EXHIBIT 10.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lifeway Foods, Inc.
Omnibus Incentive Plan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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TABLE OF CONTENTS
 
 
  Page  
Article 1.
Establishment, Purpose, and Duration
1
Article 2.
Definitions
1
Article 3.
Administration
8
Article 4.
Shares Subject to this Plan and Maximum Awards
9
Article 5.
Eligibility and Participation
10
Article 6.
Stock Options
10
Article 7.
Stock Appreciation Rights
12
Article 8.
Restricted Stock and Restricted Stock Units
14
Article 9.
Performance Units/Performance Shares
15
Article 10.
Cash-Based Awards and Other Stock-Based Awards
16
Article 11.
Transferability of Awards
17
Article 12.
Performance Measures
17
Article 13.
Dividend Equivalents
20
Article 14.
Beneficiary Designation
20
Article 15.
Rights of Participants
20
Article 16.
Change of Control
21
Article 17.
Amendment, Modification, Suspension, and Termination
22
Article 18.
Withholding
23
Article 19.
Successors
23
Article 20.
General Provisions
23

 
 
 
 
 
 

 
 

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Lifeway Foods, Inc.
 
Omnibus Incentive Plan
 
Article 1.             Establishment, Purpose, and Duration
 
1.1     Establishment.  Lifeway Foods, Inc., an Illinois corporation
(hereinafter referred to as the “Company”), establishes this incentive
compensation plan to be known as the Lifeway Foods, Inc. Omnibus Incentive Plan
(hereinafter referred to as the “Plan”), as set forth in this document.
 
This Plan permits the grant of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Shares, Performance Units, Cash-Based Awards, and Other Stock-Based
Awards.
 
This Plan’s effective date is the date the Plan is approved by the Company’s
shareholders (the “Effective Date”), and the Plan shall remain in effect as
provided in Section 1.3 hereof.
 
1.2     Purpose of this Plan.  The purpose of this Plan is to provide a means
whereby Employees develop a sense of proprietorship and personal involvement in
the development and financial success of the Company, and to encourage them to
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. A further purpose of this Plan is
to provide a means through which the Company may attract able individuals to
become Employees and to provide a means whereby those individuals upon whom the
responsibilities of the successful administration and management of the Company
are of importance, can acquire and maintain stock ownership, thereby
strengthening their concern for the welfare of the Company.
 
1.3     Duration of this Plan.  Unless sooner terminated as provided herein,
this Plan shall terminate ten (10) years from the Effective Date.  After this
Plan is terminated, no Awards may be granted but Awards previously granted shall
remain outstanding in accordance with their applicable terms and conditions and
this Plan’s terms and conditions.  Notwithstanding the foregoing, no Incentive
Stock Options may be granted more than ten (10) years after the earlier of (a)
adoption of this Plan by the Board, or (b) the Effective Date.
 
Article 2.      Definitions
 
Whenever used in this Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized.
 
2.1          
“Affiliate” shall mean any corporation or other entity (including, but not
limited to, a partnership or a limited liability company), that is affiliated
with the Company through stock or equity ownership or otherwise, and is
designated as an Affiliate for purposes of this Plan by the Committee.

 
2.2          
“Annual Award Limit” or “Annual Award Limits” have the meaning set forth in
Section 4.1.

 
 
 
 

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2.3          
“Award” means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Restricted Stock Units, Performance Shares, Performance Units, Cash-Based
Awards, or Other Stock-Based Awards, in each case subject to the terms of this
Plan.

 
2.4          
“Award Agreement” means either (i) a written agreement entered into by the
Company and, if specified in the Agreement, the Participant, setting forth the
terms and provisions applicable to an Award granted under this Plan, or (ii) a
written or electronic statement issued by the Company to a Participant
describing the terms and provisions of such Award, including any amendment or
modification thereof.  The Committee may provide for the use of electronic,
internet or other non-paper Award Agreements, and the use of electronic,
internet or other non-paper means for the acceptance thereof and actions
thereunder by a Participant.

 
2.5          
“Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.

 
2.6          
“Board” or “Board of Directors” means the Board of Directors of the Company.

 
2.7          
“Cash-Based Award” means an Award, denominated in cash, granted to a Participant
as described in Article 10.

 
2.8          
“Cause” means, unless otherwise specified in an Award Agreement or in an
applicable employment agreement between the Company, or an Affiliate, and a
Participant, with respect to any Participant, as determined by the Committee in
its sole discretion:

 
(a)           
Misconduct in the performance of Participant’s duties;

 
(b)           
Willful failure to follow the lawful directives of the Board or any executive to
which Participant reports;

 
(c)           
Indictment for, conviction of, or entering into a plea of guilty or of nolo
contendere to, a felony or any crime involving moral turpitude;

 
(d)           
Participant’s failure to reasonably cooperate in any audit or investigation of
the business or financial practices of the Company or any of its subsidiaries;

 
(e)           
Performance of any act of theft, embezzlement, fraud, dishonesty or
misappropriation with respect to the Company or its affiliates;

 
(f)           
Material breach of any material agreement with the Company or its affiliates, or
Participant’s material violation of the Company’s code of conduct or other
written policy, which is not cured (if susceptible to cure) by Participant
within thirty (30) days of written notice thereof from the Company;

 
 
 
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(g)
Conduct causing the Company substantial public disgrace, disrepute or economic
harm.

 
2.9          
“Change of Control” means the occurrence of any one of the following events with
respect to the Company:

 
(a)           
Any one person, or more than one person acting as a group, excluding Julie
Smolyansky, Edward Smolyansky, Ludmila Smolyansky and members of their families,
acquires ownership of stock (as determined under Section 318(a) of the Code) of
the Company that, together with stock held by such person or group, constitutes
more than 50 percent of the total fair market value or total voting power of the
stock of the Company; provided, however, that if any one person or more than one
person acting as a group, is considered to own more than 50 percent of the total
fair market value or total voting power of the stock of the Company, the
acquisition of additional stock by the same person or persons is not considered
to cause a Change in Control of the Company.  This paragraph applies only when
there is a transfer of stock of the Company (or issuance of stock of the
Company) and stock in the Company remains outstanding after the transaction.

 
(b)           
Any one person, or more than one person acting as a group, excluding Julie
Smolyansky, Edward Smolyansky, Ludmila Smolyansky and members of their families,
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or persons) ownership of stock (as
determined under Section 318(a) of the Code) of the Company possessing 30
percent or more of the total voting power of the stock of the Company; provided,
however, that if any one person or more than one person acting as a group, is
considered to own 30 percent or more of the total voting power of the stock of
the Company, the acquisition of additional stock by the same person or persons
is not considered to cause a Change in Control of the Company.

 
(c)           
a majority of members of the Company’s Board of Directors (the “Incumbent
Directors”) is replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the Incumbent
Directors, provided that no other Company is a majority shareholder of the
Company.

 
(d)           
any one person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent
acquisition by such person or persons) assets from the Company that have a total
gross fair market value equal to or more than 40 percent of the total gross fair
market value of all of the assets of the Company immediately prior to such
acquisition(s); provided, however, that a transfer of assets by the Company is
not treated as a Change in Control if the assets are transferred to (A) a
shareholder of the Company (immediately before the asset transfer) in exchange
for or with respect to its stock; (B) an entity, 50 percent or more of the total
value or voting power of which is owned, directly or indirectly, by the Company;
(C) a person, or more than one person acting as a group, that owns, directly or
indirectly, 50 percent or more of the total value or voting power of all
outstanding stock of the Company; or (D) an entity, at least 50 percent of the
total value or voting power of which is owned, directly or indirectly, by a
person described in the previous subsection (C).  For purposes of this
paragraph, (1) gross fair market value means the value of the assets of the
Company, or the value of the assets being disposed of, determined without regard
to any liabilities associated with such assets, and (2) a person’s status is
determined immediately after the transfer of the assets.

