UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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 Sec. 240.14a-11(c) or Sec. 240.14a-12
LIFEWAY FOODS, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person 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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to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
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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.
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LIFEWAY FOODS, INC.
6431 W. OAKTON
MORTON GROVE, IL 60053
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 11, 2005
TO OUR SHAREHOLDERS:
You are invited to be present either in person or by proxy at the Annual Meeting
of Shareholders 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 11, 2005 at 11:00 a.m. local time (the
"Meeting"), to consider and act upon the following:
1. To elect Six Directors to serve until the next meeting or until their
successors are duly elected and qualified.
2. To ratify the appointment of Plante & Moran, PLLC, 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 shareholders of Common Stock of record at the close of business on April
15, 2005 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
Ludmila Smolyansky
Chairperson of the Board
Skokie, Illinois
April 29, 2005
LIFEWAY FOODS, INC.
PROXY STATEMENT
PROCEDURAL MATTERS
THIS PROXY STATEMENT IS FURNISHED TO THE SHAREHOLDERS OF LIFEWAY FOODS, INC., AN
ILLINOIS CORPORATION (THE "COMPANY" or "LIFEWAY"), IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY TO BE VOTED AT THE ANNUAL MEETING OF SHAREHOLDERS (THE "MEETING") TO BE
HELD AT 11:00 A.M., LOCAL TIME, ON SATURDAY, JUNE 11, 2005, OR AT ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
Shareholders of record of Common Stock of the Company at the close of business
on April 15, 2005 (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 Shareholders. A shareholder 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
shareholders 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
shareholders beginning approximately May 4, 2005. All of the costs and expenses
in connection with the solicitation of proxies with respect to the matters
described herein will be borne by the Company. In addition to solicitation of
proxies by mail, the directors, officers and investor relations staff (who will
receive no compensation therefor in addition to their regular remuneration) of
the Company named herein may solicit the return of proxies by telephone,
telegram or personal interview. As of this date, the Company has retained
Computershare Investor Services ("Computershare"), an outside firm, to print and
package all proxy statements and related materials, and to solicit proxies
solely from individual shareholders of record. The services provided by
Computershare to the Company are expected to cost approximately $1,600.00. The
Company has also retained Automatic Data Processing, Inc. ("ADP"), at an
approximate cost of $1,300.00, to contact banks, brokerage houses and other
custodians, nominees and fiduciaries with requests to forward copies of the
proxy materials to their respective principals and to request instructions for
voting the proxies. The expenses of such banks, brokerage houses and other
custodians, nominees and fiduciaries in connection therewith are covered by the
estimated fee to be paid by the Company to ADP. 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 shareholder is unable to
attend in person. Each proxy may be revoked at any time thereafter by writing to
the Secretary of the Company prior to the Meeting, by execution and delivery of
a subsequent proxy, or by attendance and voting in person at the Meeting, except
as to any matter or matters upon which, prior to such revocation, a vote shall
have been cast pursuant to the authority conferred by such proxy. Shares
represented by a valid proxy which if received pursuant to this solicitation and
not revoked before it is exercised, will be voted as provided on the proxy at
the Meeting or at any adjournment or adjournments thereof. Management intends to
vote the 4,474,309 (approximately 53.1%) of Common Stock which it controls in
favor of the proposals to (i) elect six Directors to serve until the next Annual
Meeting or until each of their successors is duly elected and qualified and (ii)
to ratify the appointment of Plante & Moran, PLLC as independent auditors for
2005.
VOTING SECURITIES AND VOTE REQUIRED
Only holders of the 8,412,388 shares of Common Stock, no par value per share, of
record outstanding at the close of business on April 15, 2005 (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 "SEC"), boxes and a designated blank
space are provided on the proxy card for shareholders to mark if they wish to
withhold authority to vote
for one or more nominees for Director and 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 provides for withholding of
votes with respect to the election of Directors and a shareholder present at the
Meeting also may abstain with respect to such election.
ANNUAL REPORT ON FORM 10-KSB
This Proxy Statement is accompanied by the Company's Annual Report on Form
10-KSB, for the fiscal year ended December 31, 2004 (the "Annual Report").
Shareholders are referred to the Annual Report for information concerning the
Company's business and operations, but the Annual Report is not part of the
proxy soliciting materials.
