	 	August 16, 2013	
			
    *        
David M. Metzger	  	Chief Operating Officer and Chief
Financial Officer
(Principal Financial Officer and Principal Accounting Officer)	 	August 16, 2013	
			
*
Gail A. Liniger	  	Vice Chair of the Board and Co-Founder	 	August 16, 2013	
			
*
Vincent J. Tracey	  	President and Director	 	August 16, 2013	
			
*
Gilbert Baird III	  	Director	 	August 16, 2013	
			
*
Scott M. Bell	  	Director	 	August 16, 2013	
			
*
Richard O. Covey	  	Director	 	August 16, 2013	
			
*
Kathleen J. Cunningham	  	Director	 	August 16, 2013	
			
*
Roger J. Dow	  	Director	 	August 16, 2013	
			
*
David L. Ferguson	  	Director	 	August 16, 2013	

Table of Contents

Signature	  	Title	 	Date	
			
*
Ronald E. Harrison	  	Director	 	August 16, 2013	
			
*
Daryl L. Jesperson	  	Director	 	August 16, 2013	
			
*
Daniel J. Predovich	  	Director	 	August 16, 2013	
				
* By: 	 	/s/ Geoffrey D. Lewis
Geoffrey D. Lewis
Attorney-in-fact	  		 		

Table of Contents
EXHIBIT INDEX

Exhibit
Number	 	Description of Exhibit	
  1.1*	 	Form of Underwriting Agreement.	
		
  2.1*	 	Asset Purchase Agreement, dated as of December 31, 2012, by and among RE/MAX/KEMCO Partnership, L.P., d/b/a RE/MAX of Texas, RE/MAX, LLC and Richard Filip, Charles El-Moussa, Brian Parker and Philip Leung. (Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any omitted exhibits and schedules upon request by the SEC.)	
		
  3.1*	 	Form of Amended and Restated Certificate of Incorporation of RE/MAX Holdings, Inc., to be in effect upon completion of this offering.	
		
  3.2*	 	Form of Bylaws of RE/MAX Holdings, Inc., to be in effect upon completion of this offering.	
		
  4.1*	 	Form of RE/MAX Holdings, Inc.’s Class A common stock certificate.	
		
  5.1*	 	Opinion of Morrison & Foerster LLP.	
		
10.1*†	 	RE/MAX Holdings, Inc. 2013 Stock Incentive Plan and related documents.	
		
10.2*†	 	Form of Stock Option Grant Agreement.	
		
10.3*†	 	Form of Indemnification Agreement by and between RE/MAX Holdings, Inc. and each of its directors and executive officers.	
		
10.4	 	Credit Agreement, dated as of July 31, 2013, among RMCO, LLC, RE/MAX, LLC, the several lenders from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent.	
		
10.5	 	Lease, dated April 16, 2010, by and between Hub Properties Trust and RE/MAX International, LLC.	
		
10.6*	 	Employment Agreement, dated as of March 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and Margaret M. Kelly.	
		
10.7*	 	Employment Agreement, dated as of March 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and David M. Metzger.	
		
10.8*	 	Employment Agreement, dated as of July 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and Geoffrey Lewis.	
		
10.9*	 	Employment Agreement, dated as of October 1, 2010, by and between RE/MAX International Holdings, Inc., RE/MAX, LLC and Mike Ryan.	
		
10.10*	 	Form of Registration Rights Agreement by and among RE/MAX Holdings, Inc., Weston Presidio V, L.P., RIHI, Inc. and the stockholders party thereto.	
		
10.11*	 	Form of Management Services Agreement.	
		
10.12*	 	Form of RMCO, LLC fourth amended and restated limited liability company agreement.	
		
10.13*	 	Form of Tax Receivable Agreement.	
		
21.1	 	Subsidiary List of RE/MAX Holdings, Inc.	
		
23.1	 	Consent of Independent Registered Public Accounting Firm for RMCO, LLC.	
		
23.2	 	Consent of Independent Auditors for RE/MAX/KEMCO Partnership.	
		
23.3	 	Consent of Independent Registered Public Accounting Firm for RE/MAX Holdings, Inc.	
		
23.4*	 	Consent of Counsel (included in exhibit 5.1).	
		
24.1‡	 	Power of Attorney (included on signature page).	

*	To be filed by amendment.	
†	Indicates a management contract or compensatory plan or arrangement.	
‡	Previously filed.	

Exhibit 10.4
EXECUTION VERSION

 
$240,000,000
CREDIT AGREEMENT
among
RMCO, LLC,
RE/MAX, LLC,
as Borrower,
The Several Lenders from Time to Time Parties Hereto,
and
JPMorgan Chase Bank, N.A.,
as Administrative Agent
Dated as of July 31, 2013

 
J.P. Morgan Securities LLC,
as Lead Arranger and Sole Bookrunner

TABLE OF CONTENTS

 	 	 	  	Page 	 	
SECTION 1.	 	DEFINITIONS	  	 	1	  	
			
1.1	 	Defined Terms	  	 	1	  	
1.2	 	Other Definitional Provisions	  	 	22	  	
			
SECTION 2.	 	AMOUNT AND TERMS OF COMMITMENTS	  	 	23	  	
			
2.1	 	Term Commitments	  	 	23	  	
2.2	 	Procedure for Term Loan Borrowing	  	 	23	  	
2.3	 	Repayment of Term Loans	  	 	23	  	
2.4	 	Revolving Commitments	  	 	24	  	
2.5	 	Procedure for Revolving Loan Borrowing	  	 	24	  	
2.6	 	Commitment Fees, etc.	  	 	24	  	
2.7	 	Termination or Reduction of Revolving Commitments	  	 	25	  	
2.8	 	Optional Prepayments	  	 	25	  	
2.9	 	Mandatory Prepayments and Commitment Reductions	  	 	25	  	
2.10	 	Conversion and Continuation Options	  	 	26	  	
2.11	 	Limitations on Eurodollar Tranches	  	 	26	  	
2.12	 	Interest Rates and Payment Dates	  	 	27	  	
2.13	 	Computation of Interest and Fees	  	 	27	  	
2.14	 	Inability to Determine Interest Rate	  	 	27	  	
2.15	 	Pro Rata Treatment and Payments	  	 	28	  	
2.16	 	Requirements of Law	  	 	29	  	
2.17	 	Taxes	  	 	30	  	
2.18	 	Indemnity	  	 	33	  	
2.19	 	Change of Lending Office	  	 	33	  	
2.20	 	Replacement of Lenders	  	 	34	  	
2.21	 	Defaulting Lenders	  	 	34	  	
2.22	 	Incremental Facilities	  	 	35	  	
			
SECTION 3.	 	REPRESENTATIONS AND WARRANTIES	  	 	37	  	
			
3.1	 	Financial Condition	  	 	37	  	
3.2	 	No Change	  	 	37	  	
3.3	 	Existence; Compliance with Law	  	 	37	  	
3.4	 	Power; Authorization; Enforceable Obligations	  	 	37	  	
3.5	 	No Legal Bar	  	 	38	  	
3.6	 	Litigation	  	 	38	  	
3.7	 	No Default	  	 	38	  	
3.8	 	Ownership of Property; Liens	  	 	38	  	
3.9	 	Intellectual Property	  	 	38	  	
3.10	 	Taxes	  	 	38	  	
3.11	 	Federal Regulations	  	 	39	  	
3.12	 	Labor Matters	  	 	39	  	
3.13	 	ERISA	  	 	39	  	
3.14	 	Investment Company Act; Other Regulations	  	 	39	  	
3.15	 	Subsidiaries	  	 	40	  	

							
3.16	 	Environmental Matters	  	 	40	  	
3.17	 	Accuracy of Information, etc.	  	 	41	  	
3.18	 	Security Documents	  	 	41	  	
3.19	 	Solvency	  	 	41	  	
3.20	 	Anti-Terrorism Laws	  	 	41	  	
			
SECTION 4.	 	CONDITIONS PRECEDENT	  	 	42	  	
			
4.1	 	Conditions to Initial Loan	  	 	42	  	
4.2	 	Conditions to Each Loan	  	 	44	  	
			
SECTION 5.	 	AFFIRMATIVE COVENANTS	  	 	44	  	
			
5.1	 	Financial Statements	  	 	45	  	
5.2	 	Certificates; Other Information	  	 	45	  	
5.3	 	Payment of Tax and Government Liabilities	  	 	46	  	
5.4	 	Maintenance of Existence; Compliance	  	 	46	  	
5.5	 	Maintenance of Property; Insurance	  	 	47	  	
5.6	 	Inspection of Property; Books and Records; Discussions	  	 	47	  	
5.7	 	Notices	  	 	47	  	
5.8	 	Environmental Laws	  	 	48	  	
5.9	 	Additional Collateral, etc.	  	 	48	  	
5.10	 	Use of Proceeds	  	 	49	  	
5.11	 	Maintenance of Ratings	  	 	50	  	
5.12	 	Deposit Account Control Agreements	  	 	50	  	
5.13	 	Anti-Corruption Laws	  	 	50	  	
			
SECTION 6.	 	NEGATIVE COVENANTS	  	 	50	  	
			
6.1	 	Financial Condition Covenants	  	 	50	  	
6.2	 	Indebtedness	  	 	50	  	
6.3	 	Liens	  	 	52	  	
6.4	 	Fundamental Changes	  	 	54	  	
6.5	 	Disposition of Property	  	 	55	  	
6.6	 	Restricted Payments	  	 	55	  	
6.7	 	Investments	  	 	57	  	
6.8	 	Optional Payments and Modifications of Certain Debt Instruments	  	 	58	  	
6.9	 	Transactions with Affiliates	  	 	58	  	
6.10	 	Sales and Leasebacks	  	 	59	  	
6.11	 	Limitation on Activities of Holdings	  	 	59	  	
6.12	 	Changes in Fiscal Periods	  	 	59	  	
6.13	 	Negative Pledge Clauses	  	 	59	  	
6.14	 	Clauses Restricting Subsidiary Distributions	  	 	60	  	
6.15	 	Lines of Business	  	 	60	  	
6.16	 	Anti-Terrorism Law	  	 	60	  	
6.17	 	Anti-Corruption Law	  	 	60	  	
6.18	 	Embargoed Person	  	 	61	  	
6.19	 	Anti-Money Laundering	  	 	61	  	

							
SECTION 7.	 	EVENTS OF DEFAULT	  	 	61	  	
			
SECTION 8.	 	THE ADMINISTRATIVE AGENT	  	 	64	  	
			
8.1	 	Appointment	  	 	64	  	
8.2	 	Delegation of Duties	  	 	64	  	
8.3	 	Exculpatory Provisions	  	 	65	  	
8.4	 	Reliance by Administrative Agent	  	 	65	  	
8.5	 	Notice of Default	  	 	65	  	
8.6	 	Non-Reliance on Agents and Other Lenders	  	 	65	  	
8.7	 	Indemnification	  	 	66	  	
8.8	 	Agent in Its Individual Capacity	  	 	66	  	
8.9	 	Successor Administrative Agent	  	 	66	  	
			
SECTION 9.	 	MISCELLANEOUS	  	 	67	  	
			
9.1	 	Amendments and Waivers	  	 	67	  	
9.2	 	Notices	  	 	68	  	
9.3	 	No Waiver; Cumulative Remedies	  	 	69	  	
9.4	 	Survival of Representations and Warranties	  	 	69	  	
9.5	 	Payment of Expenses and Taxes	  	 	69	  	
9.6	 	Successors and Assigns; Participations and Assignments	  	 	70	  	
9.7	 	Adjustments; Set-off	  	 	73	  	
9.8	 	Counterparts	  	 	74	  	
9.9	 	Severability	  	 	74	  	
9.10	 	Integration	  	 	74	  	
9.11	 	GOVERNING LAW	  	 	74	  	
9.12	 	Submission To Jurisdiction; Waivers	  	 	74	  	
9.13	 	Acknowledgements	  	 	75	  	
9.14	 	Releases of Guarantees and Liens	  	 	75	  	
9.15	 	Confidentiality	  	 	75	  	
9.16 	 	WAIVERS OF JURY TRIAL	  	 	76	  	
9.17	 	USA PATRIOT Act	  	 	76	  	

SCHEDULES:
 
1.1A	Commitments	
 
1.1B	Immaterial Subsidiaries	
 
3.6	Litigation	
 
3.15	Subsidiaries	
 
3.18(a)	UCC Filing Jurisdictions	
 
5.12	Deposit Accounts	
 
6.2(d)	Existing Indebtedness	
 
6.3(f)	Existing Liens	
 
6.7	Investments	
 
6.9	Transaction with Affiliates	
EXHIBITS:
 
A	Form of Guarantee and Collateral Agreement	
B	Form of Compliance Certificate	
C	Form of New Lender Supplement	
D	Form of Increased Facility Activation Notices	
E	Closing Certificate	
F	Form of Solvency Certificate	
G	Form of Officer Certificate	
H	Form of Perfection Certificate	
I	Form of Assignment and Assumption	
J	Form of Exemption Certificate	
K	Form of Legal Opinion of Morrison & Foerster	
L	Form of Borrowing Notice	
M	Form of Continuation/Conversion Notice	

CREDIT AGREEMENT (this “ Agreement ”), dated as of July 31, 2013, among RMCO, LLC, a Delaware limited liability company (“ Holdings ”), RE/MAX, LLC (f/k/a RE/MAX International, LLC), a Delaware limited liability company (the “ Borrower ”), the several banks and other financial institutions or entities from time to time parties to this Agreement (the “ Lenders ”) and JPMorgan Chase Bank, N.A., as administrative agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms . As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1.
“ ABR ”: for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus  1 / 2 of 1% and (c) the Eurodollar Rate that would be calculated as of such day (or, if such day is not a Business Day, as of the next preceding Business Day) in respect of a proposed Eurodollar Loan with a one-month Interest Period plus 1.0%; provided that the ABR with respect to the Term Facility shall be no less than 2.0%. Any change in the ABR due to a change in the Prime Rate, the Federal Funds Effective Rate or such Eurodollar Rate shall be effective as of the opening of business on the day of such change in the Prime Rate, the Federal Funds Effective Rate or such Eurodollar Rate, respectively.
“ ABR Loans ”: Loans the rate of interest applicable to which is based upon the ABR.
“ Acquisition Consideration ”: the purchase consideration for any Permitted Acquisition, whether paid in cash or by exchange of Capital Stock (other than Capital Stock of Holdings) or of assets or otherwise and whether payable at or prior to the consummation of such Permitted Acquisition or deferred for payment at any future time, whether or not any such future payment is subject to the occurrence of any contingency, based upon the Borrower’s reasonable estimate of any and all payments representing the purchase price and any assumptions of Indebtedness, “earn-outs” and other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any person or business; provided that any such future payment that is subject to a contingency shall be considered Acquisition Consideration only to the extent of the reserve, if any, required under GAAP at the time of such sale to be established in respect thereof by the Borrower or any of its Subsidiaries.
“ Adjustment Date ”: as defined in the Applicable Pricing Grid.
“ Administrative Agent ”: JPMorgan Chase Bank, N.A., together with its Affiliates, as the arranger of the Commitments and as the administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors.
“ Affiliate ”: as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person.
“ Aggregate Exposure ”: with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Commitments at such time and (b) thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lender’s Term Loans and (ii) the amount of such Lender’s Revolving Commitment then in effect or, if the Revolving Commitments have been terminated, the amount of such Lender’s Revolving Loans then outstanding.

“ Aggregate Exposure Percentage ”: with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.
“ Agreement ”: as defined in the preamble hereto.
“ Anti-Corruption Laws ”: all laws, rules, and regulations of any jurisdiction applicable to the Borrower and its affiliated companies concerning or relating to bribery or corruption.
“ Anti-Terrorism Laws ”: as defined in Section 3.20.
“ Applicable Margin ”: for (a) ABR Loans, 2.00% per annum and (b) Eurodollar Loans, 3.00% per annum; provided , that on and after the first Adjustment Date occurring after the completion of the first full fiscal quarter of the Borrower after the Closing Date, the Applicable Margin will be determined pursuant to the Applicable Pricing Grid.
“ Applicable Pricing Grid ”: the table set forth below:

Total Leverage Ratio	  	Applicable Margin for
Eurodollar Loans	 	 	Applicable Margin for
ABR Loans	 	
> 2.25:1.00	  	 	3.00	% 	 	 	2.00	% 	
< 2.25:1.00	  	 	2.75	% 	 	 	1.75	% 	
For the purposes of the Applicable Pricing Grid, changes in the Applicable Margin resulting from changes in the Total Leverage Ratio shall become effective on the date (the “ Adjustment Date ”) that is three Business Days after the date on which financial statements are delivered to the Lenders pursuant to Section 5.1 and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified in Section 5.1, then, until the date that is three Business Days after the date on which such financial statements are delivered, the highest rate set forth in each column of the Applicable Pricing Grid shall apply. In addition, at all times while an Event of Default shall have occurred and be continuing, the highest rate set forth in each column of the Applicable Pricing Grid shall apply. Each determination of the Total Leverage Ratio pursuant to the Applicable Pricing Grid shall be made in a manner consistent with the determination thereof pursuant to Section 6.1.
“ Approved Fund ”: as defined in Section 9.6(b).
“ Asset Sale ”: any Disposition of property or series of related Dispositions of property (excluding any such Disposition permitted by clause (a), (b), (c) (as to RE/MAX Brokerage, LLC and its Subsidiaries), (d), (e), (h), (i), (k), (l) or (m) of Section 6.5) that yields gross proceeds to the Borrower or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $500,000 per Disposition or series of related Dispositions.
“ Assignee ”: as defined in Section 9.6(b).
“ Assignment and Assumption ”: an Assignment and Assumption, substantially in the form of Exhibit I.
 
2

“ Available Revolving Commitment ”: as to any Revolving Lender at any time, an amount equal to the excess, if any, of (a) such Lender’s Revolving Commitment then in effect over (b) such Lender’s Revolving Loans then outstanding.
“ Benefitted Lender ”: as defined in Section 9.7(a).
“ Board ”: the Board of Governors of the Federal Reserve System of the United States (or any successor).
“ Borrower ”: as defined in the preamble hereto.
“ Borrowing Date ”: any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder.
“ Business ”: as defined in Section 3.16(b).
“ Business Day ”: a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, provided , that with respect to notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market.
“ Capital Expenditures ”: for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that, in conformity with GAAP, would be classified as “property, plant or equipment” or any comparable items on a cash flow statement of such Person and its Subsidiaries.
“ Capital Lease Obligations ”: as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP; provided , that, in no event shall the obligations under the Headquarters Lease be treated as Capital Lease Obligations.
“ Capital Stock ”: any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.
“ Cash Equivalents ”: (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of one year or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody’s, or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within 270 days from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more
 
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than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; (g) money market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition; or (h) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000. With respect to any Foreign Subsidiary, “Cash Equivalents” shall also include any Investment substantially comparable to the foregoing but in the currency of the jurisdiction of organization of such Subsidiary, or in Euros or Dollars.
“ Cash Interest Expense ”: for any period, Consolidated Interest Expense for such period, including imputed interest expense for Capital Lease Obligations and excluding any interest expense not payable in cash (such as, for example, amortization of discount, amortization of debt issuance costs and interest payable-in-kind).
“ Change of Control ”: (a) before a Public Market exists, a failure of any combination of Permitted Investors to, directly or indirectly, own and control a majority of the Capital Stock of Holdings with ordinary voting power for the election of directors of Holdings (provided that an initial public offering of the Borrower, Holdings or PubCo that results in a Public Market shall not be deemed to be a Change of Control under this clause (a)); (b) when a Public Market exists, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), excluding the Permitted Investors, shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of greater than 35% of the Capital Stock of Holdings with ordinary voting power for the election of directors of Holdings unless any combination of the Permitted Investors, directly or indirectly, owns or controls a greater percentage; or (c) at any time, a majority of members of the Board of Directors (or equivalent) of Holdings shall cease to consist of Continuing Directors.
“ Closing Date ”: the date on which the conditions precedent set forth in Section 4.1 shall have been satisfied, which date is July 31, 2013.
“ Code ”: the Internal Revenue Code of 1986, as amended from time to time.
“ Collateral ”: all property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document.
“ Commitment ”: as to any Lender, the sum of the Term Commitment and the Revolving Commitment of such Lender.
“ Commitment Fee Rate ”:  1 / 2 of 1% per annum.
“ Commonly Controlled Entity ”: an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower that is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.
 
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“ Compliance Certificate ”: a certificate duly executed by a Responsible Officer substantially in the form of Exhibit B.
“ Confidential Information Memorandum ”: the Confidential Information Memorandum dated July 19, 2013 and furnished to certain Lenders.
“ Consolidated Amortization Expense ”: for any period, the amortization expense of the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
“ Consolidated Current Assets ”: as at any date of determination, the total assets of the Borrower and its Subsidiaries which may properly be classified as current assets on a consolidated balance sheet of Borrower and its Subsidiaries in accordance with GAAP (excluding cash and Cash Equivalents).
“ Consolidated Current Liabilities ”: as at any date of determination, the total liabilities of Borrower and its Subsidiaries which may properly be classified as current liabilities (other than the current portion of any Loans or any other Funded Debt) on a consolidated balance sheet of the Borrower and its Subsidiaries in accordance with GAAP.
“ Consolidated Depreciation Expense ”: for any period, the depreciation expense of the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
“ Consolidated EBITDA ”: for any period, Consolidated Net Income for such period adjusted by (x)  adding thereto, in each case (except for clause (i)) only to the extent (and in the same proportion) deducted in determining such Consolidated Net Income and without duplication (and with respect to the portion of Consolidated Net Income attributable to any Subsidiary of the Borrower only if a corresponding amount would not be prohibited at the date of determination to be distributed to the Borrower by such Subsidiary, pursuant to the terms of its Contractual Obligations and Requirements of Law applicable to such Subsidiary or its equityholders):
(a) Consolidated Interest Expense for such period;
(b) Consolidated Amortization Expense for such period;
(c) Consolidated Depreciation Expense for such period;
(d) Consolidated Tax Expense for such period;
(e) the aggregate amount of all other non-cash charges (other than any write down or write off of receivables or any other payment rights similar to receivables) reducing Consolidated Net Income (excluding any non-cash charge that results in an accrual of a reserve for cash charges in any future period) for such period;
(f) dividends or other equity distributions permitted and included in operating income for such period;
(g) fees and indemnities of directors;
(h) proceeds of business interruption insurance;
 
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(i) the amount of any loss from restructuring charges or reserves (which for the avoidance of doubt, shall include change of control bonuses, retention, escheat, fees related to executive recruiters, severance, relocation, excess pension charges, contract termination costs and future lease commitments); and
(j) costs, fees, expenses and charges related to any Permitted Acquisition, any Investment permitted hereunder, any equity issuance (including any initial public offering of the Borrower, Holdings or PubCo), any Disposition permitted hereunder or the incurrence of any Indebtedness permitted hereunder; and
(y) subtracting therefrom the aggregate amount of all non-cash items increasing Consolidated Net Income (other than the accrual of revenue or recording of receivables in the ordinary course of business) for such period.
Other than for purposes of calculating Excess Cash Flow, Consolidated EBITDA shall be calculated on a pro forma basis (which may include such adjustments as are permitted under Regulation S-X of the SEC and such other adjustments reflecting cost savings certified by a Responsible Officer which are related to actions implemented or to be implemented within one year of the applicable event), to give effect to any Permitted Acquisition and asset Dispositions (other than any asset Disposition in the ordinary course of business) consummated at any time on or after the first day of the four consecutive fiscal quarters thereof as if each such Permitted Acquisition had been effected on the first day of such period and as if each such asset Disposition had been consummated on the day prior to the first day of such period.
“ Consolidated Indebtedness ”: at a particular date, the aggregate stated balance sheet amount of all Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP at such date; provided that it is understood and agreed that the full aggregate principal amount of the Loans then outstanding shall be included in determining the amount of Consolidated Indebtedness; provided further that Consolidated Indebtedness shall (a) exclude (i) any amounts relating to preferred equity, employee consulting arrangements, accrued expenses, deferred rent, deferred taxes, obligations under employment agreements and deferred compensation and (ii) post-closing purchase price adjustments or earn-outs and (b) include any obligations under any Swap Agreements then due and payable that would be reflected on a consolidated balance sheet of the Borrower and its Subsidiaries as of such date.
“ Consolidated Interest Coverage Ratio ”: as at the last day of any period of four consecutive fiscal quarters of the Borrower, the ratio of (a) Consolidated EBITDA for such period to (b) Cash Interest Expense for such period.
“ Consolidated Interest Expense ”: with respect to the Borrower and its Subsidiaries on a consolidated basis for any period, the sum of (a) interest expense determined in accordance with GAAP for such period (net of any cash interest income), plus (i) the amortization of debt discounts, (ii) the amortization of all fees payable in connection with the incurrence of Indebtedness to the extent included in interest expense (but excluding the amortization of debt issuance costs in connection with the Transactions) and (iii) the portion of any payments of accruals with respect to Capital Lease Obligations allocable to interest expense and (b) capitalized interest. Consolidated Interest Expense shall be calculated on a pro forma basis (which may include such adjustments as are permitted under Regulation S-X of the SEC and such other adjustments reflecting cost savings certified by a Responsible Officer which are related to actions implemented or to be implemented within one year of the applicable event) to give effect to any Indebtedness incurred, assumed or permanently repaid or extinguished during the relevant four consecutive fiscal quarters in connection with any Permitted Acquisition and asset dispositions (other than any asset dispositions in the ordinary course of business) as if such incurrence, assumption, repayment or extinguishing had been effected on the first day of such period.
 
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“ Consolidated Net Income ”: for any period, the net income or loss of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded therefrom without duplication:
(a) the income or loss of any Person (other than consolidated Subsidiaries of the Borrower) in which any other Person (other than the Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its Subsidiaries by such Person during such period;
(b) the cumulative effect of a change in accounting principles during such period;
(c) any net after-tax income (loss) from discontinued operations and any net after-tax gains or losses on disposal of discontinued operations;
(d) the income or loss of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person’s assets are acquired by the Borrower or any of its Subsidiaries;
(e) the income of any consolidated Subsidiary to the extent that declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its Contractual Obligations and Requirements of Law;
(f) any (i) extraordinary gain (or extraordinary loss) realized during such period by the Borrower or any of its Subsidiaries or (ii) gain (or loss) realized during such period by the Borrower or any of its Subsidiaries upon an asset Disposition (other than asset Dispositions in the ordinary course of business), in each case, together with any related provision for taxes on any such gain (or the tax effect of any such loss), recorded or recognized by the Borrower or any of its Subsidiaries during such period;
(g) unrealized gains and losses with respect to Swap Agreements during such period;
(h) purchase accounting or similar accounting adjustments required or permitted by GAAP in connection with any Permitted Acquisition;
(i) to the extent reflected in the calculation of such net income or loss, payments under earn-outs to which the seller in any Permitted Acquisition or disposition becomes entitled; and
(j) non-recurring or unusual gains (losses).
“ Consolidated Tax Expense ”: for any period, the tax expense of the Borrower and its Subsidiaries, for such period, determined on a consolidated basis in accordance with GAAP.
“ Consolidated Working Capital ”: at any date, the excess of Consolidated Current Assets on such date over Consolidated Current Liabilities on such date.
“ Continuing Directors ”: the directors (or equivalent group) of Holdings on the Closing Date, after giving effect to the transactions contemplated hereby, and each other director, if, in each case, such other director’s nomination for election to the board of directors of Holdings is recommended by at least a majority of the then Continuing Directors or such other director receives the vote of the Permitted Investors in his or her election by the shareholders of Holdings.
 
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“ Contractual Obligation ”: as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
“ Control Investment Affiliate ”: as to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.
“ Default ”: any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
“ Defaulting Lender ”: any Lender, that has (a) failed to fund any portion of its Revolving Loans within three Business Days of the date required to be funded by it hereunder; (b) notified the Borrower, the Administrative Agent or any Lender orally or in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement, the other Loan Documents or under other agreements in which it commits to extend credit; (c) failed, within three Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement or the other Loan Documents relating to its obligations to fund prospective Revolving Loans; (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute; (e) as to which Administrative Agent has a good faith belief that such Lender has defaulted in fulfilling its obligations (as a lender, agent or letter of credit issuer) generally under other syndicated credit facilities (provided, that, with respect to each Lender that is not an Affiliate of the Loan Parties, the Borrower shall have consented to the determination that such Lender is a “Defaulting Lender” pursuant to this clause (e)); or (f) (i) become or is insolvent or has a parent company that has become or is insolvent or made a general assignment for the benefit of creditors, or (ii) become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or for any substantial part of its assets, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a direct or indirect parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or for any substantial part of its assets or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.
“ Designated Person ”: any Person listed on a Sanctions List.
“ Disposition ”: with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof. The terms “ Dispose ” and “ Disposed of ” shall have correlative meanings.
“ Dollars ” and “ $ ”: dollars in lawful currency of the United States.
“ Domestic Subsidiary ”: any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States.
 
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“ ECF Percentage ”: 50%; provided that, with respect to each fiscal year of the Borrower ending on or after December 31, 2013, the ECF Percentage shall be reduced to 25% if the Total Leverage Ratio as of the last day of such fiscal year is not greater than 2.5 to 1.0 and to 0% if the Total Leverage Ratio as of the last day of such fiscal year is not greater than 1.5 to 1.0.
“ Engagement Letter ”: the Engagement Letter dated May 31, 2013 among J. P. Morgan Securities LLC, JPMorgan Chase Bank, N.A. and the Borrower.
“ Environmental Laws ”: any and all applicable foreign, federal, state, local or municipal laws, rules having the force and effect of law, written orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of worker health or the environment, as now or may at any time hereafter be in effect.
“ ERISA ”: the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ Eurocurrency Reserve Requirements ”: for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.
“ Eurodollar Base Rate ”: with respect to any Eurodollar Loan for any Interest Period, the London interbank offered rate as administered by the British Bankers Association (or any other person which takes over the administration of that rate) for Dollars and period as appearing on pages LIBOR01 or LIBOR02 of the Reuters Screen (or on any successor or substitute page on such screen, or on the appropriate page of such other information service which publishes that rate from time to time in place of Reuters; a “ Screen Rate ”) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. In the absence of a period comparable to the Interest Period being available as a Screen Rate, (a “ Discontinued Interest Period ”), then (provided there are Screen Rates for other Interest Periods for Dollars) the Eurodollar Base Rate shall mean the Interpolated Screen Rate as of approximately 11:00 A.M., London time, two Business Days prior to the commencement of such Interest Period. “ Interpolated Screen Rate ” means the rate per annum determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate which results from interpolating on a linear basis between: (a) the Screen Rate for the longest period (for which that Screen Rate is available for Dollars) which is less than the relevant Discontinued Interest Period and (b) the Screen Rate for the shortest period (for which that Screen Rate is available for Dollars) which exceeds the relevant Discontinued Interest Period, each as of approximately 11:00 A.M. (London time) two Business Days prior to the commencement of the Discontinued Interest Period; provided that the Eurodollar Base Rate with respect to the Term Facility shall be no less than 1.0%.
“ Eurodollar Loans ”: Loans the rate of interest applicable to which is based upon the Eurodollar Rate.
“ Eurodollar Rate ”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula:

	 	Eurodollar Base Rate	 		
	 	1.00 - Eurocurrency Reserve Requirements	 		
 
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“ Eurodollar Tranche ”: the collective reference to Eurodollar Loans under a particular Facility the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day).
“ Event of Default ”: any of the events specified in Section 7, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
“ Excess Cash Flow ”: for any fiscal year of the Borrower, the excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such fiscal year, (ii) the amount of all non-cash charges (including depreciation and amortization) deducted in arriving at such Consolidated Net Income, (iii) decreases in Consolidated Working Capital for such fiscal year, (iv) the aggregate net amount of non-cash loss on the Disposition of property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income and (v) gains excluded from the calculation of Consolidated Net Income by operation of clauses (f), (i) and (j) of the definition thereof that are received in cash during such fiscal year over (b) the sum, without duplication, of (i) the amount of all non-cash credits and gains included in arriving at such Consolidated Net Income, including non-cash gains on the Disposition of property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), (ii) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such fiscal year on account of Capital Expenditures (excluding the principal amount of Indebtedness incurred in connection with such expenditures and any such expenditures financed with the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of Revolving Loans during such fiscal year to the extent accompanying permanent optional reductions of the Revolving Commitments, (iv) the aggregate amount of all regularly scheduled or voluntary principal payments of Funded Debt (other than the Term Loans) of the Borrower and its Subsidiaries made during such fiscal year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder) and the aggregate amount of all regularly scheduled principal payments of the Term Loans made during such fiscal year, (v) increases in Consolidated Working Capital for such fiscal year, (vi) taxes of Borrower and its Subsidiaries that were paid in cash during such fiscal year or will be paid within six months after the end of such fiscal year thereof and for which reserves have been established and Permitted Tax Distributions during such fiscal year, (vii) capitalized interest of the Borrower and its Subsidiaries to the extent not deducted in Consolidated Net Income, (viii) the aggregate amount of Investments under Sections 6.7(d), (f), (i), (k) and (m) and the aggregate amount of Restricted Payments under Sections 6.6(c), (d), (e) or (g), in each case to the extent not deducted in Consolidated Net Income and made with cash during such period, (ix) the aggregate amount paid by the Group Members during such fiscal year in respect of the costs and expenses associated with the Transactions or any initial public offering of the Borrower, Holdings or PubCo to the extent not deducted from Consolidated Net Income, (x) losses excluded from the calculation of Consolidated Net Income by operation of clauses (f), (i) and (j) of the definition thereof that are paid in cash during such fiscal year and (xi) prepayments of the Term Loans pursuant to Section 2.9(b) to the extent such prepayments are made with Net Cash Proceeds from any Asset Sale that are equal to the gains in respect of such Asset Sale included in clause (a)(v) above.
“ Excess Cash Flow Application Date ”: as defined in Section 2.9(c).
“ Excluded Foreign Subsidiary ”: any Foreign Subsidiary in respect of which either (a) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower.
 
