<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 1996
/ / 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
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ULTRALIFE BATTERIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 16-1387013
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1350 Route 88 South, Newark, New York 14513
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 332-7100
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
- -------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
----------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part Ill of this Form 10-K or any
amendment to this Form 10-K. [ ]
On September 16, 1996 the aggregate market value of the voting stock
of Ultralife Batteries, Inc., held by non-affiliates of the Registrant was
approximately $ 71,341,003 based upon the average of the high and low prices for
such Common Stock as reported on the NASDAQ National Market System on September
16,1996.
As of September 16, 1996, the Registrant had 7,929,836 shares of
Common Stock outstanding.
Documents Incorporated by Reference.
None
<PAGE>
PART I
The discussion and analysis below, and throughout this report, contains
forward-looking statements within the meaning of Section 27A of the Securities
and Exchange Act of 1933 and Section 21E of the Securities and Exchange Act of
1934. Actual results could differ materially from those projected or suggested
in the forward-looking statements as a result of the risk factors set forth
below and elsewhere in this report.
ITEM 1. BUSINESS
General
Ultralife Batteries, Inc. ("Ultralife" or the "Company") develops,
manufactures and markets lithium primary batteries and is developing lithium-ion
solid-polymer rechargeable batteries for use in applications requiring high
energy, reliable and long-lasting power sources. The Company believes that its
battery technologies offer performance characteristics, such as high energy
density, stable discharge profile and, for rechargeable batteries, long cycle
life, superior to competing batteries currently available. The Company currently
markets a family of lithium primary batteries for consumer, industrial and
military applications which it believes is one of the most comprehensive lines
of lithium primary batteries commercially available. Ultralife is also
developing advanced rechargeable batteries based on lithium-ion solid-polymer
technology which are being designed for consumer electronic applications. The
Company has shipped prototypes of its rechargeable batteries for testing to
certain original equipment manufacturers ("OEMs") and is currently planning
commercial production facilities. Internationally, the Company has broadened its
research and development, manufacturing and marketing base through its
acquisition of certain assets and the related business (the "Dowty Assets") of
Dowty Group PLC ("Dowty"), based in Abingdon, England, which has enabled the
Company to become a technological leader in high rate lithium-manganese dioxide
primary batteries and a producer of sea water batteries. The Company has further
enhanced its international operations through a development program in the
People's Republic of China ("China") with Changzhou Battery Factory (the "China
Development Program") and through private label agreements with major European
battery companies headquartered in Germany and Sweden.
The Company's objective is to become a leading provider of lithium
batteries for use in applications requiring high energy, reliable and
long-lasting power sources. To achieve this objective, the Company is working
with OEMs to identify and develop new applications for the Company's batteries
which are designed to enhance the OEMs' devices and is using its proprietary
technology and expertise to develop primary and rechargeable batteries in
different sizes and voltage configurations for use in existing and future
applications. The Company has established and will continue to seek strategic
relationships with OEMs that utilize the Company's technology, commit to
cooperative research and development or marketing programs and recommend the
Company's batteries for replacement use in their products. The Company has
established relationships with OEMs such as American Sensors Electronics, Inc.,
First Alert Inc., Coleman Safety & Security Products, Inc., Fyrnetics, Inc.,
Siemens Medical lnc. and Alarm Device Manufacturing Company ("Ademco"). The
Company also has introduced its primary battery products to the broader consumer
market by establishing relationships with selected national and regional
retailers including the Radio Shack division of Tandy Corp. ("Radio Shack"),
Target Stores and True Value Hardware. The Company continues to seek strategic
relationships and joint ventures with other battery manufacturers, suppliers and
customers to accelerate commercialization of its technology and products.
2
<PAGE>
The Company markets a family of lithium-manganese dioxide primary
batteries in 9-volt, 3-volt, 2/3A, C, 1 1/4C and D configurations, custom Thin
Cell(TM) batteries, and silver-chloride sea water batteries. The Company's
9-volt battery, based on technology purchased from Kodak in March 1991, is
marketed to the security and safety equipment, medical device and specialty
instrument markets. The Company's 9-volt battery is currently used in devices
such as smoke detectors, home security devices and medical infusion pumps. The
Company's high rate lithium batteries, based on technology acquired from Dowty,
are sold to OEMs primarily for the industrial and military markets, for use in
sea and air safety products such as emergency positioning indicating radio
beacons ("EPIRBs") and search and rescue transponders ("SARTs"). The Company
manufactures sea water batteries used for specialty marine applications. Through
the China Development Program, the Company expects to acquire and market 2/3A
batteries for use in cameras and camera accessories by calendar 1997. The
Company has been awarded a production contract from the U.S. Department of
Defense for the production of a cylindrical 6-volt lithium-manganese battery
(the "BA-5372" battery) for use in mobile communication equipment. Production
under this contract started in the second quarter of the Company's 1996 fiscal
year and option quantities have been exercised by the U.S. Government for $1.3
million of batteries to be produced by the end of fiscal 1997. The Company also
provides technological and research and development services to government
agencies and other third parties pursuant to technology contracts.
3
<PAGE>
The Company is currently focusing its development activities related to
advanced rechargeable batteries on lithium-ion solid-polymer technology. The
Company believes that its lithium-ion solid-polymer technology provides
substantial benefits, including greater energy density and longer cycle life,
over other available rechargeable battery technologies. In addition, the Company
believes that its technology, which does not utilize lithium metal or a liquid
electrolyte, provides performance and safety characteristics superior to other
lithium-based rechargeable batteries currently available. Certain of the
Company's prototype advanced rechargeable batteries have achieved 1,200 cycles
without appreciable performance degradation. The Company has manufactured
advanced rechargeable batteries on a pilot production line for testing by
certain OEMs and is establishing specifications for a commercial production
facility. The Company intends to develop configurations of its advanced
rechargeable batteries in collaboration with potential OEM purchasers for
applications in portable electronic devices such as cellular telephones,
portable computers and video camcorders. The Company has a development and
supply contract with a major cellular telephone manufacturer, which specifies
that the Company supply a minimum of 5,000,000 rechargeable batteries over a two
year period ending December 31, 1998. However, there can be no assurance that
the Company's rechargeable batteries will be able to achieve the required
performance levels or that the company will be able to manufacture commercially
acceptable products on a timely basis at a reasonable cost.
The Company is establishing itself as a global manufacturer of lithium
batteries. Following the acquisition in June 1994 of the Dowty Assets, Ultralife
Batteries (UK) Ltd. ("Ultralife UK"), has established itself as a market leader
in Europe for high rate LiMnO2 batteries. The China Development Program is
expected to begin producing batteries during calendar year 1997, thereby
establishing a manufacturing and marketing presence for the Company in Asia.
Other strategic relationships with Sonnenschein in Germany and Uniline in
Sweden, together with Ultralife UK and the China Development Program, form the
foundation of the Company's global operations.
The Company was incorporated in Delaware on December 14, 1990, under
the name Ultralife Technologies, Inc. The Company changed its name to Ultralife
Batteries, Inc. on April 3, 1991. The Company's executive offices are located at
1350 Route 88 South, Newark, New York 14513, and its telephone number is (315)
332-7100.
As used in this Report, unless otherwise indicated, the terms
"Company" and "Ultralife" include the Company's wholly-owned subsidiary,
Ultralife UK Ltd. Certain terms used in this Report are defined below under
"Glossary of Technical Terms." For purposes of presentation in this Report,
except for the consolidated financial statements herein or data derived
therefrom, contract terms or other amounts expressed originally in British
pounds sterling are set forth herein in U.S. dollars at the rate of (pound)1.00
to $1.55.
4
<PAGE>
Technology Background
A battery is an electrochemical apparatus used to store energy and
release it in the form of electricity. The main components of a conventional
battery are the anode, the cathode, the separator and an electrolyte, which can
be either a liquid or a solid. The separator acts as an electrical insulator,
preventing electrons from moving between the anode and cathode inside the
battery. Upon discharge of the battery, the anode supplies a flow of electrons,
known as current, to a load or device. After powering the load, the electron
flow reenters the battery at the cathode. As electrons flow from the anode to
the device being powered by the battery, ions are released from the cathode,
cross through the electrolyte and react at the anode.
There are two types of batteries, primary and rechargeable. A primary
battery is used until discharged and then discarded. The principal competing
primary battery technologies are carbon-zinc, alkaline and lithium. In contrast,
after a rechargeable battery is discharged, it can be recharged close to full
capacity and used again (subject to the memory effect, if any). Generally,
discharge and recharge cycles can be repeated a number of times in rechargeable
batteries, but the achievable number of cycles (cycle life) varies among
technologies and is an important competitive factor. All rechargeable batteries
experience a small, but measurable, loss in energy with each cycle. The industry
commonly reports cycle life in number of cycles a battery can achieve until 80%
of the battery's initial energy capacity remains. In the rechargeable battery
market, the principal competing technologies are nickel-cadmium, nickel-metal
hydride and lithium-based batteries. Rechargeable batteries generally can be
used in all primary battery applications, as well as in additional applications,
such as portable computers, cellular telephones and other consumer products.
Two important parameters for describing a battery's performance
characteristics are energy density and voltage stability. Energy density refers
to the total electrical energy stored in a battery. High energy density
batteries generally are longer-lasting power sources necessitating fewer battery
changes. Lithium batteries, by the nature of their electrochemical properties,
are capable of providing higher energy density than comparably-sized batteries
that utilize other chemistries. Lithium batteries are also characterized by a
flat discharge profile, indicating a stable release of energy during use as
power density decreases, while conventional primary batteries, such as
carbon-zinc and alkaline, exhibit a declining discharge profile. At a certain
time, a battery may have sufficient power but may be unable to deliver the
energy to power a device due to the battery's reduced voltage. See "Glossary of
Technical Terms."
5
<PAGE>
Benefits of Ultralife's Lithium Technology
The Company's primary battery products are based on lithium-manganese
dioxide technology and its advanced rechargeable battery products are based on
lithium-ion solid-polymer technology. The materials used in, and the chemical
reactions inherent to, lithium-based batteries provide significant advantages
over currently available primary and rechargeable battery technologies. The
Company believes that its primary battery products and the advanced rechargeable
batteries under development offer a number of significant advantages over
conventional primary and rechargeable batteries currently in use, including:
6
<PAGE>
Longer Operating Time. Length of operating time is a critical
performance characteristic for most battery applications. The
Company's primary batteries can operate devices between two and four
times longer than conventional carbon-zinc and alkaline primary
batteries, depending upon the application and operating environment.
The Company's advanced rechargeable battery is capable of operating
approximately two to three times longer on a single charge than
nickel-cadmium batteries, and approximately two times longer on a
single charge than nickel-metal hydride batteries, of comparable
weight.
Lighter Weight. The Company's primary batteries weigh up to 25% less
than conventional primary batteries of comparable size. The Company's
advanced rechargeable battery can deliver two to three times as much
energy as nickel cadmium batteries of comparable weight.
Recharge Characteristics. Certain of the Company's advanced
lithium-ion solid-polymer rechargeable batteries are able to deliver
1,200 discharge cycles without appreciable performance degradation and
are not subject to the memory effect. The Company's lithium-ion
solid-polymer battery does not incorporate lithium metal, which is
subject to growth of dendritic structures which can significantly
limit the number of achievable cycles.
Cost Effective. The Company's primary batteries deliver significantly
greater energy per unit of weight and volume than other commercially
available batteries. It is anticipated that the Company's advanced
rechargeable batteries will also exhibit such advantages over existing
products. While the price for the Company's lithium batteries is
generally higher than commercially available batteries produced by
others, the Company believes that the increased energy per unit of
weight and volume of its batteries will allow longer operating time
and less frequent battery replacements or rechargings for the
Company's targeted applications. Therefore, the Company believes that
its battery technology is price competitive with other battery
technologies on a cost per watt hour basis.
Longer Shelf Life and Charge Retention. The Company's primary
batteries have a shelf life of up to ten years, typically at least
twice as long as batteries based on competing technologies.
Flat Voltage Profile. The Company's batteries have relatively flat
voltage profiles, providing stable power. Conventional primary
batteries, such as alkaline batteries, have sloping voltage profiles,
which result in decreasing power outage during discharge.
Wide Operating Temperature Range. The Company's primary batteries
operate in temperatures ranging from -40(degree)F to 160(degree)F.
This operating range is greater than that achieved by most competing
primary batteries.
The Company's lithium battery technology is based on a 3-volt chemical
system, rather than the 1.5 volt systems of conventional primary battery
technologies. The 9-volt battery, for example, uses three 3-volt cells in series
to provide a 9-volt battery. The Company has not entered the market for AA or
AAA batteries, which are commonly used by consumers for radios, tape players and
other applications, because these batteries provide 1.5 volts and the Company's
lithium batteries are not compatible with these electrical requirements.
Ultralife's Primary Batteries
The Company's primary battery products, exclusive of its sea water
batteries, are based on lithium-manganese dioxide technology. The following
table sets forth the performance characteristics of the battery technologies
that the Company believes represent its most significant current or potential
competition for its 9-volt battery and its high-rate lithium battery.
7
<PAGE>
Comparison of Primary Battery Technologies
Energy Density
<TABLE>
<CAPTION>
Wh/kg Wh/l Shelf Life Operating Temperature
Technology (5) (5) Discharge Profile (Years) Range (F)
---------- ----- ---- ----------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
9-Volt
Configurations
- --------------
Ultralife lithium-
manganese up to 10
dioxide (1) 262 406 Flat -40 to 160
Alkaline (2) 65 143 Sloping 4 to 5 -4 to 130
Carbon-zinc (2) 22 40 Sloping 1 to 2 23 to 113
High Rate
Cylindrical (3)
- ----------------
Ultralife lithium-
manganese
dioxide (1) 228 510 Flat 10 -40 to 160
Alkaline (2) 59 160 Sloping 4 to 5 -4 to 130
Lithium-sulfur
dioxide (2) (4) 260 430 Flat 10 -40 to 160
Lithium thionyl-
chloride (2) (4) 250 to 300 650 to 700 Flat 10 -40 to 160
</TABLE>
(1) Results of tests conducted by the Company.
(2) Data compiled from industry sources and sales literature of other battery
manufacturers.
(3) Data for equivalent D-size cells.
(4) The Company believes that these batteries are limited in application due to
health, safety and environmental risks associated therewith.
(5) "Wh/kg" = Watt-hour per kilogram; "Wh/l" = Watt-hour per liter
Energy density refers to the total amount of electrical energy stored
in a battery as a function of the battery's weight and volume, as measured in
watt-hours per kilogram and watt-hours per liter, respectively. Higher energy
density translates into longer operating times for a battery of a given weight
or volume and, therefore, fewer replacement batteries. Discharge profile refers
to the profile of the voltage of the battery during discharge. A flat discharge
profile results in a more stable voltage during discharge of the battery. High
temperatures generally reduce the storage life of batteries, and low
temperatures reduce the battery's ability to operate efficiently. The inherent
electrochemical properties of lithium batteries result in improved low
temperature performance and an ability to withstand relatively high temperature
storage.
8
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9-Volt Lithium Battery
The Company's 9-volt lithium battery delivers a unique combination of
high energy density and a stable voltage which results in a longer operating
life for the battery and, accordingly, fewer battery replacements. While the
Ultralife 9-volt battery's price is generally higher than conventional 9-volt
carbon-zinc and alkaline batteries, the Company believes the enhanced operating
performance and decreased costs associated with battery replacement make the
Ultralife 9-volt battery more cost effective than conventional batteries on a
cost per watt-hour basis.
In 1984, Kodak initiated development of lithium primary batteries and
established a lithium battery operating subsidiary. In May 1986, Kodak began
selling its 9-volt lithium battery. After encountering technical problems with
its product, including premature power loss and, on occasion, unstable discharge
voltages, Kodak announced in April 1990, that it would discontinue its lithium
battery operations. In March 1991, the Company acquired certain technology and
assets from a subsidiary of Kodak, including patents, trademarks, analytical and
testing equipment, development laboratories and production facilities, as well
as sales and marketing information relating to Kodak's lithium battery division.
Subsequently, the Company effected certain design modifications which have
enabled the Company to offer its 9-volt battery with improved performance and
shelf life.
The Company currently markets its 9-volt lithium battery to OEM
markets, including manufacturers of safety and security systems such as smoke
alarms, medical devices, radar detectors, portable communication devices, and
other electronic instrumentation. The Company believes that approximately 10% of
the 230 million 9-volt batteries sold in the U.S. in 1995 were sold to OEMs.
Applications for which the Company's 9-volt lithium battery are currently sold
include:
<PAGE>
<TABLE>
<CAPTION>
Safety and Security
Equipment Medical Devices Specialty Instruments
- ------------------- --------------- ---------------------
<S> <C> <C>
Smoke alarms Infusion pumps Radar detectors
Wireless alarm systems Telemetry equipment Garage door openers
Electronic locks External pacemakers Electronic meters
Tracking devices Portable blood analyzers Hand-held scanners
Transmitters/receivers TENS units Wireless electronics
</TABLE>
9
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The Company currently sells its 9-volt battery to American Sensors
Electronics, Inc., Coleman Safety & Security Products, Inc., Fyrnetics, Inc.,
and First Alert(R) for smoke alarms, Siemens Medical and i-STAT for medical
devices, Ademco and Interactive Technologies, Inc. for security devices. Coleman
Safety & Security Products, Inc. and Fyrnetics, Inc. have recently introduced
long life smoke detectors powered by the Company's 9 volt lithium battery,
offered with a limited 10 year warranty. The Company also manufactures its
9-volt lithium battery under private label for First Alert(R), and American
Sensors, Inc., Sonnenschein in Germany and Uniline in Sweden. Additionally, the
Company has introduced its 9-volt battery to the broader consumer market by
establishing relationships with national and regional retail chains such as
Radio Shack, Target Stores, Servistar, Ace Hardware, True Value Hardware and a
number of catalogues.
The Company believes that its 9-volt lithium battery production
facility based in Newark, New York, is one of the most automated and efficient
lithium battery production facilities of its kind in the world. The Company's
production facility currently has the capacity to produce nine million 9-volt
lithium batteries per year with its existing equipment, and the Company believes
that the facility could be expanded to produce approximately 25 million units.
The number of 9-volt lithium batteries produced by the Company has ranged from
100,000 to 400,000 per month during the fiscal year ended June 30, 1996.
High Rate Lithium Batteries
Ultralife UK, the Company's subsidiary based in Abingdon, England,
markets a wide range of high rate primary lithium batteries in various sizes and
voltage configurations. The Company currently manufactures C, 1 1/4C and D size
high rate lithium batteries which are sold as separate units and packaged into
multi-cell battery packs. The Company believes that its high rate lithium C, 1
1/4C and D primary batteries, based on its proprietary lithium-manganese dioxide
technology, are the most advanced high rate lithium batteries currently
available. The Company also markets high rate lithium batteries under private
label in other sizes and voltage configurations in order to offer a more
comprehensive line of batteries to its customers.
The Company currently markets its line of high rate lithium batteries
to the OEM market for industrial applications and to military organizations for
military use. The main OEM applications are SAR (Search & Rescue), oil industry,
down hole and pipeline monitoring equipment, utility meters, oceanographic,
remote switching and portable equipment. The main military applications are
manpack radios, night vision equipment, chemical agent monitors and missile
power supplies.
10
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The Company estimates the market for high rate lithium batteries was
$75 million in 1995. Although this market has been dominated by lithium thionyl
chloride and lithium sulfur dioxide batteries, there is an increasing market
share taken by the lithium manganese dioxide due to its improved performance and
safety. The Company increased its sales of the high rate lithium manganese
dioxide batteries from $2.3 million in 1995 to $3.1 million in 1996 and is
planning a similar increase in 1997. The production line is under expansion to
give a capacity of 2,000 cells per shift and improvements in production control
to give better yields are underway. The Company believes that its high rate
lithium-manganese dioxide batteries offer a combination of performance, safety
and environmental benefits which will enable it to effectively penetrate this
market. Dowty's limited production capacity did not allow it to market this
technology aggressively. Since the acquisition, the Company has expanded its
marketing efforts and has increased production rates significantly. The Company
has the capability to produce greater than 1,500 high rate lithium cells per day
in its Abingdon facility.
Sea Water Batteries
The Company produces a variety of sea water batteries based on
silver-chloride technology. Sea water batteries are custom designed and
manufactured to end user specifications. The batteries are activated when placed
in salt water, which acts as the electrolyte allowing current to flow. The
Company currently manufactures sea water batteries at the Abingdon, England,
facility and markets them to naval and other specialty OEMs.
2/3A Lithium Battery
In July 1992, the Company, in connection with the China Development
Program, entered into an agreement with Changzhou Battery Factory ("CBF"), a
company registered in the City of Changzhou, China, and H&A Company ("H&A") for
the production of 2/3A lithium batteries in China. 2/3A lithium batteries are
cylindrical 3-volt lithium-manganese dioxide batteries commonly used in cameras,
camera accessories, back-up memory for computers and other electronic equipment.
A 2/3A battery is 2/3 the length of a standard A-size battery.
Upon completion of a production facility in China, the Company intends
to market the 2/3A battery to OEMs outside China for use in cameras and other
electronic equipment. In order to initiate the development of brand name
recognition for the Company's 2/3A lithium batteries, the Company is purchasing
2/3A batteries under private label until the production facility in China is
operational. Additionally, the Company is currently establishing distribution
relationships with selected manufacturer's representatives in the U.S. which
specialize in distribution of products to the camera and camera accessory
retailers.
11
<PAGE>
The Company believes that the worldwide market for 2/3A batteries is
currently 120 million units per annum. The Company anticipates that the China
Development Program facility will begin production in calendar 1997, of 2/3A
lithium batteries. The Company believes that through the utilization of
additional shifts, the China facility will be able to produce up to six million
2/3A lithium batteries per year. There can be no assurance that the batteries
will be able to achieve the required performance levels or that the Company will
be able to manufacture commercially acceptable products on a timely basis at a
reasonable cost to the Company.
BA-5372 Battery
The Company was awarded in 1995 a $1.5 million contract by the U.S.
Department of Defense to produce the BA-5372 lithium battery. The production
contract has a one-year term, with options for two additional years, at the
election of the U.S. Government. The U.S. Government has agreed to purchase 30%
of its requirement for the BA-5372 battery from the Company during the initial
term. During 1996 the government exercised its option for the second year adding
$1.3 million of BA-5372 batteries to be delivered during the Company's fiscal
1997.
The Company's BA-5372 battery is a cylindrical 6-volt lithium-manganese
dioxide battery which is used for memory back-up in specialized mobile
communication equipment. The Company's BA-5372 battery offers a combination of
performance features suitable for military applications including high energy
density, light weight, long shelf life and ability to operate in a wide
temperature range.
