AMENDMENT AND LIMITED WAIVER
TO LOAN AGREEMENT
This Amendment and Limited Waiver to Loan Agreement (this "Amendment")
dated as of June 26, 2002, is entered into by and between GALAXY NUTRITIONAL
FOODS, INC. ("Borrower") and FINOVA MEZZANINE CAPITAL INC. ("FMC"), in reference
to that certain Loan Agreement between them dated September 30, 1996 (as amended
from time to time, the "Loan Agreement"; capitalized terms used herein, unless
otherwise defined, shall have the meanings set forth in the Loan Agreement).
A. FMC currently provides financial accommodations to Borrower pursuant
to the terms of the Loan Agreement.
B. Borrower has notified FMC that Events of Default have occurred under
the Loan Agreement due to Borrower's failure to comply with the minimum Debt
Service Coverage Ratio and the maximum Funded Debt to EBITDA Ratio set forth
therein.
C. Borrower has requested that FMC grant a waiver of the Events of
Default and amend the Loan Agreement as provided herein. FMC consents to
Borrower's requests on the terms and subject to the conditions set forth in this
Amendment.
NOW THEREFORE, the parties hereto agree as follows:
1. WAIVER. FMC hereby waives Borrower's duty to comply with the minimum
Debt Service Coverage ratio set forth in Section 3.23 of the Loan Agreement for
the nine month period ended March 31, 2002 and the twelve month period ended
June 30, 2002. FMC also hereby waives Borrower's duty to comply with the maximum
Funded Debt to EBITDA Ratio set forth in Section 3.22 of the Loan Agreement for
the nine month period ended March 31, 2002 and the twelve month period ended
June 30, 2002. The limited waivers provided herein shall apply solely to the
covenant violations described above as of the periods referenced above. In all
other respects, Borrower shall comply with the terms of the Loan Agreement and
the instruments, documents and agreements executed in connection therewith, as
amended hereby.
2. AMENDMENTS. The Loan Agreement is amended as follows:
(a) Section 8.1 of the Loan Agreement is amended by adding the
following definitions thereto:
"Operating Cash Flow/Actual" means, for any period, Borrower's
net income or loss (excluding the effect of any extraordinary gains or
losses), determined in accordance with GAAP, plus or minus each of the
following items, to the extent deducted from or added to the revenues
of Borrower in the calculation of net income or loss: (i)
depreciation; (ii) amortization and other non-cash charges; (iii)
interest expense paid or accrued; and (iv) total federal and state
income tax expense determined as the accrued liability of Borrower
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in respect of such period; and after deduction for each of (a) federal
and state income taxes, to the extent actually paid during such
period; (b) any non-cash income; and (c) all actual capital
expenditures made during such period and not financed.
"Indebtedness for Borrowed Money" means, without duplication, all
Indebtedness: (i) in respect of borrowed money (including, without
limitation, pursuant to the Loan Agreement, the FINOVA Loan Documents
or any capital leases), (ii) evidenced by a note, debenture, or other
like written obligation to pay money (including, without limitation,
all interest on the Obligations and the Obligations under the FINOVA
Loan Documents), (iii) for the deferred purchase price of property
(other than trade payables arising in the ordinary course of
business), or (iv) in respect of obligations under conditional sales
or other title retention agreements; and all guaranties of any or all
of the foregoing.
"Senior Contractual Debt Service" means, for any period, the sum
of payments made or required to be made by Borrower during such period
for (i) interest only payments due on term loan made available to
Borrower pursuant to the Loan Agreement, (ii) interest only payments
due with respect to the revolving credit facility made available to
Borrower pursuant to the FINOVA Loan Documents, (iii) all commitment
fees, collateral monitoring fees, examination fees, unused line fees
and all other fees payable by Borrower to FINOVA or FMC pursuant to
the Loan Agreement or the FINOVA Loan Documents and (iv) interest only
payments due on the Subordinated Debt (with it being understood that
payments due on the Indebtedness owing by Borrower to South Trust
shall not be considered in the calculation of Senior Contractual Debt
Service).
"Subordinated Debt" means liabilities of Borrower, the repayment
of which is subordinated to the payment and performance of the
Obligations and the Obligations under the FINOVA Loan Documents,
pursuant to a written subordination agreement in form and substance
acceptable to FMC.
"Total Contractual Debt Service" means, for any period, the sum
of payments made (or, as to clause (i) of this sentence, required to
be made) by Borrower during such period for (i) Senior Contractual
Debt Service and (ii) interest and scheduled principal payments due on
any and all other Indebtedness for Borrowed Money of Borrower.
"FINOVA" means FINOVA Capital Corporation.
"FINOVA Loan" means the senior revolving credit facility made
available to Borrower by FINOVA pursuant to the FINOVA Loan Documents.
"FINOVA Loan Documents" means the Security Agreement (Accounts
Receivable, Inventory and Equipment) dated November 1, 1996 between
FINOVA and Borrower and all instruments, documents and agreements
related thereto, all as amended from time to time.
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(b) Section 3.14 of the Loan Agreement is deleted in its entirety and
replaced with the following:
3.14 LIMITATION ON INDEBTEDNESS. Without the prior written
consent of FMC, Borrower shall not, directly or indirectly, make,
create, incur, assume, suffer to exist, or become or remain directly
or indirectly liable with respect to, any Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and
the FINOVA Loan Documents;
(ii) Indebtedness existing and disclosed to FMC prior to
June 26, 2002; and
(iii)Indebtedness not to exceed $500,000 in the aggregate
outstanding at any one time consisting of new capital
lease obligations, unsecured loans and secured loans
secured only by equipment purchased with the proceeds
thereof or stock.