 
 
 
 
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For purposes of this definition:
 
(a)           
a “person” shall be as such term is defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

 
(b)           
persons will be considered to be acting as a group if they are owners of a
Company that enters into a merger, consolidation, purchase or acquisition of
stock, or similar transaction with the Company.  If a person, including an
entity, owns stock in both Companies that enter into a merger, consolidation,
purchase or acquisition of stock, or similar transaction, such shareholder is
considered to be acting as a group with other shareholders in the Company prior
to the transaction giving rise to the Change in Control and not with respect to
the ownership interest in the other Company.  Persons will not be considered to
be acting as a group solely because they purchase or own stock of the Company at
the same time, or as a result of the same public offering.

 
2.10         
“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to
time.  For purposes of this Plan, references to sections of the Code shall be
deemed to include references to any applicable regulations thereunder and any
successor or similar provision.

 
2.11         
“Committee” means the Compensation Committee of the Board or a subcommittee
thereof, or any other committee designated by the Board to administer this
Plan.  The members of the Committee shall (i) be appointed from time to time by
and shall serve at the discretion of the Board, and (ii) shall consist of
“outside directors” as defined in Section 162(m) of the Code and “non-employee
directors” as defined in Section 16 of the Exchange Act.  If the Committee does
not exist or cannot function for any reason, the Board may take any action under
the Plan that would otherwise be the responsibility of the Committee.

 
2.12         
“Company” or “Corporation” means Lifeway Foods, Inc., an Illinois corporation,
and any successor thereto as provided in Article 19 herein.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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2.13         
“Covered Employee” means any Employee who is or may become a “covered employee,”
as defined in Code Section 162(m).

 
2.14         
“Disability” or “Disabled” means that an individual is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months.

 
2.15         
“Effective Date” has the meaning set forth in Section 1.1.

 
2.16         
“Employee” means any individual performing services for the Company, an
Affiliate, or a Subsidiary and designated as an employee of the Company, its
Affiliates, and/or its Subsidiaries on the payroll records thereof.  An Employee
shall not include any individual during any period he or she is classified or
treated by the Company, Affiliate, and/or Subsidiary as an independent
contractor, a consultant, or any employee of an employment, consulting, or
temporary agency or any other entity other than the Company, Affiliate, and/or
Subsidiary, without regard to whether such individual is subsequently determined
to have been, or is subsequently retroactively reclassified as a common-law
employee of the Company, Affiliate, and/or Subsidiary during such period.

 
2.17         
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time
to time, or any successor act thereto.

 
2.18         
“Fair Market Value” or “FMV” means, on any given date, the closing price of a
Share as reported on the National Association of Securities Dealers Automated
Quotations (“NASDAQ”) composite tape on such date, or if Shares were not traded
on NASDAQ on such day, then on the next preceding day that Shares were traded on
NASDAQ; in the event Shares are traded only on an exchange other than NASDAQ,
references herein to NASDAQ shall mean such other exchange.

 
2.19         
“Full Value Award” means an Award other than in the form of an ISO, NQSO, or
SAR, and which is settled by the issuance of Shares.

 
2.20         
“Good Reason” means the occurrence of any of the following events, without the
express written consent of Participant, unless such events are corrected in all
material respects by the Company within thirty (30) days following written
notification by Participant to the Company of the occurrence of one of the
following: (i) a material diminution in Participant’s base salary, other than
pursuant to across-the-board reductions affecting similarly situated employees
of the Company; (ii) a material diminution in Participant’s duties, authorities
or responsibilities contemplated hereunder (other than temporarily while
physically or mentally incapacitated or as required by applicable law); (iii)
the permanent relocation of Participant’s primary work location by more than
fifty (50) miles from its then current location; or (iv) the Company materially
breaches the terms of an employment agreement with Participant.

 
 
 
 
 
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2.21         
“Grant Date” means the date an Award is granted to a Participant pursuant to the
Plan.

 
2.22         
“Grant Price” means the price established at the time of grant of an SAR
pursuant to Article 7, used to determine whether there is any payment due upon
exercise of the SAR.

 
2.23         
“Incentive Stock Option” or “ISO” means an Option to purchase Shares granted
under Article 6 to an Employee and that is designated as an Incentive Stock
Option and that is intended to meet the requirements of Code Section 422, or any
successor provision.

 
2.24         
“Insider” shall mean an individual who is, on the relevant date, an officer, or
director of the Company, or a more than ten percent (10%) Beneficial Owner of
any class of the Company’s equity securities that is registered pursuant to
Section 12 of the Exchange Act, as determined by the Board in accordance with
Section 16 of the Exchange Act.

 
2.25         
“Net Income” means the consolidated net income for the Plan Year, as reported in
the Company’s annual report to shareholders or as otherwise reported to
shareholders.

 
2.26         
“Nonqualified Stock Option” or “NQSO” means an Option that is not intended to
meet the requirements of Code Section 422, or that otherwise does not meet such
requirements.

 
2.27         
“Option” means an Incentive Stock Option or a Nonqualified Stock Option, as
described in Article 6.

 
2.28         
“Option Price” means the price at which a Share may be purchased by a
Participant pursuant to an Option.

 
2.29         
“Other Stock-Based Award” means an equity-based or equity-related Award not
otherwise described by the terms of this Plan, granted pursuant to Article 10.

 
2.30         
“Participant” means any eligible individual as set forth in Article 5 to whom an
Award is granted.

 
 
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2.31         
“Performance-Based Compensation” means compensation under an Award that is
intended to satisfy the requirements of Code Section 162(m) for certain
performance-based compensation paid to Covered Employees.  Notwithstanding the
foregoing, nothing in this Plan shall be construed to mean that an Award which
does not satisfy the requirements for performance-based compensation under Code
Section 162(m) does not constitute performance-based compensation for other
purposes, including Code Section 409A.

 
2.32         
“Performance Measures” means measures as described in Article 12 on which the
performance goals are based and which are approved by the Company’s shareholders
pursuant to this Plan in order to qualify Awards as Performance-Based
Compensation.

 
2.33         
“Performance Period” means the period of time during which the performance goals
must be met in order to determine the degree of payout and/or vesting with
respect to an Award which period may not be less than one (1) year, or, if less
than one (1) year, such period of time designated by the Committee so long as
the Performance Measures for such period of time have been designated by the
Committee before the earlier of (i) ninety (90) days after the beginning of the
Performance Period, or (ii) the date as of which twenty-five percent (25%) of
such period of time has elapsed.

 
2.34         
“Performance Share” means an Award under Article 9 herein and subject to the
terms of this Plan, denominated in Shares, the value of which at the time it is
payable is determined as a function of the extent to which corresponding
performance criteria have been achieved.

 
2.35         
“Performance Unit” means an Award under Article 9 herein and subject to the
terms of this Plan, denominated in units, the value of which at the time it is
payable is determined as a function of the extent to which corresponding
performance criteria have been achieved.

 
2.36         
“Period of Restriction” means the period when Restricted Stock or Restricted
Stock Units are subject to a substantial risk of forfeiture (based on the
passage of time, the achievement of performance goals, or upon the occurrence of
other events as determined by the Committee, in its sole discretion), as
provided in Article 8.

 
2.37         
“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group”
as defined in Section 13(d) thereof.

 
2.38         
“Plan” means this Lifeway Foods, Inc. Omnibus Incentive Plan.

 
2.39         
“Plan Year” means the calendar year.

 
 
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2.40         
“Restricted Stock” means an Award granted to a Participant pursuant to Article
8.

