ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information About Our Directors
Ludmila Smolyansky, Founder and Chairperson of the Board
|
Age: 71
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). The Smolyansky 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:
|
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: 46
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). The Smolyansky 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: 41
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 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. The Smolyansky 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: 73
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: 46
Director Since: 2012
|
|
Board Leadership Roles:
• Lead Independent
Director
• Chairperson, Audit
and Corporate Governance Committee
• Audit Committee
Financial Expert
• Chairperson, Compensation
Committee
|
JASON SCHER was elected
as a Director of the Company 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: 42
Director Since: 2020
|
|
Board Leadership Roles:
• Independent Director
• Member, Audit and
Corporate Governance Committee
• Member, Compensation
Committee
|
Jody Levy was elected 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.
Dorri McWhorter, Director
|
Age: 47
Director Since: 2020
|
|
Board Leadership Roles:
• Independent Director
• Audit Committee
Financial Expert
• Audit Committee
Member
• Compensation Committee
Member
|
Dorri McWhorter was elected as a director
of Lifeway in 2020. Ms. McWhorter is, and has been since 2013, CEO of YWCA Metropolitan Chicago. Ms. McWhorter increased the impact and
organizational sustainability of the YWCA Chicago including, increasing the operating budget has grown from $10.5 million in 2013 to an
expected $35 million in 2021, expanding services and participating in initiatives across the region, including Census 2020 outreach and
engagement, COVID-19 relief, Contact Tracing, and community economic development efforts on the south and west sides of the city by the
acquisition and strategic integration of other direct service and policy organizations. She has led YWCA’s development of innovative
digital services the process for the YWCA to partner on the development and launch of an exchange traded fund (ETF) for women’s
empowerment (NYSE: WOMN) in partnership with Impact Shares, which is the first non-profit investment advisor to develop an ETF product.
Priding herself on being a socially-conscious business leader, committed to creating an inclusive marketplace by leveraging a cross-sector
approach of engaging business, civic and community partners, Ms. McWhorter included in the inaugural list of “The Blue Network”,
comprised of the top 100 innovators in Chicago, by Chicago Tribune’s Blue Sky Innovation and recognized by Good City Chicago receiving
its Innovative Leader Award. Dorri is a 2019 Inductee in the Chicago Innovation Hall of Fame. Ms. McWhorter is also a CPA. Prior to joining
the YWCA, she was a partner at Crowe Horwath, LLP, one of the largest accounting firms in the U.S.. She also held senior positions with
Snap-on Incorporated and Booz Allen Hamilton. She also serves on the Board of Directors for William Blair Funds and Skyway Concession
Company (Chicago Skyway). Ms. McWhorter is also active in the accounting profession having served as a member of the Board of Directors
of the American Institute of Certified Public Accountants (AICPA) and is the current Chairperson of the Board of Directors for the Illinois
CPA Society. She also serves as Co-Chair of the Advisory Board of the First Women’s Bank (in development). Ms. McWhorter is dedicated
to empowering women as a founding member of the Women in Entrepreneurship Institute at DePaul University and Women’s Philanthropy
Institute at Indiana University. Her civic and philanthropic leadership includes the board of directors for the Chicago Center for Arts
and Technology, 1871 (Technology Business Accelerator), Chicago Council on Global Affairs, Civic Consulting Alliance, Civic Federation,
and Forefront. She is also a member of the Illinois Charitable Trust Board. Ms. McWhorter received a bachelor of business administration
degree from the University of Wisconsin-Madison, a master of business administration degree from Northwestern University’s Kellogg
School of Management, and an honorary Doctor of Humane Letters from Lake Forest College.
Key Attributes, Experience and Skills:
|
Ms. McWhorter’s
breadth of experience in health platforms, and her financial and accounting expertise and business experience as Chief Financial Officer
make her a valuable addition to our Board. In addition, Ms. McWhorter has been an operational, team, and project leader; and served as
a senior executive, board member and community leader for over twenty years. Her experience has provided her with a broad understanding
of the financial, and strategic issues facing health related companies like ours. Her industry and financial experience makes her well
qualified for service on our Board.
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, 2020, with the exception of a late Form 4 report for Eric Hanson reporting two transactions and
a late Form 3 report for Jody Levy.
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 2021 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 15, 2021. 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.
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
and on March 22, 2021, Ms. McWhorter was appointed as a member of the 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 and Ms. McWhorter are 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.
Mr. Sent was the Chairperson of the Committee
and Lead Independent Director until January 24, 2020. Mr. Scher replaced Mr. Sent as a Chairperson of the Audit and Corporate Governance
Committee and Lead Independent Director on January 24, 2020 and Ms. Levy replaced Mr. Sent as a member of the Audit and Corporate Governance
Committee on February 11, 2020. Ms. McWhorter was appointed as a member of the Audit and Corporate Governance Committee on October 16,
2020.
Compensation Committee
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 Compensation Committee with Mr.
Scher appointed as the Chairperson. Ms. McWhorter was appointed as a member of the Compensation Committee on March 22, 2021. The Board
has determined that each member of the Compensation Committee is “independent” as defined by applicable SEC rules and the
listing standards of Nasdaq and Rule 16b-3 of the Securities Exchange Act of 1934.
