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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act ofEXCHANGE ACT OF 1934

Filed by the Registrant  ☑

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

LIFEWAY FOODS, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box)

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

AND

PROXY STATEMENT 2021

Notice of 20212022 Annual Shareholders Meeting

You are cordially invited to attend the 2022 Annual Meeting of Shareholders (together with any postponements, adjournments or other delays thereof, the “Annual Meeting”) of Lifeway Foods, Inc. (the “Company”).

The proxy statement, accompanying proxy card, and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, were first sent or given to our shareholders on or about August 3, 2022.

LIFEWAY FOODS, INC.

6431 Oakton Street

Morton Grove, Illinois 60053

PROXY STATEMENT

20212022 ANNUAL MEETING OF SHAREHOLDERS

October 18, 2021August 31, 2022

Table of Contents

General

The enclosed proxy is solicited by the Board of Directors (the “Board”) of LIFEWAY FOODS, INC. (“Lifeway,” “we,” “us,” or the “Company”) for use at Lifeway’s 20212022 Annual Meeting of Shareholders to be held on Monday, October 18, 2021, at 2:00 p.m., Central Time,(together with any postponements, adjournments or at any adjournmentother delays thereof, (thethe “Annual Meeting”). Due to the public health impact of the coronavirus outbreak (COVID-19) and to support the health and well-being of our employees and shareholders, the Annual Meeting will be held in a virtual meeting format only at the following website: www.meetings.computershare.com/MFZ9FQH.meetnow.global/MHU2K46. You will not be able to attend the Annual Meeting physically.

To participate in the Meeting, visit www.meetings.computershare.com/MFZ9FQHmeetnow.global/MHU2K46 and enter the password and control information included in your Notice of Internet Availability of Proxy Materials.the enclosed proxy card. Online check-in will begin at 1:304:00 p.m., Central Time. Please allow time for online check-in procedures.

We

Why am I receiving these materials?

This proxy statement and the accompanying proxy card are furnished in connection with the solicitation of proxies by our board of directors for use at the Annual Meeting.

Your vote is very important. Please sign, date and return the enclosed proxy card in the postage-paid envelope provided, or use the telephone or Internet voting instructions on the enclosed proxy card, even if you plan to sendattend the Annual Meeting. If you hold your shares in an account at a Notice of Internet Availability of Proxy Materials (the “Notice”)broker, bank or other nominee, follow the instructions provided by your nominee to our shareholders instead of paper copies of our Proxy Statement and 2020vote your shares. Voting your shares by proxy ensures that if you are unable to attend the Annual ReportMeeting, your shares will be voted at the Annual Meeting. Voting now will not limit your right to Stockholders. The Notice, which is expectedchange your vote or to be mailed to stockholders on or about September 1, 2021, contains instructions on how to access our materials onattend the Internet, as well as instructions on obtaining a paper copy of the proxy materials. The Notice is not a form for voting and presents only an overview of the proxy materials.Annual Meeting.

What Amam I Voting On?voting on?

You will be entitled to vote on the following proposals at the Annual Meeting:

How does the Board recommend that I vote on these proposals?

The Board recommends that you vote your shares:

Who Can Vote?

Who can vote?

Holders of our common stock, par value $.01 per share (the “Common Stock”), as of the close of business on July 11, 2022 (the “Record Date”), may vote at the Annual Meeting. As of the Record Date, there were 15,473,269 shares of Common Stock outstanding. Each share of Common Stock is entitled to one vote on each matter properly brought before the Annual Meeting. Shareholders are not permitted to cumulate votes with respect to the election of directors. We do not have any outstanding shares of preferred stock.

YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.

How can I vote my shares?

How Can I Vote My Securities?

Shareholders of Record. Shareholders of record at the close of business on August 20, 2021 (the “Record Date”)the Record Date are entitled to notice of and to vote at the Annual Meeting. Each holder of record of Common Stock is entitled to one vote for each share of Common Stock held as of the Record Date.

If your shares are registered directly in your name with our transfer agent, you are considered a stockholdershareholder of record with respect to those shares. If you are a record holder, the Notice isyour proxy materials are being sent to you directly by our transfer agent. Please carefully consider the information contained in this Proxy Statement and, whether or not you plan to attend the Annual Meeting. If you are a stockholdershareholder of record, you may vote your shares in one of the following ways:

	To vote THROUGH THE INTERNET, go to www.investorvote.com/LWAY to complete an electronic proxy card. You will be asked to provide the control information from the enclosed proxy card. Your Internet vote must be received by 11:59 p.m., Central Time on August 30, 2022 to be counted.
	To vote BY PHONE, call 1-800-652-VOTE (8683) and follow the pre-recorded instructions. You will be asked to provide the control information from the enclosed proxy card. Your telephone vote must be received by 11:59 p.m., Eastern Time on August 30, 2022 to be counted.
	To vote BY MAIL, sign, date and return your proxy card promptly so that we can be assured of having a quorum present at the Annual Meeting and so that your shares may be voted in accordance with your wishes, even if you later decide to attend the Annual Meeting.
	To vote IN PERSON, after you join the meeting, click on the link “Cast your vote” provided on the virtual meeting platform and follow the prompts provided. You will be asked to provide the control information from the Notice.
	To vote THROUGH THE INTERNET, to go www.investorvote.com/LWAY to complete an electronicenclosed proxy card. You will be asked to provide the control information from the Notice. Your Internet vote must be received by 11:59 p.m., Central Time on October 17, 2021 to be counted.
	To vote BY PHONE, call 1-800-652-VOTE (8683) and follow the pre-recorded instructions. You will be asked to provide the control information from the Notice. Your telephone vote must be received by 11:59 p.m., Central Time on October 17, 2021 to be counted.
	To vote BY MAIL mark, sign and return your proxy card promptly, if you requested printed copies of the proxy materials, so that we can be assured of having a quorum present at the Annual Meeting and so that your shares may be voted in accordance with your wishes, even if you later decide to attend the Annual Meeting.

For our

Beneficial Shareholders:Shareholders. The method of voting by proxy differs for shares held as a record holder and shares held beneficially through another holder of record (sometimes referred to as holding shares in “street name”). If you hold your shares of Common Stock in street name (meaning your shares are held of recordin a brokerage account or by a broker, bank or other nominee),nominee, then you will receive voting instructions from that holderare considered the beneficial owner of record. Ifshares held in street name, and this proxy statement was forwarded to you wishby your broker, bank or other nominee, which is considered the shareholder of record with respect to those shares. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares held in personyour account by following the instructions that your broker, bank or other nominee sent to you. As a beneficial owner, you are also invited to attend the Annual Meeting. However, because you are not the shareholder of record, you may not vote these shares at the meeting,Annual Meeting by ballot unless you must obtain a legal proxy“legal proxy” from your broker, bank or other nominee giving you the holderright to vote the shares.

What is the quorum requirement for the Annual Meeting?

A quorum is the minimum number of record of your shares andrequired to be present itor represented at the meeting.

Quorum; Abstentions; Broker Non-Votes

As ofAnnual Meeting for the Record Date, 15,434,936 shares of Lifeway’s Common Stock, no par value, were issuedmeeting to be properly held under the Company’s bylaws (as amended, the “Bylaws”) and outstanding. We have no other class of securities outstanding.Illinois law. 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, we may adjourn the Annual Meeting to a subsequent date for the purpose of obtaining a quorum.

How many votes are needed for approval of each proposal?

Shares of Common Stock that are voted “FOR,” “WITHHOLD,” “ABSTAIN” or “AGAINST”“AGAINST,” as applicable, on a matter are treated both as being present for purposes of establishing a quorum and as shares entitled to vote at the Annual Meeting (the “Votes Cast”) with respect to such matter. Abstentions andmatter (the “Votes Cast”). Broker Non-Votesnon-votes (i.e., shares of Common Stock held as of the Record Date by banks, brokers or other custodiansnominees 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 on a matter, 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.that matter. Abstentions and Broker Non-Votes, therefore,broker non-votes, if any, will have no effect on proposals that require a plurality orand broker non-votes will have no effect on proposals that require a majority of Votes Cast for approval,approval.

Broker non-votes result from shares that are held by a bank, broker or other nominee that are represented at the Annual Meeting, but will havewith respect to which the same effect as a vote “against” proposals requiring any percentagenominee holding those shares (i) has not received instructions from the beneficial owner of the outstanding voting securities for approval. Brokers do not have discretionary authorityshares to vote on the electionparticular proposal and (ii) does not have discretionary voting power with respect to the particular proposal. Whether a bank, broker, or other nominee has authority to vote shares that it holds is determined by stock exchange rules. Banks, brokers and other nominees holding shares of directors.record for beneficial owners do not have the discretion to vote on any of the proposals at the Annual Meeting unless they receive voting instructions from the beneficial owners of the shares.

Deadline for Receipt of Shareholder Proposals to be Presented at our 2022 Annual Meeting

In order for any shareholderThe votes needed to approve each proposal submitted pursuant to Rule 14a-8 promulgated underare as follows:

What is the Securities Exchange Acteffect of 1934, as amended (the “Exchange Act”), to be included in our Proxy Statement to be issued in connection with the 2022 Annual Meeting of Shareholders, we must receive such shareholder proposals no later than July 15, 2022. Any such shareholder proposal submitted, including any accompanying supporting statement, may not exceed 500 words, per Rule 14a-8(d)giving a proxy?

Proxies are being solicited by and on behalf of the Exchange Act. All shareholder proposals must be made in writingBoard. The Board has designated our Chief Executive Officer (“CEO”), Julie Smolyansky, and addressedour Chief Financial Officer (“CFO”), Eric Hanson, and each or any of them, as proxies to Lifeway’s Secretary, c/o Lifeway Foods, 6431 Oakton St., Morton Grove, IL 60053.

Proxy Card and Revocabilityvote the shares of ProxyCommon Stock solicited on its behalf.

You may vote your proxy as described above under “How Can I Vote My Shares?”above. As a shareholder of record, if you submit your proxy, but do not specify how you want your shares to be voted, your shares will be voted by the proxy holders named in the enclosed proxy as follows:

NOTE: If you hold your shares through a broker in “street name,” your broker will not be allowed to vote on Proposal One unless you direct your broker as to such vote.accordance with the recommendation of the Board.

In their discretion, the proxy holders named in the proxy are also authorized to vote on any other matters that may properly come before the Annual Meeting and at any continuation, postponement or adjournment thereof.Meeting. The Board knows of no other items of business as of the date of this Proxy Statementproxy statement that will be presented for consideration at the Annual Meeting other than those described in this Proxy Statement. In addition, we did not receive any shareholder proposals or nominations on a timely basis, so no such matters may be brought to a vote at the Annual Meeting.proxy statement.

Can I change my vote or revoke my proxy?

Shareholder of Record. If you vote by proxy,are a shareholder of record, you may revoke that proxy orcan change your vote at any time before it is voted at the Annual Meeting. Shareholders of record mayor revoke your proxy by:

Street Name Shareholder. If you are a proxy or change their vote prior to the Annual Meeting by delivering a written notice of revocation, a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. Attending the Annual Meeting will not, by itself, revoke a proxy. Ifstreet name shareholder, then your shares are held in the name of abroker, bank broker, or other nominee can provide you maywith instructions on how to change or revoke your vote by submitting new voting instructions to your bank, broker, or other nominee.proxy. Please note that if your shares are held of record by a bank, broker, or other nominee, and you decide to attend and vote at the Annual Meeting, your vote in person at the Annual Meeting will not be effective unless you present a legal proxy issued in your name from the record holder (your bank, broker, or other nominee).

Dissenters’ RightAm I entitled to dissenters’ right of Appraisalappraisal?

Under Illinois General Corporation Law and Lifeway’s Certificate of Incorporation, shareholders are not entitled to any appraisal or similar rights of dissenters with respect to any of the proposals to be acted on at the Annual Meeting.

Availability of Proxy Materials and Solicitation of Proxies

LifewayHow are proxies solicited for the Annual Meeting and who is paying for such solicitation?

The Board is soliciting proxies for use at the Annual Meeting by means of these proxy materials. By signing, dating and returning the proxy card, or by submitting your proxy over the Internet or by telephone using the instructions in this proxy statement, you are authorizing the persons named as proxies to vote your shares at the Annual Meeting as you have instructed.

The Company will bear the entire cost of solicitation of proxies for the Annual Meeting, including the cost of preparing, printing and distributing the Notice and, if requested, this Proxy Statement, the accompanying Notice of Annual Meeting of Stockholders, the proxy card, and the Annual Report, which consists of the Company’s 2020 Form 10-K and Amendment No. 1 to the Company’s Form 10-K.

We may supplement thematerials. The original solicitation of proxies may be supplemented by mailsolicitation by telephone, electronic communications or other means by our directors, director nominees, officers or employees. No additional compensation will be paid to these individuals for any such services, although we may reimburse such individuals for their reasonable out-of-pocket expenses in connection with such solicitation.

Proxies may be solicited by certain of ourthe Company’s directors, executive officers, and regular employees, without additional compensation, in person, or by telephone, e-mail,email or facsimile. WeIn addition, the Company has engaged Georgeson LLC as solicitor in connection with the Annual Meeting to assist in the solicitation of proxies and provide related advice and informational support, all for a service fee and the reimbursement of customary disbursements. The anticipated cost of such service is expected to be approximately $75,000. That firm expects that approximately 25 of its employees will not pay any additional compensationassist in the solicitation. The cost of soliciting proxies will be borne by the Company. Copies of our solicitation materials will also be made available upon request to directors, executive officers,brokers, banks and other nominees to forward to the beneficial owners of the shares held of record by such brokers, banks or regular employees for such services. We mayother nominees. 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.

Our expenses related to the solicitation of proxies from shareholders this year may substantially exceed those normally spent for an annual meeting of shareholders as a result of the previously-contested nature of the election of directors, as discussed further in “2. BACKGROUND OF THE SOLICITATION” below. Such additional costs are expected to aggregate to approximately $260,000. These additional solicitation costs are expected to include: the fee payable to our proxy solicitor (discussed above); fees of outside counsel to advise us in connection with a contested solicitation of proxies; increased mailing costs, such as the costs of additional mailings of solicitation material to shareholders, including printing costs, mailing costs and the reimbursement of reasonable expenses of banks, brokerage houses and other agents incurred in forwarding solicitation materials to those beneficial owners.owners of Common Stock; and the costs of retaining an independent inspector of election

I share an address with another shareholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?

We have adopted a procedure approved bycalled “householding,” which the SEC called “householding.”Securities and Exchange Commission (the “SEC”) has approved. Under this procedure, multiple shareholders who share the same last name and address will receive only one copy of the annualour proxy materials and the Annual Report, unless they notify us that they wish to continue receiving multiple copies. We have undertaken householding to reduce our printing costs, mailing costs and postage fees. If you currently receive multiple copies of the proxy materials at the same address and wish to opt in to householding, or if you currently do not receive multiple copies and wish to opt out of householding, you may notify us in writing or by telephone. Lifeway will also promptly deliver an additional copy of the proxy materials to any shareholder who requests one. Any such request should be directed to Lifeway’s Corporate Secretary at the following address and telephone number.

Lifeway Foods, Inc.

