As filed with the Securities and Exchange Commission on February 27, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ULTRALIFE BATTERIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 16-1387013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1350 ROUTE 88 SOUTH MR. BRUCE JAGID
NEWARK, NEW YORK 14513 ULTRALIFE BATTERIES, INC.
TEL: (315) 332-7100 1350 ROUTE 88 SOUTH
NEWARK, NEW YORK 14513
TEL: (315) 332-7100
(Address, including zip code and (Name, address, including zip code
telephone number including area and telephone number, including area
code, of registrant's principal code, of agent for service)
executive offices)
Copies to:
HENRY I. ROTHMAN, ESQ. BARBARA L. BECKER, ESQ.
JORDAN A. HORVATH, ESQ. CHADBOURNE & PARKE LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP 30 ROCKEFELLER PLAZA
1211 AVENUE OF THE AMERICAS NEW YORK, N.Y. 10112
NEW YORK, NEW YORK 10036 TEL: (212) 408-5100
TEL: (212) 704-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE (2) (1)(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $0.10 per share........ 2,875,000 $15.50 $44,562,500 $13,145.94
===================================================================================================
</TABLE>
(1) Includes 375,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee. The
proposed maximum aggregate offering price was calculated pursuant to Rule
457(c) under the Securities Act of 1933, as amended, on the basis of the
average of the bid and ask prices reported in the Nasdaq National Market
system on February 25, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1998
PROSPECTUS
2,500,000 SHARES
ULTRALIFE BATTERIES, INC.
COMMON STOCK
----------------
All of the 2,500,000 shares of Common Stock offered hereby are being
sold by Ultralife Batteries, Inc. (the "Company").
The Common Stock is quoted on Nasdaq National Market under the symbol
"ULBI." On February 25, 1998, the last reported sale price for the Common Stock
as reported by the Nasdaq National Market was $15.50 per share. See "Price Range
of Common Stock."
----------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
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Per Share...............$ $ $
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Total(3)................$____ $ $_______
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of $______________ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 375,000 additional shares of Common Stock on the same terms
and conditions as set forth above, solely to cover over- allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$_______ , $_______ and $_______ , respectively. See "Underwriting."
----------------
The shares of Common Stock offered by this Prospectus are offered by
the Underwriters subject to prior sale, withdrawal, cancellation or modification
of the offer without notice, delivery to and acceptance by the Underwriters and
certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1998.
----------------
LEHMAN BROTHERS
A.G. EDWARDS & SONS, INC.
PENNSYLVANIA MERCHANT GROUP
, 1998
<PAGE>
[PICTURES: TO BE INSERTED]
Proposed pictures for inside front cover:
Top: Picture of computer, Ultralife battery, and dime with Ultralife logo
and "The Lithium Experts" off to the right
Caption: Ultralife's advanced rechargeable battery is used in
Mitsubishi's Pedion computer, which was awarded "Best New Portable
Product in 1997" by PC Week at the COMDEX show in November 1997.
Middle: Picture of two cellphones and six Ultralife advanced rechargeable
batteries, three facing the front and three turned sideways to show
thinness
Caption: Ultralife's thin, lightweight advanced rechargeable
batteries for cellular phones.
Bottom: disclaimer language
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK OF THE COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103
OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, no effect is
given in this Prospectus to the exercise of the Underwriters' over-allotment
option. As used in this Prospectus, unless otherwise indicated, the terms
"Company" and "Ultralife" include the Company's wholly-owned subsidiary,
Ultralife Batteries (UK) Ltd. ("Ultralife UK"). Certain terms used in this
Prospectus are defined under "Glossary of Technical Terms." For purposes of
presentation in this Prospectus, 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)l.00 to $1.65, the noon buying rate in New York
City for cable transfers in foreign currencies as announced by the Federal
Reserve Bank of New York for customs purposes on December 31, 1997.
THE COMPANY
Ultralife Batteries, Inc. ("Ultralife" or the "Company") develops,
manufactures and markets primary and rechargeable lithium batteries for use in a
wide array of applications. The Company believes that its proprietary
technologies allow the Company to offer batteries that are ultra-thin,
lightweight and achieve longer operating time than competing batteries currently
available. To date, the Company has focused on manufacturing a family of lithium
primary batteries for consumer and industrial applications which it believes is
one of the most comprehensive lines of lithium primary batteries commercially
available. Recently, the Company has been focusing on the commercialization of
its advanced rechargeable batteries which are based on its proprietary
lithium-ion solid-polymer technology and are integrated into consumer electronic
applications such as portable computers and cellular telephones. The Company
believes that its advanced rechargeable batteries are the only solid-polymer
lithium batteries currently being manufactured and sold for commercial use. The
Company intends to increase its production capacity of advanced rechargeable
batteries in order to supply Original Equipment Manufacturers (OEMs) and the
after-market for consumer replacement of batteries in electronic devices. The
Company has obtained initial production orders from Mitsubishi Electronics
America, Inc. ("Mitsubishi") to supply its advanced rechargeable batteries for
use in its new ultra-thin lightweight notebook computer, the Pedion, and is also
in discussions with other major OEMs to develop its advanced rechargeable
batteries for use in such products as cellular telephones.
The global small cell rechargeable batteries market was approximately
$3.7 billion in 1997 and is expected to grow to $6.1 billion by 2001. The
widespread use of a variety of portable consumer electronics such as notebook
computers and cellular telephones has resulted in large and growing markets for
rechargeable batteries. These electronic products are placing increasing demands
on existing battery technologies to deliver greater amounts of energy through
efficiently designed, smaller and lighter batteries. In some cases, current
battery capabilities are a major limitation in the development of next
generation electronic products. The Company believes that its proprietary
lithium-ion solid-polymer technology provides substantial benefits, including
design flexibility, reduced size and weight, and longer cycle life, over other
available rechargeable battery technologies. In addition, the Company's
proprietary technology, which does not utilize lithium metal or a liquid
electrolyte, provides performance and safety characteristics superior to other
lithium rechargeable batteries currently available.
The Company has been manufacturing its advanced rechargeable
batteries on a low volume production line since March 1997. A custom-designed
automated assembly machine and a custom-designed automated packaging and sealing
machine have been installed and are currently being tested at the Company's
facility in Newark, New York. The Company intends to ramp up production while
integrating this new equipment to achieve full operation by June 1998. This
equipment will enable the Company to complete its automated assembly line in
Newark, New York, greatly increase the Company's production capacity of advanced
rechargeable batteries and service anticipated demand. The Company intends to
further expand its production capacity by installing additional automated
equipment at its Newark, New York facility, adding automated assembly equipment
at its Abingdon, England facility and by establishing a third production
facility which is likely to be located in Asia.
The Company also manufactures and markets a family of
lithium-manganese dioxide primary batteries in 9-volt and 3-volt sizes to OEM
and consumer markets, high rate lithium batteries in C, 1 1/4C and D sizes to
specialized industrial markets, custom Thin Cell(TM) batteries and
silver-chloride sea water batteries. The Company also provides research and
development services to government agencies and other third parties pursuant to
technology contracts. The Company's 9-volt battery is marketed to the consumer
retail, security and safety equipment, medical device and specialty instrument
markets, and is currently used in devices such as smoke detectors, home security
3
<PAGE>
devices and medical infusion pumps. The Company currently sells its 9-volt
battery under its label to Coleman Safety & Security Products, Inc., Fyrnetics,
Inc., and First Alert(R) for long-life smoke alarms, to Siemens Medical Systems,
Inc. and i-STAT Corp. for medical devices and to ADEMCO and Interactive
Technologies, Inc. for security devices. The Company produces private label
9-volt batteries for Eveready Battery Company ("Eveready") in the United States,
Sonnenschein Lithium GmbH 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, Fred Meyer, Inc., TruServ Ace Hardware and a number of catalogues.
The Company believes that the market for its 9-volt lithium battery will
continue to grow as legislation is enacted which requires use of a long- life
battery in smoke detector devices. A state law was recently enacted in Oregon
and legislation was recently proposed in New York which provides that all
battery operated smoke detectors sold or in use in such states must include a
10- year battery. The Company believes that it currently manufactures the only
standard size 9-volt battery warranted to last 10 years.
STRATEGY
The Company's strategic objective is to become a leading provider of
advanced technology primary and rechargeable lithium batteries. In order to
achieve this goal, the Company intends to supply OEMs of portable consumer
electronic devices with custom-designed rechargeable batteries for products such
as notebook computers and cellular telephones. Additionally, the Company will
continue to provide primary batteries to OEMs and the consumer after-market. The
Company is establishing a distribution network to market the Company's advanced
rechargeable batteries to the consumer after-market and is continuing to market
its primary battery products to the broader consumer market by establishing
relationships with selected national and regional retailers and establishing
strategic relationships with OEMs. The Company intends to increase production
capacity by installing and integrating additional production lines and automated
equipment. While increasing its production and marketing efforts, the Company
will continue its research and development efforts to identify and develop new
applications for its advanced rechargeable batteries which is in part funded by
technology contracts with OEMs and the U.S. government. In addition, the Company
plans to continue to seek strategic relationships and joint ventures with other
battery manufacturers, suppliers and customers to accelerate commercialization
of its technology and products.
BENEFITS OF ULTRALIFE'S ADVANCED RECHARGEABLE BATTERY
The Company's advanced rechargeable batteries are based on its
proprietary lithium-ion solid-polymer technology which utilize a prismatic
design and provide significant advantages over currently available rechargeable
batteries, including:
Ultra-thin Profile and Design Flexibility. The Company is addressing
the demands of the portable electronics market which require thin and
lightweight power sources. The ultra-thin characteristics associated with the
Company's advanced rechargeable batteries provide manufacturers of portable
electronic devices the flexibility to meet the increasing demand for thinner and
lighter products.
Smaller Size and Lightweight. Reduced size and weight are critically
important for applications such as notebook computers and cellular telephones.
The Company's advanced rechargeable batteries deliver two times as much energy
as nickel-metal hydride batteries of comparable weight and approximately 20%
more energy than prismatic lithium-ion liquid batteries of comparable weight,
enabling electronic portable device manufacturers to provide an equivalent power
source in a smaller and lighter-weight package.
Longer Operating Time. Length of operating time is a critical
performance characteristic for many applications, particularly portable
computers and cellular telephones. Because the Company's advanced rechargeable
batteries provide greater energy density, manufacturers of portable electronic
devices have the ability to optimize weight and operating time in their products
to meet the preferences of their customers.
Superior Recharge Characteristics. Certain of the Company's advanced
rechargeable batteries are able to deliver more than 500 discharge cycles
without appreciable performance degradation and are not subject to the memory
effect which is commonly experienced in certain other rechargeable batteries.
The Company's advanced rechargeable battery does not incorporate lithium metal,
which is subject to growth of dendritic structures which can significantly limit
the number of achievable cycles and become a safety hazard.
4
<PAGE>
Superior Safety and Environmental Characteristics. Unlike competing
lithium-ion liquid batteries, the Company's advanced rechargeable batteries do
not contain liquid and are fundamentally safer to use. Lithium-ion liquid
electrolyte batteries used in notebook computers and cellular phones have been
reported to have had incidences causing user safety concerns since they contain
a flammable liquid electrolyte that is contained in a metal case. The Company's
advanced rechargeable batteries are better for the environment than other
competing batteries since they do not contain metallic lithium, a flammable
liquid electrolyte or any toxic or heavy metals.
Cost Competitive. The Company's batteries are comprised of relatively
low cost materials. Therefore, the Company believes that its advanced
rechargeable batteries will become cost competitive when the Company's
production process is successfully automated and its advanced rechargeable
batteries are produced in greater volume.
BENEFITS OF ULTRALIFE'S PRIMARY LITHIUM TECHNOLOGY
The Company's primary battery products are based on its proprietary
lithium-manganese dioxide technology. The materials used in, and the chemical
reactions inherent to, the Company's lithium batteries provide significant
advantages over currently available primary battery technologies, including
lighter weight, longer operating time, longer shelf life, and a wider operating
temperature range. The Company's primary batteries also have relatively flat
voltage profiles which provide stable power. Conventional primary batteries,
such as alkaline batteries, have sloping voltage profiles, which result in
decreased power during discharge. While the price for the Company's lithium
batteries is generally higher than commercially available alkaline batteries,
the Company believes that the increased energy per unit of weight and volume of
its batteries allows longer operating time and less frequent battery
replacements for the Company's targeted applications. Therefore, the Company
believes that its primary batteries are price competitive with other battery
technologies on a price per watt hour basis.
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 headquarters is located at 1350
Route 88 South, Newark, New York 14513, and its telephone number is (315)
332-7100.
5
<PAGE>
THE OFFERING
Common Stock offered........................2,500,000 shares
Common Stock to be outstanding after
this offering (1)......................10,479,136 shares
Use of proceeds.............................The Company intends to use the net
proceeds of this offering to
purchase additional production
equipment to further increase
production capacity of its advanced
rechargeable batteries in its
Newark, New York facility and to
purchase automated assembly
equipment and other equipment
necessary to produce advanced
rechargeable batteries at its
Abingdon, England facility. In
addition, the Company plans to use a
portion of the net proceeds to
establish a third production
facility, which is likely to be
located in Asia. Pending such uses,
the Company intends to invest the
net proceeds in the United States
primarily in short and intermediate
term interest-bearing debt
obligations of investment grade. See
"Use of Proceeds."
Nasdaq National Market symbol...............ULBI
(1) Does not include (i) 375,000 shares of Common Stock issuable upon exercise
in full of the Underwriters' over-allotment option; (ii) 1,136,150 shares
of Common Stock issuable upon exercise of options granted to the Company's
employees pursuant to the Company's 1992 Stock Option Plan ("1992 Plan")
and 1995 Stock Option Plan ("1995 Plan"); (iii) 375,000 shares of Common
Stock issuable upon exercise of options granted to the Chairman and Chief
Executive Officer not pursuant to a plan; and (iv) 112,500 shares of Common
Stock reserved for issuance upon exercise of outstanding warrants (the
"Warrants").
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------------------------ ---------------------
STATEMENT OF OPERATIONS
DATA: 1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Battery sales ......... $ 1,817 $ 2,890 $ 11,213 $ 12,624 $ 14,765 $ 7,444 $ 7,573
Technology
contracts ........... 2,073 2,424 3,430 2,478 1,176 594 1,426
-------- -------- -------- -------- -------- -------- --------
Total revenue ......... 3,890 5,314 14,643 15,102 15,941 8,038 8,999
Cost of products sold:
Battery costs ......... 2,512 3,168 10,900 12,317 13,880 7,126 6,790
Technology
contracts .......... 594 1,781 1,874 937 711 495 954
-------- -------- -------- -------- -------- -------- --------
Total cost of
products sold ....... 3,106 4,949 12,774 13,254 14,591 7,621 7,744
-------- -------- -------- -------- -------- -------- --------
Gross profit .......... 784 365 1,869 1,848 1,350 417 1,255
Selling, general and
administrative expenses 1,527 2,879 4,263 4,994 5,217 2,787 2,613
Research and
development expenses .. 658 1,481 2,685 3,688 3,940 1,787 3,071
Loss from operations .. (1,401) (3,995) (5,079) (7,186) (8,557) (4,157) (3,233)
Net loss .............. $ (814) $ (3,137) $ (3,392) $ (3,239) $ (7,246) $ (3,356) $ (2,828)
======== ======== ======== ======== ======== ======== ========
Net loss per common
share ................. $ (0.20) $ (0.57) $ (0.50) $ (0.41) $ (0.91) $ (0.42) $ (0.36)
======== ======== ======== ======== ======== ======== ========
Weighted average number
of shares outstanding . 4,032 5,499 6,747 7,814 7,923 7,933 7,942
</TABLE>
BALANCE SHEET DATA: DECEMBER 31, 1997
-------------------------------
ACTUAL AS ADJUSTED(1)
------- -------
(unaudited)
Cash and available-for-sale securities ........... $15,922 $51,947
Working capital .................................. 18,724 54,749
Total assets ..................................... 49,882 85,907
Stockholders' equity ............................. 43,454 79,479
- ------------
(1) As adjusted to give effect to the sale by the Company of 2,500,000 shares
of Common Stock offered hereby at an assumed public offering price of
$15.50 per share, after deducting underwriting discounts and commissions
and estimated offering expenses.
7
<PAGE>
RISK FACTORS
An investment in shares of Common Stock offered hereby involves a
high degree of risk. The following risk factors should be considered carefully
in addition to the other information in this Prospectus before purchasing the
Common Stock offered by this Prospectus.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company commenced operations in March 1991 and has incurred net
operating losses since its inception. Losses have resulted principally from
research and development, manufacturing and general and administrative costs. No
assurance can be given that the Company will generate an operating profit or
achieve profitability in the future. For the fiscal years ended June 30, 1996
and June 30, 1997 and the six months ended December 31, 1997, the Company's net
loss was approximately $3.2 million, $7.2 million and $2.8 million,
respectively. At December 31, 1997, the accumulated deficit was $22.9 million.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY OF MARKET ACCEPTANCE OF ADVANCED RECHARGEABLE BATTERIES
Since the Company intends to focus its manufacturing, research and
development and marketing efforts on the success of its advanced rechargeable
batteries, it will be dependent upon the market acceptance of its advanced
rechargeable batteries which are based on its lithium-ion solid-polymer
technology. Although the Company has received initial purchase orders for its
rechargeable batteries from Mitsubishi, the Company's advanced rechargeable
batteries have not yet achieved wide market acceptance. There can be no
assurance that market acceptance of its technology or advanced rechargeable
batteries will ever be achieved. The introduction of new products is subject to
the inherent risks of unforeseen delays and the time necessary to achieve market
success for any individual product is uncertain. If volume production of the
Company's advanced rechargeable batteries is delayed for any reason, the
Company's competitors may introduce emerging technologies or refine existing
technologies which could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON OEM RELATIONSHIPS AND THEIR PRODUCTS FOR SALE OF ADVANCED
RECHARGEABLE BATTERIES
The Company intends to continue to promote demand for, and awareness
of, its advanced rechargeable batteries, in part, through the development of
relationships with OEMs that manufacture products which require the performance
characteristics of the Company's advanced rechargeable batteries. The success of
any such relationship is dependent upon the general business condition of the
OEM and the ability of the Company to produce its advanced rechargeable
batteries at the quality and cost and within the time frame required by such
OEMs. To date, the Company has entered into a relationship with Mitsubishi,
which has agreed to purchase limited quantities of production units of advanced
rechargeable batteries through April 1998. Since the Company has not been able
to produce its advanced rechargeable batteries in the volumes required by
Mitsubishi, Mitsubishi is utilizing lithium-ion liquid electrolyte batteries
produced by another manufacturer in some of its Pedion computers. Although the
Company is pursuing relationships with other OEMs, the Company currently depends
upon one OEM customer, Mitsubishi, for all current orders of advanced
rechargeable batteries. Failure to develop relationships with other OEMs or the
non-renewal or termination of its contractual arrangement with Mitsubishi could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business-Products-Key OEM Relationships."
A substantial portion of the Company's business will depend upon the
success of products sold by OEMs that use the Company's batteries. For example,
one factor determining the quantity of purchase orders the Company may receive
from Mitsubishi in the future is the success of the Pedion, its new generation
notebook computer. Therefore, the Company's success is substantially dependent
upon the acceptance of the OEMs' products in the marketplace. The Company is
subject to many risks beyond its control that influence the success or failure
of a particular product manufactured by an OEM, including among others,
competition faced by the OEM in its particular industry; market acceptance of
the OEM's product; the engineering, sales and marketing and management
capabilities of the OEM; technical challenges unrelated to the Company's
technology or products faced by the OEM in developing its products and the
financial and other resources of the OEM. See "Business--Business Strategy."
