Outsourcing the Galaxy
Galaxy Nutritional Foods Inc. announced its entry into two definitive agreements with Schreiber Foods Inc.
ASSET PURCHASE AGREEMENT
Under the terms of a definitive agreement (the "Asset Purchase Agreement") signed on June 30, 2005, Galaxy Nutritional Foods Inc. will sell substantially all of its plant assets to Schreiber Foods Inc. The transaction, which will be subject to approval from the company's primary lenders and shareholders, is expected to close on or about November 1, 2005.
Under the terms of a definitive agreement (the "Supply Agreement") signed on June 30, 2005, Schreiber Foods has agreed to manufacture and distribute all of the company's products for an initial period of five (5) years beginning September 1, 2005. The Supply Agreement is renewable at Galaxy's option for up to two additional five-year periods. On or before November 1, 2005, Schreiber will purchase Galaxy's remaining raw materials, ingredients and packaging at the company's cost.
"By agreeing to sell our plant assets and contract with Schreiber Foods for the production and distribution of our healthy food products, we expect to retire all of our outstanding debt with Wachovia Bank and realize significant cost savings going forward," stated Michael E. Broll, chief executive officer of Galaxy Nutritional Foods Inc. "Our company will benefit from the production and operational efficiencies of a much larger company that has an outstanding reputation for product quality and distribution capabilities within the dairy products industry. In the future, we will be able to focus our activities upon new product development and the marketing of our expanding line of dairy alternative products into the retail and foodservice markets. During the first 12 months following the completion of these proposed transactions, Galaxy should realize significant production and distribution cost savings, and such savings should increase as our sales grow in future years."
The company also announced it has entered into a loan modification agreement with Wachovia Bank N.A. (formerly SouthTrust Bank) that accelerates the maturity of Galaxy's loan from June 1, 2009, to July 31, 2006. Under the modification agreement, Galaxy will continue to make principal payments of $110,000 per month until the loan matures or is paid off. It is currently the intention of Galaxy to repay in full its outstanding obligations to Wachovia Bank (estimated to be $7.5 million as of November 1, 2005) out of cash proceeds from the sale of plant assets to Schreiber Foods.
"We currently expect that the proceeds from the sale of plant assets, after repayment of the loan to Wachovia Bank, will be sufficient to cover any one-time costs associated with the closure of plant facilities and the transition of production and distribution activities to Schreiber Foods," concluded Broll.
Additional information regarding the Asset Purchase Agreement, the Supply Agreement, and the Loan Modification Agreement is provided in a Form 8-K filed with the Securities and Exchange Commission on July 6, 2005.