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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.
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(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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(3) Filing Party:
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(4) Date Filed:
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LIFEWAY FOODS, INC.
6431 W. Oakton
Morton Grove, IL 60053
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 16, 2001
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 16, 2001 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 ratify the appointment of Gleeson, Sklar, Sawyers & Cumpata
LLP as independent auditors for the next fiscal year.
3. 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 25, 2001 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 25, 2001
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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 (THE "MEETING") TO BE
HELD AT 11:00 A.M., LOCAL TIME, ON SATURDAY, JUNE 16, 2001, OR AT ANY
ADJOURNMENT OR POSTPONEMENT THEREOF. Stockholders of record of Common Stock of
the Company at the close of business on April 25, 2001 (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 7, 2001. 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 2,210,939 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 ratify the appointment of Gleeson, Sklar, Sawyers &
Cumpata LLP as independent auditors for 2001 and (iii) to transact such other
business as may properly come before the Meeting or any adjournments thereof.
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VOTING SECURITIES AND VOTE REQUIRED
Only holders of Common Stock, no par value per share, of record at the
close of business on April 25, 2001 (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 Proposal 2. Votes
withheld in connection with the election of one or more of the nominees for
Director or Proposal 2 will be counted as votes cast against such individuals or
Proposal 2 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, 2000 (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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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:
Name Age Position Director Since
- ------------------------------- ---------------- -------------------------------------------------- ------------------
Michael Smolyansky 53 CEO, CFO, President, Treasurer and Director 1986
Pol Sikar 53 Director 1986
Rick D. Salm 49 Director 1986
Renzo Bernardi 63 Director 1994
Thomas Kunz 43 Director 1999
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 F.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 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.
RENZO 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,
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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.
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.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors, and greater than 10% shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on its review of copies of such reports received or
representations from certain reporting persons, the Company believes that,
during the year ended December 31, 2000, all Section 16(a) filing requirements
applicable to its officers, directors and 10% shareholders were complied with
except for: the purchase of 300 shares by Rick Salm (one transaction), the
purchase of 1,100 shares by Pol Sikar (one transaction), and the purchase of
10,200 shares by Renzo Bernardi (six transactions), all of which are expected to
be reported late on Form 5.
BOARD AND COMMITTEE MEETINGS
During 2000, the Company's Board of Directors held four regular
meetings. The attendance in person or by telephone at the meetings of the Board
was 100% for one meeting; 80% for two meetings and 60% for one meeting.
The Board of Directors has an Audit Committee which currently consists
of Messrs. Smolyansky, Sikar, Salm and Kunz. Members are appointed by the full
Board. The Audit Committee held one meeting in 2000 and attendance at the
meeting was 75%. 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 of Directors 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.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Effective January 31, 2000, the Securities and Exchange Commission (the
"SEC") adopted new rules and amendments to current rules relating to the
disclosure of information about companies' audit committees. The new rules are
based on recommendations made by the Blue Ribbon Committee on Improving the
Effectiveness of Corporate Audit Committees. It is now required that, for all
votes of shareholders occurring after December 15, 2000, the proxy statement
must contain a report of the audit committee addressing several issues
identified in these
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rules. In addition, the SEC recommends that audit committees adopt a written
charter. The charter must be included as an attachment to the proxy statement at
least once every three years. The Company's Audit Committee adopted a charter in
March 8, 2001, and is included in this proxy statement as Appendix A.
The Audit Committee consists of four directors, Messrs. Smolyansky,
Sikar, Salm and Kunz , a majority of whom are independent directors in
accordance with the National Association of Securities Dealers (the "NASD")
listing standards. All of the Audit Committee members have a basic understanding
of finance and accounting and are able to read and understand fundamental
financial statements.
The Audit Committee reviewed and discussed the audited financial
statements for fiscal year 2000 with management and the independent auditors,
Gleeson, Sklar, Sawyers & Cumpata LLP ("Gleeson"). Additionally, the Audit
Committee discussed with Gleeson matters as required by the Statement of
Auditing Standards No. 61, which included Gleeson's judgments as to the quality
not just the acceptability of the financial statements, changes in accounting
policies and sensitive accounting estimates.
