COMMON STOCK AND WARRANTS PURCHASE AGREEMENT

                         GALAXY NUTRITIONAL FOODS, INC.

     COMMON STOCK AND WARRANTS  PURCHASE  AGREEMENT is entered into effective as
of June 28,  2002 (the  "Agreement"),  between  the  Investor  signatory  hereto
("Investor") and Galaxy  Nutritional  Foods,  Inc., a corporation  organized and
existing under the laws of the State of Delaware (the "Company").

     WHEREAS,  the  parties  desire  that,  upon the  terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Investor,
and the Investor shall  purchase in the aggregate (a) up to $1,500,000  worth of
shares of Common Stock of the Company and (b) warrants to purchase shares of the
Common Stock of the Company;

     WHEREAS,  such  investment  will be made in reliance upon the provisions of
Regulation S and/or  Section  4(2)  ("Section  4(2)")  and/or 4(6) of the United
States  Securities Act and/or  Regulation D ("Regulation D") and the other rules
and regulations  promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration  requirements of the Securities Act as may
be available  with respect to any or all of the  investments in securities to be
made hereunder.

     NOW, THEREFORE,  in consideration of the mutual promises,  representations,
warranties,  covenants and conditions set forth in this  Agreement,  the parties
hereto agree as follows:

                                    ARTICLE I

                               CERTAIN DEFINITIONS

Section 1.1. Definitions

     The following  capitalized  terms shall have the meanings  ascribed to them
below:

     "CAPITAL  SHARES"  shall mean the Common  Stock and any shares of any other
class of common stock whether now or hereafter  authorized,  having the right to
participate in the distribution of earnings and assets of the Company.

     "CAPITAL  SHARES  EQUIVALENTS"  shall  mean  any  securities,   rights,  or
obligations  that are convertible  into or exchangeable for or give any right to
subscribe  for any  Capital  Shares of the Company or any  warrants,  options or
other rights to subscribe for purchase or otherwise  acquire  Capital  Shares or
any such convertible or exchangeable securities.

     "CLOSING"  shall mean the closing of the purchase and sale of the Purchased
Shares and the Warrants pursuant to Section 2.1.

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     "CLOSING DATE" shall mean 10:00 a.m. on the date hereof, or such other time
as the Company and the Investor may mutually agree,  provided all the conditions
thereto have been satisfied or waived on such date.

     "COMMON STOCK" shall mean the Company's  common stock,  $0.01 par value per
share.

     "DAMAGES"  shall  mean  any  loss,  claim,   damage,   judgment,   penalty,
deficiency,   liability,  costs  or  expenses  (including,  without  limitation,
reasonable  attorneys' fees and  disbursements and reasonable costs and expenses
of expert witnesses and investigation).

     "DISCLOSURE  SCHEDULE" shall mean the written disclosure schedule,  if any,
delivered on or prior to the date hereof by the Company to the Investor  that is
arranged in  paragraphs  corresponding  to the numbered and lettered  paragraphs
contained in this Agreement.

     "EFFECTIVE  DATE"  shall  mean  the date on which  the SEC  first  declares
effective a Registration  Statement  registering  the resale of the  Registrable
Securities as set forth in the Registration Rights Agreement.

     "ENVIRONMENTAL LAWS" shall mean foreign,  federal, state and local laws and
regulations  relating  to  the  protection  of  human  health  and  safety,  the
environment  or  hazardous  or  toxic   substances  or  wastes,   pollutants  or
contaminants.

     "ESCROW AGENT" shall have the meaning set forth in the Escrow Agreement.

     "ESCROW  AGREEMENT" shall mean the Escrow  Agreement in  substantially  the
form of Exhibit A hereto  executed  and  delivered  contemporaneously  with this
Agreement.

     "EXCALIBUR  WARRANT"  shall mean the warrant to  purchase  shares of Common
Stock issued by the Company to  Excalibur  Limited  Partnership  pursuant to the
Bridge Note (as defined in Section 2.1(b)).

     "EXCALIBUR  WARRANT  SHARES" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Excalibur Warrant.

     "EXCHANGE ACT" shall mean the Securities  Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

     "GAAP" shall mean United States generally accepted accounting principles as
shall be in effect from time to time.

     "H&H SHARES"  shall mean that number of shares of Common Stock equal to (i)
one and one half percent (1.5%) of the aggregate  consideration received for the
Purchased Shares at the Closing, divided by (ii) Market Price at Closing.

     "IRREVOCABLE  TRANSFER  AGENT  INSTRUCTIONS"  shall  mean  the  Irrevocable
Transfer Agent Instructions,  in the form of Exhibit B attached hereto, from the
Company to the Company's transfer agent.

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     "ISSUE DATE" shall mean the date on which Purchased Shares and the Warrants
are issued pursuant to Article II.

     "LEGEND" shall mean the legend set forth in Section 9. 1.

     "MARKET  PRICE" on any given date shall mean the average of the closing bid
price of the Common  Stock on the  Principal  Market (as  reported by  Bloomberg
L.P.)  during the five (5) Trading  Days  ending on the Trading Day  immediately
prior to the date for which the Market Price is to be determined.

     "MATERIAL   ADVERSE   EFFECT"  shall  mean  any  effect  on  the  business,
operations,  properties  or financial  condition of the Company that is material
and adverse to the  Company  and its  subsidiaries  and  affiliates,  taken as a
whole, and/or any condition,  circumstance,  or situation that would prohibit or
otherwise  interfere  with the  ability of the Company to enter into and perform
any of its obligations under the Transaction  Documents in any material respect,
other than general economic conditions or general economic trends.

     "PRINCIPAL  MARKET" shall mean the American  Stock  Exchange,  the New York
Stock Exchange,  the NASDAQ  National  Market,  or the NASDAQ  SmallCap  Market,
whichever is at the time the principal trading exchange or market for the Common
Stock,  based upon  share  volume,  or if the  Common  Stock is not traded on an
exchange or market, the OTC Bulletin Board.

     "PURCHASE  PRICE" with  respect to the  issuance  and sale of the shares of
Common Stock purchased at the Closing shall mean the lower of:

          (a)  the greater of (i) eighty-five  percent (85%) of the Market Price
               of the Common Stock on the Closing Date, or (ii) $4.05; or
          (b)  $4.25.

     "PURCHASED  SHARES" shall mean the Common Stock purchased  pursuant to this
Agreement.

     "REGISTRABLE  SECURITIES"  shall mean the Purchased  Shares  (including any
shares issuable pursuant to the antidilution  provisions of Section 2.3 hereof),
the H&H Shares,  the  Stonestreet  Shares,  the Warrant Shares and the Excalibur
Warrant Shares until the earliest of (i) all  Registration  Statements have been
declared  effective by the SEC, and all Purchased Shares and Warrant Shares have
been  disposed of pursuant to the  Registration  Statements,  (ii) all Purchased
Shares,  H&H Shares,  Stonestreet  Shares,  Warrant Shares and Excalibur Warrant
Shares  have been sold under  circumstances  under  which all of the  applicable
conditions  of Rule 144 (or any  similar  provision  then in  force)  under  the
Securities  Act ("Rule 144") are met,  (iii) all Purchased  Shares,  H&H Shares,
Stonestreet  Shares,  Warrant  Shares and  Excalibur  Warrant  Shares  have been
otherwise  transferred to holders who may trade such shares without  restriction
under the  Securities  Act, and the Company has delivered a new  certificate  or
other  evidence of  ownership  for such  securities  not  bearing a  restrictive
legend,  (iv)  such time as, in the  opinion  of  counsel  to the  Company,  all
Purchased Shares, H&H Shares, Stonestreet Shares, Warrant Shares and

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Excalibur  Warrant  Shares may be sold within a three-month  period  pursuant to
Rule 144 (or any similar  provision  then in effect) under the  Securities  Act,
assuming  for this  purpose  only  that the  holders  hereof  are not  officers,
directors,  affiliates  or control  persons of the Company or (v) two years from
the date hereof.

     "REGISTRATION   RIGHTS  AGREEMENT"  shall  mean  the  Registration   Rights
Agreement  by and among the  Investor,  the  Company  and the other  signatories
thereto  regarding the filing of  Registration  Statements for the resale of the
Registrable Securities, substantially in the form attached hereto as Exhibit C.

     "REGISTRATION  STATEMENT" shall mean any registration statement on Form S-3
(if use of such form is then  available to the Company  pursuant to the rules of
the SEC and,  if not,  on such other form  promulgated  by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and  which  form  shall be  available  for the  resale  by the  Investor  of the
Registrable  Securities  to be  registered  thereunder  in  accordance  with the
provisions  of  this  Agreement,   the  Registration  Rights  Agreement  and  in
accordance with the intended method of distribution of such securities), for the
registration  of  the  resale  by  the  Investor  under  the  Securities  Act of
Registrable Securities.

     "SEC" shall mean the United States Securities and Exchange Commission.

     "SEC DOCUMENTS"  shall mean each report,  proxy statement and  registration
statement  filed by the Company with the SEC pursuant to the Exchange Act or the
Securities Act from the initial filing with the SEC through the date hereof.

     "SECURITIES"  shall mean collectively the Purchased Shares, the H&H Shares,
the Stonestreet Shares, the Warrants and the Warrant Shares.

     "STONESTREET SHARES" shall mean that number of shares of Common Stock equal
to (i) two and one half percent (2.5%) of the aggregate  consideration  received
for the  Purchased  Shares at the  Closing,  divided by (ii) the Market Price at
Closing.

     "TRADING DAY" shall mean any day during which the Principal Market shall be
open for business.

     "TRANSACTION DOCUMENTS" shall mean this Agreement,  the Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and
each of the  other  agreements,  documents  and  instruments  entered  into  and
delivered by the parties hereto in connection with the transactions contemplated
by this Agreement.