8
<PAGE>
ADVANCED RECHARGEABLE BATTERIES: MANUFACTURING; LIMITED EXPERIENCE; FACTORS
RELATED TO MANUFACTURING EXPANSION
To be successful with respect to its advanced rechargeable battery
efforts, the Company must manufacture its batteries in large commercial
quantities with appropriate performance characteristics at competitive costs. At
present, the Company operates an automated coating machine and a manual assembly
and packaging production line that produces limited quantities of advanced
rechargeable batteries for customer sampling and initial product runs. The
Company is in the process of testing a high volume automated assembly machine
and an automated packaging machine. The Company will not have a fully automated
production line of its advanced rechargeable batteries until these machines
become fully operational which the Company expects to occur by June 1998. The
Company must successfully integrate its automated assembly and packaging
production line and be able to ramp up production of its advanced rechargeable
batteries. Failure of such machines to become fully operational may result in
the Company not being able to obtain additional orders from Mitsubishi and may
adversely impact the Company's ability to attract additional customers which
will have a material adverse effect on the Company's business, financial
condition and results of operations. The Company currently has no high volume
manufacturing capability or experience in large scale manufacturing of its
advanced rechargeable batteries and has limited experience in automated assembly
and packaging technology. Custom design, manufacturing and integration of large
scale manufacturing equipment frequently result in delays and cost overruns, as
the equipment is repeatedly tested and modified to achieve optimum performance.
There can be no assurance that the Company will be successful in integrating and
operating such additional equipment or that the Company will be able to develop
its manufacturing capabilities to produce the necessary production quality on
acceptable terms. The Company currently plans to install additional automated
production equipment for advanced rechargeable batteries in its Newark, New York
and Abingdon, England facilities and to establish a third facility, which is
likely to be located in Asia. In the past, the Company has experienced
significant delays in the delivery of its custom-designed equipment. Such delays
have resulted in the Company not being able to fulfill certain production
purchase orders of Mitsubishi and another OEM causing the Company to have to
renegotiate its contracts with Mitsubishi and another OEM. Any delays or
difficulties in developing or operating its manufacturing facilities will have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, further delays in the production and delivery
of the Company's advanced rechargeable batteries could adversely affect the
Company's prospects for sales of rechargeable batteries to its current or
prospective customers. See "Business--Products--Key OEM Relationships."
RISKS RELATING TO GROWTH AND EXPANSION
Rapid growth of the Company's advanced rechargeable battery business
or other segments of its business may significantly strain the Company's
management, operations and technical resources. If the Company is successful in
obtaining rapid market penetration of its advanced rechargeable batteries, the
Company will be required to deliver large volumes of quality products to its
customers on a timely basis at a reasonable cost to those customers. There can
be no assurance, however, that the Company's business will achieve rapid growth
or that its efforts to expand its manufacturing and quality control activities
will be successful or that it will be able to satisfy commercial scale
production requirements on a timely and cost-effective basis. The Company will
also be required to continue to improve its operations, management and financial
systems and controls. Failure by the Company to manage its growth effectively
could have an adverse effect on the Company's business, financial condition and
results of operations. See "Business--Manufacturing and Raw Materials" and
"--Facilities."
COMPETITION; TECHNOLOGICAL OBSOLESCENCE
The primary and rechargeable battery industry is characterized by
intense competition with a large number of companies offering or seeking to
develop technology and products similar to those of the Company. The Company is
subject to competition from manufacturers of traditional rechargeable batteries,
such as nickel- cadmium batteries, from manufacturers of rechargeable batteries
of more recent technologies, such as nickel-metal hydride, lithium-ion liquid
electrolyte and lithium-metal solid-polymer batteries, as well as from companies
engaged in the development of batteries incorporating new technologies.
Manufacturers of nickel-cadmium and nickel-metal hydride batteries include
Eveready, Sanyo Electric Co. Ltd., Sony Corp., Toshiba Corp., Matsushita
Electric Industrial Co., Ltd. and Duracell International, Inc. Manufacturers of
lithium-ion liquid electrolyte batteries currently include Saft-Soc des ACC,
Sony Corp., Toshiba Corp., Matsushita Electric Industrial Co., Ltd., Sanyo
Electric Co. Ltd. and Duracell International, Inc. Valence Technology, Inc.,
Lithium Technology Corporation, Battery Engineering, Inc. and Yuasa- Exide, Inc.
have developed prototype solid-polymer batteries and are constructing
commercial-scale manufacturing facilities. The Company also competes with large
and small manufacturers of alkaline, carbon-zinc, sea water, high rate and
primary batteries as well as other manufacturers of lithium batteries. There can
be no assurance that the
9
<PAGE>
Company will be successful in competing with these manufacturers, many of which
have substantially greater financial, technical, manufacturing, distribution,
marketing, sales and other resources. A number of companies with substantially
greater resources than the Company are pursuing the development of a wide
variety of battery technologies, including both liquid electrolyte lithium and
solid electrolyte lithium batteries, which are expected to compete with the
Company's technology. Other companies undertaking research and development
activities of solid-polymer batteries have already developed prototypes and are
constructing commercial scale production facilities. If such other companies
successfully market their batteries prior to the introduction of the Company's
products, there will be a material adverse effect on the Company's business,
financial condition and results of operations. The market for the Company's
products is characterized by changing technology and evolving industry
standards, often resulting in product obsolescence or short product lifecycles.
Although the Company believes that its batteries, particularly its 9-volt and
advanced rechargeable batteries, are comprised of state-of-the-art technology,
there can be no assurance that competitors will not develop technologies or
products that would render the Company's technology and products obsolete or
less marketable. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
Because of the specialized, technical nature of the Company's
business, the Company is highly dependent on certain members of its management,
marketing, engineering and technical staff, the loss of whose services could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition to developing manufacturing capacity that
meets the rigorous tolerances necessary for the high volume production of the
Company's advanced rechargeable batteries, the Company must attract, recruit and
retain a sizeable workforce of technically competent employees. The ability of
the Company to pursue effectively its business strategy will depend upon, among
other factors, the successful recruitment and retention of additional highly
skilled and experienced managerial, marketing, engineering and technical
personnel. There can be no assurance that the Company will be able to retain or
recruit such personnel. See "Business--Employees" and "Management--Executive
Officers and Directors."
INTERRUPTION IN OPERATIONS OF ULTRALIFE UK
The operations of the Company's Abingdon, England facility remain
suspended as a result of a December 1996 fire believed to be caused by arson.
This fire has caused the Company to cease sales of its high rate lithium
batteries and sea water batteries. The Company has only recently resumed
production of its sea water batteries. The Company has subcontracted
manufacturing to third parties and manufactured products from an off-site
facility to satisfy some customers, however, many of the Company's customers
have obtained products previously supplied by Ultralife UK from other
manufacturers while operations have been interrupted. Since the fire, the
Company has been receiving insurance proceeds compensating for the loss of plant
and machinery, leasehold improvements, inventory and business interruption. The
Company's insurance policies will cover losses associated with business
interruption until May 1998. Although the Company believes that its remaining
operations in Abingdon, England will begin by March 1998 and become fully
operational by June 1998 and that many of its customers will return to the
Company, there can be no assurance that customers which have purchased batteries
elsewhere will resume their relationship with the Company. Such an event would
have a material adverse effect on the Company's business, financial condition
and results of operations.
SAFETY RISKS; DEMANDS OF ENVIRONMENTAL AND OTHER REGULATORY COMPLIANCE
Components of the Company's batteries contain certain elements which
are known to pose safety risks. The Company's primary battery products
incorporate lithium metal, which is known to react with water and may cause
fires if not handled properly. In addition to the December 1996 fire at the
Company's Abingdon, England facility described above, fires occurred in August
1991 and August 1997 at the Company's Newark, New York facility and fires
occurred in July 1994 and September 1995 at the Company's Abingdon, England
facility, each of which temporarily interrupted certain manufacturing operations
in a specific area of the facility. Although the Company incorporates safety
procedures in its research, development and manufacturing processes that are
designed to minimize safety risks, there can be no assurance that an accident in
its facilities or one involving its products will not occur. Although the
Company currently has in force insurance policies which cover loss of its plant
and machinery, leasehold improvements, inventory and business interruption, any
accident, whether at the Company's manufacturing facilities or from the use of
its products, may result in significant production delays or claims for damages
resulting from injuries, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
10
<PAGE>
National, state and local regulations impose various environmental
controls on the manufacture, storage, use and disposal of lithium batteries
and/or 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 and that there are no environmental
conditions that will require material expenditures for clean-up at its present
or former facilities or at facilities to which it has sent waste for disposal,
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 have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
transportation of batteries which contain lithium metal is regulated by the U.S.
Department of Transportation and by certain foreign regulatory agencies that
consider lithium to be a hazardous material. The Company currently ships its
lithium batteries in accordance with regulations established by the U.S.
Department of Transportation. There can be no assurance that additional or
modified regulations relating to the manufacture, transportation, storage, use
and disposal of materials used to manufacture the Company's batteries or
restricting disposal of batteries will not be imposed or as to the effect such
regulations may have on the Company or its customers. See "Business--Battery
Safety; Regulatory Matters; Environmental Considerations."
In connection with the Company's purchase/lease of its Newark, New
York facility, a consulting firm performed a Phase I and II Environmental Site
Assessment which revealed the existence of contaminated soil and ground water
around one of the Company's buildings. The Company retained an engineering firm
which estimated that the cost of remediation should be in the range of $230,000,
however, there can be no assurance that this will be the case. In February 1998,
the Company entered into an agreement with a third party which provides that the
Company and this third party will retain an environmental consulting firm to
conduct a supplemental Phase II investigation to verify the existence of the
contaminants and further delineate the nature of the environmental concern. The
third party agreed to reimburse the Company for fifty percent of the cost
associated with remediating the environmental concern. There can be no assurance
that the Company will not face claims resulting in substantial liability which
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Battery Safety; Regulatory
Matters; Environmental Considerations."
LIMITED SOURCES OF SUPPLY
Certain materials used in the Company's products are available only
from a single or a limited number of suppliers. Additionally, the Company may
elect to develop relationships with a single or limited number of suppliers for
materials that are otherwise generally available. Although the Company believes
that alternative suppliers are available to supply materials that could replace
materials currently used by the Company and that, if necessary, the Company
would be able to redesign its products to make use of such alternatives, any
interruption in its supply from any supplier that serves as the Company's sole
source could delay product shipments and have a material adverse effect on the
Company's business, financial condition and results of operations. Although the
Company has experienced interruptions of product deliveries by sole source
suppliers, none of such interruptions has had a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will not experience a material interruption of
product deliveries from sole source suppliers which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Manufacturing and Raw Materials."
DEPENDENCE ON PROPRIETARY TECHNOLOGIES
The Company believes 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 claims proprietary rights in various unpatented
technologies, know how, trade secrets and trademarks relating to its products
and manufacturing processes. There can be no assurance as to the degree of
protection these various claims may or will afford, or that the Company's
competitors will not independently develop or patent technologies that are
substantially equivalent or superior to the Company's technology. It is the
policy of the Company to protect its proprietary rights in its products and
operations through contractual obligations, including nondisclosure agreements
with certain employees, customers, consultants and strategic partners. There can
be no assurance as to the degree of protection these contractual measures may or
will afford. The Company, however, has had patents issued and patent
applications pending in the U.S. and elsewhere. There can be no assurance (i)
that patents will be issued from any pending applications, or that the claims
allowed under any patents will be sufficiently broad to protect the Company's
technology, (ii) that any patents issued to the Company will not be challenged,
invalidated or circumvented, or (iii) as to the degree or adequacy of protection
any patents or patent applications may
11
<PAGE>
or will afford. In addition, although the Company does not believe that it is
materially infringing the intellectual property rights of others, a legal action
was commenced by Eveready alleging infringements of two patents. The Company has
cross-claimed against the corporation that licensed the technology at issue to
the Company. Although the Company believes the damages, if any, are minimal and
the possibility of an injunction, in the opinion of patent counsel, is remote,
there can be no assurance that any consequences arising from this infringement
claim will not have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, there can be no
assurance that other claims will not be asserted against the Company in the
future. If the Company is found to be infringing third party patents, there can
be no assurance that it will be able to obtain licenses with respect to such
patents on acceptable terms, if at all. Failure of the Company to obtain
necessary licenses could result in delays in product shipment or the
introduction of new products, and costly attempts to design around such patents
could foreclose the development, manufacture or sale of the Company's products.
See "Business--Legal Proceedings" and "--Patents, Trade Secrets and Trademarks."
DEPENDENCE ON TECHNOLOGY TRANSFER AGREEMENTS
The Company's research and development of advanced rechargeable
battery technology and products utilizes internally-developed technology,
acquired technology and certain patents and related technology licensed by the
Company pursuant to non-exclusive, technology transfer agreements. The Company
is currently aware of ten to twelve companies who have acquired the technologies
under such non-exclusive technology transfer agreements, although the Company
believes only one of these companies is in a directly competitive field. There
can be no assurance that the Company's competitors will not develop,
independently or through the use of similar technology transfer agreements,
rechargeable battery technology or products that are substantially equivalent or
superior to the technologies and products currently under research and
development by the Company. Termination of the technology transfer agreements
could result in significant delays in the research and development of the
Company's advanced rechargeable battery technology and the introduction of new
products based thereon, and there can be no assurance that the Company will be
able to develop its own technology or obtain similar or alternative licenses on
acceptable terms, if at all. The Company does not believe that it will have any
difficulty complying with all material terms of the technology transfer
agreements; however, termination of such agreements could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Business Strategy," "--Ultralife's Advanced
Rechargeable Batteries" and "--Patents, Trade Secrets and Trademarks."
RISKS RELATED TO CHINA JOINT VENTURE PROGRAM
In July 1992, the Company 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.
Changzhou Ultra Power Battery Co., Ltd, 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 a 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 the date of this Prospectus. The
Company has been attempting to collect the balance due under this contract.
China Battery has indicated that these payments will not be made until certain
contractual issues have been resolved. Due to China Battery's questionable
willingness to pay, the Company wrote off in fiscal 1997 the entire balance owed
to the Company as well as the Company's investment aggregating $805,000. In
December 1997, China Battery sent to the Company a letter demanding
reimbursement of losses they have incurred plus a refund for certain equipment
that the Company sold to China Battery. Although China Battery has not taken any
additional steps, there can be no assurance that China Battery will not further
pursue such a claim which, if successful, would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes that such a claim is without merit.
ABILITY TO INSURE AGAINST LOSSES
Because certain of the Company's primary batteries are used in a
variety of security and safety products (such as smoke and fire detectors) and
medical devices (such as infusion pumps), the Company may be exposed to
liability claims if such a battery fails to function properly. The Company
currently has in force an insurance policy which covers product liability claims
with coverage limits of $11,000,000 per occurrence and $11,000,000 in the
aggregate annually. However, there can be no assurance that the liability
insurance will continue to be available, or that any such liability insurance
would be sufficient to cover any claim or claims.
12
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
Future announcements concerning the Company or its competitors,
including technological innovations or commercial products, litigation or public
concerns as to the safety or commercial value of one or more of the Company's
products, may cause the market price of the Common Stock to fluctuate
substantially for reasons which may be unrelated to operating results. These
fluctuations, as well as general economic, political and market conditions, may
have a material adverse effect on the market price of the Common Stock. See
"Underwriting" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders pursuant to
Rule 144 ("Rule 144") promulgated under the Securities Act, pursuant to
registration rights granted to certain holders of warrants to purchase the
Common Stock, or pursuant to other registration or exemptions from registration
under the Securities Act, could have an adverse effect on the price of the
shares of Common Stock. The Company has approximately 7,979,136 shares of Common
Stock outstanding (10,854,136 upon consummation of this offering and assuming
the Underwriter's over-allotment option is exercised in full). In addition, the
Company has reserved for issuance (i) 1,036,150 shares of Common Stock upon the
exercise of options available for grant under the 1992 Plan, (ii) 100,000 shares
of Common Stock upon the exercise of options available for grant under the 1995
Plan, (iii) 375,000 shares of Common Stock upon the exercise of options granted
to the Company's Chairman and Chief Executive Officer not pursuant to a plan and
(iv) 112,500 shares of Common Stock reserved for issuance upon exercise of the
outstanding Warrants. The Company has agreed to include 12,500 of the shares
underlying the foregoing Warrants in a future registration statement which the
Company will prepare and file with, and use its best efforts to have declared
effective by, the Securities and Exchange Commission ("Commission") so as to
permit the public trading of the shares underlying the foregoing Warrants.
Of the 7,979,136 shares of Common Stock issued and outstanding,
2,012,500 were sold publicly in the Company's initial public offering in
December 1992 and approximately 2,000,000 shares were sold publicly pursuant to
the Company's follow-on public offering in December 1994. Of the remaining
shares of Common Stock, all are freely tradeable without restriction or further
registration under the Securities Act except for approximately 1.8 million
shares of Common Stock which may not be resold except pursuant to an effective
registration statement filed by the Company or an applicable exemption from
registration, including an exemption under Rule 144. The Company, each of its
executive officers and directors and Intermagnetics General Corporation ("IGC")
have agreed that, for a period of 90 days after the date of this Prospectus,
they will not offer, sell or otherwise dispose of any shares of Common Stock
without the prior written consent of Lehman Brothers Inc. No predictions can be
made as to the effect that future sales of Common Stock, or the availability of
shares of Common Stock for future sales, will have on the market prices for the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
effect prevailing market prices for the Common Stock and could impair the
Company's ability to raise capital through the future sales of its equity
securities. See "Principal Stockholders."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares
of Common Stock offered hereby (at an assumed public offering price of $15.50
per share and after deducting the underwriting discounts and commissions and
estimated offering expenses) are estimated to be $36,025.000 million
($41,488,750 million if the Underwriters' over-allotment option is exercised in
full). The Company anticipates that from the net proceeds of this offering and
the current cash position of the Company, approximately $9 million will be used
to purchase additional automated coating, conditioning and formation equipment
necessary to further increase production capacity of its advanced rechargeable
batteries at its Newark, New York facility, approximately $13 million will be
used to purchase automated assembly and packaging equipment to produce advanced
rechargeable batteries at its Abingdon, England production facility and
approximately $20 million will be used to establish a third production facility,
which is likely to be located in Asia, and to purchase automated production
equipment to produce advanced rechargeable batteries at that facility. The
remainder of the proceeds will be used for working capital and general corporate
purposes. Pending such uses, the Company intends to invest the net proceeds in
the United States, primarily in short and intermediate term interest-bearing
debt obligations of investment grade.
Since the net proceeds of this offering will be applied over time,
the actual expenditure of funds for any purpose could vary significantly from
the anticipated expenditures described above. The Company may, from time to
time, seek to acquire businesses, products, services or technologies
complementary to the Company's business, although no acquisitions are currently
being negotiated or planned. The Company reserves the right, therefore, to
reallocate proceeds among the uses described above, depending upon factors such
as the results of the Company's marketing activities and technological advances
in the industry.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is included for quotation on the Nasdaq National
Market System under the symbol "ULBI." The following table sets forth the
quarterly high and low sales prices of the Common Stock during the period set
forth below:
SALES PRICES
HIGH LOW
---- ---
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
FISCAL YEAR 1997
Quarter ended September 30, 1996 ........................... 15.25 10.75
Quarter ended December 31, 1996 ............................ 13.75 7.50
Quarter ended March 31, 1997 ............................... 12.25 7.88
Quarter ended June 30, 1997 ................................ 13.00 7.38
FISCAL YEAR 1998
Quarter ended September 30, 1997 ........................... 20.38 10.38
Quarter ended December 31, 1997 ............................ 20.38 13.13
Quarter ended March 31, 1998 (through February 25, 1998) ... 16.88 14.75
On February 25, 1998, the last reported sales price for the Common
Stock as reported on the Nasdaq National Market was $15.50 per share. As of
February 25, 1998, there were approximately 149 holders of record of the Common
Stock, and the Company believes there are in excess of 4,050 beneficial holders
of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on the Common
Stock and does not intend to do so in the foreseeable future. The Company's
current policy is to reinvest earnings, if any, to finance internal growth and
product development. Payment of dividends in the future will depend upon the
earnings and financial condition of the Company and such other factors as the
directors may consider or deem appropriate at the time.
