Galaxy Nutritional Foods (GXY) 10-K 2007 FY Annual report

Galaxy Code of Ethics

Galaxy Nutritional Foods, Inc. (“Galaxy” or “the Company”) and the world in which we operate are dynamic and changing constantly. Nevertheless the pole star, integrity, is the constant underlying value that must guide us in our continuing quest for excellence. The journey for excellence-in-all, to which we aspire, is conditioned by a commitment to lawful and ethical conduct in both our business and professional activities.

Each and every employee or representative of the Company is expected to adopt a personal commitment to follow the Code of Ethics laid out in the pages to follow. Each of us is expected to comply not only with the specific policies but also with the spirit of those policies.

Anyone with concerns as to what is proper behavior for any employee or representative of the Company should make that situation known by following the “normal protocol” for reporting concerns as defined below. Unethical behavior, whether related to the Company’s financial reporting, orders (implied or actual) from a superior or otherwise, will not be tolerated under the Company’s commitment to integrity.

The senior management of the Company has the additional responsibility for instilling and nurturing a culture in which integrity is paramount, the law is followed, ethical behavior is expected and a concern and respect for individuals is evident in all we do.

By placing integrity foremost among our core values, we provide the backbone necessary for exceptional performance.

General Code of Conduct

Obey all applicable laws and regulations governing our business.

In all business affairs and relationships, practice honesty and fairness.

Avoid any conflicts of interest involving work and personal activities.

Promote a safe, supportive and productive working environment.

Sustain a culture in which ethical conduct is fostered, recognized and valued.

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Applicability of Galaxy Policies

The policies in this document apply to all employees of the Company and to those additional persons who may represent the Company including board members, directors, agents, sales representatives, brokers, consultants, distributors and independent contractors.

Instituting these policies will require appropriate Galaxy employees in leadership roles to:

1. Identify those non-Galaxy organizations and individuals whose activities involve issues covered by these policies.

2. Require those entities to agree to comply with these policies.

3. Provide the necessary instruction to permit the application of these policies.

4. Evaluate and possibly terminate business contracts and/or business relationships with any entity or person who fails to honor and abide by these policies.

Responsibilities of Employees and other Company Representatives

Each individual policy identifies specific responsibilities. However, all employees must also abide by the following fundamental obligations:

1. Obtain a basic understanding of the issues involved in each policy.

2. Obtain a detailed understanding of the policies as they apply to one’s specific job.

3. Seek counsel when questions as to proper behavior arise.

4. Promptly raise concerns involving any possible violations of these policies.

5. Recognize that concerns can be raised with any Galaxy manager, member of the board or Company legal counsel, following the “normal protocol” procedures as defined below. They can be oral or written and they can be anonymous.

6. Cooperate in any investigation into possible violation of these policies.

Responsibilities of Management and Directors

The responsibilities of Management and the Directors of the Company include but also transcend those required of each employee. They include:

1. Building and maintaining a culture of compliance through example;

2. Assuring an understanding of the relevant policies;

3. Providing an environment in which employees feel safe in raising policy concerns;

4. Recognizing employee contributions toward compliance with Company policies;

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5. Avoiding compliance problems by identifying potential business risks, developing policies and procedures for addressing risks and providing appropriate education and legal counseling;

6. Developing control processes to detect compliance problems, and conducting periodic reviews to assure their effectiveness;

7. Taking corrective action, including appropriate disciplinary action, in regards to identified infractions; and

8. Correcting weaknesses in compliance procedures.

Raising An Integrity Issue

It is not easy to raise an issue of integrity. Doing so can be perceived as violating a confidence or of telling tales on another. A feeling of conflict often accompanies the raising of a potential breach of Company policy. When and if you find yourself in this position it is important to consider the substantial harm that can result from remaining silent including: the health and safety of co-workers and the sustainability of the Company through a loss of confidence by our shareholders or through imposed penalties and potential litigation. These reasons are why we have the policy and why it is important that all of us live by it.

“Normal Protocol” would suggest reporting any concerns in the following order, until you believe that the matter has been properly addressed:

1. To your Direct Report (when appropriate)

2. To a member of Senior Management

3. To a member of the Board of Directors

4. To the Company’s general legal counsel

HOWEVER, ANYONE MAY GO DIRECTLY TO THE COMPANY’S GENERAL LEGAL COUNSEL WHENEVER THEY DEEM APPROPRIATE.

Conflicts of Interest

Overview:

Galaxy recognizes and respects that employees may take part in legitimate financial business and other activities outside of their jobs. However, those activities must be lawful and free of conflicts with their responsibilities to the Company.