Gleeson provided the Audit Committee with written disclosures and a
letter required by Independence Standards Board Standard No. 1 ("ISB Standards
No. 1"). ISB Standards No. 1 requires (i) Gleeson to disclose in writing all
relationships between Gleeson and related entities and the Company and its
related entities, in Gleeson's professional judgment, that may reasonably be
thought to bear on independence; (ii) confirm that, in Gleeson's professional
opinion, they are independent of the Company within the meaning of the
Securities Acts and (iii) discuss Gleeson's independence with the Audit
Committee.
Based on the Audit Committee's review of the audited financial
statements and the various discussions noted above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2000.
Signed on behalf of the Audit Committee
/s/ Michael Smolyansky
--------------------------------------------
Michael Smolyansky, Chairman
INDEPENDENT AUDITORS FEES AND OTHER MATTERS
AUDIT FEES
Audit fees billed or expected to be billed to the Company by Gleeson,
Sklar, Sawyers & Cumpata LLP for the audit of the Company's financial statements
for the fiscal year ended December 31, 2000 and for the reviews of the financial
statements included in the Company's quarterly reports on Form 10-QSB for the
last fiscal year totaled $35,050.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Gleeson, Sklar, Sawyers & Cumpata LLP did not bill the Company for any
professional services rendered to the Company and its affiliates for the year
ended December 31, 2000 in connection with financial information systems design
or implementation.
ALL OTHER FEES
Gleeson, Sklar, Sawyers & Cumpata LLP did not bill the Company for any
other services rendered to the Company and its affiliates for the fiscal year
ended December 31, 2000.
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COMPENSATION OF DIRECTORS
During 2000, 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 Company 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, 2000.
(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, 2000, 1999 and 1998, 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 $100,000 for
the fiscal year ended 2000.
Annual Compensation
------------------------------------------------------
(a) (b) (c) (d) (e)
Name Other
And Year Annual
Principal Ended Salary Bonus Compensation
Position December 31 ($) ($) ($)
- -------------------------------- ------------ ---------------- ---------------- --------------------
Michael Smolyansky 2000 $151,000.00 $3,000.00 -0-
CEO, CFO, President, 1999 $143,000.00 -0- -0-
Treasurer 1998 $120,000.00 $5,000.00 -0-
Long Term Compensation
-------------------------------------------
Awards Payouts
------------------------------- -----------
(a) (b) (f) (g) (h) (i)
Name Restricted All
And Year Stock Shares LTIP Other
Principal Ended Award(s) Underlying Payouts Compensation
Position December 31 ($) Options ($) ($)
- -------------------------- ------------- -------------- ---------------- ----------- ----------------
Michael Smolyansky 2000 -0- -0- -0- -0-
CEO, CFO, President 1999 -0- -0- -0- -0-
Treasurer 1998 -0- -0- -0- -0-
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(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 2000 or stock appreciation
rights during 2000.
(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 2000.
(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 2000.
(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
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,
2000, 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 outstanding class of securities, as of March 31, 2001 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.
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Percent Owned
Amount and Nature of Beneficially and
Name and Address of Beneficial Ownership of Record
Beneficial Owner (1) (2)
------------------------------------- --------------------------- -------------------------
Michael Smolyansky (3)(6) 2,186,539 50.6%
6431 W. Oakton
Morton Grove, IL 60053
Rick D. Salm (6) 3,800 *
6945 N. Clark St.
Chicago, IL 60626
Pol Sikar (6) 2,300 *
3907 Miller Drive
Glenview, IL 60025
Renzo Bernardi (6) 16,300 *
2919 N. Natoma
Chicago, IL 60634
Valeriy Nikolenko (4)(6) 2,000 *
8917 Lamon Ave.
Skokie, IL 60077
Thomas Kunz (5)(6) -0- *
120 White Plains Road
Tarrytown, NY 10591
Danone Foods, Inc. 863,689 20.0%
120 White Plains Road
Tarrytown, NY 10591
All officers and directors of 2,210,939 51.2%
the Company as a group (six
persons)
- ----------
* 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, 2001.
(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.
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(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 Stock of the Company. The parties have agreed that, subject
to limited exceptions, for a period of five years, after October 1, 1999, 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.
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PROPOSAL 2
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, 2001), 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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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
2002 Annual Meeting of Stockholders must be received in writing by the Secretary
of the Company on or before January 1, 2002, 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 25, 2001
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APPENDIX A
LIFEWAY FOODS, INC.