 
2.41         
“Restricted Stock Unit” means an Award granted to a Participant pursuant to
Article 8, except no Shares are actually awarded to the Participant on the Grant
date.

 
2.42         
“Share” means a share of common stock of the Company.

 
2.43         
“Stock Appreciation Right” or “SAR” means an Award, designated as an SAR,
pursuant to the terms of Article 7 herein.

 
2.44         
“Subsidiary” means any corporation or other entity, whether domestic or foreign,
in which the Company has or obtains, directly or indirectly, a proprietary
interest of more than fifty percent (50%) by reason of stock ownership or
otherwise.

 
Article 3.     Administration
 
3.1     General.  The Committee shall be responsible for administering this
Plan, subject to this Article 3 and the other provisions of this Plan.  The
Committee may employ attorneys, consultants, accountants, agents, and other
individuals, any of whom may be an Employee, and the Committee, the Company, and
its officers and directors shall be entitled to rely upon the advice, opinions,
or valuations of any such individuals.  All actions taken and all
interpretations and determinations made by the Committee shall be final and
binding upon the Participants, the Company, and all other interested
individuals.
 
3.2     Authority of the Committee.  The Committee shall have full and exclusive
discretionary power to interpret the terms and the intent of this Plan and any
Award Agreement or other agreement or document ancillary to or in connection
with this Plan, to determine eligibility for Awards and to adopt such rules,
regulations, forms, instruments, and guidelines for administering this Plan as
the Committee may deem necessary or proper.  Such authority shall include, but
not be limited to, selecting Award recipients, establishing all Award terms and
conditions, including the terms and conditions set forth in Award Agreements,
granting Awards as an alternative to or as the form of payment for grants or
rights earned or due under compensation plans or arrangements of the Company,
construing any ambiguous provision of the Plan or any Award Agreement, and,
subject to Article 17, adopting modifications and amendments to this Plan or any
Award Agreement, including without limitation, any that are necessary to comply
with the laws of the countries and other jurisdictions in which the Company, its
Affiliates, and/or its Subsidiaries operate.
 
3.3     Delegation.  The Committee may delegate to one or more of its members or
to one or more officers of the Company, and/or its Subsidiaries and Affiliates
or to one or more agents or advisors such administrative duties or powers as it
may deem advisable, and the Committee or any individuals to whom it has
delegated duties or powers as aforesaid may employ one or more individuals to
render advice with respect to any responsibility the Committee or such
individuals may have under this Plan.  The Committee may, by resolution,
authorize one or more officers of the Company to do one or both of the following
on the same basis as can the Committee: (a) designate Employees to be recipients
of Awards and (b) determine the size of any such Awards; provided, however, (i)
the Committee shall not delegate such responsibilities to any such officer for
Awards granted to an Employee who is considered an Insider; (ii) the resolution
providing such authorization sets forth the total number of Awards such
officer(s) may grant; and (iii) the officer(s) shall report periodically to the
Committee regarding the nature and scope of the Awards granted pursuant to the
authority delegated.
 
 
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Article 4.      Shares Subject to this Plan and Maximum Awards
 
4.1      Number of Shares Available for Awards and Maximum Amount of Non-Share
Awards.
 
        Subject to adjustment as provided in Section 4.3:
 
 
(a)
The maximum number of Shares available for issuance to Participants under this
Plan, inclusive of Shares issued and Shares underlying outstanding awards
granted on or after the Effective Date, is 3,500,000 Shares.

 
 
(b)
The maximum aggregate number of Shares subject to Options and SARs granted in
any one (1) Plan Year to any one Participant shall be 2,500,000.

 
 
(c)
The maximum number of Shares subject to all Full Value Awards granted in any one
(1) Plan Year to any one Participant shall be 2,500,000.

 
 
(d)
With respect to Awards granted under the Plan that are (i) intended to satisfy
the “performance-based” compensation exception contained in Section 162(m) of
the Internal Revenue Code (“Section 162(m)”), and (ii) paid other than in
Shares, the maximum amount payable to a Participant in any year is $20,000,000.

 
4.2      Share Usage.  Shares covered by an Award shall only be counted as used
to the extent they are actually issued.  With respect to Options and SARs, the
number of Shares available for Awards under the Plan pursuant to Section 4.1,
shall be reduced by one Share for each Share covered by such Award or to which
such Award relates.  With respect to any Awards, the number of Shares available
for Awards under the Plan shall be reduced by one (1) Share for each Share
covered by such Award or to which such Award relates.  Awards that do not
entitle the holder thereof to receive or purchase Shares shall not be counted
against the aggregate number of Shares available for Awards under the Plan.  In
addition, any Shares related to Awards which terminate by expiration,
forfeiture, or otherwise without the issuance of such Shares, are settled in
cash in lieu of Shares, or are exchanged with the Committee’s permission, prior
to the issuance of Shares, for Awards not involving Shares, shall be available
again for grant under this Plan. Moreover, if the Option Price of any Option
granted under this Plan or the tax withholding requirements with respect to any
Award granted under this Plan are satisfied by tendering Shares to the Company
(by either actual delivery or by attestation), or if an SAR is exercised, only
the number of Shares issued, net of the Shares tendered, if any, will be deemed
delivered for purposes of determining the maximum number of Shares available for
delivery under this Plan.  The Shares available for issuance under this Plan
shall be authorized and unissued Shares.
 
 
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4.3          Adjustments in Authorized Shares.  In the event of any corporate
event or transaction (including, but not limited to, a change in the Shares of
the Company or the capitalization of the Company) such as a merger,
consolidation, reorganization, recapitalization, separation, partial or complete
liquidation, stock dividend, stock split, reverse stock split, split up,
spin-off, or other distribution of stock or property of the Company, combination
of Shares, exchange of Shares, dividend in kind, or other like change in capital
structure, number of outstanding Shares or distribution (other than normal cash
dividends) to shareholders of the Company, or any similar corporate event or
transaction, the Committee, in its sole discretion, in order to prevent dilution
or enlargement of Participants’ rights under this Plan, shall substitute or
adjust, as applicable, the number and kind of Shares that may be issued under
this Plan or under particular forms of Awards, the number and kind of Shares
subject to outstanding Awards, the Option Price or Grant Price applicable to
outstanding Awards, the Annual Award Limits, and other value determinations
applicable to outstanding Awards.
 
The Committee, in its sole discretion, may also make appropriate adjustments in
the terms of any Awards under this Plan to reflect or relate to such changes or
distributions and to modify any other terms of outstanding Awards, including
modifications of performance goals and changes in the length of Performance
Periods.  The determination of the Committee as to the foregoing adjustments, if
any, shall be conclusive and binding on Participants under this Plan.
 
Subject to the provisions of Article 17 and notwithstanding anything else herein
to the contrary, without affecting the number of Shares reserved or available
hereunder, the Committee may authorize the issuance or assumption of benefits
under this Plan in connection with any merger, consolidation, acquisition of
property or stock, or reorganization upon such terms and conditions as it may
deem appropriate (including, but not limited to, a conversion of equity awards
into Awards under this Plan in a manner consistent with paragraph 53 of FASB
Interpretation No.  44), subject to compliance with the rules under Code
Sections 422 and 424, as and where applicable.
 
Article 5.               Eligibility and Participation
 
5.1      Eligibility.  Individuals eligible to participate in this Plan include
all Employees.
 
5.2      Actual Participation.  Subject to the provisions of this Plan, the
Committee may, from time to time, select from all eligible individuals, those
individuals to whom Awards shall be granted and shall determine, in its sole
discretion, the nature of any and all terms permissible by law, and the amount
of each Award.
 
