UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 2004
or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
________________ to ________________
Commission file number 0-20852
ULTRALIFE BATTERIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 16-1387013
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2000 Technology Parkway, Newark, New York 14513
(Address of principal executive offices)
(Zip Code)
(315) 332-7100
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value - 14,198,825 shares of common stock
outstanding, net of 727,250 treasury shares, as of June 26, 2004.
1
ULTRALIFE BATTERIES, INC.
INDEX
- --------------------------------------------------------------------------------
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 26, 2004 and December 31, 2003 ........................... 3
Condensed Consolidated Statements of Operations -
Three and Six months ended June 26, 2004
and June 28, 2003 ............................................. 4
Condensed Consolidated Statements of Cash Flows -
Three and Six months ended June 26, 2004
and June 28, 2003 ............................................. 5
Notes to Consolidated Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................. 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. ........................................... 22
Item 4. Controls and Procedures ......................................... 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 23
Item 4. Submission of Matters to a Vote of Security Holders ............. 24
Item 6. Exhibits and Reports on Form 8-K ................................ 24
Signatures ...................................................... 26
Index to Exhibits ............................................... 27
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
June 26, December 31,
ASSETS 2004 2003
--------- ------------
Current assets:
Cash and cash equivalents $ 941 $ 830
Restricted cash 51 50
Trade accounts receivable (less
allowance for doubtful accounts
of $223 at June 26, 2004 and
$168 at December 31, 2003) 20,205 17,803
UTI note receivable -- 2,350
Inventories 16,131 10,209
Prepaid expenses and other current
assets 1,662 1,314
--------- ---------
Total current assets 38,990 32,556
--------- ---------
Property, plant and equipment, net 19,169 18,213
Other assets:
Investment in UTI -- 1,550
Technology license agreements
(net of accumulated amortization
of $1,451 at June 26, 2004 and
$1,418 at December 31, 2003) -- 33
--------- ---------
-- 1,583
--------- ---------
Total Assets $ 58,159 $ 52,352
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
portion of long-term debt $ 5,439 $ 8,295
Accounts payable 7,720 6,385
Income taxes payable 13 106
Other current liabilities 3,828 3,068
--------- ---------
Total current liabilities 17,000 17,854
Long-term liabilities:
Debt and capital lease obligations 68 68
Commitments and contingencies
(Note 10)
Shareholders' equity:
Preferred stock, par value $0.10
per share, authorized 1,000,000
shares; none outstanding -- --
Common stock, par value $0.10 per
share, authorized 40,000,000
shares; issued - 14,926,075 at
June 26, 2004 and 14,302,782 at
December 31, 2003 1,493 1,430
Capital in excess of par value 124,276 120,626
Accumulated other comprehensive loss (638) (723)
Accumulated deficit (81,662) (84,525)
--------- ---------
43,469 36,808
Less -- Treasury stock, at cost
-- 727,250 shares 2,378 2,378
--------- ---------
Total shareholders' equity 41,091 34,430
--------- ---------
Total Liabilities and Shareholders'
Equity $ 58,159 $ 52,352
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
-------- -------- -------- --------
Revenues $ 28,439 $ 20,110 $ 55,427 $ 35,538
Cost of products sold 21,391 15,379 42,047 27,648
-------- -------- -------- --------
Gross margin 7,048 4,731 13,380 7,890
-------- -------- -------- --------
Operating expenses:
Research and development 560 646 1,063 1,231
Selling, general, and
administrative 2,858 2,187 5,329 4,149
-------- -------- -------- --------
Total operating expenses 3,418 2,833 6,392 5,380
-------- -------- -------- --------
Operating income 3,630 1,898 6,988 2,510
Other income (expense):
Interest income 27 4 47 5
Interest expense (150) (110) (235) (242)
Write-off of UTI investment and
note receivable (3,951) -- (3,951) --
Miscellaneous 32 397 93 187
-------- -------- -------- --------
(Loss) income before income taxes (372) 2,149 2,942 2,460
-------- -------- -------- --------
Income taxes -- -- 79 --
-------- -------- -------- --------
Net (loss) income $ (372) $ 2,149 $ 2,863 $ 2,460
======== ======== ======== ========
(Loss) earnings per share - basic $ (0.03) $ 0.17 $ 0.21 $ 0.19
======== ======== ======== ========
(Loss) earnings per share - diluted $ (0.03) $ 0.16 $ 0.19 $ 0.19
======== ======== ======== ========
Weighted average shares
outstanding - basic 14,115 12,927 13,930 12,895
======== ======== ======== ========
Weighted average shares
outstanding - diluted 14,115 13,651 15,109 13,266
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
June 26, June 28,
2004 2003
OPERATING ACTIVITIES
Net income $ 2,863 $ 2,460
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 1,705 1,504
Gain on asset disposal (14) --
Foreign exchange gain (87) (192)
Write-off of UTI investment
and note receivable 3,951 --
Write-down of inventory damaged
in fire 543 --
Write-down of fixed assets
damaged in fire 112
Non-cash stock-based compensation 10 26
Changes in operating assets
and liabilities:
Accounts receivable (2,402) (6,940)
Inventories (6,465) (916)
Prepaid expenses and other
current assets 399 (142)
Insurance receivable relating
to fires (798) --
Income taxes payable (93) --
Accounts payable and other
current liabilities 2,095 3,957
--------- ---------
Net cash provided by (used in)
operating activities 1,819 (243)
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment (2,628) (3,278)
Proceeds from asset disposal 16 --
Purchase of securities (1) --
--------- ---------
Net cash used in investing activities (2,613) (3,278)
--------- ---------
FINANCING ACTIVITIES
Change in revolving credit facilities (2,456) 2,440
Proceeds from issuance of common stock 3,703 1,128
Proceeds from issuance of debt 500 --
Principal payments on long-term
debt and capital lease obligations (400) (401)
Proceeds from grant 117 --
--------- ---------
Net cash provided by financing
activities 847 3,784
--------- ---------
Effect of exchange rate changes
on cash 58 27
--------- ---------
Increase in cash and cash equivalents 111 290
Cash and cash equivalents at
beginning of period 830 1,322
--------- ---------
Cash and cash equivalents at end
of period $ 941 $ 1,612
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Taxes paid $ 255 $ --
========= =========
Interest paid $ 173 $ 116
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands - Except Share and Per Share Amounts)
(unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals and adjustments) considered necessary for a fair
presentation of the condensed consolidated financial statements have been
included. Results for interim periods should not be considered indicative
of results to be expected for a full year. Reference should be made to the
consolidated financial statements contained in the Company's Form 10-K for
the twelve-month period ended December 31, 2003.
The Company's monthly closing schedule is a weekly-based cycle as
opposed to a calendar month-based cycle. While the actual dates for the
quarter-ends will change slightly each year, the Company believes that
there are not any material differences when making quarterly comparisons.
2. WRITE-OFF OF UTI INVESTMENT AND NOTE RECEIVABLE
In June 2004, the Company recorded a $3,951 non-cash, non-operating
charge related to the Company's ownership interest in Ultralife Taiwan,
Inc. ("UTI") that consisted of a write-off of its $2,401 note receivable
from UTI, including accrued interest, and the book value of its $1,550
equity investment in UTI. The Company decided to record this charge due to
recent events that have caused increasing uncertainty over UTI's near-term
financial viability, including a failure by UTI to meet commitments made
to the Company and its other creditors to secure additional financial
support before July 1, 2004. Based on these factors, and UTI's operating
losses over several years, the Company's investment has had an other than
temporary decline in fair value and the Company believes that the
probability of being reimbursed for the note receivable is nominal. The
Company continues to hold a 9.2% equity interest in UTI, and it is working
with UTI to help it through its financial difficulties in an effort to
ensure a satisfactory outcome for all parties involved. The Company does
not believe the write-off poses a risk to its current operations or future
growth prospects because UTI continues to manufacture product for it and
the Company has taken steps to establish alternate sources of supply.
3. EARNINGS (LOSS) PER SHARE
Basic earnings per share are calculated by dividing net income by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share are calculated by dividing net income,
adjusted for interest on convertible securities, by potentially dilutive
common shares, which include stock options, warrants and convertible
securities.
Net loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding during the period.
The impact of conversion of dilutive securities, such as stock options and
warrants, are not considered where a net loss is reported as the inclusion
of such securities would be anti-dilutive. As a result, basic loss per
share is the same as diluted loss per share.
6
The computation of basic and diluted earnings per share is
summarized as follows:
(In thousands, except per share data) Three Months Ended Six Months Ended
--------------------------------------------------------------------
June 26, 2004 June 28, 2003 June 26, 2004 June 28, 2003
--------------------------------------------------------------------
Net (Loss) / Income (a) $ (372) $ 2,149 $ 2,863 $ 2,460
Effect of Dilutive Securities:
Stock Options / Warrants -- 44 -- 44
Convertible Note -- 6 -- 9
-----------------------------------------------------------------
Net (Loss) / Income - Adjusted (b) $ (372) $ 2,199 $ 2,863 $ 2,513
=================================================================
Average Shares Outstanding - Basic (c) 14,115 12,927 13,930 12,895
Effect of Dilutive Securities:
Stock Options / Warrants -- 557 1,179 246
Convertible Note -- 167 -- 125
-----------------------------------------------------------------
Average Shares Outstanding - Diluted (d) 14,115 13,651 15,109 13,266
=================================================================
EPS - Basic (a/c) $ (0.03) $ 0.17 $ 0.21 $ 0.19
EPS - Diluted (b/d) $ (0.03) $ 0.16 $ 0.19 $ 0.19
The Company also had the equivalent of 1,056,880 options and
warrants outstanding for the three-month period ended June 26, 2004 which
were not included in the computation of diluted EPS because these
securities would have been anti-dilutive for that period.
4. STOCK-BASED COMPENSATION
The Company has various stock-based employee compensation plans. The
Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
which require compensation costs to be recognized based on the difference,
if any, between the quoted market price of the stock on the grant date and
the exercise price. As all options granted to employees under such plans
had an exercise price at least equal to the market value of the underlying
common stock on the date of grant, and given the fixed nature of the
equity instruments, no stock-based employee compensation cost is reflected
in net (loss) income. The effect on net (loss) income and (loss) earnings
per share if the Company had applied the fair value recognition provisions
of Statement of Financial Accounting Standards ("SFAS") No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of SFAS No. 123", to stock-based employee compensation is as
follows:
7
(In thousands, except per share data) Three Months Ended Six Months Ended
----------------------------------------------------------------------
June 26, 2004 June 28, 2003 June 26, 2004 June 28, 2003
----------------------------------------------------------------------
Net (loss) income, as reported $ (372) $ 2,149 $ 2,863 $ 2,460
Add: Stock-based employee compensation
expense included in reported net (loss)
income, net of related tax effects -- -- -- --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (467) (317) (681) (540)
-----------------------------------------------------------------
Pro forma net (loss) income $ (839) $ 1,832 $ 2,182 $ 1,920
(Loss) earnings per share:
Basic - as reported $ (0.03) $ 0.17 $ 0.21 $ 0.19
Basic - pro forma $ (0.06) $ 0.14 $ 0.16 $ 0.15
Diluted - as reported $ (0.03) $ 0.16 $ 0.19 $ 0.19
Diluted - pro forma $ (0.06) $ 0.13 $ 0.14 $ 0.14
During the first six months of 2004, the Company issued 623,293
shares of common stock as a result of exercises of stock options and
warrants. The Company received approximately $3,703 in cash proceeds as a
result of these transactions.
5. COMPREHENSIVE (LOSS) INCOME
The components of the Company's total comprehensive (loss) income
were:
Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
-----------------------------------------------------------------
Net (loss) income $ (372) $ 2,149 $ 2,863 $ 2,460
Foreign currency translation adjustments 15 (124) 85 (65)
-----------------------------------------------------------------
Total comprehensive (loss) income $ (357) $ 2,025 $ 2,948 $ 2,395
=================================================================
8
6. INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined under the first-in, first- out (FIFO) method. The composition
of inventories was:
June 26, 2004 December 31, 2003
--------------------------------
Raw materials $ 6,368 $ 5,946
Work in process 4,004 2,306
Finished goods 6,266 2,699
-------------------------
16,638 10,951
Less: Reserve for obsolescence 507 742
-------------------------
$ 16,131 $ 10,209
=========================
7. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consisted of the
following:
June 26, 2004 December 31, 2003
--------------------------------
Land $ 123 $ 123
Buildings and leasehold improvements 2,540 1,845
Machinery and equipment 34,053 33,207
Furniture and fixtures 371 358
Computer hardware and software 1,664 1,554
Construction in progress 2,762 1,748
-------------------------
41,513 38,835
Less: Accumulated depreciation 22,344 20,622
-------------------------
$ 19,169 $ 18,213
=========================
8. DEBT
As of June 26, 2004, the Company had $867 outstanding under the term
loan component of its credit facility with its primary lending bank, and
had $4,209 of borrowings outstanding under the revolver component of the
credit facility. The Company's additional borrowing capacity under the
revolver component of the credit facility as of June 26, 2004 was
approximately $5,900, net of outstanding letters of credit of $3,600. At
June 26, 2004, the Company's net worth was $41,091, compared to the debt
covenant requiring a minimum net worth of approximately $22,406. (See Note
13 for information on the Company's new credit facility.)
As of June 26, 2004, the Company's wholly-owned U.K. subsidiary,
Ultralife Batteries (UK) Ltd., had approximately $345 outstanding under
its revolving credit facility with a commercial bank in the U.K. This
credit facility provides the Company's U.K. operation with additional
financing flexibility for its working capital needs. Any borrowings
against this credit facility are collateralized with that company's
outstanding accounts receivable balances. There was approximately $476 in
additional borrowing capacity under this credit facility as of June 26,
2004.
9
9. INCOME TAXES
The liability method, prescribed by SFAS No. 109, "Accounting for
Income Taxes", is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that may be in effect
when the differences are expected to reverse. The Company recorded an
income tax expense of $79 for the six months ended June 26, 2004 relating
to alternative minimum tax calculations.
As of December 31, 2003, the Company had foreign and domestic net
operating loss carryforwards totaling approximately $76,829 that are
available to reduce future taxable income. The Company has not reported a
deferred tax asset on its Consolidated Balance Sheet due to prior
operating losses. It is reasonably possible the Company's profitability in
2003 and 2004 would result in the recognition of a deferred tax asset
during 2004. The Company has determined that a change in ownership as
defined under Internal Revenue Code Section 382 occurred during the fourth
quarter of 2003. As a result, the net operating loss carryforwards will be
subject to an annual limitation, currently estimated to be in the range of
approximately $14,000 to $18,000. Such a limitation could result in the
possibility of a cash outlay for income taxes in a future year when
earnings exceed the amount of NOLs that can be used by the Company.
10. COMMITMENTS AND CONTINGENCIES
As of June 26, 2004, the Company had $51 in restricted cash in
support of a corporate credit card account.
As of June 26, 2004, the Company had open capital commitments to
purchase approximately $2,071 of production machinery and equipment.
The Company estimates future costs associated with expected product
failure rates, material usage and service costs in the development of its
warranty obligations. Warranty reserves, included in other current
liabilities on the Company's Consolidated Condensed Balance Sheet, are
based on historical experience of warranty claims and generally will be
estimated as a percentage of sales over the warranty period. In the event
the actual results of these items differ from the estimates, an adjustment
to the warranty obligation would be recorded. Changes in the Company's
product warranty liability during the first six months of 2004 were as
follows:
Balance at December 31, 2003 $ 278
Accruals for warranties issued 237
Settlements made (147)
-----
Balance at June 26, 2004 $ 368
=====
The Company is subject to legal proceedings and claims which arise
in the normal course of business. The Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
In conjunction with the Company's purchase/lease of its Newark, New
York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a
consulting firm performed a Phase I and II Environmental Site Assessment
which revealed the existence of contaminated soil and ground water around
one of the buildings. The Company retained an engineering firm which
estimated that the cost of remediation should be in the range of $230.
This cost, however, is merely an estimate and the cost may in fact be much
higher. In February, 1998, the
10
Company entered into an agreement with a third party, which provides that
the Company and this third party will retain an environmental consulting
firm to conduct a supplemental Phase II investigation to verify the
existence of the contaminants and further delineate the nature of the
environmental concern. The third party agreed to reimburse the Company for
fifty percent (50%) of the cost of correcting the environmental concern on
the Newark property. The Company has fully reserved for its portion of the
estimated liability. Test sampling was completed in the spring of 2001,
and the engineering report was submitted to the New York State Department
of Environmental Conservation (NYSDEC) for review. NYSDEC reviewed the
report and, in January 2002, recommended additional testing. The Company
submitted a work plan to NYSDEC in October 2003, which was approved
shortly thereafter. The Company sought proposals from engineering firms to
complete the remedial work outlined in the work plan. A firm was selected
to perform the tasks associated with the remediation activities, which
were completed in December 2003. The test results were then forwarded to
NYSDEC for comment. NYSDEC responded to the Company in March 2004
requesting a report summarizing the data, findings, discussions and
conclusions. The report has been submitted to NYSDEC who will review and
make recommendations as to whether additional remediation is required.
Because the Company believes that the source of the contamination has been
removed, NYSDEC recommended that the Company conduct quarterly monitoring
of the groundwater for one year. The Company believes that the final cost
to remediate will not exceed the original estimate. The Company awaits
final comments from the NYSDEC and will begin the additional sampling upon
approval of the conclusions stated in the report. Because this is a
voluntary remediation, there is no requirement for the Company to complete
the project within any specific time frame. The ultimate resolution of
this matter may have a significant adverse impact on the results of
operations in the period in which it is resolved. Furthermore, the Company
may face claims resulting in substantial liability which could have a
material adverse effect on the Company's business, financial condition and
the results of operations in the period in which such claims are resolved.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer") has made a claim against the Customer wherein
it is asserted that the Customer's product, which is powered by an
Ultralife battery, does not operate according to the Customer's product
specification. No claim has been filed against Ultralife. However, in the
interest of fostering good customer relations, in September 2002,
Ultralife agreed to lend technical support to the Customer in defense of
its claim. The claim between the end-user and the Customer has now been
settled. Ultralife has renewed its commitment to the Customer to honor its
warranty by replacing any batteries that may be determined to be
defective. In the event a claim is filed against Ultralife and it is
ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse
effect on the Company's financial position and results of operations.
11. BUSINESS SEGMENT INFORMATION
The Company reports its results in three operating segments: Primary
Batteries, Rechargeable Batteries, and Technology Contracts. The Primary
Batteries segment includes 9-volt, cylindrical and various other
non-rechargeable specialty batteries. The Rechargeable Batteries segment
includes the Company's lithium polymer and lithium ion rechargeable
batteries. The Technology Contracts segment includes revenues and related
costs associated with various government and military development
contracts. The Company looks at its segment performance at the gross
margin level, and does not allocate research and development or selling,
general and administrative costs against the segments. All other items
that do not specifically relate to these three segments and are not
considered in the performance of the segments are considered to be
Corporate charges.
11
Three Months Ended June 26, 2004
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------------
Revenues $ 26,321 $ 1,691 $ 427 $ -- $ 28,439
Segment contribution 7,048 (82) 82 (3,418) 3,630
Interest expense, net (83) (83)
Write-down of UTI investment
and note receivable (3,951) (3,951)
Miscellaneous 32 32
Income taxes -- --
--------
Net loss $ (372)
Total assets $ 48,928 $ 4,179 $ 243 $ 4,809 $ 58,159
Three Months Ended June 28, 2003
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------------
Revenues $ 19,570 $ 258 $ 282 $ -- $ 20,110
Segment contribution 5,008 (389) 112 (2,833) 1,898
Interest expense, net (146) (146)
Miscellaneous 397 397
Income taxes -- --
--------
Net income $ 2,149
Total assets $ 31,956 $ 3,249 $ 140 $ 6,191 $ 41,536
Six Months Ended June 26, 2004
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------------
Revenues $ 51,643 $ 3,065 $ 719 $ -- $ 55,427
Segment contribution 13,822 (567) 125 (6,392) 6,988
Interest expense, net (188) (188)
Write-down of UTI investment
and note receivable (3,951) (3,951)
Miscellaneous 93 93
Income taxes (79) (79)
--------
Net income $ 2,863
Total assets $ 48,928 $ 4,179 $ 243 $ 4,809 $ 58,159
Six Months Ended June 28, 2003
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------------
Revenues $ 34,202 $ 638 $ 698 $ -- $ 35,538
Segment contribution 8,172 (596) 314 (5,380) 2,510
Interest expense, net (237) (237)
Miscellaneous 187 187
Income taxes -- --
--------
Net income $ 2,460
Total assets $ 31,956 $ 3,249 $ 140 $ 6,191 $ 41,536
12
12. FIRES AT MANUFACTURING FACILITIES
In May 2004 and June 2004, the Company experienced two fires that
damaged certain inventory and property at its facilities. The May 2004
fire occurred at the Company's U.S. facility and was caused by cells that
shorted out when a forklift truck accidentally tipped the cells over in an
oven in an enclosed area. Certain inventory, equipment and a small portion
of the building where the fire was contained were damaged. The June 2004
fire happened at the Company's U.K. location and mainly caused damage to
various inventory and the U.K. company's leased facility. The fire was
contained mainly in a bunkered, non-manufacturing area designed to store
various material, and there was additional smoke and water damage to the
facility and its contents. It is unknown how the U.K. fire was started.
The fires caused relatively minor disruptions to the production
operations, and had no impact on the Company's ability to meet customer
demand during the quarter.
The Company maintains replacement cost insurance on the property and
equipment it owns or rents, with relatively low deductibles. The total of
the two losses related to company-owned assets, including expenditures
required to repair and clean up the facilities, is expected to be in the
range of $2,000. The Company is working closely with the insurance
companies on these matters, and it expects to be fully reimbursed by the
insurance companies for these losses. The impacts on the Consolidated
Statement of Operations and the net cash outflows from the Company are
expected to be negligible. At June 26, 2004, the Company's prepaid and
other current assets on its Consolidated Balance Sheet included a
receivable from insurance companies for approximately $800 for equipment
losses, inventory losses and clean-up costs incurred to date.
13. SUBSEQUENT EVENT - NEW CREDIT FACILITY
On June 30, 2004, the Company closed on a new secured $25,000 credit
facility, comprised of a five-year $10,000 term loan component and a
three-year $15,000 revolving credit component. This agreement replaces the
Company's $15,000 credit facility that expired on the same date.
On June 30, 2004, the Company drew down the full $10,000 term loan.
The proceeds of the term loan, which is to be repaid in equal monthly
installments over five years, are to be used for the retirement of
outstanding debt and capital expenditures. Availability under the
revolving credit component is subject to a debt to earnings ratio, whereas
availability under the previous facility was limited by various asset
values. The lenders of the new credit facility are JP Morgan Chase Bank
and Manufacturers and Traders Trust Company, with JP Morgan Chase Bank
acting as the administrative agent.
On July 1, 2004, the Company entered into an interest rate swap
arrangement to be effective on August 2, 2004, related to the $10,000 term
loan, in order to take advantage of historically low interest rates. The
Company received a fixed rate of interest in exchange for a variable rate.
The swap rate received was 3.98% for five years and will be adjusted
accordingly for a Eurodollar spread incorporated in the agreement, which
is dependent upon a debt to earnings ratio within a predetermined grid. At
July 1, 2004, the total adjusted rate of interest that the Company will
pay on the outstanding portion of the $10,000 term loan was 5.23%.
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(In whole dollars)
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This report contains certain
forward-looking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this report relating to matters that are
not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, future demand for the Company's
products and services (particularly from the U.S. Government for BA-5390
batteries), the successful commercialization of the Company's advanced
rechargeable batteries, general economic conditions, government and
environmental regulation, competition and customer strategies, technological
innovations in the primary and rechargeable battery industries, changes in the
Company's business strategy or development plans, capital deployment, business
disruptions, including those caused by fires, raw materials supplies,
environmental regulations, and other risks and uncertainties, certain of which
are beyond the Company's control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those described herein as anticipated,
believed, estimated or expected.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the accompanying
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Form 10-K for the year ended December 31, 2003.
The financial information in this Management's Discussion and Analysis of
Financial Condition and Results of Operations is presented in whole dollars.
General
Ultralife Batteries, Inc. develops, manufactures and markets a wide range
of standard and customized lithium primary (non-rechargeable), lithium ion and
lithium polymer rechargeable batteries for use in a wide array of applications.
The Company believes that its technologies allow the Company to offer batteries
that are flexibly configured, lightweight and generally achieve longer operating
time than many competing batteries currently available. The Company has focused
on manufacturing a family of lithium primary batteries for military, industrial
and consumer applications, which it believes is one of the most comprehensive
lines of lithium manganese dioxide primary batteries commercially available. The
Company also supplies rechargeable lithium ion and lithium polymer batteries for
use in portable electronic applications.
The Company reports its results in three operating segments: Primary
Batteries, Rechargeable Batteries, and Technology Contracts. The Primary
Batteries segment includes 9-volt, cylindrical and various other
non-rechargeable specialty batteries. The Rechargeable Batteries segment
includes the Company's lithium polymer and lithium ion rechargeable batteries.
The Technology Contracts segment includes revenues and related costs associated
with various government and military development contracts. The Company looks at
its segment performance at the gross margin level, and does not allocate
research and development or selling, general and administrative costs against
the segments. All other items that do not specifically relate to these three
segments and are not considered in the performance of the segments are
considered to be Corporate charges.
14
Results of Operations (in whole dollars)
Three months ended June 26, 2004 and June 28, 2003
Revenues. Consolidated revenues for the three-month period ended June 26,
2004 amounted to $28,439,000, an increase of $8,329,000, or 41%, from the
$20,110,000 reported in the same quarter in the prior year. Primary battery
sales increased $6,751,000, or 34%, from $19,570,000 last year to $26,321,000
this year, as a result of strong shipments of HiRate(R) battery products,
including sales of BA-5390 batteries used mainly in various military
communications and weapons applications. Modestly lower sales of 9-volt
batteries partially offset this increase. Rechargeable revenues rose $1,433,000
to $1,691,000, primarily due to higher shipments to military and commercial
customers of various rechargeable battery packs to an increasing customer base.
Technology Contract revenues were $427,000 in the second quarter of 2004,
attributable to work on the Company's $2,700,000 development contract with
General Dynamics. Compared with the same period a year ago, technology contract
revenues increased $145,000 related to contracts with different customers in
each period.
Cost of Products Sold. Cost of products sold totaled $21,391,000 for the
quarter ended June 26, 2004, an increase of $6,012,000, or 39% over the same
three-month period a year ago. The gross margin on consolidated revenues for the
quarter was $7,048,000, or 25% of revenues, an improvement of $2,317,000 over
the $4,731,000, or 24% of revenues, reported in the same quarter in the prior
year. Gross margins in the Company's primary battery operations improved
$2,040,000, from $5,008,000 in 2003 to $7,048,000 in 2004 due to volume
increases and improved manufacturing efficiencies. In the Company's rechargeable
operations, the gross margin loss amounted to $82,000 in the second quarter of
2004, compared to a loss of $389,000 in 2003, an improvement of $307,000 due to
the increased volumes. Gross margins in the Technology Contract segment were
$82,000 in the second quarter of 2004 compared to $112,000 in 2003, a decrease
of $30,000 mainly due to the timing and realized margins of different technology
contracts.