PROPOSAL 1: ELECTION OF DIRECTORS
Six Directors are to be elected at the Meeting. The Directors will be elected at
the Meeting to serve until the next annual meeting of shareholders of the
Company or until each of their successors shall be duly elected and qualified.
As noted, unless otherwise indicated thereon, all proxies received will be voted
in favor of the election of each of the six 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 Company), 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 six 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 currently is serving as a Director of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO ELECT THE DIRECTORS NOMINATED HEREIN
TO SERVE, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF
UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
The names of the nominees and certain information with regard to each nominee
follows:
NAME AGE TITLE
------------------- ---- ---------------------------------------------------
Ludmila Smolyansky 57 Director and Chairperson of the Board of Directors
Julie Smolyansky 30 CEO, President, and Director
Pol Sikar 57 Director
Rick D. Salm 53 Director
Renzo Bernardi 53 Director
Juan Carlos Dalto 64 Director
NOMINEES FOR ELECTION AS DIRECTORS
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. The
Company has determined to intentionally keep one seat vacant at this time, for a
total of six directors. For more than 20 years, Mrs. Smolyansky has been the
operator of several independent delicatessen, gourmet food distributorship
businesses and imported food distributorships. In 2002, prior to the
commencement of her tenure as a Director, she was hired by the Company as its
General Manager. Mrs. Smolyansky devotes as much time as necessary to the
business of the Company and currently holds no other directorships in any other
reporting company. Mrs. Smolyansky is the mother of Julie Smolyansky (the
President, Chief Executive Officer (CEO), and a Director of the Company) and
Edward P. Smolyansky (the Company Treasurer and Chief Financial and Accounting
Officer of the Company).
JULIE SMOLYANSKY was appointed as a Director, and elected President, CEO, CFO
and Treasurer of the Company by the Board of Directors to fill the vacancies in
those positions created by the death of her father, Michael Smolyansky, in June
2002. She is a graduate with a Bachelor's degree from the University of Illinois
at Chicago. Prior to her appointment, Ms. Smolyansky spent six years as the
Company's Director of Sales and Marketing. She devotes as much time as necessary
to the business of the Company and currently holds no other directorships in any
other reporting company. Ms. Smolyansky is the daughter of Ludmila Smolyansky,
the Chairperson of the Board. In 2004, Ms. Smolyansky resigned as CFO and
Treasurer and Edward Smolyansky, Ms. Smolyansky's brother, was appointed to such
positions.
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 11 years, he has been President and a
major shareholder of Montrose Glass & Mirror Co., a company providing glass and
mirror products to the wholesale and retail trade in the greater Chicago area.
Mr. Sikar devotes as much time as necessary to the business of the Company. Mr.
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 Harris Bank of Winnetka, Illinois. Mr. Salm
joined the Harris Bank in 2002, after spending 20 years with the First
Commercial Bank of Chicago, Illinois, 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., a Dairy and Food Service
Company which has been in business since 1969 (formerly, Renzo-Milk Distribution
Systems). He has over 30 years of experience in the dairy distribution industry.
Mr. Bernardi is a graduate of Instituto Teonico E Commerciale of Macomer,
Sardinia. Mr. Bernardi devotes as much time as necessary to the business of the
Company. Mr. Bernardi holds no other directorships in any other reporting
company.
JUAN CARLOS DALTO has served as a director of the Company since July 2004. Juan
Carlos Dalto is President and CEO of The Dannon Company. He has extensive
international background in the packaged goods industry and has strategic and
direct responsibilities for Danonn's dairy products in the United States and
Canada. Mr. Dalto joined Dannon's parent company, Groupe Danone, as Marketing VP
for Danone Argentina, his native country, in December 1997 after which he served
as CEO for Danone Portugal in 2000. Mr. Dalto holds a Masters in Strategic
Marketing from Adam Smith Open University, Buenos Aires, Argentina and a Diploma
for Business Executives in Strategic Marketing Planning from University of
Michigan. He also holds a degree in Industrial Engineering from the Buenos Aires
Institute of Technology. Mr. Dalto was nominated by Danone, as its nominee to
the Lifeway Board of Directors, due to the departure of Mr. Kunz from Danone and
his resignation from the Lifeway Board. The Lifeway Board of Directors
subsequently appointed Mr. Dalto to fill the vacancy created by the resignation
of Mr. Kunz as provided by the By-laws of the 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 regulations 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, 2004, all Section 16(a) filing requirements applicable to its
officers, Directors and 10% shareholders were timely met, except as provided
below.