15
<PAGE>
CAPITALIZATION
The following table set forth the capitalization of the Company as of
December 31, 1997 and as adjusted to give effect to the sale of 2,500,000 shares
of Common Stock offered hereby at an assumed public offering price of $15.50 per
share and after deducting the underwriting discounts and commissions and
estimated offering expenses. This table should be read in conjunction with the
Company's Financial Statements and Notes thereto included elsewhere in this
Prospectus.
DECEMBER 31, 1997
-----------------
ACTUAL AS ADJUSTED
------- -------
(In thousands)
Stockholders' equity:
Preferred Stock, $0.10 par value per share:
1,000,000 shares authorized;
no shares outstanding ........................ $ -- $ --
Common Stock, $0.10 par value per share:
authorized --12,000,000 shares; outstanding --
actual: 7,975,286 shares; as adjusted:
10,475,286 shares (1) ........................ 800 1,048
Total stockholders' equity ...................... 43,454 79,479
------- -------
Total capitalization ......................... $43,454 $79,479
======= =======
(1) Does not include (i) 375,000 shares of Common Stock issuable upon exercise
in full of the Underwriters' over-allotment option; (ii) 1,142,350 shares
of Common Stock issuable upon exercise of options granted to the Company's
employees pursuant to the 1992 Plan and the 1995 Plan; (iii) 375,000 shares
of Common Stock issuable upon exercise of options granted to the Chairman
and Chief Executive Officer not pursuant to a plan; (iv) 100,000 shares of
Common Stock reserved for issuance upon exercise of the Warrants and (v)
12,500 shares of Common Stock reserved for issuance upon exercise of the
Warrants issued subsequent to December 31, 1997. Certain holders of the
options exercisable to purchase shares of Common Stock have agreed not to
exercise their options until the Company increases its authorized number of
shares of Common Stock. See "Underwriting" and "Principal Stockholders."
16
<PAGE>
DILUTION
The net tangible book value of the Company at December 31, 1997, was
$42,820,337, or $5.37 per share of Common Stock. Net tangible book value per
share represents the amount of total tangible assets less total liabilities of
the Company, divided by the number of shares of Common Stock outstanding. After
giving effect to the receipt of the net proceeds from the sale of the 2,500,000
shares of Common Stock offered hereby, at the estimated offering price of $15.50
per share, after deducting underwriting discounts and commissions and estimated
offering expenses, the pro forma net tangible book value of the Company at
December 31, 1997, would have been $78,845,337, or $7.53 share. This represents
an immediate increase in net tangible book value of $2.16 per share to existing
stockholders and an immediate dilution of $7.97 per share to the new investors
purchasing Common Stock at the assumed public offering price. The following
illustrates this per share dilution:
Public offering price per share........................... $15.50
Net tangible book value per
share as of December 31, 1997
before this offering................................ $5.37
Increase per share attributable to new investors....... $2.16
-----
Pro forma net tangible book value
per share at December 31, 1997
after this offering.................................. $7.53
-----
Dilution per share to new investors (1)................... $7.97
=====
- --------------
(1) If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share after this offering and dilution
per share to new investors would be $7.77 and $7.73 , respectively.
The foregoing table excludes 1,629,850 shares of Common Stock
issuable pursuant to currently outstanding options and warrants which are
expected to be outstanding after the consummation of this offering. If all
options and warrants outstanding as of December 31, 1997, were included above,
the pro forma net tangible book value per share at December 31, 1997, after
giving effect to this offering, would have been $7.99 and the dilution per share
to new investors would have been $7.51.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is selected consolidated financial data with respect
to the statements of operations of the Company for the years ended June 30,
1993, 1994, 1995, 1996, 1997, the six months ended December 31, 1996 and 1997,
and the balance sheets of the Company at June 30, 1993, 1994, 1995, 1996 and
1997 and December 31, 1997. Year-end data for the years ended June 30, 1996 and
1997 were derived from the Company's Consolidated Financial Statements audited
by Arthur Andersen LLP, independent public accountants, whose report thereon is
included elsewhere in this Prospectus. Year-end data for the years ended June
30, 1993, 1994 and 1995 were derived from the Company's Consolidated Financial
Statements audited by Ernst & Young LLP, independent auditors, whose report for
the year ended June 30, 1995 is included elsewhere in this Prospectus. The
selected financial data for the six-month periods ended December 31, 1996 and
1997 are derived from unaudited interim financial statements of the Company
which, in the opinion of management of the Company, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the results of operations and financial position for this period. Operating
results for the six-month period ended December 31, 1997 are not necessarily
indicative of the results which may be expected for the full year. The data
should be read in conjunction with the Financial Statements and Notes thereto
and the Management's Discussion and Analysis of Financial Condition and Results
of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------------------------------- --------------------
STATEMENT OF
OPERATIONS DATA: 1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue: (in thousands, except per share data) (unaudited)
Battery sales ........ $ 1,817 $ 2,890 $ 11,213 $ 12,624 $ 14,765 $ 7,444 $ 7,573
Technology contracts . 2,073 2,424 3,430 2,478 1,176 594 1,426
-------- -------- -------- -------- -------- -------- --------
Total revenue ........ 3,890 5,314 14,643 15,102 15,941 8,038 8,999
Cost of products sold:
Battery costs ........ 2,512 3,168 10,900 12,317 13,880 7,126 6,790
Technology contracts . 594 1,781 1,874 937 711 495 954
-------- -------- -------- -------- -------- -------- --------
Total cost of products
sold .............. 3,106 4,949 12,774 13,254 14,591 7,621 7,744
-------- -------- -------- -------- -------- -------- --------
Gross profit ........... 784 365 1,869 1,848 1,350 417 1,255
Selling, general and
administrative
expenses ............. 1,527 2,879 4,263 4,994 5,217 2,787 2,613
Research and
development
expenses ............. 658 1,481 2,685 3,688 3,940 1,787 3,071
Loss (gain) on fires -
insurance ............ -- -- -- 352 (55) -- (1,196)
Loss on China
development program .. -- -- -- -- 805 -- --
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses ............... 2,185 4,360 6,948 9,034 9,907 4,574 4,488
Loss from operations.... (1,401) (3,995) (5,079) (7,186) (8,557) (4,157) (3,233)
Interest income ........ 350 836 1,722 2,017 1,352 801 427
Gain on sale of
securities ........... -- -- -- 1,930 -- -- --
Other income (expense),
net .................. 237 22 (35) -- (41) -- (22)
Loss before income
taxes ................ (814) (3,137) (3,392) (3,239) (7,246) (3,356) (2,828)
-------- -------- -------- -------- -------- -------- --------
Income taxes ........... -- -- -- -- -- -- --
Net loss ............. $ (814) $ (3,137) $ (3,392) $ (3,239) $ (7,246) $ (3,356) $ (2,828)
======== ======== ======== ======== ======== ======== ========
Net loss per common
share ............... $ (0.20) $ (0.57) $ (0.50) $ (0.41) $ (0.91) $ (0.42) $ (0.36)
======== ======== ======== ======== ======== ======== ========
Weighted average
number of shares
outstanding.......... 4,032 5,499 6,747 7,814 7,923 7,933 7,942
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
DATA: JUNE 30, DECEMBER 31, 1997
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED
------- ------- ------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and available-for-sale
securities .............. $23,097 $21,928 $27,398 $35,069 $22,158 $15,922 $51,947
Working capital ........... 24,354 23,020 32,705 44,666 27,206 18,724 54,749
Total assets .............. 30,202 30,078 62,593 60,633 51,395 49,882 85,907
Total long-term debt ...... 1,800 -- -- -- -- -- --
Stockholders' equity ...... 27,138 27,554 57,957 56,435 46,763 43,454 79,479
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below, and throughout this report,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Actual results could differ materially from those projected or suggested in the
forward-looking statements. Factors that could cause or contribute to such
difference include, but are not limited to, those discussed in this section, as
well as in the sections entitled "Risk Factors" and "Business."
The following discussions and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
GENERAL
The Company develops, manufactures and markets primary and
rechargeable lithium batteries for use in a wide array of applications. The
Company believes that its proprietary technologies allow the Company to offer
batteries that are ultra-thin, lightweight and achieve longer operating time
than competing batteries currently available. To date, the Company has focused
on manufacturing a family of lithium primary batteries in 9-volt, 3-volt, C, 1
1/4C and D configurations and custom Thin Cell batteries at its Newark, New York
facility as well as high rate lithium batteries and sea water batteries at
Ultralife UK in Abingdon, England. The Company believes this is one of the most
comprehensive lines of lithium primary batteries commercially available.
Recently, the Company has been focusing on the commercialization of its advanced
rechargeable batteries which are based on its proprietary lithium-ion
solid-polymer technology and are integrated into consumer electronic
applications such as portable computers and cellular telephones. The Company
believes that its advanced rechargeable batteries are the only solid-polymer
lithium batteries currently being manufactured and sold for commercial use. The
Company intends to increase its production capacity of advanced rechargeable
batteries in order to supply OEMs and the after-market for consumer replacement
of batteries in electronic devices. The Company has obtained initial production
orders from Mitsubishi to supply its advanced rechargeable batteries for use in
its new ultra-thin lightweight notebook computer, the Pedion, and is also in
discussions with other major OEMs to develop its advanced rechargeable batteries
for use in such products as cellular telephones.
The Company was formed in December 1990. In March 1991, the Company
acquired certain technology and assets from the Eastman Kodak Company ("Kodak")
relating to the 9-volt lithium-manganese dioxide battery. The Company then
expanded its operation by its acquisition in June 1994 of the assets of Dowty
Group PLC in Abingdon, England ("Dowty") which became a subsidiary of the
Company and was renamed Ultralife Batteries (UK) Ltd. The customer base of
Ultralife UK was further expanded by the acquisition of assets of
Accuumulatorenwerke Hoppecke Carl Zoellner & Sohn GmbH & Co. ("Hoppecke") in
July 1994. Since revenues and expenses of Ultralife UK are paid in British
pounds sterling, the Company's results of operations are not materially affected
by changes in currency fluctuations.
In September 1997, the Company commenced production of its advanced
rechargeable batteries in limited quantities to Mitsubishi on a low volume
production line. A custom-designed automated assembly machine was delivered in
December 1997 and is currently being tested. A custom-designed packaging and
sealing machine was delivered in February 1998 and is currently being tested.
The Company intends to ramp up production while integrating the new equipment to
reach full operation by June 1998. This equipment will enable the Company to
complete its automated assembly line in Newark, New York, greatly increase
production capacity of advanced rechargeable batteries and service anticipated
demand. The Company intends to further expand its production capacity subsequent
to June 1998 by installing additional automated equipment at its Newark, New
York facility and adding automated equipment at its Abingdon, England facility
as well as establishing a third production facility, which is likely to be
located in Asia. The Company anticipates that profit margins from sales of
rechargeable batteries will increase as production is automated and that profit
margins from sales of 9-volt batteries will increase as production volumes
increase. See "Use of Proceeds."
20
<PAGE>
Fires occurred in July 1994, September 1995 and December 1996 at the
Company's Abingdon, England facility. Based upon information received from the
police, the December 1996 fire has been attributed to arson. With the exception
of the December 1996 fire, each of these fires temporarily interrupted certain
manufacturing operations in a specific area of the facility. The December 1996
fire, however, caused extensive damage to the facility. Since the December 1996
fire, the Company has been receiving insurance proceeds compensating the Company
for loss of its plant and machinery, leasehold improvements, inventory and
business interruption. Sales of high rate and sea water batteries have been
significantly reduced over the past 12 months, however, the Company's insurance
policy covers losses associated with business interruption until May 1998.
Since inception, the Company has incurred net operating losses
primarily as a result of funding research and development activities. In
addition, net operating losses have been attributed to manufacturing and general
and administrative costs. To date, the Company has devoted a substantial portion
of its resources to the research and development of its products and technology,
particularly its proprietary lithium-ion solid-polymer technology. The Company
expects its operating expenses to increase as it expands production activities.
The Company's results of operations may vary significantly from quarter to
quarter depending upon the number of orders received, technology contracts
entered into and the pace of the Company's research and development activities.
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------- --------------------
(in thousands) (unaudited)
NET SALES BY BUSINESS
SEGMENT 1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
Battery sales $ 11,213 $ 12,624 $ 14,765 $ 7,444 $ 7,573
Technology contracts 3,430 2,478 1,176 594 1,426
Total revenue $ 14,643 $ 15,102 $ 15,941 $ 8,038 $ 8,999
NET INCOME (LOSS) BY
BUSINESS SEGMENT
Batteries ($ 3,347) ($ 5,010) ($ 5,261) ($ 2,347) ($ 1,765)
Technology contracts 413 524 (62) (51) (7)
All Other (458) 1,247 (1,923) (958) (1,056)
Net loss ($ 3,392) ($ 3,239) ($ 7,246) ($ 3,356) ($ 2,828)
RESULTS OF OPERATIONS
Six Months Ended December 31, 1997 Compared with the Six Months Ended December
31, 1996
Revenues. Total revenues of the Company increased $961,000, or
approximately 12%, from $8,038,000 in the six months ended December 31, 1996 to
$8,999,000 in the six months ended December 31, 1997. This increase reflects an
increase in sales of batteries and technology contracts. Sales of 9-volt and
BA-5372 primary batteries increased $973,000, or approximately 21%, from
$4,532,000 in the six months ended December 31, 1996 to $5,505,000 in the six
months ended December 31, 1997. This increase was reduced by lower sales of high
rate batteries by Ultralife UK as a result of suspended operations of the
Company's Abingdon, England facility due to a fire which occurred in December
1996. Technology contracts revenue increased $832,000, or approximately 140%,
from $594,000 in the six months ended December 31, 1996 to $1,426,000 in the six
months ended December 31,
21
<PAGE>
1997. The increase in revenues from technology contracts was attributed to
development funds arising from the Company's agreement with Mitsubishi to
develop and supply its advanced rechargeable battery for a new generation
notebook computer.
Cost of Products Sold. Cost of products sold increased $123,000 from
$7,621,000 in the six months ended December 31, 1996 to $7,744,000 in the six
months ended December 31, 1997. Cost of products sold as a percentage of revenue
decreased from approximately 95% to approximately 86% in the six months ended
December 31, 1997. The decrease in costs of products sold as a percentage of
revenues was principally the result of increased production volumes of 9-volt
and BA-5372 primary batteries and the Company's implementation of cost reduction
programs related to the improvement of manufacturing efficiencies.
Operating Expenses. Operating expenses decreased $86,000 from
$4,574,000 in the six months ended December 31, 1996 to $4,488,000 in the six
months ended December 31, 1997. Of the Company's operating expenses, research
and development expenses increased $1,284,000, from $1,787,000 in the six months
ended December 31, 1996 to $3,071,000 in the six months ended December 31, 1997.
Research and development expenses increased as a result of the Company's efforts
to improve its production process and performance of its advanced rechargeable
batteries. Selling, general and administrative expenses decreased $174,000 from
$2,787,000 in the six months ended December 31, 1996 to $2,613,000 in the six
months ended December 31, 1997. The decrease in selling, general and
administrative expenses are attributable to the impact of expense control
efforts. Total operating expenses also decreased as a result of the receipt of
insurance proceeds to replace assets previously written off due to the December
1996 fire at Ultralife UK.
Interest Income. Interest income decreased $374,000 from $801,000 in
the six months ended December 31, 1996 to $427,000 in the six months ended
September 30, 1997. The decrease of interest income is the result of lower
average balance invested since the Company used cash and investments to fund
operations and capital equipment additions for high volume production of
rechargeable batteries.
Net Losses. Net loss decreased $528,000 from a loss of $3,356,000, or
$0.42 per share, in the six month period ended December 31, 1996 to a net loss
of $2,828,000, or $0.36 per share, for the six months ended December 31, 1997,
primarily as a result of the reasons described above.
Year Ended June 30, 1997 Compared with the Year Ended June 30, 1996
Revenues. Total revenues increased by $839,000, or approximately 6%,
from $15,102,000 for the year ended June 30, 1996 to $15,941,000 for the year
ended June 30, 1997. This was principally due to an increase of battery sales in
the amount of $2,142,000, or approximately 17%, from $12,624,000 for the year
ended June 30, 1996 to $14,765,000 for the year ended June 30, 1997. Battery
revenues increased as a result of an increase in sales of the Company's BA-5372
battery. This was partially offset by reduced sales of 9-volt batteries to the
smoke detector market and by a decrease in high rate battery sales by Ultralife
UK due to a fire at its Abingdon, England facility in December 1996. Revenues
generated from technology contracts decreased $1,302,000 from $2,478,000 for the
year ended June 30, 1996 to $1,176,000 for the year ended June 30, 1997. The
decrease in revenues from technology contracts is primarily attributable to the
completion of certain contracts and delays in receipt of new development
programs as the Company focused its efforts on the implementation of the
Company's production line of advanced rechargeable batteries.
Cost of Products Sold. Cost of products sold increased $1,338,000,
from $13,254,000 for the year ended June 30, 1996 to $14,591,000 for the year
ended June 30, 1997. Cost of products sold as a percentage of revenues increased
to approximately 92% for the year ended June 30, 1997 from approximately 88% for
the year ended June 30, 1996. The increase in cost of products sold is
attributable to the Company's decision to temporarily reduce manufacturing
levels of 9-volt batteries to align inventory with sales volume. Cost of
products sold were reduced during the year ended June 30, 1997 by the proceeds
received by the Company from insurance policies as a result of the fire in
December 1996 at the Company's Abingdon, England facility. Cost of products sold
were further reduced by a decrease in cost of products sold from technology
contracts as a result of fewer technology contracts.
22
<PAGE>
Operating Expenses. Operating expenses increased $872,000, from
$9,034,000 for the year ended June 30, 1996 to $9,907,000 for the year ended
June 30, 1997. Selling, general and administrative expenses increased $224,000,
from $4,994,000 in the year ended June 30, 1996 to $5,217,000 in the year ended
June 30, 1997 attributable to increased support provided for new products
planned to be introduced. Research and development expenses increased $251,000,
from $3,689,000 for the year ended June 30, 1996 to $3,940,000 for the year
ended June 30, 1997. This increase is due primarily to increased expenditures
related to the development of the rechargeable battery program. Also included in
total operating expenses was $56,000 received in excess of the loss provision
related to the fires which occurred in the Abingdon, England factory. During the
year ended June 30, 1996, the Company provided a reserve of $352,000 for losses
related to fires. Generally, the Company records expenses related to the fires
as they are incurred and records the offsetting insurance proceeds only when
received. Operating expenses also increased as a result of a write-off of a
China development project and related receivables due under provisions of
various agreements during the year ended June 30, 1997. The total cost of these
write-offs was $805,000. The original purpose of the Company's participation in
a China development program was to make available a 2/3A size lithium battery at
a competitive cost. Other sources for this battery have since been identified.
See "Risk Factors -- Risks Related to China Joint Venture Programs."
Interest Income. Interest income decreased $665,000, from $2,017,000
for the year ended June 30, 1996 to $1,351,650 the year ended June 30, 1997, due
to a lower average balance invested as the Company used cash and investments to
fund capital equipment improvements and operations during the year ended June
30, 1997.