6431 Oakton St.

Morton Grove, IL 60053

Tel: (847) 967-1010

Attention: Corporate Secretary

Street name shareholders may contact their broker, bank or other nominee to request information about householding.

Where can I find the voting results of the Annual Meeting?

We will disclose voting results on a Current Report on Form 8-K that we will file with the SEC within four business days after the meeting. If final voting results are not available to us in time to file a Form 8-K, then we will file a Form 8-K to publish preliminary results and will provide the final results in an amendment to the Form 8-K as soon as they become available.

What is the deadline to propose actions for consideration at the Company’s 2023 annual meeting of shareholders or to nominate individuals to serve as directors?

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 Company’s 2023 annual meeting of shareholders (the “2023 Annual Meeting”), we must receive such shareholder proposals no later than May31, 2023. Any such shareholder proposal submitted, including the accompanying supporting statement, may not exceed 500 words, per Rule 14a-8(d) of the Exchange Act. All shareholder proposals must be made in writing and addressed to Lifeway Foods, Inc., 6431 Oakton St., Morton Grove, IL 60053, (847) 967-1010.Attn: Corporate Secretary.

AttendingThe Bylaws also establish an advance notice procedure for shareholders who wish to present a proposal or nominate a director at an annual meeting, but do not seek to include the proposal or director nominee in our proxy statement. In order to be properly brought before 2023 Annual Meeting, a shareholder must provide timely written notice to the Company’s Corporate Secretary, at the principal executive offices of the Company, and any such proposal or nomination must constitute a proper matter for shareholder action. The written notice must contain the information specified in the Bylaws. To be timely, a shareholder’s written notice must be received by our Corporate Secretary at our principal executive offices no earlier than June 2, 2023, and no later than July 2, 2023.

Who should I contact if I have questions?

Georgeson LLC is assisting us with our effort to solicit proxies. If you have additional questions about the election of directors, other matters to be voted on at the Annual Meeting, this proxy statement or the Annual Meeting, or if you need assistance voting your shares, please contact:

To participate 

Shareholders, banks or brokers may call toll-free at (866) 775-2705

THE BOARD RECOMMENDS VOTING “FOR” THE ELECTION OF THE BOARD’S NOMINEES, “FOR” PROPOSAL TWO, “FOR” PROPOSAL THREE, “FOR” PROPOSAL FOUR AND “FOR” PROPOSAL FIVE USING THE ENCLOSED PROXY CARD.

2.       BACKGROUND OF THE SOLICITATION

As previously disclosed, on March 10, 2022, we received notice from Edward Smolyansky that he intended to nominate certain individuals for election as directors at the Annual Meeting (the “Opposition Nominees”).

On April 10, 2022, the Board met and approved the recommendation of Audit and Corporate Governance Committee regarding the composition of the Board’s slate of director nominees at the Annual Meeting, which did not include the Opposition Nominees.

On April 29, 2022, we filed a preliminary proxy statement with the SEC.

We entered into an agreement, dated as of July 27, 2022, with Edward Smolyansky and Ludmila Smolyansky (the “Settlement Agreement”) that terminated the potential proxy contest. Pursuant to the Settlement Agreement, the Company agreed, among other things, to include Ludmila Smolyansky as a nominee for election to the Board in this Proxy Statement and Edward Smolyansky agreed, among other things, to withdraw his nomination of the Opposition Nominees. In addition, Edward Smolyansky and Ludmila Smolyansky agreed, among other things, (i) to abide by customary standstill provisions and (ii) to appear at the Annual Meeting visit www.meetings.computershare.com/MFZ9FQHin person or by proxy and entervote all shares of Common Stock beneficially owned, individually or otherwise, and controlled by either of them and over which they have power and authority to vote: (a) in favor of the passwordslate of nominees for director submitted to shareholders by the Board for election; and control information included in your Notice of Internet Availability of Proxy Materials. Online check-in will begin(b) to approve all other Board-recommended shareholder proposals to be considered at 1:30 p.m., Central Time. Please allow time for online check-in procedures.the Annual Meeting.

3.       PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

PROPOSAL ONE: ELECTION OF DIRECTORS

The Board currently consists of seven (7) directors, allsix (6) of whom have been nominated for re-election. Each 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 to serve a term of office expiring at the 20222023 Annual Meeting of Shareholders or until their successors are elected and duly qualified, subject, however, to their prior death, disability, resignation, retirement, disqualification, or removal from office.qualified.

Shareholders and their proxies are being asked to vote on these seven (7)eight (8) persons nominated for the Board:

PROPOSAL TWO: NON-BINDING advisory vote on executive compensation

We believe that both Lifeway and its shareholders benefit from sound corporate governance and compensation policies. As part of our obligations under the Exchange Act, and as part of our good corporate governance and overall shareholder outreach efforts, we provide periodic opportunities for our shareholders to cast advisory votes on the compensation of our named executive officers (commonly referred to as a “Say on Pay Proposal”). We are asking our shareholders to approve, on a non-binding advisory basis, the compensation paid to our named executive officers as described in the Compensation Discussion and Analysis section of this proxy statement.

Our Commitment: Pay for Performance

Through our ongoing shareholder engagement, 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.

As further discussed, under “Danone Consent to Stock 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 certain issuances of Common Stock.

To date, Danone has not provided consent to issuances of equity as compensation to Julie Smolyansky. The Compensation Committee does not believe it is in the best interest of the shareholders to use cash in lieu of equity to compensate Named Executive Officers, regardless of who they are. The Company and the Compensation Committee have attempted to reach an agreement with Danone to amend the Shareholders' Agreement and come to terms over what, if any, equity awards Danone would consent to. 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, the Compensation Committee 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 named executive officers also hold substantial or controlling stakes in those companies). In the past we have converted equity awards that could not be issued to cash based on the fair market value of the shares at the time of conversion. However, the Compensation Committee has not recommended such conversion for 2020 and 2021 grants and we continue to search for a resolution that will allow us to utilize equity compensation.

The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the overall compensation of our named executive officers. This vote is advisory only and is not binding on the Company or the Board. Although the vote is non-binding, our Board values the opinions of our shareholders and the Board, and the Compensation Committee will consider the outcome of the vote when making future compensation decisions for our named executive officers.

Accordingly, we ask our shareholders to vote in favor of the following resolution:

“RESOLVED, that the Company’s shareholders approve, on a non-binding, advisory basis, the compensation of the named executive officers, as disclosed in the Company’s proxy statement for the 2022 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission.”

PROPOSAL THREE: APPROVAL OF 2022 OMNIBUS INCENTIVE PLAN

Our Board adopted the Lifeway Foods, Inc. Omnibus Incentive Plan (the “2022 Plan”), on April 27, 2022, subject to shareholder approval. The 2022 Plan, if approved by shareholders, will replace the 2015 Lifeway Foods, Inc. Omnibus Incentive Plan (“Prior Plan”), and will be administered by the Compensation Committee, and will expire ten years from the date of such shareholder approval.

The 2022 Plan allows for equity compensation awards for employees and non-employees (other than non-employee directors). Adopting the 2022 Plan will align our employees and those with whom we contract for services with shareholders’ interests. It will also create long-term incentives for our employees and others, as well as provide competitive employment and compensation environment for retaining our employees and attracting new employees. We expect to use the 3,247,855 shares of common stock that remain unused under the Prior Plan, along with any shares underlying any award granted under the Prior Plan that is terminated, expired, cancelled, or forfeited after shareholder approval of the 2022 Plan. We are not asking shareholders to approve of additional shares under the 2022 Plan at this time.

The following summary of the material features of the 2022 Plan is qualified in its entirety by reference to the 2022 Plan, a copy of which is attached as Appendix A.

If approved by shareholders, the 2022 Plan would become effective immediately upon such approval and no further awards will be made under the Prior Plan.

Administration

The Compensation Committee administers the 2022 Plan. The Compensation Committee has full and exclusive discretionary power to interpret the terms and the intent of the 2022 Plan and any award agreement or other agreement or document ancillary to or in connection with the 2022 Plan. The Compensation Committee may select recipients to receive awards (“Participants”), determine eligibility for awards and adopt such rules, regulations, forms, instruments, and guidelines for administering the 2022 Plan as it may deem necessary or proper. The Compensation Committee’s authority shall include, but not be limited to, establishing all award terms and conditions, including the terms and conditions set forth in award agreements, construing any ambiguous provision of the 2022 Plan or any award agreement, and, subject to shareholder or Participant approvals as may be required, adopting modifications and amendments to the 2022 Plan or any award agreement. All actions taken, and all interpretations and determinations made by the Compensation Committee, shall be final and binding upon Participants, the Company, and all other interested individuals.

The Compensation Committee may delegate its administrative duties or powers to one or more of its members or to one of more of the officers of the Company, its affiliates, or subsidiaries, or to one or more agents or advisors. However, the authority to grant awards to individuals who are subject to Section 16 of the Exchange Act cannot be delegated to anyone who is not a member of the Compensation Committee. As used in this summary, the term “Administrator” means the Compensation Committee and any delegate, as appropriate.

Eligibility

Any employee of the Company, an affiliate or a subsidiary, and non-employee service provider (other than non-employee directors serving on the Board) are eligible to participate in the 2022 Plan if selected by the Administrator. The Company is not able to estimate the number of individuals that the Administrator will select to participate in the 2022 Plan or the type or size of awards that the Administrator will approve. Therefore, the benefits to be allocated to any individual or to various groups of individuals are not presently determinable.

Awards

Under the 2022 Plan, if approved by shareholders, we will be able to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards.

Options. Options granted under the 2022 Plan may be incentive stock options (“ISOs”) or nonqualified stock options. Options entitle the Participant to purchase a specified number of shares of common stock from the Company at a specified option price, subject to applicable vesting conditions and such other provisions as the Administrator may determine consistent with the 2022 Plan, including, without limitation, restrictions on transferability of the underlying shares. The per-share option price will be fixed by the Administrator at the time the option is granted, but cannot be less than the per-share fair market value of the underlying common stock on the date of grant (or, with respect to ISOs, in the case of a holder of more than 10 percent of outstanding voting securities, 110 percent of such per share fair market value). The option price may be paid in cash or its equivalent, with shares of common stock, by a cashless, broker-assisted exercise, or a combination thereof, or any other method accepted by the Compensation Committee.

The minimum vesting period for an option is generally one year. The maximum period in which a vested option may be exercised will be fixed by the Administrator at the time the option is granted but cannot exceed 10 years (five years for ISOs granted to a holder of more than 10 percent of the Company’s outstanding voting securities). The Award Agreement will set forth the extent to which a Participant may exercise the option following termination of employment. No employee may be granted ISOs that are first exercisable in a calendar year for common stock having an aggregate fair market value (determined as of the date the option is granted) exceeding $100,000.

SARs. A stock appreciation right (“SAR”) entitles the Participant to receive an amount upon exercise equal to the excess of the fair market value of one share of common stock on the exercise date over the exercise price of the SAR. SARs shall be subject to applicable vesting conditions and such other provisions as the Administrator may determine consistent with the 2022 Plan, including, without limitation, mandatory holding periods for any shares received upon exercise. The exercise price per SAR shall be determined by the Administrator, but cannot be less than the fair market value of one share of common stock on the grant date.

The minimum vesting period for a SAR is generally one year. The maximum period in which a vested SAR may be exercised will be fixed by the Administrator at the time the SAR is granted, but cannot exceed 10 years. The Award Agreement shall set forth the extent to which a Participant may exercise the SAR following termination of employment. The amount payable upon the exercise of an SAR may, in the Administrator’s discretion, be settled in cash, common stock, or a combination thereof, or any other manner approved by the Administrator.

Restricted Stock and Restricted Stock Units. Restricted stock is common stock issued to a Participant subject to applicable vesting and other restrictions. Restricted stock units are similar to restricted stock except that no shares of common stock are actually issued to the Participant unless and until the restrictions on the award lapse. A restricted stock unit may also be settled in cash. An award of restricted stock or restricted stock units will be forfeitable, or otherwise restricted, until conditions established at the time of the grant are satisfied. These conditions may include, for example, a requirement that the Participant complete a specified period of service and/or the attainment of certain performance objectives. Any restrictions imposed on an award of restricted stock or restricted stock units will be prescribed by the Administrator.

The minimum vesting period for restricted stock and restricted stock units is generally one year. The Award Agreement shall set forth the extent to which a Participant may retain restricted stock or restricted stock units following termination of employment. Participants may be granted full voting rights with respect to restricted stock during the applicable restriction period, but will have no voting rights with respect to restricted stock units until common stock is issued in settlement thereof. Restricted stock will become freely transferrable by the Participant after all conditions and restrictions have been satisfied. Vested restricted stock units may, in the Administrator’s discretion, be settled in cash, common stock, or a combination of cash and common stock or any other manner approved by the Administrator.

Performance Shares and Performance Units. A performance share award entitles a Participant to receive a payment equal to the fair market value of a specific number of shares of common stock, subject to applicable performance and vesting conditions. A performance unit award is similar to a performance share award except that a performance unit award is not necessarily tied to the value of common stock. The Administrator will prescribe the performance conditions that must be satisfied during the applicable performance period for an award of performance shares or performance units to be earned. The Administrator may also impose time-based vesting conditions on the payment of earned performance shares or performance units.

The minimum performance period or vesting period for performance shares and performance units is generally one year. The award agreement shall set forth the extent to which a Participant may retain performance units and performance shares following termination of employment. To the extent that performance units or performance shares are earned and vested, the obligation may be settled in cash, common stock or a combination of cash and common stock. If the award is settled in shares of common stock, the shares may be subject to additional restrictions deemed appropriate by the Administrator.

Cash-Based Awards and Other Stock-Based Awards. The 2022 Plan also allows the Administrator to make cash-based awards and other stock-based awards to Participants on such terms and conditions as the Administrator prescribes, including without limitation, time-based and performance-based vesting conditions. The minimum vesting period for other stock- based awards is generally one year. The award agreement shall set forth the extent to which a Participant may retain cash- based and other stock and equity-based awards following termination of employment. To the extent that any cash-based and other stock and equity-based awards are granted, they may, in the Administrator’s discretion, be settled in cash or common stock.

Dividend Equivalents. Participants may be granted dividend equivalents based on the dividends declared on shares that are subject to any award during the period between the grant date and the date the Award is exercised, vests or expires. The payment of dividends and dividend equivalents prior to an award becoming vested is prohibited, and the Administrator shall determine the extent to which dividends and dividend equivalents may accrue during the vesting period.

Minimum Vesting of Stock-Based Awards

Awards granted under the 2022 Plan are generally subject to a minimum vesting period of at least one year. Awards may be subject to cliff-vesting or graded-vesting conditions, with graded vesting starting no earlier than one year after the grant date. The Administrator may provide for shorter vesting periods in an award agreement for no more than five percent of the maximum number of shares authorized for issuance under the 2022 Plan.

Transferability

In general, awards available under the 2022 Plan will be nontransferable except by will or the laws of descent and distribution.

Performance Objectives

The Compensation Committee shall have full discretionary authority to select performance measures and related performance goals upon which payment or vesting of an award depends. Performance measures may relate to financial metrics, non- financial metrics, GAAP and non-GAAP metrics, business and individual objectives or any other performance metrics that the Compensation Committee deems appropriate.

