AMENDMENT TO FOREBEARANCE AGREEMENT

 

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                       AMENDMENT TO FORBEARANCE AGREEMENT

 

      THIS AMENDMENT TO FORBEARANCE AGREEMENT, made and entered into as of the

10th day of May, 2004, by and between VIRBAC CORPORATION, a Delaware corporation

("Virbac"), PM RESOURCES, INC., a Missouri corporation ("PM Resources"), ST. JON

LABORATORIES, INC., a California corporation ("St. JON"), FRANCODEX

LABORATORIES, INC., a Kansas corporation ("Francodex"), VIRBAC AH, INC., a

Delaware corporation ("Virbac AH,"), and DELMARVA LABORATORIES, INC., a Virginia

corporation ("Delmarva," and collectively with Virbac, PM Resources, St. JON,

Francodex and Virbac AH referred to herein as the "Borrowers"), and FIRST BANK,

a Missouri banking corporation (the "Lender").

 

                                   WITNESSETH:

 

      WHEREAS, Borrowers and Lender have heretofore executed a Credit Agreement

dated as of September 7, 1999 made by and among Borrowers and Lender, as

previously amended from time to time (as amended, the "Credit Agreement"); and

 

      WHEREAS, Borrowers are presently in default under such Credit Agreement

and the other Security Documents and Transaction Documents as more fully set

forth in that certain Forbearance Agreement dated as of April 9, 2004 made by

and among Borrowers and Lender (as amended, the "Forbearance Agreement;"

capitalized terms used herein and not otherwise defined shall have the meanings

ascribed to such terms in the Forbearance Agreement); and

 

      WHEREAS, Lender's agreement to forebear with respect to Borrowers'

existing events of default as set forth in the Forbearance Agreement is

presently set to expire on May 10, 2004, and Borrowers have requested that

Lender extend such agreement to forebear; and

 

      WHEREAS, Borrowers and Lender desire to amend the Forbearance Agreement on

the terms and conditions set forth herein;

 

      NOW, THEREFORE, in consideration of the premises and the mutual provisions

and agreements hereinafter set forth, the parties hereto do hereby mutually

promise and agree as follows:

 

      1. Section 1(b)(ii) of the Forbearance Agreement shall be deleted in its

entirety and in its place shall be substituted the following:

 

            (ii) On or before May 10, 2004, Borrowers shall pay to Lender such

      additional principal payments as may be necessary to reduce the amount by

      which Borrowers' outstanding Loans then exceeds their Borrowing Base under

      the Credit Agreement and the Note to $0.00, provided that prior to such

      payment Borrowers shall have: (A) notified Lender of the source of funds

      for making such repayment (which if in the form of debt must be

      subordinated to the Obligations in form and substance satisfactory to

      Lender) and (B) provided copies of any agreements to be made by any of the

      Borrowers with respect to obtaining such funds, all of which must be in

      form and substance acceptable to Lender (subject to satisfaction of such

      conditions, Lender agrees to waive the limitation of Sections 7.2(a) and

      7.2(b) of the Credit Agreement for purposes of Borrowers incurring

      Indebtedness to make such payment);

 

      2. Section 1(b)(iii)(C) of the Forbearance Agreement shall be deleted in

its entirety and in its place shall be substituted the following:

 

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                  (C) on or before July 16, 2004, the consolidated balance sheet

      of Borrowers and their Consolidated Subsidiaries as of December 31, 2003

      and the related consolidated statements of income, retained earnings and

      cash flows for the fiscal year ended as of December 31, 2003, all with

      consolidating disclosures and setting forth in each case, in comparative

      form, the figures for the previous fiscal year, together with any and all

      restated financial statements (balance sheets and statements of income,

      retained earnings and cash flows) for the fiscal years (or any periods

      during the fiscal years) ending December 31, 2002 and December 31, 2001,

      all such financial statements to be prepared in accordance with Generally

      Accepted Accounting Principles consistently applied and audited by and

      accompanied by the unqualified opinion of PriceWaterhouse Coopers.

 

      3. A new Section 1(b)(iii)(D) shall be added to the Forbearance Agreement

immediately following Section 1(b)(iii)(C) therein as follows:

 

            (D) Within twenty-eight (28) days after the end of each month and in

      any event, simultaneously with the delivery of the preceding month's

      Borrowing Base Certificate, (A) an Accounts trial balance of Borrowers and

      their Consolidated Subsidiaries indicating which Accounts are up to 30, 31

      to 60, 61 to 90 and 91 days or more past the invoice date and including,

      if requested by the Bank, a listing of the names and addresses of all

      applicable Account Debtors, (B) a summary of accounts payable of Borrowers

      and their Consolidated Subsidiaries showing which accounts payable are

      current, up to 30, 31 to 60, 61 to 90 and 91 days or more past due, with

      contra accounts identified therein, and including, if requested by the

      Bank, a listing of the names and addresses of applicable creditors, (C) an

      Inventory listing, with obsolete, packaging and offsite inventory noted

      thereon, (D) a listing of all foreign account debtors, (E) a listing of

      all Accounts for which the Account Debtor is a Related Party to one or

      more of the Borrowers, (F) any other additional schedules necessary to

      compute the Borrowing Base which may be required by the Bank, (G) if

      requested by Bank, a schedule of the current outstanding orders of the ten

      largest customers of the Borrowers as of the preceding month-end, and (H)

      a schedule of the preceding month's gross sales and net sales (after

      discounts and other incentives) to each customer of the Borrowers, all in

      form and detail reasonably satisfactory to Bank and certified as being

      true, correct and complete by the President or the chief financial officer

      of the Borrowers;