Pursuant to its charter, the Compensation Committee is responsible
for, among other things:
|
•
|
Reviewing Lifeway’s overall compensation philosophy and strategy;
|
|
•
|
At least annually, with all Board authority delegated to the
Compensation Committee, reviewing, approving and evaluating corporate goals and objectives relevant to the compensation of our CEO
and COO and the consulting fees of Ludmila Smolyansky and evaluating their performance in light of the relevant goals and
objectives, and determining and approving their compensation or consulting fees, as applicable, including any equity incentive plan
awards;
|
|
•
|
At least annually, reviewing the performance of the Company's executive officers and determining and approving, subject to Board approval, compensation of executive officers other than the CEO and COO;
|
|
•
|
Making recommendations to the Board with respect to incentive-compensation plans and equity-based plans that are subject to Board approval;
|
|
•
|
Reviewing the Company's incentive compensation arrangements to determine whether they encourage excessive risk-taking, to review and discuss at least annually the relationship between risk management policies and practices and compensation, and to evaluate compensation policies and practices that could mitigate any such risk;
|
|
•
|
Reviewing all director compensation for service on the Board and Board committees at least once a year and recommend changes to the Board as necessary;
|
|
•
|
Administering the Company's equity compensation plans, and grant awards under such plans;
|
|
•
|
Overseeing the administration of the Company's employee benefit plans;
|
|
•
|
Preparing or cause to be prepared, if required or determined by the Compensation Committee to be in the best interest of the Company and its shareholders, the Compensation Discussion and Analysis and the Compensation Committee Report on Executive Compensation to be included in the Company's Annual Proxy Statement;
|
|
•
|
At least once per year, evaluating the Company's performance in the area of diversity in the Company's workforce;
|
|
•
|
Conducting an annual self-evaluation of the Committee and each of its members individually; its performance of its duties under this Charter; and the effectiveness of the overall compensation philosophy of the Company;
|
|
•
|
Overseeing regulatory compliance with respect to compensation matters;
|
|
•
|
Reviewing and approving employment or severance arrangements with senior management;
|
|
•
|
Approving and overseeing the application of the Company’s Clawback Policy with respect to Section 16 Officers; and
|
|
•
|
Reviewing its charter at least annually and recommending any proposed changes to the Board for approval..
|
Information about our Executive Officers
Our 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.
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 employment agreements that we have more fully describe below under “Employment agreements and change-in-control arrangements
between the Company and Named Executive Officers.”
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 The Azek Company 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 and an MBA from Northwestern University’s Kellogg
School of Management.
Amy Feldman, Senior Executive Vice President of Sales
|
Age: 45
|
|
Officer Since: 2018
|
|
NEO: Yes
|
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 Senior
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.
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 2020 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
|
|
|
|
|
|
Eric Hanson
|
46
|
2018
|
Chief Financial and Accounting Officer and Treasurer
|
No
|
Amy Feldman
|
43
|
2018
|
Senior Executive Vice President of Sales
|
Yes
|
The tables that follow this Compensation Discussion
and Analysis contain specific data about the compensation earned in 2020 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 peer group companies that are similarly situated to Lifeway; 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) and our long-term performance (as reflected in stock appreciation for equity-based awards under the Lifeway Foods, Inc. 2015 Omnibus Incentive Plan (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 our 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.
Prior to May 2020, the Audit and Corporate Governance
Committee was responsible for performing the functions of a compensation committee of the Board. Thereafter, 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.
Pursuant to the powers granted in its charter, the Compensation Committee reviewed the then current compensation for executive officers,
compensation processes, the then current compensation philosophy of the Company, recent changes to management’s organization and
responsibilities, market data relating to similar positions at similarly situated companies and Covid 19 pandemic uncertainties. Based
on these reviews, the Compensation Committee reviewed and set compensation levels in 2020 to reflect changes made to management organization
through 2019 consistent with market rates of total compensation for similarly situated executive positions. The Compensation Committee
also adjusted compensation setting processes to gather additional information about performance of the individual employees for whose
compensation it was responsible and to address concerns by certain executive officers. In 2021, the Compensation Committee intends to
continue the review and updating of compensation related procedures and to implement a compensation plan that incentivizes both near-term
and long-term objectives. 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 Compensation Committee intends to continue to designate a portion of executive compensation to be
“at risk” and therefore dependent on achieving performance goals and comprised in part of equity compensation that will appreciate
only to the extent that shares held by our shareholders also appreciate.
The Compensation Committee reviews our compensation
design and philosophy on an annual basis to ensure that our executive compensation program continues to support our strategy and objectives
and aligns with our shareholders’ interests.
Compensation Oversight Role of the Audit and Corporate Governance
Committee and Compensation Committee
Prior to May 2020, the Audit and Corporate Governance
Committee assisted our Board of Directors by discharging responsibilities relating to the compensation of our executive officers, including
our NEOs. Thereafter, the Board of Directors formed a Compensation Committee to perform such functions. As such, the Audit and Corporate
Governance Committee previously had, and the Compensation Committee currently has, responsibility over certain matters relating to the
reasonable and competitive compensation of our executives, certain employees who are family members of our executive officers and directors,
and directors (only non-employee directors are compensated as directors) as well as matters relating to equity-based benefit plans. 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 and Rule 16b-3 of the Securities Exchange Act of 1934. We believe that their independence from management
allowed the members of the Audit and Corporate Governance Committee, and also allows 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 Compensation Committee is responsible
for, among other things:
|
•
|
Reviewing Lifeway’s overall compensation philosophy and strategy;
|
|
•
|
At least annually, with all Board authority delegated to the Compensation Committee, reviewing, approving and evaluating corporate goals and objectives relevant to the compensation of our CEO and COO and the consulting fees of Ludmila Smolyansky and evaluating their performance in light of the relevant goals and objectives, and determining and approving their compensation or consulting fees, as applicable, including any equity incentive plan awards;
|
|
•
|
At least annually, reviewing the performance of the Company's executive officers and determining and approving, subject to Board approval, compensation of executive officers other than the CEO and COO;
|
|
•
|
Making recommendations to the Board with respect to incentive-compensation plans and equity-based plans that are subject to Board approval;
|
|
•
|
Reviewing the Company's incentive compensation arrangements to determine whether they encourage excessive risk-taking, to review and discuss at least annually the relationship between risk management policies and practices and compensation, and to evaluate compensation policies and practices that could mitigate any such risk;
|
|
•
|
Reviewing all director compensation for service on the Board and Board committees at least once a year and recommend changes to the Board as necessary;
|
|
•
|
Administering the Company's equity compensation plans, and grant awards under such plans;
|
|
•
|
Overseeing the administration of the Company's employee benefit plans;
|
|
•
|
Preparing or cause to be prepared, if required or determined by the Compensation Committee to be in the best interest of the Company and its shareholders, the Compensation Discussion and Analysis and the Compensation Committee Report on Executive Compensation to be included in the Company's Annual Proxy Statement;
|
|
•
|
At least once per year, evaluating the Company's performance in the area of diversity in the Company's workforce;
|
|
•
|
Conducting an annual self-evaluation of the Committee and each of its members individually; its performance of its duties under this Charter; and the effectiveness of the overall compensation philosophy of the Company;
|
|
•
|
Overseeing regulatory compliance with respect to compensation matters;
|
|
•
|
Reviewing and approving employment or severance arrangements with senior management;
|
|
•
|
Approving and overseeing the application of the Company’s Clawback Policy with respect to Section 16 Officers; and
|
|
•
|
Reviewing its charter at least annually and recommending any proposed changes to the Board for approval..