Net Loss. Net loss increased $4,007,000, or $0.50 per share, from a
net loss of $3,239,000, or $0.41 per share, in the year ended June 30, 1996 to
$7,246,000, or $0.91 per share, in the year ended June 30, 1997, primarily as a
result of the reasons described above. During the year ended June 30, 1996, the
Company realized a gain of $1,930,000, or $0.25 per share, as the result of a
sale of 123,000 shares of common stock of Intermagnetics General Corporation
("IGC"). If the Company would not have realized a gain from the sale of shares
of IGC, net loss would have increased $2,077,000, or $0.27 per share, from
$5,169,000 for the year ended June 30, 1996 to $7,246,000 for the year ended
June 30, 1997.
Year Ended June 30, 1996 Compared with the Year Ended June 30, 1995
Revenues. Total revenues increased $458,000, or approximately 3%,
from $14,643,000 for the year ended June 30, 1995 to $15,102,000 for the year
ended June 30, 1996. Battery sales increased $1,411,000, from $11,213,000 for
the year ended June 30, 1995 to $12,624,000 for the year ended June 30, 1996.
Revenues from technology contracts decreased $952,000, from $3,430,000 for the
year ended June 30, 1995 to $2,478,000 for the year ended June 30, 1996. Sales
of primary batteries increased 67% in the United States during the year ended
June 30, 1996. However, these increases were nearly completely offset by a
decrease in battery sales by Ultralife UK of 36% as a result of the fire which
occurred at the Company's Abingdon, England facility. Revenues from technology
contracts decreased as the Company's contract relating to the establishment of a
battery manufacturing facility in China was in the final stage of completion.
Cost of Products Sold. Cost of products sold increased $480,000, from
$12,774,000 in the year ended June 30, 1995 to $13,254,000 in the year ended
June 30, 1996. Cost of products sold as a percentage of revenues increased from
approximately 87% to approximately 88% during the year ended June 30, 1996. Cost
of products sold decreased slightly during the year ended June 30, 1996 compared
to the prior year as a result of higher production levels for the nine month
period ended March 31, 1996 which caused an increase in inventory levels. The
decrease in cost of products sold was offset slightly as a result of a decline
in production levels during the three months ended June 30, 1996 as a result of
a decline in battery sales for the three month period. Cost of products sold at
Ultralife UK increased substantially during the year ended June 30, 1996
primarily due to the fire which occurred during the year. Cost of products sold
related to technology contracts decreased during the year ended June 30, 1996
primarily as a result of development funding received from a leading cellular
telephone manufacturer. There were no cost of products sold associated with
these payments as costs associated with this agreement were classified as
research and development expenses.
23
<PAGE>
Operating Expenses. Operating expenses increased $2,086,000 from
$6,948,000 for the year ended June 30, 1995 to $9,034,000 for the year ended
June 30, 1996. Of this amount, selling, general and administrative expenses
increased $731,000, primarily due to additional costs relating to promoting
battery sales. Research and development expenses increased $1,003,000, from
$2,685,000 for the year ended June 30, 1995 to $3,689,000 for the year ended
June 30, 1996 as a result of the Company's continuing support of its advanced
rechargeable battery programs.
Interest Income. Interest income increased $295,000, from $1,722,000
for the year ended June 30, 1995 to $2,017,000 for the year ended June 30, 1996
primarily as a result of increased interest rates during the twelve month
period. In addition, the Company realized higher average balance invested as a
result of the sale of 123,000 shares of common stock of IGC sold during the
year.
Net Loss. Net loss decreased $152,000, or $0.09 per share, from
$3,392,000, or $0.50 per share, for the year ended June 30, 1995 to $3,239,000,
or $0.41 per share, for the year ended June 30, 1996 primarily due to the gain
received as a result of the Company's sale of 123,000 shares of common stock of
IGC described above. If the Company would not have realized a gain from the sale
of shares of IGC described above, net loss would have increased $1,778,000, or
$0.23 per share from $3,392,000 for the year ended June 30,1995, to $5,169,000
for the year ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations principally through cash
generated from public offerings of its Common Stock and from certain
transactions with IGC. In December 1992 the Company received net proceeds of
approximately $17.3 million in its initial public offering of 2,012,500 shares
of common stock and net proceeds of approximately $3 million from the exercise
of an option to purchase 507,958 shares previously granted to IGC. In December
1994 the Company consummated a follow-on public offering of common stock raising
net proceeds of approximately $32.4 million. In addition, the Company has
realized gains on the sale of shares of IGC amounting to $1.9 million. The
Company continues to hold 345,795 shares of common stock of IGC available for
future sale. Principal uses of funds since the initial public offering have been
to purchase production equipment, primarily for automated equipment to produce
rechargeable batteries, ($23.6 million), increase working capital to support
sales growth ($6.1 million), repayment of long-term debt ($1.8 million),
acquisitions ($1.3 million), purchase of technology ($1.1 million) and to fund
research and development ($15.8 million). In June 1997, the Empire State
Development Corporation approved a $500,000 grant to the Company, provided that
the Company employs an additional number of employees at its Newark, New York
facility in connection with its efforts to expand its advanced rechargeable
battery program.
As of December 31, 1997 cash, cash equivalents and available for sale
securities totaled $15,922,000. The Company used $56,700 of cash from operations
during the six months ended December 31, 1997. This is the net result of net
losses for the period and increased accounts receivable offset by reductions in
inventories and prepaid expenses and increased accounts payable. Additionally,
the Company spent $5,705,000 of cash to purchase machinery and equipment,
primarily for the expansion of facilities to produce rechargeable batteries. The
balance of the equipment to complete a fully automated production line for
advanced rechargeable batteries has been installed during the third quarter of
fiscal 1998 and will require approximately $2.9 million in additional cash.
The Company does not currently have any long-term debt. A limited
line of credit in the amount of $330,000 is maintained by Ultralife UK for short
term working capital requirements. However, with continued sales, growth and
expansion, the Company will explore normal working capital lines of credit. The
Company has obtained a $3,000,000 bank facility to secure letters of credit
required from time to time in the regular course of business. Deposits
maintained at the bank secure this facility. The Company believes that its
present cash position and cash flows from operations will be sufficient to
satisfy the Company's estimated cash requirements for at least 12 months
following the consummation of this offering.
24
<PAGE>
BUSINESS
GENERAL
Ultralife Batteries, Inc. develops, manufactures and markets primary
and rechargeable lithium batteries for use in a wide array of applications. The
Company believes that its proprietary technologies allow the Company to offer
batteries that are ultra-thin, lightweight and achieve longer operating time
than competing batteries currently available. To date, the Company has focused
on manufacturing a family of lithium primary batteries for consumer and
industrial applications which it believes is one of the most comprehensive lines
of lithium primary batteries commercially available. Recently, the Company has
been focusing on the commercialization of its advanced rechargeable batteries
which are based on its proprietary lithium-ion solid-polymer technology and are
integrated into consumer electronic applications such as portable computers and
cellular telephones. The Company believes that its advanced rechargeable
batteries are the only solid-polymer lithium batteries currently being
manufactured and sold for commercial use. The Company intends to increase its
production capacity of advanced rechargeable batteries in order to supply OEMs
and the after-market for consumer replacement of batteries in electronic
devices. The Company has obtained initial production orders from Mitsubishi to
supply its advanced rechargeable batteries for use in its new ultra-thin
lightweight notebook computer, the Pedion, and is also in discussions with other
major OEMs to develop advanced rechargeable batteries for use in such products
as cellular telephones.
The global small cell rechargeable batteries market was approximately
$3.7 billion in 1997 and is expected to grow to $6.1 billion by 2001. The
widespread use of a variety of portable consumer electronics such as notebook
computers and cellular telephones has resulted in large and growing markets for
rechargeable batteries. These electronic products are placing increasing demands
on existing battery technologies to deliver greater amounts of energy through
efficiently designed, smaller and lighter batteries. In some cases, current
battery capabilities are a major limitation in the development of next
generation electronic products. The Company believes that its proprietary
lithium-ion solid-polymer technology provides substantial benefits, including
design flexibility, reduced size and weight and longer cycle life, over other
available rechargeable battery technologies. In addition, the Company's
proprietary technology, which does not utilize lithium metal or a liquid
electrolyte, provides performance and safety characteristics superior to other
lithium rechargeable batteries currently available.
The Company has been manufacturing its advanced rechargeable
batteries on a low volume production line since March 1997. A custom-designed
automated assembly machine and a custom-designed automated packaging and sealing
machine have been installed and are currently being tested at the Company's
facility in Newark, New York. The Company intends to ramp up production while
integrating this new equipment to achieve full operation by June 1998. This
equipment will enable the Company to complete its automated assembly line in
Newark, New York, greatly increase the Company's production capacity of advanced
rechargeable batteries and service anticipated demand. The Company intends to
further expand its production capacity by installing additional automated
equipment at its Newark, New York facility, adding automated assembly equipment
at its Abingdon, England facility and by establishing a third production
facility which is likely to be located in Asia.
The Company also manufactures and markets a family of
lithium-manganese dioxide primary batteries in 9-volt and 3-volt sizes to OEM
and consumer markets, high rate lithium batteries in C, 1 1/4C and D sizes to
specialized industrial markets, custom Thin Cell(TM) batteries and
silver-chloride sea water batteries. The Company also provides research and
development services to government agencies and other third parties pursuant to
technology contracts. The Company's 9-volt battery is marketed to the security
and safety equipment, medical device and specialty instrument markets, and is
currently used in devices such as smoke detectors, home security devices and
medical infusion pumps. The Company currently sells its 9-volt battery under its
label to Coleman Safety & Security Products, Inc., Fyrnetics, Inc., and First
Alert(R) for smoke alarms, to Siemens Medical Systems, Inc. and i-STAT Corp. for
medical devices and to ADEMCO and Interactive Technologies, Inc. for security
devices. The Company produces
25
<PAGE>
private label 9-volt batteries for Eveready in the United States, Sonnenschein
Lithium GmbH 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, Fred
Meyer, Inc., TruServ Ace Hardware and a number of catalogues. The Company
believes that the market for its 9-volt lithium battery will continue to grow as
legislation is enacted which requires use of a long-life battery in smoke
detector devices. A state law was recently enacted in Oregon and legislation was
recently proposed in New York which provides that all battery operated smoke
detectors sold in such states must include a 10-year battery. The Company
believes that it currently manufactures the only standard size 9-volt battery
warranted to last 10 years.
HISTORY
The Company was formed in December 1990. In March 1991, the Company
acquired, on favorable terms, certain technology and assets from Kodak relating
to the 9-volt lithium-manganese dioxide battery that was developed and
manufactured by Kodak. During the initial 12 months of operation, the Company
directed its efforts towards reactivating the Kodak manufacturing facility and
performing extensive tests on the Kodak 9-volt battery. These tests demonstrated
a need for design modifications which were incorporated into the Company's
9-volt battery, resulting in a battery with improved performance and shelf life.
The Company then expanded its operations by its acquisition in June 1994 of the
assets of Dowty which has became a subsidiary of the Company and was renamed
Ultralife UK. The Dowty acquisition provided the Company with a presence in
Europe, manufacturing facilities for high rate lithium and sea water batteries
and highly skilled scientists with significant expertise in lithium battery
technology. The customer base of Ultralife UK was further expanded by the
acquisition of assets of Hoppecke in July 1994. The Company has developed a wide
array of products based on combining technology developed by the Company's
research and development personnel and assets acquired from Kodak, Dowty and
Hoppecke as well as various technology licenses.
Since its inception, the Company has concentrated significant
resources on research and development activities primarily related to its
lithium-ion solid-polymer rechargeable battery. The Company commenced production
of its advanced rechargeable batteries in limited quantities for an OEM using a
low volume production line which includes manual operation. High volume
custom-designed equipment is in the process of being installed and tested to
ramp up production of rechargeable batteries to full operation by June 1998.
TECHNOLOGY
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 electrical contact 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 outside of the battery. 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
26
<PAGE>
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.
Three important parameters for describing the performance
characteristics of a rechargeable battery suited for today's portable electronic
devices are design flexibility, energy density and cycle life. Design
flexibility refers to the ability of rechargeable batteries to be designed to
fit a variety of shapes and sizes of battery compartments. Thin profile
batteries with prismatic geometry provide the design flexibility to fit the
battery compartments of today's electronic devices. Energy density refers to the
total electrical energy per unit volume stored in a battery. High energy density
batteries generally are longer-lasting power sources providing longer operating
time and necessitating fewer battery recharges. Lithium batteries, by the nature
of their electrochemical properties, are capable of providing higher energy
density than comparably-sized batteries that utilize other chemistries and,
therefore, tend to consume less volume and weight. Long cycle life is a
preferred feature of a rechargeable battery because it allows the user to charge
and recharge power many times before noticing a difference in performance.
INDUSTRY
Rechargeable
Worldwide small cell rechargeable battery sales were estimated to be
$3.7 billion and 1.9 billion units in 1997, at the manufacturer's level,
representing the fastest-growing sector of the overall battery industry. This
market is expected to grow at an annual rate of 13%, measured in dollars over
the next five years to an estimated level of $6.1 billion in the year 2001,
resulting primarily from the continued development and proliferation of new
portable electronic products.
The market for portable rechargeable batteries, consists of three
major technologies, and is measured on a per unit basis as follows: (i)
Nickel-cadmium (NiCd), presently 62% of the market, (ii) Nickel-metal hydride
(NiMH), 31% of the market and (iii) Lithium- ion liquid electrolyte (Li Ion
Liquid), 7% of the market.
Approximately 75% of all cells are assembled into battery packs for
use in a variety of portable devices. Increasingly, these packs contain
sophisticated electronics for power management and safety. Efficient battery
assembly operations and capabilities in associated electronics are important
success factors in the rechargeable business and can lead to higher-margin sales
due to the value-added content of the battery packs.
NiCd is the oldest commercialized rechargeable system in the market.
NiCd cells can be employed in battery packs without high-cost electronics and
safety devices and enjoy a substantial price advantage over NiMH and Li Ion
Liquid cells. In the last decade, NiCd has increasingly been the subject of
tightening environmental and workplace regulations and related pressures for
recycling and mandatory collection. However, pressures to enforce mandatory
collection schemes or even to ban NiCd have largely abated due to industry-wide
recycling efforts. Although NiCd will remain attractive in certain applications
which do not experience a significant performance benefit from other
technologies and are sensitive to their higher cost, growth in this segment is
expected to remain relatively flat.
NiMH technology, which typically offers a 25% to 40% advantage in
energy density relative to NiCd, was commercialized at the beginning of this
decade. Because it employs a metal hydride electrode rather than a cadmium
electrode, NiMH is considered an environmentally preferred technology and is
enjoying market penetration in several applications and geographic regions as a
result of this attribute. However, NiMH cells and batteries typically carry a
cost premium relative to NiCd.
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<PAGE>
Li Ion Liquid battery technology was commercialized in the early
1990s. Production of Li Ion Liquid cells has jumped from just 15 million cells
in 1994 to about 33 million cells in 1995 and about 125 million cells in 1996.
Production for 1997 is estimated at 200 million cells. Li Ion Liquid technology,
in a cylindrical form, offers the highest energy density of all commercial
rechargeable technologies on the market today. On a weight basis, the technology
offers 2 to 3 times the energy content of NiCd. Li Ion Liquid technology
combines higher voltage (3.6 volts per cell) with better tolerance to the
elevated temperatures found in today's portable computers than NiMH. The higher
voltage typically allows the design of battery packs with about one-third the
cell count associated with nickel- based (1.2 volt) technologies. Lithium based
technologies are expected to experience significantly higher growth rates than
either of the nickel based technologies.
Rechargeable battery technology that employs a polymer electrolyte
rather than a liquid electrolyte has been under development since the late
1970s. The attraction of this technology is its ability to produce flat
prismatic batteries which can be more efficiently packaged than liquid
electrolyte cells. From a space-filling perspective, these packages result in
higher energy density than found in cylindrical cell battery packs. The trend to
thinner and lighter portable electronic products may provide a significant level
of demand for this technology.
Powerful market forces in several key product categories have played
a critical role in driving the development of new rechargeable battery
technology. Specifically, battery technology has been racing to meet the need
for higher energy density battery technologies that allow portable devices to be
smaller and lighter, to have increased run-times and to incorporate an
increasing number of features which need significantly more power. Typical
devices in this category include portable computers, cellular telephones, and
camcorders. Improvements in battery technology are typically consumed rapidly in
new device designs, and create a continuing need for rechargeable batteries with
even higher energy density. Advanced rechargeable battery technology has been
regarded as a strategically important technology for manufacturers of advanced
portable electronic products.
Portable computers and cellular telephones represent the largest and
fastest growing segments of the portable electronic device market. Worldwide
sales for cellular handsets were approximately 100 million units in 1997, and
are projected to reach 200 million units by the year 2000, a compounded annual
growth rate of 26%. Worldwide sales for portable computers were approximately 15
million units in 1997, and are projected to reach 24 million units by the year
2000, a compounded annual growth rate of 17%.
Primary
Primary battery sales were estimated to be $6.7 billion in 1997. This
market is estimated to be growing at an annual rate of 8% to a level of $8.7
billion by the year 2001, resulting primarily from continuing sales of both
alkaline and lithium batteries.
The portable primary battery industry consists primarily of three
major technologies and is measured on a per unit basis as follows: (i) Alkaline,
69% of the market, (ii) Carbon-Zinc or Chloride-Zinc (C-Zn; Chl-Zn), 17% of the
market and (iii) Lithium (Li) 7% of the market. An additional 7% of the market
is comprised of other primary chemistries including Silver-Oxide, Zinc-Air and
Mercury batteries.
Alkaline batteries, with a growth rate of approximately 9% annually,
are expected to continue to dominate the consumer market. Consumer applications
range widely, from flashlights to products such as motorized toys, electronic
games, tape players, compact disk players, radios and other portable electronics
products. Industrial applications include battery powered equipment used in the
workplace and for OEM applications including computer clock power supplies and
various portable products packaged with batteries.
C-Zn or Chl-Zn battery demand is expected to expand only modestly at
approximately 2% per year due to the continuing popularity of alkaline batteries
which compete for the same applications. Designated as "regular" or "heavy duty"
types, these batteries sell for about half the price of alkalines while
providing only one-third or less the capacity
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<PAGE>
depending on the type of device in which they are used. Zinc type batteries are
used primarily in applications where current drain is relatively low, constant
voltage is not required or where long shelf life or usage life is not needed.
The Li primary battery market continues to have the highest growth
rate of primary batteries and is expected to expand 10.5% annually to $685
million by 2001. The increasing demand for Li batteries is due to their use in a
growing array of portable devices which cannot be adequately powered with
alkaline or other primary batteries. Li batteries are light in weight, have high
energy density, long shelf life, long life in use, a stable voltage, a wide
operating temperature range and can provide a cost advantage over alkaline and
C-Zn batteries on a cost per unit of energy basis. These characteristics make Li
batteries ideal for a broad range of consumer, industrial and military
applications.
Li primary batteries are widely used in advanced cameras and other
portable or wireless devices such as security system transmitters. A long shelf
of up to 10 years, combined with long usage life, makes Li batteries
particularly well suited for critical life saving applications such as smoke and
carbon monoxide detectors, and wireless security systems.
Thin profile lithium primary batteries are beginning to emerge in
applications such as identification tags used for package tracking, smart cards
and identification badges for use in computer terminal access and high security
areas. Other emerging markets include long-life 2-way pagers.
Li batteries are expected to continue leading the growth of the
primary battery industry due to the continued proliferation of portable
consumer, industrial and military applications requiring high energy, light
weight and long-lasting power sources.
