ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information About Our Directors
Ludmila
Smolyansky, Founder and Chairperson of the Board
|
Age: 70
Director Since: 2002
|
|
Board Leadership Roles:
• Chairperson
of the Board
|
LUDMILA SMOLYANSKY
was appointed as a Director by the Board to fill a vacancy created by an increase of the maximum number of Directors up to seven
and unanimously elected as the Chairperson of the Board in November 2002. Mrs. Smolyansky has been the operator of several independent
delicatessen and gourmet food distributorship businesses, and imported food distributorships, and been a leading force in the
health food market for over 40 years. Mrs. Smolyansky and Michael Smolyansky founded Lifeway and Mrs. Smolyansky served as our
General Manager. In 2010, Mrs. Smolyansky retired as a Lifeway employee. She has continued to serve Lifeway as its Chairperson
of the Board and as a full-time consultant since 2011. Mrs. Smolyansky devotes as much time as necessary to Lifeway’s business
and currently holds no other directorships in any other reporting company. Mrs. Smolyansky is the mother of Julie Smolyansky (the
President, Chief Executive Officer, and a Director of the Company) and Edward Smolyansky (the Chief Operating Officer and a Director
of the Company).
Key
Attributes, Experience and Skills:
|
Mrs. Smolyansky
brings many years of food industry experience, historical perspective, and operational expertise to the Board. As Chairperson
of the Board, Mrs. Smolyansky guides the Board in analyzing our strategic development. She brings to bear her historical knowledge
of our business and industry to advise the Board on what strategies have been and can be successful and why. Mrs. Smolyansky’s
business acumen allows her to lead the Board in long-term strategic planning. Her significant consumer products experience and
international food industry background provide her with a broad understanding of the operational, financial, and strategic issues
facing public companies like ours. In addition, as a founder and pioneer in cultured dairy, Mrs. Smolyansky has been a recognized
leader in the organic and natural products industry for decades. Her in-depth knowledge about Lifeway, other manufacturers, and
distributors and retailers across varying channels of distribution make her well qualified for service on our Board.
Julie
Smolyansky, Chief Executive Officer, President, Secretary and Director
|
Age: 45
Director Since: 2002
|
|
Board Leadership Roles:
• None
|
JULIE SMOLYANSKY
was appointed as a Director and elected President and Chief Executive Officer of Lifeway by the Board of Directors to fill the
vacancies in those positions created by the death of her father, Michael Smolyansky, in June 2002. She was appointed as Secretary
effective as of January 1, 2020. She is a graduate with a bachelor’s degree from the University of Illinois at Chicago.
Prior to her appointment, Ms. Smolyansky spent six years as Lifeway’s Director of Sales and Marketing. Ms. Smolyansky also
served as Lifeway’s Chief Financial Officer and Treasurer from 2002 to 2004. Under her leadership, Lifeway has brought its
products into the mainstream, boosted annual revenues tenfold, and expanded distribution throughout the United States, Mexico,
the UK, and Ireland, as well as portions of Central and South America and the Caribbean. She has been named to Fortune Business’s
‘40 under 40,’ Fortune’s 55 Most Influential Women on Twitter and Fast Company’s Most Creative People
in Business 1000. She holds no other directorships in any other reporting company. Ms. Smolyansky is the daughter of Ludmila Smolyansky
(the Chairperson of the Board), and brother of Edward Smolyansky (the Chief Operating Officer and a Director of the Company).
Ms. Smolyansky’s family maintains a controlling interest in the Company, and the Board believes it is appropriate to provide
for continuity of the representation of the Smolyansky family on the Board as a component of our succession planning strategy.
Key
Attributes, Experience and Skills:
|
Ms. Smolyansky
brings to the Board over twenty years of extensive experience in the dairy and consumer packaged goods industries including advertising;
marketing and communications; public relations; digital, social, and event marketing; and consumer insights. Ms. Smolyansky provides
the Board with unique perspectives and invaluable, in-depth knowledge of Lifeway, including strategic growth opportunities; personnel;
relationships with key customers and suppliers; competitive product positioning; history; company culture; and all other aspects
of Lifeway’s operations. As the Chief Executive Officer of a publicly traded company, Ms. Smolyansky brings experience working
with the investor community and financial institutions. In addition, as a member of our founding family, Ms. Smolyansky is a recognized
and prominent visionary and leader in the dairy and probiotic products industry with an in-depth knowledge of manufacturers, distributors,
and retailers across all of our channels of distribution.
Edward
Smolyansky, Chief Operating Officer
|
Age: 40
Director Since: 2017
|
|
Board Leadership Roles:
•
None
|
EDWARD SMOLYANSKY
was elected as a Director in June 2017 and is Lifeway’s Chief Operating Officer. Mr. Smolyansky was appointed as Chief Financial
and Accounting Officer and Treasurer of Lifeway in November 2004 and appointed as the Chief Operating Officer and Secretary in
2012. He resigned his titles as Chief Financial Officer on January 1, 2016 and as Chief Accounting Officer on August 8, 2016.
Mr. Smolyansky retained his title of Chief Operating Officer when the Board appointed Mr. Hanson as Treasurer and Mr. Haas as
Secretary on October 4, 2019. He also served as Lifeway’s Controller from June 2002 until 2004. He received his bachelor’s
degree in finance from Loyola University of Chicago in December 2001. He holds no other directorships in any other reporting company.
Mr. Smolyansky is the brother of President, CEO and Secretary, Julie Smolyansky, and the son of Lifeway’s Chairperson of
the Board, Ludmila Smolyansky. Mr. Smolyansky’s family maintains a controlling interest in the Company, and the Board believes
it is appropriate to provide for continuity of the representation of the Smolyansky family on the Board as a component of our
succession planning strategy.
Key
Attributes, Experience and Skills:
|
Mr. Smolyansky
brings to the Board over fifteen years of extensive financial and operations experience in the dairy and consumer packaged goods
industries, which makes him a valuable contributor to the Board. Under his operational leadership, Lifeway has successfully integrated
several strategic acquisitions and successfully led the development of both manufacturing processes and products. Mr. Smolyansky
provides the Board with unique perspectives and invaluable, in-depth knowledge of Lifeway, including strategic growth opportunities;
personnel; relationships with key customers and suppliers; brand marketing; operations; mergers, acquisitions and divestitures;
competitive product positioning; history; company culture; and all other aspects of Lifeway’s operations. As the Chief Operating
Officer and former Chief Financial Officer of a publicly traded company, Mr. Smolyansky brings experience working with the investor
community and financial institutions. In addition, as a member of our founding family, Mr. Smolyansky is a recognized leader in
the dairy and probiotic products industry with an in-depth knowledge of manufacturers, distributors, and retailers across all
our channels of distribution.
Age: 72
Director Since: 1986
|
|
Board Leadership Roles:
• Independent
Director
• Member,
Audit and Corporate Governance Committee
|
POL SIKAR has served as a Lifeway director
since our inception in February 1986. He holds a master’s degree from the Odessa State Institute of Civil Engineering in
Russia. For more than 40 years, he has been President and a major shareholder of Montrose Glass & Mirror Co., a company providing
glass and mirror products to the wholesale and retail trade in the greater Chicago area. Mr. Sikar devotes as much time as necessary
to the business of the Company and currently holds no other directorships in any other reporting company.
Key
Attributes, Experience and Skills:
|
Mr. Sikar
brings a historical perspective to the Board along with executive and entrepreneurial experiences that provide Lifeway with insights
into operational and strategic planning, and financial matters. His longtime service and institutional knowledge about Lifeway
provide him with a broad understanding of the operational, financial, and strategic issues facing public companies like ours.
His executive, operational, and financial experience make him well qualified for service on our Board.
Age: 82
Director Since: 1994
|
|
Board Leadership Roles:
• Independent
Director
|
RENZO BERNARDI was elected as a director
of Lifeway in 1994. Mr. Bernardi is the President and founder of Renzo & Sons, Inc., a dairy and food service company which
has been in business since 1969 (formerly, Renzo-Milk Distribution Systems). He has nearly 50 years of experience in the dairy
distribution industry. Mr. Bernardi is a graduate of Instituto Tecnico E Commerciale of Macomer, Sardinia. Mr. Bernardi devotes
as much time as necessary to the business of the Company and currently holds no other directorships in any other reporting company.
Key
Attributes, Experience and Skills:
|
Mr. Bernardi
brings nearly half a century of experience in the dairy industry, with a focus on dairy supply and distribution, along with historical
perspective and executive and entrepreneurial experiences to the Board. His background provides Lifeway with insights into operational
and strategic planning, and financial matters. His longtime service and institutional knowledge about Lifeway provide him with
a broad understanding of the operational, financial, and strategic issues facing public companies like ours. His executive, operational,
and financial experience, particularly in the dairy industry, make him well qualified for service on our Board.
Age: 45
Director Since: 2012
|
|
Board Leadership Roles:
•
Lead Independent Director
•
Chairperson, Audit and Corporate Governance Committee
•
Audit Committee Financial Expert
|
JASON SCHER
was elected as a Director of the Company to fill a vacancy on the Board of Directors in July 2012. From 2016 to present Mr. Scher
has been a principle investor and advisor focused on early-stage companies. From 2004 until 2016, Mr. Scher was the Chief Operating
Officer of Vosges Haut-Chocolat, a leading manufacturer of super premium chocolate and confections in the US. From 2006 to 2018
he was a Managing Member of South Shore Developers Group, a real estate development company focused on affordable housing in the
Chicago Area. From 2000 to 2004, Mr. Scher was a principal in RP3 Development, a New York based construction management and development
company that performed work nationwide. Prior to that, Mr. Scher was employed by COSI Sandwich Bar in their real estate and construction
group. Mr. Scher devotes as much time as necessary to the business of the Company and currently holds no other directorships in
any other reporting company.
Key
Attributes, Experience and Skills:
|
Mr. Scher
brings manufacturing, financial and strategic experience to the Board, including a record of operational excellence in the food
industry, and strategic experience across multiple industries from real estate to retail to the Board. In addition, he has advised
a private company board; been an operational, team, and project leader; and served as a senior executive for nearly twenty years.
