ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information About Our Directors
Ludmila Smolyansky, Director |
Age: 72 |
|
Board Leadership Roles: |
Director
Since: 2002 |
|
• Chairperson |
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. Ludmila 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. Michael Smolyansky,
her husband, founded Lifeway and Ms. L. Smolyansky served as our General Manager. In 2010, Ms. L. Smolyansky retired as a Lifeway employee.
She has continued to serve Lifeway as its Chairperson of the Board and served as a consultant to Lifeway from 2011 until January 2022.
Ludmila Smolyansky currently holds no other directorship in any other reporting company. She is the mother of Julie Smolyansky (the Chief
Executive Officer of the Company) and Edward Smolyansky (Former Chief Operating Officer of the Company).
Key Attributes, Experience and Skills: |
Ms. Smolyansky brings
many years of food industry experience, historical perspective, and operational expertise to the Board. Her knowledge qualified her for
service on our Board.
Julie Smolyansky, Chief Executive Officer, President, Secretary and Director |
Age: 47 |
|
Board Leadership Roles: |
Director Since: 2002 |
|
• None |
JULIE SMOLYANSKY was appointed as a Director and
elected President and Chief Executive Officer of Lifeway by the Board 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 United Kingdom, 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 sister of Edward Smolyansky (Former Chief Operating Officer
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 Lifeway’s 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, Director |
Age: 42
Director Since: 2017 |
|
Board Leadership Roles:
• None |
EDWARD SMOLYANSKY was elected as a Director in
June 2017. Mr. Smolyansky was appointed as Chief Financial and Accounting Officer and Treasurer of Lifeway in November 2004 and appointed
as the Chief Operating Officer (“COO”) and Secretary in 2012. He resigned his titles as Chief Financial Officer on January
1, 2016 and as COO 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 and served as such until January 2022. 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 Julie Smolyansky (the Chief Executive Officer
of the Company) and the son of Ludmila Smolyansky (the Chairperson of the Board).
Key Attributes, Experience and Skills: |
Mr. Smolyansky’s
financial and operations experience in the dairy and consumer packaged goods industries qualified him for service on the Board .
Age: 74
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: 47
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. Mr. Scher is the manager of JAMP, LLP, an investment fund. From 2016 to present Mr. Scher has been a principal 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 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: 43
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 an entrepreneur, having founded many different types of companies. She
has also acted as chief executive officer of companies at all stages of development from inception to operating with $200mm in annual
revenue. In 2013, Ms. Levy founded World Waters, LLC, the parent company of WTRMLN WTR and served as its Creative Director and Chief Executive
Officer from founding until the company’s sale in 2020. Ms. Levy is currently the chief executive officer and a director of Summit
Group Endeavors LLC (since January 2021) and Summit Series LLC (since September 2020), related companies that produce annual ideas conference
for the thought leaders of our time. Since January 2021, Ms. Levy has also been a director of Summit Junto LLC, an entity related to Summit
Group Endeavors LLC and Summit Series LLC, which produces global events. In 2020, Ms. Levy founded, and has since served as chief executive
officer of LabElymental, a company that helps people get healthy and happy, and NeuroPraxis, a mind repatterning meditation app. As chief
executive officer of companies at all stages of development, Ms. Levy has lead all departments within a company and understands the department
functions and the intersection among them and how to optimize, manage and scale corporate efficiency and production. Ms. Levy has been
a partner in, and advisor to, GEM&BOLT Mezcal since 2014. She also served as a director of Pinata, a company that offers a system
for data driven task management for work, from 2017 to 2019. 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 manufacturing,
marketing and sale of consumer packaged goods, specifically health foods, as well as her financial expertise, depth of knowledge about
all aspects of manufacturing companies and her leadership experience make her well qualified to be a member of our Board.
Dorri McWhorter, Director |
Age: 48
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 the
Company in August 2020. Ms. McWhorter became CEO of YMCA Chicago in 2021. From 2013 until 2021, Ms. McWhorter was the CEO of YWCA Metropolitan
Chicago transforming the organization from a traditional social service organization to 21st Century social enterprise. Increasing impact
and organizational sustainability, YWCA Metropolitan Chicago’s operating budget quadrupled. The organization has been an active
contributor to many critical initiatives across the region, and under Ms. McWhorter’s leadership, YWCA Metropolitan Chicago expanded
its service footprint to 10 new locations, completed seven mergers and acquisitions, implemented paid family leave and developed a retirement
plan to include retirement options for thousands of childcare providers and small business owners. Ms. McWhorter led the effort to develop
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. Ms. McWhorter is a 2019 Inductee in the Chicago Innovation Hall of Fame. Ms. McWhorter is
also a Certified Public Accountant (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.
Ms. McWhorter serves on the boards of directors of Green Thumb Industries
(CSE: GTII)(OTCQX: GTBIF), William Blair Funds and Skyway Concession Company (Chicago Skyway). She is also active in the accounting profession
and serves on the Financial Accounting Standards Advisory Council and having served as a member of the Board of Directors of the American
Institute of Certified Public Accountants (AICPA) and a past Chairperson of the Board of Directors for the Illinois CPA Society. Ms. McWhorter
also serves as Co-Chair of the Advisory Board of the First Women’s Bank (in development). Ms. McWhorter received a BBA from the
University of Wisconsin-Madison, an MBA 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 make her well qualified for service on our Board.
Corporate Governance Guidelines and Code of
Conduct and Ethics
We have adopted Corporate Governance Guidelines
and a Code of Conduct and 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 Conduct and 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 Conduct and 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 Lifeway’s 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, 2021, with the exception of two Form 4s for Ludmila Smolyansky reporting eight transactions
and four transactions, respectively, late, a Form 4 for Edward Smolyansky reporting two transactions late, a Form 4 for Amy Feldman reporting
one transaction late, two Forms 4s for Eric Hanson reporting one transaction late each, a Form 4 for Julie Smolyansky reporting two transactions
late, a Form 4 for Dorri McWhorter reporting one transaction late, a Form 4 for Jason Scher reporting one transaction late, a Form 4 for
Pol Sikar reporting one transaction late and a Form 4 for Jody Levy reporting one transaction late.