BUSINESS STRATEGY
To achieve the Company's strategic objective of becoming a leading
provider of advanced technology primary and rechargeable lithium batteries, the
Company has implemented a business strategy which includes the following key
elements:
Supply Advanced Rechargeable and Primary Batteries to OEMs. The
Company intends to supply OEMs of portable consumer electronic devices with
custom-designed rechargeable batteries for products such as notebook computers
and cellular telephones. The Company also intends to continue to provide primary
batteries to OEMs by further developing relationships.
Expand Presence in the Consumer Market. The Company intends to expand
the presence of its 9-volt battery to the consumer market. It has established
relationships with Radio Shack and Fred Meyer, Inc., and is currently shipping
the 9-volt battery to these and other retailers. The Company also produces
private label batteries for Eveready in the U.S., Sonnenschein Batteries, Inc.
in Germany and Uniline in Sweden. The Company intends to enter into contractual
arrangements with distributors in the U.S. and abroad to purchase rechargeable
batteries from the Company for resale to the after-market using distributor
channels established with the Company's primary batteries.
Identify New Applications and Further Develop Technology. The Company
seeks to identify and develop new applications for its products and technology
in the industrial and consumer markets. The Company believes that its lithium
primary and advanced rechargeable batteries offer both the performance
characteristics and design flexibility that satisfy the increasing requirements
of industrial and consumer markets for high energy, reliable and long-lasting
power sources. The Company's technological development activities will continue
to be directed toward improving the benefits of its advanced rechargeable
battery; developing new lithium-manganese dioxide primary batteries in different
size and voltage configurations; and continuing research and development to
increase battery performance and decrease battery cost. The Company will
continue to work with OEMs and the U.S. and British governments to further this
development.
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<PAGE>
Increase Production and Focus on Quality. The Company intends to
increase its production capacity of rechargeable batteries by purchasing,
installing and integrating additional production lines and automated equipment
at its ISO 9001 certified Newark, New York and Abingdon, England facilities and
by establishing a third production facility, which is likely to be located in
Asia. A large production capacity is necessary to supply products that are
configured to utilize the Company's batteries. As the quality of the Company's
products is vital to developing and maintaining the Company's relationship with
its customers, the Company is committed to an extensive quality control program.
The Company's quality control procedures are an integral part of the production
process of each of its batteries.
Enter into Strategic Alliances and Identify Acquisitions. The Company
intends to continue to enter into alliances with OEMs, suppliers, customers,
distributors and other battery manufacturers to provide the additional funding,
research and development, marketing and other resources required to develop and
commercialize further the Company's products and technology. For example, the
Company has entered into a relationship with Mitsubishi to install the Company's
advanced rechargeable batteries in a new line of notebook computers and with
Eveready, which markets the Company's primary batteries under private label. The
Company intends to continue to expand its presence in the lithium battery market
by identifying strategic acquisitions of assets or businesses that offer
complementary product lines, access to new distribution channels, or access to
new technologies or manufacturing expertise. For example, in June 1994, the
Company acquired the assets and related business of Dowty which added a number
of complementary lithium battery technologies and products to the Company's
product portfolio and a distribution channel in Europe.
PRODUCTS
Ultralife's Advanced Rechargeable Battery
The Company's advanced rechargeable battery is based on its
proprietary lithium-ion solid-polymer technology. The battery is composed of
ultra-thin and flexible components including a lithiated manganese dioxide
cathode, a carbon anode and a solid-polymer electrolyte. The Company believes
that users of portable consumer electronic products such as notebook computers
and cellular telephones are seeking smaller and lighter products that require
less frequent recharges while providing the same energy. The Company believes
that its technology is attractive to OEMs of such products since the use of a
flexible solid-polymer electrolyte, rather than a liquid electrolyte, reduces
the battery's overall weight and volume, and allows for increased design
flexibility in conforming batteries to the variety of shapes and sizes required
for portable consumer products. 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 certain other rechargeable batteries. The following
table sets forth the performance characteristics of the three rechargeable
battery technologies that the Company believes represents its most significant
current competition.
COMPARISON OF PRISMATIC RECHARGEABLE BATTERY TECHNOLOGIES
<TABLE>
<CAPTION>
MINIMUM CELL
TECHNOLOGY ENERGY DENSITY CYCLE LIFE (1) SAFETY THICKNESS (MM)
- ---------- -------------- -------------- ------ -------------
WH/KG WH/L
----- ----
<S> <C> <C> <C> <C> <C>
Nickel-cadmium (2) 40-55 100-150 500 Safe 8
Nickel-metal hydride (2) 50-60 155-185 500 Safe 6
Lithium-ion liquid electrolyte(2)(3) 68-110 200-250 Greater than 500 Concern 6
Ultralife lithium-ion solid-polymer(4) 100-120 200-250 Greater than 500 Safe 1
</TABLE>
30
<PAGE>
- -----------------------
(1) Cycle life to 80% of rated capacity and 100% depth of discharge, at
approximately the C rate (1 hour discharge cycle). Certain batteries may
achieve significantly higher cycle life at longer discharge rates.
(2) Data compiled from industry sources and sales literature of other battery
manufacturers or derived therefrom by the Company.
(3) Cycle life data based on C/5 rate (5 hour discharge cycle). (4) Based on
the Company's tests.
Energy density refers to total amount of electrical energy stored in
a battery divided by the battery's weight and volume as measured in watt-hours
per kilogram and watt-hours per liter, respectively. High energy density and
long achievable cycle life are important characteristics for comparing
rechargeable battery technologies. Greater energy density will permit the use of
batteries of a given weight or volume for a longer time period. Accordingly,
greater energy density will enable the use of smaller and lighter batteries with
energy comparable to those currently marketed. Long achievable cycle life,
particularly in combination with high energy density, is suitable for
applications requiring frequent battery rechargings, such as cellular telephones
and portable computers.
In addition to the performance advantages described above, there is a
significant difference between the rechargeable batteries which are based on the
lithium-ion liquid electrolyte technology and the technology used in the
Company's advanced rechargeable batteries. Liquid lithium-ion cells use a
flammable liquid electrolyte that is contained within a cylindrical or prismatic
metal housing. Under abusive conditions, where external temperatures are
extremely high, significant pressure may build within these cells which can
cause these cells to vent and release liquid electrolyte into the
high-temperature environment. If temperatures are 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 Company cells do not require a metal housing. Rather,
they are packaged within a thin foil laminate. The Company further believes that
its cells will perform safely under the same abusive conditions that could cause
a flame from liquid lithium-ion cells. The Company's rechargeable cells have
passed each of the following safety tests: UL 1950, IEC 950, CSA 950 and the
Japan Storage Batteries Association Guideline for Safety Evaluation of Lithium
Cells.
Benefits of Ultralife's Advanced Rechargeable Battery
The Company's advanced rechargeable batteries are based on its
proprietary lithium-ion solid-polymer technology which utilize a prismatic
design and provide significant advantages over currently available rechargeable
batteries, including:
Ultra-thin Profile and Design Flexibility. The Company is addressing
the demands of the portable electronics market which require thin and
lightweight power sources. The ultra-thin characteristics associated with the
Company's advanced rechargeable batteries provide manufacturers of portable
electronic devices the flexibility to meet the increasing demand for thinner and
lighter products.
Smaller Size and Lightweight. Reduced size and weight are critically
important for applications such as notebook computers and cellular telephones.
The Company's advanced rechargeable batteries deliver two times as much energy
as nickel-metal hydride batteries of comparable weight and approximately 20%
more energy than prismatic lithium-ion liquid batteries of comparable weight,
enabling electronic portable device manufacturers to provide an equivalent power
source in a smaller and lighter-weight package.
Longer Operating Time. Length of operating time is a critical
performance characteristic for many applications, particularly portable
computers and cellular telephones. Because the Company's advanced rechargeable
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batteries provide greater energy density, manufacturers of portable electronic
devices have the ability to optimize weight and operating time in their products
to meet the preferences of their customers.
Superior Recharge Characteristics. Certain of the Company's advanced
rechargeable batteries are able to deliver more than 500 discharge cycles
without appreciable performance degradation and are not subject to the memory
effect which is commonly experienced in certain other rechargeable batteries.
The Company's advanced rechargeable battery does not incorporate lithium metal,
which is subject to growth of dendritic structures which can significantly limit
the number of achievable cycles and become a safety hazard.
Superior Safety and Environmental Characteristics. Unlike competing
lithium-ion liquid batteries, the Company's advanced rechargeable batteries do
not contain liquid and are fundamentally safer to use. Lithium-ion liquid
electrolyte batteries used in notebook computers and cellular phones have been
reported to have had incidences causing user safety concerns since they contain
a flammable liquid electrolyte that is contained in a metal case. The Company's
advanced rechargeable batteries are better for the environment than other
competing batteries since they do not contain metallic lithium, a flammable
liquid electrolyte or any toxic or heavy metals.
Cost Competitive. The Company's batteries are comprised of relatively
low cost materials. Therefore, the Company believes that its advanced
rechargeable batteries will become cost competitive when the Company's
production process is successfully automated and its advanced rechargeable
batteries are produced in greater volume.
Key OEM Relationships
The Company is in various stages of discussion with OEMs regarding
the use of the Company's advanced rechargeable batteries in their products. The
Company has, to date, formalized its relationship with two OEMs as described
below. In April 1997, the Company entered into an agreement with Mitsubishi to
develop and deliver 1,800 prototype cells of its lithium-ion solid-polymer
rechargeable batteries for use in the Pedion, a new ultra-thin and lightweight
notebook computer. The Company has delivered approximately 1,600 battery cells
under this agreement and has received additional purchase orders for production
units from Mitsubishi. However, since the Company lacked the production capacity
to deliver the quantity of rechargeable batteries in the time frame desired by
Mitsubishi, Mitsubishi is utilizing lithium-ion liquid electrolyte batteries
produced by another manufacturer in some of its Pedion computers. Mitsubishi and
the Company have also agreed to modify the purchase orders previously placed
with the Company. Under this modified arrangement, the Company agreed to deliver
and Mitsubishi has agreed to accept between 800 to 1,000 rechargeable batteries
per month through April 1998. Although the Company is not under any obligation
to produce additional rechargeable batteries for Mitsubishi, the Company
believes that an increase in production capacity will allow the Company to meet
the requirements of Mitsubishi as it commences a full rollout of the Pedion.
There can be no assurance, however, that the Company will receive additional
purchase orders for its rechargeable batteries from Mitsubishi subsequent to
April 1998.
In November 1994, the Company signed a development and supply
agreement that is exclusive for the wireless telecommunications market with a
major communications company for its advanced rechargeable 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. The agreement was amended in March 1996, pursuant to which the
communications company advanced $334,000 towards the shipment of mass-produced
batteries, which advance is secured by a letter of credit. Since the Company
lacked the production capacity to deliver the quantity of rechargeable batteries
in the time frame desired by this customer this communications company may,
until December 31, 1998, draw on the letter of credit; however, negotiations are
ongoing. In January 1998, the Company's agreement with this communication
company was amended to a non-exclusive arrangement. The Company is currently
under no obligation to produce, and the communications company is under no
obligation to purchase, batteries under this agreement. See "Risk
Factors-Advanced Rechargeable Batteries; Manufacturing; Limited Experience;
Factors Related to Manufacturing Expansion."
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<PAGE>
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.
<TABLE>
<CAPTION>
COMPARISON OF PRIMARY BATTERY TECHNOLOGIES
------------------------------------------
OPERATING
DISCHARGE SHELF LIFE TEMPERATURE
TECHNOLOGY ENERGY DENSITY PROFILE (YEARS) RANGE ((DEGREE)F)
- ---------- -------------- ------- ------- -----------------
WH/KG WH/L
----- ----
<S> <C> <C> <C> <C> <C> <C>
9-VOLT CONFIGURATIONS
Carbon-zinc (1) 22 40 Sloping 1 to 2 23 to 113
Alkaline (1) 65 143 Sloping 4 to 5 -4 to 130
Ultralife lithium-manganese 262 406 Flat up to 10 -40 to 160
dioxide (2)
HIGH RATE CYLINDRICAL (3)
Alkaline (1) 59 160 Sloping 4 to 5 -4 to 130
Lithium-sulfur dioxide (1)(4) 260 430 Flat 10 -40 to 160
Lithium thionyl-chloride (2)(4) 250 - 300 650 - 700 Flat 10 -40 to 160
Ultralife lithium-manganese 228 510 Flat 10 -40 to 160
dioxide (2)
</TABLE>
- -------------------------
(1) Data compiled from industry sources and sales literature of other battery
manufacturers or derived therefrom by the Company.
(2) Results of tests conducted by the Company.
(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.
Energy density refers to the total amount of electrical energy stored
in a battery divided by 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.
Benefits of Ultralife's Primary Lithium Technology
The Company's primary battery products are based on lithium-manganese
dioxide technology. The materials used in, and the chemical reactions inherent
to, the Company's lithium batteries provide significant advantages over
currently available primary battery technologies which include lighter weight,
longer operating time, longer shelf life,
33
<PAGE>
and a wider operating temperature range. The Company's primary batteries also
have relatively flat voltage profiles which provide stable power. Conventional
primary batteries, such as alkaline batteries, have sloping voltage profiles,
which result in decreasing power outage during discharge. While the price for
the Company's lithium batteries is generally higher than commercially available
alkaline 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 for the Company's targeted
applications. Therefore, the Company believes that its primary batteries are
price competitive with other battery technologies on a price per watt hour
basis.
9-Volt Lithium Battery. The Company's 9-volt lithium battery delivers
a unique combination of high energy density and stable voltage which results in
a longer operating life for the battery and, accordingly, fewer battery
replacements. While the Company's 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.
The Company currently markets its 9-volt lithium battery to consumer
retail and OEM markets, including manufacturers of safety and security systems
such as smoke alarms, medical devices and other electronic instrumentation. The
Company believes that approximately 10% of the 220 million 9-volt batteries sold
in the U.S. in 1997 were sold to OEMs. Applications for which the Company's
9-volt lithium battery are currently sold include:
Safety and
Security Equipment Medical Devices Specialty Instruments
- ------------------ --------------- ---------------------
Smoke alarms Bone growth stimulators Garage door openers
Wireless alarm systems Telemetry equipment Electronic meters
Tracking devices Portable blood analyzers Hand-held scanners
Transmitters/receivers TENS units Wireless electronics
The Company currently sells its 9-volt battery to Coleman Safety &
Security Products, Inc., Fyrnetics, Inc., and First Alert(R) for long life smoke
alarms, to Siemens Medical Systems, Inc. and i-STAT Corp. for medical devices
and to 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 Eveready, Sonnenschein Lithium
GmbH 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, Fred Meyer, Inc.,
TruServ Ace Hardware and a number of catalogues.
The Company expects that its 9-volt lithium battery market has
expanded as a result of a state law recently enacted in Oregon. The Oregon
statute requires that, as of January 1, 1998, all battery-operated smoke
detectors sold in that state must include a 10-year battery. Similar legislation
has been recently proposed in New York State that would also require all smoke
alarms operated solely by a battery to include a battery warranted to last 10
years. The Company manufactures the only standard size 9-volt battery warranted
to last 10 years.
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 currently operating. The
Company's production facility currently has the capacity to produce nine million
9-volt lithium batteries per year with its existing equipment.
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<PAGE>
High Rate Lithium Batteries. Ultralife UK, the Company's wholly-owned
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 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, including military use. The main
OEM applications are SAR (Search & Rescue), oil industry, 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.
The Company estimates the market for high rate lithium batteries was
$75 million in 1996. Although this market has been dominated by lithium
thionyl-chloride, lithium-sulfur dioxide and liquid cathode batteries, there is
an increasing market share taken by the lithium-manganese dioxide and solid
cathode due to their 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 expected a similar increase in 1997 prior to a
fire in December 1996 that severely damaged its UK manufacturing facility and
caused the temporary interruption of the production of these batteries. Repairs
of the facility are near completion and production facilities, capable of
producing more than 2,000 cells per shift (one million per year), are expected
to be completed in March 1998. 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.
Sea Water Batteries. The Company produces a variety of sea water
batteries based on magnesium-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 manufactures sea water batteries at the Abingdon,
England facility and markets them to naval and other specialty OEMs. However,
due to the fire which damaged this manufacturing facility, the Company has
temporarily interrupted its production of sea water batteries since December
1996 and has only recently resumed production of sea water batteries.
BA-5372 Battery. 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.
The Company was awarded a $1.5 million contract by the U.S.
Department of Defense to produce the BA-5372 lithium battery in 1995. Pursuant
to the production contract, the U.S. Government exercised options to purchase
additional BA-5372 batteries aggregating $2.5 million. The Company has completed
production under this contract in December 1997.
Thin Cell Battery. The Company has developed a line of
lithium-manganese dioxide primary batteries which the Company calls its Thin
Cell 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 offering three configurations of the Thin Cell battery
which range in capacity from 120 milliampere-hours to 1,000 milliampere-hours.
35
<PAGE>
The Company is currently marketing these batteries to OEMs for
applications such as identification tags, 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.
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, Schlumberger
for residential gas meters and Orthologic Corp. for bone growth stimulators. The
Company produces the 3-volt lithium battery on the same automated production
equipment as its 9-volt lithium battery.
SALES AND MARKETING
The Company sells its current products directly to OEMs in the U.S.
and abroad and has contractual arrangements with 11 sales representatives who
market the Company's products on a commission basis in particular areas. The
Company also distributes its products through 22 distributors in the U.S. and 29
distributors internationally that purchase batteries from the Company for
resale. The Company employs a staff of sales and marketing personnel in the
U.S., England and Germany including a vice president of sales, a director of
marketing, a marketing advertising manager, a European sales director, an Asian
sales director, an international sales director, an applications engineer, a
military marketing director, an industrial sales manager for after-market sales,
and a number of sales managers, who are responsible for particular product
lines, such as a smoke detector sales manager and an
audio/visual/security/medical sales manager. These managers are responsible for
direct sales, supervising the sales representatives and distributors, and other
sales and marketing and distribution activities. The Company operates on a
purchase order basis and has a number of long-term sales contracts with
customers.
The Company has initially targeted sales of its advanced rechargeable
batteries to manufacturers of portable consumer electronics products. The
Company employs a sales manager and intends to employ two additional marketing
personnel to concentrate on marketing its advanced rechargeable batteries to the
OEM market. The Company also intends to enter into contractual arrangements with
distributors in the U.S. and abroad to purchase rechargeable batteries from the
Company for resale to the after-market using distributor channels established
with the Company's primary batteries.
The Company plans to expand its marketing activities as part of its
strategic plan to increase sales of its rechargeable batteries to manufacturers
of cellular telephones, notebook computers and new electronic portable devices.
The Company has targeted sales of its primary batteries to
manufacturers of security and safety equipment, medical devices and specialty
instruments. The Company's primary strategy is to develop 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 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's warranty on its products is
limited to replacement of the product. 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
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awareness and sales at the end-user or consumer level. The Company is also
selling the 9-volt battery to the consumer market through limited retail
distribution. Ultralife UK targets the industrial markets through direct sales
and the efforts of its distributors.
In fiscal 1997, one customer generated revenues of approximately $2.4
million which amounted to in excess of 15% of total revenues of the Company. In
fiscal 1996, one customer accounted for $1.9 million in revenues, or
approximately 13% of total revenues. The Company believes that sales of its
9-volt batteries for smoke alarms typically increase in October because October
is "Fire Prevention Month" and at the end of its third quarter as consumers tend
to replace their batteries at the end of winter. The Company has not marketed
its advanced rechargeable batteries for a sufficient period to determine whether
these OEM or consumer sales are seasonal.
The Company's sales are executed primarily through purchase orders
with scheduled deliveries on a weekly or monthly basis. At the end of the fiscal
year ended June 30, 1997, the backlog was not material.
