FOURTH AMENDMENT AND WAIVER
TO
LOAN AND SECURITY AGREEMENT
This Fourth Amendment and Waiver to Loan and Security Agreement (this
"Amendment") is executed as of June 3, 2005, by GALAXY NUTRITIONAL FOODS, INC.,
a Delaware corporation ("Borrower") and TEXTRON FINANCIAL CORPORATION, a
Delaware corporation ("Lender").
RECITALS
A. Lender and Borrower have established a revolving loan credit
facility pursuant to that certain Loan and Security Agreement dated as of May
27, 2003, as such agreement may have been previously amended, modified or
supplemented (as so amended, the "Agreement").
B. Borrower has failed to comply with (i) Section 6.1(e) of the
Agreement by failing to deliver the financial projections for the Fiscal Year
ending March 31, 2006 in the time frame provided in such Section (the "Financial
Projection Default"), (ii) Section 7.4 of the Agreement by making Unfunded
Capital Expenditures in excess of $100,000 for the Fiscal Year ended March 31,
2005 (the "Capital Expenditure Default"), (iii) Section 7.6(a) of the Agreement
by permitting its Fixed Charge Coverage Ratio to be less than 1:40 to 1:00 for
the Fiscal Quarters ended December 31, 2004 and March 31, 2005 (the "Fixed
Charge Coverage Ratio Default"), and (iv) Section 7.6(b) of the Agreement by
permitting its Adjusted Tangible Net Worth to be less than the amount set forth
in such Section for the Fiscal Quarter ended March 31, 2005 (the "Tangible Net
Worth Default" and, together with the Financial Projections Default, the Capital
Expenditure Default and the Fixed Charge Coverage Ratio Default, the "Existing
Defaults").
C. Borrower has requested and Lender has agreed to a temporary
Overadvance (as defined below) in the amount not to exceed $750,000.
D. Borrower has requested that certain terms of the Agreement be
amended.
E. Borrower has requested that Lender waive the Existing Defaults, and
the parties wish to set forth herein the terms of the Overadvance referred to
above.
F. Lender has agreed to the requested amendments and waivers on the
terms and conditions set forth in this Amendment.
AGREEMENT
In reliance upon the representations, warranties and covenants of
Borrower set forth in the Agreement, Lender and Borrower agree as follows:
1. Definitions. Capitalized terms not defined in this Amendment shall have
the definitions given to them in the Agreement, where applicable, or the UCC as
amended from time to time.
2. Amendment to Definitions. The Agreement is amended by deleting the
definitions of "Adjusted Tangible Net Worth", "Dilution Reserve", "Fixed Charge
Coverage Ratio", "SouthTrust" and "SouthTrust Collateral" from the Agreement and
substituting the following new definitions therefore:
"Adjusted Tangible Net Worth" means, with respect to Borrower,
the sum of (i) stockholder's equity, including preferred stock,
determined in accordance with GAAP and (ii) subordinated indebtedness
(if any), minus the sum of (a) Intangible Assets, (b) all loans or
advances to any Person, and (c) prepaid expenses.
"Dilution Reserve" means, as of any date of determination, the
reserve established by Lender to reduce the advance rate against the
Eligible Receivables in an amount not greater than the amount by which
bad debt write-downs, credits, returns, discounts and allowances
related to the Receivables (excluding bad debt write-downs associated
with Receivables from Del Sunshine) (the "Dilutive Items") exceed five
percent (5%) of the Receivables (the "Dilution"), which shall be
effective upon receipt by Lender of the most recently completed report
of the field examination of the books, records and other assets of
Borrower conducted pursuant to Section 3.2 or under any other provision
of this Agreement; the Dilution shall be based on the greater of the
Dilutive Items for (x) the previous three (3) months or (y) the
previous twelve (12) months, in each case as set forth in the most
recently completed field examination.
"Fixed Charge Coverage Ratio" means, for any period, the ratio
of (i) Borrower's EBITDA plus all accrued expenses associated with the
Employment Contract which are deducted from revenue in determining Net
Income of Borrower for such period minus all cash payments made under
the Employment Contract minus Unfunded Capital Expenditures minus taxes
actually paid by Borrower in cash minus distributions and dividends
paid by Borrower in cash, to (ii) Borrower's Interest Expense plus
payments (including scheduled amortization payments) for Money Borrowed
(including Capital Lease payments) made by Borrower, in each case for
such period.