     "WARRANTS"  shall  mean the  warrants  issued at the  Closing  pursuant  to
Section 2.1 hereof, in substantially the form of Exhibit E attached hereto.

     "WARRANT  SHARES" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to exercise of the Warrants.

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                                   ARTICLE II

               PURCHASE AND SALE OF PURCHASED SHARES AND WARRANTS

Section 2.1. Investment.
             -----------

     (a)  Upon the terms and subject to the conditions set forth herein,  on the
Closing Date, the Company shall sell, and the Investor  shall  purchase,  (i) an
aggregate  number of shares of Common Stock equal to  $1,500,000  divided by the
Purchase  Price  (rounded  down to the nearest  share) and (ii) Warrants for the
purchase of an aggregate number of shares of Common Stock equal to the one-third
(1/3) of the Purchased Shares (rounded down to the nearest share), such Warrants
to have an exercise price per share equal to one hundred  fifteen percent (115%)
of the Market Price.

     (b)  The  Closing  shall occur on the  Closing  Date at the Escrow  Agent's
offices,  at which  time the  Escrow  Agent (x) shall  release  to the  Investor
certificates  representing  the Purchased  Shares (or duly executed  Irrevocable
Transfer Agent  Instructions)  and Warrants to be issued on the Closing Date and
(y) shall  release to the Company the entire  amount of the  aggregate  Purchase
Price in immediately available funds (after all fees have been paid as set forth
in the Escrow Agreement),  in accordance with the terms of the Escrow Agreement;
provided,  however,  that the Company and  Investor  authorize  and instruct the
Escrow  Agent to retain  $550,000  of the  aggregate  Purchase  Price (the "Note
Repayment  Amount") and pay same directly to Excalibur  Limited  Partnership  in
full  satisfaction and  cancellation of the $550,000  Promissory Note dated June
26, 2002 issued by the Company to  Excalibur  Limited  Partnership  (the "Bridge
Note"), which original Bridge Note shall have been delivered to the Escrow Agent
for  cancellation  and the Escrow Agent shall  thereupon  release the  cancelled
Bridge Note to the Company.

     (c)  The  Closing  shall be subject  to the  parties'  satisfaction  of the
conditions to Closing set forth below:

          (i)  The  obligation  of the Company  hereunder  to issue and sell the
          Purchased  Shares  and the  Warrants  to  Investor  at the  Closing is
          subject to the satisfaction, at or before the Closing Date, of each of
          the following  conditions,  provided that these conditions are for the
          Company's sole benefit and may be waived by the Company at any time in
          its sole  discretion by providing  Investor with prior written  notice
          thereof:

               (A)  The Investor  shall have  executed  each of the  Transaction
               Documents  to be  executed  by it and  delivered  the same to the
               Company.

               (B)  The Escrow  Agent  shall have  delivered  to the Company the
               Purchase  Price for the Purchased  Shares and the Warrants  being
               purchased by the Investor at the Closing (less the Note Repayment
               Amount  and less any  amounts  withheld  pursuant  to the  Escrow
               Agreement) by wire transfer of  immediately  available  funds for
               the balance of the  Purchase  Price  pursuant to the written wire
               instructions provided by the Company.

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               (C)  The  representations and warranties of the Investor shall be
               true and  correct as of the date when made and as of the  Closing
               Date as though made at that time (except for  representations and
               warranties  that speak as of a specific  date),  and the Investor
               shall have performed,  satisfied and complied with the covenants,
               agreements and conditions  required by the Transaction  Documents
               to be  performed,  satisfied  or complied  with by Investor at or
               prior to the Closing Date.

          (ii) The  obligation of Investor to purchase the Purchased  Shares and
          the  Warrants  at the  Closing is subject to the  satisfaction,  at or
          before the Closing Date, of each of the following conditions, provided
          that these  conditions  are for  Investor's  sole  benefit  and may be
          waived by Investor at any time in its sole discretion by providing the
          Company with prior written notice thereof:

               (A)  The  Company  shall have  executed  each of the  Transaction
               Documents  to be  executed  by  it  and  delivered  the  same  to
               Investor.

               (B)  The Common Stock shall be  authorized  for  quotation on the
               Principal Market, trading in the Common Stock shall not have been
               suspended  by  the  Principal  Market  or the  SEC  at  any  time
               beginning  on the date  hereof  and  through  and  including  the
               Closing Date, and the Company shall not have been notified of any
               pending or  threatened  proceeding  or other  action to delist or
               suspend the Common Stock.

               (C)  The  representations  and warranties of the Company shall be
               true and  correct in all  material  respects  as of the date when
               made  and as of the  Closing  Date as  though  made at that  time
               (except for  representations  and  warranties  that speak as of a
               specific date),  and the Company shall have performed,  satisfied
               and  complied  with  the  covenants,  agreements  and  conditions
               required by the Transaction Documents to be performed,  satisfied
               or complied  with by the Company at or prior to the Closing Date.
               Investor  shall have  received  a  certificate,  executed  by the
               Company's Chief Executive Officer,  dated as of the Closing Date,
               to the foregoing effect.

               (D)  The Company shall have executed and delivered (or shall have
               caused the Escrow  Agent to deliver) to Investor the Warrants (in
               such  denominations as Investor shall request) being purchased by
               Investor at the Closing.

               (E)  The Company shall have  delivered the  Irrevocable  Transfer
               Agent Instructions to its transfer agent, and such transfer agent
               shall have acknowledged receipt thereof in writing.

               (F)  The Company  shall have  delivered to Investor a certificate
               evidencing the due incorporation and good standing of the Company
               and

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               each Subsidiary in such corporation's state of incorporation (and
               in any states where such entities are required to be qualified to
               do business)  issued by the  Secretary of State of such states as
               of a date within ten (10) days of the Closing Date.

               (G)  The Company shall have  delivered to Investor a certificate,
               executed by the Company's Secretary dated the Closing Date, as to
               (i)  the   Resolutions   described  in  Section  4.2,   (ii)  the
               Certificate of  Incorporation,  and (iii) the Bylaws,  each as in
               effect on the Closing Date.

     (d)  Anything  to the  contrary  notwithstanding,  in the event the Closing
does not occur by July 3, 2002, the Investor shall have no further obligation to
purchase and the Company shall have no further obligation to sell the Securities
and this Agreement  shall be terminated  (provided,  however,  the Company shall
remain  responsible for the payment of all reasonable  expenses of the Investor,
including  legal fees),  subject to the limitations on fees set forth in Section
13.5 hereof.

Section 2.2 LIQUIDATED  DAMAGES.  The parties hereto  acknowledge and agree that
the  sums  payable  pursuant  to  this  Agreement  and the  Registration  Rights
Agreement shall  constitute  liquidated  damages and not penalties.  The parties
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amounts specified in
such  sections  bear a  reasonable  proportion  and are not  plainly  or grossly
disproportionate  to the probable  loss likely to be incurred by the Investor in
connection with the failure by the Company to timely effect the  registration of
the Registrable  Securities or otherwise  perform  hereunder and (c) the parties
are  sophisticated  business  parties and have been represented by sophisticated
and able legal and  financial  counsel and  negotiated  this  Agreement at arm's
length.

Section 2.3 Rights of Investor upon Dilutive Issuances.
            ------------------------------------------

     (a)  Issuances  at Less Than the Purchase  Price.  Until the earlier of the
date  following  the date on which the Company,  through the offering of Capital
Shares or Capital  Shares  Equivalents,  generates or raises $6 million in gross
proceeds, and December 31, 2002 (the "MFN Period"), upon the issuance or sale by
the Company of:

               (i)  Common  Stock for a Per Share  Selling  Price  less than the
Purchase Price (as adjusted for any stock splits, combinations,  reorganizations
or similar events); or

               (ii) any Stock Purchase  Rights where the Per Share Selling Price
for which shares of Common  Stock may at any time  thereafter  be issuable  upon
exercise  thereof (or, in the case of Stock Purchase Rights  exercisable for the
purchase of Convertible  Securities,  upon the subsequent conversion or exchange
of such  Convertible  Securities)  shall be less  than the  Purchase  Price  (as
adjusted for any stock splits, combinations, reorganizations or similar events);
or

               (iii)any  Convertible  Securities  where  the  consideration  per
share for which  shares of Common Stock may at any time  thereafter  be issuable
pursuant to the terms of

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such  Convertible  Securities shall be less than the Purchase Price (as adjusted
for any stock splits, combinations, reorganizations or similar events);

other than an issuance of Common  Stock  pursuant to Section  2.3( f) below (any
such issuance shall be referred to hereinafter as a "Dilutive  Issuance"),  then
forthwith upon such issue or sale,  the Purchase  Price of the Purchased  Shares
sold to the  Investor  hereunder  and  then  owned  by them or  their  permitted
assignees shall be adjusted downward to equal such lower Per Share Selling Price
and Investor shall be entitled to receive the additional  shares of Common Stock
as provided by Section  2.3(c)  below.  The Company  shall give to the  Investor
written notice of any such sale within 24 hours of the closing of any such sale.

     (b)  DEFINITIONS.   For  purposes  of  this  Section  2.3,  the   following
provisions will be applicable:

               (i)  "Convertible    Securities"    shall   mean   evidences   of
indebtedness,  shares of stock or other  securities that are convertible into or
exchangeable for, with or without payment of additional consideration, shares of
Common Stock.

               (ii) "Stock Purchase Rights" shall mean any warrants,  options or
other  rights to  subscribe  for,  purchase or  otherwise  acquire any shares of
Common Stock or any Convertible Securities.

               (iii)Convertible  Securities and Stock  Purchase  Rights shall be
deemed outstanding and issued or sold at the time of such issue or sale.