|
Through May 2020, the Audit and Corporate Governance
Committee was, and thereafter 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. The Chairperson
of the Compensation Committee reviews, negotiates and executes any engagement letters with compensation consultants engaged by the Committee.
All compensation consultants will report directly to the Compensation Committee.
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 for fiscal year 2020. As part of its engagement in 2019, the Audit and Corporate Governance
Committee directed Lockton to work with our former 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 and 2020, 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 reflecting 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. However, the newly formed Compensation Committee was able to consult with Lockton in 2020 about its report regarding
2020 compensation. The newly formed Compensation Committee underwent a process to identify and engage a new independent compensation consultant
to assist in a review of the compensation philosophy described above, the peer group and the compensation strategies, structures and amounts
for directors and officers in 2021. In January 2021, the Compensation Committee engaged Aon Consulting, Inc. as its compensation consultant
for fiscal year 2021.
The Compensation
Program Design
Elements of Compensation
To achieve the compensation objectives described in our philosophy
above, we have historically 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.
In 2020, the newly constituted Compensation Committee undertook a review
of compensation related processes. Based on that review the Compensation Committee began to modify processes related to compensation in
order to ensure efficiency and accumulation of data from compensation consultants, employees and additional research and other advisors
as needed, in order to guide compensation decisions. The Compensation Committee also undertook a review of changes to management’s
organization and responsibilities through the end of 2019. The Compensation Committee, in consultation with the compensation consultant,
reviewed executive officers’ then current responsibilities and market data relating to similar positions at similarly situated companies
as well as as well as the limitations that Danone has imposed on Lifeway issuing our CEO and COO equity compensation (as described more
fully below in the section “Consent by Danone to Common Stock Issuances”), the effects of Covid 19 pandemic and determined
to adjust executive officers’ total compensation levels and for 2020 the mix of compensation components. As result and as more fully
set forth in the Summary Compensation Table and footnotes thereto, our CEO’s and COO’s base salaries were not changed and
our Senior Executive Vice President of Sales’ was increased, our CEO’s opportunities to earn incentive awards were increased
and she was awarded one time discretionary bonus based on the Company’s and her performance during the Covid 19 pandemic, our COO
received no bonus opportunities and the bonus opportunities awarded to our Senor Executive Vice President of Sales were decreased. Incentive
cash bonuses, and for the CEO, cash and equity incentive opportunities awarded, were to be earned, if at all, based on the Company meeting
designated financial and operational targets that the Compensation Committee believes correlate with operating performance and long-term
stock performance. The Compensation Committee also awarded a $250,000 discretionary cash bonus to our CEO in recognition of the effective
continuation and growth of the Company’s business during the COVID-19 pandemic which the Compensation Committee credited to the
preparation by the CEO for the impact of the COVID-19 pandemic prior to shelter in place orders and shut downs, including, but not limited
to, increasing supply purchases, establishing multiple back up supply lines and delivery options and establishing policies and procedures
for the health and safety of the Company’s employees and for avoidance of production stoppage which were effective.
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. In prior fiscal years, including 2019, the Audit and Corporate Governance Committee adopted 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 Compensation Committee. For fiscal year 2020, eligibility for long term plan participation was limited to Ms. Smolyansky.
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, our named executive officers
are 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.
|
|
|
|
|
|
|
|
|
|
The Compensation Committee, and prior to 2020, the Audit and Corporate Governance Committee, adopted formalized
performance-based cash incentive award plans that provide certain, if not all, executive officers and certain other senior managers an
opportunity to earn a bonus for each fiscal year. Such bonuses were earned based on achievement of Company, and with respect to our Senior
Executive Vice President of Sales, individual or department performance goals, that were reviewed and approved by the committee responsible
for compensation related matters. For fiscal year 2020, eligibility for short term incentive award plan participation was limited to our
CEO, CFO and Senior Executive Vice President of Sales.
We provide more details on this element below.
|
|
|
|
|
|
Perquisites and Benefits
|
|
Varies
|
|
Provides perquisites and benefits to facilitate the operation of our
business and assist us in recruiting and retaining key executives.
|
|
|
|
|
|
|
|
|
|
Perquisites and benefits 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.
|
Equity Incentive Program
Our NEOs and certain other key employees designated
by the Compensation Committee and Board, as applicable, are eligible to receive equity awards, including for example performance units,
performance shares or restricted stock units, under Lifeway’s 2015 Omnibus Incentive Plan (the “Omnibus Plan”). The
2019 equity incentive plan had a three-year performance period for all plan participants during which they could earn performance shares
with time-based vesting if Lifeway exceeds specified financial performance criteria set by the Board for each year in the three-year performance
period. The 2020 equity incentive plan had a one year performance period for which Ms. J. Smolyansky, our Chief Executive Officer, could
earn restricted stock with time-based vesting if Lifeway exceeded specified financial performance criteria during the performance period.
