FIFTH AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT
AND CONSENT TO RELEASE OF LIENS AND SALE OF ASSETS
This Fifth Amendment and Waiver to Loan and Security Agreement and Consent
to Release of Liens and Sale of Assets (this "Amendment") is executed as of
November 14, 2005 and is effective as of October 1, 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 7.6(a) of the Loan
Agreement by permitting its Fixed Charge Coverage Ratio to be less than the
amounts set forth in such Section for the periods ended June 30, 2005, July 31,
2005, August 31, 2005 and September 30, 2005 (the "Fixed Charge Coverage Ratio
Default"), (ii) Section 7.6(b) of the Loan Agreement by permitting its Adjusted
Tangible Net Worth to be less than the amounts set forth in such Section for the
calendar months ended June 30, 2005, July 31, 2005, August 31, 2005 and
September 30, 2005 (the "Tangible Net Worth Default") and (iii) Section 6.8 of
the Loan Agreement by permitting the aggregate unpaid principal amount of the
Revolving Loan Advances to exceed the Borrowing Base on various dates in July
2005 and August 2005 without an immediate repayment of such excess (the
"Overadvance Default" and, together with the Fixed Charge Coverage Ratio Default
and the Tangible Net Worth Default, the "Existing Defaults").
C. Pursuant to Section 7.2 of the Agreement, Borrower is not permitted to
sell, consign, lease or remove from Borrower's business locations any of
Borrower's assets.
D. Borrower, pursuant to that certain Asset Purchase Agreement dated June
30, 2005, by and between Borrower and Schreiber Foods, Inc., a Wisconsin
corporation ("Buyer") (the "Asset Purchase Agreement"), intends to sell the
"Purchased Assets" (as defined in the Asset Purchase Agreement and hereinafter
referred to as the "Assets") to Buyer (such sale, the "Asset Sale") and may, in
the future sell to one or more third parties certain of its remaining equipment,
fixtures and other similar personal property (such assets, the "Remaining
Equipment and Fixtures").
E. Borrower, pursuant to that certain Supply Agreement dated June 30,
2005, by and between Borrower and Buyer (the "Supply Agreement"), intends to
outsource to Buyer Borrower's manufacturing processes with respect to its
products.
F. Borrower has requested that certain terms of the Agreement be amended.
G. Borrower has requested that Lender waive the Existing Defaults.
H. Borrower has requested that Lender consent to the Asset Sale and the
future sale of the Remaining Equipment and Fixtures and release its Liens on the
Assets in connection with the Asset Sale.
I. Borrower has requested that Lender consent to the Supply Agreement and
the transactions contemplated thereby.
J. Lender has agreed to (i) consent to the Asset Sale and the sale of the
Remaining Equipment and Fixtures, (ii) release its Liens on the Assets, (iii)
consent to the Supply Agreement and the transactions contemplated thereby, (iv)
waive the Existing Defaults and (v) amend the Agreement, all 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. Consent; Release of Liens.
(a) Lender hereby consents to (x) the Asset Sale, (y) the Supply
Agreement and the transactions contemplated thereby and (z) the sale of
the Remaining Equipment and Fixtures, so long as:
(i) no Default or Event of Default has occurred and is
continuing or would be caused thereby;
(ii) the gross proceeds from the Asset Sale are not less than
$8,700,000;
(iii) Borrower shall, on the date of receipt of the proceeds
from the Asset Sale, repay the SouthTrust Debt in full;
(iv) Borrower shall (A) on the date of receipt of the proceeds
from the Asset Sale, repay the outstanding principal amount of the
Revolving Loan Advances in an amount equal the amount of the
proceeds from the Asset Sale remaining after (1) repayment of the
SouthTrust Debt and (2) the payment of (I) all past due personal
property taxes of Borrower and (II) any other taxes of Borrower due
in respect of the Asset Sale and (B) on the date of receipt of the
proceeds from the sale of the Remaining Equipment and Fixtures,
repay the outstanding principal amount of the Revolving Loan
Advances in an amount equal the amount of the proceeds from such
sale; and
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(v) Lender shall have received duly executed copies of the
Asset Purchase Agreement and the other documents executed and
delivered in connection therewith, in form and substance
satisfactory to Lender. Lender acknowledges it has previously
received executed copies of the Asset Purchase Agreement and the
Supply Agreement.