Specifically, directors, officers, and employees must avoid any activity that creates or gives the appearance of a conflict of interest between their personal interests and those of the Company. Reports shall be made to the appropriate party (as per the “normal protocol” referenced above), providing notification of any existing or potential conflict of interest.

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In particular, no director, officer or employee shall:

1. be a consultant to; director, officer or employee of, or otherwise operate a business that markets products in competition with the Company’s current or potential products, supplies products to the Company outside the normal course of business, or purchases products from the Company outside the normal course of business;

2. have any material financial interest, including stock ownership in any outside business that creates or gives the impression of a conflict of interest;

3. seek or accept personal loans or services from any outside business except from financial institutions offering similar services to third parties under similar terms in the ordinary course of their respective business activities;

4. be a consultant, director, officer, or employee of any outside business, if the demands of that business would interfere with the operation of the Company;

5. accept any personal loan, or guarantee of an obligation from the Company;

6. conduct business on behalf of the Company with immediate family members including, spouses, parents, siblings and other persons sharing the same living quarters whether or not legal relatives; and

7. use the Company’s property, information or position for personal gain.

Requirements:

1. Written disclosure following “normal protocol” procedures as previously defined, of any outside activities, financial interests or relationships that may present a possible conflict of interest or the appearance of such conflict.

2. Avoid activities or relationships that might conflict or appear to conflict with your job responsibilities.

3. Obtain necessary approvals before accepting any position outside of the Company (including any role as an officer or director).

Warning Signs:

1. Holding a financial interest in a company doing business with Galaxy.

2. Receiving gifts of greater than a nominal value from suppliers, service providers, customers or competitors.

3. Receiving personal discounts from suppliers, service providers, customers or competitors not generally available.

4. Directing business to a supplier that is owned or managed by a relative or close friend.

5. Misusing Galaxy resources or using your influence to promote or assist an outside business.

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6. Preferential hiring of, directing supervision of, or making promotion decisions involving a spouse, relative or close personal friend.

7. Personal relationships that may create a conflict of interest with the employee’s responsibilities or compromise Company interests.

Controllership

Overview:

Controllership implies compliance with all applicable laws, regulations, and Company policies; sound business processes to ensure management decisions reflect sound economic analysis (including prudent consideration of the business risks); the safeguarding and optimal employment of the firm’s financial, intellectual, and physical property; and integrity of communication to realize the timely and accurate reporting of actual and forecasted financial information.

Requirements:

1. Follow Generally Accepted Accounting Principles (GAAP), as well as appropriate procedures, standards, laws and regulations in reporting business transactions.

2. Maintain complete, accurate, and timely books and records that reflect all business transactions.

3. Safeguard all physical, financial, and other Company assets.

4. Use economic, risk-based criteria in making business decisions.

5. Provide timely, candid forecasts and assessments to management.

6. Assure that all required reports are filed timely and with the appropriate agencies. (e.g. SEC)

7. Maintain sound business processes and controls.

Warning Signs:

1. Financial results that seem inconsistent with underlying performance.

2. Inaccurate financial records.

3. Transactions that appear to be inconsistent with good business practice.

4. Absence of controls to protect assets from risk of loss.

5. Underutilized assets.

6. Any circumventing of appropriate reviews or approved processes.

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Fair Employment Practices

Overview:

Galaxy is committed to fair employment practices as well as following applicable labor and employment laws, including the prohibition against all forms of illegal discrimination.

Requirements:

1. Merit and job qualification criteria are to be used as the sole basis for all employment-related decisions affecting employees and applicants.

2. Provision of a work environment free of improper harassment including that directed at an employee because of race, religion, gender, disability, etc.

3. Respect for the privacy rights of employees as it relates to their personal data while reserving the right to monitor the use of Company property (e.g., computers) in accordance with applicable laws.

4. Should conflict arise between these requirements and the policies, customs or practices of a different environment, one should use “normal protocol” as defined in this document to seek counsel to determine an appropriate course of action.

Warning Signs:

1. Behaviors including materials, actions, or stories that ridicule or offend persons.

2. Employment decisions reflecting characteristics other than merit and job related criteria.

3. Violation of an applicable labor law.

4. Improper disclosure of employee information.

5. Refusal to work or otherwise cooperate with certain individuals for ethnic, gender, religious or other reasons covered in this section.

Intellectual Property

Overview:

Galaxy’s intellectual property (e.g. patents, formulations, trade secrets, trademarks, etc.) is among its most valuable assets. It is Company policy to establish, protect, maintain and defend its rights to all commercially significant intellectual property and to use these rights in responsible ways.

