8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 28, 2006

LIFEWAY FOODS, INC.

(Exact name of registrant as specified in its charter)

ILLINOIS	0-17363	36-3442829
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

6431 West Oakton St. Morton Grove, IL	60053
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (847) 967-1010

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Fourth Extension to Stockholders Agreement

Item 1.01 Entry into a Material Definitive Agreement.

     On May 3, 2006, Lifeway Foods, Inc. (“Lifeway”) and DS Waters, L.P. (“DSW”), an affiliate of Danone Foods, Inc., entered into a Fourth Extension of the Stockholders’ Agreement, which was originally entered into on October 1, 1999 by and among Danone Foods, Inc., Lifeway and certain other parties. The Stockholders’ Agreement was previously amended on December 24, 1999 by that certain First Extension to Stockholders’ Agreement dated September 28, 2004 (“First Extension”), by that certain Second Extension to Stockholders’ Agreement dated October 29, 2004 (“Second Extension”) and by that certain Third Extension to Stockholders’ Agreement dated December 30, 2004 (the “Third Extension”). All Lifeway shares held by Danone Foods, Inc. which are the subject to certain provisions of the Stockholders’ Agreement were transferred to DSW on November 10, 2005. DSW accepted these shares subject to the covenants and restrictions contained in the Stockholders’ Agreement.

     Under the Stockholders’ Agreement as assigned to DSW, DSW has the right to nominate one Lifeway director, anti-dilutive rights relating to future offerings of securities by Lifeway and limited registration rights. The Stockholders’ Agreement originally provided that neither Lifeway nor Danone Foods, Inc. would compete with each other with respect to certain dairy products for a period of five years from the original execution (“Non-Compete Period”) and Danone Foods, Inc. would not own more than 20% of the issued and outstanding common stock of Lifeway as a result of direct or indirect acquisition of shares for a period of five years from the original execution (the “Standstill Period”). The First Extension, Second Extension and Third Extension extended the Non-Compete Period and Standstill Period to December 31, 2005. As of December, 31, 2005, both the Non-Compete Period and Standstill Period expired, while certain provisions of the Stockholders’ Agreement continued in accordance with its terms. Between December 31, 2005 and the execution of the Fourth Extension, Lifeway and DSW have negotiated the Fourth Extension and now desire to reinstate the Stockholders’ Agreement to extend the Standstill Period and the Non-Compete Period, with the specific exclusion of Stonyfield Farms, Inc., an affiliate of Danone Foods, Inc. and DSW, from the Non-Compete obligations of the Stockholders’ Agreement.

     Under the Fourth Extension, the terms of the Non-Compete Period and Standstill Period of the Stockholders’ Agreement will now expire on December 31, 2006.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: May 5, 2006

LIFEWAY FOODS, INC.

By: /s/ Julie Smolyansky

Julie Smolyansky

Chief Executive Officer, President,

and Director

EX-99.1

FOURTH EXTENSION
TO
STOCKHOLDERS’ AGREEMENT

     This FOURTH EXTENSION TO STOCKHOLDERS’ AGREEMENT (the “Fourth Extension”) is hereby entered into as of the 3rd day of May, 2006, by and between Lifeway Foods, Inc., an Illinois corporation (the “Company”) and DS Waters, L.P., a Delaware limited partnership (“DSW”) (“Stockholder”). Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning ascribed to those terms in the Stockholders’ Agreement.

     WHEREAS, DFI executed that certain Stock Power dated November 10, 2005, transferring all the shares of the Company which were held by Danone Foods, Inc., a Delaware corporation (“DFI”) as of such date that are the subject of that certain Stockholders’ Agreement by and among DFI and the Company and certain other parties dated as of October 1, 1999, as amended on December 24, 1999 (as amended and extended, the “Stockholders’ Agreement”) and as extended by that certain First Extension to Stockholders’ Agreement dated September 28, 2004 (the “First Extension”) and by that certain Second Extension to Stockholders’ Agreement dated October 29, 2004 (“Second Extension”) and by that certain Third Extension to Stockholders’ Agreement dated December 30, 2004 (the “Third Extension”). are the subject of the Stockholders’ Agreement to DSW;

     WHEREAS, DSW accepted such shares subject to the covenants and restrictions contained in the Stockholders’ Agreement and DSW hereby agrees to be bound by its terms contained therein;

     WHEREAS, under the Third Extension, the Standstill Period and the operative period of Section 6.02 of the Stockholders’ Agreement (“Non-Compete Period”) expired on December 30, 2005; and

     WHEREAS, each of the Company and the Stockholders desires to further amend the Stockholders’ Agreement to extend the Standstill Period and the Non-Compete Period, with the specific exclusion of the company, Stonyfield Farms, Inc. from any such obligation, of the Stockholders’ Agreement as more fully provided in this Fourth Extension.

     NOW, THEREFORE, in consideration of the entry of the parties into this Fourth Extension and for other good and valuable consideration, the receipt of which is acknowledged herein, the parties hereto agree as follows:

          1. Acceptance of Terms of Stockholders’ Agreement; Acknowledgment. DSW represents to Company that DSW is an Affiliate of DFI and that DSW has been assigned the Stockholders’ Agreement and the shares of Company from DFI and, DSW further agrees to be bound by, and receive all the benefits of, the terms and conditions of the Stockholders’ Agreement.

          2. Extension of Standstill Period. The Standstill Period shall be extended to include any time during the period beginning on October 1, 1999 and ending at the close of business on December 31, 2006 and during which the Stockholders Beneficially Owns 10% or more of the outstanding shares of Common Stock on a Fully Diluted Basis.

          3. Extension of Non-Compete Period. The Non-Compete Period shall be extended to include the period beginning on October 1, 1999 and ending at the close of business on

December 31, 2006, with the exception that the Stonyfield Farms, Inc. entity shall be specifically excluded from any and all non-compete obligations.

          4. Governing Law. This Fourth Extension shall be governed by and construed in accordance with the laws of the State of Illinois.

          5. No Waiver of Other Rights. The execution, delivery and effectiveness of this Fourth Extension shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any of the parties to the Stockholders’ Agreement.

          6. Counterparts. This Fourth Extension may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which counterparts together shall constitute one and the same instrument.

[Signature Page Follows]

     IN WITNESS WHEREOF, this Fourth Extension is hereby executed as of the date first above written.

LIFEWAY FOODS, INC.,		DS WATERS, L.P.,
an Illinois corporation		a Delaware limited partnership
		By: DS Waters General Partner, LLC, its general partner
By:	/s/ Julie Smolyansky	By:	/s/ Yves Groffiler
Name: Julie Smolyansky		Name: Yves Groffiler
Its: President		Its: Chief Executive Officer