PATENTS, TRADE SECRETS AND TRADEMARKS
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 holds 16 patents in the U.S. and foreign countries, and
four applications pending including a number of patents acquired with the
purchase of Dowty, and has several patent applications pending. The Company also
pursues foreign patent protection in certain countries. The Company's patents
protect technology which makes 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 dependent on patent protection.
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, and continues in
perpetuity with respect to other licensed technical information.
All of the Company's employees in the U.S. and in England all of the
Company's employees involved with the Company's technology 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. The Company
has recently settled in principle an opposition in the Trademark Trial and
Appeal Board brought by a third party which claims to produce, distribute and
sell vehicle batteries, power supplies and related accessories, products and
services under and in connection with the mark Ultralife. Under the settlement
in principle, the mark is to be resigned to the Company.
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MANUFACTURING AND RAW MATERIALS
The Company manufactures its products from raw materials and
component parts that it purchases. The Company has obtained ISO 9001
certification for its lithium battery manufacturing operations in both Newark,
New York and Abingdon, England. The Company believes that its Newark
manufacturing facility is one of the most automated and efficient lithium
battery production facilities currently operating. Based on the equipment
currently at the Newark facility, the Company has the capability to produce
approximately nine million 9-volt batteries per year.
The Company's production line of rechargeable batteries consists of
an automated coating machine and a manual assembly and packaging line. In
December 1997 a custom-made automated assembly machine was delivered which has
been installed and is being tested. In February 1998, a custom-made automated
packaging and sealing machine was delivered which has been installed and is
being tested. Pursuant to the Company's agreement with the manufacturer of this
production line, the manufacturer is prohibited from manufacturing another
production line that replicates 20% or more of the components comprising the
production line delivered to the Company. The Company intends to ramp up
production of its advanced rechargeable batteries until June 1998 when it
believes its production line will become fully operational. The Company intends
to further expand its production capacity by installing additional automated
equipment at its Newark, New York facility and adding automated assembly
equipment at its Abingdon, England facility and by establishing a third
production facility which is likely to be located in Asia. See "Risk
Factors-Advanced Rechargeable Batteries: Manufacturing; Limited Experience;
Factors Related to Manufacturing Expansion."
The Company believes that increasing its production capacity is
critical to its success since OEMs in the portable consumer electronics market
typically require rechargeable batteries in high volume within short time
frames. In addition, the Company believes that by increasing production capacity
it will gain market share, establish its rechargeable battery as the leading
technology in its industry and provide the Company with more flexibility to
price its products competitively. See "Risk Factors-Advanced Rechargeable
Batteries: Manufacturing; Limited Experience; Factors Related to Manufacturing
Expansion."
The manufacturing facility in Abingdon, England is currently being
repaired following a fire in December 1996. When completed , the plant will be
capable of producing an average of one million 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. See "Risk Factors-Interruptions in Operations of Ultralife UK."
The Company utilizes lithium foil as well as other metals and
chemicals to manufacture 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 it 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 to supply materials that could replace 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. Although the Company has experienced interruptions of product
deliveries by sole source suppliers, none of such interruptions has had a
material effect on the Company. All other raw materials utilized by the Company
are readily available from many sources.
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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 rechargeable batteries, Thin
Cells and 3-volt batteries. Each of those batteries has a broad range of
potential applications in consumer, industrial and military markets including
cellular telephones, portable computers and cameras. 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, 1995, 1996, and 1997, the Company
expended approximately $2,685,000, $3,689,000, and $3,940,000, respectively, on
research and development. The Company currently expects that research and
development expenditures will continue at a high level 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 and second phase of a government-sponsored program to develop new
configurations of the Company's BA 5590 thin cell primary battery. The Company
was also awarded an additional cost sharing SBIR Phase III contract for the
development of the BA 5590 thin cell primary battery. The contract provides that
these batteries will be developed and produced in small quantities. The BA 5590
is the most widely used battery power source for the U.S. Army and NATO
communications equipments.
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. The Company's
rechargeable cells have passed each of the following safety tests: UL 1950, IEC
950, CSA 950 and the Japan Storage Batteries Association Guideline for Safety
Evaluation of Lithium Cells. However, the Company's primary battery products
incorporate lithium metal, which reacts with water and may cause fires if not
handled properly. Fires occurred in August 1991, and August 1997, at the
Company's Newark, New York, facility. In July 1994, September 1995, and December
1996, fires also occurred at the Company's Abingdon, England, facility. Based
upon information the Company received from the police, the December 1996 fire
has been attributed to arson. However, the Company is not aware of any
convictions. With the exception of the December 1996 fire, each of these fires
temporarily interrupted certain manufacturing operations in a specific area of
the facility. Since the December 1996 fire, the Company has been receiving
insurance proceeds compensating the Company for loss of its plant and machinery,
leasehold improvements, inventory and business interruption. The Company's
insurance policy covers the Company for losses associated with business
interruption until May 1998. The December 1996 fire caused an interruption in
all manufacturing operations of the Abingdon, England facility. The Company
believes that it has adequate fire insurance, including business interruption
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, 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 Department of Transportation, as well as by certain foreign regulatory
39
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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 Department of Transportation regulations.
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.
In connection with the Company's purchase/lease of its Newark, New
York facility, a consulting firm performed a Phase I and II Environmental Site
Assessment which revealed the existence of contaminated soil around one of the
Company's buildings. The Company has retained an engineering firm which
estimated that the cost of remediation should be in the range of $230,000,
however, there can be no assurance that this will be the case. In February 1998,
the Company entered into an agreement with a third party which provides that the
Company and the third party will retain an environmental consulting firm to
conduct a supplemental Phase II investigation to verify the existence of the
contaminants and further delineate the nature of the environmental concern. The
third party agreed to reimburse the Company for fifty percent of the cost
associated with remediating the environmental concern. There can be no assurance
that the Company will not face claims resulting in substantial liability which
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors-Safety Risks; Demands of
Environmental and other Regulatory Compliance."
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 batteries as well as other primary and rechargeable battery
technologies. The Company competes on the basis of design flexibility,
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.
In the rechargeable battery market, the Company is currently the only
producer of a solid-polymer rechargeable battery which is commercially
available. The principal competitive technologies include nickel-cadmium,
nickel-metal hydride and lithium-ion liquid electrolyte technology. Major
manufacturers of nickel-cadmium and nickel-metal hydride batteries include
Eveready, Sanyo Electric Co., Ltd., Sony Corp., Toshiba Corp. and Matsushita
Electric Industrial Co., Ltd. and Duracell International, Inc. Manufacturers of
lithium-ion liquid electrolyte batteries, primarily based on lithium-ion cobalt
oxide and lithium-ion nickel oxide technologies, include Saft-Soc des ACC, Sony
Corp., Toshiba Corp., Matsushita Electric Industrial Co., Ltd. and Sanyo
Electric Co., Ltd., among others.
Lithium-ion liquid electrolyte batteries offer significant advantages
over 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 are substantially
increasing 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,
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and market acceptance of, the Company's advanced rechargeable battery.
In addition to the currently marketed technologies, a number of
companies are currently undertaking research and development of rechargeable
lithium batteries, including lithium-ion solid-polymer batteries. Valence
Technology, Inc., Lithium Technology Corporation, Battery Engineering, Inc. and
Yuasa-Exide, Inc. have developed prototype solid-polymer batteries and are
constructing commercial-scale manufacturing facilities. The Company believes
that other research and development activities on solid-polymer batteries are
underway at other companies. 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.
In the 9-volt battery market, the principal competitive technologies
currently encountered are alkaline and carbon-zinc. Duracell International,
Inc., Eveready and Rayovac Corporation, among others, currently manufacture
alkaline and carbon-zinc batteries. None of these manufacturers, however,
produce a standard 9-volt battery warranted to last 10 years.
In the high rate lithium battery market, the principal competitive
technologies are lithium sulfur dioxide and lithium thionyl-chloride batteries.
Saft-Soc des ACC, BluStar Battery Systems Corporation, Frivo Silbercraft and
Power Conversion Products, Inc., among others, currently manufacture these high
rate type lithium batteries. The Company believes that its high rate
lithium-manganese dioxide technology in its high rate batteries offers greater
reliability over longer periods without the negative environmental effects of
sulfur dioxide and thionyl-chloride. The Company also manufactures sea water
batteries and believes that its competitors for those products are Saft-Soc des
ACC and Eagle-Picher Industries, Inc.
The Thin Cell batteries are expected to compete on the basis of their
performance characteristics. The Company will compete with major battery
producers, such as Gould Electronics, Inc. and Yuasa-Exide, Inc., which
use competing technologies such as low rate lithium thin cell batteries.
The 3-volt battery's primary competitors include Maxell Corp. of
America, Tadiran Ltd., Saft-Soc des ACC and Power Conversion Products, Inc., all
of which use lithium thionyl-chloride technology to produce 3-volt
batteries.
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.
EMPLOYEES
As of December 31, 1997, the Company employed 441 persons: 75 in
research and development, 324 in production and 42 in sales, administration and
management. Of the total, 384 are employed in the U.S. and 57 in England. None
of the Company's employees are represented by a labor union. The Company
considers its employee relations to be satisfactory.
FACILITIES
The Company leases approximately 110,000 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
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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 Company has entered into a lease/purchase
with the local county authority with respect to its 110,000 square foot factory
in Newark, New York which provides more favorable terms and would reduce the
expense for the lease of the facility. The lease also includes an adjacent
building to the Company's current facility estimated to encompass approximately
140,000 square feet and approximately 65 acres of property. Pursuant to the
lease, the Company has delivered a down payment in the amount of $400,000 and is
obligated to pay the local governmental authority annual installments in the
amount of $50,000 until December 2001 decreasing to approximately $28,000 for
the period commencing December 2001 and ending December 2007. Upon expiration of
the lease in 2007, the Company is entitled to purchase its facility for the
purchase price of $1.
In connection with the acquisition by the Company's subsidiary,
Ultralife UK, of certain assets and liabilities from Dowty 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 the Company's subsidiary, 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.
Initially, the Landlord refused to assign the UK Lease to Ultralife
UK and release Dowty's affiliate from liability. The building has recently been
sold to a new landlord. The new landlord has agreed, subject to a surety from
the Company, that he will allow an assignment of the UK Lease. The Company has
agreed to provide the surety, subject to resolving certain disputes with Dowty.
Discussions are continuing and the Company believes that this matter will be
resolved without material expense to the Company. However, there can be no
assurance that this will be the case. The term of the UK Lease continues until
May 2004. It currently has an annual rent of $200,000 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 new 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.
LEGAL PROCEEDINGS
In December 1996, Aerospace Energy System, Inc. ("Aerospace")
commenced an action in the Southern District of New York against the Company
alleging that it is owed commissions in excess of $50,000 for sales made on
behalf of the Company and $100,000 for the Company's alleged breach of its duty
of good faith and fair dealings. The Company believes that Aerospace is not the
party that made such sales for which it claims it is owed commissions. Although
Aerospace has been deposed it has not articulated any grounds for its claim of
$100,000 for the Company's alleged breach of its duty of good faith and fair
dealing.
In May 1997, William Boyd, the principal of Aerospace, and Leland J.
Coleman commenced an action against the Company and Loeb Partners Corporation
("Loeb"), an investment firm, in the Southern District Court of New York
alleging that they had entered into a contract with Loeb to arrange for the
acquisition of Dowty and that the Company tortiously interfered with their
contract and business opportunity. The Company believes the claim against it,
for $25 million, is without merit.
In September 1997, a legal action was commenced by Eveready in the
Northern District Court of Ohio, Eastern Division, alleging infringement of two
patents, U.S. Patent No. 4,246,253 and U.S. Patent No. 4,312,930. The first of
these patents has four months before it expires and the second approximately one
year. The Company cross-claimed against the corporation that licensed the
technology at issue to the Company. The license concerns certain technology
incorporated in the Company's primary and advanced rechargeable batteries.
Damages, if any, are believed to be minimal and the possibility of an
injunction, in the opinion of the Company's patent counsel, is extremely remote
given the substantial question of patent validity, infringement and the short
period until the patents expire.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
NAME AGE POSITION
---- --- --------
Bruce Jagid.................. 57 Chairman and Chief Executive Officer
Martin G. Rosansky........... 59 Vice Chairman
Joseph N. Barrella........... 51 President, Chief Technology Officer and
Director
Uri Soudak................... 53 Chief Operating Officer
Frederick F. Drulard......... 57 Vice President of Finance, Chief
Financial Officer
Stanley Lewin................ 65 Vice President of Technology
James Sullivan............... 60 Vice President of Sales
John R. Welsh................ 61 Vice President of European Operations
Daniel K. Schoenly........... 61 Vice President of Manufacturing
Joseph C. Abeles............. 83 Treasurer and Director
Arthur M. Lieberman.......... 63 Secretary and Director
Richard A. Hansen............ 57 Director
Carl H. Rosner............... 65 Director
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. Mr. Jagid is a
director of several private companies and THQ, Inc. 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 of PCI from 1970 to July 1986,
and was Vice President until January 1989 when he left PCI to pursue private
investment activities. Mr. Rosansky is a director of several private companies.
Mr. Rosansky holds numerous patents and has authored several publications in the
field of battery technology.
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 from October 1992 through November 1996, and its Chief Technology
Officer since November 1996. From May 1984 to January 1991, Mr. Barrella spent
seven years as Director of Engineering at PCI. Mr. Barrella has been involved in
the development and manufacture of lithium
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batteries for more than 20 years. He holds a number of patents relating to
lithium battery designs and has authored several publications relating to
battery technology.
URI SOUDAK joined the Company in November 1996 as its Chief Operating
Officer. From January 1991 to November 1996, Mr. Soudak worked for Israel
Aircraft Industries, most recently serving as its Corporate Director of Research
and Development and Business Development. From 1988 until 1991 Mr. Soudak was
President of Microelectronics Company, an Israeli maker of electronics
equipment. From 1985 through 1987 Mr. Soudak was President of Elco Robotics
Company, an Israeli maker of vision guidance systems for robots.
FREDERICK F. DRULARD joined the Company in July 1996 as Director of
Corporate Planning and Administration. He became Vice President-Finance and
Chief Financial Officer in October 1997. From January 1994 through June 1996 he
was an independent consultant and a Senior Associate for Greenbush & Associates,
a financial consulting company. From 1986 to 1994 he worked for IGC, most
recently as Vice-President Corporate Planning and Administration.
STANLEY LEWIN has been Vice President of Technology of the Company
since October 1991. Mr. Lewin has over 13 years 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
the People's Republic of China.
JAMES SULLIVAN has been the Company's Vice President of Sales, since
July 1996. From December 1995 through July 1996 he was President of C.C.
Communications, Inc., an advertising agency in New Jersey, in charge of market
development for Holt Lloyd International, a car care products company in the UK.
From November 1976 through November 1994, Mr. Sullivan was Vice President in
charge of sales with additional responsibilities for engineering and product
development, for PCI, 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 Semikron, a German 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.
DANIEL K. SCHOENLY has been the Company's Vice President of
Manufacturing since March 1997. Before then he held the position of Vice
President of Manufacturing Primary Batteries since May 1994. 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.
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
IGC 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.
ARTHUR M. 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
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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.
RICHARD A. HANSEN has been a director since July 1993. Mr. Hansen has
been President and Chief Executive Officer of Pennsylvania Merchant Group Ltd.,
one of the Underwriters, since 1987 and is a director of Computone Corporation.
CARL H. ROSNER, a director of the Company since January 1992, is the
Chairman of the Board and Chief Executive Officer of IGC. Mr. Rosner has been
Chairman of IGC since its formation and Chief Executive Officer since 1984.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of January 28, 1998 and after giving
effect to this offering by (i) each person or entity known by the Company to
beneficially own more than 5% of the outstanding shares of Common Stock, (ii)
each director and named executive officers of the Company, and (iii) all
directors and executive officers of the Company and officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
- ---------------- ------------------ -------- --------
<S> <C> <C> <C>
Intermagnetics General Corporation
450 Old Niskayuna Rd.
Latham, NY 12210-0461 (1)................. 1,005,086 12.55% 9.56%
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258 (2).................. 797,100 9.98% 7.59%
State of Wisconsin Investment Board
P.O. Box 7842
Madison, WI 53707 (3)..................... 469,000 5.87% 4.47%
Joseph C. Abeles (4)(5)................... 268,000 3.34% 2.55%
Joseph N. Barrella (4)(6)................. 317,500 3.91% 2.99%
Bruce Jagid (4)(7)........................ 613,900 7.32% 5.64%
Richard A. Hansen (4)(8).................. 34,000 * *
Arthur M. Lieberman (4)(9)................ 130,000 1.63% 1.24%
Martin G. Rosansky (4)(10)................ 171,000 2.12% 1.61%
Stanley Lewin (4)(11)..................... 46,000 * *
Carl H. Rosner
c/o Intermagnetics General Corporation
450 Old Niskayuna Rd.
Latham, NY 12210-0461 (1)(12)............ 1,005,086 12.55% 9.57%
All directors and officers as a group (13
persons) (13)............................. 2,628,086 29.90% 23.29%
</TABLE>
- ------------------------------------------
* Represents share ownership of less than one (1%) percent.
(1) Includes 833 shares and options to purchase 28,500 shares which may be
exercised within 60 days beneficially owned by Mr. Carl H. Rosner. Mr.
Rosner is the Chairman of the Board and Chief Executive Officer of
IGC. Therefore, IGC may be deemed to share voting and
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investment power with respect to the shares and shares issuable upon the
exercise of options held by Mr. Rosner. IGC disclaims beneficial ownership
of the shares and shares issuable upon the exercise of options owned by Mr.
Rosner.
(2) The information contained herein with respect to these shares has been
obtained from Schedule 13G, dated January 27, 1998, includes shares held as
trustee or investment advisor for affiliated entities.
(3) The information contained herein with respect to these shares has been
obtained from Schedule 13G, dated January 23, 1998.
(4) The address of this person is c/o Ultralife Batteries, Inc., 1350 Route 88
South, Newark, New York 14513.
(5) Includes 25,500 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 1,003,586 shares beneficially owned by IGC. Mr. Abeles
is a director of IGC and therefore may be deemed to share voting and
investment power with respect to the shares held by IGC. Mr. Abeles
disclaims beneficial ownership of the shares owned by IGC. Mr. Abeles and
the Company have entered into an agreement ("Waiver Agreement") pursuant to
which Mr. Abeles has agreed to not exercise options exercisable to purchase
16,280 shares of Common Stock, until the Company effects an increase to its
authorized number of shares of Common Stock, provided that this offering is
consummated on or before June 30, 1998. In consideration, the Company has
agreed to use its best efforts to schedule an annual or special meeting of
stockholders as soon as practicable in order for the stockholders to vote
on a proposal to approve an increase in the Company's authorized Common
Stock. In the event that (i) an increase to its authorized shares of Common
Stock is not approved at the Company's next annual or special meeting of
stockholders or (ii) the Company is party to a merger, consolidation, sale
of all or substantially all of the Company's assets or a transaction in
which outstanding Common Stock shall be changed into or exchanged for
different securities of the Company (other than by combination or
consolidation of its outstanding shares of Common Stock) or common stock or
other securities of another corporation or interests in a noncorporate
entity or other property ("Merger Event"), then the Company has agreed to
compensate Mr. Abeles in an amount equal to the aggregate market value of
shares of Common Stock issuable upon exercise of the vested portion of such
options, as determined on the date of the annual or special meeting of
stockholders or the closing date of the Merger Event, as the case may be,
less the aggregate exercise price of the vested options.
(6) Includes 128,500 shares subject to options which may be exercised within 60
days. Mr. Barrella has entered into a similar Waiver Agreement with respect
to options exerciseable to purchase 41,280 shares of Common Stock.
(7) Includes 403,500 shares subject to options which may be exercised within 60
days. Mr. Jagid has entered into a similar Waiver Agreement with respect to
options exerciseable to purchase 126,280 shares of Common Stock. Also
includes 2,000 shares held in trust for Mr. Jagid's children.