               (iv) The term "Per Share Selling  Price" shall include the amount
actually paid by third parties for each share of Common Stock.  In the event the
Company in connection with such transaction pays a fee in excess of 6%, any such
excess  amount shall be deducted  from the selling  price pro rata to all shares
sold in the  transaction  to arrive at the Per Share Selling  Price. A sale in a
capital raising  transaction of shares of Common Stock shall include the sale or
issuance of rights, options,  warrants or convertible securities under which the
Company is or may become  obligated to issue shares of Common Stock, and in such
circumstances  the Per Share Selling  Price of the Common Stock covered  thereby
shall also include the exercise or conversion  price thereof (in addition to the
consideration received by the Company upon such sale or issuance less the excess
fee amount,  if any, as provided  above).  In case of any such  security  issued
within the MFN Period in a  "Variable  Rate  Transaction"  or "MFN  Transaction"
(each as defined  below),  the Per Share Selling Price shall be deemed to be the
lowest  conversion or exercise  price at which such  securities are converted or
exercised  or might have been  converted  or exercised in the case of a Variable
Rate  Transaction,  or  the  lowest  adjustment  price  in  the  case  of an MFN
Transaction, each over the life of such securities.

               (v)  "Variable Rate Transaction" means a transaction in which the
Company issues or sells (a) any debt or equity  securities  that are convertible
into,  exchangeable  or  exercisable  for,  or  include  the  right  to  receive
additional  shares of Common  Stock  either  (x) at a  conversion,  exercise  or
exchange  rate or other price that is based upon and/or  varies with the trading
prices of or  quotations  for the  Common  Stock at any time  after the  initial
issuance  of such debt or  equity  securities,  or (y) with a fixed  conversion,
exercise  or  exchange  price that is subject to being reset at some future date
after the initial issuance of such security or upon the

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occurrence of specified or contingent  events directly or indirectly  related to
the  business  of the  Company or the market  for the Common  Stock,  or (b) any
securities  of the  Company  issued or  issuable  pursuant  to an "equity  line"
structure  which provides for the sale,  from time to time, of securities of the
Company which are registered for resale pursuant to the Securities Act.

               (vi) "MFN  Transaction"  means a transaction in which the Company
issues or sells any equity securities in a capital raising transaction or series
of related  transactions  (the "New Offering")  which grants to an investor (the
"New Investor") the right to receive  additional shares based upon future equity
raising  transactions  of the Company on terms more favorable than those granted
to the New Investor in the New Offering.

               (vii) DETERMINATION OF CONSIDERATION. The "consideration actually
received" by the Company for the issuance,  sale,  grant or assumption of shares
of Common Stock, Stock Purchase Rights or Convertible  Securities,  irrespective
of the accounting treatment of such consideration, shall be valued as follows:

                    (A)  CASH  PAYMENT.  In the  case of  cash,  the net  amount
received by the Company after deduction of any accrued interest or dividends and
before deducting any expenses paid or incurred and any underwriting  commissions
or concessions  paid or allowed by the Company in connection  with such issue or
sale;

                    (B)  NONCASH   PAYMENT.   If  shares   are   issued   for  a
consideration  other than cash,  the Per Share  Selling  Price shall be the fair
market value of such  consideration as determined in good faith by the Company's
Board of Directors; and

                    (C)  STOCK PURCHASE RIGHTS AND CONVERTIBLE  SECURITIES.  The
total  consideration,  if any,  received by the Company as consideration for the
issuance of the Stock Purchase Rights or the Convertible Securities, as the case
may be, plus the minimum aggregate amount of additional  consideration,  if any,
payable to the Company upon the exercise of such Stock  Purchase  Rights or upon
the conversion or exchange of such Convertible  Securities,  as the case may be,
in each case after deducting any accrued interest or dividends.

     (c)  ADJUSTMENT  MECHANISM.  If an  adjustment  of the  Purchase  Price  is
required  pursuant to Section 2.3(a),  the Company shall deliver to the Investor
within three (3) business days of the closing of the transaction  giving rise to
the adjustment (the "Delivery Date") such number of additional  shares of Common
Stock equal to (i) to the aggregate  Purchase Price paid by Investor  divided by
the adjusted per share purchase price as required  under Section  2.3(a),  minus
(ii) the total number of shares of Common Stock previously delivered to Investor
hereunder which are being used as the basis for this adjustment.

     (d)  CAPITAL  ADJUSTMENTS.  In case of any  stock  split or  reverse  stock
split, stock dividend,  reclassification of the Common Stock,  recapitalization,
merger or consolidation,  or like capital adjustment  affecting the Common Stock
of the  Company,  the  provisions  of  Section  2.3 shall be  applied in a fair,
equitable and reasonable manner so as to give effect to the purposes hereof.

     (e)  EXCLUSIONS.  Anything  herein  to the  contrary  notwithstanding,  the
Company shall not be required to make any  adjustment  of any Purchase  Price in
the case of (i) the issuance or sale of Stock Purchase Rights,  and Common Stock
issuable upon the exercise thereof, to directors,

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<PAGE>

officers,  employees or consultants  of the Company  pursuant to stock option or
stock  purchase  plans or  agreements  in  existence on the date of this filing,
whether   "qualified"  for  tax  purposes  or  not,  or  pursuant  to  plans  or
arrangements  approved  by the  Board of  Directors  or  stockholders,  (ii) the
issuance of Common  Stock  pursuant  to Stock  Purchase  Rights and  Convertible
Securities  outstanding  as of the date of this  Agreement,  including  upon the
conversion of the Series A Preferred Stock (so long as effected  pursuant to the
conversion  terms of the Series A Certificate of Designation as it exists on the
date hereof);  (iii) the issuance of Capital  Shares,  Stock Purchase  Rights or
Convertible  Securities in the  acquisition of another  company or in connection
with any strategic alliance,  joint venture or partnership with another company,
so long as the primary purpose  thereof is not the raising of capital;  (iv) the
issuance of Capital Shares,  Stock Purchase Rights or Convertible  Securities to
commercial lenders,  equipment lessors, vendors, suppliers or providers of goods
or  services  to  the  Company  (subject,  in  each  case,  to  the  good  faith
determination   by  the   Company's   Board  of  Directors   that  any  non-cash
consideration  received in  exchange  for such  securities  of the Company is at
least equal to the fair market value of such  securities),  and (v) the issuance
of  Capital   Shares  and  Stock  Purchase   Rights  in  customary   amounts  to
underwriters,  brokers,  or  finders in  connection  with  fundraising  (debt or
equity)  activities.  The issuances or sales described in the preceding  clauses
(i), (ii),  (iii), (iv) and (v) shall be ignored for purposes of calculating any
adjustment to the Purchase Price.

                                   ARTICLE III

                 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

The Investor represents and warrants to the Company that:

Section  3.1.  INTENT.  Investor is  entering  into this  Agreement  for its own
account and not with a view to, or for sale in connection with, any distribution
of the Securities.  Investor has no present arrangement  (whether or not legally
binding) at any time to sell the  Securities to or through any person or entity;
provided,  however, that by making the representations herein, Investor does not
agree  to hold  such  Securities  for any  minimum  or other  specific  term and
reserves the right to dispose of the  Securities at any time in accordance  with
federal and state securities laws applicable to such disposition.

Section 3.2.  SOPHISTICATED  INVESTOR.  Investor is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited  investor (as
defined in Rule 501 of  Regulation  D), and Investor has  experience in business
and  financial  matters that it has the capacity to protect its own interests in
connection  with this  transaction  and is capable of evaluating  the merits and
risks  of an  investment  in  the  Securities.  Investor  acknowledges  that  an
investment in the Securities is speculative  and involves a high degree of risk.
The Investor has had an  opportunity  to ask questions and receive  answers from
the Company regarding the terms and conditions of the sale of the Securities.

Section 3.3. DUE EXECUTION,  POWER AND AUTHORITY. This Agreement and each of the
Transaction  Documents that is required to be executed by Investor has been duly
authorized  and validly  executed  and  delivered by Investor and is a valid and
binding  agreement of Investor  enforceable  against it in  accordance  with its
terms, subject to applicable bankruptcy, insolvency,

                                       10
<PAGE>

or  similar  laws  relating  to, or  affecting  generally  the  enforcement  of,
creditors'  rights and  remedies  or by other  equitable  principles  of general
application.  The Investor has the  requisite  power and authority to enter into
the Agreement,  to purchase the Securities and perform its obligations under the
terms of the Agreement.

Section  3.4.  NOT  AN  AFFILIATE.  Investor  is  not an  officer,  director  or
"AFFILIATE"  (as that term is defined in Rule 405 of the Securities  Act) of the
Company.

Section  3.5.  DISCLOSURE;  ACCESS TO  INFORMATION.  Investor  has  received all
documents, records, books and other publicly available information pertaining to
Investor's  investment in the Company as Investor has requested (the  "Requested
Information"). Investor acknowledges that the Company is subject to the periodic
reporting  requirements  of the  Exchange  Act,  and  Investor  has reviewed the
Requested  Information  and  copies  of all SEC  Documents  deemed  relevant  by
Investor  in  order  for  it to  make  an  informed  decision  to  purchase  the
Securities.  Investor  acknowledges that the Company will file its Annual Report
on Form 10-K after the  Closing  Date and that such Annual  Report will  contain
information  that a potential  purchaser of the Common Stock could  determine is
material  to  such  purchaser's   investment  decision.   The  Investor  further
acknowledges  that the Company has  recommended  and requested that the Investor
conduct a complete  and  comprehensive  review of the  Company's  Annual  Report
before making its  investment  decision and purchasing  the  Securities.  In the
event the Investor elects to purchase the Securities prior to its  comprehensive
review of the Company's  Annual Report and thereby  foregoing its opportunity to
obtain further  information  about the matters set forth  therein,  the Investor
agrees not to assert a claim or to initiate or maintain any  lawsuit,  action or
other  proceeding  against the Company,  its officers,  directors,  or employees
arising out of the Investor's  purchase of the Securities based on any theory of
securities  laws  violations,  negligence,  misrepresentation  or fiduciary duty
related to the matters to be disclosed in the Company's Annual Report.

