THIRD AMENDMENT TO FORBEARANCE AGREEMENT

 

<PAGE>

 

                    THIRD AMENDMENT TO FORBEARANCE AGREEMENT

 

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

the 7th day of February, 2005, 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 previously amended by a certain Amendment to

Forbearance Agreement dated as of May 10, 2004 made by and among Borrowers and

Lender and by a certain Second Amendment to Forbearance Agreement dated as of

August 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 February 7, 2005, 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)(iii)(C) of the Forbearance Agreement shall be deleted in

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

 

                  (C) on or before April 1, 2005, 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, December 31, 2001 and

      December 31, 2000, 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;

 

<PAGE>

 

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

immediately following Section 1(b)(iii)(D) therein (which was added by the

Amendment to Forbearance Agreement) as follows:

 

            (E) on or before April 15, 2005, the consolidated and consolidating

      balance sheet, income statement projections and cash flow projections for

      Borrowers and their Consolidated Subsidiaries for their fiscal year ending

      December 31, 2005 on a month-by-month basis, all in form and detail

      reasonably acceptable to Bank.

 

      3. 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 May 6,

      2005.

 

      4. 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 $26,300,000.00;

 

      5. Section 4(d) of the Forbearance Agreement shall be deleted in its

entirety and in its place shall be substituted the following:

 

            (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:

 

                  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 May 6, 2005; and

 

      6. Section 4(e) of the Forbearance Agreement shall be deleted in its

entirety and in its place shall be substituted the following:

 

            (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 May 6, 2005, 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.

 

                                      -2-

<PAGE>

 

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

entirety and in its place shall be substituted the following:

 

            (j) Section 3.16 of the Credit Agreement shall be deleted in its

      entirety and in its place shall be substituted the following:

 

                  3.16 Maturity. All Loans not paid prior to May 6, 2005,

            together with all accrued and unpaid interest thereon, shall be due

            and payable on May 6, 2005 (the "Maturity Date").

 

      8. Section 4(k) of the Forbearance Agreement shall be deleted in its

entirety and in its place shall be substituted the following:

 

            (k) Addition of a new Monthly Consolidated EBITDA Covenant. Section

      7.1(i) of the Credit Agreement shall be amended to add a new subsection

      7.1(i)(ii) to such Section immediately following subsection 7.1(i)(i)

      therein as follows:

 

                  (ii) Maintain a minimum Consolidated EBITDA for Borrowers and

            their Subsidiaries of not less than: (A) ($440,000.00) for the month

            ending January 31, 2005, (B) ($440,000.00) for the month ending

            February 28, 2005, (C) ($55,000.00) for the month ending March 31,

            2005, and (D) ($55,000.00) for the month ending April 30, 2005;

 

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

entirety and in its place shall be substituted the following:

 

                  (b) Borrowers covenant and agree that they will promptly

      furnish to Lender any additional financial or other information as Lender

      may reasonably request from time to time in order to assess the progress

      of Borrowers' ability to repay or refinance all of the Obligations on or

      before May 6, 2005, to verify Borrowers' compliance with this Agreement,

      or to ascertain whether any event of termination of the Standstill Period

      has occurred;

 

      10. Contemporaneously with the execution of this Third Amendment to

Forbearance Agreement, the Revolving Credit Note made by the Borrowers payable

to the order of Lender shall be amended and restated in the form of that certain

Revolving Credit Note made by the Borrowers payable to the order of Lender

attached hereto as Exhibit B, to extend the maturity thereof and to make certain

amendments as set forth therein (as the same may from time to time be amended,

modified, extended or renewed, the "Note"). All references in the Credit

Agreement, the Forbearance Agreement, the Security Documents and the other

Transaction Documents to the "Note," the "Revolving Credit Note" and other

references of similar import shall hereafter be amended and deemed to refer to

the Note in the form of the Revolving Credit Note, as amended and restated in

the form attached hereto as Exhibit B.

 

      11. Contemporaneously with the execution of this Third Amendment to

Forbearance Agreement, the compliance certificate in the form of Exhibit E to

the Credit Agreement shall be amended and restated in the form of the compliance

certificate attached hereto as Exhibit E. All references in the Credit

Agreement, the Forbearance Agreement, the Security Documents and the other

Transaction Documents to "Exhibit E," to the "compliance certificate," to a

"certificate of the principal financial officers or controllers of Borrowers in

the form attached hereto as Exhibit E" and other references of similar import

shall hereafter be amended and deemed to refer to the form of compliance

certificate as amended and restated in the form attached hereto as Exhibit E.

 

                                      -3-

<PAGE>

 

      12. Borrowers hereby agrees to reimburse Lender, upon demand, for all

out-of-pocket costs and expenses, including reasonable legal fees and expenses

of the attorneys for the Lender incurred by Lender in the preparation,

negotiation and execution of this Third Amendment to Forbearance Agreement and

all other documents, instruments and agreements relating to this Third Amendment

to Forbearance Agreement with Lender.

 

      13. In consideration of the amendments made by Lender hereunder, Borrowers

shall jointly and severally pay to Lender on the date hereof an amendment fee in

the amount of $37,500.00, which fee shall be fully earned by Lender on the date

hereof.

 

      14. The amendments set forth herein are expressly conditioned upon the

following:

 

            (a) Execution and delivery by Borrowers of this Third Amendment to

Forbearance Agreement and of the amended and restated Revolving Credit Note in

the form attached hereto as Exhibit B;

 

            (b) Payment by the Borrowers of the amendment fee described in

Paragraph 13 above;

 

            (c) Execution and delivery by Bank One, NA of a Consent of

Participant, in form and substance acceptable to Lender, consenting to the terms

of this Third Amendment; and

 

            (d) Execution and delivery of such other agreements and other

documents reasonably requested by Lender to complete the transactions

contemplated herein.

 

      15. Borrowers hereby represents and warrants to Lender that:

 

            (a) The execution, delivery and performance by Borrowers of this

Third Amendment to Forbearance Agreement are within the corporate powers of the

Borrowers, have been duly authorized by all necessary corporate action and

require no action by or in respect of, or filing with, any governmental or

regulatory body, agency or official. The execution, delivery and performance by

Borrowers of this Third Amendment to Forbearance Agreement do not conflict with,

or result in a breach of the terms, conditions or provisions of, or constitute a

default under or result in any violation of, and Borrowers are not now in

default under or in violation of, the terms of the Articles of Incorporation or

Bylaws of any of the Borrowers, any applicable law, any rule, regulation, order,

writ, judgment or decree of any court or governmental or regulatory agenc