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“ Existing Credit Agreement ”: the Credit Agreement, dated as of April 16, 2010 (as amended by the First Amendment and Incremental Commitment Agreement, dated as of December 31, 2012, and as further amended, supplemented or otherwise modified as of the date hereof), among the Borrower, Holdings, the several lenders from time to time parties thereto and the Administrative Agent.
“ Facility ”: each of (a) the Term Commitments and the Term Loans made thereunder (the “ Term Facility ”), (b) the Revolving Commitments and the extensions of credit made thereunder (the “ Revolving Facility ”) and (c) the Incremental Facilities.
“ FATCA ”: Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“ Federal Funds Effective Rate ”: for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by JPMorgan Chase Bank, N.A. from three federal funds brokers of recognized standing selected by it.
“ Fee Payment Date ”: (a) the third Business Day following the last day of each March, June, September and December and (b) the last day of the Revolving Commitment Period.
“ Financial Covenants ”: the covenants set forth in Sections 6.1(a) and (b).
“ Foreign Plan ”: each employee benefit plan (within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA) that is not subject to US law and is maintained or contributed to by any Group Member or any ERISA Affiliate.
“ Foreign Subsidiary ”: any Subsidiary of the Borrower that is not a Domestic Subsidiary.
“ Funded Debt ”: as to any Person, all Indebtedness of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including all current maturities and current sinking fund payments in respect of such Indebtedness (other than Indebtedness hereunder) whether or not required to be paid within one year from the date of its creation.
“ Funding Office ”: the office of the Administrative Agent specified in Section 9.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office by written notice to the Borrower and the Lenders.
“ GAAP ”: generally accepted accounting principles in the United States as in effect from time to time, except that for purposes of Section 6.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements referred to in Section 3.1. In the event that any “Accounting Change” (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into good faith negotiations in order to amend such provisions of this Agreement so as to reflect
 
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equitably such Accounting Changes with the desired result that the criteria for evaluating the Borrower’s financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. “Accounting Changes” refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC.
“ Governmental Authority ”: any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners).
“ Group Members ”: the collective reference to Holdings and the Borrower and its Subsidiaries (other than Immaterial Subsidiaries).
“ Guarantee and Collateral Agreement ”: the Guarantee and Collateral Agreement to be executed and delivered by Holdings, the Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit A.
“ Guarantee Obligation ”: as to any Person (the “ guaranteeing person ”), any obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing Person that guarantees or in effect guarantees, or which is given to induce the creation of a separate obligation by another Person (including any bank under any letter of credit) that guarantees or in effect guarantees, any Indebtedness, leases, dividends or other obligations (the “ primary obligations ”) of any other third Person (the “ primary obligor ”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided , however , that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.
“ Guarantors ”: the collective reference to Holdings and the Subsidiary Guarantors.
“ Headquarters Lease ”: certain lease entered into by Borrower as of April 16, 2010, with respect to 5073, 5075 and 5085 S Syracuse Street, Denver, Colorado 80237 (the “ Headquarters Building ”).
 
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“ Holdings ”: as defined in the preamble hereto.
“ Immaterial Subsidiary ”: any Subsidiary of the Borrower designated by the Borrower as such by notice to the Administrative Agent that, together with the Subsidiaries of such Subsidiary, and all other so-designated Subsidiaries and their respective Subsidiaries, did not, as of such last day of the most recent fiscal quarter of the Borrower for which financial statements have been delivered pursuant hereto, have assets with an aggregate book value in excess of 5% of the total assets of the Borrower and its Subsidiaries on a consolidated basis or, for such period, have aggregate revenues in excess of 5% of the total revenues of the Borrower and its Subsidiaries on a consolidated basis. Notwithstanding the foregoing, the Subsidiaries of the Borrower set forth on Schedule 1.1B attached hereto shall be deemed Immaterial Subsidiaries.
“ Increased Facility Activation Date ”: any Business Day on which any Lender shall execute and deliver to the Administrative Agents an Increased Facility Activation Notice pursuant to Section 2.22(a).
“ Increased Facility Activation Notice ”: a notice substantially in the form of the applicable Exhibit D.
“ Increased Facility Closing Date ”: any Business Day designated as such in an Increased Facility Activation Notice.
“ Incremental Facilities ”: as defined in Section 2.22(a).
“ Incremental Revolving Facility ”: as defined in Section 2.22(a).
“ Incremental Term Facility ”: as defined in Section 2.22(a).
“ Incremental Term Loan ”: any Term Loan made pursuant to Section 2.22(a).
“ Indebtedness ”: of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than current trade payables incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property) (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements, (g) all obligations of such Person in respect of mandatorily redeemable preferred Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above, (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, and (j) for the purposes of Section 7(e) only, obligations of such Person in respect of Swap Agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that
 
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such Person is not liable therefor. Notwithstanding anything to the contrary contained herein, Indebtedness shall not include (i) any amounts relating to employee consulting arrangements, accrued expenses, deferred rent, deferred taxes, obligations under employment agreements and deferred compensation or (ii) post-closing purchase price adjustments or (except to the extent they are required under GAAP to be reflected on a balance sheet of such Person) earn-outs.
“ Insolvency ”: with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.
“ Insolvent ”: pertaining to a condition of Insolvency.
“ Intellectual Property ”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.
“ Interest Payment Date ”: (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan; (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period; (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period; and (d) as to any Loan (other than any Revolving Loan that is an ABR Loan), the date of any repayment or prepayment made in respect thereof.
“ Interest Period ”: as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six (or, if agreed to by all Lenders under the relevant Facility, twelve) months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six (or, if agreed to by all Lenders under the relevant Facility, twelve) months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not later than 11:00 A.M., New York City time, on the date that is three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;
(ii) the Borrower may not select an Interest Period under the Revolving Facility that would extend beyond the Revolving Termination Date or an Interest Period under the Term Facility that would extend beyond the date final payment is due on the Term Loans; and
(iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month.
“ Investments ”: as defined in Section 6.7.
 
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“ Lenders ”: as defined in the preamble hereto.
“ Lien ”: any mortgage, pledge, hypothecation, assignment for security, deposit arrangement for security, encumbrance, lien (statutory or other), charge or other security interest (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing).
“ Loan ”: any loan made by any Lender pursuant to this Agreement.
“ Loan Documents ”: this Agreement, the Security Documents, the Notes and any amendment, waiver, supplement or other modification to any of the foregoing.
“ Loan Parties ”: each Group Member that is a party to a Loan Document.
“ Majority Facility Lenders ”: with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans or the Revolving Loans, as the case may be, outstanding under such Facility (or, in the case of the Revolving Facility, prior to any termination of the Revolving Commitments, the holders of more than 50% of the Total Revolving Commitments).
“ Material Adverse Effect ”: a material adverse effect on (a) the business, property, operations or financial condition of the Borrower and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the material Loan Documents or the material rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder.
“ Materials of Environmental Concern ”: any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
“ Moody’s ”: Moody’s Investors Service, Inc. (or any successor thereto).
“ Mortgaged Properties ”: the owned real properties valued in excess of $250,000, as to which the Administrative Agent for the benefit of the Lenders shall be granted a Lien pursuant to the Mortgages.
“ Mortgages ”: each of the mortgages and deeds of trust made by any Loan Party pursuant to Section 5.9(b) in favor of, or for the benefit of, the Administrative Agent for the benefit of the Lenders, in a form reasonably acceptable to the Administrative Agent.
“ Multiemployer Plan ”: an employee benefit plan that is covered by Title IV of ERISA, in respect of which the Borrower or a Commonly Controlled Entity is an “employer” as defined in Section 3(5) of ERISA and that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“ Net Cash Proceeds ”: (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable, purchase price adjustment receivable, release of escrows and reserves or otherwise, but only as and when received), net of attorneys’ fees, accountants’ fees, investment banking fees, sales commissions, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document), related escrows, reserves established to fund related contingent liabilities reasonably estimated to be
 
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payable and other customary fees, costs and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or incurrence of Indebtedness, the cash proceeds received from such issuance or incurrence, net of attorneys’ fees, investment banking fees, accountants’ fees, sales commissions, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith.
“ New Lender ”: as defined in Section 2.22(a).
“ New Lender Supplement ”: as defined in Section 2.22(b).
“ Non-Excluded Taxes ”: as defined in Section 2.17(a).
“ Non-U.S. Lender ”: as defined in Section 2.17(d).
“ Notes ”: the collective reference to any promissory note evidencing Loans.
“ Obligations ”: the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender (or, in the case of Specified Swap Agreements and Specified Cash Management Agreements, any Affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, any Specified Swap Agreement, any Specified Cash Management Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, reasonable fees, indemnities, costs, expenses (including all reasonable fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto and subject to the limitations set forth in Section 9.5) or otherwise.
“ OFAC ”: the Office of Foreign Assets Control of the U.S. Department of Treasury.
“ OID ”: original issue discount.
“ Other Taxes ”: any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document, including any interest, additions to tax or penalties applicable thereto.
“ Participant ”: as defined in Section 9.6(c).
“ PBGC ”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).
“ Perfection Certificate ”: a certificate in the form of Exhibit H or any other form reasonably acceptable to the Administrative Agent, as the same shall be supplemented from time to time by a Compliance Certificate or otherwise.
 
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“ Permitted Acquisition ”: any acquisition, whether by purchase, merger, consolidation or otherwise, by the Borrower or any Subsidiary Guarantor of all or substantially all the assets, or all the Capital Stock, of a Person or a division, line of business or other business unit of a Person located in the United States or Canada so long as (a) such assets are to be used in, or such Person so acquired is engaged in, as the case may be, a business of the type permitted under Section 6.15, and (b)(i) no Event of Default has occurred and is continuing or would result therefrom, (ii) in the case of an acquisition of Capital Stock, the Person acquired shall become immediately after given effect thereto a Subsidiary Guarantor or be merged into the Borrower or a Subsidiary Guarantor (unless such acquired Person is an Immaterial Subsidiary or an Excluded Foreign Subsidiary), and in the case of all acquisitions, all actions required to be taken under Section 5.9 shall have been taken, (iii) the Borrower and its Subsidiaries shall be in compliance, on a pro forma basis (which may include such adjustments as are permitted under Regulation S-X of the SEC and such other adjustments reflecting cost savings certified by a Responsible Officer which are related to actions implemented or to be implemented within one year of the applicable event) after giving effect to such acquisition, with the Financial Covenants (whether or not the Financial Covenants are then in effect), as if such acquisition (and any related incurrence or repayment of Indebtedness) had occurred on the first day of the relevant period, (iv) any Indebtedness that is incurred, acquired or assumed in connection with such acquisition shall be in compliance with Section 6.2(h) and (v) in the case of an acquisition involving Acquisition Consideration of more than $5,000,000, the Borrower shall have delivered to the Administrative Agent an officers’ certificate to the effect set forth in clauses (a), (b)(i) and (b)(iii) above, together with pro forma financial statements of Borrower and its Subsidiaries (as of the last day of the most recently ended fiscal quarter prior to the date of consummation of such acquisition for which financial statements are required to be delivered pursuant to this Agreement) after giving effect to the consummation of such acquisition.
“ Permitted Holders ”: David Liniger and his Permitted Transferees.
“ Permitted Investors ”: Permitted Holders and the Sponsor and its Control Investment Affiliates.
“ Permitted Tax Distribution ”: as defined in Section 6.6(e).
“ Permitted Transferees ”: (a) any executor, administrator, guardian, conservator or similar legal representative of David Liniger, (b) any member of the immediate family of David Liniger, (c) any trust or similar entity formed by any Person described in clause (b) above, and (d) any Person acting as agent for any Person described in clauses (a) through (c) above.
“ Person ”: an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.
“ Plan ”: any employee benefit plan that is covered by ERISA and in respect of which the Borrower or a Subsidiary is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“ Prime Rate ”: the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by JPMorgan Chase Bank, N.A. in connection with extensions of credit to debtors).
“ Prohibited Transaction ”: as defined in Section 406 of ERISA and Section 4975(c) of the Code.
 
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“ Projections ”: as defined in Section 5.2(c).
“ Properties ”: as defined in Section 3.16(a).
“ Public Market ”: shall be deemed to exist after (a) the Borrower, Holdings or PubCo has consummated a public offering registered under the Securities Act of 1933 (other than on Form S-8 or S-4 (or any successor thereof)) producing net proceeds in excess of $10,000,000 and (b) at least 15% of the common Capital Stock of the Borrower, Holdings or PubCo has been distributed by means of an effective registration statement under the Securities Act of 1933 or pursuant to Rule 144 promulgated thereunder.
“ PubCo ”: any Person that controls Holdings. For purposes of this definition, “control” of Holdings means the power, directly or indirectly, to direct or cause the direction of the management and policies of Holdings whether by contract or otherwise, including by acting as the managing member of Holdings.
“ Recovery Event ”: any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of any Loan Party.
“ Register ”: as defined in Section 9.6(b).
“ Regulation U ”: Regulation U of the Board as in effect from time to time.
“ Reinvestment Deferred Amount ”: with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by any Loan Party in connection therewith that are not applied to prepay the Term Loans or reduce the Revolving Commitments pursuant to Section 2.9(b) as a result of the delivery of a Reinvestment Notice.
“ Reinvestment Event ”: any Asset Sale or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice.
“ Reinvestment Notice ”: a written notice executed by a Responsible Officer stating that no Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire, construct, improve or repair assets useful in its business or for a Permitted Acquisition.
“ Reinvestment Prepayment Amount ”: with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire, construct, improve or repair assets useful in the Borrower’s business or for a Permitted Acquisition.
“ Reinvestment Prepayment Date ”: with respect to any Reinvestment Event, the earlier of (a) the first anniversary of such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire, construct, improve or repair assets useful in the Borrower’s business or for a Permitted Acquisition with all or any portion of the relevant Reinvestment Deferred Amount.
“ Reorganization ”: with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.
 
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“ Reportable Event ”: any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043, with respect to a Pension Plan.
“ Repricing Transaction ”: (a) any prepayment of the Term Loans using proceeds of Indebtedness (other than Indebtedness incurred at the time a Change of Control occurs) incurred by the Borrower from a substantially concurrent incurrence of syndicated term loans for which the equivalent eurodollar-based interest rate payable thereon on the date of such prepayment is lower than the Eurodollar Rate on the date of such prepayment plus the Applicable Margin with respect to the Term Loans on the date of such prepayment, provided that the primary purpose of such prepayment is to refinance the Term Loans at a lower interest rate or (b) any repricing of the Term Loans pursuant an amendment hereto resulting in the Applicable Margin on the Term Loans which are Eurodollar Loans being reduced.
“ Required Lenders ”: at any time, the holders of more than 50% of (a) until the Closing Date, the Commitments then in effect and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans then outstanding and (ii) the Total Revolving Commitments then in effect or, if the Revolving Commitments have been terminated, the Revolving Loans then outstanding.
“ Required Revolving Lenders ”: the holders of more than 50% of the Total Revolving Commitments then in effect or, if the Revolving Commitments have been terminated, the Revolving Loans then outstanding.
“ Requirement of Law ”: as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“ Responsible Officer ”: the chief executive officer, president or chief financial officer of the Borrower, or any other officer having substantially the same authority and responsibility, and, with respect to financial matters, the chief financial officer, the principal accounting officer, treasurer or controller of the Borrower or any other officer having substantially the same authority and responsibility.
“ Restricted Payments ”: as defined in Section 6.6.
“ Revolving Commitment ”: as to any Lender, the obligation of such Lender, if any, to make Revolving Loans in an aggregate principal and/or face amount not to exceed the amount set forth under the heading “Revolving Commitment” opposite such Lender’s name on Schedule 1.1A or in the Assignment and Assumption pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The original amount of the Total Revolving Commitments is $10,000,000.
“ Revolving Commitment Period ”: the period from and including the Closing Date to the Revolving Termination Date.
“ Revolving Facility ”: as defined in the definition of “Facility”.
“ Revolving Lender ”: each Lender that has a Revolving Commitment or that holds Revolving Loans.
“ Revolving Loans ”: as defined in Section 2.4(a).
 
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“ Revolving Percentage ”: as to any Revolving Lender at any time, the percentage which such Lender’s Revolving Commitment then constitutes of the Total Revolving Commitments or, at any time after the Revolving Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender’s Revolving Loans then outstanding constitutes of the aggregate principal amount of the Revolving Loans then outstanding.
“ Revolving Termination Date ”: July 31, 2018.
“ Sanctioned Country ”: a country or territory that is at any time subject to Sanctions.
“ Sanctions ”: (a) economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by the United States government and administered by OFAC and (b) economic or financial sanctions imposed, administered or enforced from time to time by the US State Department, the US Department of Commerce or the US Department of the Treasury.
“ Sanctions List ”: any of the lists of specifically designated nationals or designated persons or entities (or equivalent) held by the United States government and administered by OFAC, the US State Department, the US Department of Commerce or the US Department of the Treasury or the United Nations Security Council or any similar list maintained by any other United States government entity, in each case as the same may be amended, supplemented or substituted from time to time.
“ SEC ”: the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority.
“ Security Documents ”: the collective reference to the Guarantee and Collateral Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document.
“ Single Employer Plan ”: any employee benefit plan (other than a Multiemployer plan) that is covered by Title IV of ERISA and is maintained or contributed to by the Borrower or any Commonly Controlled Entitiy.
“ Solvent ”: when used with respect to any Person, means that, as of any date of determination, (a) the amount of the “present fair saleable value” of the assets of such Person (on a going concern basis) will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors; (b) the present fair saleable value of the assets of such Person (on a going concern basis) will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured; (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business; and (d) such Person will be able to pay its debts as they mature.
“ Specified Cash Management Agreement ”: any agreement providing for treasury, depositary, purchasing card or cash management services, including in connection with any automated clearing house transfers of funds or any similar transactions between the Borrower or any Guarantor and any Lender or Affiliate thereof, which has been designated by such Lender and the Borrower, by notice to the Administrative Agent not later than 90 days after the execution and delivery by the Borrower or such Guarantor, as a “Specified Cash Management Agreement”.
 
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“ Specified Swap Agreement ”: any Swap Agreement in respect of interest rates, currency exchange rates or commodity prices entered into by the Borrower or any Guarantor and any Person that is a Lender or an Affiliate of a Lender at the time such Swap Agreement is entered into.
“ Sponsor ”: Weston Presidio V, L.P. and its Affiliates.
“ Subordinated Indebtedness ”: Indebtedness of the Borrower or any Guarantor that is by its terms subordinated in right of payment to the Obligations of the Borrower and such Guarantor, as applicable.
“ Subsidiary ”: as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. RE/MAX Brokerage, LLC and its Subsidiaries shall be excluded from the term “Subsidiary” or “Subsidiaries” in this Agreement.
“ Subsidiary Guarantor ”: each Subsidiary of the Borrower other than any Excluded Foreign Subsidiary and Immaterial Subsidiary.
“ Swap Agreement ”: any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or any of its Subsidiaries shall be a “Swap Agreement”.
“ Swap Termination Value ”: in respect of any one or more Swap Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Agreements, (a) for any date on or after the date such Swap Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Agreements (which may include a Lender or any Affiliate of a Lender).
“ Term Commitment ”: as to any Lender, the obligation of such Lender, if any, to make a Term Loan to the Borrower in a principal amount not to exceed the amount set forth under the heading “Term Commitment” opposite such Lender’s name on Schedule 1.1A. The original aggregate amount of the Term Commitments is $230,000,000.
“ Term Facility ”: as defined in the definition of “Facility”.
“ Term Lender ”: each Lender that has a Term Commitment or that holds a Term Loan.
“ Term Loans ”: as defined in Section 2.1.
“ Term Loan Maturity Date ”: July 31, 2020.
 
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“ Term Loan Standstill Period ”: as defined in Section 7.
“ Term Percentage ”: as to any Term Lender at any time, the percentage which such Lender’s Term Commitment then constitutes of the aggregate Term Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender’s Term Loans then outstanding constitutes of the aggregate principal amount of the Term Loans then outstanding).
“ Total Leverage Ratio ”: as at the last day of any period of four consecutive fiscal quarters of the Borrower, the ratio of (a) Consolidated Indebtedness (net of the sum of unrestricted cash and Cash Equivalents of the Borrower and its Subsidiaries of up to $15,000,000 in the aggregate) on such day to (b) Consolidated EBITDA for such period.
“ Total Revolving Commitments ”: at any time, the aggregate amount of the Revolving Commitments then in effect.
“ Transactions ”: the execution, delivery and performance by each Loan Party of the Loan Documents to which it is to be a party, the borrowing of Loans, the use of the proceeds thereof and the other transactions contemplated by the Loan Documents.
“ Transferee ”: any Assignee or Participant.
“ Type ”: as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
“ United States ”: the United States of America.
“ USA PATRIOT Act ”: the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended from time to time.
1.2 Other Definitional Provisions . (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP ( provided that, notwithstanding anything to the contrary herein, all accounting or financial terms used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to (i) any election under Accounting Standards Codification 825-10-25 (previously referred to as Statement of Financial Accounting Standards 159) (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Group Member at “fair value”, as defined therein) and (ii) any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof); (ii) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; (iii) the word “incur” shall be construed to mean incur, create, issue, assume, become liable in respect of or suffer to exist (and the words “incurred” and “incurrence” shall have correlative meanings); (iv) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold
 
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interests and contract rights; and (v) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time.
(c) In the event the Headquarters Lease is required to be treated as a capital lease obligation in any consolidated financial statements of the Borrower and its Subsidiaries, BMFB Partners, LLC is required to be included in such consolidated financial statements or such obligation otherwise is deemed to be Indebtedness of the Borrower, the Financial Covenants and the definitions used directly or indirectly therein (including the term “Indebtedness”) shall be adjusted (including in the case of any such definition for all purposes hereof) as necessary to reflect the Headquarters Lease as an operating lease and to exclude BMFB Partners, LLC from such consolidated financial statements, notwithstanding any requirement of GAAP to the contrary; in such event, for the avoidance of doubt, the lease obligations under the Headquarters Lease would be treated as rental expense (and not in whole or in part as interest expense or other amounts) and there would be no Indebtedness on the part of the Borrower arising out of the sale of the Headquarters Building or any transactions relating thereto. In such event, the Borrower, in furnishing its consolidated financial statements under Section 5.1, would include consolidating statements or other reconciliation statements or adjustments consistent with the agreements in this paragraph.
(d) The words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.
(e) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Commitments . Subject to the terms and conditions hereof, (a) each Term Lender severally agrees to make a term loan (a “ Term Loan ”) to the Borrower on the Closing Date in an amount of the Term Commitment of such Lender. The Term Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.10.
2.2 Procedure for Term Loan Borrowing . The Borrower shall give the Administrative Agent irrevocable notice, substantially in the form of Exhibit L (which notice must be received by the Administrative Agent prior to 11:00 A.M., New York City time, (a) three Business Days prior to the anticipated Closing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the anticipated Closing Date, in the case of ABR Loans) requesting that the Term Lenders make the Term Loans on the Closing Date and specifying the amount to be borrowed. Upon receipt of such notice the Administrative Agent shall promptly notify each Term Lender thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each Term Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Term Loan or Term Loans to be made by such Lender. The Administrative Agent shall credit the account of the Borrower on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by the Term Lenders in immediately available funds or wire such funds as directed by the Borrower.
2.3 Repayment of Term Loans . The Term Loan of each Term Lender shall be payable in consecutive quarterly installments on each March 31, June 30, September 30 and December 31 of each year, and on the Term Loan Maturity Date, in an aggregate principal amount equal to (i) in the
 
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case of each such installment due prior to the Term Loan Maturity Date, 0.25% of the aggregate principal amount of the Term Loan made by such Lender and (ii) in the case of the installment due on the Term Loan Maturity Date, the entire remaining balance of the Term Loan made by such Lender.
2.4 Revolving Commitments . (a) Subject to the terms and conditions hereof, each Revolving Lender severally agrees to make revolving credit loans (“ Revolving Loans ”) to the Borrower from time to time during the Revolving Commitment Period in an aggregate principal amount at any one time outstanding which does not exceed the amount of such Lender’s Revolving Commitment. During the Revolving Commitment Period, the Borrower may use the Revolving Commitments by borrowing, prepaying the Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Revolving Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.10.
(b) The Borrower shall repay all outstanding Revolving Loans on the Revolving Termination Date.
2.5 Procedure for Revolving Loan Borrowing . The Borrower may borrow under the Revolving Commitments during the Revolving Commitment Period on any Business Day, provided that the Borrower shall give the Administrative Agent irrevocable notice, substantially in the form of Exhibit L (which notice must be received by the Administrative Agent prior to 11:00 A.M., New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of ABR Loans), specifying (i) the amount and Type of Revolving Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor. Each borrowing under the Revolving Commitments shall be in an amount equal to (x) in the case of ABR Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Revolving Lender thereof. Each Revolving Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent.
2.6 Commitment Fees, etc . (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee for the period from and including the date hereof to the last day of the Revolving Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on each Fee Payment Date, commencing on the first such date to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates as set forth in the Engagement Letter and to perform any other obligations contained therein.
 
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2.7 Termination or Reduction of Revolving Commitments . The Borrower shall have the right, upon not less than three Business Days’ notice to the Administrative Agent, to terminate the Revolving Commitments or, from time to time, to reduce the amount of the Revolving Commitments; provided that no such termination or reduction of Revolving Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Loans made on the effective date thereof, the then outstanding Revolving Loans would exceed the Total Revolving Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Commitments then in effect.
2.8 Optional Prepayments . (a) The Borrower may at any time and from time to time prepay Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent no later than 11:00 A.M., New York City time, three Business Days prior thereto, in the case of Eurodollar Loans, and no later than 11:00 A.M., New York City time, one Business Day prior thereto, in the case of ABR Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans; provided , that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.18. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Loans that are ABR Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Term Loans and Revolving Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. Optional prepayments of the Term Loans shall be applied to the remaining installments thereof as directed by the Borrower.
(b) Notwithstanding anything to the contrary in Sections 2.8(a) or 2.9(a), (i) any prepayment of the Term Loans effected on or prior to the date that is six months after the Closing Date with the proceeds of a Repricing Transaction described in clause (a) of the definition thereof shall be accompanied by a fee equal to 1.00% of the principal amount of the Term Loans prepaid (unless such fee is waived by the applicable Lender) and (ii) if in connection with a Repricing Transaction described in clause (b) of the definition thereof on or prior to the date that is six months after the Closing Date, any Lender is replaced as a result of its being a non-consenting Lender in respect of such Repricing Transaction pursuant to Section 2.20(c), such Lender shall be entitled to the fee provided under this Section 2.8(b) as to its Term Loans so assigned (unless such fee is waived by the applicable Lender).
2.9 Mandatory Prepayments and Commitment Reductions . (a) If any Indebtedness shall be issued or incurred by any Loan Party (excluding any Indebtedness incurred in accordance with Section 6.2), an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or incurrence toward the prepayment of the Term Loans and the reduction of the Revolving Commitments as set forth in Section 2.9(d).
(b) If on any date any Loan Party shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, 100% of such Net Cash Proceeds shall be applied on such date toward the prepayment of the Term Loans and the reduction of the Revolving Commitments as set forth in Section 2.9(d); provided , that, notwithstanding the foregoing, on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Term Loans and the reduction of the Revolving Commitments as set forth in Section 2.9(d).
(c) If, for any fiscal year of the Borrower commencing with the fiscal year ending December 31, 2013, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply the excess of (i) the ECF Percentage of such Excess Cash Flow minus (ii) the optional prepayments of the Term Loans during such fiscal year toward the prepayment of the Term Loans and the reduction of the Revolving Commitments as set forth in Section 2.9(d). Each such
 
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prepayment and commitment reduction shall be made on a date (an “ Excess Cash Flow Application Date ”) no later than ten days after the earlier of (i) the date on which the financial statements of the Borrower referred to in Section 6.1(a), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and Commitment reductions made pursuant to Section 2.9 shall be applied, first , to the prepayment of the Term Loans and, second , to reduce permanently the Revolving Commitments. Any such reduction of the Revolving Commitments shall be accompanied by prepayment of the Revolving Loans to the extent, if any, that the Total Revolving Loans exceed the amount of the Total Revolving Commitments as so reduced. The application of any prepayment pursuant to Section 2.9 shall be made, first , to ABR Loans and, second , to Eurodollar Loans. Each prepayment of the Loans under Section 2.9 (except in the case of Revolving Loans that are ABR Loans) shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. Mandatory prepayments of the Term Loans pursuant to this Section 2.9 shall be applied to the remaining installments thereof on a pro rata basis.
2.10 Conversion and Continuation Options . (a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent prior irrevocable notice of such election, substantially in the form of Exhibit M, no later than 11:00 A.M., New York City time, on the Business Day preceding the proposed conversion date, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto or, subject to payment of any amounts owing pursuant to Section 2.18, at any other time. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent prior irrevocable notice of such election, substantially in the form of Exhibit M, no later than 11:00 A.M., New York City time, on the third Business Day preceding the proposed conversion date (which notice shall specify the length of the initial Interest Period therefor), provided that no ABR Loan under a particular Facility may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and the Administrative Agent or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such conversions. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice, substantially in the form of Exhibit M, to the Administrative Agent, in accordance with the applicable provisions of the term “Interest Period” set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan under a particular Facility may be continued as such when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such continuations, and provided , further , that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.
2.11 Limitations on Eurodollar Tranches . Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole multiple of $500,000 in excess thereof and (b) no more than 10 Eurodollar Tranches shall be outstanding at any one time.
 
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2.12 Interest Rates and Payment Dates . (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin.
(c)  (i) If all or a portion of the principal amount of any Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section 2.12 plus 2%, and (ii) if all or a portion of any interest payable on any Loan or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to ABR Loans under the relevant Facility plus 2% (or, in the case of any such other amounts that do not relate to a particular Facility, the rate then applicable to ABR Loans under the Revolving Facility plus 2%), in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section 2.12 shall be payable from time to time on demand.
2.13 Computation of Interest and Fees . (a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.12(a).
2.14 Inability to Determine Interest Rate . If prior to the first day of any Interest Period:
(a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower in the absence of manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Base Rate or the Eurodollar Rate, as applicable, for such Interest Period, or
 
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(b) the Administrative Agent shall have received notice from the Majority Facility Lenders in respect of the relevant Facility that the Eurodollar Base Rate, or the Eurodollar Rate, as applicable, determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans under the relevant Facility requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility shall be converted, on the last day of the then-current Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans.
2.15 Pro Rata Treatment and Payments . (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Term Percentages or Revolving Percentages, as the case may be, of the relevant Lenders.
(b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Term Loans shall be made pro rata according to the respective outstanding principal amounts of the Term Loans then held by the Term Lenders. Amounts prepaid on account of the Term Loans may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Loans then held by the Revolving Lenders.
(d) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Funding Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to each relevant Lender promptly upon receipt in like funds as received, net of any amounts owing by such Lender pursuant to Section 8.7. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension.
(e) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon, at a rate equal to the greater of (i) the Federal Funds Effective Rate and (ii) a rate determined by
 
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the Administrative Agent in accordance with banking industry rules on interbank compensation, for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender’s share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days after such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans under the relevant Facility, on demand, from the Borrower. Nothing herein shall be deemed to limit the rights of the Administrative Agent or the Borrower against such Lender.
(f) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower.
(g) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.5, 2.15(e), 2.15(f), or 8.7, then the Administrative Agent may, in its discretion (notwithstanding any contrary provision of this Agreement), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.
2.16 Requirements of Law . (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes and Other Taxes covered by Section 2.17 and changes in the rate of tax on the overall net income of such Lender or changes in the rate of any branch taxes or franchise taxes (in both cases, imposed in lieu of net income taxes) imposed on such Lender or resulting from any of the circumstances described in the final proviso of Section 2.17(a));
(ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate; or
(iii) shall impose on such Lender any other condition;
 
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and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or, in the case of (i), any Loans, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled and deliver a certificate contemplated by Section 2.16(d) with respect thereto.
(b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or liquidity or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy or liquidity (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy or liquidity) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction.
(c) Notwithstanding anything herein to the contrary, (i) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervisions (or any successor or similar authority) or by United States or foreign regulatory authorities, in each case pursuant to Basel III, and (ii) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder or issued in connection therewith or in implementation thereof, shall in each case be deemed to be a change in Requirement of Law, regardless of the date enacted, adopted, issued or implemented.
(d) A certificate as to any additional amounts payable pursuant to this Section 2.16 submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. Notwithstanding anything to the contrary in this Section 2.16, the Borrower shall not be required to compensate a Lender pursuant to this Section 2.16 for any amounts incurred more than six months prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; provided that, if the circumstances giving rise to such claim have a retroactive effect, then such six-month period shall be extended to include the period of such retroactive effect. The obligations of the Borrower pursuant to this Section 2.16 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
2.17 Taxes . (a) All payments made by or on behalf of any Loan Party under this Agreement or any other Loan Document shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto), excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) and, in each case imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document); provided , that if any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings (“ Non-Excluded Taxes ”) or Other Taxes are required to be withheld
 
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from any amounts payable to the Administrative Agent or any Lender as determined in good faith by the applicable withholding agent, (i) such amounts shall be paid to the relevant Governmental Authority in accordance with applicable law and (ii) the amounts so payable by the applicable Loan Party to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement as if such withholding or deduction had not been made, provided further , however , that the applicable Loan Party shall not be required to increase any such amounts payable to any Lender with respect to, or indemnify any Lender for, any Non-Excluded Taxes (w) that are attributable to such Lender’s failure to comply with the requirements of paragraph (e) or (f) of this Section 2.17; (x) that are United States withholding taxes attributable to such Lender designating a successor lending office at which it maintains its Loans other than at the request of the applicable Loan Party and except to the extent such Lender was entitled, at the time of the successor lending office is designated, to receive additional amounts from the applicable Loan Party with respect to such Non-Excluded Taxes pursuant to this paragraph; (y) that are United States withholding taxes imposed on amounts payable by the applicable Loan Party to such Lender at the time such Lender becomes a party to this Agreement, except to the extent that such Lender’s assignor (if any) was entitled, at the time of assignment, to receive additional amounts from such Loan Party with respect to such Non-Excluded Taxes pursuant to this paragraph; or (z) that are U.S. withholding taxes imposed under FATCA.
(b) In addition, the applicable Loan Party shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by a Loan Party, as promptly as possible thereafter the applicable Loan Party shall send to the Administrative Agent for its own account or for the account of the relevant Lender, as the case may be, a certified copy of an official receipt received by such Loan Party (or if an official receipt is not available, such other documentation as shall be reasonably satisfactory to the Administrative Agent) showing payment thereof. The Loan Party shall indemnify the Administrative Agent and each Lender, within 10 days after demand therefor, for (i) the full amount of any Non-Excluded Taxes or Other Taxes (including Non-Excluded Taxes or Other Taxes imposed or attributable to amounts payable under this Section 2.17) paid by the Administrative Agent or such Lender and any penalties, interests and reasonable expenses arising therefrom or with respect thereto, and (ii) any incremental taxes, interest, penalties or reasonable expenses that may become payable by the Administrative Agent or any Lender as a result of any failure of the Borrower to properly remit to the Administrative Agent the required receipts or other required documentary evidence, whether or not such Non-Excluded Taxes or Other Taxes were correctly or legally imposed by the relevant Government Authority. A certificate as to the amount of such payment or liability delivered to the Loan Party by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Each Lender shall indemnify the Administrative Agent for the full amount of any taxes, levies, imposts, duties, charges, fees, deductions, withholdings or similar charges imposed by any Governmental Authority that are attributable to such Lender and that are payable or paid by the Administrative Agent, together with all interest, penalties, reasonable costs and expenses arising therefrom or with respect thereto, as determined by the Administrative Agent in good faith. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.
 