His experience has provided him with a broad understanding of the operational, financial, and strategic issues facing public companies
like ours. His industry, operational, and financial experience makes him well qualified for service on our Board.
Age: 41
Director Since: 2018
|
|
Board Leadership Roles:
• Independent
Director
• Member,
Audit and Corporate Governance Committee
|
Jody Levy was appointed as a director
of Lifeway to fill a vacancy on the Board on February 11, 2020. Ms. Levy, is the founder, Creative Director and Chief Executive
Officer of World Waters, LLC, the parent company of WTRMLN WTR and also a partner in, and advisor to, various brands including
GEM&BOLT Mezcal, Bulletproof, Thrive Market, Parsley Health, The WELL, Inscape, Pinata and more. Ms. Levy has a Bachelor of
Arts from School of the Art Institute of Chicago. Ms. Levy devotes as much time as necessary to Lifeway business and currently
holds no other directorships in any other reporting company.
Key
Attributes, Experience and Skills:
|
Ms. Levy’s
breadth of experience in manufacture, marketing and sale of consumer packaged goods, specifically health foods, and her financial
expertise and business experience as investor and as Chief Financial Officer make her a valuable addition to our Board.
Information About Our Executive
Officers
Information About Our Executive
Team
Lifeway’s executive officers
are Ms. Julie Smolyansky, President, Chief Executive Officer and Secretary; Mr. Edward Smolyansky, Chief Operating Officer; Mr.
Eric Hanson, Chief Financial and Accounting Officer and Treasurer; and Ms. Amy Feldman, Senior Executive Vice President of Sales.
Douglas A. Hass was the General Counsel and Assistant Secretary through December 31, 2019. Mr. Hass is a Named Executive Officer
for fiscal year 2019 but his position of General Counsel was eliminated as part of Lifeway’s ongoing organizational restructuring
effective December 31, 2019. Mr. Hass also resigned as Secretary of the Company, and his employment agreement was terminated,
effective December 31, 2019.
Ms. Smolyansky and Mr. Smolyansky are
also Directors, and we have included their biographical information above in the section “Information about our Directors.”
All of our Executive Officers other
than Mr. Smolyansky have or had employment agreements that we have more fully describe below under “Employment agreements
and change-in-control arrangements between the Company and Named Executive Officers.” Our other Named Executive Officer,
Mr. Smolyansky, does not have an employment agreement.
Eric
Hanson, Chief Financial and Accounting Officer
|
Age: 46
|
|
Officer
Since: 2018
|
|
NEO:
No
|
ERIC HANSON is our Chief Financial
and Accounting Officer and Treasurer. Mr. Hanson has served as our Chief Accounting Officer since May 2018, and as our Corporate
Controller since July 2016. He also served as our interim Chief Financial Officer from May 2018 through August 2018 before we
permanently appointed him to that position in November 2018. Prior to joining Lifeway, he served as Director of External Reporting
for CPG International LLC in Skokie, Illinois from 2014 through July 2016; and as Audit Manager for Deloitte & Touche, LLP
in Chicago, Illinois from 2012 through 2014. He also held various senior financial positions with Crowe Horwath from 2003 through
2012 and has over 20 years of financial reporting experience. Mr. Hanson holds a Bachelor of Science in Finance from the University
of Illinois.
Amy
Feldman, Senior Executive Vice President of Sales
|
Age: 43
|
|
Officer
Since: 2018
|
|
NEO:
No
|
AMY FELDMAN
is our Senior Executive Vice President of Sales. Amy previously held the top sales executive position for Lifeway Foods from 2009
through 2011. She returned to Lifeway effective October 31, 2018. Ms. Feldman has spent over 20 years in the food industry building
business, brands, and teams, specifically within the fresh and natural foods arena. From 2017-2018, she served as the Executive
Vice President of Sales at Next Phase Enterprises, a club and mass channel food sales firm. From 2015 through 2017, Ms. Feldman
was Vice President of Sales, Channel Development for Mondelez International’s Enjoy Life Foods subsidiary where she was
responsible for developing strategy and introducing the brand through various trade channels such as foodservice, e-commerce,
small format, and international. Prior to joining Enjoy Life, she was the Vice President of Sales, Independent Grocery Channel
for Chicago-based KeHE Distributors from 2011-2015. Amy began her career at Sara Lee and holds a Bachelor in Business Administration
in Food Marketing from Western Michigan University, an MBA from Golden Gate University, and a Culinary Certificate from Kendall
College.
Corporate Governance Guidelines
and Code of Ethics
We have adopted Corporate Governance
Guidelines and a Code of Ethics applicable to all members of the Board, executive officers, and employees, including our principal
executive officer and principal financial officer. The Corporate Governance Guidelines, the Code of Ethics, and other corporate
governance documents are available on Lifeway’s website at www.lifewayfoods.com. Any person may, without charge, request
a copy of the Corporate Governance Guidelines and/or Code of Ethics by contacting Lifeway at (847) 967-1010 or by email at info@lifeway.net.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires
our directors, executive officers, and persons who beneficially own more than 10% of its Common Stock to file reports of ownership
and changes in ownership with the SEC and to furnish us with copies of all such reports they file. Based on our review of the
copies of such forms that we received, or written representations from certain reporting persons, we believe that none of our
directors, executive officers, or persons who beneficially own more than 10% of Lifeway’s Common Stock failed to comply
with Section 16(a) reporting requirements in the fiscal year ended December 31, 2019.
Director Nominations by Shareholders
Consistent with the Board’s Corporate
Governance Guidelines, the Board will consider any candidates recommended by shareholders on the same basis that it considers
recommendations from other sources. The recommendation must at a minimum include evidence of the shareholder’s ownership
of Lifeway stock, along with the candidate’s name and qualifications for service as a Board member, and a document signed
by the candidate indicating the candidate’s willingness to serve, if elected. In considering a candidate submitted by shareholders,
the Board will take into consideration the needs of the Board and the qualifications of the candidate. Nevertheless, just as with
recommendations from other sources, the Board may choose not to consider an unsolicited recommendation if no vacancy exists on
the Board and/or the Board does not perceive a need to increase number of directors on the Board.
In order for any shareholder proposal
submitted pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
to be included in our Proxy Statement to be issued in connection with the 2020 Annual Meeting of Shareholders, including a recommendation
by a shareholder of a candidate for nomination to our Board, we must receive such shareholder proposals no later than July 31,
2020. Any such shareholder proposal submitted, including any accompanying supporting statement, may not exceed 500 words, per
Rule 14a-8(d) of the Exchange Act. All shareholder proposals must be made in writing and addressed to Lifeway’s Secretary,
c/o Lifeway Foods, 6430 W. Oakton Street, Morton Grove, IL 60053.
Audit Committee
Controlled Company Exemption
Because Ludmila Smolyansky, Julie Smolyansky,
and Edward Smolyansky, acting as a group, (the “Smolyansky family”) beneficially own a majority of Lifeway’s
outstanding Common Stock, we qualify as a “controlled company” pursuant to Nasdaq Listing Rule 5615. We believe that
having the Smolyansky family as a significant part of a long-term-focused, committed, and engaged stockholder base provides us
with an important strategic advantage, particularly in a business with a mature, well-recognized brand. We desire to remain independent
and family-controlled, and we believe the Smolyansky family shares these interests. As a controlled company, we are exempt from
the requirements to have separate, independent compensation and nominating committees; a majority of independent directors on
our Board; or independent directors comprising a majority of the Board select nominees for director or determine the compensation
of its officers.
As a result of our use of the controlled
company exemption, our corporate governance practices differ from those of non-controlled companies, which are subject to all
of the Nasdaq corporate governance requirements. Specifically, while we continue to maintain a majority of independent directors
on the Board and to ensure that a committee of those independent directors select director nominees and determine the compensation
of our officers, we have not, in the past, maintained separate compensation or nominating committees. In May, 2020, the Board
of Directors formed a Compensation Committee and adopted a Compensation Committee Charter. Mr. Scher and Ms. Levy were appointed
as members of the newly constituted Compensation Committee. In the event we cease to be a controlled company, we will be required
to comply with all of the corporate governance standards under Nasdaq’s rules, subject to applicable transition periods.
Audit and Corporate Governance Committee
To eliminate unnecessary redundancies
in our independent committee structure given the size of our company and Board, and in reliance on the controlled company exemptions
described above, we have chosen to combine our audit and nominating committees into an Audit and Corporate Governance Committee.
The Audit and Corporate Governance Committee, which is a separate and independent committee comprised of a majority of the Board’s
independent directors, fulfills the Board’s delegated audit and nominating duties as a single, integrated committee. The
Audit and Corporate Governance Committee also fulfilled the function of a Compensation Committee until May 2020 when the Board
of Directors formed a Compensation Committee.
The Board has determined that each
member of the Audit and Corporate Governance Committee (1) is “independent” as defined by applicable SEC rules and
the listing standards of Nasdaq, (2) has not participated in the preparation of our financial statements or those of any of our
current subsidiaries at any time during the past three years, and (3) is able to read and understand fundamental financial statements,
including a balance sheet, income statement, and cash flow statement. In addition, the Board determined that Mr. Scher was financially
literate and financially sophisticated, as those terms are defined under the rules of Nasdaq, and were “audit committee
financial experts,” as defined by applicable SEC rules.
ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion
and Analysis
Although
SEC rules do not require smaller reporting companies to include a Compensation Discussion and Analysis (“CD&A”)
in their Form 10-K, Lifeway has elected to voluntarily disclose this additional information in order to provide stockholders with
additional information regarding current executive compensation.