(THE "COMPANY")
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. AUDIT COMMITTEE PURPOSE
The Audit Committee (the "Committee") is appointed by the Board of
Directors (the "Board") to assist the Board in fulfilling its oversight
responsibilities. The Committee's primary duties and responsibilities
are to:
o Monitor the integrity of the Company's financial reporting
process and systems of internal controls regarding finance,
accounting, and legal compliance;
o Monitor the independence and performance of the Company's
independent auditors and internal auditing department; and
o Provide an avenue of communication among the independent
auditors, management, the internal auditing department and the
Board.
The Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct
access to the independent auditors as well as anyone in the
organization. The Committee has the ability to retain, at the Company's
expense, special legal, accounting, or other consultants or experts it
deems necessary in the performance of its duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
The Committee members shall meet the requirements of NASDAQ regarding
the composition of the Committee. The Committee shall be comprised of
at least three, but no more than six directors, as determined by the
Board, a majority of whom shall be independent directors. In the event
the Company no longer files reports under Securities and Exchange
Commission ("SEC") Regulation S-B, all Committee members must be
independent directors.
All members of the Committee shall have a basic understanding of
finance and accounting and be able to read and understand fundamental
financial statements, and in the event the Company no longer files
reports under SEC Regulations S-B at least one member of the Committee
shall have accounting or related financial management expertise.
Committee members shall be appointed by the Board. If the Committee
Chair is not designated or present, the members of the Committee may
designate a Chair by a majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more
frequently as circumstances may dictate. The Committee Chair shall
prepare and/or approve an agenda in advance of each meeting, consistent
with the provisions of this Charter. The Committee should meet
privately in executive session at least annually with management, the
director of the internal auditing department, the independent auditors,
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and as a committee to discuss any matters that the Committee or each of
these groups believe should be discussed. The Committee may ask members
of management or others to attend the meetings and provide pertinent
information as necessary. In addition, the Committee, or at least its
Chair, should communicate quarterly with the management and the
independent auditors to review the Company's financial statements and
significant findings based upon the auditors limited review procedures.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the Charter to the Board for approval and have the document
published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices and judgments.
3. In consultation with management, the independent auditors, and the
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and steps management has taken to monitor, control, and
report such exposures. Review significant findings prepared by the
independent auditors and the internal auditing department together with
management's responses including the status of previous
recommendations.
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of earning
and/or the Company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with the Statement of Auditing
Standards No. 61 ("SAS 61") which requires that auditors communicate,
either in writing or orally before or after the financial statements
have been issued. The Chair of the Committee may represent the entire
Committee for purposes of this review or in certain cases may request
that the entire Committee participate.
Independent Auditors
5. The independent auditors are ultimately accountable to the Committee
and the Board. The Committee shall review the independence and
performance of the auditors and annually recommend to the Board the
appointment of the independent auditors or approve any discharge of the
independent auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors. Review and approve requests for significant
management consulting engagements to be performed by the independent
auditors' firm and be advised of any other significant study undertaken
at the request of management that is beyond the scope of the audit
engagement letter.
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7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors engagement letter and audit plan --
discuss scope, staffing, locations, reliance upon management, and
internal audit and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated to the Committee by the independent auditors in
accordance with SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
11. Discuss with management and the independent auditors the quality of the
accounting principles and underlying estimates used in the preparation
of the Company's financial statements.
12. Discuss with the independent auditors the clarity of the financial
disclosure practices used or proposed by the Company.
13. Inquire as to the independent auditors' views about whether
management's choices of accounting principles appear reasonable from
the prospective of income, asset and liability recognition and whether
those principles are common practices or are minority practices.
Internal Audit Department and Legal Compliance
14. Review the budget, plan, changes in plan, activities, organization
structure, and qualifications of the internal audit department, as
needed.
15. Review the appointment, performance, and replacement of the senior
internal audit executive.
16. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
17. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from regulators
or governmental agencies.
Other Audit Committee Responsibilities
18. Annually prepare a report to shareholders as required by the SEC. The
report should be included in the Company's annual proxy statement.
19. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board
deems necessary or appropriate.
20. Maintain minutes of meetings and periodically report to the Board on
significant results of the foregoing activities.
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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 16, 2001, 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 Renzo Bernardi
Thomas Kunz:
[ ] FOR [ ] WITHHELD For, except vote withheld from the following
nominees:
----------------------------------------------------------------------------
2. Ratification of Gleeson, Sklar, Sawyers & Cumpata LLP as independent
auditors:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. 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
---------------------------- --------------------------------
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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.