Document:

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

                                      -1-
<PAGE>

          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.

                                      -2-
<PAGE>

          (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:

                                      -3-
<PAGE>

               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

                                      -4-
<PAGE>

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/ 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

                                      -5-ALLONGE TO SECOND AMENDED AND RESTATED
                     --------------------------------------
                             SECURED PROMISSORY NOTE
                             -----------------------

     This  Allonge is  attached  to and made an  integral  part of that  certain
Second Amended and Restated Secured  Promissory Note (the "Note") dated July 12,
2001, in the original  principal  amount of $4,000,000  from GALAXY  NUTRITIONAL
FOODS, INC., f/k/a Galaxy Foods Company, a Delaware  corporation  ("Maker"),  in
favor of FINOVA Mezzanine Capital,  Inc. ("Holder").  All terms used herein with
initial capital letters, to the extent not otherwise defined herein,  shall have
the  meanings  given  such  terms in the  Note.  This  Allonge  is  executed  in
conjunction with that certain waiver letter effective as of the date hereof,  by
and between Maker and Holder.

     The second  paragraph of the Note is hereby  amended and  restated,  in its
entirety, to read as follows:

          Interest only on the outstanding principal balance hereof shall be due
     and payable monthly,  in arrears,  with the first installment being payable
     on the first (1st) day of  September,  1999,  and  subsequent  installments
     being payable on the first (1st) day of each  succeeding  month  thereafter
     until  July 1,  2003  (the  "Maturity  Date"),  at which  time  the  entire
     outstanding  principal  balance,  together  with  all  accrued  and  unpaid
     interest,  shall be  immediately  due and  payable  in full.  If all or any
     portion of any payment due is not  actually  received by Holder on the date
     such payment is due,  Maker,  at Holder's  option,  shall pay a late charge
     equal  to 5% of the  delinquent  amount  together  with  interest  on  such
     delinquent  amount at the Default Rate (as  hereinafter  defined)  from the
     date such  payment is due to, and  including,  the date that the payment in
     full thereof is actually received by the Holder.

     Except as  specifically  provided  herein,  all terms and provisions of the
Note shall remain in full force and effect, and are hereby ratified and affirmed
by Maker.

     IN WITNESS  WHEREOF,  Maker has executed this Allonge  effective as of June
26, 2002, for attachment to the Note.

                                        GALAXY NUTRITIONAL FOODS, INC.,
                                        f/k/a Galaxy Foods Company, a Delaware
                                        corporation

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

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