(b) Upon execution of this Amendment by Borrower and Lender and
satisfaction of the conditions set forth in Section 1(a) hereof, Lender
agrees to file such documents as Borrower may reasonably request, at
Borrower's expense, in order to release Lender's Lien on the Assets and,
when requested by Borrower upon completion of the sale of the Remaining
Equipment and Fixtures, the Remaining Equipment and Fixtures, including,
without limitation, Uniform Commercial Code Financing Statement
Amendments, as appropriate, for filing in each office where a UCC
Financing Statement has been filed or other instruments are required to
terminate the filings or recordings in favor of Lender with respect to the
Assets.
3. Amendment to Definitions. The Agreement is amended by deleting the
definitions of "Adjusted Tangible Net Worth", "Fixed Charge Coverage Ratio" and
"Renewal Term" in their entirety from the Agreement.
4. Further Amendments to Definitions. The Agreement is amended by deleting
the definitions of "Availability Reserve", "Borrowing Base" and "Capital
Expenditures" in their entirety from the Agreement and inserting the following
new definitions in the appropriate alphabetical location:
"Asset Purchase Agreement" means that certain Asset Purchase
Agreement dated June 30, 2005, by and between Borrower and Buyer.
"Asset Sale" means the sale of the Assets by Borrower to Buyer.
"Asset Sale Closing Date" has the meaning given to it in Section
6.18.
"Assets" means the "Purchased Assets" as defined in the Asset
Purchase Agreement.
"Availability Reserve" means a reserve based on the requirement that
excess Availability under the Revolving Credit Facility be in an amount of
not less than (a) $600,000.00 at any time prior to (but not including) the
Asset Sale Closing Date or (b) $500,000.00 at any time on or after the
Asset Sale Closing Date.
"Borrowing Base" means, with respect to Borrower, an amount in
dollars equal to the lesser of (a) the Revolving Credit Facility, or (b)
the sum, without duplication, of: (i) up to eighty-five percent (85%) of
the net amount of the Eligible Receivables; plus (ii) (A) on or prior to
December 31, 2005, the lesser of (x) up to sixty percent (60%) of the
Eligible Inventory and (y) $3,500,000.00 or (B) after December 31, 2005,
$0.00; minus (iii) the Availability Reserve; minus (iv) the Dilution
Reserve; and minus (v) other Reserves, if any.
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"Buyer" means Schreiber Foods, Inc., a Wisconsin corporation.
"Capital Expenditures" means the aggregate of all expenditures made
and liabilities incurred that, in accordance with GAAP, are required to be
included in or reflected by the property, plant, equipment or similar
fixed assets accounts; provided, however, that in no event shall Capital
Expenditures include any payments made to purchase leased equipment from
third parties which is to be sold to Buyer in connection with the Asset
Sale if such equipment is in fact sold to Buyer in connection with the
Asset Sale.
"Fifth Amendment Date" means November 14, 2005.
"Forecast" means the forecast dated November 8, 2005 and delivered
by Borrower to Lender.
"Reporting Condition" means at any time Availability is less than
$1,000,000.00 until such time as Availability is greater than
$1,000,000.00 for five (5) consecutive Business Days.
"Supply Agreement" means that certain Supply Agreement dated as of
June 30, 2005 by and between Borrower and Buyer.
5. 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. Borrower
may terminate this Agreement at the expiration of the Initial Term or on
any other date, and if (i) such termination date is on a date other than
the end of the Initial Term and (ii) a Default has occurred on or after
the Fifth Amendment Date, by payment to Lender of the Early Termination
Fee as provided in Section 2.5. Lender may terminate this Agreement (i) at
the expiration of the Initial Term and (ii) at any time during the
existence of an uncured Event of Default."
6. Amendment to Section 2.5. Section 2.5 of the Agreement, Early
Termination Fee, is amended by deleting the first sentence of such Section in
its entirety and substituting the following therefor:
"If for any reason this Agreement is terminated by Borrower prior to the
end of the Initial Term of this Agreement and a Default has occurred on or
after the Fifth Amendment Date, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the
parties as to a reasonable calculation of lost profits of Lender as a
result thereof, Borrower agrees to pay to Lender, upon the effective date
of such termination, an Early Termination Fee in an amount equal to the
following percentage of the amount of the Revolving Credit Facility
corresponding to the period in which the termination date occurs:"
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7. Amendment to Section 6.7. Section 6.7 of the Agreement, Reporting as to
Revenues, Receivables and Inventory, is amended by deleting subsection (a)(i) of
such Section in its entirety and substituting the following therefor:
"(i) no later than 5:00 p.m., east coast time on (A) if a Reporting
Condition exists, each Business Day or (B) if no Reporting Condition
exists, the first to occur of (i) the day on which Borrower requests a
Revolving Loan Advance or (ii) Wednesday of each week, a Borrowing Base
Certificate based on the Receivables and Inventory as of the end of the
preceding week, together with a detailed summary of sources of all of the
Revenues, including sales of Inventory, and credits and collections
associated with the Receivables;"
8. Amendment to Article VI. Article VI of the Agreement, Affirmative
Covenants, is amended by adding the a new Section 6.18 at the end thereof to
read as follows:
"6.18 Asset Sale. Borrower shall (a) until the Asset Sale Closing
Date (as defined below), on or before Wednesday of each week, deliver a
weekly update of cash financial projections covering the next 13 weeks,
with actual weekly cash receipts and disbursements presented from
September 5, 2005 through the prior week end, (b) on or before December
15, 2005, cause Buyer to commence shipments of Products (as defined in the
Supply Agreement) pursuant to the Supply Agreement, (c) on or before
December 20, 2005, receive approval of the Asset Sale from shareholders
holding a majority of the outstanding shares of its common stock and (d)
on or before December 31, 2005, consummate the Asset Sale (such date of
consummation being hereafter referred to as the "Asset Sale Closing
Date")."