Director Recommendations 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. The Board and our Audit and Corporate Governance Committee will evaluate such recommendations in accordance
with the Audit and Corporate Governance Committee’s charter, the Bylaws and the director nominee criteria described above. 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.
Audit and Corporate Governance Committee
To eliminate unnecessary redundancies in our independent
committee structure given the size of our company and Board, we have chosen to combine our audit and nominating committees into an Audit
and Corporate Governance Committee. The Audit and Corporate Governance 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.
Mr. Scher serves as the Chairperson of the Audit
and Corporate Governance Committee and Lead Independent Director and Ms. Levy, Ms. McWhorter and Mr. Sikar serve as members of the Audit
and Corporate Governance 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.
During our fiscal year ended December 31, 2021,
the Audit and Corporate Governance Committee held nine meetings (including regularly scheduled and special meetings).
Audit and Corporate Governance
The Audit and Corporate Governance Committee oversees
the adequacy and effectiveness of our internal controls and meets with Lifeway’s internal and independent auditors to review these
internal controls and to discuss other financial reporting matters. The Audit and Corporate Governance Committee is also responsible for
the selection, appointment, compensation, and oversight of both our independent auditors and our internal audit function. Our internal
audit function reports directly to the Audit and Corporate Governance Committee, and not management. The Audit and Corporate Governance
Committee reviews the financial reporting and accounting principles and standards and the audited financial statements to be included
in the annual report. It also reviews the quarterly financial results and related disclosures. Additionally, the Audit and Corporate Governance
Committee is responsible for the review and oversight of all related party transactions and other potential conflict of interest situations
between and among Lifeway and its officers, directors, employees, and principal shareholders. The Audit and Corporate Governance Committee
relies on the expertise and knowledge of management, our internal auditor, and our independent auditor in carrying out these oversight
responsibilities.
Director Nominations
The Audit and Corporate Governance Committee selects,
evaluates, and recommends to the Board qualified candidates for election or appointment to the Board, including by identifying individuals
qualified to become Board members and members of Board committees; and recommending to the Board director nominees for the next annual
meeting of shareholders or for appointment to vacancies on the Board. The Audit and Corporate Governance Committee also provides oversight
to management when Lifeway conducts succession planning or searches for individuals to serve as executive officers.
The Audit and Corporate Governance Committee does
not have specific minimum qualifications that it believes that a director nominee must meet. However, the Audit and Corporate Governance
Committee believes that director candidates should, among other things, possess high degrees of integrity and honesty; have literacy in
financial and business matters; have no material affiliations with our direct competitors, suppliers, or vendors; and preferably have
experience in our business and other relevant business fields (for example, finance, accounting, law and banking). As a matter of policy,
the Audit and Corporate Governance Committee considers diversity together with other factors when evaluating candidates but
does not have a specific diversity requirement.
The Audit and Corporate Governance Committee meets
in advance of each of our annual meetings of shareholders to identify and evaluate the skills and characteristics of each director candidate
for nomination for election as a director. The Audit and Corporate Governance Committee reviews the candidates in accordance with the
skills and qualifications set forth in the Audit and Corporate Governance Committee Charter and the rules of the SEC and Nasdaq. The Audit
and Corporate Governance Committee evaluates all director nominees on the same basis, regardless of whether the nominee is recommended
by a director, management, or a shareholder.
Compensation Committee
The Compensation Committee is a standing committee
of the Board. The Compensation Committee’s principal purposes are to review and approve corporate goals and objectives relevant
to compensation of the Company’s Named Executive Officers (as defined below), make recommendations regarding compensation for non-employee
directors and administer the Company’s incentive and equity compensation plans. The Compensation Committee’s objectives and
philosophy with respect to the fiscal 2021 executive compensation program, and the actions taken by the Compensation Committee in fiscal
2021 with respect to the compensation of our Named Executive Officers, are described below in “Compensation Discussion and Analysis.”
The Compensation Committee also is responsible
for evaluating and making recommendations to the Board regarding director compensation. In addition, the Compensation Committee is responsible
for conducting an annual risk evaluation of the Company’s compensation practices, policies and programs.
Mr. Scher serves as the Chairperson of the Compensation
Committee and Ms. Levy and Ms. McWhorter serve as members of the Compensation Committee.
The Board has determined each member of the Compensation
Committee is “independent” as defined by applicable SEC rules and the listing standards of NASDAQ. During our fiscal
year ended December 31, 2021, the Compensation Committee held six meetings (including regularly scheduled and special meetings).
Information about our Executive Officers
Our executive officers are Ms. Julie Smolyansky,
President, Chief Executive Officer and Secretary; Mr. Eric Hanson, Chief Financial and Accounting Officer and Treasurer; and Ms. Amy Feldman,
Senior Executive Vice President of Sales.
Ms. Smolyansky is also a Director, and we have
included her biographical information above in the section “Information about our Directors.”
All of our Executive Officers have employment agreements that we
more fully describe below under “Employment agreements severance, and change-in-control arrangements between Lifeway and Named Executive
Officers.”
Eric Hanson, Chief Financial Officer and Treasurer |
Age: 48 |
|
Officer Since: 2018 |
|
NEO: Yes |
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, Sales |
Age: 46 |
|
Officer Since: 2018 |
|
NEO: No |
AMY FELDMAN is our Senior Executive Vice President
of Sales. Amy previously held the top sales executive position for Lifeway Foods from 2009 through 2011. She returned to Lifeway effective
October 31, 2018. Ms. Feldman has spent over 20 years in the food industry building business, brands, and teams, specifically within the
fresh and natural foods arena. From 2017 through 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 through 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 or proxy statement, Lifeway has
elected to voluntarily disclose this additional information in order to provide shareholders with information regarding current executive
compensation.
Through discussions with shareholders, we have
learned that our investors favor compensation plans for our executives tied to specific performance measures that incentivize long-term
performance and value creation. In 2019, only 52.5% of the votes cast supported our Say on Pay Proposal. Shareholders we spoke to after
our 2019 Say on Pay Proposal requested increased independent control of compensation, in particular for individuals related to any executive
officer or director, and increased independent oversight of our compensation practices more generally. We listened and implemented the
following changes.
