<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 3
LIFEWAY FOODS, INC.
6431 W. Oakton
Morton Grove, IL 60053
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 17, 2000
TO OUR STOCKHOLDERS:
You are invited to be present either in person or by proxy at the Annual
Meeting of Stockholders of Lifeway Foods, Inc., an Illinois corporation (the
"Company"), to be held at the Holiday Inn North Shore, 5300 West Touhy Avenue,
Skokie, Illinois 60077, on Saturday, June 17, 2000, at 11:00 a.m., local time
(the "Meeting"), to consider and act upon the following:
1. To elect five Directors to serve until the next meeting and until
their successors are duly elected and qualified.
2. To adopt an amendment to the Company's Articles of Incorporation to
clarify that the Company has the power to grant preemptive rights to
any of its stockholders by contract.
3. To ratify the appointment of Gleeson, Sklar, Sawyers & Cumpata LLP as
independent auditors for the next fiscal year.
4. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Only stockholders of Common Stock of record at the close of business on
April 28, 2000 will be entitled to notice of and to vote at the Meeting. The
stock transfer books of the Company will remain open.
WE INVITE EACH OF YOU TO ATTEND THE MEETING. IF YOU CANNOT ATTEND, PLEASE
MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENVELOPE
PROVIDED. NO STAMP IS NECESSARY IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ MICHAEL SMOLYANSKY
----------------------------------
MICHAEL SMOLYANSKY
Chairman of the Board
Skokie, Illinois
April 28, 2000
YOUR VOTE IS IMPORTANT
WHETHER YOU OWN A FEW OR MANY SHARES OF STOCK AND WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN YOUR PROXY
CARD PROMPTLY SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES
AND IN ORDER THAT THE PRESENCE OF A QUORUM MAY BE ASSURED. THE PROMPT RETURN OF
YOUR SIGNED PROXY WILL AID THE COMPANY IN REDUCING THE EXPENSE OF PROXY
SOLICITATION.
<PAGE> 4
LIFEWAY FOODS, INC.
PROXY STATEMENT
PROCEDURAL MATTERS
THIS PROXY STATEMENT IS FURNISHED TO THE STOCKHOLDERS OF LIFEWAY FOODS,
INC., AN ILLINOIS CORPORATION (THE "COMPANY"), IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY TO BE VOTED AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AT 11:00
A.M., LOCAL TIME, ON SATURDAY, JUNE 17, 2000, OR AT ANY ADJOURNMENT OR
POSTPONEMENT THEREOF. Stockholders of record of Common Stock of the Company at
the close of business on April 28, 2000 (the "Record Date"), will be entitled to
notice of and to vote at the Meeting. The Meeting will be held at the Holiday
Inn North Shore, 5300 West Touhy Avenue, Skokie, Illinois 60077. Proxies
received prior to the Meeting will be voted in accordance with the instructions
contained in the proxy and, if no choice is specified, will be voted in favor of
each of management's nominees for Director and in favor of each of management's
proposals set forth in the Notice of Annual Meeting of Stockholders. A
stockholder who signs and returns the enclosed proxy may revoke it at any time
before it is voted by a written revocation delivered to any of the proxy holders
named therein, by submitting another valid proxy bearing a later date or by
attending the Meeting and voting in person. Beneficial owners wishing to vote at
the Meeting who are not stockholders of record on the Company's books (e.g.,
persons holding in street name) must bring to the Meeting a Power of Attorney or
proxy in their favor signed by the holder of record in order to be able to vote.
SOLICITATION OF PROXIES
This Proxy Statement and the form of proxy are first being mailed to the
stockholders beginning May 10, 2000. All of the costs and expenses in connection
with the solicitation of proxies with respect to the matters described herein
will be borne by the Company. In addition to solicitation of proxies by use of
the mails, directors, officers and employees (who will receive no compensation
therefor in addition to their regular remuneration) of the Company may solicit
the return of proxies by telephone, telegram or personal interview. As of this
date, the Company has no plans to retain an outside firm to solicit proxies. The
Company will request banks, brokerage houses and other custodians, nominees and
fiduciaries to forward copies of the proxy material to their principals and to
request instructions for voting the proxies. The Company may reimburse such
banks, brokerage houses and other custodians, nominees and fiduciaries for their
expenses in connection therewith. Action may be taken on the business to be
transacted at the meeting on the date specified in the Notice of Meeting or on
any date or dates to which such Meeting may be adjourned.
