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 Xxxxxxxxx X. XxXxxx (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:
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"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.
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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
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(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.
0000 Xxxxxxxx Xxx
Xxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
E-mail: c/o Xxxxxxx X. Xxxxx [XXxxxx@xxxxxxxxxxx.xxx: and
Xxxxxxxxx Xxxxxxx [XXxxxxxx@xxxxxxxxxxx.xxx]
Attention: Xxxxxxx X. Xxxxx
With copies to: Proskauer Rose LLP
0000 Xxxxxx Xxxx, Xxxxx 000 Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
E-mail: xxxxxxxxx@xxxxxxxxx.xxx
Attn: Xxxxxx X. "Rocky" Xxxxxxxx, II, Esq.
If to the Investor: Xxxxxxxxx X. XxXxxx
c/o Doctor's Associates, Inc.
000 Xxx Xxxxx
Xxxxxxx, XX 00000
E-mail: c/o Xxx Xxxxxxxx [xxxxxxxx_x@xxxxxx.xxx]
and Xxxxx Xxxxxxx [xxxxxxx_x@xxxxxx.xxx]
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.
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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.
* * *
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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/ Xxxxxxx X. Xxxxx
-----------------------------------------
Xxxxxxx X. Xxxxx
Chief Executive Officer
"INVESTOR"
/s/ Xxxxxxxxx X. XxXxxx
--------------------------------------------
XXXXXXXXX X. XXXXXX, an individual
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