LIFEWAY FOODS, INC.
LIFEWAY FOODS, INC.
6431 W. OAKTON
MORTON GROVE, IL 60053
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 12, 2014
To Be Held On June 17, 2016
TO OUR SHAREHOLDERS:
You are invited
Dear Fellow Shareholders:
We invite you to be present either in person or by proxy atattend the 2016 Annual Meeting of Shareholders of Lifeway Foods, Inc., an Illinois corporation (the “Company”"Company"), towhich will be held on June 17, 2016, at 2:00 p.m., local time (the "Annual Meeting"), at the Holiday Inn, 5300 W. Touhy Ave.,Avenue, Skokie, Illinois 60077,60077. At the Annual Meeting, you will be asked to vote on June 12, 2014 at 2:00 p.m. local time (the “Meeting”), to consider and act upon the following:following proposals (as more fully described in the Proxy Statement accompanying this Notice):
| 1. | To elect eight (8) members of the Company's Board of Directors to serve until the 2017 Annual Meeting of Shareholders (or until successors are elected or directors resign or are removed). |
1. The election of seven Directors to serve until the next meeting or until their successors are duly elected and qualified.| 2. | To ratify the appointment of Mayer Hoffman McCann P. C. as our independent registered public accounting firm for the fiscal year ending December 31, 2016. |
2. The ratification of the appointment of Plante & Moran, PLLC, as independent auditors for the next fiscal year.| 3. | The vote upon a non-binding advisory resolution approving the Company's compensation for named executive officers. |
3. The transaction of such other business as may properly come before the Meeting or any adjournments| 4. | To transact such other business as may properly come before the Annual Meeting or any adjournment thereof. |
Only shareholders of the Company’s Common Stock, of record at the close of business on April 16, 2014 will be18, 2016 are entitled to notice of and to vote at the Meeting. The stock transfer books of the Company will remain open.Annual Meeting or any adjournment thereof.
YOUR VOTE IS VERY IMPORTANT. WE INVITE EACH OFHOPE YOU TOWILL ATTEND THE MEETING.THIS ANNUAL MEETING IN PERSON. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY VOTE YOUR SHARES VIA THE INTERNET OR THE TOLL-FREE TELEPHONE NUMBER AS DESCRIBED IN THE ENCLOSED MATERIALS. IF YOU RECEIVED A PROXY CARD BY MAIL, PLEASE SIGN, DATE AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU RECEIVED MORE THAN ONE PROXY CARD, IT IS AN INDICATION THAT YOUR SHARES ARE REGISTERED IN MORE THAN ONE ACCOUNT. PLEASE COMPLETE, DATE, SIGN AND RETURN EACH PROXY CARD YOU RECEIVE. IF YOU ATTEND THE ANNUAL MEETING AND VOTE IN PERSON, YOUR VOTE BY PROXY WILL NOT BE USED. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE, REGARDLESS OF THE MANNER USED TO TRANSMIT YOUR VOTING INSTRUCTIONS.
BY ORDER OF THE BOARD OF DIRECTORS
Ludmila
/s/ Edward Smolyansky
Edward Smolyansky
Chairperson of the BoardSecretary
Skokie,
Chicago, Illinois
Date: April 30, 201429, 2016
[Intentionally left blank]
LIFEWAY FOODS, INC.
6431 W. Oakton
Morton Grove, Illinois 60053
PROXY STATEMENT
2016 ANNUAL MEETING OF SHAREHOLDERS
June 17, 2016
PROCEDURAL MATTERS
GENERAL
THIS PROXY STATEMENT IS FURNISHED TO THE SHAREHOLDERS OFThis Proxy Statement is being furnished to the shareholders of LIFEWAY FOODS, INC., AN ILLINOIS CORPORATION (THE “COMPANY” (the "Company" or “LIFEWAY”), IN CONNECTION WITH THE SOLICITATION OF PROXIES BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY TO BE VOTED AT THE ANNUAL MEETING OF SHAREHOLDERS (THE “MEETING”"Lifeway") TO BE HELD AT 2:00 P.M., LOCAL TIME, ON JUNE 12, 2014, OR AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
Shareholdersin connection with the solicitation of recordproxies by the Board of common stockDirectors of the Company no par value (the “Common Stock”"Board"). The proxies are for use at the close2016 Annual Meeting of businessShareholders of the Company to be held on April 16, 2014Friday, June 17, 2016, at 2:00 p.m., local time, or at any adjournment thereof (the “Record Date”"Annual Meeting"), will be entitled to notice of and to vote at the Meeting.. The Annual Meeting will be held at the Holiday Inn, 5300 W. Touhy Ave.,Avenue, Skokie, Illinois 60077. Proxies received prior to the MeetingThe Company's telephone number is (847) 967-1010.
The shares represented by your proxy will be voted at the Annual Meeting as therein specified (if the proxy is properly executed and returned, and not revoked).
If no directions are given on the proxy, the shares represented by your proxy will be voted:
FOR the election of the director nominees named herein (Proposal One), unless you are a record holder of your shares and specifically withhold authority to vote for one or more of the director nominees. If you hold your shares through a broker in accordance"street name," your broker will not be allowed to vote on Proposal One unless you direct your broker as to such vote.
FOR ratifying the appointment of Mayer Hoffman McCann P. C. as our independent registered public accounting firm for the fiscal year ending December 31, 2016 (Proposal Two).
FOR the approval of the non-binding advisory resolution approving the Company's compensation of our named Executive Officers (Proposal Three).
The Company knows of no other matters to be submitted to the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote the shares they represent as the Board may recommend.
VOTING SECURITIES
Shareholders of record at the close of business on April 18, 2016 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 16,158,858 shares of the Company's Common Stock, no par value ("Common Stock"), were issued and outstanding.
Each holder of Common Stock is entitled to one vote for each share of Common Stock held as of the Record Date.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
A majority of the aggregate voting power of the outstanding shares of Common Stock as of the Record Date must be present, in person or by proxy, at the Annual Meeting in order to have the required quorum for the transaction of business. If the aggregate voting power of the shares of Common Stock present, in person and by proxy, at the Annual Meeting does not constitute the required quorum, the Annual Meeting may be adjourned to a subsequent date for the purpose of obtaining a quorum.
Shares of Common Stock that are voted "FOR," "AGAINST" or "ABSTAIN" are treated as being present at the Annual Meeting for purposes of establishing a quorum. Shares that are voted "FOR," "AGAINST" or "ABSTAIN" with respect to a matter will also be treated as shares entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such matter. Abstentions will be counted for purposes of quorum and will have the same effect as a vote "AGAINST" a proposal.
Broker non-votes (i.e., votes from shares of Common Stock held as of the Record Date by brokers or other custodians as to which the beneficial owners have given no voting instructions) will be counted for purposes of determining the presence or absence of a quorum for the transaction of business, but will not be counted for purposes of determining the number of Votes Cast with respect to a particular proposal on which the broker has expressly not voted. Accordingly, broker non-votes will not affect the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
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 the Company's Proxy Statement to be issued in connection with the instructions contained2017 Annual Meeting of Shareholders, such shareholder proposal must be received by the Company no later than December 26, 2017. Any such shareholder proposal submitted, including any accompanying supporting statement, may not exceed 500 words, as per Rule 14a-8(d) of the Exchange Act. All shareholder proposals must be made in writing addressed to the Company's Secretary, Edward Smolyansky, at 6431 West Oakton, Morton Grove, Illinois 60053.
