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 June 30, 2019, we had 778,304 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 and are settled, 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 nil and 219,408 stock options issued in the quarter and six months ended June 30, 2019, respectively. The weighted average assumptions used in the option-valuation model were as follows:



	Six Months Ended June 30,
	2019		2018
Stock option exercise price	$	16.12	$	16.40
Risk-free interest rate		2.42%		2.56%
Expected dividend yield		—		—
Expected option life in years		3.75		3.75
Expected volatility		23.32%		24.99%
Weighted average fair value	$	3.50	$	3.80

For the quarters ended June 30, 2019 and 2018, we recorded compensation expense of $129,000 and $112,000, respectively. For the six months ended June 30, 2019 and June 30, 2018, we recorded compensation expense of $200,000 and $197,000, respectively. At June 30, 2019, the total unrecognized estimated compensation expense related to non-vested stock options was $1.4 million, which we expect to recognize over a weighted average vesting period of 1.99 years. The intrinsic, unrealized value of all options outstanding, vested and expected to vest, at June 30, 2019 was $0.9 million, of which 96% are currently exercisable.

The following table summarizes the number of options outstanding and exercisable as of June 30, 2019 and December 31, 2018:



	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, 2017	524,589	$	12.50	3.15	$	3,054,325
Granted	126,840		16.40	—		—
Exercised	(60,000)		6.02	—		610,249
Forfeited	(4,960)		12.08	—		—
Balance - December 31, 2018	586,469	$	14.01	2.88	$	1,530,528
Granted	219,408		16.12	—		—
Exercised	(67,500)		13.42	—		185,175
Forfeited	(25,000)		13.42	—		—
Balance - June 30, 2019	713,377	$	14.74	3.27	$	866,682

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 June 30, 2019:



	Outstanding Restricted Stock Units
	RSU Grants (in units)			Vested,	Unvested,	Forfeited,
Grant Date	Directors	Management	Total Grants	June 30, 2019	June 30, 2019	June 30, 2019
March 10, 2016	35,147	27,381	62,528	55,684	6,844
April 11, 2016	—	5,625	5,625	3,962	1,146	517
March 23, 2017	30,681	32,463	63,144	46,919	16,225
August 29, 2017	—	7,394	7,394	3,698	3,696
January 2, 2018	29,393	—	29,393	29,393	—
April 12, 2018	—	29,596	29,596	7,409	22,187
April 13, 2018	—	14,669	14,669	3,668	11,001
July 6, 2018	—	932	932	—	—	932
November 7, 2018	23,010	—	23,010	23,010	—
March 13, 2019	—	24,366	24,366	—	24,366
March 14, 2019	—	23,327	23,327	—	23,327
May 7, 2019	11,565	—	11,565	—	11,565

Total	129,796	165,753	295,549	173,743	120,357	1,449

RSU awards to management vest 25% at the end of each year for 4 years. Prior to November 7, 2018, RSU awards to directors vested 100% in January of the following year in which such RSUs were granted. At the November 7, 2018 Board meeting, it was determined that it would be more appropriate for the vesting of RSUs to align with the director’s term of office. Accordingly, the RSUs granted on November 7, 2018, vest on the first to occur of (i) 5:00 pm, Los Angeles, CA time on the last business day prior to the one-year anniversary of the grant date, or (ii) the date on which the recipient’s term as a director shall end and the recipient, or as the case may be, the recipient’s successor is elected to the board of directors at the next occurring annual meeting or special meeting of stockholders called for such purpose (the “Vesting Date”). This means that the Vesting Date of the RSUs granted to directors on November 7, 2018 was the date of the annual meeting of stockholders on May 7, 2019. Due to the fact that the Company has moved up its annual meeting of stockholders from November to May this year, this created a shorter than normal vesting period for the RSUs issued on November 7, 2018. In order to adjust for this factor, the award of RSUs to directors made immediately following the 2019 Annual Meeting of Stockholders was a value of $35,000 or one half of last year's annual grant. For the quarter ended June 30, 2019 and 2018, we recorded compensation expense of $271,000 and $227,000, respectively. For the six months ended June 30, 2019 and June 30, 2018 we recorded compensation expense of $480,000 and $521,000 respectively. The total unrecognized compensation expense related to the non-vested RSUs was $1.8 million as of June 30, 2019, which we expect to recognize over a weighted average vesting period of 1.76 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 Non-Voting Common Stock. On March 14, 2019, the Board of Directors extended this stock buy-back program for two years, through March 2, 2021. The Board of Directors did not increase the authorized amount, which was $16.2 million at March 31, 2019.

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 June 30, 2019, the Company has reacquired 756,016 shares of Class A Non-Voting Common Stock for $11.5 million at an average price of $15.16 per share (excluding transaction costs). 196,389 shares of Class A Non-Voting Common Stock were purchased during the quarter ended June 30, 2019 at an average price of $13.33 per share. This leaves $13.5 million available under the March 2, 2017 program, as extended, to March 2, 2021.