VOTING OF PROXIES
A form of proxy is enclosed for use at the meeting if a stockholder is
unable to attend in person. Each proxy may be revoked at any time thereafter by
writing to the Secretary of the Company prior to the Meeting, by execution and
delivery of a subsequent proxy, or by attendance and voting in person at the
Meeting, except as to any matter or matters upon which, prior to such
revocation, a vote shall have been cast pursuant to the authority conferred by
such proxy. Shares represented by a valid proxy which if received pursuant to
this solicitation and not revoked before it is exercised, will be voted as
provided on the proxy at the Meeting or at any adjournment or adjournments
thereof. Management intends to vote the 2,202,639 shares (51%) of Common Stock
which it controls in favor of the proposals to: (i) elect five Directors to
serve until the next Annual Meeting and until their successors are duly elected
and qualified; (ii) to adopt an amendment to the Company's Articles of
Incorporation to clarify that the Company has the power to grant preemptive
rights to any of its stockholders by contract; (iii) to ratify the appointment
of Gleeson, Sklar, Sawyers & Cumpata LLP as independent auditors for 2000; and
(iv) to transact such other business as may properly come before the meeting or
any adjournments thereof.
<PAGE> 5
VOTING SECURITIES AND VOTE REQUIRED
Only holders of Common Stock, no par value per share, of record at the
close of business on April 28, 2000 (the "Record Date"), will be entitled to
vote at the meeting. Each holder of Common Stock is entitled to one vote for
each share held by such holder. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the meeting. Under the rules of the Securities and
Exchange Commission (the "Commission"), boxes and a designated blank space are
provided on the proxy card for shareholders to mark if they wish to withhold
authority to vote for one or more nominees for Director or for Proposals 2, 3 or
4. Votes withheld in connection with the election of one or more of the nominees
for Director or Proposals 2, 3 or 4 will be counted as votes cast against such
individuals or Proposals 2, 3 or 4 and will be counted toward the presence of a
quorum for the transaction of business. If no direction is indicated, the proxy
will be voted for the election of the nominees for Director. The form of proxy
does not provide for abstentions with respect to the election of Directors;
however, a shareholder present at the Meeting may abstain with respect to such
election.
ANNUAL REPORT ON FORM 10-KSB
This Proxy Statement is accompanied by the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999 (the "Annual Report").
Stockholders are referred to the Annual Report for information concerning the
Company's business and operations, but the Annual Report is not part of the
proxy soliciting materials.
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<PAGE> 6
PROPOSAL 1
ELECTION OF DIRECTORS
Five Directors are to be elected at the meeting. The Directors will be
elected at the Meeting to serve until the next annual meeting of stockholders of
the Company and until their successors shall be duly elected and shall qualify.
As noted, unless otherwise indicated thereon, all proxies received will be voted
in favor of the election individually, of the five nominees of the Board named
below as Directors of the Company. Should any of the nominees not remain a
candidate for election at the date of the meeting (which contingency is not now
contemplated or foreseen by the Board), proxies solicited thereunder will be
voted in favor of those nominees who do remain candidates and may be voted for
substitute nominees elected by the Board. The five nominees receiving the
highest number of affirmative votes of the shares present or represented and
entitled to be voted for them shall be elected as Directors. Votes withheld from
any Director are counted for purposes of determining the presence or absence of
a quorum for the transaction of business, but have no other legal effect under
Illinois law. Each of the nominees are currently serving as Directors of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR EACH OF THE NOMINEES.