Operating Expenses. Operating expenses for the three months ended June 26,
2004 totaled $3,418,000, a $585,000 increase over the prior year's amount of
$2,833,000. Research and development charges decreased $86,000 to $560,000 in
2004 due to the consolidation of all R&D efforts to the U.S. facility in order
to reduce costs and combine efforts. Although the R&D line reflects a decline,
the Company also considers its efforts in the Technology Contracts segment to be
related to key battery development efforts. Selling, general, and administrative
expenses increased $671,000 to $2,858,000 due mainly to planned resource
additions in sales and marketing and information systems to support the
Company's commitment to support a higher volume of development opportunities. In
addition, various administrative costs associated with running a larger business
also increased, including insurance and professional fees. Overall, operating
expenses as a percentage of sales improved, declining from 14% in the June 2003
quarter to 12% in the June 2004 quarter.
Other Income (Expense). Interest expense, net, for the second quarter of
2004 was $83,000, a decrease of $63,000 from the comparable period in 2003,
mainly as a result of lower balances of debt outstanding. Miscellaneous income /
expense decreased from income of $397,000 in 2003 to income of $32,000 in 2004
mostly due to changes in foreign currency in connection with the Company's
intercompany loan with its U.K. subsidiary. The strength of the U.K. pound
against the U.S. dollar rose more rapidly in 2003 as compared with 2004. In June
2004, the Company recorded a $3,951,000 non-cash, non-operating charge related
to the Company's ownership interest in Ultralife Taiwan, Inc. ("UTI") that
consisted of a write-off of its $2,401,000 note receivable from UTI, including
accrued interest, and the book value of its $1,550,000 equity investment in UTI.
The Company decided to record this charge due to recent events that have caused
increasing uncertainty over UTI's near-term financial viability, including a
failure by UTI to meet commitments made to the Company and its other creditors
to secure additional financial support before July 1, 2004. Based on these
factors, and UTI's operating losses over several years, the Company's investment
has had an other than temporary decline in fair value and the
15
Company believes that the probability of being reimbursed for the note
receivable is nominal. The Company continues to hold a 9.2% equity interest in
UTI, and it is working with UTI to help it through its financial difficulties in
an effort to ensure a satisfactory outcome for all parties involved. The Company
does not believe the write-off poses a risk to its current operations or future
growth prospects because UTI continues to manufacture product for it and the
Company has taken steps to establish alternate sources of supply.
Income Taxes. The Company did not record income tax expense for the three
months ended June 26, 2004 due to the loss that was reported for the quarter.
Net (Loss) Income. Net loss and loss per share were $372,000 and $0.03,
respectively, for the three months ended June 26, 2004, compared to net earnings
and earnings per share of $2,149,000 and $0.16, respectively, for the same
quarter last year, primarily as a result of the reasons described above. Average
common shares outstanding used to compute basic and diluted loss per share
increased to 14,115,000 in 2004 mainly due to the impact of stock options and a
private equity placement of 200,000 common shares during the fourth quarter of
2003. The impact from "in the money" stock options and warrants resulted in an
additional 724,000 shares for the average diluted shares outstanding computation
in 2003.
Six months ended June 26, 2004 and June 28, 2003
Revenues. Consolidated revenues for the six-month period ended June 26,
2004 amounted to $55,427,000, an increase of $19,889,000, or 56%, from the
$35,538,000 reported in the same period in 2003. Primary battery sales increased
$17,441,000, or 51%, from $34,202,000 last year to $51,643,000 this year, as a
result of strong shipments of HiRate(R) battery products, led by sales of
BA-5390 batteries to military customers. Somewhat lower sales of 9-volt
batteries partially offset this increase. Rechargeable revenues rose $2,427,000
to $3,065,000, primarily due to higher shipments of various rechargeable battery
packs to a growing number of customers. Technology Contract revenues were
$719,000 in the first half of 2004, attributable mainly to work on the Company's
$2,700,000 development contract with General Dynamics. Compared with the same
period a year ago, technology contract revenues increased $21,000 related to
contracts with different customers in each period.
Cost of Products Sold. Cost of products sold totaled $42,047,000 for the
six months ended June 26, 2004, an increase of $14,399,000, or 52% over the same
six-month period a year ago. The gross margin on consolidated revenues for the
first half of 2004 was $13,380,000, or 24% of revenues, an improvement of
$5,490,000 over the $7,890,000, or 22% of revenues, reported in the same period
in 2003. Consolidated gross margins rose 70% for the first half of 2004 compared
with 2003 on the 56% increase in revenue. Gross margins in the Company's primary
battery operations improved $5,650,000, from $8,172,000 in 2003 to $13,822,000
in 2004. In the Company's rechargeable operations, the gross margin loss
amounted to $567,000 in the first two quarters of 2004, improving slightly from
a loss of $596,000 in 2003. The 2004 results included a $250,000 charge for
increasing reserves for obsolete rechargeable inventory. Gross margins in the
Technology Contract segment were $125,000 in the first half of 2004, decreasing
$189,000 from $314,000 in 2003, mainly due to the timing and realized margins of
different technology contracts.
Operating Expenses. Operating expenses for the six months ended June 26,
2004 totaled $6,392,000, a $1,012,000, or a 19% increase over the prior year's
amount of $5,380,000. Research and development costs decreased $168,000 to
$1,063,000 in 2004 due to the consolidation of all R&D efforts to the U.S.
facility in order to reduce costs and combine efforts. Although the R&D line
reflects a decline, the Company also considers its efforts in the Technology
Contracts segment to be related to key battery development efforts. Selling,
general, and administrative expenses increased $1,180,000 to $5,329,000 due
mainly to planned resource additions in sales, marketing and administrative
functions that are necessary for the company to execute on its target growth
opportunities, in addition to higher costs
16
associated with a growing business. Overall, operating expenses as a percentage
of sales improved, declining from 15% in the first half of 2003 to 12% in the
same period in 2004.
Other Income (Expense). Interest expense, net, for the first six months of
2004 was $188,000, a decrease of $49,000 from the comparable period in 2003,
mainly as a result of lower outstanding debt balances. Miscellaneous income /
expense decreased from income of $187,000 in 2003 to income of $93,000 in 2004
mostly due to changes in foreign currency in connection with the Company's
intercompany loan with its U.K. subsidiary. The strength of the U.K. pound
against the U.S. dollar rose more rapidly in 2003 as compared with 2004. In June
2004, the Company recorded a $3,951,000 non-cash, non-operating charge related
to the Company's ownership interest in Ultralife Taiwan, Inc. ("UTI") that
consisted of a write-off of its $2,401,000 note receivable from UTI, including
accrued interest, and the book value of its $1,550,000 equity investment in UTI.
The Company decided to record this charge due to recent events that have caused
increasing uncertainty over UTI's near-term financial viability, including a
failure by UTI to meet commitments made to the Company and its other creditors
to secure additional financial support before July 1, 2004. Based on these
factors, and UTI's operating losses over several years, the Company's investment
has had an other than temporary decline in fair value and the Company believes
that the probability of being reimbursed for the note receivable is nominal. The
Company continues to hold a 9.2% equity interest in UTI, and it is working with
UTI to help it through its financial difficulties in an effort to ensure a
satisfactory outcome for all parties involved. The Company does not believe the
write-off poses a risk to its current operations or future growth prospects
because UTI continues to manufacture product for it and the Company has taken
steps to establish alternate sources of supply.
Income Taxes. The Company recorded income tax expense of $79,000 for the
first half of 2004. While the Company has significant net operating loss
carryforwards (NOLs) related to past years' cumulative losses, it is subject to
a U.S. alternative minimum tax where NOLs can offset only 90% of taxable income.
Net Income. Net income and diluted earnings per share for the first six
months of 2004 were $2,863,000 and $0.19, respectively, compared to $2,460,000
and $0.19, respectively, for the same six months in 2003, primarily as a result
of the reasons described above. Average common shares outstanding used to
compute basic earnings per share increased from 12,895,000 in the first half of
2003 to 13,930,000 in 2004 mainly due to stock option exercises, as well as the
conversion of a short-term note into 125,000 common shares in the second quarter
of 2003 and a private equity placement of 200,000 common shares during the
fourth quarter of 2003. The impact from "in the money" stock options and
warrants resulted in an additional 1,179,000 and 371,000 shares for the average
diluted shares outstanding computation in 2004 and 2003, respectively.
Liquidity and Capital Resources (in whole dollars)
As of June 26, 2004, cash and cash equivalents totaled $941,000, excluding
restricted cash of $51,000. During the six months ended June 26, 2004, the
Company provided $1,819,000 of cash in operating activities as compared to using
$243,000 for the six months ended June 28, 2003, mainly due to the increase in
net income offset by an increase in inventory due to higher production volumes.
In the six months ended June 26, 2004, the Company used $2,628,000 to purchase
plant, property and equipment, a decrease of $650,000 from the prior year's
capital expenditures. This decrease was mainly attributable to the timing of
various projects. During the six month period ended June 26, 2004, the Company
generated $847,000 in funds from financing activities. The financing activities
included inflows from the issuance of stock, mainly as stock options were
exercised during the period, and outflows resulting from a reduction in the
Company's revolving loan balance. During the first six months of 2004, the
Company issued 623,293 shares of common stock as a result of exercises of stock
options and warrants, and the Company received approximately $3,703,000 in cash
proceeds as a result of these transactions. The
17
Company reduced its debt by $2,856,000 during the first six months of 2004 as
loan principal was paid and revolving debt was reduced.
Inventory turnover for the first half of 2004 was at an annualized rate of
6.0 turns per year, a decline from the 6.7 turns reflected during the full year
of 2003, mainly due to the timing of production and shipments and a modest
buildup of inventory related to higher production volumes, a semi-annual
shutdown week at the beginning of the third quarter, and a production conversion
project at the U.K. operation. The Company's Days Sales Outstanding (DSOs) was
an average of 50 days for the first half of 2004, remaining constant with the 50
days reflected for the full 12-month period in 2003.
At June 26, 2004, the Company had a capital lease obligation outstanding
of $86,000 for the Company's Newark, New York offices and manufacturing
facilities.
As of June 26, 2004, the Company had open capital commitments to purchase
approximately $2,071,000 of production machinery and equipment.
In May 2004 and June 2004, the Company experienced two fires that damaged
certain inventory and property at its facilities. The May 2004 fire occurred at
the Company's U.S. facility and was caused by cells that shorted out when a
forklift truck accidentally tipped the cells over in an oven in an enclosed
area. Certain inventory, equipment and a small portion of the building where the
fire was contained were damaged. The June 2004 fire happened at the Company's
U.K. facility and mainly caused damage to various inventory, and to contained,
non-manufacturing area in the building that is leased by the Company. It is
unknown how the U.K. fire was started. The fires caused relatively minor
disruptions to the production operations, and had no impact on the Company's
ability to meet customer demand during the quarter. The Company maintains
replacement cost insurance on the property and equipment it owns or rents, with
relatively low deductibles. The total of the two losses related to company-owned
assets, including expenditures required to repair and clean up the facilities,
is expected to be in the range of $2,000,000. The Company is working closely
with the insurance companies on these matters, and it expects to be fully
reimbursed by the insurance companies for these losses. The impacts on the
Consolidated Statement of Operations and the net cash outflows from the Company
are expected to be negligible. At June 26, 2004, the Company's prepaid and other
current assets on its Consolidated Balance Sheet included a receivable from
insurance companies for approximately $800,000 for equipment losses, inventory
losses and clean-up costs incurred to date.
As of June 26, 2004, the Company had $867,000 outstanding under the term
loan component of its credit facility with its primary lending bank, and had
$4,209,000 of borrowings outstanding under the revolver component of the credit
facility. The Company's additional borrowing capacity under the revolver
component of the credit facility as of June 26, 2004 was approximately
$5,900,000, net of outstanding letters of credit of $3,600,000. At June 26,
2004, the Company's net worth was $41,091,000, compared to the debt covenant
requiring a minimum net worth of approximately $22,406,000.
On June 30, 2004, the Company closed on a new secured $25,000,000 credit
facility, comprised of a five-year $10,000,000 term loan component and a
three-year $15,000,000 revolving credit component. This agreement replaces the
Company's $15,000,000 credit facility that expired on the same date. On June 30,
2004, the Company drew down the full $10,000,000 term loan. The proceeds of the
term loan, which is to be repaid in equal monthly installments over five years,
are to be used for the retirement of outstanding debt and capital expenditures.
Availability under the revolving credit component is subject to a debt to
earnings ratio, whereas availability under the previous facility was limited by
various asset values. The lenders of the new credit facility are JP Morgan Chase
Bank and Manufacturers and Traders Trust Company, with JP Morgan Chase Bank
acting as the administrative agent. On July 1, 2004, the Company entered into an
interest rate swap arrangement to be effective on August 2, 2004, related to the
$10,000,000 term loan, in order to take advantage of historically low interest
rates. The Company received a fixed rate of interest in exchange for a variable
rate. The swap
18
rate received was 3.98% for five years and will be adjusted accordingly for a
eurodollar spread incorporated in the agreement which is dependent upon a debt
to earnings ratio within a predetermined grid. At July 1, 2004, the total
adjusted rate of interest that the Company will pay on the outstanding portion
of the $10,000,000 term loan was 5.23%.
As of June 26, 2004, the Company's wholly-owned U.K. subsidiary, Ultralife
Batteries (UK) Ltd., had approximately $345,000 outstanding under its revolving
credit facility with a commercial bank in the U.K. This credit facility provides
the Company's U.K. operation with additional financing flexibility for its
working capital needs. Any borrowings against this credit facility are
collateralized with that company's outstanding accounts receivable balances.
There was $476,000 of additional borrowing capacity under this credit facility
as of June 26, 2004.
The Company continues to be optimistic about its future prospects and
growth potential. However, the recent rapid growth of the business has created a
near-term need for certain machinery, equipment and working capital in order to
enhance capacity and build product to meet demand. The recent positive financial
results during 2003 have enhanced the Company's ability to acquire additional
financing, as evidenced by the new credit facility entered into as of June 30,
2004. The Company continually explores various sources of capital, including
issuing new or refinancing existing debt, and raising equity through private or
public offerings. While it continually evaluates these alternatives, the Company
believes it has the ability over the next 12 months to finance its operations
primarily through internally generated funds, or through the use of financing
that currently is available to the Company.
As described in Part II, Item 1, "Legal Proceedings", the Company is
involved in certain environmental matters with respect to its facility in
Newark, New York. Although the Company has reserved for expenses related to
this, there can be no assurance that this will be the maximum amount. The
ultimate resolution of this matter may have a significant adverse impact on the
results of operations in the period in which it is resolved.
The Company typically offers warranties against any defects due to product
malfunction or workmanship for a period up to one year from the date of
purchase. The Company also offers a 10-year warranty on its 9-volt batteries
that are used in ionization-type smoke detector applications. The Company
provides for a reserve for this potential warranty expense, which is based on an
analysis of historical warranty issues. While the Company believes that its
current warranty reserves are adequate, there is no assurance that future
warranty claims will be consistent with past history. In the event the Company's
experiences a significant increase in warranty claims, there is no assurance
that the Company's reserves are sufficient. This could have a material adverse
effect on the Company's business, financial condition and results of operations.
Outlook (in whole dollars)
For the full year of 2004, the Company is reaffirming its guidance
provided last quarter of $106,000,000 in revenues, compared with $79,450,000 in
2003, an increase of approximately 33%. Overall, military sales are continued to
comprise at least 60% of the total revenues for the year, and rechargeable
revenues are expected to reach approximately $7,000,000 for the full 12-month
period ending December 31, 2004. Compared to the $55,427,000 in revenues for the
first half of 2004, management anticipates a modest flattening of order flow
from the military in the second half of the year compared to the first half,
consistent with the Company's outlook at the beginning of fiscal 2004.
Management cautions that uncertainties exist arising from the pending October
transfer of procurement authority from the U.S. Army Communications and
Electronics Command (CECOM) to the Defense Logistics Agency (DLA) and the
outcome of the Next Gen II Phase IV award.
19
The results in each quarter can be subject to fluctuations as the timing
of some customer orders is not often easy to predict. In particular, 9-volt
revenues depend upon continued demand from the Company's customers, some of
which depend upon retail sell-through. Similarly, revenues from sales of
cylindrical products, primarily to military customers, depend upon a variety of
factors, including the timing of the battery solicitation process within the
military, the Company's ability to successfully win contract awards, successful
qualification of the Company's products in the applicable military applications,
the timing of shipments related to lot acceptance, and the timing of order
releases against such contracts. Additionally, there is always a risk that
Congressional appropriations might vary from what is needed or expected. Some of
these factors are outside of the Company's direct control.
At the present time, there is some uncertainty with military order
activity as it relates particularly to the BA-5390 batteries. In October 2004,
the battery procurement responsibility for the U.S. military is scheduled to be
shifting from CECOM to DLA. Due to this change, and the impending award for Next
Gen Phase IV contract (discussed below), it is unclear at this time what the
level of orders for the BA-5390 batteries will be from the military during the
remainder of 2004. Current orders for the BA-5390 by the U.S. military provide
for production to take place into the early part of the fourth quarter. The
above guidance assumes that the military will place an order for additional
BA-5390's within the next couple of months for production and delivery during
the fourth quarter, at a slightly lower level than what the Company produced and
shipped during the first half of 2004. The guidance assumes no more than a
minimal disruption from the transfer to DLA and that the Company will be
successful in receiving an award under the Next Gen II Phase IV contract. As a
result of the uncertainty with the military orders at this time, we believe that
the second half results will likely be evenly split between the third and fourth
quarters.
Over the next three to five years, with anticipated growth in various
target markets, such as military, medical, automotive telematics, and search and
rescue, the Company has targeted an annual growth rate in revenues of 20% - 30%,
heading toward annual revenues of $200 million. While the Company's revenues are
expected to be comprised of approximately 60% from military sales in 2004, this
percentage is expected to decline over time as the Company generates sales from
customers in commercial markets. For 2005, the Company currently expects
consolidated revenues to range from $125 million to $135 million, including
business comprised of approximately 50% military and a doubling of rechargeable
revenues from 2004 in the range of $14 million. Significant growth in commercial
markets such as medical and automotive telematics is also expected to contribute
significantly to the 2005 outlook.
As discussed in the Company's Form 10-K for the year ended December 31,
2003, the solicitation for the Next Gen II Phase IV lithium battery procurement,
referred to as the "Rectangular" phase, was issued in January 2004. This phase
was split into two pieces, one of which included the BA-5390 battery that the
Company is already manufacturing under exigent, or non-bid, contracts. The other
piece consisted of the BA-5347 battery, for which the solicitation will result
in a small business set-aside contract. Bids were submitted for these products
in mid-March 2004. At this time, the Company is expecting that awards will be
made on this contract in August or September of 2004; however, the Company
cannot predict precisely when final awards will be made or what the final
outcome may be. The total amount for this phase of Next Gen II is expected to be
in the range of up to approximately $200-$300 million over five years. In the
meantime, the Company plans to continue to fulfill its current obligations
related to exigent contracts, and to pursue other such contracts as the
opportunity arises. The Company's current guidance incorporates ongoing BA-5390
contracts.
The Company has a fairly substantial fixed cost infrastructure to support
its overall operations. As sales continue to grow, manufacturing efficiencies
are realized, and operating expenses (R&D and SG&A) are closely controlled, the
Company believes it can generate favorable returns in the range of 30%, and
possibly as high as 50%, on incremental revenues, depending on product mix.
Conversely, decreasing volumes will likely result in the opposite effect. Gross
margins in 2004 are expected to be in the range of 23% - 24%. Within the next
couple of years, the Company believes that its gross margins
20
can reach a range of 26%-27% as operating efficiencies improve and the mix of
products with higher margins increases. It has set a target of 30% gross margins
for the longer-term, i.e. within the next five years.
The interest from potential customers for various types of new batteries
continues to increase significantly. As a result, management made a commitment
to increase resources in the R&D area, mainly related to new product
development, all of which will be done at the Company's U.S. facility. The
Company plans to continue its recent successful efforts related to new
cylindrical battery development for applications that initially have a military
focus, but often have sizeable commercial applications as well. In addition, it
is committing funds for the development of various Thin Cell and rechargeable
products. In order to keep up with this increase in opportunities, R&D costs are
now expected to be in the range of $600,000 to $700,000 per quarter for the
remainder of 2004. While the R&D expense line is now expected to increase
somewhat, it is also important to note that the Company also enhances its R&D
efforts with technology contracts, the revenues and related costs for which are
reported as a part of the Technology Contracts segment.
While the Company continues to monitor its operating costs very tightly,
it expects that SG&A costs will increase modestly in 2004 over 2003 as it
invests in additional sales and marketing efforts, and general administrative
costs rise to support increasing efforts for new product development
opportunities as well as to support the growth of the business. Overall, the
Company expects that total quarterly operating expenses (R&D and SG&A) for the
last two quarters of 2004 will remain roughly around the amount reported for the
second quarter. For the full year, operating expenses are expected to amount to
approximately 12% of total revenues during 2004, compared with 14% in 2003.
Within the next couple of years, the Company believes that its operating
expenses will be in the range of 11%-12% of revenues, and it has set a target to
reach 10% of revenues in the longer-term.
At this time, the Company expects to achieve operating income in the
second half of 2004 of approximately $5,500,000. For the full year 2004, the
Company expects operating income to amount to approximately $12,500,000,
reaffirming its previous guidance. With second half revenues expected to be
fairly evenly split between the third and fourth quarters, second half operating
income is similarly expected to be split proportionately. Within the next couple
of years, operating income as a percentage of revenues, is projected to be in
the range of 15%, with a longer-term target of 20%, resulting from higher gross
margins and lower operating expenses as a percentage of sales.
At December 31, 2003, the Company had approximately $76,829,000 in net
operating loss (NOL) carryforwards available to offset current and future
taxable income. The Company determined there was not sufficient positive
evidence in accordance with FAS 109 to record a deferred tax asset at December
31, 2003. The Company has not reported a deferred tax asset on its Consolidated
Balance Sheet due to prior operating losses. It is reasonably possible the
Company's profitability in 2003 and 2004 would result in the recognition of a
deferred tax asset during 2004.
In addition, in early 2004, the Company determined that a change in
ownership, as defined under Internal Revenue Code Section 382, had occurred
during fourth quarter of 2003, resulting in an annual limitation on the
utilization of the net operating loss carryforwards. The Company currently
estimates that the amount of such limitation will be in the range of
approximately $14,000,000 to $18,000,000 annually. If the Company's U.S. taxable
income were to exceed this annual limitation, it could result in a higher than
anticipated current tax expense for any year in which this occurs.
During 2004, the Company projects that it will spend approximately
$5,000,000 to $6,000,000 on capital expenditures for machinery and equipment.
Nearly one-half of these expenditures are expected to be for projects that
enhance manufacturing productivity, with relatively quick returns. The remainder
of these expenditures will be used to alleviate bottlenecks and increase
capacity, as well as for tooling of new products.
21
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks in the normal course of
business, primarily interest rate risk and changes in market value of its
investments and believes its exposure to these risks is minimal. The Company's
investments are made in accordance with the Company's investment policy and
primarily consist of commercial paper and U.S. corporate bonds. At June 26,
2004, the Company did not invest in derivative financial instruments. In July
2004, the Company entered into an interest rate swap arrangement in connection
with its new credit facility. (See Note 13 in Notes to Consolidated Financial
Statements for additional information.)
Item 4. Controls and Procedures
Evaluation Of Disclosure Controls And Procedures - The Company's president
and chief executive officer (principal executive officer) and its vice
president- finance and chief financial officer (principal financial officer)
have evaluated the disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
quarterly report. Based on this evaluation, the president and chief executive
officer and vice president - finance and chief financial officer concluded that
the Company's disclosure controls and procedures were effective as of such date.
Changes In Internal Controls Over Financial Reporting - There has been no
change in the internal controls over financial reporting that occurred during
the fiscal quarter covered by this quarterly report that has materially
affected, or is reasonably likely to materially affect, the internal controls
over financial reporting.
22
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
normal course of business. The Company believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or results of operations of the Company.
In conjunction with the Company's purchase/lease of its Newark, New York
facility in 1998, the Company entered into a payment-in-lieu of tax agreement
which provides the Company with real estate tax concessions upon meeting certain
conditions. In connection with this agreement, a consulting firm performed a
Phase I and II Environmental Site Assessment which revealed the existence of
contaminated soil and ground water around one of the buildings. The Company
retained an engineering firm which estimated that the cost of remediation should
be in the range of $230,000. This cost, however, is merely an estimate and the
cost may in fact be much higher. In February, 1998, the Company entered into an
agreement with a third party which provides that the Company and this third
party will retain an environmental consulting firm to conduct a supplemental
Phase II investigation to verify the existence of the contaminants and further
delineate the nature of the environmental concern. The third party agreed to
reimburse the Company for fifty percent (50%) of the cost of correcting the
environmental concern on the Newark property. The Company has fully reserved for
its portion of the estimated liability. Test sampling was completed in the
spring of 2001, and the engineering report was submitted to the New York State
Department of Environmental Conservation (NYSDEC) for review. NYSDEC reviewed
the report and, in January 2002, recommended additional testing. The Company
submitted a work plan to NYSDEC in October 2003, which was approved shortly
thereafter. The Company sought proposals from engineering firms to complete the
remedial work outlined in the work plan. A firm was selected to perform the
tasks associated with the remediation activities, which were completed in
December 2003. The test results were then forwarded to NYSDEC for comment.
NYSDEC responded to the Company in March 2004 requesting a report summarizing
the data, findings, discussions and conclusions. The report has been submitted
to NYSDEC who will review and make recommendations as to whether additional
remediation is required. Because the Company believes that the source of the
contamination has been removed, NYSDEC recommended that the Company conduct
quarterly monitoring of the groundwater for one year. The Company believes that
the final cost to remediate will not exceed the original estimate. The Company
awaits final comments from the NYSDEC and will begin the additional sampling
upon approval of the conclusions stated in the report. Because this is a
voluntary remediation, there is no requirement for the Company to complete the
project within any specific time frame. The ultimate resolution of this matter
may have a significant adverse impact on the results of operations in the period
in which it is resolved. Furthermore, the Company may face claims resulting in
substantial liability which could have a material adverse effect on the
Company's business, financial condition and the results of operations in the
period in which such claims are resolved.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer"), has made a claim against the Customer wherein it is
asserted that the Customer's product, which is powered by an Ultralife battery,
does not operate according to the Customer's product specification. No claim has
been filed against Ultralife. However, in the interest of fostering good
customer relations, in September 2002, Ultralife agreed to lend technical
support to the Customer in defense of its claim. The claim between the end-user
and the Customer has now been settled. Ultralife has renewed its commitment to
the Customer to honor its warranty by replacing any batteries that may be
determined to be defective. In the event a claim is filed against Ultralife and
it is ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse effect on
the Company's financial position and results of operations.
23
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 10, 2004 an Annual Meeting of Shareholders of the Company
was held.