The amount and value of the awards actually granted by the Compensation Committee depend on our performance relative to the performance
goals approved by the Compensation Committee and/or Board, as applicable.
Under the 2019 and 2020 equity incentive plans,
assuming above-threshold performance and approval of the Compensation Committee, performance shares and restricted stock units, respectively,
will be granted to the eligible participants pursuant to the Omnibus Plan and the terms and conditions of the applicable award agreements.
Under the 2019 equity incentive plan one half
of any performance unit awards granted to 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. At the time of grant,
the Audit and Corporate Governance Committee believed 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.
In the first and second year of the 2019 performance
period, Lifeway achieved certain performance measures previously approved by the Audit and Corporate Governance Committee and Board for
which our named executive officers and other senior management earned awards as detailed below in the Summary Compensation Table. The
awards earned by our CEO and COO are subject to Danone’s consent as discussed further below. The awards for the second year of the
2019 performance period are subject to a vesting schedule previously approved by the Audit and Corporate Governance Committee and the
Board 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.
Under the 2020 equity incentive plan, Lifeway
achieved certain performance measures previously approved by the Compensation Committee under our 2015 Omnibus Plan for which Ms. Smolyansky
earned long-term incentive stock awards subject to Danone’s consent as discussed further below. The restricted shares earned by
Ms. Smolyansky pursuant to the 2020 long term incentive plan are subject to a vesting schedule previously approved by Compensation Committee
which provided that one third of the restricted shares earned will vest on each of the one year, two year and three year anniversaries
of the grant. Please see the detailed information presented in the Summary Compensation Table below.
Setting a Target Value
The Audit and Corporate Governance Committee established
a target level of total annual equity compensation for each eligible participant under the 2019 equity incentive plan. The Compensation
Committee established such target levels of total annual equity compensation the participant under the 2020 equity incentive plan. If
our performance meets both of the target performance goals, all restricted stock will be earned and, subject to Danone consent, issued.
Performance Measures
The following table outlines the performance measures
that the Compensation Committee used in fiscal year 2020. The Committee also determined it was important to incentivize and reward growth
of the Company during the Covid 19 pandemic without the need to tap into governmental assistance rather than focusing on expanding particular
product offerings or introducing new products. The Compensation Committee selected these performance measures because they align with
expansion by increasing revenue and profitability of existing products and ensuring our leaders are accountable for driving long term
profitability and sustainability of the Company. Due to the realignment of management through 2019 and the Compensation Committee’s
determinations with respect to total compensation setting during the COVID 19 pandemic, the Compensation Committee determined not to provide
long term incentive opportunities to employees other than our CEO in 2020. The Committee believe the performance measures set as described
below are key drivers of our long-term success and shareholder value, and directly affected by the decisions of our management team lead
by our CEO.
Performance Measures
|
Growth of revenue
|
Adjusted EBITDA
|
The following table outlines the performance measures
that the Audit and Corporate Governance Committee used in the 2019 equity incentive program. 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 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%
|
|
The likelihood of our NEOs and other key employees
earning nonequity and equity incentive awards in 2021 is dependent on our 2021 financial results and whether we meet the goals set by
the Compensation Committee or previously set by the Audit and Corporate Governance Committee. This outcome is dependent on many other
factors. As demonstrated by the incentive payouts in years prior to 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.
Equity Incentive Plan Mechanics
To receive restricted shares under the 2020 equity
incentive program, both of the minimum performance thresholds must have been met in 2020. The performance thresholds are not independent
and, if the performance level for any performance measure is not met, then no restricted shares will be earned by or granted to our CEO.
The number of restricted shares to be granted if both performance measures are exceeded is 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 under certain circumstances. The number of restricted shares to be granted is calculated by dividing $750,000 by our stock
price on the award date.
To receive a performance shares under the 2019
equity incentive program, 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 shares granted is determined by using the percentage of performance award allocated
to that particular threshold as set forth below applied to the individual employee’s maximum award potential, subject to Committee-approved
variation due to material events not contemplated at the time the targets were set (such as major acquisitions).
The following chart shows the threshold and percentage
of the performance award allocated to such measurement under the 2019 equity incentive plan:
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 Compensation Committee are eligible to receive cash incentive awards under the Omnibus Plan based performance of the
Company. The 2020 cash incentive award cycle had one-year performance period for all executives who were provided the opportunity to participate
in the short term incentive program by the Compensation and, where required, the Board.
The Compensation 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 Compensation Committee focused solely on the financial performance metrics described below (Adjusted
EBITDA). The amount and value of the 2020 awards depended on our performance relative to the performance goals approved by the Compensation
Committee.
Under the Short Term Incentive program, assuming
above-minimum threshold performance, cash awards were granted to the eligible participants, including executive officers, pursuant to
the Omnibus Plan.
Setting Target Awards
As discussed above, the Compensation 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 falls short of the target performance goals, no amount of cash will be paid.
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
|
Adjusted EBITDA(1)
|
|
EBITDA before the impact of stock-based compensation, bad debt expense,
gains or losses on sales of property and equipment, deferred revenue, and other certain non-cash expenses.
|
(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.
Short Term Incentive Plan Mechanics
To have received a 2020 cash award, the
Adjusted EBITDA minimum performance thresholds of must have been met. If the Adjusted EBITDA minimum threshold was met, the award
was funded. If the minimum performance level for the Adjusted EBITDA performance measure was not met, then there was no funding
attributable to that performance measure.