Section 3.6. MANNER OF SALE. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting,  television advertisement
or any other form of general solicitation or advertising.

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company  represents  and warrants to the Investor  that,  except as set
forth on the Disclosure Schedule prepared by the Company and attached hereto:

Section 4.1.  ORGANIZATION  OF THE COMPANY.  The Company is a  corporation  duly
incorporated,  validly existing and in good standing under the laws of the State
of Delaware  and has all  requisite  corporate  power and  authority  to own and
operate  its  properties  and assets and to carry on its  business  as now being
conducted and as presently proposed to be conducted.  The Company's Subsidiaries
are corporations duly organized, validly existing and in good standing under the
laws of the  jurisdictions in which they are incorporated and have the requisite
corporate power and authority to own and operate their properties and assets and
to carry on their

                                       11
<PAGE>

business as now being  conducted.  The Company and each of its  Subsidiaries  is
duly  qualified and is in good standing as a foreign  corporation to do business
in every  jurisdiction in which the nature of the business conducted or property
owned or leased by it makes such  qualification  necessary,  other than those in
which the failure so to qualify would not have a Material Adverse Effect.

Section 4.2.  AUTHORITY.  (i) The Company has the requisite  corporate power and
corporate  authority  to enter  into  and  perform  its  obligations  under  the
Transaction  Documents and to issue the Securities  pursuant to their respective
terms; (ii) the execution,  issuance and delivery of the Transaction  Documents,
the  Common  Stock  certificates  and  the  Warrants  by  the  Company  and  the
consummation  by it of the  transactions  contemplated  hereby  have  been  duly
authorized  by  all  necessary  corporate  action  and  no  further  consent  or
authorization  of the  Company  or its Board of  Directors  or  stockholders  is
required;  and (iii) the Transaction  Documents,  when executed and delivered by
the Company and the parties hereto,  shall  constitute valid and legally binding
obligations of the Company  enforceable  against the Company in accordance  with
their  terms,  except  as  such  enforceability  may be  limited  by  applicable
bankruptcy,  insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable  principles
of general application. The Company has duly and validly authorized and reserved
for issuance the number shares of Common Stock required  hereunder.  The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the  Securities.  The Company further  acknowledges  that its
obligation  to  issue  Common  Stock  under  this   Agreement  is  absolute  and
unconditional  regardless of the dilutive  effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under the Bankruptcy Code.

Section  4.3.  CAPITALIZATION.  The  authorized  capital  stock  of the  Company
immediately prior to the Closing will consist of (i) 85,000,000 shares of Common
Stock,  $0.01 par value per share,  of which  11,541,043  shares were issued and
outstanding as of June 27, 2002, and (ii) 1,000,000  shares of Preferred  Stock,
$0.01 par value per  share,  of which  200,000  have been  designated  "Series A
Preferred  Stock," 72,646 of which are issued and outstanding  immediately prior
to the Closing. The Company has no authorized or outstanding shares of preferred
stock or other  equity  securities  except as disclosed  herein.  Except for (i)
outstanding  options and warrants as set forth in the SEC  Documents and (ii) as
set forth in the Disclosure  Schedule,  there are no outstanding  Capital Shares
Equivalents nor any agreements or  understandings  pursuant to which any Capital
Shares  Equivalents may become  outstanding.  All of the  outstanding  shares of
Common Stock of the Company have been duly and validly authorized and issued and
are  fully  paid and  non-assessable  and were  issued  in  compliance  with all
applicable federal and state securities laws.

Section 4.4. COMMON STOCK.  The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full  compliance  with all
reporting  requirements  of the Exchange  Act, and the Company is in  compliance
with all material  requirements  for the  continued  listing or quotation of its
Common  Stock,  and such  Common  Stock is  currently  listed or quoted  on, the
Principal  Market.  As of the date hereof,  the Principal Market is the American
Stock  Exchange,  and except as set forth in the SEC Documents,  the Company has
not received any notice  regarding,  and to its knowledge there is no threat of,
the  termination or  discontinuance  of the  eligibility of the Common Stock for
such posting or listing.

                                       12
<PAGE>

Section  4.5.  SEC  DOCUMENTS.  The Company has not  provided  the  Investor any
information that,  according to applicable law, rule or regulation,  should have
been disclosed  publicly prior to the date hereof by the Company,  but which has
not been so disclosed.  As of their respective  dates, the SEC Documents (taking
into accounts  amendments  thereto)  complied in all material  respects with the
requirements  of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated  thereunder,  and the SEC Documents
did not  contain  any untrue  statement  of a  material  fact or omit to state a
material  fact  required to be stated  therein or necessary in order to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading.  The financial  statements  of the Company  included in the SEC
Documents   complied  in  all  material  respects  with  applicable   accounting
requirements  and the rules and regulations of the SEC or other applicable rules
and  regulations  with  respect  thereto  at the  time of such  inclusion.  Such
financial  statements  have been prepared in  accordance  with GAAP applied on a
consistent  basis  during the periods  involved  (except (i) as may be otherwise
indicated in such financial  statements or the notes thereto or (ii) in the case
of unaudited interim statements,  to the extent they exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial  position  of the  Company as of the dates  thereof and the results of
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited interim statements, to normal year-end audit adjustments). Neither the
Company nor any of its Subsidiaries has any material  indebtedness,  obligations
or liabilities of any kind (whether accrued, absolute,  contingent or otherwise,
and whether due or to become due) that would have been  required to be reflected
in, reserved  against or otherwise  described in the financial  statements or in
the notes thereto in accordance  with GAAP,  which were not fully  reflected in,
reserved against or otherwise described in the financial statements or the notes
thereto  included in the SEC  Documents  or were not  incurred  in the  ordinary
course of business  consistent  with the Company's past practices since the last
date of such financial  statements.  No other written information provided by or
on  behalf  of the  Company  to the  Investor  that is not  included  in the SEC
Documents, including, without limitation, information referred to in Section 3.5
of this Agreement and the representations and warranties  contained herein or in
any schedule or exhibit hereto, contains any untrue statement of a material fact
or omits to state any material  fact  necessary in order to make the  statements
therein,  in the light of the  circumstances  under which they are or were made,
not misleading.

Section  4.6.  EXEMPTION  FROM  REGISTRATION;  VALID  ISSUANCES.  Subject to the
accuracy of the  Investor's  representations  in Article  III and  substantially
similar  representations  to be made on exercise of the Warrants,  the Company's
sale of the  Securities and its issuance of the Warrants under this Agreement do
not, and the Company's  issuance of Common Stock on the exercise of the Warrants
will not,  require  registration  under the Securities Act and/or any applicable
state securities law presently in effect. When issued and paid for in accordance
with this Agreement and the Warrants,  the Purchased Shares, the H&H Shares, the
Stonestreet Shares and the Warrant Shares will be duly and validly issued, fully
paid, and  non-assessable.  Neither the sales of the Securities pursuant to, nor
the Company's  performance of its obligations  under, the Transaction  Documents
will (i)  result in the  creation  or  imposition  by the  Company of any liens,
charges,  claims or other  encumbrances upon any of the Securities or, except as
contemplated  herein,  any of the assets of the  Company,  or (ii) be subject to
preemptive  or other  rights to subscribe  for or acquire the Capital  Shares or
other securities of the Company other than pursuant to anti-dilution

                                       13
<PAGE>

and similar rights granted by the Company.  None of the Securities  will subject
the Investor to personal  liability to the Company or its creditors by reason of
an Investor's possession thereof.

Section 4.7. NO DIRECTED SELLING,  GENERAL SOLICITATION OR ADVERTISING IN REGARD
TO THIS  TRANSACTION.  Neither  the Company  nor any of its  affiliates  nor any
person  acting on its or their  behalf (i) has  engaged in or will engage in any
directed  selling efforts in violation of the requirements of Regulation S, (ii)
has conducted or will conduct any general  solicitation (as that term is used in
Rule 502(c) of Regulation D) or general  advertising with respect to the sale of
the  Securities,  or (iii) made any offers or sales of any security or solicited
any  offers to buy any  security  under any  circumstances  that  would  require
registration of the Securities under the Securities Act.

Section 4.8. NO CONFLICTS. The Company's execution,  delivery and performance of
the Transaction  Documents,  and the Company's  consummation of the transactions
contemplated hereby and thereby do not and will not (i) result in a violation of
the Company's  Certificate of  Incorporation or Bylaws or (ii) conflict with, or
constitute  a default  (or an event  that  with  notice or lapse of time or both
would  become a default)  under,  or give to others  any rights of  termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
law, rule,  regulation,  order,  judgment or decree (including federal and state
securities  laws and  regulations and the rules and regulations of the Principal
Market)  applicable  to the  Company  or by which any  property  or asset of the
Company is bound or affected.  The Company is not  otherwise in violation of any
term of or in default under its Certificate of Incorporation,  or its Bylaws, or
any  contract,  agreement,  mortgage,   indebtedness,   indenture,   instrument,
judgment,  decree or order or any statute,  rule or regulation applicable to the
Company (including,  without  limitation,  all rules and regulations of the Food
and Drug Administration and the United States Department of Agriculture), except
for  possible  conflicts,  defaults,  terminations,  amendments,  accelerations,
cancellations  and violations  that would not  individually  or in the aggregate
have a Material Adverse Effect. The Company's business is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible  violations that either singly or in the aggregate would not result
in a  Material  Adverse  Effect.  Except as  specifically  contemplated  by this
Agreement  and as required by the  Securities  Act and any  applicable  state or
non-U.  S. securities or similar laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self regulatory  organization,
in order for it to execute,  deliver or perform any of its obligations  under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. All consents,  authorizations,  orders,  filings and registrations that
the Company is required to obtain pursuant to the preceding sentence on or prior
to the date  hereof  have been  obtained  or  effected.  The  Company  is not in
violation of the listing or posting  requirements of the Principal  Market as in
effect on the date hereof and is not aware of any facts  which would  reasonably
lead to delisting of the Common Stock by the Principal Market in the foreseeable
future.