This
CD&A explains our overall compensation philosophy, describes the material components of our executive compensation programs,
and details the determinations made by the Board and our Audit and Corporate Governance Committee in fiscal 2019 for the compensation
awarded to Named Executive Officers (NEOs). Our current executive officers, including our NEOs, are:
Name
|
Age
|
Officer
since
|
Title
|
Named Executive Officer
|
Julie Smolyansky
|
45
|
2002
|
Chief Executive Officer, President and Secretary
|
Yes
|
Edward Smolyansky
|
40
|
2004
|
Chief Operating Officer
|
Yes
|
Douglas A. Hass
|
44
|
2016
|
Former General Counsel and Assistant Secretary
|
Yes
|
Eric Hanson
|
46
|
2018
|
Chief Financial and Accounting Officer and Treasurer
|
No
|
Amy Feldman
|
43
|
2018
|
Senior Executive Vice President of Sales
|
No
|
Mr. Hass
is an NEO for fiscal year 2019 but his position of General Counsel was eliminated as part of Lifeway’s ongoing organizational
restructuring effective December 31, 2019. Mr. Hass also resigned as Secretary of the Company, and his employment agreement was
terminated, effective December 31, 2019.
The tables
that follow this Compensation Discussion and Analysis contain specific data about the compensation earned in 2019 by our NEOs.
The discussion below is intended to help readers understand the detailed information provided in the compensation tables and put
that information into the context of our overall executive compensation program.
Executive Compensation
Philosophy
Our executive compensation
program is based on the following objectives:
|
•
|
Balancing compensation program elements and levels that attract,
motivate, and retain talented executives with forms of compensation that are performance-based and/or aligned with shareholder
interests and the promotion of growth in Lifeway business and value;
|
|
•
|
Setting target total direct compensation (base salary, annual
incentives, and long-term incentives) and related performance requirements for executives by reference to compensation ranges
for companies that compete with Lifeway for executive talent, business, and capital, all within the context of an organization
that has the dual mandate of maintaining efficient and profitable operations while seeking further growth and expansion; and
|
|
•
|
Appropriately adjusting total direct compensation
to reflect the performance of each executive over time (as reflected in individual annual goals), as well as our annual performance
(as reflected in the various corporate financial performance goals authorized under the Lifeway Foods, Inc. 2015 Omnibus Incentive
Plan (the “Omnibus Plan”)), and our long-term performance (as reflected in stock appreciation for equity-based
awards under the Omnibus Plan).
|
The Board
of Directors recognizes that Lifeway’s continued success and growth are a result of the efforts, skill and experience of
our management team, including its executive officers; the experience, knowledge and guidance of the Chairperson of the Board
and Lead Independent Director; and the oversight of the Board of Directors.
Continuity
of personnel across multi-disciplinary functions is critical to the success and continued growth of our business. Furthermore,
since we have relatively few employees, each must perform a broad scope of functions, and there is comparatively less redundancy
in skills than at companies larger than Lifeway. Our unique production process for kefir, which is not widely known, requires
specific knowledge and skills to perform and to support. This, coupled with the multiple functions that our executives perform,
may make it difficult to attract and retain talented executives. We consider our specific challenges and achievements along with
our financial performance and growth when approving executive officer compensation.
In 2019,
the Audit and Corporate Governance Committee was responsible for performing the functions of a compensation committee of the Board.
Pursuant to the powers granted in its charter, the Audit and Corporate Governance Committee adopted a compensation philosophy
that recognizes Lifeway’s near-term successes, as well as decision-making that supports our long-term growth. For these
reasons, the Audit and Corporate Governance Committee has designed a compensation plan that incentivizes both near-term and long-term
objectives with both annual and long-term incentive awards. We also believe that a significant portion of our executive compensation
should be dependent on the continued growth and success of our Company so that our executive officers have even stronger motivation
to work toward the long-term interests of our shareholders. Accordingly, the Audit and Corporate Governance Committee designated
a portion of executive compensation to be “at risk” and therefore dependent on achieving performance goals and
comprised mostly of equity compensation that will appreciate only to the extent that shares held by our shareholders also appreciate.
In May
2020, the Board of Directors formed a Compensation Committee to perform the functions related to compensation formerly performed
by the Audit and Corporate Governance Committee and adopted a Compensation Committee Charter. Mr. Scher and Ms. Levy were appointed
as members of the newly constituted Compensation Committee.
The Audit
and Corporate Governance Committee reviewed, and going forward our Compensation Committee will review, our compensation design
and philosophy on an annual basis to ensure that our executive compensation program continues to support our strategy and objectives,
and to align with our shareholders’ interests.
Compensation Oversight
Role of the Audit and Corporate Governance Committee and Compensation Committee
Our Audit
and Corporate Governance Committee assisted our Board of Directors in 2019 and through May 2020 by discharging responsibilities
relating to the compensation of our executive officers, including our NEOs. As such, the Audit and Corporate Governance Committee
had responsibility over certain matters relating to the reasonable and competitive compensation of our executives, employees,
and directors (only non-employee directors are compensated as directors) as well as matters relating to equity-based benefit plans.
Each member of our Audit and Corporate Governance Committee was, and each member of our newly formed Compensation Committee is,
independent in accordance with the criteria of independence set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules. We believe
that their independence from management allowed the members of the Audit and Corporate Governance Committee, and will allow the
Compensation Committee, to provide unbiased consideration of various elements that could be included in an executive compensation
program and apply independent judgment about which elements best achieve our compensation objectives.
Pursuant to its charter, the
Audit and Corporate Governance Committee was responsible for, among other things:
|
•
|
Reviewing Lifeway’s overall compensation philosophy and strategy;
|
|
•
|
Evaluating and setting, in conjunction with management and
the Committee’s independent compensation consultant, the compensation of executive officers;
|
|
•
|
Reviewing and approving the proxy statement, including the
Compensation Discussion and Analysis (when it is required or included);
|
|
•
|
Evaluating and approving the components and amounts of compensation
of Lifeway’s senior management employees;
|
|
•
|
Evaluating, considering and approving, in its discretion,
grants and awards made under Lifeway’s equity-based compensation plans, if any, subject to any limitations prescribed
or authority delegated by the Board to the Committee or any subcommittee;
|
|
•
|
Evaluating, considering and approving, in its discretion,
compensation for non-employee members of the Board of Directors; and
|
|
•
|
Managing and controlling the operation and administration of Lifeway’s equity incentive
plans.
|
The
Audit and Corporate Governance Committee was, and the Compensation Committee is, authorized to retain and terminate, without Board
or management approval, the services of an independent compensation consultant to provide advice and assistance. The Audit and
Corporate Governance Committee had, and the Compensation Committee has, the sole authority to approve the consultant’s fees
and other retention terms. It reviews the independence of the consultant and any other services that the consultant or the consultant’s
firm may provide to the company. The Chairperson of the Audit and Corporate Governance Committee (our Lead Independent Director)
reviews, negotiates and executes an engagement letter with the compensation consultant. The Chairperson of the Compensation Committee
will fulfill that role going forward. The compensation consultant reported directly to the Audit and Corporate Governance Committee
and will report directly to the Compensation Committee going forward.
Role of our Compensation
Consultant
In 2019,
the Audit and Corporate Governance Committee engaged the Lockton Companies (“Lockton”) as its independent compensation
consultant to advise it on executive officer, senior management and director compensation matters. As part of its engagement in
2019, the Audit and Corporate Governance Committee directed Lockton to work with our General Counsel, our Human Resources department,
and other members of management to obtain information necessary for Lockton to evaluate compensation of executive officers, senior
management and directors.
Lockton
reported directly to the Audit and Corporate Governance Committee, which had the sole power to terminate or replace Lockton. Lockton
met with both the Audit and Corporate Governance Committee and, as necessary, the Board during their regular meetings and in executive
session (where no members of management are present), and with the independent members of the Board outside of the Board’s
regular meetings.
During
2019, Lockton performed no other services for Lifeway. The Audit and Corporate Governance Committee believed that there was no
conflict of interest based on any prior relationship with Lockton. In reaching this conclusion, the Audit and Corporate Governance
Committee considered the factors set forth in the SEC and Nasdaq rules regarding compensation advisor independence.
The Audit
and Corporate Governance Committee tasked Lockton with developing a compensation strategy for 2020 built on Lockton’s and
the Audit and Corporate Governance Committee’s prior work and reflects the compensation philosophy described above. Previously,
in 2018, Lockton reviewed our comparative peer group and suggested several refinements to it, which the Audit and Corporate Governance
Committee approved. Lockton selected companies primarily focused on food/beverage manufacturing or agribusiness based on net sales,
market capitalization, recent and anticipated growth, and similarity of management structure.
Using
the refined peer group, Lockton analyzed the peer group’s comparative total direct compensation practices and mix of pay
against Lifeway’s executive officer total direct compensation practices generally, as well as for fiscal year 2019 and proposed
recommendations regarding the amount and mix of base and incentive compensation to be delivered to our executive officers, senior
management team and directors for fiscal year 2020.
Lockton’s
engagement was terminated in the first quarter of 2020. The newly formed Compensation Committee is undergoing a process to identify
and engage a new independent compensation consultant to assist in a review of the compensation philosophy described above and
the compensation strategies, structures and amounts for 2020 and to propose changes it determines to be beneficial to the goals
of the Company as well as developing a compensation strategy for 2021 and beyond.
The Audit and Corporate
Governance Committee’s Compensation Program Design
Elements of Compensation
To
achieve the compensation objectives described in our philosophy above, we have established three principal components of
executive compensation: long-term equity compensation, an annual cash incentive, and base salary. The Committee seeks to
ensure that total compensation for our executive officers is heavily weighted to variable, performance-based compensation by
delivering a portion of target compensation in the form of long-term equity compensation and annual cash
incentives.
The Committee
chose a mix of equity and cash compensation vehicles based on financial and operational targets that it believes correlate with
operating performance and long-term stock performance. Our executive officers were also eligible to participate in our benefit
programs and received limited perquisites. The table below provides a summary of these key elements and describes why we include
each one.