Discretionary Incentive Awards
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; (iv) individual contributions, roles, and responsibilities,
which, by their nature, can involve subjective assessments; and (v) other factors the Committee deems significant.
In fiscal 2020, 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 use of a Company leased vehicle and a vehicle allowance to our Senior Executive Vice President of
Sales. In exploring, planning, and implementing the expansion of Lifeway’s product distribution, overseeing production at our facilities
and in supporting and developing the Lifeway brand and sales, our CEO, COO and Senior Executive Vice President of Sales require extensive
travel. Accordingly, we provide use of a Company leased vehicle to both Ms. Smolyansky and Mr. Smolyansky and a vehicle allowance to Ms.
Feldman. We do not provide additional compensation or bonuses to cover, reimburse, or otherwise “gross-up” any income tax
owed on this compensation.
Benefits
We provide our executive officers, including NEOs,
with certain benefits that the Audit and Corporate Governance Committee through May 2020, and thereafter, the Compensation 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 applicable committee has periodically reviewed, and going forward the Compensation
Committee continue to periodically review, the levels and structure 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
Section 162(m) of the Internal Revenue Code (the
“Code”) limits the deductibility of compensation paid to certain of our executives. Under the Tax Cuts and Jobs Act (the “Act”)
amendments to Section 162(m), no tax deduction in taxable years beginning after December 31, 2017 is allowed for compensation paid to
any covered employee to the extent that the total compensation for that covered employee exceeds $1,000,000 in any taxable year. Although
the Act eliminated the prior tax deduction under Section 162(m) for performance-based executive compensation, it included a transition
rule under which the changes to Section 162(m) will not apply to awards made to our covered employees who had the right to participate
in our 2015 Omnibus Incentive Plan pursuant to written binding contracts in effect as of November 2, 2017, as long as those contracts
have not subsequently been modified in any material respect. Accordingly, subject to further guidance from the Treasury Department and
the Internal Revenue Service (“IRS”), the performance-based compensation paid to our executives under our Omnibus Plan remained
eligible for the Section 162(m) exemption in 2019. Beginning in 2020, compensation exceeding the threshold for covered employees is non-deductible
for income tax purposes.
The Audit and Corporate Governance Committee,
in consultation with its outside advisors and management, monitored 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 viewed 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, neither the Audit and Corporate Governance
Committee, nor the Compensation Committee has not adopted a policy that all compensation must be tax deductible. The Compensation Committee
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 Compensation
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 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.
In identifying the peer group of surveyed companies,
the Committee considered market information available through both Equilar, Inc., a leading executive compensation 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 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 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 information
in 2019 in connection with its work on 2020 compensation processes and the Compensation Committee reviewed the peer group information
in 2020, with the assistance of management and consultation with Lockton, as necessary. No companies were removed from Lifeway’s
peer group for fiscal 2020 compensation planning.
As part of our ongoing review, we added Bridgford
Foods Corp. to our peer group for fiscal year 2020 compensation planning so that it consisted of the following companies:
Peer group used for fiscal year 2020 compensation planning
|
|
|
|
|
|
•
|
Alico, Inc.
|
|
•
|
Limoneira Company
|
•
|
Bridgford Foods Corp.
|
|
•
|
Medifast Inc.
|
•
|
Castle Brands, Inc.
|
|
•
|
MGP Ingredients Inc.
|
•
|
Coffee Holding Co., Inc.
|
|
•
|
Primo Water Corp
|
•
|
Craft Brew Alliance, Inc.
|
|
•
|
S&W Seed Company
|
•
|
Crimson Wine Group, Ltd.
|
|
•
|
The Simply Good Foods Co.
|
•
|
Farmer Bros Co
|
|
•
|
Tootsie Roll Industries, Inc.
|
•
|
Freshpet, Inc.
|
|
•
|
Turning Point Brands Inc.
|
•
|
Landec Corp
|
|
•
|
Youngevity International
|
|
|
|
|
|
In consultation with Lockton, the Audit and Corporate
Governance Committee, through May 2020 and the Compensation Committee thereafter, found this peer group to be peers from a pay benchmarking
perspective. 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 Compensation 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 Committees,
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, through May 2020 and the Compensation Committee
thereafter, considered several other factors such as our financial performance and financial condition, the difficulties presented by
the growth of the Covid 19 pandemic, 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 Compensation Committee typically followed most of these recommendations; however, the Committees
has sole authority for the final compensation determination and may have set total compensation and incentive opportunities below, at,
or above median amounts.
The Compensation Committee’s Process
for Setting Compensation Levels
Having been created in May 2020 and given certain delays and uncertainties
resulting from the Covid 19 pandemic, the Compensation Committee was unable to follow the timing for determination of 2020 Compensation
set forth below. The Compensation Committee intends to follow the below process and practice as closely as possible when setting executive
compensation levels going forward:
|
•
|
The Committee ‘s goal is to determine the base salary for our executive officers in the fourth quarter prior to the beginning of a fiscal year. 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.
|
|
•
|
Incentive compensation for executive officers is approved by the Committee. The Committee typically determines annual incentive compensation and thresholds for our executive officers in the fourth quarter of each fiscal year for the subsequent year. It usually certifies Lifeway’s achievement of financial performance goals for the prior fiscal year and long term incentive compensation awards for our executive officers in the first quarter after a fiscal year has ended. The 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 Committee solicits comments from management and employees 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.
|
|
•
|
In conjunction with determining incentive compensation awards for the prior fiscal year, the 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 Committee then determines the individual and corporate performance goals and objectives for the fiscal year.
|
|
•
|
The 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 2020 Compensation
Decisions
We did not increase our NEO’s base salaries
in fiscal year 2020. Subsequent to formation in May 2020, the Compensation Committee undertook a review of changes to management’s
organization and responsibilities through the end of 2019. The Compensation Committee, in consultation with the compensation consultant,
reviewed executive officers’ then current responsibilities and market data relating to similar positions at similarly situated companies
and determined that the executive officer’s salary levels continued 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 (as described more
fully below in the section “Consent by Danone to Common Stock Issuances”) and with certain limitations on bonus opportunities
in 2020 for executive officers’ whose responsibilities were shifted to other employees, thus reducing their total compensation opportunity.
