AMENDMENT AND LIMITED WAIVER
TO SECURITY AGREEMENT
This Amendment and Limited Waiver to Security Agreement (Accounts
Receivable, Inventory and Equipment) (this "Amendment") dated as of June 26,
2002, is entered into by and between GALAXY NUTRITIONAL FOODS, INC. ("Borrower")
and FINOVA CAPITAL CORPORATION ("FINOVA"), in reference to that certain Security
Agreement (Accounts Receivable, Inventory and Equipment) between them dated
November 1, 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. FINOVA currently provides financial accommodations to Borrower
pursuant to the terms of the Loan Agreement.
B. Borrower has notified FINOVA that Events of Default have occurred
under the Loan Agreement due to Borrower's failure to comply with the minimum
Total Debt Service Coverage Ratio and the Unfinanced Capital Expenditure
limitations set forth therein.
C. Borrower has requested that FINOVA grant a waiver of the Events of
Default and amend the Loan Agreement as provided herein. FINOVA 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. FINOVA hereby waives Borrower's duty to comply with the
minimum ratio of Operating Cash Flow/Actual to Total Contractual Debt Service
set forth in Section 6.18 of the Loan Agreement for the nine month period ended
March 31, 2002 and the twelve month period ended June 30, 2002. FINOVA also
hereby waives Borrower's duty to comply with the Unfinanced Capital Expenditure
limitation set forth in Section 6.19 of the Loan Agreement for the fiscal year
ended March 31, 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:
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(a) Section 1 of the Loan Agreement is amended by adding the
following definitions as Sections 1.17, 1.18, 1.19, 1.20, 1.21, 1.22, 1.23,
1.24 and 1.25 respectively:
1.17."Capital Expenditures" shall mean all expenditures made and
liabilities incurred in accordance with GAAP for the acquisition of
any fixed asset or improvement, replacement, substitution or addition
thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with capital leases.
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1.18."Indebtedness for Borrowed Money" shall mean, without
duplication, all Indebtedness: (i) in respect of borrowed money
(including, without limitation, pursuant to the Loan Agreement, the
FINOVA Mezzanine 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 Mezzanine 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.
1.19 "Senior Contractual Debt Service" shall mean, 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 the
revolving credit facility made available to Borrower pursuant to the
Loan Agreement, (ii) principal and interests payments due with respect
to the FINOVA Mezzanine Loan, (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 Mezzanine 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).
1.20 "Subordinated Debt" shall mean liabilities of Borrower, the
repayment of which is subordinated to the payment and performance of
the Obligations and the Obligations under the FINOVA Mezzanine Loan
Documents, pursuant to a written subordination agreement in form and
substance acceptable to FINOVA.
1.21 "Total Contractual Debt Service" shall mean, 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.
1.22 "FMC" shall mean FINOVA Mezzanine Capital Inc.
1.23 "FINOVA Mezzanine Loan" shall mean the term loan made by FMC
to Borrower in the original principal amount of $4,000,000 pursuant to
the FINOVA Mezzanine Loan Documents.
1.24 "FINOVA Mezzanine Loan Documents" shall mean the Loan
Agreement dated September 30, 1999 between FMC and Borrower and all
instruments, documents and agreements related thereto, all as amended
from time to time.
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1.25 "Indebtedness" shall mean of any person or entity shall
mean, without duplication: (a) all indebtedness for borrowed money;
(b) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (other than trade payables
entered into in the ordinary course of Borrower's business); (c) all
non-contingent reimbursement or payment obligations with respect to
all letters of credit (including standby and commercial), banker's
acceptances, bank guaranties, shipside bonds, surety bonds and similar
instruments; (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced or incurred
in connection with the acquisition of property or assets of
businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the
person or entity (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all capital lease
obligations; (g) all net obligations with respect to interest rate
swap agreements or other similar arrangements; (h) all indebtedness
referred to in clauses (a) through (g) above secured by (or for which
the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien upon or in property (including
accounts and contract rights) owned by such person or entity, even
though such person or entity has not assumed or become liable for the
payment of such Indebtedness; and (i) all guaranty obligations in
respect of indebtedness or obligations of others of the kinds referred
to in clauses (a) through (g) above.
(b) Section 2.1 of the Loan Agreement is deleted in its entirety and
replaced with the following:
2.1. FINOVA shall, from time to time, in its sole and absolute
discretion, make loans, advances and other financial accommodations to
or for the benefit of Borrower of the lesser of (a) up to $7,500,000
(the "Revolving Line of Credit"); or (b) the sum of 80% of the Net
Amount of Eligible Accounts (or such greater or lesser percentage
thereof as FINOVA shall, in its sole and absolute discretion,
determine); and (i) 50% (with such percentage decreasing by 1.0% per
month commencing July 1, 2002 and continuing on the first business day
of each month thereafter) of eligible inventory (as determined by
FINOVA in its sole and absolute discretion and priced at the lower of
cost or market) in an amount not to exceed $3,000,000.