Element
|
|
Form
|
|
Description
|
Base Salary
|
|
Cash (Fixed)
|
|
The fixed amount of compensation for performing day-to-day
responsibilities.
|
|
|
|
|
|
|
|
|
|
Executive
officers are generally eligible for increases annually, depending on their individual performance.
|
|
|
|
|
|
|
|
|
|
The
fixed amount of compensation provides our executive officers with a degree of retention and stability.
|
|
|
|
|
|
Long Term Incentive Awards
|
|
Equity (Variable)
|
|
The
Board and shareholders previously approved the Omnibus Plan on October 30, 2015. Each fiscal year, including fiscal year
2019, the Committee adopts a formalized performance-based incentive award plan that provided all executive officers and
certain other senior managers with an opportunity to earn Performance Shares under the Omnibus Plan based on achievement
of critical financial performance goals that were reviewed and approved by the Audit and Corporate Governance Committee.
We
provide more details on this element below.
|
|
|
|
|
|
Short Term Incentive Awards
|
|
Cash and/or Equity (Variable)
|
|
Provides annual incentive awards for achieving corporate
goals and objectives.
|
|
|
|
|
|
|
|
|
|
Generally,
every employee whose terms and conditions of employment are not governed by a collective bargaining agreement is eligible
to earn an annual incentive award, promoting alignment and pay-for-performance at all levels of the organization. The
annual awards can be a combination of:
• Incentive
awards based on pre-established goals established by the Committee.
• Discretionary
awards based on a range of factors considered by the Committee.
|
|
|
|
|
|
|
|
|
|
In
each fiscal year, including fiscal year 2019, the Audit and Corporate Governance Committee adopted a formalized performance-based
cash incentive award plan that provides all executive officers and certain other senior managers with an opportunity to
earn a bonus for each fiscal year based on achievement of critical individual performance goals that were reviewed and
approved by the Audit and Corporate Governance Committee. These performance goals can be a combination of both objective
and subjective measures.
We
provide more details on this element below.
|
|
|
|
|
|
Perquisites and Benefits
|
|
Varies
|
|
Provides perquisites to facilitate the operation of our business
and assist us in recruiting and retaining key executives.
|
|
|
|
|
|
|
|
|
|
Perquisites
have in the past included automobile allowances, 401(k) matching, annual comprehensive health screenings, and other items
discussed below.
We
provide more details on this element below.
|
Long-Term Incentive Awards
and Determinations
Executive
officers and other key management employees designated by the Audit and Corporate Governance Committee are eligible to receive
awards of long-term incentive awards in the form of Performance Units under the Omnibus Plan, which will result in grants of Performance
Shares, if Lifeway exceeds specified financial performance criteria set by the Committee. The amount and value of the awards depend
on our performance relative to the performance goals approved by the Committee overseeing compensation at the beginning of the
Performance Period. The 2019 Performance Unit cycle has three-year Performance Periods for all executives.
Under
the Performance Unit program, assuming above-threshold performance, Performance Shares will be granted to the eligible participants,
including executive officers, pursuant to the Omnibus Plan and the terms and conditions of the applicable award agreements.
One half
of any Performance Unit awards earned by eligible participants will vest, if at all, on the one year anniversary of the grant
if performance measurements are met in the first year; one half of the remaining unvested awards earned will vest on the second
anniversary of the grant if performance measurements were met in the second year, and the remainder of unvested earned shares
will vest on the third anniversary of the grant if performance measurements are met in the third year. If in any year performance
measures are attained but are not maintained in a subsequent year, unvested awards equal to the shortfall in that later year will
be forfeited and will not vest. The Audit and Corporate Governance Committee believes that the long term performance period and
long term vesting feature tied to the performance of the Company provides an important mechanism to incentivize management’s
focus on continued profitability and achievement of long term business milestones that will drive Lifeway’s long term success
and to align their interests with long-term shareholder value.
Unlike
2018, in the first year of the 2019 Performance Period, Lifeway achieved certain Performance Measures previously approved by the
Board’s Audit and Corporate Governance Committee under our 2015 Omnibus Plan for which Ms. Smolyansky and Mr. Smolyansky
earned long-term incentive stock awards subject to Danone’s consent as discussed further below. The awards to Ms. Smolyansky
and Mr. Smolyansky for the first year of the 2019 Performance Period are subject to a vesting schedule previously approved by
the Board’s Audit and Corporate Governance Committee which provided that 50% of unvested shares vest in year one, 50% of
the remaining unvested shares in year two and the remaining unvested shares vest in year three. Please see the detailed information
presented in the Summary Compensation Table below.
Setting a Target Value
of Performance Units
As discussed
above, the Audit and Corporate Governance Committee established a target level of total annual equity compensation for each eligible
participant that will be awarded in Performance Units. If our performance meets one or more of the target performance goals, the
percentage of Performance Units assigned to such milestones will be issued, subject to forfeiture of unvested awards equal to
any shortfall in a milestone in any year after one in which such milestone was met.
Performance Measures
The following
table outlines the performance measures that the Audit and Corporate Governance Committee used in fiscal year 2019. The performance
measures used in fiscal year 2018 were used to measure short term performance in connection with the short term incentive program
discussed below. The Audit and Corporate Governance Committee selected these performance measures because they align with expansion
by increasing revenue and profitability through introduction of new products and growth of existing products and ensuring our
leaders are accountable for driving long term profitability and sustainability of the Company. The Committee believes these measures
are key drivers of our long-term success and shareholder value, and directly affected by the decisions of our management team.
Performance
Measures
|
|
Net revenue from Plantiful product line
|
|
Net revenue from 8 oz product line
|
|
Net revenue from ProBugs (non-plant based)
|
|
Net revenue from combination 32 oz and 8 oz kefir
|
|
The likelihood
of our NEOs and other key employees earning nonequity and equity incentive awards in 2020 is dependent on our 2020 financial results
and whether we meet the goals set by the Compensation Committee. This outcome is dependent on many other factors. As demonstrated
by the incentive payouts for 2018 and 2019, we seek to set target financial and personal goals that maintain a consistent level
of difficulty in achieving the full target bonus from year to year. Therefore, over time we expect our NEOs and other key employees
to achieve bonuses in some years and not achieve bonuses in other years.
Performance Unit Mechanics
and Targets
To receive
a Performance Unit, at least one of the minimum performance thresholds must be met by 2021. Each of the performance thresholds
is independent and, if any threshold is met, the award is funded with respect to that performance measure in accordance with
the percentages outlined in the table below. If the performance level for any performance measure is not met, then there is no
funding attributable to that performance measure.
The number
of Performance Units awarded is determined by using the percentage of Performance Award allocated to that particular threshold
as set forth below to determine the amount of Performance Award to be granted, subject to Committee-approved variation due to
material events not contemplated at the time the targets were set (such as major acquisitions) and to the Committee’s negative
discretion. The Committee converts Performance Units to shares of common stock (Performance Shares under the Omnibus Plan) by
dividing the number of Performance Units awarded by our stock price on the award date.
The following
chart shows the threshold and percentage of the Performance Award allocated to such measurement:
Performance
Measure
|
Percentage
of Maximum Performance Award
|
|
Net revenue from Plantiful product line
|
30%
|
|
Net revenue from 8 oz product line
|
30%
|
|
Net revenue from ProBugs (non plant based)
|
20%
|
|
Net revenue from 8 oz and 32 oz Kefir products
|
20%
|
|
Short-Term Incentive Awards
and Determinations
Short-Term Incentive Awards
Executive
officers and other key management employees designated by the Audit and Corporate Governance Committee are eligible to receive
annual cash incentive awards under the Omnibus Plan based on a Performance Period set by the Audit and Corporate Governance Committee.
The 2019 cash incentive award cycles had one-year Performance Periods for all executives.
The Audit
and Corporate Governance Committee believes that these short-term incentive payouts for executive officers should be tightly linked
to our performance. When defining short-term performance for the eligible participants, the Audit and Corporate Governance Committee
focused solely on the financial performance metrics described below (net revenue and Adjusted EBITDA). The amount and value of
the 2019 awards depended on our performance relative to the performance goals approved by the Audit and Corporate Governance Committee
at the beginning of the Performance Period.
Under
the Short Term Incentive program, assuming above-minimum threshold performance, cash awards were to be granted to the eligible
participants, including executive officers, pursuant to the Omnibus Plan and the terms and conditions of the applicable award
agreements.
Setting a Target Awards
As discussed
above, the Audit and Corporate Governance Committee established a target level of total cash compensation for each eligible participant,
including base salary and a cash award under the Short Term Incentive program. If our performance meets the target performance
goals, the target level Short Term Incentive program cash award will be paid. If our performance exceeds or falls short of the
target performance goals, the amount of cash paid will be increased or decreased formulaically.
Performance Measures
The following
table outlines the performance measures that the Audit and Corporate Governance Committee used in fiscal year 2019. The Audit
and Corporate Governance Committee selected these performance measures because they align with the long-term goals of creating
sustainable revenue growth and ensuring our leaders are accountable for driving profitability through increasing efficiencies
and investments in future opportunities. The Audit and Corporate Governance Committee believed these measures are key drivers
of our long-term success and shareholder value, and directly affected by the decisions of our management team and allow the relevant
Committee to measure short term Company progress toward the long term goals.
Performance
Measure
|
|
Definition
|
Net revenue
|
|
Total net revenue
from Lifeway’s operations
|
Adjusted EBITDA(1)
|
|
EBITDA before the impact of stock-based compensation, bad debt expense, reserves for
inventory obsolescence, gains or losses on sales of property and equipment, and deferred revenue.
|
(1) “Adjusted
EBITDA” is not defined under U.S. generally accepted accounting principles (“GAAP”) and is not a deemed alternative
to measure performance under GAAP. Adjusted EBITDA is a financial metric that we use for incentive compensation purposes, and
it differs from the financial results we report in our earnings releases. Adjusted EBITDA should not be considered as a substitute
for, or superior to, the measures of financial performance we prepare in accordance with GAAP.
Performance Unit Mechanics
and Targets
To have
received a 2019 cash award, at least one of the net revenue or Adjusted EBITDA minimum performance thresholds must have been met.
Each of the minimum performance thresholds for net revenue and Adjusted EBITDA was independent and, if either minimum threshold
was met, the award was funded with respect to that performance measure in accordance with the percentages outlined in the
table below. If the minimum performance level for either performance measure was not met, then there was no funding attributable
to that performance measure.
