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

2

--------------------------------------------------------------------------------

 

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

3

--------------------------------------------------------------------------------

 

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

4

--------------------------------------------------------------------------------

 

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

5

--------------------------------------------------------------------------------

 

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

6

--------------------------------------------------------------------------------

 

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.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

7

--------------------------------------------------------------------------------

 

     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.

            EAGLEPICHER INCORPORATED, as the
Servicer and as an Originator
      By:           Name:           Title:           EAGLEPICHER FUNDING
CORPORATION
      By:           Name:           Title:           CARPENTER ENTERPRISES
LIMITED, as an
Originator
      By:           Name:           Title:           EAGLEPICHER AUTOMOTIVE,
INC., as an
Originator
      By:           Name:           Title:           DAISY PARTS, INC., as an
Originator
      By:           Name:           Title:           EAGLEPICHER FILTRATION &
MINERALS,
INC., as an Originator
      By:           Name:           Title:        

FORBEARANCE AGREEMENT

 

--------------------------------------------------------------------------------

 

            EAGLEPICHER TECHNOLOGIES, LLC, as an
Originator
      By:           Name:           Title:           EAGLEPICHER PHARMACEUTICAL
SERVICES, LLC, as an Originator
      By:           Name:           Title:           GENERAL ELECTRIC CAPITAL
CORPORATION, as Committed Purchaser
      By:           Name:   Kelly Stotler        Title:   Duly Authorized
Signatory        GENERAL ELECTRIC CAPITAL
CORPORATION, as Administrative Agent and as
Collateral Agent
      By:           Name:   Kelly Stotler        Title:   Duly Authorized
Signatory     

FORBEARANCE AGREEMENT

 

--------------------------------------------------------------------------------

 

Schedule 1

          EaglePicher Party   Type of Entity   Jurisdiction of Organization
EaglePicher Incorporated   Corporation   Ohio EaglePicher Funding
Corporation   Corporation   Delaware EaglePicher Filtration &
Minerals, Inc.   Corporation   Nevada EaglePicher Automotive, Inc.   Corporation
  Michigan EaglePicher Technologies,
LLC   Limited Liability Company   Delaware EaglePicher Pharmaceutical
Services, LLC   Limited Liability Company   Delaware Carptenter Enterprises
Limited   Corporation   Michigan Daisy Parts, Inc.   Corporation   Michigan

 

--------------------------------------------------------------------------------

 

Annex G to Purchase Agreement

FINANCIAL COVENANTS

     (a) Minimum Monthly Adjusted EBITDA. During the Forbearance Period, as of
the last day of each calendar month set forth below, Adjusted EBITDA for the
month then ended shall not be less than the ratio set forth below opposite such
month:

          Month Ended   Minimum Adjusted EBITDA       shall not be less than:  
03/31/05
  $ 4,300,000  
04/30/05
  $ 4,400,000  
05/31/05
  $ 5,100,000  

     (b) Capital Expenditures. No Capital Expenditures shall be made or incurred
during the period from and including February 28, 2005 through and including
June 10, 2005 that would cause the aggregate amount of Capital Expenditures made
by EaglePicher Holdings, Inc., EaglePicher Incorporated, and their Subsidiaries
during such period to exceed $10,000,000.

     (c) Interest Expense Coverage Ratio. From and after the termination or
expiration of the Forbearance Period, the ratio of (a) Consolidated EBITDA to
(b) Consolidated Cash Interest Expense for any period of four consecutive fiscal
quarters ending on any fiscal quarter end during any period set forth below,
shall not be less than the ratio set forth below opposite such period:

      PERIOD   RATIO

   
December 1, 2004 to and including
  2.25 to 1.00
February 28, 2005
   

   
March 1, 2005 to and including
  1.95 to 1.00
May 31, 2005
   

   
June 1, 2005 to and including
  2.05 to 1.00
August 31, 2005
   

   
September 1, 2005 to and including
  2.05 to 1.00
November 30, 2005
   

   
December 1, 2005 to and including
  2.10 to 1.00
February 28, 2006
   

 

--------------------------------------------------------------------------------

 

      PERIOD   RATIO

   
March 1, 2006 to and including
  2.10 to 1.00
May 31, 2006
   

   
June 1, 2006 to and including
  2.15 to 1.00
August 31, 2006
   

   
September 1, 2006 to and
  2.20 to 1.00
including November 30, 2006
   

   
December 1, 2006 and thereafter
  2.25 to 1.00

     (d) Leverage Ratio. From and after the termination or expiration of the
Forbearance Period, the Leverage Ratio as of any fiscal quarter end during any
period set forth below shall not exceed the ratio set forth below opposite such
period:

      PERIOD   RATIO

   
December 1, 2004 to and including
  5.50 to 1.00
February 28, 2005
   

   
March 1, 2005 to and including
  6.25 to 1.00
May 31, 2005
   

   
June 1, 2005 to and including
  5.75 to 1.00
August 31, 2005
   

   
September 1, 2005 to and including
  5.50 to 1.00
November 30, 2005
   

   
December 1, 2005 to and including
  5.25 to 1.00
February 28, 2006
   

   
March 1, 2006 to and including
  5.25 to 1.00
May 31, 2006
   

   
June 1, 2006 to and including
   
August 31, 2006
  5.00 to 1.00

   
September 1, 2006 to and including
  4.75 to 1.00
November 30, 2006
   

   
December 1, 2006 to and including
   
August 31, 2007
  4.75 to 1.00

   
September 1, 2007 and thereafter
  4.25 to 1.00

     (e) Fixed Charge Coverage Ratio. From and after the termination or
expiration of the Forbearance Period, the ratio of (a) Consolidated EBITDA minus
Capital

 

--------------------------------------------------------------------------------

 

Expenditures to (b) Consolidated Fixed Charges for any period of four
consecutive fiscal quarters ending on any fiscal quarter end during any period
set forth below, shall not be less than the ratio set forth below opposite such
period:

      PERIOD   RATIO

   
December 1, 2004 to and including
  0.85 to 1.00
February 28, 2005
   

   
March 1, 2005 to and including
   
May 31, 2005
  0.65 to 1.00

   
June 1, 2005 to and including
   
August 31, 2005
  0.85 to 1.00

   
September 1, 2005 to and including
  0.85 to 1.00
November 30, 2005
   

   
December 1, 2005 to and including
  0.95 to 1.00
February 28, 2006
   

   
March 1, 2006 to and including
   
May 31, 2006
  1.00 to 1.00

   
June 1, 2006 to and including
   
August 31, 2006
  1.05 to 1.00

   
September 1, 2006 to and including
  1.10 to 1.00
November 30, 2006
   

   
December 1, 2006 to and including
   
August 31, 2007
  1.10 to 1.00

   
September 1, 2007 and thereafter
  1.25 to 1.00

     Capitalized terms used in this Annex G and not otherwise defined below
shall have the respective meanings ascribed to them in Annex X. The following
terms shall have the respective meanings set forth below:

     “Adjusted EBITDA” means Consolidated EBITDA plus, to the extent deducted in
arriving at such amount, (i) the forbearance fee payable under Section 14 of the
Bank Forbearance Agreement, (ii) attorneys’ fees and expenses incurred by
counsel to EaglePicher Holdings, Inc., EaglePicher Incorporated and Harris Trust
and Savings Bank in connection with the “Original Forbearance Agreement” (as
defined in the Bank Forbearance Agreement), the Bank Forbearance Agreement and
the “Participation Agreement” (as defined in the Bank Forbearance Agreement)
(iii) fees of the Lenders’ financial advisor referred to in Section 7(b) of the
Bank Forbearance Agreement, and (iv) retainer payments and fees to the
Borrower’s investment banker(s) referred to in Section 7(c) of the Bank
Forbearance Agreement.

     “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.

     “Capital Expenditures” means, for any period, (a) the additions to
property, plant and equipment and other capital expenditures of the Parent and
its Subsidiaries, on a consolidated basis, that are (or would be) set forth in a
consolidated statement of cash flows of the Parent for such period prepared in
accordance with GAAP (including expenditures for maintenance and repairs which
should be capitalized in accordance with GAAP) and (b) Capital Lease Obligations
incurred by the Parent and its Subsidiaries, on a consolidated basis, during
such period; provided that Capital Expenditures shall not include
(i) expenditures of proceeds of insurance settlements, condemnation awards and
other settlements in respect of lost, destroyed, damaged or condemned assets,
equipment or other property to the extent such expenditures are made to replace
or repair such lost, destroyed, damaged or condemned assets, equipment or other
property or otherwise to acquire, maintain, develop, construct, improve or
repair assets or properties useful in the business of the Parent or (ii) any
application of Net Proceeds pursuant to Section 2.11(c) of the Credit Agreement.

     “Capital Lease Obligations” of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.

     “Certificate of Designations” means the Certificate of Designation,
Preferences and Rights Relating to the Existing Preferred Stock, as filed with
the Secretary of State of Delaware on February 23, 1998, as amended,
supplemented or modified from time to time in accordance with the terms and
conditions of the Credit Agreement.

