-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D/XjnmvQXZeBj+ct1QXeVtlme//dodrvYwytnFbuXThYxODvZAu3Z30+ebWwhQ/0 ltgGpT8X2hQlkpPf25uXzQ== 0001144204-06-029551.txt : 20060725 0001144204-06-029551.hdr.sgml : 20060725 20060725060453 ACCESSION NUMBER: 0001144204-06-029551 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20060725 DATE AS OF CHANGE: 20060725 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GALAXY NUTRITIONAL FOODS INC CENTRAL INDEX KEY: 0000819527 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 251391475 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-39072 FILM NUMBER: 06977652 BUSINESS ADDRESS: STREET 1: 2441 VISCOUNT ROW CITY: ORLANDO STATE: FL ZIP: 32809 BUSINESS PHONE: 4078555500 MAIL ADDRESS: STREET 1: 2441 VISCOUNT ROW CITY: ORLANDO STATE: FL ZIP: 32809 FORMER COMPANY: FORMER CONFORMED NAME: GALAXY FOODS CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GALAXY CHEESE CO DATE OF NAME CHANGE: 19920302 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DELUCA FREDERICK A CENTRAL INDEX KEY: 0001076614 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: BUSINESS PHONE: 2038774281 MAIL ADDRESS: STREET 1: 325 BIC DRIVE STREET 2: C/O DOCTORS ASSOCIATES INC CITY: MILFORD STATE: CT ZIP: 06460 SC 13D/A 1 v048155_sc13d-a.txt - ------------------------- -------------------- | CUSIP No. 36317Q 10 4 | | Page 1 of 7 Pages| - ------------------------- -------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 3)* GALAXY NUTRITIONAL FOODS, INC. -------------------------------------------------------------------- (Name of Issuer) Common Stock, par value $0.01 per share -------------------------------------------------------------------- (Title of Class of Securities) 36317Q 10 4 -------------------------------------------------------------------- (CUSIP Number) Frederick A. DeLuca c/o Doctor's Associates, Inc. 325 Bic Drive Milford, Connecticut (203) 877-4281 -------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) July 20, 2006 -------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. |_| Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See ss. 240.13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - -------------------------------------------------------------------------------- 1) NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Frederick A. DeLuca - -------------------------------------------------------------------------------- 2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) |_| (b) |_| - -------------------------------------------------------------------------------- 3) SEC USE ONLY - -------------------------------------------------------------------------------- 4) SOURCE OF FUNDS (See Instructions) PF - -------------------------------------------------------------------------------- 5) CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6) CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- NUMBER OF 7) SOLE VOTING POWER SHARES BENEFICIALLY 12,201,395 (1) OWNED BY EACH REPORTING PERSON WITH -------------------------------------------------------- 8) SHARED VOTING POWER 0 -------------------------------------------------------- 9) SOLE DISPOSITIVE POWER 12,201,395 (1) -------------------------------------------------------- 10) SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 12,201,395 (1) - -------------------------------------------------------------------------------- 12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) |_| - -------------------------------------------------------------------------------- 13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 48% - -------------------------------------------------------------------------------- 14) TYPE OF REPORTING PERSON (See Instructions) IN - -------------------------------------------------------------------------------- (1) Represents (i) 3,869,842 shares of common stock of the Issuer held by Mr. DeLuca, (ii) 500,000 shares of common stock of the Issuer issuable to Mr. DeLuca upon the exercise of certain warrants, (iii) 7,671,726 shares of Common Stock of the Issuer issuable upon the conversion of a convertible promissory note in the principal amount of $2,685,104.17 (the "Note"), and (iv) 159,827 shares of common stock issuable upon conversion of interest that accrues under the Note over the next 60 days. Item 1. Security and Issuer. This Amendment No. 3 to Schedule 13D, which amends the statement on Schedule 13D originally filed as of October 6, 2004, as it has previously been amended by an Amendment No. 1 to Schedule 13D filed June 27, 2005, and Amendment No. 2 to Schedule 13D filed on September 27, 2005 relates to the Common Stock, par value $0.01 per share, of Galaxy Nutritional Foods, Inc., a Delaware corporation (the "Company" or the "Issuer"), whose principal executive offices are located at 2441 Viscount Row, Orlando, Florida 32809. Item 2. Identity and Background. (a) This Schedule 13D/A is being filed by Frederick A. DeLuca. (b) - (f) No changes. Item 3. Source and Amount of Funds or Other Consideration. Effective July 20, 2006, the Issuer issued to Mr. DeLuca a Convertible Promissory Note (the "Note") in the principal amount of $2,685,104.17, together with a warrant to purchase shares of the Issuer's Common Stock (the "Warrant'). The principal amount of the Note is convertible at $.35 per share for an aggregate of 7,671,726 shares of the Common Stock of the Company. The Note accrues interest at 12.5% per annum and accrued interest is also convertible at the rate of $.35 per share. No interest or principal payments are required under the Note until its maturity in fifteen months on October 19, 2007. The Warrant is exercisable for 200,000 shares of the Common Stock of the Company at a price of $.35 per share. Payment for the Note and Warrant consisted of: (i) the exchange of a promissory note issued by the Company to Mr. DeLuca in the amount of $1,200,000, which matured on June 15, 2006, (ii) $285,104.17 due Mr. DeLuca as a result of the Company's inability to register certain registrable securities by a specified effective date deadline pursuant to the terms of that certain Registration Rights Agreement dated as of October 6, 2004, and (iii) the loan by Mr. DeLuca of an additional $1,200,000 to the Company. The source of the additional $1,200,000 for Mr. DeLuca's loan was personal funds. The foregoing descriptions of the Note and Warrant are qualified in their entirety by reference to each such agreement which is filed as an exhibit to this Schedule 13D/A, and is hereby incorporated herein by reference. Item 4. Purpose of the Transaction. The purpose of making the loan and acquiring the