REQUEST |
CHANGES TO COMPENSATION PROCESSES AND
PROCEDURES |
Increased, and revised the structure of, independent oversight of compensation
generally |
ü
We created a standing compensation committee governed by a charter available on our website, www.lifewaykefir.com, whose members are independent
from management.
ü
Compensation Committee refined the performance review process to ensure information gathered from sources unrelated to the employee or
consultant being reviewed.
ü
Compensation Committee engages and has the sole power to terminate the compensation consultant ensuring independence of the compensation
consultant from management.
ü
Human resources leads review of management job duties and quality of work
resulting in changes to corporate management structure and providing a more structured framework for performance review and compensation
benchmarking.
ü
Rationalized total compensation packages of management based on market rates for performance of relevant responsibilities at peer group
companies, resulting in an increase of CEO and CFO compensation and a reduction in COO and consultant compensation.
o Decreased aggregate
compensation of Named Executive Officers and Ludmila Smolyansky by $364,182 between 2019 and 2021; and
o Further reductions
in the aggregate compensation of Named Executive Officers and Ludmila Smolyansky are expected in 2022 in the aggregate amount of approximately
$600,000 based on the reduction of $1 million of compensation obligations to Edward Smolyansky and Ludmila Smolyansky, offset partially
by the inclusion of another executive officer as Named Executive Officer.
ü
Adopted new human resource policies, software and training.
ü
Implemented requirement of six hours per year of ongoing director corporate governance education through NACD programming and made the same
available to our CEO and CFO
|
Increased independent control
of certain compensation
decisions |
ü
Our Board delegated to the Compensation Committee all authority to review the compensation for certain insiders, including our CEO, Julie
Smolyansky if she is not CEO, Edward Smolyansky, Ludmila Smolyansky and family members of any executive officer or director.
|
Increased independent
oversight of other
compensation |
ü
Our Compensation Committee is responsible for reviewing, and recommending to the Board, compensation of executive officers and vice presidents
other than those for whom the Compensation Committee has been delegated all authority.
|
Increased independent
control of compensation paid to
Ludmila Smolyansky |
ü
We amended and restated Ludmila Smolyansky’s consulting agreement to provide for fees and Company performance thresholds to be set
by the Compensation Committee and reviewed and adjusted at least annually. We subsequently terminated the amended and restated agreement.
|
Limitations on incentive awards |
ü
Incentive awards must be based on annual performance goals
|
Increase alignment of executive and officer interests with shareholders’
interests |
ü
Adopted a revised Executive and Director Stock Ownership and Holding Policy increasing ultimate share ownership requirements to 200% of
base salary or fees from 100% to further align executive officer and director interests with shareholders.
ü
Adopted, subject to shareholder approval, an arrangement to allow independent directors to convert some or all of their 2021-2022 Board
Year compensation to restricted stock units.
|
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 Compensation Committee for the compensation awarded to each of the Company’s Chief Executive Officer and its two other most
highly compensated individuals who were serving as executive officers at the end of the last fiscal year, for services rendered in all
capacities during the last fiscal year (the “Named Executive Officers” or “NEOs”) for fiscal 2021. Our NEO’s
as of December 31, 2021 were:
Name |
Age |
Officer
since |
Title |
Julie Smolyansky |
47 |
2002 |
Chief Executive Officer, President and Secretary |
Edward Smolyansky* |
42 |
2004 |
Chief Operating Officer |
Eric Hanson |
48 |
2018 |
Chief Financial and Accounting Officer and Treasurer |
* Mr. Smolyansky ceased being an employee of Lifeway
on January 4, 2022.
The tables that follow this CD&A contain specific
data about the compensation earned by our NEOs for fiscal 2021. 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 and motivate 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 and long-term business performance (as reflected in various corporate financial performance goals). |
We actively recruit, train and retain talented
employees to understand, manage and operate our unique production process for kefir, which is not widely known, requires some specific
knowledge and skills to perform and to support and to manage the sales, communications, marketing and other activities of the Company.
We have built our management team through promotion and recruiting that limits the risks posed by the loss of any particular executive
officer or vice president and provides for a smooth transition of responsibilities in the case of such loss. Training and retaining our
employees allows for a smooth transition of the workload and responsibilities of any manager who leaves the Company. Past departures of
members of our management team are limited and when they have occurred have caused no issues for production, distribution or sales of
our products. We consider, among other factors, our specific challenges and achievements along with our financial performance and growth
when approving executive officer compensation.
Our Compensation Committee is composed solely
of independent directors. Current members of our Compensation Committee are Mr. Scher, Ms. Levy and Ms. McWhorter. Pursuant to the powers
granted to the Compensation Committee in its charter, in 2021 the Compensation Committee reviewed the then current compensation for executive
officers, compensation processes, the then current compensation philosophy of the Company, the companies that comprised our peer group
and reports and advice from our compensation consultants. Based on these reviews, the Compensation Committee revised and approved the
peer group companies and made changes to the processes of setting and paying compensation, including salaries and bonuses, to our Named
Executive Officers. The Compensation Committee also further adjusted compensation setting processes to ensure it receives objective market
data and reviews of performance of our Named Executive Officers from independent sources. Additional discussion of changes to our compensation
setting process and procedures can be found above.
The Compensation Committee reviews our compensation
design and philosophy on an annual basis to ensure that our executive compensation program continues to evolve to support our strategy
and objectives and aligns with our shareholders’ interests. In 2021, the Compensation Committee revised our compensation design
to provide for a pool, as a percentage of Adjusted EBITDA, divided among our vice presidents and executive officers, including our Named
Executive Officers.
Role of the Compensation Committee
Our Compensation Committee assists our Board by
discharging responsibilities relating to the compensation of our executive officers, including our NEOs. The Compensation Committee currently
has responsibility over certain matters relating to the competitive compensation of our executive officers, and directors as well as matters
relating to equity-based plans. Each member of our Compensation Committee is independent in accordance with the criteria of independence
set forth in Rules 5605(a)(2) and 5605(d) of the Nasdaq Listing Rules and Rules 10C-1 and 16b-3 of the Securities Exchange Act of 1934.