     “Consolidated Cash Interest Expense” means, for any period, without
duplication, (a) the sum of (i) the interest expense (including imputed interest
expense in respect of Capital Lease Obligations) of the Parent and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP, (ii) any interest accrued during such period in respect of
Indebtedness of the Parent or any Subsidiary of the Parent that is required to
be capitalized rather than included in consolidated interest expense for such
period in accordance with GAAP and (iii) commissions, discounts, yield and other
fees and charges incurred in connection with this Agreement, the Receivables
Sale Agreement or any Related Document that are payable to any person other than
the Parent or an Originator, minus (b) the sum of (A) to the extent included in
such consolidated interest expense for such period, non-cash amounts
attributable to amortization of financing costs paid in a previous period and
(B) to the extent included in such consolidated interest expense for such
period, deferred financing costs, whether or not paid in cash.

     “Consolidated EBITDA” means, for any period, (a) Consolidated Net Income
for such period plus (b) without duplication, and to the extent deducted in
determining such Consolidated Net Income, the sum of (i) consolidated interest
expense for such period, (ii) consolidated income tax expense for such period,
(iii) all amounts attributable to depreciation and amortization for such period,
(iv) interest-equivalent costs associated with this Agreement, the Receivables
Sale Agreement or any Related Document, whether accounted for as interest
expense or loss on the sale of receivables, (v) any extraordinary non-cash
charges for such period, (vi) any expense relating to pension plans, (vii) any
non-recurring non-cash charge (other than routine non-cash charges that result
in an accrual of a reserve for anticipated cash charges in the following
quarter) and (viii) any accruals for long-term bonus programs or plans and
share-appreciation plans, in each case to the extent not resulting in cash
payments during such period,

 

--------------------------------------------------------------------------------

 

minus (c) without duplication, and to the extent included in determining such
Consolidated Net Income, any non-cash gains, non-cash pension income and any
cash payment relating to pension plans for such period, all determined on a
consolidated basis in accordance with GAAP; provided that for the purposes of
subclauses (vi) and (vii) of clause (b) of this definition, any non-cash charges
or expenses added back pursuant to such subclauses (other than non-cash charges
and expenses, in each case occurring on or prior to the “Effective Date” (as
such term is defined in the Credit Agreement)) shall be deducted in any
subsequent period to the extent that cash disbursements attributable thereto are
made during such period.

     “Consolidated Fixed Charges” means, for any period, without duplication,
the sum of (a) Consolidated Cash Interest Expense for such period, (b) the
aggregate amount of scheduled principal payments made during such period in
respect of Long-Term Indebtedness of the Parent and its Subsidiaries (other than
payments made by the Parent or any Subsidiary of the Parent to the Parent or a
Subsidiary of the Parent), (c) the aggregate amount of scheduled principal
payments in respect of Long-Term Indebtedness that would have been due during
such period but for their voluntary prepayment within one year prior to the
scheduled date of payment, (d) the aggregate amount of income taxes paid in cash
by the Parent and its Subsidiaries during such period and (e) the amount of
Preferred Dividends paid during such period.

     “Consolidated Net Income” means, for any period, the net income or loss of
the Parent and its Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP (adjusted to reflect any charge, tax or expense
incurred or accrued by EaglePicher Holdings Inc. during such period as though
such charge, tax or expense had been incurred by the Parent, to the extent that
the Parent has made or would be entitled under the “Loan Documents” (as such
term is defined in the Credit Agreement) to make any payment to or for the
account of EaglePicher Holdings Inc. in respect thereof); provided that there
shall be excluded the income of any Person (other than the Parent) in which any
other Person (other than the Parent or any Subsidiary of the Parent or any
director holding qualifying shares in compliance with applicable law) owns an
Equity Interest, except to the extent of the amount of dividends or other
distributions actually paid to the Parent or any of its Subsidiaries during such
period.

     “Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person.

     “Existing Preferred Stock” means the 11.75% Series A Cumulative Redeemable
Exchangeable Preferred Stock and the 11.75% Series B Cumulative Redeemable
Exchangeable Preferred Stock of EaglePicher Holdings Inc. issued pursuant to the
Certificate of Designations.

     “Forbearance Period” has the meaning assigned to such term in that certain
Forbearance Agreement dated as of February 28, 2005 by and among EaglePicher
Funding Corporation, EaglePicher Incorporated, the “Originators” party thereto
and General Electric Capital Corporation in its capacity as committed purchaser
and as administrative agent.

     “Guarantee” of or by any Person (the “guarantor”) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the “primary obligor”) in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such

 

--------------------------------------------------------------------------------

 

Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.