REVOCABILITY OF PROXY
Any proxy and, if no choice is specified, willgiven pursuant to this solicitation may be voted in favor of each nominee for Director named in this Proxy Statement and in favor of each other proposal set forth in this Proxy Statement. A shareholder who votesrevoked by proxy may revokethe person giving it at any time before it is votedits use by delivering to the Company's Secretary, Mr. Smolyansky, a written notice of revocation, delivered to any of the proxy holders named therein, by submitting another valida duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person. Beneficial owners wishingAttending the Annual Meeting in and of itself will not constitute a revocation of a proxy.
DISSENTERS' RIGHT OF APPRAISAL
Under Illinois General Corporation Law and the Company's Certificate of Incorporation, shareholders are not entitled to voteany appraisal or similar rights of dissenters with respect to any of the proposals to be acted upon at the MeetingAnnual Meeting.
SOLICITATION
Proxies may be solicited by certain of the Company's directors, executive officers and regular employees, without additional compensation, in person, or by telephone, e-mail or facsimile. The cost of soliciting proxies will be borne by the Company. The Company expects to reimburse brokerage firms, banks, custodians and other persons representing beneficial owners of shares of Common Stock for their reasonable out-of-pocket expenses in forwarding solicitation material to such beneficial owners.
Some banks, brokers and other record holders have begun the practice of "householding" notices, proxy statements and annual reports. "Householding" is the term used to describe the practice of delivering a single set of notices, proxy statements and annual reports to any household at which two or more shareholders reside if a company reasonably believes the shareholders are members of the same family. This procedure reduces the volume of duplicate information shareholders receive and also reduces a company's printing and mailing costs. The Company will promptly deliver an additional copy of any such document to any shareholder who are not shareholderswrites or calls the Company. Alternatively, if you share an address with another shareholder and have received multiple copies of record on the Company’s books (e.g., persons holding in street name) must bringour notices, proxy statements and annual reports, you may contact us to request delivery of a single copy of these materials. Any such written request should be directed to the Meeting a power of attorney or proxy in their favor signed by the holder of record in order to be able to vote.Secretary at 6431 West Oakton, Morton Grove, Illinois 60053, (847) 967-1010.
SOLICITATION
AVAILABILITY OF PROXIESPROXY MATERIALS
Our proxy materials are primarily available to shareholders on the Internet, as permitted by rules of the U.S. Securities and Exchange Commission (the “SEC”). Our Proxy Materials are first being mailed to shareholders beginning approximatelyshareholder on or about April 30, 2014.
29, 2016. All of the costs and expenses in connection with the solicitation of proxies with respect to the matters described herein will be borne by the Company. In addition to solicitation of proxies by mail, the directors, officers and investor relations staff (who will receive no compensation in addition to their regular remuneration) of the Company named herein may solicit the return of proxies by telephone, telegram or personal interview. As of this date, the Company has retained Broadridge Financial Solutions, Inc. (“Broadridge”("Broadridge"), an outside firm, to solicit proxies solely from individual shareholders of record and to print proxy notices and other related materials. The services provided by Broadridge to the Company are expected to cost approximately $6,000. The Company has also retained Automatic Data Processing, Inc. (“ADP”), at an approximate cost of $3,000, to contact banks, brokerage houses and other custodians, nominees and fiduciaries with requests to forward copies of the proxy materials to their respective principals and to request instructions for voting the proxies. The expenses of such banks, brokerage houses and other custodians, nominees and fiduciaries in connection therewith are covered by the estimated fee to be paid by the Company to ADP.$19,000. Action may be taken on the business to be transacted at the Meeting on the date specified in the Notice of Meeting or on any date or dates to which such Meeting may be adjourned.
VOTING OF PROXIES
A form of proxy is provided for use at the Meeting if a shareholder is unable to attend in person. Each proxy may be revoked at any time thereafter by writing to the Secretary of the Company prior to the Meeting, by execution and delivery of a subsequent proxy, or by attendance and voting in person at the Meeting, except as to any matter or matters upon which, prior to such revocation, a vote shall have been cast pursuant to the authority conferred by such proxy. Shares represented by a valid proxy which if received pursuant to this solicitation and not revoked before it is exercised, will be voted as provided on the proxy at the Meeting or at any adjournment or adjournments thereof.
VOTING SECURITIES AND VOTE REQUIRED
Only holders of the 16,346,017 shares of Common Stock, no par value per share, of record outstanding at the close of business on April 16, 2014, will be entitled to vote at the Meeting. Each holder of Common Stock is entitled to one vote for each share held by such holder. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock is necessary to constitute a quorum at the Meeting. Under the rules of the SEC, boxes and a designated blank space are provided on the proxy card for shareholders to mark if they wish to withhold authority to vote for one or more nominees for Director or for Proposal 1. Votes withheld in connection with the election of one or more of the nominees for Director or Proposal 1 will be counted as votes cast against such individuals or Proposal 1 and will be counted toward the presence of a quorum for the transaction of business. If no direction is indicated, the proxy will be voted for the election of the nominees for Director and for Proposal 1. The form of proxy provides for withholding of votes with respect to the election of Directors and a shareholder present at the Meeting also may abstain with respect to such election.
ANNUAL REPORT ON FORM 10-K
The Company’s Annual Report on Form 10-K, for the fiscal year ended December 31, 2013 (the “Annual Report”) has been posted along with this Proxy Statement. Shareholders are referred to the Annual Report for information concerning the Company’s business and operations, but the Annual Report is not part of the proxy soliciting materials.
PROPOSAL 1: ONE
ELECTION OF DIRECTORS
Seven Directors are to be electedThe Board currently consists of eight (8) directors, all of whom have been nominated for re-election. Shareholders and their proxies cannot vote for more than eight (8) persons at the Annual Meeting. DirectorsEach nominee has consented to being named as a nominee for election as a director and has agreed to serve if elected. At the Annual Meeting, directors will be elected at the Meeting to serve untilone-year terms expiring at the next annual meeting of shareholders or until their successors are elected or until their earlier resignation or removal.
The directors shall be elected by a plurality of the Company or until eachVotes Cast at the Annual Meeting. A "plurality" means that the individuals who receive the largest number of their successors shallVotes Cast are elected as directors up to the maximum number of directors to be duly elected and qualified. As noted, unless otherwise indicated thereon, all proxies received will be voted in favor ofat the election of each of the seven nominees of the Board named below as Directors of the Company. ShouldAnnual Meeting. If any of the nomineesnominee is not remain a candidateavailable for election at the datetime of the Annual Meeting (which contingency is not now contemplated or foreseen byanticipated), the Company), proxies solicited thereunderproxy holders named in the proxy, unless specifically instructed otherwise in the proxy, will be voted in favorvote for the election of those nominees who do remain candidates andsuch other person as the existing Board may be voted for substitute nominees elected byrecommend, unless the Board. EachBoard decides to reduce the number of the nominees is currently serving as a Directordirectors of the Company.
