FORBEARANCE AGREEMENT

Exhibit 10.39
EXECUTION COPY

FORBEARANCE AGREEMENT

     This FORBEARANCE AGREEMENT (this “Agreement”) is entered into as of March 10, 2005 by and among EAGLEPICHER INCORPORATED (formerly known as Eagle-Picher Industries, Inc.) (the “Servicer”), EAGLEPICHER FUNDING CORPORATION (formerly known as Eagle-Picher Funding Corporation) (“EPFC”), the entities listed on the signature pages hereof as “Originators” (together with the Servicer and EPFC, the “EaglePicher Parties”) and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, in its separate capacities as a committed purchaser (in such capacity, the “Committed Purchaser”), as administrative agent (in such capacity, the “Administrative Agent”) and as collateral agent (in such capacity, the “Collateral Agent”) under the “Purchase Agreement” referred to below. All capitalized terms used in this Agreement and not otherwise defined herein will have the respective meanings set forth in the Purchase Agreement.

RECITALS:

     WHEREAS, EPFC, the Servicer, the Committed Purchaser, the Collateral Agent and the Administrative Agent are parties to a Receivables Purchase and Servicing Agreement dated as of January 8, 2002 (as amended, restated, supplemented or otherwise modified from time to time prior to the date hereof, the “Purchase Agreement”);

     WHEREAS, as of November 30, 2004, (i) the ratio of (a) Consolidated EBITDA to (b) Consolidated Cash Interest Expense for the four consecutive fiscal quarters ended November 30, 2004 was less than 2.35 to 1.00, (ii) the Leverage Ratio as of the fiscal quarter ended November 30, 2004 was greater than 5.00 to 1.00 and (iii) the ratio of (a) Consolidated EBITDA minus Capital Expenditures to (b) Consolidated Fixed Charges for the four consecutive fiscal quarters ended November 30, 2004 was less than 1.00 to 1.00 (collectively, the “Specified Financial Test Violations”);

     WHEREAS, each of Specified Financial Test Violations constitutes an Event of Servicer Termination pursuant to Section 9.02(l) of the Purchase Agreement and a Termination Event pursuant to Section 9.01(n) of the Purchase Agreement;

     WHEREAS, EPFC and the Servicer have failed to deliver the November 30, 2004 audited financial statements, the December 31, 2004 and January 31, 2005 unaudited financial statements and various other documents and certificates to be delivered in connection with the November 30, 2004 audited financial statements and the December 31, 2004 and January 31, 2005 unaudited financial statements at the times such financial statements, certificates and other documents are required to be delivered under Section 5.02(a) and Annex 5.02(a) of the Purchase Agreement (collectively, the “Specified Delivery Violations” and together with the Specified Financial Test Violations, the “Specified Violations”);

     WHEREAS, each of Specified Delivery Violations constitutes an Incipient Termination Event pursuant to Section 9.01(a)(iii) of the Purchase Agreement and, five Business

Days after the date of this Agreement, each of the Specified Delivery Violations will constiute a Termination Event pursuant to Section 9.01(a)(iii) of the Purchase Agreement;

     WHEREAS, the Administrative Agent, the Collateral Agent and the Committed Purchaser are not willing to waive any of the Specified Violations;

     WHEREAS, the EaglePicher Parties have requested that the Administrative Agent, the Collateral Agent and the Committed Purchaser forbear from enforcing certain rights and remedies under the Purchase Agreement as a result of the Specified Violations for a limited period of time (but not waive such Specified Violations); and

     WHEREAS, in order to accommodate the EaglePicher Parties’ request, the Administrative Agent, the Collateral Agent and the Committed Purchaser are willing to temporarily forbear from exercising certain rights and remedies available solely by reason of the Specified Violations on the terms, conditions, and provisions contained in this Agreement;

     NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the EaglePicher Parties, the Committed Purchaser, the Collateral Agent and the Administrative Agent hereby agree as follows.