Section 4.9. NO MATERIAL  ADVERSE  CHANGE.  Since December 31, 2001, no Material
Adverse  Effect has occurred or exists with  respect to the  Company,  except as
disclosed  in any SEC  Documents  filed at least five (5) days prior to the date
hereof and available on EDGAR or to be

                                       14
<PAGE>

disclosed in the Company's 10-K for the year ended March 31, 2002 to be filed on
or before July 11, 2002.

Section   4.10.   NO   UNDISCLOSED   EVENTS,   LIABILITIES,   DEVELOPMENTS,   OR
CIRCUMSTANCES.  Except as may be  disclosed in the  Company's  10-K for the year
ended  March  31,  2002 to be  filed  on or  before  July 11,  2002,  no  event,
liability,  development or  circumstance  has occurred or exists with respect to
the Company or its  Subsidiaries  or their  respective  businesses,  properties,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration  statement filed with
the SEC  relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.

Section 4.11.  LITIGATION AND OTHER PROCEEDINGS.  Except as disclosed in the SEC
Documents or on the  Disclosure  Schedule,  there are no lawsuits or proceedings
pending or, to the knowledge of the Company, threatened,  against the Company or
any  Subsidiary  or any of their  officers or directors in their  capacities  as
such,  nor has the  Company  received  any  written  or oral  notice of any such
action, suit, proceeding or investigation, which could reasonably be expected to
have a Material  Adverse  Effect.  Except as set forth in the SEC Documents,  no
judgment,  order, writ,  injunction or decree or award has been issued by or, to
the knowledge of the Company, requested of any court, arbitrator or governmental
agency  which could  result in a Material  Adverse  Effect.  There is no action,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate, other than in the ordinary course of its business.

Section 4.12.  INSURANCE.  The Company and each subsidiary  maintains directors'
and officers'  liability,  property and casualty,  general  liability,  workers'
compensation,  environmental hazard,  personal injury and other similar types of
insurance  with  financially  sound and  reputable  insurers  that is  adequate,
consistent  with  industry   standards  and  the  Company's   historical  claims
experience.  Neither  the  Company  nor any  Subsidiary  has  been  refused  any
insurance  coverage  sought or applied for, and neither the Company nor any such
Subsidiary  has any  reason  to  believe  that it will not be able to renew  its
existing  insurance  coverage  as and when such  coverage  expires  or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise,  or the earnings,  business or operations of the Company
and its Subsidiaries, taken as a whole.

Section 4.13. TAX MATTERS.  The Company has accurately prepared and timely filed
all United  States  income tax returns and all state and  municipal  tax returns
that are required to be filed by it, if any, and has paid or made  provision for
the payment of all taxes, if any, that have become due pursuant to such returns.
No deficiency  assessment or proposed  adjustment of the Company's United States
income tax or state or  municipal  taxes is pending and there is no liability as
of the  date  hereof  for any tax for  which  there is not an  adequate  reserve
reflected in the Company's  publicly filed  financial  statements.  All federal,
state, local and foreign franchise,  sales, use, occupancy,  excise, withholding
and other taxes and assessments  (including  interest and penalties) payable by,
or due from, the Company have been fully paid or adequately  disclosed and fully
provided for in the books and financial statements of the Company,  except where
the  failure to provide for or pay such taxes and  assessments  would not have a
Material Adverse Effect on the Company.  No examination of any tax return of the
Company is currently in progress,  except where such examinations would not have
a Material Adverse Effect on the

                                       15
<PAGE>

Company.  There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return of the Company.

Section 4.14. INTELLECTUAL PROPERTY RIGHTS. The Company has sufficient title and
ownership of or is licensed under all patents, patent applications,  trademarks,
service marks, trade names,  copyrights,  and all registrations and applications
for  registration of any of the foregoing,  and all trade secrets,  information,
inventions,  computer programs owned or licensed by the Company,  documentation,
proprietary  rights  and  processes   (collectively,   "Intellectual  Property")
necessary  for its  business as now  conducted  and,  except as set forth on the
Disclosure  Schedule,  without any conflict with and without infringement of the
rights of others.  Except as set forth on the Disclosure  Schedule,  the Company
has not received any written communications alleging that it has violated or, by
conducting  its  businesses  as  currently  proposed,  would  violate any of the
patents, trademarks,  service marks, trade names, copyrights or trade secrets or
other proprietary  rights of any other person or entity.  Except as disclosed on
the Disclosure Schedule, the Company does not believe it is or will be necessary
to use any inventions of any of its employees (or people it currently intends to
hire)  made  prior to their  employment  by the  Company  (unless  made prior to
employment as an independent contractor to the Company).

Section 4.15. INTERNAL CONTROLS AND PROCEDURES.  The Company maintains books and
records and internal accounting controls that provide reasonable  assurance that
(i) all  transactions  to which the Company or any  Subsidiary  is a party or by
which its  properties  are bound are executed with  management's  authorization;
(ii) the recorded  accounting of the Company's  consolidated  assets is compared
with  existing  assets at  regular  intervals;  (iii)  access  to the  Company's
consolidated   assets  is  permitted  only  in  accordance   with   management's
authorization;  and (iv) all transactions to which the Company or any Subsidiary
is a party or by which its  properties  are bound are  recorded as  necessary to
permit preparation of the financial statements of the Company in accordance with
GAAP.

Section 4.16.  ACKNOWLEDGMENT  REGARDING  INVESTOR'S PURCHASE OF THE SECURITIES.
The Company  acknowledges  and agrees that each of the Investor is acting solely
in the  capacity  of  arm's-length  purchaser  with  respect to the  Transaction
Documents  and  the  transactions  contemplated  thereby.  The  Company  further
acknowledges  that Investor is not acting as a financial advisor or fiduciary of
the  Company  (or in any  similar  capacity)  with  respect  to the  Transaction
Documents and the transactions  contemplated thereby and any advice given by the
Investor or any of its respective  representatives  or agents in connection with
the Transaction  Documents and the transactions  contemplated  thereby is merely
incidental  to  Investor's  purchase  of the  Securities.  The  Company  further
represents to Investor that the Company's decision to enter into the Transaction
Documents has been based solely on the independent evaluation by the Company and
its representatives.

Section 4.17. EMPLOYEES.  To the best of the Company's knowledge, no employee of
the Company is obligated under any contract  (including  licenses,  covenants or
commitments  of any  nature) or other  agreement,  or  subject to any  judgment,
decree or order of any court or administrative agency that would conflict in any
material  respect  with such  employee's  obligation  to use his best efforts to
promote the  interests of the Company or that would  conflict with the Company's
business  as  conducted  or as  proposed  to be  conducted.  To the  best of the
Company's  knowledge,  no  officer  of the  Company  nor  any Key  Employee  (as
hereinafter

                                       16
<PAGE>

defined)  of  the  Company,   the  termination  of  whose   employment,   either
individually or in the aggregate,  would have a Material Adverse Effect, has any
intention of terminating his or her employment with the Company. For purposes of
this  Agreement,  "Key Employee"  means and includes each officer of the Company
and each employee who  contributes to any  significant  degree to the invention,
design or  authorship of the Company's  Intellectual  Property.  The Company has
complied  in  all  material  respects  with  all  applicable  laws  relating  to
employment of labor, including provisions relating to wages, hours, ERISA, equal
opportunity,  collective bargaining and the payment of social security and other
taxes.

Section 4.18. Environmental Matters.
              ---------------------

     (a)  The Company has duly complied with,  and, to the best knowledge of the
Company,  all the real  estate  leased  by it  either  currently  or in the past
(hereinafter  referred to  collectively  as the "Premises") are in compliance in
all material  respects  with,  the  provisions  of all federal,  state and local
environmental,  health and safety laws,  codes and  ordinances and all rules and
regulations promulgated thereunder.

     (b)  The Company has been issued, and will maintain, all federal, state and
local permits,  licenses,  certificates and approvals known to the Company to be
required  relating to (i) air  emissions,  (ii)  discharges  to surface water or
ground water,  (iii) noise emissions,  (iv) solid or liquid waste disposal,  (v)
the use, generation,  storage,  transportation or disposal of toxic or hazardous
substances or wastes  (intended hereby and hereafter to include any and all such
materials  listed in any federal,  state or local law, code or ordinance and all
rules and  regulations  promulgated  thereunder,  as  hazardous  or  potentially
hazardous), or (vi) other environmental, health and safety matters.

     (c)  The Company has not  received  notice of, nor does the Company know of
any facts that might  constitute,  any violation of any federal,  state or local
environmental,  health or safety  laws,  codes or  ordinances,  and any rules or
regulations  promulgated  thereunder,  that  relate  to the  use,  ownership  or
occupancy  of any of the  Premises,  and the Company is not in  violation of any
covenants, conditions, easements, rights-of-way or restrictions affecting any of
the Premises or any rights appurtenant thereto.

     (d)  Except  in  accordance  with a  valid  governmental  permit,  license,
certificate or approval, the Company has not caused any emission, spill, release
or discharge  into or upon (i) the air, (ii) soils or any  improvements  located
thereon,  (iii) surface water or ground water, or (iv) the sewer,  septic system
or waste treatment, storage or disposal system servicing any of the Premises, of
any toxic or hazardous substances or wastes at or from any of the Premises.