The Compensation Committee may provide in any award that any evaluation of performance may include or exclude any of the following events that occurs during a performance period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary nonrecurring items as described in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year, (f) acquisitions or divestitures, and (g) foreign exchange gains and losses.

The Compensation Committee shall retain the discretion to adjust performance-based awards downward, either on a formula or discretionary basis or any combination, as the Committee determines.

Change of Control

Unless otherwise provided in an award agreement or otherwise determined by the Compensation Committee, upon a Change of Control (as defined in the 2022 Plan) the following shall occur:

Notwithstanding the forgoing, in the case of awards other than performance awards, the Compensation Committee may cancel such awards, and the award holders shall receive shares or cash equal to the difference between the amount shareholders receive for their shares and the purchase price per share, if any, under the award.

If, in connection with a change in control, a Participant’s payment of any awards will cause the Participant to be liable for federal excise tax levied on certain “excess parachute payments,” then either (i) all payments otherwise due; or (ii) the reduced payment amount to avoid an excess parachute payment, whichever will provide the Participant with the greater after- tax economic benefit taking into account any applicable excise tax, shall be paid to the Participant. In no event will any Participant be entitled to receive any kind of gross-up payment or reimbursement for any excise taxes payable in connection with Change of Control payments.

Share Authorization for the 2022 Plan

The maximum aggregate number of shares of common stock that may be issued under the 2022 Plan is 3,247,855, which is intended to equal the number of shares available under the Prior Plan, plus any shares underlying any award granted under the Prior Plan that is terminated, expired, cancelled, or forfeited after shareholder approval of the 2022 Plan, all of which can be issued pursuant to the exercise of incentive stock options. The shares available for issuance under the 2022 Plan may consist, in whole or in part, of authorized and unissued shares (if any), treasury shares, or shares reacquired by the Company in any manner.

In connection with any corporate event or transaction (including, but not limited to, a change in the shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin off, or other distribution of stock or property of the Company, combination of shares, exchange of shares, dividend in kind, or other like change in capital structure, number of outstanding shares or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Compensation Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants’ rights under the 2022 Plan, shall substitute or adjust, as applicable, the number and kind of shares that may be issued under the 2022 Plan or under particular forms of awards, the number and kind of shares subject to outstanding awards, the option price or grant price applicable to outstanding awards, and other value determinations applicable to outstanding awards. The Compensation Committee may also make appropriate adjustments in the terms of any awards under the 2022 Plan to reflect or relate to such changes or distributions and to modify any other terms of outstanding awards, including modifications of performance goals and changes in the length of performance periods.

If an award entitles the holder to receive or purchase shares of common stock, the shares covered by such award or to which the award relates shall be counted against the aggregate number of shares available for awards under the 2022 Plan as follows:

In addition, any shares related to awards which terminate by expiration, forfeiture, cancellation, or otherwise without issuance of shares shall be available again for grant under the 2022 Plan.

In no event, however, will the following shares again become available for awards or increase the number of shares available for grant under the 2022 Plan: (i) shares tendered by the Participant in payment of the exercise price of an option; (ii) shares withheld from exercised awards for tax withholding purposes; (iii) shares subject to a SAR that are not issued in connection with the settlement of that SAR; and (iv) shares repurchased by the Company with proceeds received from the exercise of an option.

Amendment and Termination

No award may be granted under the 2022 Plan after 10 years from the date the 2022 Plan was approved by shareholders. The Compensation Committee may, at any time and from time to time, alter, amend, modify, suspend, or terminate the 2022 Plan and any award agreement in whole or in part; provided, however, that, (i) without the prior approval of the Company’s shareholders, options or SARs issued under the 2022 Plan will not be repriced, repurchased (including a cash buyout), replaced, or re-granted through cancellation, or by lowering the option price of a previously granted option or the grant price of a previously granted SAR (except in connection with a permitted adjustment in authorized shares described above), (ii) any amendment of the 2022 Plan must comply with the rules of Nasdaq, and (iii) no material amendment of the 2022 Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rule.

The Compensation Committee may make adjustments in the terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Compensation Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the 2022 Plan.

Notwithstanding the foregoing, no termination, amendment, suspension, or modification of the 2022 Plan or an award agreement shall adversely affect in any material way any award previously granted under the 2022 Plan, without the written consent of the Participant holding such award.

Federal Income Tax Consequences

The Company has been advised by counsel regarding the federal income tax consequences of the 2022 Plan. No income is recognized by a Participant at the time an option or SAR is granted. If the option is an ISO, no income will be recognized upon the Participant’s exercise of the option (except that the alternative minimum tax may apply). Income is recognized by a Participant when he disposes of shares acquired under an ISO. The exercise of a nonqualified stock option or SAR generally is a taxable event that requires the Participant to recognize, as ordinary income, the difference between the shares’ fair market value and the option price. If a Participant disposes of shares acquired under an ISO before two years after the ISO was granted, or before one year after the ISO was exercised, this is a “disqualifying disposition” and any gain recognized by the Participant upon the disposition of such shares will be taxed as ordinary income to the extent such gain does not exceed the fair market value of such shares on the date the ISO was exercised over the option price.

Income is recognized on restricted stock and performance shares when the shares first become transferable or are no longer subject to a substantial risk of forfeiture, unless the Participant makes an election to recognize income on the grant date under Section 83(b) of the Code. When making a Section 83(b) election, the Participant recognizes income equal to the fair market value of the common stock.

With respect to awards of performance units, restricted stock units, and cash-based awards, a Participant will recognize ordinary income equal to any cash that is paid and the fair market value of common stock that is received in settlement of an award.

Except in the case of a disqualifying distribution of shares acquired upon the exercise of an ISO, as described above, upon the sale or other disposition of shares acquired by a Participant under the 2022 Plan, the Participant will recognize short- term or long-term capital gain or loss, depending on whether such shares have been held for more than one year at such time. Such capital gain or loss will equal the difference between the amount realized on the sale of the shares and the Participant’s tax basis in such shares (generally, the amount previously included in income by the Participant in connection with the grant or vesting of the shares or the exercise of the related option).

The Company generally will be entitled to claim a federal income tax deduction on account of the exercise of a nonqualified stock option or SAR, upon the taxability to the recipient of restricted stock and performance shares, the settlement of a performance unit or restricted stock unit, and the payment of a cash-based or other stock-based award (subject to tax limitations on the Company’s deductions in any year that certain remuneration paid to certain executives exceeds $1 million). The amount of the deduction is equal to the ordinary income recognized by the Participant. The Company will not be entitled to a federal income tax deduction on account of the grant or the exercise of an ISO unless the Participant has made a “disqualifying disposition” of the shares acquired on exercise of the ISO, in which case the Company will be entitled to a deduction at the same time and in the same amount as the Participant’s recognition of ordinary income. Except in the case of a disqualifying disposition of shares acquired on exercise of an ISO, a Participant’s sale or other disposition of shares acquired under the 2022 Plan should have no tax consequences for the Company.

Our common stock is listed for trading on the Nasdaq Global Market (the “Nasdaq”) under the symbol “LWAY”. The last reported closing price per share of our common stock as reported by the Nasdaq on April 25, 2022 was $5.70 per share.

As of the date shareholders approve of the 2022 Plan, the Prior Plan will be cancelled such that no further awards may be made under the Prior Plan. However, any outstanding awards under the Prior Plan shall not be affected in any way by the approval of the 2022 Plan.

The Company does not have any plans, proposals, or arrangements to make grants or issue any of the shares of common stock that would become available for issuance under the 2022 Plan, other than grants and issuances made in the ordinary course. If this Proposal Four is approved, the Company is considering making prompt grants of restricted stock to certain employees in recognition of the continuing service, although the recipients and amounts have not yet been determined.

PROPOSAL FOUR: APPROVAL OF 2022 NON-EMPLOYEE DIRECTOR EQUITY AND DEFERRED COMPENSATION PLAN

General Information

The Board adopted the Company’s 2022 Non-Employee Director Equity and Deferred Compensation Plan (the “2022 Directors Plan”), on April 27, 2022, subject to shareholder approval. The 2022 Directors Plan, if approved by shareholders, permits (1) the grant of restricted stock units (“RSUs”) to each of our non-employee directors and (2) the deferral by the directors of some or all of their directors’ fees and RSU compensation. The 2022 Directors Plan will have a term of ten years from the date on which it is approved by shareholders.

The 2022 Directors Plan allows for the deferral by directors of some or all of their directors’ fees and RSU compensation. We believe adopting the 2022 Directors Plan will further align our non-employee directors with shareholders’ interests and create long-term incentives for non-employee directors as well as provide a competitive environment for retaining our non-employee directors and attracting new non-employee directors. We expect to use treasury shares that we previously acquire on the open market under our previously announced 2021 stock repurchase program and common stock reserved for issuance to be issued under the 2022 Directors Plan for satisfying the payment of RSUs under the Plan. If authorized, we may in the future use newly issued shares of common stock.

The following summary of the material features of the 2022 Directors Plan is qualified in its entirety by reference to the 2022 Directors Plan, a copy of which is attached as Appendix B.

If approved by shareholders, the 2022 Directors Plan would become effective immediately upon such approval.

Administration

The Company’s Chief Financial Officer (“2022 Plan Administrator”) will administer the 2022 Directors Plan. The 2022 Plan Administrator will interpret all provisions of the 2022 Directors Plan, establish administrative regulations to further the purposes of the 2022 Directors Plan and take any other action necessary for the proper operation of the 2022 Directors Plan. All decisions and acts of the 2022 Plan Administrator shall be final and binding upon all participants in the 2022 Directors Plan.

Eligibility

Each non-employee director of the Company is eligible to be a participant in the 2022 Directors Plan (a “Director”) until they no longer serve as a non-employee director. The Board currently includes six non-employee directors.

Share Authorization for the 2022 Directors Plan

The maximum aggregate number of shares of common stock that may be issued under the 2022 Directors Plan is 500,000 shares. The aggregate fair market value of shares underlying RSU compensation that may be issued as RSU compensation to a Director in any year shall not exceed $170,000. The shares available for issuance under the 2022 Directors Plan may consist, in whole or in part, of authorized and unissued shares (if any), treasury shares, or shares reacquired by the Company in any manner.

In connection with the occurrence of any corporate event or transaction (including, but not limited to, a change in the shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of the Company, combination of shares, exchange of shares, dividend in kind, or other like change in capital structure, number of outstanding shares or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the 2022 Plan Administrator, in its sole discretion, in order to prevent dilution or enlargement of the Directors’ rights under the 2022 Directors Plan, shall substitute or adjust, as applicable, the number and kind of shares that may be issued under the 2022 Directors Plan, the number and kind of shares subject to outstanding RSU grants, the annual grant limits, and other value determinations applicable to outstanding Grants. The 2022 Plan Administrator may also make appropriate adjustments in the terms of any grants under the 2022 Directors Plan to reflect or relate to such changes or distributions and to modify any other terms of outstanding grants.

Grant of RSUs

As of the date of each annual shareholder meeting (an “Annual Meeting”), the Company may grant each Director a number of RSUs for such year. Whether and how many RSUs the Company will grant to Directors in any year is subject to the sole discretion of the Company and shall in any event be subject to the Plan’s overall share limits.

Vesting of RSUs

RSUs granted under the 2022 Directors Plan will vest on such schedule as the Company, in its sole discretion, shall determine. Unvested RSUs will be forfeited when a Director’s service as a director terminates, except that (i) a Director’s unvested RSUs shall become fully vested upon the Director’s death or disability and (ii) a Director who elects not to stand for reelection as a Director at the next following Annual Meeting shall vest in a pro-rata portion of their outstanding grants at the Annual Meeting at which their service as a Director terminates provided that they continue their Director service until that next following Annual Meeting.

Deferral Elections

Under the 2022 Directors Plan, non-employee directors may defer all or part of their cash compensation (in 10% increments) into a deferred cash account, and they may defer all or part of their cash and/or RSU compensation (in 10% increments) into a deferred RSU account. Deferred cash and RSU accounts are unfunded and maintained for record keeping purposes only. Directors wishing to defer amounts under the 2022 Directors’ Plan must make their deferral elections by December 31st (or such earlier date as the 2022 Plan Administrator may designate) of the calendar year preceding the calendar year in which such compensation is earned or granted or, if later, within 30 days after first becoming eligible to make deferrals under the 2022 Directors Plan.

Distributions of Deferrals

Distributions of deferrals under the 2022 Directors Plan will be paid in a lump sum at such time as the Director terminates their service as a Director. Deferred cash account amounts are paid in cash, and deferred RSUs are paid in whole shares of common stock.

Cash deferral accounts will not be credited with any earnings and losses while they are deferred, and RSU deferral accounts will be credited with additional RSUs equal to the value of any dividends paid during the deferral period on deferred RSUs, with such dividends to be vested and/or paid at the same time as the RSUs to which the dividends correspond. Under limited hardship circumstances, Directors can withdraw some or all of the amounts of deferred cash and RSUs in their deferral accounts.

Change in Control

Unless otherwise determined by the 2022 Plan Administrator in connection with a grant, a change in control shall have the following effects on outstanding awards:

Notwithstanding the forgoing, the 2022 Plan Administrator may determine that any or all outstanding awards granted under the 2022 Directors Plan will be canceled and terminated upon a change in control, and that in connection with such cancellation and termination, the Director shall receive for each RSU subject to such award, a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities equivalent to such cash payment) equal to the consideration received by shareholders of the Company for a share of common stock in such change in control.

Amendment and Termination

The Company may, at any time, alter, amend, modify, suspend, or terminate the 2022 Directors Plan in whole or in part; provided, however, that, without the prior approval of the Company’s shareholders, no such amendment shall increase the number of shares that may be issued to any Director, except as otherwise provided in the 2022 Directors Plan, or increase the total number of shares that may be issued under the 2022 Directors Plan. In addition, any amendment of the 2022 Directors Plan must comply with the rules of the Nasdaq, and no material amendment of the 2022 Directors Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rule.

Federal Income Tax Consequences

With respect to RSUs granted under the 2022 Directors Plan that were not deferred by the Director, the Director will be taxed on the fair market value of the underlying shares at ordinary income rates at the time such RSUs vest. The Company will receive a corresponding deduction for the same amount at the same time.

With respect to cash or RSUs deferred under the 2022 Directors Plan, Directors will be taxed on amounts distributed to them from their deferred cash and deferred RSU accounts at ordinary income rates at the time of such distributions. The Company will receive a deduction for the same amounts at the same time.

Upon the sale or other disposition of shares issued to a Director under the 2022 Directors Plan, the Director will recognize short-term or long-term capital gain or loss, depending on whether such shares have been held for more than one year at such time. Such capital gain or loss will equal the difference between the amount realized on the sale of such shares and the Director’s tax basis in such shares (generally, the amount previously included in income by the Director in connection with the vesting or payment of such RSUs or shares). Such sale or other disposition by a Director should have no tax consequences for the Company.

Other Information

Our common stock is listed for trading on the Nasdaq under the symbol “LWAY”. The last reported closing price per share of our common stock as reported by the Nasdaq on April 25, 2022 was $5.70 per share.

The number of shares to be issued in each year is not determinable, as it varies based on the amount of RSU awards determined to be paid to Directors as part of their retainer fees, which has not yet been determined for Board Year 2022-2023 or years beginning thereafter.