Certain Directors and/or Officers have not made all required Section 16 filings
in a timely manner during the year ended December 31, 2004 and are listed below.
Number of late Number of transactions not
Name of Director or Officer Title Section 16 Reports reported on a timely basis
--------------------------- --------------------------- ------------------ --------------------------
Ludmila Smolyansky Director and Chairperson of 1 2
the Board of Directors
Julie Smolyansky Director, President and CEO 2 2
Edward P. Smolyansky Treasurer and CFO 1 1
BOARD AND COMMITTEE MEETINGS
During 2004, the Company's Board of Directors held four regular meetings (the
Company's annual meeting of shareholders and Directors and three quarterly
meetings) and one special meeting. In 2004, five of six Directors attended the
Company's annual meeting. Each director attended at least 75% of all meetings of
our board of directors and committees on which he or she served that were held
during 2004. Shareholders of the Company may send communications to the Board of
Directors via the Company's Investor Relations department, which makes such
communications available to the Directors as appropriate, to LIFEWAY FOODS,
INC., 6431 W. OAKTON, MORTON GROVE, IL 60053, telephone (847) 967-1010, fax
(847) 967-6558. The Investor Relations department can be reach via email at:
info@lifeway.net.
The Board of Directors has an Audit Committee which currently consists of
Messrs. Sikar and Salm, who are "independent" within the meaning of Rule
4200(a)(15) of the Nasdaq National Market System ("Nasdaq"). Audit Committee
members are appointed 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,
including pre-approval of non-audit services, the auditors' independence; and
recommend to the Board of Directors for its approval and for ratification by the
shareholders the engagement of the independent auditors to serve the following
year in examining the accounts of the Company. No member of the Audit Committee
is a "financial expert," as defined in Item 401 of Regulation S-B. The Board
examined the qualifications of its Audit Committee members and determined that
the present members of the Audit Committee were sufficiently capable of
performing the duties of the Audit Committee in 2004 without being "financial
experts" within the definition provided in Item 401 of Regulation S-B
promulgated by the SEC.
The Audit Committee held two meetings in 2004. Messrs. Sikar and Salm attended
each meeting.
At its December 2003 meeting, the Audit Committee amended its Charter in order
to comply with the requirements set forth in Rule 4350(d) of the Nasdaq listing
standards. Among the requirements of Rule 4350(d) is that the Audit Committee
must have three members. In order to comply with the NASD listing standards the
Board is compiling information on potential candidates to fill the necessary
third seat. At present it is unknown whether the new member of the Audit
Committee shall be a "financial expert," but potential candidates who satisfy
the "financial expert" requirements of Item 401 of Regulation S-B are among
those being considered by the Board.
The Board of Directors does not have a standing nominating committee,
compensation committee or any committees performing similar functions. As there
are only six Directors serving on the Board, it is the view of the Board that
all Directors should participate in the process for the nomination and review of
potential Director candidates and for the review of the Company's executive pay
practices. Accordingly, Julie Smolyansky, Ludmila Smolyansky, Rick D. Salm,
Renzo Bernardi, Pol Sikar and Juan Carlos Dalto all participate in the
nominating process, in the review of executive employment contracts and in
review of the Company's executive compensation practices. It is the view of the
Board that the participation of all Directors in the duties of nominating and
compensation committees ensures not only as comprehensive as possible a review
of Director candidates and executive compensation, but also that the views of
independent, employee, and shareholder Directors are considered.