     1. Forbearance.

     1.1 Upon the satisfaction of the conditions precedent set forth in Section 3 of this Agreement, the Administrative Agent, the Collateral Agent and the Committed Purchasers hereby agree to forebear from taking any of the following actions as a result of the occurrence and continuation of any of the Specified Violations during the period (such period being referred to herein as the “Forbearance Period”) beginning on the first date that all of the conditions set forth in Section 3 of this Agreement shall have been satisfied and ending immediately upon the earliest to occur of (a) the occurrence or identification of any Termination Event, Incipient Termination Event, Event of Servicer Termination or Incipient Servicer Termination Event other than any, or solely with respect to any, of the Specified Violations, (b) June 10, 2005 and (c) the occurrence (whether or not declared) of any “Standstill Termination” (as such term is defined in the Bank Forbearance Agreement defined below): (1) commence judicial enforcement proceedings against EPFC or the Servicer with respect to the payment of the Seller Secured Obligations or any other obligations under the Purchase Agreement, (2) commence any foreclosure, enforcement or levy against or seizure of all or any portion of the Seller Collateral, (3) declare any commitments to make Capital Purchases or Reinvestment Purchases to be terminated or otherwise refuse, or assert that it has no obligation, to make Capital Purchases or Reinvestment Purchases by reason of the existence of any Specified Violation or (4) declare that the Facility Termination Date has occurred. “Bank Forbearance Agreement” means that certain Amended and Restated Forbearance Agreement dated as of February 28, 2005 among EaglePicher Holdings, Inc., EaglePicher Incorporated, the lenders party thereto and Harris Trust and Savings Bank, as agent for such lenders.

     1.2 The Administrative Agent, the Collateral Agent and the Committed Purchaser expressly reserve the right to exercise all remedies under the Related Documents and

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applicable law with respect to the Specified Violations immediately upon the expiration of the Forbearance Period, including, without limitation, the rights and remedies identified in clauses (1) through (4) of Section 1.1 above, in respect of all Specified Violations. The Administrative Agent, the Collateral Agent and the Committed Purchaser expressly reserve the right to immediately exercise all remedies under the Related Documents and applicable law with respect to all Termination Events, Incipient Termination Events, Events of Servicer Termination or Incipient Servicer Termination Events now existing or hereafter arising other than the Specified Violations.

     1.3 Except for the forbearance to the extent expressly set forth above in Section 1.1, the Administrative Agent, the Collateral Agent and the Committed Purchaser reserve each and every right and remedy they have under the Related Documents and under applicable law with respect to the Specified Violations, including, without limitation, the Administrative Agent’s and the Committed Purchaser’s right to continue to charge and collect interest at the default rate (including, without limitation, the Daily Default Margin) pursuant to the definition of “Committed Purchaser Daily Yield” set forth in Annex X to the Purchase Agreement. Nothing in this Agreement shall be deemed to constitute a waiver by the Administrative Agent or the Committed Purchaser of any Termination Event, Incipient Termination Event, Event of Servicer Termination or Incipient Servicer Termination Event, whether now existing or hereafter arising, or of any right or remedy the Administrative Agent, the Collateral Agent and the Committed Purchaser may have under any of the Related Documents or applicable law, except to the extent expressly forborne as set forth above in Section 1.1.

     1.4 Any Capital Purchase or Reimbursement Purchase during the Forbearance Period shall be subject to the satisfaction of the conditions precedent set forth in Section 3.02 of the Purchase Agreement, except to the extent non-compliance with the conditions set forth therein relate solely to an Specified Violation.

     2. Amendments to Purchase Agreement. Effective as of the date hereof and subject to the satisfaction of the condition precedent set forth in Section 3 below, the Purchase Agreement is hereby amended as follows:

     2.1 The definition of the term “Per Annum Daily Margin” set forth in Annex X to the Purchase Agreement shall be amended and restated to read as follows:

     “Per Annum Daily Margin” shall mean (a) with respect to Capital Investment made by the Conduit Purchaser, 0.90%, and (b) with respect to Capital Investment made by the Committed Purchaser, 3.00%.

     2.2 The definition of the term “Purchase Discount Rate Cap” set forth in Annex X to the Purchase Agreement shall be amended and restated to read as follows:

     “Purchase Discount Rate Cap” shall mean a rate equal to eighty percent (80%); provided, that the Purchase Discount Rate Cap may be changed at any time by the Administrative Agent, using its good faith and commercially reasonable credit judgment following a detailed analysis of the Transferred Receivables (or upon receipt of

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additional information with respect thereto); provided that, as long as no Termination Event has occurred, the Administrative Agent shall give advance written notice to the Seller with respect to such modification.

     2.3 Annex G of the Receivables Purchase and Servicing Agreement shall be amended and restated in its entirety as Attachment 1 hereto.

     3. Conditions of Effectiveness of this Agreement. This Agreement shall become effective as the date first written above (the “Effective Date”) upon the Administrative Agent’s receipt of (a) counterparts of this Agreement duly executed each EaglePicher Party, the Committed Purchaser, the Collateral Agent and the Administrative Agent and (b) an amendment fee in an amount equal to $100,000 in immediately available funds (which shall be fully earned and non-refundable as of the date paid).