 

      4. Section 3(a) of the Forbearance Agreement shall be deleted in its

entirety and in its place shall be substituted the following:

 

                  (a) The Standstill Period shall commence at such time as all

      conditions precedent to this Agreement have occurred or have been

      satisfied, as provided in Section 2 hereof, and shall terminate on August

      9, 2004.

 

      5. Section 3(b)(iv) of the Forbearance Agreement shall be deleted in its

entirety and in its place shall be substituted the following Sections 3(b)(iv)

and (v):

 

            (iv) that certain Subordination Agreement dated as of April 9, 2004

      made by Virbac S. A. in favor of the Bank and acknowledged by the

      Borrowers (as amended or restated from time to time, the "Subordination

      Agreement") shall at any time for any reason cease to be in full force and

      effect or shall be declared to be null and void by a court of competent

      jurisdiction, or if the validity or enforceability of the Subordination

      Agreement shall be contested or denied by Virbac S. A., or if Virbac S. A.

      shall deny that it has any

 

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      further liability or obligation under the Subordination Agreement or if

      any repayment of any of the Subordinated Indebtedness (as defined in such

      Subordination Agreement) except to the extent any such repayments

      constitute "Permitted Payments" (as defined in such Subordination

      Agreement); and

 

            (v) the payment by Borrowers of all of the Obligations to Lender.

 

      6. The lead-in paragraph to Section 4 on page five of the Forbearance

Agreement shall be deleted in its entirety and in its place shall be substituted

the following:

 

            4. Amendments to the Credit Agreement and the other Transaction

      Documents.

 

            Provided an event of termination as defined in Section 3(b) above

      does not then exist or would not be created thereby or any event which,

      after notice or lapse of time or both should constitute such an event of

      termination, does not then exist, Lender shall continue to make advances

      to the Borrower under the terms of the Credit Agreement and the Note

      subject to the following amendments to the Credit Agreement and the Note:

 

With such revision to the lead-in paragraph to Section 4, and notwithstanding

the termination of the Bank's obligation to make any new Loans to any of the

Borrowers from and after March 1, 2004 as set forth in Paragraph 1 of the

Seventh Amendment to Credit Agreement and Amendment to Note dated as of March 1,

2004 made by and among Borrowers and Bank, subject to the terms of the Credit

Agreement (as amended by Sections 4(a) through 4(j) of the Forbearance Agreement

(as herein amended)), Bank will again make new Loans to Borrowers (provided that

an event of termination as defined in Section 3(b) of the Forbearance Agreement

does not then exist or any event which, after notice or lapse of time or both

would constitute such an event of termination, does not then exist) up to the

lesser of $20,000,000.00 or the then current Borrowing Base.

 

      7. Section 4(b) of the Forbearance Agreement shall be deleted in its

entirety and in its place shall be substituted the following:

 

                  (b) Amendment to Consolidated Net Worth Covenant. Section

      7.1(i)(i) of the Loan Agreement shall be deleted in its entirety and in

      its place shall be substituted the following:.

 

            (i) Maintain a minimum Consolidated Net Worth at all times during

      the Term hereof of not less than the sum of: (A) the lesser of (1)

      $27,500,000.00 or (2) the December 31, 2003 Net Worth reflected on

      Borrowers' audited Consolidated financial statements, plus (B)

      Seventy-Five Percent (75%) of the Consolidated Net Income of Borrowers

      (with no deductions for any consolidated losses for any such month) shown

      on Borrowers' monthly consolidated financial statements for each month,

      commencing with the fiscal month ending April 30, 2004, such required

      increases to be cumulative from month to month;

 

      8. A new Section 4(d) shall be added to the Forbearance Agreement

immediately following Section 4(c) therein as follows:

 

            (d) The third paragraph beginning with the word "WHEREAS" on the

      first page of the Credit Agreement shall be deleted in its entirety and in

      its place shall be substituted the following:

 

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                  WHEREAS, Borrowers, including Virbac AH, Francodex and

            Delmarva which have been added as parties to the credit facilities,

            have requested that the aggregate amount thereof be amended to an

            aggregate principal amount of up to Twenty Million Dollars

            ($20,000,000.00) and otherwise amended on the terms and conditions

            set forth herein, with such loans to mature on August 9, 2004; and

 

      9. A new Section 4(e) shall be added to the Forbearance Agreement

immediately following Section 4(d) therein as follows:

 

            (e) Section 1 of the Credit Agreement shall be deleted in its

      entirety and in its place shall be substituted the following:

 

                  The "Term" of this Agreement shall commence on the date hereof

            and shall end on August 9, 2004, unless earlier terminated upon the

            occurrence of an Event of Default under this Agreement or upon an

            event of termination as defined in Section 3(b) of that certain

            Forbearance Agreement dated as of April 9, 2004 made by and among

            Borrowers and Lender, as amended.