(c) Section 6.18 of the Loan Agreement is deleted in its entirety and
replaced with the following:
6.18 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
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Contractual Debt Service for the applicable period, calculated on a
consolidated basis.
(d) Section 6.19 of the Loan Agreement is deleted in its entirety and
replaced with the following:
6.19 UNFINANCED CAPITAL EXPENDITURES. Borrower shall not make or
incur any unfinanced Capital Expenditures if, after giving effect
thereto, the aggregate amount of all unfinanced Capital Expenditures
by Borrower in the applicable calendar quarter would exceed $25,000,
provided, however, that Borrower may expend up to $180,000 for the
installation of Batchmaster and Xxxxxxx software and such expenditures
shall not be included in the limitations otherwise set forth in this
subsection.
(e) New subsections 6.20, 6.21, 6.22 and 6.23 are added to the Loan
Agreement as follows:
6.20 SENIOR CONTRACTUAL DEBT SERVICE 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 3.0, 3.5 and 4.0 times, respectively, the
amount necessary to meet Borrower's Senior Contractual Debt Service
for the applicable period, calculated on a consolidated basis.
6.21 LIMITATION ON INDEBTEDNESS. Without the prior written
consent of FINOVA, 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 Mezzanine Loan Documents;
(ii) Indebtedness existing and disclosed to FINOVA 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.
6.22.Limitation on Compensation. Without the prior written
consent of FINOVA, Borrower shall not pay total compensation,
including salaries, withdrawals, fees, bonuses, commissions, drawing
accounts and other payments, whether directly or indirectly, in money
or otherwise, during any fiscal year to all of Borrower's executives,
officers and directors (or any relative thereof) in an amount in
excess of 110% of that which was paid to all such personnel in the
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immediately preceding fiscal year, provided however, that deferred
compensation paid in a year other than the fiscal year earned shall be
treated as paid in the year it was earned for purposes of all
calculations hereunder.
6.23.LIMITATION ON LOANS. Without the prior written consent of
FINOVA, Borrower shall not make advances, loans or extensions of
credit to, or invest in, any person or entity, except for loans or
cash advances to employees which are made in the ordinary course of
business and which do not cause the aggregate balance of the employee
advance account to exceed $50,000 at any one time.
(f) Section 9.1 of the Loan Agreement is deleted in its entirety and
replaced with the following:
9.1. This Agreement shall become effective upon acceptance by
FINOVA and shall continue in full force and effect for a term ending
July 1, 2003. Notwithstanding the foregoing, FINOVA may terminate this
Agreement earlier upon the occurrence of an Event of Default. No
termination of this Agreement, however, shall relieve or discharge
Borrower of Borrower's duties, obligations and covenants hereunder
until all Obligations have been paid in full and FINOVA's continuing
security in and to the Collateral shall remain in effect until all
such Obligations have been fully discharged.
(g) Section 9.2 of the Loan Agreement is deleted in its entirety and
replaced with the following:
9.2. Intentionally Omitted.
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. FEE. In consideration of the waiver and amendments granted herein,
Borrower shall pay to FINOVA a fee in the amount of $413,500.00, which shall be
deemed fully earned on the date hereof, $172,500.00 of which shall be due and
payable on the earliest of (a) July 1, 2003, (b) the occurrence of an Event of
Default, or (c) the date on which Borrower repays either all of the Obligations
to FINOVA under the Loan Agreement or any portion of the principal Obligations
of Borrower to FMC under the FINOVA Mezzanine Loan Documents; and $241,000.00 of
which shall be due and payable upon FMC's exercise of its warrants.
5. 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.
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6. GOVERNING LAW. This Amendment shall be governed by and construed
according to the laws of the State of New York.
7. 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.
8. RELEASE. Borrower hereby releases, remises, acquits and forever
discharges FINOVA and FINOVA'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 FINOVA from any obligations which are expressly imposed upon
FINOVA pursuant to the terms of this Amendment, the Loan Agreement, or any of
the other instruments, documents or 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 FINOVA 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.
9. 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
FINOVA;
b. Borrower shall have executed and delivered to FMC an
Amendment and Limited Waiver to the Loan Agreement between
Borrower and FMC and an allonge to the term note executed in
connection therewith;
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FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Xxxx XxXxxxxxx
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Print Name: Xxxx XxXxxxxxx
Title/Capacity: Vice President
GALAXY NUTRITIONAL FOODS, INC.
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxxx
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Print Name: Xxxxxx X. Xxxxxx
Title/Capacity: Chairman, President & CEO
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