Warrant to purchase shares of the Common Stock by Mr. DeLuca was to refinance the Company's existing $1,200,000 due to Mr. DeLuca on June 15, 2006, to pay $285,104.17 due Mr. DeLuca as a result of the Company's inability to register certain registrable securities by a specified effective date deadline pursuant to the terms of that certain Registration Rights Agreement dated as of October 6, 2004, and with the additional proceeds of $1,200,000 contributed by Mr. DeLuca to allow the Company to repay an aggregate of $1,200,000 of other promissory notes due other third parties which also matured on June 15, 2006. The shares received upon conversion of the Note and the shares purchasable upon exercise of the Warrant are all restricted securities that have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or applicable exemptions from registration requirements. Item 5. Interest in Securities of the Issuer. (a) Based upon information provided by the Company to Mr. DeLuca, the approximate percentage of Common Stock reported as beneficially owned by Mr. DeLuca is based on 17,109,894 shares outstanding, which is the total number of shares of Common Stock outstanding as of July 13, 2006, plus the 7,671,726 shares of Common Stock underlying conversion of the principal of the Note, 159,827 shares of Common Stock underlying conversion of interest that will accrue on the Note in the first 60 days after its issuance, and the 500,000 shares of Common Stock underlying warrants owned by Mr. DeLuca. As of the close of business on July 19, 2006, Mr. DeLuca owns directly and beneficially 12,201,395 shares of Common Stock, including the foregoing shares of Common Stock underlying the Note and the Warrants. Consequently, Mr. DeLuca beneficially owns approximately 48% of the shares outstanding for purposes of this Schedule 13D. (b) No changes. (c) Aside from the issuance to Mr. DeLuca of a convertible promissory note convertible into 7,671,726 shares of Common Stock in a transaction governed by the provisions of that certain Convertible Promissory Note dated as of July 19, 2006, by and between the Company and Mr. DeLuca (the "Note"), and the issuance to Mr. DeLuca of a warrant exercisable into 200,000 shares of Common Stock in a transaction governed by the provisions of that certain Warrant to Purchase Securities dated as of July 19, 2006 (the "Warrant"), Mr. DeLuca has not engaged in any transactions in the Common Stock during the 60 days preceding the date of the filing of this Amendment No. 3 to Schedule 13D. The Note is convertible into 7,671,726 shares of Common Stock at a price per share of $.35 and the Warrant is convertible into 200,000 shares of Common Stock at a price per share of $.35. Accrued interest on the Note is also convertible into shares of Common Stock at a price per share of $.35. (d) No changes. (e) No changes. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Except as described in Item 5 hereof, Mr. DeLuca does not have any contracts, arrangements, understandings or relationships (legal or otherwise) with any person with respect to any securities of the Company, including, but not limited to, transfer or voting of any securities, finder's fees, joint ventures, loan or option arrangements, put or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Material to Be Filed as Exhibits Exhibit 1 $2,685,104.17 Convertible Promissory Note dated as of July 19, 2006 (Filed herewith.) Exhibit 2 Note Purchase Agreement dated as of July 19, 2006 (Filed herewith). Exhibit 3 Warrant dated as of July 19, 2006 (Filed herewith) SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: July 24, 2006 /s/ Frederick A. DeLuca - ----------------------- Frederick A. DeLuca EX-1 2 v048155_ex-1.txt NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE LAW, AND MAY NOT BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR (B) SUCH TRANSACTION IS EXEMPT FROM REGISTRATION AND, IF REQUESTED BY THE MAKER, THE MAKER HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER THAT THE TRANSFER IS EXEMPT FROM THE REGISTRATION PROVISIONS UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE IS SUBJECT TO THE PROVISIONS OF A NOTE PURCHASE AGREEMENT, INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE PROMISSORY NOTE --------------- $2,685,104.17 July 19, 2006 FOR VALUE RECEIVED, the undersigned, GALAXY NUTRITIONAL FOODS, INC., a Delaware corporation ("Maker"), promises to pay to the order of Frederick A. DeLuca, an individual ("Payee"; Payee and any subsequent holder[s] hereof are hereinafter referred to collectively as "Holder"), at the office of Payee at c/o Doctor's Associates, Inc., 325 Bic Drive, Milford, Connecticut 06460, or at such other place as Holder may designate to Maker in writing from time to time, the principal sum of TWO MILLION SIX HUNDRED EIGHTY FIVE THOUSAND ONE HUNDRED FOUR AND 17/100THS DOLLARS ($2,685,104.17), together with interest on the outstanding principal balance hereof from the date hereof at the Interest Rate, in lawful money of the United States. Amounts payable hereunder shall be paid, at Payee's option as specified by Payee in writing from time to time, either by (i) check delivered to the office of Payee or (ii) wire transfer of immediately available funds to an account specified by Payee in writing from time to time. This Note is referred to in and issued pursuant to that certain Note Purchase Agreement, dated as of July 19, 2006, by and between Payee and Maker (as amended from time to time, the "Agreement"). 1. Interest Rate. The Interest Rate shall be twelve and one-half percent (12.5%) per annum, calculated on the basis of a 360-day year, actual days elapsed, upon the principal balance hereof from time to time outstanding, but in no event to exceed the Maximum Rate (as defined below). 2. Payment Terms. Accrued and unpaid interest and the outstanding principal balance hereof shall be due and payable in full on October 19, 2007 (the "Maturity Date"). If any such day is not a business day, such payment shall be made on the next succeeding day which is a business day and interest shall continue to accrue thereon until paid. As used herein, "business day" means a day, other than a Saturday, Sunday or legal holiday, on which commercial banks in Orlando, Florida are open for the general transaction of business. 