"SouthTrust" means Wachovia Bank, National Association f/k/a
SouthTrust Bank and its successors and permitted assigns.
"SouthTrust Collateral" means the collateral in which Borrower
has granted to SouthTrust a security interest as more fully described
in that certain Security Agreement (Machinery and Equipment) dated as
of March 10, 2000, as it has been and may hereafter be amended,
supplemented, extended or restated from time to time.
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3. Further Amendments to Definitions.
(a) The Agreement is amended by deleting the reference to "Revolving
Credit Limit" from the second line of the definition of "Borrowing Base" and
substituting "Revolving Credit Facility" in lieu thereof.
(b) The Agreement is amended by deleting the reference to "(xii)" from the
twenty-third line of the definition of "Collateral" and substituting "(xiii)" in
lieu thereof.
4. Amendment to Section 1.6. Section 1.6 of the Agreement, Renewal and
Termination, is amended by deleting paragraph (a) of such Section in its
entirety and substituting the following therefor:
"(a) This Agreement shall expire on the Termination Date. This
Agreement shall be automatically renewed for additional one (1) year
periods upon expiration of the Initial Term unless terminated by Lender
or Borrower as provided in this Section 1.6. Borrower may terminate
this Agreement at the expiration of the Initial Term or at the end of
each Renewal Term by giving written notice of such termination to
Lender at least ninety (90) days prior to the effective date of such
termination, and, if such termination date is on a date other than the
end of the Initial Term or a Renewal Term, by payment to Lender of the
Early Termination Fee as provided in Section 2.5 hereof. Lender may
terminate this Agreement (i) at the expiration of the Initial Term or
at the end of each Renewal Term by giving written notice of such
termination to Borrower at least ninety (90) days prior to the
effective date of such termination, and (ii) at any time during the
existence of an uncured Event of Default."
5. Amendment to Article VI. Article VI of the Agreement is amended by
adding the a new Section 6.17 at the end thereof to read as follows:
"Section 6.17 Retention of Consultants. Borrower acknowledges
that Lender shall have the right at any time to retain (either directly
or through counsel) an independent accounting or consulting firm to
conduct ongoing reviews of the business and operations of Borrower and
that the reasonable fees and expenses of any such firm shall be
reimbursed by Borrower pursuant to Section 11.7. Borrower agrees to
cooperate with any such firm and agrees also that such firm will
constitute representatives of Lender for purposes of Section 6.2 and,
accordingly, shall be permitted during normal business hours, to
examine, copy and make extracts from the books and records of Borrower,
to visit any of Borrower's business locations, and to discuss
Borrower's business and affairs with its officers, all subject to the
confidentiality provisions of this Agreement and to the extent
reasonably requested by such firm retained by Lender."