REQUIRED VOTE
The seven nominees receiving the highest number of affirmative votes of the shares present or represented and entitled to be voted for them shall be elected as Directors. Votes withheld from any Director are counted for purposes of determining the presence or absence of a quorum for the transaction of business, but have no other legal effect under Illinois law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO ELECT THE DIRECTORS NOMINATED HEREIN TO SERVE AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
The names of Certain information about the nominees and certain information with regard to each nominee follows:
NAME | | AGE | | TITLE |
Ludmila Smolyansky | | 64 | | Director and Chairperson of the Board of Directors |
Julie Smolyansky | | 39 | | CEO, President, and Director |
Pol Sikar | | 65 | | Director |
Renzo Bernardi | | 61 | | Director |
Gustavo Carlos Valle | | 49 | | Director |
Paul Lee | | 39 | | Director |
Jason Scher | | 39 | | Director |
DIRECTORS AND DIRECTOR NOMINEESthe Board is set forth below.
LUDMILA SMOLYANSKY, 64,66, 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. For more than 20 years, Mrs. Smolyansky has been the operator of several independent delicatessen, gourmet food distributorship businesses and imported food distributorships. Ms. Smolyansky and Michael Smolyansky founded the Company and Ms. Smolyansky served as the Company's General Manager. In 2002, prior2010, Ms. Smolyansky retired as an employee of the Company and has continued to the commencement of her tenure as a Director, she was hired byserve the Company as its General Manager.Chairperson of the Board since 2002 and as a consultant since 2011. Mrs. Smolyansky devotes as much time as necessary to the business of the Company 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 P. Smolyansky (the Chief Operating Officer, Treasurer, Chief Financial and Accounting Officer, Treasurer and Secretary of the Company). Mrs. Smolyansky brings many years of food industry experience to the Board.
JULIE SMOLYANSKY, 39,41, was appointed as a Director, and elected President and Chief Executive Officer Chief Financial Officer and Treasurer of the Company 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 is a graduate with a Bachelor’sBachelor's degree from the University of Illinois at Chicago. Prior to her appointment, Ms. Smolyansky spent six years as the Company’sCompany's Director of Sales and Marketing. Ms. Smolyansky also served as the Company's Chief Financial Officer and Treasurer from 2002 to 2004. She currently devotes as much time as necessary to the business of the Company and currently holds no other directorships in any other reporting company. Ms. Smolyansky is the daughter of Ludmila Smolyansky, the Chairperson of the Board and Executive Chairperson of the Board. In 2004, Ms. Smolyansky resigned as Chief Financial Officer and Treasurer and Edward Smolyansky, Ms. Smolyansky’s brother, was appointed to such positions. Ms. Smolyansky brings historical and operational expertise and experience to the Board.
POL SIKAR, 65,68, has been a Director of the Company since its inception in February 1986. He is a graduate with a Master’sMaster's degree from the Odessa State Institute of Civil Engineering in Russia. For more than 1314 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. Mr. SikarCompany and currently holds no other directorships in any other reporting company. Mr. Sikar has been a Director since inception and brings a historical perspective to the Board.
RENZO BERNARDI, 61,77, has been a Director of the Company since 1994. Mr. Bernardi is the president and founder of Renzo & Sons, Inc., a dairy and food service company which has been in business since 1969 (formerly, Renzo-Milk Distribution Systems). He has over 30 years of experience in the dairy distribution industry. Mr. Bernardi is a graduate of Instituto Teonico E Commerciale of Macomer, Sardinia. Mr. Bernardi devotes as much time as necessary to the business of the Company. Mr. BernardiCompany and currently holds no other directorships in any other reporting company. Mr. Bernardi brings deep industry experience to the Board.
GUSTAVO CARLOS VALLE, 49, has been a Director of the Company since June 19, 2009. He is an Argentine citizen and was appointed President and CEO of the Dannon Company, Inc. effective April 1, 2009. Mr. Valle joined Danone Argentina in 1996 as Vice President Finance where he became CEO of Danone Waters Argentina in 2002. Two years later, he was appointed CEO of Danone Brazil. Mr. Valle graduated in Economics from Buenos Aires University in Argentina. Mr. Valle currently holds no other directorships in any other reporting company. Mr. Valle has been designated by DS Waters, L.P. (as the related successor to The Dannon Company, Inc.) to be its representative to the Board in accordance with the terms of that certain Stockholders’ Agreement, as amended, between the Company and Dannon. Mr. Valle brings deep industry experience to the Board. Mr. Valle devotes as much time as necessary to the business of the Company.
PAUL LEE, 39,40, was elected as a Director of the Company to fill a vacancy on the Board of Directors created by the resignation of Eugene Katz in July 2012. Mr. Lee joined Lightbank Inc. as a Partner in February 2011.is currently CEO and Co-founder at Roniin LLC. Previously, Mr. Lee was Managing Director and Group Head for Digital Venturesa General Partner at Playboy Enterprises,Lightbank LLC and was a founding member and Senior Vice President at the Peacock Equity Fund. Mr. Lee brings financial and strategic experience to the Company’sCompany's Board of Directors. Mr. Lee devotes as much time as necessary to the business of the Company and currently holds no other directorships in any other reporting company.
JASON SCHER, 39,41, was elected as a Director of the Company to fill a vacancy on the Board of Directors in July 2012. Mr. Scher is the Chief Operating Officer of Vosges Haut-Chocolat. MrHaut-Chocolat, currently a leading manufacturer and seller of super premium chocolate confections in the US. Additionally he is currently a principal of a real estate development company focused on affordable housing in the Chicago Area. Mr. Scher previously served as a principal in Khoury Constructiona New York based construction management and RP3 Development.development company that performed work nationwide. Mr. Scher started his career with XandO coffee bar/COSI Sandwich Bar in their real estate and construction group. His strong leadership has been instrumental in laying a foundation for an entrepreneurial growing business. Mr. Scher also brings financialthe growth and strategic experience todevelopment of the Company's Board of Directors.businesses that he worked in over the years. 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. Mr. Scher brings manufacturing, financial and strategic experience to the company's board of directors.
EXECUTIVE OFFICERS
EDWARD P. SMOLYANSKY, 34, was appointed as Chief Financial and Accounting Officer and Treasurer of Lifeway in November 2004. He was also appointed Chief Operating Officer and Secretary in 2012. He had served as the ControllerMARIANO LOZANO, 49, has been a director of the Company since March 2015. He is an Argentine citizen and was appointed President and CEO of the Dannon Company, Inc., effective January 1, 2014. From March 2009 to December 2013, Mr. Lozano was General Manager of DANONE Brazil. Mr. Lozano started his career in various sales functions at Cerveceria y Malteria Quilmes, leader of the Argentinean beer market, and was then appointed Sales Director of Pilsbury Argentina. Mr. Lozano joined DANONE in March, 2000 as General Manager of Logistica La Serenisima S.A., in charge of sales and distribution for DANONE and La Serenisima products in Argentina. From 2004 to 2006 he was General Manager of DANONE Slovakia and from June 2002 until 2004. He received his baccalaureate degreeJanuary 2006 to May 2009, General Manager of DANONE Clover (Pty) in financeSouth Africa. Mr. Lozano has been designated by DS Waters, LP (as the related successor to The Dannon Company, Inc.) to be its representative to the Board. Mr. Lozano holds an Industrial Engineer Diploma from Loyolathe University of ChicagoBuenos Aires, Argentina and brings deep industry experience. Mr. Lozano devotes as much time as necessary to the business of the Company and currently holds no other directorships in any other reporting company.