Thin Cell(TM) Battery
The Company is currently marketing a line of lithium-manganese dioxide
primary batteries which the Company calls its Thin Cell(TM) batteries. The Thin
Cell batteries are flat, light weight, flexible and can be manufactured to
conform to the shape of the particular application. The Company is currently
marketing five configurations of the Thin Cell battery which range in capacity
from 30 milliampere-hours to 3,000 milliampere-hours.
The Company has developed prototype Thin Cell batteries and is
currently marketing these batteries to OEMs for applications such as security
badges, smart cards, computer access cards and personal communication devices.
The Company believes that its Thin Cell batteries offer a number of performance
characteristics which makes them attractive to OEMs for introduction in current
and future applications including high energy density, light weight and
flexibility in the shape and size of the battery. The Company believes that
acceptance by OEMs is necessary to create a significant commercial market for
its Thin Cell batteries.
12
<PAGE>
The Company has developed a pilot production process for prototype Thin
Cell(TM) batteries at its Newark, New York, facility. Although the Company has
not constructed an automated production facility for the Thin Cell battery, the
Company believes that such a facility can be constructed on the basis of this
process with readily available mechanical and automation technology.
3-Volt Lithium Battery
The Company has developed and is producing a 3-volt lithium-manganese
dioxide battery based on the technology and physical configuration of the 9-volt
lithium battery. By configuring the three 3-volt cells in parallel, rather than
in a series as in the 9-volt battery, the Company is able to produce a 3-volt
battery which it believes offers the highest energy density for a commercially
available 3-volt battery. The high energy density makes it suitable for
applications requiring high current pulses, such as radio transmitters and
receivers, and remote utility meter reading systems.
The Company currently sells its 3-volt lithium batteries to
Dayton-Granger, Inc. for emergency beacons for commercial aircraft and
Schlumberger for residential gas meters. The Company produces the 3-volt lithium
battery on the same automated production equipment as its 9-volt lithium
battery.
Ultralife's Advanced Rechargeable Battery
The Company's advanced rechargeable battery is based on lithium-ion
solid-polymer technology. The battery is composed of a lithiated manganese
dioxide cathode, a carbon anode and a solid-polymer electrolyte, all of which
are flexible. The battery's construction provides for the high performance
characteristics of lithium-based batteries, particularly high energy density,
while eliminating the use of lithium metal and a liquid electrolyte. By
eliminating the use of lithium metal, the Company's battery is not subject to
the formation of dendritic lithium metal structures upon multiple rechargings,
which the Company believes will result in superior cycle life for its battery.
Additionally, use of a flexible solid-polymer electrolyte, rather than a liquid
electrolyte, reduces the battery's overall weight and volume, and allows for
increased flexibility in conforming batteries to the variety of shapes and sizes
required by various OEMs. The following table sets forth the performance
characteristics of the four rechargeable battery technologies that the Company
believes represents its most significant current or potential competition.
Lead-acid, nickel-cadmium and nickel-metal hydride batteries are the predominant
commercially available rechargeable batteries. Lithium-ion liquid electrolyte
technology, such as lithium-cobalt oxide and lithium-nickel oxide, are battery
technologies that are achieving market acceptance.
13
<PAGE>
Comparison of Rechargeable Battery Technologies
Energy Density
--------------
<TABLE>
<CAPTION>
Safety Memory Cycle Environ-
Technology Wh/kg Wh/1 Profile Effect Life(1) mental
- ---------- ----- ---- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Ultralife lithium-ion
solid polymer (2) 100-125 175-200 Good No less than 500 OK
Lead-acid (3) 35-46 110-120 Acceptable No 500 Problem (7)
Nickel-cadmium (3) 40-55 100-150 Acceptable Yes 500 Problem
(7)
Nickel-metal hydride (3) 50-60 125-300 Acceptable No 500 Problem
(7)
Lithium-ion liquid
electrolyte (3) 125(6) 300(6) Concern (4) No 800 Yes/No (5)
</TABLE>
(1) Cycle life to 80% of rated capacity and 100% depth of discharge.
(2) Based on the Company's tests.
(3) Data compiled from industry sources and sales literature of other battery
manufacturers.
(4) Potential problems associated with volatile liquid electrolyte
(5) Lithiated cobalt oxide and lithiated nickel oxide problems: other
oxides acceptable
(6) Approximate
(7) Contain heavy metal
There can be no assurance that the Company's rechargeable batteries
will achieve those levels of performance required for commercial viability.
In addition to its high energy density and long cycle life, the
Company's lithium-ion solid-polymer battery is not subject to the memory effect
common in nickel-cadmium batteries.
14
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The Company intends to develop configurations of its advanced
rechargeable batteries in consultation with potential OEM purchasers for use in
portable electronic devices such as cellular telephones, portable computers and
video camcorders. The Company is currently producing its advanced rechargeable
batteries in limited quantities for testing purposes by selected OEMs and is
planning commercial-level production facilities. There can be no assurance that
the Company will be able to successfully complete the development and production
of the advanced rechargeable batteries or that such technology will gain market
acceptance. See "Competition."
In November, 1994, the Company signed an exclusive development and
supply agreement with a major communications company for its advanced
rechargeable lithium-ion solid-polymer battery. Under the terms of this
agreement, the communications company provided a portion of the funds to
finalize the development of the battery to meet its particular specifications,
and if an acceptable prototype is not delivered, then one-half of the funds
provided would be returned by Ultralife. The communications company shall have
exclusivity for the battery in the wireless telecommunications market, but the
agreement does not preclude sales of these rechargeable batteries in other
markets, such as for use in laptop computers.
The agreement was amended on March 28, 1996. Under the amended
agreement the major communications company waived their rights to receive
reimbursement of half their development funding; agreed to provide $300,000 for
development funding and an extension of the period of exclusivity to the end of
1998 (previously it was the end of 1997), and agreed to advance $334,000 towards
the shipment of mass-produced batteries scheduled to commence in the first half
of calendar 1997. Also, under the new agreement the firm placed a order for a
minimum of five (5) million batteries to be delivered during the period of
exclusivity.
At present, the Company has, at its Newark, New York, facility, a pilot
production line consisting of a manual assembly and packaging line for the
production of limited quantities of its advanced rechargeable batteries for
internal testing and customer sampling. The Company will need to expend a
significant amount of capital to begin commercial production of its advanced
rechargeable batteries. The automated production of the Company's lithium-ion
solid-polymer rechargeable battery will require the design and manufacture of a
number of items of production equipment by third-party vendors. Much of this
equipment needs to be custom designed and manufactured for the Company and some
items may require a substantial lead-time for delivery. The Company believes
that it has determined what equipment it needs in order to begin automated,
commercial volume production of its rechargeable battery and has entered into
contracts for those items with the longest lead-time. There can be no assurances
however that the equipment designed will properly produce the rechargeable
batteries in commercial volume, as to the length of the time that will be
required for the Company's various vendors to supply the necessary equipment, or
that the Company will be successful in developing commercial scale production
facilities for its advanced rechargeable batteries.
Competition
Competition in the battery industry is, and is expected to remain,
intense. The competition ranges from development stage companies to major
domestic and international companies, many of which have financial, technical,
marketing, sales, manufacturing, distribution and other resources significantly
greater than those of the Company. The Company competes against companies
producing lithium-based batteries as well as other primary and rechargeable
battery technologies. The Company competes on the basis of price, performance
and reliability. There can be no assurance that the Company's technology and
products will not be rendered obsolete by developments in competing technologies
which are currently under development or which may be developed in the future or
that the Company's competitors will not market competing products which obtain
market acceptance more rapidly than those of the Company.
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In the 9-volt battery market, the principal competitive technologies
currently encountered are alkaline and carbon-zinc. Duracell International,
Inc., Eveready Battery Company Inc. and Rayovac Corp., among others, currently
manufacture alkaline and carbon-zinc batteries.
In the high rate lithium battery market, the principal competitive
technologies are lithium sulfur dioxide and lithium-thionylchloride batteries.
Saft-Soc des ACC, Ballard Power Systems Inc. and Power Conversion, Inc., among
others, currently manufacture high rate lithium sulfur dioxide batteries. The
Company believes that the lithium-manganese dioxide technology in its high rate
batteries offers greater reliability over longer periods without the negative
environmental effects of sulfur dioxide and thionylchloride. The Company also
manufactures sea water batteries and believes that its competitors for those
products are Saft-Soc des ACC and Eagle-Picher Industries.
The 2/3A lithium battery supplied through the China Development Program
will compete with companies such as Duracell International, Inc., Sanyo Electric
Co. Ltd., Panasonic International and Maxell Corp. of America in the 2/3A
battery market.
The Thin Cell batteries are expected to compete on the basis of their
unique technology and performance characteristics. The Company will compete with
major battery producers, such as Gould Electronics, which use competing
technologies such as low rate lithium thin cell batteries. There can be no
assurance that the Company's products will be able to compete effectively with
these alternative products.
The 3-volt battery's primary competitors include Maxell Corp. of
America, Tadiran Limited, Saft-Soc des ACC and Power Conversion, Inc., all of
which use lithium-thionyl chloride technology to produce 3-volt batteries.
In the rechargeable battery market, the principal competitive
technologies include lead-acid, nickel-cadmium, nickel-metal hydride and
lithium-ion liquid electrolyte technology. Major lead-acid manufacturers include
Delco Products, Johnson Controls Inc., Exide Corp., and Yuasa Battery Co. Ltd..
Eveready, Inc., Sanyo Electric Co. Ltd., and Gould Electronics, among others,
currently manufacture nickel-cadmium batteries. Manufacturers of nickel-metal
hydride batteries include Sony Corp., Toshiba Corp. and Matsushita Electric
Industrial Co. Ltd. Lithium-ion liquid electrolyte batteries, primarily based on
lithium-ion cobalt oxide and lithium-ion nickel oxide technologies, are
manufactured by Saft-Soc des ACC, Sony Corp., Toshiba Corp. and Sanyo Electric
Co. Ltd., among others.
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Lithium-ion liquid electrolyte batteries offer significant advantages
over lead-acid, nickel-cadmium and nickel-metal hydride batteries currently in
use and the Company expects that technology to be the most significant
competition for its advanced rechargeable battery. Sony Corp. and other
manufacturers currently offer lithium-ion liquid electrolyte batteries to
consumers and to OEMs in substantial volumes, and have publicly announced that
they may substantially increase manufacturing capacity. As OEMs frequently
require substantial lead times to design new batteries for their products, the
availability of lithium-ion liquid electrolyte batteries could materially
adversely affect the demand for, and market acceptance of, the Company's
advanced rechargeable battery.
Lithium-ion liquid electrolyte batteries used in laptop computers and
cellular phones have been reported to have had incidences causing user safety
concerns. There is a significant difference between these liquid electrolyte
cells and the Company's Solid State System, which uses a unique solid polymer
electrolyte and is fundamentally safer than lithium-ion batteries containing a
liquid electrolyte. Liquid lithium-ion cells, such as those that reportedly
caused the flames in the laptops, use a flammable liquid electrolyte contained
within a cylindrical metal housing. Under abusive conditions, where external
temperatures are extremely high, these cells can build up significant internal
pressure. If the pressure reaches a high enough level, the cells can vent,
causing the liquid electrolyte to be dispersed into the high-temperature
environment. If the temperature is high enough, flames can result. The Company's
advanced rechargeable batteries utilize a solid polymer electrolyte that has no
liquid and thus cannot leak. Moreover, because the electrolyte is solid, the
Ultralife cells do not require a cylindrical metal housing. Rather, they are
packaged within a foil laminate. Under the same abusive conditions that could
cause flame from liquid lithium-ion cells, Ultralife believes that its cells
will perform safely.
In addition to the currently marketed technologies, a number of
companies are currently undertaking research and development of advanced
rechargeable lithium batteries, including lithium-metal solid-polymer batteries.
Valence Technology, Inc. has developed prototype solid-polymer batteries and is
constructing commercial-scale manufacturing facilities. The Company believes
that other research and development activities on solid-polymer batteries are
underway at Hydro-Quebec in Canada, at W.R. Grace & Co., 3M, Duracell, Gould
Electronics, Johnson Controls Inc. in the U.S. and at other companies in both
the U.S. and Japan. No assurance can be given that such companies will not
develop batteries similar or superior to the Company's lithium-ion solid-polymer
rechargeable batteries.
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Although other entities may attempt to take advantage of the growth of
the lithium battery market, the lithium battery industry has certain
technological and economic barriers to entry. The development of technology,
equipment and manufacturing techniques and the operation of a facility for the
automated production of lithium batteries require large capital expenditures,
which may deter new entrants from commencing production. Through its experience
in battery manufacturing, the Company has also developed expertise which it
believes would be difficult to reproduce without substantial time and expense.
Research and Development
The Company conducts its research and development in both Newark, New
York, and Abingdon, England. The Company is directing its research and
development efforts toward design optimization of Thin Cells, 3-volt batteries
and advanced rechargeable batteries. Each of those batteries has a broad range
of potential applications in consumer, industrial and military markets including
cameras, cellular telephones, and portable computers. No assurance can be given
that such efforts will be successful or that the products which result will be
marketable.
During the years ended June 30, 1996, 1995 and 1994, the Company
expended approximately $3,688,687, $2,685,313 and $1,481,211, respectively, on
Company-sponsored research and development. The Company currently expects that
research and development expenditures will increase significantly as it
continues to advance its technology and develop new products. The Company will
seek to fund part of its research and development effort on a continuing basis
from both government and non-government sources.
The U.S. government sponsors research and development programs designed
to improve the performance and safety of existing battery systems and to develop
new battery systems. The Company has successfully completed the initial stages
of two government-sponsored programs to develop new configurations of the
Company's lithium-manganese dioxide battery and has received authorization to
proceed with additional stages of these contracts. These two contracts are for
the development of "flat pack" lithium primary batteries. The Company was also
awarded an additional cost sharing contract by the Advanced Research Project
Agency of the Department of Defense ("ARPA") under which ARPA, during the two
years commencing September 1994, is paying an average of 45% of the first
$1,647,000 (or $738,000) of research costs to develop an improved solid-polymer
electrolyte. The Company will have completed this contract by the end of the
first quarter of fiscal 1997. Under the Company's contracts with the government,
the Company is required to grant the government a royalty-free license to any
technology or products derived from research and development funded by the
government, and may be required, under certain circumstances, to grant a similar
license to other government contractors. If granted, such contracts are
dependent upon continued government funding and may be canceled. Although the
Company hopes to continue to receive government research and development
contracts, there can be no assurance that it will be successful in doing so.
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In addition, the Company has entered into a collaborative agreement
with Lockheed Missiles & Space Co., Inc. to develop an advanced rechargeable
battery system based on Ultralife's lithium-ion solid polymer technology. This
battery system is intended to be used for various military and aerospace
applications, including space satellites, missile launching systems, and
portable communications devices.
Sales and Marketing
The Company has initially targeted sales of its batteries to the OEM
market in the U.S., with a focus on manufacturers of security and safety
equipment, medical devices and specialty instruments. The Company's primary
strategy for entering the OEM market is to pursue marketing alliances with OEMs
that utilize its batteries in their products, commit to cooperative research and
development or marketing programs and recommend the Company's products for
replacement use in their products. The Company seeks to capture a significant
market share for its products within its initially targeted OEM markets, which
the Company believes, if successful, will result in increased product awareness
at the end-user or consumer level. Ultralife UK targets the military and
industrial markets through direct sales and the efforts of its distributors.
The Company sells its products directly to OEMs in the U.S. and abroad
and has contractual arrangements with 44 sales representatives who market the
Company's products on a commission basis in particular areas. The Company also
distributes its products through distributors in the U.S., Canada, Europe,
Middle East, Australia and Asia that purchase batteries from the Company for
resale. The Company employs a staff of marketing personnel in the U.S., Germany,
and England including a vice president of sales, a marketing manager, a national
sales manager, a European sales director, a technical sales manager, and a
number of regional sales managers, who are responsible for direct sales,
supervising the sales representatives and distributors, and other marketing and
distribution activities. The Company operates on a purchase order basis and has
a number of long-term sales contracts with customers, including the U.S.
government.
The Company plans to expand its marketing activities as part of its
strategic plan to increase sales of its batteries by emphasizing sales to those
major OEM customers that account for the largest portion of battery usage in
their market segment. The Company is addressing these markets through direct
contact by its sales and technical personnel, use of sales representatives and
stocking distributors, manufacturing under private label and promotional
activities. The Company is also selling the 9-volt battery to the consumer
market through limited retail distribution. The Company's warranty on its
products is limited to replacement of the product.
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In fiscal 1996, one customer accounted for $1.9 million in revenues, or
12.5% of total revenues. This customer did not generate revenues in excess of
10% during 1995 and is not expected to for fiscal 1997. The Company believes
that loss of this customer will not have an adverse material effect on the
Company. The Company has not been marketing its products for a sufficient period
to determine whether OEM or consumer sales are seasonal, although the Company
has experienced slightly slower sales to OEMs in the Company's third fiscal
quarter and slightly higher retail sales during the Company's fourth fiscal
quarter.
The Company's sales are executed primarily through purchase orders with
scheduled deliveries on a weekly or monthly basis. Those customers with
immediate needs are usually satisfied within only a few business days. At the
end of this fiscal year backlog is not material.
Patents, Trade Secrets and Trademarks
The Company holds a number of patents in the U.S. and foreign
countries, including a number of patents acquired with the purchase of the Dowty
Assets, and has several patent applications pending. The Company also pursues
foreign patent protection in certain countries. Certain of the Company's patents
make automated production more cost-effective and protect important competitive
features of the Company's products. However, the Company does not consider its
business to be materially dependent on patent protection.
The Company relies on licenses of technology as well as its unpatented
proprietary information, know-how and trade secrets to maintain and develop its
commercial position. Although the Company seeks to protect its proprietary
information, there can be no assurance that others will not either develop
independently the same or similar information or obtain access to the Company's
proprietary information. In addition, there can be no assurance that the Company
would prevail if any challenges to intellectual property rights are asserted by
the Company against third parties or that third parties will not successfully
assert infringement claims against the Company in the future. The Company
believes, however, that its success is less dependent on the legal protection
that its patents and other proprietary rights may or will afford than on the
knowledge, ability, experience and technological expertise of its employees.
The Company's research and development in support of its advanced
rechargeable battery technology and products are currently based, in part, on
non-exclusive, technology transfer agreements. The Company made an initial
payment for such technology and is required to make royalty and other payments
for products which incorporate the licensed technology. The license continues
for the respective unexpired terms of the patent licenses, which range from 2003
to 2010, and continues in perpetuity with respect to other licensed technical
information. The Company has not made any sales of products based on this
agreement.
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The Company's employees in the U.S. and England are required to enter
into agreements providing for confidentiality and the assignment of rights to
inventions made by them while employed by the Company. These agreements also
contain certain noncompetition and nonsolicitation provisions effective during
the employment term and for a period of one year thereafter. There can be no
assurance that these agreements will be enforceable by the Company.
Ultralife(R) is a registered trademark of the Company.
Manufacturing and Raw Materials
The Company manufactures its products at its leased facilities in
Newark, New York, and Abingdon, England, from raw materials and component parts
that it purchases. The Company believes that its Newark manufacturing facility,
which was originally established by Kodak and includes equipment purchased by
Kodak for approximately $18 million, is one of the most automated and efficient
lithium battery production facilities in the world. Based on the equipment
currently at the Newark facility, the Company believes that it has the
capability of producing approximately nine million 9-volt batteries per year,
which could be increased to approximately 25 million units. The manufacturing
facility in Abingdon, England, is currently engaged in enhancing its production
facilities so that it will be capable of producing an average of 350,000 high
rate lithium batteries per year. The facility also has research and development
laboratories as well as areas for the manufacture of sea water batteries and the
packaging of multi-cell battery packs. Both of these production processes are
labor intensive and the Company will consider additional automation if it
determines that added volume will make it cost-effective. The Company is
currently producing batteries at a rate far below its maximum capacity in both
facilities.
The Company utilizes lithium in foil form and other metals and
chemicals in manufacturing its batteries. Although the Company knows of only
three suppliers that extrude lithium into foil and provide such foil in the form
required by the Company, it does not anticipate any shortage of lithium foil or
any difficulty in obtaining the quantities its requires. Certain materials used
in the Company's products are available only from a single source or a limited
number of sources. Additionally, the Company may elect to develop relationships
with a single or limited number of sources for materials that are otherwise
generally available. Although the Company believes that alternative sources are
available for each of the materials it uses and that, if necessary, the Company
would be able to redesign its products to make use of an alternative, any
interruption in its supply from any supplier that serves currently as the
Company's sole source could delay product shipments and adversely affect the
Company's financial performance and relationships with its customers. All other
raw materials utilized by the Company are readily available from many sources.
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Battery Safety; Regulatory Matters; Environmental Considerations
Certain of the materials utilized in the Company's batteries may pose
safety problems if improperly used. The Company has designed its batteries to
minimize safety hazards both in manufacturing and use. However, the Company's
primary battery products incorporate lithium metal, which reacts with water and
may cause fires if not handled properly. A fire occurred in August 1991, at the
Company's Newark, New York, facility. In July 1994 and September 1995, fires
also occurred at the Company's Abingdon, England, facility. Each of these fires
temporarily interrupted certain manufacturing operations in a specific area of
the facility. The Company believes that it has adequate fire insurance to
protect against fire hazards in its facilities.
Since lithium metal reacts with water and water vapor, certain of the
Company's manufacturing processes must be performed in a controlled environment
with low relative humidity. Each of the Company's facilities contains dry rooms
as well as specialized air drying equipment.
The Company's 9-volt battery is designed to conform to the dimensional
and electrical standards of the American National Standards Institute and the
9-volt battery and 3-volt battery are recognized under the Underwriters
Laboratories, Inc. Component Recognition Program.
The transportation of batteries containing lithium metal is regulated
by the International Air Transportation Association ("IATA") and, in the U.S.,
by the U.S. Department of Transportation, as well as by certain foreign
regulatory agencies that consider lithium metal a hazardous material. The
Company currently ships its products pursuant to IATA regulations and ships the
9-volt battery in accordance with U.S. Department of Transportation regulations.
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National, state and local regulations impose various environmental
controls on the storage, use and disposal of lithium batteries and of certain
chemicals used in the manufacture of lithium batteries. Although the Company
believes that its operations are in substantial compliance with current
environmental regulations, there can be no assurance that changes in such laws
and regulations will not impose costly compliance requirements on the Company or
otherwise subject it to future liabilities. Moreover, state and local
governments may enact additional restrictions relating to the disposal of
lithium batteries used by customers of the Company which could adversely affect
the demand for the Company's products. There can be no assurance that additional
or modified regulations relating to the storage, use and disposal of chemicals
used to manufacture batteries or restricting disposal of batteries will not be
imposed.