Fiscal Year 2020 and 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 2019 and 2020.
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
|
|
2020
|
|
|
1,000,000
|
|
|
|
250,000
|
|
(5)
|
|
800,320
|
|
|
|
250,000
|
|
|
|
23,856
|
|
|
|
2,324,176
|
|
Chief Executive Officer,
|
|
2019
|
|
|
1,000,000
|
|
|
|
130,000
|
|
|
|
17,534
|
|
|
|
250,000
|
|
|
|
77,460
|
|
|
|
1,474,994
|
|
President and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
2020
|
|
|
1,000,000
|
|
|
|
–
|
|
|
|
50,320
|
|
|
|
–
|
|
|
|
9,582
|
|
|
|
1,059,902
|
|
Chief Operating Officer
|
|
2019
|
|
|
1,000,000
|
|
|
|
130,000
|
|
|
|
17,534
|
|
|
|
250,000
|
|
|
|
62,056
|
|
|
|
1,459,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy Feldman
|
|
2020
|
|
|
300,000
|
|
|
|
60,000
|
|
|
|
10,064
|
|
|
|
75,000
|
|
|
|
41,536
|
|
|
|
486,600
|
|
Senior Executive Vice President of Sales
|
|
2019
|
|
|
220,000
|
|
|
|
-
|
|
|
|
3,507
|
|
|
|
42,500
|
|
|
|
36,478
|
|
|
|
302,485
|
|
(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 of such awards consistent with the estimate of aggregate compensation cost to be recognized in accordance with GAAP 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(G)
|
|
Threshold ($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Total Earned
($)
|
|
% of Total
|
Julie Smolyansky
|
|
2020
|
|
Equity
|
|
–
|
|
|
1,165,799
|
|
(A)
|
|
1,165,799
|
|
(A)
|
|
800,320
|
|
(B)
|
69%
|
Chief Executive Officer,
|
|
|
|
Nonequity
|
|
–
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
100%
|
President and Secretary
|
|
2019
|
|
Equity
|
|
–
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
17,534
|
|
|
4%
|
|
|
|
|
Nonequity
|
|
–
|
|
|
500,000
|
|
|
|
900,000
|
|
|
|
250,000
|
|
|
28%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
2020
|
|
Equity
|
|
–
|
|
|
415,779
|
|
(C)
|
|
415,779
|
|
(C)
|
|
50,320
|
|
(D)
|
12%
|
Chief Operating Officer
|
|
|
|
Nonequity
|
|
–
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
–
|
|
|
2019
|
|
Equity
|
|
–
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
17,534
|
|
|
4%
|
|
|
|
|
Nonequity
|
|
–
|
|
|
500,000
|
|
|
|
900,000
|
|
|
|
250,000
|
|
|
28%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy Feldman
|
|
2020
|
|
Equity
|
|
–
|
|
|
83,159
|
|
(E)
|
|
83,159
|
|
(E)
|
|
10,064
|
|
(F)
|
12%
|
Senior Executive Vice
|
|
|
|
Nonequity
|
|
–
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
100%
|
President of Sales
|
|
2019
|
|
Equity
|
|
–
|
|
|
100,000
|
|
|
|
250,000
|
|
|
|
3,507
|
|
|
4%
|
|
|
|
|
Nonequity
|
|
–
|
|
|
225,000
|
|
|
|
270,000
|
|
|
|
42,500
|
|
|
16%
|
|
(A)
|
Consists of (i) $750,000 under the 2020 long term incentive plan and (ii) $415,779 under the 2019 long term incentive plan based on performance of the Company in 2020.
|
|
(B)
|
Consists of (i) $750,000 under the 2020 long term incentive plan and (ii) $50,320 earned under the 2019 long term incentive plan based on performance of the Company in 2020.
|
|
(C)
|
Consists of $415,779 under the 2019 equity incentive plan based on
performance of the Company in 2020.
|
|
(D)
|
Consists of $50,320 earned under the 2019 equity incentive
plan based on performance of the Company in 2020.
|
|
(E)
|
Consists of $83,159 under the 2019 equity incentive plan
based on performance of the Company in 2020.
|
|
(F)
|
Consists of $10,064 earned under the 2019 equity incentive
plan based on performance of the Company in 2020.
|
|
(G)
|
As discussed below in the section “Consent by Danone to Common Stock Issuances,” we must obtain Danone’s consent before issuing these Performance Shares when they vest (if at all).
|
(4)
|
Details about the amounts in the “All Other Compensation” column are set forth in the table below.
|
All Other Compensation Details
|
Name and Principal Position(s)
|
|
Year
|
|
Retirement Plan Contributions (A)
($)
|
|
Personal Use of Company Vehicle (B)
($)
|
|
All Other Perks
($)
|
|
Other
($)
|
|
Total
($)
|
Julie Smolyansky
|
|
2020
|
|
|
11,400
|
|
|
|
12,456
|
|
|
|
–
|
|
|
|
–
|
|
|
|
23,856
|
|
Chief Executive Officer,
|
|
2019
|
|
|
11,200
|
|
|
|
40,407
|
|
|
|
25,853
|
|
|
|
–
|
|
|
|
77,460
|
|
President and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
2020
|
|
|
–
|
|
|
|
7,182
|
|
|
|
2,400
|
|
|
|
–
|
|
|
|
9,582
|
|
Chief Operating Officer
|
|
2019
|
|
|
–
|
|
|
|
39,684
|
|
|
|
22,372
|
|
|
|
–
|
|
|
|
62,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy Feldman
|
|
2020
|
|
|
8,742
|
|
|
|
14,869
|
|
|
|
17,925
|
|
|
|
–
|
|
|
|
41,536
|
|
Executive Vice President
|
|
2019
|
|
|
8,459
|
|
|
|
14,869
|
|
|
|
13,150
|
|
|
|
–
|
|
|
|
36,478
|
|
of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 (i) an auto allowance in 2019 and (ii) a personal use of vehicle allowance for Julie Smolyansky and Edward Smolyansky and an auto allowance for Amy Feldman.
|
(5)
|
Consists of a $250,000 discretionary cash bonus granted to Ms.
