FOREBEARANCE AGREEMENT

 

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                              FORBEARANCE AGREEMENT

 

      THIS AGREEMENT dated as of April 9, 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 state banking

corporation (the "Lender") ( the "Agreement").

 

                                   WITNESSETH:

 

      WHEREAS, Borrowers are currently in default under a Credit Agreement dated

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

amended by an Amendment to Credit Agreement dated as of December 30, 1999 made

by and among Borrowers and Lender, by a Second Amendment to Credit Agreement

dated as of May 1, 2000 made by and among Borrowers and Lender, by a Third

Amendment to Credit Agreement dated as of April 4, 2001 made by and among

Borrowers and Lender, by a Fourth Amendment to Credit Agreement dated as of

August 7, 2002 made by and among Borrowers and Lender, by a Fifth Amendment to

Credit Agreement dated as of August 11, 2003 made by and among Borrowers and

Lender, by a Sixth Amendment to Credit Agreement dated as of September 3, 2003

made by and among Borrowers and Lender, and by a Seventh Amendment to Credit

Agreement dated as of March 1, 2004 made by and among Borrowers and Lender (as

amended, the "Credit Agreement;" capitalized terms used herein and not otherwise

defined shall have the meanings ascribed to such terms in the Credit Agreement),

such default being Borrowers' default under the Credit Agreement for failure to

remain within the Borrowing Base (as defined therein) on and after January 31,

2004; and

 

      WHEREAS, Borrowers are currently in default under their Revolving Credit

Note dated September 3, 2003 in the original principal amount of up to Thirty

Million Dollars ($30,000,000.00) payable to the order of Lender as therein set

forth (as amended and restated, the "Note") upon which an aggregate principal

amount of loans presently outstanding of $25,293,491.48 is outstanding as of the

date hereof and Letters of Credit in the outstanding face amount of $275,000.00

have been issued thereunder (Borrowers' duties and obligations under the Credit

Agreement, the Note, the Letters of Credit, the Security Documents, as

hereinafter defined, and all related documents are herein referred to as the

"Obligations"); and

 

      WHEREAS, Virbac has previously executed a certain Security Agreement dated

as of May 14, 1998 in favor of the Lender, as amended from time to time, St. JON

has previously executed a certain Security Agreement dated as of May 14, 1998 in

favor of the Lender, as amended from time to time, PM Resources has previously

executed a certain Security Agreement dated as of May 14, 1998 in favor of the

Lender, as amended from time to time, Francodex has previously executed a

certain Security Agreement dated as of September 7, 1999 in favor of the Lender,

as amended from time to time, Virbac AH has previously executed a certain

Security Agreement dated as of September 7, 1999 in favor of the Lender, as

amended from time to time, Delmarva has previously executed a certain Security

Agreement dated as of September 3, 2003 in favor of the Lender, as amended from

time to time (collectively, as amended, the "Security Agreements"), Virbac has

previously executed a certain Second Amended and Restated Agreement of Pledge

dated as of September 3, 2003 in favor of the Lender, as amended from time to

time, Virbac AH has previously executed a certain Amended and Restated Agreement

of Pledge dated as of September 3, 2003 in favor of the Lender, as amended from

time to time (collectively, as amended, the "Agreements of Pledge"), PM

Resources has previously executed a certain Deed of Trust and Security Agreement

dated as of September 9, 1993 in favor of the Lender, as amended from time to

time, Virbac

 

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has previously executed a certain Deed of Trust and Security Agreement dated as

of September 3, 2003 in favor of the Lender, as amended from time to time

(collectively, as amended, the "Deeds of Trust"), Delmarva has previously

executed a certain Patent, Trademark and License Security Agreement dated as of

September 3, 2003 in favor of the Lender, as amended from time to time, Virbac

has previously executed a certain Patent, Trademark and License Security

Agreement dated as of September 3, 2003 in favor of the Lender, as amended from

time to time, and Virbac AH has previously executed a certain Patent, Trademark

and License Security Agreement dated as of September 3, 2003 in favor of the

Lender, as amended from time to time (collectively, as amended, the "IP Security

Agreements"), and other documents pledging a substantial portion of each such

Borrowers' tangible and intangible assets to secure performance and repayment of

the Obligations, (said Security Agreements, Agreements of Pledge, Deeds of

Trust, IP Security Agreements and other documents are referred to herein

collectively as the "Security Documents"); and

 