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(e)   (i) Each Lender (or Transferee) that is not a “U.S. Person” as defined in Section 7701(a)(30) of the Code (a “ Non-U.S. Lender ”), on or before the date such Lender (or Transferee) becomes a party to this Agreement, shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) (A) two original copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, as appropriate or any subsequent versions thereof or successors thereto, true, correct and complete in all material respects and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents, (B) in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a statement substantially in the form of applicable Exhibit J and an applicable Form W-8, or any subsequent versions thereof or successors thereto, true, correct and complete in all material respects and duly executed by such Non-U.S. Lender, or (C) two copies of Form W-8IMY (together with the forms described above in clauses (A) or (B), as required).
(ii) Each Lender (or Transferee) that is a “U.S. Person” as defined in Section 7701(a)(30) of the Code, on or before the date such Lender (or Transferee) becomes a party to this Agreement (and from time to time thereafter as prescribed by applicable law or upon the request of the Borrower or the Administrative Agent), two original copies of U.S. Internal Revenue Service Form W-9, or any subsequent versions or successors thereto, true, correct and complete in all material respects and duly executed by such Lender, establishing that the Lender is not subject to U.S. backup withholding tax.
(iii) The forms described in (i) and (ii) above shall be delivered by the applicable Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Lender shall deliver such forms from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent, and promptly upon the obsolescence or invalidity of any form previously delivered by such Lender. Each Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to such Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Lender shall not be required to deliver any form pursuant to this paragraph that such Lender is not legally able to deliver.
(iv) If a payment made to a Lender under any Loan Document would be subject to U.S. Federal withholding tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (iv), “FATCA” shall include any amendments made to FATCA after the date of this Agreement
(f) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably
 
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requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate; provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s judgment such completion, execution or submission would not materially prejudice the legal or commercial position of such Lender.
(g) If any Lender or the Administrative Agent receives a refund, in the sole discretion of such Lender or Administrative Agent (exercised in good faith), is allocable to any amount paid by a Loan Party pursuant to this Section 2.17, it shall promptly notify the applicable Loan Party of such refund and shall, within 15 days after receipt, repay such refund or credit (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party) to such Loan Party net of all out-of-pocket expenses of such Lender or the Administrative Agent and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided , however , that such Loan Party, upon the request of such Lender or the Administrative Agent, agrees to repay the amount paid over to such Loan Party to such Lender or the Administrative Agent (plus any penalties, interest or other charges imposed by the relevant Governmental Authority), within 15 days after receipt of written request by such Lender of the Administrative Agent in the event such Lender or the Administrative Agent is required to repay such refund. This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any information relating to its taxes which it deems confidential) to any Loan Party or any other Person.
(h) The agreements in this Section 2.17 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
2.18 Indemnity . The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement; (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans or the conversion of Eurodollar Loans to ABR Loans on a day that is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid or converted, or not so borrowed, converted or continued, for the period from the date of such prepayment or conversion or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section 2.18 submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
2.19 Change of Lending Office . Each Lender agrees that, upon the occurrence of any event giving rise to a request by such Lender for the payment of any additional amounts pursuant to Sections 2.16, 2.17(a), 2.17(c) or 2.18 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided , that such designation is made on terms that, in the sole judgment of such Lender, cause
 
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such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided , further , that nothing in this Section 2.19 shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Section 2.16 or 2.17(a).
2.20 Replacement of Lenders . The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.16, 2.17(a) or 2.17(c); (b) is a Defaulting Lender; or (c) does not consent to any proposed amendment, supplement, modification, consent or waiver of any provision of this Agreement or any other Loan Document that requires the consent of each of the Lenders or each of the Lenders affected thereby (so long as the consent of the Required Lenders has been obtained), with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) prior to any such replacement, such Lender shall have taken no action under Section 2.19 so as to fully eliminate the continued need for payment of amounts owing pursuant to Section 2.16 or 2.17(a), (iii) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (iv) the Borrower shall be liable to such replaced Lender under Section 2.18 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (v) the replacement financial institution shall be approved by the Administrative Agent (which approval shall not be unreasonably withheld, conditioned or delayed and provided that, with respect to a replacement financial institution under the Term Facility, no consent of the Administrative Agent shall be needed if such replacement financial institution is a Lender, an Affiliate of a Lender or an Approved Fund), (vi) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 9.6 ( provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (vii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.16 or 2.17(a), as the case may be, and (viii) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender.
In the event that a Lender to be replaced hereunder does not execute an assignment pursuant to Section 9.6 within five (5) Business Days after receipt by such Lender of notice of replacement pursuant to this Section 2.20 and presentation to such Lender of an assignment evidencing an assignment pursuant to this Section 2.20, the Borrower shall be entitled (but not obligated) to execute such an assignment on behalf of such Lender, and any such assignment so executed by the Borrower, the replacement Lender and the Administrative Agent, shall be effective for purposes of this Section 2.20 and Section 9.6. Notwithstanding the foregoing, with respect to a Lender that is a Defaulting Lender, the Borrower or the Administrative Agent may obtain a replacement Lender and execute an assignment on behalf of such Defaulting Lender at any time and without prior notice to such Defaulting Lender and cause all of its interest, rights, and obligations hereunder including all of its Loans and Commitments and other amounts at any time owing to it hereunder and the other Loan Documents to be sold and assigned at par. Upon any such assignment and payment and compliance with the other provisions of Section 9.6, such replaced Lender shall no longer constitute a “Lender” for purposes hereof; provided, any rights of such replaced Lender to the benefits of Sections 2.16, 2.17, 2.18 and 9.5 hereunder (to the extent not accounted for in the first paragraph of this Section 2.20) shall survive as to such replaced Lender.
2.21 Defaulting Lenders . Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender or be payable for the benefit of such Defaulting Lender pursuant to Section 2.6(a);
 
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(b) the unpaid principal amount of the Term Loans and the Revolving Commitments (or if the Revolving Commitments have been terminated, the Revolving Loans) of such Defaulting Lender shall not be included in determining whether all Lenders or the Required Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 9.1), provided that any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects such Defaulting Lender shall require the consent of such Defaulting Lender; and
(c) any amount payable to such Defaulting Lender hereunder (whether on account of principal, interest, fees or otherwise and including any amount that would otherwise be payable to such Defaulting Lender) shall, in lieu of being distributed to such Defaulting Lender, be retained by the Administrative Agent in a segregated account and, subject to any applicable requirements of law, be applied at such time or times as may be determined by the Administrative Agent (i) first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder, (ii) second, to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent, (iii) third, if so determined by the Administrative Agent and the Borrower, held in such account as cash collateral for future funding obligations of the Defaulting Lender in respect of any Loans under this Agreement and (iv) fourth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction.
2.22 Incremental Facilities .
(a) The Borrower and any one or more Lenders (including New Lenders) may from time to time agree that such Lenders shall make, obtain or increase the amount of their Incremental Term Loans (each additional Incremental Term Loan, an “ Incremental Term Facility ”) or Revolving Commitments (any such increase, an “ Incremental Revolving Facility ”; together with any Incremental Term Facilities, the “ Incremental Facilities ”), as applicable, by executing and delivering to the Administrative Agent an Increased Facility Activation Notice specifying (i) the amount of such increase and the Facility or Facilities involved, (ii) the applicable Increased Facility Closing Date (which may be selected by the Borrower after the Closing Date) and (iii) in the case of Incremental Term Loans, (x) the applicable Incremental Term Maturity Date, (y) the amortization schedule for such Incremental Term Facility and (z) the Applicable Margin for such Incremental Term Facility; provided , that (A) no Default or Event of Default exists or shall exist immediately before or after giving effect to such Incremental Facility; (B) on a pro forma basis after giving effect to such Incremental Facility as though fully borrowed and any other transactions in connection therewith, the Borrower shall be in compliance with the Financial Covenants (whether or not the Financial Covenants are then in effect), recomputed as of the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available; (C) each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects immediately prior to, and after giving effect to, such Incremental Facility, except for representations and warranties made as of a specific earlier date that shall be true and correct in all material respects as of such earlier date; (D) the maturity date and weighted average life to maturity of any such Incremental Term Facility shall be no earlier than or shorter than the maturity date and weighted average life to maturity, respectively, of the Term Facility; (E) the interest rates and amortization schedule applicable to any Incremental Term Facility shall be determined by the Borrower and the Lenders thereunder; provided that the total yield (calculated for both the Incremental Term Loans and the Term Loans, including the upfront fees, any interest rate floors and any OID, but excluding any arrangement, underwriting or similar fee paid by the Borrower)) in respect of any Incremental Term Loans will not be more than 0.50% higher than the corresponding total yield for the existing Term Loans (it being understood that any such increase may take the form of OID with OID being equated to the interest rates in a manner determined by the Administrative Agent based on an assumed four-year life to maturity), unless the interest rate margins with respect to the existing Term
 
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Loans are increased by an amount equal to the difference between the total yield with respect to the Incremental Term Loans and the corresponding total yield on the existing Term Facility minus 0.50% and (F) the Incremental Revolving Facility shall be on terms and pursuant to documentation applicable to the Revolving Facility (including the maturity date in respect thereof) and any Incremental Term Facility shall be on terms and pursuant to documentation to be determined, provided that, to the extent such terms and documentation are not consistent with, in the case of the Incremental Term Loans, the Term Facility (except to the extent permitted by clause (D) or (E) above), they shall be reasonably satisfactory to the Administrative Agent. Notwithstanding the foregoing, (i) without the consent of the Required Lenders, the aggregate amount of incremental Revolving Commitments and borrowings of Incremental Term Loans shall not exceed (x) $50,000,000 plus (y) an additional amount so long as the Total Leverage Ratio (as determined on a pro forma basis giving effect to such Incremental Facility as though fully borrowed and any other transactions in connection therewith) is not in excess of 4.00:1.00 and (ii) without the consent of the Administrative Agent, (x) each increase effected pursuant to this paragraph shall be in a minimum amount of at least $5,000,000 and (y) no more than four Increased Facility Closing Dates may be selected by the Borrower after the Closing Date. No Lender shall have any obligation to participate in any increase described in this paragraph unless it agrees to do so in its sole discretion.
(b) Any additional bank, financial institution or other entity which, with the consent of the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld, conditioned or delayed and provided that, with respect to an Incremental Term Facility, no consent of the Administrative Agent shall be needed if such New Lender is an Affiliate of a Lender or an Approved Fund), elects to become a “Lender” under this Agreement in connection with any transaction described in Section 2.22(a) shall execute a New Lender Supplement (each, a “ New Lender Supplement ”), substantially in the form of Exhibit C, whereupon such bank, financial institution or other entity (a “ New Lender ”) shall become a Lender for all purposes and to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement.
(c) Unless otherwise agreed by the Administrative Agent, on each Increased Facility Closing Date with respect to the Revolving Facility, the Borrower shall borrow Revolving Loans under the relevant increased Revolving Commitments from each Lender participating in the relevant increase in an amount determined by reference to the amount of each Type of Loan (and, in the case of Eurodollar Loans, of each Eurodollar Tranche) which would then have been outstanding from such Lender if (i) each such Type or Eurodollar Tranche had been borrowed or effected on such Increased Facility Closing Date and (ii) the aggregate amount of each such Type or Eurodollar Tranche requested to be so borrowed or effected had been proportionately increased. The Eurodollar Base Rate applicable to any Eurodollar Loan borrowed pursuant to the preceding sentence shall equal the Eurodollar Base Rate then applicable to the Eurodollar Loans of the other Lenders in the same Eurodollar Tranche (or, until the expiration of the then-current Interest Period, such other rate as shall be agreed upon between the Borrower and the relevant Lender.
(d) The proceeds of the Incremental Facilities shall be used for purposes permitted by Section 5.10.
(e) Notwithstanding anything to the contrary in this Agreement, each of the parties hereto hereby agrees that, on each Increased Facility Activation Date, this Agreement shall be amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Incremental Term Loans evidenced thereby. Any such deemed amendment may be effected in writing by the Administrative Agent with the Borrower’s consent (not to be unreasonably withheld) and furnished to the other parties hereto.
 
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SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, Holdings and the Borrower hereby jointly and severally represent and warrant to the Administrative Agent and each Lender that:
3.1 Financial Condition . The audited consolidated balance sheets of the Borrower as at December 31, 2010, December 31, 2011 and December 31, 2012, and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from KPMG LLP, present fairly in all material respects the consolidated financial condition of the Borrower as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). No Group Member has, as of the Closing Date, any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases (other than the Headquarters Lease) or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph or otherwise advised to the Lenders and that are required to be reflected under GAAP.
3.2 No Change . Since December 31, 2012, there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect.
3.3 Existence; Compliance with Law . Each Loan Party (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the requisite power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign company and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to so qualify could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
3.4 Power; Authorization; Enforceable Obligations . Each Loan Party has the requisite limited liability company or other corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each Loan Party has taken all necessary organizational action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the Loans on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Loans hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices that have been obtained or made and are in full force and effect, (ii) consents, authorizations, filings and notices contemplated by the Security Documents, (iii) consents, authorizations, filings and notices which customarily are required in connection with the exercise of remedies in respect of the Collateral, (iv) those consents, authorizations, filings and notices the failure of which to obtain, take, give or make could not be reasonably expected to have a Material Adverse Effect and (v) the filings referred to in Section 3.18. Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan
 
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Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
3.5 No Legal Bar . The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of any Loan Party (except for violations that could not be reasonably expected to result in a Material Adverse Effect) and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents).
3.6 Litigation . Except as set forth on Schedule 3.6, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of Holdings or the Borrower, threatened in writing against any Group Member or against any of their respective properties or revenues (a) with respect to any of the Loan Documents, or (b) that is reasonably likely to be adversely determined and if adversely determined would reasonably be expected to have a Material Adverse Effect.
3.7 No Default . No Default or Event of Default has occurred and is continuing.
3.8 Ownership of Property; Liens . Each Loan Party has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in or other right to use, all its other property necessary for the conduct of its business as currently conducted, except for defects in the foregoing that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes, except where the failure to have such title or interest could not have a Material Adverse Effect, and none of such property is subject to any Lien except as permitted by Section 6.3.
3.9 Intellectual Property . Each Loan Party owns, or is licensed to use, all material Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging any Intellectual Property owned by any Loan Party, nor does Holdings or the Borrower know of any valid basis for any such claim except for such claims that in the aggregate could not reasonably be expected to have a Material Adverse Effect. The conduct of the business by each Loan Party does not infringe the rights of any Person in any material respect, and each Loan Party’s Intellectual Property is not being infringed by any Person, except, in each case, for such claims that in the aggregate could not reasonably be expected to have a Material Adverse Effect.
3.10 Taxes . Each Group Member has filed or caused to be filed all federal, state and other material tax returns (with material referring to the Group Members taken as a whole) that are required to be filed (subject to any applicable extensions) and has paid all material taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the relevant Group Member); to the knowledge of Holdings and the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge except any such taxes, fees or charges, the payment of which, or the failure to pay, could not have a Material Adverse Effect.
 
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3.11 Federal Regulations . No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used (a) for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect for any purpose that violates the provisions of the Regulations of the Board or (b) for any purpose that violates the provisions of the Regulations of the Board. If reasonably requested by any Lender or the Administrative Agent and appropriate under the circumstances, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U.
3.12 Labor Matters . Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any Group Member pending or, to the knowledge of Holdings or the Borrower, threatened; (b) hours worked by and payment made to employees of each Group Member have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all payments due from any Group Member on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the relevant Group Member.
3.13 ERISA . Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) no Reportable Event nor any failure by any Single Employer Plan to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Single Employer Plan, whether or not waived in accordance with Section 412(c) of the Code or Section 302(c) of ERISA, has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Single Employer Plan; (b) each Plan maintained by any Group Member has complied in all respects with the applicable provisions of ERISA and the Code; (c) no termination of a Single Employer Plan has occurred with respect to which the liability remains unsatisfied, and no Lien in favor of the PBGC has arisen, during such five-year period; (d) the present value of all accrued benefits under each Single Employer Plan did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Single Employer Plan allocable to such accrued benefits (determined in both cases using the assumptions promulgated under Section 430 of the Code and the Treasury Regulations promulgated thereunder) and there has been no determination that any Single Employer Plan is, or is expected to be, in “at risk” status (within the meaning of Section 430 of the Code or Section 303 of ERISA); (e) neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or could reasonably be expected to result in any liability under Section 4201 of ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made; (f) neither the Borrower nor any Commonly Controlled Entity has received any notice of a determination that a Multiemployer Plan is in Reorganization, Insolvent or in “endangered” or “critical” status (within the meaning of Sections 431 or 432 of the Code or Sections 304 or 305 of ERISA); and (g) with respect to each Foreign Plan, there has been no failure (i) to make or, if applicable, accrue in accordance with normal accounting practices, any employer or employee contributions required by applicable law or by the terms of such Foreign Plan; (ii) to register or loss of good standing with applicable regulatory authorities of any such Foreign Plan required to be registered; or (iii) of any Foreign Plan to comply with any material provisions of applicable law and regulations or with the material terms of such Foreign Plan.
3.14 Investment Company Act; Other Regulations . No Loan Party is an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.
 
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3.15 Subsidiaries . Except as disclosed to the Administrative Agent by the Borrower in writing from time to time after the Closing Date, Schedule 3.15 sets forth the name and jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, (i) the percentage of each class of Capital Stock owned by any Loan Party and (ii) whether such Subsidiary is an Immaterial Subsidiary or an Excluded Foreign Subsidiary.
3.16 Environmental Matters . Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect:
(a) to the knowledge of the applicable Loan Parties, the facilities and properties owned, leased or operated by any Loan Party (the “ Properties ”) do not contain, and to the knowledge of Holdings and the Borrower, have not previously contained, any conditions of contamination by any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation of, or could reasonably be expected to give rise to liability under, any Environmental Law;
(b) no Loan Party has received or is aware of any written notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business operated by any Loan Party (the “ Business ”), nor does Holdings or the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened in writing;
(c) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location that could reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law;
(d) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of Holdings and the Borrower, threatened in writing, under any Environmental Law to which any Loan Party is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business;
(e) to the knowledge of the applicable Loan Parties, there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Group Member in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably be expected to give rise to liability under Environmental Laws;
(f) the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, with all applicable Environmental Laws, and to the knowledge of the applicable Loan Parties, there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business; and
(g) no Loan Party has assumed any material liability of any other Person under Environmental Laws.
 
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This Section 3.16 contains the sole and exclusive representations and warranties with respect to any environmental, health or safety matters, including without limitation any arising under Environmental Laws or relating to Materials of Environmental Concern.
3.17 Accuracy of Information, etc . No statement or information contained in this Agreement, any other Loan Document, the Confidential Information Memorandum or any other document, certificate or statement furnished in writing by or on behalf of any Loan Party to the Administrative Agent or the Lenders, or any of them, for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished, when taken as a whole, any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained herein or therein taken as a whole not materially misleading in light of the circumstances under which they were made; provided , that the forecasts, the projections and pro forma financial information contained in the materials referenced above and any document, certificate or statement based upon such forecasts, projections and information are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that (a) such financial information as it relates to future events is not to be viewed as fact, (b) such forecast and projections are subject to uncertainties and contingencies, (c) no assurance can be given that any forecast or projection will be realized and (d) actual results during the period or periods covered by such financial information may differ from the projected results set forth therein and such differences may be material.
3.18 Security Documents . (a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates (if any) representing any such Pledged Stock are delivered to the Administrative Agent (together with a properly completed and signed stock power or endorsement), and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements and other filings specified on Schedule 3.18(a) (except as disclosed to the Administrative Agent by the Borrower in writing from time to time after the Closing Date) in appropriate form are filed in the offices specified on Schedule 3.18(a) (except as disclosed to the Administrative Agent by the Borrower in writing from time to time after the Closing Date), the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof (to the extent such Lien and security interest can be perfected by such filings), as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Stock in certificated form, Liens permitted by Section 6.3).
(b) As of the Closing Date, there is no parcel of owned real property located in the United States and held by the Group Member that has a value, in the reasonable opinion of the Borrower, in excess of $250,000.
3.19 Solvency . As of the Closing Date, the Borrower and its Subsidiaries taken as a whole, immediately after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith, are Solvent.
3.20 Anti-Terrorism Laws . (a) None of the Loan Parties or, to the knowledge of any of the Loan Parties, any of their Affiliates is in violation of any laws relating to terrorism or money laundering (“Anti-Terrorism Laws”), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the “Executive Order”), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107 56.
 
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(b) The Loan Parties and, to the knowledge of any Loan Party, any of its brokers or other agents acting in any capacity in connection with the Loans have conducted their business in compliance with Anti-Corruption Laws and have instituted and maintained policies and procedures designed to promote and achieve compliance with such laws;
(c) No Loan Party or, to the knowledge of any of the Loan Parties, any of their Affiliates or their Affiliates or their respective brokers or other agents acting or benefiting in any capacity in connection with the Loans is any of the following:
(i) a Person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
(ii) a Person or entity owned or controlled by, or acting for or on behalf of, any Person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
(iii) a Person or entity with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;
(iv) a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order;
(v) a Designated Person;
(vi) a Person that is owned or controlled by a Designated Person;
(vii) is located, organized or resident in a Sanctioned Country.
(d) No Loan Party or, to the knowledge of any Loan Party, any of its brokers or other agents acting in any capacity in connection with the Loans (i) has directly or indirectly engaged in, or is now directly or indirectly engaged in, any dealings or transactions (x) with any Designated Person, (y) in any Sanctioned Country, or (z) otherwise in violation of Sanctions, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loan . The agreement of each Lender to make the initial Loan requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Closing Date, of the following conditions precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement . The Administrative Agent (or its counsel) shall have received (i) this Agreement, executed and delivered by the Administrative Agent, Holdings, the Borrower and each Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral Agreement, executed and delivered by Holdings, the Borrower and each Subsidiary Guarantor and (iii) an Acknowledgment and Consent in the form attached to the Guarantee and Collateral Agreement, executed delivered by each Issuer (as defined therein), if any that is not a Loan Party.
 
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(b) Existing Indebtedness . Prior to or concurrently with the Closing Date, all amounts outstanding under, and all other amounts due in respect of the Indebtedness outstanding under the Existing Credit Agreement shall have been repaid in full and the commitments thereunder shall have been terminated and all liens securing such Indebtedness shall have been terminated, or agreed to be terminated pursuant to pay-off letters, on terms and conditions reasonably satisfactory to the Administrative Agent.
(c) Financial Statements . The Administrative Agent shall have received (i) audited consolidated financial statements of the Borrower for the three most recent fiscal years ended prior to the Closing Date and (ii) projections for the Borrower and its Subsidiaries through December 31, 2017.
(d) Lien Searches; Perfection Certificate . The Administrative Agent shall have received the results of a recent Lien search with respect to each Loan Party in each relevant jurisdiction, and such search shall reveal no Liens on any of the assets of the Loan Parties except for Liens permitted by Section 6.3 or discharged on or prior to the Closing Date pursuant to documentation reasonably satisfactory to the Administrative Agent. The Administrative Agent shall have received a Perfection Certificate, substantially in the form of Exhibit H, executed and delivered by a Responsible Officer of the Borrower.
(e) Fees . The Lenders and the Administrative Agent shall have received all fees required to be paid by the Borrower, and all expenses for which invoices have been presented (including the documented reasonable and out of pocket fees and expenses of legal counsel), on or before the Closing Date. All such amounts will be paid with proceeds of Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date.
(f) Closing Certificate; Certified Certificate of Incorporation; Good Standing Certificates . The Administrative Agent shall have received (i) a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit E, with appropriate insertions and attachments, including the certificate of formation of each Loan Party that is a limited liability company certified by the relevant authority of the jurisdiction of organization of such Loan Party, and (ii) a long form good standing certificate for each Loan Party from its jurisdiction of organization
(g) Legal Opinions . The Administrative Agent shall have received, on behalf of itself and the Lenders, an opinion of Morrison & Foerster LLP, special counsel for the Loan Parties, substantially in the form of Exhibit K.
(h) Filings, Registrations and Recordings . Each document (including any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent (other than control agreements which shall be entered into in accordance with Section 5.12) to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.3), shall be in proper form for filing, registration or recordation.
(i) Solvency Certificate . The Administrative Agent shall have received a solvency certificate, substantially in the form of Exhibit F from the Chief Financial Officer of the Borrower dated as of the Closing Date, reasonably satisfactory to the Administrative Agent.
 
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(j) Insurance . The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 5.2(b) of the Guarantee and Collateral Agreement.
(k) Ratings . The Administrative Agent shall have received evidence of the corporate ratings for the Borrower by each of Moody’s and S&P, giving effect to the Facilities.
For the purpose of determining compliance with the conditions specified in this Section 4.1, each Lender that has signed this Agreement shall be deemed to have accepted, and to be satisfied with, each document or other matter required under this Section 4.1 unless the Administrative Agent shall have received written notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
4.2 Conditions to Each Loan . The agreement of each Lender to make any Loan requested to be made by it on any date (including its initial Loan) is subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties . Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date, except for representations and warranties made as of a specific earlier date that shall be true and correct in all material respects as of such earlier date.
(b) Financial Covenant Compliance . The Borrower shall be in pro forma compliance with the Financial Covenants on a pro forma basis (which may include such adjustments as are permitted under Regulation S-X of the SEC and such other adjustments reflecting cost savings certified by a Responsible Officer which are related to actions implemented or to be implemented within one year of the applicable event) as of the last day of the most recent fiscal quarter of the Borrower for which financial statements have been delivered (whether or not the Financial Covenants were then in effect), after giving effect to the making of such Loan and the use of the proceeds thereof. It is understood and agreed that this Section 4.2(b) shall apply during the period between the Closing Date and the date on which financial statements have been delivered for the fiscal quarter ended September 30, 2013 as though the Financial Covenants were in effect and that in determining such compliance, the Financial Covenant levels applicable to the fiscal quarter ended September 30, 2013 shall be used. For the avoidance of doubt, to the extent that only Term Loans are borrowed on the Closing Date, this Section 4.2(b) shall not apply on the Closing Date.
(c) No Default . No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date.
(d) Certificate . The Borrower shall have provided a certificate as to this Section 4.2 (with the computations in respect of paragraph (b) in reasonable detail), substantially in the form of Exhibit G on or within three Business Days prior to such date.
SECTION 5. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments remain in effect or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, each of Holdings and the Borrower shall and shall cause each of its Subsidiaries (other than Immaterial Subsidiaries) to:
 
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5.1 Financial Statements . Furnish to the Administrative Agent (with sufficient copies for each Lender):
(a) within 90 days after the end of each fiscal year of the Borrower (commencing with the fiscal year ending December 31, 2013), a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a “going concern” or like qualification, exception or note, or qualification arising out of the scope of the audit, by KPMG LLP or other independent certified public accountants of nationally recognized standing;
(b) within 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower (commencing with the fiscal quarter ending June 30, 2013), the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to the absence of footnotes and normal year-end audit adjustments); and
(c) no later than 10 Business Days after the delivery of the financial statements required to be delivered pursuant to Section 5.1(a), to participate in a conference call with the lenders to discuss the financial condition and results of operations of the Borrower and its consolidated Subsidiaries for such fiscal year.
All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP (except that financial statements delivered under clause (b) above, shall be subject to normal year-end audit reclassifications and adjustments and shall not have notes) applied (except as approved by such accountants or officer, as the case may be, and disclosed in reasonable detail therein) consistently throughout the periods reflected therein and with prior periods.
5.2 Certificates; Other Information . Furnish to the Administrative Agent (with sufficient copies for each Lender):
(a) [Reserved];
(b) concurrently with the delivery of any financial statements pursuant to Section 5.1, (i) a certificate of a Responsible Officer stating that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, (ii) to the extent that the Borrower was required by Section 6.1 to comply with the Financial Covenants as of the last day of the fiscal quarter or fiscal year covered by such financial statements, a Compliance Certificate containing all information and calculations necessary for determining compliance with the Financial Covenants as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be, and (iii) in the case of financial statements pursuant to Section 5.1(a), a Compliance Certificate including to the extent not previously disclosed to the Administrative Agent, (1) a description of any change in the jurisdiction of organization of any Loan Party, (2) a list of any Intellectual Property acquired by any Loan Party and (3) a description of any Person that has become a Group Member, in each case since the date of the most recent Compliance Certificate delivered pursuant to this clause (iii) (or, in the case of the first such Compliance Certificate so delivered, since the Closing Date);
 
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(c) as soon as available, and in any event no later than 60 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, the related consolidated statements of projected cash flow and projected income and a description of the underlying assumptions applicable thereto) (collectively, the “ Projections ”);
(d) within 45 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the portion of the Projections covering such periods and to the comparable periods of the previous year;
(e) within five days after the same are sent, copies of all financial statements and reports that Holdings or the Borrower may make to, or file with, the SEC;
(f) promptly, such additional financial and other information relating to the business, financial or corporate affairs of the Borrower and its consolidated Subsidiaries, or compliance with the terms of the Loan Documents, as any Lender may from time to time reasonably request; and
(g) promptly following receipt thereof, copies of (i) any documents described in Section 101(f), 101(k) or 101(l) of ERISA that any Group Member or any ERISA Affiliate may request with respect to any Single Employer Plan or Multiemployer Plan, as applicable; provided, that if the relevant Group Members or ERISA Affiliates have not requested such documents or notices from the administrator or sponsor of the applicable Multiemployer Plans, then, upon reasonable request of the Administrative Agent, such Group Member or the ERISA Affiliate shall promptly make a request for such documents or notices from such administrator or sponsor and the Borrower shall provide copies of such documents and notices to the Administrative Agent promptly after receipt thereof.
5.3 Payment of Tax and Government Liabilities . (a) Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations for the payment of taxes or other material charges of any Governmental Authority, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the relevant Group Member and (b) timely file (subject to any applicable extensions) all material tax returns required to be filed by it.
5.4 Maintenance of Existence; Compliance . (a) (i) Preserve, renew and keep in full force and effect its organizational existence except as otherwise permitted by Section 6.4 and (ii) take all commercially reasonable action to maintain all material rights, privileges and franchises necessary in the normal conduct of its business, except as otherwise permitted by Section 5.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; provided , however, that nothing contained in this Section 5.4 shall be deemed to prohibit any Group Member from reorganizing or changing its entity form; (b) comply with all Contractual Obligations except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect; and (c) comply with all Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
 
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5.5 Maintenance of Property; Insurance . (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business.
5.6 Inspection of Property; Books and Records; Discussions . (a) Keep proper books of records and account with full, true and correct entries in all material respects in conformity with GAAP and (b) permit representatives of the Administrative Agent or any Lender (when accompanying the Administrative Agent) to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time upon reasonable notice and as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Group Members with officers and employees of the Group Members and with their independent certified public accountants, provided that (i) the Group Members shall not be required to pay the expenses of more than one visit and inspection during any fiscal year unless an Event of Default has occurred and is continuing, (ii) each Lender shall at all times coordinate with the Administrative Agent the frequency and timing of any such visits and inspections so as to reasonably minimize the burden imposed on the Group Members, and (iii) a representative of the Borrower shall be given the opportunity to be present for any communication with the independent certified public accountants.
5.7 Notices . Promptly give notice to the Administrative Agent, which shall notify each Lender thereof, of:
(a) the occurrence of any Default or Event of Default;
(b) any litigation, investigation or proceeding that may exist at any time between any Group Member and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting any Group Member (i) in which the amount involved is $10,000,000 or more and not covered by insurance, (ii) in which injunctive or similar relief is sought and which would reasonably be expected to have a Material Adverse Effect or (iii) which relates to any Loan Document;
(d) the following events if any such event would reasonably be expected to have a Material Adverse Effect: (i) the occurrence of any Reportable Event with respect to any Single Employer Plan, a failure to make any required contribution to a Plan, any determination that any Single Employer Plan is, or is expected to be, in “at risk” status (within the meaning of Section 430 of the Code or Section 303 of ERISA), the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or any determination that a Multiemployer Plan is in endangered or critical status (within the meaning of Section 432 of the Code or Section 305 of ERISA, or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from any Single Employer Plan or Multiemployer Plan, or the termination, Reorganization or Insolvency of any Multiemployer Plan or determination that any such Multiemployer Plan is in “endangered” or “critical” status (within the meaning of Sections 431 or 432 of the Code or Sections 304 or 305 of ERISA), or (iii) with respect to any Foreign Plan, (A) the failure to make or, if applicable, accrue in accordance with normal accounting practices, any employer or employer contributions required
 
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by applicable law or by the terms of such Foreign Plan; (B) the failure to register or loss of good standing with applicable regulatory authorities of any such Foreign Plan required to be registered; or (C) the failure of any Foreign Plan to comply with any material provisions of applicable law and regulations or with the material terms of such Foreign Plan;
(e) any change in the Moody’s or S&P corporate credit rating for the Borrower; and
(f) any development or event that has had or would reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to Section 5.7(a) shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Group Member proposes to take with respect thereto.
5.8 Environmental Laws . (a) Comply in all material respects with, and undertake commercially reasonable efforts to ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws except for such noncompliance which in the aggregate could not reasonably be expected to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful written orders and directives of all Governmental Authorities regarding Environmental Laws except for such noncompliance which in the aggregate could not reasonably be expected to have a Material Adverse Effect.
5.9 Additional Collateral, etc . (a) With respect to any property acquired after the Closing Date by any Loan Party (other than (x) any property described in paragraph (b), (c) or (d) below, (y) any leased real property or motor vehicles or any other personal property excluded from the grant of the security interest granted under the Guarantee and Collateral Agreement and (z) any property subject to a Lien expressly permitted by Section 6.3(g)) as to which the Administrative Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent reasonably deems necessary to grant to the Administrative Agent, for the benefit of the Lenders, a security interest in such property and (ii) take all actions reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in such property, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be reasonably requested by the Administrative Agent.
(b) With respect to any fee interest in any real property having a value (together with improvements thereof) of at least $250,000 acquired after the Closing Date by any Loan Party, or owned by any new Subsidiary that becomes a Loan Party as provided in clause (c) below after the Closing Date (other than any such real property subject to a Lien expressly permitted by Section 6.3(g)), promptly (i) execute and deliver a first priority Mortgage, in favor of the Administrative Agent, for the benefit of the Lenders, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real property (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor’s certificate and (y) any consents or estoppels reasonably deemed necessary by the Administrative Agent in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to
 
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the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent and (iv) deliver to the Administrative Agent a completed “Life-on-Loan” Federal Emergency Management Agency Standard Flood Hazard Determination with respect to the such real property (together with a notice about special floor hazard area status and floor disaster assistance duly executed by the Borrower and each Loan Party relating thereto) and if such real property is located in a special flood hazard area, evidence of flood insurance in form and amount reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than a Foreign Subsidiary or an Immaterial Subsidiary) created or acquired after the Closing Date by any Loan Party (which, for the purposes of this paragraph (c), shall include any existing Subsidiary (other than a Foreign Subsidiary) that ceases to be an Immaterial Subsidiary), within 30 days after such creation or acquisition (or such longer period as the Administrative Agent may provide in its sole discretion) (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent reasonably deems necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected security interest in the Capital Stock of such new Subsidiary that is owned by any Loan Party, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Loan Party, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, (B) to take such actions reasonably necessary to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including, if applicable, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent and (C) to deliver to the Administrative Agent a closing certificate (with insertions and attachments as required in Section 4.1(f)) of such Subsidiary, with appropriate insertions and attachments, and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.
(d) With respect to any Excluded Foreign Subsidiary created or acquired after the Closing Date by any Loan Party, within 45 days after such creation or acquisition (or such longer period as the Administrative Agent may provide in its sole discretion) (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement (or a separate Security Document) as the Administrative Agent reasonably deems necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by any such Loan Party ( provided that in no event shall more than 66% of the total outstanding voting Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Loan Party, and take such other action as may be reasonably necessary or, in the reasonable opinion of the Administrative Agent, desirable to perfect the Administrative Agent’s security interest therein, and (iii) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.
5.10 Use of Proceeds . Use the proceeds of the Term Loans and the Revolving Loans (a) to refinance and pay-off the Indebtedness under the Existing Credit Agreement, (b) for the payment of fees and expenses incurred in connection with the Facilities and (c) to finance working capital, Capital Expenditures, Permitted Acquisitions and for other general corporate purposes.
 