(b) At the Annual Meeting, the Shareholders of the Company elected to
the Board of Directors all seven nominees for Director with the
following votes:
DIRECTOR FOR AGAINST
Patricia C. Barron 12,941,993 99,580
Anthony J. Cavanna 12,997,490 44,083
Paula H. J. Cholmondeley 12,997,290 44,283
Daniel W. Christman 12,941,993 99,580
John D. Kavazanjian 12,997,490 44,083
Carl H. Rosner 12,692,550 349,023
Ranjit C. Singh 12,926,390 115,183
(c) At the Annual Meeting, the Shareholders of the Company voted for the
ratification of PricewaterhouseCoopers LLP as its independent
registered public accounting firm for 2004 with the following votes:
FOR AGAINST
12,826,320 35,673
(d) At the Annual Meeting, the Shareholders of the Company voted for the
approval of the Company's 2004 Long -Term Incentive Plan:
FOR AGAINST ABSTAIN UNVOTED
7,498,899 1,187,239 54,492 4,300,943
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Credit Agreement dated as of June 30, 2004 with JPMorgan Chase
Bank as Administrative Agent
10.2 General Security Agreement dated as of June 30, 2004 in favor
of JPMorgan Chase Bank
31.1 Section 302 Certification - CEO
31.2 Section 302 Certification - CFO
32 Section 906 Certifications
24
(b) Reports on Form 8-K
On April 14, 2004, the Company filed Form 8-K with the Securities
and Exchange Commission announcing that it will report its first quarter
2004 results for the period ended March 27, 2004 before the market opens
on Thursday, April 29, 2004.*
On April 22, 2004, the Company filed Form 8-K with the Securities
and Exchange Commission announcing it had received an order valued at
approximately $1.5 million to supply custom lithium ion batteries and
chargers to Cubic Defense Applications.*
On April 27, 2004, the Company filed Form 8-K with the Securities
and Exchange Commission announcing that it had received an order valued at
$6 million from the U.S. Army Communications Electronics Command (CECOM)
for its BA-5372/U military batteries.*
On April 29, 2004, the Company filed a Form 8-K with the Securities
and Exchange Commission announcing its financial results for the quarter
ended March 27, 2004.*
On April 29, 2004, the Company filed a Form 8-K with the Securities
and Exchange Commission disclosing that two sitting directors would not
stand for re-election to the Board of Directors at the Annual Meeting.
On May 4, 2004, the Company filed a Form 8-K with the Securities and
Exchange Commission announcing the election of Philip M. Meek, Vice
President of Manufacturing, as an officer of the company.
On May 27, 2004, the Company filed Form 8-K with the Securities and
Exchange Commission indicating that it would hold its annual meeting of
shareholders for the period ending December 31, 2003, at the JPMorgan
Chase Conference Center in New York City on Thursday, June 10, 2004.*
On June 15, 2004, the Company filed a Form 8-K with the Securities
and Exchange Commission announcing the election of Paula H. J.
Cholmondeley to its board of directors.*
*This information was furnished but not filed in accordance with
Regulation FD.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRALIFE BATTERIES, INC.
(Registrant)
Date: August 2, 2004 By: /s/ John D. Kavazanjian
-----------------------------
John D. Kavazanjian
President and Chief Executive
Officer
Date: August 2, 2004 By: /s/ Robert W. Fishback
-----------------------------
Robert W. Fishback
Vice President - Finance and
Chief Financial Officer
26
Index to Exhibits
10.1 Credit Agreement dated as of June 30, 2004 with JPMorgan Chase Bank as
Administrative Agent
10.2 General Security Agreement dated as of June 30, 2004 in favor of JPMorgan
Chase Bank
31.1 Section 302 Certification - CEO
31.2 Section 302 Certification - CFO
32 Section 906 Certifications
27
Exhibit 10.1
================================================================================
[LOGO] CHASE
CREDIT AGREEMENT
dated as of
June 30, 2004
among
ULTRALIFE BATTERIES, INC.
The Lenders Party Hereto
and
JPMORGAN CHASE BANK,
as Administrative Agent
================================================================================
TABLE OF CONTENTS
ARTICLE I
Definitions
SECTION 1.01. Defined Terms.................................................. 1
SECTION 1.02. Classification of Loans and Borrowings.........................13
SECTION 1.03. Terms Generally ...............................................13
SECTION 1.04. Accounting Terms; GAAP.........................................13
ARTICLE II
The Credits
SECTION 2.01. Commitments....................................................14
SECTION 2.02. Loans and Borrowings...........................................14
SECTION 2.03. Requests for Revolving Borrowings..............................14
SECTION 2.04. Term Loan Commitment...........................................15
SECTION 2.05. Term Loan Borrowings...........................................17
SECTION 2.06. Letters of Credit..............................................18
SECTION 2.07. Funding of Borrowings..........................................21
SECTION 2.08. Interest Elections.............................................22
SECTION 2.09. Termination and Reduction of Commitments.......................23
SECTION 2.10. Repayment of Loans; Evidence of Debt...........................23
SECTION 2.11. Prepayment of Loans............................................24
SECTION 2.12. Fees...........................................................25
SECTION 2.13. Interest.......................................................26
SECTION 2.14. Alternate Rate of Interest.....................................26
SECTION 2.15. Increased Costs................................................27
SECTION 2.16. Break Funding Payments.........................................28
SECTION 2.17. Taxes..........................................................28
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs....29
SECTION 2.19. Mitigation Obligations; Replacement of Lenders.................31
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers...........................................31
SECTION 3.02. Authorization; Enforceability..................................31
SECTION 3.03. Governmental Approvals; No Conflicts...........................32
SECTION 3.04. Financial Condition; No Material Adverse Change..............32
SECTION 3.05. Properties.....................................................32
SECTION 3.06. Litigation and Environmental Matters...........................32
SECTION 3.07. Compliance with Laws and Agreements............................33
SECTION 3.08. Investment and Holding Company Status..........................33
SECTION 3.09. Taxes..........................................................33
SECTION 3.10. ERISA..........................................................33
SECTION 3.11. Disclosure.....................................................33
ARTICLE IV
Conditions
SECTION 4.01. Effective Date.................................................34
SECTION 4.02. Each Credit Event..............................................34
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information.....................35
SECTION 5.02. Notices of Material Events.....................................36
SECTION 5.03. Existence; Conduct of Business.................................36
SECTION 5.04. Payment of Obligations.........................................36
SECTION 5.05. Maintenance of Properties; Insurance...........................37
SECTION 5.06. Books and Records; Inspection Rights...........................37
SECTION 5.07. Compliance with Laws...........................................37
SECTION 5.08. Use of Proceeds and Letters of Credit..........................37
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness...................................................37
SECTION 6.02. Liens..........................................................38
SECTION 6.03. Fundamental Changes............................................39
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions......39
SECTION 6.05. Swap Agreements................................................40
SECTION 6.06. Restricted Payments............................................40
SECTION 6.07. Transactions with Affiliates...................................40
SECTION 6.08. Restrictive Agreements.........................................41
SECTION 6.09. Subsidiary Indebtedness........................................41
ARTICLE VII
Events of Default..............................................41
ARTICLE VIII
The Administrative Agent.......................................43
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices........................................................45
SECTION 9.02. Waivers; Amendments............................................45
SECTION 9.03. Expenses; Indemnity; Damage Waiver.............................46
SECTION 9.04. Successors and Assigns.........................................47
SECTION 9.05. Survival.......................................................50
SECTION 9.06. Counterparts; Integration; Effectiveness......................50
SECTION 9.07. Severability...................................................51
SECTION 9.08. Right of Setoff................................................51
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process.............................................51
SECTION 9.10. WAIVER OF JURY TRIAL...........................................51
SECTION 9.11. Headings.......................................................52
SECTION 9.12. Confidentiality................................................52
SECTION 9.13. Interest Rate Limitation.......................................52
SECTION 9.14. USA Patriot Act Notice.........................................52
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.08 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Assumption
Exhibit B -- Form of Opinion of Borrower's Counsel
Exhibit C -- Form of Term Note
CREDIT AGREEMENT dated as of June 30, 2004, among Ultralife Batteries,
Inc., the Lenders party hereto, and JPMorgan Chase Bank, as Administrative
Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means JPMorgan Chase Bank, in its capacity as
administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
Prime Rate in effect on such day. Any change in the Alternate Base Rate due to a
change in the Prime Rate shall be effective from and including the effective
date of such change in the Prime Rate.
"Applicable Percentage" means, with respect to any Lender, the percentage
of the total Commitments or Term Loan Commitments, as applicable, represented by
such Lender's Commitment. If the Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the Commitments most
recently in effect, giving effect to any assignments.
"Applicable Revolving Rate" means, for any day, with respect to any ABR
Revolving Loan or Eurodollar Revolving Loan, or with respect to the facility
fees payable hereunder, as the case may be, the applicable rate per annum set
forth below under the caption "ABR Spread", "Eurodollar Spread" or "Facility Fee
Rate", as the case may be, based upon the ratio, applicable on such date, of the
Borrower's Consolidated Total Funded Debt to EBITDA measured at each Fiscal
Quarter end, for the four Fiscal Quarter period then ended, taken together as a
single accounting period:
----------------------- ---------------- ---------------- ----------------
Total Funded Facility Eurodollar ABR
Debt/EBITDA Fee Rate Spread Spread
----------------------- ---------------- ---------------- ----------------
less than or equal to 25 bps 75 bps 0 bps
.50 to 1
----------------------- ---------------- ---------------- ----------------
greater than .50 to 25 bps 85 bps 0 bps
1, but less than or
equal to .75 to 1
----------------------- ---------------- ---------------- ----------------
greater than .75 to 30 bps 100 bps 0 bps
1, but less than or
equal to 1.00 to 1
----------------------- ---------------- ---------------- ----------------
greater than 1.00 to 35 bps 125 bps 0 bps
1, but less than or
equal to 1.25 to 1
----------------------- ---------------- ---------------- ----------------
greater than 1.25 to 45 bps 150 bps 0 bps
1, but less than or
equal to 1.50 to 1
----------------------- ---------------- ---------------- ----------------
greater than 1.50 to 50 bps 200 bps 0 bps
1, but less than or
equal to 1.75 to 1
----------------------- ---------------- ---------------- ----------------
greater than 1.75 to 60 bps 250 bps 0 bps
1, but less than or
equal to 2.00 to 1
----------------------- ---------------- ---------------- ----------------
The Applicable Revolving Rate shall be the basis points number set forth
above which corresponds to the Consolidated Total Funded Debt/EBITDA Ratio of
the Borrower for the Fiscal Quarter most recently ended and for which financial
statements have been received pursuant to Section 5.01 of this Agreement;
provided further that if Borrower at any time shall fail to deliver such
financial reports to the Administrative Agent within the time required pursuant
to ss. 5.01 of this Agreement, then the Applicable Revolving Rate shall revert,
as of the last date on which such financial statements could have been delivered
in compliance with ss. 5.01, to the highest rate provided, until such financial
reports shall have been delivered.
"Applicable Term Rate" means, for any day, with respect to any ABR Term
Loan or Eurodollar Term Loan, as the case may be, the applicable rate per annum
set forth below under the caption "ABR Spread" or "Eurodollar Spread", as the
case may be, based upon the Ratio, applicable on such date of the Borrower's
Consolidated Total Funded Debt to EBITDA measured at each Fiscal Quarter end,
for the four Fiscal Quarter period then ended, taken together as a single
accounting period:
2
----------------------------- ----------------------- -------------------
Total Funded Eurodollar ABR
Debt/EBITDA Spread Spread
----------------------------- ----------------------- -------------------
less than or equal to .50 125 bps 0 bps
to 1
----------------------------- ----------------------- -------------------
greater than .50 to 1, but 135 bps 0 bps
less than or equal to .75
to 1
----------------------------- ----------------------- -------------------
greater than .75 to 1, but 150 bps 0 bps
less than or equal to 1.00
to 1
----------------------------- ----------------------- -------------------
greater than 1.00 to 1, but 175 bps 0 bps
less than or equal to 1.25
to 1
----------------------------- ----------------------- -------------------
greater than 1.25 to 1, but 200 bps 0 bps
less than or equal to 1.50
to 1
----------------------------- ----------------------- -------------------
greater than 1.50 to 1, but 250 bps 25 bps
less than or equal to 1.75
to 1
----------------------------- ----------------------- -------------------
greater than 1.75 to 1, but 300 bps 50 bps
less than or equal to 2.00
to 1
----------------------------- ----------------------- -------------------
The Applicable Term Rate shall be the basis points number set forth above
which corresponds to the Consolidated Total Funded Debt/EBITDA Ratio of the
Borrower for the Fiscal Quarter most recently ended and for which financial
statements have been received pursuant to Section 5.01 of this Agreement;
provided further that if Borrower at any time shall fail to deliver such
financial reports to the Administrative Agent within the time required pursuant
to ss. 5.01 of this Agreement, then the Applicable Term Rate shall revert, as of
the last date on which such financial statements could have been delivered in
compliance with ss. 5.01, to the highest rate provided, until such financial
reports shall have been delivered.
"Approved Fund" has the meaning assigned to such term in Section 9.04.
"Assignment and Assumption" means an assignment and assumption entered
into by a Lender and an Eligible Assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in substantially the form of Exhibit A or any other form approved by the
Administrative Agent.
"Availability Period" means the period from and including the Effective
Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America.
"Borrower" means Ultralife Batteries, Inc., a Delaware corporation.
"Borrowing" means (a) Revolving Loans of the same Type, made, converted or
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect or (b) the Term Loan.
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
3
"Business Day" means any day that is not a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
remain closed; provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"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.
"Change in Control" means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of Equity
Interests representing more than 20% of the aggregate ordinary voting power
represented by the issued and outstanding Equity Interests of the Borrower; (b)
occupation of a majority of the seats (other than vacant seats) on the board of
directors of the Borrower by Persons who were neither (i) nominated by the board
of directors of the Borrower nor (ii) appointed by directors so nominated; or
(c) the acquisition of direct or indirect Control of the Borrower by any Person
or group.
"Change in Law" means the occurrence, after the date of this Agreement, of
any of the following: (a) the adoption or taking effect of any law, rule,
regulation or treaty, (b) any change in any law, rule, regulation or treaty or
in the administration, interpretation or application thereof by any Governmental
Authority or (c) the making or issuance of any request, guideline or directive
(whether or not having the force of law) by any Governmental Authority.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans,
or Term Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means, with respect to each Lender, the commitment of such
Lender to make Revolving Loans and to acquire participations in Letters of
Credit hereunder, expressed as an amount representing the maximum aggregate
amount of such Lender's Revolving Credit Exposure hereunder, as such commitment
may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04. The initial amount of each Lender's Commitment is set
forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which
such Lender shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Lenders' Commitments is $ 15,000,000.
"Consolidated Current Assets" means all assets of Borrower and any
Subsidiaries which should, in accordance with GAAP consistently applied, be
classified as current assets.
"Consolidated Current Liabilities" means all Indebtedness of Borrower and
any Subsidiaries which should, in accordance with GAAP consistently applied, be
classified as current liabilities after eliminating inter-company items.
"Consolidated Liabilities" means and includes all items which would be
included in determining total liabilities of Borrower and any Subsidiaries in
accordance with GAAP consistently applied.
"Consolidated Total Funded Debt" means with respect to any Person, (a) all
obligations of such Person and its subsidiaries for borrowed money or with
respect to deposits or advances of any kind, (b) all obligations of such Person
and its subsidiaries evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person and its subsidiaries upon which
interest charges are customarily paid, (d) all obligations of such Person and
its subsidiaries under conditional sale or other title retention agreements
relating to property acquired by such Person or its subsidiaries, (e) all
obligations of
4
such Person and its subsidiaries in respect of the deferred purchase price of
property or services (excluding current accounts payable incurred in the
ordinary course of business), and (f) all Capital Lease Obligations of such
Person and its subsidiaries. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by
contract or otherwise. "Controlling" and "Controlled" have meanings correlative
thereto.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"dollars" or "$" refers to lawful money of the United States of America.
"EBIT" means for any period and in respect of any Person the sum of (i)
the net income of such Person for such period computed in accordance with GAAP,
plus (ii) the interest expense of such Person for such period, plus (iii) the
income tax expense of such Person for such period.
"EBITDA" means for any period and in respect of any Person the sum of (i)
the net income of such Person for such period computed in accordance with GAAP,
plus (ii) the interest expense of such Person for such period, plus (iii) the
income tax expense of such Person for such period, plus (iv) the amount reported
as the depreciation of the assets of such Person for such period computed in
accordance with GAAP, plus (v) the amount reported as the amortization of
intangibles assets of such Person for such period computed in accordance with
GAAP, and as such item is used in the computation of such Person's net income
for such period.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Eligible Assignee" has the meaning assigned to such term in Section 9.04.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"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, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
equity interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes
5
of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article VII.
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) taxes imposed on or
measured by its overall net income (however denominated), and franchise taxes
imposed on it (in lieu of net income taxes), by the jurisdiction (or any
political subdivision thereof) under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 9.04, any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
hereto (or designates a new lending office) or is attributable to such Foreign
Lender's failure or inability (other than as a result of a Change in Law) to
comply with Section 2.17, except to the extent that such Foreign Lender (or its
assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts from the Borrower with
respect to such withholding tax pursuant to Section 2.17.
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"GAAP" means generally accepted accounting principles in the United States
of America.
6
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or
the European Central Bank.
"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.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (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, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable 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 and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. 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.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term indebtedness for borrowed
money of the Borrower that is not guaranteed by any other Person or subject to
any other credit enhancement.
"Interest Election Request" means a request by the Borrower to convert or
continue a Revolving Borrowing or Term Loan Borrowing in accordance with Section
2.08.
"Interest Payment Date" means (a) with respect to any ABR Loan, the first
day of each month, (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Eurodollar Borrowing with an Interest Period of more than three
months' duration, each day prior to the last day of such Interest Period that
occurs at intervals of three months' duration after the first day of such
Interest Period.
7
"Interest Period" means with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect, provided, that (i) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a Eurodollar
Borrowing only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and, in
the case of a Revolving Borrowing, thereafter shall be the effective date of the
most recent conversion or continuation of such Borrowing.
"Issuing Bank" means JPMorgan Chase Bank, in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.06(i). The Issuing Bank may, in its discretion, arrange for one or
more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which
case the term "Issuing Bank" shall include any such Affiliate with respect to
Letters of Credit issued by such Affiliate.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Lender at any time shall be
its Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other Person
that shall have become a party hereto pursuant to an Assignment and Assumption,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Assumption.
"Letter of Credit" means any letter of credit issued pursuant to this
Agreement.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset and (c) in the case of securities, any purchase option,
call or similar right of a third party with respect to such securities.
"Loans" means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
8
"Loan Documents" mean this Agreement, the Notes, any letter of credit
application or agreement referred to in Section 2.06(a) executed and delivered
by the Borrower to the Issuing Bank, the Security Agreements and any other
document or instrument executed and delivered by the Borrower in connection with
the Transactions.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform any of its obligations under this Agreement or the Security
Agreement, or (c) the rights of or benefits available to the Lenders under this
Agreement or the Security Agreement.
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit), or obligations in respect of one or more Swap Agreements, of
any one or more of the Borrower and its Subsidiaries in an aggregate principal
amount exceeding $1,000,000. For purposes of determining Material Indebtedness,
the "principal amount" of the obligations of the Borrower or any Subsidiary in
respect of any Swap Agreement at any time shall be the maximum aggregate amount
(giving effect to any netting agreements) that the Borrower or such Subsidiary
would be required to pay if such Swap Agreement were terminated at such time.
"Maturity Date" means (i) in respect of the Revolving Loans (including any
reference in respect to Letters of Credit), August 1, 2007, and (ii) in respect
of the Term Loans, July 1, 2009.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Notes" means the notes evidencing the Loans hereunder, and "Note" means
any one of the Notes.
"Other Taxes" means all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement.
"Participant" has the meaning set forth in Section 9.04(c)(i).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and
other like Liens imposed by law, arising in the ordinary course of business and
securing obligations that are not overdue by more than 30 days or are being
contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an Event
of Default under clause (k) of Article VII; and
9
(f) easements, zoning restrictions, rights-of-way and similar encumbrances
on real property imposed by law or arising in the ordinary course of business
that do not secure any monetary obligations and do not materially detract from
the value of the affected property or interfere with the ordinary conduct of
business of the Borrower or any Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (or by any
agency thereof to the extent such obligations are backed by the full faith and
credit of the United States of America), in each case maturing within one year
from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the date
of acquisition thereof and having, at such date of acquisition, the highest
credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and time
deposits maturing within 180 days from the date of acquisition thereof issued or
guaranteed by or placed with, and money market deposit accounts issued or
offered by, any domestic office of any commercial bank organized under the laws
of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into with
a financial institution satisfying the criteria described in clause (c) above;
and
(e) money market funds that (i) comply with the criteria set forth in
Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of
1940, (ii) are rated AAA by S&P and Aaa by Moody's and (iii) have portfolio
assets of at least $5,000,000,000.
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced from
time to time by JPMorgan Chase Bank as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective from
and including the date such change is publicly announced as being effective.
"Register" has the meaning set forth in Section 9.04.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective partners, directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Credit
Exposures, and unused Commitments representing at least 66.67% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time, provided
however, that the percentage shall be 100% during any period that there are only
two (2) Lenders hereunder.
10
"Restricted Payment" means any dividend or other distribution (whether in
cash, securities or other property) with respect to any Equity Interests in the
Borrower or any Subsidiary, or any payment (whether in cash, securities or other
property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of
any such Equity Interests in the Borrower or any option, warrant or other right
to acquire any such Equity Interests in the Borrower.
"Revolving Credit Exposure" means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
"Security Agreements" means (i) the security agreements granted by the
Borrower to the Lenders and the Administrative Agent of even date herewith, (ii)
such security agreements or other agreements or instruments, regardless of
nomenclature, granted and/or executed by the Borrower's Subsidiary, Ultralife
Batteries (UK) Ltd for the purpose of creating a "charge" on the property of
Ultralife Batteries (UK) Ltd as security for the Borrower's obligations to the
Lenders, and (iii) any future Security Agreements executed and delivered to the
Lenders and the Administrative Agent by any Person which shall secure any part
of the debts, liabilities and obligations of the Borrower under the Loan
Documents, and all modifications and amendments thereto.
"S&P" means Standard & Poor's.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Swap Agreement" means any agreement with respect to any swap, forward,
future or derivative transaction or option or similar agreement involving, or
settled by reference to, one or more rates, currencies, commodities, equity or
debt instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services
provided by current or former directors, officers, employees or consultants of
the Borrower or the Subsidiaries shall be a Swap Agreement.
11
"Taxes" means all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority, including any interest, additions to tax or penalties
applicable thereto.
"Term Loan" means an ABR Loan or a Eurodollar Loan made by a Lender
pursuant to ss.2.04 hereof.
"Term Loan Commitment" means respect to each Lender, the commitment of
such Lender to make Term Loans, expressed as an amount representing the maximum
aggregate amount of such Lender's Term Loan Exposure hereunder, as such
commitment may be reduced or increased from time to time pursuant to assignments
by or to such Lender pursuant to Section 9.04. The initial amount of each
Lender's Term Loan Commitment is set forth on Schedule 2.01, or in the
Assignment and Assumption pursuant to which such Lender shall have assumed its
Term Loan Commitment, as applicable. The initial aggregate amount of the
Lenders' Term Loan Commitments is $ 10,000,000.
"Term Loan Exposure" means, with respect to any Lender at any time, the
sum of the outstanding principal amount of such Lender's Term Loans at such
time.
"Term Note" means a Note of the Borrower issued to a Lender in
substantially the form of Exhibit C hereto.
"Transactions" means the execution, delivery and performance by the
Borrower of this Agreement, the Security Agreement, the borrowing of Loans, the
use of the proceeds thereof and the issuance of Letters of Credit hereunder.
"Type", when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"Unused Commitment" means the daily average of the sum of (i) the
aggregate Commitment minus (ii) the aggregate Revolving Credit Exposure.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
"Winthrop L/C" means the Letter of Credit to be issued for the account of
the Borrower and the benefit of Winthrop Resources Corporation in the amount of
$3,600,000.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of this
Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving
Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a
"Eurodollar Revolving Loan"). Borrowings also may be classified and referred to
by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar
Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall."
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein," "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any
12
particular provision hereof, (d) all references herein to Articles, Sections,
Exhibits and Schedules shall be construed to refer to Articles and Sections of,
and Exhibits and Schedules to, this Agreement and (e) any reference to any law
or regulation herein shall, unless otherwise specified, refer to such law or
regulation as amended, modified or supplemented from time to time and (f) the
words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Revolving Loan Commitments. Subject to the terms and
conditions set forth herein, each Lender agrees to severally (not jointly) make
Revolving Loans to the Borrower from time to time during the Availability Period
in an aggregate principal amount that will not result in (a) such Lender's
Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of
the total Revolving Credit Exposures exceeding the total Commitments. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be made
as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably
in accordance with their respective Commitments. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder; provided that the Commitments of the Lenders are
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $500,000 and not less than $1,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $100,000 and not less than $100,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Commitments or that is required
to finance the reimbursement of an LC Disbursement as contemplated by Section
2.06(e). Borrowings of more than one Type and Class may be outstanding at the
same time; provided that there shall not at any time be more than a total of six
Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
13
SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New
York City time, one Business Day before the date of the proposed Borrowing;
provided that any such notice of an ABR Revolving Borrowing to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.06(e) may be
given not later than 10:00 a.m., New York City time, on the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Borrowing Request in a form approved by the Administrative Agent
and signed by the Borrower. Each such telephonic and written Borrowing Request
shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period
to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which funds are
to be disbursed, which shall comply with the requirements of Section
2.07.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Term Loan Commitment. (a) Each Lender agrees to severally
(not jointly), on the terms and subject to the conditions of this Agreement, and
in reliance upon the representations and warranties of the Borrower hereinafter
set forth, make the Term Loan to the Borrower on the Effective Date each in the
amount of the Lender's Term Loan Commitment and in the aggregate principal
amount of $10,000,000.
(b) The Term Loan shall be evidenced by Term Notes of the Borrower issued
to the Lenders, dated as of the Effective Date, payable to the order of the
Lenders in the aggregate principal amount of $10,000,000.
(c) The principal amount of the Term Loan shall be payable in 60
installments due on the first Business Day of each month, commencing on August
1, 2004 and continuing through July 1, 2009, at which time the entire principal
balance shall be all due and payable, in equal monthly installments of
$166,666.67.
SECTION 2.05. Term Loan Borrowings. (a) Subject to Section 2.14, the Term
Loan shall be comprised entirely of an ABR Loan or a Eurodollar Loan as the
Borrower may request in accordance herewith.
(b) At the commencement of each Interest Period for any Eurodollar Term
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $500,000 and not less than $1,000,000. At the time that each ABR
Term Borrowing is made, such Borrowing shall be in an aggregate amount that is
an integral multiple of $100,000 and not less than $100,000.