     (e)  There has been no complaint,  order,  directive (other than directives
applicable to the general public), claim, citation or notice by any governmental
authority or any other person or entity with respect to (i) air emissions,  (ii)
spills,  releases or discharges to soils or any  improvements  located  thereon,
surface  water,  ground water or the sewer,  septic  system or waste  treatment,
storage  or  disposal  systems  servicing  any  of  the  Premises,  (iii)  noise
emissions,  (iv)  solid or  liquid  waste  disposal,  (v) the  use,  generation,
storage,  transportation or disposal of toxic or hazardous  substances or wastes
or (vi) other environmental, health or safety matters

                                       17
<PAGE>

affecting,  in any material  respect,  the  Company,  any of the Premises or any
improvements located thereon, or the businesses thereon conducted.

Section 4.19. APPLICATION OF TAKEOVER PROTECTIONS.  The Company and its board of
directors  have  taken  all  necessary  action,  if  any,  in  order  to  render
inapplicable  any  control  share  acquisition,  business  combination  or other
similar anti-takeover provision under the laws of the state of its incorporation
which  is or  could  become  applicable  to  the  Investor  as a  result  of the
transactions contemplated by this Agreement,  including, without limitation, the
Company's  issuance  of the  Securities  and  the  Investor's  ownership  of the
Securities.

                                    ARTICLE V

                            COVENANTS OF THE INVESTOR

Investor covenants as follows.

Section 5.1 BEST EFFORTS.  Investor shall use its best efforts to timely satisfy
each of the conditions to be established by it as provided in Article II of this
Agreement.

Section  5.2  REGULATION  S  COMPLIANCE.   Investor   agrees  that  any  hedging
transactions  with  respect  to the  Common  Stock  will  only be  conducted  in
compliance  with  Regulation S. Investor  certifies that it is not a U.S. Person
(as defined for purposes of Regulation  S) and is not  acquiring the  Securities
for the  account or benefit  of a U.S.  Person.  The  Investor  understands  and
acknowledges  that the  Company  may  refuse to  register  the  transfer  of any
Securities  unless  made  in  accordance  with  the  registration  or  exemption
provisions of the Securities Act.

                                   ARTICLE VI

                            COVENANTS OF THE COMPANY

Section  6.1.  BEST  EFFORTS.  The Company  shall use its best efforts to timely
satisfy each of the  conditions  to be satisfied by it as provided in Article II
of this Agreement.

Section  6.2.  REGISTRATION  RIGHTS.  The Company  shall cause the  Registration
Rights  Agreement  to remain in full force and  effect,  and the  Company  shall
comply with the terms thereof.

Section 6.3. RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved  and the Company  shall  continue to reserve and keep  available at all
times, free of preemptive  rights,  shares of Common Stock in an amount not less
than 200% of the  number of shares of Common  Stock  needed to  provide  for the
issuance of the Purchased Shares and the Warrant Shares (as may be adjusted from
time to time).  The Company  further agrees at if at any time 200% of the number
of shares of Common Stock issuable  under the Agreement  would cause the Company
to be  obligated  to issue a number of  shares of Common  Stock in excess of its
authorized   capital  (after  taking  into  account  all  other  Capital  Shares
Equivalents then existing), it

                                       18
<PAGE>

shall  promptly  commence and effect all  necessary  corporate  and  shareholder
action  necessary to increase  its  authorized  capital so as to  eliminate  the
aforesaid condition.

Section 6.4.  LISTING OF COMMON STOCK. The Company shall maintain the listing of
the Common Stock on a Principal  Market and, as soon as required by the rules of
the Principal  Market and any other  national  securities  exchange or automated
quotation  system,  if any, upon which shares of Common Stock are listed,  shall
list the Purchased  Shares and the Warrant  Shares on the  Principal  Market and
each such other exchange or system.  The Company further agrees,  if the Company
applies to have the Common Stock traded on any other Principal  Market,  it will
include in such  application the Purchased  Shares and the Warrant  Shares,  and
will take such other  action as is  necessary or desirable in the opinion of the
Investor to cause the  Purchased  Shares and the Warrant  Shares to be listed on
such other Principal  Market as promptly as possible.  The Company will take all
action  necessary  to continue  the listing and trading of its Common Stock on a
Principal Market  (including,  without  limitation,  maintaining  sufficient net
tangible  assets) and will comply in all material  respects  with the  Company's
reporting,  filing  and  other  obligations  under  the  bylaws  or rules of the
Principal Market and shall provide Investor with copies of any correspondence to
or from such  Principal  Market which  questions  or threatens  delisting of the
Common Stock,  within three (3) trading days of the Company's  receipt  thereof,
until the Investor have disposed of all of its Registrable Securities.

Section 6.5. EXCHANGE ACT REGISTRATION.  The Company will cause its Common Stock
to continue to be  registered  under  Section  12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all material  respects with its reporting
and filing  obligations  under the Exchange Act, and will not take any action or
file any  document  (whether or not  permitted  by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing  obligations  under the Exchange Act until the Investor
has disposed of all of its Registrable Securities.

Section 6.6.  LEGENDS.  The certificates  evidencing the Registrable  Securities
shall be free of legends, except as set forth in Article IX.

Section 6.7. CORPORATE EXISTENCE;  CONFLICTING AGREEMENTS. The Company will take
all steps  necessary  to preserve  and continue  its  corporate  existence.  The
Company shall not enter into any agreement,  the terms of which  agreement would
materially restrict or impair the right or ability of the Company to perform any
of its  obligations  under  this  Agreement  or any  of  the  other  Transaction
Documents.

Section 6.8. CONSOLIDATION; MERGER. The Company shall not, at any time after the
date hereof,  effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially  all of the assets of the Company to, another
entity unless the resulting  successor or acquiring  entity (if not the Company)
assumes by written  instrument or by operation of law the  obligation to deliver
to the  Investor  such  shares of stock  and/or  securities  as the  Investor is
entitled to receive pursuant to this Agreement.

Section 6.9. ISSUANCE OF PURCHASED SHARES, WARRANTS AND WARRANT SHARES. The sale
of the Purchased  Shares and the Warrants and the issuance of the Warrant Shares
shall be made in accordance with the provisions and requirements of Regulation S
(or if that exemption shall fail

                                       19
<PAGE>

for any reason, then in accordance with Section 4(2), Section 4(6) or Regulation
D). The Company  shall take such  actions as necessary to qualify the sales made
hereunder to the Investor under Regulation S. If requested by the Investor,  the
Company  shall file a Form D with respect to the  Securities  as required  under
Regulation D and provide a copy thereof to Investor promptly after such filing.

Section 6.10.  RELIEF IN BANKRUPTCY.  The Company shall not seek judicial relief
from its obligations  hereunder  except pursuant to the Bankruptcy  Code. In the
event the Company is a debtor  under the  Bankruptcy  Code,  the Company  hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C.  ss. 362 in respect of the exercise of the Warrants.  The Company agrees,
without  cost or  expense  to the  Investor,  to take or  consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.

                                   ARTICLE VII

                            SURVIVAL; INDEMNIFICATION

Section 7.1. SURVIVAL. The representations, warranties and covenants made by the
Investor and the Company in this Agreement, the annexes,  schedules and exhibits
hereto  and in each  instrument,  agreement  and  certificate  entered  into and
delivered by them pursuant to this Agreement,  shall survive the Closing and the
consummation  of the  transactions  contemplated  hereby for a period of two (2)
years.  In the event of a breach or  violation  of any of such  representations,
warranties or covenants,  the party to whom such representations,  warranties or
covenants  have been made shall have all rights and  remedies for such breach or
violation  available to it under the provisions of this Agreement,  irrespective
of any  investigation  made by or on  behalf  of such  party  on or prior to the
Closing Date.

Section 7.2. Indemnity.
             ---------

     (a)  The Company  shall  indemnify  and hold  harmless  the  Investor,  its
respective  Affiliates and their respective  officers,  directors,  partners and
members (each an "Indemnified Party"), from and against any and all Damages, and
shall  reimburse  the  Indemnified  Parties  for  all  reasonable  out-of-pocket
expenses (including the reasonable fees and expenses of legal counsel),  in each
case promptly as incurred by such  Indemnified  Party and to the extent  arising
out of or in connection with:

          (i)  any  misrepresentation,  omission of fact or breach of any of the
               Company's  representations or warranties  contained in any of the
               Transaction Documents, the annexes, schedules or exhibits thereto
               or any  instrument,  agreement  or  certificate  entered  into or
               delivered by the Company pursuant hereto or thereto; or

          (ii) any failure by the Company to perform in any material respect any
               of its covenants,  agreements,  undertakings  or obligations  set
               forth in any of the Transaction Documents, the annexes, schedules
               or exhibits thereto or any

                                       20
<PAGE>

               instrument, agreement or certificate entered into or delivered by
               the Company pursuant hereto or thereto; or

          (iii)any action instituted  against the Investor by any stockholder of
               the Company who is not an affiliate of an Investor,  with respect
               to any  of  the  transactions  contemplated  by  the  Transaction
               Documents.

     (b)  Investor   shall   indemnify  and  hold  harmless  the  Company,   its
Affiliates,  directors  and officers  (each an  "Indemnified  Party"),  from and
against any and all Damages, and shall reimburse the Indemnified Parties for all
reasonable out-of-pocket expenses (including the reasonable fees and expenses of
legal counsel),  in each case promptly as incurred by such Indemnified Party and
to the extent arising out of or in connection with:

          (i)  any  misrepresentation,  omission  of  fact or  breach  of any of
               Investor's  representations or warranties contained in any of the
               Transaction Documents, the annexes, schedules or exhibits thereto
               or any  instrument,  agreement  or  certificate  entered  into or
               delivered by the Investor pursuant hereto or thereto; or

          (ii) any failure by the  Investor to perform in any  material  respect
               any of its covenants, agreements, undertakings or obligations set
               forth in any of the Transaction Documents, the annexes, schedules
               or exhibits  thereto or any instrument,  agreement or certificate
               entered  into or delivered  by the  Investor  pursuant  hereto or
               thereto.