The amount
of cash awarded was determined by comparing our actual 2019 net revenue and Adjusted EBITDA against the threshold, target, and
maximum performance levels and converting the result into a funding percentage which was applied to the maximum possible award
for each eligible participant.
The following
chart shows the threshold, target and maximum funding levels as well as other levels of funding for eligible employees for the
net revenue and Adjusted EBITDA performance measures in 2019:
Adjusted
EBITDA (% of Target)
|
80%
|
90%
|
(Target)
100%
|
110%
|
120%
or More
|
Award (% of Target Award)
|
50%
|
75%
|
100%
|
120%
|
150%
|
Net
Revenue (% of Target)
|
95
%
|
(Target)
100%
|
100%
- 109%
|
Award (% of Target Award)
|
105%
|
110%
|
+2% of EBITDA Funded Award for every 1% of net revenue increase over the Target
|
Discretionary
Incentive Awards
The Audit
and Corporate Governance Committee had, and the Compensation Committee has, the discretion to approve individual discretionary
bonus amounts for executive officers and other key management employees based on (i) the designee’s individual contributions
to our performance (including their individual performance relative to the factors covered by our Omnibus Plan); (ii) the nature
and extent of our accomplishments; (iii) input from management and the Board; (iv) individual contributions, roles, and responsibilities,
which, by their nature, can involve subjective assessments; and (v) other factors the Committee deems significant.
In fiscal
2019, the Committee believed, and continues to believe, that it is appropriate and in the best interests of Lifeway for the Committee
to retain some discretion to use its common sense in determining a portion of the NEOs’ short-term incentive compensation
based on a subjective view of individual performance. The Committee believes that retaining this discretion provides Lifeway and/or
the Committee with the flexibility to:
|
•
|
consider a variety of factors in assessing individual contributions
depending on the nature of an individual’s roles and responsibilities within Lifeway;
|
|
•
|
evaluate individual goals and payouts in light of unexpected
events or changes in the industry and related changes in business strategies, thereby minimizing the risk that individuals
will continue to focus on areas that become less relevant just to achieve a bonus payout;
|
|
•
|
reward individuals for superior performances during periods
when we must react to adverse events that are out of our control; and
|
|
•
|
re-focus employee energy when an unanticipated opportunity
arises that could lead to long-term benefits, and reward related individual contributions to realizing that opportunity.
|
Perquisites and Benefits
Perquisites
We provide
executive officers and other key managers with perquisites and other personal benefits not otherwise available to all employees
that the Committee believes are reasonable and consistent with our overall compensation program and philosophy. These benefits
are provided to enable us to attract and retain these executive officers and key managers. The Audit and Corporate Governance
Committee has periodically reviewed, and the Compensation Committee will continue to periodically review, the levels of these
perquisites provided to our executive officers together with management and the relevant Committee’s independent compensation
consultant.
Of these
benefits, the most significant ongoing benefit is providing our CEO and COO with a vehicle allowance. In exploring, planning,
and implementing the expansion of Lifeway’s product distribution, and in supporting and developing the Lifeway brand, both
our CEO and COO roles serve in the public eye, and the roles require extensive travel, and on-camera and personal appearances.
Accordingly, we provide a vehicle allowance to both Ms. Smolyansky and Mr. Smolyansky. Each of them may use this allowance for
personal vehicle use as well. We treat this vehicle allowance as taxable compensation and do not provide additional compensation
or bonuses to cover, reimburse, or otherwise “gross-up” any income tax owed on this vehicle allowance.
Benefits
We provide
our executive officers, including NEOs, with certain benefits that the Audit and Corporate Governance Committee believed were
reasonable and consistent with our overall compensation program and philosophy, and that befit a company like Lifeway that promotes
healthy food products and healthy living. The Committee periodically reviewed, and the Compensation Committee will continue to
periodically review, the levels of these benefits provided to our executive officers together with management and the relevant
Committee’s independent compensation consultant.
Our executive
officers, including NEOs, are eligible for health, dental, vision, life insurance, short- and long-term disability insurance,
and 401(k) benefits to the same extent and subject to the same conditions as all other salaried employees at Lifeway. Our executive
officers, including NEOs, may also claim executive health examination expenses each year, subject to a cap designed to cover a
majority of the program fees (but not any associated medical expenses) for such executive health programs available in the Chicago,
Illinois area. We treat this health examination expense as taxable compensation and provide a tax gross-up to encourage the use
of this benefit by our executive officers.
Accounting
and Tax Considerations
Our ability
to deduct compensation paid to covered employees (as defined in Section 162 of the Internal Revenue Code (“Section 162”)),
including our NEOs, for tax purposes is limited to $1 million annually. Section 162(m) imposes this annual limit on the amount
of compensation paid to each of the chief executive officer and certain other named executive officers. Prior to the effective
date of the Tax Cuts and Jobs Act of 2017 (the “Act”), the deduction limit did not apply to performance-based compensation
satisfying the requirements of Section 162(m). Cash and equity awards to our NEOs under the Omnibus Plan in 2016, 2017, and 2018
were subject to one or more performance goals intended to satisfy the requirements of Section 162(m)’s performance-based
compensation exemption.
Effective
in fiscal year 2018, the Act eliminated the Section 162(m) provisions exempting performance-based compensation from the $1 million
deduction limit, subject to an exception for remuneration pursuant to a written binding contract that was in effect on November
2, 2017. Based the Act’s language and IRS guidance, we believe that some of the remuneration for our CEO and COO under our
Omnibus Plan in fiscal years 2018 and 2019 will qualify for this “written binding contract” exception. However, interpretations
of the Act and tax laws in general, as well as any changes in those tax laws and other factors beyond our control, may affect
the deductibility of any compensation paid to our employees.
The Committee,
in consultation with its outside advisors and management, monitors the tax and other consequences of our executive compensation
program as part of its primary objective of ensuring that compensation paid to our executive officers is appropriate, performance-based,
and consistent with Lifeway’s goals and the goals of our shareholders. Accordingly, we view preserving the tax deductibility
of compensation pursuant to Section 162(m) as a consideration in establishing executive compensation, but not our only objective.
In order to maintain flexibility in compensating employees in a manner designed to promote Lifeway’s goals, the Audit and
Corporate Governance Committee has not adopted a policy that all compensation must be tax deductible. It retains the discretion
to award nondeductible compensation.
The Committee’s
Process for Setting Executive Compensation
Benchmarking and Analysis:
Our Peers
To set
total compensation guidelines, the Audit and Corporate Governance Committee reviewed market data of companies that are comparable
to Lifeway and that it believed compete with Lifeway for executive talent, business, and capital. The Audit and Corporate Governance
Committee reviewed both specific data from public proxy filings from peer group companies and general industry data for comparable
companies that are included in proprietary third-party surveys. The Compensation Committee will continue this practice going forward.
In identifying
the peer group of surveyed companies, the Audit and Corporate Governance Committee considered market information available through
both Equilar, Inc., a leading executive data solutions company, and the Economic Research Institute, an industry- and region-specific
compensation database, as reference points and to assemble market data on companies having similar industrial characteristics
and revenues to ours. The Committee, together with management and Lockton, review the gathered data for each of our NEO and other
key employee positions and adjusted that data for the scope of each employee’s responsibilities at Lifeway as compared to
equivalent responsibilities of positions within companies included in the survey data.
The Audit
and Corporate Governance Committee believed that it was necessary to consider this market data in making compensation decisions
to attract and retain talent. The Committee also recognizes that at the executive level, we compete for talent against larger,
global companies, as well as smaller and similar-sized non-public companies. Third-party surveys are beneficial because they contain
benchmarks from hundreds of companies where Lifeway may look to recruit executives, both inside and outside the food and beverage
industry. This data can be adjusted to reflect Lifeway’s size and structure. Proxy data is useful as the Committee can review
position-specific compensation details from an industry and public company perspective, while also controlling for size and structure.
In deciding
whether a company should be included in the peer group, the Audit and Corporate Governance Committee generally considered the
following screening criteria:
|
•
|
Whether the executives have similarly complex day-to-day
roles and responsibilities;
|
|
•
|
Whether the company has primary lines of business in Lifeway’s
industry or related industries (such as packaged meats, distillers and vintners, brewers, growers, and beverage manufacturers);
|
|
•
|
Whether the company has a recognizable and well-regarded
brand; and
|
|
•
|
Whether we compete with the company for talent.
|
For each
member of the peer group below, one or more of the factors listed above was relevant to the reason for inclusion in the group,
and, similarly, one or more of these factors may not have been relevant to the reason for inclusion in the group.
To assess
whether the peer group continues to reflect the markets in which we compete for executive talent, the Audit and Corporate Governance
Committee reviewed the peer group at least twice during each fiscal year, and whenever necessary, with the assistance of management
and Lockton. The following companies were removed from Lifeway’s peer group for fiscal 2019 compensation planning:
|
•
|
Amplify Snack Brands Inc.
|
|
•
|
Golden Enterprises Inc.
|
|
•
|
Nutraceutical International Corp.
|
We removed
these companies from our peer group because each of them was acquired by another entity and no longer operates as a separate publicly-traded
company. As part of our ongoing review, we added Alico, Inc., Limoneira Company, S&W Seed Company, The Simply Good Foods Company,
Turning Point Brands, Inc., and Youngevity International to our peer group for fiscal year 2019 compensation planning so that
it consisted of the following companies:
Peer
group used for fiscal year 2019 compensation planning
|
|
|
•
Alico, Inc.
•
Castle Brands, Inc.
•
Coffee Holding Co Inc
•
Craft Brew Alliance Inc
•
Crimson Wine Group, Ltd.
•
Farmer Bros Co
•
Freshpet Inc
•
Landec Corp
•
Limoneira Company
|
•
Medifast Inc
•
MGP Ingredients Inc
•
Primo Water Corp
•
S&W Seed Company
•
The Simply Good Foods Co.