(8) Includes 27,000 shares subject to options which may be exercised within 60
days and includes 2,000 shares owned by minor children. Mr. Hansen has
entered into a similar Waiver Agreement with respect to options
exerciseable to purchase 16,280 shares of Common Stock. Does not include
shares held by Pennsylvania Merchant Group as a market-maker. Mr. Hansen is
President and Chief Executive Officer of Pennsylvania Merchant Group and
therefore may be deemed to share voting and investment power.
(9) Includes 48,500 shares subject to options which may be exercised within 60
days and 51,500 shares held by the Arthur M. Lieberman P.C. profit sharing
plan. Mr. Lieberman has entered into a similar Waiver Agreement with
respect to options exerciseable to purchase 16,280 shares of Common Stock.
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(10) Includes 78,500 shares subject to options which may be exercised within 60
days. Mr. Rosansky has entered into a similar Waiver Agreement with respect
to options exercisable to purchase 41,280 shares of Common Stock.
(11) Includes 35,000 shares subject to options which may be exercised within 60
days. Mr. Lewin has entered into a similar Waiver Agreement with respect to
options exerciseable to purchase 25,000 shares of Common Stock.
(12) Includes 28,500 shares subject to options which may be exercised within 60
days and 975,753 shares owned by IGC. Mr. Rosner is the Chairman of the
Board and Chief Executive Officer of IGC and therefore may be deemed to
share voting and investment power with respect to the shares held by IGC.
Mr. Rosner disclaims beneficial ownership of the shares owned by IGC. Mr.
Rosner has entered into a similar Waiver Agreement with respect to options
exerciseable to purchase 16,280 shares of Common Stock.
(13) Includes 811,000 shares subject to options which may be exercised within 60
days. Certain directors and officers have entered into a similar Waiver
Agreement with respect to options exerciseable to purchase an aggregate of
494,956 shares of Common Stock.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 12,000,000
shares of Common Stock, par value $0.10 per share, and 1,000,000 shares of
Preferred Stock, $.10 par value per share.
As of January 31, 1998, there were 7,979,136 shares of Common Stock
outstanding and 1,623,650 shares of Common Stock issuable upon the exercise of
outstanding options and warrants. As of January 31, 1998, no shares of Preferred
Stock had been issued by the Company.
COMMON STOCK
Holders of shares of the Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders and are not entitled
to cumulate votes for the election of directors. Subject to preferences that may
be applicable to any outstanding Preferred Stock, holders of shares of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the
holders of shares of Common Stock are entitled to share ratably, share for
share, in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. Shares of
Common Stock have no preemptive, conversion or other subscription rights and
there are no redemption or sinking fund provisions applicable to the Common
Stock.
PREFERRED STOCK
The Restated Certificate of Incorporation provides that the Company
may issue up to 1,000,000 shares of Preferred Stock. The Board of Directors has
the authority to issue Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions, including the dividend,
conversion, voting, redemption (including sinking fund provisions), and other
rights, liquidation preferences, and the number of shares constituting any
series and the designations of such series, without any further vote or action
by the stockholders of the Company. Because the terms of the Preferred Stock may
be fixed by the Board of Directors of the Company without stockholder action,
the Preferred Stock could be issued quickly with terms calculated to defeat a
proposed take-over of the Company, or to make the removal of management of the
Company more difficult. Under certain circumstances this could have the effect
of decreasing the market price of the Common Stock. Management of the Company is
not aware of any such threatened transaction to obtain control of the Company.
SECTION 203 OF THE DELAWARE CORPORATION LAW
The Company is a Delaware corporation and is subject to Section 203
of the Delaware General Corporation Law (the "DGCL"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with certain Delaware corporations for 3 years following
the date such person became an interested stockholder unless (i) the corporation
has elected in its certificate of incorporation not to be governed by Section
203 (the Company has not made such an election); (ii) before such person became
an interested stockholder, the board of directors of the corporation approved
the transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (iii) upon consummation of the
transaction that resulted in the interested stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced (excluding
stock held by directors who are also officers of the corporation and by employee
stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be voted or tendered
in a tender or exchange offer); or (iv) following the transaction in which such
person became an interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder. The restrictions in Section 203 also do not apply to certain
business combinations proposed by an interested stockholder following the
announcement
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or notification of an extraordinary transaction involving the corporation and a
person who had not been an interested stockholder during the previous 3 years or
a person who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations and other transactions between a
Delaware corporation and an "interested stockholder" resulting in a financial
benefit to the stockholder.
LIMITATION OF LIABILITY
As permitted by the DGCL, the Company's Restated Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, relating to prohibited
dividends or distributions or the repurchase or redemption of stock, or (iv) for
any transaction from which the director derives an improper personal benefit.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the Company must indemnify him against
the expenses that such officer or director actually and reasonably incurred. The
indemnity does not affect the availability of equitable remedies such as an
injunction based upon a director's breach of his or her duty of care. However,
such equitable remedies may not provide effective protection due to factors such
as procedural limitations on obtaining such relief and the timeliness of any
such relief sought. The limitation on monetary liability also does not apply to
liabilities arising under the federal securities laws. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors of the Company pursuant to the foregoing provision, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Notwithstanding the foregoing, the Company has entered into indemnification
agreements with each of its directors and executive officers pursuant to which
the Company has agreed to indemnify its directors and executive officers against
certain liabilities which they may incur in connection with the performance of
their duties. Under the terms of such indemnification agreements, the Company
may, subject and to the extent permitted by law, advance funds for legal
expenses in connection with such indemnification.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American
Stock Transfer and Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders pursuant to
Rule 144 ("Rule 144") promulgated under the Securities Act, pursuant to
registration rights granted to certain holders of warrants to purchase the
Common Stock, or pursuant to other registration or exemptions from registration
under the Securities Act, could have an adverse effect on the price of the
shares of Common Stock. The Company has approximately 7,979,136 shares of Common
Stock outstanding ($10,854,136 upon consummation of this offering and assuming
the Underwriters' over-allotment option is exercised in full). In addition, the
Company has reserved for issuance (i) 1,036,150 shares of Common Stock upon the
exercise of options available for grant under the 1992 Plan, (ii) 100,000 shares
of Common Stock upon the exercise of options available for grant under the
Company's 1995 Plan, (iii) 375,000 shares of Common Stock upon the exercise of
options granted to the Company's Chairman and Chief Executive Officer not
pursuant to a plan and (iv) 112,500 shares of Common Stock reserved for issuance
upon the exercise of the outstanding Warrants. The Company has agreed to include
12,500 of the shares underlying the foregoing Warrants in a future registration
statement which the Company will prepare and file with, and use its best efforts
to have declared effective by, the Securities and Exchange Commission
("Commission") so as to permit the public trading of the shares underlying the
foregoing Warrants.
Of the 7,979,136 shares of Common Stock issued and outstanding
2,012,500 were sold publicly in the Company's initial public offering in
December 1992 and approximately 2,000,000 shares were sold publicly pursuant to
the Company's follow-on public offering in December 1994. Of the remaining
shares of Common Stock, all are freely tradeable without restriction or further
registration under the Securities Act except for approximately 1.8 million
shares of Common Stock which may not be resold except pursuant to an effective
registration statement filed by the Company or an applicable exemption from
registration, including an exemption under Rule 144. The Company, each of its
executive officers and directors and IGC have agreed that, for a period of 90
days after the date of this Prospectus, they will not offer, sell or otherwise
dispose of any shares of Common Stock without the prior written consent of
Lehman Brothers Inc. No predictions can be made as to the effect that future
sales of Common Stock, or the availability of shares of Common Stock for future
sales, will have on the market prices for the Common Stock prevailing from time
to time. Sales of substantial amounts of Common Stock, or the perception that
such sales could occur, could adversely effect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
future sales of its equity securities. See "Principal Stockholders."
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UNDERWRITING
Under the terms of, and subject to the conditions contained in, the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement (the "Registration Statement") of which this Prospectus
forms a part, the underwriters named below (the "Underwriters"), for whom Lehman
Brothers Inc., A.G. Edwards & Sons, Inc. and Pennsylvania Merchant Group acting
as representatives (the "Representatives"), have severally agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company, and the Company has agreed to sell to each Underwriter, the aggregate
number of shares of Common Stock set forth opposite the name of each such
Underwriter below:
Number of
Shares of
UNDERWRITERS Common Stock
Lehman Brothers Inc.................................
A.G. Edwards & Sons, Inc............................
Pennsylvania Merchant Group.........................
Total....................................
============
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the foregoing shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, then all
the shares of Common Stock agreed to be purchased by the Underwriters pursuant
to the Underwriting Agreement, must be so purchased.
The Company has been advised by the Representatives that the
Underwriters propose to offer the shares of Common Stock directly to the public
at the public offering price set forth on the cover page of this Prospectus, and
to certain selected dealers (who may include the Underwriters) at such public
offering price less a selling concession not in excess of $_____ per share. The
Underwriters may allow, and the selected dealers may reallow, a concession not
in excess of $_____ per share to certain brokers and dealers. After this
offering, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option to purchase up
to an aggregate of 375,000 additional shares of Common Stock, exercisable solely
to cover over-allotments, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such Underwriter's
initial commitment as indicated in the preceding table and the Company will be
obligated to such over-allotment option, to sell such shares of Common Stock to
the Underwriters.
The Company has agreed that, without the prior consent of Lehman
Brothers Inc., it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for any such
shares of Common Stock, for a period of 90 days from the date of this
Prospectus. All of the executive officers and directors of the Company and IGC
have agreed pursuant to lockup agreements that, without the prior written
consent of Lehman Brothers Inc., they will not, subject to certain limited
exceptions, directly or indirectly, offer, sell or otherwise dispose of any
shares of Common Stock or
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any securities convertible into or exchangeable or exercisable for any such
shares for the period ending 90 days after the date of this Prospectus. See
"Shares Eligible for Future Sale."
The Company has agreed to indemnify, under certain circumstances, the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute, under certain circumstances, to payments that
the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with this offering (i.e., they sell more shares than are set forth on
the cover page of this Prospectus), the Representatives may reduce that short
position by purchasing Common Stock in the open market. The Representatives also
may elect to reduce any short position by exercising all or part of the
over-allotment option described herein.
The Representatives also may impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase shares of Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization
or to reduce a syndicate short position could cause the price of the security to
be higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Any offers in Canada will be made only pursuant to an exemption from
the requirements to file a prospectus in the relevant province of Canada in
which such offer is made.
Purchasers of the shares of Common Stock offered hereby may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase, in addition to the offering price set
forth on the cover hereof.
The Representatives have informed the Company that they do not intend
to confirm the sales of shares of Common Stock offered hereby to any accounts
over which they exercise discretionary authority.
Pennsylvania Merchant Group acted as an underwriter in connection
with the Company's initial public offering and subsequent follow-on offering.
Richard A. Hansen, a member of the Board of Directors of the Company, is
President and Chief Executive Officer of Pennsylvania Merchant Group, one of the
Representatives. Every member of the Board of Directors, including Mr. Hansen,
receives $750 per month for their services on the Board and $750 for each
meeting attended. In addition, every member, including Mr. Hansen, receives
options to purchase 1,500 shares of Common Stock under the Company's 1992 Stock
Option Plan at the end of every fiscal quarter. Mr. Hansen has received such
options since September 30, 1993. As of the date hereof Mr. Hansen owns 7,000
shares of Common Stock and holds options exercisable to purchase 27,000 shares
of Common Stock.
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LEGAL COUNSEL
The validity of the shares of Common Stock will be passed upon for
the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Chadbourne & Parke LLP, New York, New York.
EXPERTS
The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement, as of and for the years ended June 30,
1996 and 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements of the Company and Ultralife UK
for the year ended June 30, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 including all amendments thereto (the "Registration Statement") under
the Securities Act with respect to the Common Stock offered by this Prospectus
via the Electronic Data Gathering Analysis and Retrieval system ("EDGAR") and
may be found on the Commission's web site at http://www.sec.gov. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and
where the contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by such
reference to the applicable document filed with the Commission.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith the
Company files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Northeast Regional
Office, 7 World Trade Center 13th Floor, New York, New York 10048, upon payment
of the fees prescribed by the Commission. Copies of all or any part of the
Registration Statement (including exhibits thereto) also may be obtained from
the Public Reference Section of the Commission at the Commission's principal
office in Washington, D.C. at the Commission's prescribed rates. Electronic
filings made via EDGAR are publicly available through the Commission's web site
referenced above.
The Company distributes to its stockholders annual reports containing
audited financial statements certified by its certified public accountants and
such other periodic reports as the Company determines to be appropriate or as
may be required by law.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended June
30 1997;
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(b) Quarterly Report on Form 10-Q for the three month period
ended September 30, 1997 and the Quarterly Report on Form
10-Q for the six month period ended December 31, 1997; and
(c) All other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the
termination of this offering.
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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, a 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.
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 measure of the driving force (electromotive force)
which pushes electrons through an external circuit.
Watt (W) A unit of measurement for the power delivered by a
battery.
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Watt-hour (W/H) A unit of energy.
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.
Chloride-zinc A heavy duty use primary carbon-zinc cell with an ammonium
chloride and chloride zinc electolyte. This cell is
generally used for heavy intermittent service or medium
rates continuous discharge.
Lead-Acid Battery A popular, low-cost rechargeable battery with high-rate
performance. Typical lead-acid batteries utilize lead
dioxide as the active positive electrode material and
metallic lead, in a high-surface-area porous structure, as
the negative active material. The electrolyte is a
sulfuric acid solution.
Lithium-Ion (Liquid) 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
liquid 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.
Lithium-Sulfur
dioxide Cells that utilize a lithium anode, a porous carbon
cathode and a sulfur dioxide cathode material. A
nonaqueous electrolyte is comprised of sulfur dioxide and
an organic solvent typically acetonitrile with a dissolved
lithium bromide salt.
Lithium
thionyl-chloride Cells that consist of a lithium anode, a carbon cathode
and a nonaqueous electrolyte. Thionyl-chloride is both the
electrolyte solvent and the active cathode material.
Mercury oxide-cells A primary cell utilizing an anode made from zinc powder or
foil amalgamated with mercury, a mercuric oxide cathode
and an electrolyte of sodium or potassium hydroxide.
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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Silver-oxide A rechargeable cell utilizing silver-oxide as the positive
material and zinc as the negative material with a
potassium hydroxide electrolyte.
Zinc-air A cell which utilizes zinc as the anode electrode and air
as the positive active material.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY PAGE
Report of Independent Public Accountants.................................... F-2
Report of Independent Auditors.............................................. F-3
Consolidated Balance Sheets as of June 30, 1996 and 1997 and as of
December 31, 1997 (unaudited)............................................. F-4
Consolidated Statements of Operations for the years ended June 30, 1995,
1996 and 1997 and for the six months ended December 31, 1996 and 1997
(unaudited)............................................................... F-6
Consolidated Statements of Changes in Stockholder's Equity for the years
ended June 30, 1995, 1996 and 1997 and for the six months ended December
31, 1997 (unaudited)...................................................... F-7
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1996 and 1997 and for the six months ended December 31, 1996 and 1997
(unaudited)............................................................... F-8
Notes to Consolidated Financial Statements.................................. F-9
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Ultralife Batteries, Inc.:
We have audited the accompanying consolidated balance sheets of Ultralife
Batteries, Inc. (a Delaware corporation) and subsidiary as of June 30, 1996 and
1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years 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 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 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 1997, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Rochester, New York,
September 5, 1997
F-2
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Ultralife Batteries, Inc. and Subsidiary
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Ultralife Batteries, Inc. and Subsidiary for the year ended
June 30, 1995. 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of Ultralife Batteries,
Inc. and Subsidiary referred to above present fairly, in all material respects,
the consolidated results of their operations and their cash flows for the year
ended June 30, 1995, in conformity with generally accepted accounting
principles.