SUSIE HULTQUIST, 47, is co-portfolio manager of Wanger US Smaller Companies Fund. Ms. Hultquist is also a domestic analyst covering and managing the consumer discretionary sector (including consumer internet, specialty retail, branded accessories, apparel and footwear and luxury goods) at Columbia Wanger Asset Management, LLC for the Acorn family of public equity mutual funds. Ms. Hultquist joined Columbia Wanger in 2000 and has been a member of the investment community since 1990. Prior to joining Columbia Wanger, Ms. Hultquist was a vice president with Banc of America Securities LLC, Distressed Debt Fund as well as an analyst with private equity firm Continental Illinois Venture Corporation. Ms. Hultquist earned a B.S. from the University of Illinois at Urbana and an M.B.A. from the University of Chicago.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES NAMED ABOVE.
PROPOSAL TWO
RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board has selected the firm of Mayer Hoffman McCann P. C. ("MHM") as our independent registered public accounting firm for the fiscal year ending December 2001. Edward P. Smolyansky31, 2016, subject to ratification by our shareholders at the Annual Meeting. MHM has been our independent registered public accounting firm for periods ended after December 31, 2014. A representative of MHM is expected to be present at the brotherAnnual Meeting and will have an opportunity to make a statement, if desired, and respond to appropriate questions.
More information about our independent registered public accounting firm is available under the heading "Independent Registered Public Accounting Firm" on page 23 below.
The approval of Company Presidentthe ratification of the appointment of MHM as our independent auditors for the fiscal year ending December 31, 2016 requires the affirmative vote of a majority of the Votes Cast.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF MHM AS OUR INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2016.
PROPOSAL THREE
ADVISORY RESOLUTION APPROVING EXECUTIVE COMPENSATION
Shareholders have an opportunity to cast an advisory vote on compensation of our named executive officers, as disclosed in this Proxy Statement. This proposal, commonly known as "Say on Pay," gives shareholders the opportunity to approve, reject or abstain from voting on the proposed resolution regarding our fiscal year 2015 executive compensation program.
Our compensation philosophy policies are comprehensively described in the Director and Chief Executive Officer Julie SmolyanskyCompensation section, and the sonaccompanying tables (including all footnotes) and narrative, beginning on page 12 of Lifeway’s Chairpersonthis Proxy Statement. Our Compensation Committee designs our compensation policies for our named executive officers to create executive compensation arrangements that are linked both to the creation of the Board, Ludmila Smolyansky.
VALERIY NIKOLENKO, 68, Vice Presidentlong-term growth, sustained shareholder value and individual and corporate performance, and are competitive with peer companies of Operations, has been VP of Operations for 17 years with Lifeway. He retired from the Company in February 2014.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securitiessimilar size, value and Exchange Act of 1934 requires the Company’s Officerscomplexity and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports ofencourage stock ownership and changes in ownership with the Securities and Exchange Commission (“SEC”).by our senior management. Based on the Company’sits review of the copiestotal compensation of such forms received by it, or written representations from certain reporting persons,our named executive officers for fiscal year 2015, the CompanyBoard believes that nonethe total compensation for each of its Directors,the named executive officers or persons who beneficially own more than 10%is reasonable and effectively achieves the designed objectives of driving superior business and financial performance, attracting, retaining and motivating our people, aligning our executives with shareholders' long-term interests, focusing on the long-term and creating balanced program elements that discourage excessive risk taking.
Our Board of Directors values the opinions that our shareholders express in their votes and will consider the outcome of the Company’s Common Stock failedvote when making future executive compensation decisions as it deems appropriate. The approval of the non-binding resolution approving the compensation of our named executive officers requires that the votes cast in favor of the proposal exceed the number of votes cast in opposition to comply with Section 16(a) reporting requirements in fiscal year ended December 31, 2013, exceptthe proposal. However, neither the approval nor the disapproval of this resolution will be binding on the Board of Directors or us nor construed as overruling a decision by the Board of Directors or us. Neither the approval nor the disapproval of this resolution will create or imply any change to our fiduciary duties or create or imply any additional fiduciary duties for Ms. Julie Smolyansky who failed to timely file two Form 4s regarding three transactions, and Edward Smolyansky who failed to timely file two Form 4s regarding three transactions.
the Board of Directors or us.
THE BOARD AND COMMITTEE MEETINGSOF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE NON-BINDING ADVISORY RESOLUTION APPROVING THE COMPANY'S COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS:
"RESOLVED, that the Company's shareholders APPROVE, on a non-binding advisory basis, the compensation paid to the Company's named executive officers as disclosed in this Proxy Statement pursuant to the SEC's compensation disclosure rules, including the compensation tables and narrative discussion."
OTHER MATTERS
The Board does not know of any other matters that may be brought before the Annual Meeting. However, if any such other matters are properly brought before the Annual Meeting, the proxies may use their own judgment to determine how to vote your shares.
MATTERS RELATING TO OUR GOVERNANCE
Board Leadership.of Directors
The Board oversees the Company's risk management including understanding the risks the Company faces and what steps management is taking to manage those risks, as well as understanding what level of risk is appropriate for the Company. The Board's role in the Company's risk oversight process includes receiving regular updates from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, human resources, employment, and strategic risks.
The Board of Directors determines annually the best board leadership structure for the Company. The Board of Directors recognizes that different board leadership structures may be appropriate for companies in different situations. Since 2004,2002, the positions of Chairperson of the Board of the Company and Chief Executive of the Company have been held by different individuals. Currently, Ludmila Smolyansky serves as Chairperson of the Board of the Company and Julie Smolyansky as Chief Executive Officer of the Company. These two individuals provideWe believe that our leadership tostructure, with a separate Chief Executive Officer and Chairman of the Board, of Directors by settingis the agendaoptimal structure for Board meetings, preparing informationthe Company at this time. The Chief Executive Officer and alternatives for presentation tothe Chairman of the Board have an excellent working relationship and leading discussions among,offer the Company a complementary array of skills, knowledge and facilitating decision making by, the Board of Directors.abilities.
The Board believes that this structure is appropriate because it resultsintends to meet at least quarterly and the independent directors serving on the Board intend to meet in a balanced leadership, combining a separate independent Chairperson together with aexecutive session (i.e., without the presence of any non-independent directors and management) immediately following at least two regularly scheduled Board meetings. During the fiscal year ended December 31, 2015 (the "Last Fiscal Year"), the Board held eight (8) meetings. Each current member of management involved in the day-to-day operation of the Company’s business.
During 2013, the Company’s Board, of Directors held five regular meetings (the Company’s annual meeting of shareholders and Directors and quarterly meetings). In 2013, four of the five Directorswho was then serving, at that time attended the Company’s annual meeting. Each director except Mr. Valle attended at least 75% of allthe total number of meetings of our board of directors and committees on which he or she served that were held during such Director’s term during 2012. Shareholders of the Company may send communications to the Board of Directors via the Company’s Investor Relations department, which makes such communications available to the Directors as appropriate, to LIFEWAY FOODS, INC., 6431 W. OAKTON, MORTON GROVE, IL 60053, telephone (847) 967-1010, fax (847) 967-6558. The Investor Relations department can be reach via email at: info@lifeway.net.
Related Transactions.
We have determined that there are no related party transactions in excess of the lesser $120,000 or 1% of the average of the Company’s total assets for each of 2012 and 2013, since the beginning of 2012 or currently proposed, involving the Company.
Director Independence.