9. Amendment to Section 7.4. Section 7.4 of the Agreement, Capital
Expenditures and Investments, is amended by deleting such subsection in its
entirety and substituting the following therefor:
"7.4 Capital Expenditures and Investments. Borrower shall not: (a)
make any Unfunded Capital Expenditures (i) in the Fiscal Year ending March
31, 2004, in the aggregate, in excess of $250,000 (but in an amount not to
exceed $150,000 for acquisition and/or upgrade of Borrower's computer
system), (ii) in the Fiscal Year ending March 31, 2005, in the aggregate,
in excess of $200,000, (iii) in the Fiscal Year ending March 31, 2006, in
the aggregate, in excess of $200,000 or (iv) in any Fiscal Year
thereafter, in the aggregate, in excess of $100,000 or (b) make any
Investment other than Permitted Investments."
10. Amendment to Section 7.6. Section 7.6 of the Agreement, Financial
Covenants, is amended by deleting such Section in its entirety and substituting
the following therefor:
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"7.6 Financial Covenants.
(a) Borrower shall not, as of Friday of each week until the
Asset Sale Closing Date, permit its revenue from the sale of its
inventory less any deductions for the immediately preceding three
(3) weeks to be less than eighty-five percent (85%) of the amount of
the gross sales set forth in the Forecast for such period.
(b) [Intentionally Omitted].
(c) [Intentionally Omitted]."
11. Waiver of Existing Defaults. Lender hereby waives the Existing
Defaults.
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.
14. Conditions Precedent to Effectiveness. This Amendment shall be
effective (such date, the "Fifth Amendment Date") upon satisfaction of the
following:
(a) Lender's receipt of a counterpart hereof duly executed by
Borrower;
(b) Lender's receipt of the Fifth Amendment Fee and all other fees
(other than the Administration Fee (as defined below)) and expenses related to
this Amendment;
(c) Lenders' receipt of the Offering Memorandum prepared by Goldman
Sachs relating to the sale of Borrower; and
(d) 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.
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 dates set forth in Section 16 below, Lender shall receive
the applicable installments of the Administration Fee as set forth in such
Section; and
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(b) on or before December 31, 2005, Lender shall have received a
revised cash flow model of Borrower in form and substance reasonably
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 "Fifth
Amendment Fee") and a Administration Fee in the aggregate amount of $50,000 (the
"Administration Fee"). The Fifth Amendment Fee and the Administration Fee shall
be payable by Borrower to Lender as follows:
(a) on the Fifth Amendment Date, Borrower shall pay Lender the Fifth
Amendment Fee;
(b) unless the Agreement has been terminated, on or before February
1, 2006, Borrower shall pay Lender $5,000 of the Administration Fee;
(c) unless the Agreement has been terminated, on or before March 1,
2006, Borrower shall pay Lender $10,000 of the Administration Fee;
(d) unless the Agreement has been terminated, on or before April 1,
2006, Borrower shall pay Lender $15,000 of the Administration Fee; and
(e) unless the Agreement has been terminated, on or before May 1,
2006, Borrower shall pay Lender the remaining $20,000 of the Administration Fee.
The Fifth Amendment Fee and the each portion of the Administration Fee shall be
fully earned by Lender on the date of required payment thereof, shall be
non-refundable when paid 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.
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.
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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 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.
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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/ Salvatore J. Furnari
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Name: Salvatore J. Furnari
Title: Chief Financial Officer
LENDER:
TEXTRON FINANCIAL CORPORATION
By: /s/ Stuart Hall
--------------------------------------------
Name: Stuart Hall
Title: Senior Account Executive