•
Tootsie Roll Industries Inc
•
Turning Point Brands Inc.
•
Youngevity International
|
In consultation
with Lockton, the Audit and Corporate Governance Committee found this peer group to be peers from a pay benchmarking perspective.
As noted earlier, not all of Lifeway’s competitors are public, and the peer group is intended to be a reasonable representation
of market practice. When considering the competitive market data, the Committee also considers the fact that the data is backward-looking
and does not necessarily reflect those companies’ current pay practices. While this analysis informed the decisions of the
Audit and Corporate Governance Committee, and the independent Board members generally, on the range of compensation opportunities,
we did not tie executive officer compensation to specific market percentiles.
In making
determinations regarding executive officer compensation, in addition to benchmarking, the Audit and Corporate Governance Committee
considered several other factors such as our financial performance and financial condition, individual executive performance,
tenure, expertise, the importance of the role, potential for future contributions, and comparative pay levels among the members
of the senior executive team, as well as input and recommendations of management and the compensation consultant. The Audit and
Corporate Governance Committee typically followed most of these recommendations; however, the Committee has sole authority for
the final compensation determination and may have set total compensation and incentive opportunities below, at, or above median
amounts.
The
Audit and Corporate Governance Committee’s Process for Setting Compensation Levels
The Audit and Corporate Governance
Committee generally followed this process when setting executive compensation levels:
|
•
|
The Committee usually determines the base salary for our
executive officers in the fourth quarter prior to the beginning of a fiscal year, but no later than the first quarter after
that fiscal year begins. Any adjustments to base salary are effective as of dates determined by the Committee. The Committee,
or management with Committee oversight, may make additional adjustments to base salary during the fiscal year to reflect,
among other things, changes in title and/or job responsibilities, or changes in our performance or financial condition.
|
|
•
|
The Committee typically determines annual incentive compensation
for our executive officers in the fourth quarter of each fiscal year, but no later than the first quarter after that fiscal
year ends. It usually certifies long term incentive compensation awards for our executive officers in the first quarter after
a fiscal year has ended. The Audit and Corporate Governance Committee evaluates each executive officer’s performance
against the performance goals and objectives established for the prior fiscal year and determines the level of incentive compensation
to be awarded to each executive officer. As part of the evaluation process, the Audit and Corporate Governance Committee solicits
comments from management and may consult the other disinterested Board members and its independent compensation consultant.
Additionally, the executive officers have an opportunity to provide input regarding their contributions to Lifeway’s
performance and achievement of any individual goals for the period being assessed. The Audit and Corporate Governance Committee
also reviews, evaluates, and ultimately certifies Lifeway’s achievement of financial performance goals for the prior
fiscal year. Incentive compensation for executive officers is approved by the Audit and Corporate Governance Committee.
|
|
•
|
In conjunction with determining incentive compensation awards
for the prior fiscal year, the Audit and Corporate Governance Committee establishes individual and corporate performance goals
and objectives for each executive officer for the next fiscal year. Management and the Committee’s compensation consultant
typically provide input and recommendations to the Committee regarding appropriate individual and corporate performance goals
and objectives for each executive officer. The Audit and Corporate Governance Committee then determines the individual and
corporate performance goals and objectives for the fiscal year.
|
|
•
|
The Audit and Corporate Governance Committee also has the
discretion to make equity-based and cash-based grants under the Omnibus Plan to eligible individuals for purposes of compensation,
retention, or promotion, and in connection with commencement of employment. Such equity compensation is generally determined
during the first quarter of each fiscal year. Additional equity awards may be made during the fiscal year to new hires and
to reflect, among other things, changes in title and/or job responsibilities, or our performance or financial condition.
|
Information
About Our Executive Team
Information
about our executive team is set forth above in Item 10. Directors, Executive Officers and Corporate Governance.
Fiscal
Year 2019 Compensation Decisions
We awarded our NEOs the following
compensation in fiscal year 2019:
Fiscal Year 2019 Base
Salaries
We did
not increase our CEO’s, COO’s or General Counsel’s base salaries in fiscal year 2019. We believe that their
salary levels continue to be appropriate and reasonable given their capabilities and experience, as well as the limitations that
Danone has imposed on Lifeway issuing our CEO and COO equity compensation. We have described these limitations more fully below
in the section “Consent by Danone to Common Stock Issuances.”
Fiscal Year 2019 Compensation
Paid to our NEOs
The following
table sets forth certain information concerning compensation received by Lifeway’s NEOs, consisting of our Chief Executive
Officer and the two other most highly paid executive officers for services rendered in all capacities during fiscal year 2018
and 2019.
Summary Compensation Table
|
Name and Principal Position(s)
|
|
Year
|
|
Salary
($)
|
|
Bonus (1)
($)
|
|
Stock
Awards
(2)
($)
|
|
Nonequity incentive
plan compensation (3) ($)
|
|
All Other Compensation
(4) ($)
|
|
Total
($)
|
Julie Smolyansky
|
|
2019
|
|
|
1,000,000
|
|
|
|
130,000
|
|
|
|
17,534
|
|
|
|
250,000
|
|
|
|
77,460
|
|
|
|
1,474,994
|
|
Chief Executive Officer,
|
|
2018
|
|
|
1,000,000
|
|
|
|
200,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
59,113
|
|
|
|
1,259,113
|
|
President and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
2019
|
|
|
1,000,000
|
|
|
|
130,000
|
|
|
|
17,534
|
|
|
|
250,000
|
|
|
|
62,056
|
|
|
|
1,459,590
|
|
Chief Operating Officer
|
|
2018
|
|
|
1,000,000
|
|
|
|
200,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
59,800
|
|
|
|
1,259,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas A. Hass
|
|
2019
|
|
|
354,500
|
|
|
|
–
|
|
|
|
82,120
|
(5)
|
|
|
37,500
|
|
|
|
374,931
|
|
|
|
849,051
|
|
Former General Counsel
|
|
2018
|
|
|
354,500
|
|
|
|
–
|
|
|
|
11,600
|
(6)
|
|
|
97,500
|
|
|
|
26,095
|
|
|
|
489,695
|
|
and Assistant Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Discretionary bonuses approved for individual NEOs based
on (i) the NEO’s individual contributions to the Company’s performance (including their individual performance
relative to the factors covered by the Omnibus Plan); (ii) the nature and extent of the Company’s accomplishments; (iii)
input from management and the Board with respect to other NEOs; (iv) individual contributions, roles, and responsibilities,
which, by their nature, can involve subjective assessments; and (v) other factors deemed significant.
|
|
(2)
|
Stock Awards are grants of shares with time-based vesting
requirements made pursuant to the Omnibus Plan. The amounts reported in this column represent the value consistent with the
estimate of aggregate compensation cost to be recognized over the service period for the stock awards granted for the relevant
fiscal year. As discussed below in the section “Consent by Danone to Common Stock Issuances,” we must obtain Danone’s
consent before issuing these Performance Shares when they vest (if at all).
|
|
(3)
|
Details about the Bonus, Stock Awards, and Non-equity incentive
plan compensation columns in the Summary Compensation Table assuming achievement (i) at or below threshold; (ii) at target;
(ii) at maximum; and comparing those values to the actual value of incentive compensation for our NEOs are set forth in the
table below.
|
Incentive Compensation Awards
Detail
|
|
|
|
|
|
|
Potential Value of Incentive
Plan Compensation
|
|
Actual Value of Total Incentive
Compensation
|
Name and Principal Position(s)
|
|
Year
|
|
Form
|
|
Threshold ($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Total
Earned
($)
|
|
% of Total
|
Julie Smolyansky
|
|
2019
|
|
Equity
|
|
0
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
17,534
|
|
|
4%
|
Chief Executive Officer,
|
|
|
|
Nonequity
|
|
0
|
|
|
500,000
|
|
|
|
900,000
|
|
|
|
250,000
|
|
|
28%
|
President and Secretary
|
|
2018
|
|
Equity
|
|
0
|
|
|
1,150,000
|
|
|
|
1,725,000
|
|
|
|
–
|
|
|
0%
|
|
|
|
|
Nonequity
|
|
0
|
|
|
1,150,000
|
|
|
|
1,725,000
|
|
|
|
200,000
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
2019
|
|
Equity
|
|
0
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
17,534
|
|
|
4%
|
Chief Operating Officer
|
|
|
|
Nonequity
|
|
0
|
|
|
500,000
|
|
|
|
900,000
|
|
|
|
250,000
|
|
|
28%
|
|
|
2018
|
|
Equity
|
|
0
|
|
|
1,150,000
|
|
|
|
1,725,000
|
|
|
|
–
|
|
|
0%
|
|
|
|
|
Nonequity
|
|
0
|
|
|
1,150,000
|
|
|
|
1,725,000
|
|
|
|
200,000
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas A. Hass
|
|
2019
|
|
Equity
|
|
0
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
–
|
|
|
0%
|
Former General Counsel
|
|
|
|
Nonequity
|
|
0
|
|
|
150,000
|
|
|
|
210,000
|
|
|
|
37,500
|
|
|
18%
|
and Assistant Secretary
|
|
2018
|
|
Equity
|
|
0
|
|
|
400,000
|
|
|
|
600,000
|
|
|
|
11,600
|
|
|
2%
|
|
|
|
|
Nonequity
|
|
0
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
97,500
|
|
|
65%
|
(4)
|
Details about the amounts in the “All Other Compensation”
column are set forth in the table below.