The names of the nominees and certain information with regard to each
nominee follows:
<TABLE>
<CAPTION>
Name Age Position Director Since
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael Smolyansky 52 CEO, CFO, President, Treasurer and Director 1986
Pol Sikar 52 Director 1986
Rick D. Salm 58 Director 1986
Lorenzo Bernardi 62 Director 1994
Thomas Kunz 42 Director 1999
</TABLE>
NOMINEES FOR ELECTION AS DIRECTORS
MICHAEL SMOLYANSKY has been Chief Executive Officer, Chief Financial
Officer, President, Treasurer and a director of the Company since its inception
in February 1986. From 1976 to 1985, he was Project Engineer and Department
Manager of E.J. Littell Machine Co., of Chicago, Illinois, where he had primary
responsibility for design of material handling equipment. Mr. Smolyansky is a
graduate of the Kiev Institute of Technology (M.S., Mechanical Engineering,
1971). Mr. Smolyansky devotes full time to the business of the Company. Mr.
Smolyansky holds no other directorships in any other reporting company.
POL SIKAR has been a director of the Company since its inception in
February 1986. He is a graduate with a Master's degree from the Odessa State
Institute of Civil Engineering in Russia. For more than 10 years he has been
President and major stockholder of Still-Montrose Glass & Mirror Co., a company
providing glass and mirror products to the wholesale and retail trade in the
greater Chicago area. Mr. Sikar devotes as much time as necessary to the
business of the Company. Mr. Sikar holds no other directorships in any other
reporting company.
RICK D. SALM, a director of the Company since its inception in February
1986, is Executive Vice-President of the First Commercial Bank of Chicago,
Illinois. Mr. Salm joined First Commercial in 1982 and is currently in charge of
commercial lending activities. Mr. Salm holds a Bachelor's degree from St.
Norbert College, from which he graduated in 1974. Mr. Salm devotes as much time
as necessary to the business of the Company. Mr. Salm holds no other
directorships in any other reporting company.
LORENZO BERNARDI has been a director of the Company since 1994. Mr.
Bernardi is the president and founder of Renzo & Sons, Inc. - Dairy and Food
Service Company which has been in business since 1969 (formerly, Renzo-Milk
Distribution Systems). He has over 29 years of experience in the dairy
distribution industry. Mr. Bernardi is a graduate of Instituto Teonico E
Commerciale of Macomer, Sardinia. Mr. Bernardi will devote as much time as
necessary to the business of the Company. Mr. Bernardi holds no other
directorships in any other reporting company.
3
<PAGE> 7
THOMAS KUNZ has been a director of the Company since November 1999. Mr.
Kunz was designated as a director of the Company pursuant to the terms and
conditions of a Stock Purchase Agreement and a Stockholders' Agreement between
the Company and Danone Foods, Inc. ("Danone"). Mr. Kunz is currently the
president and chief executive officer of The Dannon Company, Inc., an affiliate
of Danone. In his present position, he has strategic and direct responsibilities
for dairy products in the U.S. and Canada as well as world category
responsibility for desserts. In 1998 Mr. Kunz took over the position as general
manager of Bagley S.A., a Groupe DANONE subsidiary in Argentina and in 1995 he
was appointed general manager of DANONE de Mexico. In 1991 he joined DANONE
Germany as a marketing director in Munich Germany. Mr. Kunz graduated from the
University of St. Geller in Switzerland with a MBA degree in economics. Mr. Kunz
holds no other directorships in any other reporting company.
COMMITTEES OF THE BOARD OF DIRECTORS
There are currently four members who serve on the Audit Committee, a
majority of whom are outside directors. The current members of the Audit
Committee are Michael Smolyansky, Pol Sikar, Rick Salm and Thomas Kunz. Mr. Kunz
was appointed as a member of the Audit Committee in November of 1999 upon
becoming a director of the Company. He was not a member of the Audit Committee
when they held their meetings earlier in the year. The Audit Committee was
comprised of Michael Smolyansky, Pol Sikar and Rick Salm when it met in 1999.
Members are appointed annually by the full Board. The functions of the Audit
Committee are to review the Company's internal controls, accounting policies,
and financial reporting practices; to review the financial statements, the
arrangements for and scope of the independent audit, as well as the results of
the audit engagement; and to review the services and fees of the independent
auditors, their independence, and recommend to the Board for its approval and
for ratification by the stockholders the engagement of the independent auditors
to serve the following year in examining the accounts of the Company.