Section 7.3.  NOTICE.  Promptly  after receipt by an  Indemnified  Party seeking
indemnification  pursuant to Section 7.2 of written notice of any investigation,
claim,  proceeding or other action in respect of which  indemnification is being
sought (each, a "Claim"),  the Indemnified Party promptly shall notify the other
party hereto (the  "Indemnifying  Party") of the commencement  thereof;  but the
omission  so to notify  the  Indemnifying  Party  shall not  relieve it from any
liability  that it otherwise may have to the  Indemnified  Party,  except to the
extent that the  Indemnifying  Party is actually  prejudiced by such omission or
delay. In connection  with any Claim as to which both the Indemnified  Party and
the Indemnifying Party are parties,  the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying  Party, the Indemnified  Party shall have the right to
employ  separate  legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees,  out-of-pocket  costs
and expenses of such  separate  legal counsel to the  Indemnified  Party if (and
only if):  (x) the  Indemnifying  Party  shall  have  agreed  to pay such  fees,
out-of-pocket  costs and expenses,  (y) the Indemnified  Party  reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal  counsel would not be  appropriate  due to actual or, as
reasonably  determined by legal counsel to the  Indemnified  Party,  potentially
differing  interests  between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying  Party,
or (z) the  Indemnifying  Party  shall  have  failed  to  employ  legal  counsel
reasonably  satisfactory to the Indemnified  Party within a reasonable period of
time after notice of the  commencement of such Claim.  If the Indemnified  Party
employs separate legal counsel in circumstances other than as

                                       21
<PAGE>

described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne  exclusively by the  Indemnified  Party.  Except as
provided above, the  Indemnifying  Party shall not, in connection with any Claim
in the same  jurisdiction,  be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or  compromise  any Claim or consent to the entry of any judgment  that does not
include an unconditional  release of the Indemnified  Party from all liabilities
with respect to such Claim or judgment.

Section 7.4.  DIRECT  CLAIMS.  In the event an  Indemnified  Party should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party,  the  Indemnified  Party promptly shall deliver notice of such
claim to the Indemnifying  Party. If the Indemnifying  Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified  Party and
the Indemnifying  Party or by binding  arbitration  conducted in accordance with
the procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.

                                  ARTICLE VIII

                    NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

Section 8.1.  NON-DISCLOSURE  OF NON-PUBLIC  INFORMATION.  The Company shall not
disclose  material  non-public  information  to  the  Investor,  advisors  to or
representatives  of the Investor unless prior to disclosure of such  information
the Company  identifies  such  information as being  non-public  information and
provides the Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public  information for review.  The Company
may, as a condition to disclosing any non-public information hereunder,  require
the  Investor's  advisors and  representatives  to enter into a  confidentiality
agreement  in form and content  reasonably  satisfactory  to the Company and the
Investor.

                                   ARTICLE IX

                      LEGENDS; TRANSFER AGENT INSTRUCTIONS

Section  9.1.  LEGENDS.   Unless  otherwise  provided  below,  each  certificate
representing Registrable Securities will bear the following legend or equivalent
(the "LEGEND"):

THE SECURITIES  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S.  SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR ANY OTHER
APPLICABLE  SECURITIES  LAWS AND HAVE BEEN ISSUED IN RELIANCE  UPON AN EXEMPTION
FROM  THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT  AND  SUCH  OTHER
SECURITIES LAWS.

                                       22
<PAGE>

NEITHER  THIS  SECURITY NOR ANY  INTEREST OR  PARTICIPATION  HEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED,  PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT IN
ACCORDANCE  WITH REGULATION S, PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
UNDER THE SECURITIES  ACT OR PURSUANT TO A TRANSACTION  THAT IS EXEMPT FROM SUCH
REGISTRATION,  SUPPORTED  IN EACH CASE  (OTHER THAN  PURSUANT TO A  REGISTRATION
STATEMENT) BY AN OPINION OF COUNSEL.

Section  9.2.  TRANSFER  AGENT  INSTRUCTIONS.  Upon the  execution  and delivery
hereof,  the Company is issuing to the transfer  agent for its Common Stock (and
shall issue to any substitute or replacement transfer agent for its Common Stock
upon the Company's  appointment of any such  substitute or replacement  transfer
agent)  Irrevocable  Transfer Agent  Instructions  substantially  in the form of
EXHIBIT  B  hereto.  Such  Irrevocable  Transfer  Agent  Instructions  shall  be
irrevocable  by the Company from and after the date hereof or from and after the
issuance  thereof to any such  substitute or replacement  transfer agent, as the
case may be.

Section 9.3. NO OTHER  LEGEND OR STOCK  TRANSFER  RESTRICTIONS.  No legend other
than the one  specified  in Section 9.1 has been or shall be placed on the share
certificates  representing  the  Registrable  Securities and no  instructions or
"stop transfer  orders," "stock transfer  restrictions,"  or other  restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX. After the Effective  Date,
upon request of the Investor the Company will  substitute  certificates  without
restrictive legend for certificates for the Purchased Shares issued prior to the
Effective  Date  which bear  restrictive  legends  and remove any  stop-transfer
restriction relating thereto promptly,  but in no event later than three trading
days after request for removal, provided that in connection with any such event,
the Investor shall confirm in writing to the Company or its transfer agent, that
(i) the Investor has sold,  pledged or otherwise  transferred or agreed to sell,
pledge or  otherwise  transfer  the  shares  represented  thereby in a bona fide
transaction to a third party that is not an affiliate of the Investor,  and (ii)
the Investor  confirms to the transfer agent that the Investor has complied with
the prospectus delivery requirement.

Section 9.4. INVESTOR'S COMPLIANCE.  Nothing in this Article shall affect in any
way Investor's  obligations to comply with all applicable  securities  laws upon
resale of the Common Stock.

Section 9.5.  TRANSFERS WITHOUT  REGISTRATION.  If Investor provides the Company
with an opinion of counsel, in generally acceptable form, that registration of a
resale by Investor of any Securities is not required  under the Securities  Act,
the Company shall permit the transfer and promptly  instruct its transfer  agent
to issue  one or more  certificates  in such name and in such  denominations  as
specified  by Investor  and, if such opinion  provides  that such legends can be
removed, without any restrictive legends.

Section 9.6. INJUNCTIVE RELIEF. The Company  acknowledges that a breach by it of
its  obligations  hereunder  will  cause  irreparable  harm to the  Investor  by
vitiating  the  intent  and  purpose  of the  transaction  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article IX will be inadequate and agrees, in the event of
a breach or threatened  breach by the Company of the  provisions of this Article
IX, that the  Investor  shall be  entitled,  in addition to all other  available
remedies, to an injunction

                                       23
<PAGE>

restraining any breach and requiring  immediate  issuance and transfer,  without
the necessity of showing  economic  loss and without any bond or other  security
being required.

                                    ARTICLE X

                           CHOICE OF LAW; ARBITRATION

Section 10.1.  GOVERNING LAW. This Agreement  shall be governed by and construed
in  accordance  with the laws of the State of Delaware  applicable  to contracts
made in Delaware by persons  domiciled  in  Delaware  and without  regard to its
principles  of conflicts of laws.  The  corporate  laws of the State of Delaware
shall govern all issues  concerning  the relative  rights of the Company and its
stockholders.

Section 10.2.  ARBITRATION.  Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration by the
American  Arbitration  Association (the "AAA") in accordance with its Commercial
Arbitration  Rules.  In the event of any conflict  between  those Rules and this
Agreement, this Agreement will govern.

     Arbitration  will be  conducted  by a panel of three (3)  arbitrators  (the
"Panel").  Within fifteen (15) days after the commencement of arbitration,  each
party shall select one person to act as  arbitrator  and the two selected  shall
select a third arbitrator within ten (10) days of their appointment. The members
of the Panel  shall  decide on one  member to act as Chair.  If the  arbitrators
selected by the parties are unable or fail to agree on a third  arbitrator,  the
third arbitrator shall be selected by the American Arbitration Association.

     The place of arbitration  shall be New York, New York. This Agreement shall
be  governed  by and  interpreted  in  accordance  with the laws of the State of
Delaware  unless the  matter at issue is the  corporation  law of the  company's
state of incorporation,  in which event the corporation law of that jurisdiction
shall govern that particular issue. Either party may, without waiving any remedy
under this  Agreement,  seek from any Court having  jurisdiction  any interim or
provisional  relief that is  necessary to protect the rights or property of that
party,  pending the Panel's  determination of the merits of the controversy.  If
any such provisional relief is sought,  the  non-prevailing  party shall pay the
expenses of the  prevailing  party,  including  reasonable  attorney's  fees, in
connection with that proceeding.

     Consistent with the expedited nature of arbitration,  each party will, upon
the written request of the other party,  promptly  provide the other with copies
of documents  relevant to the issues  raised by any claim or  counterclaim.  Any
dispute  regarding  discovery,  or the  relevance  or  scope  thereof,  shall be
determined by the Chair of the Panel, which  determination  shall be conclusive.
Document  exchange  shall be completed  within  forty-five  (45) days  following
selection of the last member of the Panel. At the request of a party, the Panel,
through its Chair,  shall have the discretion to order examination by deposition
of  witnesses  to the  extent  the  Panel  deems  such  discovery  relevant  and
appropriate.  Depositions  shall be  limited to a maximum of three per party and
shall be held within thirty (30) days of authorization by the Panel.  Additional
depositions  may be scheduled only with the permission of the Chair of the Panel
for good cause

                                       24
<PAGE>

shown.  Each deposition  shall be limited to one day's duration.  All objections
are  reserved  for the  arbitration  hearing  except  for  objections  based  on
privilege.