     4. Covenants, Representations and Warranties.

     4.1 Upon the effectiveness of this Agreement, each EaglePicher Party (a) hereby reaffirms all covenants, representations and warranties made by it in each Related Document as of the date hereof the same expressly relates solely to an earlier date in which case such Person remakes such representation and warranty as of such earlier date and (b) agrees that all such covenants, representations and warranties shall be deemed to have been re-made as of the Effective Date.

     4.2 Each of the EaglePicher Parties represents and warrants that (a) this Agreement constitutes a legal, valid and binding obligation of such Person and is enforceable against such Person in accordance with its terms, (b) it is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of , in each case as set forth opposite such EaglePicher Party’s name on Schedule 1 hereto (which is such EaglePicher Party’s only state of organization) and (c) that the information set forth on Schedule 1 is true, complete and correct for each of the EaglePicher Parties.

     4.3 Each of EPFC and the Servicer represents and warrants that (a) the Purchase Agreement, as amended hereby, constitutes a legal, valid and binding obligation of such Person and is enforceable against such Person in accordance with its terms and (b) as of the Effective Date and after giving effect hereto, except for the Specified Violations, no Termination Event, Incipient Termination Event, Event of Servicer Termination or Incipient Servicer Termination Event has occurred and is continuing.

     4.4 EPFC and the Servicer represents and warrants that EPFC has not purchased Receivables from any Person besides the Persons identified as “Originators” on the signature pages to this Agreement.

     4.5 Within five Business Days of its receipt thereof, each EaglePicher Party hereby covenants to deliver (or cause to be delivered) to the Administrative Agent a copy of (a) any final report prepared by or on behalf of Giuliani Capital Advisors LLC related to EaglePicher Automotive, Inc. or (b) any final offering memorandum or final preliminary offering memorandum distributed to potential investors (or comparable documents) prepared by or on

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behalf of any investment banking firm relating to the sale of the equity or substantially all the assets of any EaglePicher Party or any Affiliate thereof.

     5. Reference to and Effect on Related Documents.

     5.1 Upon and after the Effective Date, each reference to the Purchase Agreement in any of the Related Documents shall mean and be a reference to the Purchase Agreement as amended hereby.

     5.2 Except as specifically set forth above, the Purchase Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed.

     5.3 Except to the extent expressly forborne as set forth above in Section 1.1, the execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of EPFC, the Committed Purchaser, the Collateral Agent or the Administrative Agent, nor constitute a waiver of any provision of any of the Related Documents, or any other documents, instruments and agreements executed and/or delivered in connection therewith.

     6. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

     7. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

     8. Entire Agreement. This Agreement, taken together with the Purchase Agreement and all of the other Related Documents, embodies the entire agreement and understanding of the parties hereto and supersedes all prior agreements and understandings, written and oral, relating to the subject matter hereof.

     9. Governing Law. THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).

     10. No Course of Dealing. The Committed Purchaser, the Collateral Agent and the Administrative Agent have entered into this Agreement on the express understanding with the EaglePicher Parties that in entering into this Agreement the Committed Purchaser, the Collateral Agent and the Administrative Agent are not establishing any course of dealing with any EaglePicher Party. The rights of the Committed Purchaser, the Collateral Agent and the Administrative Agent to require strict performance with all the terms and conditions of the Purchase Agreement as amended by this Agreement and the other Related Documents shall not in any way be impaired by the execution of this Agreement. None of the Collateral Agent, the

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Committed Purchaser or the Administrative Agent shall be obligated in any manner to execute any further Agreements or waivers, and if such waivers or Agreements are requested in the future, assuming the terms and conditions thereof are acceptable to them, the Committed Purchaser, the Collateral Agent and the Administrative Agent may require the payment of fees in connection therewith.