Acquisition of Dowty Assets
Effective June 10, 1994, Ultralife UK acquired the business, including
the property, equipment, inventories, accounts receivable and payable and
intellectual property rights, of Dowty. The purchase price for the Dowty Assets
was (pound)900,000 (the equivalent of US $1,367,550 at the exchange rate on June
10, 1994), and was paid from the Company's working capital. As additional
consideration for the acquisition, the Company assumed certain liabilities and
agreed to pay Dowty royalty payments equal to 1.5% of the gross invoice amount
of certain products sold to certain customers, up to a maximum of $542,000.
China Development Program
In July 1992, the Company, in connection with the China Development
Program, entered into several agreements related to the establishment of a
manufacturing facility in Changzhou, China, for the production and distribution
in and from China of 2/3A lithium primary batteries based on the Company's
technology.
Pursuant to the China Development Program, Changzhou UPI Battery
Limited Liability Company, a company organized in China ("China Battery"),
purchased from the Company certain technology, equipment, training and
consulting services relating to the design and operation of the lithium battery
manufacturing plant. China Battery is required to pay approximately $6.0 million
to the Company over the first two years of the agreement, of which approximately
$5.6 million had been paid as of July 31, 1996. The Company is currently
attempting to collect the balance due under this contract. The Changzhou UPI
Battery Limited Liability Company has indicated that these payments will not be
made until certain contractual issues have been resolved.
The Company is required to purchase, through the China Development
Program, 80% of China Battery's production of 2/3A lithium batteries for a
period of three years. The price to the Company for the batteries it purchases
is to be a competitive price that will vary on the basis of market conditions
and other factors, including quality and delivery terms, determined by
negotiations between the parties, at the time of each purchase order. The
Company has the exclusive right to sell outside China the batteries it purchases
from China Battery, but the Company's purchase obligation is not contingent on
its resale capability.
China Battery's manufacturing facility has been designed to have an
initial production capacity of 8,000 batteries per day, with fully operational
production capacity of up to 20,000 batteries daily. The Company expects that
batteries manufactured through the China Development Program will be available
in calendar 1997.
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The Company is required to make payments of approximately $400,000 to
the China Development Program, of which approximately $283,500 has been paid to
date, with the balance payable when the factory is operational. Additionally,
the Company was required to pay certain commissions to H&A Company, a
California-based international technology broker, in connection with payments
made to the Company by China Battery. The Company has two representatives on the
seven-member Board of Directors which governs the China Development Program,
certain actions of which require unanimous approval.
The China Development Program may involve certain risks and special
considerations not typically associated with operations in the U.S., including
(i) greater economic and political uncertainty, (ii) tighter currency exchange
and other controls on payment of funds to foreign corporations, repatriation of
funds and on the ability to exchange local currencies for U.S. dollars, (iii)
greater governmental involvement in and control over the economy, (iv) a
discontinuance of Chinese government support of the economic reform programs
implemented in 1978 and a return to the centrally planned economy that existed
prior to 1978 and (v) the risk of nationalization or expropriation of assets.
China does not have a consolidated body of laws governing enterprises such as
that in which the Company is involved, and certain matters are addressed only in
local laws and regulations, if at all. These local laws and regulations are
subject to change or preemption by national laws that may be adopted by China in
the future. There can be no assurance that the Company will be able to enforce
the terms of the agreements relating to the China Development Program if a
dispute should arise.
Employees
As of June 30, 1996, Ultralife Batteries, Inc. employed 393 persons; 80
in research and development, 274 in production and 39 in sales, administration
and management. Of the total, 303 are employed in the U.S. and 90 in England.
None of the Company's employees are represented by a labor union. The
Company considers its employee relations to be satisfactory.
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Glossary of Technical Terms
Anode The negative electrode in a battery which
releases electrons to an external circuit
and accepts ions from the electrolyte.
Battery An electrochemical apparatus used to
store energy and release it in the form
of electricity.
Cathode The positive electrode in a battery which
accepts electrons from the external
circuit and releases ions into the
electrolyte.
Cell The basic electrochemical unit of a
battery, composed of an anode, cathode,
an electrolyte and, in many cases, a
separator, which is capable of storing
and generating electrical energy.
Cycle The discharge and subsequent recharge of
a rechargeable battery.
Discharge Profile The variation in a battery's voltage as
energy is removed over time.
Electrodes The energy storing components of a
battery, consisting of anodes and
cathodes.
Electrolyte The ion transport medium between the
anode and cathode in a battery.
Energy Density The total electrical energy stored in a
battery, expressed as a function of the
battery's volume in watt-hours per liter,
or as a function of weight, in watt-hours
per kilogram.
High Rate Battery A battery capable of discharging
substantially all of its energy over a
relatively short period of time (less
than 10 hours).
Low Rate Battery A battery capable of discharging
substantially all of its energy over a
relatively long period of time (more than
100 hours).
Memory Effect The cumulative decline in the total
energy capacity of a rechargeable battery
created by recharging a battery that has
not been fully discharged. The memory
effect is prevalent in nickel-cadmium
rechargeable batteries.
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Power Density The total electrical energy deliverable
by a battery, expressed as a function of
the battery's volume in watts per liter,
or as a function of weight, in watts per
kilogram.
Shelf-Life The time a battery can be stored under
specified conditions and still perform at
a specified level.
Solid-Polymer Electrolyte An electrolyte based upon a solid-polymer
material that functions both as an ion
transporting medium and separator in thin
films.
Voltage The potential difference between the
electrodes of a battery.
Watt(W) A unit of measurement for the power
delivered by a battery.
Battery Types:
Alkaline A primary battery with an alkaline anode,
typically composed of powdered zinc and a
mixture of manganese dioxide and carbon
powder, packed around a carbon rod
cathode with a potassium hydroxide
electrolyte.
Carbon-Zinc A primary battery with carbon and zinc
electrodes, and an organic electrolyte;
prior to the introduction of alkaline
batteries, the most common form of
primary battery.
Lithium-Ion A rechargeable battery utilizing lithium
compounds within carbon electrodes. These
compounds include lithium-manganese
oxide, lithium-cobalt oxide or
lithium-nickel oxide within the cathode
and an organic electrolyte.
Lithium-Manganese Dioxide Primary cell utilizing a lithium anode, a
manganese dioxide cathode and a
non-aqueous organic solvent electrolyte
containing lithium salt.
Lithium-Polymer A rechargeable battery with a lithium
anode, a composite cathode which stores
lithium ions and a solid-polymer
electrolyte.
Nickel-Cadmium A rechargeable battery with nickel and
cadmium electrodes, and a potassium
hydroxide electrolyte.
Nickel-Metal Hydride A rechargeable battery with a
hydrogen-absorbing alloy anode, a nickel
compound cathode and a potassium
hydroxide electrolyte.
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ITEM 2. PROPERTIES
The Company leases approximately 95,600 square feet in a facility
located in Newark, New York. The Company leases approximately 30,000 square feet
in a facility based in Abingdon, England. At both locations, the Company
maintains administrative offices, manufacturing and production facilities, a
research and development laboratory, an engineering department and a machine
shop. The Company's corporate headquarters are located in the Newark facility.
The Company also maintains a sales office in Montvale, New Jersey. The Company
believes that its facilities are adequate and suitable for its current
manufacturing needs. The lease entered into in March 1991 with Kodak for the
Newark facility expires in 2003 and currently has an annual rent of $461,950,
subject to base rate increases of 4% annually during each year. The Company has
a right of first refusal to purchase the Newark leased facility as well as two
adjacent buildings.
In connection with the acquisition by the Company's subsidiary,
Ultralife UK, of certain assets and liabilities from Dowty Group, PLC in June
1994, it was provided that Dowty would cause the lease for Dowty's UK facility,
located in Abingdon England, to be assigned to Ultralife UK. This lease ( the
"UK Lease") was originally entered into in May 1979 by Pension Funds Securities
Limited (the "Landlord") with a tenant which assigned the lease to an affiliate
of Dowty. However, the Landlord has withheld consent to the assignment of the UK
lease to Ultralife UK. In addition, Ultralife UK and the Landlord had a dispute,
which has since been settled, as to the allocation of the expense of repairing
damages to the roof caused by the fire at the facility in July 1994. In
connection with this dispute, the Landlord took the position, that, in the
absence of the Landlord's consent to the assignment of the Lease to Ultralife
UK, Ultralife is not entitled to remain as a tenant in the facility. However,
Ultralife has taken the position, after consultation with UK counsel, that the
Landlord's acquiescence to Ultralife UK remaining in the facility, as a tenant,
for a period exceeding a year prevents the Landlord from treating Ultralife UK
other than as a valid tenant. Discussions are continuing and the Company
believes that this matter will be resolved without material detriment to the
Company. However, no assurances can be given that this will be the case. The
term of the UK Lease continues until May 2004. It currently has an annual rent
of $250,000 and is subject to review every five years based on current real
estate market conditions. A review was to occur in May 1994 and has not yet been
requested by the Landlord. Based on the real estate market in the Abingdon area,
the Company believes that if such review occurs, it will not result in a
substantial increase in rent.
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ITEM 3. LEGAL PROCEEDINGS
(a) The Company is not a party to any material litigation.
(b) No legal proceedings were terminated during the fiscal
quarter ended June 30, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Report,
no matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is included for quotation on the National
Market System of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol "ULBI."
The following table set forth the quarterly high and low sales prices
of the Company's Common Stock during the Company's last two fiscal years:
Sales Prices
------------------------
High Low
-------- ---------
Fiscal Year 1995
Quarter ended September 30, 1994.................. $16.25 $12.75
Quarter ended December 31, 1994................... 22.00 15.25
Quarter ended March 31, 1995...................... 18.00 11.50
Quarter ended June 30, 1995....................... 18.50 14.75
Fiscal Year 1996
Quarter ended September 30, 1995.................. $24.75 $14.75
Quarter ended December 31, 1995................... 24.50 16.75
Quarter ended March 31, 1996...................... 24.00 10.50
Quarter ended June 30, 1996....................... 16.25 12.38
On September 16, 1996, the Company's common stock closing price was $11.00 per
share.
Holders
As of September 16, 1996, there were 183 holders of record of the
Company's Common Stock. Based upon conversations with brokers, management of the
Company believes that there are significantly more than 183 beneficial holders
of the Company's Common Stock.
Dividends
The Company has never declared or paid any cash dividend on its capital
stock. The Company intends to retain earnings, if any, to finance future
operations and expansion and , therefore, does not anticipate paying any cash
dividends in the foreseeable future. Any future payment of dividends will depend
upon the financial condition, capital requirements and earnings of the Company,
as well as upon other factors that the Board of Directors may deem relevant.
29
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenue:
Battery sales $ 12,623,646 $ 11,212,643 $ 2,889,193 $ 1,816,696 $ 1,412,844
Technology contracts 2,477,887 3,430,640 2,424,356 2,073,097 106,977
--------------------------------------------------------------------------------
Total Revenue 15,101,533 14,643,283 5,313,549 3,889,793 1,519,821
Cost of products sold:
Battery costs 12,317,486 10,900,049 3,167,653 2,511,859 1,970,728
Technology contracts 936,053 1,873,892 1,781,043 593,518 99,978
--------------------------------------------------------------------------------
Total cost of products sold 13,253,539 12,773,941 4,948,696 3,105,377 2,070,706
--------------------------------------------------------------------------------
Gross profit (loss) 1,847,994 1,869,342 364,853 784,416 (550,885)
Selling, general and
administrative expenses 4,993,644 4,262,545 2,879,085 1,527,646 1,293,350
Research and development
expenses 3,688,687 2,685,313 1,481,211 658,139 256,336
--------------------------------------------------------------------------------
Loss before interest income, net,
other and taxes (6,834,337) (5,078,516) (3,995,443) (1,401,369) (2,100,571)
Interest income (expense), net 2,016,831 1,721,682 835,585 350,085 90,422
Gain on sale of securities 1,930,056
Provision for loss on fire (351,902)
Other income, net (34,844) 22,498 237,648 350,100
--------------------------------------------------------------------------------
Loss before income taxes (3,239,352) (3,391,678) (3,137,360) (813,636) (1,660,049)
Income taxes 0 0 0 0 0
--------------------------------------------------------------------------------
Net loss $ (3,239,352) $ (3,391,678) $ (3,137,360) $ (813,636) $ (1,660,049)
================================================================================
Net loss per common share $ (0.41) $ (0.50) $ (0.57) $ (0.20) $ (0.61)
================================================================================
Weighted average number
of shares outstanding 7,814,302 6,747,374 5,498,749 4,032,040 2,704,706
================================================================================
Balance Sheet Data:
June 30,
----------------------------
1996 1995
-------- --------
Cash and
available-for-sale securities $ 35,069,028 $ 46,736,428
Working capital 32,649,593 32,705,379
Total assets 60,632,929 62,593,148
Long-term debt 0 0
Stockholders' equity $ 56,434,766 $ 57,957,034
</TABLE>
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report.
General
The Company was formed in December 1990. On March 12, 1991, the Company
acquired certain technology and assets from Kodak relating to the 9-volt
lithium-manganese dioxide battery that was developed originally by Kodak. Since
its inception, the Company has concentrated significant resources toward
research and development activities related to its unique Solid State System(TM)
(SSS(TM)) lithium-ion rechargeable battery, the 9-volt battery and other
lithium-based battery technologies.
The Company has successfully modified the 9-volt battery and is
currently producing it in commercial quantities at its Newark, New York
facility. The Company has also begun marketing additional products, including a
3-volt battery and Thin Cell batteries. In addition, the Company has shipped
prototypes of its rechargeable batteries for testing to original equipment
manufacturers and others. Rechargeable battery manufacturing equipment is
planned for installation in Newark, NY during the fourth calendar quarter of
1996.
On June 10, 1994, a subsidiary of the Company acquired certain assets
and related business of Dowty Group PLC, a leading manufacturer of lithium and
sea water batteries based in Abingdon, England. For the fiscal year ended June
30, 1995 ("fiscal 1995") the results of operations in England were included for
the entire year.
The Company believes that its results of operations in prior periods
may not be indicative of results in future periods. Future operating results may
be affected by a wide range of factors and may fluctuate significantly from
period to period.
The Company reports the results of two business segments, battery sales
and technology contracts. Technology contracts include technological and
research and development services to government agencies and other third
parties. In fiscal 1996, 1995 and 1994, revenue from technology contracts
represented approximately 16%, 23%, and 46% respectively, of the total revenues.
The Company expects revenues from technology contracts as a percentage of total
revenues to continue to decrease as battery sales increase and sales of
technology to the China Development Program are completed. Certain of the
Company's research and development costs are absorbed by certain of its
technology contracts, including those with the U.S. government.
31
<PAGE>
The Company believes that the relatively moderate rate of inflation in
recent years has not had a significant impact on the Company's revenues or
profitability.
1996 1995 1994
------------ ------------ ------------
Net Sales by
Business Segment
----------------
Battery sales $ 12,624,000 $ 11,213,000 $ 2,889,000
Technology contracts 2,478,000 3,430,000 2,425,000
------------ ------------ ------------
Total revenue $ 15,102,000 $ 14,643,000 $ 5,314,000
Earnings (Loss) by
Business Segment
------------------
Batteries $ (5,011,000) $ (3,347,000) $ (3,622,000)
Technology contracts 524,000 413,000 643,000
General administration 1,248,000 (458,000) (158,000)
------------ ------------ ------------
Net loss $ (3,239,000) $ (3,392,000) $ (3,137,000)
Results of Operations
Fiscal Years Ended June 30, 1996 and 1995
Total revenues increased by $458,000 or 3% to $15,102,000 during the
year ended June 30, 1996 (fiscal 1996) from $14,643,000 for the year ended June
30, 1995 (fiscal 1995). Sales of batteries increased to $12,624,000 during
fiscal 1996 from $11,213,000 for the same period of the prior year, an increase
of 13% or $1,411,000. Revenues from technology contracts decreased by $953,000
or 28% to $2,478,000 for fiscal 1996 from $3,431,000 for fiscal 1995. The
increased battery revenues were generated by the U.S. operations where sales of
primary batteries rose 69% reflecting a substantial increase in the number of
batteries sold to both existing and new customers. In the U.K. operations,
battery sales declined 36% primarily as a result of a fire which occurred during
the year. Technology contract revenues declined as the Company's contract
relating to the establishment of a battery manufacturing facility in The Peoples
Republic of China is in its final stage.
The cost of products sold increased to $13,254,000 for fiscal 1996 from
$12,774,000, an increase of $480,000 or 4%. As a ratio to revenues, the cost of
products sold was 88% for fiscal 1996 and 87% for fiscal 1995. Cost of products
sold related to battery sales increased to $12,317,000 or 98% of revenues for
fiscal 1996 compared to $10,900,000 or 97% for fiscal 1995. Manufacturing
operations in the U.S. improved slightly in fiscal 1996 compared to the prior
year. This net improvement occurred despite a production slowdown in the fourth
fiscal quarter caused by reduced levels of battery sales. In the U. K., the cost
of batteries sold increased substantially during fiscal 1996 when compared to
1995 primarily due to a fire during the year. Technology contract cost of
products sold decreased to $936,000 or 38% of revenues during fiscal 1996 from
$1,873,892 or 55% of revenues for the same period of the prior year. The
increased gross margin during fiscal 1996 reflects payments received for
development funding and extension of the period of exclusivity until the end of
calendar 1998 from one of the world's leading cellular telephone manufacturers.
These payments had no associated cost of products sold.
32
<PAGE>
Total operating expenses increased to $8,682,000 for fiscal 1996 from
$6,948,000 for the same period of the prior year; an increase of $1,734,000 or
25%. Of this total, selling, general and administrative expenses increased
$731,000 or 17% due to additional costs to promote battery sales. Research and
development increased to $3,689,000 during fiscal 1996 from $2,685,000 for
fiscal 1995; an increase of $1,003,000 or 37%. This increased cost is
associated with continuing support of the Company's rechargeable battery
program. The Company has expended funds to continue development of the
lithium-ion solid-state rechargeable battery in anticipation of market
introduction during fiscal 1997.
Net interest income increased to $2,017,000 during fiscal 1996 from
$1,722,000 for fiscal 1995 due to increasing interest rates during the twelve
month period. The Company realized a gain on the sale of 123,200 shares of
Intermagnetics General Corporation (IMG) common stock it sold during the year.
As of September 30, 1996, the Company owns 339,016 shares of common stock of
IMG. This includes a 2% stock dividend declared to IMG shareholders of record as
of August 1, 1996. During fiscal 1996, the Company provided a reserve against
possible uninsured expenses related to the fire which occurred at the U.K.
operations during fiscal 1996.
Net loss per common share decreased during fiscal 1996 to $0.41 based
on 7,814,302 weighted average number of shares outstanding from $0.50 per share
based on 6,747,374 weighted average number of shares outstanding during fiscal
1995. The modest increase in revenues, 3%, was offset by additional cost of
products sold so that gross profit for fiscal 1996 was unchanged from 1995.
Additional operating expenses, primarily research and development to support the
Company's developmental lithium-ion solid-state rechargeable battery resulted in
an increased loss from operations during fiscal 1996 when compared to 1995. This
increased loss from operations was more than offset by the realized gain from
the sale of securities and additional interest income. As a result, net loss for
fiscal 1996 was $3,239,000 compared to $3,392,000 for fiscal 1995.
33
<PAGE>
Fiscal Years Ended June 30, 1995 and 1994
Total revenues increased by $9,329,000 or 176% during fiscal 1995 to
$14,643,000 from $5,314,000 for fiscal 1994. This was principally due to an
increase of battery sales in the amount of $8,324,000 or 288% to $11,213,000
during fiscal 1995 from $2,889,000 for fiscal 1994. This increase is primarily
attributable to revenues generated by the Company's subsidiary located in
England. During 1995, $6,058,000 of battery sales were generated from these
operations compared to $275,000 for fiscal 1994. The increase in the
subsidiary's revenues resulted from inclusion of those operations for all of
fiscal 1995, but only one month during fiscal 1994. U.S. battery sales increased
by $2,541,000 or 97% to $5,155,000 for fiscal 1995 compared to $2,614,000 for
fiscal 1994. The increased revenues in the U.S. resulted from the sales of an
increased number of the Company's 9-volt batteries sold. Revenues generated by
technology contracts increased to $3,430,000 for fiscal 1995 compared to
$2,425,000 for the prior year. This increase of $1,005,000 or 41% was the result
of new contracts with a major telecommunications company and various U.S.
government agencies.
The cost of products sold increased to $12,774,000 for fiscal 1995 from
$4,949,000 for fiscal 1994. As a ratio to revenues, the cost of products sold
was 87% for fiscal 1995 and 93% for fiscal 1994. Cost of products sold related
to battery sales increased to $10,900,000 or 97% of revenues for fiscal 1995
compared to $3,168,000 or 110% of revenues for fiscal 1994. This improvement is
the result of increasing production efficiencies due to additional manufacturing
volume. Technology contracts cost of products sold experienced a modest increase
of $93,000 or 5% during fiscal 1995 to $1,874,000 for fiscal 1995 compared to
$1,781,000 for fiscal 1994.
Total operating expenses increased to $6,948,000 for fiscal 1995
compared to $4,360,000 for fiscal 1994. Selling, general and administration
expenses increased to $4,263,000 for fiscal 1995 from $2,879,000 for fiscal
1994; an increase of $1,384,000 or 48%. Approximately $760,000 of this increase
is attributable to the Company's U.K. subsidiary which was consolidated for an
entire year for fiscal 1995 but only a single month for fiscal 1994. The
remainder of the increased selling, general and administrative expenses was
caused by additional sales personnel and expenses to promote battery sales. The
Company anticipates that selling expenses will continue to increase in order to
support new products planned to be introduced during fiscal 1996 and afterwards.
Research and development expenses increased by $1,204,000 or 81% to $2,685,000
for fiscal 1995 compared to $1,481,000 for fiscal 1994. This increase is due
primarily to increased expenditures incurred to support the rechargeable battery
program and continuing efforts to develop other new products.
34
<PAGE>
Net interest income increased by $886,000 or 106% to $1,722,000 for
fiscal 1995 from $835,585 for fiscal 1994, due to interest earned for six months
on the funds generated by the Company's common stock offering in December, 1994.