1 3. Prepayment. The indebtedness evidenced hereby may be prepaid in whole or in part, at any time and from time to time, without premium or penalty, provided, however, that the Maker shall provide at least fifteen (15) days prior written notice of the proposed date for prepayment. Notwithstanding the foregoing, the Holder may elect to convert all or a portion of this Note and the accrued and unpaid interest thereon that has been noticed for prepayment at any time prior to the scheduled date of prepayment in accordance with the provisions of Section 5 below. Any such prepayments shall be credited first to any accrued and unpaid interest and then to the outstanding principal balance hereof. Any conversion of this Note by the Holder shall be treated as a payment on the Note by the Maker. 4. Default. The failure of Maker to pay any principal, interest or any other sums required hereunder when due under this Note shall constitute a default (after expiration of the notice and cure period set forth below). If (i) a default shall occur hereunder and such default shall continue for ten (10) days after notice thereof is delivered by Holder to Maker, or (ii) an Event of Default shall occur under the Agreement, which Event of Default is not cured following the giving of any applicable notice and within any applicable cure period set forth in the Agreement, then, and in such event, the entire outstanding principal balance of the indebtedness evidenced hereby, together with any other sums advanced hereunder and/or under any other instrument or document now or hereafter evidencing, securing or in any way relating to the indebtedness evidenced hereby, together with all unpaid interest accrued thereon, shall, at the option of Holder and without notice to Maker, at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. Upon the occurrence of a default as set forth herein or in the Agreement, which default is not cured following the giving of any applicable notice and within any applicable cure period set forth herein, at the option of Holder and without notice to Maker, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is five percentage points (5.0%) in excess of the above-specified Interest Rate on the date of such default, or (ii) the maximum rate of interest allowed to be charged under applicable law (the "Maximum Rate"), regardless of whether or not there has been an acceleration of the payment of principal as set forth herein. 5. Conversion. 5.1 Voluntary Conversion. The Holder of this Note has the right, at the Holder's option, at any time prior to payment in full of the principal balance of this Note, to convert the outstanding principal and accrued interest under this Note, in accordance with the provisions of Section 5.2 hereof, in whole or in part, but in denominations of not less than One Hundred Thousand Dollars ($100,000) (unless the entire principal balance of this Note is being converted), into fully paid and nonassessable shares of Common Stock of the Maker. Subject to Section 6 below, the number of shares of Common Stock into which the outstanding principal of this Note may be converted ("Conversion Shares") shall be determined by dividing the principal amount for which conversion is requested by the Conversion Price (as defined below) in effect at the time of such conversion. The initial "Conversion Price" shall be Thirty Five Cents ($.35). 2 5.2 Conversion Procedure. Before the Holder shall be entitled to convert this Note into shares of Common Stock, it shall give written notice to the Maker at its principal corporate office, of the election to convert the Note, and shall state therein the name or names in which the certificate for shares of Common Stock are to be issued. A closing for such conversion shall be held at the offices of the Maker on the fifth business day following the date of deposit of the notice in the mail or such other place and date mutually acceptable to the Holder and the Maker. At such closing the Maker shall issue and deliver to the Holder of this Note a certificate or certificates (bearing such legends as are required under applicable state and federal securities laws in the opinion of counsel to the Maker) for the number of shares of Common Stock to which the Holder shall be entitled as aforesaid, and the Holder shall surrender this Note. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of Maker's receipt of Holder's written notice to convert (the "Effective Date"), and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. 5.3 Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of the Maker issuing any fractional shares to the Holder upon the conversion of this Note, the Maker shall pay to the Holder the amount of outstanding principal that is not so converted. 6. Conversion Price Adjustments. 6.1 Adjustments for Subdivision, Dividends, Combinations or Consolidations of Common Stock. If the Maker shall at any time or from time to time after the date that this Note is issued (the "Original Issue Date") effect a combination or consolidation of the outstanding Common Stock, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. In the event the Maker shall declare or pay any dividend on the Common Stock payable in Common Stock or in the event the outstanding shares of Common Stock shall be subdivided, by reclassification or otherwise than by payment of a dividend in Common Stock, into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such dividend or subdivision shall be proportionately decreased. Such adjustment shall take place (i) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend and (ii) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. If such record date shall have been fixed and such dividend shall not have been fully paid on the date fixed therefor, the adjustment previously made in the applicable Conversion Price that became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the applicable Conversion Price shall be adjusted as of the time of actual payment of such dividend. 3 6.2 Adjustment for Other Dividends and Distributions. If the Maker at any time or from time to time after the Original Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Maker other than shares of Common Stock, in each such event provision shall be made so that the holder of the Note shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of other securities of the Maker that it would have received had its Note been converted for Common Stock on the date of such event and had it thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 6 with respect to the rights of the Holder or with respect to such other securities by their terms. 