PROPOSAL TWO: RATIFY MAYER HOFFMAN McCANN P.C. AS OUR INDEPENDENT AUDITOR FOR FISCAL YEAR 2021

At

PROPOSAL FIVE: APPROVAL OF COMMON STOCK ISSUANCE UPON PAYMENT OF RESTRICTED STOCK UNITS IN LIEU OF 2021 NON-EMPLOYEE DIRECTOR CASH AND RESTRICTED STOCK COMPENSATION

Our Board has approved the opportunity for each non-employee director, in each of their sole discretion, to convert all or a meeting heldpart of their fiscal year 2021 Board compensation into restricted stock units (“RSUs”) which will be paid upon vesting and satisfaction of other conditions as discussed below under “Terms of the RSU Award Agreement” either (1) in restricted stock if approved by shareholders, or, (2) if payment in restricted stock is not approved by shareholders, in cash equal to the number of vested RSUs multiplied by the closing stock price of the Company’s Common Stock on August 10,the last day that the Director serves as director of the Company. The RSUs are governed by the terms of a Restricted Stock Unit Award Agreement (the “RSU Award Agreement”) in the form attached hereto as Appendix C.

The Board believes that allowing independent directors to receive their compensation as RSUs in lieu of cash more closely aligns their interests with our shareholders’ interests.

Eligible Participants

The eligible participants are the non-employee directors who earned compensation to be paid in fiscal year 2021.

Maximum RSUs to be Issued

Only non-employee directors whose compensation was earned during fiscal year 2021 Lifeway’swere offered this opportunity. Mr. Scher, our Lead Independent Director and Chairperson of our Audit and Corporate Governance Committee unanimously recommended the reappointmentand our Compensation Committee, elected to enter into an RSU Award Agreement and receive all of Mayer Hoffman McCann P. C. (“MHM”) as our independent registered public accounting firm for the fiscal year ending December 31, 2021. The Board considers the selection of MHMhis earned cash and restricted stock compensation to be paid in the best interests of Lifewayfiscal 2021 in RSUs. All other non-employee directors have or will be paid their earned cash compensation, and our shareholders. While the Audit and Corporate Governance Committee is responsible for the appointment, compensation, retention, termination, and oversight of the independent auditor, we are requesting, as a matter of good corporate governance, that shareholders ratify that selection. Our Audit and Corporate Governance Committee first engaged MHM on September 12, 2015, and MHM has been our independent registered public accounting firm since that date for periods ending after December 31, 2014. A representative of MHM is expected to be present at the Annual Meeting and will have an opportunity to make a statement, if desired, and respond to appropriate questions.issued their earned restricted stock in shares.

The approvalUp to 40,625 shares of the ratificationour common stock will be issued upon payment of the appointment of MHM as our independent auditors for the fiscal year ending December 31, 2021 requires the affirmative vote of a majority of the Votes Cast. If theRSUs if shareholders fail to ratify the selection, the Audit and Corporate Governance Committee may, but is not required to, reconsider whether to retain MHM. Even if the selection is ratified, the Committee in its discretion may direct the appointment of a different registered independent accountant at any time during the year if the Committee and Board determine that such a change would be in the best interest of Lifeway and its shareholders.approve this proposal.

Vesting

Forfeiture of RSUs

All unvested Converted RSUs are forfeited if the applicable director’s service as a director for the Company or its affiliate terminates for any reason other than a change in control of the Company or the director’s death or disability prior to vesting.

Settlement of RSUs

This description of the RSU Award Agreement is qualified in its entirety by reference to the text of the form of RSU Award Agreement attached hereto as Appendix C.

4.       CORPORATE GOVERNANCE AT LIFEWAY

Our shareholders elect the Board, of Directors, whose primary responsibility is to foster Lifeway’s long-term health, growth, success, and financial condition, consistent with its fiduciary duty to our shareholders. The Board serves as our ultimate decision-making body, except for those matters reserved to or shared with the shareholders. The Board establishes broad corporate policies and oversees the members of senior management, who are charged by the Board with conducting Lifeway’s business.

In addition, the Board oversees these general areas of governance, as outlined in more detail in the section entitled “Lifeway’s Board of Directors section:Directors”:

Key Governance Policies

Clawback Policy

To help support accountability among our management team, the Board has adopted a specific clawback policy. Our executive officers and other senior executives who participate in our Omnibus Plan are subject to this comprehensive policy. Under it, the Board or the Compensation Committee may seek to recover payments of incentive-based compensation awards, after considering the methods, costs, and benefits of doing so. Lifeway notifies each person receiving incentive-based compensation awards that the Board may elect to recover some or all of those awards if the performance results that led to an incentive payment are later subject to a restatement or other adjustment that would reduce the size of that payment. The Board or Committee may also seek recovery of up to the entire amount of any incentive compensation awarded during a period where a covered participant committed a significant legal or compliance violation.

Executive and Director Stock Ownership and Holding Policy

To better align the interests of our executive officers and independent directors with the interests of stockholdersshareholders and further promote our commitment to sound corporate governance, in 2020, our Board adopted a revised stock ownership and holding policy, which it administers, interprets, and construes.

Under the policy, our executive officers are required to own Lifeway Common Stock valued at 200% of their annual base salary. Unless an executive officer has satisfied his or her applicable minimum ownership level, the executive officer is required to retain an amount equal to 50% of the net shares received as the result of the exercise, vesting, or payment of any equity awards granted to him or her. Thereafter, executive officers are required to (i) retain 25% of all such net shares, and (ii) continuously own sufficient numbers of shares to satisfy the minimum ownership requirement once attained, for so long as they remain executive officers. The individual minimum level for each executive officer is initially calculated using the executive officer’s base salary as of the date the person is first appointed as an executive officer. The Board recalculates and evaluates compliance on each January 1^st and July 1^st.

The policy also requires each independent director to own Lifeway Common Stock valued at 200% of the annual retainer payable to such director. The policy provides that if Lifeway awards shares to independent directors, those directors must retain 50% of all net shares (post tax) that vest until the director meets the minimum share ownership requirement and 25% of all such net shares thereafter. This individual minimum level is then recalculated each year when an independent director is elected or re-elected to the Board. Our policy requires independent directors to whom we award shares to continuously own sufficient numbers of those shares to satisfy the requirements once attained for so long as they remain members of our Board. The Board recalculates and evaluates compliance on each January 1^st and July 1^st.

The policy also requires Ms. LLudmila Smolyansky to own Lifeway Common Stock valued at 200% of the annual consulting fee payable to her. The policy provides that if Lifeway awards shares to Ms. L.Ludmila Smolyansky, she must retain 50% of all net shares (post tax) that vest until she meets the minimum share ownership requirement and 25% of all such net shares thereafter. Our policy requires independent directors to whom we award sharesLudmila Smolyansky to continuously own sufficient numbers of those shares to satisfy the requirements once attained for so long as they remain membersshe remains a member of our Board. The minimum level for Ms. L.Ludmila Smolyansky iswas initially calculated using the annual base consulting fee she iswas receiving pursuant to her Amended and Restated Consulting Agreement, with the Company, datedwhich was terminated as of December 28, 2020.January 17, 2022. The Board recalculates and evaluates compliance on each January 1^st and July 1^st.

Shares that count toward satisfaction of the stock ownership requirements for executive officers and directors include the following: (i) vested shares held outright or beneficially owned by the executive officer or director, regardless of how acquired; (ii) vested shares held by the spouse or dependent children of the executive officer or director; (iii) vested shares held in trust for the economic benefit of the executive officer or director, or the spouse or dependent children of the executive officer or director; (v) vested shares held in a 401(k), IRA, or other retirement plan. The following do not count towards satisfaction of the stock ownership guidelines: (i) unvested shares of any type; (ii) shares subject to pledge as collateral for a loan or in a margin account; (iii) unexercised stock options (whether vested or unvested); and (iv) vested incentive performance awards that are settled in cash rather than equity.

Exceptions to these share ownership and holding requirements may be made at the discretion of the Board if compliance would create severe hardship or prevent an executive officer or director from complying with a court order, such as part of a divorce settlement. The Board expects these instances will be rare. If an exception is granted in whole or in part, the Board will, in consultation with the affected executive officer or director, develop an alternative stock ownership guideline for that individual that reflects both the intention of the policy and that individual’s circumstances.

During fiscal year 2020,2021, Ms. J.Julie Smolyansky and Mr. Smolyansky satisfied the executive officer stock ownership requirements, and Mr. Hanson and Ms. Feldman were progressing toward attaining their applicable requirements. Mr. Sikar satisfied the independent director ownership requirements during fiscal year 2020,2021, and Mr. Scher, Ms. Levy and Ms. McWhorter were progressing toward attaining the applicable requirements. Ms. L.Ludmilla Smolyansky satisfied the non-independent director stock ownership requirements during fiscal year 2020.2021.

The ownership levels of our named executive officers and directors are set forth in Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related StockholderShareholder Matters” below. The stock ownership and holding policy described above prescribes the amount and length of time executives or directors have to hold their stock after exercise or vesting. 

Insider Trading Policy and Rule 10b5-1 Sales Plans

Consistent with our Corporate Governance Guidelines, we have an insider trading policy that prohibits our officers, directors, and other employees and persons from engaging in, among other things, short sales; hedging of stock ownership positions; trading in options, puts, calls, or other derivative instruments relating to Lifeway’s common stock; or buying Lifeway common stock on margin. Our policy also prohibits pledging Lifeway’s common stock as collateral for a loan without prior approval of Lifeway’s designated compliance officer and the Board of Directors.Board. Our insider trading policy does permit our officers, directors, and employees to enter into trading plans complying with Rule 10b5-1 under the Exchange Act.

5.       LIFEWAY’S BOARD OF DIRECTORS

Board Leadership Structure

The Board believes that our shareholders are best served if the Board retains flexibility to decide what leadership structure works best for us under our current facts and in our current circumstances. Since 2002, we have maintained separate positions of Chairperson of the Board, Chief Executive Officer, and, since we established the position in 2018, Lead Independent Director. Our CEO has primary responsibility for our day-to-day leadership and strategic direction, and our Chairperson facilitates oversight of management, promotes communication among management and between management and the Board, and sets and maintains Board culture. Pursuant to Board policy, the chairperson of the Audit and Corporate Governance Committee also serves as the Board’s Lead Independent Director. The Lead Independent Director presides over meetings of independent directors.directors, and if the Chairperson is not independent, fulfills certain functions of the Chairperson with, or instead of, the Chairperson.

Currently, Ludmila Smolyansky serves as Chairperson of the Board, Julie Smolyansky as Chief Executive Officer, and Jason Scher as Lead Independent Director. These positions are distinct and can be workable for leaders have an excellent working relationship and offer Lifewaywith a complementary array of skills, knowledge, and abilities. We believe that our leadership structure, with a separate Chief Executive Officer, Chairperson of the Board, and Lead Independent Director, is optimal for us because it allocates authority, responsibility, and oversight among management and key Board members. Following the Annual Meeting, the Board intends to review and consider, and appoint, a new Chairperson of the Board.

Board Composition

Our Board is committed to diversity of experience, gender, race and ethnicity, and seek to ensure that there is diversity of thought among our directors. Our Board believes that its directors should be of a diverse group of individuals who have broad experience and the ability to exercise sound business judgment. The Company believes that diversity of thought stems from many factors including professional experience, life experience, socio-economic background, gender, race, ethnicity, religion, skill set, and geographic representation. The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge, abilities, and shareholder and community representation that will allow the board to fulfill its responsibilities.

In August 2021, the SEC approved a Nasdaq Stock Market proposal to adopt new listing rules relating to board diversity and disclosure. As approved by the SEC, the new Nasdaq listing rules require all Nasdaq listed companies to disclose consistent, transparent diversity statistics regarding their boards of directors. The rules also require most Nasdaq listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self identifies as either an under-represented minority or LGBTQ+. The Board Diversity Matrix below presents the board’s diversity statistics in the format prescribed by the Nasdaq rules.

The Board seeks to include members with diverse backgrounds, skills, and experience, including appropriate financial and other expertise relevant to our business. The Board’s current composition demonstrates our success in building such a group:

Information About Our Nominees

LUDMILA SMOLYANSKY was appointed as a Director by the Board to fill a vacancy created by an increase of the maximum number of Directors up to seven and unanimously elected as the Chairperson of the Board in November 2002. Mrs. Smolyansky has been the operator of several independent delicatessen and gourmet food distributorship businesses, and imported food distributorships, and been a leading force in the health food market for over 40 years. Mrs. Smolyansky and Michael Smolyansky founded Lifeway and Mrs. Smolyansky served as our General Manager. In 2010, Mrs. Smolyansky retired as a Lifeway employee. She has continued to serve Lifeway as its Chairperson of the Board and as a full-time consultant since 2011. Mrs. Smolyansky devotes as much time as necessary to Lifeway’s business and currently holds no other directorships in any other reporting company. Mrs. Smolyansky is the mother of Julie Smolyansky (the President, Chief Executive Officer, and a Director of the Company) and Edward Smolyansky (the Chief Operating Officer and a Director of the Company). The Smolyansky family maintains a controlling interest in the Company, and the Board believes it is appropriate to provide for continuity of the representation of the Smolyansky family on the Board as a component of our succession planning strategy.

Mrs. Smolyansky brings many years of food industry experience, historical perspective, and operational expertise to the Board. As Chairperson of the Board, Mrs. Smolyansky guides the Board in analyzing our strategic development. She brings to bear her historical knowledge of our business and industry to advise the Board on what strategies have been and can be successful and why. Mrs. Smolyansky’s business acumen allows her to lead the Board in long-term strategic planning. Her significant consumer products experience and international food industry background provide her with a broad understanding of the operational, financial, and strategic issues facing public companies like ours. In addition, as a founder and pioneer in cultured dairy, Mrs. Smolyansky has been a recognized leader in the organic and natural products industry for decades. Her in-depth knowledge about Lifeway, other manufacturers, and distributors and retailers across varying channels of distribution make her well qualified for service on our Board.

JULIE SMOLYANSKY was appointed as a Director and elected President and Chief Executive Officer of Lifeway by the Board of Directors to fill the vacancies in those positions created by the death of her father, Michael Smolyansky, in June 2002. She was appointed as Secretary effective as of January 1, 2020. She is a graduate with a bachelor’s degree from the University of Illinois at Chicago. Prior to her appointment, Ms. Smolyansky spent six years as Lifeway’s Director of Sales and Marketing. Ms. Smolyansky also served as Lifeway’s Chief Financial Officer and Treasurer from 2002 to 2004. Under her leadership, Lifeway has brought its products into the mainstream, boosted annual revenues tenfold, and expanded distribution throughout the United States, Mexico, the UK,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 brothersister of Edward Smolyansky (the(Former Chief Operating Officer and a Director of the Company). The Smolyansky family maintains a controlling interest in the Company, and the Board believes it is appropriate to provide for continuity of the representation of the Smolyansky family on the Board as a component of ourLifeway’s succession planning strategy.

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; companyCompany 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.