Article 6.      Stock Options
 
6.1      Grant of Options.  Subject to the terms and provisions of this Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee, in
its sole discretion.
 
 
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6.2      Award Agreement.  Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the maximum duration of the
Option, the number of Shares to which the Option pertains, the conditions upon
which an Option shall become vested and exercisable, and such other provisions
as the Committee shall determine which are not inconsistent with the terms of
this Plan.  The Award Agreement also shall specify whether the Option is
intended to be an ISO or a NQSO.
 
6.3      Option Price.  The Option Price for each grant of an Option under this
Plan shall be determined by the Committee in its sole discretion and shall be
specified in the Award Agreement; provided, however, the Option Price must be at
least equal to one hundred percent (100%) of the FMV of the Shares as determined
on the Grant Date.
 
6.4      Term of Options.  Each Option granted to a Participant shall expire at
such time as the Committee shall determine at the time of grant; provided,
however, no Option shall be exercisable later than the day before the tenth
(10th) anniversary date of its grant.  Notwithstanding the foregoing, for
Nonqualified Stock Options granted to Participants outside the United States,
the Committee has the authority to grant Nonqualified Stock Options that have a
term greater than ten (10) years.
 
6.5      Exercise of Options.  Subject to Section 6.10, Options granted under
this Article 6 shall be exercisable at such times and be subject to such
restric­tions and conditions as the Committee shall in each instance approve,
which terms and restrictions need not be the same for each grant or for each
Participant.
 
6.6      Payment.  Options granted under this Article 6 shall be exercised by
the delivery of a notice of exercise to the Company or an agent designated by
the Company in a form specified or accepted by the Committee, or by complying
with any alternative procedures which may be authorized by the Committee,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
 
A condition of the issuance of the Shares as to which an Option shall be
exercised shall be the payment of the Option Price.  The Option Price of any
Option shall be payable to the Company in full, as permitted under the Award
Agreement, by either: (a) in cash or its equivalent; (b) by tendering (either by
actual delivery or attestation) previously acquired Shares having an aggregate
Fair Market Value at the time of exercise equal to the Option Price (provided
that except as otherwise determined by the Committee, the Shares that are
tendered must have been held by the Participant for at least six (6) months (or
such other period, if any, as the Committee may permit) prior to their tender to
satisfy the Option Price if acquired under this Plan or any other compensation
plan maintained by the Company or have been purchased on the open market); (c)
by a cashless (broker-assisted) exercise; (d) by a combination of (a), (b)
and/or (c); or (e) any other method approved or accepted by the Committee in its
sole discretion.
 
Subject to any governing rules or regulations, as soon as practicable after
receipt of written notification of exercise and full payment (including
satisfaction of any applicable tax withholding), the Company shall deliver to
the Participant evidence of book entry Shares, or upon the Participant’s
request, Share certificates in an appropriate amount based upon the number of
Shares purchased under the Option(s).
 
Unless otherwise determined by the Committee, all payments under all of the
methods indicated above shall be paid in United States dollars.
 
 
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6.7      Restrictions on Share Transferability.  The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, minimum holding period requirements, restrictions under applicable
federal securities laws, under the requirements of any stock exchange or market
upon which such Shares are then listed and/or traded, or under any blue sky or
state securities laws applicable to such Shares.
 
6.8      Termination of Employment.  Each Participant’s Award Agreement shall
set forth the extent to which the Participant shall have the right to exercise
the Option following termination of the Participant’s employment or provision of
services to the Company, its Affiliates, and/or its Subsidiaries, as the case
may be.  Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for termination.
 
6.9      Notification of Disqualifying Disposition.  If any Participant shall
make any disposition of Shares issued pursuant to the exercise of an ISO under
the circumstances described in Code Section 421(b) (relating to certain
disqualifying dispositions), such Participant shall notify the Company of such
disposition within ten (10) days thereof.
 
6.10        Vesting.  An Option grant by its terms shall be exercisable only
after such period of time as the Committee shall determine and specify in the
Award Agreement, but in no event less than three (3) years following the date of
grant of such Award provided that Options granted may partially vest after no
less than one (1) year so long as the entire grant does not vest fully until at
least three (3) years have elapsed from the date of grant, except as the
Committee may provide in the event of the death, Disability, involuntary
termination without Cause (including voluntary termination for Good Reason),
retirement of a Participant or in the event of a Change in Control to the extent
provided in Article 16.
 
Article 7.      Stock Appreciation Rights
 
7.1      Grant of SARs.  Subject to the terms and conditions of this Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee in its sole discretion.
 
Subject to the terms and conditions of this Plan, the Committee shall have
complete discretion in determining the number of SARs granted to each
Participant and, consistent with the provisions of this Plan, in determining the
terms and conditions pertaining to such SARs.
 
The Grant Price for each grant of an SAR shall be determined by the Committee
and shall be specified in the Award Agreement; provided, however, the Grant
Price on the Grant Date must be at least equal to one hundred percent (100%) of
the FMV of the Shares as determined on the Grant Date.
 
 
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7.2          SAR Agreement.  Each SAR Award shall be evidenced by an Award
Agreement that shall specify the Grant Price, the term of the SAR, and such
other provisions as the Committee shall determine.
 
7.3          Term of SAR.  The term of an SAR granted under this Plan shall be
determined by the Committee, in its sole discretion, and except as determined
otherwise by the Committee and specified in the SAR Award Agreement, no SAR
shall be exercisable later than the tenth (10th) anniversary date of its
grant.  Notwithstanding the foregoing, for SARs granted to Participants outside
the United States, the Committee has the authority to grant SARs that have a
term greater than ten (10) years.
 
7.4          Exercise of SARs.  SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes.
 
7.5          Settlement of SARs.  Upon the exercise of an SAR, a Participant
shall be entitled to receive payment from the Company in an amount determined by
multiplying:
 
(a)           
The excess of the Fair Market Value of a Share on the date of exercise over the
Grant Price; by

 
(b)           
The number of Shares with respect to which the SAR is exercised.

 
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, Shares, or any combination thereof, or in any other manner approved by the
Committee in its sole discretion.  The Committee’s determination regarding the
form of SAR payout shall be set forth in the Award Agreement pertaining to the
grant of the SAR.
 
7.6          Termination of Employment.  Each Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant’s employment with or provision of
services to the Company, its Affiliates, and/or its Subsidiaries, as the case
may be.  Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with
Participants, need not be uniform among all SARs issued pursuant to this Plan,
and may reflect distinctions based on the reasons for termination.
 
7.7          Other Restrictions.  The Committee shall impose such other
conditions and/or restrictions on any Shares received upon exercise of an SAR
granted pursuant to this Plan as it may deem advisable or desirable.  These
restrictions may include, but shall not be limited to, a requirement that the
Participant hold the Shares received upon exercise of an SAR for a specified
period of time.
 
7.8          Vesting.  A grant of SARs by its terms shall be exercisable only
after such period of time as the Committee shall determine and specify in the
Award Agreement, but in no event less than three (3) years following the date of
grant of such Award provided that Options granted may partially vest after no
less than one (1) year so long as the entire grant does not vest fully until at
least three (3) years have elapsed from the date of grant, except as the
Committee may provide in the event of the death, Disability, involuntary
termination without Cause (including voluntary termination for Good Reason),
retirement of a Participant or in the event of a Change in Control to the extent
provided in Article 16.
 
 
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Article 8.       Restricted Stock and Restricted Stock Units
 
8.1          Grant of Restricted Stock or Restricted Stock Units.  Subject to
the terms and provisions of this Plan, the Committee, at any time and from time
to time, in its sole discretion, may grant Shares of Restricted Stock and/or
Restricted Stock Units to Participants in such amounts as the Committee shall
determine.  Restricted Stock Units shall be similar to Restricted Stock except
that no Shares are actually awarded to the Participant on the Grant Date.
 