We believe that their independence from management allows the members of the Compensation Committee to provide unbiased consideration
of performance reviews, peer group data, and various elements that could be included in an executive compensation program for which the
Compensation Committee is responsible. We believe that independent directors are able to apply independent judgment about which elements
best achieve our compensation objectives.
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 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 Compensation
Committee. All compensation consultants will report directly to the Compensation Committee.
Role of our Compensation Consultant
The Compensation Committee engaged Aon’s
Human Capital Solutions practice, a division of Aon plc (“Aon”), an independent compensation consultant, to conduct a comprehensive review
and analysis of our executive and non-employee director compensation programs and to make recommendations for compensation related to
fiscal 2021. Aon does not perform any other work for the Company. The Compensation Committee reviews the independence of Aon in light
of SEC rules and Nasdaq listing standards regarding compensation consultants. The Compensation Committee has reviewed the level of services
provided to Lifeway by Aon and does not believe the services give rise to a conflict of interest or compromise Aon’s independence
in advising the Compensation Committee in 2021.
The 2021 Compensation Program Design
Elements of Compensation
For the year ended December 31, 2021, the compensation
for our named executive officers generally consisted of a base salary, cash bonus opportunities, and equity awards. These elements (and
the amounts of compensation opportunity under each element) were selected because we believe they are market prevalent and competitive
elements of compensation and necessary to help us attract executive talent.
Below is a more detailed summary of the current
executive compensation program as it relates to our NEOs.
Base Salaries
The NEOs receive a base salary to compensate them
for the services they provide to us. The base salary payable to each named executive officer is intended to provide a fixed component
of compensation reflecting the executive’s skill set, experience, role, and responsibilities. As previously disclosed above, the
Compensation Committee has changed the process, quality and amount of information gathered in the process of compensation setting. As
a result of such changed and additional information gathering, and taking into account the results of those efforts, previous responsibility
changes, the uncertainties in 2020 caused by the COVID-19 pandemic, the Company’s performance and success through those uncertainties,
in 2021, no changes were made to the base salaries of the CEO or CFO. Instead, the incentive awards available to the CEO and CFO were
adjusted to provide increased total compensation and an increased portion of that compensation tied to Company performance. Additionally,
the COO’s total compensation was adjusted to reduce his base salary in 2021 to further align his compensation to his responsibilities,
performance and market rates for individuals performing similar functions in our peer group.
Ms. Julie Smolyansky’s base salary for 2021
was $1,000,000.
Mr. Smolyansky’s base salary for 2021 was
initially $1,000,000, but was reduced to $500,000 effective February 1, 2021.
Mr. Hanson’s base salary for 2021 was $325,000.
The actual salaries paid to each named executive
officer for 2021 are set forth below this CD&A in the Summary Compensation Table in the column entitled “Salary.”
2021 Annual Incentive Plan
For fiscal 2021, our CEO and CFO were eligible
to receive annual cash incentive awards under the Lifeway Omnibus Plan (as defined below) based on financial performance of the Company.
The 2021 award cycle had a one-year performance period and awards were based on achievement of a targeted goal of earnings before interest,
income taxes, depreciation and amortization as adjusted for non-recurring or non-operational expenses such as stock-based compensation,
gain/loss on sale of equipment, deferred revenue, and gain/loss on investments (“Adjusted EBITDA”) set by the Compensation
Committee. The Compensation Committee believes Adjusted EBITDA is a more transparent and accurate way to measure the Company’s performance
because it reflects non-recurring or non-operational expenses such as stock-based compensation, gain/loss on sale of equipment, deferred
revenue, and gain/loss on investments. There was also a minimum threshold Net Sales goal that had to be achieved in order for any bonus
to be funded for the year. That minimum threshold was set at $100 million by the Compensation Committee. Actual Net Sales were $119.1
million, exceeding the minimum threshold.
Once the Net Sales funding trigger was met, under
the annual incentive plan for fiscal 2021, if the targeted level of Adjusted EBITDA is also met as determined by the Compensation Committee,
the target bonus is paid. Performance above target results in a payout of a higher percentage of salary. Performance below target results
in a lower bonus payout, or no payout if the minimum threshold (floor) of Adjusted EBITDA is not met. 100% of the annual incentive award
is based on financial performance.
During the fiscal year, the Compensation Committee
approved the annual financial performance targets and targeted incentive payouts for the Company’s NEOs for fiscal 2021 under the
annual incentive plan, namely the Adjusted EBITDA threshold/floor, target and stretch/maximum levels of performance.
The table below shows, for each NEO that received
an award, the target and maximum annual incentive award, the threshold, target, stretch and maximum expectation with respect to Adjusted
EBITDA financial performance and the actual bonus payout for 2021. The financial goals used to determine NEO bonus funding are identical
to those used to fund bonuses for other bonus-eligible executives and employees. The award calculation is interpolated on a sliding calculation,
not a cliff achievement at each level.
NEO |
Target Award |
Maximum Award |
Financial Performance (Adjusted EBITDA in thousands) |
Actual Performance (in thousands) |
Actual Award (in thousands) |
|
|
|
Threshold/Floor |
Target |
Stretch |
Cap/Maximum |
Adj. EBITDA |
|
|
|
|
$7,500 |
$8,500 |
$9,500 |
$15,000 |
|
|
|
|
|
Cash Award at Financial Performance Level (in thousands) |
|
|
Julie Smolyansky |
$500 |
$1,500 |
$325 |
$500 |
$675 |
$1,500 |
$11,952 |
$957 |
Eric Hanson |
$75 |
$250 |
$50 |
$75 |
$100 |
$250 |
$11,952 |
$142 |
Actual Adjusted EBITDA performance was more than 40% above target, resulting in actual cash incentives above target as
well for each NEO (approximately 190% of target for each). The Compensation Committee determined this level of annual cash incentive was
earned based on significantly exceeding the target and stretch levels of financial performance set for the fiscal year.