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5.11 Maintenance of Ratings . Use commercially reasonable efforts to maintain with Moody’s and S&P a corporate credit rating for the Borrower, which rating shall, in the case of a private rating, be updated or confirmed at least once per year; provided that the Borrower shall initiate the process to update such private rating no later than 30 days after the anniversary of the previous rating.
5.12 Deposit Account Control Agreements . Deliver to the Administrative Agent an executed deposit account control agreements for deposit accounts listed on Schedule 5.12 (which shall exclude payroll accounts, benefit accounts, tax withholding accounts, zero balance accounts, accounts maintained outside of the United States, accounts that hold funds held in a fiduciary capacity by any Loan Party for payment to a third party, and accounts in which any Loan Party maintains amounts less than $250,000 at any time), in form and substance reasonably satisfactory to the Administrative Agent, as soon as commercially reasonable but in any event within 60 days of the Closing Date.
5.13 Anti-Corruption Laws . (a) Conduct its business in compliance with Anti-Corruption Laws; (b) maintain policies and procedures designed to promote and achieve compliance with Anti-Corruption and (c) have appropriate controls and safeguards in place designed to prevent any Loans from being used in a way that would violate Section 6.17.
SECTION 6. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments remain in effect or any Loan or other amounts is owing to any Lender or the Administrative Agent hereunder, each of Holdings and the Borrower shall not, and shall not permit any of the Borrower’s Subsidiaries (other than Immaterial Subsidiaries) to:
6.1 Financial Condition Covenants . With respect to any fiscal quarter of the Borrower referred to below, solely to the extent that any Revolving Loan is outstanding on the last day of such fiscal quarter:
(a) Total Leverage Ratio . Permit the Total Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter:

Fiscal Quarter 	  	Total
Leverage Ratio 	 	
September 30, 2013	  	 	4.25: 1.00	  	
December 31, 2013	  	 	4.25: 1.00	  	
March 31, 2014	  	 	4.25: 1.00	  	
June 30, 2014	  	 	4.25: 1.00	  	
September 30, 2014 and thereafter	  	 	4.00: 1.00	  	
(b) Consolidated Interest Coverage Ratio . Permit the Consolidated Interest Coverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower to be less than 3.00:1.00.
6.2 Indebtedness . Create, issue, incur, assume, become liable in respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
 
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(b) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c)   (i) Guarantee Obligations incurred by the Borrower or any Subsidiary Guarantors of obligations of the Borrower or any other Subsidiary Guarantor and (ii) Guarantee Obligations incurred by a Subsidiary that is not a Subsidiary Guarantor of obligations of the Borrower or any other Subsidiary;
(d) Indebtedness outstanding on the date hereof and listed on Schedule 6.2(d) and any refinancings, refundings, renewals or extensions thereof (without shortening the maturity thereof or increasing the principal amount thereof except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder);
(e) Indebtedness owed to any Person providing worker’s compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Borrower or any Subsidiary, pursuant to reimbursement or indemnification obligations to such Person;
(f) Indebtedness of the Borrower and its Subsidiaries in respect of performance bonds, bid bonds, appeal bonds, surety bonds, completion guarantees, bankers’ acceptances and similar obligations and trade-related letters of credit, in each case provided in the ordinary course of business and not in connection with Indebtedness for money borrowed, including without limitation those incurred to secure health, safety and environmental obligations in the ordinary course of business;
(g) Indebtedness incurred by Foreign Subsidiaries in an aggregate principal amount outstanding not to exceed $10,000,000 at any one time, and guarantees of such Indebtedness;
(h) Indebtedness assumed in connection with any Permitted Acquisition; provided that such Indebtedness is not incurred in contemplation of such Permitted Acquisition, and any refinancings, refundings, renewals or extensions thereof (without shortening the maturity thereof or increasing the principal amount thereof except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder);
(i) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 6.3(g) in an aggregate principal amount not to exceed $5,000,000 at any one time outstanding;
(j) additional Indebtedness of the Borrower or any of its Subsidiaries in the aggregate principal amount (for the Borrower and all Subsidiaries) not to exceed $20,000,000 at any one time outstanding;
(k) Swap Agreements entered into in the ordinary course of business for non-speculative hedging purposes and not as financing;
(l) Indebtedness in respect of netting services, overdraft protection and similar arrangements, including Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business;
 
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(m) to the extent it constitutes Indebtedness, Indebtedness incurred by the Borrower or any of its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of the Borrower or any such Subsidiary pursuant to such agreements, in connection with Permitted Acquisitions or Dispositions permitted by Section 6.5;
(n)   (i) Indebtedness consisting of the deferred purchase price of Permitted Acquisitions in an aggregate principal amount at any one time outstanding not to exceed $15,000,000; and (ii) Indebtedness consisting of earn-outs arising out of Permitted Acquisitions in an aggregate principal amount at any one time outstanding not to exceed $15,000,000;
(o) Indebtedness consisting of deferred purchase price or notes issued to officers, directors and employees to purchase equity interests (or options or warrants or similar instruments) of Borrower, Holdings or PubCo
(p) Indebtedness incurred in connection with the financing of insurance premiums in an amount not to exceed the annual premiums in respect thereof at any one time outstanding;
(q) Investments in the form of Indebtedness permitted by Section 6.7; and
(r) Guarantee Obligations of Holdings in respect of Indebtedness incurred in the ordinary course of business by any of its Subsidiaries other than the Borrower and its Subsidiaries.
6.3 Liens . Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except:
(a) [Reserved];
(b) landlords, carriers, warehousemen, mechanics, materialmen, repairmen, suppliers or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade, proposals, contracts (other than for borrowed money), leases, statutory obligations, indemnity, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(e) easements, licenses, rights-of-way, survey exceptions, zoning or other restrictions and other similar encumbrances incurred in the ordinary course of business or other minor irregularities in title (including leasehold title) that do not in any case materially detract from the value of the property subject thereto and do not materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries;
 
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(f) Liens in existence on the date hereof listed on Schedule 6.3(f) and any renewals or extensions thereof, provided that no such Lien is spread to cover any additional property after the Closing Date and that the amount of obligations secured thereby is not increased except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such renewal or extension and by an amount equal to any existing commitments unutilized thereunder;
(g) Liens securing Indebtedness of the Borrower or any Subsidiary incurred pursuant to Section 6.2(i) to finance the acquisition, construction or improvement of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition, construction or improvement of such fixed or capital assets or within 90 days thereof and (ii) such Liens do not at any time encumber any property other than the fixed or capital assets financed by such Indebtedness;
(h) Liens created pursuant to the Security Documents;
(i) Liens existing on assets acquired in connection with any Permitted Acquisition; provided that such Liens were not incurred in connection with, or in contemplation of, such Permitted Acquisition and do not extend to any assets of the Borrower or any of its Subsidiaries other than the specific assets so acquired (and improvements thereon);
(j) Liens for taxes, assessments or governmental charges or claims or other like statutory Liens that do not secure Indebtedness for borrowed money and (i) that are not yet delinquent or (ii) that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that, unless the amount is immaterial, any adequate reserves or other appropriate provision as shall be required are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP;
(k) Liens resulting from any judgments, awards or orders to the extent that such judgments, awards or orders do not cause or constitute an Event of Default;
(l) Liens in the form of licenses or sublicenses (including licenses or sublicenses of Intellectual Property), or leases or subleases granted or created by the Borrower or any of its Subsidiaries in the ordinary course of business;
(m) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
(n) bankers’ Liens, including normal and customary rights of setoff, and similar Liens existing solely with respect to cash and Cash Equivalents and Investments permitted by Section 6.7 on deposit in one or more accounts maintained by the Borrower or any Subsidiary of the Borrower, in each case granted in the ordinary course of business in favor of the bank or banks or other depository institutions which such accounts are maintained, securing amounts owing to such bank with respect to cash management or other account arrangements, including those involving pooled accounts and netting arrangements, provided that in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;
(o) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business;
 
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(p) Liens on assets of Foreign Subsidiaries to secure Indebtedness permitted by Section 6.2(g);
(q) Liens on the assets that are subject of the sale leasebacks permitted under Section 6.10 to secure the obligations of the Borrower and its Subsidiaries thereunder;
(r) Liens not otherwise permitted by this Section 6.3 so long as the aggregate outstanding principal amount of the obligations secured thereby does not exceed (as to the Borrower and all Subsidiaries) $5,000,000 at any one time;
(s) any interest or title of licensor or sublicensor of Intellectual Property not prohibited hereby;
(t) Liens on the property of a Person existing at the time such Person becomes a Subsidiary of a Loan Party; and
(u) any replacement, extension and renewal of any Lien permitted hereby, to the extent any such replacement, extension or renewal is not spread to cover any additional property.
For the avoidance of doubt, any obligation imposed pursuant to Section 430(k) of the Code or 303(k) of ERISA shall not be a permitted Lien hereunder.
6.4 Fundamental Changes . Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its property or business, except that:
(a)   (i) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower ( provided that the Borrower shall be the continuing or surviving Person) or with or into any Subsidiary Guarantor ( provided that the Subsidiary Guarantor shall be the continuing or surviving Person); and (ii) any Subsidiary of the Borrower that is not a Guarantor may be merged or consolidated with or into any other Subsidiary that is not a Guarantor;
(b) any Subsidiary of the Borrower may Dispose of any or all of its assets (i) to the Borrower or any Subsidiary Guarantor (upon voluntary liquidation or otherwise) or (ii) pursuant to a Disposition permitted by Section 6.5;
(c) any Investment expressly permitted by Section 6.7 may be structured as a merger, consolidation or amalgamation;
(d) any Subsidiary may dissolve, liquidate or wind up its affairs at any time provided that such dissolution, liquidation or winding up, as applicable, would not reasonably be expected to have a Material Adverse Effect and all of its assets and business are transferred to a Loan Party;
(e) any Subsidiary that is not a Subsidiary Guarantor may dissolve, liquidate, wind up its affairs and distribute its assets ratably to its shareholders (provided that in connection with the foregoing and to the extent such assets are distributed to a Loan Party, the Borrower will, and will cause each Subsidiary Guarantor to, take all actions necessary and reasonably requested by the Administrative Agent to perfect Liens on Collateral granted to the Administrative Agent pursuant to the Security Documents); and
(f) Holdings or the Borrower may convert into a corporation in connection with an initial public offering.
 
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6.5 Disposition of Property . Dispose of any of its property, whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary’s Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out property;
(b) the sale of inventory in the ordinary course of business;
(c) sales of RE/MAX Brokerage, LLC and its Subsidiaries and of any Excluded Foreign Subsidiaries or Immaterial Subsidiaries of the Borrower or their respective assets;
(d) Dispositions permitted by Section 6.4(b) and Dispositions in the form of Investments permitted by Section 6.7;
(e) the sale or issuance of any Subsidiary’s Capital Stock to the Borrower or any Subsidiary Guarantor or the sale or issuance of Capital Stock of a Subsidiary that is not a Subsidiary Guarantor to any other Subsidiary that is not a Subsidiary Guarantor or the issuance of any qualifying shares;
(f) Dispositions pursuant to sale leasebacks permitted by Section 6.10 for the aggregate consideration not exceeding $5,000,000 in the aggregate since the Closing Date;
(g) [Reserved];
(h) Disposition of property by any Foreign Subsidiary to another Foreign Subsidiary and Dispositions of property by any Subsidiary that is not a Guarantor to the Borrower or any other Subsidiary;
(i) leases, subleases, licenses and sublicenses of property (including Intellectual Property) in the ordinary course of business;
(j) the Disposition of other property or assets having a fair market value not to exceed $1,000,000 in the aggregate for any fiscal year of the Borrower;
(k) Dispositions, discounts or forgiveness of accounts receivable in connection with the collection or compromise thereof;
(l) the abandonment or other Disposition of Intellectual Property that is, in the reasonable business judgment of the Borrower, no longer necessary for the conduct of the business of the Loan Parties taken as a whole; and
(m) Dispositions of Cash Equivalents.
6.6 Restricted Payments . Declare or pay any dividend (other than dividends payable solely in equity of the Person making such dividend, including, without limitation, any payment-in-kind distribution) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Group Member, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Group Member (collectively, “ Restricted Payments ”), except that:
 
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(a) [Reserved];
(b) any Subsidiary may make Restricted Payments to the Borrower or any Subsidiary Guarantor and any Subsidiary that is not a Subsidiary Guarantor may make Restricted Payments to the Borrower or any other Subsidiary that is not a Subsidiary Guarantor;
(c) so long as no Event of Default shall have occurred and be continuing, the Borrower may pay dividends to Holdings to permit Holdings to purchase Holdings’ common stock or common stock options or permit Holdings to pay dividends to PubCo to purchase such holders’ common stock or common stock options from present or former officers or employees of any Group Member or Immaterial Subsidiary (other than David Liniger and Permitted Transferees) upon the death, disability or termination of employment of such officer or employee, provided , that the aggregate amount of payments under this after the date hereof (net of any proceeds received by Holdings and contributed to the Borrower after the date hereof in connection with resales of any common stock or common stock options so purchased) shall not exceed $5,000,000;
(d) the Borrower or Holdings may, and Holdings may pay dividends to PubCo to, make payments to or for the benefit of current or former officers or employees of any Group Member or Immaterial Subsidiary under equity incentive programs (including restricted stock unit programs) to the extent such payments represent a portion of the exercise price of those stock options or withholding tax obligations payable by the holder of such rights by virtue of such exercise or triggering;
(e) the Borrower may pay dividends to Holdings to permit Holdings to (i) pay, or permit Holdings to pay dividends to PubCo to pay, corporate overhead expenses incurred in the ordinary course of business (including expenses relating to insurance, professional fees and costs and expenses in connection with an initial public offering of Holdings or PubCo, not to exceed $5,000,000 in any fiscal year), (ii) pay, or permit Holdings to pay dividends to PubCo to pay, director fees and expenses and (iii) make tax distributions to the direct or indirect holders of its Capital Stock to enable such holders to pay federal, state and local income taxes attributable to their holdings of such Capital Stock, as reasonably determined by Holdings pursuant to Section 4.1(b) of that certain Third Amended and Restated Limited Liability Company Agreement, dated February 1, 2013, by and between the members signatory thereto (each such distribution, a “ Permitted Tax Distribution ”);
(f) the Borrower may make a distribution to Holdings to permit Holdings to pay dividends or make a distribution to the holders of its Capital Stock in an amount equal to (i) the amount of Excess Cash Flow for each completed fiscal year of the Borrower not required to be used for a mandatory prepayment hereunder, less the aggregate amount of any Investments made pursuant to Section 6.7(l), and (ii) the amount of any net cash proceeds from the issuance of common stock by the Borrower, Holdings or PubCo that is received by, or contributed to, the Borrower; and
(g) the Loan Parties may acquire Capital Stock in connection with the exercise of stock options or stock appreciation rights by way of cashless exercise or in connection with the satisfaction of withholding tax obligations.
 
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6.7 Investments . Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any Person (all of the foregoing, “ Investments ”), except:
(a) extensions of trade credit (including extensions in the nature of accounts receivable or notes receivable arising from the grant of trade credit) in the ordinary course of business and Investments received (i) in satisfaction or partial satisfaction thereof from financially troubled account debtors or (ii) in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;
(b) investments in cash or Cash Equivalents;
(c) Guarantee Obligations permitted by Section 6.2;
(d) loans and advances to employees, officers or directors of any Group Member or Immaterial Subsidiary in the ordinary course of business (including for travel, entertainment and relocation expenses) in an aggregate amount for all Group Members and Immaterial Subsidiaries not to exceed $2,500,000 at any one time outstanding;
(e) Investments in assets useful in the business of the Borrower, its Subsidiaries and its Immaterial Subsidiaries made by the Borrower or any of its Subsidiaries or Immaterial Subsidiaries with the proceeds of any Reinvestment Deferred Amount;
(f) Investments consisting of loans to employees, officers or directors of any Group Member or Immaterial Subsidiary made in connection with the issuance of Capital Stock of the Borrower, Holdings or PubCo in the exact amount of the consideration paid therefor;
(g) Investments in promissory notes received as consideration for Dispositions permitted by Section 6.5, provided that at least 50% of the fair market value of the assets that are the subject of each such Disposition (other than the Disposition permitted by Section 6.5(c)) shall have been received in cash;
(h) intercompany Investments by any Group Member or Immaterial Subsidiary in the Borrower or any Person that, in the case of an Investment in a Person other than the Borrower, prior to such Investment, such Person is a Subsidiary Guarantor or, after such Investment, such Person becomes a Subsidiary Guarantor pursuant to Section 5.9;
(i) Investments in the form of Swap Agreements;
(j) Investments in Foreign Subsidiaries in an aggregate amount (valued at cost) since the Closing Date, in the case of Investments in Foreign Subsidiaries that are not Subsidiary Guarantors, not to exceed $5,000,000;
(k)   (k) Permitted Acquisitions; provided that the aggregate Acquisition Consideration for Permitted Acquisitions shall not exceed $50,000,000 in any fiscal year of the Borrower (with respect to any fiscal year, the “Baseline Acquisitions Basket”); provided that (a) with respect to any fiscal year, any unused amount from the Baseline Acquisitions Basket may be carried forward to the next succeeding fiscal year to be used in addition to the Baseline Acquisitions Basket designated for such succeeding fiscal year, (b) with respect to any fiscal year,
 
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amounts from the Baseline Acquisitions Basket designated for the next succeeding fiscal year may be carried back to the preceding fiscal year to be used in addition to the Baseline Acquisitions Basket designated for such preceding fiscal year (it being understood that the Baseline Acquisitions Basket designated for such succeeding fiscal year shall be reduced by the amount carried back to the Baseline Acquisitions Basket designated for such preceding fiscal year) and (c) Permitted Acquisitions made pursuant to this Section 6.7(k) during any fiscal year shall be deemed made, first, in respect of amounts carried forward from the prior fiscal year and amounts carried back from the succeeding fiscal year pursuant to clauses (a) and (b) above, respectively, and, second, in respect of the Baseline Acquisitions Basket designated for such fiscal year; provided, further, that notwithstanding the foregoing, the aggregate Acquisition Consideration for Permitted Acquisitions under this Section 6.7(k) shall not exceed $100,000,000 in any fiscal year of the Borrower;
(l) an amount equal to the amount of Excess Cash Flow for each completed fiscal year of the Borrower not required to be used for a mandatory prepayment hereunder, less the aggregate amount of any Restricted Payments made pursuant to Section 6.6(f)(i);
(m) in addition to Investments otherwise expressly permitted by this Section 6.7, Investments by the Borrower or any of its Subsidiaries in an aggregate amount (valued at cost) not to exceed $5,000,000 during the term of this Agreement;
(n) Investments existing as of the Closing Date and set forth on Schedule 6.7;
(o) Investments by any Subsidiary that is not a Loan Party in any other Subsidiary that is not a Loan Party; and
(p) Guarantee Obligation by the Borrower and its Subsidiaries of indemnification obligations by Holdings to its directors.
6.8 Optional Payments and Modifications of Certain Debt Instruments . (a) Make or offer to make any optional or voluntary prepayment, repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to any Subordinated Indebtedness or (b) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Subordinated Indebtedness (other than any such amendment, modification, waiver or other change that (i) would extend the maturity or reduce the amount of any payment of principal thereof or reduce the rate or extend any date for payment of interest thereon or would not otherwise be materially adverse to the Lenders and (ii) does not involve the payment of a consent fee).
6.9 Transactions with Affiliates . Enter into any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than Holdings, the Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise permitted under this Agreement, including permitted dividends pursuant to Section 6.6, (b) in the ordinary course of business of the relevant Group Member, (c) upon fair and reasonable terms no less favorable to the relevant Group Member than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate, (d) any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by any Group Member in the ordinary course of business and payments pursuant thereto, (e) payment of reasonable directors’ fees, (f) loans or advances to employees in the ordinary course of business or to purchase Capital Stock of the Borrower, Holdings or PubCo, (g) transactions pursuant to or contemplated by any agreement of, or any instrument entered into or issued by, the Borrower and its Subsidiaries as in
 
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effect on the date of this Agreement (as such agreement or instrument is disclosed in Schedule 6.9), or any amendment thereto or any replacement agreements so long as any such amendment or replacement agreement is not more disadvantageous to the holders in any material respect than the original agreement or instrument as in effect on the date hereof, (h) transactions between or among any Loan Party and any one or more of such Person’s Affiliates (other than any Loan Party), provided that (A) such transactions are consistent with past practice and (B) the aggregate value of the net consideration paid to such Affiliates by all Loan Parties for products or services not purchased at fair market value does not exceed $2,000,000 since the Closing Date, (i) customary compensation and other employee benefit plans, indemnification and reimbursement of expenses of employees, officers and directors, or (k) as set forth on Schedule 6.9 attached hereto.
6.10 Sales and Leasebacks . Enter into any arrangement with any Person providing for the leasing by any Group Member of real or personal property that has been or is to be sold or transferred by such Group Member to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Loan Party unless (i) the sale of such property is permitted by Section 6.5(f) and (ii) any Liens arising in connection with its use of such Property are permitted by Section 6.3(l).
6.11 Limitation on Activities of Holdings . Except as otherwise explicitly permitted for Holdings herein, in the case of Holdings, (a) conduct any business or hold or acquire any assets or have any operations other than (i) holding the Capital Stock of the Borrower and its other Subsidiaries as of the Closing Date and RE/MAX Brokerage, LLC and its Subsidiaries and conducting other activities incidental to the foregoing (including, without limitation, any establishment and maintenance of equity incentive plans, stock option plans or other equity based compensation plans), (ii) making Investments and conducting other activities incidental to the foregoing (including any Disposition of such other Subsidiaries), (iii) engaging in limited liability company maintenance and the performance of ministerial duties and payment of taxes and administrative fees and conducting any other activities incidental to the foregoing, and (iv) entering in to the Loan Documents to which it is a party and complying with its obligations thereunder and conducting any other activities incidental to the foregoing, (b) incur, assume, guarantee or permit to exist (directly or indirectly) any Indebtedness (other than Obligations under the Loan Documents and obligations in respect of Capital Stock) or (c) directly or indirectly create, incur, assume or permit to exist any Lien on the outstanding Capital Stock of the Borrower (other than Liens permitted under Section 6.3).
6.12 Changes in Fiscal Periods . Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower’s method of determining fiscal quarters.
6.13 Negative Pledge Clauses . Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Loan Party to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents; (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby); (c) restrictions applicable to specific property to be sold pursuant to an executed agreement with respect to a permitted asset Disposition; (d) restrictions by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses and similar agreements entered into in the ordinary course of business ( provided that such restrictions are limited to the property or assets secured by such Liens or the property or assets subject to such leases, licenses or similar agreements, as the case may be); (e) restrictions imposed by customary provisions in partnership agreements, limited liability company organizational governance documents, joint venture agreements and other similar agreements that restrict the transfer of ownership interests in such partnership, limited
 
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liability company, joint venture or similar Person; (f) any such agreement existing on the Closing Date; (g) any agreement in effect at the time any Person becomes a Subsidiary of the Borrower; provided that such agreement was not entered into in contemplation of such Person becoming a Subsidiary of the Borrower; and (h) customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary of the Borrower or assets of the Borrower or any of its Subsidiaries pending such sale.
6.14 Clauses Restricting Subsidiary Distributions . Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Borrower to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or advances to, or other Investments in, the Borrower or any other Subsidiary of the Borrower or (c) transfer any of its assets to the Borrower or any other Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents; (ii) any such agreement existing on the Closing Date; (iii) customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements and other agreements entered into in the ordinary course of business; (iv) any transfer of, agreement to transfer or option or right with respect to any property, assets or Capital Stock not otherwise prohibited under this Agreement; (v) any instrument governing Indebtedness or Capital Stock of a Person acquired by such Borrower or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred or issued in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness is permitted by Section 6.2 to be incurred; (vi) any agreement for the Disposition of a Subsidiary permitted by this Agreement that restricts distributions by such Subsidiary pending such Disposition; and (vii) provisions in agreements or instruments which prohibit the payment of dividends or the making of other distributions with respect to any class of Capital Stock of a Person other than on a pro rata basis.
6.15 Lines of Business . Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are similar, complementary, or reasonably related or incidental thereto or are reasonable extensions thereof.
6.16 Anti-Terrorism Law . (a) Conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in Section 3.20 above, (b) deal in, or otherwise engage in any transaction relating to, any property of interests in property blocked pursuant to the Executive Order of any other Anti-Terrorism Law or (c) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.
6.17 Anti-Corruption Law . (a) Directly or indirectly use the proceeds of the Loans (i) for any purpose which would breach the U.K. Bribery Act 2010, the United States Foreign Corrupt Practices Act of 1977 or other similar legislation in other jurisdictions, (ii) to fund, finance or facilitate any activities, business or transaction of or with any Designated Person or in any Sanctioned Country, or otherwise in violation of Sanctions, as such Sanctions Lists or Sanctions are in effect from time to time, or (iii) in any other manner that will result in the violation of any applicable Sanctions by the Administrative Agent or any Lender and (b) use funds or assets obtained directly or indirectly from transactions with or otherwise relating to (i) Designated Persons or (ii) any Sanctioned Country, to pay or repay any of the Obligations.
 
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6.18 Embargoed Person . At all times throughout the terms of the Loans, (a) none of the funds or assets of the Loan Parties that are used to repay the Loans shall constitute property of, or shall be beneficially owned directly or, to the knowledge of the Borrower, indirectly by, any Person subject to sanctions or trade restrictions under United States law (“ Embargoed Person ” or “ Embargoed Persons ”) that is identified on (i) the “List of Specially Designated Nationals and Blocked Persons” (the “ SDN List ”) maintained by the Office of Foreign Assets Control (OFAC), U.S. Department of Treasury, and/or to the knowledge of the Borrower, as of the date thereof, or any other similar list (“ Other List ”) maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in any of the Loan Parties (whether directly or indirectly) is prohibited by law, or the Loans made by the Lenders hereunder would be in violation of law, or (ii) the Executive Order, any related enabling legislation or any other similar Executive Orders (collectively, “ Executive Orders ”), and (b) no Embargoed Person shall have any direct interest, and to the knowledge of the Borrower, as of the Closing Date, indirect interest, of any nature whatsoever in any of the Loan Parties, with the result that the investment in any of the Loan Parties (whether directly or indirectly) is prohibited by law or the Loans are in violation of law.
6.19 Anti-Money Laundering . At all times throughout the term of the Loans, to the knowledge of the Borrower, none of the funds of any of the Loan Parties that are used to repay the Loans shall be derived from any unlawful activity with the result that the investment in any of the Loan Parties (whether directly or indirectly), is prohibited by law or the Loans would be in violation of law.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof;
(b) any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made, other than any such representation or warranty as to or contained in any forecasts, projections and pro forma financial information and any document, certificate or statement based upon such forecasts, projections and information delivered to the Administrative Agent or the Lenders in accordance with the terms hereof, it being recognized that (i) any such financial information as it relates to future events is not to be viewed as fact, (ii) forecasts and projections are subject to uncertainties and contingencies, (iii) no assurance can be given that any forecast or projection will be realized and (iv) actual results during the period or periods covered by any such financial information, forecasts or projections may differ from the projected results set forth therein and such differences may be material;
(c) any Loan Party shall default in the observance or performance of any agreement contained in clause (i) of Section 5.4(a) (with respect to Holdings and the Borrower only), Section 5.7(a) or Section 6 of this Agreement; provided that a default in the performance of the Financial Covenants shall not constitute an Event of Default with respect to the Term Facility unless and until the Revolving Lenders shall have terminated all Revolving Commitments and
 
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declared all amounts under the Revolving Facility to be immediately due and payable in accordance with the Loan Documents (such period commencing with a default in the performance of a Financial Covenant and ending on the date on which the Revolving Lenders terminate the Revolving Commitments and accelerate the Revolving Loans, the “ Term Loan Standstill Period ”);
(d) any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after written notice to the Borrower from the Administrative Agent or the Required Lenders;
(e) any Group Member shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans and guaranties thereof and excluding Indebtedness under Swap Agreements) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable with any applicable grace period having expired; or (iv) there occurs under any Swap Agreement an Early Termination Date (as defined in such Swap Agreement) resulting from (A) any event of default under such Swap Agreement as to which any Group Member is the Defaulting Party (as defined in such Swap Agreement) or (B) any Termination Event (as defined in such Swap Agreement) under such Swap Agreement as to which any Group Member is an Affected Party (as defined in such Swap Agreement) and, in either event, the Swap Termination Value owed by such Group Member as a result thereof is greater than the $10,000,000; provided , that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the aggregate outstanding principal amount of which is $10,000,000 or more; provided further , that an Event of Default under this clause (e) shall continue only so long as the applicable event or condition constituting such Event of Default is unremedied and is not waived or rescinded by the holders of such Indebtedness;
(f)   (i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets; (ii) there shall be commenced against any Group Member any case, proceeding or other
 
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action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or undischarged for a period of 60 days; (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; (iv) any Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (vi) or any Group Member shall make a general assignment for the benefit of its creditors;
(g)   (i) any Person shall engage in any non-exempt “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan; (ii) any failure to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Group Member or any Commonly Controlled Entity; (iii) a determination shall be made that any Single Employer Plan is, or is expected to be, in “at risk” status (within the meaning of Section 430 of the Code or Section 303 of ERISA); (iv) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is reasonably likely to result in the termination of such Plan for purposes of Title IV of ERISA; (v) any Single Employer Plan shall terminate for purposes of Title IV of ERISA; (vi) any Group Member or any Commonly Controlled Entity shall, or shall be reasonably likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or there shall be a determination that any Multiemployer Plan is, or is expected to be, in “endangered” or “critical” status (within the meaning of Sections 431 or 432 of the Code or Sections 304 or 305 of ERISA); (vii) with respect to any Foreign Plan, there shall occur (A) a failure to make or, if applicable, accrue in accordance with normal accounting practices, any employer or employee contributions required by applicable law or by the terms of such Foreign Plan, (B) a failure to register or loss of good standing with applicable regulatory authorities of any such Foreign Plan required to be registered; or (C) a failure of any Foreign Plan to comply with any material provisions of applicable law and regulations or with the material terms of such Foreign Plan; or (viii) any other similar event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (viii) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect;
(h) one or more judgments or decrees shall be entered against any Group Member involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has been notified of such liability and has not challenged such coverage) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 45 days from the entry thereof;
(i) any of the Security Documents shall cease, for any reason, to be in full force and effect (other than as a direct result of an action taken by the Administrative Agent or any Lender or their respective Affiliates or the failure of the Administrative Agent to take any action requested by a Loan Party in writing that is within the Administrative Agent’s control), or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority as purported to be created thereby (other than such Liens as are intended to cover assets with an aggregate book value of not more than $5,000,000), except to the extent that any such loss of perfection or priority results from the failure of the Administrative Agent to maintain possession of certificates
 
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actually delivered to it representing securities pledged under the Security Documents or to file Uniform Commercial Code continuation statements as requested by the Borrower and except as to Collateral consisting of real property to the extent that such losses are covered by a Lender’s title policy and such insurer has not denied coverage;
(j) the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert, except with respect to the release of any Guarantor from its obligations under Section 2 of the Guarantee and Collateral Agent permitted by this Agreement; or
(k) a Change of Control shall occur.
then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Revolving Commitments shall immediately terminate and the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Commitments to be terminated forthwith, whereupon the Revolving Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable; provided that, in the case of an Event of Default resulting from a default in the performance of a Financial Covenant, prior to the expiration of the Term Loan Standstill Period, the references to “Required Lenders” in clauses (i) and (ii) shall mean “Required Revolving Lenders” and references to “Loans” in clauses (i) and (ii) shall mean “Revolving Loans”. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment . Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent.
8.2 Delegation of Duties . The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.
 