8.2          Restricted Stock or Restricted Stock Unit Agreement.  Each
Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an
Award Agreement that shall specify the Period(s) of Restriction, the number of
Shares of Restricted Stock or the number of Restricted Stock Units granted, and
such other provisions as the Committee shall determine.
 
8.3          Other Restrictions.  The Committee shall impose such other
conditions and/or restrictions on any Shares of Restricted Stock or Restricted
Stock Units granted pursuant to this Plan as it may deem advisable including,
without limitation,  restrictions based upon the achievement of specific
performance goals, time-based restrictions on vesting following the attainment
of the performance goals, time-based restrictions, and/or restrictions under
applicable laws or under the requirements of any stock exchange or market upon
which such Shares are listed or traded, or holding requirements or sale
restrictions placed on the Shares by the Company upon vesting of such Restricted
Stock or Restricted Stock Units.
 
To the extent deemed appropriate by the Committee, the Company may retain the
certificates representing Shares of Restricted Stock in the Company’s possession
until such time as all conditions and/or restrictions applicable to such Shares
have been satisfied or lapse.
 
Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock Award shall become freely transferable by the
Participant after all conditions and restrictions applicable to such Shares have
been satisfied or lapse (including satisfaction of any applicable tax
withholding obligations), and Restricted Stock Units shall be paid in cash,
Shares, or a combination of cash and Shares as the Committee, in its sole
discretion shall determine.
 
8.4          Certificate Legend.  In addition to any legends placed on
certificates pursuant to Section 8.3, each certificate representing Shares of
Restricted Stock granted pursuant to this Plan may bear a legend such as the
following or as otherwise determined by the Committee in its sole discretion:
 
The sale or transfer of Shares of stock represented by this certificate, whether
voluntary, involuntary, or by operation of law, is subject to certain
restrictions on transfer as set forth in the Lifeway Foods, Inc.
Omnibus Incentive Plan, and in the associated Award Agreement.  A copy of this
Plan and such Award Agreement may be obtained from Lifeway Foods, Inc..
 
 
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8.5          Voting Rights.  Unless otherwise determined by the Committee and
set forth in a Participant’s Award Agreement, to the extent permitted or
required by law, as determined by the Committee, Participants holding Shares of
Restricted Stock granted hereunder may be granted the right to exercise full
voting rights with respect to those Shares during the Period of Restriction.  A
Participant shall have no voting rights with respect to any Restricted Stock
Units granted hereunder.
 
8.6          Termination of Employment.  Each Award Agreement shall set forth
the extent to which the Participant shall have the right to retain Restricted
Stock and/or Restricted Stock Units following termination of the Participant’s
employment with or provision of services to the Company, its Affiliates, and/or
its Subsidiaries, as the case may be.  Such provisions shall be determined in
the sole discretion of the Committee, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Shares of
Restricted Stock or Restricted Stock Units issued pursuant to this Plan, and may
reflect distinctions based on the reasons for termination.
 
8.7          Section 83(b) Election.  The Committee may provide in an Award
Agreement that the Award of Restricted Stock is conditioned upon the Participant
making or refraining from making an election with respect to the Award under
Code Section 83(b).  If a Participant makes an election pursuant to Code Section
83(b) concerning a Restricted Stock Award, the Participant shall be required to
file promptly a copy of such election with the Company.
 
8.8          Vesting.  A grant of Restricted Stock or Restricted Stock Units
pursuant to this Article 8 shall be subject to a minimum vesting period of at
least three (3) years (which may be a 3-year cliff or graded schedule), or such
longer period as the Committee, in its sole discretion, may determine, except as
the Committee may provide in the event of the death, Disability, involuntary
termination without Cause (including voluntary termination for Good Reason),
retirement of a Participant or in the event of a Change in Control to the extent
provided in Article 16.
 
Article 9.               Performance Units/Performance Shares
 
9.1          Grant of Performance Units/Performance Shares.  Subject to the
terms and provisions of this Plan, the Committee, at any time and from time to
time, in its sole discretion, may grant Performance Units and/or Performance
Shares to Participants in such amounts and upon such terms as the Committee
shall determine.  Performance Units and Performance Shares that are earned (as
described in Section 9.3) may be subject to vesting requirements as set forth in
the applicable Award Agreement.  Except as the Committee may provide in the
event of the death, Disability, involuntary termination without Cause (including
voluntary termination for Good Reason), retirement of a Participant or in the
event of a Change in Control to the extent provided in Article 16, Performance
Units and Performance Shares may not vest prior to the expiration of at least
one (1) year of a Performance Period.
 
 
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9.2          Value of Performance Units/Performance Shares.  Each Performance
Unit shall have an initial value that is established by the Committee at the
time of grant.  Each Performance Share shall have an initial value equal to the
Fair Market Value of a Share on the Grant Date.  The Committee shall set
performance goals in its sole discretion which, depending on the extent to which
they are met, will determine the value and/or number of Performance
Units/Performance Shares that may be earned by the Participant.
 
9.3          Earning of Performance Units/Performance Shares.  Subject to the
terms of this Plan, after the applicable Performance Period and vesting period,
if any, have ended, the holder of Performance Units/Performance Shares shall be
entitled to receive payout on the value and number of Performance
Units/Performance Shares earned by the Participant over the Performance Period,
to be determined as a function of the extent to which the corresponding
performance goals have been achieved.
 
9.4          Form and Timing of Payment of Performance Units/Performance
Shares.  Payment of earned and vested Performance Units/Performance Shares shall
be as determined by the Committee and as evidenced in the Award
Agreement.  Subject to the terms of this Plan, the Committee, in its sole
discretion, may pay earned and vested Performance Units/Performance Shares in
the form of cash or in Shares (or in a combination thereof).  Any Shares may be
granted subject to any restrictions deemed appropriate by the Committee.  The
determination of the Committee with respect to the form of payout of such Awards
shall be set forth in the Award Agreement pertaining to the grant of the Award.
 
9.5          Termination of Employment.  Each Award Agreement shall set forth
the extent to which the Participant shall have the right to retain Performance
Units and/or Performance Shares following termination of the Participant’s
employment with the Company, its Affiliates, and/or its Subsidiaries, as the
case may be.  Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Awards of Performance Units or
Performance Shares issued pursuant to this Plan, and may reflect distinctions
based on the reasons for termination.
 
Article 10.            Cash-Based Awards and Other Stock-Based Awards
 
10.1        Grant of Cash-Based Awards.  Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Cash-Based
Awards to Participants in such amounts and upon such terms as the Committee may
determine.
 
10.2    Other Stock-Based Awards.  The Committee may grant other types of
equity-based or equity-related Awards not otherwise described by the terms of
this Plan (including the grant or offer for sale of unrestricted Shares) in such
amounts and subject to such terms and conditions, as the Committee shall
determine.  Any such grant shall be subject to a minimum vesting period of at
least one (1) year, except as the Committee may provide in the event of the
death, Disability, involuntary termination without Cause (including voluntary
termination for Good Reason), retirement of a Participant or in the event of a
Change in Control to the extent provided in Article 16, and except that no more
than five percent (5%) of the maximum number of shares authorized for issuance
under this Plan pursuant to Section 4.1(a) may be subject to a minimum vesting
period of less than one (1) year.  Such Awards may involve the transfer of
actual Shares to Participants, or payment in cash or otherwise of amounts based
on the value of Shares and may include, without limitation, Awards designed to
comply with or take advantage of the applicable local laws of jurisdictions
other than the United States.
 