Equity Incentive Compensation
We maintain the Lifeway Foods, Inc. 2015 Omnibus
Incentive Plan (the “Omnibus Plan”). The Omnibus Plan provides eligible participants (including our NEOs) the opportunity
to participate in equity programs and incentivize them to work towards the long-term performance goals of Lifeway. We believe that such
awards function as a compelling incentive and retention tool.
As described in further detail in the Outstanding
Equity Awards at Fiscal Year End Table and related footnotes below this CD&A, the following equity awards under the Omnibus Plan were
granted to our NEOs in 2021 as part of our equity program: on April 20, 2022, the Compensation Committee confirmed the achievement of
the Adjusted EBITDA target for the 2021 fiscal year and authorized issuance to Julie Smolyansky and Eric Hanson of 125,000 and 18,958
shares of restricted stock, respectively, calculated by dividing the award value by the fair market value on the date the issuance was
approved. One-third of the restricted stock awards vests immediately upon issuance, one-third on the one year anniversary of issuance
and one-third on the second anniversary of issuance, subject to the executive’s continued service through the applicable vesting
date. No shares will be issued to Ms. Smolyansky unless and until Danone provides consent to the issuance as further discussed below.
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 Compensation 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 each of our CEO and COO use of a Company leased vehicle. 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 and COO travel extensively. We do not provide additional compensation or bonuses to cover, reimburse, or otherwise “gross-up”
any income tax owed on this compensation. Our CFO does not receive a vehicle related benefit.
Benefits
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. Our NEOs also receive certain internet and
telecommunications services allowances.
Accounting and Tax Considerations
Tax Deductibility under Section 162(m).
Section 162(m) of the Internal Revenue Code (“Section 162(m)”) limits the deductibility for federal income tax purposes of
certain compensation paid in any year by a publicly held corporation to its “covered employees” as defined by Section 162(m)
(generally, our current and former NEOs) to $1 million per executive (the “$1 million cap”). The Compensation Committee believes
it is appropriate to retain the flexibility to authorize payments of compensation that may exceed the $1 million cap if, in the Compensation
Committee’s judgment, it is in the Company’s best interest to do so. We generally will continue to emphasize performance-based
compensation, even though it may no longer be deductible.
Accounting Considerations. We consider
the accounting implications of our executive compensation program. In addition, accounting treatment is just one of many factors impacting
plan design and pay determinations. Our executive compensation program is designed to achieve a favorable accounting and tax treatment
so long as doing so does not conflict with the intended plan design or program objectives.
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 and approving the peer group of
companies, the Committee considered market information available through public proxy filings and through Aon’s Global Compensation
Databases. Aon’s Human Capital Solutions (“HCS”) business is a leading executive compensation consulting practice. The
Committee, together with Aon HCS, review the gathered data for each of our NEOs and other key employee positions based on the scope of
each employee’s responsibilities at Lifeway as compared to responsibilities of equivalent positions within companies included in
the peer group. Since Lifeway is somewhat smaller, on average, in terms of revenue than the peer group, regression analysis was utilized
to size-adjust the compensation data to Lifeway’s revenue scope of each NEO role.
The Committee believed that it was necessary to
consider this market data in making compensation decisions to attract and retain talent.
In selecting peer organizations, the Committee
generally considered the following screening criteria:
|
· |
Market capitalization; and; |
|
· |
Whether the company is representative of the labor market for executive talent for Lifeway. |
Castle Brands, Craft Brew Alliance, and Youngevity
Alliance were removed from Lifeway’s peer group for fiscal 2021 compensation planning given that the companies were no longer publicly
traded. As part of our review, we added several companies to expand the peer group for fiscal year 2021 compensation planning: Agrofresh
Solutions, Celsius Holdings, e.l.f Beauty, Natural Alternatives, New Age, and Reed’s. All met the criteria set out by the Committee
and enhanced the peer group by making the group more robust in terms of size/number of companies.
Our fiscal 2021 peer group consisted of the following
companies:
Peer group used for fiscal year 2021 compensation planning |
|
|
|
|
|
· |
Alico, Inc.
Agrofresh Solutions |
|
· |
Limoneira Company |
· |
Bridgford Foods Corp. |
|
· |
Medifast Inc. |
· |
Celsius Holdings
Coffee Holding Co., Inc. |
|
· |
MGP Ingredients Inc.
Natural Alternatives International
New Age |
· |
Crimson Wine Group, Ltd.
e.l.f Beauty |
|
· |
Primo Water Corp
Reed’s |
· |
Farmer Bros Co |
|
· |
S&W Seed Company |
· |
Freshpet, Inc. |
|
· |
The Simply Good Foods Co. |
· |
Landec Corp |
|
· |
Tootsie Roll Industries, Inc. |
|
|
|
· |
Turning Point Brands Inc. |
In consultation with Aon, the Compensation Committee
found this peer group representative of an appropriate executive labor market and pay benchmarking perspective. While this analysis informed
the decisions of the Compensation Committee and was a reference point on the range of compensation opportunities, the Compensation Committee
did not tie executive officer compensation to specific market percentiles.
In making determinations regarding executive
officer compensation, in addition to benchmarking, the Compensation Committee considered several other factors such as our financial
performance and financial condition, individual executive performance, tenure, expertise, the importance of the role, potential for
future contributions, and comparative pay levels among the members of the senior executive team, as well as input of the
compensation consultant and, subject to conformity with independent analyses of all other information by the Compensation Committee,
and, other than with respect to Julie Smolyansky and Mr. Smolyansky, management recommendations. 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
The Compensation Committee followed the below
process and practice as closely as possible when setting executive compensation levels:
|
· |
The Compensation Committee reviews and adjusts base salaries, if necessary, based on its review of the competitive analysis prepared by Aon, changes in title and/or job responsibilities, results of performance reviews and/or changes in our performance or financial condition and other factors discussed in this CD&A. As part of the evaluation process, the Compensation 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. |
|
· |
Incentive compensation for executive officers is approved by the Compensation Committee for each fiscal year. After the end of the relevant fiscal year for which incentive compensation was set, the Compensation Committee certifies Lifeway’s achievement of financial performance goals, if met, for that prior fiscal year and determines the level of incentive compensation awards for its executive officers earned based on such achievement, if any. |
|
|
|
|
· |
Pursuant to its charter, the Compensation Committee has been delegated all Board
authority to review performance of, and set the base salary and incentive awards for, employees and consultants who are family members
of any director or executive officer of the Company, including Julie Smolyansky and Mr. Smolyansky. In accordance with its charter, the
Compensation Committee reviews performance and recommends for Board approval the base salary and incentive awards for each other executive
officer, including Mr. Hanson, and vice presidents other than those who are family members of a director or executive officer for whom
authority is specifically delegated to the Compensation Committee. |
|
· |
Separate from the corporate goals which provide performance measures for incentive
awards, the Compensation Committee establishes individual performance goals and objectives for each executive officer. Such goals and
objectives are tracked by the human resources department, which provides additional information to the Compensation Committee when reviewing
individual responsibilities and performance. The Compensation Committee’s compensation consultant typically provide input and recommendations
to the Committee as well. The Compensation Committee then determines the performance goals and objectives for the current fiscal year. |
|
· |
The Compensation 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. |
Information About Our Executive Team
Information our executive team is set forth above
in Item 10. Directors, Executive Officers and Corporate Governance.