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8.3 Exculpatory Provisions . Neither any Agent nor any of their respective officers, directors, employees, agents, advisors, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person’s own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party.
8.4 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy or email message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to Holdings or the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders or the affected Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders or the affected Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.
8.5 Notice of Default . The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has received notice from a Lender, Holdings or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.
8.6 Non-Reliance on Agents and Other Lenders . Each Lender expressly acknowledges that neither the Administrative Agent nor any of its respective officers, directors, employees, agents, advisors, attorneys-in-fact or Affiliates have made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of a Loan Party or any Affiliate of a Loan Party, shall be deemed to constitute any representation or warranty
 
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by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their Affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their Affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any Affiliate of a Loan Party that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, advisors, attorneys-in-fact or Affiliates.
8.7 Indemnification . The Lenders agree to indemnify the Administrative Agent and its officers, directors, employees, Affiliates, agents, advisors and controlling persons (each, an “ Agent Indemnitee ”) (to the extent not reimbursed by Holdings or the Borrower and without limiting the obligation of Holdings or the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section 8.7 (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent Indemnitee in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent Indemnitee under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent Indemnitee’s gross negligence or willful misconduct. The agreements in this Section 8.7 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
8.8 Agent in Its Individual Capacity . The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though such Administrative Agent was not an Administrative Agent. With respect to its Loans made or renewed by it, each Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Administrative Agent, and the terms “Lender” and “Lenders” shall include the Administrative Agent in its individual capacity.
8.9 Successor Administrative Agent . The Administrative Agent may resign as Administrative Agent upon 20 days’ notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 7(a) or Section 7(f) with respect to the
 
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Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 20 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 8 and of Section 9.5 shall continue to inure to its benefit.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers . Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 9.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided , however , that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan, reduce the stated rate of any interest or fee payable hereunder (except (x) in connection with the waiver of applicability or reduction of any post-default increase in interest rates (which waiver or reduction shall be effective with the consent of the Majority Facility Lenders of each adversely affected Facility) and (y) that any amendment or modification of defined terms used in the Financial Covenants shall not constitute a reduction in the rate of interest or fees for purposes of this clause (i)) or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender’s Revolving Commitment, in each case without the written consent of each Lender directly affected thereby; (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release of any material Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the written consent of each Lender directly affected thereby; (iii) amend, modify, or waive any provision of Section 6.5 of the Guarantee and Collateral Agreement without the written consent of each Lender adversely affected thereby; (iv) eliminate or reduce the voting rights of any Lender under this Section 9.1 or reduce any percentage specified in the definition of Required Lenders without the written consent of each Lender; (v) reduce any percentage specified in the definition of Required Revolving Lenders without the written consent of each Revolving Lender and (vi) amend, modify or waive any provision of Section 9 or any other provision of any Loan Document that affects the Administrative Agent without the written consent of the Administrative Agent. Notwithstanding the foregoing, no amendment, modification, waiver of or consent with respect to the Financial Covenants (and related definitions only as they pertain to and are used with respect to the Financial Covenants) shall be effective without the written consent of the Required Revolving Lenders and any such amendment, supplement, modification, termination or waiver shall be effective with the written consent of only the
 
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Required Revolving Lenders (or the Administrative Agent with the prior written consent thereof), on the one hand, and the Borrower, on the other hand. Any waiver, amendment, supplement or modification made pursuant to this Section 9.1 shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.
Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrower (a) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and Revolving extensions of credit and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders and Majority Facility Lenders.
In addition, notwithstanding the foregoing, this Agreement may be amended with the written consent of the Administrative Agent, the Borrower and the Lenders providing the relevant Replacement Term Loans (as defined below) to permit the refinancing, replacement or modification of all outstanding Term Loans (“ Replaced Term Loans ”) with a replacement term loan tranche hereunder (“ Replacement Term Loans ”), provided that (a) the aggregate principal amount of such Replacement Term Loans shall not exceed the aggregate principal amount of such Replaced Term Loans, (b) the Applicable Margin for such Replacement Term Loans shall not be higher than the Applicable Margin for such Replaced Term Loans and (c) the weighted average life to maturity of such Replacement Term Loans shall not be shorter than the weighted average life to maturity of such Replaced Term Loans at the time of such refinancing.
Furthermore, notwithstanding the foregoing, the Administrative Agent, with the consent of the Borrower, may amend, modify or supplement any Loan Document without the consent of any Lender or the Required Lenders in order to correct, amend or cure any ambiguity, inconsistency or defect or correct any typographical error or other manifest error in any Loan Document.
9.2 Notices . All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of Holdings, the Borrower and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto:

        Holdings and Borrower:	  	RMCO, LLC	  		  		
	  	RE/MAX, LLC	  		  		
	  	5075 S. Syracuse Street	  		  		
	  	Denver, CO 80237	  		  		
	  	Attention: David Metzger	  		  		
	  	Telecopy: 303-796-3832	  		  		
 
68

							
				
	  	with a copy to	  		  		
	  	Weston Presidio V, L.P.	  		  		
	  	Pier 1, Bay 2	  		  		
	  	San Francisco, CA 94111	  		  		
	  	Attention: Therese A. Mrozek	  		  		
	  	Telecopy: 415-398-0990	  		  		
				
        Administrative Agent:	  	JPMorgan Chase Bank, N.A.	  		  		
	  	Loan & Agency Services
500 Stanton Christiana Road
Newark, DE 19713	  		  		
	  	Attention: Taiesha Reefer	  		  		
	  	Telecopy: 302-634-4733
Telephone: 302-634-8802
Email: Taieshia.E.Reefer@jpmorgan.com
 
with a copy to
 
JPMorgan Chase Bank, N.A.
383 Madison Avenue
New York, NY 10179
Attention: Kimberly L Turner
Telecopy: 212-270-2157
Telephone: 212-622-8177
Email: turner_kimberly@jpmorgan.com	  		  		
provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received.
Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
9.3 No Waiver; Cumulative Remedies . No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties . All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder.
9.5 Payment of Expenses and Taxes . The Borrower agrees (a) to pay or reimburse the Administrative Agent for all its reasonable, documented out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or
 
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modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable, documented fees and disbursements of one counsel to the Administrative Agent and filing and recording fees and expenses, within 30 days after receipt of written demand with accompanying documentation in reasonable detail (other than such expenses to be paid on the Closing Date); (b) to pay or reimburse each Lender and the Administrative Agent for all its reasonable, documented costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the reasonable, documented out-of-pocket fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent within 30 days after receipt of written demand with accompanying documentation in reasonable detail, provided , that in each case, the Borrower shall only be responsible for the reimbursement of one primary counsel and, if needed, one local counsel in each applicable jurisdiction for the Administrative Agent and one primary counsel and, if needed, one local counsel in each applicable jurisdiction for the Lenders as a group unless there is an actual conflict among such group members (as reasonably determined by such Lender) and then the Borrower shall be responsible for the additional reimbursement of counsel for such conflicted group member; (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all actual, direct liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their respective officers, directors, employees, Affiliates, agents, advisors and controlling persons (each, an “ Indemnitee ”) harmless from and against any and all other actual, direct liabilities, obligations, losses, damages, penalties, actions, judgments, suits, documented, out-of-pocket costs and expenses (including documented and reasonable out-of-pocket fees, disbursements and other charges of counsel) or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of any Group Member or any of the Properties and the reasonable, documented fees and expenses of legal counsel in connection with claims, actions or proceedings (regardless of whether such Indemnitee is a party thereto or has commenced any litigation and regardless of whether such matter is initiated by a third party of by a Borrower or any of its Affiliates) that relate to the financing contemplated by the Loan Documents or the use or the proposed use of proceeds thereof (all the foregoing in this clause (d), collectively, the “ Indemnified Liabilities ”), provided , that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of, or breach of the Loan Documents in bad faith by, such Indemnitee. All amounts due under this Section 9.5 shall be payable not later than 30 days after written demand (with accompanying documentation in reasonable detail) therefor. Statements payable by the Borrower pursuant to this Section 9.5 shall be submitted at the address of the Borrower set forth in Section 9.2, or to such other Person or address as may be hereafter designated by the Borrower in a written notice to the Administrative Agent. The agreements in this Section 9.5 shall survive the termination of this Agreement and the repayment of the Loans and all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments . (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 9.6.
 
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(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees other than a natural person (each, an “ Assignee ”) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (such consent not to be unreasonably withheld, conditioned or delayed and such consent shall be deemed given if the Borrower has not objected within 5 Business Days of a written request for consent), provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund (as defined below) or, if an Event of Default under Section 7(a) or (f) has occurred and is continuing, any other Person; and
(B) the Administrative Agent (such consent not to be unreasonably withheld, conditioned or delayed), provided that no consent of the Administrative Agent shall be required for an assignment of all or any portion of a Term Loan to a Lender, an Affiliate of a Lender or an Approved Fund.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Commitments or Loans under any Facility, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that (1) no such consent of the Borrower shall be required if an Event of Default under Section 7(a) or (f) has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its Affiliates or Approved Funds, if any;
(B) (1) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 and (2) the assigning Lender shall have paid in full any amounts owing by it to the Administrative Agent; and
(C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its Affiliates and their related parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws.
For the purposes of this Section 9.6, “ Approved Fund ” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
 
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(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below, from and after the effective date specified in each Assignment and Assumption the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.16, 2.17, 2.18 and 9.5). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.6 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Lender and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.
(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an Assignee, the Assignee’s completed administrative questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a “ Participant ”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that (1) requires the consent of each Lender directly affected thereby pursuant to the proviso to the second sentence of Section 9.1 and (2) directly affects such Participant. Subject to paragraph (c)(ii) of this Section 9.6, the Borrower agrees that each Participant shall be entitled to the benefits of, and subject to the limitations of, Sections 2.16, 2.17 and 2.18 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section 9.6. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.7(b) as though it were a Lender, provided such Participant shall be subject to Section 9.7(a) as though it were a Lender. Each Lender that sells a participation, acting solely for this purpose as an agent of the Borrower, shall maintain a register on which it enters the name and address of each Participant and the principal amounts
 
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(and stated interest) of each Participant’s interest in the Loans or other obligations under this Agreement (the “ Participant Register ”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans or its other obligations under any Loan Document) except to the extent that such disclosure is necessary to establish that such Commitment, Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive, and such Lender, each Loan Party and the Administrative Agent shall treat each person whose name is recorded in the Participant Register pursuant to the terms hereof as the owner of such participation for all purposes of this Agreement, notwithstanding notice to the contrary.
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent (not to be unreasonably withheld). Any Participant that is a Non-U.S. Lender shall not be entitled to the benefits of Section 2.17 unless such Participant complies with Section 2.17(e) and (f).
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 9.6 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for such Lender as a party hereto.
(e) The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (d) above.
9.7 Adjustments; Set-off . (a) Except to the extent that this Agreement or a court order expressly provides for payments to be allocated to a particular Lender or to the Lenders under a particular Facility, if any Lender (a “ Benefitted Lender ”) shall receive any payment of all or part of the Obligations owing to it (other than in connection with an assignment made pursuant to Section 9.6), or receive any realization on account of any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(f), or otherwise), in a greater proportion than any such payment to or realization received by any other Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of the Obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such realization, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such realization ratably with each of the Lenders; provided , however , that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any Obligations becoming due and payable by the Borrower (whether at the stated maturity, by acceleration or otherwise) and an Event of Default having occurred and being continuing, to apply to the payment of such Obligations, by setoff or otherwise, any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect,
 
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absolute or contingent, matured or unmatured, at any time held or owing by such Lender, any Affiliate thereof or any of their respective branches or agencies to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such application made by such Lender, provided that the failure to give such notice shall not affect the validity of such application.
9.8 Counterparts . This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent.
9.9 Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
9.10 Integration . This Agreement and the other Loan Documents represent the entire agreement of Holdings, the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents.
9.11 GOVERNING LAW . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.12 Submission To Jurisdiction; Waivers . Each of Holdings, the Borrower, the Administrative Agent and the Lenders hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the exclusive jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; provided that nothing contained herein or in any other Loan Document will prevent any Lender or the Administrative Agent from bringing any action to enforce any award or judgment or exercise any right under the Security Documents or against any Collateral or any other property of any Loan Party in any other forum in which jurisdiction can be established;
(b) consents and agrees that any such action or proceeding shall be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to Holdings or the Borrower, as the case may be at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto;
 
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(d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 9.12 any special, exemplary, punitive or consequential damages.
9.13 Acknowledgements . Each of Holdings, the Borrower, the Administrative Agent and the Lenders hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to Holdings or the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and Holdings and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among Holdings, the Borrower and the Lenders.
9.14 Releases of Guarantees and Liens . (a) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably authorized by each Lender (without requirement of notice to or consent of any Lender) to take any action requested by the Borrower having the effect of releasing any Collateral or guarantee obligations (i) to the extent necessary to permit consummation of any transaction not prohibited by any Loan Document or that has been consented to in accordance with Section 9.1 or (ii) under the circumstances described in paragraph (b) below.
(b) At such time as the Loans, the other obligations under the Loan Documents (other than obligations under or in respect of Specified Swap Agreements or Specified Cash Management Agreements and contingent indemnification obligations) shall have been paid in full, the Commitments have been terminated, the Collateral shall be released from the Liens created by the Security Documents, and the Security Documents and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Loan Party under the Security Documents shall terminate, all without delivery of any instrument or performance of any act by any Person. At the request and sole expense of any Loan Party following any such termination, the Administrative Agent shall deliver to such Loan Party any Collateral held by the Administrative Agent on behalf of the Administrative Agent and the Lenders hereunder, and execute and deliver to such Loan Party such documents as such Loan Party shall reasonably request to evidence such termination.
9.15 Confidentiality . Each of the Administrative Agent and each Lender agrees to keep confidential all non-public information provided to it by any Loan Party, the Administrative Agent or any Lender pursuant to or in connection with this Agreement; provided that nothing herein shall prevent the Administrative Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any Affiliate thereof, (b) subject to an agreement to comply with the provisions of this Section 9.15, to any actual or prospective Transferee or any direct or indirect counterparty to any Swap Agreement (or any professional advisor to such counterparty), (c) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its
 
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Affiliates, (d) upon the request or demand of any Governmental Authority, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender, (i) in connection with the exercise of any remedy hereunder or under any other Loan Document, or (j) if agreed by the Borrower in its sole discretion, to any other Person.
Each Lender acknowledges that information furnished to it pursuant to this Agreement or the other Loan Documents may include material non-public information concerning the Borrower and its Affiliates and their related parties or their respective securities, and confirms that it has developed compliance procedures regarding the use of material non-public information and that it will handle such material non-public information in accordance with those procedures and applicable law, including Federal and state securities laws.
All information, including requests for waivers and amendments, furnished by the Borrower or the Administrative Agent pursuant to, or in the course of administering, this Agreement or the other Loan Documents will be syndicate-level information, which may contain material non-public information about the Borrower and its Affiliates and their related parties or their respective securities. Accordingly, each Lender represents to the Borrower and the Administrative Agent that it has identified in its administrative questionnaire a credit contact who may receive information that may contain material non-public information in accordance with its compliance procedures and applicable law, including Federal and state securities laws.
9.16 WAIVERS OF JURY TRIAL . HOLDINGS, THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9.17 USA PATRIOT Act . Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the USA PATRIOT Act.
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

RMCO, LLC	
		
By:	 	/s/ Geoffrey D. Lewis	
	 	Name: Geoffrey D. Lewis	
	 	Title: Secretary	
	
RE/MAX, LLC	
		
By:	 	/s/ Geoffrey D. Lewis	
	 	Name: Geoffrey D. Lewis	
	 	Title: Secretary	
[Signature Page to the Credit Agreement]

			
JPMORGAN CHASE BANK, N.A., as
Administrative Agent and as a Lender	
		
By:	 	/s/ Kimberly Turner	
	 	Name: Kimberly Turner	
	 	Title: Executive Director	
[Signature Page to the Credit Agreement]

Exhibit 10.5
LEASE
by and between
HUB PROPERTIES TRUST,
a Maryland real estate investment trust 
“Landlord”
and
RE/MAX INTERNATIONAL, LLC,
a Delaware limited liability company
“Tenant”
for
premises located at
5073, 5075 and 5085 South Syracuse Street
Denver, Colorado 80237
April 16, 2010

					
1. Premises	  	 	1	  	
2. Lease Term	  	 	1	  	
3. Base Rent	  	 	2	  	
4. Payment of Rent	  	 	3	  	
5. Additional Rent	  	 	3	  	
6. Late Charges	  	 	4	  	
7. Taxes	  	 	4	  	
8. Utilities and Services	  	 	6	  	
9. Bond Lease	  	 	6	  	
10. Use of Leased Premises	  	 	7	  	
11. Alterations and Improvements	  	 	8	  	
12. Signs	  	 	9	  	
13. Maintenance and Repairs	  	 	9	  	
14. Hazardous Materials	  	 	10	  	
15. Indemnification and Insurance	  	 	12	  	
16. Destruction of Premises	  	 	18	  	
17. Condemnation	  	 	19	  	
18. Liens	  	 	19	  	
19. Sublease, Assignment, Transfer	  	 	20	  	
20. Default–Grounds	  	 	23	  	
21. Default–Remedies	  	 	24	  	
22. Landlord’s Right to Perform Tenant’s Covenants	  	 	26	  	
23. Consequential Damages	  	 	27	  	
24. Access	  	 	27	  	
25. Surrender	  	 	27	  	
26. Holding Over	  	 	28	  	
27. Tenant Financial Information	  	 	28	  	
28. Tenant Estoppel Certificates	  	 	28	  	
29. Representations, Warranties and Covenants of Tenant	  	 	29	  	
30. Representations and Warranties of Landlord	  	 	30	  	
31. “AS IS”	  	 	30	  	
32. Title to Improvements	  	 	31	  	
33. Landlord’s Consent	  	 	31	  	
34. Notices	  	 	32	  	
35. Waiver	  	 	33	  	
36. Time is of the Essence	  	 	33	  	
37. No Recording	  	 	33	  	
38. Conveyance by Landlord	  	 	33	  	
39. No Personal Liability to Landlord	  	 	33	  	
40. Subordination, Nondisturbance and Attornment	  	 	34	  	
41. Invalidity	  	 	34	  	
42. Construction	  	 	34	  	
43. Attorneys’ Fees	  	 	34	  	
44. Binding Effect	  	 	34	  	
45. Quiet Enjoyment	  	 	35	  	
46. Brokerage Commissions	  	 	35	  	
47. No Partnership	  	 	35	  	

					
48. Survival of Obligations	  	 	35	  	
49. Entire Agreement	  	 	35	  	
50. Severability	  	 	35	  	
51. Waiver of Redemption	  	 	35	  	
52. Waiver of Right to Jury Trial	  	 	35	  	
53. Disclaimer	  	 	36	  	
54. Statement Concerning Limited Liability	  	 	36	  	
55. Waiver of Landlord Lien	  	 	36	  	
56. Vacation of Easements	  	 	36	  	
EXHIBITS

Exhibit “A”	  	Legal Description of Premises	
Exhibit “B”	  	Memorandum of Lease	
 
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LEASE
THIS LEASE (this “ Lease ”) is made and entered into as of April 16, 2010 (the “ Effective Date ”), by and between HUB PROPERTIES TRUST, a Maryland real estate investment trust (“ Landlord ”), and RE/MAX INTERNATIONAL, LLC, a Delaware limited liability company (“ Tenant ”).
WITNESSETH:
For and in consideration of the mutual agreements, covenants and promises set forth in this Lease and for other good and valuable consideration, the receipt, sufficiency and validity of which are hereby acknowledged, Landlord and Tenant agree as follows:
1. Premises . Landlord leases to Tenant and Tenant accepts and leases from Landlord, upon the terms and conditions set forth in this Lease, that certain real estate having a street address at 5073, 5075 and 5085 South Syracuse Street Denver, Colorado 80237 and consisting of approximately 5.4 acres of land as legally described on Exhibit “A” attached to this Lease, together with all easements, rights and appurtenances pertaining to such land (collectively, the “ Land ”) and all of the buildings and other improvements now or in the future located on the Land (collectively, the “ Improvements ” and, together with the Land, collectively, the “ Premises ”). The Improvements include, without limitation, a twelve (12) story office tower (the “ Office Tower ”) and two (2) separate buildings currently being used as restaurants and/or cafes (collectively, the “ Restaurant Buildings ”).
2. Lease Term .
(a) Initial Term . The term of this Lease (the “ Initial Term ”) shall commence on the Effective Date and end on the last day of the month in which the eighteen (18) year anniversary of the Effective Date occurs, unless the Initial Term shall be extended or sooner terminated as expressly provided in this Lease.
(b) Extended Terms . Provided that this Lease is in full force and effect and no Event of Default (as defined in Section 20 ) shall exist at the time of Tenant’s election to extend the Lease Term (or Landlord shall have waived such latter condition in its sole discretion), Tenant shall have the option to extend the Initial Term for two (2) additional periods of ten (10) years each (each, an “ Extended Term ”), with each such Extended Term to commence upon the expiration of the Initial Term or the first Extended Term, as applicable. Each Extended Term shall be on the same terms, covenants and provisions as set forth in this Lease, except that Base Rent (as defined below) shall be adjusted in accordance with the provisions of Section 3 below, and Tenant shall have no further option to extend the Lease Term (as hereinafter defined) after the expiration of the second Extended Term. If Tenant wishes to exercise its option to extend the Lease Term, it shall do so by delivering a written notice thereof to Landlord at least twelve (12) months prior to the expiration of the Initial Term or the first Extended Term, as applicable. When used in this Lease, the terms “ Lease Term ” or “ Term ” mean not only the Initial Term, but also any Extended Term then in effect and any extension occurring pursuant to Section 16 below.

3. Base Rent . Commencing on the Effective Date, Tenant shall pay to Landlord as base rent (the “ Base Rent ”) the sum of Six Million One Hundred Eighty Thousand and No/100 Dollars ($6,180,000.00) per annum, in equal monthly installments of Five Hundred Fifteen Thousand and No/100 Dollars ($515,000.00) each, subject to adjustment in accordance with the further provisions of this Section 3 . Base Rent shall be paid on the first day of each month during the Lease Term, in advance; provided that if the Effective Date is not the first day of a month, Base Rent for such month shall be paid on the Effective Date and equal Five Hundred Fifteen Thousand and No/100 Dollars ($515,000.00) multiplied by a fraction the numerator of which is the number of days from the Effective Date through the last day of such month (inclusive of both such dates) and the denominator of which is the number of days in such month. On the first anniversary of the Effective Date (or if the Effective Date is not the first day of a month, on the first anniversary of the first day of the month following the month in which the Effective Date shall occur (the “ Rent Bump Date ”)) and on each subsequent anniversary thereof throughout the Lease Term (including, without limitation, on each anniversary of the Rent Bump Date occurring during any applicable Extension Term), the Base Rent shall be increased to an amount equal to one hundred three percent (103%) of the Base Rent for the respective preceding twelve-month period. Notwithstanding the foregoing, the Base Rent for the first twelve (12) months of the second Extended Term shall equal the Market Rate (as defined below).
The “ Market Rate ” shall mean the then fair market annual rent for leases or lease renewals entered into as of the commencement of the second Extended Term (determined as set forth below) for buildings of comparable age, type, size, quality and location, and assuming that (a) neither Landlord nor the prospective tenant is under a compulsion to rent, both Landlord and the prospective tenant are typically motivated, well-informed and well-advised, and each is acting in what it considers its own best interest, (b) the Premises are fit for immediate occupancy and use “as is” and (c) if the Premises have been destroyed or damaged by fire or other casualty, they have been fully restored. Landlord shall designate the Market Rate in a written notice given to Tenant within thirty (30) days after Landlord’s receipt of Tenant’s notice exercising its option to extend the Lease Term for the second Extended Term (the “ Market Rate Notice ”). If Tenant disagrees with Landlord’s designation of the Market Rate in the Market Rate Notice, then Tenant shall give notice thereof to Landlord within thirty (30) days after the date of Market Rate Notice. Tenant’s failure to provide such notice of disagreement within such 30-day period shall constitute Tenant’s acceptance of the Market Rate as designated in Market Rate Notice. If the parties cannot agree upon the Market Rate on or before the date that is forty-five (45) days following the date of the Market Rate Notice, then the Market Rate shall be submitted to appraisal as follows:
Within fifteen (15) days after the expiration of such 45-day period, Landlord and Tenant shall each give notice to the other designating the name and address of its appointed appraiser who shall have at least ten (10) years experience as a commercial real estate broker in the greater Denver area dealing with properties of the same type and quality as the Premises. The two appraisers so appointed shall meet within fifteen (15) days after the second appraiser is appointed and if, within thirty (30) days after the second appraiser is appointed, the two appraisers shall not have agreed upon a determination of the Market Rate in accordance with terms hereof, they shall each submit their determination of the Market Rate to the other and together appoint a third appraiser who also has the qualifications set forth hereinabove. If the two appraisers cannot
 
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agree upon the appointment of a third appraiser within ten (10) days after the expiration of the 30-day period following the appointment of the second appraiser, then either party, on behalf of both and upon notice to the other, may request such appointment by the American Arbitration Association (or any successor organization) in accordance with its then prevailing rules. The third appraiser, within thirty (30) days after his or her appointment, shall decide which of the other two appraiser’s determinations of the Market Rate shall be closer to the actual Market Rate and such determination shall be the Market Rate hereunder.
If only one appraiser with the qualifications set forth hereinabove shall be designated by either Landlord or Tenant within such 15-day period, that sole appraiser shall render the decision that would otherwise have been rendered by the agreement of the two appraisers as hereinabove provided.
The decision and award of the appraiser(s) shall be in writing and shall be final and conclusive on all parties, and counterpart copies thereof shall be delivered to both Landlord and Tenant within the time periods required for the appraiser(s) to reach agreement hereunder. Judgment upon the award of the appraiser(s) may be entered in any court of competent jurisdiction. Landlord and Tenant hereby waive the right to an evidentiary hearing before the appraiser(s) and agree that the appraisal shall not be an arbitration nor shall it be subject to state or federal law relating to arbitrations.
Each party shall pay for all of the fees and expenses of the appraiser it has chosen and such party’s own counsel. Each party shall pay one half (1/2) of the fees and expenses of the third appraiser and all other expenses of the appraisal.
If the dispute between the parties as to the determination of the Market Rate has not been resolved before the commencement of the second Extended Term, then, commencing on the first day of the second Extended Term, Tenant shall pay Base Rent under this Lease equal to the Base Rent in effect during the last year of the first Extended Term until the Market Rate has been determined, at which time Tenant shall pay any underpayment of Base Rent to Landlord, or Landlord shall refund any overpayment of Base Rent to Tenant.
4. Payment of Rent . Tenant shall pay all monthly installments of Base Rent and all other sums due under this Lease to Landlord, without notice or demand and without deduction, abatement or setoff, except as otherwise expressly set forth in this Lease, in advance on or before the first day of each calendar month during the Lease Term, at c/o Reit Management & Research LLC, 400 Centre Street, Newton, Massachusetts 02458 or at such other place or to such other person or persons as Landlord may designate upon at least thirty (30) days ’ advance written notice to Tenant. All sums due under this Lease shall be payable in current legal tender of the United States of America.
5. Additional Rent . In addition to Base Rent, all other amounts to be paid by Tenant to Landlord pursuant to this Lease, if any, shall be deemed to be Additional Rent (whether or not designated as such). Absent any specific provision herein to the contrary, Tenant shall pay all Additional Rent within thirty (30) days of invoice. Landlord shall have the same remedies for the failure to timely pay Additional Rent as for the failure to timely pay Base Rent.
 
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6. Late Charges . If any payment or Base Rent, Additional Rent or any other amount due to Landlord hereunder is not received in full by Landlord within five (5) days after the date on which such payment or other amount first becomes due, then Tenant shall pay to Landlord a late charge equal to the lesser of (a) Five Thousand and No/100 Dollars ($5,000.00) or (b) two and 1/2 percent (2.5%) of the late payment; provided , however , in no event shall any such late charge be payable with respect to the first two payments of Base Rent which are not timely paid during any 12-month period provided that they are in fact paid within five (5) business days after a notice thereof is given to Tenant. The parties acknowledge and agree that the damages that Landlord will suffer in connection with a late payment are extremely difficult to calculate, and the foregoing late charge is a reasonable estimate of Landlord’s probable damages in such an event and is not a penalty. This provision shall not be construed to allow or permit Tenant to make any payments after such payment’s due date, or to Waive (as defined in Section 15(a)(i) below) any of Landlord’s other rights or remedies in connection with any delinquent payments by Tenant. The extension of time for the payment of any installment of Base Rent or any other sums due under this Lease, or the acceptance by Landlord of any late payment, will not Waive any right of Landlord to insist on having all other payments due under this Lease made in the manner and at the time specified in this Lease.
7. Taxes .
(a) Occupancy, Sales and Rent Taxes . In addition to and together with its payments of Base Rent and Additional Rent, Tenant shall pay to Landlord any governmental taxes now or in the future imposed on Base Rent, Additional Rent or any other charges collected or paid pursuant to the terms of this Lease including, without limitation, any state, county or local rental, occupancy, sales, transaction privilege and excise taxes, but specifically excluding any taxes imposed upon the net income of Landlord.
(b) Personal Property Taxes . Tenant shall pay to the appropriate taxing authority, not later than ten (10) business days prior to delinquency, all personal property taxes assessed against any personal property owned or leased by Tenant in connection with the Premises.
(c) Real Property Taxes . From and after the Effective Date, Tenant shall pay all Taxes (as defined below) which accrue against or are otherwise payable with respect to the Premises. Tenant shall arrange for the bills for all Taxes to be sent directly from the applicable taxing authorities to Tenant, and Tenant shall pay all such Taxes directly to the appropriate taxing authorities not later than ten (10) business days prior to delinquency. Landlord shall, at no cost or expense to Landlord, reasonably cooperate with Tenant’s efforts to have the bills for all Taxes sent directly from the taxing authorities to Tenant. Tenant shall provide to Landlord written evidence of timely payment of Taxes by Tenant not later than five (5) business days prior to the last day that any Taxes may be paid without the imposition of interest and/or a penalty. Notwithstanding the provisions of this Section 7(c) to the contrary, if Tenant shall fail to pay any Taxes to the applicable taxing authorities in a timely manner (unless Tenant is contesting such Taxes in accordance with Section 7(d) below) or if Tenant shall default in the payment of any Base Rent, Additional Rent or other sums due under this Lease beyond any applicable notice and cure periods, Landlord may, upon not less than three (3) days’ prior written notice to Tenant, require that Tenant thereafter pay one-twelfth (1/12) of the amount reasonably estimated by Landlord to be the Taxes due and payable during each year thereafter
 
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during the Lease Term, together with each monthly installment of Base Rent. Landlord reserves the right to adjust the amount of any such estimated payments from time to time. Landlord may commingle any such estimated payments with Landlord’s other funds and shall not be obligated to pay or otherwise credit Tenant for any interest that may be earned thereon. At the end of each full tax year during the Lease Term and again at the expiration or termination of this Lease, Landlord and Tenant shall calculate the actual Tax accruing against the Premises, and Tenant shall be credited or charged, as the case may be, for such adjustments as may be necessary by reason of any difference between the actual amounts determined by Landlord to have accrued against the Premises (or the pro-rata portion of such amount notwithstanding that payment to the taxing authority may not then be due) as of the expiration or termination of this Lease and the amount of such Taxes actually paid by Tenant. If Landlord requires Tenant to pay monthly estimated installments of Taxes hereunder, then Landlord shall be obligated to pay all Taxes on or before their due dates to the extent that (A) Landlord has received the full amount of such Tax payments from Tenant and (B) Landlord has received a copy of the bill for such Taxes, in each case at least thirty (30) days prior to their due date.
“ Taxes ” shall mean, collectively, all taxes (including, without limitation, all ad valorem, or similar taxes that relate to or are imposed upon Landlord or the Premises), assessments (including, without limitation, water, irrigation project, sewer, street, paving and other assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof), water, sewer or other rents and charges, excises, tax levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every kind and character in respect of the Premises (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Lease Term may be assessed or imposed on or in respect of or be a lien upon the Premises or any part thereof or any rent therefrom or any estate, right, title or interest of Landlord therein, or in connection with the Premises or the leasing or use of the Premises or any part thereof by Tenant; provided , however , that nothing contained herein shall be construed to require Tenant to pay and the term “ Taxes ” shall not include (i) any tax based on net income imposed on Landlord or any other income, capital levy, fee transfer, capital stock, gift, succession, estate or inheritance tax arising out of transfers by Landlord other than this Lease or any action taken at or as a result of Tenant’s request, (ii) any transfer tax imposed with respect to the sale, exchange or other disposition by Landlord of the Premises (other than any transfer tax due with respect to this Lease, if any and any transfers taken at or as a result of Tenant’s request), (iii) any interest or penalties imposed on Landlord as a result of the failure of Landlord to file any return or report timely and in the form prescribed by law or to pay any tax or imposition, except to the extent such failure results from a breach by Tenant of its obligations hereunder, and (iv) any impositions imposed on Landlord that are a result of Landlord not being considered a “United States person” as defined in Section 770l(a)(30) of the Internal Revenue Code of 1986.
(d) Tax Contests. Provided no Event of Default shall then be outstanding, Tenant shall have the right, upon not less than thirty (30) days’ prior written notice to Landlord, to contest by appropriate legal proceedings, diligently conducted in good faith, in the name of Tenant or Landlord or both, without any cost, expense or other liability to Landlord, the amount, validity or application of any Taxes during the Lease Term, provided that Tenant shall provide
 
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Landlord with updates from time to time promptly following any request from Landlord regarding the progress of such contest, and further subject to the following:
(i) If any lien, charge or civil liability could be incurred by reason of any such contest, Tenant shall not initiate such contest without first obtaining the prior written consent of Landlord, which consent not shall not be unreasonably withheld, conditioned or delayed; provided , further , that such contest shall not subject Landlord to any criminal liability and Tenant shall furnish to Landlord such security as shall be reasonably satisfactory to Landlord with respect to any Claim (as defined in
Section 14(a)(iii) below) that could reasonably be expected to arise in connection with such contest.
(ii) Upon Tenant’s request, Landlord, at Tenant’s sole cost and expense, including Tenant’s payment of Landlord’s reasonable attorneys’ fees, shall execute and deliver any appropriate papers as may be reasonably necessary or proper to permit Tenant to contest the validity or application of any such Taxes. Tenant shall Indemnify (as defined in Section 15(a)(i) below) Landlord from any Claim arising from or in connection with such proceedings.
8. Utilities and Services . Tenant shall pay for all fuel, gas, oil, heat, electricity, power, water, telephone, trash removal and other utilities and services which may be furnished to or used at the Premises. Tenant shall pay all charges for such utilities and services directly to the applicable provider thereof prior to delinquency, and Tenant shall keep the Premises free and clear of any lien or encumbrance of any kind whatsoever constituting a charge against the Premises arising from or in connection with the nonpayment or a late payment of any charges for said utilities or services.
9. Bond Lease . It is the purpose and intent of Landlord and Tenant that this Lease be a so-called “ bond lease .” As such, Landlord and Tenant intend and agree that, except as otherwise expressly set forth herein, (a) the Base Rent and Additional Rent shall be absolutely net to Landlord, so that this Lease shall yield, net to Landlord, the Base Rent and Additional Rent specified in this Lease, (b) all costs, operating expenses, taxes, premiums, fees, interest, charges, expenses, reimbursements and obligations of every kind and nature whatsoever relating to the Premises which may arise or become due during or out of the Lease Term, excepting only the income, transfer, estate, inheritance and transfer taxes of Landlord (other than taxes expressly excluded from the definition of Taxes in Section 7 above) and amounts payable in connection with any Mortgage, shall be paid or discharged by Tenant and (c) each and every obligation of any kind or nature whatsoever that may arise or be related to the Premises, whether ordinary or extraordinary, foreseen or unforeseen, shall be paid or performed by Tenant at its sole cost and expense. In addition, except as otherwise expressly set forth herein, Tenant shall not seek, or be entitled to, any abatement, deduction, deferment or reduction of the Base Rent or Additional Rent due hereunder or any set-off against the Base Rent or Additional Rent due hereunder, nor shall Tenant’s obligations hereunder be otherwise affected for any reason whatsoever, including, without limitation, (i) any damage to or destruction of the Premises, or any portion thereof, from whatever cause, (ii) the lawful or unlawful prohibition of, or restriction upon, Tenant’s use of the Premises, or any portion thereof, or the interference with such use by any person or party; or (iii) for any other cause whether similar or dissimilar to any of the foregoing. Except as otherwise expressly set forth herein, Tenant hereby Waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law (A) to modify, surrender or
 
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terminate this Lease or quit or surrender the Premises, or any portion thereof, or (B) which would entitle Tenant to any abatement, reduction, suspension or deferment of Base Rent or Additional Rent due hereunder or other sums payable or other obligations to be performed by Tenant hereunder. Further, it is the declared intent of Landlord and Tenant that the transaction contemplated by this Lease be construed as a lease and not as a loan or a financing transaction and Tenant shall account for this Lease as a lease and not as a loan or a financing transaction for all applicable purposes.
10. Use of Leased Premises . The Office Tower shall be used and occupied throughout the Lease Term solely for office purposes and ancillary purposes reasonably related thereto and the Restaurant Buildings shall be used and occupied throughout the Lease Term solely for restaurant, café or retail purposes and ancillary purposes reasonably related thereto and for no other purposes without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall not use or occupy the Premises, nor permit the Premises to be used or occupied, nor permit anything to be done in or about the Premises, which (a) violates or could reasonably be expected to violate any applicable laws, (b) voids or could reasonably be expected to make voidable any insurance then in force with respect to the Premises, (c) damages or could reasonably be expected to damage to the Improvements or any part of the Improvements, (d) constitutes or could reasonably be expected to constitute a public or private nuisance, or (e) which violates or could reasonably be expected to violate the rights of adjoining landowners. Throughout the Lease Term, Tenant, at its sole cost and expense, shall promptly cure and remove any violation and shall promptly comply with all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state, and municipal governments, courts, departments, commissions, boards, any national or local Insurance Rating Bureau, or any other body exercising functions similar to those of any of the foregoing, radical, foreseen or unforeseen, ordinary as well as extraordinary, which may be related to the Premises, or any part of the Premises, or to the use or manner of use of the Premises, or any part of the Premises, whether or not the correction or removal so necessitated shall have been foreseen or unforeseen or whether the same shall involve radical, extraordinary, or capital construction or other disposition. Tenant, at all times at its sole cost and expense, shall comply with the terms and conditions of any covenants, conditions, restrictions and/or reciprocal easement agreements heretofore or hereafter recorded against or binding upon the Premises and shall timely comply with all obligations of Landlord as the tenant under that certain Ground Lease, dated as of May 23, 2007, between Goldsmith Metropolitan District and EGDP, LLC (as the same may be amended or assigned from time to time, the “ Ground Lease ”). Tenant, at all times at its sole cost and expense, shall also cause all of the Tenant Parties (as hereinafter defined) to comply with the applicable provisions of such covenants, conditions and restrictions, reciprocal easement agreements and the Ground Lease, and this Lease shall constitute a sublease between Landlord and Tenant with respect to the premises demised under the Ground Lease for the Lease Term. Tenant shall timely pay or perform, as the case may be, all obligations attributable to the Premises or the owner of the Premises under the covenants, conditions and restrictions and/or reciprocal easement agreements recorded against the Premises or to the tenant under the Ground Lease. Tenant shall not do or suffer any waste to the Premises or any part of the Premises.
 