 
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10.3        Value of Cash-Based and Other Stock-Based Awards.  Each Cash-Based
Award shall specify a payment amount or payment range as determined by the
Committee.  Each Other Stock-Based Award shall be expressed in terms of Shares
or units based on Shares, as determined by the Committee.  The Committee may
establish performance goals in its sole discretion.  If the Committee exercises
its discretion to establish performance goals, the number and/or value of
Cash-Based Awards or Other Stock-Based Awards that will be paid out to the
Participant will depend on the extent to which the performance goals are met.
 
10.4        Payment of Cash-Based Awards and Other Stock-Based Awards.  Payment,
if any, with respect to a Cash-Based Award or an Other Stock-Based Award shall
be made in accordance with the terms of the Award, in cash or Shares as the
Committee determines.
 
10.5        Termination of Employment.  The Committee shall determine the extent
to which the Participant shall have the right to receive Cash-Based Awards or
Other Stock-Based Awards following termination of the Participant’s employment
with or provision of services to the Company, its Affiliates, and/or its
Subsidiaries, as the case may be.  Such provisions shall be determined in the
sole discretion of the Committee, such provisions may be included in an
agreement entered into with each Participant, but need not be uniform among all
Awards of Cash-Based Awards or Other Stock-Based Awards issued pursuant to the
Plan, and may reflect distinctions based on the reasons for termination.
 
Article 11.            Transferability of Awards
 
11.1        Transferability.  Except as provided in Section 11.2 below, during a
Participant’s lifetime, his or her Awards shall be exercisable only by the
Participant.  Awards shall not be transferable other than by will or the laws of
descent and distribution; no Awards shall be subject, in whole or in part, to
attachment, execution, or levy of any kind; and any purported transfer in
violation hereof shall be null and void.  The Committee may establish such
procedures as it deems appropriate for a Participant to designate a beneficiary
to whom any amounts payable or Shares deliverable in the event of, or following,
the Participant’s death, may be provided.
 
11.2        Committee Action.  The Committee may, in its sole discretion,
determine that notwithstanding Section 11.1, any or all Awards (other than ISOs)
shall be transferable to and exercisable by such transferees, and subject to
such terms and conditions, as the Committee may deem appropriate; provided,
however, no Award may be transferred for value (as defined in the General
Instructions to Form S-8).
 
Article 12.            Performance Measures
 
12.1        Performance Measures.  The performance goals upon which the payment
or vesting of an Award to a Covered Employee that is intended to qualify as
Performance-Based Compensation shall be limited to any or any combination of the
following Performance Measures:
 
 
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(a)            
Net earnings or Net Income (before or after taxes) and/or net earnings or net
income of continuing operations;

 
(b)            
Earnings per share (basic or diluted) and/or net earnings per share or net
income per share of continuing operations;

 
(c)            
Net sales or revenue growth (including, but not limited to, innovation as
measured as a percentage of sales of new products);

 
(d)            
Net operating profit;

 
(e)            
Return measures (including, but not limited to, return on assets, capital,
invested capital, equity, sales, or revenue);

 
(f)            
Cash flow (including, but not limited to, throughput, operating cash flow, free
cash flow, cash flow return on equity, and cash flow return on investment);

 
(g)           
Earnings before or after taxes, interest, depreciation, and/or amortization;

 
(h)           Earnings before taxes;
 
(i)           Gross or operating margins;
 
(j)           Corporate value measures;
 
(k)           Capital expenditures;
 
(l)           Unit volumes;
 
(m)           Productivity ratios;
 
 
(n)
Share price (including, but not limited to, growth measures and total
shareholder return);

 
(o)           Cost or expense;
 
(p)           Margins (including, but not limited to, debt or profit);
 
 
(q)
Operating efficiency;

 
 
(r)
Market share;

 
 
(s)
Customer satisfaction;

 
 
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(t)
Working capital targets or any element thereof;

 
 
(u)
Economic value added or EVA® (net operating profit after tax minus the sum of
capital multiplied by the cost of capital);

 
 
(v)
Health, safety and environmental performance;

 
 
(w)
Corporate social responsibility and/or diversity;

 
 
(x)
Strategic milestones (including, but not limited to, debt reduction, improvement
of cost of debt, equity or capital, completion of projects, achievement of
synergies or integration objectives, or improvements to credit rating, inventory
turnover, weighted average cost of capital, implementation of significant new
processes, productivity or production, product quality, and any combination of
the foregoing);

 
 
(y)
Strategic sustainability metrics (including, but not limited to, corporate
governance, consumer advocacy, enterprise risk management, employee development,
and portfolio restructuring);

 
 
(z)
Gross, operating, stockholder equity, or net worth; and

 
(aa)           Deleveraging.
 
Any one or more Performance Measure(s) may be used to measure the performance of
any Participant, the Company, Subsidiary, and/or Affiliate as a whole or any
business unit or line of business of the Company, Subsidiary, and/or Affiliate
or any combination thereof, as the Committee may deem appropriate, or any of the
above Performance Measures on an absolute, gross, total, net per share, average,
adjusted or relative basis (or measure based on changes therein), including, as
compared to the performance of a group of comparator companies, or published or
special index that the Committee, in its sole discretion, deems appropriate, or
the Company may select Performance Measure (n) above as compared to various
stock market indices.
 
In the case of Awards not intended to qualify as Performance-Based Awards, the
performance criteria shall be selected from among the criteria listed above or
any other measure of performance that the Committee determines to be
appropriate.
 
12.2       Evaluation of Performance.  The Committee may provide in any such
Award that any evaluation of performance may include or exclude any of the
following events that occurs during a Performance Period: (a) asset write-downs,
(b) litigation or claim judgments or settlements, (c) the effect of changes in
tax laws, accounting principles, or other laws or provisions affecting reported
results, (d) any reorganization and restructuring programs, (e) extraordinary
nonrecurring items as described in Accounting Standards Codification 225-20
and/or in management’s discussion and analysis of financial condition and
results of operations appearing in the Company’s annual report to shareholders
for the applicable year, (f) acquisitions or divestitures, and (g) foreign
exchange gains and losses.  To the extent such inclusions or exclusions affect
Awards to Covered Employees, they shall be prescribed in a form that meets the
requirements of Code Section 162(m) for deductibility.
 
 
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12.3       Adjustment of Performance-Based Compensation.  Awards that are
Performance-Based Compensation may not be adjusted upward.  The Committee shall
retain the discretion to adjust such Awards downward, either on a formula or
discretionary basis or any combination, as the Committee determines.
 
12.4       Committee Discretion.  In the event that applicable tax and/or
securities laws change to permit Committee discretion to alter the governing
Performance Measures without obtaining shareholder approval of such changes, the
Committee shall have sole discretion to make such changes without obtaining
shareholder approval.  In addition, in the event that the Committee determines
that it is advisable to grant Awards that are not Performance-Based
Compensation, the Committee may make such grants without satisfying the
requirements of Code Section 162(m) and base vesting on Performance Measures
other than those set forth in Section 12.1.
 
Article 13.            Dividend Equivalents
 
Any Participant selected by the Committee may be granted dividend equivalents
based on the dividends declared on Shares that are subject to any Award, to be
credited as of dividend payment dates, during the period between the date the
Award is granted and the date the Award is exercised, vests or expires, as
determined by the Committee.  Such dividend equivalents shall be converted to
cash or additional Shares by such formula and at such time and subject to such
limitations as may be determined by the Committee.
 
Article 14.            Beneficiary Designation
 
Each Participant under this Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under this Plan is to be paid in case of his death before he receives
any or all of such benefit.  Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Company during the Participant’s lifetime.  In the absence of any such
beneficiary designation, benefits remaining unpaid or rights remaining
unexercised at the Participant’s death shall be paid to or exercised by the
Participant’s executor, administrator, or legal representative.
 