     “Inactive Subsidiary” means a Subsidiary listed on Schedule 1.01(a) of the
Credit Agreement; provided that (a) the Parent intends to dissolve, liquidate,
wind-up or take other similar action in respect of such Subsidiary as promptly
as reasonably practicable, (b) such Subsidiary has no business or operations and
conducts no activities other than those activities reasonably necessary to the
maintenance or dissolution of such Subsidiary, (c) such Subsidiary does not
incur any Indebtedness or other liabilities (other than reasonable fees of
attorneys and accountants and other de minimis fees in connection with such
maintenance, dissolution, liquidation, winding up or similar process) after the
“Effective Date” (as such term is defined in the Credit Agreement) and (d) the
Inactive Subsidiaries as a group shall not have more than $100,000 in assets.

     “Indebtedness” of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid
(other than current trade accounts payable incurred in the ordinary course), (d)
all obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (e) to the extent
determinable, all obligations of such Person in respect of the deferred purchase
price of property or services (excluding current accounts payable and expense
accruals incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (g) all Guarantees by such Person of Indebtedness of others,
(h) all Capital Lease Obligations of such Person, (i) all obligations,
contingent or otherwise, of such Person as an account party in respect of
letters of credit and letters of guaranty, (j) all obligations, contingent or
otherwise, of such Person in respect of bankers’ acceptances, and (k) the
aggregate Capital Investment. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such Person
is a general partner) to the extent such Person is liable therefor as a result
of such Person’s ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such Person is
not liable therefor.

     “Joint Venture” means any corporation, partnership or other entity or
arrangement in which the Parent or any Subsidiary owns or controls any, but not
more than 70%, of the Equity Interests.

     “Leverage Ratio” means, on any date, the ratio of (a) Total Indebtedness as
of such date to (b) Consolidated EBITDA for the period of four consecutive
fiscal quarters of the Parent ended on such date (or, if such date is not the
last day of a fiscal quarter, ended on the last day of the fiscal quarter of the
Parent most recently ended prior to such date).

     “Loan” means any loan made by a lender party to the Credit Agreement to the
Parent pursuant to the Credit Agreement.

     “Long-Term Indebtedness” means any Indebtedness that, in accordance with
GAAP, constitutes (or, when incurred, constituted) a long-term liability.

     “Net Proceeds” means, with respect to any event (a) the cash proceeds
received in respect of such event including (i) any cash received in respect of
any non-cash proceeds, but only as and when received, (ii) in the case of a
casualty, insurance proceeds, and (iii) in the case

 

--------------------------------------------------------------------------------

 

of a condemnation or similar event, condemnation awards and similar payments,
net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses paid by
EaglePicher Holdings Inc., the Parent and its Subsidiaries to third parties
(other than Affiliates) in connection with such event, (ii) in the case of a
sale, transfer or other disposition of an asset (including pursuant to a sale
and leaseback transaction or a casualty or a condemnation or similar
proceeding), the amount of all payments required to be made by EaglePicher
Holdings Inc., the Parent and its Subsidiaries as a result of such event to
repay Indebtedness (other than Loans) secured by such asset or otherwise subject
to mandatory prepayment as a result of such event, and (iii) the amount of all
taxes paid (or reasonably estimated to be payable) by EaglePicher Holdings Inc.,
the Parent and its Subsidiaries, and the amount of any reserve established by
EaglePicher Holdings Inc., the Parent and its Subsidiaries to fund contingent
liabilities reasonably estimated to be payable, in each case that are directly
attributable to such event (as determined reasonably and in good faith by the
chief financial officer of the Parent), provided that upon the date on which any
such reserve is no longer required to be maintained, the remaining amount of
such reserve shall then be deemed to be Net Proceeds. Notwithstanding anything
to the contrary set forth above, the proceeds of any sale, transfer or other
disposition of receivables (or any interest therein) pursuant to this Agreement,
the Receivables Purchase and Servicing Agreement or any Related Document shall
not be deemed to constitute Net Proceeds.

     “Preferred Dividends” means any cash dividend payments made in respect of
the Existing Preferred Stock.

     “Subsidiary” means any subsidiary of the Parent other than (a) the Seller,
(b) any Joint Venture or (c) any Inactive Subsidiary.

     “Total Indebtedness” means, as of any date, the sum, without duplication,
of (a) the aggregate principal amount of Indebtedness of the Parent and its
Subsidiaries outstanding as of such date, in the amount that would be reflected
on a balance sheet prepared as of such date on a consolidated basis in
accordance with GAAP, (b) the aggregate Capital Investment and (c) the aggregate
principal amount of Indebtedness of the Parent and its Subsidiaries (including
the Seller) outstanding as of such date that is not required to be reflected on
a balance sheet in accordance with GAAP, determined on a consolidated basis;
provided that, for purposes of clause (c) above, the term “Indebtedness” shall
not include contingent obligations of the Parent and its Subsidiary as an
account party in respect of any letter of credit or letter of guaranty unless
such letter of credit or letter of guaranty supports an obligation that
constitutes Indebtedness.