In evaluating director independence, the Company has adopted the definition set forth in Rule 4200 of the NASDAQ Marketplace Rules. The Company’s Board of Directors, taking into consideration the relationships described in the Certain Relationships and Related Transactions section above, has determined that of the Company’s current Directors, Pol Sikar, Renzo Bernardi, Paul Lee and Jason Scher were independent of management.
Board Committees.
The Lifeway Audit Committee (the “Committee”), comprised of Messrs. Sikar, Bernardi, and Lee, pre-approved Plante & Moran, PLLC as the Company’s independent auditor for the year-ended December 31, 2013 and has adopted the following guidelines regarding the engagement of the Company’s independent auditor to perform services for the Company.
The functions of the Audit Committee are to review the Company’s internal controls, accounting policies and financial reporting practices; to review the financial statements, the arrangements for and scope of the independent audit, as well as the results of the audit engagement; to review the services and fees of the independent auditors, including pre-approval of non-audit services and the auditors’ independence; and to recommend to the Board of Directors for its approval and for ratification by the shareholders the engagement of the independent auditors to serve the following year in examining the accounts of the Company.
The Board of Directors does not have a standing nominating committee, compensation committee or any committees performing similar functions. As there are only seven Directors serving on the Board, it is the view of the Board that at least a majorityand of the Directors should participate in the process for the nomination and review of potential Director candidates and for the review of the Company’s executive pay practices. Accordingly, Julie Smolyansky and Ludmila Smolyansky, who are not considered independent, participate in the nominating process and the Company’s executive compensation practices, in each case together with the independent Directors. It is the viewcommittees of the Board that participation of at least a majority of Directorson which they served in the dutiesLast Fiscal Year, except for Renzo Bernardi and Mariano Lozano. Paul Lee, Jason Scher, Pol Sikar and Renzo Bernardi are considered "independent" under the rules of the nominatingSEC and compensation committees ensures not only as comprehensive as possible a review of Director candidates and executive compensation, but also that the views of independent, employee and shareholder Directors are considered.
The Board does not have any formal policy regarding the consideration of director candidates recommended by shareholders; any recommendation would be considered on an individual basis. The Board believes this is appropriate due to the lack of such recommendations made in the past, and its ability to consider the establishment of such a policy in the event of an increase of such recommendations. Accordingly, there have been no material changes to the procedure by which any security holder may recommend nominees to the Board. The Board welcomes properly submitted recommendations from shareholders and would evaluate shareholder nominees in the same manner that it evaluates a candidate recommended by other means. The deadline for submitting nominees to the Board is January 10, 2014. Shareholders may submit candidate recommendations by mail to LIFEWAY FOODS, INC., 6431 W. OAKTON, MORTON GROVE, IL 60053. With respect to the evaluation of director nominee candidates, the Board has no formal requirements or minimum standards for the individuals that it nominates. Rather, the Board considers each candidate on his or her own merits. However, in evaluating candidates, there are a number of factors that the Board generally views as relevant and is likely to consider, including the candidate’s professional experience, his or her understanding of the business issues affecting the Company, his or her experience in facing issues generally of the level of sophistication that the Company faces, and his or her integrity and reputation. With respect to the identification of nominee candidates, the Board has not developed a formalized process. Instead, its members and the Company’s senior management have recommended candidates whom they are aware of personally or by reputation.Nasdaq.
The CompanyBoard currently does not currently haveprovide a formal process for shareholders to send communicationcommunications to the Board. In the opinion of the Board, it is appropriate for the Company not to have such a formal process in place because the Board believes there is currently not a need for a formal policy due to, among other things, the limited number of shareholders of the Company and the infrequency of such communications in the past.Company. While the Board will, from time to time, review the need for a formal policy, at the present time, shareholders who wish to contact the Board may do so by submitting any communicationcommunications to the CompanyCompany's Secretary, Edward Smolyansky, at LIFEWAY FOODS, INC., 6431 W. OAKTON, MORTON GROVE, ILWest Oakton, Morton Grove, Illinois 60053, (847) 967-1010, with an instruction to forward the communication to a particular Directordirector or the Board as a whole.
During 2013 through Mr. Smolyansky will receive the date of this Proxy Statement, Ludmila Smolyansky, Julie Smolyanskycorrespondence and Edward Smolyansky collectively controlled more than 50% of the voting power of our Common Stock. See “Security Ownership of Certain Beneficial Owners and Management,” below. Consequently, we are a “controlled company” under applicable Nasdaq rules. Under these rules, a “controlled company” may elect not to comply with certain Nasdaq corporate governance requirements, including requirements that: (i) a majority of the Board of Directors consist of independent Directors; (ii) Director nominees be selected or recommended to the Board of Directors for selection by a majority of the independent Directors or by a nominating committee composed solely of independent Directors; and (iii) compensation of officers be determined or recommended to the Board of Directors by a majority of its independent Directors or by a compensation committee that is composed entirely of independent Directors. We have elected to use each of these exemptions although our Board of Directors currently consists of a majority of independent Directors.
Oversight of Risk Management.
The Company’s management is responsible for assessing and managing Lifeway’s exposure to various risks. Responsibility for risk oversight by the Board of Directors lies with the entire Board. Therefore, the responsibility for the administration of this risk oversight lies primarily with the Board’s leadership.
The Company’s principal risks exist in the potential for rising milk prices, the Company’s primary raw material, and from competitors producing dairy-based probiotic products. The Board addresses at least annually the principal current and future risk exposures of the Company. The Board receives regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic and reputation risks.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, internal control and financial reporting practices of the Company. The Audit Committee consists of three Directors, Messrs. Sikar, Bernardi and Lee, each of whom is an independent director in accordance with the Securities and Exchange Act of 1934 (the “Exchange Act”) and the Nasdaq listing standards. In accordance with the Exchange Act and the Nasdaq listing standards, Messrs. Sikar, Bernardi and Lee are the Company’s only independent Directors. Mr. Sikar is the Chairperson of the Audit Committee. Each of the Audit Committee members has an understanding of finance and accounting and is able to read and understand fundamental financial statements. To the extent Company employees are aware of any financial irregularities, the Audit Committee has been designated to receive such information in a confidential manner.
The Audit Committee reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2013 with the Company’s management and the independent auditors, Plante & Moran, PLLC (“Plante”). Additionally, the Audit Committee discussed with Plante matters as required by the Statement of Auditing Standards No. 61, which included Plante’s judgments as to the quality not just the acceptability of the financial statements, changes in accounting policies and sensitive accounting estimates.
Plante provided the Audit Committee with written disclosures and a letter required by Independence Standards Board Standard No. 1 (“ISB Standard No. 1”). ISB Standard No. 1 requires Plante to (i) disclose in writing all relationships between Plante and related entities and the Company and its related entities, in Plante’s professional judgment, that may reasonably be thought to bear on independence; (ii) confirm that, in Plante’s professional opinion, they are independent of the Company within the meaning of the federal securities laws and (iii) discuss Plante’s independence with the Audit Committee. The Audit Committee discussed with Plante its independent status.
The Audit Committee amended and restated its written charter governing its actions effective December 17, 2003. The Audit Committee reviews and reassesses the charter annually. The Company’s Audit Committee Charter is attached as appendix to this proxy statement.