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11. Alterations and Improvements . Prior to commencing construction of (a) any Improvements that (when considered individually or together with any related Improvements) have a total estimated cost in excess of $250,000.00, or (b) any alterations to any of the Improvements that (when considered individually or together with any related alterations) have a total estimated cost in excess of $250,000.00, or (c) any structural alterations to any of the Improvements, or (d) any non-structural alterations to the Improvements that could reasonably be expected to diminish the value of the Improvements by more than $100,000.00 (either individually or in the aggregate) (any of the foregoing, “ Major Work ”), Tenant shall obtain Landlord’s prior written approval of such proposed Improvements or alterations, which approval shall not be unreasonably withheld, conditioned or delayed so long as Tenant shall not be in breach under this Lease beyond any applicable notice and cure period. Prior to commencing any construction (regardless of whether or not Landlord’s approval may be required hereunder), Tenant shall submit to Landlord, on electronic media (together with a hard copy), such plans and specifications as are customary and reasonable for the alteration or improvement contemplated, in Tenant’s commercially reasonable judgment, which may include a site plan showing in detail any planned changes to the existing dimensions, ingress, egress, grading, drainage, site and building signage, site and building lighting, parking, hardscape and landscaping (the “ Preliminary Submittal ”). In addition, prior to commencing construction of any Major Work, Tenant shall submit to comprehensive plans and specifications therefor for Landlord’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed so long as Tenant shall not be in breach under this Lease beyond any applicable notice and cure period. No work that requires Landlord’s approval may be commenced unless and until Landlord shall have given such approval as required hereunder. It shall be reasonable for Landlord to withhold its approval of the comprehensive plans and specifications if they do not substantially conform to the Preliminary Submittal approved by Landlord. Tenant acknowledges that Landlord does not assume any responsibility whatsoever for the design of any structure or for any violation of applicable laws, ordinances or regulations and that Landlord’s review and approval of the Preliminary Submittal and any plans and specifications is for Landlord’s own benefit and does not constitute any representation or warranty whatsoever to Tenant. Tenant shall not make any material changes or modifications to the plans and specifications for any alterations or new Improvements after having received the approval of Landlord, without first obtaining the approval of Landlord to such changes or modifications, which approval shall not be unreasonably withheld, conditioned or delayed so long as Tenant shall not be in breach under this Lease beyond any applicable notice and cure period. All work shall be constructed and completed in a good, workmanlike and lien free manner, in conformance with the plans and specifications approved by Landlord as required hereunder and in compliance with the codes and ordinances of governmental authorities having jurisdiction. Within one hundred twenty (120) days after completion of any Improvements on the Land and within one hundred twenty (120) days after completion of any alterations to the Improvements, Tenant shall deliver to Landlord, at no cost or expense to Landlord, one (1) set of “as built” plans for the Improvements on electronic media, together with a signed and sealed letter of certification from Tenant’s architect and/or engineer certifying that the electronic media furnished represents the true, correct and complete “as built” plans for the Improvements; provided , however , in no event shall Tenant be required to submit “as built” plans and specifications for any Improvements or alterations that do not constitute Major Work if it would not be customary and reasonable to produce “as built” plans and specifications for such Improvement or alteration. All Improvements, alterations, additions and fixtures (excluding Tenant’s trade fixtures, furniture, equipment and/or personal property) made or installed by Tenant (collectively, the “ Tenant Alterations ”) shall remain upon the Premises at the expiration or earlier termination of this Lease and shall become the property of
 
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Landlord without the need to execute any further documents or instruments, unless, either prior to the expiration or termination of this Lease or within thirty (30) days after the termination or expiration of this Lease, Landlord shall give written notice to Tenant directing Tenant to remove the same or such of the same as shall be specified by Landlord, whereupon Tenant shall, on or before the expiration or earlier termination of the Lease Term (or the date that is thirty (30) days after the date of Landlord’s notice if such notice is given after the expiration or earlier termination of the Lease Term) remove any Tenant Alterations so specified and repair all damage occasioned in connection with such removal and return the area affected thereby to its condition prior to the performance or installation of the same, all at Tenant’s sole cost and expense. Notwithstanding the foregoing, except for cabling, which Tenant shall remove if Landlord does not require the same to be capped and surrendered, Tenant shall not be required to remove any Tenant Alterations if (i) Tenant’s request for Landlord’s consent to such Tenant Alterations (or Tenant’s notice of Tenant Alterations which do not require Landlord’s consent hereunder) contains a statement in capital letters of not less than 14 point, bold-face type advising Landlord that Landlord shall be deemed to have waived its right to require removal of such Tenant Alterations at the end of the Lease Term unless Landlord, at the time Landlord gives its consent to such Tenant Alterations (or within thirty (30) days after receiving notice of any Tenant Alterations not requiring Landlord’s consent), notifies Tenant that removal of such Tenant Alterations at the end of the Lease Term is required and (ii) Landlord does not notify Tenant that such removal shall be required.
12. Signs . Tenant shall have the right to install such signs on the Land and the Improvements in connection with Tenant’s operation of the Premises as Tenant may elect from time to time. All signs shall be installed and maintained at the expense of Tenant and shall comply with all codes or ordinances now in effect or in the future enacted by any governmental authority having jurisdiction over the Premises and with all covenants, conditions, restrictions and/or reciprocal easement agreements, if any, now or hereafter imposed upon the Land.
13. Maintenance and Repairs .
(a) Tenant’s Obligations . Tenant, at its sole cost and expense, shall maintain in good order and repair and to a standard consistent with similarly-situated class A developments in the Denver, Colorado metropolitan area (making all necessary replacements, renewals, and alterations) all portions of the Premises, interior and exterior, glass, doors, signs, interior walls, ceilings, roof, parking areas, landscaping, plumbing, heating, cooling, refrigeration, electrical systems, fixtures, plumbing systems and all other improvements now or in the future located on the Premises. Tenant assumes full and sole responsibility for the condition, operation, repair, replacement, maintenance and management of the Premises at its sole cost and expense.
(b) Shared Capital Expenditures . Notwithstanding anything contained in Section 13(a) to the contrary, Landlord shall reimburse Tenant, within one hundred eighty (180) days following the expiration of the Lease Term, for the unamortized costs of any Shared Capital Expenditure (as hereinafter defined), which unamortized costs shall be calculated based on the generally accepted useful life of such Shared Capital Expenditure (as determined by Landlord in good faith in accordance generally accepted accounting principals consistently applied), as reasonably agreed upon by Landlord and Tenant prior to the making of any such Shared Capital Expenditure. A “Shared Capital Expenditure” shall mean any capital expenditure which (a) costs
 
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in excess of $100,000 (as determined in accordance with the bidding procedure as hereinafter described), (b) has been approved by Landlord as if the same constituted Major Work, notwithstanding the fact that it may not satisfy all of the criteria applicable to Major Work, (c) is completed during the last sixty (60) calendar months of the Lease Term, (d) has a generally accepted useful life which extends beyond sixty (60) calendar months following the expiration of the Lease Term, and (e) is required in order to maintain the Property in compliance with Section 13(a) and not as a result of or in connection with (i) Tenant’s failure to maintain the Property as aforesaid or (ii) any casualty or condemnation involving the Property (it being acknowledged and agreed that any such casualty or condemnation shall be subject to the terms and provisions of Sections 16 or 17 below, as applicable). Within thirty (30) days after Tenant notifies Landlord of its intent to commence a Shared Capital Expenditure, Landlord and Tenant shall each designate not more than two reputable contractors who are ready, willing and able to complete the Shared Capital Expenditure in accordance with the requirements of this Lease and whose identity or identities shall be subject to the prior approval of the other party, which approval shall not be unreasonably withheld, conditioned or delayed. Such contractors shall submit their bids to Landlord and Tenant within thirty (30) days following their designation and approval, and the contractor with the lowest bid shall be selected to perform the work. Tenant shall be responsible for all costs and expenditures incurred or otherwise owing in connection with any Shared Capital Expenditure, subject to Landlord’s obligation to reimburse Tenant for the same following the expiration of the Term. Notwithstanding the foregoing, Landlord shall not have any obligation to reimburse Tenant for any Shared Capital Expenditure that no longer qualifies as such following any election by Tenant to exercise its right to extend the Lease Term for any Extended Term or if the Lease Term is terminated as a result of any Event of Default by Tenant or if Tenant does not otherwise surrender the Premises in accordance with Section 25 of this Lease. Subject to the foregoing, this Section 13(b) shall survive the expiration or any earlier termination of the Lease Term.
14. Hazardous Materials .
(a) Definitions .
(i) “ Environmental Report ” means a so-called “Phase I” report or such other level of investigation which shall be the standard of diligence in the purchase or lease of property similar to the Property at the time in question, together with any additional investigation and report which would be needed to make the conclusions required above or which would customarily follow any discovery contained in any initial report(s), and for which the investigation and testing on which the conclusions shall have been based shall have been performed not earlier than thirty (30) days prior to the date of such report.
(ii) “ Hazardous Materials ” means, collectively, any chemical, compound, material or substance that: (A) is a flammable explosive, asbestos, radioactive material, nuclear material, hazardous waste, toxic substance or petroleum product; (B) is controlled, designated in or governed by any Hazardous Materials Law; (C) gives rise to any reporting or notice requirements under any Hazardous Materials Law; or (D) gives rise to any liability, responsibility or duty on the part of any Tenant Party with respect to any third person under any Hazardous Materials Law.
 
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(iii) “ Hazardous Materials Laws ” means, collectively, any and all presently existing or enacted in the future federal, state or local laws, ordinances, rules, regulations, final decrees and orders (including the so-called “ common law ” of the State of Colorado) relating to hazardous substances, hazardous materials, hazardous waste or toxic substances on, under or about any of the improved real properties comprising the Premises, or soil and ground water conditions, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq., the Resource Conversation and Recovery Act, 42 U.S.C. 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et seq., any amendments to the foregoing, and any similar federal, state or local laws, ordinances, rules, regulations, final decrees and orders.
(b) Use of Hazardous Materials . Tenant shall not allow any Hazardous Material to be used, generated, released, handled, stored or disposed of at, on, in, under or about, or transported from, any of the Premises, except in compliance with all applicable Hazardous Materials Laws, Tenant shall be permitted to store and use on the Premises Hazardous Materials in such quantities as are reasonable, necessary and incidental to business operations on the Premises as described in this Lease, but only so long as Tenant complies with all applicable Hazardous Materials Laws with respect thereto.
(c) Compliance With Hazardous Materials Laws . Tenant shall comply with, and shall maintain its operations on the Premises in compliance with, all applicable Hazardous Materials Laws and the requirements of Tenant’s insurers regarding Hazardous Materials and with such insurers’ recommendations based upon prudent industry practices regarding management of Hazardous Materials. Tenant shall obtain and maintain in full force and effect all permits, licenses and other governmental approvals required for Tenant’s operations on the Premises under any Hazardous Materials Laws and shall comply with all terms and conditions thereof. At Landlord’s request, Tenant shall deliver copies of, or allow Landlord to inspect, all such permits, licenses and approvals at a mutually convenient time and place. If Tenant or any Tenant Representative discharges or releases a Hazardous Material at, on, in, under or about the Premises in violation of any Hazardous Materials Law, or any Hazardous Materials are found at, on, in, under or about the Premises in violation of any Hazardous Materials Law during the Lease Term (regardless of whether or not such Hazardous Materials shall have been present prior to the Effective Date), Tenant shall promptly perform any monitoring, investigation, clean-up, removal and other remedial work (collectively, “ Remedial Work ”) required by such Hazardous Materials Laws as a result of such release or discharge or presence. Landlord shall have the right to participate in any governmental action or proceeding involving any Remedial Work. Notwithstanding the foregoing, Tenant shall be entitled to seek reimbursement from any party that may have caused or contributed to any such Hazardous Materials found at, on, in, under or about the Premises and which Tenant shall have removed or remediated in accordance with (and to the extent required by) applicable Hazardous Materials Laws, and Landlord hereby agrees that Tenant shall be entitled to retain any successful reimbursement from any such party, but only to the extent of the costs incurred in removal or remediation (including, without limitation, any reasonable in-house costs and expenses incurred by Tenant in connection with such removal or remediation that do not exceed ten percent (10%) of out-of-pocket costs and expenses incurred by Tenant in connection with such removal or remediation), with any balance remaining being Landlord’s property.
 
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(d) Reporting Requirements . Tenant shall provide Landlord with a written notice not later than five (5) business days after the occurrence of any of the following: (i) Tenant’s obtaining actual knowledge of any release or discharge of any Hazardous Material at, on, in, under or about the Premises in violation of any Hazardous Materials Laws; (ii) Tenant’s receipt of any order from a governmental authority requiring any Remedial Work to the Premises pursuant to any Hazardous Materials Laws; (iii) Tenant’s receipt of any warning, notice of inspection, notice of violation or alleged violation from any governmental authority, or any other actual notice or actual knowledge from any governmental authority of any proceeding, investigation, or enforcement action relating to the Premises pursuant to any Hazardous Materials Laws; or (iv) Tenant’s obtaining actual knowledge or receipt of notice of any Claims made or threatened by any third party against Tenant or the Premises relating to any loss or injury resulting from Hazardous Materials. Tenant shall deliver to Landlord copies of all test results, reports and business or management plans required to be filed with any governmental agency pursuant to any Hazardous Materials Laws not later than five (5) business days in advance of any filing.
(e) Indemnity . Tenant shall Indemnify Landlord for, from and against any and all Claims arising out of or in connection with any breach by Tenant or any Tenant Representative of any provisions of this Section 14 or arising out of the use, generation, storage, release, disposal or transportation of Hazardous Materials by Tenant or any Tenant Representative, on, under, from or about the Premises during the Lease Term or Tenant’s occupancy of Premises and the cost of any Remedial Work required under Hazardous Materials Laws in connection therewith. The foregoing indemnity shall be in addition to and not a limitation of the indemnification provisions of Section 15 of this Lease.
(f) Phase I Reports . Prior to the Effective Date, Landlord provided Tenant with a copy of the Environmental Report obtained by Landlord in connection with its acquisition of the Property (the “ Landlord’s Phase I Report ”), and Tenant acknowledges that it has received and reviewed Landlord’s Phase I Report; provided , however , Landlord makes no representations or warranties whatsoever regarding Landlord’s Phase I or any of the findings contained therein. Prior to the scheduled expiration of the Lease Term or within sixty (60) days after any earlier termination of the Lease Term, Tenant shall, at its sole cost and expense, provide Landlord with an Environmental Report, prepared by an environmental consultant reasonably acceptable to Landlord and dated within sixty (60) days of the expiration or earlier termination of the Lease Term, concluding, subject to customary limitations and standards, that there are no Hazardous Materials at, on, in, under or about the Premises other than those which are maintained in compliance with all applicable Hazardous Materials Laws. In any event, Tenant shall remove all such Hazardous Materials from the Premises on or before the expiration or sooner termination of the Lease in compliance with (and to the extent required by) all applicable Hazardous Materials Laws.
15. Indemnification and Insurance .
(a) Indemnification and Waiver .
(i) Definitions . For purposes of this Lease: (i) the term “Tenant Parties ” means, collectively, Tenant, any assignee or subtenant of Tenant (including, without limitation, the Restaurant Subtenants under the Restaurant Subleases, each as hereinafter
 
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defined), Tenant’s Representatives (as the term “ Representatives ” is hereinafter defined) and the predecessors, heirs, successors and assigns of any such person or entity, and all persons and entities claiming through any of these persons or entities; (ii) the term “ Landlord Parties ” means, collectively, Landlord and Landlord’s Representatives, and all persons and entities claiming through any of these persons or entities; (iii) the term “ Indemnify ” means indemnify, defend (with counsel reasonably acceptable to Landlord) and hold free and harmless for, from and against; (iv) the term “ Claims ” means all liabilities, claims, damages (including consequential damages, subject to the provisions of Section 23 ), losses, penalties, litigation, demands, causes of action (whether in tort or contract, in law or at equity or otherwise), suits, proceedings, judgments, disbursements, charges, assessments, and expenses (including, without limitation, attorneys’ and experts’ fees and expenses incurred in investigating, defending, or prosecuting any litigation, claim, or proceeding); (v) the term “ Waives ” means that Tenant or Tenant Parties or Landlord or Landlord Parties, as the case may be, waive and knowingly and voluntarily assume the risk of; and (vi) the terms “ Bodily Injury ”, “ Personal Injury ” and “ Property Damage ” will have the same meanings as in the form of commercial general insurance policy issued by Insurance Services Office, Inc. most recently prior to the date of the injury or loss in question. For purposes of this Lease, as applicable for Landlord or Tenant, as the case may be, the term “ Representatives ” means, collectively, any individuals and/or entities, as the case may be, acting in either an agency capacity, a legal capacity, pursuant to apparent authority and/or in any official authorized capacity for Landlord or Tenant, as the case may be, such as: officers, directors, trustees, shareholders, members, partners, affiliates, board members, staff, employees, members, agents, principals, independent contractors, attorneys, accountants and representatives of the referenced person or entity.
(ii) Indemnity . To the fullest extent permitted by law, except as set forth in this Section 15(a)(ii) and in Section 15(a)(iv) , from and after the Effective Date, Tenant shall, at Tenant’s sole cost and expense, Indemnify all of the Landlord Parties against all Claims arising out of or in connection with the operation, use or enjoyment of the Premises, including, without limitation, all Claims arising out of or in connection with (A) any Personal Injury, Bodily Injury or Property Damage or any act or event whatsoever occurring in or at the Premises; (B) any Bodily Injury to any employee of a Tenant Party arising out of and in the course of employment of the employee and occurring anywhere in the Premises; (C) the use or occupancy, or manner of use or occupancy, or conduct or management of the Premises or any business in the Premises; (D) any act, error, omission or negligence of any of the Tenant Parties in, on or about the Premises; (E) the conduct of the Tenant Parties’ businesses; (F) any alterations, activities, work or things done, omitted, permitted or allowed by the Tenant Parties in, at or about the Premises, including the violation of or failure to comply with, or the alleged violation of or alleged failure to comply with any applicable laws, statutes, ordinances, standards, rules, regulations, orders, or judgments in existence on the Effective Date or enacted, promulgated or issued after the Effective Date, including Hazardous Materials Laws (defined below); (G) any breach or default by Tenant in the full and prompt payment of any amount due under this Lease, any breach, violation or nonperformance of any term, condition, covenant or other obligation of Tenant under this Lease, or any misrepresentation made by any Tenant Party in connection with this Lease; (H) all damages sustained by Landlord as a result of any holdover by Tenant or any Tenant Party in the Premises including, but not limited to, any Claims by any other tenant in connection with any delay by Landlord in delivering possession of the Premises to such tenant; (I) any liens or encumbrances arising out of any work performed or materials
 
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furnished by or for Tenant or any Tenant Party; or (J) any matter enumerated in Section 15(a)(iii) below. Notwithstanding the foregoing, Tenant shall not be required to Indemnify any Landlord Party under this Section 15(a)(ii) for any of the following:
(1) any Claim to the extent attributable to acts or events which occur after the later to occur of (A) the expiration or earlier termination of the Lease Term or (B) the date upon which the Premises has been surrendered to Landlord in accordance with the terms of this Lease, in each case, (x) unless the Premises was returned to Landlord upon the exercise of remedies as a result of an Event of Default, in which case Tenant shall be required to Indemnify each Landlord Party and such indemnity shall continue until all Claims against Landlord Parties involving any such matters are fully and finally barred by the applicable statutes of limitations, and (y) except to the extent such Claim arose because of (1) a breach by Tenant of this Lease, including covenants which expressly provide for performance by Tenant after termination or expiration of this Lease and including the surrender provisions on Section 25 of this Lease, in which case Tenant shall be required to indemnify Landlord and such indemnity shall continue until such breach has been remedied, or (2) any Personal Injury, Bodily Injury, Property Damage or environmental contamination which occurred or existed prior to such return, in which case Tenant shall be required to Indemnify each Landlord Party and such indemnity shall continue until all Claims against Landlord Parties involving any such matters are fully and finally barred by the applicable statutes of limitations
(2) any Claim to the extent resulting from a violation of the laws, codes and ordinances of governmental authorities having jurisdiction by any Landlord Party, unless such violation is the result of (A) a misrepresentation or breach by Tenant or any affiliate, agent, employee or invitee of Tenant of any of its obligations under this Lease, or (B) a violation of the laws, codes and ordinances of governmental authorities having jurisdiction attributable to the business or activities of Tenant or the nature, design, engineering, use, repair, construction or location of the Premises;
(3) any Claim arising from (A) Landlord making any general arrangement or assignment for the benefit of creditors, (B) Landlord becoming a “debtor” as defined in 11 U.S.C. §101 or any successor statute thereto, (C) the appointment of a trustee or receiver to take possession of substantially all of Landlord’s assets located at the Premises or of Landlord’s interest in this Lease, (D) the attachment, execution or other judicial seizure of substantially all of Landlord’s assets located at the Premises or of Landlord’s interest in this Lease, (E) Landlord being adjudicated insolvent or Landlord acknowledging that it is generally not able to pay its debts as they become due, (F) any Claim with respect to Landlord’s net income, excess profits, estate or inheritance taxes, or (G) the breach by Landlord of any of the representations and warranties set forth in Section 30 below.
(4) Tenant shall be entitled to a credit against any payments due under this Section 15(a)(i) for any insurance recoveries or other reimbursements actually received by a Landlord Party to be Indemnified in respect of the related Claim under or from insurance paid for by Tenant, or assigned to Landlord by Tenant, and required to be maintained by Tenant pursuant to Section 15(c) , but only to the extent such insurance recoveries exceed such Indemnitee’s costs and expenses incurred in recouping such insurance recoveries.
 
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(iii) Waivers. To the fullest extent permitted by law, except as set forth in Section l5(a)(ii) , from and after the Effective Date, Tenant, on behalf of all Tenant Parties, Waives all Claims against Landlord Parties arising from the following: (A) any Personal Injury, Bodily Injury, or Property Damage occurring in or at the Premises; (B) any loss of or damage to property of a Tenant Party located in the Premises by theft or otherwise; (C) any Personal Injury, Bodily Injury, or Property Damage to any Tenant Party caused by other tenants of the Premises, occupants of property adjacent to the Premises, or the public or by the construction of any private, public, or quasi-public work occurring either in the Premises or any property adjacent to the Premises; (D) any interruption or stoppage of any utility service or any damage to persons or property resulting from such stoppage; (E) business interruption or loss of use of the Premises suffered by Tenant; (F) any defect (latent or otherwise) in construction of the Improvements; (G) any damages or injuries or interference with Tenant’s business, loss of occupancy or quiet enjoyment and any other loss resulting from the exercise by Landlord of any right under this Lease, or (H) any Bodily Injury to an employee of a Tenant Party arising out of and in the course of employment of the employee and occurring anywhere in the Premises.
(iv) Obligations Independent of Insurance. The indemnification provided in this Section 15 shall not be construed or interpreted as in any way restricting, limiting or modifying Tenant’s insurance or other obligations under this Lease, and the provisions of this Section 15 are independent of Tenant’s insurance and other obligations. Tenant’s compliance with the insurance requirements and other obligations under this Lease shall not in any way restrict, limit or modify Tenant’s indemnification obligations under this Lease.
(v) Survival . The provisions of this Section 15 will survive the expiration or earlier termination of this Lease until all Claims against Landlord Parties involving any of the Indemnified or Waived matters are fully and finally barred by the applicable statutes of limitations.
(b) Waiver of Subrogation . In addition to the waivers of subrogation set forth in Section 15(c)(iii) , Tenant hereby Waives any rights Tenant may have against any Landlord Party, on account of any loss or damage occasioned to Tenant or its property, the Premises or its contents arising from any risk generally covered by a policy of “ causes of loss - special form ” property insurance and from any risk covered by any policy of property insurance then in effect. In addition, Tenant, for itself and on behalf of its insurance companies, Waives any right of subrogation that any such insurance company may have against any Landlord Party. It is the intent of the parties that with respect to any loss from a named peril required to be covered under a policy of property insurance, Tenant shall look solely to its insurance companies for recovery.
(c) Tenant’s Insurance . From and after the Effective Date, Tenant shall carry, at Tenant’s sole cost and expense, the following types of insurance, in the amounts specified or in such higher amounts as may be requested by Landlord and which are customary in the Denver, Colorado metropolitan area; provided, however, Landlord shall not be entitled to request that such amounts be adjusted as aforesaid more than once every five (5) calendar years:
(i) Commercial general liability insurance for personal injury, bodily injury (including wrongful death) and damage to property with a combined single limit of not less than Ten Million and No/100 Dollars ($10,000,000.00) per occurrence and Twenty-Five
 
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Million and No/100 Dollars ($25,000,000.00) annual aggregate, insuring against any and all liability of the insured with respect to the Premises, or arising out of the maintenance, use or occupancy of the Premises, including Premises operations, products and completed operations providing coverage at least as broad as ISO policy form CG 0001, or its equivalent. The commercial general liability insurance policy shall contain a contractual liability endorsement specifically deleting the contractual liability exclusion for Personal Injury or equivalent coverage.
(ii) Business auto coverage for owned, hired and non-owned vehicles with a combined single limit of not less than Three Million and No/100 Dollars ($3,000,000.00), per occurrence, Three Million and No/100 Dollars ($3,000,000.00) annual aggregate. At least One Million and No/100 Dollars ($1,000,000.00) of such coverage shall be primary coverage and the remaining Two Million and No/100 Dollars ($2,000,000.00) of such coverage may be obtained pursuant to an umbrella or excess liability policy.
(iii) A policy or policies of workers’ compensation insurance with an insurance carrier and in amounts approved by governmental authorities having jurisdiction and a policy of employer’s liability insurance with limits of liability not less than One Million and No/100 Dollars ($1,000,000.00) each accident; One Million and No/100 Dollars ($1,000,000.00) disease policy limit; and One Million and No/100 Dollars ($1,000,000.00) disease each employee. Both such policies shall contain waivers of subrogation in favor of Landlord.
(iv) “Causes of Loss-Special Form” property insurance, including coverage for sprinkler leakage, vandalism and malicious mischief covering the entire Premises, including all of Tenant’s leasehold improvements, alterations, additions or improvements made pursuant to Section 11, removable personal property from time to time in, on or upon the Premises, in an amount not less than one hundred percent (100%) of the full replacement cost of the Premises without depreciation, providing coverage at least as broad as ISO policy form CP 10 30, including earthquake damage, flood and terrorism coverage, as well as the following endorsements: boiler and machinery, difference in conditions, business income and extra expense (with extended period of indemnity), service interruption and building ordinance or law and against such other risks or hazards and in such amounts as Landlord shall reasonably require. Any policy proceeds shall be used for the repair or replacement of the property damaged or destroyed unless this Lease shall cease and terminate under the provisions of Section 16 or Section 19(e ).
(v) During the course of demolition or construction of any Improvements on the Land, Tenant shall procure and maintain (or shall cause Tenant’s contractor constructing the Improvements to procure and maintain) in full force and effect “causes of loss—special form” builder’s risk insurance, including coverage for vandalism and malicious mischief satisfying the requirements of clause (iv)  above. The policies of builder’s risk insurance shall cover Improvements in place and all material and equipment at the job site furnished under contract, but may exclude contractors’, subcontractors’ and construction manager’s tools and equipment and property owned by contractors’ or subcontractors’ employees.
 