6.3 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Note is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 6), in any such event the Holder shall have the right thereafter to convert this Note for the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which this Note could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 6.4 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 6, the Maker at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Maker shall, upon the written request at any time of any Holder, furnish or cause to be furnished to such Holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Note; provided, however, that no adjustment need be made hereunder until the cumulative effect of such adjustment to the Conversion Price is at least two cents ($.02). 4 7. Collection. In the event this Note is placed in the hands of an attorney for collection, or if Holder incurs any costs incident to the collection of the indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to Holder an amount equal to all such costs, including, without limitation, all reasonable attorneys' fees and all court costs. 8. Presentment and Related Matters. Presentment for payment, demand, protest and notice of demand, protest and nonpayment are hereby waived by Maker and all other parties hereto. No failure to accelerate the indebtedness evidenced hereby by reason of a default hereunder, acceptance of a past-due installment or other indulgences granted from time to time, shall be construed as a novation of this Note or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note or to prevent the exercise of such right of acceleration or any other right granted hereunder or by applicable law. No extension of the time for payment of the indebtedness evidenced hereby or any installment due hereunder, made by agreement with any person now or hereafter liable for payment of the indebtedness evidenced hereby, shall operate to release, discharge, modify, change or affect the original liability of Maker hereunder or that of any other person now or hereafter liable for payment of the indebtedness evidenced hereby, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. All agreements herein made are expressly limited so that in no event whatsoever, whether by reason of advancement of proceeds hereof, acceleration of maturity of the unpaid balance hereof or otherwise, shall the amount paid or agreed to be paid to Holder for the use of the money advanced or to be advanced hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the fulfillment of any provision of this Note or any other agreement or instrument now or hereafter evidencing, securing or in any way relating to the indebtedness evidenced hereby shall involve the payment of interest in excess of the Maximum Rate, then, ipso facto, the obligation to pay interest hereunder shall be reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder shall ever receive interest, the amount of which would exceed the amount collectible at the Maximum Rate, such amount as would be excessive interest shall be applied to the reduction of the principal balance remaining unpaid hereunder and not to the payment of interest. This provision shall control every other provision in any and all other agreements and instruments existing or hereafter arising between Maker and Holder with respect to the indebtedness evidenced hereby. 9. Governing Law. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Florida, and shall be enforceable in a court of competent jurisdiction in the State of Florida, regardless of in which state this Note is being executed. 10. WAIVER OF JURY TRIAL. HOLDER AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS NOTE. 5 11. Miscellaneous. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. All notices, requests, consents and other communications required or permitted under this Note shall be in writing (including telex and facsimile communication) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated, E-mailed (with simultaneous notice by mail) or mailed by first class postage at the addresses set forth in the Agreement. MAKER: ------ GALAXY NUTRITIONAL FOODS, INC. a Delaware corporation By: /s/ Michael E. Broll -------------------------------------------- Michael E. Broll Chief Executive Officer 6 EX-2 3 v048155_ex-2.txt NOTE PURCHASE AGREEMENT THIS NOTE PURCHASE AGREEMENT (the "Agreement") is made as of the 19th day of July, 2006, by and between Galaxy Nutritional Foods, Inc., a Delaware corporation (the "Company"), and Frederick A. DeLuca (the "Investor"). WHEREAS, the Company desires to issue and sell to selected "accredited investors" as that term is defined in Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"), one or more Notes (as defined below); WHEREAS, the Investor is the owner of a promissory note in the principal amount of One Million Two Hundred Thousand Dollars dated September 12, 2005, which matured on June 15, 2006 (the "Existing Note"); WHEREAS, the Company and the Investor are also parties to a Registration Rights Agreement dated as of October 6, 2004, pursuant to which the Company was obligated to cause the registration of certain "Registrable Securities" by a specified "Effective Date Deadline" (as such terms are defined in such Agreement); WHEREAS, as a result of the Company's inability to cause the registration of the Registrable Securities by the Effective Date Deadline, the Company owes the Investor the sum of $285,104.17 pursuant to the terms of the Registration Agreement; WHEREAS, the Investor has agreed to exchange the Existing Note, his right to the foregoing $285,104.17 and the additional amount of $1,200,000 for a new promissory note and warrants pursuant to the terms and conditions set forth herein and in the Note; and WHEREAS, the Investor acknowledges that the Company is offering Notes similar to the Note issued pursuant to this Agreement to other "accredited investors," including other holders of promissory notes similar to the Existing Note. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I TERMS OF THE PURCHASE AND EXCHANGE Section 1.1 The Purchase and Exchange. (a) The New Promissory Note. Subject to the terms and conditions herein and in the Note, and subject to the provisions of Section 1.1(b) hereof, the Investor agrees to purchase a Promissory Note in favor of the Investor in the principal amount of Two Million Six Hundred Eighty Five Thousand One Hundred Four and 17/100 Dollars ($2,685,104.17), in the form attached hereto as Exhibit A (the "Note"). (b) Payment; Note Exchange. The Note shall be deemed paid to the Company upon or prior to the execution of this Agreement as follows: (i) One Million Two Hundred Thousand Dollars ($1,200,000) against surrender of the Existing Note marked "cancelled", which amount equals the outstanding principal balance under the Existing Note; (ii) Two Hundred Eighty Five Thousand One Hundred and Four and 17/100 Dollars ($285,104.17) as and in complete satisfaction of the Company's obligation to make any payments to the Investor as a result of the Company's inability to cause the registration of the Registrable Securities by the Effective Date Deadline; and (iii) One Million Two Hundred Thousand Dollars ($1,200,000) by wire transfer of immediately available funds to an account designated by the Company. Section 1.2 Warrant. The Company does hereby agree to issue the Investor a Warrant to acquire 200,000 shares of the Company's Common Stock in the form of Exhibit B. ARTICLE II REPRESENTATIONS AND WARRANTIES. Section 2.1 Company Representations and Warranties. (a) Organization and Company Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all required power and authority to carry on its business as presently conducted, to enter into and perform this Agreement, the Note, the Warrant and any other agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby. (b) Authorization and Non-Contravention. This Agreement and all documents executed pursuant hereto are valid and binding obligations of the Company, enforceable in accordance with their terms. The execution, delivery and performance of this Agreement and all agreements, documents and instruments contemplated hereby, the issuance and delivery of the Note and Warrant, upon conversion of the Note or exercise of the Warrant, the issuance and delivery of the equity securities purchasable upon conversion of the Note or exercise of the Warrant, have been duly authorized by all necessary corporate or other action of the Company. Section 2.2 Securities Law Compliance. (a) The Investor agrees that its Note, the Warrant and the securities issuable upon conversion of the Note and exercise of the Warrant (collectively, the "Securities"), are being acquired for investment and that such Investor will not offer, sell or otherwise dispose of the Securities, except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws. Each certificate or other instrument representing any of the Securities (unless registered under the Securities Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: 2 "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) AN EXEMPTION THEREFROM, AND, IF REQUESTED BY THE COMPANY, THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS." (b) Restricted Securities. The Investor understands that the Securities will not be registered at the time of their issuance under the Securities Act for the reason that the sales provided for in this Agreement are exempt pursuant to Section 4(2) of the Securities Act based on the representations of the Investor set forth herein. The Investor represents that it is experienced in evaluating companies such as the Company, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to suffer the total loss of the investment. The Investor further represents that it has had the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of the Securities and the business of the Company, and to obtain additional information to such Investor's satisfaction. All documents, records and books pertaining to the Company and this investment have been made available to the Investor and its representatives, including each Investor's attorney and accountant, that the books and records of the Company will be available upon reasonable notice for inspection by the Investor during reasonable business hours at the Company's principal place of business, and the Investor have had access to and the opportunity to request information from and ask questions of the officers and a directors of the Company. The Investor further represents that it is an "accredited investor" within the meaning of Regulation D under the Securities Act, as presently in effect. The Investor further represents that the Securities are being acquired (and any shares issued upon conversion of the Note or exercise of the Warrant will be acquired) for the account of such Investor for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, or the grant of any participation therein. If an Investor is a corporation, business trust, partnership, limited liability company or other entity, such Investor represents that it was not formed for the specific purpose of acquiring the Securities offered hereby and has total assets of more than $5,000,000. If an Investor is an individual, such Investor represents that: (A) the Investor is a natural person whose individual net worth, or joint net worth with spouse, exceeds $1 million at the time of purchase (in this instance, the term "net worth" means the excess of assets at fair market value, including home and personal property, over total liabilities, including mortgages and income taxes on unrealized appreciation of assets); or (B) the Investor is a natural person who has had individual income of more than $200,000 in each of the two most recent years (2004 and 2005), or joint income with that person's spouse of more than $300,000 in each of those years, and reasonably expects to reach the same income level in the current year (2006). (c) State of Residence. The Investor represents that it is a legal resident of, or, if such Investor is an entity, has its principal place of business in, the state listed on the signature page of this Agreement. 3 Section 2.3 Advice of Consultants. The Investor has obtained the advice of independent counsel and tax advisors of Investor's choice in entering into this Agreement and the transactions contemplated hereby or has knowingly elected not to receive such counsel. ARTICLE III TRANSFER RESTRICTIONS Section 3.1 Transfers Void. The Investor agrees that it may not sell, give, transfer, assign or otherwise dispose of the Securities, except as expressly permitted by Section 3.2 hereof. Any purported sale, gift, transfer, assignment or other disposition, or pledge of or grant of security interest in, any of the Securities in violation of this Article III shall be null and void. Section 3.2 Legend. The Securities shall be stamped or imprinted with a legend in substantially the following form: "THIS NOTE/WARRANT/THESE SHARES IS/ARE SUBJECT TO THE PROVISIONS OF A NOTE PURCHASE AGREEMENT, INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE." ARTICLE IV DEFAULT Section 4.1 Events of Default. With respect to the Investor, if, while any part of the principal of the Investor's Note remains unpaid, any one of the following "Events of Default" shall occur: (a) An order, judgment or decree shall be entered by any court of competent jurisdiction, approving a petition seeking reorganization or liquidation of the Company, or appointing a receiver, trustee or liquidator of the Company of all or a substantial part of its