EDWARDLUDMILA SMOLYANSKY was electedappointed as a Director in June 2017by the Board to fill a vacancy created by an increase of the maximum number of Directors up to seven and is Lifeway’s Chief Operating Officer. Mr. Smolyansky was appointedunanimously elected as Chief Financial and Accounting Officer and Treasurerthe Chairperson of Lifewaythe Board in November 20042002. Ludmila Smolyansky has been the operator of several independent delicatessen and appointedgourmet 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 Mrs. Smolyansky served as the Chief Operating Officer and Secretary in 2012. He resigned his titlesour General Manager. In 2010, Mrs. Smolyansky retired as Chief Financial Officer on January 1, 2016 anda Lifeway employee. She has continued to serve Lifeway as Chief Accounting Officer on August 8, 2016. Mr. Smolyansky retained his titleits Chairperson of Chief Operating Officer when the Board appointed Mr. Hanson as Treasurer and as Secretary on October 4, 2019. He also served as Lifeway’s Controllera consultant to Lifeway from June 20022011 until 2004. He received his bachelor’s degree in finance from Loyola University of Chicago in December 2001. HeJanuary 2022. Ludmila Smolyansky currently holds no other directorshipsdirectorship in any other reporting company. Mr. SmolyanskyShe is the brothermother of President, CEO and Secretary, Julie Smolyansky and the son of Lifeway’s Chairperson(the Chief Executive Officer of the Board, Ludmila Smolyansky. TheCompany) and Edward Smolyansky family maintains a controlling interest in the Company, and the Board believes it is appropriate to provide for continuity(Director of the representation of the Smolyansky family on the Board as a component of our succession planning strategy.Company).

Mr.Mrs. Smolyansky bringshas been nominated for election to the Board over fifteenpursuant to the Settlement Agreement. She brings many years of extensive financialfood industry experience, historical perspective, and operations experience in the dairy and consumer packaged goods industries, which makes him a valuable contributoroperational expertise to the Board. Under his operational leadership, Lifeway has successfully integrated several strategic acquisitions and successfully led the development of both manufacturing processes and products. Mr. Smolyansky provides the Board with unique perspectives and invaluable, in-depthHer knowledge of Lifeway, including strategic growth opportunities; personnel; relationships with key customers and suppliers; brand marketing; operations; mergers, acquisitions and divestitures; competitive product positioning; history; company culture; and all other aspects of Lifeway’s operations. As the Chief Operating Officer and former Chief Financial Officer of a publicly traded company, Mr. Smolyansky brings experience working with the investor community and financial institutions. In addition, as a member ofqualified her for service on our founding family, Mr. Smolyansky is a recognized leader in the dairy and probiotic products industry with an in-depth knowledge of manufacturers, distributors, and retailers across all our channels of distribution.Board.

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.

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.

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 2006 to 2018 he was a Managing Member of South Shore Developers Group, a real estate development company focused on affordable housing in the Chicago Area. From 2000 to 2004, Mr. Scher was a principal in RP3 Development, a New York based construction management and development company that performed work nationwide. Prior to that, Mr. Scher was employed by COSI Sandwich Bar in their real estate and construction group. Mr. Scher devotes as much time as necessary to the business of the Company and currently holds no other directorships in any other reporting company.

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.

Jody LevyJODY LEVY was elected as a director of Lifeway to fill a vacancy on the Board on February 11, 2020. Ms. Levy is the founder, Creative Director and Chief Executive Officeran 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 NeroPraxis, 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, various brands including GEM&BOLT Mezcal Bulletproof, Thrive Market, Parsley Health, The WELL, Inscape,since 2014. She also served as a director of Pinata, and more.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.

Ms. Levy’s breadth of experience in manufacture,manufacturing, marketing and sale of consumer packaged goods, specifically health foods, andas well as her financial expertise, depth of knowledge about all aspects of manufacturing companies and businessher leadership experience as investor and as Chief Financial Officer make her well qualified to be a valuable addition tomember of our Board.

Dorri McWhorter

DORRI MCWHORTER was elected as a directorDirector of Lifewaythe Company in August 2020. Ms. McWhorter became CEO of YMCA Chicago on August 2,in 2021. From 2013 through Juneuntil 2021, Ms. McWhorter was the CEO of YWCA Metropolitan Chicago where she increasedtransforming the organization from a traditional social service organization to 21st Century social enterprise. Increasing impact and organizational sustainability, of the YWCA Chicago including, increasing theMetropolitan Chicago’s operating budget quadrupled. The organization has grown from $10.5 million in 2013been an active contributor to an expected $35 million in 2021, expanding services and participating inmany critical initiatives across the region, including Census 2020 outreach and engagement, COVID-19 relief, Contact Tracing,under Ms. McWhorter’s leadership, YWCA Metropolitan Chicago expanded its service footprint to 10 new locations, completed seven mergers and community economic development efforts onacquisitions, 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 south and west sides of the city by the acquisition and strategic integration of other direct service and policy organizations. She has led YWCA’s development of innovative digital services the process for the YWCAeffort to partner on the development and launch ofdevelop an exchange tradedexchange-traded fund (ETF) for women’s empowerment (NYSE: WOMN) in partnership with Impact Shares, which is the first non-profit investment advisor to develop an ETF product. Priding herself on being a socially-conscious business leader, committed to creating an inclusive marketplace by leveraging a cross-sector approach of engaging business, civic and community partners, Ms. McWhorter included in the inaugural list of “The Blue Network”, comprised of the top 100 innovators in Chicago, by Chicago Tribune’s Blue Sky Innovation and recognized by Good City Chicago receiving its Innovative Leader Award. Dorri is a 2019 Inductee in the Chicago Innovation Hall of Fame. Ms. McWhorter is also a CPA.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. She also

Ms. McWhorter serves on the Boardboards of Directors fordirectors of Green Thumb Industries (CSE: GTII)(OTCQX: GTBIF), William Blair Funds and Skyway Concession Company (Chicago Skyway). Ms. McWhorterShe 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 is the currenta past Chairperson of the Board of Directors for the Illinois CPA Society. SheMs. McWhorter also serves as Co-Chair of the Advisory Board of the First Women’s Bank (in development). Ms. McWhorter is dedicated to empowering women as a founding member of the Women in Entrepreneurship Institute at DePaul University and Women’s Philanthropy Institute at Indiana University. Her civic and philanthropic leadership includes the board of directors for the Chicago Center for Arts and Technology, 1871 (Technology Business Accelerator), Chicago Council on Global Affairs, Civic Consulting Alliance, Civic Federation, and Forefront. She is also a member of the Illinois Charitable Trust Board. Ms. McWhorter received a bachelor of business administration degreeBBA from the University of Wisconsin-Madison, a master of business administration degreean MBA from Northwestern University’s Kellogg School of Management, and an honorary Doctor of Humane Letters from Lake Forest College.

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 makesmake her well qualified for service on our Board.

JC DALTO is a nominee for election as a member of Lifeway’s Board. He has over 30 years of experience in the agriculture and food and beverage industries. In 2000, Mr. Dalto became the CEO of Danone in Portugal, in 2002 the President and CEO of Danone in Italy, and in 2004 the Chairman, President and CEO of Danone North America - The Dannon Company, Inc. He has gone on to hold Director, Country/Regional President and CEO positions at numerous international corporations, such as Danone, The Pillsbury Company, Kraft Foods and Stonyfield Farm. From 2012 to 2015, Mr. Dalto served as Chief Executive Officer of JDE Brazil (formerly, D.E. Master Blenders 1753). From 2017 to 2020, Mr. Dalto served as Chief Executive Officer of Savencia Fromage & Dairy Latin America. In 2021, Mr. Dalto became the President of Dole Sunshine Company - Dole Packaged Foods LLC, Americas, where he is working on a movement toward zero fruit loss and zero fossil-based plastic packaging by 2025, and net zero carbon emissions by 2030. Mr. Dalto has extensive experience in de-commoditizing agri-business derived foods and drinks into added-value, functional, nutritional, health and wellness products, and has executed on sustainable and profitable growth business models in his previous roles. Mr. Dalto previously attended the Buenos Aires Institute of Technology and has post-graduate degrees from the University of Michigan and the London Business School. Mr. Dalto is also a certified Professional Coach from Integral Coaching Canada and has organized and led campaigns leading to Global Environmental Change in Latin America.

Mr. Dalto’s has deep industry, brand management and growth experience in the consumer-packaged goods sector. His business insights as a Board member will provide significant value to the Lifeway brand and support the Lifeway mission to grow profitably, sustainably and consciously and make Mr. Dalto well qualified for service on our Board

PERFECTO SANCHEZ is a nominee for election as a member of Lifeway’s Board. He is a West Point graduate and decorated U.S Army Veteran with two combat tours to Iraq. He started his corporate career at Kraft Heinz, where he launched MiO Liquid Water Enhancer, which grossed over $100 million in its first year and is regarded as one of Kraft’s most successful innovations to date. In 2013, Mr. Sanchez joined Danone where he led portfolio strategy and trade finance for over half of the dairy portfolio and then ultimately went on to lead the Danone Waters Customer Marketing Team for North America. In 2014, Mr. Sanchez launched his own marketing consulting firm called Keep The Change, a growth consulting initiative with a purpose. At Keep The Change, Mr. Sanchez serves as the chief executive officer and head of growth. He and his team build social impact initiatives across a myriad of different sectors from working with local governments to billion-dollar startups. Mr. Sanchez currently serves on the board of directors at TechTarget Inc. (Nasdaq: TTGT), a publicly traded company, and as an Advisor at International Crisis Group and Build in Tulsa. He is also an Ambassador of Mission Blue, a global coalition aimed at protecting marine life.

Mr. Sanchez’s has deep industry, brand management and growth experience in the consumer-packaged goods sector. His business insights as a Board member will provide significant value to the Lifeway brand and support the Lifeway mission to grow profitably, sustainably and consciously and make Mr. Sanchez well qualified for service on our Board.

Director Independence

At least annually and in connection with any individuals being nominated to serve on the Board, the Board reviews the independence of each director or nominee and affirmatively determines whether each director or nominee qualifies as independent. The Board believes that shareholder interests are best served by having a number of objective, independent representatives on the Board. A majority of the current Board, consisting of Ms. Levy, Mr. Scher, Mr. Sikar and Ms. McWhorter, are “independent directors” as defined in the listing standards of Nasdaq and none of them have relationships to Lifeway that are material to that director’s ability to be independent from management in connection with the duties of a board member. The Board has determined that Mr. Dalto and Mr. Sanchez, will, when elected, also be “independent directors” as defined in the listing standards of Nasdaq and neither of them have relationships to Lifeway that are material to their ability to be independent from management in connection with the duties of a board member.

TheEach of the Audit and Corporate Governance Committee and the Compensation Committee is composed solely of independent directors. In addition, the Board and the Audit and Corporate Governance Committeeeach committee have complete and open access to any member of management and the authority to retain independent legal, financial, and other advisors as they deem appropriate without consulting or obtaining the approval of any member of management. The Board and Audit and Corporate Governance Committeeeach committee also hold regularly scheduled executive sessions of only independent directors to promote discussion among the independent directors and assure independent oversight of management. 

Voting for Directors; Director Resignation Policy

Each director in an uncontested election must be elected by a majority of the Votes Cast at the Annual Meeting in an uncontested election, or by a plurality of the Votes Cast at the Annual Meeting in a contested election. If any nominee is not available for election at the time of the Annual Meeting (which we do not anticipate), the proxy holders named in the proxy, unless specifically instructed otherwise in the proxy, will vote for the election of such other person as the existing Board may recommend, unless the Board decides to reduce the number of our directors.

Consistent with our Bylaws, under our Board’s policy, any director in an uncontested election who fails to be elected must offer to tender his or her resignation to the Board. The Board nominates for election or re-election as director, and fills director vacancies with, only those candidates who agree to tender their irrevocable resignations upon (1)(i) the failure to receive the required vote at the annual meeting at which they face election or re-election and (2)(ii) Board acceptance of such resignation.

If an incumbent director fails to receive the required vote for re-election in an uncontested election, the Board and the Audit and Corporate Governance Committee will act on an expedited basis to determine whether to accept the director’s resignation and will submit such recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation. The Audit and Corporate Governance Committee and the Board may consider any factors they deem relevant in deciding whether to accept a director’s resignation.

Board Meetings and Attendance

The Board typically meets at least quarterly and holds special meetings when necessary. During the 20212022 fiscal year, the Board intends to hold at least four regularly scheduled meetings and the independent directors serving on the Board intend to meet in executive session (i.e., without the presence of any non-independent directors or management) immediately following at least two regularly scheduled Board meetings. During the fiscal year ended December 31, 20202021 (the “Last Fiscal Year”), the Board held 8 Board9 meetings. All directors standing for re-election who served on the Board during the Last Fiscal Year attended at least 75% of the total number of meetings of the Board and of the committees of the Board on which they served in the Last Fiscal Year.

Pursuant to our Corporate Governance Guidelines, the Board expects attendance by Directors at Lifeway’s annual meetings. Each of the directors standing for re-election who served on the Board during the Last Fiscal Year attended the 20202021 Annual Meeting of Shareholders and each of the nominees, except Jason Scher and Jody Levy, currently intends to attend this Annual Meeting.

Board Oversight

Shareholders elect the Board to oversee management and to serve shareholders’ long-term interests. Management is responsible for executing strategy, fulfilling our mission, maintaining our corporate culture, creating innovative, healthy probiotic products, establishing accountability and the “tone at the top,” and managing risk. The Board maintains an active dialogue with management to align our strategy with our goals, manage risk, and help identify key business opportunities in an ever-changing business environment. To support that dialogue, the Board, its Audit and Corporate Governance Committee, and individual directors have access to, meet with, and engage our management team, subject matter experts inside and outside Lifeway, our internal audit function, our auditors, and other external experts and advisors.

At Board and Committee meetings during each year, the Board assesses our business objectives, trends in our business and our markets, policy and regulatory objectives and developments, our budget and financial forecasts, and how Lifeway’s performance aligns with our strategy and goals. The Board looks to the focused expertise of its Audit and Corporate Governance Committee to inform its oversight.

The Board’s Risk Oversight

The Board of Directors recognizes that although management is responsible for identifying and managing day-to-day risk, the Board and each of its directors play a critical role in the oversight of that risk. The Board implements its risk oversight responsibilities by having management provide appropriate briefings and informational sessions on the significant risks that Lifeway faces and how we are seeking to control risk. In some cases, the Audit and Corporate Governance Committee is responsible for oversight of specific risk topics. For example, the Audit and Corporate Governance Committee has oversight responsibility of our internal audit function and risks associated with financial accounting and audits, internal control over financial reporting, and major financial risk exposures.

As highlighted in detail below, the Board also has oversight responsibility of risks relating to Lifeway’s compensation policies and practices. At each regular meeting, or more frequently as needed, the Board considers reports from management and the Compensation Committee that provide detail on risk management issues and management’s response. Lifeway believes that its leadership structure promotes effective Board oversight of risk management because management provides the Board, directly and through the Audit and Corporate Governance Committee, the information necessary to appropriately monitor, evaluate, and assess our overall risk management.

The Board’s Compensation Oversight

Led by the Audit and Corporate Governance Committee through May 2020 and the Compensation Committee, thereafter, the Board dischargeddischarges its responsibilities related to compensation of Lifeway’s executive officers and administers our incentive and equity compensation plans. The Board also evaluates non-employee director compensation. In addition, the Board is responsible for conducting a periodic risk evaluation of Lifeway’s compensation practices, policies, and programs.