Based on the Audit Committee’s review of the year-end audited financial statements and the various discussions noted above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
The Audit Committee:
Pol Sikar, Director
Renzo Bernardi, Director
Paul Lee, Director
THE FOREGOING AUDIT 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.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
For audit services (including statutory audit engagements as required under local country laws), the independent auditor will provide the Committee with an engagement letter during the January-March quarter of each year outlining the scope of the audit services proposed to be performed during the fiscal year. If agreed to by the Committee, this engagement letter will be formally accepted by the Committee at its first or second quarter meeting.
The independent auditor will submit to the Committee for approval an audit services fee proposal after acceptance of the engagement letter.
For non-audit services, the Company’s management will submit to the Committee for approval (during the second or third quarter of each fiscal year) the list of non-audit services thatforward it recommends the Committee engage the independent auditor to provide for the fiscal year. Company management and the independent auditor will each confirm to the Committee that each non-audit service on the list is permissible under all applicable legal requirements. In addition to the list of planned non-audit services, a budget estimating non-audit service spending for the fiscal year will be provided. The Committee will approve both the list of permissible non-audit services and the budget for such services. The Committee will be informed routinely as to the non-audit services actually provided by the independent auditor pursuant to this pre-approval process.
To ensure prompt handling of unexpected matters, the Committee delegates to any member thereofindividual director or directors to whom the authority to amend or modify the list of approved permissible non-audit services and fees. Any member will report action taken to the Committee at the next Committee meeting.
The independent auditor must ensure that all audit and non-audit services provided to the Company have been approved by the Committee. The Chief Financial Officer will be responsible for tracking all independent auditor fees against the budget for such services and report at least annually to the Committee.
EXECUTIVE COMPENSATION
Summary Compensation Table as of December 31, 2012 and December 31, 2013
| Name | | Year | | Salary | | | Bonus | | | All other Comp. | | | Total | |
| Julie Smolyansky, CEO and President(1) | | 2013 | | $ | 900,000 | | | $ | 115,000 | | | $ | 44,500 | | | $ | 1,059,500 | |
| | | 2012 | | $ | 890,903 | | | $ | 125,000 | | | $ | 14,280 | | | $ | 1,030,183 | |
| | | | | | | | | | | | | | | | | | | |
| Edward P. Smolyansky, | | 2013 | | $ | 1,000,000 | | | $ | 150,000 | | | $ | 58,500 | | | $ | 1,188,500 | |
CFO, Chief Accounting Officer, Treasurer, Chief Operating Officer and Secretary (2) | | 2012 | | $ | 928,403 | | | $ | 150,000 | | | $ | 31,280 | | | $ | 1,109,683 | |
| | | | | | | | | | | | | | | | | | | |
| Valeriy Nikolenko, Vice President of | | 2013 | | $ | 200,000 | | | $ | 50,000 | | | $ | 32,000 | | | $ | 282,000 | |
| Operations (3) | | 2012 | | $ | 153,800 | | | $ | 60,000 | | | $ | 29,260 | | | $ | 243,010 | |
| | | | | | | | | | | | | | (6) | | | | | |
| | | | | | | | | | | | | | | | | | | |
NOTES TO SUMMARY COMPENSATION TABLE
(1) | The Board appointed Julie Smolyansky as the CEO, CFO, President and Treasurer of the Company on June 10, 2002. From September 21, 1998 until such appointments, she had been Director of Sales and Marketing of the Company. Since November 2004, Ms. Smolyansky has served solely as CEO and President.
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(2) | The Board appointed Edward Smolyansky as the CFO, Chief Accounting Officer and Treasurer of the Company in November 2004 and Secretary of the Company in 2012.
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(3) | The Board appointed Valeriy Nikolenko as the Vice President of Operations of the Company in December 1993. He retired from the Company in February 2014.
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(4) | Represents (i) the Company’s portion of the matching contributions to the Company’s 401(k) plan on behalf of the following named executive officer, Julie Smolyansky: $17,500 for 2013; (ii) $12,000 for health insurance premiums; and (iii) $15,000 related to personal usage of automobiles leased by the Company, which includes lease payments, insurance premiums and fuel.
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(5) | Represents (i) the Company’s portion of the matching contributions to the Company’s 401(k) plan on behalf of the following named executive officer, Edward Smolyansky: $17,500 for 2013; (ii) $6,000 for health insurance premiums; and (iii) the $15,000 related to personal usage of automobiles leased by the Company, which includes lease payments, insurance premiums and fuel.
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(6) | Represents (i) the Company’s portion of the matching contributions to the Company’s 401(k) plan on behalf of the following named executive officer, Val Nikolenko: $10,500 for 2013; (ii) $12,000 for health insurance premiums; and (iii) $10,000 related to personal usage of automobiles leased by the Company, which includes lease payments, insurance premiums and fuel.
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communication is directed.
The Company does not maintaincurrently have a policy in place regarding attendance by Board members at the Company's annual meetings. However, each of the current directors who was then serving, other than Renzo Bernardi, attended the 2015 Annual Meeting of Shareholders, and each director who is standing for re-election currently intends to attend this Annual Meeting.
The Board has three standing committees, consisting of an Audit Committee, a Compensation Committee and a Nominating Committee.
Audit Committee
The Audit Committee consisted of Messrs. Sikar, Lee and Scher in the Last Fiscal Year. Mr. Lee is the Chairman of the Audit Committee. The Audit Committee held fifteen (15) meetings in the Last Fiscal Year. The Audit Committee has met with the Company's management and the Company's independent registered public accounting firm to review and help ensure the adequacy of its internal controls and to review the results and scope of the auditors' engagement and other financial reporting and control matters. Mr. Lee is financially literate and financially sophisticated, as those terms are defined under the rules of Nasdaq. Mr. Lee is also a financial expert, as such term is defined under the Sarbanes-Oxley Act of 2002. Messrs. Sikar, Lee and Scher are considered "independent" under the rules of the SEC and Nasdaq.
The Audit Committee has adopted an amended and restated charter effective as of March 12, 2015 (the "Audit Charter"). The Audit Committee oversees the adequacy and effectiveness of the Company's internal controls and is required to meet with the Company's auditors to review these internal controls and to discuss other financial reporting matters. The Audit Committee is also responsible for the selection, appointment, compensation and oversight of the auditors. The Audit Committee reviews the financial reporting and accounting principles and standards and the audited financial statements to be included in the annual report. They also review the quarterly financial results and related disclosures. Additionally, the Audit Committee is responsible for the review and oversight of all related party transactions and other potential conflict of interest situations between the Company and its officers, directors, employees and principal shareholders. The Audit Charter is available on the Company's Internet website at www.lifeway.net.
Compensation Committee
The Compensation Committee consisted of Messrs. Scher and Lee in the Last Fiscal Year. Mr. Scher is the Chairman of the Compensation Committee. The Compensation Committee held six (6) meetings during the Last Fiscal Year. The Compensation Committee approves the compensation package of the Company's Chief Executive Officer and, based on recommendations by the Company's Chief Executive Officer, approves the levels of compensation and benefits payable to the Company's other executive officers, reviews general policy matters relating to employee compensation and benefits. The Compensation Committee also approves the compensation of the Company's directors. The Compensation Committee has the authority to appoint and delegate to a sub-committee the authority to make grants and administer bonus and compensation plans and programs. Messrs. Scher and Lee are considered "independent" under the rules of the SEC and the Nasdaq.
The Compensation Committee has adopted a revised charter effective as of April 17, 2015 (the "Compensation Charter"). The Compensation Charter sets forth the duties, authorities and responsibilities of the Compensation Committee. The Compensation Charter is available on the Company's Internet website at www.lifeway.net.