Net loss per common share decreased to $0.50 in fiscal 1995, based on
6,747,374 weighted average number of shares outstanding, from a loss of $0.57
per share for fiscal 1994 with 5,498,749 weighted average number of shares
outstanding. Net revenue and gross margin showed significant improvement during
fiscal 1995 compared to 1994. However, operating expenses more than offset the
increased gross profit and increased net interest income so that net loss
increased by $254,000 or 8% to $3,392,000 for fiscal 1995 compared to $3,137,360
for the prior year.
Liquidity and Capital Resources
During fiscal 1996, the Company used $5,607,000 of cash in operating
activities as compared to $6,986,000 in fiscal 1995. The increase in the cash
used in operations was primarily the result of additional inventories and
receivables partially offset by an increase of trade payables depreciation and
amortization expenses. These expenditures are necessary to fund the record
levels of battery sales during fiscal 1996 and to position the Company for
increasing sales during fiscal 1997. In fiscal 1996, the Company used $6,694,000
to purchase property and equipment for its Newark, New York facility. Primarily
these funds were used to purchase manufacturing equipment for the Company's
rechargeable battery production line.
On June 10, 1994, the Company used $1,368,000 to purchase the Dowty
Assets.
In December 1994, the Company successfully completed its second public
offering of common stock. As a result of this secondary stock offering and an
initial public offering, the Company has more than $35,000,000 of cash, cash
equivalents and available-for-sale securities. The Company's current financial
position is adequate to maintain its current level of operations for
approximately two years.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as part of this Report are the financial
statements and supplementary data listed on Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On and effective as of April 16, 1996, Ultralife Batteries, Inc. (the
"Company") informed Ernst & Young LLP ("Ernst & Young"), independent certified
public accountants, that the Board of Directors of the Company (including the
Audit Committee thereof) had decided not to continue the engagement of Ernst &
Young, and had approved the engagement of Arthur Andersen LLP ("Arthur
Andersen") as the company's new independent certified public accountants to
audit the Company's financial statements (beginning with the fiscal year ending
June 30, 1996) and to assist the Company in the preparation of its annual and
other reports under the Securities Exchange Act of 1934, as amended.
Ernst & Young's reports on the financial statements for each of the
past two fiscal years of the Company ended June 30, 1995 and 1994, respectively
("Applicable Fiscal Years"), did not contain an adverse opinion or disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During the Applicable Fiscal Years and during the interim
period from June 30, 1995 through April 16, 1996, (the "Interim Period"), there
were no disagreements between the Company and Ernst & Young on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures, which, if not resolved to the satisfaction of Ernst &
Young, would have caused Ernst & Young to make reference to the matter in their
report. There were no reportable events, as that term is described in Item
304(a)(1)(iv) of Regulation S-K. In connection with the filing by the Company
of a Report on Form 8-K, dated April 16, 1996, Ernst & Young submitted a letter
addressed to the Securities and Exchange Commission in which it agreed with the
Company's foregoing statements.
As stated above, the Company has engaged, effective as of April 16,
1996, Arthur Andersen as its new principal independent certified public
accountant to audit the Company's financial statements (beginning with the
fiscal year ending June 30, 1996) and to assist in the preparation of annual,
quarterly and other reports. Prior to such engagement, the Company (including
any of its representatives or agents) did not consult with representatives of
Arthur Andersen regarding the application of accounting principles to a
specified transaction (either completed or proposed); or the type of audit
opinion that might be rendered on the Company's financial statements.
36
<PAGE>
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and directors are as follows:
Name Age Position
Bruce Jagid 56 Chairman and Chief Executive Officer
Martin G. Rosansky 58 Vice Chairman
Joseph N. Barrella 50 President, Chief Operating Officer and Director
Harold Kramer 57 Vice President of Administration and Corporate
Planning
Robert Cook 52 Controller and Chief Financial Officer
Stanley Lewin 65 Vice President of Operations
Daniel K. Schoenly 61 Vice President, Manufacturing Primary Batteries
James R. Sullivan 59 Vice President of Sales
John R. Welsh 59 Vice President-European Operations
Joseph C. Abeles 81 Treasurer and Director
Richard Hansen 56 Director
Arthur Lieberman 61 Secretary and Director
Carl H. Rosner 67 Director
Stuart Shikiar 50 Director
Directors and executive officers are elected annually and hold office
until their successors are elected and qualified, or until their earlier removal
or resignation.
Bruce Jagid, a founder of the Company, has been a director and the
Company's Chairman since March 1991 and its Chief Executive Officer since
January 1992. Mr. Jagid has over 25 years experience in the technical and
business aspects of the energy conversion field. Together with Mr. Rosansky, Mr.
Jagid founded Power Conversion, Inc. ("PCI") in 1970, where he was the President
until January 1989. PCI was sold to Hawker Siddely PLC in 1986. Since January
1989, Mr. Jagid has pursued private investment activities. Prior to joining PCI,
Mr. Jagid was employed at Leesona Moos Laboratories from 1965 to 1969 where, at
various times, he served as assistant marketing manager and director of
developmental engineering. Prior to joining Leesona Moos, he was a Senior
Analytical Engineer in the advanced power systems group at Pratt and Whitney
Aircraft. Mr. Jagid holds numerous patents in the area of battery technology and
has authored several publications on the subject.
Martin G. Rosansky, a founder of the Company, has been a director since
March 1991 and the Company's Vice Chairman since January 1992. Mr. Rosansky, a
co-founder of PCI in 1970, has 30 years experience in the engineering, design
and production of battery and fuel-cell systems. He was Chairman of the Board,
Secretary and Treasurer at PCI from 1970 to January 1989, when he left PCI to
pursue private investment activities. PCI was sold to Hawker Siddely PLC in
1986. Prior to joining PCI, Mr. Rosansky was a Research Engineer at American
Cyanamid Co., developing and fabricating new energy storage devices. Prior to
joining American Cyanamid Co., Mr. Rosansky was a staff engineer at Sonotone
Corporation, where his work was directed at the diversification of the company
product line through the development of new types of nickel-cadmium batteries,
electrochemical systems and associated ancillary equipment. Mr. Rosansky was a
project engineer at Leesona Moos Laboratories, where he designed, developed and
fabricated fuel cell modules and integrated fuel cell systems. Mr. Rosansky
holds numerous patents and has authored several publications in the field of
battery technology.
37
<PAGE>
Joseph N. Barrella, a founder of the Company, has been a director and
the Company's President since March 1991 and the Company's Chief Operating
Officer since October 1992. Prior thereto, Mr. Barrella spent seven years as
Director of Engineering at PCI, from May 1984 to January 1991. Mr. Barrella has
been involved in the development and manufacture of lithium batteries for more
than 20 years. Prior to joining PCI, Mr. Barrella was the lithium systems
project manager at Duracell, working on the initial development of the lithium
sulfur dioxide cells. Mr. Barrella began his career in 1968 as an engineer at
Grumman Aerospace where he remained for four years, working on the research and
development of high rate silver-zinc batteries. He holds a number of patents
relating to lithium battery designs and has authored several publications
relating to battery technology.
Harold Kramer has been the Company's Vice President of Corporate
Planning and Administration since March 1995. Mr. Kramer is a Chartered
Accountant with over 30 years experience directing and managing the financial
operations of businesses, primarily in the high technology and entertainment
fields. From August 1993 to March 1995, Mr. Kramer was the Vice President for
Live Entertainment of Canada, Inc., whose business is producing, licensing and
marketing musical works for live theater. Mr. Kramer was employed by
Intermagnetics General Corporation ("IGC" or "IMG") from September 1989 to 1993
where he held two positions, first as Senior Vice President of Corporate
Operations and then as Senior Vice President of Business Development. Mr.
Kramer's responsibilities with IMG included investments and directing their
business unit operations.
Robert Cook has been the Company's Controller since January 1992 and
Chief Financial Officer since October 1992. From October 1988 to January 1992,
Mr. Cook was Controller for Infodata Systems, Inc., a computer software and
consulting company. Mr. Cook, a Certified Public Accountant, worked as an
independent consultant from May 1987 to October 1988. From 1981 to 1987 Mr. Cook
worked at Bausch & Lomb, Inc., serving in various positions, including Area
Financial Manager, Manager of Financial Planning and Analysis and Manager of
Finance and Administration. Mr. Cook has also served as Controller for American
Hospital Supply Corp. from 1976 to 1981.
Stanley Lewin has been the Company's Vice President of Operations
since October 1991. Mr. Lewin has over 13 years of experience in the lithium
battery business. Prior to joining the Company, Mr. Lewin served in various
engineering and managerial positions at PCI from 1977 to September 1991. At PCI
he was responsible for overall plant operations including manufacturing and
production. While at PCI, Mr. Lewin was directly responsible for the
establishment of battery manufacturing facilities in New Jersey, Puerto Rico and
in the People's Republic of China.
Daniel K. Schoenly joined the Company as Vice President of Engineering
in May 1994. Currently his title is Vice President, Manufacturing Primary
Batteries. From January 1990 to May 1994, Mr. Schoenly was the Vice President of
Technical Materials, Inc., a subsidiary of Brush Wellman Inc. Prior thereto,
from 1982 to January 1990, Mr. Schoenly held various positions at Brush Wellman
Inc. Both Brush Wellman Inc. and Technical Materials, Inc. manufacture
engineered materials.
38
<PAGE>
James R. Sullivan has been the Company's Vice President-Sales, since
July 1996. From March 1995 through July 1996 he was President of C.C.
Communications, Inc., an advertising agency in New Jersey, was in charge of
market development for Holt Lloyd International, a car care products company in
the UK. Prior to that from November 1976 through November 1994, Mr. Sullivan was
Vice-President, in charge of sales and with additional responsibilities for
engineering and product development of Power Conversion, Inc., a manufacturer of
lithium batteries.
John R. Welsh has been the Company's Vice President of European
Operations and Managing Director of Ultralife Batteries (UK) Ltd since November
1995. Mr. Welsh has over 20 years experience of managing companies in the UK,
USA and Germany. From August 1988 until January 1995 he was Marketing and then
Divisional Manager for Hoppecke Batteries in Germany which developed and
manufactured high rate lithium manganese dioxide batteries, and from February
1995 to October 1995 he was Marketing Manager for industrial nickel cadmium
batteries at FRIWO Silberkraft, also in Germany. Prior to joining Hoppecke, Mr.
Welsh worked for 15 years for the German company Semikron, a manufacturer of
power semi conductors. He was Managing Director of Semikron UK from February
1972 until December 1980 and President of Semikron Inc. Hudson NH until July
1987. Between August 1987 and July 1988 Mr. Welsh was a consultant.
Joseph C. Abeles, a founder of the Company, has been a director and
Treasurer since March 1991. Mr. Abeles, formerly a director of PCI, is a private
investor and currently serves as a director of a number of companies, including
Intermagnetics General Corporation and Bluegreen Corporation (formerly Patten
Corporation). In 1951 he founded Kawecki Chemical Co. and served as Chairman and
CEO of Kawecki Berylco Industries from 1969 to 1978.
Richard Hansen has been a director since July 1993. Mr. Hansen has
been President and Chief Executive Officer of Pennsylvania Merchant Group Ltd,
an investment banking and venture capital firm, since 1987 and is a director of
Computone Corporation.
Arthur Lieberman has been a director and the Company's Secretary since
March 1991. Mr. Lieberman is a founder, and since 1981 has been the senior
partner, of Lieberman & Nowak, a legal firm specializing in intellectual
property law which for many years has represented clients in the battery
industry and related fields. Lieberman & Nowak has represented the Company in
connection with certain intellectual property matters. Mr. Lieberman is a
director of University Patents, Inc.
Carl H. Rosner, a director of the Company since January 1992, is the
Chairman, President, and Chief Executive Officer of IMG. Mr. Rosner has been
Chairman of IGC since its formation and President and Chief Executive Officer
since 1984.
Stuart Shikiar has been a director of the Company since April 1991. Mr.
Shikiar has been President of Shikiar Asset Management Inc. since November 1994.
From May 1993 to November 1994 Mr. Shikiar was a General Partner at Omega
Advisors. From February 1985 to May 1993, Mr. Shikiar was a Managing Director of
Prudential Securities Investment Management. Mr. Shikiar serves on the Board of
Bluegreen Corporation (formerly Patten Corporation) and IGC.
39
<PAGE>
Section 16(a) Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than ten percent of the Company's Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company during the fiscal year ended June 30,
1996, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with,
except that Richard Hansen was late in filing two reports covering 12 related
transactions, Ian Irving, a former officer, was late in filing a report covering
one transaction, Harold Kramer was late in filing his initial form 3, Stanley
Lewin was late in filing one report covering one transaction, Carl Rosner was
late in filing one report covering three transactions and Martin Rosansky was
late in filing one report covering four transactions.
40
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Compensation
The individuals named in the following tables include, as of June 30,
1996, the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company ("Named Executive Officers").
The following table sets forth information concerning the annual and
long-term compensation of the Named Executive Officers for all services in all
capacities to the Company and its subsidiary during the Company's fiscal years
ended June 30, 1996, 1995 and 1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------
Annual Compensation Awards Payouts
------------------------ -------------------------
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary ($) Bonus ($) sation($)(3) Awards($) SARs (#) Payouts ($) sation ($)
--------- ---- ---------- --------- ------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bruce Jagid 1996 $273,654 $ 0 $33,278 $0 6,000 0 $0
Chief Executive 1995 208,076 111,200 35,545 0 106,000 0 0
Officer 1994 81,733 0 34,869 0 156,000 0 0
Joseph Barrella 1996 149,808 0 30,649 0 6,000 0 0
President and 1995 139,996 15,000 31,002 0 6,000 0 0
Chief 1994 134,803 0 34,017 0 6,000 0 0
Operating
Officer
Harold Kramer (1) 1996 125,001 0 11,299 0 0 0 0
Vice President of 1995 40,866 0 940 0 50,000 0 0
Administration 1994 0 0 0 0 0 0 0
and
Corporate
Planning
Stanley Lewin 1996 110,000 0 11,692 0 0 0 0
Vice President of 1995 101,539 0 13,854 0 0 0 0
Operations 1994 96,045 0 11,876 0 0 0 0
Ian Irving (2) 1996 103,316 0 14,099 0 0 0 0
Vice President 1995 96,200 15,000 13,398 0 0 0 0
of Marketing 1994 90,688 0 12,628 0 0 0 0
and Sales
</TABLE>
(1) Hired February 27, 1995
(2) Terminated employment July 12, 1996
(3) The amounts reported in this column are summarized on the following table:
Bruce Joseph Harold Stanley Ian
Jagid Barrella Kramer Lewin Irving
Insurance 1996 $ 6,499 $ 6,499 $6,499 $ 6,499 $ 6,499
Insurance 1995 10,267 7,656 0 8,872 8,598
Insurance 1994 8,340 7,093 0 7,625 7,828
Automobile 1996 11,029 8,400 4,800 5,193 7,600
Automobile 1996 11,028 9,096 940 4,982 4,800
Automobile 1996 12,279 15,674 0 4,251 4,800
Directors Fees 1996 15,750 15,750 0 0 0
Directors Fees 1995 14,250 14,250 0 0 0
Directors Fees 1994 14,250 11,250 0 0 0
41
<PAGE>
The following table sets forth information concerning options granted
to the Named Executive Officers during the Company's fiscal year ended June 30,
1996
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential
Realizable Value at Assumed Annual Rates of
Individual Grants Stock Price Appreciation for Option Term (1)
- --------------------------------------------------------------------- ---------------------------------------------
% of
Number SARs Total
Securities Granted Options\
Underlying to Exercise
Options/ Employees or Base 0 % 5% 5% 10% 10%
SARs in Fiscal Price Expiration Stock Stock Dollar Stock Dollar
Name Granted (#) Year(6) ($/sh)(7) Date Price Price Gain(8) Price Gain (8)
- ---- ---------- --------- --------- ---------- ----- ----- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bruce Jagid 1,500 (2) 0.8% $24.50 Sep.30, 2000 $24.50 $31.27 $10,155 $39.46 $22,440
Chief 1,500 (3) 0.8% $24.00 Dec 31, 2000 $24.00 $30.63 $9,945 $38.65 $21,975
Executive 1,500 (4) 0.8% $14.75 Mar 31, 2001 $14.75 $18.83 $6,120 $23.76 $13,515
Officer 1,500 (5) 0.8% $14.25 Jun 30, 2001 $14.25 $18.19 $5,910 $22.95 $13,050
Joseph 1,500 (2) 0.8% $24.50 Sep.30, 2000 $24.50 $31.27 $10,155 $39.46 $22,440
Barrella 1,500 (3) 0.8% $24.00 Dec.31, 2000 $24.00 $30.63 $9,945 $38.65 $21,975
President & 1,500 (4) 0.8% $14.75 Mar.31, 2001 $14.75 $18.83 $6,120 $23.76 $13,515
Chief 1,500 (5) 0.8% $14.25 Jun.30, 2001 $14.25 $18.19 $5,910 $22.95 $13,050
Operating
Officer
Harold Kramer 0 0% 0 ----- $0 $0 $0 $0 $0
Stanley Lewin 0 0% 0 ----- $0 $0 $0 $0 $0
Ian Irving 0 0% 0 ----- $0 $0 $0 $0 $0
</TABLE>
(1) There is no assurance that the value realized by an employee will be at
or near the amount estimated using this model. These amounts rely on
assumed future stock price movements which cannot be predicted
accurately.
(2) Vested on the date of grant, September 30, 1995.
(3) Vested on the date of grant, December 31, 1995.
(4) Vested on the date of grant, March 31, 1996.
(5) Vested on the date of grant, June 30, 1996.
(6) 190,000 total number of options were granted to employees.
(7) Fair market value at date of grant.
(8) Fair market value of stock at end of actual option term, assuming annual
compounding at the stated rate, less the option price.
The following table sets forth certain information concerning the
number of shares of Common Stock acquired upon the exercise of stock options
during the Company's fiscal year ended June 30, 1996 and the number and value at
June 30, 1996 of unsecured stock options to purchase shares of Common Stock held
by the Named Executive Officers.
42
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Value of
Shares Value Number Unexercised Unexercised in the Money
Acquired on Realized Options/SARs at FY-End (#) Options/SARs at FY-End ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
---- ------------ -------- -------------------------- ----------------------------
<S> <C> <C> <C> <C>
Bruce Jagid 50,000 $537,500 257,000(2)/265,010 $1,043,125/$676,194
Joseph Barrella 52,500 $971,250 94,500/25,000 $315,000/$112,500
Harold Kramer 0 $0 10,000/40,000 $12,500/$50,000
Stanley Lewin 5,000 $80,000 26,000/29,000 $72,250/$29,000
Ian Irving 24,000 $258,000 0/36,000 $0/$55,000
</TABLE>
(1) Market value of Company's common stock at exercise or year-end, minus
the exercise price.
(2) Option to purchase 125,000 shares are not exercisable until ratified
by shareholders.
The Company has no long-term incentive plan. Consequently, there have
been no qualifying awards during the fiscal year ended June 30, 1996 Also, the
Company has no employee pension plans to which it makes contributions.
Employment Arrangements
Effective March 1, 1994, the Company and Mr. Bruce Jagid entered into
an employment agreement ("1994 Agreement"). Under the terms of the 1994
Agreement, Mr. Jagid's base salary was $200,000 per year. By an amendment to Mr.
Jagid's 1994 Agreement, entered into, effective August 24, 1995 ("1995
Amendment"), Mr. Jagid's base salary was increased to $250,000 per year,
effective retroactively to March 1, 1995. In accordance with the terms of the
1994 Agreement, the Company paid to Mr. Jagid a bonus in the amount of $111,200
during the year ended June 30, 1995. Effective March 1, 1996, Mr. Jagid's salary
was increased to $275,000 per year.
Pursuant to the 1994 Agreement, the Company granted to Mr. Jagid an
option to purchase 150,000 shares of Common Stock at a price of $11.00 per
share. This option expires on March 1, 2000 and will vest with respect to 30,000
shares on March 1, 1995, 1996, 1997, 1998 and 1999, provided that Mr. Jagid
remains an employee of the Company on each of such vesting date. Such options
will vest on each of such dates even if Mr. Jagid is no longer an employee of
the Company, unless prior to March 1, 1997: (i) the Company has terminated his
employment for cause or (ii) he has terminated his employment and such
termination is not as a result of a material breach of the terms of the
agreement.
43
<PAGE>
The option to purchase 150,000 shares of Common Stock granted to Mr.
Jagid pursuant to the 1994 Agreement was not ratified by the Company's
shareholders, nor was it issued as part of an option plan which was approved by
the shareholders of the Company, as required by the by-laws of the NASD Stock
Market, Inc. ("NASD"). In February, 1996, NASD informed the Company that this
will subject the Company to having its common stock de-listed if this problem is
not corrected. As a result, the Company and Mr. Jagid have entered into an
amendment to the 1994 Agreement wherein only the option to purchase 25,000
common shares of the Company will vest and that the balance of 125,000 shares
will become exercisable only if and when the option for the 150,000 shares are
ratified and approved by the shareholders of the Company. When the 1994
Agreement is ratified, all shares will vest and be exercisable on the dates and
under the terms of the 1994 Option, in accordance with the terms thereof. If the
Company's shareholders do not ratify the 1994 Option at the Company's
Shareholders Meeting currently scheduled for December, 1996, the Company will be
required to compensate Mr. Jagid for the loss incurred by him as a result of the
loss of the 1996 Options in such manner as both parties mutually agree. If Mr.
Jagid and the Company are unable to agree to the amount or manner of such
compensations after negotiating in good faith, the matter will be resolved by
binding arbitration by the American Arbitration Association.
As of March 1, 1995, the Company agreed, contingent on shareholder
approval, to grant Mr. Bruce Jagid an additional option to purchase 100,000
shares of Ultralife common stock at $14.25 per share. This option will vest in
20,000 share increments on March 1, 1996, 1997, 1998, 1999 and 2000 respectively
and will expire on March 1, 2001. Such shareholder approval was granted at the
December 7, 1995 annual shareholders' meeting.
The original term of Mr. Jagid's 1994 Agreement was three years
expiring on February 28, 1997, which term was extended by the 1995 Amendment by
three years, so as to terminate on February 28, 2000. Unless terminated for
cause, upon expiration of the agreement, Mr. Jagid will receive severance at the
rate of one month's salary for each year of employment with the Company, not to
exceed three months, prorated for partial years worked.