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(vi) All policies of insurance to be procured by Tenant shall be issued by insurance companies having a rating by A.M. Best of not less than A IX (or an equivalent rating), qualified to do business in the State of Colorado. All property policies required in (iv) and (v) above shall be issued in the name of Tenant, and shall name Landlord as a “ loss payee ” except for policies insuring Tenant’s removable property which shall list Tenant as the loss payee. All liability policies obtained by Tenant shall name Landlord and any management company of Landlord and any lender to Landlord (and during the term of the lease between Hub Denver Properties LLC, as landlord, and Landlord, as tenant, CDECRE, LLC, a Delaware limited liability company, and Chicago Deferred Exchange Company, LLC, a Delaware limited liability company, and their successors and assigns) as additional insureds. In addition, Tenant’s liability insurance policies shall be endorsed as needed to provide cross-liability coverage for Tenant, Landlord and any lender of Landlord and shall provide for severability of interests. Evidence of insurance meeting the requirements of Acord Form No. 27 or 28 (Form 25 for liability policies) or such other evidence as may be reasonably acceptable to Landlord and evidence of required additional insured endorsements on ISO Form CG 20-26 or its equivalent (collectively referred to in this Section 15(c) as “ Certificates ”) shall be delivered to Landlord by the Effective Date and thereafter, proof of payment of renewal premiums or binders evidencing coverage shall be delivered to Landlord at least fifteen (15) days prior to the expiration of the term of each such policy, with executed copies of each renewal policy or Certificates delivered to Landlord as promptly as practical following the beginning of the renewal term for each such policy (and in any event within ten (10) days following the beginning of the applicable renewal term). All commercial general liability insurance policies shall contain a provision that Landlord, although named as an additional insured, shall nevertheless be entitled to defense and indemnity under the coverage limits, terms and conditions of the policy for any loss occasioned to Landlord or its Representatives by reason of the negligence of Tenant. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance delivered to Landlord must contain a provision that the company writing the policy will give Landlord at least ten (10) days’ prior written notice of any cancellation or lapse in coverage. In addition, on all policies delivered to Landlord, Tenant will give Landlord at least ten (10) days’ prior written notice of any change in effective date of any material change in the policy, including any reduction in the amounts of insurance, except for reductions in available limits due to payments of claims in accordance with the terms and conditions of this Lease. All commercial general liability, property damage and other casualty policies shall be written as primary policies in relation to any insurance carried by Landlord (but may be effected by a combination of primary and umbrella policies) and shall provide that any insurance which Landlord may carry is strictly excess, secondary and non-contributing with any insurance carried by Tenant. The insurance requirements contained in this Section 15 are independent of Tenant’s waiver, indemnification and other obligations under this Lease and shall not be construed or interpreted in any way to restrict, limit or modify Tenant’s waiver, indemnification or other obligations or to in any way limit Tenant’s obligations under this Lease.
(d) Adequacy of Insurance . Landlord makes no representation or warranty that the amount of insurance to be carried by Tenant under the terms of this Lease is adequate to fully protect Tenant’s interests. If Tenant believes that the amount of any such insurance is insufficient, Tenant is encouraged to obtain, at its sole cost and expense, such additional insurance as Tenant may deem desirable or adequate. Tenant acknowledges that Landlord shall not, by the fact of approving, disapproving, waiving, accepting, or obtaining any insurance, incur any liability for or with respect to the amount of insurance carried, the form or legal sufficiency
 
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of such insurance, the solvency of any insurance companies or the payment or defense of any lawsuit in connection with such insurance coverage, and Tenant hereby expressly assumes full responsibility therefor and all liability, if any, with respect thereto.
16. Destruction of Premises . If the Premises shall be wholly or partially damaged or destroyed by fire, by the elements or by other causes, Tenant shall, at its sole cost and expense, and whether or not the insurance proceeds are sufficient for the purpose, promptly commence and thereafter diligently pursue to completion the restoration or rebuilding of the Premises to its prior condition, subject to any changes which may be approved by Landlord pursuant to Section 11 hereunder. Tenant shall have a reasonable time within which to complete the repair, restoration or rebuilding of the Premises, provided that Tenant diligently pursues the same and completes the same on or before the scheduled expiration of the Lease Term. If any damage or destruction to the Premises occurs within the last two (2) years of the Lease Term and the time needed to complete the repair work shall exceed (or Tenant reasonably expects the time needed to complete the repair work will exceed) the time that remains in the Lease Term, Tenant shall have the right to extend the Lease Term by giving written notice to Landlord within one hundred twenty (120) days after the occurrence of such damage or destruction (the “ Casualty Extension Notice ”) to a date necessary to provide sufficient time for such repair to be completed (not later than twenty-four (24) months after the end of the then-current Lease Term), as specified in the Casualty Extension Notice. However, Landlord may nullify such election by giving written notice thereof to Tenant (a “ Nullification Notice ”) within thirty (30) days after the date of the Casualty Extension Notice, in which event the Lease Term shall terminate thirty (30) days after the date of the Nullification Notice, Tenant shall be released from any obligation to repair any such damage or destruction, and all insurance proceeds payable on account of such damage or destruction shall be paid directly to Landlord. Notwithstanding any such termination of the Lease Term, on the date of any such termination Tenant shall pay to Landlord an amount equal to the lesser of (a) the Base Rent for the balance of what would have been the Lease Term if such termination had not occurred or (b) the fair market value of the Premises immediately prior to such damage or destruction, as determined by Landlord in good faith. If the Lease Term shall not be terminated, there shall be no abatement of Base Rent, Additional Rent or other charges under this Lease or delay in the payment of Base Rent, Additional Rent or other charges under this Lease on account of all or any portion of the Premises being unusable because of damage or destruction. Tenant hereby Waives any statute or law now or hereafter in effect which grants to Tenant the right to terminate a lease or which provides for an abatement of rent on account of damage or destruction. All insurance proceeds payable on account of damage to or destruction of the Improvements by fire or other casualty shall be deposited with a bank or trust company having assets of at least One Billion and No/100 Dollars ($1,000,000,000.00) (the “ Depository ”), in trust for the purpose of reimbursing the costs of the demolition, restoration, repairs, replacements, rebuilding or alterations to the Improvements; provided , however , if the Lease Term shall be terminated pursuant to the provisions of this Section 16 , all insurance proceeds from the policies required in Section 15(c) to name Landlord as loss payee shall be disbursed to Landlord. Insurance proceeds on deposit with the Depository shall be advanced from time to time to Tenant for costs of the restoration work as such work progresses, upon certification by the architect or engineer in charge of such restoration work that the amounts requested either shall have been paid in connection with such restoration or shall be due to contractors, subcontractors, materialmen, architects or other persons who rendered services or furnished materials on account of the restoration work and, upon completion of such restoration work, the
 
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balance remaining in the Depository, if any, shall be disbursed to Landlord. If, at any time, the reasonably anticipated cost of the demolition, restoration, repairs, replacements, rebuilding or alteration to the Improvements exceeds the amount of insurance proceeds on deposit with the Depository, Tenant shall deliver to the Depository the amount of such deficiency. Notwithstanding the foregoing, if the insurance proceeds payable in connection with any damage to or destruction of the Improvements by fire or other casualty are less than Two Million and No/100 Dollars ($2,000,000.00) and the Lease Term shall not have been terminated, such proceeds shall be payable directly to Tenant, in trust, to be applied against cost of restoring the Improvements. Such funds shall be used only for the purpose of restoring the Improvements until such restoration work is complete and any excess proceeds may be retained by Tenant.
17. Condemnation . If all or such portion of the Premises so as, in the reasonable judgment of Tenant (which shall be identified in a notice from Tenant to Landlord given no later than thirty (30) days after notice from the authority with the power to make such Appropriation of its intention to exercise such power), to make the balance of the Premises unsuitable for such purposes as are permitted under this Lease, is condemned by eminent domain for any public or quasi-public use or purpose or is transferred in avoidance of an exercise of the power of eminent domain (an “ Appropriation ”), then this Lease shall terminate as of the date that title vests in the condemning authority. If this Lease is terminated as a result of an Appropriation of less than the entirety of the Premises, on or before the effective date of such termination and as a condition to the termination of this Lease, Tenant shall surrender and deliver to Landlord the portion of the Premises not the subject of the Appropriation and, should Landlord so direct, Tenant shall remove those Improvements not subject to the Appropriation and shall restore that portion of the Land not subject to the Appropriation to natural grade and Landlord shall reimburse Tenant for the reasonable cost of such removal and restoration. All Base Rent and Additional Rent shall be paid up to such date of termination and Tenant shall have no further Claim against Landlord nor against the condemning authority for the value of the unexpired Lease Term, and all of the proceeds awarded on account of such Appropriation shall be Landlord’s property. If an Appropriation of a portion of the Premises does not result in a termination of this Lease as provided above, the Base Rent payable under this Lease shall be abated in the proportion which the rentable square footage of the portion of the Improvements so taken bears to the total rentable square footage of the Improvements immediately prior to the Appropriation. The entire award made by reason of any such partial Appropriation shall belong to Landlord; provided , however , nothing contained in this Section 17 shall impair Tenant’s right to any award or payment made specifically by the condemning authority for moving expenses, loss of business, or loss of fixtures, furniture, equipment and other personal property belonging to Tenant, if available, so long as such Claim does not reduce the amount of the award or payment payable to Landlord absent any such Claim by Tenant. Tenant Waives any statutory and/or common law rights of termination which may arise by reason of any Appropriation of the Land and/or the Improvements on the Land.
18. Liens . Tenant shall keep the Premises free and clear of all mechanics’, materialmen’s and other professional service liens. If any mechanics’, materialmen’s or other lien, charge or order for the payment of money shall be filed or recorded against the Land or any Improvement on the Land, or against Landlord (whether or not such lien, charge or order is valid or enforceable as such) during (or as a result of any work performed during) the Lease Term (other than by Landlord), Tenant shall, at its sole cost and expense, cause the same to be
 
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canceled or discharged of record within fifteen (15) days after Tenant shall have received written notice of the filing of such lien, charge or order, or Tenant may, within said 15-day period, furnish to Landlord, a bond satisfying the requirements of applicable Colorado statutes and satisfactory to Landlord against the lien, charge or order, in which case Tenant shall have the right to contest, in good faith, the validity or amount of such lien, charge or order. Prior to commencing construction of (a) any Improvements on the Land, or (b) alterations to the Improvements, which in either case together with any related expenditures are reasonably anticipated to cost in excess of Two Million and No/100 Dollars ($2,000,000.00), Tenant shall obtain and cause to be recorded in the official records of Denver County, Colorado labor and material payment and performance bonds (AIA 311 and 312, or their equivalent) naming Landlord as an obligee and assuring Landlord of the payment in full of Claims of all persons for work performed, services rendered or materials furnished in connection with the construction of any Improvements.
19. Sublease, Assignment, Transfer .
(a ) Sublease . Excluding the Restaurant Subleases (as defined below), after the Effective Date, Tenant shall not sublease, all or any part of the Premises, without the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed with respect to all or any portion of (i) not more than four (4) separate floors in the Office Tower or (ii) the Restaurant Buildings, but which approval may otherwise be withheld, conditioned or delayed in Landlord’s sole discretion. Tenant shall submit all such information as Landlord may reasonably request in connection with Tenant’s request for such approval, including, without limitation, financial statements for the proposed subtenant, so that Landlord may evaluate the solvency, financial responsibility and business experience of the proposed subtenant. No sublease shall be valid or binding without the prior approval of Landlord and then only upon the condition that each subtenant shall have agreed in writing that its sublease shall be subject and subordinate to this Lease and, in the event of conflict between the provisions of this Lease and the provisions of its sublease, the provisions of this Lease shall govern. No sublease shall be for a term (including any option period) extending beyond the then-scheduled expiration of the Lease Term, unless Landlord shall approve such longer term in its sole discretion. In the event of conflict between the provisions of this Lease and the provisions of any sublease, the provisions of this Lease shall govern. No sublease shall release Tenant from Tenant’s continuing primary liability under this Lease.
(b) Assignment or Transfer . Except as set forth in Section 19(c) , Tenant shall not directly or indirectly, by operation of law or otherwise, assign, transfer, hypothecate, pledge or mortgage all or any part of its interest in this Lease, including any assignment, mortgage or deed of trust for collateral purposes or otherwise, without the prior written approval of Landlord, which approval may be withheld in Landlord’s sole discretion. Tenant shall submit such information as Landlord may request in connection with Tenant’s request for such approval, including, without limitation, financial statements for the proposed assignee, so that Landlord may evaluate the solvency, financial responsibility and business experience of the proposed assignee. No assignment or transfer requiring Landlord’s consent shall be valid or binding without such prior written approval, and then only upon the condition that the assignee or other transferee in interest, shall agree in writing to be bound by each and all of the covenants and conditions of this Lease. No assignment or transfer of all or any part of this Lease shall release Tenant from continuing primary liability under this Lease.
 
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(c) Assignment by Transfer of Interest : For the purposes of this Section 19 , until the tenth (10 th ) anniversary of the Effective Date, (i) a Change in Control of RMCO, LLC, a Delaware limited liability company (“ Parent ”), or (ii) Tenant ceasing to be a wholly owned subsidiary of Parent, shall be construed as an assignment of this Lease requiring the prior written approval of Landlord in accordance with Section 19(b) . Tenant shall submit such information as Landlord may request in connection with Tenant’s request for consent, including, without limitation, financial statements, so that Landlord may evaluate the solvency, financial responsibility and business experience of the proposed assignee. For purposes of this Section only, (A) a “ Change in Control ” shall mean that David Liniger (or any of his heirs or beneficiaries as designated under his estate plan following his death) ceases to own a “ Controlling Interest ” (as hereinafter defined) in Parent and (B) a “ Controlling Interest ” shall mean at least fifty-one percent (51%) of the voting power of a corporation, or at least fifty-one percent (51%) of the ownership of a partnership, limited liability company, joint venture, syndicate or co-tenancy, except that with respect to a limited partnership, a Controlling Interest shall mean more than fifty-one percent (51%) of a general partnership interest. Upon a transfer that does not result in a Change in Control of Parent, the identity of the transferee shall be provided to Landlord. The provisions of this Section 19(c) shall not apply if and for so long as Parent or Tenant has completed an initial public offering under the United States securities laws and its common equity is listed for public trading on a nationally recognized securities exchange. Notwithstanding anything contained in this Lease to the contrary, so long as no Event of Default (as defined in Section 20 below) is then outstanding, Tenant shall have the right, without Landlord’s consent, but upon not less than thirty (30) days’ prior written notice to Landlord together with a copy of the applicable assignment or sublease, to assign this Lease or sublet the entirety of the Premises to an entity that is wholly owned by Tenant provided that any such assignment or sublease shall expressly state that it shall terminate on the date such assignee or subtenant shall cease to be wholly owned by Tenant (an “ Affiliate Transfer ”); provided , however , that immediately following an assignment which constitutes an Affiliate Transfer, the party succeeding to Tenant’s interest hereunder shall have a tangible net worth, calculated in accordance with generally accepted accounting principles, consistently applied (“ GAAP ”), which is no less than the tangible net worth of Tenant, calculated in accordance with GAAP, as of both the Effective Date and the date immediately preceding the closing of the assignment in question (the “ Required Net Worth ”). In addition, notwithstanding anything contained in this Lease to the contrary, so long as no Event of Default is then outstanding, at any time following the tenth (10 th ) anniversary of the Effective Date, Tenant shall have the right, upon not less than thirty (30) days’ prior written notice to Landlord together with a copy of the applicable assignment, to assign this Lease to the surviving entity of any merger or consolidation involving Parent or Tenant or to the buyer of all or substantially all of Parent’s or Tenant’s assets or equity in a single transaction (any such assignment, a “ Sale Assignment ”); provided , however , that immediately following any Sale Assignment, the tangible net worth of the party succeeding to Tenant’s interest hereunder (as calculated in accordance with GAAP) shall equal or exceed the Required Net Worth. Tenant shall not permit any Sale Assignment to occur prior to the tenth (10 th ) anniversary of the Effective Date without obtaining Landlord’s prior written approval, which approval shall not be unreasonably withheld provided that the tangible net worth of the party succeeding to Tenant’s interest hereunder (as calculated in accordance with GAAP) shall
 
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equal or exceed the Required Net Worth. No assignment of this Lease or subletting of the Premises pursuant to the provisions of this Section 19(c) shall relieve the named Tenant first set forth in the preamble to this Lease and any successors thereto by merger or consolidation of their continuing primary liability under this Lease, and each Tenant shall be and remain liable to Landlord for the payment of all Base Rent and Additional Rent and the performance of all covenants and conditions of this Lease applicable to Tenant.
(d) Recapture Rights . If Tenant proposes to assign Tenant’s interest in this Lease or sublease more than fifty percent (50%) of the Premises for at least one-half of the remainder of the Lease Term (excluding any unexercised Extended Terms) other than in connection with an Affiliate Transfer, Landlord, at Landlord’s option, may elect to recapture the Premises by delivering written notice thereof to Tenant (a “ Recapture Notice ”) within thirty (30) days after Landlord’s receipt of Tenant’s request for Landlord’s consent to such assignment or sublease, following which the Lease Term shall terminate on the date specified within such Recapture Notice (which date shall be within sixty (60) days after the date of such Recapture Notice), unless Tenant shall deliver to Landlord written notice withdrawing its request for consent to assign this Lease or enter into any such sublease within thirty (30) days after the date of the Recapture Notice. If the Premises is recaptured by Landlord pursuant to this Section 19(d) , Landlord and Tenant shall promptly execute a termination agreement for the purpose of setting forth the termination date and prorating the Base Rent and other charges to such date. If Landlord does not elect to recapture as set forth above, Tenant may enter into a valid assignment or sublease with respect to the Premises, provided that Landlord consents to the same pursuant to this Section 19 ; provided , further , that (i) such assignment or sublease is executed within ninety (90) days after Landlord has given Landlord’s consent, (ii) Tenant pays all amounts then owed to Landlord under this Lease, and (iii) no Event of Default shall be outstanding as of the effective date of the assignment or sublease.
(e) Sublease Terms . Each sublease shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subject or subordinate, that the subtenant shall comply with and be bound by all of the obligations of Tenant hereunder (other than the payment of Base Rent or any obligation relating solely to those portions of the Premises which are not part of the subleased premises) and that Landlord shall be an express beneficiary of any such obligations; that the subtenant may not enter into any sub-sublease, sublease assignment, license or any other agreement granting any right of occupancy of any portion of the subleased premises without Landlord’s prior written consent; and that if Landlord notifies such subtenant that Tenant is in default of any of its obligations under this Lease beyond any applicable notice and cure period, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublandlord under such sublease, and such subtenant shall, at Landlord’s option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not (i) be liable for any act or omission of Tenant under such sublease, (ii) be bound by any previous modification of such sublease unless consented to by Landlord or by any previous prepayment of more than one (1) month’s rent, (iii) be required to account for any security deposit of the subtenant other than any security deposit actually received by Landlord, or (iv) be responsible for any monies owing by Tenant to the credit of subtenant; and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a commercially reasonable instrument in confirmation of such agreement to attorn.
 
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(f) Collateral Assignment of Sublease . Tenant acknowledges and agrees that all subleases shall be assigned to Landlord pursuant to that certain Assignment of Subleases and Rents, dated as of the date hereof, between Landlord and Tenant.
(g) Restaurant Subleases . Landlord and Tenant acknowledge and agree that the Restaurant Buildings were previously leased to third parties (collectively, the “ Restaurant Subtenants ”) pursuant to separate lease agreements (collectively, the “ Restaurant Subleases” ) prior to the Effective Date and that all of the right, title and interest of the landlord under the Restaurant Subleases was assigned, conveyed and transferred to Tenant. Landlord hereby acknowledges and approves of the Restaurant Subleases, it being understood and agreed that Landlord is not a party to the Restaurant Subleases, the Restaurant Subleases are subject and subordinate to this Lease in all respects, and the Restaurant Subleases have been assigned to Landlord pursuant to that Assignment of Subleases and Rents referred to in Section 19(f) above. Landlord and Tenant shall enter into nondisturbance agreements with the Restaurant Subtenants to such an extent and in such a form as may be required under the terms of the Restaurant Subleases.
(h) REIT Protections . Tenant shall not enter into, or permit any person having an interest in the possession, use, occupancy, utilization or enjoyment of any part of the Premises to enter into, any lease, sublease, assignment, license, concession, or other agreement for the possession, use, occupancy, utilization or enjoyment of the Premises (i) which provides for rental or other compensation based on the income or profits derived by any person or on any other formula such that any portion of the sublease rental or other consideration payable thereunder would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Internal Revenue Code or any similar or successor provision thereto or (ii) under which fifteen percent (15%) or more of the total rent or other compensation received by Tenant is attributable to personal property and any such purported lease, sublease, assignment, license, concession or other agreement shall be absolutely void and ineffectual as a conveyance of any right or interest in the possession, use, occupancy, utilization or enjoyment of such part of the Premises. Landlord acknowledges that, as of the Effective Date, the Restaurant Subleases comply with the requirements of this Section 19(h) .
20. Default–Grounds . The occurrence of any of the following events will constitute an event of default (each, an “ Event of Default ”) on the part of Tenant under this Lease:
(a) any failure to pay any installment of Base Rent, Additional Rent or any other sum due and payable under this Lease when such payment is due, which failure is not cured within five (5) business days after written notice thereof;
(b) any failure in the performance of any of Tenant’s other agreements or obligations under this Lease, (other than failure in the payment of any installment of Base Rent, Additional Rent or any other monetary obligation under this Lease) which failure is not cured within thirty (30) days after written notice thereof, provided that if such failure cannot reasonably be cured within such thirty (30) day period, then an Event of Default shall not occur if Tenant commences curing such failure within such 30-day period and diligently and in good faith prosecutes such cure to completion within a commercially reasonable period of time thereafter (not to exceed an additional one hundred twenty (120) days after the expiration of the
 
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initial 30-day cure period); provided , however , no Event of Default shall exist under this Lease solely as a result of Tenant’s failure to complete such cure within such 150-day period if both (i) the failure is due to an event beyond Tenant’s control and (ii) the continuation of the failure does not materially and adversely affect Landlord;
(c) any general assignment by Tenant for the benefit of creditors, unless such assignment is extinguished or rendered null and void within thirty (30) days of such assignment;
(d) any filing of a voluntary petition in bankruptcy by Tenant or the filing of an involuntary petition by Tenant’s creditors, unless such involuntary petition is discharged within ninety (90) days of such filing;
(e) any appointment of a receiver to take possession of substantially all of Tenant’s assets or of this leasehold, unless such receivership is dissolved within ninety (90) days of such appointment; or
(f) any levy of a writ of attachment or execution or other judicial seizure of substantially all of Tenant’s assets or this leasehold, unless such attachment, execution or other seizure is dismissed or discharged within ninety (90) days after the levy thereof.
21. Default–Remedies .
(a) Landlord’s Right to Terminate . Upon the occurrence and during the continuance of any Event of Default, Landlord may terminate the Lease Term by giving notice thereof to Tenant and, as of the date and time set forth in such notice, the Lease Term shall terminate and all rights of Tenant under this Lease with respect to the Premises shall cease.
(b) Landlord’s Right to Re-Enter. Upon the occurrence and during the continuance of any Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Premises or any portion thereof and take possession of the Premises or any portion thereof and any and all of Tenant’s personal property, if any, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell all or any such personal property at public or private sale, after giving Tenant reasonable notice of the time and place of the same, at which sale Landlord or its assigns may purchase all or any portion of such personal property unless otherwise prohibited by law. Unless otherwise prohibited by law and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given at least ten (10) days before the date of sale. The proceeds from any such sale, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys’ fees), shall be applied as a credit against Tenant’s obligations hereunder in such order as Landlord shall determine in its sole discretion. Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Rent, upon demand.
None of (i) the termination of the Lease Term pursuant to this Section 21 , (ii) the repossession of the Premises or any portion thereof, (iii) the failure of Landlord to re-let the Premises or any portion thereof, nor (iv) the re-letting of all or any of portion of the Premises, shall relieve Tenant of its liability and obligations hereunder, all of which shall survive any such
 
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termination, repossession or re-letting. In the event of any such termination, Tenant shall forthwith pay to Landlord all Base Rent and Additional Rent and other charges due and payable hereunder through and including the date of such termination. Thereafter, until the end of what would have been the Lease Term in the absence of such termination, and whether or not the Premises or any portion thereof shall have been re-let, Tenant shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Base Rent, Additional Rent and other charges which would be payable hereunder for the remainder of the Lease Term had such termination not occurred, less the net proceeds, if any, of any re-letting of the Premises, or any portion thereof, by Landlord subsequent to such Event of Default after deducting all reasonable, actual expenses incurred in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys’ fees, alteration costs and expenses of preparation for such reletting. Landlord will be entitled to collect such current damages from Tenant monthly on the days on which Base Rent would have been payable hereunder if the Lease Term had not been so terminated.
At any time after such termination, Landlord may, at Landlord’s election, in lieu of collecting any such current damages set forth in the preceding paragraph, and as liquidated final damages beyond the date of such termination, recover from Tenant an amount equal to the present value (calculated at a discount rate equal to the lesser of (i) the federal funds rate plus two percent (2%) per annum or (ii) six percent (6%) per annum) of the excess, if any, of the Base Rent and Additional Rent and other charges which would be payable hereunder from the date of such termination (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Taxes and any other Additional Rent would be the same as payments required for the immediately preceding twelve (12) calendar months, or if less than twelve calendar months have expired since the Effective Date, the payments required for such lesser period projected to an annual amount) for what would be the then unexpired Lease Term if the same remained in effect, over the fair market rental (net of any expenses which Landlord would need to incur to obtain said fair market rental) for the same period.
In case of any Event of Default, re-entry, expiration or dispossession by summary proceedings or otherwise, Landlord may (i) relet the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord’s option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Lease Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (ii) make such reasonable alterations, repairs and renovations of and to the Premises or any portion thereof as Landlord, in its sole and absolute discretion, considers advisable and necessary for the purpose of reletting the same; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for any failure to relet all or any portion of the Premises, or, in the event that the Premises or any portion is relet, for failure to collect the rent under such reletting.
(c) Interest on Past Due Amounts . In addition to the late charge described in Section 6 above, if any installment of Base Rent, any Additional Rent or any other payment is not paid when it first becomes due, it will bear interest at the Default Rate (as defined below) from the due date until paid; provided , however, (i) as to the first late payment in any calendar year, Tenant shall not be required to pay interest thereon if Tenant shall pay the amount due, in
 
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full, within five (5) business days after a notice thereof is given to Tenant and (ii) this provision is not intended to relieve Tenant from any default in the making of any payment at the time and in the manner specified in this Lease. The foregoing interest, expenses and damages will be recoverable from Tenant by the exercise of Landlord’s remedies set forth in this Lease. For the purposes of this Section 25(b) , the “ Default Rate ” shall mean an annual rate of interest equal to the lesser of (A) one hundred twenty-five percent (125%) of the prime rate (as published from time to time in The Wall Street Journal, with any change in such rate to be effective on the date such change is published) or (B) the maximum rate allowed by law.
(d) Bankruptcy of Tenant . In the event of the bankruptcy, reorganization, liquidation, or dissolution of Tenant, or in the event Tenant shall make an assignment for the benefit of creditors, or in the event Tenant shall seek similar relief under any present or future Federal or State bankruptcy act, which relief results in a stay of the termination of this Lease, then, the Base Rent and Additional Rent payable under this Lease shall be deemed to be an administrative expense. In addition, Tenant, as debtor in possession, or if appointed, the trustee in bankruptcy, must assume or reject this Lease within ninety (90) days (or such shorter period of time as may be permitted or required by law) after the filing of the petition in bankruptcy.
(e) Remedies Cumulative. The remedies of Landlord specified in this Lease will be cumulative and non-exclusive as to each Event of Default to the extent allowed by law. Additionally, Landlord shall be entitled to all other rights and remedies that may now or hereafter be granted to a landlord in equity, at law, or by statute.
(f) Assignment of Subleases and Rents. If the Premises or any portion of the Premises shall be subleased by Tenant, then upon and at any time after the occurrence of an Event of Default, Landlord may, at Landlord’s election, provide written notice to subtenants to pay rent and any other charges owed by such subtenants directly to Landlord and Landlord may collect rent and such other charges from such subtenants so long as any such Event of Default shall continue. Any amounts received by Landlord may be applied towards the payment or performance of any obligation of Tenant under this Lease in any order of priority as Landlord may elect, any unexpended balance to be held by Landlord to be applied against obligations subsequently coming due. Application of such rents by Landlord shall not constitute an election of remedies and, in accordance with the provisions of Paragraph 21(e) above, Landlord may exercise such additional or further remedies as may be available at law, in equity, by statute and/or under this Lease.
22. Landlord’s Right to Perform Tenant’s Covenants . If Tenant shall fail to timely pay any sum in accordance with the provisions of this Lease, or shall fail to make any other payment or perform any other act on its part to be made or performed, then Landlord shall have the right (but not the obligation), upon not less than fifteen (15) days’ prior written notice to Tenant following any other grace period or extensions allowed in this Lease (or in case of emergency, with only such notice as may be reasonable under the circumstances) and without Waiving or releasing Tenant from any obligation of Tenant contained in this Lease (a) to pay any sum payable by Tenant pursuant to the provisions of this Lease or (b) to make any other payment or perform any other act on Tenant’s part to be made or performed as in this Lease provided, and Landlord may enter upon the Premises for any such purpose and take all such action as Landlord deems necessary in connection therewith. All sums so paid by Landlord and all costs and expenses, including reasonable attorneys’ fees, incurred by Landlord in connection with the
 
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performance of any such act shall be paid by Tenant to Landlord within thirty (30) days after written demand, together with interest thereon at the Default Rate from the respective dates of Landlord’s making of each such payment or incurring of each such cost and expense, including reasonable attorney’s fees, until repaid by Tenant in full.
23. Consequential Damages. Notwithstanding anything to the contrary in this Lease, to the fullest extent permitted by law, Landlord, hereby Waives any Claim for special or consequential losses or damages (excluding, for purposes of clarity, damages to which Landlord may be entitled under Sections 6 , 21(b) or 21(c)) or punitive damages arising out of any breach of this Lease by Tenant; provided , however , (a) the foregoing Waiver shall not apply to Claims asserted by a third party for which Landlord may be liable as a result, in whole or part, of conduct constituting a breach by Tenant of any of the terms of this Lease and (b) if Tenant fails to vacate and surrender possession of the Premises in the condition required by this Lease within thirty (30) days following the expiration or sooner termination of the Lease Term, then Tenant shall also be liable for all lost profits, loss of income, economic loss and other special or consequential losses or damages which Landlord may incur as a result of breach of Tenant’s obligation to vacate and surrender possession of the Premises as required by this Lease on or before the date of expiration or sooner termination of the Lease Term.
24. Access . Landlord and its authorized representatives shall have, at all reasonable times, upon not less than forty-eight (48) hours’ prior notice (except in the event of an emergency, in which event only such notice as may be reasonable under the circumstances shall be required and the purpose of such access shall be the removal or remediation of the harm or potential harm posed by the emergency), which notice may be given telephonically, the right to enter the Premises to inspect the Premises and to exhibit the Premises to prospective purchasers or lenders. Landlord shall use reasonable efforts not to interfere with the operation of the Premises by Tenant when exercising such access rights, and Tenant shall have the opportunity to accompany Landlord during any such entry onto the Premises. In addition, Tenant grants to Landlord and its authorized representatives the right (but not the obligation) during business hours, upon not less than twenty four (24) hours oral or written notice to Tenant (except in case of an emergency, in which event only such notice as may be reasonable under the circumstances shall be required) to enter upon the Land for the purposes of inspecting Tenant’s construction activities, provided that such inspection shall not unreasonably interfere with Tenant’s construction activities. No inspections by Landlord shall be construed as an acknowledgement, acceptance or representation by Landlord that there has been compliance with any terms or provisions of this Lease, that there has been compliance with any plans and specifications or that the Improvements will be free of defective materials or workmanship. Notwithstanding anything contained herein to the contrary, if Landlord’s entry into the Premises under this Section 24 causes the Premises (or any portion thereof) to become untenantable and remain untenantable for two (2) business days after notice thereof by Tenant to Landlord, then commencing on the third business day after such notice, Tenant’s Rent (including Base Rent and Additional Rent) will abate for so long as the Premises remain untenantable for such reasons.
25. Surrender. At the expiration or earlier termination of the Lease Term, Tenant shall peaceably and quietly surrender the Premises to Landlord free of all personal property, trade fixtures, furniture and equipment of any Tenant Party and broom-clean and otherwise in the same condition as Tenant is required to maintain the Premises during the Lease Term (including, without limitation, the restoration and repair any damage due to casualty or condemnation as provided herein), reasonable wear and tear excepted.
 
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26. Holding Over . It is agreed that the date of termination of this Lease and the right of Landlord to recover immediate possession of the Premises upon the termination of this Lease is an important and material matter affecting the parties to this Lease and the rights of third parties, all of which have been specifically considered by Landlord and Tenant. In the event of any continued occupancy or holding over of the Premises without the express written consent of Landlord beyond the expiration of the Lease Term, whether in whole or in part, or by failing to surrender the Premises as required by this Lease, this Lease will be deemed a tenancy at the sufferance of Landlord and Tenant will pay one hundred fifty percent (150%) of the Base Rent then in effect pursuant to Section 3 , in advance at the beginning of each held-over month, plus any other charges or payments contemplated in this Lease and Tenant shall be liable to Landlord for damages as provided in Section 23(b) . Tenant shall be deemed to be holding over (even if Tenant shall have vacated the Premises) until it shall have surrendered the Premises in the condition required by this Lease and complied with its obligations under Section 14(f) ; provided , however , if Tenant otherwise surrenders the Premises in the condition required by this Lease and it complies with its obligations under Section 14(f) within sixty (60) days following any early termination of the Term of this Lease as provided for in Section 14(f) , then Tenant shall not be deemed to be holding over solely on account of its failure to comply with its obligations under Section 14(f) as of the date of any such early termination of the Term.
27. Tenant Financial Information. Within thirty (30) days following Landlord’s written request to do so (provided that in no event shall such request be made more than once per calendar year, except in the event of a bona fide sale or financing or at any time when Tenant is in default of any of its obligations under this Lease beyond any applicable notice and cure period), Tenant shall provide to Landlord financial statements for Tenant which will include a balance sheet, income statement, statement of changes in equity, statement of consolidated cash flows and such other financial information as Landlord may reasonably request, all certified by an authorized representative of Tenant to be true, correct and complete in all material respects, and copies of all financial statements which may have been prepared by any certified public accountant.
28. Tenant Estoppel Certificates . At any time and from time to time within twenty (20) days after written request by Landlord (provided that in no event shall such request be made more than once per calendar year, except in the event of a bona fide sale or financing or at any time when Tenant is in default of any of its obligations under this Lease beyond any applicable notice and cure period), without charge, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate in a commercially reasonable form and substance certifying, among other things, (a) that this Lease is unmodified and in full force and effect if such is the fact (or, if there has been any modification to this Lease, stating the modification), (b) the amount of Base Rent payable by Tenant under this Lease and the dates to which such Base Rent and other charges have been paid in advance, if any, (c) that there is no default on the part of Tenant or, to Tenant’s actual knowledge, without inquiry and without any duty to inquire, on the part of Landlord under this Lease and there are no factors or circumstances which, with the giving of notice and/or the passage of time, could reasonably be expected to result in a material default under this Lease, and (d) as to such other matters as Landlord may reasonably request. It
 
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is understood that any such statement by Tenant may be relied upon by any purchaser of the Premises or Landlord, or by any mortgagee or assignee of any mortgage of any such purchaser or Landlord, or by the trustee or beneficiary of any deed of trust constituting a lien upon the Premises.
29. Representations, Warranties and Covenants of Tenant . In order to induce Landlord to enter into this Lease, Tenant represents, warrants and covenants to Landlord as follows:
(a) Authority of Tenant . Tenant is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business in the State of Colorado and has all requisite power and authority under the laws of such states and its charter documents to enter into and perform its obligations under this Lease. Tenant has taken all necessary action to authorize the execution, delivery and performance of this Lease and the individual signing this Lease on behalf of Tenant is duly authorized to do so.
(b) Litigation . No investigation, action or proceeding is pending and, to Tenant’s knowledge, no investigation looking toward any action or proceeding has begun, and no action or proceeding is threatened which (i) questions the validity of this Lease or any action taken or to be taken pursuant hereto, (ii) could reasonably be expected to result in any adverse change in the business, operation, affairs or condition of the Premises, (iii) could reasonably be expected to result in or subject the Property to a material liability, or (iv) involves condemnation or eminent domain proceedings against any part of the Premises.
(c) Absence of Breaches or Defaults . To Tenant’s knowledge, neither the execution, delivery or performance of this Lease or any other document to be executed, delivered or performed by Tenant hereunder, nor compliance with the terms and provisions hereof or thereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon the Premises pursuant to, the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which Tenant or the Premises is bound.
(d) No Violation of Laws . The Premises do not and will not violate any applicable laws (including, without limitation, any common law or tort law), statutes, ordinances, codes (including, but not limited to, zoning, building, subdivision, health, fire and safety, and engineering codes), the rules and regulations of, any governmental authority or quasi-governmental authority, and/or any lien, charge or encumbrance upon the Premises, including, without limitation, matters of public record.
(e) Ownership of Tenant . Parent owns all of the stock or other ownership interests in Tenant.
(f) Financial Statements. Tenant has previously provided Landlord with true, correct and complete copies of the financial statements of Tenant. Such financial statements, including in each case the notes thereto, were prepared in accordance with generally accepted accounting principles in the United States, applied on a consistent basis throughout the periods covered thereby, and, except as otherwise noted therein, are complete and accurate, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading.
 