14
SECTION 2.06. Letters of Credit. (a) General. Subject to the terms and
conditions set forth herein, the Borrower may request the issuance of Letters of
Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the Availability Period. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
To request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Borrower shall hand deliver
or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended, renewed or extended,
and specifying the date of issuance, amendment, renewal or extension (which
shall be a Business Day), the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit. If requested by the Issuing Bank, the Borrower also shall submit a
letter of credit application on the Issuing Bank's standard form in connection
with any request for a Letter of Credit. A Letter of Credit shall be issued,
amended, renewed or extended only if (and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent and
warrant that), after giving effect to such issuance, amendment, renewal or
extension (i) the LC Exposure shall not exceed $5,000,000 and (ii) the sum of
the total Revolving Credit Exposures shall not exceed the total Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior to the
close of business on the earlier of (i) the date one year after the date of the
issuance of such Letter of Credit (or, in the case of any renewal or extension
thereof, one year after such renewal or extension) and (ii) the date that is
five Business Days prior to the Maturity Date; provided however, the Winthrop
L/C initial expiration date may be thirteen (13) months after date of issuance,
and, if extended to its Final Expiration Date according to its terms, may expire
one Business Day prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an amendment
to a Letter of Credit increasing the amount thereof) and without any further
action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby
grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a
participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender's Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in paragraph (e) of this Section, or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement
by paying to the Administrative Agent an amount equal to such LC Disbursement
not later than 12:00 noon, New York City time, on the date that such LC
Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such
notice has not been received by the Borrower prior to such time on such date,
then not later than 12:00 noon, New York City time, on (i) the Business Day that
the Borrower receives such notice, if such notice is received prior to 10:00
a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the
15
day that the Borrower receives such notice, if such notice is not received prior
to such time on the day of receipt; provided that, if such LC Disbursement is
not less than $100,000, the Borrower may, subject to the conditions to borrowing
set forth herein, request in accordance with Section 2.03 or 2.05 that such
payment be financed with an ABR Revolving Borrowing in an equivalent amount and,
to the extent so financed, the Borrower's obligation to make such payment shall
be discharged and replaced by the resulting ABR Revolving Borrowing. If the
Borrower fails to make such payment when due, the Administrative Agent shall
notify each Lender of the applicable LC Disbursement, the payment then due from
the Borrower in respect thereof and such Lender's Applicable Percentage thereof.
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.07 with respect to Loans
made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the
payment obligations of the Lenders), and the Administrative Agent shall promptly
pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly
following receipt by the Administrative Agent of any payment from the Borrower
pursuant to this paragraph, the Administrative Agent shall distribute such
payment to the Issuing Bank or, to the extent that Lenders have made payments
pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders
and the Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement
(other than the funding of ABR Revolving Loans as contemplated above) shall not
constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
Related Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by
16
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement,
then, unless the Borrower shall reimburse such LC Disbursement in full on the
date such LC Disbursement is made, the unpaid amount thereof shall bear
interest, for each day from and including the date such LC Disbursement is made
to but excluding the date that the Borrower reimburses such LC Disbursement, at
the rate per annum then applicable to ABR Revolving Loans; provided that, if the
Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph
(e) of this Section, then Section 2.13(d) shall apply. Interest accrued pursuant
to this paragraph shall be for the account of the Issuing Bank, except that
interest accrued on and after the date of payment by any Lender pursuant to
paragraph (e) of this Section to reimburse the Issuing Bank shall be for the
account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at
any time by written agreement among the Borrower, the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent
shall notify the Lenders of any such replacement of the Issuing Bank. At the
time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 2.12(b). From and after the effective date of any such replacement, (i)
the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders demanding the deposit of cash
collateral pursuant to this paragraph, the Borrower shall deposit in an account
with the Administrative Agent, in the name of the Administrative Agent and for
the benefit of the Lenders, an amount in cash equal to the LC Exposure as of
such date plus any accrued and unpaid interest thereon; provided that the
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without demand or
other notice of any kind, upon the occurrence of any Event of Default with
respect to the Borrower described in clause (h) or (i) of Article VII. Such
deposit shall be held by the Administrative Agent as collateral for the payment
and performance of the obligations of the Borrower under this Agreement. The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest earned
on the investment of such deposits, which investments shall be made at the
option and sole discretion of the Administrative Agent and at the Borrower's
risk and expense, such deposits shall not bear interest. Interest or profits, if
any, on such investments shall accumulate in such account. Moneys in such
account shall be applied by the Administrative Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated (but subject to the consent of Lenders with LC
Exposure representing greater than 66.67% of the total LC Exposure), be applied
to satisfy other obligations of the Borrower under this Agreement. If the
Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent not
applied as aforesaid) shall be returned to the Borrower within three Business
Days after all Events of Default have been cured or waived.
SECTION 2.07. Funding of Borrowings. (a) Each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such
17
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
New York City and designated by the Borrower in the applicable Borrowing
Request; provided that ABR Revolving Loans made to finance the reimbursement of
an LC Disbursement as provided in Section 2.06(e) shall be remitted by the
Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with Section 2.07(a) and may, in
reliance upon such assumption, make available to the Borrower a corresponding
amount. In such event, if a Lender has not in fact made its share of the
applicable Borrowing available to the Administrative Agent, then the applicable
Lender and the Borrower severally agree to pay to the Administrative Agent
forthwith on demand such corresponding amount with interest thereon, for each
day from and including the date such amount is made available to the Borrower to
but excluding the date of payment to the Administrative Agent, at (i) in the
case of a payment to be made by such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation and (ii) in the case of a
payment to be made by the Borrower, the interest rate applicable to ABR Loans.
If the Borrower and such Lender shall pay such interest to the Administrative
Agent for the same or an overlapping period, the Administrative Agent shall
promptly remit to the Borrower the amount of such interest paid by the Borrower
for such period. If such Lender pays its share of the applicable Borrowing to
the Administrative Agent, then the amount so paid shall constitute such Lender's
Loan included in such Borrowing. Any payment by the Borrower shall be without
prejudice to any claim the Borrower may have against a Lender that shall have
failed to make such payment to the Administrative Agent.
SECTION 2.08. Interest Elections. (a) Each Borrowing initially shall be of
the Type specified in the applicable Borrowing Request and, in the case of a
Eurodollar Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing
to a different Type or to continue such Borrowing and, in the case of a
Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in
this Section. The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to
different portions thereof, the portions thereof to be
allocated to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv)
below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
18
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect
to such election, which shall be a period contemplated by the
definition of the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default
has occurred and is continuing and the Administrative Agent, at the request of
the Required Lenders, so notifies the Borrower, then, so long as an Event of
Default is continuing (i) no outstanding Revolving Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.09. Termination and Reduction of Commitments. (a) Unless
previously terminated, the Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time reduce,
the Commitments; provided that (i) each reduction of the Commitments shall be in
an amount that is an integral multiple of $1,000,000 and not less than
$5,000,000, and (ii) the Borrower shall not terminate or reduce the Commitments
if, after giving effect to any concurrent prepayment of the Loans in accordance
with Section 2.11, the sum of the Revolving Credit Exposures would exceed the
total Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Commitments under paragraph (b) of this Section at least
three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable; provided that a notice of termination of
the Commitments delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments shall be permanent.
Each reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.
SECTION 2.10. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Loan on the
applicable Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to
19
each Lender hereunder and (iii) the amount of any sum received by the
Administrative Agent hereunder for the account of the Lenders and each Lender's
share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b)
or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Revolving Loans made by it be evidenced by
a Note. In such event, the Borrower shall prepare, execute and deliver to such
Lender a Note payable to the order of such Lender (or, if requested by such
Lender, to such Lender and its registered assigns) and in a form approved by the
Administrative Agent. Thereafter, the Loans evidenced by such Note and interest
thereon shall at all times (including after assignment pursuant to Section 9.04)
be represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).
(f) Term Loans shall be evidenced by Term Notes in accordance with Section
2.04(b)
SECTION 2.11. Prepayment of Loans. (a) The Borrower shall have the right
at any time and from time to time to prepay any Borrowing in whole or in part,
subject to prior notice in accordance with paragraph (b) of this Section.
(b) The Borrower shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid; provided that, if a notice of
prepayment is given in connection with a conditional notice of termination of
the Commitments as contemplated by Section 2.09, then such notice of prepayment
may be revoked if such notice of termination is revoked in accordance with
Section 2.09. Promptly following receipt of any such notice relating to a
Revolving Borrowing, the Administrative Agent shall advise the Lenders of the
contents thereof. Each partial prepayment of any Revolving Borrowing shall be in
an amount that would be permitted in the case of an advance of a Revolving
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.13.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a facility fee, which shall accrue at the
Applicable Revolving Rate on of the Unused Commitment of such Lender during the
period from and including the Effective Date to but excluding the date on which
such Commitment terminates. Accrued facility fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the date
on which the Commitments terminate, commencing on the first such date to occur
after the date hereof; provided that any facility fees accruing after the date
on which the Commitments terminate shall be payable on demand. All facility fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day).
(b) The Borrower agrees to pay (i) to the Administrative Agent for the
account of each Lender a participation fee with respect to its participations in
Letters of Credit, which shall accrue at the same Applicable Revolving Rate used
to determine the interest rate applicable to Eurodollar Revolving Loans on the
average daily amount of such Lender's LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date on which
such Lender's Commitment terminates and the date on which such Lender ceases to
have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall
accrue at the rate or rates per annum separately agreed upon between the
Borrower and the Issuing Bank on the average
20
daily amount of the LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date of termination of the
Commitments and the date on which there ceases to be any LC Exposure, as well as
the Issuing Bank's standard fees with respect to the issuance, amendment,
renewal or extension of any Letter of Credit or processing of drawings
thereunder. Participation fees and fronting fees accrued through and including
the last day of March, June, September and December of each year shall be
payable on the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; provided that all such fees
shall be payable on the date on which the Commitments terminate and any such
fees accruing after the date on which the Commitments terminate shall be payable
on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 10 days after demand. All participation fees and
fronting fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
facility fees and participation fees, to the Lenders. Fees paid shall not be
refundable under any circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing shall
bear interest (i) in the case of an ABR Revolving Loan, at the Alternate Base
Rate plus the Applicable Revolving Rate, or (ii) in the case of an ABR Term
Loan, at the Alternate Base Rate plus the Applicable Term Rate to such Loan.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest (i)
in the case of a Eurodollar Revolving Loan, at the Adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Revolving Rate,
or (ii) in the case of a Eurodollar Term Loan, at the adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Term Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by the Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Revolving Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Commitments; provided that (i) interest accrued pursuant to
paragraph (c) of this Section shall be payable on demand, (ii) in the event of
any repayment or prepayment of any Loan (other than a prepayment of an ABR
Revolving Loan prior to the end of the Availability Period), accrued interest on
the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.
(e) All interest hereunder computed by reference to the LIBO Rate and/or
Adjusted LIBO Rate shall be computed on the basis of a year of 360 days and all
interest computed by reference to the Alternate Base Rate shall be computed on
the basis of a year of 365 days (or 366 days in a leap year), and in each case
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO
Rate or LIBO Rate shall be
21
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error.
SECTION 2.14. Alternate Rate of Interest. If prior to the commencement of
any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable,
for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the
Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (or Lender) of
making or maintaining their Loans (or its Loan) included in such Borrowing for
such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective and (ii) if any Borrowing Request requests a Eurodollar Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.15. Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit, compulsory loan, insurance charge or similar
requirement against assets of, deposits with or for the
account of, or credit extended or participated in by, any
Lender (except any reserve requirement reflected in the
Adjusted LIBO Rate) or the Issuing Bank;
(ii) subject any Lender or the Issuing Bank to any tax of any kind
whatsoever with respect to this Agreement, any Letter of
Credit, any participation in a Letter of Credit or any
Eurodollar Loan made by it, or change the basis of taxation of
payments to such Lender or the Issuing Bank in respect thereof
(except for Indemnified Taxes or Other Taxes covered by
Section 2.17 and the imposition of, or any change in the rate
of, any Excluded Tax payable by such Lender or the Issuing
Bank); or
(iii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition, cost or expense
affecting this Agreement or Eurodollar Loans made by such
Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan), or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit
(or of maintaining its obligation to participate in or to issue any Letter of
Credit), or to reduce the amount of any sum received or receivable by such
Lender or the Issuing Bank hereunder (whether of principal, interest or any
other amount) then, upon request of such Lender or the Issuing Bank, the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or the Issuing Bank determines
that any Change in Law affecting such Lender or the Issuing Bank or any lending
office of such Lender or such Lender's or
22
the Issuing Bank's holding company, if any, regarding capital requirements has
or would have the effect of reducing the rate of return on such Lender's or the
Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's
holding company, if any, as a consequence of this Agreement, the Commitments of
such Lender or the Loans made by, or participations in Letters of Credit held
by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level
below that which such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company could have achieved but for such Change in Law (taking
into consideration such Lender's or the Issuing Bank's policies and the policies
of such Lender's or the Issuing Bank's holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender or the
Issuing Bank setting forth the amount or amounts necessary to compensate such
Lender or the Issuing Bank or its holding company, as the case may be, as
specified in paragraph (a) or (b) of this Section and delivered to the Borrower
shall be conclusive absent manifest error. The Borrower shall pay such Lender or
the Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or the
Issuing Bank to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender's or the Issuing Bank's right to demand such
compensation, provided that the Borrower shall not be required to compensate a
Lender or the Issuing Bank pursuant to this Section for any increased costs
incurred or reductions suffered more than nine months prior to the date that
such Lender or the Issuing Bank, as the case may be, notifies the Borrower of
the Change in Law giving rise to such increased costs or reductions and of such
Lender's or the Issuing Bank's intention to claim compensation therefor (except
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the nine-month period referred to above shall be extended to
include the period of retroactive effect thereof).
SECTION 2.16. Break Funding Payments. In the event of (a) the payment of
any principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice may be revoked under Section
2.11(b) and is revoked in accordance therewith), or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.19, then,
in any such event, the Borrower shall compensate each Lender for the loss, cost
and expense attributable to such event. In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
SECTION 2.17. Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any
obligation of the Borrower hereunder or under any other Loan Document shall be
made free and clear of and without reduction or withholding for any Indemnified
Taxes or Other Taxes, provided that if the Borrower shall be
23
required by applicable law to deduct any Indemnified Taxes (including any Other
Taxes) from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Administrative
Agent, Lender or Issuing Bank, as the case may be, receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall timely pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) Payment of Other Taxes by the Borrower. Without limiting the
provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.
(c) Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within 10 days after
demand therefor, for the full amount of any Indemnified Taxes or Other Taxes
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) paid by the Administrative
Agent, such Lender or the Issuing Bank, as the case may be, and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate as to
the amount of such payment or liability delivered to the Borrower by a Lender or
the Issuing Bank (with a copy to the Administrative Agent), or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be conclusive absent manifest error.
(d) Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority,
the Borrower shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.
(e) Status of Lenders. Any Foreign Lender that is entitled to an exemption
from or reduction of withholding tax under the law of the jurisdiction in which
the Borrower is resident for tax purposes, or any treaty to which such
jurisdiction is a party, with respect to payments hereunder or under any other
Loan Document shall deliver to the Borrower (with a copy to the Administrative
Agent), at the time or times prescribed by applicable law or reasonably
requested by the Borrower or the Administrative Agent, such properly completed
and executed documentation prescribed by applicable law as will permit such
payments to be made without withholding or at a reduced rate of withholding. In
addition, any Lender, if requested by the Borrower or the Administrative Agent,
shall deliver such other documentation prescribed by applicable law or
reasonably requested by the Borrower or the Administrative Agent as will enable
the Borrower or the Administrative Agent to determine whether or not such Lender
is subject to backup withholding or information reporting requirements.
Without limiting the generality of the foregoing, in the event that the
Borrower is resident for tax purposes in the United States of America, any
Foreign Lender shall deliver to the Borrower and the Administrative Agent (in
such number of copies as shall be requested by the recipient) on or prior to the
date on which such Foreign Lender becomes a Lender under this Agreement (and
from time to time thereafter upon the request of the Borrower or the
Administrative Agent, but only if such Foreign Lender is legally entitled to do
so), whichever of the following is applicable:
(i) duly completed copies of Internal Revenue Service Form W-8BEN
claiming eligibility for benefits of an income tax treaty to which
the United States of America is a party,
(ii) duly completed copies of Internal Revenue Service Form W-8ECI,
(iii) in the case of a Foreign Lender claiming the benefits of the
exemption for portfolio interest under section 881(c) of the Code,
(x) a certificate to the effect that such Foreign Lender is not (A)
a "bank" within the meaning of section 881(c)(3)(A) of the Code, (B)
a "10 percent
24
shareholder" of the Borrower within the meaning of section
881(c)(3)(B) of the Code, or (C) a "controlled foreign corporation"
described in section 881(c)(3)(C) of the Code and (y) duly completed
copies of Internal Revenue Service Form W-8BEN, or
(iv) any other form prescribed by applicable law as a basis for claiming
exemption from or a reduction in United States Federal withholding
tax duly completed together with such supplementary documentation as
may be prescribed by applicable law to permit the Borrower to
determine the withholding or deduction required to be made.
(f) Treatment of Certain Refunds. If the Administrative Agent, a Lender or
the Issuing Bank determines, in its sole discretion, that it has received a
refund of any Taxes or Other Taxes as to which it has been indemnified by the
Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section, it shall pay to the Borrower an amount equal to such
refund (but only to the extent of indemnity payments made, or additional amounts
paid, by the Borrower under this Section with respect to the Taxes or Other
Taxes giving rise to such refund), net of all out-of-pocket expenses of the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund), provided that the Borrower, upon the
request of the Administrative Agent, such Lender or the Issuing Bank, agrees to
repay the amount paid over to the Borrower (plus any penalties, interest or
other charges imposed by the relevant Governmental Authority) to the
Administrative Agent, such Lender or the Issuing Bank in the event the
Administrative Agent, such Lender or the Issuing Bank is required to repay such
refund to such Governmental Authority. This paragraph shall not be construed to
require the Administrative Agent, any Lender or the Issuing Bank to make
available its tax returns (or any other information relating to its taxes that
it deems confidential) to the Borrower or any other Person.
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
(a) The Borrower shall make each payment required to be made by it hereunder
(whether of principal, interest, fees or reimbursement of LC Disbursements, or
of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to
12:00 noon, New York City time, on the date when due, in immediately available
funds, without set-off or counterclaim. Any amounts received after such time on
any date may, in the discretion of the Administrative Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York, except payments to be made
directly to the Issuing Bank as expressly provided herein and except that
payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly
to the Persons entitled thereto. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension. All payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
and unreimbursed LC Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or counterclaim
or otherwise, obtain payment in respect of any principal of or interest on any
of its Loans or other obligations hereunder resulting in such Lender's receiving
payment of a proportion of the aggregate amount of its Loans and accrued
interest thereon or other such obligations greater than its pro rata share
thereof as provided herein, then the Lender receiving such greater proportion
shall (a) notify the Administrative Agent of such fact, and (b) purchase (for
cash at face value) participations in the Loans and such other obligations of
the other Lenders, or make such other adjustments as shall be equitable, so that
the benefit of all such
25
payments shall be shared by the Lenders ratably in accordance with the aggregate
amount of principal of and accrued interest on their respective Loans and other
amounts owing them, provided that:
(i) if any such participations are purchased and all or any portion of
the payment giving rise thereto is recovered, such participations
shall be rescinded and the purchase price restored to the extent of
such recovery, without interest; and
(ii) the provisions of this paragraph shall not be construed to apply to
(x) any payment made by the Borrower pursuant to and in accordance
with the express terms of this Agreement or (y) any payment obtained
by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in LC
Disbursements to any assignee or participant, other than to the
Borrower or any Subsidiary thereof (as to which the provisions of
this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of setoff and counterclaim with respect to such participation as
fully as if such Lender were a direct creditor of the Borrower in the amount of
such participation.
If any Lender shall, by exercising any right of set-off or counterclaim or
otherwise, obtain payment in respect of any principal of or interest on any of
its Revolving Loans or participations in LC Disbursements resulting in such
Lender receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans and participations in LC Disbursements and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans and participations in LC Disbursements of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Revolving Loans and
participations in LC Disbursements; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or the Issuing Bank, with
interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on
interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.06(d) or (e), 2.07(b) or 2.18(d), then the Administrative
Agent may, in its discretion (notwithstanding any contrary provision hereof),
apply any amounts thereafter received by the Administrative Agent for the
26
account of such Lender to satisfy such Lender's obligations under such Sections
until all such unsatisfied obligations are fully paid.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a)
Designation of a Different Lending Office. If any Lender requests compensation
under Section 2.15, or requires the Borrower to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 2.17, then such Lender shall use reasonable efforts to designate a
different lending office for funding or booking its Loans hereunder or to assign
its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Sections 2.15 or 2.17,
as the case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender. The Borrower hereby agrees to pay all reasonable costs and expenses
incurred by any Lender in connection with any such designation or assignment.
(b) Replacement of Lenders. If any Lender requests compensation under
Section 2.15, or if the Borrower is required to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 2.17, or if any Lender defaults in its obligation to fund Loans
hereunder, then the Borrower may, at its sole expense and effort, upon notice to
such Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in, and consents required by, Section 9.04), all of its interests,
rights and obligations under this Agreement and the related Loan Documents to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment), provided that:
(i) the Borrower shall have paid to the Administrative Agent the
assignment fee specified in Section 9.04 (in the event that the
replacement of a Lender hereunder is as a result of the replaced
Lender's default of its obligation to fund Loans hereunder, such
defaulting Lender shall indemnify the Borrower for reasonable
expenses incurred in seeking and securing a replacement Lender,
including without limitation the assignment fee specified in Section
9.04);
(ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans and participations in LC
Disbursements, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder and under the other Loan Documents
(including any amounts under Section 2.16) from the assignee (to the
extent of such outstanding principal and accrued interest and fees)
or the Borrower (in the case of all other amounts);
(iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.15 or payments required to be made
pursuant to Section 2.17, such assignment will result in a reduction
in such compensation or payments thereafter; and
(iv) such assignment does not conflict with applicable law.
A Lender shall not be required to make any such assignment or delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
27
SECTION 3.01. Organization; Powers. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions are within
the Borrower's corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action. This Agreement has been duly
executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a)
do not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (b) will not violate any applicable
law or regulation or the charter, by-laws or other organizational documents of
the Borrower or any of its Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries, and (d) will not
result in the creation or imposition of any Lien on any asset of the Borrower or
any of its Subsidiaries, except in favor of the Agent and Lenders.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The
Borrower has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders equity and cash flows (i) as of and for
the fiscal year ended December 31, 2003, reported on by PriceWaterhouseCoopers,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended March 27, 2004, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
(b) Since December 31, 2003, there has been no material adverse change in
the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole. The Borrower
has disclosed to the Lenders certain casualty loss events more particularly
described in Schedule 3.04, which may have an adverse effect on its assets as a
result of the loss, but will not have a Material Adverse Effect.
SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries
has good title to, or valid leasehold interests in, all its real and personal
property material to its business, except for minor defects in title that do not
interfere with its ability to conduct its business as currently conducted or to
utilize such properties for their intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use,
all trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably
28
be expected, individually or in the aggregate, to result in a Material Adverse
Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or
the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other
matters that, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect, neither the Borrower nor any of its
Subsidiaries (i) has failed to comply with any Environmental Law or to obtain,
maintain or comply with any permit, license or other approval required under any
Environmental Law, (ii) has become subject to any Environmental Liability, (iii)
has received notice of any claim with respect to any Environmental Liability or
(iv) knows of any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower
and its Subsidiaries is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the Borrower
nor any of its Subsidiaries is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected
to occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. None of the other reports, financial statements,
certificates or other information furnished by or on behalf of the Borrower to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 9.02):
29
(a) The Administrative Agent (or its counsel) shall have received from
each party hereto either (i) a counterpart of this Agreement signed on behalf of
such party or (ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated the
Effective Date) of Harter, Secrest & Emery LLP, counsel for the Borrower,
substantially in the form of Exhibit B, and covering such other matters relating
to the Borrower, this Agreement or the Transactions as the Required Lenders
shall reasonably request. The Borrower hereby requests such counsel to deliver
such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably request
relating to the organization, existence and good standing of the Borrower, the
authorization of the Transactions and any other legal matters relating to the
Borrower, this Agreement or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated the
Effective Date and signed by the President, a Vice President or a Financial
Officer of the Borrower, confirming compliance with the conditions set forth in
paragraphs (a), (b) and (c) of Section 4.02.
(e) The Administrative Agent (or its counsel) shall have received from
each party thereto all Loan Documents either (i) signed on behalf of such party
or (ii) written evidence satisfactory to the Administrative Agent (which may
include telecopy transmission of a signed signature page of the respective Loan
Document) that such party has signed a counterpart of the Loan Document.
(f) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrower hereunder.
(g) The Security Agreements and UCC-1 Financing Statements shall create a
valid attached and perfected security interest or lien in and to the property
purported to be subject to the same, first in priority, except as otherwise
provided in this Agreement or has been agreed to by the Required Lenders.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at
or prior to 3:00 p.m., New York City time, on July 2, 2004 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to make a
Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend,
renew or extend any Letter of Credit, is subject to the satisfaction of the
following conditions:
(a) The representations and warranties of the Borrower set forth in this
Agreement shall be true and correct on and as of the date of such Borrowing or
the date of issuance, amendment, renewal or extension of such Letter of Credit,
as applicable.
(b) At the time of and immediately after giving effect to such Borrowing
or the issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no Default shall have occurred and be continuing.
(c) There shall not have occurred, or be threatened a Material Adverse
Effect in respect of the Borrower or any Subsidiary.
30
Each Borrowing and each issuance, amendment, renewal or extension of a
Letter of Credit shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder shall have been paid in
full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that (unless waived in accordance with the provisions of ss.9.02
hereof):
SECTION 5.01. Financial Statements; Ratings Change and Other Information.
The Borrower will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the Borrower, its
audited consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such year, setting
forth in each case in comparative form the figures for the previous fiscal year,
and the management letter, all reported on by PriceWaterhouseCoopers or other
independent public accountants of recognized national standing (without a "going
concern" or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, its consolidated balance sheet and
related statements of operations, stockholders' equity and cash flows as of the
end of and for such fiscal quarter and the then elapsed portion of the fiscal
year, setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of) the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause
(a) or (b) above, a certificate of a Financial Officer of the Borrower in the
form of Exhibit D (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.09, and (iii)
stating whether any change in GAAP or in the application thereof has occurred
since the date of the audited financial statements referred to in Section 3.04
and, if any such change has occurred, specifying the effect of such change on
the financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under clause
(a) above, a certificate of the accounting firm that reported on such financial
statements stating whether they obtained knowledge during the course of their
examination of such financial statements of any Default under Section 5.01(a) or
Section 6.09 of this Agreement (which certificate may be limited to the extent
required by accounting rules or guidelines);
(e) promptly after the same become publicly available, notice of the
availability at http:// www.sec.gov and/or http://www.edgar-online.com of, or
alternatively shall provide copies of, all periodic and other reports, proxy
statements and other materials filed by the Borrower or any Subsidiary with the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission, or with any national securities
exchange, or distributed by the Borrower to its shareholders generally, as the
case may be;
31
(f) promptly after Moody's or S&P shall have announced a change in the
rating established or deemed to have been established for the Index Debt,
written notice of such rating change; and
(g) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of this Agreement, as
the Administrative Agent or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its Subsidiaries in an aggregate amount exceeding
$500,000; and
(d) any other development that results in, or could reasonably be expected
to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will
cause each of its Subsidiaries to, do or cause to be done all things necessary
to preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges and franchises material to the conduct of
its business; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 6.03.