ATTENDANCE AT MEETINGS OF THE BOARD AND COMMITTEES
During 1999, the Company's Board of Directors held five regular meetings.
The attendance in person or by telephone at the meetings of the Board was 75%
for two meetings and 100% for three meetings. The Audit Committee held two
meetings in 1999 and attendance was 100%. In addition, the Board of Directors
acted by unanimous written consent on several occasions pursuant to Illinois law
and the Company's By-laws.
COMPENSATION OF DIRECTORS
During 1999, the Board of Directors participated in two meetings where each
director was compensated at the rate of $500.00 per meeting.
EXECUTIVE COMPENSATION
(a) General
The following information discloses all plan and non-plan compensation
awarded to, earned by, or paid to Mr. Michael Smolyansky, CEO, CFO, President,
Treasurer and Director of the Company, for all services rendered in all
capacities to the registrant and its subsidiaries. Mr. Smolyansky is the only
person meeting the reporting requirements of Item 402 of Regulation S-B. No
other executive officer of the Company had total annual salary and bonus
exceeding $100,000 for the fiscal year ended December 31, 1999.
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<PAGE> 8
(b) Summary Compensation Table
The following table sets forth all compensation, including bonuses, stock
option awards and other payments, paid or accrued by the Company during each of
the fiscal years ended December 31, 1999, 1998 and 1997, to or for the Company's
Chief Executive Officer and each of the other executive officers of the Company
whose total annual salary and bonus, if any, exceeded $100,000 for the fiscal
year ended 1999.
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------
(a) (b) (c) (d) (e)
Name Year Other
and Ended Annual
Principal December Salary Bonus Compensation
Position 31 ($) ($) ($)
- ------------------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Michael Smolyansky 1999 143,000.00 -0- -0-
CEO, CFO, President 1998 120,000.00 5,000.00 -0-
1997 115,000.00 -0- -0-
</TABLE>
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------
Awards Payouts
--------------------------- -------
(a) (b) (f) (g) (h) (i)
Name Year Restricted All
And Ended Stock Shares LTIP Other
Principal December Award(s) Underlying Payouts Compensation
Position 31 ($) Options ($) ($)
- ------------------- -------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
Michael Smolyansky 1999 -0- -0- -0- -0-
CEO, CFO, President 1998 -0- -0- -0- -0-
1997 -0- -0- -0- -0-
</TABLE>
(c) Option/SAR Grants in Last Fiscal Year
This table has been omitted, as Mr. Smolyansky, the only person meeting the
reporting requirements of Item 402 of Regulation S-B, has not received any
individual grants of stock options during fiscal 1999 or stock appreciation
rights during 1999.
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
This table has been omitted, as Mr. Smolyansky, the only person meeting the
reporting requirements of Item 402 of Regulation S-B, has not exercised any
stock options during fiscal 1999.
(e) Long-Term Incentive Plans ("LTIP") - Awards in Last Fiscal Year
This table has been omitted, as Mr. Smolyansky, the only person meeting the
reporting requirements of Item 402 of Regulation S-B, has not received any
awards pursuant to any LTIP during fiscal 1999.
(f) Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
(f)(1) Employment Contracts
Presently there are no written employment contracts with any of the
Company's executive officers.
(f)(2) Employee, Consultants and Service Providers Benefit Plan
5
<PAGE> 9
On June 9, 1995, the Company filed a registration statement on Form S-8
with the Securities and Exchange Commission in connection with the "Lifeway
Foods, Inc. Consulting and Services Compensation Plan" (the "Plan") covering
300,000 shares of its Common Stock. Pursuant to the Plan, the Company may issue
Common Stock and/or options to purchase Common Stock to certain consultants,
service providers and employees, including officers and directors, of the
Company. The purpose of the Plan is to promote the best interests of the Company
and its stockholders by providing a means of non-cash remuneration to eligible
participants who contribute to operating progress and earning power of the
Company. The Plan is administered by the Company's Board of Directors or a
committee consisting of three members which has the discretion to determine from
time to time the eligible participants to receive an award; the number of shares
of stock issuable directly or to be granted pursuant to option; the price at
which the option may be exercised or the price per share in cash or cancellation
of fees or other payment which the Company is liable if a direct issue of stock
and all other terms on which each option shall be granted. As of December 31,
1999, a total of 65,700 shares has been issued under the Plan and no options
remain outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock, the Company's
only class of securities, as of March 31, 2000 (except as indicated below) by
(a) each stockholder known by the Company to be the beneficial owner of more
than five percent of the Company's Common Stock, (b) each of the Company's
directors, (c) each of the Company's executive officers named in the Summary
Compensation Table above and (d) all executive officers and directors of the
Company as a group. The shareholders listed below have sole voting and
investment power except as noted.