The Board does not have any formal policy regarding the consideration of
director candidates recommended by shareholders; any recommendation would be
considered on an individual basis. The Board believes this is appropriate due to
the lack of such recommendations made in the past, and its ability to consider
the establishment of such a policy in the event of an increase of such
recommendations. The Board welcomes properly submitted recommendations from
shareholders and would evaluate shareholder nominees in the same manner that it
evaluates a candidate recommended by other means. Shareholders may submit
candidate recommendations by mail to LIFEWAY FOODS, INC., 6431 W. OAKTON, MORTON
GROVE, IL 60053. With respect to the evaluation of director nominee candidates,
the Board has no formal requirements or minimum standards for the individuals
that it nominates. Rather, the Board considers each candidate on his or her own
merits. However, in evaluating candidates, there are a number of factors that
the Board generally views as relevant and is likely to consider, including the
candidate's professional experience, his or her understanding of the business
issues affecting the Company, his or her experience in facing issues generally
of the level of sophistication that the Company faces, and his or her integrity
and reputation. With respect to the identification of nominee candidates, the
Board has not developed a formalized process. Instead, its members and the
Company's senior management have recommended candidates whom they are aware of
personally or by reputation.
CODE OF ETHICS
The Board expects the Directors, as well as officers and employees, to act
ethically at all times and to acknowledge their adherence to the policies
comprising the Company's code of ethics set forth in Appendix B to its 2004
Proxy Statement. Lifeway will not make any personal loans or extensions of
credit to Directors or executive officers. No non-employee Director may provide
personal services for compensation to the Company, other than in connection with
serving as a Lifeway Director. The Board will not permit any waiver of any
ethics policy for any Director or executive officer. If an actual or potential
conflict of interest arises for a Director, the Director shall promptly inform
the CEO and the presiding Director. If a significant conflict exists and cannot
be resolved, the Director should resign. All Directors will recuse themselves
from any discussion or decision affecting their personal, business or
professional interests. The board shall resolve any conflict of interest
question involving the CEO and other Directors or officers, and the CEO shall
resolve any conflict of interest issue involving any other officer of the
company.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing, internal control and financial reporting practices of the Company. The
Audit Committee currently consists of two directors, Messrs. Sikar and Salm,
both of whom are independent directors in accordance with the Securities and
Exchange Act of 1934 and the Nasdaq listing standards. All of the Audit
Committee members have an understanding of finance and accounting and are able
to read and understand fundamental financial statements. To the extent Company
employees are aware of any financial irregularities, the Audit Committee has
been designated to receive such information in a confidential manner.
The Audit Committee reviewed and discussed the audited financial statements for
fiscal year-ended December 31, 2004 with Management and the independent
auditors, Plante & Moran, PLLC ("Plante"). Additionally, the Audit Committee
discussed with Plante matters as required by the Statement of Auditing Standards
No. 61, which included Plante's judgments as to the quality not just the
acceptability of the financial statements, changes in accounting policies and
sensitive accounting estimates.
Plante provided the Audit Committee with written disclosures and a letter
required by Independence Standards Board Standard No. 1 ("ISB Standards No. 1").
ISB Standards No. 1 requires (i) Plante to disclose in writing all relationships
between Plante and related entities and the Company and its related entities, in
Plante's professional judgment, that may reasonably be thought to bear on
independence; (ii) confirm that, in Plante's professional opinion, they are
independent of the Company within the meaning of the Securities Acts and (iii)
discuss Plante's independence with the Audit Committee. The Audit Committee
discussed with Plante its independent status.
The Audit Committee amended and restated its written charter governing its
actions effective December 17, 2003. The charter of the Audit Committee appeared
in its entirety as Appendix A to the Proxy Statement for 2004. The Audit
Committee reviews and reassesses the charter annually. The Company is required
to attach the charter as an appendix to the Company's proxy statement every
three years.
Based on the Audit Committee's review of the year-end audited financial
statements and the various discussions noted above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004.
The Audit Committee,
Rick D. Salm, Director
Pol Sikar, Director
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Lifeway Audit Committee (the "Committee"), comprised of Messrs. Rick Salm
and Pol Sikar, pre-approved Plante as the Company's independent auditor for the
year-ended December 31, 2005 and has adopted the following guidelines regarding
the engagement of the Company's independent auditor to perform services for the
Company:
For audit services (including statutory audit engagements as required under
local country laws), the independent auditor will provide the Committee with an
engagement letter during the January-March quarter of each year outlining the
scope of the audit services proposed to be performed during the fiscal year. If
agreed to by the Committee, this engagement letter will be formally accepted by
the Committee at its first or second quarter meeting.
The independent auditor will submit to the Committee for approval an audit
services fee proposal after acceptance of the engagement letter.