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6. Amendment to Section 7.6(a). Section 7.6(a) of the Agreement is amended
by deleting such subsection in its entirety and substituting the following
therefor:
"(a) Borrower shall not permit the Fixed Charge Coverage Ratio
to be less than the ratio set forth below, as of the end of each
calendar month, for the applicable period set forth opposite thereto:
|------------------------------------------------------------------------------------ --------------------
Fixed Charge
Applicable Period Coverage Ratio
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For the calendar month period ending June 30, 2005 0.75 to 1.00
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For the calendar month period ending July 31, 2005 1.10 to 1.00
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For the calendar month period ending August 31, 2005 1.10 to 1.00
For the four calendar month period ending August 31, 2005 1.00 to 1.00
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For the calendar month period ending September 30, 2005 1.10 to 1.00
For the five calendar month period ending September 30, 2005 1.00 to 1.00
------------------------------------------------------------------------------------ --------------------
For the calendar month period ending October 31, 2005 1.10 to 1.00
For the six calendar month period ending October 31, 2005 1.00 to 1.00
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For the calendar month period ending November 30, 2005 1.10 to 1.00
For the seven calendar month period ending November 20, 2005 1.15 to 1.00
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For the calendar month period ending December 31, 2005 1.10 to 1.00
For the eight calendar month period ending December 31, 2005 1.15 to 1.00
------------------------------------------------------------------------------------ --------------------
For the calendar month period ending January 31, 2006 1.10 to 1.00
For the nine calendar month period ending January 31, 2006 1.15 to 1.00
------------------------------------------------------------------------------------ --------------------
For the calendar month period ending February 28, 2006 1.10 to 1.00
For the ten calendar month period ending February 28, 2006 1.15 to 1.00
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For the calendar month period ending March 31, 2006 1.10 to 1.00
For the eleven calendar month period ending March 31, 2006 1.25 to 1.00
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For the twelve calendar month period ending April 30, 2006 1.25 to 1.00
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For the twelve calendar month period ending each month thereafter 1.25 to 1.00
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7. Amendment to Section 7.6(b). Section 7.6(b) of the Agreement is amended
by deleting such subsection in its entirety and substituting the following
therefor:
"(b) Borrower shall not permit its Adjusted Tangible Net Worth
at any time to be less than (i) $7,500,000 for the calendar month
ending Xxxxx 00, 0000, (xx) $7,300,000 for the calendar month ending
April 30, 2005, (iii) $7,100,000 for the calendar month ending May 31,
2005 and (iv) the sum of $7,100,000 plus an amount equal to
seventy-five percent (75%) of Net Income for each calendar month
thereafter. For any determination hereunder, non-cash stock
compensation expense and benefits shall be excluded from shareholders'
equity and net income so that such expenses and benefits shall have a
zero effect upon the calculation."
8. Amendment to Schedules. Schedules 5.1(c), 5.1(d) and 5.8 to the
Agreement are hereby amended and modified by deleting such Schedules in their
entirety and replacing them with Schedules 5.1(c), 5.1(d) and 5.8 attached to
this Amendment, respectively.
9. Waiver of Over-advance Default. Lender hereby waives Borrower's
obligation under Section 6.8 of the Agreement solely to the extent that the
aggregate total of all over-advances does not exceed $750,000.00 (collectively,
the "Overadvances"), which waiver shall be applicable from April 29, 2005 until
and through July 31, 2005, provided no other Default then exists other than the
Existing Defaults; provided, however, Borrower hereby agrees to immediately pay
to Lender, in full, the amount of any Overadvance in excess of $750,000.00,
together with all accrued interest and other charges owing to Lender with
respect to such excess. Notwithstanding the following, (i) all outstanding
Overadvances shall be Revolving Loan Advances under the Revolving Credit
Facility and (ii) the aggregate principal amount of all Revolving Loan Advances
(including any Overadvances) outstanding at any one time shall not exceed
$7,500,000.
10. Waiver of Existing Defaults. Lender hereby waives the Existing
Defaults.
11. Interest Rate. Notwithstanding the waivers set forth above, Borrower
and Lender agree that the unpaid principal balance of the Revolving Loan
Advances shall continue to bear interest at the rate set forth in Section 1.3(b)
of the Agreement until such time as (i) there are no Overadvances outstanding,
(ii) the requirement of Lender to make any Overadvance has terminated, and (iii)
no Default or Event of Default has occurred and is continuing.
12. Confirmation. The parties to this Amendment acknowledge and agree that
the security interests created pursuant to the Agreement shall remain in full
force and effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower, and nothing contained in this Amendment shall be deemed
a release of any of the Collateral.
13. Representations and Warranties. Borrower hereby represents and
warrants to Lender: (a) the Representations and Warranties contained in Article
V of the Agreement, as amended by this Amendment, are true and correct as of the
date of this Amendment; (b) the execution, delivery and performance by Borrower
of this Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, or notice to or action by, any third person party in order to be
enforceable; and (c) the Agreement, as amended by this Amendment, constitutes
the legal, valid and binding obligation of Borrower, enforceable against
Borrower in accordance with its terms, without defense, counterclaim,
recoupment, or offset.