Requirements:

1. Identify and protect all commercially significant Galaxy intellectual property rights.

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2. Respect the valid intellectual property rights of others.

3. Following the “normal protocol” procedures defined previously, seek advice before:

a. Soliciting, accepting or using proprietary information of outsiders.

b. Disclosing Galaxy proprietary information to outsiders.

c. Permitting outsiders to use Galaxy’s intellectual property.

4. Assert intellectual property rights only in ways consistent with the law.

5. Understand the procedures that apply regarding new inventions and ideas by an employee.

Warning Signs:

1. Receiving proprietary information from an employee about their former employer.

2. Discussions of proprietary information with customers or suppliers.

3. The divulging of information about a new product or service name before a patent application has been filed or a decision has been made not to file an application.

4. Introduction of a new product or service before a check has been made for patent or trademark infringement.

5. Employing someone who previously worked for a competitor without safeguards to prevent inadvertent disclosure or use of the competitor’s proprietary information.

Health, Safety and Security

Overview:

The Company is committed to achieving health, safety and security excellence. This task is the responsibility of management and employees in all areas of the business.

Requirements:

1. Create and maintain a safe and secure working environment.

2. Access and manage any safety or security risks.

3. Eliminate unreasonable risks.

Warning Signs:

1. The presence of unsafe activities including, exposed and unsafe wiring and blocked fire exits.

2. Safety and/or security complaints from employees, customers or neighbors.

3. Unreported accidents or health hazards.

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Insider Trading

Overview:

Insider trading, dealing, and stock tipping are criminal offenses and will not be tolerated by the Company.

Requirements:

1. Never purchase, sell or recommend the stock or other securities of the Company or any company while you are in possession of inside information about that company.

2. Directors and executive officers are required to comply with the trading limitations set within Galaxy’s Insider Trading Policy.

3. Do not disclose inside information to anyone outside the Company (including family members), except when such disclosure is needed to enable Galaxy to carry on its business properly and effectively and then, only if all appropriate steps have been taken by the Company to prevent the misuse of the information.

4. Only disclose inside information within the Company in the ordinary course of business and when there is no reason to believe the information will be misused.

Warning Signs:

1. The giving of trading tips.

2. Unexpected changes in the Company’s stock price or trading volume.

3. Discussions of internal Company information at social events.

Relationships With Customers And Suppliers

This section summarizes those policies that relate to how Galaxy will interact with its customers and suppliers.

Improper Payments

Overview:

Galaxy employees shall not offer anything of value to obtain an improper advantage in selling goods or services, or conducting financial arrangements. Galaxy must not authorize, participate in or tolerate any business activity that violates this policy. Violations of this policy can result in severe civil and criminal penalties as well as termination from the Company.

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Requirements:

1. Items of value (money, goods, etc.) must never be authorized or given to secure an improper advantage. A business courtesy (gift, contribution, entertainment, etc.) of greater than a nominal value is inappropriate under circumstances that could create the appearance of impropriety.

2. Gratuities or other payments given to expedite a routine transaction should never be given without following “normal protocol” procedures to seek clearance for such an act. If an approved payment is made, it must be accurately reflected in the firm’s financial reports as required.

3. Contributions of Galaxy funds or other assets for political purposes are not permitted.

All representatives of the Company are required to comply with this policy. Measures must be put in place to assure compliance with this policy.

Warning Signs:

1. Knowledge of past inappropriate actions by a representative of the Company.

2. Requests for payments prior to business awards.

3. Unusually large commissions (in excess of the Company’s standard amount/percentages) relative to the value of goods or services received and/or sold.

4. Outside family or other relationships that could lead to a business decision not in Galaxy’s best interest.

Complying with Competition Laws

Overview:

Galaxy is dedicated to compliance with the competition laws in all its activities. Any situations that arise that might compromise this policy should be reviewed and discussed with the appropriate Company representative following “normal protocol” procedures as previously defined.

Requirements:

1. Become familiar with all business specific procedures that address contracts with competitors; obtaining and handling data concerning competitors; and participating trade associations, relevant professional societies, standards development and product certification organizations.

2. Neither enter into or propose any agreements with:

a. Any competitor regarding any aspect of competition between Galaxy and the competitor for sales to a third party.

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b. A supplier that restricts the price or other terms at which Galaxy can resell any product or service to a third party.

c. A customer that restricts the price or other terms at which the customer may resell any product to a third party.