For non-audit services, company management will submit to the Committee for
approval (during the second or third quarter of each fiscal year) the list of
non-audit services that it recommends the Committee engage the independent
auditor to provide for the fiscal year. Company management and the independent
auditor will each confirm to the Committee that each non-audit service on the
list is permissible under all applicable legal requirements. In addition to the
list of planned non-audit services, a budget estimating non-audit service
spending for the fiscal year will be provided. The Committee will approve both
the list of permissible non-audit services and the budget for such services. The
Committee will be informed routinely as to the non-audit services actually
provided by the independent auditor pursuant to this pre-approval process.
To ensure prompt handling of unexpected matters, the Committee delegates to
either member thereof the authority to amend or modify the list of approved
permissible non-audit services and fees. Either member will report action taken
to the Committee at the next Committee meeting.
The independent auditor must ensure that all audit and non-audit services
provided to the Company have been approved by the Committee. The Controller or
Chief Financial Officer will be responsible for tracking all independent auditor
fees against the budget for such services and report at least annually to the
Committee.
COMPENSATION OF DIRECTORS
During 2004, each outside (non-employee) director was compensated at the rate of
$500 per meeting attended. Neither any employee director (Ludmila Smolyansky and
Julie Smolyansky) nor any Director serving as the nominee of Danone (originally
Thomas Kunz and later Juan Carlos Dalto) was compensated as a Director during
2004.
As compensation for continuing advisory services to the Company, and in light of
her extensive experience, the Company approved the payment to Ludmila Smolyansky
of a salary of $91,538.44 and a bonus of $75,000 in 2004. Ludmila Smolyansky
devotes as much time as necessary to the business of the Company.
EXECUTIVE COMPENSATION
GENERAL
The following information discloses all plan and non-plan compensation awarded
to, earned by, or paid to Julie Smolyansky (CEO, President, and Director) and Ed
Smolyansky (CFO, Chief Accounting Officer and Controller) for all services
rendered in all capacities to the Company and its subsidiaries during the year
ended December 31, 2004. Except for Julie Smolyansky, no other employee of the
Company served as the CEO. Except for Julie Smolyansky and Ed Smolyansky, no
executive officer of the Company had total annual salary and bonus exceeding
$100,000 for the fiscal year ended December 31, 2004.
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, 2004, 2003 and 2002 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 $100,000 for the year
ended December 31, 2004.
Annual Compensation
-------------------
Name
and
Principal Year Ended Annual Other
Position December 31, Salary($) Bonus($) Compensation($)
--------------------------------------------------------------------------------
Julie Smolyansky, CEO 2004 102,000 20,000 20,930
and President (1) 2003 104,000 10,000 0
2002 63,800 10,000 0
--------------------------------------------------------------------------------
Ed Smolyansky, CFO, Chief 2004 76,538 30,000 20,930
Accounting Officer and
Controller (2)
--------------------------------------------------------------------------------
NOTES TO SUMMARY COMPENSATION TABLE
(1) The Board appointed Julie Smolyansky as the CEO, CFO, President and
Treasurer of the Company on June 10, 2002. Until that date and since September
21, 1998 she had been Director of Sales and Marketing of the Company. Since
November 2004, Ms. Smolyansky has served solely as CEO and President.
(2) The Board appointed Ed Smolyansky as the CFO, Chief Accounting Officer and
Controller of the Company in November 2004.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
This table has been omitted, as neither Julie Smolyansky nor Ed Smolyanksy
received any individual grants of stock options or stock appreciation rights
during 2004.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
This table has been omitted, as neither Julie Smolyansky nor Ed Smolyanksy hold
any options and, therefore, neither exercised any stock options during 2004.
LONG-TERM INCENTIVE PLANS ("LTIP") - AWARDS IN LAST FISCAL YEAR
This table has been omitted, as neither Julie Smolyansky nor Ed Smolyanksy
received any awards pursuant to any LTIP during 2004.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
(1) EMPLOYMENT CONTRACTS
On September 12, 2002, by unanimous resolution of the Board, the Company entered
into an employment agreement with Julie Smolyansky. Under this agreement, the
Company agreed to pay Ms. Smolyansky a discretionary annual salary and
discretionary bonus. If the Company terminates Ms. Smolyansky's employment
without cause or Ms. Smolyansky terminates her employment due to good reason,
then Company will pay her a lump sum equal to two years of the base salary then
in effect plus the aggregate of the annual bonus for which she is eligible.