<TABLE>
<CAPTION>
Percent Owned
Name and Address of Amount and Nature of Beneficially and
Beneficial Owner Beneficial Ownership of Record
(1) (2)
- ---------------------- -------------------- ----------------
<S> <C> <C>
Michael Smolyansky(6) 2,186,539(3) 50.63%
7625 N. Austin Ave.
Skokie, IL 60077
Rick D. Salm(6) 3,500 *
6945 N. Clark St.
Chicago, IL 60626
Pol Sikar(6) 1,200 *
3907 Miller Drive
Glenview, IL 60025
Lorenzo Bernardi(6) 6,100 *
2919 N. Natoma
Chicago, IL 60634
Valeriy Nikolenko(6) 2,000(4) *
8917 Lamon Ave.
Skokie, IL 60077
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
Percent Owned
Name and Address of Amount and Nature of Beneficially and
Beneficial Owner Beneficial Ownership of Record
(1) (2)
- ---------------------- -------------------- ----------------
<S> <C> <C>
Thomas Kunz(5)(6) -0- *
120 White Plains Road
Tarrytown, NY 10591
Danone Foods, Inc. 863,689 20%
120 White Plains Road
Tarrytown, NY 10591
All officers and directors of 2,199,339 51%
the Company as a group (six
persons)
</TABLE>
- -----------------------
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, all shares are directly owned and
investing power is held by the persons named.
(2) Based upon 4,318,444 shares of Common Stock outstanding as of March
31, 2000.
(3) Mr. Smolyansky directly owns 2,118,338 shares of Common Stock of the
Company. 68,201 shares of Common Stock are owned by his wife and
therefore deemed to be beneficially owned by Mr. Smolyansky. Also
included are 8,000 shares of Common Stock owned by the Smolyansky
Family Foundation, a charitable trust, of which Mr. and Mrs.
Smolyansky are the trustees. The Smolyansky's disclaim any beneficial
ownership of the trust.
(4) Mr. Nikolenko directly owns 1,100 shares of Common Stock of the
Company. 900 shares of Common Stock are owned by his wife and
therefore deemed to be beneficially owned by Mr. Nikolenko.
(5) Mr. Kunz is also an officer of The Dannon Company, Inc., which is an
affiliate of Danone Foods, Inc. Danone Foods, Inc. is listed on the
table as the beneficial owner of 20% of the Common Stock of the
Company.
(6) Director or officer. The majority of the shares of Common Stock held
by officers, directors and principal shareholders listed above are
"restricted securities" and, as such, are subject to limitations on
resale. The shares may be sold pursuant to Rule 144 of the Securities
Act of 1933, as amended, under certain circumstances.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 1, 1999, the Company issued and sold 497,767 shares of
restricted Common Stock to Danone Foods, Inc. The purchase price paid to the
Company was $10.00 per share, for gross proceeds of $4,977,670. In connection
with the transaction, Danone also purchased 150,000 outstanding shares of Common
Stock from certain stockholders, including the Company's controlling
stockholder, Michael Smolyansky, on similar terms. Subsequent to these initial
transactions, Danone purchased an additional 215,922 outstanding shares of
Common Stock in private transactions with certain stockholders, including
Michael Smolyansky, Pol Sikar and Valeriy Nikolenko. As a result of these
additional purchases, Danone is presently the beneficial owner of 20% of the
outstanding Common
7
<PAGE> 11
Stock of the Company. The parties have agreed that, subject to limited
exceptions, for a period of five years, Danone may not own more than 20% of the
outstanding Common Stock of the Company.
