Note 15 – Stock-Based Compensation and Stock Repurchases

Employee and Director Stock Option Plan

The Company may grant stock options and other share-based payment awards of our Common Stock to eligible employees, directors, and consultants under the 2010 Stock Incentive Plan (the “Plan”). The aggregate total number of shares of the Common Stock authorized for issuance under the Plan is 2,197,460.

During the Company’s 2017 Annual Stockholders’ Meeting held on November 7, 2017, the Company's stockholders, upon recommendation of the Board of Directors, approved an amendment to the Plan to increase the number of shares of common stock issuable under the Plan by an additional 947,460 shares. The effect of the increase is to restore the amount of shares of Common Stock available under the Plan from the 302,540 shares available as of September 30, 2017, back up to its original reserve of 1,250,000 shares. As of September 30, 2018, we had 1,048,570 shares remaining for future issuances.

Since the adoption of the Plan in 2010, the Company has granted awards primarily in the form of stock options. In the 1st quarter of 2016, the Company started to award restricted stock units (“RSUs”) to directors and certain members of management. Stock options are generally granted at exercise prices equal to the grant-date market prices and typically expire no later than five years from the grant date. In contrast to a stock option where the grantee buys the Company’s share at an exercise price determined on grant date, an RSU entitles the grantee to receive one share for every RSU based on a vesting plan. At the discretion of our Compensation and Stock Options Committee, the vesting period of stock options and RSUs granted to employees ranges from zero to four years. Grants to directors and certain executive officers are subject to Board approval. At the time the options are exercised or RSUs vest, at the discretion of management, we will issue treasury shares or make a new issuance of shares to the option or RSU holder.

Stock Options

We estimate the grant-date fair value of our stock options using the Black-Scholes option-valuation model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility, and the expected life of the options. We expense the estimated grant-date fair values of options over the vesting period on a straight-line basis. Based on our historical experience, the “deemed exercise” of expiring in-the-money options and the relative market price to strike price of the options, we have not hereto estimated any forfeitures of vested or unvested options.

There were no share options issued in the quarter ended September 30, 2018. The weighted average assumptions used in the option-valuation model were as follows:



	Nine Months Ended September 30,
	2018		2017
Stock option exercise price	$	16.40	$	15.94
Risk-free interest rate		2.56%		1.66%
Expected dividend yield		—		—
Expected option life in years		3.75		3.75
Expected volatility		24.99%		24.95%
Weighted average fair value	$	3.80	$	3.45

For the quarter ended September 30, 2018 and 2017, we recorded compensation expense of $115,000 and $86,000, respectively. For the nine months ended September 30, 2018 and 2017, we recorded compensation expense of $312,000 and $225,000, respectively. At September 30, 2018, the total unrecognized estimated compensation expense related to non-vested stock options was $1.0 million, which we expect to recognize over a weighted average vesting period of 1.73 years. The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at September 30, 2018 was $2.1 million, of which 83.0% are currently exercisable.

The following table summarizes the information of options outstanding and exercisable as of September 30, 2018 and December 31, 2017:



	Outstanding Stock Options - Class A Shares
	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Years of Contractual Life	Aggregate Intrinsic Value
	Class A	Class A		Class A	Class A
Balance - December 31, 2016	535,077	$	9.84	2.61	$	3,615,191
Granted	169,762		15.94	—		—
Exercised	(177,750)		7.85	—		702,840
Forfeited	(2,500)		6.23	—		—
Balance - December 31, 2017	524,589	$	12.50	3.15	$	3,054,325
Granted	126,840		16.40	—		—
Exercised	(60,000)		3.38	—		239,250
Forfeited	—		—	—		—
Balance - September 30, 2018	591,429	$	13.68	3.13	$	2,093,843

Restricted Stock Units

We estimate the grant-date fair values of our RSUs using the Company’s stock price at grant-date and record such fair values as compensation expense over the vesting period on a straight-line basis. The following table summarizes the status of the RSUs granted to-date as of September 30, 2018:



	Outstanding Restricted Stock Units
	RSU Grants (in units)			Vested,	Unvested,
Grant Date	Directors	Management	Total Grants	September 30, 2018	September 30, 2018
March 10, 2016	35,147	27,381	62,528	48,837	13,691
April 11, 2016	—	5,625	5,625	1,406	4,219
March 23, 2017	30,681	32,463	63,144	46,912	16,232
August 29, 2017	—	7,394	7,394	—	7,394
January 2, 2018	29,393	—	29,393	—	29,393
April 12, 2018	—	29,596	29,596	—	29,596
April 13, 2018	—	14,669	14,669	—	14,669
July 6, 2018	—	932	932	—	932
Total	95,221	118,060	213,281	97,155	116,126

These RSU awards vest 25% at the end of each year for 4 years (in the case of members of management) and vest 100% on the date of grant which is early January of the year following in which such RSUs were granted (in the case of directors). For the quarter ended September 30, 2018 and 2017, we recorded compensation expense of $233,000 and $182,000, respectively. For the nine months ended September 30, 2018 and 2017, we recorded compensation expense of $754,000 and $482,000, respectively. The total unrecognized compensation expense related to the non-vested RSUs was $1.3 million as of September 30, 2018, which we expect to recognize over a weighted average vesting period of 1.1 years.

Stock Repurchase Program

On March 2, 2017, the Company's Board of Directors authorized management, at its discretion, to spend up to an aggregate of $25.0 million to acquire shares of Reading’s Class A Stock. The previously approved stock repurchase program, which allowed management to spend up to an aggregate of $10.0 million to acquire shares of Reading’s Class A Common Stock, was completed as of December 31, 2016.

The repurchase program allows Reading to repurchase its shares in accordance with the requirements of the SEC on the open market, in block trades and in privately negotiated transactions, depending on market conditions and other factors. All purchases are subject to the availability of shares at prices that are acceptable to Reading, and accordingly, no assurances can be given as to the timing or number of shares that may ultimately be acquired pursuant to this authorization.

Under the stock repurchase program, as of September 30, 2018, the Company has reacquired 433,361 shares of Class A Stock for $6.9 million at an average price of $15.97 per share (excluding transaction costs) to-date, of which 23,638 were purchased for $397,000 at an average price of $16.80 during 2018. No shares were purchased during the quarter ended September 30, 2018. This leaves $18.1 million available under the March 2, 2017 program for repurchase as of September 30, 2018. The Board authorization for the stock repurchase program is currently set to expire on March 2, 2019.