(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 600,000, as
adjusted, shares of its Common Stock. The Plan was adopted by the Company on
June 5, 1995. 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 shareholders 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, 2004, a
total of 131,400 shares had been issued under the Plan and no options remain
outstanding.
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 April 15, 2005 by (a) each
shareholder 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.
Amount and Nature Percent Owned
Name and Address of of Beneficial Beneficially
Beneficial Owner (1) Ownership of Common Stock and of Record (2)
--------------------------------------------------------------------------------
Ludmila Smolyansky (3,4) 3,968,446 (3) 47.2%
Julie Smolyansky (4,5) 266,630 (5) 3.2%
Edward Smolyansky (4,5) 228,233 (5) 2.7%
Rick D. Salm (4,6) 1,400 (6) *
Pol Sikar (4) 5,500 *
Renzo Bernardi (4) 1,600 *
Juan Carlos Dalto (4,7) 0 *
All Directors and Officers of
the Company as a Group (Eight
persons in total) 4,468,609 (8) 53.1%
Danone Foods, Inc. 1,727,378 20.5%
(1) With the exception of Juan Carlos Dalto and Danone, the address for all
Directors and shareholders listed in this table is 6431 Oakton St., Morton
Grove, IL 60053. The address for Juan Carlos Dalto and Danone, Inc. is 120 White
Plains Road, Tarrytown, NY 10591.
(2) Based upon 8,412,388 shares of Common Stock outstanding as of April 15,
2005.
(3) On April 15, 2005, Mrs. Smolyansky directly owned 3,952,446 shares of Common
Stock. Additionally, Mrs. Smolyansky is deemed to be the indirect beneficial
owner of 16,000 shares of Common Stock held in the Smolyansky Family Foundation,
of which Mrs. Smolyansky is the Trustee.
(4) A Director or Officer of the Company.
(5) 5,700 of such shares are owned by JEL General Partnership, of which Ed
Smolyansky and Julie Smolyansky are general partners.
(6) On April 15, 2005, Mr. Salm was deemed to be the indirect beneficial owner
of 1,000 shares held in a custodial account for his daughter, Erica.
(7) Mr. Dalto is also an officer of The Dannon Company, Inc., which is an
affiliate of Danone Foods, Inc.
(8) The amount of 4,474,309 also includes 2500 shares of Common Stock
beneficially owned by Val Nikolenko, the Vice President of Operations of the
Company, and 5,700 shares held by JEL General Partnership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Michael Smolyansky, the founder and former President and Chief Executive Officer
of the Company died on June 9, 2002. On June 10, 2002, the Estate of Michael
Smolyansky (the "Estate") owned 2,138,338 shares of Common Stock (equal to
4,276,676 shares of Common Stock adjusted for the two-for-one stock split on
March 8, 2003). In accordance with the Illinois Probate Act of 1975 (755 ILCS
ss.5-1/1 et seq.), Ludmila Smolyansky, his spouse, was appointed independent
executor of the Estate on July 1, 2002 by Order of the Circuit Court of Cook
County, Illinois, County Department, Probate Division, pursuant to that certain
Last Will and Testament of Michael Smolyansky, dated February 2, 1990 (the
"Will").
On December 10, 2002, the Estate sold to the Company 47,000 shares of Common
Stock (equal to 94,000 split-adjusted shares of Common Stock) at $7.20 per share
pursuant to a Stock Purchase Agreement dated December 10, 2002 (the "Agreement")
executed by
and between the Company and the Estate. The Company entered into this
transaction as part of a 50,000 share Common Stock (equal to 100,000
split-adjusted shares of Common Stock) repurchase program authorized by a
resolution of its Board in 2002. The Estate used the $338,400.00 of total gross
proceeds from this transaction to cover its legal and administrative expenses.
On August 9, 2004, all shares remaining in the Estate were distributed to
Ludmila Smolyansky, Julie Smolyansky and Edward Smolyansky.