Article 15.            Rights of Participants
 
15.1        Employment.  Nothing in this Plan or an Award Agreement shall
interfere with or limit in any way the right of the Company, its Affiliates,
and/or its Subsidiaries, to terminate any Participant’s employment at any time
or for any reason not prohibited by law, nor confer upon any Participant any
right to continue his employment for any specified period of time.
 
Neither an Award nor any benefits arising under this Plan shall constitute an
employment contract with the Company, its Affiliates, and/or its Subsidiaries
and, accordingly, subject to Articles 3 and 17, this Plan and the benefits
hereunder may be terminated at any time in the sole and exclusive discretion of
the Committee without giving rise to any liability on the part of the Company,
its Affiliates, and/or its Subsidiaries.
 
 
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15.2        Participation.  No individual shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
 
15.3        Rights as a Shareholder.  Except as otherwise provided herein, a
Participant shall have none of the rights of a shareholder with respect to
Shares covered by any Award until the Participant becomes the record holder of
such Shares.
 
Article 16.            Change of Control
 
16.1       Change of Control of the Company.  Notwithstanding any other
provision of this Plan to the contrary, the provisions of this Article 16 shall
apply in the event of a Change of Control, unless otherwise determined by the
Committee in connection with the grant of an Award as reflected in the
applicable Award Agreement.
 
(a) Upon a Change of Control, except to the extent that (i) another Award
meeting the requirements of Section 16.2 (a “Replacement Award”) is provided to
the Participant to replace such Award (the “Replaced Award”) pursuant to Section
16.2, or (ii) the Award is cancelled pursuant to subparagraph (b) hereof, all
then-outstanding Stock Options and Stock Appreciation Rights shall immediately
become fully vested and exercisable, and all other then-outstanding Awards whose
vesting depends merely on the satisfaction of a service obligation by a
Participant to the Company, Subsidiary, or Affiliate shall vest in full and be
free of restrictions related to the vesting of such Awards.  The treatment of
any other Awards shall be as determined by the Committee in connection with the
grant thereof, as reflected in the applicable Award Agreement.
 
(b) Except to the extent subparagraph (a) applies, or a Replacement Award is
provided to the Participant pursuant to Section 16.2, the Committee may, in its
sole discretion, determine that any or all outstanding Awards granted under the
Plan, whether or not exercisable, will be canceled and terminated and that in
connection with such cancellation and termination the holder of such Award may
receive for each Share of Common Stock subject to such Awards a cash payment (or
the delivery of shares of stock, other securities or a combination of cash,
stock and securities equivalent to such cash payment) equal to the difference,
if any, between the consideration received by shareholders of the Company in
respect of a Share of Common Stock in connection with such transaction and the
purchase price per share, if any, under the Award multiplied by the number of
Shares of Common Stock subject to such Award; provided that if such product is
zero or less or to the extent that the Award is not then exercisable, the Awards
will be canceled and terminated without payment therefor.
 
16.2       Replacement Awards.  An Award shall meet the conditions of this
Section 16.2 (and hence qualify as a Replacement Award) if: (i) it has a value
at least equal to the value of the Replaced Award as determined by the Committee
in its sole discretion; (ii) it relates to publicly traded equity securities of
the Company or its successor in the Change of Control or another entity that is
affiliated with the Company or its successor following the Change of Control;
and (iii) its other terms and conditions are not less favorable to the
Participant than the terms and conditions of the Replaced Award (including the
provisions that would apply in the event of a subsequent Change of
Control).  Without limiting the generality of the foregoing, the Replacement
Award may take the form of a continuation of the Replaced Award if the
requirements of the preceding sentence are satisfied.  The determination of
whether the conditions of this Section 16.2 are satisfied shall be made by the
Committee, as constituted immediately before the Change of Control, in its sole
discretion.
 
16.3        Termination of Employment.  Except as may otherwise be provided in
the Award Agreement, upon a termination of employment other than for Cause, of a
Participant; occurring in connection with or during the period of two (2) years
after a Change of Control, (i) all Replacement Awards held by the Participant
shall become fully vested and (if applicable) exercisable and free of
restrictions, and (ii) all Stock Options and Stock Appreciation Rights held by
the Participant immediately before the termination of employment that the
Participant held as of the date of the Change of Control or that constitute
Replacement Awards shall remain exercisable for not less than one (1) year
following such termination or until the expiration of the stated term of such
Stock Option or SAR, whichever period is shorter; provided, that if the
applicable Award Agreement provides for a longer period of exercisability, that
provision shall control.
 
 
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Article 17.            Amendment, Modification, Suspension, and Termination
 
17.1        Amendment, Modification, Suspension, and Termination.  Subject to
Section 17.3, the Committee may, at any time and from time to time, alter,
amend, modify, suspend, or terminate this Plan and any Award Agreement in whole
or in part; provided, however, that, (i) without the prior approval of the
Company’s shareholders and except as provided in Section 4.3, Options or SARs
issued under this Plan will not be repriced, replaced, or regranted through
cancellation, or by lowering the Option Price of a previously granted Option or
the Grant Price of a previously granted SAR, (ii) any amendment of the Plan must
comply with the rules of the NASDAQ, and (iii) no material amendment of this
Plan shall be made without shareholder approval if shareholder approval is
required by law, regulation, or stock exchange rule.
 
17.2        Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events.  The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.3 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent unintended dilution or enlargement of the benefits or potential
benefits intended to be made available under this Plan.  The determination of
the Committee as to the foregoing adjustments, if any, shall be conclusive and
binding on Participants under this Plan.
 
17.3        Awards Previously Granted.  Notwithstanding any other provision of
this Plan to the contrary (other than Section 17.4), no termination, amendment,
suspension, or modification of this Plan or an Award Agreement shall adversely
affect in any material way any Award previously granted under this Plan, without
the written consent of the Participant holding such Award.
 
17.4        Amendment to Conform to Law.  Notwithstanding any other provision of
this Plan to the contrary, the Committee may amend the Plan or an Award
Agreement, to take effect retroactively or otherwise, as deemed necessary or
advisable for the purpose of conforming the Plan or an Award Agreement to any
present or future law relating to plans of this or similar nature (including,
but not limited to, Code Section 409A), and to the administrative regulations
and rulings promulgated thereunder.  By accepting an Award under this Plan, a
Participant agrees to any amendment made pursuant to this Section 17.4 to any
Award granted under the Plan without further consideration or action.
 
 
 
 
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Article 18.           Withholding
 
18.1       Tax Withholding.  The Company shall have the power and the right to
deduct or withhold from any amounts due and owing to the Participant, or require
a Participant to remit to the Company, the minimum statutory amount to satisfy
federal, state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising as a result
of this Plan.
 
18.2       Share Withholding.  With respect to withholding required upon the
lapse of restrictions on Restricted Stock and Restricted Stock Units, or upon
the achievement of performance goals related to Performance Shares, or any other
taxable event arising as a result of an Award granted hereunder, the Committee
may establish provisions in the applicable Award Agreements to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
whole Shares having a Fair Market Value on the date the tax is to be determined
equal to the minimum statutory total tax withholding that could be imposed on
the transaction.
 