assets, which such order, judgment or decree has not been effectively stayed within sixty (60) days after entry; (b) the Company shall (i) make a general assignment for the benefit of creditors; (ii) be adjudicated bankrupt or insolvent; (iii) file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors to take advantage of any insolvency law; (iv) file any answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding or fail to dismiss such petition within sixty (60) days after the filing thereof; or (v) take any action for the purpose of effecting any of the foregoing; (c) the failure by the Company to observe and perform any material covenant, condition and agreement under this Agreement which failure is not cured within thirty (30) days, after written notice from the Investor or discovery by the Company; and 4 (d) the failure by the Company to observe and perform any material covenant, condition and agreement under the Note which failure is not cured within the applicable cure period (or thirty (30) days if no cure period is expressly provided for such failure), after written notice from the Investor or discovery by the Company; then and in every such event such Investor may, upon written notice to the Company, declare the Note to be due and payable in full, whereupon the Note shall become due and payable in full. ARTICLE V MISCELLANEOUS Section 5.1 Notices. All necessary notices, demands and requests permitted or required under this Agreement shall be in writing and shall be deemed effective (a) if given by facsimile or E-mail, when such facsimile or E-mail is transmitted to the facsimile number or E-mail address specified below, the appropriate answer back is received (in the case of a facsimile) and a copy is sent to such party by an express mail carrier at the address indicated below, (b) three business days after being mailed by certified mail, return receipt requested, postage prepaid to the applicable party at the address indicated below or (c) one business day after being sent by an express mail carrier to the applicable party at the address indicated below: If to the Company: Galaxy Nutritional Foods, Inc. 2441 Viscount Row Orlando, Florida 32809 Facsimile: (407) 855-1099 E-mail: c/o Michael E. Broll [MBroll@galaxyfoods.com: and Salvatore Furnari [SFurnari@galaxyfoods.com] Attention: Michael E. Broll With copies to: Proskauer Rose LLP 2255 Glades Road, Suite 340 West Boca Raton, Florida 33341 Facsimile: (561) 241-7145 E-mail: dthompson@proskauer.com Attn: Donald E. "Rocky" Thompson, II, Esq. If to the Investor: Frederick A. DeLuca c/o Doctor's Associates, Inc. 325 Bic Drive Milford, CT 06460 E-mail: c/o Joe Esposito [esposito_j@subway.com] and David Worroll [worroll_d@subway.com] Facsimile: --------------------------------- or such other address or facsimile number as such party may hereafter specify for the purpose of receiving notice hereunder. A copy of any notice to the Investor shall be provided, as described above, to any counsel designated by the Investor in writing to the Company as above provided. 5 Section 5.2 No Waiver. No failure to exercise, and no delay in exercising, on the part of an Investor, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. Section 5.3 Governing Law; Construction. This Agreement, the Note and the Warrant shall each be deemed to be a contract made under the laws of the State of Florida, and shall be construed in accordance with the laws of the State of Florida. The descriptive headings of the several Sections hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. This Agreement, the Note and the Warrant, together with the Exhibits hereto and thereto and all documents, instruments and agreements executed pursuant hereto, constitute the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, supersede all prior agreements, understandings or representations pertaining to the subject matter hereof, whether oral or written, and may not be contradicted by evidence of any alleged oral agreement. Venue for any action brought under this Agreement or the Note shall be in Orange County, Florida. Section 5.4 Amendments, Waivers and Consents. Any term, covenant or condition of this Agreement may be amended, omitted or waived (either generally or in a particular instance and either retroactively or prospectively) only by written consent of all of the parties hereto. Section 5.5 Expenses. Any expense incurred by either party (including, without limitation, reasonable attorneys' fees and disbursements) in connection with the negotiation, execution, administration or enforcement of this Agreement, the Note and any other document executed in connection with the obligations hereunder or thereunder and any amendment hereto or thereto shall be the sole responsibility and shall be paid such party. Section 5.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. The signatures to this Agreement need not all be on a single copy of this Agreement, and may be facsimiles rather than originals, and shall be fully as effective as though all signatures were originals on the same copy. Section 5.7 Attorneys' Fees. In the event of a judicial or administrative proceeding or action by one party against the other party with respect to the interpretation or enforcement of this Agreement, the prevailing party shall be entitled to recover reasonable costs and expenses including reasonable attorneys' fees and expenses, whether at the investigative, pretrial, trial or appellate level. The prevailing party shall be determined by the court based upon an assessment of which party's major arguments or position prevailed. Section 5.8 Construction of Agreement. This Agreement shall not be construed more strictly against one party than against the other merely by virtue of the fact that it may have been prepared primarily by counsel for one of the parties. * * * 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. "COMPANY" GALAXY NUTRITIONAL FOODS, INC., a Delaware corporation By: /s/ Michael E. Broll ----------------------------------------- Michael E. Broll Chief Executive Officer "INVESTOR" /s/ Frederick A. DeLuca -------------------------------------------- FREDERICK A. DELUCA, an individual 7 EX-3 4 v048155_ex-3.txt THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) AN EXEMPTION THEREFROM AND, IF REQUESTED BY THE COMPANY, THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT THE TRANSFER IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THIS WARRANT IS SUBJECT TO THE PROVISIONS OF A NOTE PURCHASE AGREEMENT, INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. WARRANT TO PURCHASE SECURITIES OF GALAXY NUTRITIONAL FOODS, INC. Void after July 19, 2009 This Warrant is issued to Frederick A. DeLuca, or his registered assigns (the "Holder") by Galaxy Nutritional Foods, Inc., a Delaware corporation (the "Company"), as of July 19, 2006 (the "Warrant Issue Date"). This Warrant is issued pursuant to the terms of a Note Purchase Agreement dated as of July 19, 2006 (the "Purchase Agreement") in connection with a loan by the Holder to the Company. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to them in the Purchase Agreement. 1. Number of Shares Subject to Warrant. Subject to the terms and conditions hereinafter set forth, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company, to purchase from the Company, at a price equal to the Exercise Price (as defined in Section 2 below), shares of the Warrant Stock. For purposes of this Warrant: (A) "Common Stock" shall mean the Company's common stock, $0.01 par value. (B) "Expiration Date" shall mean July 19, 2009. (C) "Warrant Stock" shall mean Two Hundred Thousand (200,000) shares of the Company's Common Stock, subject to adjustment as described in Section 7 below. (D) "Shares" shall mean fully paid and non-assessable shares of Common Stock. 2. Exercise Price. The per share purchase price for the Shares shall be thirty five cents (.35) (the "Exercise Price"). The Exercise Price shall be subject to adjustment pursuant to Section 7 hereof. 3. Exercise Period. Except as otherwise provided for herein, this Warrant shall be exercisable, in whole or in part, at any time and from time to time after the Warrant Issue Date. From and after 5:00 p.m., Orlando, Florida time, on the Expiration Date, all Warrants evidenced hereby shall thereafter be void and of no further force and effect. Whether or not surrendered to the Company by the Holder, this Warrant shall be deemed canceled upon the expiration hereof. 4. Method of Exercise. While this Warrant remains outstanding and exercisable in accordance with Section 3 hereof, the purchase rights hereby represented may be exercised in whole or in part, at the election of the Holder, by the tender of the Notice of Exercise in substantially the form attached hereto as Exhibit A and the surrender of this Warrant at the principal office of the Company and by the payment to the Company in cash, by check, cancellation of indebtedness or other form of payment acceptable to the Company, of an amount equal to the then applicable Exercise Price multiplied by the number of Shares then being purchased. 5. Certificates for Shares. Upon the exercise of the purchase rights evidenced by this Warrant, one or more certificates for the number of Shares so purchased shall be issued as soon as practicable thereafter (with appropriate restrictive legends, as applicable), but in no event more than five (5) business days following the exercise of this Warrant. 6. Issuance of Shares. The Company hereby covenants that it will duly and validly reserve shares of Common Stock for issuance upon exercise of this Warrant. The Company covenants that the Shares of Warrant Stock, when issued pursuant to the exercise of this Warrant, will be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issuance thereof. The Shares of Warrant Stock issued hereunder shall have the same rights and obligations pertaining to the other shares of Common Stock issued previously by the Company. 7. Adjustment of Exercise Price and Number of Shares. The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows: (a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time prior to the exercise or expiration of this Warrant subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional Common Stock as a dividend with respect to any of its Common Stock, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price, provided that the aggregate Exercise Price payable hereunder for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 7(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend. -2- (b) Reclassification, Reorganization and Consolidation. In the event of any corporate reclassification, capital reorganization, consolidation, spin-off or change in the Common Stock of the Company (other than as a result of a subdivision, combination, or dividend provided for in Section 7(a) above), then, as a condition of such event, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and/or other securities and property receivable in connection with such event by a holder of the same number of shares for which this Warrant could have been exercised immediately prior to such event. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price, provided that the aggregate exercise price payable hereunder for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. (c) Adjustment to Number of Shares. Upon each adjustment of the Exercise Price, the number of Shares issuable upon exercise of the Warrant shall be increased to equal the quotient obtained by dividing (x) the product resulting from multiplying (i) the number of Shares issuable upon exercise of the Warrant, and (ii) the Exercise Price, in each case as in effect immediately before such adjustment by (y) the adjusted Exercise Price. (d) Notice of Adjustment. When any adjustment is required to be made to the Exercise Price or in the number or kind of Shares purchasable upon exercise of the Warrant, the Company shall promptly notify the Holder of such event and of the adjusted Exercise Price or number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant. 8. Assumption of Warrant. If at any time, while this Warrant, or any portion thereof, is outstanding and unexpired there shall be an acquisition of the Company by another entity by means of a merger, reorganization or consolidation of the Company or any other transaction in which the owners of the Company's outstanding voting power immediately prior to such transaction own, directly or indirectly, less than 51% of the voting power of the resulting or surviving entity immediately upon completion of such transaction, then, as a part of such acquisition, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the aggregate Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such acquisition which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled to receive in such acquisition if this Warrant had been exercised immediately before such acquisition. -3- 9. No Fractional Shares or Scrip. No fractional Shares or scrip representing fractional Shares shall be issued upon the exercise of this Warrant, but in lieu of any fractional Share the Company shall make a cash payment therefor on the basis of the closing sale price of the Common Stock on the AMEX Stock Exchange (or any successor exchange or quotation system on which the Common Stock is listed or quoted) on the date of exercise. 