Smolyansky in recognition of the effective continuation and growth of the Company’s business during the COVID-19 pandemic which
the Compensation Committee credited to the preparation by the CEO for the impact of the COVID-19 pandemic prior to shelter in place orders
and shut downs, including, but not limited to, increasing supply purchases, establishing multiple back up supply lines and delivery options
and establishing policies and procedures for the health and safety of the Corporation’s employees and for avoidance of production
stoppage which were effective.
|
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 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.
In 2021, we are seeking Danone’s consent
to the issuance of Performance Shares that (1) will vest in June 2021 and the following two fiscal years granted to non-employee directors
for the 2020-21 Board year, (2) employees other than the CEO and COO earned as incentive awards under the 2019 long term incentive plan,
and (3) were earned by our CEO and COO in 2020 under the 2019 long term incentive plan and/or the 2020 long term incentive plan. No determination
has been made yet.
Danone’s denials have had no impact on the
total incentive compensation earned by our CEO and COO in 2019 and 2020. However, denials serve to eliminate the long-term equity awards
due the CEO and COO in favor of non-equity incentive awards. The newly constituted Compensation Committee is reviewing what is the appropriate
equity and non-equity incentive awards to our CEO and COO appropriate that is in the best interest of our shareholders in light of Danone’s
previous denials. As part of our benchmarking and analysis process described above, the Audit and Corporate Governance Committee and the
Compensation Committee have determined that 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 2020 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 2020. While directors receive annual retainers
based on the June-to-June Board service year, the table below reflects payments made during fiscal year 2020. Ms. Julie Smolyansky and
Mr. Edward 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
($)
|
|
Ludmila Smolyansky
|
|
–
|
|
|
–
|
|
1,600,000
|
(2)
|
|
1,600,000
|
|
Renzo Bernardi
|
|
27,502
|
|
|
30,000
|
|
–
|
|
|
87,502
|
|
Pol Sikar
|
|
57,502
|
|
|
30,000
|
|
–
|
|
|
90,502
|
|
Jason Scher (3)
|
|
153,666
|
|
|
30,000
|
|
–
|
|
|
183,666
|
|
Jody Levy (4)
|
|
111,271
|
|
|
30,000
|
|
–
|
|
|
141,271
|
|
Dorri McWhorter (5)
|
|
55,201
|
|
|
30,000
|
|
–
|
|
|
85,201
|
|
George Sent (6)
|
|
–
|
|
|
–
|
|
–
|
|
|
–
|
|
(1)
|
|
Details about the amounts in the “Stock Awards” column are set forth in the table below
|
Stock Awards Detail
|
Name
|
|
|
Vested Stock
Award
($)
|
|
Restricted Stock
Award(A)
($)
|
|
|
Total
($)
|
|
Ludmila Smolyansky
|
|
|
–
|
|
–
|
|
|
–
|
|
Renzo Bernardi
|
|
|
–
|
|
30,000
|
|
|
30,000
|
|
Pol Sikar
|
|
|
–
|
|
30,000
|
|
|
30,000
|
|
Jason Scher
|
|
|
–
|
|
30,000
|
|
|
30,000
|
|
Jody Levy
|
|
|
–
|
|
30,000
|
|
|
30,000
|
|
Dorri McWhorter
|
|
|
–
|
|
30,000
|
|
|
30,000
|
|
George Sent(B)
|
|
|
–
|
|
–
|
|
|
|
–
|
|
(A)
|
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).
|
|
(B)
|
Mr. Sent resigned as director on January 24, 2020, earned no fees in
2020 and his restricted stock award was not vested and 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 through December 31, 2020. Effective January 1, 2021, Mrs.
Smolyansky will be paid an annual service fee of $500,000 and will also be eligible for an annual performance fee target of $500,000
based on the achievement of specified performance criteria.; and (b) $600,000 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. Scher was appointed as the chairperson of the Audit and Corporate Governance Committee and the Compensation Committee, once formed, and received in 2020 pro rata payments of fees for such positions for partial year service during the Board Year 2019-2020 as well as full year fees for such positions for the Board Year 2020-2021.
|
|
|
|
(4)
|
|
Ms. Levy was elected to the Board and appointed as a member of the Audit and Corporate Governance Committee and Compensation Committee, once formed, and received in 2020 pro rata payments of such fees for such positions for partial year service during the Board Year 2019-2020 as well as full year fees for such positions for the Board Year 2020-2021.
|
|
|
|
(5)
|
|
Ms. McWhorter was elected to the Board and appointed as a member of the Audit and Corporate Governance Committee during the Board Year 2020-2021 and received in 2020 pro rata payments of such fees for such positions for partial year service for the Board Year 2020-2021.
|
|
|
|
(6)
|
|
Mr. Sent resigned as a director in January 2020, during the Board Year 2019-2020, and received no payments in 2020.