      WHEREAS, Borrowers acknowledge that the Lender may currently exercise all

remedies under the Note, the Credit Agreement and the Security Documents now in

effect and as otherwise provided by law, as a result of the defaults by

Borrowers; and

 

      WHEREAS, Borrowers have requested that Lender forbear from enforcing its

rights against and making demand upon Borrowers and their assets for a certain

period of time and on certain conditions as set forth herein; and

 

      WHEREAS, Lender is willing to forbear in the enforcement of its rights

against and in making demand upon Borrowers, provided that such forbearance is

on the following terms and conditions and, except as expressly provided below,

such forbearance does not waive or otherwise prejudice Lender's rights or

ability to make demand.

 

      NOW, THEREFORE, in consideration of the premises and the covenants and

agreements here in contained, the parties hereto agree as follows:

 

      1.    Terms of Standstill. During the "Standstill Period" (as defined in

Section 3 herein), the parties agree to act in accordance with the following

provisions:

 

            (a)   Lender. Lender covenants and agrees that it will:

 

            (i)   not file or join in the filing of any involuntary petition in

      bankruptcy with respect to the Borrowers or otherwise initiate or

      participate in any similar proceedings for the benefit of creditors,

      including any proceeding for the appointment of a trustee, receiver,

      conservator, or liquidator, of the Borrowers or any portion of their

      assets;

 

            (ii)  not seek to collect or enforce against the Borrowers by

      litigation or other legal proceedings any payment or other obligation due

      under the Note except as provided for herein; and

 

            (iii) not exercise or enforce any right or remedy against the

      Borrowers to which Lender would be entitled under the terms of the Note,

      Credit Agreement or Security Documents by reason of any event of default

      existing as of the date of this Agreement (which forbearance in exercise

      of enforcement shall not, however, act as a waiver of Lender's right to

      enforce any such right or remedy after termination of the Standstill

      Period).

 

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      (b)   Borrowers. Borrowers covenants and agrees that during the

"Standstill Period" (as defined in Section 3 hereof):

 

            (i)   On or before April 9, 2004, Borrowers shall pay to Lender

      $3,000,000.00 in cash to be applied by Lender to reduce a portion of the

      overadvance amount by which Borrowers' outstanding Loans currently exceeds

      their Borrowing Base under the Credit Agreement and the Note, 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 and any Liens securing such 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

      $3,000,000.00 payment);

 

            (ii)  On or before May 3, 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);

 

            (iii) In addition to the reports required under the Credit Agreement

      and the Security Documents, Borrowers shall deliver to Lender:

 

                        (A) on or before Friday of each week, commencing with

            the next such delivery on Friday, April 9, 2004, a cash budget for

            Borrowers for the following week, setting forth Borrowers'

            projections based upon the best estimates available to Borrowers as

            to the anticipated cash receipts and cash disbursements of Borrowers

            as well as the anticipated repayments of the outstanding loans under

            the Credit Agreement and the Note, certified to Lender by the

            President or Chief Financial Officer of the Borrowers as to fairness

            of assumptions made and form of presentation; and

 

                        (B) on or before April 19, 2004, Borrowers' plan for

            elimination of the existing overadvance amount (by which Borrowers'

            outstanding Loans currently exceeds their Borrowing Base under the

            Credit Agreement and the Note), which plan shall provide for

            reduction of such amount to $0.00 on or before May 3, 2004 and shall

            set forth all of Borrowers' assumptions concerning anticipated

            sales, collections of receivables, Inventory purchases and such

            other information as Lender may reasonably require in order to

            evaluate the feasibility of such plan and its likelihood of success;

            and

 

                        (C) on or before April 26, 2004, the consolidated

            balance sheet of Borrowers and their Consolidated Subsidiaries as of

            December 31, 2003

 

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