     The award of the  arbitrators  shall be accompanied  by a written  reasoned
opinion,  which, to the extent practical,  shall be rendered no more than thirty
(30) calendar days  following the close of the Panel's  adjudicatory  hearing on
the issues submitted for  arbitration.  The decision of the Panel will be final,
binding,  conclusive  and  non-appealable.  The  decision  of the Panel  will be
entitled to be enforced to the fullest  extent  permitted  by law and entered in
any court of competent jurisdiction. The Panel (or the sole arbitrator selected,
if there is no  timely  response  by the  responding  party) is  authorized  and
directed to enter a default judgment against a party who fails to take action or
to participate in any proceeding hereunder within the time periods prescribed by
this Agreement, and by the AAA Rules and/or the Panel.

     The Panel shall award to the prevailing  party, as determined by the Panel,
all that party's costs and expenses.  "Costs and expenses"  means all reasonable
pre-award expenses of arbitration,  including discovery and deposition expenses,
witness fees, costs and expenses, and attorneys' fees. If the Panel is unable to
determine which party is the  "prevailing  party," the Panel shall apportion the
costs and expenses as it deems appropriate.

                                   ARTICLE XI

                                   ASSIGNMENT

Neither this  Agreement nor any rights of the Investor or the Company  hereunder
may be  assigned  by  either  party to any  other  person.  Notwithstanding  the
foregoing,  the provisions of this Agreement  shall inure to the benefit of, and
be  enforceable  by,  any  permitted  transferee  of any  Securities;  provided,
however,  Investor's  interest in this Agreement may be assigned at any time, in
whole or in part,  to any  Affiliate  of the  Investor,  who  agrees to make the
representations  and  warranties  contained  in Article III and who agrees to be
bound by the terms of this  Agreement,  provided  that such  transfer  otherwise
complies with applicable securities laws.

                                   ARTICLE XII

                                     NOTICES

All notices, demands,  requests,  consents,  approvals, and other communications
required  or  permitted  hereunder  shall be in writing  and,  unless  otherwise
specified  herein,  shall be (i) hand  delivered,  (ii)  deposited  in the mail,
registered  or certified,  return  receipt  requested,  postage  prepaid,  (iii)
delivered  by  reputable  air courier  service  with  charges  prepaid,  or (iv)
transmitted by facsimile,  addressed as set forth below or to such other address
as such party shall have specified most recently by written  notice.  Any notice
or other  communication  required or  permitted to be given  hereunder  shall be
deemed effective (a) upon hand delivery or delivery by facsimile,  with accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number designated below (if

                                       25
<PAGE>

delivered on a business day during normal business hours where such notice is to
be received),  or the first  business day following  such delivery (if delivered
other than on a business day during normal  business  hours where such notice is
to be received) or (b) on the first  business day  following the date of sending
by reputable courier service,  fully prepaid,  addressed to such address, or (c)
upon  actual  receipt  of such  mailing,  if  mailed.  The  addresses  for  such
communications shall be:


If to the Company:                    Galaxy Nutritional Foods, Inc.
                                      2441 Viscount Row
                                      Orlando, FL 32809
                                      Attn: Angelo S. Morini, CEO
                                      Tel: (407) 855-5500
                                      Fax: (407) 855-1099

with a copy to
(shall not constitute notice):        Baker & Hostetler, LLP
                                      200 South Orange Ave., Suite 2300
                                      Orlando, FL 32802
                                      Attn: Kenneth C. Wright, Esq.
                                      Tel: (407) 649-4001
                                      Fax: (407) 841-0168

if to the Investor:                   As set forth on the signature pages hereto

with a copy to:                       Kevin A. Prakke, Esq.
(shall not constitute notice)         Wyrick Robbins Yates & Ponton LLP
                                      4101 Lake Boone Trail, Suite 300
                                      Raleigh, North Carolina 27607
                                      Telephone: (919) 781-4000
                                      Facsimile: (919) 781-4865

Either party hereto may from time to time change its address or facsimile number
for notices  under this  Article XII by giving  written  notice of such  changed
address  or  facsimile  number to the other  party  hereto as  provided  in this
Article XII.

                                  ARTICLE XIII

                                  MISCELLANEOUS

Section  13.1.  COUNTERPARTS/  FACSIMILE/  AMENDMENTS.  This  Agreement  may  be
executed in multiple  identical  counterparts,  each of which may be executed by
fewer than all of the parties  and shall be deemed to be an original  instrument
that  shall  be  enforceable   against  the  parties  actually   executing  such
counterparts  and all of  which  together  shall  constitute  one  and the  same
instrument.  Except  as  otherwise  stated  herein,  in  lieu  of  the  original
documents,  a facsimile  transmission or copy of the original documents shall be
as effective and enforceable as the

                                       26
<PAGE>

original.  This Agreement may be amended only by a writing executed by the party
against whom enforcement is sought.

Section 13.2. ENTIRE AGREEMENT. This Agreement, the other Transaction Documents,
which include,  but are not limited to, the Warrants,  the  Registration  Rights
Agreement,  the Escrow Agreement and the Irrevocable Transfer Agent Instructions
set forth the entire agreement and  understanding of the parties relating to the
subject  matter hereof and supersede all prior and  contemporaneous  agreements,
negotiations  and  understandings  between the  parties,  both oral and written,
relating to the subject matter hereof.  The terms and conditions of all Exhibits
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.  Nothing in this Agreement,
express or  implied,  is  intended  to confer  upon any third  party any rights,
remedies, obligations or liabilities under or by reason of this Agreement.

Section  13.3.  SEVERABILITY.  Any  invalidity,  illegality or limitation of the
enforceability  with  respect  to any  one or  more  of the  provisions  of this
Agreement,  or any part thereof,  shall in no way affect or impair the validity,
legality or  enforceability  of any other provisions of this Agreement.  In case
any provision of this Agreement shall be invalid,  illegal or unenforceable,  it
shall, to the extent practicable,  be modified so as to make it valid, legal and
enforceable  and to retain as nearly as  practicable  the intent of the parties,
and the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.

Section 13.4. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the  determination of the trading price or trading volume of the Common
Stock on any given  trading  day for the  purposes  of this  Agreement  shall be
Bloomberg,  L.P. or any successor thereto. The written agreement of the Investor
and the Company shall be required to employ any other reporting entity.

Section 13.5. FEES AND EXPENSES.  Subject to a cap of $20,000, the Company shall
pay the reasonable  fees,  expenses and  disbursements of Wyrick Robbins Yates &
Ponton  LLP,  the  Investor's  counsel,  pursuant  to the  terms  of the  Escrow
Agreement,  and accounting fees, due diligence expenses and other  disbursements
of the Investor.  In addition,  the Company shall reimburse the Investor for any
reasonable  expenses  and legal fees  incurred  enforcing  its rights  under the
Agreement or in connection with any  modification or waiver with respect thereto
requested  by the Company.  The  Company's  obligations  under this Section 13.5
shall  arise and remain in force  whether or not any closing  occurs  hereunder,
unless such failure to close is solely the result of default by the Investor.

Section 13.6. FURTHER  ASSURANCES.  Each party shall do and perform, or cause to
be done and performed,  all such further acts and things,  and shall execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

Section  13.7 DELAYS OR  OMISSIONS.  No delay or omission to exercise any right,
power or remedy accruing to the Company or the Investor or any subsequent holder
of any Securities upon any breach, default or noncompliance of the Investor, any
subsequent holder of any Securities or

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the Company under this Agreement,  shall impair any such right, power or remedy,
nor  shall  it be  construed  to be a  waiver  of any such  breach,  default  or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance  thereafter  occurring.  It is  further  agreed  that any  waiver,
permit,  consent or approval of any kind or character on the part of the Company
or the Investor of any breach,  default or noncompliance under this Agreement or
any  waiver  on the  Company's  or the  Investor's  part  of any  provisions  or
conditions of this  Agreement  must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies,  either
under this  Agreement,  by law,  or  otherwise  afforded  to the Company and the
Investor, shall be cumulative and not alternative.

Section 13.8  AMENDMENTS  AND WAIVERS.  Except as otherwise  expressly  provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either  generally or in a particular  instance,
either  retroactively or prospectively and either for a specified period of time
or indefinitely) with the written consent of the Company and the Investor or its
transferees  holding at least fifty percent (50%) of the  outstanding  Purchased
Shares and  Warrant  Shares  (assuming  the  exercise of all  Warrants),  voting
together as a single group; provided,  however, that no such amendment or waiver
shall reduce the aforesaid  percentage  required  under this Section  13.8.  Any
amendment  or waiver  effected in  accordance  with this  Section  13.8 shall be
binding  upon the  Investor  and each  transferee  of the  Securities.  Upon the
effectuation  of each such amendment or waiver,  the Company shall promptly give
written  notice  thereof  to the  Investor  (or its  transferees)  who  have not
previously consented thereto in writing.

                                   * * * * * *

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<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this Common Stock and
Warrants  Purchase  Agreement to be executed by the undersigned,  thereunto duly
authorized, as of the date first set forth above.

                                        COMPANY:

                                        GALAXY NUTRITIONAL FOODS, INC.


                                        By:    /s/ Angelo S. Morini
                                               ---------------------------------
                                        Name:  Angelo S. Morini
                                               ---------------------------------
                                        Title: Chairman, President, and CEO
                                               ---------------------------------

                                        INVESTOR:

Address: 260 Town Center Blvd           Stonestreet Limited Partnership
Suite 201                               By: Stonestreet Corporation,
Markham, Ontario, Canada L3R BH8            its General Partner

Fax:
                                        By:    /s/ M. Finkelstein
                                               ---------------------------------
                                        Name:  M. Finkelstein
                                               ---------------------------------

                                        Aggregate Purchase Price:  $1,500,000
                                        Number of Purchased Shares:  367,647
                                        Warrants:  122,549

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