SECTION 5.04. Payment of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, pay its obligations, including Tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) the
Borrower or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and
will cause each of its Subsidiaries to, (a) keep and maintain all property
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted, and (b) maintain, with financially sound and
reputable insurance companies, insurance in such amounts and against such risks
as are customarily maintained by companies engaged in the same or similar
businesses operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and
will cause each of its Subsidiaries to, keep proper books of record and account
in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the Administrative Agent or any Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.
32
SECTION 5.07. Compliance with Laws. The Borrower will, and will cause each
of its Subsidiaries to, comply with all laws, rules, regulations and orders of
any Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds and Letters of Credit. The proceeds of the
Revolving Loans will be used only for the working capital needs of the Borrower
in the ordinary course of business. The proceeds of the Term Loans shall only be
used for the Capital Expenditures of the Borrower, as disclosed at the time of
the request repayment of existing indebtedness to Congress Financial Corporation
(New England) and working capital needs of the Borrower in the ordinary course
of business. No part of the proceeds of any Loan will be used, whether directly
or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations T, U and X.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder have been paid in full and
all Letters of Credit have expired or terminated and all LC Disbursements shall
have been reimbursed, the Borrower covenants and agrees with the Lenders that
(unless waived in accordance with the provisions of ss.9.02 hereof):
SECTION 6.01. Indebtedness. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness created hereunder;
(b) Indebtedness existing on the date hereof and set forth in Schedule
6.01 and extensions, renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof;
(c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary
to the Borrower or any other Subsidiary;
(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by
any Subsidiary of Indebtedness of the Borrower or any other Subsidiary;
(e) Indebtedness of the Borrower or any Subsidiary incurred to finance the
acquisition, construction or improvement of any fixed or capital assets,
including Capital Lease Obligations and any Indebtedness assumed in connection
with the acquisition of any such assets or secured by a Lien on any such assets
prior to the acquisition thereof, and extensions, renewals and replacements of
any such Indebtedness that do not increase the outstanding principal amount
thereof; provided that (i) such Indebtedness is incurred prior to or within 90
days after such acquisition or the completion of such construction or
improvement and (ii) the aggregate principal amount of Indebtedness permitted by
this clause (e) shall not exceed $1,000,000 at any time outstanding; and
(f) Indebtedness of the Borrower or any Subsidiary as an account party in
respect of trade letters of credit.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
(including, without limitation, all real property) or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:
(a) Permitted Encumbrances;
33
(b) any Lien on any property or asset of the Borrower or any Subsidiary
existing on the date hereof and set forth in Schedule 6.02; provided that (i)
such Lien shall not apply to any other property or asset of the Borrower or any
Subsidiary and (ii) such Lien shall secure only those obligations which it
secures on the date hereof and extensions, renewals and replacements thereof
that do not increase the outstanding principal amount thereof;
(c) any Lien existing on any property or asset prior to the acquisition
thereof by the Borrower or any Subsidiary or existing on any property or asset
of any Person that becomes a Subsidiary after the date hereof prior to the time
such Person becomes a Subsidiary; provided that (i) such Lien is not created in
contemplation of or in connection with such acquisition or such Person becoming
a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other
property or assets of the Borrower or any Subsidiary and (iii) such Lien shall
secure only those obligations which it secures on the date of such acquisition
or the date such Person becomes a Subsidiary, as the case may be; and
(d) Liens on fixed or capital assets acquired, constructed or improved by
the Borrower or any Subsidiary; provided that (i) such security interests secure
Indebtedness permitted by clause (e) of Section 6.01, (ii) such security
interests and the Indebtedness secured thereby are incurred prior to or within
90 days after such acquisition or the completion of such construction or
improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the
cost of acquiring, constructing or improving such fixed or capital assets and
(iv) such security interests shall not apply to any other property or assets of
the Borrower or any Subsidiary or to any real property.
SECTION 6.03. Fundamental Changes. (a) The Borrower will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or in a series of
transactions) all or substantially all of its assets, or all or substantially
all of the stock of any of its Subsidiaries (in each case, whether now owned or
hereafter acquired), or liquidate or dissolve, except that, if at the time
thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing (i) any Subsidiary may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation, (ii) any
Subsidiary may merge into any Subsidiary in a transaction in which the surviving
entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or
otherwise dispose of its assets to the Borrower or to another Subsidiary and
(iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders; provided that any
such merger involving a Person that is not a wholly owned Subsidiary immediately
prior to such merger shall not be permitted unless also permitted by Section
6.04.
(b) The Borrower will not, and will not permit any of its Subsidiaries to,
engage to any material extent in any business other than businesses of the type
conducted by the Borrower and its Subsidiaries on the date of execution of this
Agreement and businesses reasonably related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions.
The Borrower will not, and will not permit any of its Subsidiaries to, purchase,
hold or acquire (including pursuant to any merger with any Person that was not a
wholly owned Subsidiary prior to such merger) any capital stock, evidences of
indebtedness or other securities (including any option, warrant or other right
to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, Guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other
Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments by the Borrower existing on the date hereof in the capital
stock of its Subsidiaries;
34
(c) loans or advances made by the Borrower to any Subsidiary and made
by any Subsidiary to the Borrower or any other Subsidiary;
(d) Guarantees constituting Indebtedness permitted by Section 6.01;
(e) The loan (and extensions, renewals and replacements of any such loan
that do not increase the outstanding principal amount thereof) due from
Ultralife Taiwan, Inc., and potential future advances against purchases from
Ultralife Taiwan, Inc., all as more particularly described in Schedule 6.04.
SECTION 6.05. Swap Agreements. The Borrower will not, and will not permit
any of its Subsidiaries to, enter into any Swap Agreement, except (a) Swap
Agreements entered into to hedge or mitigate risks to which the Borrower or any
Subsidiary has actual exposure (other than those in respect of Equity Interests
of the Borrower or any of its Subsidiaries), and (b) Swap Agreements entered
into in order to effectively cap, collar or exchange interest rates (from fixed
to floating rates, from one floating rate to another floating rate or otherwise)
with respect to any interest-bearing liability or investment of the Borrower or
any Subsidiary.
SECTION 6.06. Restricted Payments. The Borrower will not, and will not
permit any of its Subsidiaries to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except (a) the Borrower may
declare and pay dividends with respect to its Equity Interests payable solely in
additional shares of its common stock, (b) Subsidiaries may declare and pay
dividends ratably with respect to their Equity Interests, and (c) the Borrower
may make Restricted Payments pursuant to and in accordance with stock option
plans or other benefit plans for management or employees of the Borrower and its
Subsidiaries.
SECTION 6.07. Transactions with Affiliates. The Borrower will not, and
will not permit any of its Subsidiaries to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on terms
and conditions not less favorable to the Borrower or such Subsidiary than could
be obtained on an arm's-length basis from unrelated third parties, (b)
transactions between or among the Borrower and its wholly owned Subsidiaries not
involving any other Affiliate and (c) any Restricted Payment permitted by
Section 6.06.
SECTION 6.08. Restrictive Agreements. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Subsidiary to pay dividends or other distributions with
respect to any shares of its capital stock or to make or repay loans or advances
to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the
Borrower or any other Subsidiary; provided that (i) the foregoing shall not
apply to restrictions and conditions imposed by law or by this Agreement, (ii)
the foregoing shall not apply to restrictions and conditions existing on the
date hereof identified on Schedule 6.08 (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness and (v) clause (a) of the foregoing shall not
apply to customary provisions in leases [and other contracts] restricting the
assignment thereof.
SECTION 6.09. Financial Covenants. So long as any of the Obligations shall
remain unpaid or the Lenders shall have any Commitment under this Agreement:
35
(a) Debt to Earnings Ratio. The Borrower shall maintain the ratio of
Consolidated Total Funded Debt to EBITDA at or below 2.00 to 1 measured at each
Fiscal Quarter end, for the four Fiscal Quarter period then ended, taken
together as a single accounting period.
(b) EBIT to Interest Expense Ratio. The Borrower shall maintain the ratio
of EBIT to the interest expense at or above 5.00 to 1 measured at each Fiscal
Quarter end, for the four Fiscal Quarter period then ended, taken together as a
single accounting period.
(c) Current Assets to Liabilities Ratio. The Borrower shall maintain the
ratio of Consolidated Current Assets to Consolidated Liabilities at or above 1.4
to 1 at each Fiscal Quarter end.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any installment of principal of any
Loan or any reimbursement obligation in respect of any LC Disbursement when and
as the same shall become due and payable, whether at the due date thereof or at
a date fixed for prepayment thereof or otherwise, and such failure shall
continue unremedied for a period of three Business Days. Notwithstanding the
previous sentence, the Borrower's failure to pay all sums due hereunder on the
Maturity Date shall be an immediate Event of Default;
(b) the Borrower shall fail to pay any interest on any Loan or any fee or
any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of three
Business Days;
(c) any representation or warranty made or deemed made by or on behalf of
the Borrower or any Subsidiary in or in connection with this Agreement or any
amendment or modification hereof or waiver hereunder, or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with this Agreement or any amendment or modification hereof or waiver
hereunder, shall prove to have been materially incorrect when made or deemed
made;
(d) the Borrower shall fail to observe or perform any covenant, condition
or agreement contained in Section 5.02, 5.03 (with respect to the Borrower's
existence) or 5.08 or in Article VI;
(e) the Borrower shall fail to observe or perform any covenant, condition
or agreement contained in this Agreement (other than those specified in clause
(a), (b) or (d) of this Article), and such failure shall continue unremedied for
a period of 30 days after notice thereof from the Administrative Agent to the
Borrower (which notice will be given at the request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any payment (whether
of principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled
maturity; provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the property
or assets securing such Indebtedness;
36
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other relief
in respect of the Borrower or any Subsidiary or its debts, or of a substantial
part of its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in writing
its inability or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate amount
in excess of $500,000 shall be rendered against the Borrower, any Subsidiary or
any combination thereof and the same shall remain undischarged for a period of
30 consecutive days during which execution shall not be effectively stayed, or
any action shall be legally taken by a judgment creditor to attach or levy upon
any assets of the Borrower or any Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the Borrower
and its Subsidiaries in an aggregate amount exceeding (i) $500,000 in any year
or (ii) $500,000 for all periods;
(m) a Change in Control shall occur;
(n) The Security Agreements shall at any time or for any reason cease: (A)
to create a valid and perfected security interest or lien in and to the property
purported to be subject to the same for any reason other than the failure of the
secured parties thereunder to (i) file and/or continue any UCC-1 Financing
Statement; or (ii) take any action required of it to perfect its security
interest, or (B) to be in full force and effect or shall be declared null and
void, or the validity or enforceability thereof shall be contested by any party
thereto or any party thereto shall deny it has any further liability or
obligations to the secured parties thereunder; or
(o) The Loan Documents shall at any time or for any reason cease to be in
full force and effect or shall be declared null and void, or the validity or
enforceability thereof shall be contested by Borrower or any Person party
thereto or Borrower or any Person party thereto shall deny it has any further
liability or obligations thereunder.
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or
37
other notice of any kind, all of which are hereby waived by the Borrower; and in
case of any event with respect to the Borrower described in clause (h) or (i) of
this Article, the Commitments shall automatically terminate and the principal of
the Loans then outstanding, together with accrued interest thereon and all fees
and other obligations of the Borrower accrued hereunder, shall automatically
become due and payable, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
SECTION 8.1. Appointment and Authority. Each of the Lenders and the
Issuing Bank hereby irrevocably appoints JPMorgan Chase Bank to act on its
behalf as the Administrative Agent hereunder and under the other Loan Documents
and as Collateral Agent under the Security Agreements and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof or
thereof, together with such actions and powers as are reasonably incidental
thereto. All references in this Article VIII to "Administrative Agent" shall be
inclusive of the Administrative Agent's role as Collateral Agent under the
Security Agreements. The provisions of this Article are solely for the benefit
of the Administrative Agent, the Lenders and the Issuing Bank, and the Borrower
shall not have rights as a third party beneficiary of any of such provisions.
SECTION 8.2. Rights as a Lender. The Person serving as the Administrative
Agent hereunder shall have the same rights and powers in its capacity as a
Lender as any other Lender and may exercise the same as though it were not the
Administrative Agent and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated or unless the context otherwise requires, include the Person
serving as the Administrative Agent hereunder in its individual capacity. Such
Person and its Affiliates may accept deposits from, lend money to, act as the
financial advisor or in any other advisory capacity for and generally engage in
any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if such Person were not the Administrative Agent hereunder and
without any duty to account therefor to the Lenders.
SECTION 8.3. Exculpatory Provisions. The Administrative Agent shall not
have any duties or obligations except those expressly set forth herein and in
the other Loan Documents. Without limiting the generality of the foregoing, the
Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties,
regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise
any discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that the Administrative Agent
is required to exercise as directed in writing by the Required Lenders (or such
other number or percentage of the Lenders as shall be expressly provided for
herein or in the other Loan Documents), provided that the Administrative Agent
shall not be required to take any action that, in its opinion or the opinion of
its counsel, may expose the Administrative Agent to liability or that is
contrary to any Loan Document or applicable law; and
(c) shall not, except as expressly set forth herein and in the other Loan
Documents, have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Borrower or any of its Affiliates that
is communicated to or obtained by the Person serving as the Administrative Agent
or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not
taken by it (i) with the consent or at the request of the Required Lenders (or
such other number or percentage of the Lenders as shall be necessary, or as the
Administrative Agent shall believe in good faith shall be necessary, under the
circumstances as provided in Section 9.02 and Article VII, or (ii) in the
absence of its own gross
38
negligence or willful misconduct. The Administrative Agent shall be deemed not
to have knowledge of any Default unless and until notice describing such Default
is given to the Administrative Agent by the Borrower, a Lender or the Issuing
Bank.
The Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement or any other Loan Document, (ii) the
contents of any certificate, report or other document delivered hereunder or
thereunder or in connection herewith or therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein or therein or the occurrence of any Default, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document or (v) the satisfaction
of any condition set forth in Article VI or elsewhere herein, other than to
confirm receipt of items expressly required to be delivered to the
Administrative Agent.
SECTION 8.4. Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing (including any electronic message, Internet or intranet website
posting or other distribution) believed by it to be genuine and to have been
signed, sent or otherwise authenticated by the proper Person. The Administrative
Agent also may rely upon any statement made to it orally or by telephone and
believed by it to have been made by the proper Person, and shall not incur any
liability for relying thereon. In determining compliance with any condition
hereunder to the making of a Loan, or the issuance of a Letter of Credit, that
by its terms must be fulfilled to the satisfaction of a Lender or the Issuing
Bank, the Administrative Agent may presume that such condition is satisfactory
to such Lender or the Issuing Bank unless the Administrative Agent shall have
received notice to the contrary from such Lender or the Issuing Bank prior to
the making of such Loan or the issuance of such Letter of Credit. The
Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
SECTION 8.5. Delegation of Duties. The Administrative Agent may perform
any and all of its duties and exercise its rights and powers hereunder or under
any other Loan Document by or through any one or more sub-agents appointed by
the Administrative Agent. The Administrative Agent and any such sub-agent may
perform any and all of its duties and exercise its rights and powers by or
through their respective Related Parties. The exculpatory provisions of this
Article shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
SECTION 8.6. Resignation of Administrative Agent. The Administrative Agent
may at any time give notice of its resignation to the Lenders, the Issuing Bank
and the Borrower. Upon receipt of any such notice of resignation, the Required
Lenders shall have the right, in consultation with the Borrower, to appoint a
successor, which shall be a bank with an office in Rochester, New York; or an
Affiliate of any such bank with an office in Rochester, New York. If no such
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may on
behalf of the Lenders and the Issuing Bank, appoint a successor Administrative
Agent meeting the qualifications set forth above provided that if the
Administrative Agent shall notify the Borrower and the Lenders that no
qualifying Person has accepted such appointment, then such resignation shall
nonetheless become effective in accordance with such notice and (1) the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents [(except that in the case of any
collateral security held by the Administrative Agent on behalf of the Lenders or
the Issuing Bank under any of the Loan Documents, the retiring Administrative
Agent shall continue to hold such collateral security until such time as a
successor Administrative Agent is appointed) and (2) all payments,
communications and determinations provided to be made by, to or through the
Administrative Agent shall instead be made by or to each Lender and the Issuing
Bank directly, until such time as the Required Lenders appoint a successor
Administrative Agent as provided for above in this paragraph. Upon the
acceptance of a
39
successor's appointment as Administrative Agent hereunder, such successor shall
succeed to and become vested with all of the rights, powers, privileges and
duties of the retiring (or retired) Administrative Agent, and the retiring
Administrative Agent shall be discharged from all of its duties and obligations
hereunder or under the other Loan Documents (if not already discharged therefrom
as provided above in this paragraph). The fees payable by the Borrower to a
successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor.
After the retiring Administrative Agent's resignation hereunder and under the
other Loan Documents, the provisions of this Article and Section 9.03 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while the retiring Administrative Agent
was acting as Administrative Agent.
SECTION 8.7. Non-Reliance on Administrative Agent and Other Lenders. Each
Lender and the Issuing Bank acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender or any of their
Related Parties and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender and the Issuing Bank also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Lender or any of their Related Parties and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or any related agreement or any document furnished
hereunder or thereunder.
SECTION 8.8. No Other Duties, etc. Anything herein to the contrary
notwithstanding, none of the Bookrunners or Arrangers listed on the cover page
hereof shall have any powers, duties or responsibilities under this Agreement or
any of the other Loan Documents, except in its capacity, as applicable, as the
Administrative Agent, a Lender or the Issuing Bank hereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices Generally. Except in the case of notices and other
communications expressly permitted to be given by telephone (and except as
provided in paragraph (b) below), all notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopier as
follows:
(i) if to the Borrower, to it at 2000 Technology Parkway, Newark, New
York 14513, Attention of Chief Financial Officer (Telecopier No.
315-331-3925; Telephone No. 315-332-7100), with a copy to: Peter F.
Comerford, Esq. at 2000 Technology Parkway, Newark, New York 14513,
(Telecopier No. 315-331-7048; Telephone No. 315-332-7100);
(ii) if to the Administrative Agent, to JPMorgan Chase Bank at One Chase
Square, Rochester, New York 14643, Attention of Ultralife Batteries,
Inc. Account Representative (Telecopier No. 585-258-7604; Telephone
No. 585-258-0822);
(iii) if to the Issuing Bank, to it at JPMorgan Chase Bank, Attention of
Ultralife Batteries, Inc., Account Representative (Telecopier No.
585-258-7604; Telephone No. 585-258-0822); and
(iv) if to a Lender, to it at its address (or telecopier number) set
forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified
or registered mail, shall be deemed to have been given when received; notices
sent by telecopier shall be deemed to have been given when sent (except that, if
not given during normal business hours for the recipient, shall be deemed to
have been given at the opening of business on the next business day for the
recipient). Notices
40
delivered through electronic communications to the extent provided in paragraph
(b) below, shall be effective as provided in said paragraph (b).
(b) Electronic Communications. Notices and other communications to the
Lenders and the Issuing Bank hereunder may be delivered or furnished by
electronic communication (including e-mail and Internet or intranet websites)
pursuant to procedures approved by the Administrative Agent. The Administrative
Agent or the Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it, provided that approval of such procedures may be
limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and
other communications sent to an e-mail address shall be deemed received upon the
sender's receipt of an acknowledgement from the intended recipient (such as by
the "return receipt requested" function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other communication is
not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on
the next business day for the recipient, and (ii) notices or communications
posted to an Internet or intranet website shall be deemed received upon the
deemed receipt by the intended recipient at its e-mail address as described in
the foregoing clause (i) of notification that such notice or communication is
available and identifying the website address therefor.
(c) Change of Address, Etc. Any party hereto may change its address or
telecopier number for notices and other communications hereunder by notice to
the other parties hereto.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent, the Issuing Bank and the Lenders
hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (v) change any of the provisions of this Section
or the definition of "Required Lenders" or any other provision hereof specifying
the number or percentage of Lenders required to waive, amend or modify any
rights hereunder or make any determination or grant any consent hereunder,
without the written consent of each Lender, (vi) release, waive or modify the
terms of any Guarantee without the written consent of each Lender, or (vii)
release or terminate any Lien on real or personal property without the written
consent of each Lender; provided further that no such agreement shall amend,
modify or otherwise affect the rights or duties of the Administrative Agent or
the Issuing Bank hereunder without the prior written consent of the
Administrative Agent or the Issuing Bank, as the case may be.
41
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) Costs and Expenses.
The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates (including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent), and shall pay all
fees and time charges and disbursements for attorneys who may be employees of
the Administrative Agent, in connection with the syndication of the credit
facilities provided for herein, the preparation, negotiation, execution,
delivery and administration of this Agreement and the other Loan Documents or
any amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing
Bank in connection with the issuance, amendment, renewal or extension of any
Letter of Credit or any demand for payment thereunder and (iii) all
out-of-pocket expenses incurred by the Administrative Agent, any Lender or the
Issuing Bank (including the fees, charges and disbursements of any counsel for
the Administrative Agent, any Lender or the Issuing Bank), and shall pay all
fees and time charges for attorneys who may be employees of the Administrative
Agent, any Lender or the Issuing Bank, in connection with the enforcement or
protection of its rights (A) in connection with this Agreement and the other
Loan Documents, including its rights under this Section, or (B) in connection
with the Loans made or Letters of Credit issued hereunder, including all such
out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent (and any sub-agent thereof), each Lender and the Issuing
Bank, and each Related Party of any of the foregoing Persons (each such Person
being called an "Indemnitee") against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related expenses (including
the fees, charges and disbursements of any counsel for any Indemnitee)[, and
shall indemnify and hold harmless each Indemnitee from all fees and time charges
and disbursements for attorneys who may be employees of any Indemnitee incurred
by any Indemnitee or asserted against any Indemnitee by any third party or by
the Borrower arising out of, in connection with, or as a result of (i) the
execution or delivery of this Agreement, any other Loan Document or any
agreement or instrument contemplated hereby or thereby, the performance by the
parties hereto of their respective obligations hereunder or thereunder or the
consummation of the transactions contemplated hereby or thereby, (ii) any Loan
or Letter of Credit or the use or proposed use of the proceeds therefrom
(including any refusal by the Issuing Bank to honor a demand for payment under a
Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (iii) any actual
or alleged presence or Release of Hazardous Materials on or from any property
owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory, whether brought by a third party or by the Borrower, and
regardless of whether any Indemnitee is a party thereto, provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by the Borrower against an Indemnitee for breach
in bad faith of such Indemnitee's obligations hereunder or under any other Loan
Document, if the Borrower has obtained a final and nonappealable judgment in its
favor on such claim as determined by a court of competent jurisdiction.
(c) Reimbursement by Lenders. To the extent that the Borrower for any
reason fails to indefeasibly pay any amount required under paragraph (a) or (b)
of this Section to be paid by it to the Administrative Agent (or any sub-agent
thereof), the Issuing Bank or any Related Party of any of the foregoing, each
Lender severally agrees to pay to the Administrative Agent (or any such
sub-agent), the Issuing Bank or such Related Party, as the case may be, such
Lender's Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent (or any such sub-agent) or the Issuing Bank in
its capacity as such, or against any Related Party of any of the
42
foregoing acting for the Administrative Agent (or any such sub-agent) or Issuing
Bank in connection with such capacity. The obligations of the Lenders under this
paragraph (c) are several, not joint.
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted
by applicable law, the Borrower shall not assert, and hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement, any other
Loan Document or any agreement or instrument contemplated hereby, the
transactions contemplated hereby or thereby, any Loan or Letter of Credit or the
use of the proceeds thereof. No Indemnitee referred to in paragraph (b) above
shall be liable for any damages arising from the use by unintended recipients of
any information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this
Agreement or the other Loan Documents or the transactions contemplated hereby or
thereby.
(e) Payments. All amounts due under this Section shall be payable promptly
after demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), except that (i) the Borrower
may not assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of each Lender (and any attempted assignment
or transfer by the Borrower without such consent shall be null and void) and
(ii) no Lender may assign or otherwise transfer its rights or obligations
hereunder except in accordance with this Section. Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby
(including any Affiliate of the Issuing Bank that issues any Letter of Credit),
Participants (to the extent provided in paragraph (c) of this Section) and, to
the extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below,
any Lender may assign to one or more assignees all or a portion of its rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) with the prior written consent
(such consent not to be unreasonably withheld) of:
(A) the Borrower, provided that no consent of the Borrower
shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund or, if an Event
of Default under clause (a), (b), (h) or (i) of Article
VII has occurred and is continuing, any other assignee;
(B) the Administrative Agent, provided that no consent of
the Administrative Agent shall be required for an
assignment of all or any portion of a Term Loan to a
Lender, an Affiliate of a Lender or an Approved Fund;
and
(C) the Issuing Bank, provided that no consent of the
Issuing Bank shall be required for an assignment of all
or any portion of a Term Loan to a Lender, an Affiliate
of a Lender or an Approved Fund.
(ii) Assignments shall be subject to the following additional
conditions:
(A) except in the case of an assignment to a Lender or an
Affiliate of a Lender or an assignment of the entire
remaining amount of the assigning Lender's Commitment or
Loans of any Class, the amount of the Commitment or
Loans of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and
Assumption with respect to such assignment is delivered
to the Administrative Agent)
43
shall not be less than $5,000,000 or, in the case of a
Term Loan, $1,000,000 unless each of the Borrower and
the Administrative Agent otherwise consent, provided
that no such consent of the Borrower shall be required
if an Event of Default under clause (a), (b), (h) or (i)
of Article VII has occurred and is continuing;
(B) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement, provided
that this clause shall not be construed to prohibit the
assignment of a proportionate part of all the assigning
Lender's rights and obligations in respect of one Class
of Commitments or Loans;
(C) except in the case of an assignment by a Lender to an
Affiliate of that Lender, the parties to each assignment
shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing
and recordation fee of $3,500; and
(D) the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent an Administrative
Questionnaire.
For the purposes of this Section 9.04(b), the term "Approved Fund" has the
following meaning:
"Approved Fund" means any Person (other than a natural person) that is (or
will be) engaged in making, purchasing, holding or otherwise investing in
commercial loans and similar extensions of credit in the ordinary course of its
business and that is administered or managed by (a) a Lender, (b) an Affiliate
of a Lender or (c) an entity or an Affiliate of an entity that administers or
manages a Lender.
(iii) Subject to acceptance and recording thereof pursuant to
paragraph (b)(iv) of this Section, from and after the effective date specified
in each Assignment and Assumption the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption covering
all of the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this Section 9.04 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
paragraph (c) of this Section.
(iv) The Administrative Agent, acting for this purpose as an agent
of the Borrower, shall maintain at one of its offices a copy of each Assignment
and Assumption delivered to it and a register for the recordation of the names
and addresses of the Lenders, and the Commitment of, and principal amount of the
Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof
from time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders may treat each Person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable
time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Assumption
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Assumption and record the
44
information contained therein in the Register. No assignment shall be effective
for purposes of this Agreement unless it has been recorded in the Register as
provided in this paragraph.
