Stock-based Compensation

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Note 12 - Stock-based Compensation

In December 2015, Lifeway shareholders approved the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of 3.5 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units.  The Company has not established a pace for the frequency of awards under the Omnibus Incentive Plan, and may choose to suspend the issuance of new awards in the future and may grant additional awards at any time including issuing special grants of restricted stock, restricted stock units and stock options to attract and retain new and existing executives.

Pursuant to the Omnibus Incentive Plan, Lifeway granted 26 stock options to certain key employees of the company effective January 1, 2016 and 24 stock options on July 1, 2016 (the "2016 options").  The 2016 options generally vest over a three-year period, on an accelerated basis.  The accelerated vesting reflects the landmark nature of the awards and the relative tenure of individual participants.

For the three and six months ended June 30, 2016 total pre-tax stock-based compensation expense recognized in the consolidated statements of income and comprehensive income was $21 and $42 respectively.  For the three and six months ended June 30, 2016 tax-related benefits of $8 and $16 were also recognized.

	Options		Weighted average exercise price		Weighted average remaining contractual life		Aggregate intrinsic value
Outstanding at December 31,2015		—	$
Granted		26	$	11.10
Exercised		—	$	—
Terminated		—	$	—
Outstanding at June 30, 2016		26	$	11.10		9.75	$	—
Exercisable at June 30, 2016		—	$	—

We measure the fair value of stock options using the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the end of the contractual term. We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

The following assumptions were used for the grants in 2016:

	2016
Risk free interest rate		1.85	%
Expected dividend yield		0.28	%
Expected volatility		38.87	%
Expected term		5.65

We expense stock options on a straight-line basis over the service period.  As of June 30, 2016, the total remaining unearned compensation related to non-vested stock options was $69, which will be amortized over the weighted-average remaining service period of 1.1 years.

In March 2016 Lifeway established an incentive-based compensation program for certain senior executives (the "participants").  The incentive compensation is based on the achievement of certain sales and EBITDA performance levels versus respective targets in 2016.   Under the program, collectively the participants may earn cash and equity-based incentive compensation in amounts ranging from $0 to $4,000 during 2016 depending on the performance levels compared to the respective targets. The participants' achievement of equity-based compensation during the balance of 2016 is considered to be likely.  At June 30, 2016 bonuses of $1,040 had been earned under the program, including $200 of equity-based awards.

The company has a defined contribution plan which is available to substantially all full-time employees.   Under the terms of the plan the company matches employee contributions under a prescribed formula. For the six months ended June 30, 2016 and 2015 total contribution expense recognized in the consolidated statements of income and comprehensive income was $129 and $123 respectively.  For the three months ended June 30, 2016 and 2015 total contribution expense recognized in the consolidated statements of income and comprehensive income was $47 and $62 respectively.