In 2019,2021, the Audit and Corporate GovernanceCompensation Committee engaged the Lockton CompaniesAon Consulting, Inc. (“Lockton”AON”) as its independent compensation consultant to advise it on executive officer, senior management and director compensation matters. As part of its engagement in 2019,2021, the Audit and Corporate Governance Committee directed LocktonAON to work with our General Counsel, our Human Resourceshuman resources department and other members of management to obtain information necessary for LocktonAON to evaluate compensation of executive officers, senior management and directors.

The Audit and Corporate GovernanceCompensation Committee tasked LocktonAON with developing a compensation strategy for 20202021 built on Lockton’sAON’s and the Audit and Corporate GovernanceCompensation Committee’s prior work and reflects the compensation philosophy described above. Previously, in 2018, Locktonthis proxy statement. AON reviewed our comparative peer group with management and the Compensation Committee and suggested several refinements to it, which the Audit and Corporate GovernanceCompensation Committee approved. Lockton selected companies primarily focused on food/beverage manufacturing or agribusiness based on net sales, market capitalization, recentAdditional information about peer group selection can be found in “Compensation Discussion and anticipated growth, and similarity of management structure.Analysis.”

Using the refined peer group, LocktonAON analyzed the peer group’s comparative total direct compensation practices and mix of pay against Lifeway’s executive officer total direct compensation practices generally and proposed recommendations regarding the amount and mix of base and incentive compensation to be delivered to our executive officers, senior management team and directors for fiscal year 2020.2021.

During 2019, Lockton2021, Aon performed no other services for Lifeway. The Audit and Corporate GovernanceCompensation Committee believed that there was no conflict of interest based on any prior relationship with Lockton.AON. In reaching this conclusion, the Audit and Corporate GovernanceCompensation Committee considered the factors set forth in the SEC and Nasdaq rules regarding compensation advisor independence.

Lockton’s engagement was terminated in the first quarter of 2020. The newly formed Compensation Committee undertook a process to identify and engage a new independent compensation consultant, Aon Consulting, Inc., to assist in a review of the compensation philosophy described above and the compensation strategies, structures and amounts for 2021.

The Board’s Director Nominations Oversight

Led by the Audit and Corporate Governance Committee and the Board’s independent directors, the Board selects and evaluates qualified candidates for election or appointment to the Board, including by identifying individuals qualified to become Board members and members of Board committees; nominates director nominees for the next annual meeting of shareholders or for appointment to vacancies on the Board; and identifies individuals to serve as our executive officers.

There are no specific minimum qualifications that the Board believes that a director nominee must meet. However, the Board 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 Board considers diversity together with other factors considered when evaluating candidates but does not have a specific diversity requirement.

The Board meets in advance of each of Lifeway’s annual meetings of shareholders to identify and evaluate the skills and characteristics of each potential nominee for election as one of our directors. The Board reviews the candidates in accordance with the skills and qualifications set forth in its Corporate Governance Guidelines and by Nasdaq rules. The Board evaluates all director candidates in the same manner, regardless of whether a shareholder or some other source recommends them.

The Board’s Management Succession Planning Oversight

One of our Board’s principal duties is to review management succession planning. The Board reviews its management succession plans annually and plans for the development, retention, and replacement of executive officers, including the Chief Executive Officer and Chief Financial Officer. Additionally, the Board oversees the risks and exposures associated with management succession planning. Our Board believes that the directors and Lifeway’s executive officers should collaborate on succession planning and that the entire Board should be involved in the critical aspects of the management succession planning process, including establishing selection criteria that reflect our business strategies, identifying and developing internal candidates to ensure the continuity of our culture, and making key management succession decisions.

Management succession is discussed by the Board in regular meetings and in executive sessions of the Board as appropriate. Directors can become familiar with potential successors for key management positions through various means, including regular organization and talent reviews, presentations to the Board, and informal meetings.

The Board’s Cybersecurity Oversight

The Board has oversight of risks related to data protection and cybersecurity. Cybersecurity protection is vital to maintaining our operations and the trust of our business and supply chain partners, as well as the general public that buys our products. We must secure our own manufacturing and information technology infrastructure, as well as our sensitive data, from failures, breaches, or cyber incidents. This oversight includes reports to the Board on data protection and cybersecurity matters from senior members of our information technology department, legal department, and internal audit function. The topics covered by these reports include risk management strategies, data protection, ongoing risk mitigation activities, cybersecurity strategy, and governance structure.

Annual Board and Committee Evaluations

Each year, as required by our Corporate Governance Guidelines and as part of the Board’s oversight responsibilities, our Board and its Committees conduct evaluations to assess their effectiveness and adherence to the Lifeway’s Code of Ethics, Corporate Governance Guidelines, policies adopted by the Board, and committee charters, and to identify opportunities to improve Board and committee performance. 

Board evaluation – Each Director is given the opportunity to provide an annual evaluation of the performance of the Board and each of its members. The aggregate results are reported to the Board. The report includes an assessment of the Board’s compliance with our Code of Ethics, corporate governance guidelines, and policies adopted by the Board, and identification of areas in which the Board could improve its performance.

Committee evaluations – Each Committee member is given the opportunity to provide an annual performance evaluation and reports the results to the Board. Each report includes an assessment of the committee’s compliance with our Code of Ethics, corporate governance guidelines, policies adopted by the Board, the committee’s charter, and identification of areas in which the committee could improve its performance.

Board Committees

Controlled Company Exemption

Because Ludmila Smolyansky, Julie Smolyansky, and Edward Smolyansky, acting as a group, (the “Smolyansky family”) beneficially own a majority of Lifeway’s outstanding Common Stock, we qualify as a “controlled company” pursuant to Nasdaq Listing Rule 5615. We believe that having the Smolyansky family as a significant part of a long-term-focused, committed, and engaged stockholder base provides us with an important strategic advantage, particularly in a business with a mature, well-recognized brand. We desire to remain independent and family-controlled, and we believe the Smolyansky family shares these interests. As a controlled company, we are exempt from the requirements to have separate, independent compensation and nominating committees; a majority of independent directors on our Board; or independent directors comprising a majority of the Board select nominees for director or determine the compensation of its officers.

As a result of our use of the controlled company exemption, our corporate governance practices differ from those of non-controlled companies, which are subject to all of the Nasdaq corporate governance requirements. Specifically, while we continue to maintain a majority of independent directors on the Board and to ensure that a committee of those independent directors select director nominees and determine the compensation of our officers, we have not, in the past, maintained separate compensation or nominating committees. In May, 2020, the Board of Directors formed a Compensation Committee and adopted a Compensation Committee Charter. Mr. Scher and Ms. Levy were appointed as members of the newly constituted Compensation Committee and on March 22, 2021, Ms. McWhorter was appointed as a member of the Compensation Committee. In the event we cease to be a controlled company, we will be required to comply with all of the corporate governance standards under Nasdaq’s rules, subject to applicable transition periods.

Audit and Corporate Governance Committee

To eliminate unnecessary redundancies in our independent committee structure given the size of our company and Board, and in reliance on the controlled company exemptions described above, we have chosen to combine our audit and nominating committees into an Audit and Corporate Governance Committee. The Audit and Corporate Governance Committee, which is a separate and independent committee comprised of a majority of the Board’s independent directors, fulfills the Board’s delegated audit and nominating duties as a single, integrated committee. The

Mr. Scher serves as the Chairperson of the Audit and Corporate Governance Committee also fulfilledand Lead Independent Director and Ms. Levy, Ms. McWhorter and Mr. Sikar serve as members of the function of a Compensation Committee until May 2020 when the Board of Directors formed a CompensationAudit 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).

Mr. Sent was the Chairperson of the Committee and Lead Independent Director until January 24, 2020. Mr. Scher replaced Mr. Sent as a Chairperson of the Audit and Corporate Governance Committee and Lead Independent Director on January 24, 2020 and Ms. Levy replaced Mr. Sent as a member of the Audit and Corporate Governance Committee on February 11, 2020. Ms. McWhorter was appointed as a member of the Audit and Corporate Governance Committee on October 16, 2020.

The Board has determined that each member of the ACG 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.

The ACG Committee held 11 meetings in 2020.

Audit and Corporate Governance Oversight

The ACGAudit 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 ACGAudit 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 ACGAudit and Corporate Governance Committee, and not management. The ACGAudit 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 ACGAudit 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 ACGAudit 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 ACGAudit 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 ACGAudit 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 ACGAudit and Corporate Governance Committee considers diversity together with other factors considered when evaluating candidates but does not have a specific diversity requirement.

The ACGAudit 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 ACGAudit 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

Executive and Non-Employee DirectorThe Compensation

Finally, as discussed in more detail in the Compensation Discussion and Analysis below, the ACG Committee also dischargedis a portionstanding committee of the Board’s responsibilities relatedBoard. The Compensation Committee’s principal purposes are to review and approve corporate goals and objectives relevant to compensation of Lifeway’s executive officers, senior executives, andthe Company’s Named Executive Officers (as defined below), make recommendations regarding compensation for non-employee directors through May 2020 whenand administer the Compensation Committee was established. The ACG Committee administered ourCompany’s incentive and equity compensation plans. The ACGCompensation 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 wasis responsible for evaluating and making recommendations to the Board regarding non-employee director compensation. In addition, it also oversawthe Compensation Committee is responsible for conducting an annual risk evaluationsevaluation of ourthe 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 ACG Committee was empowered through May 2020 to engage independent compensation consultants to advise it on executive and non-employee director compensation matters. During that time, those independent consultants, and any other outside advisors that the ACG Committee elected to engage, reported directly to the ACG Committee, and the ACG Committee had the sole power to terminate or replace its independent compensation consultant or other advisors at any time. After May 2020,Board has determined each member of the Compensation Committee hasis “independent” as defined by applicable SEC rules and the sole power to engage, terminate or replace independent compensation consultants at any time.listing standards of NASDAQ. During our fiscal year ended December 31, 2021, the Compensation Committee held six meetings (including regularly scheduled and special meetings).

Committee Interlocks and Insider Participation

During fiscal year 2020, the Audit and Corporate Governance Committee, serving as the Company’s Compensation Committee until May 2020 when the Compensation Committee was formed, consisted of Messrs. Scher, Sikar, until January 24, 2020, Mr. Sent, and after February 11, 2020, Ms. Levy. During fiscal year 2020,2021, the Compensation Committee consisted of Mr. Scher, Ms. Levy and, commencing October 18, 2021, Ms. Levy.McWhorter. None of these members was, at any time during fiscal year 2020,2021, 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 Audit and Corporative Governance Committee or Compensation Committee has or had any relationship with us requiring disclosure under Item 404 of Securities and Exchange CommissionSEC Regulation S-K.

Fiscal Year 20202021 Director Compensation

The table below describes the cash and stock award portions of the annual retainer paid to each non-employee director who served in fiscal year 2020.2021. While directors receive annual retainers based on the June-to-June Board service year, the table below reflects payments made during fiscal year 2020. Ms.2021. Julie Smolyansky and Mr. Edward Smolyansky received no compensation for service as directors. We have excluded them from the table because we fully describe their compensation in the “Named Executive Officer Compensation”“NEO Summary Compensation for Fiscal Years 2021 and 2020” section.

Certain Relationships and Related Party Transactions

On March 18, 2016, Lifeway entered into a consulting agreement (the “Original Consulting Agreement”) with Mrs. Smolyansky that was effective January 1, 2016. Under the terms and conditions of the Agreement, Mrs. Smolyansky provided consulting services to us for which we paid Mrs. Smolyansky an aggregate of $1,000,000 annually and prorated amounts for periods shorter than a year. On December 28, 2020, Lifeway entered into an amended and restated consulting agreement with Mrs. Smolyansky (the “Amended and Restated Consulting Agreement”), effective as of December 31, 2020. Under the terms and conditions of the Amended and Restated Consulting Agreement, Mrs. Smolyansky will continuewas to provide consulting services with respect to, among other things, our business strategy, international expansion and product management and expansion. For her services under the Amended and Restated Consulting Agreement, beginning in January 2021, the Company will paypaid Mrs. Smolyansky an annual service fee of $500,000. Mrs. Smolyansky will also be eligible fordid not earn an annual performance fee targetin 2021. The Amended and Restated Consulting Agreement was terminated as of $500,000 based on the achievement of specified performance criteria.

Specifically, in 2020, Mrs. Smolyansky assisted management with efforts to develop an overall strategy for, and supporting maintenance and expansion of, the ethnic food market customer base, strategizing expansion into Eastern European markets, managing relationships with certain ethnic vendors, analysis of growth strategies, collaborating with Russian speaking department managers, negotiating relationships of the Company, including customers, suppliers and key personnel, developing and implementing strategies to improve operations, marketing and financial performance of the Company, formulating strategic plans related to the direction of sales and marketing, evaluating and exploring potential acquisitions, reviewing and advising the Company with respect to proprietary manufacturing process and other aspects of the business as requested by management of the Company.January 17, 2022.

On March 14, 2016, we entered into an endorsement agreement (the “Endorsement Agreement”) with Mrs. Smolyansky that was effective January 1, 2016. Under the terms and conditions of the Endorsement Agreement, Mrs. Smolyansky grants an unlimited, perpetual, non-exclusive, worldwide and, except as set forth therein, royalty free, right to use, reuse, publish, reproduce, perform, copy, create derivative works, exhibit, broadcast and display Mrs. Smolyansky’s name, image and likeness in Marketing Materials (as defined in the Endorsement Agreement). As consideration for such license, we agree to pay Mrs. Smolyansky a royalty equal to $0.02 for each product or item sold by Lifeway during each calendar month bearing Mrs. Smolyansky’s first name, last name, or other identifying personal characteristics; provided however that such royalty will not exceed $50,000 in any month and such royalty payments will cease upon the death of Mrs. Smolyansky.

In 2020,2021, Mrs. Smolyansky was paid $1,000,000$505,427 pursuant to the Amended and Restated Consulting Agreement of which $5,427 was payment in arrears for services rendered by Mrs. Smolyansky in 2020 as a result of the calendar of payments and $600,000 pursuant to the Endorsement Agreement. Ms.Mrs. Smolyansky did not receive any retainer fees in her capacity as a non-employee director. 

Jason Burdeen, Ms. J. Smolyansky’s spouse, is employed by the Company as the CEO’s Chief of Staff. Mr. Burdeen does not have an employment agreement. In 2020,2021, Mr. Burdeen’s total compensation was $132,813.$132,000. The Compensation Committee is responsible for determining and approving Mr. Burdeen’s compensation annually.

On April 28, 2022, Mr. Scher, a director, entered into a Restricted Stock Unit Award Agreement in the form attached hereto as Appendix C and converted the value of all cash and restricted stock compensation that would have been paid to him in fiscal year 2021, or $227,500, into Restricted Stock Units on the terms set forth in the Restricted Stock Unit Award Agreement and more summarized under “Proposal 6: Approval of Common Stock Issuance Upon Payment of Restricted Stock Units in Lieu of 2021 Non-Employee Director Cash and Restricted Stock Compensation.”

We have determined that there were no related party transactions in excess of $120,000 since January 1, 2020,2021, or currently proposed, involving Lifeway except for the Original Consulting Agreement, the Amended and Restated Consulting Agreement, and the Endorsement Agreement with Mrs. Smolyansky, our Chairperson of the Board, as discussed above.