Pursuant to the authority granted under its charter, our Compensation Committee hired Towers Watson Delaware, Inc. ("Towers Watson") to advise on executive compensation matters, which included: benchmarking of pay levels for select executives and non-employee directors, incentive design, certain compensation policies and practices, equity plan authorization, and other ad-hoc requests that related to compensation and governance issues. Prior to making its decisions for an executive officer other than the CEO, the Compensation Committee receives recommendations from the CEO as to the amounts and types of compensation and other awards for such executive officer.
The Compensation Committee believes that there is no conflict of interest based on any prior relationship with Towers Watson. In reaching this conclusion, our Compensation Committee considered the factors set forth in the SEC and NASDAQ rules regarding compensation advisor independence.
Nominating Committee
The Nominating Committee consisted of Messrs. Lee and Scher in the Last Fiscal Year. Mr. Scher is the Chairman of the Nominating Committee. The Nominating Committee held one (1) meeting during the Last Fiscal Year. The Nominating Committee evaluates and approves nominations for annual election to, and to fill any vacancies in, the Board and recommends to the Board the directors to serve on committees of the Board. Messrs. Lee and Scher are considered "independent" under the rules of the SEC and the Nasdaq.
The Nominating Committee has adopted a formal bonus written charter effective as of December 19, 2014 (the "Nominating Charter"). The Nominating Charter sets forth the duties and responsibilities of the Nominating Committee and the general skills and characteristics that the Nominating Committee employs to determine the individuals to nominate for election to the Board. The Nominating Charter is available on the Company's Internet website at www.lifeway.net.
The Nominating Committee will consider any candidates recommended by shareholders. In considering a candidate submitted by shareholders, the Nominating Committee will take into consideration the needs of the Board and the qualifications of the candidate. Nevertheless, the Board may choose not to consider an unsolicited recommendation if no vacancy exists on the Board and/or cash incentive plans or arrangements.the Board does not perceive a need to increase the size of the Board. Shareholders should submit any recommendations of director candidates for the Company's 2017 Annual Meeting of Shareholders to the Company's Secretary, Mr. Smolyansky, at 6431 West Oakton, Morton Grove, Illinois 60053, (847) 967-1010 in accordance with the procedures set forth above under the heading "Deadline for Receipt of Shareholder Proposals to be Presented at Next Annual Meeting."
There are no specific minimum qualifications that the Nominating Committee believes must be met by a Nominating Committee-recommended director nominee. However, the Nominating 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 direct competitors, suppliers or vendors of the Company; and preferably have experience in the Company's business and other relevant business fields (for example, finance, accounting, law and banking). The Nominating Committee considers diversity together with the other factors considered when evaluating candidates but does not have a specific policy in place with respect to diversity.
Members of the Nominating Committee meet in advance of each of the Company's annual meetings of shareholders to identify and evaluate the skills and characteristics of each director candidate for nomination for election as a director of the Company. The Nominating Committee reviews the candidates in accordance with the skills and qualifications set forth in the Nominating Charter and the rules of the Nasdaq. There are no differences in the manner in which the Nominating Committee evaluates director nominees based on whether or not the nominee is recommended by a shareholder.
Code of Business Conduct and Ethics
We have adopted a code of ethics applicable to all members of the Board, determines bonus awards, ifexecutive officers and employees. Such code of ethics is available on our Internet website, www.lifeway.net. We intend to disclose any amendment to, or waiver of, a provision of our code of ethics by filing a Current Report on an annual basis.Form 8-K with the SEC.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTSCertain Relationships and Related Transactions
JulieWe have determined that there were no related party transactions in excess of $120,000 for each of 2013, 2014, 2015, or currently proposed, involving the Company except for the consulting arrangement with Ludmila Smolyansky, has an employmentthe Company's Chairperson of the Board and Executive Chairperson of the Board, as further discussed in footnote 1 to the Directors' Compensation table and as set forth below.
On December 14, 2015, the Company entered into a stock purchase agreement (the “Employment Agreement”"Stock Purchase Agreement") with Ludmila Smolyansky, the CompanyCompany's Chairman of the Board, pursuant to which she serves as Chief Executive Officer. PursuantMs. Smolyansky agreed to sell to the EmploymentCompany 30,000 and the Company agreed to purchase such shares under its previously disclosed repurchase plan at a purchase price equal to the product of (a) 30,000 multiplied by (b) the average of the last reported closing sale price of the Common Stock on the Nasdaq Global Market for each of the five (5) Trading Days (as defined in the Stock Purchase Agreement) immediately preceding the date of the Stock Purchase Agreement. The transaction was consummated on December 15, 2015.
On March 14, 2016, the Company entered into an endorsement agreement (the "Endorsement Agreement") with Ms. Smolyansky. Under the terms and conditions of the Endorsement Agreement, Ms. Smolyansky is entitledgrants an unlimited, perpetual, non-exclusive, worldwide and, except as set forth therein, royalty free, right to an annual base salaryuse, reuse, publish, reproduce, perform, copy, create derivative works, exhibit, broadcast and an annual bonus subjectdisplay Ms. Smolyansky's name, image and likeness in Marketing Materials (as defined in the Agreement). As consideration for such license, the Company agrees to pay Ms. Smolyansky a royalty equal to $0.02 for each Company product or item sold by Lifeway during each calendar month bearing Ms. Smolyansky's first name, last name or other identifying personal characteristics; provided however that such incentive bonus targetsroyalty will not exceed $50,000 in any month and planssuch royalty payments will cease upon the death of Ms. Smolyansky.
On March 18, 2016, the Company entered into a consulting agreement (the "Consulting Agreement") with Ms. Smolyansky. Under the terms and conditions of the Agreement, Ms. Smolyansky will continue to provide consulting services with respect to our business strategy, international expansion and product management and expansion for which the Company may adopt from time to time.will pay Ms. Smolyansky an aggregate of $1,000,000 annually and pro rated amounts for periods shorter than a year. The Company has notConsulting Agreement is terminable by either party on ten days prior written notice.
Board Leadership Structure and Role in Risk Oversight
The leadership of the Board is currently set anystructured such targets in advance or adopted any such plans. In lieu thereof,that the Chairperson of the Board of Directors determines Ms. Smolyansky’s salary and a discretionary bonus on an annual basis concurrently with determining amounts for other executive officers. 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 therein) or 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 Employment Agreement and any plans.
ThereChief Executive Officer positions are no employment agreements with other executive officers (written or unwritten).
On June 9, 1995, the Company filed a registration statement on Form S-8 with the Securities and Exchange Commission in connection with the “Lifeway Foods, Inc. Consulting and Services Compensation Plan” (the “Plan”) covering 1,200,000, as adjusted, shares of its Common Stock. The Plan was adopted by the Company on June 5, 1995. Pursuant to such Plan, the Company may issue common stock or options to purchase common stock to certain consultants, service providers, and employees of the Company. There were a total of approximately 940,000 shares eligible for issuance under the Plan at December 31, 2013. The option price, number of shares, grant date, and vesting terms of awards granted under the Plan are determined at the discretion of the Company’sseparated. Our corporate governance guidelines do not require our Board of Directors.
Outstanding Equity Awards At December 31, 2013
AsDirectors to choose an independent chair or to separate the roles of December 31, 2013, there were no stock options outstanding or exercisablechair and no unvested stock awards.