The Company has entered into an employment agreement dated January 18,
1991 with Mr. Joseph N. Barrella (the "Agreement"). The Agreement was amended as
of December 21, 1992 (the "Amendment"). The Agreement and the Amendment provide
that Mr. Barrella will serve as President, at an annual salary of $110,000 for
1991 and 1992, $125,000 for 1993, $135,000 for 1994, $145,000 for 1995 and
$155,000 for 1996. Subsequent to January 20, 1994, Mr. Barrella became an
"at-will" employee. The Agreement and Amendment provide that the Company will
provide to Mr. Barrella in addition to his compensation, (i) reimbursement for
an apartment in the Rochester, New York area to a maximum of $6,000 per year,
(ii) a leased automobile with a cost not to exceed $700 per month, and (iii)
granted Mr. Barrella an "incentive" Option to acquire 100,000 shares of Common
Stock of the Company under the Company's 1992 Stock Option Plan (discussed
below). The Company and Mr. Barrella have agreed that after December, 1996, Mr.
Barrella will no longer be reimbursed for an apartment in the Rochester, New
York area.
44
<PAGE>
In addition to the above compensation, each board member receives a
$750.00 monthly retainer as well as $750.00 for each board meeting attended. In
addition, commencing June 30, 1993, each director receives an option, at the end
of each calendar quarter to purchase 1,500 shares of the Company's common stock.
This option is granted to each director on the last day of the calendar quarter;
it vests immediately with a term of five years from the date of grant and is
granted at a purchase price equal to the closing price of the Common Stock on
the date of grant.
Stock Options
1991 Stock Option Plan. The Company's 1991 Stock Option Plan (the "1991
Plan") was adopted by the Board of Directors in September 1991 and provides for
the issuance of options to purchase up to 100,000 shares of Common Stock. The
1991 Plan terminates on September 12, 2001. Stock issuable upon the exercise of
any option may be authorized but unissued shares or reacquired shares of stock.
Shares subject to options granted under the 1991 Plan which have lapsed or
terminated may again be subject to options granted under the Company's 1992
Stock Option Plan (the "1992 Plan").
The 1991 Plan is administered by the Stock Option Committee. The Board
has the authority, subject to the provisions of the 1991 Plan, to interpret the
1991 Plan, to prescribe, amend, and rescind rules and regulations relating to
the 1991 Plan, to determine the terms and provisions of stock option agreements
thereunder, and to make all other determinations necessary or advisable for the
administration of the 1991 Plan.
45
<PAGE>
The 1991 Plan provides for the granting of options intended to qualify
as "incentive stock options" ("ISOs") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and "non-qualified stock options"
("NQSOs") to key employees of the Company, as well as NQSOs to consultants who
perform services for the Company. ISOs and NQSOs may be granted to employees
simultaneously and subject to a single stock option agreement, provided,
however, that in no event shall a NQSO be granted in tandem with an ISO such
that the exercise of one affects the right to exercise the other.
The exercise price per share of stock subject to an option granted to
an employee or consultant is determined by the Board, except that the exercise
price may not be less than 100% of the fair market value of the shares for an
ISO, or 85% of the fair market value of the shares for a NQSO. In addition, the
exercise price may not be less than 110% of the fair market value of the shares
for an ISO granted to any person who owns stock possessing more than ten percent
of the total combined voting power or value of all classes of stock of the
Company (a "Control Person"). Payment of the exercise price for options stated
under the 1991 Plan may be made in the manner provided in the particular stock
option agreement, including by surrender of shares of stock if permitted in such
agreement. Options may be for a period of not more than ten years from the date
of grant, subject to earlier termination on the optionee's death, disability, or
termination of employment or relationship with the Company. No ISO granted to a
Control Person may be exercised more than five years from the date of grant.
In the event of a "change in control" of the Company, as defined in
the 1991 Plan, all outstanding options, including options that have not vested,
become immediately exercisable subject to certain limitations. The 1991 Plan
defined a "change in control" to mean the occurrence of any one of the
following: (i) the acquisition of 30% or more of the voting power of the
Company's outstanding shares by a person; (ii) during any period of two
consecutive years, a change of 25% or more in the composition of the Board of
the Company in office at the beginning of the period except for changes approved
by at least two-thirds of the directors then in office who were directors at the
beginning of the period; (iii) the stockholders of the Company approve an
agreement providing for (A) a merger or consolidation of the Company with or
into another corporation, (B) a disposition of substantially all the assets of
the Company, (C) a liquidation or dissolution of the Company, (D) a statutory
exchange of voting shares of the Company, or (E) a statutory exchange of voting
shares of the Company held by existing stockholders.
The 1991 Plan provides that in the event of changes in corporate
structure, which in the judgment of the Board materially affect the value of
shares, the Board may determine the appropriate adjustment to the number and
class of shares and the exercise price per share for any outstanding option.
46
<PAGE>
As of June 30, 1996, options to purchase an aggregate of 90,500 shares
of Common Stock had been granted under the 1991 Plan, all at an exercise price
of $4.00 per share. All options granted under the 1991 Plan are NQSOs. No
options were granted, 62,100 options were exercised and 750 options were
canceled under the 1991 Plan during the fiscal year ended June 30, 1996. Of the
total options exercised, Mr. J. Barrella exercised 52,500 options at a price of
$4.00 per share.
The Board has the full authority to amend the l991 Plan, provided,
however, that no such action may adversely affect the rights of optionees. Any
stockholder approval necessary or desirable in order to comply with Rule 16b-3
under the Exchange Act or with Section 422 of the Code must be obtained in the
manner required therein.
1992 Stock Option Plan. The 1992 Plan was adopted by the Board of
Directors on October 13, 1992 and amended on July 22, 1993. The 1992 Plan has a
term of ten years. Subject to certain provisions, the number of shares of Common
Stock authorized for issuance upon the exercise of options granted under the
1992 Plan was increased to 1,150,000. Shares subject to options granted under
the 1992 Plan that have lapsed or terminated may again be subject to options
under the 1992 Plan. Furthermore, the Company may offer to exchange new options
for existing options, with the shares subject to the existing options being
again available for grant under the 1992 Plan.
The 1992 Plan is administered by the Compensation and Stock Option
Committee (the "Committee") which consists of not less than two directors who
are "Disinterested Persons," as that term is defined and interpreted pursuant to
Rule 16b-3 under the Exchange Act. The Committee members currently include
Arthur Lieberman, Carl Rosner and Joseph Abeles. Subject to the express
provisions of the 1992 Plan, the Committee has the authority to interpret the
1992 Plan, to prescribe, amend, and rescind rules and regulations relating to
the 1992 Plan, to determine the terms and provisions of stock agreements
thereunder and to make all other determinations necessary or advisable for the
administration of the 1992 Plan.
Key employees and consultants of the Company (including employees and
consultants who are also directors of the Company) are eligible to receive
options under the 1992 Plan. Key employees are eligible to receive ISOs and
NQSOs. Consultants are eligible to receive only NQSOs. The 1992 Plan confers
discretion on the Committee to select key employees and consultants to receive
options. The Committee determines the exercise price of the option granted,
except that the exercise price may not be less than 100% of the fair market
value of the shares for an ISO, or 85% of the fair market value of the shares
for a NQSO, on the date of grant. In addition, the exercise price may not be
less than 110% of the fair market value of the shares for an ISO granted to a
person who owns stock possessing more than ten percent of the total combined
voting power or value of all classes of stock of the Company (a "Control
Person"). The aggregate fair market value (determined at the time an ISO is
granted) of the stock, with respect to which ISOs are exercisable for the first
time by any employee during any calendar year under all plans of the Company,
may not exceed $100,000.
47
<PAGE>
The Committee determines the term of the option, except that no option
may have a term of more than ten years. No ISO granted to a Control Person may
have a term of more than five years. The Committee also determines whether an
option is exercisable in installments and whether the exercise price may be paid
in Common Stock, including Common Stock acquired pursuant to the option being
exercised.
The 1992 Plan provides for an automatic grant on the last day of each
calendar quarter starting on June 30, 1993, to each director on such date, of a
five-year NQSO to purchase 1,500 shares of Common Stock at an exercise price
equal to the closing price of the stock on the date of grant.
Options granted to key employees, consultants and directors may be
exercised within 90 days following the termination of an employee's employment
or a consultant's consulting relationship with the Company or a director's term
of office with the Company (unless the director continues to be an employee or
consultant of the Company). The Committee shall have the discretion to provide
that upon termination of an employee's employment or a consultant's consulting
relationship as a result of retirement, disability or death, such grantee or his
or her legal representative may exercise any outstanding and then exercisable
installments of his or her options for a period not to exceed: (i) one year from
the date of such termination in the case of death or permanent and total
disability, and (ii) three months from the date of such termination in the case
of retirement or other disability. In no event are options exercisable beyond
their stated terms.
All options granted under the 1992 Plan become exercisable upon a
"change in control" as defined in the 1992 Plan. The 1992 Plan defines "change
in control" to mean the occurrence of any of the following: (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% of more of the
voting power of the then outstanding securities of the Company; (ii) during any
period of two consecutive calendar years a change of 25% or more in the
composition of the Board of the Company in office at the beginning of the period
except for changes approved by at least two-thirds of the directors then in
office who were directors at the beginning) of the period; (iii) the
stockholders of the Company approve an agreement providing for (A) the merger or
consolidation of the Company with another corporation where the stockholders of
the Company, immediately after the merger or consolidation, would not
beneficially own, immediately after the merger or consolidation, shares entitled
such stockholders to 50% or more of all votes (without consideration of the
rights of any class of stock to elect directors by a separate class vote) to
which all stockholders of the corporation issuing cash or securities in the
merger or consolidation would be entitled in the election of directors or where
the members of the Board, immediately prior to the merger or consolidation,
would not, immediately after the merger or consolidation, constitute a majority
of the Board of Directors of the corporation issuing cash or securities in the
merger or consolidation or (B) the sale or other disposition of all or
substantially all the assets of the Company, or a liquidation, dissolution or
statutory exchange of the Company: or (iv) any person has commenced, or
announced an intention to commence, a tender offer or exchange offer for 30% or
more of the voting power of the then outstanding securities of the Company.
48
<PAGE>
The 1992 Plan provides that in the event of changes in corporate
structure which in the judgment of the Committee materially affect the value of
shares, the Committee may determine the appropriate adjustment to the number and
class of shares and the exercise price per share for any outstanding option.
As of June 30, 1996, options to purchase an aggregate of 851,000
shares of Common Stock had been granted under the 1992 Plan at exercise prices
ranging from $6.38 to $24.50 per share. Of such amounts, options to purchase
190,000 shares have been granted at prices ranging from $13.19 to $24.50 per
share, options to purchase 101,700 shares have been exercised at prices ranging
from $8.00 to $17.25 per share and options to purchase 36,000 shares have been
canceled during the fiscal year ended June 30, 1996. Mr. Rosansky exercised
options to purchase 50,000 shares at $8.00 per share and Irving exercised
options to purchase a total of 24,000 shares at $8.00 per share during the
fiscal year ended June 30, 1996.
The Company granted to each of Mr. Barrella, Mr. Jagid, the Company's
Chief Executive Officer, and Mr. Rosansky, the Company's Vice Chairman, options
under the 1992 Plan to purchase 1,500 shares during the fiscal year ended June
30, 1993 and 6,000 shares during the fiscal years ended June 30, 1996, 1995 and
1994, respectively, as a director of the Company. During the fiscal year ended
June 30, 1993, the Company granted to Mr. Rosansky options under the 1992 Plan
to purchase 100,000 shares of Common Stock at an exercise price of $8.00 per
share, which options vest at a rate of 25,000 shares on February 17 of 1994,
1995, 1996 and 1997.
49
<PAGE>
Other Stock Option Arrangements. As of June 30, 1994, options to
purchase an aggregate of 547,500 shares of Common Stock were outstanding under
various arrangements other than the 1991 Plan and the 1992 Plan("non-plan
options"), 100,000 of which were issued during the fiscal year ended June 30,
1995 to Mr. Jagid at an exercise price of $14.25 per share. No non-plan options
to purchase shares were issued or canceled during the fiscal year ended June 30,
1996. Non-plan options to purchase 55,000 shares were exercised, at a price of
$4.00 per share during the fiscal year ended June 30, 1996. Mr. Lewin exercised
a non-plan option to purchase 5,000 shares and Mr. Jagid exercised a non-plan
option to purchase 50,000 shares during the fiscal year ended June 30, 1996.
During the fiscal year ended June 30, 1993, Mr. Jagid was granted non-plan
options to purchase 300,000 shares of Common Stock, of which 75,000 are at an
exercise price of $4.00 per share which vest over two years and 225,000 are at
an exercise price of $9.75 per share which vest over five years. During the
fiscal year ended June 30, 1994, Mr. Jagid was granted non-plan options to
purchase 150,000 shares of Common Stock at an exercise price of $11.00 per share
which vest over five years. During the fiscal year ended June 30, 1994, Mr.
Rosansky exercised non-plan options to purchase 37,500 shares at an exercise
price of $4.00 per share which were granted during the fiscal year ended June
30, 1991. See "Employment Arrangements" for further details regarding the
options granted to Messrs. Jagid and Rosansky.
50
<PAGE>
401(k) Plan
The Company established a profit sharing plan under Sections 401(a) and
401(k) of the Code (the "401(k) Plan"), effective as of June 1, 1992 which was
amended effective as of January 1, 1994. All employees in active service which
have completed six consecutive months of service or were participating in the
401(k) Plan as of January 1, 1994, not otherwise covered by a collective
bargaining agreement (unless such agreement expressly provides that those
employees are to be included in the 401(k) Plan), are eligible to participate in
the 401(k) Plan. Eligible employees may direct that a portion of their
compensation, up to a maximum of 20% be withheld by the Company and contributed
to their account under the 401(k) Plan. The 401(k) Plan permits, but does not
require, additional contributions for non-highly compensated employees to the
401(k) Plan by the Company. The Company has not made any such contributions
through the fiscal year ended June 30, 1996. In April, 1996 the Board of
Directors authorized a Company matching contribution up to a maximum of 1 1/2%
of an employee's annual salary for the calendar year ended December 31, 1996 and
3% for subsequent calendar years. All 401(k) contributions are placed in a trust
fund to be invested at the trustee's discretion, except that the Company may
designate that the funds be placed and held in specific investment accounts
managed by an investment manager other than the trustee. Amounts contributed to
employee accounts by the Company or as compensation reduction payments, and any
earnings or interest accrued on employee accounts, are not subject to federal
income tax until distributed to the employee, and may not be withdrawn (absent
financial hardship) until death, retirement or termination of employment.
51
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the
beneficial ownership of shares of the Company's Common Stock as of September 15,
1996 by (i) each person known by the Company to beneficially own more than five
percent of the outstanding shares of Common Stock, (ii) each director of the
Company, and (iii) all directors and officers of the Company as a group. Except
as otherwise indicated, the persons named in this table have sole voting power
with respect to all shares of Common Stock owned based upon information provided
to the Company by the directors, officers and principal stockholders and their
addresses are the address of the Company.
Number of Shares Percent Beneficially
Name Beneficially Owned Owned
- ---- ------------------ --------------------
Intermagnetics General
Corporation
450 Old Niskayuna Rd.
Latham, NY 12210-0461 (1) 996,086 12.53%
Joseph Abeles (2) 259,000 3.26%
Joseph Barrella (3) 287,000 3.58%
Bruce Jagid (4) 452,800 5.53%
Richard Hansen (5) 25,000 0.31%
Arthur Lieberman (6) 127,000 1.59%
Martin Rosansky (7) 137,000 1.71%
Carl Rosner (8) 996,086 12.53%
Stuart Shikiar (9) 104,500 1.31%
All directors and officers
as a group (14 persons) (10) 2,465,386 28.99%
(1) Includes 833 shares and options to purchase 19,500 shares which may be
exercised within 60 days beneficially owned by Mr. Carl H. Rosner. Mr.
Rosner is the Chairman, President and Chief Executive Officer of
Intermagnetics General Corporation ("IMG"). Therefore, IMG may be deemed to
share voting and investment power with respect to the shares and shares
issuable upon the exercise of options held by Mr. Rosner. IMG disclaims
beneficial ownership of the shares and shares issuable upon the exercise of
options owned by Mr. Rosner.
(2) Includes 19,500 shares subject to options which may be exercised within 60
days, 12,000 shares owned by Abeles Associates Inc. and 25,000 shares held
by Mr. Abeles' spouse, as to which Mr. Abeles disclaims beneficial
ownership. Excludes 996,086 shares beneficially owned by IMG. Mr. Abeles is
a director of lMG and therefore may be deemed to share voting and
investment power with respect to the shares held by IMG. Mr. Abeles
disclaims beneficial ownership of the shares owned by IMG.
52
<PAGE>
(3) Includes 94,500 shares subject to options which may be exercised within 60
days.
(4) Includes 257,000 shares subject to options which may be exercised within 60
days, 125,000 of which are not exercisable, unless and until the grant of
such options is approved by the shareholders of the Company. Includes 3,000
shares held in trust for Mr. Jagid's children of which he disclaims
beneficial ownership.
(5) Includes 18,000 shares subject to options which may be exercised within 60
days. Includes 2,000 shares owned by minor children of which Mr. Hansen
disclaims beneficial ownership. Does not include shares held by
Pennsylvania Merchant Group Ltd as a market-maker. Mr. Hansen is President
and Chief Executive Officer of Pennsylvania Merchant Group Ltd and
therefore may be deemed to share voting and investment power.
(6) Includes 39,500 shares subject to options which may be exercised within 60
days and 52,500 shares held by the Arthur M. Lieberman P.C. profit sharing
plan.
(7) Includes 44,500 shares subject to options which may be exercised within 60
days.
(8) Includes 19,500 options to purchase shares which may be exercised within 60
days and 975,753 shares owned by IMG. Mr. Rosner is the Chairman, President
and Chief Executive Officer of IMG and therefore may be deemed to share
voting and investment power with respect to the shares held by IMG. Mr.
Rosner disclaims beneficial ownership of the shares owned by IMG.
(9) Includes 19,500 shares subject to options which may be exercised within 60
days. Does not include 171,100 shares held in customer accounts over which
Mr. Shikiar has investment power, but for which he disclaims beneficial
ownership. Excludes 996,086 shares beneficially owned by IMG. Mr. Shikiar
is a director of IMG and therefore may be deemed to share voting and
investment power with respect to the shares held by Mr. Shikiar Mr. Shikiar
disclaims beneficial ownership of the shares owned by IMG.
(10) Includes 580,000 shares subject to options which may be exercised within 60
days, 125,000 of which are not exercisable, unless and until the grant of
such options is approved by the shareholders of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements
Attached hereto and filed as part of this report are the financial
statements and schedules listed below:
Ultralife Batteries, Inc. and Subsidiary Page
Report of Independent Auditors, Arthur Andersen LLP...................... F-1
Report of Independent Auditors, Ernst & Young LLP........................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30,
1996 and 1995......................................................... F-3
Consolidated Statements of Operations for the
years ended June 30, 1996, 1995 and 1994.............................. F-5
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1996, 1995
and 1994.............................................................. F-6
Consolidated Statements of Cash Flows for the
years ended June 30, 1996, 1995 and 1994.............................. F-7
Notes to Consolidated Financial Statements............................... F-8
2. Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted as they are
either not required, are not applicable, or the information called for is shown
in the financial statements or notes thereto.
(b) Reports on Form 8-K
Effective April 16, 1996, the Company filed form 8-K reporting that
the Board of Directors and Audit Committee had engaged Arthur Andersen LLP as
independent certified public accountants in place of Ernst & Young LLP. This
change of independent certified public accountants began with the fiscal year
ending June 30, 1996.
(c) Exhibits. The following Exhibits are filed as a part of this
Report:
Exhibit Number Description
3.1 Form of Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1 filed December 23, 1992 (File No.
33-54470)).
54
<PAGE>
3.2 By-laws (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form 5-1 filed December
23, 1992 (File No. 33-54470)).
4.1 Specimen Copy of Stock Certificate for shares of Common
Stock (incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form 5-1 filed December
23, 1992 (File No. 33-54470)).
4.2 Share Purchase Agreement dated January 23, 1992 between the
Registrant and Intermagnetics General Corporation
(incorporated by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-1 filed December 23, 1992
(File No. 33-54470)).
10.1 Asset Purchase Agreement dated March 12, 1991 between the
Registrant, Eastman Technology, Inc. and Eastman Kodak
Company ("Kodak") (incorporated by reference to Exhibit 10.1
of the Company's Registration Statement on Form 5-1 filed
December 23, 1992 (File No. 33-54470)).
10.2 Lease Agreement dated as of March 12, 1991 as amended on
November 12, 1991 between Kodak and the Registrant
(incorporated by reference to Exhibit 10.2 of the Company's
Registration Statement on Form S-1 filed December 23, 1992
(File No. 33-54470)).
10.3 Joint Venture Agreement dated July 3, 1992 between Changzhou
Battery Factory, the Company and H&A Company and related
agreements (incorporated by reference to Exhibit 10.3 of the
Company's Registration Statement on Form S-1 filed December
23, 1992 (File No. 33-54470)).
10.4 Employment Agreement dated January 23, 1991 between the
Registrant and Joseph N. Barrella (incorporated by reference
to Exhibit 10.4 of the Company's Registration Statement on
Form S-1 filed December 23, 1992 (File No. 33-54470)).
10.5 Employment Agreement dated January 1, 1992 between the
Registrant, Bruce Jagid and Martin G. Rosansky (incorporated
by reference to Exhibit 10.5 of the Company's Registration
Statement on Form S-1 filed December 23,1992 (File No.
33-54470)).
10.6 1991 Stock Option Plan (incorporated by reference to Exhibit
10.6 of the Company's Registration Statement on Form S-1
filed December 23, 1992 (File No. 33-54470)).
55
<PAGE>
10.7 Form of 1992 Stock Option Plan as amended and approved by
the Company's shareholders at the annual meetings on
December 7, 1993 and December 7, 1995.
10.8 Form of Representative's Warrant exercisable for purchase of
Common Stock (incorporated by reference to Exhibit 10.8 of
the Company's Registration Statement on Form S-1 filed
December 23, 1992 (File No. 33-54470)).
10.9 Form of Stock Option Agreement under the Company's 1991
Stock Option Plan (incorporated by reference to Exhibit 10.9
of the Company's Report on Form 10-Q for the fiscal quarter
ended December 31, 1993 (File No. 0-20852)).
10.10 Form of Stock Option Agreement under the Company's 1992
Stock Option Plan for in options (incorporated by reference
to Exhibit 10.10 of the Company's Report on Form 10-Q for
the fiscal quarter ended December 31, 1993 (File No.
0-20852)).
10.11 Form of Stock Option Agreement under the Company's 1992
Stock Option Plan for non-qualified options (incorporated by
reference to Exhibit 10.11 of the Company's Report on Form
10-Q for the fiscal quarter ended December 31, 1993 (File
No. 0-20852)).