Pursuant to the terms and conditions of a Stock Purchase Agreement and a
Stockholders' Agreement dated October 1, 1999, between the Company, Danone, and
the Smolyansky family, the Company granted certain limited rights to Danone,
which included a right to nominate one director, anti-dilutive rights relating
to future offerings, and limited registration rights. The Company and Danone
also agreed that they would not compete with each other for a period of five
years with respect to certain yogurt, cheese and kefir products. Mr. Thomas
Kunz, president and chief executive officer of The Dannon Company, Inc., a
subsidiary of Danone, was nominated as a director of the Company in November of
1999.
On December 24, 1999, the Company entered into a Support Agreement (the
"Agreement") with The Dannon Company, Inc. The primary purpose of the Agreement,
which provides for an initial term of three years and is renewable annually
thereafter, is to allow the Company access to Danone's brokers and distributors
in the United States. The parties agreed that they would not compete with each
other during the term of the Agreement and for three years after termination of
the Agreement with respect to certain yogurt, cheeses and kefir products.
On December 24, 1999, the Company also entered into a letter agreement that
amended the original Stockholders' Agreement with Danone. The purposes of the
amendment were 1) to clarify that Danone's anti-dilutive rights, Danone's Right
of First Refusal and Michael Smolyansky's reciprocal Right of First Refusal
would apply to any form of capital (not just Common Stock); and (2) that the
parties shall cause a vote at the next annual stockholders' meeting to amend the
Articles of Incorporation to clarify that the Company has the power to grant
preemptive rights to any of its stockholders by contract.
8
<PAGE> 12
PROPOSAL 2
ADOPTION OF AMENDMENT TO ARTICLES OF INCORPORATION
In October of 1999, the Company and Danone Foods, Inc. ("Danone") entered
into a Stock Purchase Agreement and a Stockholders' Agreement that granted
certain limited rights to Danone by the Company. On December 24, 1999, the
Company entered into a letter agreement (the "Agreement") which amended the
Stockholders' Agreement with Danone. One of the purposes of the Agreement was to
cause a vote at the Meeting to amend the Articles of Incorporation to clarify
that the Company has the power to grant preemptive rights to any of its
stockholders by contract (the "Amendment"). The Board of Directors approved a
resolution on April 21, 2000 to add the following sentence immediately following
the existing provision relating to preemptive rights in the Articles of
Incorporation, upon stockholder approval at the Meeting:
"Notwithstanding anything contained herein to the contrary, the Corporation
shall have the power to grant preemptive rights to any of its shareholders
by contract."
The text of the entire provision, as amended, will read as follows:
"Additionally resolved that a shareholder of the Corporation shall not be
entitled to a preemptive right to purchase, subscribe for, or otherwise acquire
any unissued shares of stock of the Corporation, or any options or warrants to
purchase, subscribe for or otherwise acquire any such unissued shares or any
shares, bonds, notes, debentures, or other securities convertible into or
carrying options or warrants to purchase, subscribe for or otherwise acquire any
such unissued shares. Notwithstanding anything contained herein to the contrary,
the Corporation shall have the power to grant preemptive rights to any of its
shareholders by contract."
REQUIRED VOTE
An affirmative vote of the holders of at least two thirds of the shares of
Common Stock issued and outstanding is required for adoption of the Amendment to
the Articles of Incorporation. Abstentions and broker non-votes are considered
shares of stock present in person or represented by proxy at the Meeting and
entitled to vote and are counted in determining the number of votes necessary
for a majority. An abstention will therefore have the practical effect of voting
against the adoption of the Amendment because it represents one fewer vote for
the adoption of the Amendment.
The Company has been advised that members of the Smolyansky family, who
represent 2,346,539 shares, and Danone, which holds 863,689 shares, will vote in
favor of this amendment. These votes represent 74.3% of the outstanding Common
Stock.