|
All
Other Compensation Details
|
Name and Principal Position(s)
|
|
Year
|
|
Retirement
Plan Contributions (A)
($)
|
|
Auto Allowance
(B)
($)
|
|
All
Other Perks
($)
|
|
Other
($)
|
|
Total
($)
|
Julie Smolyansky
|
|
2019
|
|
|
11,200
|
|
|
|
40,407
|
|
|
|
25,853
|
|
|
|
–
|
|
|
|
77,460
|
|
Chief Executive Officer,
|
|
2018
|
|
|
11,000
|
|
|
|
43,449
|
|
|
|
3,058
|
|
|
|
1,606
|
|
|
|
59,113
|
|
President and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
2019
|
|
|
–
|
|
|
|
39,684
|
|
|
|
22,372
|
|
|
|
–
|
|
|
|
62,056
|
|
Chief Operating Officer
|
|
2018
|
|
|
11,000
|
|
|
|
44,180
|
|
|
|
4,620
|
|
|
|
–
|
|
|
|
59,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas A. Hass
|
|
2019
|
|
|
11,200
|
|
|
|
–
|
|
|
|
13,731
|
(C)
|
|
|
350,000
|
(D)
|
|
|
374,931
|
|
Former General Counsel
|
|
2018
|
|
|
11,000
|
|
|
|
–
|
|
|
|
15,095
|
(C)
|
|
|
–
|
|
|
|
26,095
|
|
and Assistant Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Consists of Lifeway’s matching contributions to the
Lifeway Foods Inc. 401(k) Profit Sharing Plan and Trust on behalf of the NEO
|
|
(B)
|
Consists of a personal vehicle allowance
|
|
(C)
|
Consists of an Internet/telecommunications services allowance
of $3,600 and an allowance for executive health examination benefits
|
|
|
|
|
(D)
|
Consists of a severance payment discussed further below under
“Employment agreements, severance, and change-in-control arrangements between Lifeway and Named Executive Officers”
|
(5)
|
Consists of discretionary bonuses awarded to Mr. Hass in
2019 exclusive of any awards under the 2019 Long Term Incentive Plan.
|
|
|
(6)
|
Mr. Hass elected to receive a portion of his annual bonus
in shares of common stock, a total of 5,395 shares. The shares vested on March 22, 2019.
|
Consent by Danone to Common
Stock Issuances
Lifeway,
members of the Smolyansky family, and Danone signed a Stockholders’ Agreement dated October 1, 1999. Under this Agreement,
as amended, Danone must give its consent to, among other things, issuances of common stock to our (1) non-employee directors,
(2) our employees, and (3) our CEO and COO, including any performance-based, long-term incentive equity awards to employees including
our CEO and COO pursuant to our Omnibus Plan.
In 2018,
we tried to obtain Danone’s consent to equity awards to (1) non-employee directors for the 2018-19 Board year, (2) employees
who had earned incentive stock awards in 2017 that would vest in March 2018, and (3) our CEO and COO, who had earned 32,016 Performance
Shares in 2017 that would vest in March 2018. However, Danone only consented to the first two categories of issuances, while declining
to consent to the awards to our CEO and COO. Therefore, the Board’s Audit and Corporate Governance Committee later cancelled
and extinguished the vested portion of our CEO and COO’s Performance Share award in exchange for incentive cash payments
to Ms. Smolyansky and Mr. Smolyansky under the Omnibus Plan in the amount of $287,500 each, the value of the vested portion of
the Performance Share award on its vesting date.
In 2019,
Lifeway sought Danone’s consent to the issuance of Performance Shares to (1) non-employee directors for the 2019-20 Board
year, (2) employees who had earned incentive or retention stock awards that would vest in March 2019, and (3) our CEO and COO,
who had earned 32,016 Performance Shares in 2017 that would vest in March 2019. However, Danone only consented to the first two
categories of issuances, while again declining to give consent to the awards to our CEO and COO. Therefore, the Board’s
Audit and Corporate Governance Committee cancelled and extinguished our CEO and COO’s Performance Share award in exchange
for incentive cash payments to Ms. Smolyansky and Mr. Smolyansky in the amount of $68,194 each, the value of the vested portion
of the Performance Share award on its vesting date. The remaining 32,015 shares of the Performance Share awards to Ms. Smolyansky
and Mr. Smolyansky for 2017 Performance Periods will vest, if at all, in 2020 pursuant to the schedule approved by the Board and
will require Danone’s consent prior to issuance.
In 2020,
we tried to obtain Danone’s consent to issuance of Performance Shares to our CEO and COO, who had earned 32,015 Performance
Shares in 2017 that would vest in March 2020. However, Danone declined to consent to the awards to our CEO and COO. Therefore,
the Board’s Audit and Corporate Governance Committee later cancelled and extinguished the vested portion of our CEO and
COO’s Performance Share award in exchange for incentive cash payments to Ms. Smolyansky and Mr. Smolyansky under the Omnibus
Plan in the amount of $58,587 each, the value of the vested portion of the Performance Share award on its vesting date.
Danone’s
denials had no impact on the total incentive compensation earned by our CEO and COO in 2018 and 2019. However, the denials served
to eliminate the long-term equity awards due them in favor of non-equity incentive awards. The newly constituted Compensation
Committee is reviewing whether the current levels of equity and non-equity incentive awards to our CEO and COO is appropriate
and in the best interest of our shareholders. As part of our benchmarking and analysis process described above, the Audit and
Corporate Governance Committee determined that all of Lifeway’s peers, as well as numerous other publicly traded corporations
led by founders and/or controlling shareholders, make such awards to their named executive officers (even when such NEOs also
hold substantial or controlling stakes in those companies).
Fiscal Year 2019 Director
Compensation
The table
below describes the cash and stock award portions of the annual retainer paid to each non-employee director who served in fiscal
year 2019. While directors receive annual retainers based on the June-to-June Board service year, the table below reflects payments
made during fiscal year 2019. Ms. Smolyansky and Mr. Smolyansky received no compensation as directors. We have excluded them from
the table because we fully describe their compensation in the “Named Executive Officer Compensation” section.
Name
|
|
Fees
Earned
or Paid
in Cash ($)
|
|
|
Stock
Awards
(1)
($)
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Ludmila Smolyansky
|
|
–
|
|
|
–
|
|
1,585,132
|
(2)
|
|
1,585,132
|
|
Renzo Bernardi
|
|
27,500
|
|
|
30,000
|
|
–
|
|
|
57,500
|
|
Pol Sikar
|
|
57,500
|
|
|
33,002
|
|
–
|
|
|
90,502
|
|
Jason Scher
|
|
57,500
|
|
|
30,000
|
|
–
|
|
|
87,500
|
|
George Sent (3)
|
|
95,063
|
|
|
73,688
|
|
–
|
|
|
168,751
|
|
Jody Levy (4)
|
|
–
|
|
|
–
|
|
–
|
|
|
–
|
|
Paul Lee (5)
|
|
–
|
|
|
–
|
|
–
|
|
|
–
|
|
|
(1)
|
Details about the amounts in the “Stock Awards”
column are set forth in the table below
|
Stock Awards
Detail
|
Name
|
|
|
Vested
Stock
Award(A)
($)
|
|
Restricted
Stock
Award(B)
($)
|
|
|
Total
($)
|
|
Ludmila Smolyansky
|
|
|
–
|
|
–
|
|
|
–
|
|
Renzo Bernardi
|
|
|
–
|
|
30,000
|
|
|
30,000
|
|
Pol Sikar
|
|
|
3,002
|
|
30,000
|
|
|
33,002
|
|
Jason Scher
|
|
|
–
|
|
30,000
|
|
|
30,000
|
|
George Sent
|
|
|
28,688
|
|
45,000
|
|
|
73,688
|
|
Jody Levy
|
|
|
–
|
|
–
|
|
|
–
|
|
Paul Lee
|
|
|
–
|
|
–
|
|
|
–
|
|
|
(A)
|
Pursuant to the Stockholders’ Agreement dated October
1, 1999, as amended, among Lifeway, members of the Smolyansky family, and Danone, Danone must give its consent to, among other
things, issuances of incentive stock awards to our non-employee directors. On June 14, 2018, the Board, with Danone’s
approval, gave each director the option of receiving all or part of their annual retainer in a vested stock award. Mr. Sikar
elected to receive 5% of his annual retainer in vested shares of common stock, a total of 822 shares. Mr. Sent elected to
receive 27% of his annual retainer in vested shares of common stock, a total of 6,164 shares.
|
|
(B)
|
Pursuant to the Stockholders’ Agreement dated October
1, 1999, as amended, among Lifeway, members of the Smolyansky family, and Danone, Danone must give its consent to, among other
things, issuances of incentive stock awards to our non-employee directors. On June 20, 2019, the Board awarded, and Danone
approved, a time-based restricted stock award to each non-employee director of $30,000, a total of 8,219 shares each. Of such
time-based restricted stock, 2,740 shares will vest on June 20, 2020; 2,740 will vest on June 20, 2021; and 2,739 will vest
on June 20, 2022, contingent on the director’s continued service on each applicable vesting date. Mr. Sent resigned
as director on January 24, 2020 and his restricted stock award was forfeited.
|
|
(2)
|
Of the All Other Compensation, (a) $1,000,000 represents
the annual fees paid to Mrs. Smolyansky for her services as a consultant to Lifeway; and (b) $585,132 represents royalty payments.
Both relationships are discussed further in the “Certain Relationships and Related Party Transactions” section
below. Mrs. Smolyansky did not receive any retainer fees in her capacity as a non-employee director.
|
|
(3)
|
Mr. Sent served as Chairperson of the Audit and Corporate
Governance Committee and Lead Independent Director until January 24, 2020, the effective date of his resignation. Upon his
resignation, he forfeited his restricted stock award for fiscal year 2018.
|
|
(4)
|
Ms. Levy was appointed director on February 11, 2020 and
received no compensation during fiscal year 2019. She has served as a member of the Audit and Corporate Governance
Committee since February 11, 2020.
|
|
|
|
|
(5)
|
Mr. Lee served as a member of the Board of Directors and
the Audit and Corporate Governance Committee through January 11, 2019.
|
Committee
Interlocks and Insider Participation
During
fiscal year 2019, the Audit and Corporate Governance Committee consisted of Messrs. Scher, Sikar, and Sent or Lee. Effective January
11, 2019, Mr. Sent replaced Mr. Lee on the Committee. None of these members was, at any time during fiscal year 2019, or at any
previous time, a Lifeway officer or employee.