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(g) Blocked Persons . No Tenant Party (i) is listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the Treasury (“ OFAC ”) pursuant to Executive Order number 13224, 66 Federal Register 49079 (September 25, 2001) (the “ Order ”); (ii) is listed on any other list of terrorists or terrorist organizations maintained pursuant to the Order, the rules and regulations of the OFAC or any other applicable requirements contained in any enabling legislation or other executive orders in respect of the Order (the Order and such other rules, regulations, legislation or orders are collectively in this Section 51(e)  called the “ Orders ”); (iii) is engaged in activities prohibited in the Orders; or (iv) has been convicted, pleaded no lo contendere, indicted, arraigned or custodially detained on charges involving money laundering or predicate crimes to money laundering.
30. Representations and Warranties of Landlord. In order to induce Tenant to enter into this Lease, Landlord represents and warrants to Tenant as follows:
(a) Authority of Landlord. Landlord is a real estate investment trust, duly formed, validly existing and in good standing under the laws of the State of Maryland and has all requisite power and authority under the laws of such state and its charter documents to enter into and perform its obligations under this Lease. Landlord has taken all necessary action to authorize the execution, delivery and performance of this Lease and the individual signing this Lease on behalf of Landlord is duly authorized to do so.
(b) Litigation . To Landlord’s actual knowledge, there are no suits, actions, proceedings or investigations pending, or to the best of its knowledge, threatened against or involving Landlord before any court, arbitrator or administrative or governmental body which might reasonably result in any material adverse change in the contemplated business, condition or operations of Landlord.
(c) Absence of Breaches or Defaults . To Landlord’s actual knowledge, Landlord is not in, and the execution, delivery and performance of this Lease and the documents, instruments and agreements, if any, provided for herein will not result in, any breach of or default under any other document, instrument or agreement to which Landlord is a party or by which Landlord is subject or bound.
31. “ AS IS ”. Tenant acknowledges that (a) Landlord purchased the Premises from an affiliate of Tenant on the Effective Date, (b) Tenant occupied the Premises prior to the Effective Date and (c) Tenant has a full and complete opportunity to inspect and evaluate the Premises. As such, no representations, inducements, understanding or anything of any nature whatsoever, made, stated or represented by Landlord or anyone acting for or on Landlord’s behalf, either orally or in writing, have induced Tenant to enter into this Lease (except for those representations made by Landlord in Section 30 of this Lease), and Tenant acknowledges, represents and warrants that Tenant has entered into this Lease under and by virtue of Tenant’s own independent investigations. Tenant accepts the Premises in an “AS IS” and “WHERE IS” condition without warranty of any kind, express or implied, including, without limitation, any warranty as to title, physical condition or the presence or absence of Hazardous Materials (as
 
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defined below), and if the Premises are not in all respects entirely suitable for the use or uses to which the Premises or any part of the Premises will be put, then it is the sole responsibility and obligation of Tenant to take such action as may be necessary to place the Premises in a condition entirely suitable for such use or uses. IN CONNECTION WITH THE FOREGOING, TENANT ACKNOWLEDGES AND REPRESENTS TO LANDLORD THAT TENANT HAS HAD AMPLE OPPORTUNITY TO INSPECT AND EVALUATE THE PREMISES AND THE FEASIBILITY OF THE USES AND ACTIVITIES TENANT IS ENTITLED TO CONDUCT ON THE PREMISES; THAT TENANT IS AN EXPERIENCED OWNER AND OPERATOR OF REAL ESTATE; THAT TENANT WILL RELY ENTIRELY ON TENANT’S OWN EXPERIENCE, EXPERTISE AND INSPECTIONS OF THE PREMISES IN ITS CURRENT STATE IN PROCEEDING WITH THIS LEASE; THAT TENANT ACCEPTS THE PREMISES IN ITS PRESENT CONDITION; AND THAT, TO THE EXTENT THAT TENANT’S OWN EXPERIENCE WITH RESPECT TO ANY OF THE FOREGOING IS INSUFFICIENT TO ENABLE TENANT TO REACH AND FORM A CONCLUSION, TENANT HAS ENGAGED THE SERVICES OF PERSONS QUALIFIED TO ADVISE TENANT WITH RESPECT TO SUCH MATTERS. TENANT IS NOT RELYING AND TENANT EXPRESSLY DISAVOWS ANY RELIANCE ON ANY REPRESENTATIONS, EXPRESS OR IMPLIED, ORAL OR WRITTEN, MADE BY LANDLORD OR ITS REPRESENTATIVES.
32. Title to Improvements. Landlord shall be solely entitled to any rights or benefits associated with the ownership of the Improvements and all of the heating, plumbing, air conditioning, electrical and mechanical equipment, installed in, affixed to, placed upon or otherwise appurtenant to the Premises, including, but not limited to, any depreciation, tax credits or other tax benefits associated therewith. Title to any alterations to the Improvements and title to Tenant’s furniture, trade fixtures, fixtures, equipment and other personal property placed upon or installed on the Premises by Tenant shall, for all purposes, be the property and assets of Tenant and Tenant shall be solely entitled to any rights or benefits associated with its ownership thereof including, but not limited to, any depreciation, tax credits or other tax benefits associated therewith; provided , however, Tenant shall not mortgage its interest in, or pledge or grant a security interest to any third party with respect to, any such alterations or additions to the Improvements, and Tenant shall keep the same free and clear of any liens or encumbrances whatsoever (except for the rights of subtenants under subleases entered into by Tenant in accordance with Section 19) . Notwithstanding the foregoing, upon the expiration or earlier termination of the Lease Term, title to any alterations or additions to the Improvements constructed by Tenant shall, without the need for the execution of any further instrument, automatically vest in Landlord, free and clear of any Claim by any Tenant Party.
33. Landlord’s Consent . Whenever Landlord’s consent or approval is requested pursuant to the provisions of this Lease, Tenant shall reimburse Landlord for all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys’, architects’, engineering, accounting and other professional fees and expenses) incurred by Landlord in responding to any such request, irrespective of whether or not such consent or approval is granted or denied. Where provision is made in this Lease for Landlord’s consent or approval and Tenant shall request such consent or approval and Landlord shall fail or refuse to give or shall delay in giving such consent or approval, Tenant shall not be entitled to any damages and Tenant hereby Waives any claim based on such failure, refusal or delay; provided , however, in any
 
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situation where Landlord is expressly required not to unreasonably withhold, condition or delay such consent or approval, Tenant shall be entitled to bring an action for specific performance or injunction in connection with such failure, refusal or delay as its sole and exclusive remedy at law or in equity. If Landlord shall fail to respond to any request for consent hereunder within thirty (30) days, Tenant may, after the expiration of such 30-day period, give Landlord a second notice requesting such consent and if such second notice shall contain an advisory in at least fourteen (14) point, bold-face type to the effect that failure of Landlord to respond to such second notice within ten (10) business days after Landlord’s receipt thereof shall constitute consent or approval to the matter requested, then if Landlord shall fail to respond within such ten (10) business day period, such consent or approval shall be deemed given.
Any dispute as to whether Landlord shall be entitled to withhold, condition or delay its approval pursuant to its express obligations under Sections 11 or 19 hereof (a “ Dispute ”) may, at either party’s election, be resolved by arbitration administered by the American Arbitration Association (“ AAA ”) in the City of Denver, Colorado or the closest city in which the AAA maintains an office. Arbitrations hereunder shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq., and administered under the AAA Commercial Arbitration Rules in effect on the date the Dispute is submitted to arbitration, except that the arbitrator shall be an architect pr engineer experienced in similar design and construction or a broker having experience in leasing similar property, in each case as appropriate to the matter in dispute, and, in either case, such arbitrators will be professionally licensed to practice in their respective fields by the State of Colorado. If the parties cannot agree on a mutually acceptable single arbitrator from the one or more lists submitted by the AAA, the AAA shall designate a minimum of three (3) persons, who, in its opinion, meet the criteria set forth herein. Each party shall be entitled to strike one of such designees on a peremptory basis, indicating its order of preference with respect to the remaining designees, and the selection of the arbitrator shall be made by the AAA from among such designees not so stricken by either party in accordance with their indicated order of mutual preference. The arbitrator shall base the arbitration award on accepted design and construction industry customs and practices, customary leasing guidelines and practices and applicable law and judicial precedent and, unless both parties agree otherwise, shall include in such award the findings of fact and conclusions of law or industry practice upon which the award is based. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The prevailing party in the arbitration shall be entitled to reasonable attorneys’ fees and expenses incurred in the resolution of said Dispute.
34. Notices . All notices, demands or requests required to be given under this Lease shall be in writing and shall be served or given only by personal delivery, recognized overnight courier, or United States certified mail, return receipt requested, postage prepaid, addressed to Landlord at c/o Reit Management & Research LLC, 5627 Oberlin Drive, Suite 112, San Diego, California 92121, Attn: Regional Vice President, with a copy to Reit Management & Research LLC, 400 Centre Street, Newton, Massachusetts 02458, Attn: Jennifer B. Clark and addressed to Tenant at the Premises. Either party may change such address by at least thirty (30) days’ advance written notice in the manner specified above for the giving of notices to the other; provided , however , neither party may designate a foreign address or an address for delivery of notices which does not indicate a street address (i.e., building name or number and street identification), city, state and zip code. Notice shall be deemed received as of the date (a) such notice is delivered to the party intended to receive such notice, (b) such notice is delivered to the
 
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then-designated address of the party to receive such notice, (c) such notice is rejected or otherwise refused at the then-designated address of the party to receive such notice, (d) such notice is deemed undeliverable because of a changed address of which no notice was given pursuant to this Lease, (e) which is one (1) business day following deposit with a recognized overnight courier, or (f) which is (5) days following deposit in the United States, mail, if served by certified or registered mail, return receipt requested. Notices by a party may be given by the legal counsel to such party and/or an authorized agent of such party. In this regard, any notice to be given by or on behalf of Landlord under this Lease shall be effective if given by Landlord’s legal counsel and/or Landlord’s property manager, and any notice to be given by or on behalf of Tenant under this Lease shall be effective if given by Tenant’s legal counsel. In no event shall notices be transmitted by facsimile or electronic mail.
35. Waiver . No Waiver of any default by either party under this Lease will be implied from any omission by either party to take action on account of such default if such default persists or is repeated, and no express Waiver will affect any default other than the default specified in such Waiver, and then such Waiver will be operative only for the time and to the extent expressly stated. A Waiver by either party of any provision of this Lease will not be construed as a Waiver of any subsequent breach of the same provision, nor will the consent or approval by either party to or of any act by the other be deemed to Waive or render unnecessary their consent or approval to or of any subsequent similar acts.
36. Time is of the Essence . Time is of the essence of each and every provision of this Lease.
37. No Recording . This Lease shall not be recorded, but a memorandum of this Lease in the form attached to this Lease as Exhibit “B” shall be executed, acknowledged and delivered by the parties, which Memorandum of Lease may be recorded by Tenant or Landlord in the official records of the City and County of Denver, Colorado at the sole cost and expense of the recording party.
38. Conveyance by Landlord . Landlord shall be permitted to sell, convey, transfer or otherwise dispose of its interest in the Premises and this Lease at any time. If Landlord or any successor Landlord shall sell, convey, transfer or otherwise dispose of its interest in the Premises, it shall be released from all liabilities and obligations imposed upon Landlord under this Lease arising from and after the date of such sale, provided that all such liabilities and obligations shall be assumed by the new owner of the Premises.
39. No Personal Liability to Landlord . Tenant shall look solely to Landlord’s interest in the Premises, including the equity, net rents, issues, profits and other income actually received by Landlord from the ownership of the Premises, for the satisfaction of any judgment or decree requiring the payment of money by Landlord which is based on any default or other Claim arising under this Lease (whether in contract, tort or for breach of any express or implied covenant contained in this Lease). No other property or assets of Landlord, or any officer, director, trustee, member, partner of, or shareholder or investor in Landlord, shall be subject to levy, execution or other enforcement procedures for satisfaction of any such judgment or decree. Tenant hereby Waives, to the fullest extent permitted by law, any right to satisfy any money judgment against Landlord any assets of Landlord other than Landlord’s interest in the Premises.
 
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40. Subordination, Nondisturbance and Attornment . This Lease and all rights of Tenant herein, and all interest or estate of Tenant in the Premises, or any portion thereof, shall be subject and subordinate to the lien (but not the terms or conditions) of any mortgage, deed of trust, security instrument, ground lease or other document of like nature affecting Landlord’s fee interest in the Premises (each, a ‘‘ Mortgage ”), which at any time may be placed upon the Premises, or any portion thereof, and to any replacements, renewals, amendments, modifications, extensions or refinancing thereof, and to each and every advance made thereunder, but only if the holder thereof shall so elect and only on the condition that Landlord shall be obtain an agreement (a “ Nondisturbance Agreement ”) from such holder, in a form and containing terms and conditions customarily used or required by such holder (or if no such form exists, in a commercially reasonable form containing customary terms and conditions), whereby such holder shall agree to recognize Tenant’s leasehold interest hereunder upon a foreclosure of such Mortgage, so long as there shall exist no Event of Default hereunder, and in return Tenant shall agree to covenants customarily contained in similar subordination, nondisturbance and attornment agreements. Notwithstanding the foregoing, Tenant agrees, within twenty (20) days following Landlord’s written request (provided that in no event shall such request be made more than once per calendar year, except in the event of a bona fide sale, financing or assignment), to execute and deliver to Landlord any instruments, releases or other documents that may be reasonably required for the purpose of subjecting and subordinating this Lease to the lien of any such Mortgage but subject to concurrent receipt of a Nondisturbance Agreement.
41. Invalidity . If any provision of this Lease or any part of this Lease shall be determined to be invalid, unenforceable or illegal, then such provision shall be deemed severed from this Lease, and shall not affect the remaining provisions of this Lease.
42. Construction . This Lease, its construction, validity and effect, shall be governed and construed by and in accordance with the laws of the State of Colorado. All provisions of this Lease have been negotiated by both parties at arm’s length and neither party shall be deemed the scrivener of this Lease. In addition, if either party has made a scrivener’s error (including, without limitation, any scrivener’s error with regard to division, multiplication, addition, or subtraction of any numbers or arithmetic calculation in this Lease), this Lease shall not be construed for or against either party by reason of the authorship or alleged authorship of any provision of this Lease.
43. Attorneys’ Fees . If Landlord or Tenant files a suit against the other which is in any way connected with this Lease, the unsuccessful party shall pay to the prevailing party a reasonable sum for attorneys’ fees, costs and disbursements, including the reasonable fees, costs and disbursements of consultants, professionals or paralegals, whether at trial, appeal and/or in bankruptcy court, all of which will be deemed to have accrued on the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. To the fullest extent permitted by law, such fees, costs and disbursements will be based upon the actual and reasonable fees, costs and disbursements incurred and not by reference to the amount in controversy.
44. Binding Effect . Subject to Sections 38 and 49 and to the limitations of Section 21 above, this Lease shall inure to the benefit of and shall be binding upon the parties, their heirs, personal representatives, successors and permitted assignees.
 
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45. Quiet Enjoyment. So long as Tenant is not in default of any of the terms or conditions of this Lease beyond any applicable notice and cure period, Tenant may quietly have, hold and enjoy the Premises during the Lease Term, free from hindrance or molestation by Landlord and persons claiming by, through and under Landlord.
46. Brokerage Commissions . Tenant represents and warrants to Landlord that it has had no dealings with any real estate broker, finder or agent in connection with the negotiations of this Lease and that it knows of no other real estate broker, company, finder or agent who is or might be entitled to a commission in connection with the execution of this Lease. Landlord represents and warrants to Tenant that it has had no dealings with any real estate broker, finder or agent in connection with the negotiations of this Lease and that it knows of no other real estate broker, company, finder or agent who is or might be entitled to a commission in connection with the execution of this Lease.
47. No Partnership . Nothing contained in this Lease shall be deemed or construed as creating an agency, partnership or joint venture relationship between Landlord and Tenant or between Landlord and any other party, or cause Landlord to be responsible in any way for the debts or obligations of Tenant Party or any other party.
48. Survival of Obligations. Tenant’s obligations set forth in this Lease shall survive the expiration or earlier termination of this Lease with respect to acts, omissions, liabilities and amounts which occurred or accrued, as the case may be, prior to the expiration or earlier termination of this Lease.
49. Entire Agreement. This Lease constitutes the entire agreement between Landlord and Tenant with respect to the lease of the Premises and supersedes any and all other prior written or oral agreements or understandings with respect to the Premises. This Lease may not be modified or amended in any respect except by an instrument signed in writing by both Landlord and Tenant.
50. Severability . If any provision of this Lease shall be determined to be void by any court of competent jurisdiction, then such determination shall not affect any other provision of this Lease and all such other provisions shall remain in full force and effect. It is the intention of Landlord and Tenant that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid.
51. Waiver of Redemption . Tenant expressly Waives any and all rights of redemption granted by or under any present or future laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises by reason of the violation by Tenant of any of the covenants and conditions of this Lease or otherwise.
52. Waiver of Right to Jury Trial . Landlord and Tenant each waive their respective right to a trial by jury of any contract or tort claim, counterclaim, cross-complaint or cause of action in any action, proceeding or hearing brought by either Landlord or Tenant against the other on any matter arising out of or in any way connected to this Lease, the relationship of Landlord and Tenant or Tenant’s use or occupancy of the Premises, including any claim of injury or damage or the enforcement of any remedy under any current or future law, statute, regulation, code or ordinance.
 
- 35 -

53. Disclaimer. EACH OF LANDLORD AND TENANT ACKNOWLEDGES AND AGREES THAT IT IS SOPHISTICATED AND EXPERIENCED IN COMMERCIAL REAL ESTATE TRANSACTIONS AND HAS BEEN REPRESENTED BY COMPETENT LEGAL COUNSEL IN CONNECTION WITH THE PREPARATION, NEGOTIATION AND EXECUTION OF THIS LEASE. AS REFERENCED IN SECTION 49 ABOVE, LANDLORD AND TENANT INTEND THAT THIS LEASE CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES AND THAT THIS LEASE NOT BE DEEMED TO INCLUDE, BY IMPLICATION OR OTHERWISE, ANY TERM, COVENANT OR PROVISION NOT EXPRESSLY SET FORTH IN THIS LEASE. AS SUCH, LANDLORD AND TENANT EACH HEREBY AGREE THAT THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING SHALL NOT BE UTILIZED TO SUPPLEMENT THE EXPRESS PROVISIONS OF THIS LEASE. NEITHER LANDLORD NOR TENANT MAY REASONABLY RELY ON ANY PROMISE INCONSISTENT WITH THE PROVISIONS OF THIS ARTICLE.
54. Statement Concerning Limited Liability . THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING LANDLORD, DATED JULY 1, 1994, AS AMENDED AND SUPPLEMENTED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
55. Waiver of Landlord Lien . Landlord hereby subordinates any landlord’s lien (whether created by statute, contract or otherwise but excluding any lien to secure a judgment) it may have with respect to Tenant’s personal property, trade fixtures, furniture, inventory and equipment to any perfected lien of any third party which provides purchase money financing or any secured financing to Tenant. This provision shall be self-operative and Landlord shall have no obligation to execute any further instruments in this regard.
56. Vacation of Easements . Tenant shall use commercially reasonable efforts to cause the Colorado Public Service Company to vacate the following easements: Easements to the Public Service Company of Colorado dated November 4, 1976 in Book 2514 at Page 232 (Arapahoe County Records); January 24, 1986 under Reception No. 020491; January 31, 2003 under Reception No. B3023353 (Arapahoe County Records); June 25, 2003 under Reception No. 2003127116; April 18, 1977 in Book 1421 at Page 455; March 29, 1977 in Book 1411 at Page 264; April 18, 1977 in Book 1421 at Page 454; January 24, 1986 under Reception No. 020490; and Easement to the City and County of Denver recorded May 28, 1976 in Book 1254 at Page 489 and re-recorded august 13, 1976 in book 1301 at page 246. All agreements or instruments vacating such easements shall be in a form and substance satisfactory to Landlord in its reasonable discretion and shall be recorded in the applicable real property records by Tenant, at Tenant’s sole cost and expense.
 
- 36 -

IN WITNESS WHEREOF, the parties have caused this Lease to be executed as a sealed instrument as of the Effective Date.

LANDLORD:	
	
HUB PROPERTIES TRUST,
a Maryland real estate investment trust	
		
By:	 	/s/ John A. Mannix	
	 	John A. Mannix
President and Chief Investment Officer	

TENANT:	
	
RE/MAX INTERNATIONAL, LLC,
a Delaware limited liability company	
		
By:	 	/s/ David Metzger	
	 	Name: David Metzger	
	 	Its: Chief Financial Officer	

EXHIBIT “A”
LEGAL DESCRIPTION OF THE LAND
(See attached copy.)
 
- Exhibit A -

5073, 5075 and 5085 South Syracuse Street
Denver, Colorado 80237
LEGAL DESCRIPTION
A FEE SIMPLE, AS TO PARCEL 1; AND AS TO PARCEL 2:
A LEASEHOLD AS CREATED BY THAT CERTAIN LEASE DATED MAY 23, 2007, EXECUTED BY GOLDSMITH METROPOLITAN DISTRICT, A QUASI-MUNICIPAL CORPORATION AND POLITICAL SUBDIVISION OF THE’ STATE OF COLORADO, AS LANDLORD, AND EGAP, LLC, A COLORADO LIMITED LIABILITY COMPANY, AS ASSIGNED TO HUB PROPERTIES TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST, BY ASSIGNMENT DATED APRIL     , 2010, AS TENANT, AS REFERENCED IN DOCUMENT ENTITLED “MEMORANDUM OF GROUND LEASE AND PURCHASE OPTION” WHICH WAS RECORDED                             , 2010 UNDER RECEPTION NO.                             , FOR THE TERM AND UPON AND SUBJECT TO ALL THE PROVISIONS CONTAINED IN SAID DOCUMENT AND SAID LEASE.
PARCEL 1 (FEE) :
A PARCEL OF LAND LOCATED IN SECTION 9, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH-PRINCIPAL MERIDIAN, CITY AND COUNTY OF DENVER, STATE OF COLORADO BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS
COMMENCING AT THE SOUTH QUARTER CORNER OF SECTION 9, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH PRINCIPAL MERIDIAN, THENCE NORTH 82 DEGREES 39 MINUTES 55 SECONDS WEST A DISTANCE OF 1393.53 FEET TO A POINT ON THE WESTERLY RIGHT-OF-WAY LINE OF SOUTH SYRACUSE STREET SAID POINT BEING THE POINT OF BEGINNING; THENCE SOUTH 89 DEGREES 52 MINUTES 59 SECONDS WEST A DISTANCE OF 170.00 FEET;
THENCE SOUTH 00 DEGREES 32 MINUTES 17 SECONDS WEST A DISTANCE OF 150.00 FEET TO A POINT ON THE NORTHERLY RIGHT-OF-WAY LINE OF BELLEVIEW AVENUE; THENCE SOUTH 89 DEGREES 52 MINUTES 59 SECONDS WEST ALONG THE SAID NORTHERLY RIGHT-OF-WAY LINE A DISTANCE OF 158.60 FEET TO A PONT OF THE EASTERLY RIGHT-OF-WAY LINE OF INTERSTATE HIGHWAY 25;
THENCE ALONG THE SAID EASTERLY RIGHT-OF-WAY LINE THE FOLLOWING TWO (2) CONSECUTIVE COURSES:
1) NORTH 37 DEGREES 10 MINUTES 39 SECONDS WEST A DISTANCE OF 609.00 FEET;

5073, 5075 and 5085 South Syracuse Street
Denver, Colorado 80237
 
PARCEL 1 (FEE) CONTINUED :
 
2) THENCE NORTH 24 DEGREES 02 MINUTES 39 SECONDS WEST A DISTANCE OF 32:47 FEET; THENCE NORTH 59 DEGREES 00 MINUTES 00 SECONDS EAST DEPARTING SAID EASTERLY RIGHT-OF-WAY LINE A DISTANCE OF 180.41 FEET;
THENCE SOUTH 37 DEGREES 10 MINUTES 39 SECONDS EAST A DISTANCE OF 212.37 FEET;
THENCE SOUTH 89 DEGREES 48 MINUTES 39 SECONDS EAST A DISTANCE OF 181.95 FEET;
THENCE 138.22 FEET ALONG THE ARC OF A NON-TANGENT CURVE TO THE RIGHT HAVING A RADIUS OF 150.00 FEET, A CENTRAL ANGLE OF 52 DEGREES 47 MINUTES 41 SECONDS AND A CHORD WHICH BEARS NORTH 47 DEGREES 26 MINUTES 44 SECONDS EAST A DISTANCE OF 133.38 FEET TO A POINT OF TANGENCY;
THENCE NORTH 73 DEGREES 50 MINUTES 38 SECONDS EAST A DISTANCE OF 64.38 FEET TO A POINT OF CURVATURE;
THENCE 48.66 FEET ALONG THE ARC OF A CURVE TO THE LEFT HAVING A RADIUS OF 30.00 FEET, A CENTRAL ANGLE OF 92 DEGREES 56 MINUTES 05 SECONDS A CHORD WHICH BEARS NORTH 27 DEGREES 20 MINUTES 33 SECONDS EAST A DISTANCE OF 43.50 FEET TO A POINT OF CUSP ON THE WESTERLY RIGHT-OF-WAY LINE OF SOUTH SYRACUSE STREET;
THENCE ALONG SAID WESTERLY RIGHT-OF-WAY LINE THE FOLLOWING TWO (2) CONSECUTIVE COURSES:
1) 415.10 FEET ALONG THE ARC OF A CURVE RIGHT HAVING A RADIUS OF 1213.24 FEET, A CENTRAL ANGLE OF 19 DEGREES 36 MINUTES 11 SECONDS AND A CHORD WHICH BEARS SOUTH 09 DEGREES 15 MINUTES 49 SECONDS EAST A DISTANCE OF 413.08 FEET TO A POINT OF TANGENCY;
2) THENCE SOUTH 00 DEGREES 32 MINUTES 17 SECONDS WEST A DISTANCE OF 26.40 FEET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THAT PORTION CONVEYED TO THE CITY AND COUNTY OF DENVER, STATE OF COLORADO IN WARRANTY DEED RECORDED SEPTEMBER 30, 2005 UNDER RECEPTION NO. 2005165636, AND CORRECTION WARRANTY DEED RECORDED MARCH 24, 2006 UNDER RECEPTION NO. 2006046622.

5073, 5075 and 5085 South Syracuse Street
Denver, Colorado 80237
 
PARCEL 2 (LEASEHOLD ):
A PARCEL OF LAND LOCATED IN THE SOUTHWEST 1/4 OF SECTION 9, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH PRINCIPAL MERIDIAN, CITY AND COUNTY OF DENVER, STATE OF COLORADO (FORMERLY LOCATED IN ARAPAHOE COUNTY), BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTH QUARTER CORNER OF SECTION 9, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH PRINCIPAL MERIDIAN; THENCE NORTH 82 DEGREES 39 MINUTES 55 SECONDS WEST, A DISTANCE OF 1393.53 FEET TO A POINT ON THE WESTERLY RIGHT-OF-WAY LINE OF SOUTH SYRACUSE STREET ALSO BEING ON AN EAST-WEST BOUNDARY LINE OF DENVER AND ARAPAHOE COUNTIES; THENCE LEAVING SAID RIGHT-OF-WAY LINE AND CONTINUING ALONG SAID COUNTY BOUNDARY SOUTH 89 DEGREES 52 MINUTES 59 SECONDS WEST, A DISTANCE OF 127.00 FEET TO THE TRUE POINT OF BEGINNING; THENCE DEPARTING SAID COUNTY BOUNDARY SOUTH 00 DEGREES 32 MINUTES 17 SECONDS WEST, A DISTANCE OF 107.00 FEET; THENCE SOUTH 45 DEGREES 12 MINUTES 38 SECONDS WEST, A DISTANCE OF 61.16 FEET TO A POINT ON THE NORTHERLY RIGHT-OF-WAY LINE OF BELLEVIEW AVENUE; THENCE LEAVING SAID RIGHT-OF-WAY LINE ALONG SAID COUNTY BOUNDARY THE FOLLOWING TWO (2) CONSECUTIVE COURSES: 1) NORTH 00 DEGREES 32 MINUTES 17 SECONDS EAST, A DISTANCE OF 150.00 FEET; 2) THENCE NORTH 89 DEGREES 52 MINUTES 59 SECONDS EAST, A DISTANCE OF 43.00 FEET TO THE TRUE POINT OF BEGINNING.
BASIS OF BEARINGS: ASSUMED BEARING OF NORTH 89 DEGREES 52 MINUTES 59 SECONDS EAST ALONG THE SOUTH LINE OF THE SOUTHWEST QUARTER OF SECTION 9, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH PRINCIPAL MERIDIAN, CITY AND COUNTY OF DENVER, STATE OF COLORADO.

EXHIBIT “B”
FORM OF MEMORANDUM OF LEASE
(See attached copy.)
 
- Exhibit B -

WHEN RECORDED RETURN TO:

 	  		  		  		

 	  		  		  		
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is being recorded to provide record notice of the existence of the Lease as hereinafter described. It is executed by the parties hereto for recording purposes only, and it is not intended and shall not modify, amend, supersede or otherwise effect the terms and provisions of said Lease.

1.	  	Name of Document:	  	LEASE	
			
2.	  	Name of Landlord:	  	HUB PROPERTIES TRUST	
			
3.	  	Name of Tenant:	  	RE/MAX INTERNATIONAL, LLC	
			
4.	  	Address of Landlord:	  	Reit Management & Research LLC
400 Centre Street
Newton, MA 02458
Attn: Jennifer B. Clark	
			
5.	  	Address of Tenant:	  		
			
6.	  	Effective Date:	  	April 16, 2010	
			
7.	  	Lease Term:	  	Eighteen (18) years, commencing on the Effective Date, together with two (2) options to extend the Lease Term for periods of ten (10) years each.	
			
8.	  	Premises:	  	The real property more particularly described in Exhibit “A” attached hereto.	
 
- Exhibit B -

IN WITNESS WHEREOF, the parties have caused this Memorandum of Lease to be executed as a sealed instrument as of the Effective Date.

LANDLORD:	
	
HUB PROPERTIES TRUST,
a Maryland real estate investment trust	
		
By:	 	 	
	 	Name:                                                                                     	
	 	Its:                                                                                           	
	
TENANT:	
	
RE/MAX INTERNATIONAL, LLC,
a Delaware limited liability company	
		
By:	 	 	
	 	Name:                                                                                     	
	 	Its:                                                                                           	
 
- Exhibit B -

COMMONWEALTH OF MASSACHUSETTS     )
                                                                                   ) ss.
COUNTY OF MIDDLESEX                                  )
The foregoing instrument was acknowledged before me on April     , 2010 by John A. Mannix, as President of Hub Properties Trust, a Maryland real estate investment trust, who acknowledged execution of the foregoing instrument for and on behalf of said entity.
WITNESS MY HAND AND OFFICIAL SEAL:

(NOTARY SEAL)	 		 	 
Notary Public	  		  		
	 		 	 	  		  		
	 		 	(Printed Name of Notary)	  		  		
					
My Commission expires:	 	 	  		  		  		
STATE OF                                                               )
                                                                                   ) ss.
COUNTY OF                                                           )
The foregoing instrument was acknowledged before me on April     , 2010 by                                    , as                                 of RE/MAX International, Inc., a Delaware corporation, who acknowledged execution of the foregoing instrument for and on behalf of said entity.
WITNESS MY HAND AND OFFICIAL SEAL:

(NOTARY SEAL)	 		 	 
Notary Public	  		  		
	 		 	 	  		  		
	 		 	(Printed Name of Notary)	  		  		
					
My Commission expires:	 	 	  		  		  		
 
- Exhibit B -

Exhibit 21.1

Legal Name	  	Jurisdiction	
BMFC, LLC	  	Delaware	
RB2B, LLC	  	Delaware	
RE/MAX, LLC	  	Delaware	
RE/MAX Ancillary Services, LLC	  	Delaware	
RE/MAX Brokerage, LLC	  	Delaware	
RE/MAX Caribbean Islands, LLC	  	Delaware	
RE/MAX Foreign Holdings, LLC	  	Delaware	
RE/MAX of the Pacific, LLC	  	Delaware	
RE/MAX of Western Canada (1998), LLC	  	Delaware	
RMCO, LLC	  	Delaware	
Sacagawea, LLC	  	Delaware	
STC Northwest, LLC	  	Delaware	
Syracuse Development Company, LLC	  	Delaware	
Equity Group Insurance, LLC	  	Oregon	
Equity Home Mortgage, LLC	  	Oregon	

Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Managers
RMCO, LLC:
We consent to the use of our report dated July 12, 2013, with respect to the consolidated balance sheets of RMCO, LLC (a Delaware limited liability company) and subsidiaries as of December 31, 2011 and 2012, and the related consolidated statements of operations and comprehensive income (loss), redeemable preferred units and members’ deficit and cash flows for each of the years in the three-year period ended December 31, 2012, included herein and to the reference to our firm under the heading “Experts” in the prospectus.
/s/ KPMG LLP
Denver, Colorado
August 16, 2013

Exhibit 23.2
Consent of Independent Auditors
The Board of Managers
RMCO, LLC:
We consent to the use of our report dated June 20, 2013, with respect to the financial statements of RE/MAX/KEMCO Partnership, L.P. and its related variable interest entities for the year ended December 31, 2012, included herein and to the reference to our firm under the heading “Experts” in the prospectus.
/s/ KPMG LLP
Denver, Colorado
August 16, 2013

Exhibit 23.3
Consent of Independent Registered Public Accounting Firm
The Board of Managers
RMCO, LLC:
We consent to the use of our report dated July 12, 2013, with respect to the balance sheet of RE/MAX Holdings, Inc. as of July 8, 2013, included herein and to the reference to our firm under the heading “Experts” in the prospectus.
/s/ KPMG LLP
Denver, Colorado
August 16, 2013