(c) (i) Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (A) such Lender's
obligations under this Agreement shall remain unchanged, (B) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (C) the Borrower, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of
this Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.18(c) as though it were a
Lender.
(ii) A Participant shall not be entitled to receive any greater
payment under Section 2.15 or 2.17 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.17 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.17(e) as though it were a Lender.
(d) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the
Administrative Agent, the Issuing Bank or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not expired
or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article
VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. (a) Counterparts;
Integration; Effectiveness. This Agreement may be executed in counterparts (and
by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agreement and the other Loan Documents, and any separate
letter
45
agreements with respect to fees payable to the Administrative Agent, constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof that, when taken together, bear the signatures of each of
the other parties hereto. Delivery of an executed counterpart of a signature
page of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
(b) Electronic Execution of Assignments. The words "execution," "signed,"
"signature," and words of like import in any Assignment and Assumption shall be
deemed to include electronic signatures or the keeping of records in electronic
form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature or the use of a paper-based
recordkeeping system, as the case may be, to the extent and as provided for in
any applicable law, including the Federal Electronic Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and Records Act,
or any other similar state laws based on the Uniform Electronic Transactions
Act.
SECTION 9.07. Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender, the Issuing Bank, and each of their respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by applicable law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final, in whatever
currency) at any time held and other obligations (in whatever currency) at any
time owing by such Lender, the Issuing Bank or any such Affiliate to or for the
credit or the account of the Borrower against any and all of the obligations of
the Borrower now or hereafter existing under this Agreement or any other Loan
Document to such Lender or the Issuing Bank, irrespective of whether or not such
Lender or the Issuing Bank shall have made any demand under this Agreement or
any other Loan Document and although such obligations of the Borrower may be
contingent or unmatured or are owed to a branch or office of such Lender or the
Issuing Bank different from the branch or office holding such deposit or
obligated on such indebtedness. The rights of each Lender, the Issuing Bank and
their respective Affiliates under this Section are in addition to other rights
and remedies (including other rights of setoff) that such Lender, the Issuing
Bank or their respective Affiliates may have. Each Lender and the Issuing Bank
agrees to notify the Borrower and the Administrative Agent promptly after any
such setoff and application, provided that the failure to give such notice shall
not affect the validity of such setoff and application.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.
(a) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.
(b) Submission to Jurisdiction. The Borrower irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the courts of the State of New York sitting in Monroe County and
of the United States District Court of the Western District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or any other Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State court or, to the
fullest extent permitted by applicable law, in such Federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement or in
any other Loan Document shall affect any right that the Administrative Agent,
any Lender or the Issuing Bank may
46
otherwise have to bring any action or proceeding relating to this Agreement or
any other Loan Document against the Borrower or its properties in the courts of
any jurisdiction.
(c) Waiver of Venue. The Borrower irrevocably and unconditionally waives,
to the fullest extent permitted by applicable law, any objection that it may now
or hereafter have to the laying of venue of any action or proceeding arising out
of or relating to this Agreement or any other Loan Document in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(d) Service of Process. Each party hereto irrevocably consents to service
of process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party hereto to serve process in any
other manner permitted by applicable law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent, the
Lenders and the Issuing Bank agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its Affiliates and to its and its Affiliates' respective partners, directors,
officers, employees, agents, advisors and other representatives (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority purporting to have jurisdiction over it (including any self-regulatory
authority, such as the National Association of Insurance Commissioners), (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party hereto, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to (i)
any assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction
relating to the Borrower and its obligations, (g) with the consent of the
Borrower or (h) to the extent such Information (x) becomes publicly available
other than as a result of a breach of this Section or (y) becomes available to
the Administrative Agent, any Lender, the Issuing Bank or any of their
respective Affiliates on a nonconfidential basis from a source other than the
Borrower.
For purposes of this Section, "Information" means all information received
from the Borrower or any of its Subsidiaries relating to the Borrower or any of
its Subsidiaries or any of their respective businesses, other than any such
information that is available to the Administrative Agent, any Lender or the
Issuing Bank on a nonconfidential basis prior to disclosure by the Borrower or
any of its Subsidiaries, provided that, in the case of information received from
the Borrower or any of its Subsidiaries after the date hereof, such information
is clearly identified at the time of delivery as confidential. Any Person
required to maintain the confidentiality of Information as provided in this
Section shall be considered to
47
have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
Notwithstanding anything herein to the contrary, "Information" shall not
include, and the Borrower, the Administrative Agent, each Lender and the
respective Affiliates of each of the foregoing (and the respective partners,
directors, officers, employees, agents, advisors and other representatives of
each of the foregoing and their Affiliates), and any other party, may disclose
to any and all Persons, without limitation of any kind, (a) any information with
respect to the U.S. federal and state income tax treatment of the transactions
contemplated hereby and any facts that may be relevant to understanding such tax
treatment, which facts shall not include for this purpose the names of the
parties or any other Person named herein, or information that would permit
identification of the parties or such other Persons, or any pricing terms or
other nonpublic business or financial information that is unrelated to such tax
treatment or facts, and (b) all materials of any kind (including opinions or
other tax analyses) that are provided to any of the Persons referred to above
relating to such tax treatment or facts.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under applicable law (collectively the "Charges"), shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
SECTION 9.14. USA Patriot Act Notice. Each Lender hereby notifies the
Borrower that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required
to obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.
48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
ULTRALIFE BATTERIES, INC.
By: /s/ Robert W. Fishback
Name: Robert W. Fishback
Title: Vice President Finance & CFO
49
JPMORGAN CHASE BANK, individually and as
Administrative Agent,
By: /s/ Virginia S. Allen
Name: Virginia S. Allen
Title: Vice President
50
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ Jon M. Fogle
Name: Jon M. Fogle
Title: Vice President
51
Schedule 2.01
Commitments
Amount Percentage
------ ----------
Commitments to Make Revolving Loans- $15,000,000
JPMorgan Chase Bank- $9,000,000 60%
Manufacturers and Traders Trust Company $6,000,000 40%
Term Loan Commitments- $10,000,000
JPMorgan Chase Bank- $6,000,000 60%
Manufacturers and Traders Trust Company $4,000,000 40%
Schedule 3.04
Changes Since December 31, 2003
On May 20, 2004, there was a fire at the Newark, New York facility. The fire
occurred when a tray of cells tipped over while being moved by an employee. Fire
suppression systems were triggered and activated; the local fire department
responded. The fire was contained to one room, and damage was limited to that
area and to the equipment and product in that room. Production was interrupted
for one day for cleaning. Deliveries were not affected. A claim has been
submitted to the Company's insurance carrier.
One June 5, 2004, a fire occurred at the Company's Abingdon, England subsidiary.
The fire began during the night when the building was unoccupied, originating in
a bunker area where discrepant or returned cells and batteries are stored for
disposal. Smoke and fire alarms were activated, and the local fire department
responded. Fire damage was limited to the bunker and reception areas, although
smoke and water damage, and utility disruption, caused a slow-down in
production. A claim has been submitted to the subsidiary's insurance carrier for
damage to equipment, material and product, and for business interruption.
Schedule 3.06
Disclosed Matters
Schedule F
The Company is subject to legal proceedings and claims which arise in the
normal course of business. The Company believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or results of operations of the Company.
In conjunction with the Company's purchase/lease of its Newark, New York
facility in 1998, the Company entered into a payment-in-lieu of tax agreement
which provides the Company with real estate tax concessions upon meeting certain
conditions. In connection with this agreement, a consulting firm performed a
Phase I and II Environmental Site Assessment which revealed the existence of
contaminated soil and ground water around one of the buildings. The Company
retained an engineering firm which estimated that the cost of remediation should
be in the range of $230. This cost, however, is merely an estimate and the cost
may in fact be much higher. In February, 1998, the Company entered into an
agreement with a third party which provides that the Company and this third
party will retain an environmental consulting firm to conduct a supplemental
Phase II investigation to verify the existence of the contaminants and further
delineate the nature of the environmental concern. The third party agreed to
reimburse the Company for fifty percent (50%) of the cost of correcting the
environmental concern on the Newark property. The Company has fully reserved for
its portion of the estimated liability. Test sampling was completed in the
spring of 2001, and the engineering report was submitted to the New York State
Department of Environmental Conservation (NYSDEC) for review. NYSDEC reviewed
the report and, in January 2002, recommended additional testing. The Company
submitted a work plan to NYSDEC in October 2003, which was approved shortly
thereafter. The Company sought proposals from engineering firms to complete the
remedial work outlined in the work plan. A firm was selected to perform the
tasks associated with the remediation activities, which were completed in
December 2003. The test results were then forwarded to NYSDEC for comment.
NYSDEC responded to the Company in March 2004 requesting a report summarizing
the data, findings, discussions and conclusions. The report has been submitted
to NYSDEC who will review and make recommendations as to whether additional
remediation is required. Because the Company believes that the source of the
contamination has been removed, NYSDEC recommended that the Company conduct
quarterly monitoring of the groundwater for one year. The Company believes that
the final cost to remediate will not exceed the original estimate. The Company
awaits final comments from the NYSDEC and will begin the additional sampling
upon approval of the conclusions stated in the report. Because this is a
voluntary remediation, there is no requirement for the Company to complete the
project within any specific time frame. The ultimate resolution of this matter
may have a significant adverse impact on the results of operations in the period
in which it is resolved. Furthermore, the Company may face claims resulting in
substantial liability which could have a material adverse effect on the
Company's business, financial condition and the results of operations in the
period in which such claims are resolved.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer") has made a claim against the Customer wherein it is
asserted that the Customer's product, which is powered by an Ultralife battery,
does not operate according to the Customer's product specification. No claim has
been filed against Ultralife. However, in the interest of fostering good
customer relations, in September 2002, Ultralife agreed to lend technical
support to the Customer in defense of its claim. The claim between the end-user
and the Customer has now been settled. Ultralife has renewed its commitment to
the Customer to honor its warranty by replacing any batteries that may be
determined to be defective. In the event a claim is filed against Ultralife and
it is ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse effect on
the Company's financial position and results of operations.
Schedule 6.01
Existing Indebtedness
1. Revolving Credit Facility with Congress Financial Corporation (New England)-
approximately $5 million
2. Term Loan Congress Financial Corporation (New England)- approximately
$870,000
3. Revolving Credit Facility with Royal Bank of Scotland - approximately
$600,000
4. Letter of Credit with Congress Financial Corporation (New England) - $3.6
million
5. Credit Card facility with JPMorgan Chase Bank - $50,000
6. Capital Lease obligations with Wayne County IDA - approximately $85,000
Items 1, 2 and 4 shall be paid in full with the initial advance under this
Credit Agreement and no further Indebtedness to Congress Financial Corporation
(New England) shall be permitted to be incurred under the terms of Section 6.01.
Schedule 6.02
Existing Liens
Creditor Address Collateral Date of Lien
- -------- ------- ---------- ------------
Winthrop Resources Corporation 111 Wayzata Boulevard Leased Equipment 7/22/02
Suite 800 8/15/02
Minnetonka, Mn 55305
Wyssmont Company Inc. 1470 Bergen Blvd Specific Equipment 4/4/03
Fort Lee, New Jersey
07024-2197
Each Lien and the related Collateral are more specifically described in the UCC
Search dated June __, 2004 of the Delaware Secretary of State's records enclosed
in the Loan Transcript
Schedule 6.04
Investments, Loans, Advances, Guarantees and Acquisitions
Ultralife Taiwan Summary
In October 2003, the Borrower advanced $2,350,000 to Ultralife Taiwan, Inc.
(UTI), in which the Borrower has an approximate 9.2% ownership interest. This
transaction was done in order to provide short term financing to UTI while they
work to complete an additional equity infusion into UTI to support its growth
plans. This short-term note receivable was originally scheduled to mature on
March 1, 2004 with interest accruing at 3% per annum. Effective March 1, 2004,
the Borrower extended the maturity date of this note to June 30, 2004, allowing
UTI to continue its efforts to raise additional equity capital. The Borrower
will reconsider periodic extensions of this note receivable on a quarterly
basis. If UTI is successful in raising additional funds, the Borrower may elect
to convert this note into shares of UTI common stock. In addition to the note,
the Borrower's ownership interest in UTI is reflected on the Borrower's March
27, 2004 consolidated balance sheet. The amount of this investment is
$1,550,000, accounted for under the cost method of accounting. The Borrower does
not guarantee the obligations of UTI and is not required to provide any
additional funding. Because of their current uncertain financial condition, UTI
may not be able to raise the necessary additional funds from other investors,
and the Borrower may not be able to recover or realize any gain on the note or
the Borrower's investment. In addition, the Borrower orders product from UTI
and, on occasion, in order to help UTI with its financial situation will make
advance payments against amounts otherwise due on those purchase orders.
Schedule 6.08
Existing Restrictions
1. Equipment Lease with Winthrop Resources Corporation.
2. Ultralife Batteries (UK) Limited Revolving Credit Facility with Royal Bank
of Scotland.
EXHIBIT A
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the "Assignment and Assumption") is dated
as of the Effective Date set forth below and is entered into by and between
[Insert name of Assignor] (the "Assignor") and [Insert name of Assignee] (the
"Assignee"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
"Credit Agreement"), receipt of a copy of which is hereby acknowledged by the
Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto
are hereby agreed to and incorporated herein by reference and made a part of
this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Administrative Agent as contemplated below (i) all of the Assignor's rights
and obligations in its capacity as a Lender under the Credit Agreement and any
other documents or instruments delivered pursuant thereto to the extent related
to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including any letters of credit and guarantees
included in such facilities) and (ii) to the extent permitted to be assigned
under applicable law, all claims, suits, causes of action and any other right of
the Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby or in any way based on or related to any of the foregoing,
including contract claims, tort claims, malpractice claims, statutory claims and
all other claims at law or in equity related to the rights and obligations sold
and assigned pursuant to clause (i) above (the rights and obligations sold and
assigned pursuant to clauses (i) and (ii) above being referred to herein
collectively as the "Assigned Interest"). Such sale and assignment is without
recourse to the Assignor and, except as expressly provided in this Assignment
and Assumption, without representation or warranty by the Assignor.
1. Assignor:
-----------------------------------------------------
2. Assignee:
-----------------------------------------------------
[and is an Affiliate/Approved Fund of [identify
Lender]]
3. Borrower(s): Ultralife Batteries, Inc.
4. Administrative Agent: JPMorgan Chase Bank, as the administrative agent
under the Credit Agreement
5. Credit Agreement: The Credit Agreement dated as of June 30, 2004 among
Ultralife Batteries, Inc., the Lenders parties
thereto, and JPMorgan Chase Bank as Administrative
Agent
6. Assigned Interest:
- ------------------------------ ----------------------------- ----------------------------- ---------------------------
Facility Assigned Aggregate Amount of Amount of Commitment/Loans Percentage Assigned of
Commitment/Loans for all Assigned Commitment/Loans
Lenders
- ------------------------------ ----------------------------- ----------------------------- ---------------------------
$ $ %
- ------------------------------ ----------------------------- ----------------------------- ---------------------------
$ $ %
- ------------------------------ ----------------------------- ----------------------------- ---------------------------
$ $ %
- ------------------------------ ----------------------------- ----------------------------- ---------------------------
Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT
AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
ASSIGNEE
[NAME OF ASSIGNEE]
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
[CONSENTED TO AND] ACCEPTED:
JPMORGAN CHASE BANK, as
Administrative Agent
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[CONSENTED TO:]
[NAME OF RELEVANT PARTY]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
2
ANNEX 1
[__________________]
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1. Assignor. The Assignor (a) represents and warrants that (i) it
is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby; and (b) assumes no responsibility with respect
to (i) any statements, warranties or representations made in or in connection
with the Credit Agreement or any other Loan Document, (ii) the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Loan Documents or any collateral thereunder, (iii) the financial condition of
the Borrower, any of its Subsidiaries or Affiliates or any other Person
obligated in respect of any Loan Document or (iv) the performance or observance
by the Borrower, any of its Subsidiaries or Affiliates or any other Person of
any of their respective obligations under any Loan Document.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Lender under the Credit Agreement, (ii) it
satisfies the requirements, if any, specified in the Credit Agreement that are
required to be satisfied by it in order to acquire the Assigned Interest and
become a Lender, (iii) from and after the Effective Date, it shall be bound by
the provisions of the Credit Agreement as a Lender thereunder and, to the extent
of the Assigned Interest, shall have the obligations of a Lender thereunder,
(iv) it has received a copy of the Credit Agreement, together with copies of the
most recent financial statements delivered pursuant to Section 5.01 thereof, as
applicable, and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Assumption and to purchase the Assigned Interest on the basis of
which it has made such analysis and decision independently and without reliance
on the Administrative Agent or any other Lender, and (v) if it is a Foreign
Lender, attached to the Assignment and Assumption is any documentation required
to be delivered by it pursuant to the terms of the Credit Agreement, duly
completed and executed by the Assignee; and (b) agrees that (i) it will,
independently and without reliance on the Administrative Agent, the Assignor or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, and (ii) it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent
shall make all payments in respect of the Assigned Interest (including payments
of principal, interest, fees and other amounts) to the Assignor for amounts
which have accrued to but excluding the Effective Date and to the Assignee for
amounts which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns. This Assignment and Assumption may be executed in any
number of counterparts, which together shall constitute one instrument. Delivery
of an executed counterpart of a signature page of this Assignment and Assumption
by telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of New York.
EXHIBIT B
OPINION OF COUNSEL FOR THE BORROWER
[Effective Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o JPMorgan Chase Bank, as Administrative Agent
One Chase Square
Rochester, New York 14643
Dear Sirs:
We have acted as counsel for Ultralife Batteries, Inc., a Delaware
corporation (the "Borrower"), in connection with the Credit Agreement dated as
of June 30, 2004 (the "Credit Agreement"), among the Borrower, the banks and
other financial institutions identified therein as Lenders, and JPMorgan Chase
Bank, as Administrative Agent. Terms defined in the Credit Agreement are used
herein with the same meanings.
We have examined originals or copies, certified or otherwise identified to
[my/our] satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as [I/we] have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower (a) is a corporation duly organized, validly existing and
in good standing under the laws of Delaware, (b) has all requisite power and
authority to carry on its business as now conducted and (c) except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, New York and in every other jurisdiction where such
qualification is required.
2. The Transactions are within the Borrower's corporate powers and have
been duly authorized by all necessary corporate and, if required, stockholder
action. The Credit Agreement has been duly executed and delivered by the
Borrower and constitutes a legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
3. The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental Authority,
except such as have been obtained or made and are in full force and effect, (b)
will not violate any applicable law or regulation or the charter, by-laws or
other organizational documents of the Borrower or any of its Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon the Borrower or
any of its Subsidiaries or its assets, or give rise to a right thereunder to
require any payment to be made by the Borrower or any of its Subsidiaries, and
(d) will not result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
4. There are no actions, suits or proceedings by or before any arbitrator
or Governmental Authority pending against or, to [my/our] knowledge, threatened
against or affecting the Borrower or any of its Subsidiaries (a) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to have a Material
Adverse Effect (other than the Disclosed Matters)
or (b) that involve the Credit Agreement or the Transactions.
5. Neither the Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
We are members of the bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the General Corporation
Law of the State of Delaware and the Federal laws of the United States of
America. This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other Person (other than your successors and assigns as
Lenders and Persons that acquire participations in your Loans) without our prior
written consent.
Very truly yours,
2
EXHIBIT C
TERM NOTE
$_______________________ Rochester, New York
June 30, 2004
Ultralife Batteries, Inc., (the "Borrower"), for value received, hereby
promises to pay to the order of [Lender X] (the "Lender") at the office of
JPMorgan Chase Bank at One Chase Square, Rochester, New York 14643, for the
account of the appropriate Lending Office of the Lender, the principal sum of
_______________________ Dollars ($________________), in lawful money of the
United States of America and in immediately available funds in sixty (60)
consecutive monthly installments of principal, as follows: 59 installments of
$_______________ each due on the first Business Day of each month commencing on
August 1, 2004 and a final installment due on July 1, 2009 of all remaining
principal. The Borrower also promises to pay interest on the unpaid principal
balance hereof, for the period such balance is outstanding, at said office of
JPMorgan Chase Bank for the account of said Lender, in like money, at the rates
of interest as provided in the Credit Agreement described below, on the date(s)
and in the manner provided in said Credit Agreement.
This is one of the Term Notes referred to in that certain Credit Agreement
(as amended from time to time the "Credit Agreement") dated as of June 30, 2004
among the Borrower, the Lenders party thereto (including the Lender) and
JPMorgan Chase Bank as Agent and evidences the Term Loan made by the Lender
thereunder. All terms not defined herein shall have the meanings given to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default and for prepayments
on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
This Note shall be governed by, and interpreted and construed in
accordance with, the laws of the State of New York.
ULTRALIFE BATTERIES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EXHIBIT D
CERTIFICATE OF A FINANCIAL OFFICER
CERTIFICATE OF COMPLIANCE
Pursuant to
Credit Agreement
Dated as of June 30, 2004
I, the undersigned, ___________, a Financial Officer of Ultralife
Batteries, Inc., do certify to the JPMorgan Chase Bank (the "Bank") as required
under Section 5.01(c) of the Credit Agreement (the "Agreement"), dated as of
June 30, 2004 between the Bank and the Borrower, as follows:
1. [No Default has occurred under the Agreement, and no condition,
event or act which, with the giving of notice or the passage of time
or both, would constitute an Event of Default under the Agreement,
has occurred and is continuing or exists as of the date hereof.] or
1. [A Default has occurred under the Agreement, and the details thereof
and any action taken or proposed to be taken with respect thereto
are as follows:]
2. [No change in GAAP or in the application thereof has occurred since
the date of the audited financial statements referred to in Section
3.04] or
2. A change in GAAP or in the application thereof has occurred since
the date of the audited financial statements referred to in Section
3.04]:
All terms used herein and not defined herein shall have the meanings given
to them in the Agreement.
The Bank may rely on this Certificate in its evaluation of the Financial
Statements which it accompanies.
IN WITNESS WHEREOF, I have executed this Certificate this _______ day of
_______________.
----------------------------------------
[Name and Title]
Exhibit 10.2
GENERAL SECURITY AGREEMENT
GENERAL SECURITY AGREEMENT dated as of June 30, 2004 by Ultralife
Batteries, Inc., a Delaware corporation ("Debtor") in favor of JPMorgan Chase
Bank, in its capacity as Collateral Agent for the Lenders party to the Credit
Agreement described below.
W I T N E S S E T H :
WHEREAS, Debtor, Collateral Agent and Lenders are parties to a Credit
Agreement dated as of June 30, 2004 (as the same may be amended and in effect
from time to time, the "Credit Agreement"), pursuant to which Lenders have
agreed to make loans available to Debtor; and
WHEREAS, it is a condition precedent to the availability of such loans
under the Credit Agreement that Debtor shall have granted the security interests
contemplated by this Agreement in order to secure the payment and performance of
Debtor's indebtedness and obligations under the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make the loans available to Debtor under the Credit Agreement, Debtor
hereby agrees with Collateral Agent for its benefit and the benefit of Lenders
as follows:
SECTION 1. Definitions
1.1 Certain Defined Terms. Terms defined in the UCC and not otherwise
defined herein shall have the respective meanings provided for in the UCC. Terms
defined in the Credit Agreement and not otherwise defined herein or in the UCC
shall have the respective meanings provided for in the Credit Agreement. The
following terms, as used herein, have the meanings set forth below:
"Collateral" has the meaning assigned to that term in Section 2.
"Control" means "control" as defined in the UCC.
"Copyright License" means any oral or written agreement now or hereafter
in existence granting to Debtor any right to use any copyright, as the same may
be amended and in effect from time to time.
"Copyrights" means collectively all of the following now owned or
hereafter created or acquired by Debtor: (a) all copyrights, rights and
interests in copyrights, works protectable by copyright, copyright registrations
and copyright applications, including, without limitation, those listed in the
schedules to the Copyright Security Agreement; (b) all renewals of any of the
foregoing; (c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing or with respect to any of the
foregoing, including, without limitation, damages or payments for past, present
or future infringements of any of the foregoing; (d) the right to sue for past,
present and future infringements of any of the foregoing; (e) all rights
corresponding to any of the foregoing throughout the world; and (f) all goodwill
associated with and symbolized by any of the foregoing.
"Copyright Security Agreement" means the copyright security agreement to
be executed and delivered by Debtor to Lender, substantially in the form of
Exhibit A, as the same may be amended and in effect from time to time.
"Depository Account" has the meaning assigned to that term in Section 7.
"Intellectual Property" means collectively all of the following:
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and
Trademark Licenses.
2
"Patent License" means any oral or written agreement now or hereafter in
existence granting to Debtor any right to use any invention on which a patent is
in existence, as the same may be amended and in effect from time to time.
"Patents" means collectively all of the following now owned or hereafter
created or acquired by any Debtor: (a) all patents and patent applications
including, without limitation, those listed in the schedules to the Patent
Security Agreement and the inventions and improvements described and claimed
therein, and patentable inventions; (b) the reissues, divisions, continuations,
renewals, extensions and continuations-in-part of any of the foregoing; (c) all
income, royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing, including,
without limitation, damages and payments for past, present and future
infringements of any of the foregoing; (d) the right to sue for past, present
and future infringements of any of the foregoing; (e) all rights corresponding
to any of the foregoing throughout the world; and (f) all goodwill associated
with any of the foregoing.
"Patent Security Agreement" means the patent security agreement executed
and delivered by Debtor to Lender, substantially in the form of Exhibit B, as
the same may be amended and in effect from time to time.
"Secured Obligations" has the meaning assigned to that term in Section 3.
"Security Interests" means the security interests granted pursuant to
Section 2 hereof and pursuant to the Copyright Security Agreement, the Patent
Security Agreement and the Trademark Security Agreement, as well as all other
security interests created or assigned as additional security for the Secured
Obligations pursuant to the provisions of this Agreement and the other Loan
Documents.
"Trademark License" means any oral or written agreement now or hereafter
in existence granting to Debtor any right to use any trademark, as the same may
be amended and in effect from time to time.
"Trademarks" means collectively all of the following now owned or
hereafter created or acquired by Debtor: (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, all registrations and
recordings thereof, and all applications in connection therewith including,
without limitation, those listed in the schedules to the Trademark Security
Agreement; (b) all renewals thereof; (c) all income, royalties, damages and
payments now or hereafter due and/or payable under any of the foregoing or with
respect to any of the foregoing including, without limitation, damages and
payments for past, present and future infringements of any of the foregoing; (d)
the right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing throughout the
world; and (f) all goodwill associated with and symbolized by any of the
foregoing.
"Trademark Security Agreement" means the trademark security agreement
executed and delivered by Debtor to Lender substantially in the form of Exhibit
C, as the same may be amended and in effect from time to time.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of New York, provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
1.2 Other Definition Provisions. References to "Sections, " "subsections,"
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the
3
context otherwise requires, be used in the singular or the plural depending on
the reference. All references to statutes and related regulations shall include
(unless otherwise specifically provided herein) any amendments of same and any
successor statutes and regulations.