|
|
|
|
Committee Interlocks and Insider Participation
During fiscal year 2020, the Audit and Corporate
Governance Committee, serving as the Company’s Compensation Committee until May 2020 when the Compensation Committee was formed,
consisted of Messrs. Scher, Sikar, until January 24, 2020, Mr. Sent, and after February 11, 2020, Ms. Levy. During fiscal year 2020, the
Compensation Committee consisted of Mr. Scher and Ms. Levy. None of these members was, at any time during fiscal year 2020, 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 or Compensation 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 2019 and 2020, 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 2019 and 2020, 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 or, with respect
to compensation, the Compensation Committee, Mr. Smolyansky is entitled to an annual base salary and is also eligible for certain cash,
equity, and other incentive awards as approved and established by the Compensation Committee, and based on the satisfaction of the Compensation
Committee’s pre-established performance goals. In 2019 and 2020, Mr. Smolyansky was entitled to receive an annual base salary of
$1,000,000, an amount that the Compensation Committee reviews annually. In 2019, the Audit and Corporate Governance Committee set bonus
targets for him in compliance with its Omnibus Plan and applicable IRS regulations governing performance-based compensation. In 2020,
the Compensation Committee evaluated his compensation package in light of changes made to management organization through 2019 consistent
with market rates for similarly situated executive positions, including Mr. Smolyansky, and determined that Mr. Smolyansky’s total
compensation package should not exceed his then current salary level. As a result Mr. Smolyansky was not offered a bonus opportunity in
2020. The Compensation Committee further determined that in 2021 Mr. Smolyansky’s total compensation package would reflect
a lower cash salary and an opportunity to earn incentive bonuses. Mr. Smolyansky is not subject to any severance or change-in-control
arrangements.
Amy Feldman serves Lifeway pursuant to an employment
agreement dated as of October 29, 2018. The agreement renews automatically for successive terms of one year on January 1, unless pursuant
to the agreement it is terminated earlier or the Board or Compensation Committee gives timely notice of non-renewal. Ms. Feldman’s
base salary was $220,000 in 2019 and $300,000 in 2020. Her base salary is subject to annual review by the Compensation Committee and the
Board. Pursuant to the agreement, Ms. Feldman is also eligible for certain cash, equity, and other incentive awards based on the satisfaction
of the Board’s pre-established performance goals. In 2019 and 2020, the Board set bonus targets for her in compliance with its Omnibus
Plan and applicable IRS regulations governing performance-based compensation. Lifeway may terminate Ms. Feldman’s employment for
any lawful reason, with or without Cause, and Ms. Feldman may resign for or without Good Reason (each as defined in the agreement).
Pursuant to his employment agreement, Ms. Feldman,
upon Non-Renewal, termination without Cause, or by her resignation with Good Reason (as defined in his Employment Agreement), will be
entitled to certain payments and benefits shown in the tables below. Receipt of any severance amounts under Ms. Feldman’s Employment
Agreement is conditioned on execution of an enforceable general release of claims in a form satisfactory to Lifeway.
|
Non-Renewal
|
Termination without Cause or Resignation for Good Reason
|
Termination for Cause or Resignation Without Good Reason
|
Base Salary
|
3 months after termination date
|
The remainder of the term or 6 months, whichever is greater
|
Through termination date
|
|
|
|
|
Bonus Payments
|
Greater of (i) bonus for fiscal year of termination date and (ii) bonus paid for fiscal year prior to termination date
|
Greater of (i) bonus for fiscal year of termination date and (ii) bonus paid for fiscal year prior to termination date
|
None
|
|
|
|
|
Outstanding Equity Awards
|
Vested but unsettled outstanding equity awards
|
Accelerated vesting of all outstanding equity awards
|
Vested but unsettled outstanding equity awards
|
|
|
|
|
Health Insurance
|
Company-paid COBRA premiums through the earliest of (i) three calendar months after termination date, (ii) the date executive becomes eligible for group health insurance through another employer, or (iii) the date executive ceases to be eligible for COBRA coverage
|
Company-paid COBRA premiums through the earliest of (i) six calendar months after termination date, (ii) the date executive becomes eligible for group health insurance through another employer, or (iii) the date executive ceases to be eligible for COBRA coverage
|
None
|
|
|
|
|
Financial Services or Transition-Related
|
None
|
$10,000
|
None
|
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, 2020, 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
|
|
|
|
3,317,298
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
$
|
0
|
|
|
|
–
|
|
Total
|
|
|
40,550
|
|
|
$
|
10.42
|
|
|
|
3,317,298
|
|
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 3,317,298 shares were eligible for issuance under the Plan
at December 31, 2020. 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, 2020.
|
|
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
|
|
3/22/19(2)
|
|
|
|
|
|
|
|
|
|
|
17,821
|
|
|
$
|
96,411
|
|
|
|
218,819
|
|
|
$
|
1,183,812
|
|
|
|
11/12/20(3)
|
|
|
|
|
|
|
|
|
|
|
146,198
|
|
|
|
$750,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky
|
|
3/22/19(2)
|
|
|
|
|
|
|
|
|
|
|
17,821
|
|
|
$
|
96,411
|
|
|
|
218,819
|
|
|
$
|
1,183,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy Feldman
|
|
3/22/19(2)
|
|
|
|
|
|
|
|
|
|
|
3,566
|
|
|
$
|
19,292
|
|
|
|
43,766
|
|
|
$
|
236,772
|
|
|
(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, 2020, the last trading day of our fiscal year, which was $5.41.
|
|
|
|
|
(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,” unvested stock awards (Performance Shares) are subject to Danone’s consent to issuances of performance-based, long-term incentive stock awards for fiscal year 2020 to our CEO and COO.
|
|
(3)
|
Represents a time-based restricted stock award pursuant to Lifeway’s 2015 Omnibus Incentive Plan the amount of which is recorded as a liability as of 12/31/2020. 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 2020 to our CEO and COO.
|