RESTATEMENT OF ARTICLES OF INCORPORATION
Upon the affirmative vote, by the stockholders, to adopt the proposed
Amendment to the Articles of Incorporation, the Board, at its discretion, may
restate in their entirety the Articles of Incorporation and all amendments,
pursuant to Illinois law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO ADOPT THE AMENDMENT TO THE
ARTICLES OF INCORPORATION AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN
FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
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<PAGE> 13
PROPOSAL 3
RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board has designated the firm of Gleeson, Sklar, Sawyers & Cumpata LLP,
independent auditors, as auditors of the Company for the next fiscal year. The
Company has been advised by such firm that neither it nor any member or
associate of such firm has any relationship with the Company or with any of its
affiliates other than as independent accountants and auditors.
During the two most recent fiscal years, there have been no disagreements
with Gleeson, Sklar, Sawyers & Cumpata LLP on matters of accounting principles
or practices, financial statement disclosure, auditing scope or procedure, or
any reportable event.
The Company expects that representatives of Gleeson, Sklar, Sawyers &
Cumpata LLP will be present at the Meeting, with the opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
In the event that ratification of the appointment of Gleeson, Sklar,
Sawyers & Cumpata LLP as the independent public accountants for the Company is
not obtained at the Meeting, the Board of Directors will reconsider its
appointment.
REQUIRED VOTE
An affirmative vote of the holders of a majority of the shares of Common
Stock issued and outstanding is required for ratification of the appointment of
Gleeson, Sklar, Sawyers & Cumpata LLP. Abstentions and broker non-votes are
considered shares of stock present in person or represented by proxy at the
Meeting and entitled to vote and are counted in determining the number of votes
necessary for a majority. An abstention will therefore have the practical effect
of voting against ratification of the appointment because it represents one
fewer vote for ratification of the appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF GLEESON, SKLAR, SAWYERS & CUMPATA LLP AS THE INDEPENDENT AUDITORS
FOR THE CURRENT FISCAL YEAR (ENDING DECEMBER 31, 2000), AND PROXIES SOLICITED BY
THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
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<PAGE> 14
OTHER MATTERS
The Board of Directors knows of no other business to come before the
meeting. If, however, other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares
represented thereby in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder may desire to present to the Company's 2001
Annual Meeting of Stockholders must be received in writing by the Secretary of
the Company on or before January 1, 2001, in order to be considered for possible
inclusion in the Company's proxy materials relating to such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ MICHAEL SMOLYANSKY
-----------------------------------
MICHAEL SMOLYANSKY
Chairman of the Board
April 28, 2000
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<PAGE> 15
PROXY PROXY
LIFEWAY FOODS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT THE HOLIDAY INN NORTH SHORE, 5300 WEST TOUHY AVENUE,
SKOKIE, ILLINOIS,
SATURDAY, JUNE 17, 2000, AT 11:00 A.M. LOCAL TIME
The undersigned hereby appoints Michael Smolyansky, with full power of
substitution, as proxy to vote the Common Stock of the undersigned in Lifeway
Foods, Inc. at the above Annual Meeting and at any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS HEREIN SPECIFIED. IF A
CHOICE IS NOT SPECIFIED, SUCH SHARES WILL BE VOTED FOR PROPOSALS 1, 2 and 3.
1. Election of Directors:
Nominees: Michael Smolyansky Pol Sikar Rick D. Salm Lorenzo Bernardi
Thomas Kunz:
[ ] FOR [ ] WITHHELD For, except vote withheld from the following nominees:
-----------------------------------------------------------------------------
2. Adoption of an Amendment to the Company's Articles of Incorporation to
clarify that the Company has the power to grant preemptive rights to any of
its stockholders by contract:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of Gleeson, Sklar, Sawyers & Cumpata LLP as independent
auditors:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 16
4. Other Matters:
In his discretion, to vote with respect to any other matters that may come
before the meeting or any adjournment thereof, including matters incident to its
conduct.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER.
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
SIGNATURE DATED:*
------------------------------------------ ------------------
- ----------------------------------- -----------------------------------------
SIGNATURE IF JOINTLY OWNED PRINT NAME
NOTE: This Proxy must be signed exactly as your name appears hereon. Executors,
administrators, trustees, etc. should give full title as such. If the
signer is a corporation, please sign full corporate name by duly
authorized officer.