SECTION 2. Grant of Security Interests
To secure the payment, performance and observance of the Secured
Obligations, Debtor hereby grants to Collateral Agent, for the benefit of
Collateral Agent and Lenders, a continuing security interest in, right of setoff
against, and (except as to Trademarks as to which Debtor grants only a security
interest) a collateral assignment to Collateral Agent of, all right, title and
interest of Debtor in all personal property (the "Collateral"), whether now
owned or existing or hereafter acquired or arising and regardless of where
located including, without limitation, all of the types of Collateral described
in Schedule A, attached hereto and made a part hereof.
Notwithstanding the foregoing, so long as no Event of Default has occurred
and is continuing, Debtor shall have the exclusive, non-transferable right and
license to use the Intellectual Property.
SECTION 3. Security for Obligations
This Agreement secures the payment and performance of all indebtedness,
liabilities and obligations of Debtor now existing or hereafter created or
arising under this Agreement or any other agreement with Collateral Agent, any
Lender and/or any of the affiliates of Collateral Agent or any affiliates of any
Lender (including, without limitation, any and all indebtedness, liabilities and
obligations arising under or in respect to any Swap Agreement) and all renewals,
extensions, restructurings and refinancings of any of the above including,
without limitation, any additional indebtedness which may be extended to Debtor
pursuant to any restructuring or refinancing of Debtor's indebtedness under the
Credit Agreement, and including any post-petition interest accruing during any
bankruptcy, reorganization or other similar proceeding (all such indebtedness,
liabilities and obligations of Debtor being collectively referred to herein as
the "Secured Obligations").
SECTION 4. Debtor Remains Liable
Anything herein to the contrary notwithstanding: (a) Debtor shall remain
liable under the contracts and agreements included in its Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed; (b) the exercise
by Collateral Agent of any of the rights hereunder shall not release Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral; and (c) neither Collateral Agent nor any Lender shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Collateral Agent nor any
Lender be obligated to perform any of the obligations or duties of Debtor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 5. Representations and Warranties
In order to induce Collateral Agent to enter into this Agreement for its
benefit and the benefit of the Lenders, Debtor represents and warrants to
Collateral Agent and to each Lender as follows:
5.1 Binding Obligation. This Agreement is the legally valid and binding
obligation of Debtor, enforceable against it in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, or similar laws or equitable principles relating to or limiting
creditor's rights generally.
5.2 Location of Equipment and Inventory. All of the Equipment, Inventory
and Fixtures of Debtor are located at the places specified on Schedule I. All
hereafter acquired Equipment, Inventory or Fixtures of Debtor will be located at
the places specified on Schedule I hereto, except as otherwise
4
permitted hereunder. None of said locations are leased by Debtor as lessee
except those designated as such on Schedule I.
5.3 Ownership of Collateral; Bailees. Except for matters disclosed on
Schedule II, other Permitted Encumbrances and the Security Interests, Debtor
owns its Collateral, and will own all after-acquired Collateral, free and clear
of any Lien. No effective financing statement or other form of lien notice
covering all or any part of its Collateral is on file in any recording office,
except for those in favor of Collateral Agent and as disclosed on Schedule II.
Except as disclosed on Schedule II, none of the Collateral is in the possession
of any consignee, bailee, warehouseman, agent or processor. Debtor does not sell
any Inventory to any customer on approval or on any other basis which entitles
the customer to return, or which may obligate Debtor to repurchase, such
Inventory.
5.4 Office Locations; Fictitious Names. The jurisdiction of organization,
mailing address, principal place of business, chief executive office and office
where Debtor keeps its books and records relating to its Accounts, Documents,
General Intangibles, Instruments and Investment Property is located at the place
specified on Schedule I. Debtor has no other places of business except those
separately specified on Schedule I. Debtor does not do business and has not done
business during the past five years under any trade-name or fictitious business
name except as disclosed on Schedule III.
5.5 Perfection. Collateral Agent has a valid, attached security interest,
and upon completion of all necessary steps for perfection, will have a perfected
and except for the Permitted Encumbrances and as set forth on Schedule 6.02 to
the Credit Agreement, first priority security interest in the Collateral,
securing the payment of the Secured Obligations, and such Security Interests are
entitled to all of the rights, priorities and benefits afforded by the UCC or
other applicable law as enacted in any relevant jurisdiction which relates to
perfected security interests.
5.6 Governmental Authorizations; Consents. No authorization, approval or
other action by, and no notice to or filing with, any domestic or foreign
governmental authority or regulatory body or consent of any other Person is
required either (a) for the grant by Debtor of the Security Interests granted
hereby or for the execution, delivery or performance of this Agreement by Debtor
or (b) for the perfection of or the exercise by Collateral Agent of its rights
and remedies hereunder.
5.7 Accounts. Each existing and each hereafter arising Account, Payment
Intangible and other General Intangibles representing an obligation of payment
owed to the Debtor ("Payment Obligations") constitutes, or will constitute, the
legally valid and binding obligation of the customer obligated to pay the same.
The amount represented by Debtor to Collateral Agent as owing by each customer
is, or will be, the correct amount actually and unconditionally owing, except
for normal cash discounts and allowances where applicable. No customer has any
defense, set-off, claim or counterclaim against Debtor that can be asserted
against Collateral Agent, whether in any proceeding to enforce Collateral
Agent's rights in the Collateral or otherwise except defenses, setoffs, claims
or counterclaims that are not, in the aggregate, material to the value of the
Accounts. None of the Payment Obligations are, nor will any hereafter arising
Payment Obligations be, evidenced by a promissory note or other Instrument other
than a check.
5.8 Intellectual Property. Debtor's Copyrights, Patents and Trademarks
listed on the respective schedules to each of the Copyright Security Agreement,
the Patent Security Agreement and the Trademark Security Agreement constitute
all of the federally registered Copyrights, Patents and Trademarks owned by
Debtor. To the best of Borrower's knowledge, all federally registered
Copyrights, Patents and Trademarks owned by Debtors are valid, subsisting and
enforceable and all filings necessary to maintain the effectiveness of such
registrations have been made.
5.9 Inventory. All Debtor's Inventory is of good and merchantable quality,
free from any defects, such Inventory is not subject to any licensing, patent,
trademark, trade name or copyright agreement with any Person that restricts
Debtor's ability to manufacture and/or sell its Inventory and the completion and
manufacture of such Inventory by a Person other than Debtor would be permitted
under any contract to which Debtor is a party or to which such Inventory is
subject.
5
5.10 Accurate Information. All information heretofore, herein or hereafter
supplied to the Collateral Agent or any Lender by or on behalf of Debtor with
respect to its Collateral is and will be accurate and complete in all material
respects.
SECTION 6. Further Assurances; Covenants
6.1 Other Documents and Actions. Debtor will, from time to time, at its
expense, promptly execute and deliver all further instruments and documents and
take all further action that may be necessary or desirable, or that Collateral
Agent may request, in order to create, perfect and protect any security
interests granted or purported to be granted hereby or pursuant to any other
Loan Document or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder, or under any other Loan Document with respect to the
Collateral. Without limiting the generality of the foregoing, Debtor will: (a)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments, documents or notices, as may be necessary
or desirable, or as Collateral Agent may request, in order to create, perfect
and preserve the security interests granted or purported to be granted hereby or
pursuant to any other Loan Document with respect to the Collateral; (b) at any
reasonable time, upon demand by Collateral Agent after and during the
continuance of an Event of Default, exhibit its Collateral to allow inspection
of such Collateral by Collateral Agent or Persons designated by Collateral Agent
and to examine and make copies of the records of Debtor related thereto, and to
discuss such Collateral and the records of Debtor with respect thereto with, and
to be advised as to the same by, Debtor's officers and employees and, after the
occurrence and during the continuance of an Event of Default, in the case of
Debtor's Accounts, Documents, General Intangibles, Instruments and Investment
Property with any Person which is or may be obligated thereon; and (c) upon
Collateral Agent's request, appear in and defend any action or proceeding that
may affect Debtor's title to or Collateral Agent's security interest in with
respect to the Collateral. Without limiting the generality of the foregoing,
Debtor shall use its reasonable best efforts to obtain a Landlord Waiver
Agreement (as defined herein) from each of its existing landlords with respect
to any premises of Debtor located in the United States of America. For purposes
herein, the term "Landlord Waiver Agreement" shall mean a written agreement from
the landlord of such premises in favor of the Collateral Agent, in form and
substance reasonably satisfactory to the Collateral Agent, pursuant to which
such landlord will acknowledge Collateral Agent's security interest in the
Collateral, waive any security interest, lien or other claim by such landlord to
the Collateral and agree to permit Collateral Agent access to the premises in
order to exercise its rights and remedies and otherwise deal with the
Collateral.
6.2 Collateral Agent Authorized. The Debtor irrevocably appoints the
Collateral Agent as its lawful attorney and agent and grants the Collateral
Agent the power to execute, authenticate and to file, with or without any
signature and by electronic means, any Financing Statement, Addendum, Amendment,
Continuation Statement or other Record, in the Debtor's name and on the Debtor's
behalf including any filing which further describes for identification any
Commercial Tort Claim which may come into existence in the future.
6.3 Corporate or Name Change. Debtor will give Collateral Agent at least
thirty (30) days prior written notice of any such change in Debtor's name,
identity, jurisdiction of organization, mailing address or corporate structure.
With respect to any change, Debtor will promptly execute and deliver such
documents and take such actions as Collateral Agent deems necessary or desirable
to create, perfect and preserve the security interests of Collateral Agent in
the Collateral.
6.4 Business Locations. Subject to the next sentence, Debtor will keep its
Collateral (other than Collateral in the possession of Collateral Agent and cash
on deposit in Depository Accounts and other permitted deposit accounts) at the
locations specified on Schedule I. Debtor will give Collateral Agent at least
thirty (30) days prior written notice of any change in Debtor's chief executive
office and principal place of business or of any new location of business or any
new location for any of Debtor's Collateral. With respect to any new location
(which in any event shall be within the continental United States), Debtor will
execute such documents and take such actions as Collateral Agent deems necessary
to perfect and preserve Collateral Agent's security interest in Debtor's
Collateral.
6
6.5 Bailees. No Collateral in excess of $200,000 shall at any time be in
the possession or control of any warehouseman, bailee or any of Debtor's agents
or processors without Collateral Agent's prior written consent and unless
Collateral Agent, if Collateral Agent has so requested, has received warehouse
receipts or bailee lien waivers satisfactory to Collateral Agent prior to the
commencement of such storage. Debtor shall, upon the request of Collateral
Agent, notify any such warehouseman, bailee, agent or processor of the Security
Interests created hereby and shall instruct such Person to hold all such
Collateral for Collateral Agent's account subject to Collateral Agent's
instructions.
6.6 Instruments. After and during the continuance of an Event of Default,
Debtor will deliver and pledge to Collateral Agent all Instruments duly endorsed
and accompanied by duly executed instruments of transfer or assignment, all in
form and substance satisfactory to Collateral Agent. Debtor will also deliver to
Collateral Agent all security agreements securing any Instruments and execute
UCC-3 financing statements assigning to Collateral Agent any UCC financing
statements filed by Debtor in connection with such security agreements. Debtor
will mark conspicuously all chattel paper with a legend, in form and substance
satisfactory to Collateral Agent, indicating that such chattel paper is subject
to the Security Interests.
6.7 Filing Requirements. None of the Equipment (other than motor vehicles)
is covered by any certificate of title. Upon request of Collateral Agent, Debtor
shall promptly deliver to Collateral Agent any and all certificates of title,
applications for title or similar evidence of ownership of all Equipment and
shall cause Collateral Agent to be named as lienholder on any such certificate
of title or other evidence of ownership. None of the Collateral is of a type in
which security interests or liens may be registered, recorded or filed under, or
notice thereof given under, any federal statute or regulation except for
Collateral described on the schedules to the Copyright Security Agreement, the
Patent Security Agreement and the Trademark Security Agreement. Debtor shall
promptly notify Collateral Agent in writing upon acquiring any interest
hereafter in Collateral that is of a type where a security interest or lien may
be registered, recorded or filed under, or notice thereof given under, any
federal statute or regulation. Debtor shall promptly inform Collateral Agent of
any deletions from (other than in the ordinary course of Debtor's business) its
Equipment and shall not permit any such items to become Fixtures to real estate
other than real estate subject to mortgages or deeds of trust in favor of
Collateral Agent and except if the aggregate value of the Equipment which
becomes a Fixture after the date hereof does not exceed $100,000 in each of
Debtor's premises. The legal description and street address of the property on
which any Fixtures are located is set forth on Schedule I, together with the
name and common address of the record owner of each such property.
6.8 Investment Property Covenants. Debtor will take any and all actions
required or requested by Collateral Agent, from time to time, to (a) cause
Collateral Agent to obtain exclusive Control of any Investment Property owned by
Debtor in a manner acceptable to Collateral Agent and (b) obtain from any
issuers of Investment Property and such other Persons, for the benefit of
Collateral Agent, written confirmation of Collateral Agent's Control over such
Investment Property. For purposes of this subsection 6.8, Lender shall have
exclusive Control of Investment Property if (I) such Investment Property
consists of certificated securities and Debtor delivers such certificated
securities to Collateral Agent (with appropriate endorsements if such
certificated securities are in registered form); (ii) such Investment Property
consists of uncertificated securities and either (x) Debtor delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with instructions originated by Lender without further consent by Debtor;
and (iii) such Investment Property consists of security entitlements and either
(x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Collateral Agent, that it will comply with entitlement orders
originated by Lender without further consent by Debtor.
6.9 Account Covenants. Except as otherwise provided in this subsection
6.9, Debtor shall continue to collect, at its own expense, all amounts due or to
become due Debtor under the Accounts and other Payment Obligations and apply
such amounts as are so collected to the outstanding balances thereof. In
connection with such collections, Debtor may take (and, at Collateral Agent's
direction while
7
an Event of Default is continuing, shall take) such action as Debtor or
Collateral Agent may deem necessary or advisable to enforce collection of the
Accounts and other Payment Obligations; provided, that Collateral Agent shall
have the right at any time after the occurrence and during the continuance of a
Default or an Event of Default to: (a) notify the customers or obligors under
any Accounts and other Payment Obligations of the assignment of such Accounts
and other Payment Obligations to Collateral Agent and to direct such customers
or obligors to make payment of all amounts due or to become due directly to
Collateral Agent; (b) enforce collection of any such Accounts and other Payment
Obligations; and (c) adjust, settle or compromise the amount or payment of such
Accounts and other Payment Obligations. After the occurrence and during the
continuance of a Default or an Event of Default (I) all amounts and Proceeds
received by Debtor with respect to its Accounts and other Payment Obligations
shall be received in trust for the benefit of Collateral Agent, shall be
segregated from other funds of Debtor and shall be forthwith paid over to
Collateral Agent in the same form as so received (with any necessary
endorsement) to be held in the Depository Account pursuant to Section 7 or
applied pursuant to Section 14. Each Debtor shall not adjust, settle or
compromise the amount or payment of any Account or other Payment Obligations, or
release wholly or partly any customer or obligor thereof, or allow any credit or
discount thereon (other than credits and discounts in the ordinary course of
business and in amounts which are not material to Debtor) without the prior
consent of Collateral Agent.
6.10 Intellectual Property Covenants. Debtor shall concurrently herewith
deliver to Collateral Agent the Copyright Security Agreement, the Patent
Security Agreement and the Trademark Security Agreement and all other documents,
instruments and other items as may be necessary for Collateral Agent to file
such agreements with the United States Copyright Office and the United States
Patent and Trademark Office. If, before the Secured Obligations are paid in
full, Debtor acquires any new federally registered Copyrights, Patents or
Trademarks or rights thereto, Debtor shall give to Collateral Agent prompt
written notice thereof, and shall amend the respective security agreements to
include any such new federally registered Copyrights, Patents or Trademarks.
Debtor shall: (a) prosecute diligently any copyright, patent or trademark
application at any time pending; (b) make application for registration or
issuance of all new copyrights, patents and trademarks as reasonably deemed
appropriate by Debtor; (c) preserve and maintain all rights in its Intellectual
Property; and (d) use its best efforts to obtain any consents, waivers or
agreements necessary to enable Collateral Agent to exercise its remedies with
respect to Debtor's Intellectual Property. Debtor shall not abandon any material
right to file a copyright, patent or trademark application nor shall Debtor
abandon any material pending copyright, patent or trademark application, or
Copyright, Patent, or Trademark without the prior written consent of Collateral
Agent. Debtor represents and warrants to Collateral Agent that the execution,
delivery and performance of this Agreement by Debtor will not violate or cause a
default under any of its Intellectual Property or any agreement in connection
therewith.
6.11 Equipment Covenants. Debtor shall cause its Equipment to be
maintained and preserved in the same condition, repair and working order as when
new, ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall promptly make or cause to be made all repairs, replacements,
and other improvements in connection therewith that are necessary or desirable
to such end.
6.12 Protection of Collateral; Insurance. Debtor will do nothing to impair
the rights of Collateral Agent in the Collateral. Debtor assumes all liability
and responsibility in connection with the Collateral acquired by it, and the
liability of Debtor to pay the Secured Obligations shall in no way be affected
or diminished by reason of the fact that such Collateral may be lost, stolen,
damaged, or for any reason whatsoever unavailable to Debtor. The Debtor will
have and maintain Insurance at its expense at all times in such amounts, in such
form, containing such terms and written by such companies as may be reasonably
satisfactory to Collateral Agent. All policies of Insurance shall be payable to
the Collateral Agent and the Debtor, as their interests may appear, shall
identify the Collateral Agent as Lenders Loss Payee, and shall provide for
thirty (30) days' written notice of cancellation or modification to Collateral
Agent. Collateral Agent is authorized by the Debtor to act as its attorney in
collecting, adjusting, settling or cancelling such Insurance and endorsing any
drafts drawn by insurers. Collateral Agent may apply any proceeds of Insurance
received by it to the Secured Obligations, whether due or not; provided,
however, that Collateral Agent will hold such proceeds as a special deposit for
use by the Debtor in
8
replacing any damaged Collateral which gave rise to such proceeds, so long as
the Debtor is taking steps to replace such Collateral with due diligence and in
good faith and so long as no Event of Default shall have occurred. The Debtor
will immediately notify Collateral Agent of any damage to or loss of the
Collateral in excess of $500,000. Not later than the expiration date of each
policy of Insurance then in effect, the Debtor shall deliver to Collateral Agent
a certificate of Insurance certifying as to (i) the extension of such policy or
the issuance of a renewal policy therefor, describing the same in reasonable
detail satisfactory to Collateral Agent, and (ii) the payment in full of the
portion of the premium therefor then due and payable (or accompanied by other
proof of such payment satisfactory to Secured Party). The Debtor shall be
required forthwith to notify Collateral Agent (by telephone, confirmed in
writing) if the Debtor shall determine at any time not to, or at any time be
unable to, extend or renew any such policy then in effect.
6.13 Taxes and Claims. Debtor will pay when due all property and other
taxes, assessments and governmental charges imposed upon, and all claims
against, Debtor's Collateral (including claims for labor, materials and
supplies); provided that no such tax, assessment or charge need be paid if
Debtor is contesting the same in good faith by appropriate proceedings promptly
instituted and diligently conducted and if Debtor has established such reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP; and provided further that the same can be contested without risk of loss
or forfeiture or material impairment of the Collateral or the use thereof.
6.14 Collateral Description. Debtor will furnish to Collateral Agent, from
time to time upon request, statements and schedules further identifying and
describing its Collateral and such other information, reports and evidence
concerning its Collateral (and in particular its Accounts) as Collateral Agent
may reasonably request, all in reasonable detail. The Debtor will at all times
keep accurate and complete records of the Accounts, Instruments and other
Collateral and will deliver such reconciliation reports and other financial
information to Collateral Agent as Collateral Agent may at any time reasonably
request. Collateral Agent, or any of its agents, shall have the right to call at
the Debtor's place or places of business at reasonable intervals and upon
reasonable notice to inspect, audit, make test verifications and otherwise
examine and make extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to any of the Collateral.
6.15 Use of Collateral. Debtor will not use or permit its Collateral to be
used unlawfully or in violation of any provision of applicable law, or any
policy of insurance covering any of the Collateral.
6.16 Records of Collateral. Debtor shall keep full and accurate books and
records relating to its Collateral and shall stamp or otherwise mark such books
and records in such manner as Collateral Agent may reasonably request indicating
that the Collateral is subject to the Security Interests.
6.17 Federal Claims. Debtor shall notify Collateral Agent of any
Collateral which constitutes a claim against the United States government or any
instrumentality or agency thereof, the assignment of which claim is restricted
by federal law and will execute and deliver to the Collateral Agent an
Assignment of Claims Under United States Government Contract in the form
prescribed by the Collateral Agent. Upon the request of Collateral Agent, Debtor
shall take such steps as may be necessary to comply with any applicable federal
assignment of claims laws.
6.18 Hot Goods. Debtor represents and covenants that none of its Inventory
has been or will be produced in violation of any provision of the Fair Labor
Standards Act of 1938, as amended, or in violation of any other law.
SECTION 7. Bank Accounts; Collection of Accounts and Payments
Upon request by Collateral Agent at any time after an Event of Default,
Debtor shall enter into a blocked account agreement ("Blocked Account
Agreement"), in a form specified by Collateral Agent, with each financial
institution with which Debtor maintains from time to time any deposit accounts
(general or special). Pursuant to the Blocked Account Agreements and pursuant
hereto, Debtor grants and shall grant to Collateral Agent, a continuing lien
upon, and security interest in, all such accounts and all funds
9
at any time paid, deposited, credited or held in such accounts (whether for
collection, provisionally or otherwise) or otherwise in the possession of such
financial institutions, and each such financial institution shall act as
Collateral Agent's agent in connection therewith. At any time after an Event of
Default, Debtor shall not establish any deposit account with any financial
institution unless prior thereto Collateral Agent and Debtor shall have entered
into a Blocked Account Agreement with such financial institution.
Upon Collateral Agent's request at any time after an Event of Default,
Debtor shall establish lock-box or blocked accounts (collectively, "Lockbox
Accounts") in Debtor's name with such banks as are acceptable to Collateral
Agent ("Collecting Banks"), subject to irrevocable instructions in a form
specified by Collateral Agent, to which the obligors of all Accounts and other
Payment Obligations shall directly remit all payments on Accounts and other
Payment Obligations and in which Debtor will immediately deposit all cash
payments for Inventory or other cash payments constituting proceeds of
Collateral in the identical form in which such payment was made, whether by cash
or check. In addition, Collateral Agent may establish one or more depository
accounts at each Collecting Bank or at a centrally located bank (collectively,
the "Depository Account"). From and after receipt by any Collecting Bank of
written notice from Collateral Agent to such Collecting Bank that an Event of
Default has occurred and is continuing, all amounts held or deposited in the
Lockbox Accounts held by such Collecting Bank shall be transferred to the
Depository Account. Subject to the foregoing, Debtor hereby agrees that all
payments received by Collateral Agent whether by cash, check, wire transfer or
any other instrument, made to such Lockbox Accounts or otherwise received by
Collateral Agent and whether on the Accounts or as proceeds of other Collateral
or otherwise will be the sole and exclusive property of Collateral Agent. Debtor
shall, acting as trustee for Collateral Agent, receive, as the sole and
exclusive property of Collateral Agent, any moneys, checks, notes, drafts or
other payments relating to and/or constituting proceeds of Accounts or other
Collateral which come into the possession or under the control of Debtor and
immediately upon receipt thereof, Debtor or such Persons shall deposit the same
or cause the same to be deposited in kind, in a Lockbox Account.
SECTION 8. Collateral Agent Appointed Attorney-in-Fact
Each Debtor hereby irrevocable appoints Collateral Agent as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor, Collateral Agent or otherwise, from time to time in
Collateral Agent's discretion to take any action and to execute any instrument
that Collateral Agent may deem necessary or advisable after an Event of Default
to accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to Collateral
Agent;
(b) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due, extend the time of
payment of, make any allowances and other adjustments under or in respect of any
of the Collateral;
(c) to receive, endorse, and collect any drafts or other Instruments,
Documents and chattel paper, in connection with clauses (a) and (b) above;
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of Collateral Agent with
respect to any of the Collateral;
(e) to pay or discharge taxes or Liens levied or placed upon or threatened
against the Collateral, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by Collateral Agent in its sole
discretion, and such payments made by Collateral Agent to become obligations of
Debtor to Collateral Agent, due and payable immediately without demand;
(f) to sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, assignments, verifications and notices in
connection with Accounts and other documents relating to the Collateral;
10
(g) generally to sell, transfer, pledge, make any reasonable allowances
and other reasonable adjustments or make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
Collateral Agent were the absolute owner thereof for all purposes, and to do, at
Collateral Agent's option and Debtor's expense, at any time or from time to
time, all acts and things that Collateral Agent deems necessary to protect,
preserve or realize upon the Collateral.
(h) to sign the Debtor's name on any Document, on invoices relating to any
Account, on drafts against customers, on schedules of assignments of Accounts,
on notices of assignment, Financing Statements under the UCC and other public
records, on verifications of Accounts, and on notices to customers;
(i) to file or record in any public office notices of assignment or any
other public notice required to effect this Security Agreement;
(j) to notify the post office authorities to change the address for
delivery of the Debtor's mail to an address designated by Collateral Agent;
(k) to receive, open and dispose of all mail addressed to the Debtor;
(l) to discharge Taxes, liens or other encumbrances at any time levied
against or placed thereon;
(m) to send requests for verification of Accounts to the Debtor's
customers; and
(n) to do all other things Collateral Agent deems reasonably necessary or
desirable to carry out the purposes of this Agreement.
Debtor hereby ratifies and approves all acts of Collateral Agent made or taken
pursuant to this Section 8. Neither Collateral Agent nor any Person designated
by Collateral Agent shall be liable for any acts or omissions (except as caused
by their own gross negligence or willful misconduct) or for any error of
judgment or mistake of fact or law. This power, being coupled with an interest,
is irrevocable so long as this Agreement shall remain in force.
SECTION 9. Transfers and Other Liens
Except as otherwise permitted herein or by the Credit Agreement, Debtor
shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise dispose
of, or grant any option with respect to, any of its Collateral, except that
Debtor may (i) sell Inventory in the ordinary course of business, (ii) dispose
of up to $250,000 in book value of Equipment in any fiscal year without the
prior consent of the Collateral Agent; or
(b) create or suffer to exist any lien, security interest or other charge
or encumbrance upon or with respect to any of its Collateral to secure
indebtedness of any Person except for the security interest created by this
Agreement or permitted under the Credit Agreement.