 

      10. A new Section 4(f) shall be added to the Forbearance Agreement

immediately following Section 4(e) therein as follows:

 

            (f) The definition of "Eligible Accounts" in Section 2 of the Credit

      Agreement shall be deleted in its entirety and in its place shall be

      substituted the following:

 

                  Eligible Accounts shall mean all Accounts other than: (a)

            Accounts which remain unpaid for more than ninety (90) days after

            their invoice dates and Accounts which are not due and payable

            within ninety (90) days after their invoice dates; (b) Accounts

            owing by a single Account Debtor, including a currently scheduled

            Account, if ten percent (10%) or more of the balance owing by said

            Account Debtor upon said Accounts is ineligible pursuant to clause

            (a) above; (c) Accounts owing by a single Account Debtor, including

            a currently scheduled Account, to the extent the balance owing by

            said Account Debtor upon its Accounts exceeds Thirty Percent (30%)

            of the then outstanding amount of Borrowers' total Accounts); (d)

            Accounts with respect to which the Account Debtor is a shareholder

            or partner of any of the Borrowers or a Related Party of any of the

            Borrowers; (e) Accounts with respect to which payment by the Account

            Debtor is or may be conditional; (f) Accounts with respect to which

            the Account Debtor is not a resident or citizen of or otherwise

            located in the continental United States of America; (g) Accounts

            with respect to which the Account Debtor is the United States of

            America or any department, agency or instrumentality thereof unless

            such Accounts are duly assigned to Bank in accordance with all

            applicable governmental and regulatory rules and regulations

            (including, without limitation, the Federal Assignment of Claims Act

            of 1940, as amended, if applicable) so that Bank is recognized by

            the Account Debtor to have all of the rights of an assignee of such

            Accounts; (h) Accounts with respect to which any of the Borrowers is

            or may become liable to the Account Debtor for goods sold or

            services rendered by such Account Debtor to any such Borrower; (i)

            Accounts with respect to which the goods giving rise thereto have

            not been shipped and delivered to and accepted as satisfactory by

            the Account Debtor thereof or with respect to which the services

            performed giving rise thereto have

 

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            not been completed and accepted as satisfactory by the Account

            Debtor thereof; (j) Accounts which are not invoiced (and dated as of

            such date) and sent to the Account Debtor thereof concurrently with

            or not later than five (5) days after the shipment and delivery to

            and acceptance by said Account Debtor of the goods giving rise

            thereto or the performance of the services giving rise thereto; (k)

            Accounts arising from a "sale on approval" or a "sale or return;"

            (l) Accounts as to which Bank, at any time or times hereafter,

            determines, in good faith, that the prospects of payment or

            performance by the Account Debtor is or will be impaired; (m)

            Accounts of an Account Debtor to the extent, but only to the extent,

            that the same exceed a credit limit determined by Bank in its

            discretion, at any time or times hereafter; (n) Accounts with

            respect to which the Account Debtor is located in the State of New

            Jersey or the State of Minnesota; provided, however, that such

            restriction shall not apply if such Borrower (i) has filed and has

            effective (A) in respect of Account Debtors located in the State of

            New Jersey, a Notice of Business Activities Report with the New

            Jersey Division of Taxation for the then current year or (B) in

            respect of Account Debtors located in the State of Minnesota, a

            Minnesota Business Activity Report with the Minnesota Department of

            Revenue for the then current year, as applicable, or (ii) is

            otherwise exempt from such reporting requirements under the laws of

            such State(s); (o) Accounts which are not subject to a first

            priority perfected security interest in favor of Bank; and (p)

            Accounts which have been factored by any of the Borrowers.

 

      11. A new Section 4(g) shall be added to the Forbearance Agreement

immediately following Section 4(f) therein as follows:

 

            (g) Section 3.1(a) of the Credit Agreement shall be deleted in its

      entirety and in its place shall be substituted the following:

 

                  (a) Revolving Credit Loans. Subject to the terms and

            conditions hereof, during the Term of this Agreement, Bank hereby

            agrees to make such loans (individually, a "Loan" and collectively,

            the "Loans") to Borrowers, jointly and severally, as any of the

            Borrowers may from time to time request pursuant to Section 3.2 and

            in Bank's discretion, to issue Letters of Credit for the account of

            the Borrowers, or any of them, upon any Borrower's execution of a

            Letter of Credit Application therefor pursuant to Section 3.3

            (subject to Bank's approval of the form of the Letters of Credit

            requested to be issued). The maximum aggregate principal amount of

            Loans plus the face amount of issued and outstanding Letters of