None
of Lifeway’s executive officers served as a member of the board of directors or compensation committee of any other entity
that has one or more of its executive officers serving as a member of Lifeway’s Board. No member of the Audit and Corporative
Governance Committee has or had any relationship with us requiring disclosure under Item 404 of Securities and Exchange Commission
Regulation S-K.
COMPENSATION
COMMITTEE REPORT
The following
report does not constitute soliciting material and is not considered filed or incorporated by reference into any other filing
by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
The Compensation
Committee has reviewed and discussed with management the Compensation Discussion and Analysis section of this Form 10-K Amendment,
including the related compensation tables, notes, and narrative discussion. Based on its review and discussions with management,
the Compensation Committee recommended to the Board the inclusion of the Compensation Discussion and Analysis in this Form 10-K
Amendment.
Respectfully Submitted,
COMPENSATION COMMITTEE
Jason Scher, Chairperson
Jody Levy
THE FOREGOING
COMPENSATION COMMITTEE REPORT SHALL NOT BE “SOLICITING MATERIAL” OR BE DEEMED FILED WITH THE SEC, NOR SHALL SUCH INFORMATION
BE INCORPORATED BY REFERENCE INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE EXCHANGE ACT, EXCEPT TO THE
EXTENT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
Employment agreements,
severance, and change-in-control arrangements between Lifeway and Named Executive Officers
NEO
Employment Agreements
Julie
Smolyansky serves Lifeway pursuant to an employment agreement dated as of September 12, 2002. Pursuant to the agreement, Ms. Smolyansky
is entitled to an annual base salary and an annual bonus subject to such incentive bonus targets and plans that Lifeway may adopt
from time to time. In both 2018 and 2019, Ms. Smolyansky was entitled to receive an annual base salary of $1,000,000, an amount
that the Board reviews annually. She is also eligible for certain cash, equity, and other incentive awards based on the satisfaction
of the Board’s pre-established performance goals. In 2018 and 2019, the Board set bonus targets for her in compliance with
its Omnibus Plan and applicable IRS regulations governing performance-based compensation for which Ms. Smolyansky is eligible.
In the event that (a) Ms. Smolyansky is terminated other than for Cause (as defined therein) or (b) Ms. Smolyansky terminates
her employment for Good Reason (as defined in the agreement) or due to her death, then Ms. Smolyansky is entitled to a lump sum
payment consisting of (y) twice her then-current base salary and (z) the aggregate of the annual bonus for which she is then eligible
under the agreement and any plans.
Edward
Smolyansky serves as Lifeway’s Chief Operating Officer and is not subject to an employment agreement. Pursuant to the terms
of his employment set by the Board, Mr. Smolyansky is entitled to an annual base salary and is also eligible for certain cash,
equity, and other incentive awards based on the satisfaction of the Board’s pre-established performance goals. In both 2018
and 2019, Mr. Smolyansky was entitled to receive an annual base salary of $1,000,000, an amount that the Board reviews annually.
In 2018 and 2019, the Board set bonus targets for him in compliance with its Omnibus Plan and applicable IRS regulations governing
performance-based compensation. Mr. Smolyansky is not subject to any severance or change-in-control arrangements.
Douglas
A. Hass served Lifeway through December 31, 2019 pursuant to an employment agreement dated as of April 21, 2017 and effective
January 1, 2017. Mr. Hass’ position of General Counsel was eliminated as part of Lifeway’s ongoing organizational
restructuring effective December 31, 2019. Mr. Hass also resigned as Secretary of the Company, and his employment agreement was
terminated, effective December 31, 2019. In both 2018 and 2019, Mr. Hass’s base salary was $354,000. Pursuant to the agreement,
Mr. Hass was also eligible for certain cash, equity, and other incentive awards based on the satisfaction of the Board’s
pre-established performance goals. In 2018 and 2019, the Board set bonus targets for him in compliance with its Omnibus Plan and
applicable IRS regulations governing performance-based compensation. Pursuant to his employment agreement, upon Mr. Hass’
resignation he was entitled to, and received, the payments and benefits set forth in the table below.
|
Benefit
|
Dollar Amount
|
Base Salary
|
The remainder of the term or 6 months, whichever is greater
|
$350,000
|
|
|
|
Bonus Payments
|
Greater of (i) bonus for fiscal year of termination date (ii) bonus paid for fiscal year
prior to termination date
|
Common Stock in the amount of $11,598
|
|
|
|
Outstanding Equity Awards
|
Accelerated vesting of all outstanding equity awards
|
All of Mr. Hass’ unvested equity awards vested as of December 31, 2019
|
Omnibus
Plan Change of Control Provisions
Pursuant
to Articles 16.1 and 16.2 of the Omnibus Plan, if, prior to the vesting date of an Award under the Omnibus Plan, a Change of Control
occurs and the NEO receives neither (i) a Replacement Award nor (ii) payment for the cancellation and termination of the Award,
then all then-outstanding and unvested Stock Options, Stock Appreciation Rights, and Awards whose vesting depends merely on the
satisfaction of a service obligation by the NEO shall vest in full and be free of vesting restrictions.
Pursuant
to Article 16.3 of the Omnibus Plan, upon an NEO’s termination of employment other than for Cause in connection with or
within two years after a Change of Control, then (i) all Replacement Awards shall become fully vested and (if applicable) exercisable
and free of restrictions, and (ii) all Stock Options and Stock Appreciation Rights held by the NEO on the date of termination
that were held on the date of the Change of Control shall remain exercisable for the term of the Stock Option or Stock Appreciation
Right.
Capitalized
terms used in this section but not defined herein have the meanings assigned to them in the Omnibus Plan.
There
are no other agreements with the NEOs that provide for payments in connection with resignation, retirement, termination of employment,
or change in control other than the employment agreements described above.
Equity
Compensation Plans
The following
table sets forth certain information, as of December 31, 2019, regarding the shares of Lifeway’s common stock authorized
for issuance under our Omnibus Plan.
Plan category
|
|
(a)
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
(b)
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
(c)
Number
of securities remaining available for
future
issuance under equity compensation plans (excluding securities reflected in column (a))
|
Equity compensation plans approved by security holders
|
|
|
40,550
|
|
|
$
|
10.42
|
|
|
|
3,377,096
|
|
Equity compensation plans not approved by security
holders
|
|
|
0
|
|
|
$
|
0
|
|
|
|
–
|
|
Total
|
|
|
40,550
|
|
|
$
|
10.42
|
|
|
|
3,377,096
|
|
On March
29, 2016, Lifeway filed a registration statement on Form S-8 with the Securities and Exchange Commission in connection with the
Omnibus Plan covering 3,500,000 shares of our common stock, as adjusted. We adopted the Omnibus Plan on December 14, 2015. Pursuant
to the Plan, we may issue common stock, options to purchase common stock, stock appreciation rights, restricted stock, restricted
stock units, performance units, performance shares, cash-based awards and other stock-based awards to our employees. A total of
3,377,096 shares were eligible for issuance under the Plan at December 31, 2019. The Compensation Committee has the discretion
to determine the option price, number of shares, grant date, and vesting terms of awards granted under the Plan.
Outstanding
Equity Awards at Fiscal Year End
The following
table provides information regarding each unexercised stock option and unvested restricted stock award held by our NEOs as of
December 31, 2019.
|
|
Option
awards
|
|
Stock awards
|
Name
|
|
Grant
Date
|
|
Number
of securities underlying unexercised options exercisable
(#)
|
|
Option
exercise
price
($)
|
|
Option
expiration date
|
|
Number
of shares or units of stock that have not vested
(#)
|
|
Market
value of shares of units of stock that have not vested
($)
(1)
|
|
Equity
incentive
plan
awards: Number of
unearned
shares,
units or other rights that have not vested
(#)
|
|
Equity
incentive
plan
awards: Market or payout value of
unearned
shares,
units or other rights that have not vested
($)
(1)
|
Julie Smolyansky
|
|
8/7/17(2)
|
|
|
|
|
|
|
|
|
|
|
32,015
|
|
|
$
|
63,710
|
|
|
|
–
|
|
|
$
|
0
|
|
|
|
3/22/19(3)
|
|
|
|
|
|
|
|
|
|
|
4,078
|
|
|
$
|
8,769
|
|
|
|
224,403
|
|
|
$
|
446,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
8/7/17(2)
|
|
|
|
|
|
|
|
|
|
|
32,015
|
|
|
$
|
63,710
|
|
|
|
–
|
|
|
$
|
0
|
|
|
|
3/22/19(3)
|
|
|
|
|
|
|
|
|
|
|
4,078
|
|
|
$
|
8,769
|
|
|
|
224,403
|
|
|
$
|
446,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas A. Hass
|
|
7/1/16 (4)
|
|
150
|
|
$
|
9.57
|
|
|
7/1/26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The market values of these stock awards are calculated by
multiplying the number of unvested/unearned shares held by the applicable NEO by the closing price of our common stock on
December 31, 2019, the last trading day of our fiscal year, which was $1.99.
|
|
|
|
|
(2)
|
Represents a time-based restricted stock award pursuant to
Lifeway’s 2015 Omnibus Incentive Plan. As discussed above in the section “Consent by Danone to Common Stock Issuances,”
these unvested stock awards (Performance Shares) earned for fiscal year 2017 are subject to Danone’s consent to issuances
of performance-based, long-term incentive stock awards for fiscal year 2017 to our CEO and COO. Of such time-based
restricted stock, 32,015 would have vested on March 12, 2020, but were cancelled, terminated and extinguished pursuant to
resolutions adopted by our Audit and Corporate Governance Committee in exchange for a cash payment equal to the value of the
vested shares on their vesting date.
|
|
|
|
|
(3)
|
Represents a time-based restricted stock award pursuant to
Lifeway’s 2015 Omnibus Incentive Plan. As discussed above in the section “Consent by Danone to Common Stock Issuances,”
unvested stock awards (Performance Shares) are subject to Danone’s consent to issuances of performance-based, long-term
incentive stock awards for fiscal year 2019 to our CEO and COO.
|
|
|
|
|
(4)
|
The time-based vesting condition has been met and the options
are fully-vested and exercisable.
|