NEO Summary Compensation for Fiscal Years 2021 and 2020
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 2020 and 2021.
Summary Compensation Table |
Name and Principal Position(s) |
|
Year |
|
Salary
($) |
|
Bonus (1)(3)
($) |
|
Stock
Awards (2)(3)
($) |
|
Nonequity incentive plan compensation (3) ($) |
|
All Other Compensation (4) ($) |
|
Total
($) |
Julie Smolyansky |
|
2021 |
|
|
1,000,000 |
|
|
|
– |
|
|
|
783,409 |
|
|
|
957,000 |
|
|
|
25,758 |
|
|
|
2,766,167 |
|
Chief Executive Officer, |
|
2020 |
|
|
1,000,000 |
|
|
|
250,000 |
|
(5) |
|
800,320 |
|
|
|
250,000 |
|
|
|
23,856 |
|
|
|
2,324,176 |
|
President and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky (6) |
|
2021 |
|
|
500,000 |
|
|
|
– |
|
|
|
33,409 |
|
|
|
– |
|
|
|
9,194 |
|
|
|
542,603 |
|
Former Chief Operating Officer |
|
2020 |
|
|
1,000,000 |
|
|
|
– |
|
|
|
50,320 |
|
|
|
– |
|
|
|
9,582 |
|
|
|
1,059,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Hanson |
|
2021 |
|
|
325,000 |
|
|
|
– |
|
|
|
130,451 |
|
|
|
142,000 |
|
|
|
13,232 |
|
|
|
610,683 |
|
Chief Financial and
Accounting Officer,
Treasurer |
|
2020 |
|
|
325,000 |
|
|
|
– |
|
|
|
25,160 |
|
|
|
75,000 |
|
|
|
15,000 |
|
|
|
440,160 |
|
______________________
(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 the Board and 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 U.S. 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 Equity Issuances,” we must obtain Danone’s consent before issuing these stock awards
when they vest (if at all). Pursuant to their terms, Mr. Smolyansky’s equity incentive awards, which were not vested upon cessation
of his employment, were forfeited. |
(3) |
Details about the Bonus, Stock Awards, and Non-equity incentive plan compensation
assuming achievement (i) at or below threshold, (ii) at target, (ii) at maximum, and comparing those values to the actual value of incentive
compensation for our NEOs, are set forth in the table below. |
Incentive Compensation Awards Detail |
|
|
|
|
|
|
Potential Value of Incentive
Plan Compensation |
|
Actual Value of Total Incentive Compensation |
Name and Principal Position(s) |
|
Year |
|
Form |
|
Threshold ($) |
|
Target
($) |
|
Maximum
($) |
|
Total Earned
($) |
|
% of Total |
Julie Smolyansky |
|
2021 |
|
Equity |
|
– |
|
|
1,166,347 |
|
(A) |
|
1,166,347 |
|
(A) |
|
783,409 |
|
(B) |
67% |
Chief Executive Officer, |
|
|
|
Nonequity |
|
325,000 |
|
|
500,000 |
|
|
|
1,500,000 |
|
|
|
957,000 |
|
|
64% |
President and Secretary |
|
2020 |
|
Equity |
|
– |
|
|
1,165,799 |
|
(C) |
|
1,165,799 |
|
(C) |
|
800,320 |
|
(D) |
69% |
|
|
|
|
Nonequity |
|
– |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
250,000 |
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky |
|
2021 |
|
Equity |
|
– |
|
|
416,347 |
|
(E) |
|
416,347 |
|
(E) |
|
33,409 |
|
(F) |
8% |
Former Chief Operating |
|
|
|
Nonequity |
|
– |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
– |
Officer |
|
2020 |
|
Equity |
|
– |
|
|
415,779 |
|
(G) |
|
415,779 |
|
(G) |
|
50,320 |
|
(H) |
12% |
|
|
|
|
Nonequity |
|
– |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Hanson |
|
2021 |
|
Equity |
|
– |
|
|
321,923 |
|
(I) |
|
321,923 |
|
(I) |
|
130,451 |
|
(J) |
41% |
Chief Financial and |
|
|
|
Nonequity |
|
50,000 |
|
|
75,000 |
|
|
|
250,000 |
|
|
|
142,000 |
|
|
57% |
Accounting Officer, |
|
2020 |
|
Equity |
|
– |
|
|
207,899 |
|
(K) |
|
207,899 |
|
(K) |
|
25,160 |
|
(L) |
12% |
Treasurer |
|
|
|
Nonequity |
|
– |
|
|
75,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
|
100% |
|
(A) |
Consists of (i) $750,000 under the 2021 short term incentive plan and (ii) $416,347 under the 2019 long term incentive plan based on performance of the Company in 2021. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). |
|
(B) |
Consists of (i) $750,000 under the 2021 short term incentive plan and (ii) $33,409 under the 2019 long term incentive plan based on performance of the Company in 2021. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). |
|
(C) |
Consists of (i) $750,000 under the 2020 short term incentive plan and (ii) $415,779 under the 2019 long term incentive plan based on performance of the Company in 2020. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). |
|
(D) |
Consists of (i) $750,000 under the 2020 short term incentive plan and (ii) $50,320 under the 2019 long term incentive plan based on performance of the Company in 2020. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). |
|
(E) |
Consists of $416,347 under the 2019 long term incentive plan based on performance of the Company in 2021. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). |
|
(F) |
Consists of $33,409 under the 2019 long term incentive plan based on performance of the Company in 2021. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). Pursuant to their terms, these awards, which were not vested upon cessation of Mr. Smolyansky’s employment, were forfeited. |
|
(G) |