10. No Shareholder Rights. Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a shareholder with respect to the Shares of Warrant Stock, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of shareholder meetings, and such Holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company. However, nothing in this Section 10 shall limit the right of the Holder to be provided the notices required under this Warrant. 11. Compliance With Securities Act; Transferability of Warrant or Shares. (a) Compliance With Securities Act. The Holder, by acceptance hereof, agrees that this Warrant, and the Shares issuable upon exercise of this Warrant, are being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Warrant, or any Shares issuable upon exercise of this Warrant, except under circumstances which will not result in a violation of the Securities Act, or any applicable state securities laws. This Warrant and all Shares issued upon exercise of this Warrant (unless registered under the Securities Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION THEREFROM, AND, IF REQUESTED BY THE COMPANY, THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THAT EFFECT. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE." (b) Transferability. Subject to compliance with applicable federal and state securities laws, this Warrant and all rights hereunder are transferable in whole or in part by the Holder to any person or entity upon written notice to the Company. The transfer shall be recorded on the books of the Company upon the surrender of this Warrant, properly endorsed for transfer by delivery of an Assignment Form in substantially the form attached hereto as Exhibit B, to the Company at the address set forth in Section 15 hereof, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the holders one or more appropriate new warrants. -4- 12. Restricted Securities. The Holder understands that this Warrant and the Shares issuable upon exercise of this Warrant, may not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for herein and in the Purchase Agreement is exempt pursuant to Section 4(2) of the Securities Act based on the representations of the Holder set forth herein and in the Purchase Agreement. The Holder represents that it is experienced in evaluating companies such as the Company, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to suffer the total loss of the investment. The Holder further represents that it has had the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of this Warrant, the business of the Company, and to obtain additional information to such Holder's satisfaction. The Holder further represents that it is an "accredited investor" within the meaning of Regulation D under the Securities Act, as presently in effect. The Holder further represents that this Warrant is being acquired for the account of the Holder for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, or the grant of any participation therein. 13. Successors and Assigns. The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the Holders hereof and their respective permitted successors and assigns. 14. Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder. 15. Notices. All notices required under this Warrant shall be deemed to have been given or made for all purposes (i) upon personal delivery, (ii) upon confirmation receipt that the communication was successfully sent to the applicable number if sent by facsimile, (iii) one day after being sent, when sent by professional overnight courier service, or (iv) three business days after posting when sent by registered or certified mail. Notices shall be sent to the addresses set forth in the Purchase Agreement. 16. Captions. The section and subsection headings of this Warrant are inserted for convenience only and shall not constitute a part of this Warrant in construing or interpreting any provision hereof. 17. Governing Law. This Warrant shall be governed by the laws of the State of Florida, without regard to the choice or conflict of laws principles thereof. * * * -5- IN WITNESS WHEREOF, the undersigned have caused this Warrant to be duly executed as of the date first set forth above. COMPANY GALAXY NUTRITIONAL FOODS, INC. By: /s/ Michael E. Broll ---------------------------------------- Michael E. Broll Chief Executive Officer HOLDER /s/ Frederick A. DeLuca ------------------------------------------- Frederick A. DeLuca -6- EXHIBIT A NOTICE OF EXERCISE To: Galaxy Nutritional Foods, Inc. 2441 Viscount Row Orlando, Florida 32809 The undersigned hereby elects to [check applicable subsection]: (a) Purchase Shares (as defined in the attached - ------------------ Warrant) of Galaxy Nutritional Foods, Inc., pursuant to the terms of the attached Warrant and payment of the Exercise Price per Share required under such Warrant accompanies this notice; OR (b) Exercise the attached Warrant or portion - ------------------ thereof for all of ___________ Shares under the Warrant pursuant to the net exercise provisions of Section 4 of such Warrant. The Holder reaffirms all covenants, representations and warranties made by it in Section 12 and agrees that all such covenants, representations and warranties shall be deemed to be have been re-made as of the date hereof. Date: WARRANTHOLDER: ---------------------- By: -------------------------------- Name: Address: Name in which shares should be registered: -7- EXHIBIT B ASSIGNMENT FORM To: Galaxy Nutritional Foods, Inc. 2441 Viscount Row Orlando, Florida 32809 The undersigned hereby assigns and transfers unto _____________________________ of ______________________________________________ (Please typewrite or print in block letters) the right to purchase ____________ Shares (as defined in the Warrant) of Galaxy Nutritional Foods, Inc. subject to the Warrant, dated as of _____________________________, by and between Galaxy Nutritional Foods, Inc. and the undersigned (the "Warrant"). This assignment complies with the provisions of Section 11 of the Warrant and is accompanied by funds sufficient to pay all applicable transfer taxes. In addition, the undersigned and/or its assignee will provide such evidence as is reasonably requested by, Galaxy Nutritional Foods, Inc., to evidence compliance with applicable securities laws as contemplated by Sections 11 and 12 of the Warrant. Date: By: ----------------- --------------------------------- --------------------------------- (Print Name of Signatory) --------------------------------- (Title of Signatory) -8- -----END PRIVACY-ENHANCED MESSAGE-----