     11. Waiver of Claims.

     11.1 Each EaglePicher Party hereby (a) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, and each grant of security interests and liens granted under each Related Document to which it is a party, (b) agrees and acknowledges that such ratification and reaffirmation is not a condition to the continued effectiveness of such Related Documents, and (c) agrees that neither such ratification and reaffirmation, nor any Person’s solicitation of such ratification and reaffirmation, constitutes a course of dealing giving rise to any obligation or condition requiring a similar or any other ratification or reaffirmation from each EaglePicher Party with respect to any subsequent modifications consent or waiver with respect to the Purchase Agreement or other Related Documents. The Purchase Agreement and each other Related Document is in all respects hereby ratified and confirmed and neither the execution, delivery nor effectiveness of this Agreement shall operate as a waiver of any Termination Event, Incipient Termination Event, Event of Servicer Termination or Incipient Servicer Termination Event (whether or not known to the Administrative Agent, the Collateral Agent or the Committed Purchaser) or any right, power or remedy of the Administrative Agent, the Collateral Agent or the Committed Purchaser of any provision contained in the Purchase Agreement or any other Related Document, whether as a result of any Termination Event, Incipient Termination Event, Event of Servicer Termination or Incipient Servicer Termination Event or otherwise. This Agreement shall constitute a “Related Document” for purposes of the Purchase Agreement.

     11.2 Each EaglePicher Party hereby acknowledges and confirms that (a) it does not have any grounds, and hereby agrees not to challenge (or to allege or to pursue any matter, cause or claim arising under or with respect to), in any case based upon acts or omissions of the Administrative Agent, the Collateral Agent or the Committed Purchaser occurring prior to the date hereof or facts otherwise known to it as of the date hereof, the effectiveness, genuineness, validity, collectibility or enforceability of the Purchase Agreement or any of the other Related Documents, the Seller Secured Obligations, the liens securing such Seller Secured Obligations, or any of the terms or conditions of any Related Document (it being understood that such acknowledgement and confirmation does not preclude any EaglePicher Party from challenging the Administrative Agent’s, the Collateral Agent’s or the Committed Purchaser’s interpretation of any term or provision of the Purchase Agreement or other Related Document) and (b) it does not possess (and hereby forever waives, remises, releases, discharges and holds harmless the Committed Purchaser, the Administrative Agent, the Collateral Agent and their respective affiliates, stockholders, directors, officers, employees, attorneys, agents and representatives and each of their respective heirs, executors, administrators, successors and assigns (collectively, the “Indemnified Parties”) from and against, and agrees not to allege or pursue) any action, cause of action, suit, debt, claim, counterclaim, cross-claim, demand, defense, offset, opposition, demand and other right of action whatsoever, whether in law, equity or otherwise (which it, all those claiming by, through or under it, or its successors or assigns, have or may have) against the

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Indemnified Parties, or any of them, by reason of, any matter, cause or thing whatsoever, with respect to events or omissions occurring or arising on or prior to the date hereof and relating to the Purchase Agreement or any of the other Related Documents (including, without limitation, with respect to the payment, performance, validity or enforceability of the Seller Secured Obligations, the liens securing the Seller Secured Obligations or any or all of the terms or conditions of any Related Document) or any transaction relating thereto.

     11.3 The provisions of this Section 11 shall survive payment in full of the Seller Secured Obligations, full performance of all of the terms of this Agreement, the Purchase Agreement and the other Related Documents and/or any action by any EaglePicher Party to exercise any remedy available under the Related Documents, applicable law or otherwise.

     12. Expenses. In consideration for the execution by the Committed Purchaser, the Administrative Agent of this Agreement, each of the EaglePicher Parties jointly and severally agrees to promptly reimburse each of the Committed Purchaser, the Collateral Agent and the Administrative Agent or all of the reasonable out-of-pocket expenses, including, without limitation, attorneys’ and paralegals’ fees and expenses, it has heretofore or hereafter incurred or incurs in connection with the preparation, negotiation and execution of this Agreement.

     13. Successors and Assigns. This Agreement shall be binding upon each of EaglePicher Parties, the Committed Purchaser, the Collateral Agent and the Administrative Agent and their respective successors and assigns and shall inure to the benefit of each such Person.

     14. Integration. This Agreement contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Agreement supercedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters contained in this Agreement, all of which have become merged and finally integrated into this Agreement. Each of the parties hereto understands that in the event of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Agreement, no party shall be entitled to offer or introduce into evidence any oral promises or oral agreements among the parties relating to the subject matter of this Agreement not included or referred to herein and not reflected by a writing included or referred to herein.

     15. Notice. Pursuant to Section 9.01(a)(iii) of the Purchase Agreement, the Administrative Agent hereby gives notice to EPFC of its failure to deliver the November 30, 2004 audited financial statements, and the December 31, 2004, and January 31, 2005, unaudited financial statements at the times such financial statements are required to be delivered under Section 5.02(a) and Annex 5.02(a) of the Purchase Agreement.

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     IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first above written.

FORBEARANCE AGREEMENT