10.12 Stock Option Agreement dated April 29, 1992 between the
Company and Stanley Lewin (incorporated by reference to
Exhibit 10.12 of the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1993 (File No. 0-20852)).
10.13 Stock Option Agreement dated January 23, 1992 between the
Company and Joseph Abeles (incorporated by reference to
Exhibit 10.13 of the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1993 (File No. 0-20852)).
10.14 Stock Option Agreement dated April 24, 1991 between the
Company and Stuart Shikiar (incorporated by reference to
Exhibit 10.14 of the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1993 (File No. 0-20852)).
10.15 Stock Option Agreement Dated August 13, 1991 between the
Company and Stuart Shikiar (incorporated by reference to
Exhibit 10.15 of the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1993 (File No. 0-20852)).
10.16 Stock Option Agreement dated October 24, 1992 between the
Company and Bruce Jagid (incorporated by reference to
Exhibit 10.16 of the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1993 (File No. 0-20852)).
56
<PAGE>
10.17 Various amendments, dated January 4, 1993 through January
18, 1993, to the joint venture agreement with the Changzhou
Battery Company (incorporated by reference to Exhibit 10.17
of the Company's Report on Form 10-Q for the fiscal quarter
ended December 31, 1993 (File No. 0-20852)).
10.18 Sale of Business Agreement, by and between Dowty Group PLC
and Ultralife (UK), dated June 10, 1994 (incorporated by
reference to Exhibit 10.18 of the Company's Current Report
on Form 8-K dated June 10, 1994 (File No. 0-20852)).
10.19 Technology Transfer Agreement, effective as of November 1,
1993, relating to Lithium Batteries. (Confidential treatment
has been requested as to certain portions of this
agreement.) (incorporated by reference to Exhibit 10.19 of
the Company's Registration Statement on Form S-1 filed on
October 7, 1994 (File No. 33-84888).
10.20 Technology Transfer Agreement, effective as of May 1, 1994,
relating to Lithium Batteries. (Confidential treatment has
been requested as to certain portions of this agreement.)
(incorporated by reference to Exhibit 10.20 of the Company's
Registration Statement on Form S-I filed on October 7, 1994
(File No. 33-84888).
10.21 Employment Agreement dated March 1, 1994 between the
Registrant and Bruce Jagid.
10.22 Amendment, dated August 24, 1995, to the Employment
Agreement dated March 1, 1994 between the Registrant and
Bruce Jagid
10.23 Amendment, dated March 29, 1996, to the Employment Agreement
dated March 1, 1994 between the Registrant and Bruce Jagid
10.24 Amendment, dated April 2, 1996, to the Agreement, effective
as of November 30, 1994, relating to rechargeable batteries.
(Confidential treatment has been requested as to certain
portions of this agreement.) (incorporated by reference to
Exhibit 10.24 of the Company's Registration Statement on
Form S-1 filed on October 7, 1994 (File No. 33-84888).
10.25 Ultralife Batteries, Inc. Chief Executive Officer's Stock
Option Plan.
11 Statement Regarding Computation of Earnings Per Share.
23 Consent of Ernst & Young LLP.
57
<PAGE>
23.1 Consent of Arthur Andersen LLP.
(d) Financial Statement Schedules.
The following financial statement schedules of the
of the registrant are filed herewith:
Schedule Page
II Valuation and Qualifying Accounts S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ BRUCE JAGID
-----------------------------
Bruce Jagid
Chairman and
Chief Executive Officer
Dated: September 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: September 27, 1996 /s/JOSEPH N. BARRELLA
-----------------------------
Joseph N. Barrella
President, Director and
Chief Operating Officer
(Principal Executive Officer)
Date: September 27, 1996 /s/ ROBERT COOK
-----------------------------
Robert Cook
Chief Financial Officer
and Controller
(Principal Financial and
Accounting Officer)
Date: September 27, 1996 /S/ BRUCE JAGID
-----------------------------
Bruce Jagid (Director)
Date: September 27, 1996 /s/ JOSEPH C. ABELES
-----------------------------
Joseph C. Abeles (Director)
Date: September 27, 1996 /s/ RICHARD HANSEN
-----------------------------
Richard Hansen (Director)
Date: September 27, 1996 /s/ ARTHUR LIEBERMAN
-----------------------------
Arthur Lieberman (Director)
Date: September 27, 1996 /s/ MARTIN ROSANSKY
-----------------------------
Martin Rosansky (Director)
Date: September 27, 1996 /s/ CARL ROSNER
-----------------------------
Carl Rosner (Director)
Date: September 27, 1996 /s/ STUARY SHIKIAR
-----------------------------
Stuart Shikiar (Director)
59
<PAGE>
Page
----
Report of Independent Auditors, Arthur Andersen LLP ................... F-1
Report of Independent Auditors, Ernst & Young LLP ..................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1996 and 1995 .............. F-3
Consolidated Statements of Operations for the years ended June 30,
1996, 1995 and 1994 ................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1996, 1995 and 1994 ....................................... F-6
Consolidated Statements of Cash Flows for the years ended June 30,
1996, 1995 and 1994 ................................................ F-7
Notes to Consolidated Financial Statements ............................ F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Ultralife Batteries, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of Ultralife
Batteries, Inc. (a Delaware corporation) and subsidiary as of June 30, 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ultralife Batteries, Inc. and
subsidiary as of June 30, 1996, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements as of June 30, 1996, and for the year then ended is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Rochester, New York,
August 30, 1996
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Ultralife Batteries, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Ultralife
Batteries, Inc. and Subsidiary as of June 30, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended June 30, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14(a) as it pertains to
fiscal 1995 and 1994. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ultralife Batteries, Inc. and Subsidiary at June 30, 1995, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNEST & YOUNG LLP
Syracuse, New York
August 31, 1995
F-2
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1996 1995
---- ----
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 1,212,743 $ 1,734,146
Available-for-sale securities 21,839,692 25,664,146
Trade accounts receivable (less allowance for doubtful
accounts of $190,000 in 1996 and $88,277 in 1995) 3,485,044 2,859,582
Earned contract revenues receivable 1,422,235 1,311,942
Inventories 8,437,791 5,236,629
Prepaid expenses and other current assets 450,251 535,048
------------------------------------------
Total current assets 36,847,756 37,341,493
------------------------------------------
Property and equipment:
Machinery and equipment 12,419,928 5,843,294
Leasehold improvements 150,716 65,625
------------------------------------------
12,570,644 5,908,919
Less accumulated depreciation 1,882,106 1,209,040
------------------------------------------
10,688,538 4,699,879
------------------------------------------
Other assets and deferred charges:
Available-for-sale securities held to purchase
production equipment 12,016,593 19,338,136
Technology license agreements (net of accumulated
amortization of $303,458 and $133,594
in 1996 and 1995, respectively) 796,542 930,140
China development program 283,500 283,500
------------------------------------------
1,080,042 1,213,640
------------------------------------------
Total assets $ 60,632,929 $ 62,593,148
==========================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1996 1995
---- ----
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,434,473 $ 3,633,133
Accrued compensation 276,668 209,020
Other accrued liabilities 153,022 341,961
Contract billings in excess of costs
and estimated profit 334,000 452,000
------------------------------------------
Total current liabilities 4,198,163 4,636,114
------------------------------------------
Stockholders' equity
Preferred stock, authorized 1,000,000 shares,
$0.10 par value - none outstanding
Common stock, par value $0.10 per share, authorized
12,000,000 shares; outstanding -- 7,923,211 shares
in 1996 and 7,656,111 in 1995 792,322 765,612
Capital in excess of par value 64,630,638 63,222,031
Unrealized net gain on securities 3,842,878 3,516,369
Accumulated deficit (12,868,821) (9,629,469)
Foreign currency translation adjustment 37,749 82,491
------------------------------------------
Total stockholders' equity 56,434,766 57,957,034
------------------------------------------
Commitments and contingencies
------------------------------------------
Total liabilities and stockholders' equity $ 60,632,929 $ 62,593,148
==========================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Battery sales $12,623,646 $11,212,643 $ 2,889,193
Technology contracts 2,477,887 3,430,640 2,424,356
----------------------------------------------------------------------
Total Revenue 15,101,533 14,643,283 5,313,549
Cost of products sold:
Battery costs 12,317,486 10,900,049 3,167,653
Technology contracts 936,053 1,873,892 1,781,043
----------------------------------------------------------------------
Total costs of products sold 13,253,539 12,773,941 4,948,696
----------------------------------------------------------------------
Gross profit 1,847,994 1,869,342 364,853
Other operating expenses:
Selling, general and administrative expenses 4,993,644 4,262,545 2,879,085
Research and development expenses 3,688,687 2,685,313 1,481,211
----------------------------------------------------------------------
Total other operating expenses 8,682,331 6,947,858 4,360,296
----------------------------------------------------------------------
Loss from operations (6,834,337) (5,078,516) (3,995,443)
Other income (expense):
Interest income, net of interest expense of
$ -0-, $-0- and $49,725 in 1996, 1995,
and 1994, respectively 2,016,831 1,721,682 835,585
Gain on sale of securities 1,930,056
Provision for fire loss (351,902)
Miscellaneous (expense) income (34,844) 22,498
----------------------------------------------------------------------
Loss before income taxes (3,239,352) (3,391,678) (3,137,360)
Income taxes
----------------------------------------------------------------------
Net loss $(3,239,352) $(3,391,678) $(3,137,360)
======================================================================
Net loss per common share $ (0.41) $ (0.50) $ (0.57)
======================================================================
Weighted average number of shares
outstanding 7,814,302 6,747,374 5,498,749
======================================================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
$.10 Par Value
Common Stock
------------------------- Unrealized Foreign
Common Capital in Net (Loss)/ Currency
Number Stock Excess of Gain Accumulated Translation
of Shares Amount Par Value on Securities Deficit Adjustment Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 5,461,586 $ 546,159 $ 29,939,437 $ (246,915) $ (3,100,431) $27,138,250
Foreign currency translation adjustment $19,857 19,857
Unrealized net gain on securities 3,205,666 3,205,666
Shares issued under stock option plans
and other stock options 82,000 8,200 319,800 328,000
Net loss (3,137,360) (3,137,360)
------------------------------------------------------------------------------------------
Balance at June 30, 1994 5,543,586 554,359 30,259,237 2,958,751 (6,237,791) 19,857 27,554,413
Shares issued under public offering 2,000,000 200,000 35,300,000 35,500,000
Public offering expenses (2,902,927) (2,902,927)
Shares issued under stock option plans
and other stock options 112,525 11,253 565,721 576,974
Foreign currency translation adjustment 62,634 62,634
Unrealized net gain on securities 557,618 557,618
Net loss (3,391,678) (3,391,678)
------------------------------------------------------------------------------------------
Balance at June 30, 1995 7,656,111 765,612 63,222,031 3,516,369 (9,629,469) 82,491 57,957,034
Shares issued under stock option plans
and other stock options 267,100 26,710 1,408,607 1,435,317
Foreign currency translation adjustment (44,742) (44,742)
Unrealized net gain on securities 326,509 326,509
Net loss (3,239,352) (3,239,352)
------------------------------------------------------------------------------------------
Balance at June 30, 1996 7,923,211 $ 792,322 $ 64,630,638 $3,842,878 $(12,868,821) $37,749 $56,434,766
==========================================================================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
Consolidated Statements of Cash Flows
Ultralife Batteries, Inc. and Subsidiary
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net loss $ (3,239,352) $ (3,391,678) $(3,137,360)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 806,664 613,246 305,814
Provision for loss on accounts receivable 102,153 64,311 33,091
Provision for inventory obsolescence (403,789) 474,050 279,914
Gain on settlement with vendor (329,066)
Foreign currency loss (24,274) (3,211)
Changes in operating assets and liabilities:
Increase in trade accounts receivable (727,615) (1,575,053) (324,879)
(Increase) decrease in earned contract revenues
receivable (110,293) (1,195,142) 150,196
Increase in inventories (2,797,373) (3,979,424) (47,425)
Decrease (increase) in prepaid expenses and other
current assets 84,797 (59,844) 158,387
(Decrease) increase in accounts payable
and accrued liabilities (319,951) 1,987,001 330,960
(Decrease) increase in contract billings in excess of
costs and estimated profit (118,000) 100,493 351,507
--------------------------------------------------
Net cash used in operating activities (6,722,759) (6,986,314) (2,232,072)
Investing activities
Purchase of property and equipment (6,661,725) (1,839,558) (825,223)
China development program payments (121,500) (81,000)
Purchase of net assets of a business (1,367,550)
Purchase of technology license agreements (1,100,000)
Purchase of available-for-sale securities (71,151,177) (122,875,062) (7,261,921)
Sales of available-for-sale securities 19,260,164 24,969,843 10,461,773
Maturities of available-for-sale securities 63,363,519 74,398,379 2,692,835
--------------------------------------------------
Net cash provided by (used in) investing activities 4,810,781 (25,467,898) 2,518,914
Financing activities
Repayment of long-term debt (1,800,000)
Proceeds from issuance of common stock 1,435,317 33,174,047 328,000
Effect of exchange rate changes on cash (44,742) 24,179 (2,570)
--------------------------------------------------
Net cash provided by (used in) financing activities 1,390,575 33,198,226 (1,474,570)
(Decrease) increase in cash and cash equivalents (521,403) 744,014 (1,187,728)
Cash and cash equivalents at beginning of year 1,734,146 990,132 2,177,860
--------------------------------------------------
Cash and cash equivalents at end of year $1,212,743 $1,734,146 $990,132
==================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1996
1. Summary of Significant Accounting Policies
Description of Business
Ultralife Batteries, Inc. (the "Company") develops, manufactures, and markets
primary lithium batteries and is developing advanced rechargeable lithium
batteries for use in applications requiring high energy, reliable and
long-lasting power sources. The Company generally does not distribute its
product to a concentrated geographical area nor is there a significant
concentration of credit risks arising from individual or groups of customers
engaged in similar activities, or who have similar economic characteristics. In
1996, sales to one customer totaled approximately $ 1,920,000. By the end of the
year, this customer had paid their trade account in full. There were no
concentrations of credit risks in 1995, however, in 1994 sales to one customer
amounted to $390,000 and the accounts receivable at June 30, 1994 included
$195,000 from this customer. The Company does not normally obtain collateral on
trade accounts receivable.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Ultralife Batteries UK, Ltd.("Ultralife UK"). All
intercompany accounts and transactions have been eliminated in consolidation.
Acquisition of Business
On June 10, 1994, Ultralife UK , a newly formed wholly-owned subsidiary of the
Company purchased for $1,367,550 certain assets and the related business of the
Dowty Battery division of Dowty Group PLC (the "seller") in a business
combination accounted for as a purchase. The net assets included trade accounts
receivable, inventory, equipment, technology, accounts payable, accrued
expenses, records and contracts owned by the seller and used in the manufacture
of sea water activated, high rate lithium manganese dioxide and solid state
batteries, the assembly and distribution of products for other battery
manufacturers, and related research and development activities. Additionally,
F-8
<PAGE>
Ultralife UK incurred expenses of $331,833 related to the acquisition, which
resulted in an increase in property and equipment of the same amount.
The consolidated financial statements include operations of Ultralife UK for the
fiscal years 1996, 1995 and from the date of acquisition, June 10, 1994 to June
30, 1994.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed of," which
requires that impairment losses be recognized when the carrying value of an
asset exceeds its fair value. Although the Company is required to adopt the
standard in fiscal 1997, the Company regularly assesses all of its long-lived
assets for impairment; and therefore does not believe the adoption of the
standard will have a material effect on its financial position or results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes market value accounting and reporting standards
for stock-based employee compensation plans. Companies may elect to continue to
account for stock-based compensation using the "intrinsic value approach" under
Accounting Principles Board (APB) Opinion No. 25. Although the Company is
required to adopt the standard in fiscal 1997, it anticipates continuing to
follow APB No. 25, with pro forma disclosures required under SFAS No. 123.
Therefore, adoption will have no impact on its financial position or results of
operations.
Revenue Recognition
Revenues from sales of batteries are recognized when products are shipped.
Revenue on Technology Contracts
For a majority of its technology contracts, the Company recognizes revenue using
the percentage of completion method based on the relationship of costs incurred
to date to the total estimated cost to complete the contract. When a loss on a
contract is estimated, the full amount of the loss is recognized immediately.
Costs related to performance under various technology contracts are classified
F-9
<PAGE>
as research and development expenses of expenditures are consistent with the
ongoing research and development efforts of the Company. Under certain research
and development arrangements with the U.S. Government, the Company may be
required to transfer any technology developed to the U.S. Government.
Available-for-Sale Securities
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities are classified as
available-for-sale. These securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity or
in the case of mortgage-backed securities, over the estimated life of the
security. Such amortization is included in interest income. Realized gains and
losses, and declines in value judged to be other-than-temporary on
available-for-sale securities are included in available-for-sale securities
gains (losses). The cost of securities sold is based on the specific
identification method. Interest on securities classified as available-for-sale
is included in interest income.
Inventories
Inventories are stated at the lower of standard cost or market with cost
determined under the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment acquired under the asset purchase agreement and purchase
agreement have been recorded based on the fair market value of the assets
acquired. Subsequent purchases of plant and equipment are recorded at cost.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation
The Company provides for depreciation of plant and equipment over their
estimated useful lives of three to ten years. Depreciation is computed on the
straight-line method.
F-10
<PAGE>
Technology License Agreements
Technology license agreements consist of the rights to patented technology and
related technical information. The agreements are amortized by the straight-line
method over three (3) to ten (10) years. Additionally, the Company will be
required to make royalty payments at stated rates based on the terms of each
agreement. No royalty expense has been recognized to date.
Translation of Foreign Currency
The financial statements of the Company's foreign subsidiary are translated into
U.S. dollar equivalent in accordance with SFAS No. 52. There was no exchange
gain or loss included in net income for the years ended June 30, 1996 and 1995.
Exchange gain of $4,310 was included in net loss for the year ended June 30,
1994.
Income Taxes
The liability method 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.
Research and Development
Research and development expenditures are charged to operations as incurred.
Cash Equivalents
The Company considers all demand deposits with financial institutions and
financial instruments with original maturities of three months or less to be
cash equivalents.
Net Loss Per Common Share
Net loss per common share is computed based on the weighted average number of
common shares and common stock equivalents (if dilutive) outstanding during
each period.
F-11
<PAGE>
Management's Use of Judgment and Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Leases
The Company leases its principal facility under the terms of an operating lease
with an initial term of seven years. In 1995, the Company entered into an
agreement to amend the initial lease to reflect rental of an additional 40,333
square feet. The amendment extended the term of the lease to March 12, 2003. The
base rent is subject to a 4% annual increase. Under the terms of the lease the
Company has the right to lease additional space and also has the right to first
refusal of any offer made to the lessor to purchase the facility. Additionally,
the Company is liable for any environmental contamination that it creates during
the term of the lease.
In addition, Ultralife UK leases its principal facility under the terms of an
operating lease with an initial lease term of twenty-five years from a
subsidiary of Dowty Group PLC.
Rental expenses for all operating leases were $773,000, $760,091, and $403,035
for the years ended June 30, 1996, 1995, and 1994, respectively. Future minimum
lease payments under noncancelable operating leases as of June 30, 1996 are as
follows: 1997--$844,000; 1998--$807,000; 1999--$780,000; 2000--$742,000;
2001--$735,000; and thereafter--$2,100,000. The above amounts do not include
contingent or additional rent.
F-12
<PAGE>
3. Investments
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Cost Gains Losses Fair Value
----------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C>
June 30, 1996
U.S. Treasury securities and
obligations of U.S. Government
agencies $8,508,124 $24,445 $14,671 $8,517,898
Mortgage backed securities 1,008,153 2,007 1,010,160
U.S. corporate securities 18,343,214 14,585 12,214 18,345,585
----------------- ----------------- -------------- -------------------
Total debt securities 27,859,491 41,037 26,885 27,873,643
Intermagnetics General Corporation
(equity securities) 2,153,916 3,828,726 5,982,642
----------------- ----------------- -------------- -------------------
$30,013,407 $3,869,763 $26,885 $33,856,285
================= ================= ============== ===================
</TABLE>
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Cost Gains Losses Fair Value
----------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C>
June 30, 1995
U.S. Treasury securities and
obligations of U.S. Government
agencies $9,196,155 $37,932 $38,046 $9,196,041
Mortgage backed securities 2,376,323 29,027 2,405,350
U.S. corporate securities 26,961,183 52,150 26,909,033
----------------- ----------------- -------------- -------------------
Total debt securities 38,533,661 66,959 90,196 38,510,424
Intermagnetics General Corporation
(equity securities) 2,952,252 3,539,606 6,491,858
----------------- ----------------- -------------- -------------------
$41,485,913 $3,606,565 $90,196 $45,002,282
================= ================= ============== ===================
</TABLE>
The Company has instructed its investment fund managers to invest in
conservative, investment grade securities with average maturities of less than
three years. The gross realized gains on sales of available-for-sale securities
totaled $1,930,056,$-0-, and $2,832 and the gross realized losses totaled $-0-,
$77,699, and $8,267 for the years ended June 30, 1996, 1995, and 1994,
respectively. The 1996 gross realized gain related to the sale of 123,200 shares
of Intermagnetics General Corp. stock.
The amortized cost and estimated fair value of debt and marketable equity
securities at June 30, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the issuers of the
F-13
<PAGE>
securities may have the right to prepay obligations without prepayment penalties
or the Company may sell the securities to meet their ongoing and potential
future cash needs.
<TABLE>
<CAPTION>
Estimated
Available-for-Sale Cost Fair Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $24,045,755 $24,205,660
Due after one year through three years 3,682,997 3,667,983
----------------------------------------
27,728,752 27,873,643
Equity securities 2,153,916 5,982,642
----------------------------------------
$29,882,668 $33,856,285
</TABLE>
4. Income Taxes
Foreign and domestic loss carryforwards totaling approximately $14,487,000 are
available to reduce future taxable income. Foreign loss carryforwards of
$2,504,000 can be carried forward indefinitely. The domestic net operating loss
carryforward of $11,983,000 expires in 2006 through 2011. Due to a change in
ownership defined under Internal Revenue Code Section 382, $2,738,000 of the net
operating loss carryforward will be subject to an annual limitation of
$1,507,000.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The Company increased its
valuation allowance by approximately $1,843,000, $496,000 and $386,000 for the
years ended June 30, 1996, 1995 and 1994, respectively, to offset the deferred
tax assets due to uncertainty of realizations.