There are no agreements withchief executive officer, but our Board believes this leadership structure is the named executive officers that provideappropriate structure for payments in connection with resignation, retirement, termination of employment or change in control other thanour Company at this time, and plans to keep the Employment Agreement described above.
roles separated.
Equity Compensation Plan Information
| 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 | | | 0 | | | | $0 | | | | 940,000 | |
| Equity compensation plans not approved by security holders | | | 0 | | | | $0 | | | | — | |
| Total | | | 0 | | | | $0 | | | | — | |
All of Lifeway’s equity compensation plans have been approvedThe Board oversees the Company's risk directly and through its committees. The Board is assisted by its shareholders.Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls and legal and regulatory requirements. The only Securities remaining availableBoard is assisted by its Compensation Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Nominating Committee, oversees risk management with respect to Board membership, structure and organization. The Company's management is responsible for issuance are under the Plan the terms of which are described in the narratives following the Summary Compensation Table above.
day-to-day management risk.
Director Compensation as of December 31, 2013
| Name | | Fees Earned or Paid in Cash | | | All Other Compensation | | | Total | |
| Ludmila Smolyansky | | $ | 408,000 | (1) | | $ | 14,200 | (2) | | $ | 422,300 | |
| Pol Sikar | | $ | 7,500 | | | | — | | | $ | 7,500 | |
| Renzo Bernardi | | $ | 7,500 | | | | — | | | $ | 7,500 | |
| Gustavo Carlos Valle | | | — | | | | — | | | | — | |
| Eugene Katz | | $ | — | | | | — | | | $ | — | |
| Paul Lee | | $ | 4,500 | | | | — | | | $ | 4,500 | |
| Jason Sher | | | 4,500 | | | | — | | | | 4,500 | |
(1) | Of the Fees Paid in Cash, $408,000 represents the annual fees paid to Ms. Smolyansky for her services as a consultant to the Company. Ms. Smolyansky did not receive any additional retainer fees or other meeting attendance fees in her capacity as a director.
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(2) | Represents (i) the Company’s portion of the matching contributions to the Company’s 401(k) plan on behalf of Ludmila Smolyansky: $8,200 for 2013; and (ii) $6,000 for health insurance premiums.
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During 2013, each outside (non-employee) director other than Ms. Ludmila Smolyansky was compensated at the rate of $1,500 per non-annual meeting attended. No employee director (Julie Smolyansky) nor any director serving as the nominee of Danone (Gustavo Carlos Valle) was compensated as a director during 2013.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
As of April 18, 2016, the Company's directors and named executive officers beneficially own, directly or indirectly, in the aggregate, approximately 49.9% of its outstanding Common Stock. These shareholders have significant influence over the Company's business affairs, with the ability to control matters requiring approval by the Company's shareholders, including the two proposals set forth in this Proxy Statement as well as approvals of mergers or other business combinations.
The following table sets forth as of April 18, 2016, certain information knownwith respect to the Company regarding the beneficial ownership of the Company’s Common Stock the Company’s only outstanding class of securities, as of April 25, 2014 by (a)to (i) each shareholderperson known by the Company to be the beneficial owner ofbeneficially own more than five percent5% of the Company’soutstanding shares of the Company's Common Stock, (b)(ii) each of the Company’s Directors, (c)Company's directors, (iii) each of the Company’sCompany's Chief Executive Officer and its two other most highly compensated individuals who were serving as executive officers namedat the end of the Last Fiscal Year, for services rendered in all capacities during the Summary Compensation Table aboveLast Fiscal Year (the "Named Executives"), and (d)(iv) all of the Company's directors and executive officers and Directors of the Company as a group. The shareholders listed below have sole voting and investment power except as noted.
| Name and Address of Beneficial Owner(1) | | Amount and Nature of Beneficial Ownership | | | Percent of Class(2) | |
| Ludmila Smolyansky(3,6) | | | 7,371,584 | | | | 45.1% | |
| Julie Smolyansky(3,7) | | | 417,265 | | | | 3.2% | |
| Edward Smolyansky(3) | | | 294,738 | | | | 1.8% | |
| Pol Sikar(3) | | | 3,000 | | | | * | |
| Renzo Bernardi(3) | | | 14,900 | | | | * | |
| Gustavo Carlos Valle (3,4) | | | 0 | | | | * | |
| Paul Lee(3) | | | 0 | | | | * | |
| Jason Scher(3) | | | 0 | | | | * | |
| Valeriy Nikolenko(3) | | | 0 | | | | * | |
| All Directors and Officers of the Company as a Group (Nine persons in total) | | | 8,201,487 | | | | 50.2% | |
| Danone Foods, Inc. | | | 3,454,756 | | | | 21.1% | |
| Mario J. Gabelli(5) | | | 831,805 | | | | 5.1% | |
| _________________ | | | | | | | | |
| *Less than .01%. | | | | | | | | |
| COMMON STOCK | |
| Name and Address (a) | | Shares Beneficially Owned (b) | |
| | Number | | | Percent | |
| Ludmila Smolyansky | | | 6,767,968 | (c) | | | 41.9% | |
| Julie Smolyansky | | | 1,017,868 | (d) | | | 6.3% | |
| Edward Smolyansky | | | 761,515 | (e) | | | 4.7% | |
| John Waldron | | | 0 | | | | * | |
| Pol Sikar | | | 3,000 | | | | * | |
| Renzo Bernardi | | | 14,900 | | | | * | |
Mariano Lozano c/o of Danone Foods, Inc. 100 Hillside Avenue White Plains, NY 10603-2861 | | | 0 | | | | * | |
| Paul Lee | | | 0 | | | | * | |
| Jason Scher | | | 0 | | | | * | |
Danone Foods, Inc. 100 Hillside Avenue White Plains, NY 10603-2861 | | | 3,454,756 | (f) | | | 21.4% | |
Mario J. Gabelli c/o Peter D. Goldstein GAMCO Investors, Inc. One Corporate Center Rye, New York 10580-1435 | | | 831,805 | (f) (g) | | | 5.1% | |
All directors and executive officers as a group (9 persons) | | | 8,075,251 | (h) | | | 50.0% | |
____________
NOTES TO BENEFICIAL OWNERSHIP TABLE
(1)(a) | WithUnless otherwise indicated, the exceptionbusiness address of Gustavo Carlos Valle and Danoneeach person named in the table is c/o Lifeway Foods, Inc., the address for all Directors and shareholders listed in this table is 6431 Oakton St., Morton Grove, IL 60053. The address |
| (b) | Applicable percentage of Gustavo Carlos Valle and Danone Foods, Inc.ownership is 100 Hillside Avenue, White Plains, NY 10603-2861. |
| |
(2) | Based upon 16,346,017based on 16,158,858 shares of Common Stock outstanding as of March 28, 2014. |
| |
(3) | A director or officerApril 18, 2016. Beneficial ownership is determined in accordance with the rules of the Company. |
| SEC, and includes voting and investment power with respect to shares. Shares of Common Stock subject to options, warrants or other convertible securities exercisable within 60 days after April 18, 2016 are deemed outstanding for computing the percentage ownership of the person holding such options, warrants or other convertible securities, but are not deemed outstanding for computing the percentage of any other person. Except as otherwise noted, the named beneficial owner has the sole voting and investment power with respect to the shares of Common Stock shown. |