Information about Current Directors and Executive Officers

Information about Julie Smolyansky, Ludmila Smolyansky, Jody Levy, Dorri McWhorter, Pol Sikar and Jason Scher can be found above in the section “Information about our Nominees.”

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).

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 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.

Shareholder Engagement with Our Board

Communication with the Board

Lifeway’s annual meeting of shareholders provides an opportunity each year for shareholders to ask questions of, or otherwise communicate directly with, members of the Board on appropriate matters. Shareholders who wish to contact the Board, any committee of the Board, or any individual director or group of directors may do so by sending such written communications to:

Secretary or AssistantCorporate Secretary

c/o Legal Department

Lifeway Foods, Inc.

6431 Oakton St.

Morton Grove, IL 60053

The Corporate Secretary will collect and organize any copies of written communications that we receive and provide them to the Board or the relevant director unless the Corporate Secretary or Assistant Secretary’s determines that they are inappropriate for submission to the intended recipient(s). Examples of shareholder communications that would be considered inappropriate for submission to the Board include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to Lifeway’s business, or communications that relate to improper or irrelevant topics. The Corporate Secretary or Assistant Secretary or their designees may analyze and prepare a response to the information contained in communications received and may deliver a copy of the communication to other Lifeway employees or agents who are responsible for analyzing or responding to complaints or requests. Communications concerning possible director nominees submitted by any of our shareholders will be forwarded to the independent directors of the Board.

Director NominationsRecommendations 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.

Shareholders should submit any recommendations of director candidates for Lifeway’s 2022 Annual Meeting of Shareholders to our Secretary or Assistant Secretary in accordance with the procedures set forth above under the heading “Deadline for Receipt of Shareholder Proposals to be Presented at Our Next Annual Meeting.”

Website Access to Corporate Governance Documents

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, committee charters, and other corporate governance documents are available on our website at www.lifewayfoods.com.www.lifewaykefir.com. Information contained on the website is not incorporated by reference in, or considered part of, this Proxy Statement.proxy statement. We intend to disclose any future amendments to certain provisions of our Code of Conduct and Ethics, and any waivers of those provisions granted to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, by posting the information on our website within four business days following the date of the amendment or waiver.

6.       NAMED EXECUTIVE OFFICER 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 stockholdersshareholders with additional 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 changes set forth above in “Proposal 3: Non-Binding Advisory Vote on Executive Compensation”.

This CD&A explains our overall compensation philosophy, describes the material components of our executive compensation programs, and details the determinations made by the Board and our Audit and Corporate GovernanceCompensation Committee in fiscal 2020 for the compensation awarded to Namedeach of the Company’s Chief Executive Officers (NEOs). Our currentOfficer and its two other most highly compensated individuals who were serving as executive officers including ourat 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 NEOs are:as of December 31, 2021 were:

* Mr. Smolyansky ceased being an employee of Lifeway on January 4, 2022.

The tables that follow this Compensation Discussion and AnalysisCD&A contain specific data about the compensation earned in 2020 by our NEOs.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:

The Board of Directors recognizes that Lifeway’s continued success and growth are a result of the efforts, skill and experience of our management team, including our executive officers; the experience, knowledge and guidance of the Chairperson of the Board and Lead Independent Director; and the oversight of the Board of Directors.

Continuity of personnel across multi-disciplinary functions is criticalWe actively recruit, train and retain talented employees to the successunderstand, manage and continued growth ofoperate our business. Furthermore, since we have relatively few employees, each must perform a broad scope of functions, and there is comparatively less redundancy in skills than at companies larger than Lifeway. Our unique production process for kefir, which is not widely known, requires some specific knowledge and skills to perform and to support. This, coupled withsupport and to manage the multiple functionssales, 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 executives perform, may make it difficult to attractemployees allows for a smooth transition of the workload and retain talented executives.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.

Prior to May 2020, the Audit and Corporate Governance Committee was responsible for performing the functions of a compensation committee of the Board. Thereafter, the Board of Directors formed aOur Compensation Committee to perform the functions related to compensation formerly performed by the Audit and Corporate Governance Committee and adopted ais composed solely of independent directors. Current members of our Compensation Committee Charter.are Mr. Scher, Ms. Levy and Ms. Levy were appointed as members of the newly constituted Compensation Committee. The Compensation Committee held 4 meetings in 2020.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, recent changes to management’s organizationthe companies that comprised our peer group and responsibilities, market data relating to similar positions at similarly situated companiesreports and Covid 19 pandemic uncertainties.advice from our compensation consultants. Based on these reviews, the Compensation Committee reviewedrevised and setapproved the peer group companies and made changes to the processes of setting and paying compensation, levels in 2020including salaries and bonuses, to reflect changes made to management organization through 2019 consistent with market rates of total compensation for similarly situated executive positions.our Named Executive Officers. The Compensation Committee also further adjusted compensation setting processes to gather additional information aboutensure it receives objective market data and reviews of performance of the individual employees for whoseour Named Executive Officers from independent sources. Additional discussion of changes to our compensation it was responsiblesetting process and to address concerns by certain executive officers. In 2021, the Compensation Committee intends to continue the review and updating of compensation related procedures and to implement a compensation plan that incentivizes both near-term and long-term objectives. We also believe that a significant portion of our executive compensation shouldcan be dependentfound above under “Proposal 3: Non-Binding Advisory Vote on the continued growth and success of our Company so that our executive officers have even stronger motivation to work toward the long-term interests of our shareholders. Accordingly, the Compensation Committee intends to continue to designate a portion of executive compensation to be “at risk” and therefore dependent on achieving performance goals and comprised in part of equity compensation that will appreciate only to the extent that shares held by our shareholders also appreciate.Executive Compensation.”

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.

Compensation Oversight Role of the Audit and Corporate Governance Committee and Compensation Committee

Prior to May 2020, the Audit and Corporate GovernanceOur Compensation Committee assistedassists our Board of Directors by discharging responsibilities relating to the compensation of our executive officers, including our NEOs. Thereafter, the Board of Directors formed a Compensation Committee to perform such functions. As such, the Audit and Corporate Governance Committee previously had, and theThe Compensation Committee currently has responsibility over certain matters relating to the reasonable and competitive compensation of our executives, certain employees who are family members of our executive officers, and directors and directors (only non-employee directors are compensated as directors) as well as matters relating to equity-based benefit plans. Each member of our newly formed Compensation Committee is independent in accordance with the criteria of independence set forth in RuleRules 5605(a)(2) and 5605(d) of the Nasdaq Listing Rules and RuleRules 10C-1 and 16b-3 of the Securities Exchange Act of 1934. We believe that their independence from management allowedallows the members of the Audit and Corporate Governance Committee, and also allows 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 andfor 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.

Pursuant to its charter, the Compensation Committee is responsible for, among other things:

Through May 2020, the Audit and Corporate Governance Committee was, and thereafter theThe Compensation Committee is authorized to retain and terminate, without Board or management approval, the services of an independent compensation consultant to provide advice and assistance. The Audit and Corporate Governance Committee had, and the Compensation Committee has the sole authority to approve the consultant’s fees and other retention terms. The Chairperson of the Compensation Committee reviews, negotiates and executes any engagement letters with compensation consultants engaged by the Compensation Committee. All compensation consultants will report directly to the Compensation Committee.

Role of our Compensation Consultant

In 2019, the Audit and Corporate GovernanceThe Compensation Committee engaged the Lockton CompaniesAon’s Human Capital Solutions practice, a division of Aon plc (“Lockton”Aon”) as its, an independent compensation consultant, to advise it onconduct a comprehensive review and analysis of our executive officer, senior management and non-employee director compensation mattersprograms and to make recommendations for compensation related to fiscal year 2020. As part2021. Aon does not perform any other work for the Company. The Compensation Committee reviews the independence of its engagementAon in 2019,light of SEC rules and Nasdaq listing standards regarding compensation consultants. The Compensation Committee has reviewed the Auditlevel of services provided to Lifeway by Aon and Corporate Governancedoes not believe the services give rise to a conflict of interest or compromise Aon’s independence in advising the Compensation Committee directed Lockton to work with our former General Counsel, our Human Resources department, and other members of management to obtain information necessary for Lockton to evaluate compensation of executive officers, senior management and directors.

in 2021.

Lockton reported directlyThe 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 the Audit and Corporate Governance Committee, which had the sole power to terminate or replace Lockton. Lockton met with both the Audit and Corporate Governance Committee and, as necessary, the Board during their regular meetings and inhelp us attract executive session (where no members of management are present), and with the independent memberstalent.

Below is a more detailed summary of the Board outside of the Board’s regular meetings.current executive compensation program as it relates to our NEOs.

During 2019 and 2020, Lockton performed no other services for Lifeway. The Audit and Corporate Governance Committee believed that there was no conflict of interest based on any prior relationship with Lockton. In reaching this conclusion, the Audit and Corporate Governance Committee considered the factors set forth in the SEC and Nasdaq rules regarding compensation advisor independence.Base Salaries

The Audit and Corporate Governance Committee tasked Lockton with developingNEOs receive a compensation strategybase salary to compensate them for 2020 built on Lockton’s and the Audit and Corporate Governance Committee’s prior work andservices they provide to us. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the compensation philosophy described above. Previously, in 2018, Lockton reviewed our comparative peer groupexecutive’s skill set, experience, role, and suggested several refinements to it, which the Audit and Corporate Governance Committee approved. Lockton selected companies primarily focused on food/beverage manufacturing or agribusiness based on net sales, market capitalization, recent and anticipated growth, and similarity of management structure.

Using the refined peer group, Lockton analyzed the peer group’s comparative total direct compensation practices and mix of pay against Lifeway’s executive officer total direct compensation practices generally, as well as for fiscal year 2019 and proposed recommendations regarding the amount and mix of base and incentive compensation to be delivered to our executive officers, senior management team and directors for fiscal year 2020.

Lockton’s engagement was terminated in the first quarter of 2020. However, the newly formed Compensation Committee was able to consult with Lockton in 2020 about its report regarding 2020 compensation. The newly formed Compensation Committee underwent a process to identify and engage a new independent compensation consultant to assist in a review of the compensation philosophy describedresponsibilities. As previously disclosed above, the peer group and the compensation strategies, structures and amounts for directors and officers in 2021. In January 2021, the Compensation Committee engaged Aon Consulting, Inc. as itshas changed the process, quality and amount of information gathered in the process of compensation consultantsetting. 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 fiscal yearindividuals 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.

The Compensation Program DesignMr. Hanson’s base salary for 2021 was $325,000.

Elements of Compensation

To achieve the compensation objectives described in our philosophy above, we have historically established three principal components ofThe actual salaries paid to each named executive compensation: long-term equity compensation, an annual cash incentive, and base salary. The Committee seeks to ensure that total compensationofficer for our executive officers is heavily weighted to variable, performance-based compensation by delivering a portion of target compensation in the form of long-term equity compensation and annual cash incentives.

In 2020, the newly constituted Compensation Committee undertook a review of compensation related processes. Based on that review the Compensation Committee began to modify processes related to compensation in order to ensure efficiency and accumulation of data from compensation consultants, employees and additional research and other advisors as needed, in order to guide compensation decisions. The Compensation Committee also undertook a review of changes to management’s organization and responsibilities through the end of 2019. The Compensation Committee, in consultation with the compensation consultant, reviewed executive officers’ then current responsibilities and market data relating to similar positions at similarly situated companies as well as as well as the limitations that Danone has imposed on Lifeway issuing our CEO and COO equity compensation (as described more fully2021 are set forth below in the section “Consent by Danone to Common Stock Issuances”), the effects of Covid 19 pandemic and determined to adjust executive officers’ total compensation levels and for 2020 the mix of compensation components. As result and as more fully set forththis CD&A in the Summary Compensation Table in the column entitled “Salary.”

2021 Annual Incentive Plan

For fiscal 2021, our CEO and footnotes thereto, our CEO’s and COO’s base salariesCFO were not changed and our Senior Executive Vice President of Sales’ was increased, our CEO’s opportunitieseligible to earnreceive annual cash incentive awards were increased and she was awarded one time discretionary bonusunder 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 her performance duringgain/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 Covid 19 pandemic, our COO received no bonus opportunities andyear. That minimum threshold was set at $100 million by the bonus opportunities awarded to our Senor Executive Vice President ofCompensation Committee. Actual Net Sales were decreased. Incentive cash bonuses, and$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 CEO, cash and equity incentive opportunities awarded, were to be earned, if at all, based on the Company meeting designated financial and operational targets thattargeted level of Adjusted EBITDA is also met as determined by the Compensation Committee, believes correlate with operating performance and long-term stock performance. The Compensation Committee also awardedthe target bonus is paid. Performance above target results in a $250,000 discretionary cashpayout of a higher percentage of salary. Performance below target results in a lower bonus to our CEO in recognitionpayout, or no payout if the minimum threshold (floor) of Adjusted EBITDA is not met. 100% 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.

annual incentive award is based on financial performance.

Our executive officers were also eligible to participate in our benefit programsDuring the fiscal year, the Compensation Committee approved the annual financial performance targets and received limited perquisites.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 providesshows, 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 summary of these key elements and describes why we includesliding calculation, not a cliff achievement at each one.level.

Equity Incentive Compensation

Equity Incentive Program

Our NEOs and certain other key employees designated byWe maintain the Compensation Committee and Board, as applicable, are eligible to receive equity awards, including for example performance units, performance shares or restricted stock units, under Lifeway’sLifeway Foods, Inc. 2015 Omnibus Incentive Plan (the “Omnibus Plan”). The 2019Omnibus 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 plan had a three-year performance period for all plan participants during which they could earn performance shares with time-based vesting if Lifeway exceeds specified financial performance criteria set by the Board for each yearand retention tool.

As described in further detail in the three-year performance period. The 2020Outstanding Equity Awards at Fiscal Year End Table and related footnotes below this CD&A, the following equity incentive plan had a one year performance period for which Ms. J. Smolyansky,awards under the Omnibus Plan were granted to our Chief Executive Officer, could earn restricted stock with time-based vesting if Lifeway exceeded specified financial performance criteria during the performance period. The amount and valueNEOs in 2021 as part of the awards actually granted byour equity program: on April 20, 2022, the Compensation Committee depend on our performance relativeconfirmed 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 performance goals approvedaward value by the Compensation Committee and/or Board, as applicable.

Underfair market value on the 2019 and 2020 equity incentive plans, assuming above-threshold performance and approvaldate the issuance was approved. One-third of the Compensation Committee, performance shares and restricted stock units, respectively, will be granted to the eligible participants pursuant to the Omnibus Plan and the terms and conditions of the applicable award agreements.

Under the 2019 equity incentive plan one half of any performance unit awards granted to eligible participants will vest, if at all,vests immediately upon issuance, one-third on the one year anniversary of the grant if performance measurements are met in the first year; one half of the remaining unvested awards earned will vestissuance and one-third on the second anniversary of issuance, subject to the grant if performance measurements were met inexecutive’s continued service through the second year, and the remainder of unvested earnedapplicable vesting date. No shares will vest on the third anniversary of the grant if performance measurements are met in the third year. If in any year performance measures are attained but are not maintained in a subsequent year, unvested awards equalbe issued to Ms. Smolyansky unless and until Danone provides consent to the shortfall in that later year will be forfeited and will not vest. At the time of grant, the Audit and Corporate Governance Committee believed that the long term performance period and long term vesting feature tied to the performance of the Company provides an important mechanism to incentivize management’s focus on continued profitability and achievement of long term business milestones that will drive Lifeway’s long term success and to align their interests with long-term shareholder value.