(c) Section 3.22 of the Loan Agreement is deleted in its entirety and
replaced with the following:
3.22 FUNDED DEBT TO EBITDA RATIO. Notwithstanding anything to the
contrary contained herein, Borrower's ratio of Funded Debt to EBITDA
for the 3 month period ended as of September 30, 2002 shall not exceed
30.0 to 1.0; for the 6 month period ended as of December 31, 2002
shall not exceed 20.0 to 1.0; and for the 9 month period ended as of
March 31, 2003 shall not exceed 10.0 to 1.0. For the purposes of this
Agreement, the term "Funded Debt" shall mean (i) indebtedness arising
from the lending by any person or entity of money to Borrower; (ii)
indebtedness, whether or not in any such case arising from the lending
by any person or entity of money to Borrower, (A) which is represented
by notes payable or drafts accepted that evidenced extensions of
credit, (B) which constitutes obligations evidenced by bonds,
debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid (other than accounts payable) or that was
issued or assumed as full or partial payment for property; (iii)
indebtedness that constitutes a capitalized lease obligation; (iv)
reimbursement obligations with respect to letters of credit or
guaranties of letters of credit and (v) indebtedness of Borrower under
any guaranty of obligations that would constitute indebtedness for
money borrowed under clauses (i) through (iii) hereof, if owed
directly by Borrower. For the purposes of this Agreement, the term
"EBITDA" shall mean an amount equal to the sum of (i) net income for
such period, PLUS (ii) interest expenses for such period, PLUS (iii)
tax expense for such period, PLUS (iv) depreciation and amortization
for such period, PLUS or MINUS non-cash charges, all determined in
accordance with GAAP, consistently applied.
(d) Section 3.23 of the Loan Agreement is deleted in its entirety and
replaced with the following:
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3.23 TOTAL DEBT SERVICE COVERAGE RATIO. Borrower's Operating Cash
Flow/Actual for the consecutive 3 month period ended as of September
30, 2002, the consecutive 6 month period ended as of December 31, 2002
and the consecutive 9 month period ended as of March 31, 2003 must be
at least 0.8, 1.0 and 1.1 times, respectively, the amount necessary to
meet Borrower's Total Contractual Debt Service for the applicable
period, calculated on a consolidated basis.
3. REAFFIRMATION. Except as amended by the terms herein, the Loan
Agreement and each of the other documents, instruments and agreements executed
and delivered in connection therewith remain in full force and effect in
accordance with their terms. If there is any conflict between the terms and
conditions of the Loan Agreement and the terms and provisions of this Amendment,
the terms and provisions of this Amendment shall govern.
4. COUNTERPARTS. This Amendment may be executed in multiple counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
5. GOVERNING LAW. This Amendment shall be governed by and construed
according to the laws of the State of Arizona.
6. ATTORNEYS' FEES AND WAIVER OF JURY TRIAL. Borrower agrees to pay, on
demand, all attorneys' fees and costs incurred in connection with the
preparation, negotiation, documentation and execution of this Amendment. If any
legal action or proceeding shall be commenced at any time by any party to this
Amendment in connection with its interpretation, enforcement or otherwise
concerning its terms, the prevailing party in such action or proceeding shall be
entitled to reimbursement of its reasonable attorneys' fees and costs in
connection therewith, in addition to all other relief to which the prevailing
party may be entitled. Each of the parties hereto hereby waives any and all
rights to a trial by jury in any such action or proceeding.
7. RELEASE. Borrower hereby releases, remises, acquits and forever
discharges FMC and FMC's employees, agents, representatives, consultants,
attorneys, fiduciaries, servants, officers, directors, partners, predecessors,
successors and assigns, subsidiary corporations, parent corporations and related
corporate divisions (all of the foregoing hereinafter called the "Released
Parties"), from any and all actions and causes of action, judgments, executions,
suits, debts, claims, demands, liabilities, obligations, damages and expenses of
any and every character, known or unknown, direct and/or indirect, at law or in
equity, of whatsoever kind or nature, whether heretofore or hereafter arising,
for or because of any matter or things done, omitted or suffered to be done by
any of the Released Parties prior to and including the date and execution
hereof, and in any way directly or indirectly arising out of or in any way
connected to this Amendment, the Loan Agreement and the other Loan Documents and
the transactions related thereto (all of the foregoing hereinafter called the
"Released Matters"); PROVIDED, HOWEVER, that the foregoing release shall not
apply to discharge FMC from any obligations which are expressly imposed upon FMC
pursuant to the terms of this Amendment, the Loan Agreement, or any of the other
instruments, documents or
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agreements related thereto, as modified through the date hereof. Borrower
acknowledges that the agreements in this section are intended to be in full
satisfaction of all or any alleged injuries or damages arising in connection
with the Released Matters. Borrower represents and warrants to FMC that it has
not purported to transfer, assign or otherwise convey any right, title or
interest of Borrower in any Released Matter to any other Person and that the
foregoing constitutes a full and complete release of all Released Matters.
8. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is
expressly conditioned upon the following (all documents to be in form and
substance satisfactory to FINOVA):
a. Borrower shall have executed and delivered this Amendment to FMC
and an allonge to the term note executed in connection therewith;
b. Borrower shall have executed and delivered to FINOVA an Amendment
and Limited Waiver to the Loan Agreement between Borrower and
FINOVA;
FINOVA MEZZANINE CAPITAL INC.,
a Tennessee corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Print Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title/Capacity: Vice President
GALAXY NUTRITIONAL FOODS, INC.
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Print Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title/Capacity: Chairman, President & CEO
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