Consists of $415,779 under the 2019 long term incentive plan based on performance of the Company in 2020. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). |
|
(H) |
Consists of $50,320 under the 2019 long term incentive plan based on performance of the Company in 2020. As discussed below in the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these awards when they vest (if at all). Pursuant to their terms, these awards, which were not vested upon cessation of Mr. Smolyansky’s employment, were forfeited. |
|
(I) |
Consists of (i) $113,750 under the 2021 short term incentive plan and (ii) $208,173 under the 2019 long term incentive plan based on performance of the Company in 2021. |
|
(J) |
Consists of (i) $113,750 under the 2021 short term incentive plan and (ii) $16,701 under the 2019 long term incentive plan based on performance of the Company in 2021. |
|
(K) |
Consists of $208,899 under the 2019 long term incentive plan based on performance of the Company in 2020. |
|
(L) |
Consists of $25,160 under the 2019 long term incentive plan based on performance of the Company in 2020. |
(4) |
Details about “All Other Compensation” are set forth in the table
below. |
All Other Compensation Details |
Name and Principal Position(s) |
|
Year |
|
Retirement Plan Contributions (A)
($) |
|
Personal Use of Company Vehicle (B)
($) |
|
All Other Perks
($) |
|
Other
($) |
|
Total
($) |
Julie Smolyansky |
|
2021 |
|
|
11,600 |
|
|
|
12,958 |
|
|
|
1,200 |
|
(C) |
|
– |
|
|
|
25,758 |
|
Chief Executive Officer, |
|
2020 |
|
|
11,400 |
|
|
|
12,456 |
|
|
|
– |
|
|
|
– |
|
|
|
23,856 |
|
President and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky |
|
2021 |
|
|
– |
|
|
|
7,993 |
|
|
|
1,200 |
|
(C) |
|
– |
|
|
|
9,194 |
|
Former Chief Operating |
|
2020 |
|
|
– |
|
|
|
7,182 |
|
|
|
2,400 |
|
|
|
– |
|
|
|
9,582 |
|
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Hanson |
|
2021 |
|
|
9,632 |
|
|
|
– |
|
|
|
3,600 |
|
(C) |
|
– |
|
|
|
13,232 |
|
Chief Financial and |
|
2020 |
|
|
11,400 |
|
|
|
– |
|
|
|
3,600 |
|
(C) |
|
– |
|
|
|
15,000 |
|
Accounting Officer,
Treasurer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 personal use of vehicle taxable compensation. |
|
(C) |
Consists internet/telecommunications services allowance. |
(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 Company’s employees and for
avoidance of production stoppage which were effective. |
(6) |
Mr. Smolyansky’s employment ceased on January 4, 2022. |
Consent by Danone to Equity Issuances
Lifeway, members of the Smolyansky family, and
Danone signed a Shareholders’ 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 CEO and former COO, including any performance-based, short term or long-term incentive
equity awards pursuant to our Omnibus Plan.
In 2020, we sought 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 former COO. Therefore, the Audit and Corporate Governance Committee later cancelled and
extinguished the vested portion of our CEO and former COO’s Performance Share award in exchange for incentive cash payments to Ms.
J. 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 sought Danone’s consent to issuances
of restricted stock awards to (i) our CEO, who had earned $800,320 shares of restricted stock, $50,320 of which would vest immediately
upon issuance or on December 31, 2021 and one-third of the remainder of which would vest on each of April 29, 2022, 2023 and 2024 and
(ii) our former COO, who had earned $50,320 shares of restricted stock which would vest immediately upon issuance or on December 31, 2021.
Our COO’s awards were not vested upon the cessation of his employment with the Company and so were forfeited. Pursuit of Danone’s
consent with respect to our CEO’s earned awards is ongoing and such shares have not been issued.
The Compensation Committee continues to review
what is the appropriate equity and non-equity incentive awards to our CEO. As part of our benchmarking and analysis process described
above, the Compensation Committee has 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.
Committee Interlocks and Insider Participation
During fiscal year 2021, the Compensation Committee
consisted of Mr. Scher, Ms. Levy and, commencing October 18, 2021, Ms. McWhorter. None of these members was, at any time during fiscal
year 2021, 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 Compensation Committee has or had any relationship with us requiring disclosure
under Item 404 of SEC Regulation S-K.
Fiscal Year 2021 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 2021. While directors receive annual retainers
based on the June-to-June Board service year, the table below reflects payments made during fiscal year 2021. Julie Smolyansky and Edward
Smolyansky received no compensation for service as directors. We have excluded them from the table because we fully describe their compensation
in the “NEO Summary Compensation for Fiscal Years 2021 and 2020” section.