F-14
<PAGE>
Significant components of the Company's deferred tax liabilities and assets as
of June 30, are as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on securities $1,306,579 $869,813
Tax over book depreciation 497,797 284,907
------------------------------------------
Total deferred tax liabilities 1,804,376 1,154,720
------------------------------------------
Deferred tax assets:
Net operating loss carryforward 4,925,559 2,355,356
Other 377,030 455,015
------------------------------------------
Total deferred tax assets 5,302,589 2,810,371
Valuation allowance for deferred assets (3,498,213) (1,655,651)
------------------------------------------
Net deferred tax assets 1,804,376 1,154,720
------------------------------------------
Net deferred tax liabilities $0 $0
==========================================
</TABLE>
There were no income taxes paid for the years ended June 30, 1996, 1995 and
1994. For financial reporting purposes, loss from continuing operations before
incomes taxes included the following:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States $(1,605,015) $(2,743,611) $(2,915,049)
Foreign (1,634,337) (648,067) (222,311)
--------------------------------------------------------------------------------
Total $(3,239,352) $(3,391,678) $(3,137,360)
================================================================================
</TABLE>
There are no undistributed earnings of Ultralife UK, the Company's foreign
subsidiary, at June 30, 1996.
5. Commitments
In July 1992, the Company entered into a series of agreements with the Changzhou
Battery Factory ("the China development program agreements") in the Peoples
Republic of China ("PRC"). These agreements provide for the following:
o The establishment of a lithium battery plant in the PRC through the
transfer of technology, equipment, training and factory start-up services
from the Company to Changzhou Ultralife Power Industry Battery Co., Ltd.
(a PRC corporation formed for this program) for $6,030,000 in cash (of
which $5,568,436 has been paid to date).
F-15
<PAGE>
o Once the plant is operational the Company is required to purchase for
three years approximately 80% of the joint venture's annual production
which is expected to range from 8,000 to 30,000 batteries daily at a
price to be determined at the time of purchase (presently $1.50 per
battery). The price may change based on the market conditions and other
factors at the time of the purchase. The plant is expected to be
operational in 1997.
o The Company is required to pay $675,000 to the program. To date $472,500
has been paid. 60% of these payments will be amortized over the three
years that the Company is required to purchase the battery production.
During 1995, the Company opened an irrevocable letter of credit up to a
maximum of $100,000 with an interest rate of 6% a year and an expiration date of
September 30, 1996. It is collateralized by $100,000 of the Company's
investments. If the Company fails to pay the vendor's invoices within 10 days of
their stated terms, the vendor may draw the amount due. As of June 30, 1996,
there have been no draws on this irrevocable letter of credit.
The Company entered into an Indemnity Agreement with each member of its Board of
Directors and corporate officers in June 1993. The agreement provides that the
Company will reimburse directors or officers for all expenses, to the fullest
extent permitted by law and the Company by-laws, arising out of their
performance as agents or trustees of the Company.
As of June 30, 1996 the Company is committed to purchase approximately
$10,039,000 of production machinery and equipment.
6. Stock Options and Warrants
The stockholders of the Company have approved two stock option plans which
permit the grant of options. In addition, the stockholders of the Company have
approved the grant of options outside of either of the two plans. Under the 1991
stock option plan, 100,000 shares of common stock are reserved for grant to key
employees and consultants of the Company through September 13, 2001. The
exercise price per share shall be determined by the Board of Directors as
follows: (i) Incentive Stock Options (ISOs) shall not be less than 100% of the
fair market value at the date of grant; (ii) ISOs granted to holders of more
than 10% shall not be less than 110% of the fair market value at the date of
grant; and (iii) non-qualified stock options ("NQSOs") shall not be less than
F-16
<PAGE>
85% of the fair market value of a share at the date of grant. The exercise
period is to be determined at the time of grant but cannot exceed ten years
(five years from the time of grant if issued to a holder of more than 10%). All
options granted under the 1991 plan are NQSOs.
The stockholders of the Company have also approved a 1992 stock option plan
which is substantially the same as the 1991 stock option plan. Under the 1992
plan, 1,150,000 shares of common stock are reserved for grant to key employees
and consultants of the Company and its subsidiary through October 13, 2002.
Options granted under the 1992 plan are either ISO's or NQSO's; key employees
are eligible to receive ISO's and NQSO's; directors and consultants are eligible
to receive only NQSO's.
Effective March 1, 1995, the Company granted the Chief Executive Officer
("CEO") options to purchase 100,000 shares at $14.25 per share. The options are
exercisable in annual increments of 20,000 shares over a five year period
commencing March 1, 1996 until March 1, 2001. In addition, on March 1, 1994, the
Company granted options to the CEO under the terms of an employment agreement.
Options to purchase 150,000 shares at $11.00 per share have been granted. These
options are exercisable in annual increments of 30,000 shares over a five year
period commencing March 1, 1995 until March 1, 2000.
The options to purchase 150,000 shares of common stock granted to the CEO
pursuant to the 1994 Agreement was not ratified by the Company's shareholders,
nor was it issued as a part of an option plan which was approved by the
shareholders of the Company, as required by the by-laws of the NASD Stock
Market, Inc. (NASD). NASD has informed the Company that this will subject the
Company to having its common stock de-listed if this problem is not corrected.
As a result, the Company and the CEO have entered into an amendment to the 1994
Agreement wherein only the option to purchase 25,000 common shares will vest and
that the balance of the 125,000 shares will become exercisable only if and when
the option for the total 150,000 shares are ratified and approved by the
shareholders of the Company. When the 1994 option is ratified, all shares will
vest and be exercisable on the dates and under the terms of the 1994 Options, in
accordance with the terms thereof. If the Company's shareholders do not ratify
the 1994 Option at the Company's Shareholders Meeting currently scheduled for
December, 1996, the Company will compensate the CEO for the loss incurred by
him as a result of the loss of the 1996 Options in such manner as both parties
mutually agree. If CEO and the Company are unable to agree to the amount or
F-17
<PAGE>
manner of such compensations after negotiating in good faith, the matter will be
resolved by binding arbitration by the American Arbitration Association.
This table summarizes data for the stock options issued by the Company:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- ----------------------------- -----------------------------
Number Option Price Per Number Option Price Number Option Price
of Shares Share of Shares Per Share of Shares Per Share
------------ ------------------ ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at
beginning of year 1,259,975 $ 4.00-$18.25 1,130,000 $ 4.00-$14.00 938,500 $4.00-$ 13.25
Options granted 190,000 $ 13.19-$24.50 314,500 $13.00-$18.25 313,500 $8.75-$14.00
Options exercised (218,800) $ 4.00-$17.25 (112,525) $ 4.00-$ 8.00 (82,000) $4.00
Options canceled (36,750) $ 9.50-$20.25 (72,000) $ 6.38-$14.00 (40,000) $11.75
------------ ------------------ ------------ ---------------- ------------ ----------------
Shares under option at
end of year 1,194,425 $ 4.00-$24.50 1,259,975 $ 4.00-$18.25 1,130,000 $4.00-$14.00
------------ ------------------ ------------ ---------------- ------------ ----------------
Options exercisable at
end of year 570,125 $ 4.00-$24.50 531,100 $ 4.00-$18.25 366,875 $4.00-$ 13.75
------------ ------------ ------------
Unoptioned shares
available at end of
year 195,500 10,500 142,000
------------ ------------ ------------
</TABLE>
The Company had issued warrants to purchase 100,625 shares of its common stock.
Those warrants were exercised on September 21, 1995. The Company has reserved
2,154,625, 1,409,125, and 1,388,125 shares of common stock under the various
stock option plans and warrants as of June 30, 1996, 1995, and 1994,
respectively.
7. 401(K) Plan
On April 23, 1992, the Company established a defined contribution 401(k) plan
covering substantially all employees. Employees can contribute a portion of
their salary or wages as prescribed under Section 401(k) of the Internal Revenue
Code and, subject to certain limitations, the Company may, at the Board of
Directors discretion, authorize an employer contribution based on a portion of
the employees' contribution. There were no employer contributions for the fiscal
years ended June 30, 1996, 1995, or 1994.
F-18
<PAGE>
8. Inventories
The year-end composition of inventories were:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------
<S> <C> <C>
Raw materials $3,311,440 $2,705,437
Work in process 4,329,111 2,540,345
Finished products 1,589,981 1,187,377
--------------------------------------
9,230,532 6,433,159
Less: Reserve for obsolescence 792,741 1,196,530
--------------------------------------
$8,437,791 $5,236,629
</TABLE>
9. Stockholders' Equity and Related Party Transactions
During fiscal 1996, the shareholders of the Company ratified an amendment to the
Company's Certificate of Incorporation to change the authorized but unissued
preferred stock from no par to $0.10 par value per share. The Board of Directors
have the authority to fix by resolution the voting power, if any, designations,
preferences, privileges or other special rights of any series of preferred
stock. No shares of preferred stock have been issued.
The Company holds approximately 332,369 shares (market value of $5,982,642) and
455,569 shares (market value of $6,491,858) of Intermagnetics General
Corporation ("IMG"). IMG is considered to be a related party since certain
directors of the Company also serve also serve as officers or directors of IMG.
10. Business Segment Information
The Company's operations are classified into two business segments: batteries
and technology contracts. Operations within the battery segment include the
manufacture and sale of lithium batteries. The technology contract segment
includes revenue associated with the series of agreements with Changzhou as well
as various research and development contracts with the U.S. Government and other
companies. There are no inter-segment sales. U.S. sales to foreign customers
during 1996, 1995, and 1994 were $1,381,352, $608,427, and $613,330,
respectively.
F-19
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Business Segment Results
Net Sales:
Batteries $ 12,623,646 $ 11,212,643 $ 2,889,193
Technology contracts 2,477,887 3,430,640 2,424,356
------------ ------------ ------------
$ 15,101,533 $ 14,643,283 $ 5,313,549
============ ============ ============
(Loss) earnings before income taxes:
Batteries $ (5,010,631) $ (3,346,856) $ (3,621,829)
Technology contracts 524,180 413,523 643,313
Corporate administration 1,247,099 (458,345) (158,844)
------------ ------------ ------------
$ (3,239,352) $ (3,391,678) $ (3,137,360)
============ ============ ============
Depreciation and amortization:
Batteries $ 810,332 $ 613,246 $ 305,814
Technology contracts
Corporate administration
------------ ------------ ------------
$ 810,332 $ 613,246 $ 305,814
============ ============ ============
Identifiable assets:
Batteries $ 21,808,067 $ 12,796,090 $ 6,354,049
Technology contracts 2,121,544 2,525,582 1,315,179
Corporate administration 36,703,318 47,271,476 22,408,982
------------ ------------ ------------
$ 60,632,929 $ 62,593,148 $ 30,078,210
============ ============ ============
Capital expenditures:
Batteries $ 6,693,759 $ 1,839,558 $ 1,780,077
Technology contracts
Corporate administration
------------ ------------ ------------
$ 6,693,759 $ 1,839,558 $ 1,780,077
============ ============ ============
</TABLE>
Information concerning geographic area is as follows:
<TABLE>
<CAPTION>
Year ended June 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
North America $ 10,967,546 $ 8,202,047 $ 5,038,855
Europe 4,133,987 6,441,236 274,694
------------ ------------ ------------
$ 15,101,533 $ 14,643,283 $ 5,313,549
============ ============ ============
Loss before income taxes:
North America $ (1,605,015) $ (2,743,611) $ (2,915,049)
Europe (1,634,337) (648,067) (222,311)
------------ ------------ ------------
$ (3,239,352) $ (3,391,678) $ (3,137,360)
============ ============ ============
Identifiable assets
North America $ 56,367,177 $ 57,602,334 $ 27,561,444
Europe 4,265,752 4,990,814 2,516,766
------------ ------------ ------------
$ 60,632,929 $ 62,593,148 $ 30,078,210
============ ============ ============
</TABLE>
F-20
<PAGE>
11. Acquisition of Business
The following pro forma (unaudited) combined statement of operations for the
year ended June 30, 1994 assumes the acquisition had occurred on July 1, 1993:
<TABLE>
<CAPTION>
Ultralife
Ultralife Batteries Pro Forma Pro Forma
Batteries, Inc. (UK) Ltd. Adjustments Combined
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Battery sales $ 2,614,499 $2,782,632 $5,397,131
Technology contracts 2,424,356 2,424,356
---------------------------------------------------------------------
Total revenue 5,038,855 2,782,632 7,821,487
Cost of products sold:
Battery costs 2,887,520 3,265,500 (228,660)(A) 5,924,360
Technology contracts 1,781,043 1,781,043
---------------------------------------------------------------------
Total costs of products sold 4,668,563 3,265,500 (228,660) 7,705,403
---------------------------------------------------------------------
Gross profit (loss) 370,292 (482,868) 228,660 116,084
Selling, general and
administrative expenses 2,654,366 1,282,404 3,936,770
Research and development
expenses 1,481,211 1,481,211
---------------------------------------------------------------------
(3,765,285) (1,765,272) 228,660 (5,301,897)
Interest income, net of interest
expense of $49,725 835,585 (72,000)(B) 763,585
Miscellaneous income 22,498 22,498
---------------------------------------------------------------------
Loss before income taxes (2,907,202) (1,765,272) 156,660 (4,515,814)
Income taxes
---------------------------------------------------------------------
Net loss $(2,907,202) $(1,765,272) $ 156,660 $(4,515,814)
=====================================================================
Net loss per common Not Not
share $(.53) Applicable Applicable $(.82)
=====================================================================
Weighted average
number of shares Not Not
outstanding 5,498,749 Applicable Applicable 5,498,749
======================================================================
</TABLE>
F-21
<PAGE>
The accompanying pro forma (unaudited) combined statement of operations includes
adjustments to (increase) decrease pro forma combined losses before taxes as
follows:
(A) To adjust depreciation expense to reflect the lower cost basis resulting
from the acquisition.
(B) To reflect a reduction in the investment income due to payment of the
purchase price for Ultralife Batteries (UK) Ltd.
F-22
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Additions
------------------------------
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Classification of Period Expenses Other Accounts Deductions Period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 88,277 $103,568 $ 1,415(D) $ 190,430
Product warranty reserve $ 63,786 $89,504(C) $ 13,786 $ 139,504
Year ended June 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 53,631 $ 64,311 $ 29,665(A) $ 88,277
Product warranty reserve $ 111,491 $ 47,705(B) $ 63,786
Year ended June 30, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 37,533 $ 33,091 $ 16,993(D) $ 53,631
Product warranty reserve $ 15,643 $ 52,436 $43,412(E) $ 111,491
</TABLE>
(A) Recovery of accounts receivable balances previously reserved for.
(B) Reduction in reserve based on Company's experience
(C) Reduction to battery revenues.
(D) Write-off of accounts receivable balance.
(E) Reserve included in net assets of business acquired translated at the
year end exchange rate.
<PAGE>
EXHIBIT INDEX
10.23 Amendment, dated March 29, 1996, to the Employment Agreement
dated March 1, 1994 between the Registrant and Bruce Jagid
10.24 Amendment, dated April 2, 1996, to the Agreement, effective
as of November 30, 1994, relating to rechargeable batteries.
(Confidential treatment has been requested as to certain
portions of this agreement.) (incorporated by reference to
Exhibit 10.24 of the Company's Registration Statement on
Form S-I filed on October 7, 1994 (File No. 33-84888).
10.27 Ultralife Batteries, Inc. Chief Executive Officer's Stock
Option Plan.
10.26 Ultralife Batteries, Inc. 1992 Stock Option Plan.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.23
AMENDMENT TO
EMPLOYMENT AGREEMENT
AMENDMENT, dated, March 29, 1996, to EMPLOYMENT AGREEMENT dated as of
the 1st day of March, 1994, between ULTRALIFE BATTERIES, INC., a Delaware
corporation having a place of business at Route 81 South, Newark, New York (the
"Company"), and Bruce Jagid, c/o Coining Technologies 19 Fairfield Place, West
Caldwell, NJ ("Jagid").
W I T N E S S E T H :
WHEREAS, Jagid and the Company, entered an Employment Agreement, dated
as of March 1, 1994 (the "1994 Employment Agreement") which was amended by
amendment dated August 24, 1995 (the 1995 Amendment) and which so amended is
referred to herein as the "Amended 1994 Agreement";
WHEREAS, the 1994 Employment Agreement provided for the grant to Jagid
of an option to purchase 150,000 shares of the Company's stock (the "1994
Option"); and
WHEREAS, the 1994 Option was not submitted for approval by the
shareholders of the Company, nor was it issued as part of an option plan which
was approved by the Shareholders of the Company; and the NASD Stock Market, Inc.
("NASD") has informed the Company that this is in violation of the by-laws of
the NASD, which will subject the Company to having its commons stock de-listed
if this problem is not corrected, which would harm the Company and Jagid; and
WHEREAS the Company and Jagid wish to enter into the following
amendment in order to satisfy the requirements of the NASD and avoid delisting
of the Company's common stock
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Amendment. Notwithstanding anything provided to the contrary in the
1994 Employment Agreement or the 1995 Amendment, the 1994 option is hereby
amended to provide that only 25,000 shares of such option are currently
exercisable, and the balance of 125,000 shares will become exercisable only if
and when the option for 150,000 shares are ratified and approved by the
shareholders of the Company. When the 1994 Option is ratified, all shares will
vest and be exercisable on the dates and under the terms of the 1994 Option, in
accordance with the terms thereof, which shall mean, among other things that the
portion of the 1994 Option which vests on dates prior to the date hereof, will
remain vested even if Jagid were to die after the date hereof. The Company
undertakes to seek such ratification and approval at the next annual meeting of
shareholders of the Company. If the Company's shareholders do not ratify the
1994 Option at the Company's Shareholders Meeting at the end of 1996, the
Company will compensate Jagid for the loss incurred by him as a result of the
loss of the 1996 Option in such manner as the parties mutually agree. If Jagid
and the Company are unable to agree to the amount or manner of such compensation
after negotiating in good faith, the matter will be resolved by binding
arbitration in New York City by the American Arbitration Association
<PAGE>
pursuant to its rules. The Company will pay the AAA's fees for any such
arbitration.
2. Effect. The Amended 1994 Employment Agreement shall remain in
effect, and is not modified or amended except as expressly provided herein.
3. Miscellaneous. This Amendment will be governed by the laws of the
State of New York.
IN WITNESS WHEREOF, the parties have signed or caused this agreement to
be signed on its behalf, as of the date first set forth above.
ULTRALIFE BATTERIES, INC.
BY: /s/ Joseph C. Obeles
--------------------------
/s/ Bruce Jagid
-----------------------------
Bruce Jagid
2
<PAGE>
Exhibit 10.24
AMENDMENT TO THE AGREEMENT
of November 30, 1994 (hereinafter "Agreement") between
ULTRALIFE BATTERIES INC., whose registered office is at 1350 Route 88 South,
P.O. Box 622, Newark, New York 14513, USA, including its affiliated companies
(hereinafter "Ultralife"), and
* including its
affiliated companies (hereinafter * )
1. Definitions
"Exclusivity Period" new definition to read
* has exclusivity for all rechargeable batteries based on the Technology
until December 31, 1998, unless further extended or earlier terminated as set
forth in this Agreement.
2. Purpose of the Agreement
New Section 2.3. to read:
Because of the rapid development of the performance and cost of competing
battery technologies the parties agree that it is in their mutual interest that
Ultralife shall focus its efforts to develop and improve for * the Technology
used in the Product also after acceptance of the first Product. Ultralife's
roadmap for the development of Product performance, and availability and cost of
Products is in the amended Project Plan in Exhibit 1 hereto. Ultralife states
that this roadmap is their best and realistic estimation of performance
development. Each new generation of Product with improved performance is to be
accepted by * prior to shipment. The schedule and Product samples needed for
this are outlined in Exhibit 1.
3. Manufacturing and Purchasing
The amended Section 3.3. to read:
Ultralife will sell Products to * at prices not higher than set forth in
Exhibit 1 hereto. Ultralife recognizes the competive pressure on Product pricing
and is therefor aggressively driving the manufacturing cost down. Ultralife will
share any cost savings with * in the form of lower prices. In the unlikely
situation that Ultralife could not ship Products at prices not higher than set
forth in Exhibit 1, * can at its sole discretion choose whether to purchase
the Products at higher prices or not. The effects this has on * purchase
obligation and the Exclusivity Period are set forth In Section 3.8.
In the case that Ultralife would not be able to meet the schedule for shipping
Product with improved performance as set forth in Exhibit 1, or would be able to
ship Product with improved performance earlier than set forth in Exhibit 1, the
price for Product shipped shall be calculated as follows:
For a Product shipped within a specific time period (as outlined in Exhibit 1),
multiply the nomina1 capacity (in Wh) of Product shipped by the price per
capacity (in USD/Wh) for that time period.
Example: For Product shipped March 1997 to December 1997 the price is 1.60
USD/Wh. If the nominal capacity equals 4Wh the price per Product equals 4Wh x
1.60 USD/Wh = 6.40 USD per Product.
Ultralife Amendment/ * /ALPJ/March 28, 1996 Page 1 of 4
*Confidential Information Deleted
<PAGE>
A decreasing price trend is anticipated also after the time period covered in
Exhibit 1 hereto.
The payment shall be made in US Dollars against invoice as follows: date of
invoice + 60 days net.
The terms of delivery shall be FCA Ultralife's manufacturing site (Incoterms
1990)
Section 3.4 to be deleted entirely.
New Section 3.8 to read:
* will purchase a minimum of 5 million Products during the term of the
Agreement, provided the Products and delivery of the Products fulfill all of
the following criteria
1. Products are sold at prices no higher than set forth In Exhibit 1.
2. All Products meet the Specification and performance criteria as set forth
in Exhibit 1 and the cell specifications for particular Products as set
forth in Exhibit 2 and Exhibit 3 hereto, or alternatively criteria
separately agreed in writing by Ultralife and * in a new specification
for a particular Product.
3. All Products fulfill applicable safety standards, regulations and
requirements.
4. Products are available for delivery in volumes set forth in Exhibit 1.
5. Deliveries are made according to confirmed orders.
In the case Ultralife on one or several occasions cannot meet the above
criteria, * can at its sole discretion choose whether to purchase the
Products not meeting the criteria or not, and the total amount of Products not
meeting the criteria is to be subtracted from the minimum of 5 million Products
* would purchase if no default was at hand. In the case * selects not to
purchase the Products not meeting the above criteria, and after Ultralife has
paid back any remaining part of the prepayment outlined In section 5.1, the
Exclusivity Period will end and Ultralife will be free to offer Products based
on the Technology also into the Wireless Telecommunication Market. However,
before the end of the Exclusivity Period, as it was originally outlined in
section 4, Ultralife cannot offer or sell Products or Technology with a better
performance, a better price or otherwise at better terms than Ultralife offered
to *
4. EXCLUSIVITY
The amended Section 4.1 to read:
* will have the exclusivity for all rechargeable batteries based on the
Technology and manufactured or licensed by Ultralife in the Wireless
Telecommunication Market until December 31, 1998. In case of delay, caused by
Ultralife, to the amended Project Plan (Exhibit 1 hereto) delaying deliveries as
outlined in the Project Plan or in the Rolling Delivery Schedule with more than
three (3) months, the Exclusivity Period will be extended accordingly.