3. Follow “normal protocol” for reporting concerns regarding any business arrangement involving exclusive arrangements, bundling, agreements restricting consumer choice in use or reselling, technology licensing agreements, selective discounting, distribution agreements with competitors and any other arrangement that could raise competition legal issues.

Warning Signs:

1. Discussions or agreements with competitors involving prices, terms and conditions of sale, costs and profit margins, product or service offerings, production or sales capacity or volume, market share, coordination of bidding activities and the division of sales territories of customer or product lines.

2. Any contracts with competitors that could create the appearance of improper agreements or understandings.

Supplier Relationships

Overview:

Galaxy bases its business relationships with suppliers on efficient, fair and lawful practices. The quality of the relationships with our suppliers has a direct and important bearing on the quality of our customer relationships as well as the quality of our products and the ability to service our customer’s needs.

Requirements:

1. Provide a competitive opportunity for all suppliers to secure a share of Galaxy’s purchase volume, as applicable.

2. Enlisting supplier input and support to assure that Galaxy consistently meets the quality, cost and delivery needs of its customers.

3. Assure all suppliers of prompt and full payment on all appropriate invoices.

4. Conduct business only with suppliers who comply with all local and other applicable legal requirements as well as Galaxy standards relating to labor, environmental, health and safety, intellectual property rights and improper payments.

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Warning Signs:

1. Selection of any supplier on any basis other than open competitive bidding.

2. Potential conflicts of interest in supplier selection including the acceptance of gifts or other items of value.

3. Inappropriate supplier selection - a supplier, owned or managed by a relative, close friend, or anyone currently employed by the firm.

4. Apparent disregard of environmental standards, safety or privacy standards.

International Trade

Overview:

Most countries regulate international trade transactions including imports, exports and financial transactions. Further, the United States prohibits cooperation with boycotts against friendly countries or against countries “blacklisted” by specific groups or countries. Galaxy is also committed to complying with all applicable money laundering laws and will adopt steps to ensure the Company does not accept forms of payment that have been identified as attempts at money laundering.

Requirements:

1. Be knowledgeable about all international trade regulations involving countries in which your Galaxy responsibilities are relevant.

2. Understand the extent to which U.S. trade controls apply to transactions conducted outside the United States.

3. Check all Galaxy’s international-business transactions against all applicable laws and regulations that restrict transactions with any country or individual.

4. Refuse cooperation involving any restrictive trade practice or boycott prohibited or penalized under U.S. or applicable local laws. Inform management of all boycott requests including those for information.

5. Seek counsel, following “normal protocol” as previously defined, in cases involving transactions in which a conflict arises between U.S. law and the laws of another country or region.

6. Where Galaxy could bear legal responsibility, procedures shall be established to monitor and verify the accuracy and completeness of all information presented to any government authority or business connection by Galaxy.

Warning Signs:

1. Unfamiliar customers and customers without convincing references.

2. Unusual transactions involving payments, prices, or bribes including transfer prices that fail to be realistic in the face of appropriate cost considerations.

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3. Evasive behavior involving responses to inquiries, delivery dates and locations, or the condition of merchandise including inaccurate tariff classification.

4. Unusually favorable payment terms.

5. Lack of concern for normal trading and warranty service.

6. Abnormal shipping arrangements, packing, routing or marking.

7. Transactions that could be either inappropriate or illegal.

Privacy

Overview:

Galaxy is committed to protecting personal information collected from or maintained about individual customers. Each Galaxy employee shall protect individually identified customer information and any other additional personal information from inappropriate or unauthorized disclosure. The Company shall develop and implement fair and responsible procedures and take reasonable steps to ensure compliance with these provisions.

Requirements:

1. Comply with all applicable privacy and data collection laws, regulations and treaties. Provide as required by law:

a. Notice of privacy policies to relevant parties.

b. Descriptions of the types of information to be gathered and its use.

c. Access to the information for verification and correction.

d. Information security.

2. Consumer information shall not be disclosed that is in any way inconsistent with Galaxy’s privacy policies or applicable laws and regulations.

3. Secure all business records of individual consumer information, including that which is computer-based.

4. Consult with counsel before establishing or updating any system, process, or procedure to collect, use, disclose, or transmit individual consumer information, financial or medical records, or other sensitive personal information.

Warning Signs:

1. Business plans involving inappropriate or unauthorized collection of personal information.

2. Use or disclosure of personal information.

3. Inaccurate or out-of-date policies, notices or information.

4. Inappropriate requests for personal data from third parties.

5. Security controls that could permit unauthorized access to consumer information.

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