Name |
|
Fees Earned
or Paid
in Cash ($) |
|
|
Stock Awards (1)
($) |
|
|
All Other
Compensation
($) |
|
|
Total
($) |
|
Ludmila Smolyansky |
|
|
– |
|
|
|
– |
|
|
|
1,105,427 |
(2) |
|
|
1,105,427 |
|
Jason Scher (3) |
|
|
– |
|
|
|
30,000 |
|
|
|
197,500 |
|
|
|
227,500 |
|
Jody Levy (4) |
|
|
147,502 |
|
|
|
30,000 |
|
|
|
– |
|
|
|
177,502 |
|
Dorri McWhorter (5) |
|
|
117,502 |
|
|
|
30,000 |
|
|
|
– |
|
|
|
147,502 |
|
Pol Sikar(6) |
|
|
117,502 |
|
|
|
30,000 |
|
|
|
– |
|
|
|
147,502 |
|
(1) |
|
Details about the amounts in the “Stock Awards” column are set forth in the table below. |
Stock Awards Detail |
|
Name |
|
|
Vested Stock
Award
($) |
|
|
|
Restricted Stock
Award
($) |
|
|
|
Total
($) |
|
Ludmila Smolyansky |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Jason Scher(3) |
|
|
– |
|
|
|
30,000 |
|
|
|
30,000 |
|
Jody Levy |
|
|
– |
|
|
|
30,000 |
|
|
|
30,000 |
|
Dorri McWhorter |
|
|
– |
|
|
|
30,000 |
|
|
|
30,000 |
|
Pol Sikar |
|
|
– |
|
|
|
30,000 |
|
|
|
30,000 |
|
(2) |
|
Of the All Other Compensation, (a) $504,000 represents the annual cash fees paid to Ludmila Smolyansky for her services as a consultant to Lifeway through December 31, 2021 of which $5,427 was paid in 2021 for services rendered in 2020 as a result of payments being made in arrears and the calendar of payment dates; and (b) $600,000 represents royalty payments. Both relationships are discussed further in the “Certain Relationships and Related Party Transactions” section below. Ms. Smolyansky did not receive any retainer fees in her capacity as a non-employee director. The Amended and Restated Consulting Agreement between the Company and Ludmila Smolyansky, dated December 28, 2020, was terminated as of January 17, 2022. |
|
|
|
(3) |
|
Includes $60,000 paid to Mr. Scher for his service on ad hoc temporary committees
of the Board that completed their work and were dissolved prior to the 2021-2022 Board Year. Mr. Scher deferred, and has elected to convert
to restricted stock units (“RSUs”), all compensation that would have been paid to him in fiscal year 2021. Such RSUs may,
if shareholders approve Proposal 5 and if vested, be settled in shares of our common stock after Mr. Scher ceases to be a director. |
|
|
|
(4) |
|
Includes $60,000 paid to Ms. Levy for her service on ad hoc temporary
committees of the Board, one of which completed its work and was dissolved prior to the 2021-2022 Board Year and one of which
completed its work and was dissolved in the 2021-2022 Board Year. |
|
|
|
(5) |
|
Includes $30,000 paid to Ms. McWhorter for her service on an ad hoc temporary committee of the Board, which completed its work, and was dissolved, in the 2021-2022 Board year. |
|
|
|
(6) |
|
Includes $60,000 paid to Mr. Sikar for his service on ad hoc temporary committees
of the Board, one of which completed its work and was dissolved prior to the 2021-2022 Board year and one of which completed its work
and was dissolved in the 2021-2022 Board Year. |
COMPENSATION COMMITTEE COMPENSATION REPORT
The Compensation Committee has reviewed and discussed
with management the Compensation Discussion and Analysis section of this proxy statement, 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 proxy statement.
Respectfully Submitted,
COMPENSATION COMMITTEE
Jason Scher, Chairperson
Jody Levy
Dorri McWhorter
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 SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, 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 2020 and 2021, Ms.
Smolyansky was entitled to receive an annual base salary of $1,000,000, an amount that the Board, through the Compensation Committee,
reviews annually. She is also eligible for certain cash, equity, and other incentive awards based on the satisfaction of the Compensation
Committee’s pre-established performance goals. In 2020 and 2021, the Compensation Committee set bonus targets for her in compliance
with its Omnibus Plan and applicable Internal Revenue Service (“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 in her employment
agreement) or (b) Ms. Smolyansky terminates her employment for Good Reason (as defined in her employment 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’s employment ceased on
January 4, 2022 and was not governed by an agreement. Mr. Smolyansky’s base salary was $1,000,000 in 2020 and $500,000 in 2021.
Mr. Smolyansky was not eligible to receive bonuses in 2020 and 2021.
Eric Hanson serves Lifeway pursuant to an employment
agreement dated as of November 19, 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. Mr. Hanson’s
base salary was $325,000 in each of 2020 and 2021. His base salary is subject to annual review by the Compensation Committee and the Board.
Pursuant to his employment agreement, Mr. Hanson is also eligible for certain cash, equity, and other incentive awards based on the satisfaction
of the Board’s pre-established performance goals. In 2020 and 2021, the Board set bonus targets for him in compliance with its Omnibus
Plan and applicable IRS regulations governing performance-based compensation. Lifeway may terminate Mr. Hanson’s employment for
any lawful reason, with or without Cause, and Mr. Hanson may resign for or without Good Reason (each as defined in his employment agreement).
Pursuant to his employment agreement, Mr. Hanson,
upon Non-Renewal, termination without Cause, or by his 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 Mr. Hanson’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 |
|
Three 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,
(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, 2021, 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 |
|
|
|
3,280,710 |
|
Equity compensation plans not approved by security holders |
|
|
0 |
|
|
$ |
0 |
|
|
|
– |
|
Total |
|
|
40,550 |
|
|
$ |
10.42 |
|
|
|
3,280,710 |
|
On March 29, 2016, Lifeway filed a registration
statement on Form S-8 with the SEC 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 3,280,710 shares were eligible for issuance under the Omnibus Plan as of December 31, 2021. The Compensation
Committee has the discretion to determine the option price, number of shares, grant date, and vesting terms of awards granted under the
Omnibus 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, 2021.
|
|
|
Stock awards |
|
Name |
|
|
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 |
|
|
– |
|
|
$ |
– |
|
|
|
193,297 |
(2) |
|
$ |
1,639,166 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Smolyansky |
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Hanson |
|
|
– |
|
|
$ |
– |
|
|
|
16,680 |
|
|
$ |
190,478 |
|
|
(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, 2021, the last trading day of our fiscal year, which was $4.60. |
|
|
|
|
(2) |
Represents a time-based restricted stock award pursuant to Lifeway’s Omnibus
Plan. As discussed above in the section “Consent by Danone to Equity 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 Omnibus
Plan the amount of which is recorded as a liability as of 12/31/2021. As discussed above in the section “Consent by Danone to Equity
Issuances,” unvested stock awards (Performance Shares) are subject to Danone’s consent to issuances of performance-based,
short term or long-term incentive stock awards to our CEO and COO. |