In the case (i) no deliveries of Products fully manufactured in the mass
production equipment have taken place by the end of March 1997 or (ii) ramp up
of mass production to an average manufacturing of 10,000 Products per day is not
achieved by the end of August 1997 * obtains the option to at its sole
discretion cancel its purchase obligation defined in section 3.8. With such
possible cancellation Ultralife has to pay back any remaining part of the
prepayment outlined in section 5.1 and after this the Exclusivity Period will
end in the case * after receiving the needed samples from Ultralife as
outlined in Exhibit 1, would not perform the qualification procedure of Product
within the schedule as outlined in Exhibit 1, the above deadlines will be moved
accordingly. In the case such delay, caused by * alone, would be more than
three (3) months the Exclusivity Period will end unless parties agree otherwise
and
Ultralife Amendment/ * /ALPJ/March 28, 1996 Page 2 of 4
<PAGE>
* purchase obligations under the Agreement shall cease. However, Ultralife
shall deliver to * Products ordered by * in accordance with the terms
agreed in this Agreement.
In order to maintain this exclusivity * agrees to purchase from Ultralife
all Products Ultralife manufactures and offers to sell to * according to the
arrangements described in section 3.2. As purchase made by * will also be
regarded all Products purchased by subcontractors appointed by * for this
purpose.
In the case * does not accept to purchase all Products meeting the
requirements of section 3.8 and offered in the Rolling Delivery Schedule the
Exclusivity Period will expire starting from the month * does not purchase
all Products in the Rolling Delivery Schedule.
5. PAYMENT FOR THE PROJECT
The amended section 5.1 to read:
For the completion of the Project, * will pay Ultralife an additional and
final $300,000. The payment is exclusive of VAT, and payable on the latest date
of signing this Amendment to the Agreement.
* will also make a prepayment of $334,000 for Products to be delivered to
* . The amount of this prepayment will be deducted from the price of the
first 4,750,000 Products (USD 0.07 per Product). The prepayment is payable after
Ultralife has provided * with a bank guarantee for this sum in a form
reflecting the terms of this Agreement and acceptable to both * and
Ultralife.
All costs for any product specific tooling for the first Product size as
separately agreed is included in the price of this Product and will be paid for
by * through Product purchases as outlined in section 3. For any additional
Product sizes as separately agreed, Ultralife will quote the needed tooling on a
cost basis and in case of * ordering the tooling, it will be paid for by
* Tooling paid for by * cannot be used for manufacturing for any other
party than * without the written consent of * at * sole discretion.
The parties agree that all other costs related to developing the Product and/or
Technology and applying the Product and/or Technology for pilot and mass
production shall be born solely by Ultralife, unless such costs are clearly
caused by *
Section 5.2 to be deleted entirely.
9. INDEMNITY
The amended Section 9.3 to read:
Notwithstanding any other provision of this agreement to the contrary. Ultralife
agrees to indemnify * against and hold * harmless from any and all
claims, suits, actions or demands asserted against * or asserted against any
of * direct or indirect customers, and against all liabilities, costs and
expenses incurred by * in connection therewith (including attorneys' fees
and all other costs relating to defense, settlement, payment, recall,
replacement and/or any other response to any such claims), arising directly or
indirectly from any claim that the Products are defective or that the Products
may or do cause injury or damage.
The foregoing indemnity is subject to the condition precedent that the damage
asserted does not result from any participation by * in the claimed defect
injury or damage and that * gives
Ultralife Amendment/ * /ALPJ/March 28, 1996 Page 3 of 4
<PAGE>
Ultralife prompt notice of any claim in excess of the replacement of the
particular batteries and affords Ultralife the opportunity to come in and defend
and settle any such claim with counsel of its own choosing * may
participate with its own counsel at its own cost.
12. TERM AND TERMINATION
12.1 This Agreement is valid until December 31, 1998, unless the parties
otherwise agree.
Exhibits:
The amended Project Plan is in Exhibit 1 hereto.
The cell specifications for "Product H" is Exhibit 2 hereto.
The cell specifications for "DCT-3" is Exhibit 3 hereto.
Otherwise the terms and conditions of the Agreement remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to the Agreement to
be executed and effective as of the date last written down below.
* ULTRALIFE BATTERIES INC.
Date: Date: 4/2/96
------------------------------ ----------------------------------
By: By: J. Barrella
-------------------------------- ------------------------------------
Name: Name: Joseph Barrella
------------------------------ ----------------------------------
Title: Title: President
----------------------------- ---------------------------------
Place: Place: Newark, N.Y.
----------------------------- ---------------------------------
Date: 4/2/96 Date: 4/2/96
------------------------------ ----------------------------------
By: * By: Stanley Lewin
-------------------------------- ------------------------------------
Name: * Name: Stanley Lewin
------------------------------ ----------------------------------
Title: Mgr. New Tech. Servicing Title: Vice President Operations
----------------------------- ---------------------------------
Place: Newark, N.Y. Place: Newark, N.Y.
----------------------------- ---------------------------------
Ultralife Amendment/ * /ALPJ/March 28, 1996 Page 4 of 4
<PAGE>
EXHIBIT 10.25
ULTRALIFE BATTERIES, INC.
1995 CHIEF EXECUTIVE OFFICER
STOCK OPTION PLAN
Section 1. Purpose. The Plan provides for the grant to Bruce Jagid
("CEO"), the Chief Executive Officer of Ultralife Batteries, Inc. (the
"Company"), who is in a position to contribute materially to the long-term
success of the Company, an option to acquire common stock of the Company in
accordance with the terms specified herein. The Company believes that this Plan
will cause the CEO to increase his interest in the Company's welfare, and aid in
retaining his services.
Section 2. Grant. Subject to Section 5 below, the Company grants to the
CEO, effective as of March 1, 1995, an option (the "Option") to purchase up to
100,000 shares of the Company's common stock, until March 1, 2001, for a price
of $14.25 per share, the closing price of such stock on February 28, 1995.
Section 3. Vesting. The Option will vest with respect of 20,000 shares
on March 1, on each of 1996, 1997, 1998, 1999, and 2000, provided that the CEO
remains an employee of the Company on each such vesting date. Once the right to
purchase a number of shares vests under the 1995 Option, such right shall remain
vested and the option to purchase such number of shares will remain exercisable
until March 1, 2001, notwithstanding any subsequent termination of the CEO's
employment with the Company.
Section 4. Assignment. The Option is not subject to anticipation, sale,
assignment, pledge, encumbrance or charge except by will or the laws of decent
and distribution and the Option is exercisable during the CEO's lifetime only by
the CEO.
Section 5. Required Approval. The Option is subject to approval of this
plan by the Company's shareholders at the Company's 1995 Annual Meeting of
Shareholders.
<PAGE>
Exhibit 10.26
ULTRALIFE BATTERIES, INC.
1992 STOCK OPTION PLAN
Section 1. Purpose.
The Plan authorizes the Committee (as hereafter defined) to provide key
Employees and Consultants of the Corporation and its Subsidiaries, who are in a
position to contribute materially to the long-term success of the Corporation,
with options to acquire common stock of the Corporation, in accordance with the
terms specified herein. The Corporation believes that this incentive program
will cause those persons to increase their interest in the Corporation's
welfare, and aid in attracting and retaining Employees and Consultants of
outstanding ability.
Section 2. Definitions.
Unless the context clearly indicates otherwise, the following terms,
when used in this Plan, shall have the meanings set forth in this Section:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Change in Control" shall mean the occurrence of any of the
following: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 30% or more of the voting power of the then outstanding
securities of the Corporation; (ii) during any period of two consecutive
calendar years there is a change of 25% or more in the composition of the Board
of the Corporation in office at the beginning of the period except for changes
approved by at least two-thirds of the Directors then in office who were
Directors at the beginning of the period; (iii) the stockholders of the
Corporation approve an agreement providing for (A) the merger or consolidation
of the Corporation with another Corporation where the stockholders of the
Corporation, immediately before the merger or consolidation, would not
beneficially own immediately after the merger or consolidation, shares entitling
such stockholders to 50% or more of all votes (without consideration of the
rights of any class of stock to elect Directors by separate class vote) to which
all stockholders of the corporation issuing cash or securities in the merger or
consolidation would be entitled in the election of directors or where the
members of the Board, immediately prior to the merger or consolidation,
constitute a majority of the Board of Directors of the Corporation issuing cash
or securities in the merger or consolidation or (B) the sale or other
disposition of all or substantially all the assets of the Corporation, or a
liquidation, dissolution or statutory exchange of the Corporation; or (iv) any
person has commenced, or announced an intention to commence, a tender offer or
exchange offer for 30% or more of the voting power of then-outstanding
securities of the Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
<PAGE>
(d) "Committee" shall mean a Committee of not less than two Directors
who are "Disinterested Persons," as that term is defined and interpreted
pursuant to Rule 16b-3 under the Exchange Act. The Committee shall be appointed
by and serve at the pleasure of the Board.
(e) "Consultant" shall mean any consultant of the Corporation or its
Subsidiaries.
(f) "Control Person" shall mean any person who, as of the date of grant
of an Option, owns (within the meaning of Section 422(b)(6) of the Code) stock
possessing more than ten percent of the total combined voting power or value of
all classes of stock of the Corporation or of any parent or Subsidiary.
(g) "Corporation" shall mean Ultralife Batteries, Inc., a Delaware
corporation.
(h) "Director" shall mean any member of the Board.
(i) "Employee" shall mean any employee of the Corporation or its
Subsidiaries, including Directors who are otherwise employed by the Corporation.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934 as it
may be amended from time to time.
(k) "Fair Market Value" shall mean for any day (i) if the Corporation
is a registrant under Section 12 of the Exchange Act, the closing price of the
Stock in the over-the-counter market, as reported through the National
Association of Securities Dealers Automated Quotation System or, if the stock is
listed or admitted to trading on any national securities exchange, the last
reported sale price on such exchange or, (ii) if the Corporation in not a
registrant under Section 12 of the Exchange Act, the price of the Stock will be
determined by the Board on the date of grant but will not be less than the par
value of such Stock.
(l) "Grantee" shall mean a Person granted an Option under the Plan.
(m) "ISO" shall mean an Option granted pursuant to the Plan to purchase
shares of the Stock and intended to qualify as an incentive stock option under
Section 422 of the Code, as now or hereafter constituted.
(n) "NQSO" shall mean an Option granted pursuant to the Plan to
purchase shares of the Stock that is not an ISO.
(o) "Options" shall refer collectively to NQSOs and ISOs subject to the
Plan.
<PAGE>
(p) "Parent" shall mean any parent of the Corporation as defined in
Section 424 of the Code.
(q) "Plan" shall mean this 1992 Stock Option Plan as set forth herein
and as amended from time to time.
(r) "Stock" shall mean shares of the Common Stock of the Corporation.
(s) "Subsidiary" shall mean any subsidiary corporation as defined in
Section 424 of the Code.
Section 3. Shares of Stock Subject to the Plan
Subject to the provisions of Section 8, the Stock which may be issued
or transferred pursuant to Options granted under the Plan shall not exceed
1,150,000 shares in the aggregate. Stock issuable upon the exercise of any
Option may be authorized but unissued shares or reacquired shares of Stock. If
any unexercised Options lapse or terminate for any reason, the Stock covered
thereby may again be optioned. More than one Option may be granted to one
person.
Section 4. Administration of the Plan.
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have the authority to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of stock option agreements
thereunder and to make all other determinations necessary or advisable for the
administration of the Plan. Any controversy or claim arising out of or related
to this plan or the Options granted thereunder shall be determined unilaterally
by, and at the sole discretion of, the Committee. The provisions of stock option
agreements for Options granted under Section 6 hereof may provide that, upon the
occurrence of a Change in Control specified in Section 2(b)(iii) hereof, the
Committee may require the cancellation for cash of outstanding Options or the
issuance of comparable replacement options granted by the surviving entity.
Section 5. Types of Options.
Options granted under the Plan may be of two types: ISOs and NQSOs. The
Committee shall have the authority and discretion to grant to an eligible
Employee either ISOs, NQSOs, or both, but shall clearly designate the nature of
each Option at the time of grant. Consultants shall only receive NQSOs.
<PAGE>
Section 6. Grant of Options to Employees, Consultants and Directors.
(a) Key Employees and Consultants of the Corporation and its
Subsidiaries shall be eligible to receive Options under the Plan. Employees
shall be eligible to receive ISOs and NQSOs; Consultants shall be eligible to
receive NQSOs only.
(b) The exercise price per share of Stock subject to an Option granted
to an Employee or Consultant shall be determined by the Committee, provided
however, (i) that the exercise price of each share subject to an ISO shall be
not less than 100% of the Fair Market Value of a share of the Stock on the date
such ISO is granted, (ii) that such exercise price shall not be less than 110%
of such Fair Market Value for any ISO granted to a Control Person, and (iii)
that the exercise price of each share subject to a NQSO shall be not less than
85% of the Fair Market Value of a share of the Stock on the date such NQSO is
granted.
(c) The term of each Option granted to an Employee or Consultant shall
be determined by the Committee, provided that no Option shall be exercisable
more than ten years from the date such Option is granted, and provided further
that no ISO granted to a Control Person shall be exercisable more than five
years from the date of Option grant.
(d) The Committee shall determine and designate from time to time the
Employees and Consultants who are to be granted Options, the nature of each
Option granted and the number of shares of Stock subject to each such Option.
(e) Notwithstanding any other provisions hereof, the aggregate Fair
Market Value (determined at the time the ISO is granted) of the Stock with
respect to which ISOs are exercisable for the first time by any Employee during
any calendar year under all plans of the Corporation and any Parent or
Subsidiary corporation shall not exceed $100,000.
(f) The Committee, in its sole discretion, shall determine whether any
Option granted to an Employee or Consultant shall become exercisable in one or
more installments and specify the installment dates. The Committee may also make
such other provisions, not inconsistent with the terms of this Plan as it may
deem desirable, including such provisions as it may deem necessary to qualify
any ISO under the provisions of Section 422 of the Code. The Committee, in its
discretion, shall have the power to accelerate the period or periods during
which Options become exercisable. Notwithstanding any determination by the
Committee regarding the exercise period of any Option granted to an Employee or
Consultant, all such Options shall immediately become exercisable upon a Change
in Control of the Corporation.
<PAGE>
(g) The Committee may, at any time, grant new or additional options to
any eligible Employee or Consultant who has previously received Options under
this Plan, or options under other plans, whether such prior Options or other
options are still outstanding, have been exercised previously in whole or in
part, or have been canceled. The exercise price of such new or additional
Options may be established by the Committee, subject to Section 6(b) hereof,
without regard to such previously granted Options or other options.
(h) Except as provided in Section 6(i) below, no Option shall be
granted under this Section 6 to an Employee or Consultant who is a Director
except by a Committee of not less than two persons having full authority to act
in the manner, all of whom are disinterested persons, as defined above.
(i) On the last day of each calendar quarter, commencing June 30, 1993,
there shall be granted to each director of the Corporation on such date,
including directors who are also employees of the Corporation, a NQSO to
purchase 1,500 shares of Stock, up until the fifth anniversary of the grant
date, for a price equal to the closing price of the Stock on the Grant Date.
These options will be deemed vested on the date that they are granted.
Section 7. Exercise of Options.
(a) Upon the exercise of any Option, the Grantee shall pay the exercise
price for the shares being purchased in the manner provided in the particular
stock option agreement, including payment for such shares by surrender of shares
of Stock (at their Fair Market Value) if permitted by such stock option
agreement, including Stock acquired pursuant to the Option then being exercised.
(b) The number of shares which are issued pursuant to the exercise of
an Option shall be charged against the maximum limitation on shares set forth in
Section 3 hereof.
(c) Except as provided in Section 9, no Option granted to an Employee
or Consultant shall be exercised unless at the time of such exercise the Grantee
is then an Employee or Consultant.
(d) Before the Corporation issues Stock to a Grantee pursuant to the
exercise of a NQSO, the Corporation shall have the right to require that the
Grantee make such provisions, or furnish the Corporation such authorization,
necessary or desirable so that the Corporation may satisfy its obligation, under
applicable income tax laws, to withhold for income or other taxes due upon or
incident to such exercise. The Committee may adopt such rules, forms, and
procedures as it considers necessary or desirable to implement this section
7(d), which rules, forms, and procedures shall be binding upon all Grantees, and
which shall be applied uniformly to all Grantees similarly situated.
<PAGE>
Section 8. Adjustment Upon Changes in Capitalization.
In the event of any reclassification, recapitalization, merger,
consolidation, reorganization, issuance of warrants, right or debentures, stock
dividend, stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares or any other change in
corporate structure which in the judgment of the Committee materially affects
the value of shares, the Committee may determine the appropriate adjustment, if
any, to the number and class of shares and the exercise price per share set
forth in any Option theretofore granted, provided that no such adjustments shall
be made to any ISO without the Grantee's consent, if such adjustment would cause
such ISO to fail to qualify as such.
Section 9. Termination of Relationship with the Corporation.
(a) Except as provided below in this Section 9(a), upon the termination
of an Employee's employment or a Consultant's consulting relationship with the
Corporation or a Director's term of office with the Corporation (unless the
Director continues to be an employee or consultant to the Corporation), such
Grantee's options shall terminate on the day three months following such
termination of employment, consultancy or directorship. The Committee shall have
the discretion to provide that upon termination of an Employee's employment or a
Consultant's consulting relationship as a result of retirement, disability or
death, such Grantee or his or her legal representative may exercise any
outstanding and then exercisable installments of his or her Options for a period
not to exceed: (i) one year from the date of such termination in the case of
death or permanent and total disability (within the meaning of Section 22(e)(3)
of the Code), and (ii) three months from the date of such termination in the
case of retirement or other disability, provided, however, that in no event
shall the period extend beyond the expiration of the Option term. In no event
shall any Option be exercisable for more than the maximum number of shares that
the Grantee was entitled to purchase at the date of retirement, disability, or
death as the case may be. In the case of an Employee or Consultant, the transfer
among the Corporation and any Subsidiary shall not be deemed to be a termination
of the employment or consulting relationship, and a change from the status of an
Employee to a Consultant or from a Consultant to an Employee shall not be deemed
to be a termination of the employment or consultant relationship.
(b) Subject to the foregoing, in the event of death, Options may be
exercised by a Grantee's legal representative.
Section 10. General Provisions
(a) Each Option grant shall be evidenced by a written stock option
agreement containing such terms and conditions, not inconsistent with this Plan,
as the Committee shall approve. ISOs and NQSOs may be granted to Employees
simultaneously and subject to a single stock option agreement, provided,
however, that in no event shall a NQSO be granted in tandem with an ISO such
that the exercise of one affects the right to exercise the other. The terms and
provisions of such stock option agreements (including the exercise price
specified therein) may vary among Grantees and among different Options granted
to the same Grantee.
<PAGE>
(b) The grant of an Option in any year shall not give the Grantee any
right to similar grants in future years or any right to continue such Grantee's
employment or consultant relationship with the Corporation or its Subsidiaries.
All Grantees shall remain subject to discharge to the same extent as if the Plan
were not in effect.
(c) No Grantee, and no beneficiary or other persons claiming under or
through the Grantee shall have any right, title or interest by reason of any
Option to any particular assets of the Corporation or its Subsidiaries, or any
shares of Stock allocated or reserved for the purposes of the Plan or subject to
any Option except as set forth herein. The Corporation shall not be required to
establish any fund or make any other segregation of assets to assure the payment
of any Option.
(d) No Option or other right under the Plan shall be subject to
anticipation, sale, assignment, pledge, encumbrance, or charge except by will or
the laws of descent and distribution, and an Option shall be exercisable during
the Grantee's lifetime only by the Grantee.
(e) Notwithstanding any other provision of this Plan or stock option
agreements made pursuant thereto, the Corporation shall not be required to issue
or deliver any certificate or certificates for shares of Stock under this Plan
prior to fulfillment of all of the following conditions:
(1) The listing, or approval for listing upon notice of
issuance, of such shares on any securities exchange on which the Stock
may then be traded;
(2) Any registration or other qualification of such shares
under any state or federal law or regulation, or other qualification
which the Board shall, in its absolute discretion and upon the advice
of counsel, deem necessary or advisable;
(3) The obtaining of any other consent, approval or permit
from any state or federal government agency which the Board shall, in
its absolute discretion and upon the advice of counsel, determine to be
necessary or advisable; and
(4) The execution by the Grantee (or the Grantee's legal
representative) of such written representation that the Committee may
in its sole discretion deem necessary or advisable to the effect that
the shares then being purchased are being purchased for investment with
no present intention of reselling or otherwise disposing of such shares
in any manner which may result in a violation of the Securities Act of
1933, as amended, and the placement upon certificates for such shares
of an appropriate legend in connection therewith.
<PAGE>
(f) The issuance of shares of Stock to Grantees or to their legal
representatives shall be subject to any applicable taxes and other laws or
regulations of the United States or of any state having jurisdiction thereof.
(g) In the case of a grant of an Option to any Employee or Consultant
of a Subsidiary, the Corporation may, if the Committee so directs, issue or
transfer the shares covered by the Option to the Subsidiary, for such lawful
consideration as the Committee may specify, upon the condition or understanding
that the Subsidiary will transfer the shares to the Employee or Consultant in
accordance with the terms of the Plan and the stock option agreement relating to
such Option.
Section 11. Amendment or Termination.
The Board may, at any time, alter, amend, suspend, discontinue or
terminate this Plan; provided, however, that no such action shall adversely
affect the rights of Grantees to Options previously granted hereunder and,
provided further, however, that any shareholder approval necessary or desirable
in order to comply with Rule 16b-3 under the Exchange Act or with Section 422 of
the Code (or other applicable law or regulation) shall be obtained in the manner
required therein.
Section 12. Duration of Plan.
This Plan, as amended, is effective upon its adoption by the Board on
July 22, 1993, subject to the approval of the Corporation's stockholders. This
Plan shall terminate at the close of business on 13 October, 2002, and no Option
may be granted under the Plan thereafter, but such termination shall not affect
any Options theretofore granted.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-54470.
Rochester, New York,
August 30, 1996
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<CIK> 0000875657
<NAME> ULTRALIFE BATTERIES, INC.
<S> <C>
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0
0
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