PROPOSAL 2: RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board has designated the firm of Plante & Moran, PLLC, ("Plante"), as
independent auditors of the Company for the next fiscal year. The Audit
Committee and the Company have been advised by Plante 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
Plante, or its predecessor in interest, Gleeson, Sklar, Sawyers and Cumpata, LLP
on matters of accounting principles or practices, financial statement
disclosure, auditing scope or procedure, or any reportable event.
Representatives of Plante are not expected to be present at the Meeting.
In the event that ratification of the appointment of Plante as the independent
public accountants for the Company is not obtained at the Meeting, the Board of
Directors will reconsider its appointment.
AUDIT FEES
In 2003, Gleeson Sklar, Sawyers and Cumpata billed Lifeway approximately $41,500
for professional services rendered for the audit of Lifeway's annual financial
statements and review of financial statements included in Lifeway's Form 10-QSB
or services that are normally provided in connection with statutory and
regulatory filings or engagements in 2003.
On May 13, 2004, the accounting firm of Gleeson Sklar, Sawyers and Cumpata,
merged with and into Plante & Moran, PLLC. In 2004, Plante & Moran, PLLC, billed
Lifeway approximately $70,000 for professional services rendered for the audit
of Lifeway's annual financial statements and review of financial statements
included in Lifeway's Form 10-QSB or services that are normally provided in
connection with statutory and regulatory filings or engagements in 2004.
AUDIT-RELATED FEES
In 2003, Lifeway's principal accountant billed Lifeway approximately $4,701 for
assurance and related services that are reasonably related to the performance of
the audit or review of Lifeway's financial statements.
In 2004, Lifeway's principal accountant billed Lifeway approximately $8,900 for
assurance and related services that are reasonably related to the performance of
the audit or review of Lifeway's financial statements.
TAX FEES
No professional services were rendered by Plante to Lifeway regarding tax
advice, tax compliance and tax planning.
ALL OTHER FEES
No other fees were billed to Lifeway by Plante other than those described in
this report.
No hours expended by Plante in its engagement to audit Lifeway's financial
statements for the most recent fiscal year were attributable to work performed
by persons other than Plante's full-time permanent employees. The Audit
Committee has approved 100% of all services performed by Plante for Lifeway and
disclosed above.
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 Plante
& Moran, PLLC. 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 PLANTE & MORAN, PLLC AS THE INDEPENDENT AUDITORS FOR THE CURRENT
FISCAL YEAR (ENDING DECEMBER 31, 2005), AND PROXIES SOLICITED BY THE BOARD WILL
BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE
PROXY.
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.
SHAREHOLDER PROPOSALS
Any proposal that a shareholder may desire to present to the Company's 2006
Annual Meeting of Shareholders must be received in writing by Val Nikolenko, the
Secretary of the Company, on or before January 3, 2006, in order to be
considered for possible inclusion in the Company's proxy materials relating to
such meeting.
UNTIMELY SHAREHOLDER PROPOSALS
Any shareholder proposals received by the Company after January 3, 2006 shall be
considered an untimely proposal. The Company, in its sole discretion, may
consider untimely proposals for possible inclusion in its 2006 Annual Meeting
proxy materials if such untimely proposals were received on or before March 19,
2006. Any untimely shareholder proposals received after March 19, 2006 shall not
be considered for possible inclusion in the Company's 2006 Annual Meeting proxy
materials.
BY ORDER OF THE BOARD OF DIRECTORS
Ludmila Smolyansky
Chairperson of the Board
April 29, 2005
PROXY PROXY PROXY
LIFEWAY FOODS, INC. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AT THE HOLIDAY INN NORTH SHORE, 5300
WEST TOUHY AVENUE, SKOKIE, ILLINOIS, SATURDAY, JUNE 11, 2005, AT 11:00 A.M.
LOCAL TIME.
The undersigned hereby appoints Ludmila 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 and 2.
1. Election of Directors:
Nominees: Ludmila Smolyansky, Julie Smolyansky, Pol Sikar, Rick D. Salm,
Renzo Bernardi and Juan Carlos Dalto:
[_] FOR [_] WITHHELD
For, except vote withheld from the following nominees:
--------------------------------------------------------------------------------
2. Ratification of Plante & Moran, PLLC, as independent auditors:
[_] FOR [_] AGAINST [_] ABSTAIN
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
------------------------------
PRINT NAME (IF JOINTLY OWNED)
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.