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:
          ----------

          (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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<PAGE>

               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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<PAGE>

               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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<PAGE>

          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 Soloman 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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<PAGE>

          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/ Mike McCaulley
                                   ----------------------------------------
                                   Print Name: Mike McCaulley
                                   Title/Capacity: Vice President

                                   GALAXY NUTRITIONAL FOODS, INC.
                                   a Delaware corporation


                                   By: /s/ Angelo S. Morini
                                   ----------------------------------------
                                   Print Name:  Angelo S. Morini
                                   Title/Capacity: Chairman, President & CEO

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