SECTION 10. Remedies
(a) If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the UCC (whether or
not the UCC applies to the affected Collateral) and also may: (i) require Debtor
to, and Debtor hereby agrees that it will, at its expense and upon request of
Collateral Agent forthwith, assemble all or part of its Collateral as directed
by Collateral Agent and make it available to Collateral Agent at any reasonable
place or places designated by Collateral Agent in which event Debtor shall at
its own expense (A)
11
forthwith cause the same to be moved to the place or places so designated by
Collateral Agent and thereby delivered to Collateral Agent, (B) store and keep
any Collateral so delivered to Collateral Agent at such place or places pending
further action by Collateral Agent, and (C) while Collateral shall be so stored
and kept, provide such guards and maintenance services as shall be necessary to
protect the same and to preserve and maintain the Collateral in good condition;
(ii) withdraw all cash in its Depository Accounts and apply such monies in
payment of the Secured Obligations; and (iii) without notice except as specified
below, sell, lease or otherwise dispose of its Collateral or any part thereof in
one or more parcels at public or private sale, and without the necessity of
gathering at the place of sale of the property to be sold, at any of the
Collateral Agent's offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable. Debtor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days
notice to Debtor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Collateral, if permitted by law, Collateral Agent may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for the
account of Collateral Agent. Collateral Agent shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the extent
permitted by law, Debtor hereby specifically waives all rights of redemption,
stay or appraisal which it has or may have under any law now existing or
hereafter enacted.
(b) Upon the occurrence and during the continuance of an Event of Default,
Collateral Agent or its agents or attorneys shall have the right without notice
or demand or legal process (unless the same shall be required by applicable
law), personally, or by agents or attorneys, (i) to enter upon, occupy and use
any premises owned or leased by Debtor or where the Collateral is located (or is
believed to be located) until the Secured Obligations are paid in full without
any obligation to pay rent to Debtor, to render the Collateral useable or
saleable and to remove the Collateral or any part thereof therefrom to the
premises of Collateral Agent or any agent of Collateral Agent for such time as
Collateral Agent may desire in order to effectively collect or liquidate the
Collateral and use in connection with such removal any and all services,
supplies and other facilities of Debtor; (ii) to take possession of Debtor's
original books and records, to obtain access to Debtor's data processing
equipment, computer hardware and software relating to the Collateral and to use
all of the foregoing and the information contained therein in any manner
Collateral Agent deems appropriate; and (iii) to notify postal authorities to
change the address for delivery of Debtor's mail to an address designated by
Collateral Agent and to receive, open and dispose of all mail addressed to
Debtor.
(c) Debtor acknowledges and agrees that a breach of any of the covenants
contained in Sections 6, 7 and 9 hereof will cause irreparable injury to
Collateral Agent and that Collateral Agent has no adequate remedy at law in
respect of such breaches and therefore agrees, without limiting the right of
Collateral Agent to seek and obtain specific performance of other obligations of
Debtor contained in this Agreement, that the covenants of Debtor contained in
the Sections referred to in this Section shall be specifically enforceable
against Debtor.
SECTION 11. Assignment of Intellectual Property
Debtor hereby grants a security interest to the Collateral Agent in all
Intellectual Property and collaterally assigns, transfers and conveys to
Collateral Agent all non-Trademark Intellectual Property owned or used by Debtor
to the extent necessary to enable Collateral Agent, to be a fully effective
assignment upon the occurrence of any Event of Default, to realize on the
Collateral and any successor or assign to enjoy the benefits of the Collateral.
This right and assignment shall inure to the benefit of Collateral Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and assignment is granted free of charge, without
requirement that any monetary payment whatsoever including, without limitation,
any royalty or license fee, be made to Debtor or any other Person by Collateral
Agent or any Lender.
12
SECTION 12. Assigned Agreements
If an Event of Default has occurred and is continuing, Debtor hereby
irrevocably authorizes and empowers Collateral Agent, without limiting any other
authorizations or empowerments contained in any of the other Loan Documents, to
assert, either directly or on behalf of Debtor, any claims Debtor may have, from
time to time, against any other party to any of the agreements to which Debtor
is a party or to otherwise exercise any right or remedy of Debtor under any such
agreements (including, without limitation, the right to enforce directly against
any party to any such agreement all of Debtor's rights thereunder, to make all
demands and give all notices and to make all requests required or permitted to
be made by Debtor thereunder).
SECTION 13. Limitation on Duty of Collateral Agent with Respect to
Collateral
Beyond the safe custody thereof, Collateral Agent shall have no duty with
respect to any Collateral in its possession or control (or in the possession or
control of any agent or bailee) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which it accords
its own property. Collateral Agent shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by Collateral
Agent in good faith.
SECTION 14. Application of Proceeds
Upon the occurrence and during the continuance of an Event of Default, the
proceeds of any sale of, or other realization upon, all or any part of the
Collateral and any cash held in the Depository Accounts shall be applied: first,
to all fees, costs and expenses incurred by Collateral Agent or any Lender with
respect to the Credit Agreement, the other Loan Documents or the Collateral;
second, to accrued and unpaid interest on the Secured Obligations (including any
interest which but for the provisions of the Bankruptcy Code, would have accrued
on such amounts); third, to the principal amounts of the Secured Obligations
outstanding; and fourth, to any other indebtedness or obligations of Debtor
owing to Collateral Agent or any Lender under the Loan Documents. Any balance
remaining shall be delivered to Debtor.
SECTION 15. Expenses
Debtor shall pay all costs, fees and expenses of protecting, storing,
warehousing, appraising, insuring, handling, maintaining and shipping its
Collateral, all costs, fees and expenses of creating, perfecting, maintaining
and enforcing the Security Interest, and any and all excise, property, sales and
use taxes imposed by any federal, state, local or foreign authority on any of
the Collateral, or with respect to periodic appraisals and inspections of its
Collateral, or with respect to the sale or other disposition thereof. If Debtor
fails to promptly pay any portion of the above costs, fees and expenses when due
or to perform any other such obligation of Debtor under this Agreement,
Collateral Agent or any other Lender may, at its option, but shall not be
required to, pay or perform the same and charge Debtor's account for all fees,
costs and expenses incurred therefor, and Debtor agrees to reimburse Collateral
Agent or such Lender therefor on demand. All sums so paid or incurred by
Collateral Agent or any other Lender for any of the foregoing, any and all other
sums for which a Debtor may become liable hereunder and all fees, costs and
expenses (including attorneys' fees, legal expenses and court costs) incurred by
Collateral Agent or any other Lender in enforcing or protecting the Security
Interests or any of their rights or remedies under this Agreement shall be
payable on demand, shall constitute Secured Obligations, shall bear interest
until paid at the highest rate provided in the Credit Agreement and shall be
secured by the Collateral.
13
SECTION 16. Notices
Except in the case of notices and other communications expressly permitted
to be given by telephone, all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to Debtor, to it at 2000 Technology Parkway, Newark, New York 14513,
Attention of Chief Financial Officer, (Telecopy No. 315-331-3925), with a copy
to: Peter F. Comerford, Esq. at 2000 Technology Parkway, Newark, New York 14513,
(Telecopy No. 315-331-7048), and (b) if to Collateral Agent, to JPMorgan Chase
Bank, Collateral Agent, One Chase Square, T-9, Rochester, New York 14643,
Attention of Ultralife Batteries, Inc. Account Representative (Telecopy No.
585-258-7604). Any party hereto may change its address or telecopy number for
notices and other communications hereunder by notice to the other parties
hereto. All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.
SECTION 17. Successors and Assigns
This Agreement is for the benefit of Collateral Agent and Lenders and
their successors and assigns, and in the event of an assignment of all or any of
the Secured Obligations, the rights hereunder, to the extent applicable to the
Secured Obligations so assigned, may be transferred with such Secured
Obligations. This Agreement shall be binding on Debtor and its successors and
assigns; provided that each Debtor may not delegate its obligations under this
Agreement without Collateral Agent's prior written consent.
SECTION 18. Changes in Writing
No amendment, modification, termination or waiver of any provision of this
Agreement shall be effective unless the same shall be in writing signed by
Collateral Agent.
SECTION 19. Applicable Law
Pursuant to Section 5-1401 of the New York General Obligations Law, the
whole of this Security Agreement and the rights and obligations of the Debtor
and the Collateral Agent hereunder shall be governed, construed and interpreted
in accordance with, the laws of the State of New York without regard to any
conflicts-of-laws rules which would require the application of the laws of any
other jurisdiction.
SECTION 20. Failure or Indulgence Not Waiver; Remedies Cumulative
No failure or delay on the part of Collateral Agent or any Lender in the
exercise of any power, right or privilege hereunder shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or any other right, power
or privilege. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
SECTION 21. Headings
Section and subsection 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 or be given any substantive effect.
SECTION 22. Counterparts
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
14
SECTION 23. Survival
All representations and warranties of Debtor contained in this Agreement
shall survive the execution and delivery of this Agreement.
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
ULTRALIFE BATTERIES, INC., as Debtor
By: /s/ Robert W. Fishback
Name: Robert W. Fishback
Title: Vice President Finance & CFO
JPMORGAN CHASE BANK., as Collateral Agent
By: /s/ Virginia Allen
Name: Virginia Allen
Title: Vice President
SCHEDULE A
to
Security Agreement
granted by
Ultralife Batteries, Inc. (the "Debtor") in favor of
JPMorgan Chase Bank in its capacity as Collateral Agent for the
Lenders party to the Credit Agreement
Collateral Description Continued:
All of the following types of Collateral, now owned or hereafter acquired,
arising or existing, as such types are defined in the Uniform Commercial Code of
the State of New York as in effect from time to time, and intending thereby to
include as Collateral all personal property of the Debtor:
1. Accessions 19. Farm Products 37. Payment Orders
2. Accounts 20. Financial Assets 38. Proceeds
3. As-Extracted 21. Fixtures 39. Proceeds of a Letter
Collateral of Credit
22. General Intangibles
4. Assets 40. Promissory Notes
23. Goods
5. Cash Proceeds 41. Records
24. Health-Care-
6. Certificated Insurance 42. Securities Accounts
Securities Receivables
43. Securities
7. Checks 25. Instructions
44. Securities
8. Chattel Paper 26. Instruments Certificates
9. Commercial Tort 27. Inventory 45. Security Entitlements
Claims
28. Investment Property 46. Software
10. Commodity Accounts
29. Items 47. Supply Contracts
11. Commodity Contracts
30. Leasehold Interests 48. Supporting
12. Contracts for Sale Obligations
31. Letter-of Credit
13. Deposit Accounts Rights 49. Tangible Chattel
Paper
14. Documents 32. Manufactured Homes
50. Uncertificated
15. Drafts 33. Nonnegotiable Securities
Instruments
16. Electronic Chattel
Paper 34. Noncash Proceeds
17. Entitlement Orders 35. Notes
18. Equipment 36. Payment Intangibles
================================================================================
IN FURTHERANCE OF THE FOREGOING TYPES OF COLLATERAL, AND WITHOUT LIMITATION
THEREOF, all of the following property, now owned or hereafter acquired, arising
or existing, together with all proceeds thereof:
================================================================================
51. All certificates of deposit and all uncertificated certificates of deposit.
52. All insurance covering any type of Collateral described in this Schedule A
or any part thereof against risks of fire, flood, theft, loss, nonconformity of,
defects or infringement of rights in, or damage or any other risk of loss
whatsoever.
53. All of Debtor's right, title and interest in all of its books, records,
ledger sheets, files and other data and documents, including records in any form
(digital or other) and recorded in or through any tangible medium (magnetic,
lasergraphic or other) and all is retrievable in perceivable form, together with
all machinery and processes (including computer programming instructions)
required to read and print such records relating to any types of Collateral
described in this Schedule A.
54. All patent rights throughout the world, including all letters patents,
patent applications, patent licenses, patentable inventions, modifications and
improvements thereof, all rights to any and all letters patent and applications
for letters patent, all divisions, renewals, reissues, continuations,
continuations-in-part, extensions and reexaminations of any of the foregoing,
all shop rights, all proceeds of, and rights associated with any of the
foregoing (including license royalties and proceeds of infringement suits), the
right to sue third parties for past, present or future infringements of any of
the foregoing and for breach or enforcement of any of the foregoing, and all
rights corresponding to each of the foregoing throughout the world (the "Patent
Rights").
55. All information concerning the subject matter of the Patent Rights, and all
other confidential or proprietary or useful information and all know-how and
common law or statutory trade secrets obtained by or used in or contemplated at
any time for use in the business of Debtor, and all other research and
development work by Debtor whether or not the same is a patentable invention,
including without limitation all design and engineering data, shop rights,
instructions, procedures, standards, specifications, plans, drawings and
designs.
56. All trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, certification marks,
collective marks, logos, other source of business identifiers, prints and labels
on which any of the foregoing have appeared or appear, designs and general
intangibles of a like nature (each of the foregoing items being called a
"Trademark"), now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and recordings
thereof and all applications in connection therewith, whether pending or in
preparation for filing, including registrations, recordings and applications in
the United States Patent and Trademark Office or in any office or agency of the
United States of America or any State thereof or any foreign country, all
Trademark licenses, all reissues, extensions or renewals of any of the foregoing
items all of the goodwill of the business connected with the use of, and
symbolized by the foregoing items all proceeds of, and rights associated with,
the foregoing, including any claim by Debtor against third parties for past,
present or future infringement or dilution of any Trademark, Trademark
registration or Trademark license, including any Trademark, Trademark
registration or Trademark license, or for any injury to the goodwill associated
with the use of any such Trademark or for breach or enforcement of any Trademark
license.
57. All copyrights and all semiconductor chip product mask works of Debtor,
whether statutory or common law, registered or unregistered, now or hereafter in
force throughout the world, including, without limitation, all of Debtor's
right, title and interest in and to all copyrights and mask works registered in
the United States Copyright Office or anywhere else in the world and all
applications for registration thereof, whether pending or in preparation, all
copyright and mask work licenses, the right to sue for past, present and future
infringements of any thereof, all rights corresponding thereto throughout the
world, all
extensions and renewals of any thereof and all proceeds of the foregoing,
including, without limitation, licenses, royalties, income, payments, claims,
damages and proceeds of suit.
58. (A) all computer and other electronic data processing hardware, integrated
computer systems, central processing units, memory units, display terminals,
printers, features, computer elements, card readers, tape drives, hard and soft
disk drives, cables, electrical supply hardware, generators, power equalizers,
accessories and all peripheral devices and other related computer hardware,
whether now owned, licensed or leased or hereafter acquired by Debtor; (B) all
software programs including source code and object code and all related
applications and data files), whether now owned, licensed or leased or hereafter
acquired by Debtor, designed for use on the computers and electronic data
processing hardware described in clause (A) above; (C) all firmware associated
therewith, whether now owned, licensed or leased or hereafter acquired by
Debtor; (D) all documentation (including flow charts, logic diagrams, manuals,
guides and specifications) for such hardware, software and firmware described in
the preceding clauses (A), (B) and (C), whether now owned, licensed or leased or
hereafter acquired by Debtor; and (v) all rights with respect to all of the
foregoing, including, without limitation, any and all copyrights, licenses,
options, warranties, service contracts, program services, test rights,
maintenance rights, support rights, improvement rights, renewal rights and
indemnifications and any substitutions, replacements, additions or model
conversions of any of the foregoing.
SCHEDULE I
Jurisdiction of Organization: Chief Executive Office;
Locations of Books and Records, Equipment, Inventory and Fixtures
1. Jurisdiction of Organization: Delaware
2. Mailing Address: 2000 Technology Parkway, Newark, New York 14513
3. Principal Place of Business: 2000 Technology Parkway, Newark, New York 14513
4. Chief Executive Office: 2000 Technology Parkway, Newark, New York 14513
5. Location of Books and
Records: 2000 Technology Parkway, Newark, New York 14513
6. Locations of Equipment,
Inventory and Fixtures: 2000 Technology Parkway, Newark, New York 14513
3000 Technology Parkway, Newark, New York 14513
1000 Davis Road, Elgin, Illinois 60123 (Bailment)
488 Route 5 West, Elbridge, New York 13060 (Bailment)
515 Lee Road, Rochester, New York 14606 (Bailment)
266 Murray Street, Newark, New York 14513
39 Breck Street, Rochester, New York 14609 (Bailment)
18 Nuffield Way, Abingdon, Oxfordshire, England OX141TG UK
SCHEDULE II
Liens; Financing Statements; Goods in Possession of
Consignees, Bailees, Warehousemen, Agents and Processors
Existing Liens
Creditor Address Collateral Date of Lien
Winthrop Resources Corporation 111 Wayzata Boulevard Leased Equipment 7/22/02
Suite 800 8/15/02
Minnetonka, Mn 55305
Wyssmont Company Inc. 1470 Bergen Blvd Specific Equipment 4/4/03
Fort Lee, New Jersey
07024-2197
Each Lien and the related Collateral are more specifically described in the UCC
Search dated June __, 2004 of the Delaware Secretary of State's records enclosed
in the Loan Transcript
Bailment of Collateral with Material Value
Master Molded Products Corporation, 1000 Davis Road, Elgin, Illinois 60123
Monroe FTZ Operators, Inc., 39 Breck Street, Rochester, New York 14609
Goods owned by Third Parties in the Possession of Ultralife Batteries, Inc.
(Security Interest does not attach)
Badger Technologies, Inc. has equipment on site at 2000 Technology Parkway,
Newark, New York 14513. The Debtor has no interest in the following equipment of
Badger Technologies, Inc.:
SCHEDULE III
Trade Names and Fictitious Names
(Present and Past Five Years)
2
EXHIBIT A
COPYRIGHT SECURITY AGREEMENT
WHEREAS, Ultralife Batteries, Inc., a Delaware corporation ("Grantor"),
owns the Copyrights and applications for Copyrights listed on Schedule 1 annexed
hereto; and
WHEREAS, Grantor, JPMorgan Chase Bank, as Collateral Agent ("Collateral
Agent") and Lenders are parties to a Credit Agreement dated June 30, 2004 (as
the same may be amended and in effect from time to time, the "Credit
Agreement"), providing for extensions of credit to be made to Grantor by
Lenders; and
WHEREAS, pursuant to the terms of the General Security Agreement dated as
of June 30, 2004 (as the same may be amended and in effect from time to time,
the "Security Agreement") by Grantor in favor of Collateral Agent (in such
capacity, "Grantee), Grantor has granted to Grantee for the benefit of Lenders a
security interest in substantially all the assets of Grantor including all
right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Copyrights (as defined in the Security Agreement), together
with the goodwill of the business symbolized by Grantor's Copyrights and all
proceeds thereof, to secure the payment of all amounts owing by Grantor under
the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Copyright Collateral"),
whether presently existing or hereafter created or acquired:
(1) each Copyright and application for Copyright listed on Schedule 1
annexed hereto, together with any reissues, extensions or renewals
thereof, and all of the goodwill of the business connected with the
use of, and symbolized by each Copyright; and
(2) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future (a) infringement or dilution of any Copyright, or
(b) injury to the goodwill associated with any Copyright.
The security interest granted hereby is granted in conjunction with the
security interests granted to Grantee pursuant to the Security Agreement.
Grantor hereby acknowledges and affirms that the rights and remedies of Grantee
with respect to the security interest in the Copyright Collateral made and
granted hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein. Terms defined in the Security Agreement and not otherwise defined herein
shall have the respective meanings provided for in the Security Agreement.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement
to be duly executed by its duly authorized officer as of the 30th day of June,
2004
ULTRALIFE BATTERIES, INC., as Debtor
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACKNOWLEDGED:
JPMORGAN CHASE BANK, as Collateral Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACKNOWLEDGMENT
STATE OF NEW YORK )
COUNTY OF _____________ ) ss:
On the 30th day of June, 2004 before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say that
he is ______________ of Ultralife Batteries, Inc., the corporation described in
and which executed the foregoing instrument; that he signed his name thereto by
order of the board of directors of said corporation.
____________________________________
Notary Public
{Seal}
My commission expires:_____________________
STATE OF NEW YORK )
COUNTY OF MONROE ) ss:
On the 30th day of June, 2004 before me personally appeared Virginia S.
Allen, to me known, who being by me duly sworn, did depose and say that she is a
Vice President of JPMorgan Chase Bank, as Collateral Agent, the corporation
described in and which executed the foregoing instrument; that she signed her
name thereto by order of the board of directors of said corporation.
___________________________________
Notary Public
{Seal}
My commission expires:_____________________
Schedule 1
to
Copyright Security Agreement
COPYRIGHTS
COPYRIGHT APPLICATIONS
2
EXHIBIT B
PATENT SECURITY AGREEMENT
WHEREAS, Ultralife Batteries, Inc., a Delaware corporation ("Grantor"),
owns the Patents and applications for Patents listed on Schedule 1 annexed
hereto; and
WHEREAS, Grantor, JPMorgan Chase Bank, as Collateral Agent ("Collateral
Agent") and Lenders are parties to a Credit Agreement dated June 30, 2004 (as
the same may be amended and in effect from time to time, the "Credit
Agreement"), providing for extensions of credit to be made to Grantor by
Lenders; and
WHEREAS, pursuant to the terms of the General Security Agreement dated as
of June 30, 2004 (as the same may be amended and in effect from time to time,
the "Security Agreement") by Grantor in favor of Collateral Agent (in such
capacity, "Grantee"), Grantor has granted to Grantee for the benefit of Lenders
a security interest in substantially all the assets of Grantor including all
right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Patents (as defined in the Security Agreement), and all
products and proceeds thereof, to secure the payment of all amounts owing by
Grantor under the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Patent Collateral"),
whether presently existing or hereafter created or acquired:
(1) each Patent and application for Patent listed on Schedule 1 annexed
hereto, together with any reissues, continuations or extensions
thereof, and all of the goodwill of the business connected with the
use of and symbolized by, each such Patent; and
(2) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future (a) infringement or dilution of any Patent, or (b)
injury to the goodwill associated with any Patent.
The security interest granted hereby is granted in conjunction with the
security interests granted to Grantee pursuant to the Security Agreement.
Grantor hereby acknowledges and affirms that the rights and remedies of Grantee
with respect to the security interest in the Patent Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provision of which are incorporated by reference herein as if fully set forth
herein. Terms defined in the Security Agreement and not otherwise defined herein
shall have the respective meanings provided for in the Security Agreement.
IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to
be duly executed by its duly authorized officer as of the 30th day of June,
2004.
ULTRALIFE BATTERIES, INC., as Debtor
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
2
ACKNOWLEDGED:
JPMORGAN CHASE BANK, as Collateral Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACKNOWLEDGMENT
STATE OF NEW YORK )
COUNTY OF _____________ ) ss:
On the 30th day of June, 2004 before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say that
he is ______________ of Ultralife Batteries, Inc., the corporation described in
and which executed the foregoing instrument; that he signed his name thereto by
order of the board of directors of said corporation.
____________________________________
Notary Public
{Seal}
My commission expires:_____________________
STATE OF NEW YORK )
COUNTY OF MONROE ) ss:
On the 30th day of June, 2004 before me personally appeared Virginia S.
Allen, to me known, who being by me duly sworn, did depose and say that she is a
Vice President of JPMorgan Chase Bank, as Collateral Agent, the corporation
described in and which executed the foregoing instrument; that she signed her
name thereto by order of the board of directors of said corporation.
___________________________________
Notary Public
{Seal}
My commission expires:_____________________
Schedule 1
to
Patent Security Agreement
PATENTS
PATENT APPLICATIONS
2
EXHIBIT C
TRADEMARK SECURITY AGREEMENT
WHEREAS, Ultralife Batteries, Inc., a Delaware corporation ("Grantor"),
owns the Trademarks and applications for Trademarks listed on Schedule 1 annexed
hereto; and
WHEREAS, Grantor, JPMorgan Chase Bank, as Collateral Agent ("Collateral
Agent") and Lenders are parties to a Credit Agreement dated June 30, 2004 (as
same may be amended and in effect from time to time, the "Credit Agreement"),
providing for extensions of credit to be made to Grantor by Lenders; and
WHEREAS, pursuant to the terms of the General Security Agreement dated as
of June 30, 2004 (as the same may be amended and in effect from time to time,
the "Security Agreement") by Grantor in favor of Collateral Agent (in such
capacity, "Grantee"), Grantor has granted to Grantee for the benefit of Lenders
a security interest in substantially all the assets of Grantor including all
right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Trademarks (as defined in the Security Agreement), together
with the goodwill of the business symbolized by Grantor's Trademarks, and all
proceeds thereof, to secure the payment of all amounts owing by Grantor under
the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Trademark Collateral"),
whether presently existing or hereafter created or acquired:
(1) each Trademark and application for Trademark listed on Schedule 1
annexed hereto, together with any reissues, continuations or
extensions thereof, and all of the goodwill of the business
connected with the use of, and symbolized by, each Trademark; and
(2) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past,
present or future (a) infringement or dilution of any Trademark, or
(b) injury to the goodwill associated with any Trademark.
The security interest granted hereby is granted in conjunction with the
security interests granted to Grantee pursuant to the Security Agreement.
Grantor hereby acknowledges and affirms that the rights and remedies of Grantee
with respect to the security interest in the Trademark Collateral made and
granted hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein. Terms defined in the Security Agreement and not otherwise defined herein
shall have the respective meanings provided for in the Security Agreement.
IN WITNESS WHEREOF, Grantor has caused this Trademark Security Agreement
to be duly executed by its duly authorized officer as of the 30th day of June,
2004.
ULTRALIFE BATTERIES, INC., as Debtor
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
2
ACKNOWLEDGED:
JPMORGAN CHASE BANK, as Collateral Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACKNOWLEDGMENT
STATE OF NEW YORK )
COUNTY OF _____________ ) ss:
On the 30th day of June, 2004 before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say that
he is ______________ of Ultralife Batteries, Inc., the corporation described in
and which executed the foregoing instrument; that he signed his name thereto by
order of the board of directors of said corporation.
____________________________________
Notary Public
{Seal}
My commission expires:_____________________
STATE OF NEW YORK )
COUNTY OF MONROE ) ss:
On the 30th day of June, 2004 before me personally appeared Virginia S.
Allen, to me known, who being by me duly sworn, did depose and say that she is a
Vice President of JPMorgan Chase Bank, as Collateral Agent, the corporation
described in and which executed the foregoing instrument; that she signed her
name thereto by order of the board of directors of said corporation.
___________________________________
Notary Public
{Seal}
My commission expires:_____________________
Schedule 1
to
Trademark Security Agreement
TRADEMARKS
TRADEMARK APPLICATIONS
Exhibit 31.1
I, John D. Kavazanjian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultralife Batteries,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 2, 2004 /s/ John D. Kavazanjian
-------------------------------------
John D. Kavazanjian
President and Chief Executive Officer
Exhibit 31.2
I, Robert W. Fishback, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultralife Batteries,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 2, 2004 /s/ Robert W. Fishback
----------------------------
Robert W. Fishback
Vice President - Finance and
Chief Financial Officer
Exhibit 32
Section 1350 Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 ("Section 906"), John D. Kavazanjian and Robert W.
Fishback, the President and Chief Executive Officer and Vice President - Finance
and Chief Financial Officer, respectively, of Ultralife Batteries, Inc., certify
that (i) the Quarterly Report on Form 10-Q for the quarter ended June 26, 2004
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in such report fairly
presents, in all material respects, the financial condition and results of
operations of Ultralife Batteries, Inc.
A signed original of this written statement required by Section 906 has been
provided to Ultralife Batteries, Inc. and will be retained by Ultralife
Batteries, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.
Date: August 2, 2004 /s/ John D. Kavazanjian
-------------------------------------
John D. Kavazanjian
President and Chief Executive Officer
Date: August 2, 2004 /s/ Robert W. Fishback
-------------------------------------
Robert W. Fishback
Vice President - Finance and
Chief Financial Officer