Article 19.            Successors
 
All obligations of the Company under this Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
 
Article 20.            General Provisions
 
20.1        Forfeiture Events.
 
(a)            
The Committee may specify in an Award Agreement that the Participant’s rights,
payments, and benefits with respect to an Award shall be subject to reduction,
cancellation, forfeiture, or recoupment upon the occurrence of certain specified
events, in addition to any otherwise applicable vesting or performance
conditions of an Award.  Such events may include, but shall not be limited to,
circumstances or events provided for under applicable securities laws, rules or
statutes, termination of employment for Cause, termination of the Participant’s
provision of services to the Company, Affiliate, and/or Subsidiary, violation of
material Company, Affiliate, and/or Subsidiary policies, breach of
noncompetition, confidentiality, or other restrictive covenants that may apply
to the Participant, or other conduct by the Participant that is detrimental to
the business or reputation of the Company, its Affiliates, and/or its
Subsidiaries.

 
 
 
 
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(b)            
If the Company is required to prepare an accounting restatement due to the
material noncompliance of the Company, as a result of misconduct, with any
financial reporting requirement under the securities laws, if the Participant
knowingly or grossly negligently engaged in the misconduct, or knowingly or
grossly negligently failed to prevent the misconduct, or if the Participant is
one of the individuals subject to automatic forfeiture under Section 304 of the
Sarbanes-Oxley Act of 2002, the Participant shall reimburse the Company the
amount of any payment in settlement of an Award earned or accrued during the
twelve (12) month period following the first public issuance or filing with the
United States Securities and Exchange Commission (whichever just occurred) of
the financial document embodying such financial reporting requirement.

 
(c)            
The Company shall also comply with any required reimbursement or clawback rules
issued in final form by the United States Securities and Exchange Commission or
other applicable agency.

 
20.2        Legend.  The certificates for Shares may include any legend which
the Committee deems appropriate to reflect any restrictions on transfer of such
Shares.
 
20.3        Gender and Number.  Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
 
20.4        Severability.  In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.
 
20.5        Requirements of Law.  The granting of Awards and the issuance of
Shares under this Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
 
20.6        Delivery of Title.  The Company shall have no obligation to issue or
deliver evidence of title for Shares issued under this Plan prior to:
 
(a)            
Obtaining any approvals from governmental agencies that the Company determines
are necessary or advisable; and

 
(b)            
Completion of any registration or other qualification of the Shares under any
applicable national or foreign law or ruling of any governmental body that the
Company determines to be necessary or advisable.

 
 
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20.7        Inability to Obtain Authority.  The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company’s counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
 
20.8        Investment Representations.  The Committee may require any
individual receiving Shares pursuant to an Award under this Plan to represent
and warrant in writing that the individual is acquiring the Shares for
investment and without any present intention to sell or distribute such Shares.
 
20.9        Employees Based Outside of the United States.  Notwithstanding any
provision of this Plan to the contrary, in order to comply with the laws in
other countries in which the Company, its Affiliates, and/or its Subsidiaries
operate or have Employees, the Committee, in its sole discretion, shall have the
power and authority to:
 
(a)            
Determine which Affiliates and Subsidiaries shall be covered by this Plan;

 
(b)            
Determine which Employees outside the United States are eligible to participate
in this Plan;

 
(c)            
Modify the terms and conditions of any Award granted to Employees outside the
United States to comply with applicable foreign laws;

 
(d)            
Establish subplans and modify exercise procedures and other terms and
procedures, to the extent such actions may be necessary or advisable.  Any
subplans and modifications to Plan terms and procedures established under this
Section 20.9 by the Committee shall be attached to this Plan document as
appendices; and

 
(e)            
Take any action, before or after an Award is made, that it deems advisable to
obtain approval or comply with any necessary local government regulatory
exemptions or approvals.

 
Notwithstanding the above, the Committee may not take any actions hereunder, and
no Awards shall be granted, that would violate applicable law.
 
20.10     Uncertificated Shares.  To the extent that this Plan provides for
issuance of certificates to reflect the transfer of Shares, the transfer of such
Shares may be effected on a noncertificated basis, to the extent not prohibited
by applicable law or the rules of any stock exchange.
 
 
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20.11     Unfunded Plan.  Participants shall have no right, title, or interest
whatsoever in or to any investments that the Company, and/or its Subsidiaries,
and/or its Affiliates may make to aid it in meeting its obligations under this
Plan.  Nothing contained in this Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and any Participant, beneficiary,
legal representative, or any other individual.  To the extent that any
individual acquires a right to receive payments from the Company, its
Subsidiaries, and/or its Affiliates under this Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company, a
Subsidiary, or an Affiliate, as the case may be.  All payments to be made
hereunder shall be paid from the general funds of the Company, a Subsidiary, or
an Affiliate, as the case may be and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in this Plan.
 
20.12     No Fractional Shares.  No fractional Shares shall be issued or
delivered pursuant to this Plan or any Award.  The Committee shall determine
whether cash, Awards, or other property shall be issued or paid in lieu of
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
 
20.13     Retirement and Welfare Plans.  Neither Awards made under this Plan nor
Shares or cash paid pursuant to such Awards, except pursuant to Covered Employee
annual incentive awards, may be included as “compensation” for purposes of
computing the benefits payable to any Participant under the Company’s or any
Subsidiary’s or Affiliate’s retirement plans (both qualified and non-qualified)
or welfare benefit plans unless such other plan expressly provides that such
compensation shall be taken into account in computing a Participant’s benefit.
 
20.14     Deferred Compensation.  If any Award would be considered deferred
compensation as defined under Code Section 409A and if this Plan fails to meet
the requirements of Code Section 409A with respect to such Award, then such
Award shall be null and void.  However, the Committee may permit deferrals of
compensation pursuant to the terms of a Participant’s Award Agreement, a
separate plan or a subplan which meets the requirements of Code Section 409A and
any related guidance.  Additionally, to the extent any Award is subject to Code
Section 409A, notwithstanding any provision herein to the contrary, the Plan
does not permit the acceleration or delay of the time or schedule of any
distribution related to such Award, except as permitted by Code Section 409A,
the regulations thereunder, and/or the Secretary of the United States Treasury.
 
20.15     Nonexclusivity of this Plan.  The adoption of this Plan shall not be
construed as creating any limitations on the power of the Board or Committee to
adopt such other compensation arrangements as it may deem desirable for any
Participant.
 
20.16     No Constraint on Corporate Action.  Nothing in this Plan shall be
construed to: (i) limit, impair, or otherwise affect the Company’s or a
Subsidiary’s or an Affiliate’s right or power to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer
all or any part of its business or assets; or (ii) limit the right or power of
the Company or a Subsidiary or an Affiliate to take any action which such entity
deems to be necessary or appropriate.
 
 
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20.17     Governing Law.  The Plan and each Award Agreement shall be governed by
the laws of the State of Illinois, excluding any conflicts or choice of law rule
or principle that might otherwise refer construction or interpretation of this
Plan to the substantive law of another jurisdiction.  Unless otherwise provided
in the Award Agreement, recipients of an Award under this Plan are deemed to
submit to the exclusive jurisdiction and venue of the federal or state courts of
the Northern District of Illinois, to resolve any and all issues that may arise
out of or relate to this Plan or any related Award Agreement.
 
20.18     Section 162(m).  It is the intention of the Company that, unless
otherwise provided by the Committee, awards determined in accordance with this
Plan shall be excluded from the deduction limitations contained in Section
162(m).  Therefore, if any Plan provision is found not to be in compliance with
the “performance-based” compensation exception contained in Section 162(m), that
provision shall be deemed amended so that the Plan does so comply to the extent
permitted by law and deemed advisable by the Committee, and in all events the
Plan shall be construed in favor of its meeting the “performance-based”
compensation exception contained in Section 162(m).
 
As evidence of its adoption of the Plan, the Company has caused this document to
be executed by its duly authorized officer the ____ day of ______________, 2015.
 
 
 
 
 
LIFEWAY FOODS, INC.
 
 
By:  ________________________________
Name:
Title:
 
 
 
 
 
 
 
 
 
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