In the first and second year of the 2019 performance period, Lifeway achieved certain performance measures previously approved by the Audit and Corporate Governance Committee and Board for which our named executive officers and other senior management earned awardsissuance as detailed below in the Summary Compensation Table. The awards earned by our CEO and COO are subject to Danone’s consent asfurther discussed further below. The awards for the second year of the 2019 performance period are subject to a vesting schedule previously approved by the Audit and Corporate Governance Committee and the Board which provided that 50% of unvested shares vest in year one, 50% of the remaining unvested shares in year two and the remaining unvested shares vest in year three. Please see the detailed information presented in the Summary Compensation Table below.

Under the 2020 equity incentive plan, Lifeway achieved certain performance measures previously approved by the Compensation Committee under our 2015 Omnibus Plan for which Ms. Smolyansky earned long-term incentive stock awards subject to Danone’s consent as discussed further below. The restricted shares earned by Ms. Smolyansky pursuant to the 2020 long term incentive plan are subject to a vesting schedule previously approved by Compensation Committee which provided that one third of the restricted shares earned will vest on each of the one year, two yearPerquisites and three year anniversaries of the grant. Please see the detailed information presented in the Summary Compensation Table below.Benefits

Setting a Target Value

The Audit and Corporate Governance Committee established a target level of total annual equity compensation for each eligible participant under the 2019 equity incentive plan. The Compensation Committee established such target levels of total annual equity compensation the participant under the 2020 equity incentive plan. If our performance meets both of the target performance goals, all restricted stock will be earned and, subject to Danone consent, issued.

Performance Measures

The following table outlines the performance measures that the Compensation Committee used in fiscal year 2020. The Committee also determined it was important to incentivize and reward growth of the Company during the Covid 19 pandemic without the need to tap into governmental assistance rather than focusing on expanding particular product offerings or introducing new products. The Compensation Committee selected these performance measures because they align with expansion by increasing revenue and profitability of existing products and ensuring our leaders are accountable for driving long term profitability and sustainability of the Company. Due to the realignment of management through 2019 and the Compensation Committee’s determinations with respect to total compensation setting during the COVID 19 pandemic, the Compensation Committee determined not to provide long term incentive opportunities to employees other than our CEO in 2020. The Committee believe the performance measures set as described below are key drivers of our long-term success and shareholder value, and directly affected by the decisions of our management team lead by our CEO.

The following table outlines the performance measures that the Audit and Corporate Governance Committee used in the 2019 equity incentive program. The Audit and Corporate Governance Committee selected these performance measures because they align with expansion by increasing revenue and profitability through introduction of new products and growth of existing products and ensuring our leaders are accountable for driving long term profitability and sustainability of the Company. The Committee believes these measures are key drivers of our long-term success and shareholder value, and directly affected by the decisions of our management team.

The likelihood of our NEOs and other key employees earning nonequity and equity incentive awards in 2021 is dependent on our 2021 financial results and whether we meet the goals set by the Compensation Committee or previously set by the Audit and Corporate Governance Committee. This outcome is dependent on many other factors. As demonstrated by the incentive payouts in years prior to 2019, we seek to set target financial and personal goals that maintain a consistent level of difficulty in achieving the full target bonus from year to year. Therefore, over time we expect our NEOs and other key employees to achieve bonuses in some years and not achieve bonuses in other years.

Equity Incentive Plan Mechanics

To receive restricted shares under the 2020 equity incentive program, both of the minimum performance thresholds must have been met in 2020. The performance thresholds are not independent and, if the performance level for any performance measure is not met, then no restricted shares will be earned by or granted to our CEO. The number of restricted shares to be granted if both performance measures are exceeded is subject to Committee-approved variation due to material events not contemplated at the time the targets were set (such as major acquisitions) and to the Committee’s negative discretion under certain circumstances. The number of restricted shares to be granted is calculated by dividing $750,000 by our stock price on the award date.

To receive a performance shares under the 2019 equity incentive program, at least one of the minimum performance thresholds must be met by 2021. Each of the performance thresholds is independent and, if any threshold is met, the award is funded with respect to that performance measure in accordance with the percentages outlined in the table below. If the performance level for any performance measure is not met, then there is no funding attributable to that performance measure. The number of performance shares granted is determined by using the percentage of performance award allocated to that particular threshold as set forth below applied to the individual employee’s maximum award potential, subject to Committee-approved variation due to material events not contemplated at the time the targets were set (such as major acquisitions).

The following chart shows the threshold and percentage of the performance award allocated to such measurement under the 2019 equity incentive plan:

Short-Term Incentive Awards

Executive officers and other key management employees designated by the Compensation Committee are eligible to receive cash incentive awards under the Omnibus Plan based performance of the Company. The 2020 cash incentive award cycle had one-year performance period for all executives who were provided the opportunity to participate in the short term incentive program by the Compensation and, where required, the Board.

The Compensation Committee believes that these short-term incentive payouts for executive officers should be tightly linked to our performance. When defining short-term performance for the eligible participants, the Compensation Committee focused solely on the financial performance metrics described below (Adjusted EBITDA). The amount and value of the 2020 awards depended on our performance relative to the performance goals approved by the Compensation Committee.

Under the Short Term Incentive program, assuming above-minimum threshold performance, cash awards were granted to the eligible participants, including executive officers, pursuant to the Omnibus Plan.

Setting Target Awards

As discussed above, the Compensation Committee established a target level of total cash compensation for each eligible participant, including base salary and a cash award under the Short Term Incentive program. If our performance meets the target performance goals, the target level Short Term Incentive program cash award will be paid. If our performance falls short of the target performance goals, no amount of cash will be paid.

Performance Measures

The following table outlines the performance measures that the Audit and Corporate Governance Committee used in fiscal year 2019. The Audit and Corporate Governance Committee selected these performance measures because they align with the long-term goals of creating sustainable revenue growth and ensuring our leaders are accountable for driving profitability through increasing efficiencies and investments in future opportunities. The Audit and Corporate Governance Committee believed these measures are key drivers of our long-term success and shareholder value, and directly affected by the decisions of our management team and allow the relevant Committee to measure short term Company progress toward the long term goals.

(1) “Adjusted EBITDA” is not defined under U.S. generally accepted accounting principles (“GAAP”) and is not a deemed alternative to measure performance under GAAP. Adjusted EBITDA is a financial metric that we use for incentive compensation purposes, and it differs from the financial results we report in our earnings releases. Adjusted EBITDA should not be considered as a substitute for, or superior to, the measures of financial performance we prepare in accordance with GAAP.

Short Term Incentive Plan Mechanics

To have received a 2020 cash award, the Adjusted EBITDA minimum performance thresholds of must have been met. If the Adjusted EBITDA minimum threshold was met, the award was funded. If the minimum performance level for the Adjusted EBITDA performance measure was not met, then there was no funding attributable to that performance measure.

Discretionary Incentive Awards

The Compensation Committee has the discretion to approve individual discretionary bonus amounts for executive officers and other key management employees based on (i) the designee’s individual contributions to our performance (including their individual performance relative to the factors covered by our Omnibus Plan); (ii) the nature and extent of our accomplishments; (iii) input from management; (iv) individual contributions, roles, and responsibilities, which, by their nature, can involve subjective assessments; and (v) other factors the Committee deems significant.

In fiscal 2020, the Committee believed, and continues to believe, that it is appropriate and in the best interests of Lifeway for the Committee to retain some discretion to use its common sense in determining a portion of the NEOs’ short-term incentive compensation based on a subjective view of individual performance. The Committee believes that retaining this discretion provides Lifeway and/or the Committee with the flexibility to:

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 and a vehicle allowance to our Senior Executive Vice President of Sales.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 and Senior Executive Vice President of Sales require extensive travel. Accordingly, we provide use of a Company leased vehicle to both Ms. Smolyansky and Mr. Smolyansky and a vehicle allowance to Ms. Feldman.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

We provide our executive officers, including NEOs, with certain benefits that the Audit and Corporate Governance Committee through May 2020, and thereafter, the Compensation Committee, believed were reasonable and consistent with our overall compensation program and philosophy, and that befit a company like Lifeway that promotes healthy food products and healthy living. The applicable committee has periodically reviewed, and going forward the Compensation Committee continue to periodically review, the levels and structure of these benefits provided to our executive officers together with management and the relevant Committee’s independent compensation consultant.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 (the “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 paidthat may exceed the $1 million cap if, in the Compensation Committee’s judgment, it is in the Company’s best interest to certain of our executives. Under the Tax Cuts and Jobs Act (the “Act”) amendmentsdo so. We generally will continue to Section 162(m), no tax deduction in taxable years beginning after December 31, 2017 is allowed for compensation paid to any covered employee to the extent that the total compensation for that covered employee exceeds $1,000,000 in any taxable year. Although the Act eliminated the prior tax deduction under Section 162(m) for performance-based executive compensation, it included a transition rule under which the changes to Section 162(m) will not apply to awards made to our covered employees who had the right to participate in our 2015 Omnibus Incentive Plan pursuant to written binding contracts in effect as of November 2, 2017, as long as those contracts have not subsequently been modified in any material respect. Accordingly, subject to further guidance from the Treasury Department and the Internal Revenue Service (“IRS”), theemphasize performance-based compensation, paid to our executives under our Omnibus Plan remained eligible for the Section 162(m) exemption in 2019. Beginning in 2020, compensation exceeding the threshold for covered employees is non-deductible for income tax purposes.even though it may no longer be deductible.

The Audit and Corporate Governance Committee, in consultation with its outside advisors and management, monitoredAccounting Considerations. We consider the tax and other consequencesaccounting implications of our executive compensation program as partprogram. In addition, accounting treatment is just one of its primary objective of ensuring that compensation paid to our executive officers is appropriate, performance-based,many factors impacting plan design and consistent with Lifeway’s goals and the goals of our shareholders. Accordingly, we viewed preserving the tax deductibility of compensation pursuant to Section 162(m) as a consideration in establishingpay determinations. Our executive compensation but not our only objective. In order to maintain flexibility in compensating employees in a mannerprogram is designed to promote Lifeway’s goals, neitherachieve a favorable accounting and tax treatment so long as doing so does not conflict with the Audit and Corporate Governance Committee, nor the Compensation Committee has not adopted a policy that all compensation must be tax deductible. The Compensation Committee retains the discretion to award nondeductible compensation.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 surveyed companies, the Committee considered market information available through both Equilar, Inc.,public proxy filings and through Aon’s Global Compensation Databases. Aon’s Human Capital Solutions (“HCS”) business is a leading executive compensation data solutions company, and the Economic Research Institute, an industry- and region-specific compensation database, as reference points and to assemble market data on companies having similar industrial characteristics and revenues to ours.consulting practice. The Committee, together with management and Lockton,Aon HCS, review the gathered data for each of our NEONEOs and other key employee positions and adjusted that data forbased on the scope of each employee’s responsibilities at Lifeway as compared to equivalent responsibilities of equivalent positions within companies included in the survey data.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. The Committee also recognizes that at the executive level, we compete for talent against larger, global companies, as well as smaller and similar-sized non-public companies. Third-party surveys are beneficial because they contain benchmarks from hundreds of companies where Lifeway may look to recruit executives, both inside and outside the food and beverage industry. This data can be adjusted to reflect Lifeway’s size and structure. Proxy data is useful as the Committee can review position-specific compensation details from an industry and public company perspective, while also controlling for size and structure.

In deciding whether a company should be included in theselecting peer group,organizations, the Committee generally considered the following screening criteria:

For each member of the peer group below, one or more of the factors listed above was relevant to the reason for inclusion in the group, and, similarly, one or more of these factors may not have been relevant to the reason for inclusion in the group.

To assess whether the peer group continues to reflect the markets in which we compete for executive talent, the AuditCastle Brands, Craft Brew Alliance, and Corporate Governance Committee reviewed the peer group information in 2019 in connection with its work on 2020 compensation processes and the Compensation Committee reviewed the peer group information in 2020, with the assistance of management and consultation with Lockton, as necessary. No companiesYoungevity Alliance were removed from Lifeway’s peer group for fiscal 20202021 compensation planning.planning given that the companies were no longer publicly traded.

As part of our ongoing review, we added Bridgford Foods Corp.several companies to ourexpand the peer group for fiscal year 20202021 compensation planning so that itplanning: 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:

In consultation with Lockton, the Audit and Corporate Governance Committee, through May 2020 andAon, the Compensation Committee thereafter, found this peer group to be peers from arepresentative of an appropriate executive labor market and pay benchmarking perspective. Not all of Lifeway’s competitors are public, and the peer group is intended to be a reasonable representation of market practice. When considering the competitive market data, the Compensation Committee also considers the fact that the data is backward-looking and does not necessarily reflect those companies’ current pay practices. While this analysis informed the decisions of the Committees,Compensation Committee and the independent Board members generally,was a reference point on the range of compensation opportunities, wethe Compensation Committee did not tie executive officer compensation to specific market percentiles.

In making determinations regarding executive officer compensation, in addition to benchmarking, the Audit and Corporate Governance Committee, through May 2020 and the Compensation Committee thereafter, considered several other factors such as our financial performance and financial condition, the difficulties presented by the growth of the Covid 19 pandemic, individual executive performance, tenure, expertise, the importance of the role, potential for future contributions, and comparative pay levels among the members of the senior executive team, as well as input and recommendations of management and the compensation consultant.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

Having been created in May 2020 and given certain delays and uncertainties resulting from the Covid 19 pandemic, the Compensation Committee was unable to follow the timing for determination of 2020 Compensation set forth below. The Compensation Committee intends to followfollowed the below process and practice as closely as possible when setting executive compensation levels going forward:levels:

section “Information about Current Directors and Executive Officers.”

Information About Our Executive Team

Information about our executive team is set forth above in Item 10. Directors, Executive Officers and Corporate Governance.

Fiscal Year 2020 Compensation Decisions

We did not increase our NEO’s base salaries in fiscal year 2020. Subsequent to formation in May 2020, the Compensation Committee undertook a review of changes to management’s organization and responsibilities through the end of 2019. The Compensation Committee, in consultation with the compensation consultant, reviewed executive officers’ then current responsibilities and market data relating to similar positions at similarly situated companies and determined that the executive officer’s salary levels continued to be appropriate and reasonable given their capabilities and experience, as well as the limitations that Danone has imposed on Lifeway issuing our CEO and COO equity compensation (as described more fully below in the section “Consent by Danone to Common Stock Issuances”) and with certain limitations on bonus opportunities in 2020 for executive officers’ whose responsibilities were shifted to other employees, thus reducing their total compensation opportunity.

NEO Summary Compensation for Fiscal YearYears 2021 and 2020 and 2019 Compensation Paid to our NEOs

The following table sets forth certain information concerning compensation received by Lifeway’s NEOs, consisting of our Chief Executive Officer and the two other most highly paid executive officers for services rendered in all capacities during fiscal year 20192020 and 2020.2021.

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