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14. Conditions Precedent to Effectiveness. This Amendment shall be
effective (such date, the "Fourth Amendment Effective Date") upon satisfaction
of the following:
(a) Lender's receipt of a counterpart hereof duly executed by
Borrower;
(b) Lender's receipt of such duly executed documents, certificates,
instruments and legal opinions as Lender shall reasonably request in connection
with the transactions contemplated by this Amendment, each in form and substance
reasonably satisfactory to Lender; and
(c) Lender's receipt of the Fourth Amendment Effective Date
Amendment Fee as set forth below and all other fees and expenses related to this
Amendment.
15. Conditions Subsequent to Effectiveness. The continued effectiveness of
this Amendment is subject to the fulfillment, on or before the date applicable
thereto, of each of the conditions subsequent set forth below:
(a) On the first Business Day of each of the three weeks following
the Fourth Amendment Effective Date, Lender shall receive the Weekly Amendment
Fee as set forth below.
(b) On or before June 30, 2005, Lender shall have received a copy of
the strategic plan of Borrower.
(c) On or before July 15, 2005, Lender shall have received revised
financial projections of Borrower in form and substance satisfactory to Lender.
16. Fees. In order to induce Lender to enter into this Amendment, Borrower
agrees to pay to Lender an Amendment Fee in the amount of $50,000. The Amendment
Fee shall be earned by Lender upon the execution of this Amendment and payable
by Borrower to Lender as follows:
(a) on the Fourth Amendment Effective Date, Borrower shall pay
Lender $12,500 (the "Fourth Amendment Effective Date Amendment Fee"); and
(b) on the first Business Day of each of the three weeks following
the Fourth Amendment Effective Date, Borrower shall pay Lender $12,500 (each
such payment being referred to as a "Weekly Amendment Fee").
The Fourth Amendment Effective Date Amendment Fee and the Weekly Amendment Fee
shall be fully earned by Lender on the Fourth Amendment Effective Date, shall be
non-refundable and shall be treated as a Revolving Loan Advance and be payable
without setoff, deduction, counterclaim or withholding of any kind whatsoever.
Borrower agrees to pay to Lender all costs and expenses, including reasonable
attorneys' fees, incurred by Lender in connection with the preparation and
execution of this Amendment.
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17. Full Force and Effect; No Further Amendment. Except as expressly
amended by the terms of this Amendment, all terms, covenants and provisions of
the Agreement are and shall remain in full force and effect without further
modification or amendment. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided above, operate as a waiver or
any right, power or remedy of the Lender under the Agreement or any of the other
Loan Documents, nor constitute a waiver of any provision of the Agreement or any
of the other Loan Documents.
18. Complete Agreement. This Amendment contains the entire and exclusive
agreement of the parties with reference to all matters discussed in this
Amendment, and this Amendment supersedes all prior drafts and communications
with respect thereto. This Amendment shall be deemed incorporated into, and made
a part of, the Agreement.
19. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original but all such
separate counterparts shall together constitute but one and the same instrument.
In proving this Amendment in any judicial proceedings, it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against whom such enforcement is sought. Any signatures delivered by a party by
facsimile or other electronic method of transmission shall be deemed an original
signature hereto.
20. Reference to and Effect on the Loan Documents. Upon the effectiveness
of this Amendment, on and after the date hereof, each reference in the Agreement
to "this Agreement", "hereunder", "hereof" or words of like import referring to
the Agreement, and each reference in the other Loan Documents to "the Loan
Agreement" "thereunder", "thereof" or words of like import referring to the
Agreement, shall mean and be a reference to the Loan Agreement as amended
hereby.
21. Section Titles. The section titles contained in this Amendment are
included for the sake of convenience only, shall be without substantive meaning
or content of any kind whatsoever, and are not a part of the agreement between
the parties.
22. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF RHODE ISLAND.
23. Loan Document. This Amendment shall be deemed to be a Loan Document
for all purposes.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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The undersigned, pursuant to due authority, have caused this Amendment to
be executed as of the date set forth above.
BORROWER:
GALAXY NUTRITIONAL FOODS, INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
LENDER:
TEXTRON FINANCIAL CORPORATION
By: /s/ Xxxxxx Xxxx
--------------------------------------
Name: Xxxxxx Xxxx
Title: Senior Account Executive