/s/Ernst & Young LLP
Syracuse, New York
August 31, 1995
F-3
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
------------------------- -----------
1996 1997 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............................. $ 1,212,743 $ 2,310,725 $ 2,773,768
Available-for-sale securities ......................... 33,856,285 19,847,201 13,148,403
Trade accounts receivable (less allowance for doubtful
accounts of $190,000, $278,000, and $290,000 at
June 30, 1996 and 1997 and December 31, 1997,
respectively) ...................................... 3,485,044 2,715,728 4,155,718
Earned contract revenues receivable ................... 521,696 -- 975,914
Inventories ........................................... 8,437,791 5,302,752 3,490,510
Prepaid expenses and other current assets ............. 1,350,790 1,661,655 608,511
----------- ----------- -----------
Total current assets .................................... 48,864,349 31,838,061 25,152,824
----------- ----------- -----------
Property and equipment:
Machinery and equipment ............................... 12,419,928 21,267,756 26,005,998
Leasehold improvements ................................ 150,716 216,111 1,182,581
----------- ----------- -----------
12,570,644 21,483,867 27,188,579
Less--accumulated depreciation and amortization ....... 1,882,106 2,610,172 3,092,409
----------- ----------- -----------
10,688,538 18,873,695 24,096,170
----------- ----------- -----------
Other assets and deferred charges:
Technology license agreements (net of accumulated
amortization of $303,458, $416,653, and $466,652
at June 30, 1996 and 1997 and December 31, 1997
respectively) ...................................... 796,542 683,347 633,348
China development program ............................. 283,500 -- --
----------- ----------- -----------
1,080,042 683,347 633,348
----------- ----------- -----------
Total Assets............................................. $60,632,929 $51,395,103 $49,882,342
=========== =========== ===========
</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 BALANCE SHEETS
<TABLE>
June 30, December 31,
--------------------------- ------------
1996 1997 1997
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 3,434,473 $ 2,659,547 $ 3,826,442
Accrued compensation ................................. 276,668 234,501 407,223
Other accrued liabilities ............................ 153,022 101,741 924,326
Customer advances .................................... 334,000 1,636,433 1,270,666
------------ ------------ ------------
Total current liabilities .............................. 4,198,163 4,632,222 6,428,657
------------ ------------ ------------
Commitments and contingencies (Note 5)
Stockholders' equity (Note 6):
Preferred stock, par value $0.10 per share, authorized
1,000,000 shares - none outstanding ................ -- -- --
Common stock, par value $0.10 per share, authorized
12,000,000 shares; outstanding - 7,923,211 shares
in 1996 7,926,086 in 1997 and 7,975,286 on
December 31, 1997 ................................. 792,322 795,360 800,255
Capital in excess of par value ....................... 64,630,638 64,785,814 65,245,016
Unrealized net gain on securities .................... 3,842,878 1,311,343 634,056
Accumulated deficit .................................. (12,868,821) (20,115,175) (22,942,968)
Foreign currency translation adjustment .............. 37,749 291,041 20,050
------------ ------------ ------------
56,434,766 47,068,383 43,756,409
Less -- Treasury stock, at cost (27,500 shares
at June 30, 1997 and 27,250 at December 31, 1997)..... -- (305,502) (302,724)
------------ ------------ ------------
Total Stockholders' Equity........ ..................... 56,434,766 46,762,881 43,453,685
------------ ------------ ------------
Total Liabilities and Stockholders' Equity.............. $ 60,632,929 $ 51,395,103 $ 49,882,342
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-5
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
-------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Battery sales ..................... $ 11,212,643 $ 12,623,646 $ 14,765,364 $ 7,444,019 $ 7,572,849
Technology contracts .............. 3,430,640 2,477,887 1,175,754 593,747 1,425,976
------------ ------------ ------------ ------------ ------------
Total revenue ....................... 14,643,283 15,101,533 15,941,118 8,037,766 8,998,825
Cost of products sold:
Battery costs ..................... 10,900,049 12,317,486 13,880,321 7,125,878 6,790,072
Technology contracts .............. 1,873,892 936,053 710,937 494,487 953,460
------------ ------------ ------------ ------------ ------------
Total cost of products sold ......... 12,773,941 13,253,539 14,591,258 7,620,365 7,743,532
------------ ------------ ------------ ------------ ------------
Gross profit ........................ 1,869,342 1,847,994 1,349,860 417,401 1,255,293
Operating expenses:
Selling, general and administrative 4,262,545 4,993,644 5,217,441 2,786,685 2,613,064
Research and development .......... 2,685,313 3,688,687 3,939,786 1,787,248 3,070,875
Loss(gain) on fires ............... -- 351,902 (55,835) -- (1,195,427)
Loss on China battery
development program ............. -- -- 805,296 -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses ............ 6,947,858 9,034,233 9,906,688 4,573,933 4,488,512
------------ ------------ ------------ ------------ ------------
Loss from operations ................ (5,078,516) (7,186,239) (8,556,828) (4,156,532 (3,233,219)
Other income (expense):
Interest income ................... 1,721,682 2,016,831 1,351,646 800,878 427,202
Gain on sale of securities ........ -- 1,930,056 -- -- --
Miscellaneous expense ............. (34,844) -- (41,172) -- (21,776)
------------ ------------ ------------ ------------ ------------
Loss before income taxes ............ (3,391,678) (3,239,352) (7,246,354) (3,355,654) (2,827,793)
Income taxes ........................ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss ............................ $ (3,391,678) $ (3,239,352) $ (7,246,354) $ (3,355,654) $ (2,827,793)
============ ============ ============ ============ ============
Net loss per common share ........... $ (0.50) $ (0.41) $ (0.91) $ (0.42) $ (0.36)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding ....................... 6,747,374 7,814,302 7,923,022 7,933,086 7,942,300
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-6
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
[TABLE 1 OF 2] Common Stock
----------------------------
Capital in Unrealized
Number Excess of Net Gain Accumulated
of Shares Amount Par Value on Securities Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 .................. 5,543,586 $ 554,359 $ 30,259,237 $ 2,958,751 $ (6,237,791)
Shares issued under public offering ....... 2,000,000 200,000 35,300,000 -- --
Public offering expenses .................. -- -- (2,902,927) -- --
Shares issued under stock option plans
and other stock options .............. 112,525 11,253 565,721 -- --
Foreign currency translation adjustment ... -- -- -- -- --
Change in unrealized net gain on securities -- -- -- 557,618 --
Net loss .................................. -- -- -- -- (3,391,678)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1995 .................. 7,656,111 765,612 63,222,031 3,516,369 (9,629,469)
Shares issued under stock option plans
and other stock options .............. 267,100 26,710 1,408,607 -- --
Foreign currency translation adjustment ... -- -- -- -- --
Change in unrealized net gain on securities -- -- -- 326,509 --
Net loss .................................. -- -- -- -- (3,239,352)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1996 .................. 7,923,211 792,322 64,630,638 3,842,878 (12,868,821)
Shares issued under stock option plans
and other stock options .............. 30,125 3,013 152,112 -- --
Purchase of treasury stock ................ (27,500) -- -- -- --
Other ..................................... 250 25 3,064 -- --
Foreign currency translation adjustment ... -- -- -- -- --
Change in unrealized net gain on securities -- -- -- (2,531,535) --
Net loss .................................. -- -- -- -- (7,246,354)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1997 .................. 7,926,086 795,360 64,785,814 1,311,343 (20,115,175)
Shares issued under stock option plans
and other stock options .............. 48,950 4,895 461,980 -- --
Foreign currency translation adjustment ... -- -- -- -- --
Change in unrealized net gain on securities -- -- -- (677,287) --
Issuance of common stock from treasury..... 250 -- 2,778 -- --
Net loss .................................. -- -- -- -- (2,827,793)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 (unaudited) .. 7,975,286 $ 800,255 $ 65,245,016 $ 634,056 $(22,942,968)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
[TABLE 2 OF 2]
Foreign
Currency
Translation Treasury
Adjustment Stock Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance at June 30, 1994 .................. $ 19,857 $ -- $ 27,554,413
Shares issued under public offering ....... -- -- 35,500,000
Public offering expenses .................. -- -- (2,902,927)
Shares issued under stock option plans
and other stock options .............. -- -- 576,974
Foreign currency translation adjustment ... 62,634 -- 62,634
Change in unrealized net gain on securities -- -- 557,618
Net loss .................................. -- -- (3,391,678)
------------ ------------ ------------
Balance at June 30, 1995 .................. 82,491 -- 57,957,034
Shares issued under stock option plans
and other stock options .............. -- -- 1,435,317
Foreign currency translation adjustment ... (44,742) -- (44,742)
Change in unrealized net gain on securities -- -- 326,509
Net loss .................................. -- -- (3,239,352)
------------ ------------ ------------
Balance at June 30, 1996 .................. 37,749 -- 56,434,766
Shares issued under stock option plans
and other stock options .............. -- -- 155,125
Purchase of treasury stock ................ -- (305,502) (305,502)
Other ..................................... -- -- 3,089
Foreign currency translation adjustment ... 253,292 -- 253,292
Change in unrealized net gain on securities -- -- (2,531,535)
Net loss .................................. -- -- (7,246,354)
------------ ------------ ------------
Balance at June 30, 1997 .................. 291,041 (305,502) 46,762,881
Shares issued under stock option plans
and other stock options .............. -- -- 466,875
Foreign currency translation adjustment ... (270,991) -- (270,991)
Change in unrealized net gain on securities -- -- (677,287)
Issuance of common stock from treasury..... -- (2,778) --
Net loss .................................. -- -- (2,827,793)
------------ ------------ ------------
Balance at December 31, 1997 (unaudited) .. $ 20,050 $ (302,724) $ 43,453,685
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-7
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
[TABLE 1 OF 2]
Year ended June 30,
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net loss .................................................... $ (3,391,678) $ (3,239,352) $ (7,246,354)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................... 613,246 806,664 841,261
Loss on China development program ............... -- -- 283,500
Provision for loss on accounts receivable ....... 64,311 102,153 88,000
Provision for inventory obsolescence ............ 474,050 (403,789) 93,178
Foreign currency loss ........................... (24,274) -- --
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable (1,575,053) (727,615) 681,316
Decrease (increase) in earned contract revenues
receivable ............................... (1,195,142) 790,246 521,696
Decrease (increase) in inventories .............. (3,979,424) (2,797,373) 3,041,861
Decrease (increase) in prepaid expenses and
other current assets ...................... (59,844) (815,742) (310,865)
Increase (decrease) in accounts payable
and accrued liabilities ................... 1,987,001 (319,951) (868,374)
Increase (decrease) in customer advances ........ 100,493 (118,000) 1,302,433
------------- ------------- -------------
Net cash used in operating activities ....................... (6,986,314) (6,722,759) (1,572,348)
Investing activities:
Purchase of property and equipment .......................... (1,839,558) (6,661,725) (8,913,223)
China development program payments .......................... (121,500) -- --
Purchases of available-for-sale securities .................. (122,875,062) (71,151,177) (139,484,737)
Sales of available-for-sale securities ...................... 24,969,843 19,260,164 64,969,005
Maturities of available-for-sale securities ................. 74,398,379 63,363,519 85,993,281
------------- ------------- -------------
Net cash provided by (used in) investing activities ......... (25,467,898) 4,810,781 2,564,326
Financing activities:
Proceeds from issuance of common stock ...................... 33,174,047 1,435,317 158,214
Purchase of treasury stock .................................. -- -- (305,502)
------------- ------------- -------------
Net cash provided by (used in) financing activities ......... 33,174,047 1,435,317 (147,288)
Effect of exchange rate changes on cash ........................ 24,179 (44,742) 253,292
(Decrease) increase in cash and cash equivalents ............... 744,014 (521,403) 1,097,982
Cash and cash equivalents at beginning of period ............... 990,132 1,734,146 1,212,743
Cash and cash equivalents at end of period ..................... $ 1,734,146 $ 1,212,743 $ 2,310,725
============= ============= =============
Supplemental disclosure of noncash investing
and financing activities:
Unrealized net gain (loss) in securities .................... $ 557,618 $ 326,509 $ (2,531,535)
</TABLE>
<TABLE>
<CAPTION>
[TABLE 2 OF 2]
Six months ended
December 31,
------------------------------
1996 1997
------------- -------------
(unaudited)
<S> <C> <C>
Operating activities:
Net loss .................................................... $ (3,355,654) $ (2,827,793)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................... 608,863 532,235
Loss on China development program ............... -- --
Provision for loss on accounts receivable ....... -- 12,000
Provision for inventory obsolescence ............ -- (45,507)
Foreign currency loss ........................... (39,648) --
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable (1,317,509) (2,427,904)
Decrease (increase) in earned contract revenues
receivable ............................... -- --
Decrease (increase) in inventories .............. 964,468 1,857,749
Decrease in prepaid expenses and other
current assets ............................ 87,716 1,053,144
Increase (decrease) in accounts payable
and accrued liabilities ................... 1,428,603 1,789,446
Increase (decrease) in customer advances ........ -- --
------------- -------------
Net cash used in operating activities ....................... (1,623,161) (56,630)
Investing activities:
Purchase of property and equipment .......................... (5,021,686) (5,704,712)
China development program payments .......................... -- --
Purchases of available-for-sale securities .................. (22,927,038) (40,582,647)
Sales of available-for-sale securities ...................... 9,239,983 39,208,989
Maturities of available-for-sale securities ................. 19,488,735 7,402,159
------------- -------------
Net cash provided by (used in) investing activities ......... 779,994 323,789
Financing activities:
Proceeds from issuance of common stock ...................... 119,119 466,875
Purchase of treasury stock .................................. (305,502) --
------------- -------------
Net cash provided by (used in) financing activities ......... (186,383) 466,875
Effect of exchange rate changes on cash ........................ -- (270,991)
(Decrease) increase in cash and cash equivalents ............... (1,029,550) 463,043
Cash and cash equivalents at beginning of period ............... 1,212,743 2,310,725
Cash and cash equivalents at end of period ..................... $ 183,193 $ 2,773,768
============= =============
Supplemental disclosure of noncash investing
and financing activities
Unrealized net gain (loss) in securities .................... $ (1,949,648) $ (677,287)
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-8
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including data applicable to unaudited periods)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business
Ultralife Batteries, Inc. (the "Company") develops, manufactures, and
markets primary and rechargeable lithium batteries for use in a wide array
of applications. 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. To date,
the Company has depended upon one customer for all of its rechargeable
batteries orders. Termination of this relationship or the failure to obtain
additional customers may have a material adverse effect upon the Company.
In fiscal 1996, sales to one customer totaled approximately $ 1,920,000
(13% of total revenues). By the end of the year, this customer had paid
their trade account in full. In fiscal 1997, sales to one customer totaled
approximately $2,391,000 (15% of total revenues) and account balances were
current. In the six months ending December 31, 1996 and 1997, sales to one
customer totaled approximately $1,103,000 (14% of revenues) and $1,041,000
(12% of revenues) respectively and account balances were current. The
Company does not normally obtain collateral on trade accounts receivable.
b. 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 material intercompany accounts and transactions have
been eliminated in consolidation.
c. 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.
d. Cash and 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.
F-9
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
e. Available-for-Sale Securities
Management determines the appropriate classification of 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 as 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. 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. 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).
f. Inventories
Inventories are stated at the lower of cost or market with cost
determined under the first-in, first-out (FIFO) method.
g. Property and Equipment
Property and equipment is stated at cost. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of three to ten years. Betterments, renewals and extraordinary
repairs that extend the life of the assets are capitalized. Other repairs
and maintenance costs are expensed. When sold, the cost and accumulated
depreciation applicable to assets retired are removed from the accounts and
the gain or loss on disposition is recognized in income.
During 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires
that long- lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If such events or changes in circumstances are present, a loss
is recognized to the extent the carrying value of the asset is in excess of
the sum of the undiscounted cash flows expected to result from the use of
the asset and its eventual disposition.
F-10
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
h. Stock-Based Compensation
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits either recording
the estimated value of stock-based compensation over the applicable vesting
period or disclosing the unrecorded cost and the related effect on earnings
per share in the notes to the financial statements. The Company has elected
to comply with the disclosure provisions of the statement. The effect of
SFAS No. 123 in the pro forma disclosures is not indicative of future
amounts. The statement does not apply to awards prior to 1995, and
additional awards are anticipated.
i. Technology License Agreements
Technology license agreements consist of the rights to patented
technology and related technical information. The agreements are amortized
using the straight- line method over three to ten 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.
j. 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 loss for the years ended
June 30, 1995, 1996 and 1997 and for the six months ended December 31, 1996
and 1997.
k. Income Taxes
The liability method, prescribed by SFAS No. 109, "Accounting for
Income Taxes", is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that may be in effect when
the differences are expected to reverse.
l. Research and Development
Research and development expenditures are charged to operations as
incurred.
F-11
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
m. Revenue Recognition
Revenues from sales of batteries are recognized when products are
shipped. A provision is made at that time for warranty costs expected to be
incurred.
n. 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 as research and development expenses if
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
technology developed to the U.S. Government.
o. Derivative Financial Instruments and Fair Value of Financial
Instruments
SFAS No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of any
significant derivative or other financial instruments. The Company does not
have any derivative financial instruments at June 30, 1996 and 1997 and at
December 31, 1997.
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments",
requires disclosure of an estimate of the fair value of certain financial
instruments. The fair value of financial instruments pursuant to SFAS No.
107 approximated their carrying values at June 30, 1996 and 1997 and at
December 31, 1997. Fair values have been determined through information
obtained from market sources.
p. Earnings per Share
The Company accounts for net loss per common share in accordance with
the provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires
the reporting of basic and diluted earnings per share (EPS). Basic EPS is
computed by dividing reported earnings available to common stockholders by
weighted average shares outstanding for the period. No dilution for common
share equivalents is included. Diluted EPS includes the dilutive effect of
securities calculated using the treasury stock method. The Company is
required to adopt SFAS No. 128 retroactively for periods
F-12
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ending after December 15, 1997. The accompanying financial statements have
been restated for this adoption.
q. New Accounting Pronouncements
SFAS No. 130 "Reporting Comprehensive Income" establishes standards
for reporting and display of comprehensive income and its components. The
standard is applicable for fiscal years beginning after December 15, 1997.
The Company will adopt this standard in its 1999 financial statements. The
Company has not yet determined the impact of this standard on its financial
statements.
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about
operating segments in the financial statements. The standard is required to
be adopted for fiscal years beginning after December 15, 1997. The Company
will adopt this standard in its 1999 financial statements. The Company has
not yet determined the impact of this standard on its financial statements.
r. Legal Matters
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to
such litigation cannot be determined, in the opinion of management, such
liability will not have a material adverse effect on the Company's
financial condition or results of operations.
s. Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
NOTE 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, or a total of 110,000 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 had 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.
Subsequent to December 31, 1997, the Company entered into an approximate 10-year
purchase/lease agreement to acquire the building it now occupies and
F-13
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 2--LEASES--(CONTINUED)
an adjacent building of approximately 140,000 square feet, together with
approximately 65 acres of undeveloped land. The total purchase/lease price is
$768,570. In connection with the agreement, the Company received an
environmental assessment which revealed contaminated soil. The assessment
indicated the cost should not exceed $190,000. However, there can be no
assurance that this will be the maximum cost. The Company entered into an
agreement whereby a third party has agreed to reimburse the Company for fifty
percent of the costs associated. In addition, Ultralife UK leases its principal
facility under the terms of an operating lease with an initial lease term of
twenty-five years.
Rental expenses for all operating leases were approximately $760,000,
$773,000, $745,000, $423,000 and $451,000 for the years ended June 30, 1995,
1996, and 1997 and for the six months ended December 31, 1996 and 1997,
respectively. After taking effect of the purchase/lease agreement for the
Newark, NY property, future minimum lease payments under noncancelable operating
leases as of December 31 1997 are approximately as follows: 1998 (six months
remaining)--$249,000, 1999--$330,000, 2000--$363,000, 2001--$439,000;
2002--$413,000, and thereafter--$822,000. The above amounts do not include
contingent or additional rent.
NOTE 3--INVESTMENTS
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
UNREALIZED
------------------------- ESTIMATED
JUNE 30, 1996 COST GAINS LOSSES FAIR VALUE
- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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) .... 21,153,916 3,828,726 -- 5,982,642
----------- ----------- ----------- -----------
$30,013,407 $ 3,869,763 $ 26,885 $33,856,285
=========== =========== =========== ===========
</TABLE>
F-14
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 3--INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
UNREALIZED
------------------------- ESTIMATED
JUNE 30, 1997 COST GAINS LOSSES FAIR VALUE
- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies ...................... $ 2,352,880 $ 1,293 $ 4,186 $ 2,349,987
Mortgage backed securities ....... 2,829,058 11,288 261 2,840,085
U.S. corporate securities ........ 11,200,004 32,077 127,146 11,104,935
----------- ----------- ----------- -----------
Total debt securities ............ 16,381,942 44,658 131,593 16,295,007
Intermagnetics General Corporation
(equity securities) ........... 2,153,916 1,398,278 -- 3,552,194
----------- ----------- ----------- -----------
$18,535,858 $ 1,442,936 $ 131,593 $19,847,201
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
------------------------- ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES FAIR VALUE
- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies ...................... $ 7,300,668 $ 11,148 $ -- $ 7,311,816
Mortgage backed securities ....... 40,385 -- (100) 40,285
U.S. corporate securities ........ 3,019,378 -- (11,048) 3,008,330
------------ ------------ ------------ ------------
Total debt securities ............ 10,360,431 11,148 (11,148) 10,360,431
Intermagnetics General Corporation
(equity securities) ........... 2,153,916 634,056 -- 2,787,972
------------ ------------ ------------ ------------
$ 12,514,347 $ 645,204 $ (11,148) $ 13,148,403
============ ============ ============ ============
</TABLE>
The Company has instructed its investment fund managers to invest in
conservative, investment grade securities with average maturities of less than
three years. In fiscal 1996, the Company realized gross gains on sale of
available-for-sale securities of $1,930,056, and in fiscal 1995, the Company
realized gross losses of $77,699.
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1997, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because the issuers
of the 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.
F-15
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 3--INVESTMENTS--(CONTINUED)
ESTIMATED
AVAILABLE-FOR-SALE COST FAIR VALUE
- ---------------------------------------- ----------- -----------
Due in one year or less $10,360,431 $10,360,431
Due after one year through three years -- --
Equity securities 2,153,916 2,787,972
----------- -----------
$12,514,347 $13,148,403
=========== ===========
NOTE 4--INCOME TAXES
Foreign and domestic loss carryforwards totaling approximately $22,020,000
are available to reduce future taxable income. Foreign loss carryforwards of
$2,834,000 can be carried forward indefinitely. The domestic net operating loss
carryforward of $19,186,000 expires in 2006 through 2012. 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 $496,000, $1,843,000 and $3,273,000 for the
years ended June 30, 1995, 1996 and 1997, respectively, to offset the deferred
tax assets due to uncertainty of realizations.
Significant components of the Company's deferred tax liabilities and assets
as of June 30 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on securities ........................ $ 1,306,579 $ 514,737
Tax over book depreciation ........................... 497,797 666,016
----------- -----------
Total deferred tax liabilities .......................... 1,804,376 1,180,753
----------- -----------
Deferred tax assets:
Net operating loss carryforward ...................... 4,925,559 7,486,716
Other ................................................ 377,030 464,827
----------- -----------
Total deferred tax assets ............................... 5,302,589 7,951,543
Valuation allowance for deferred assets ................. (3,498,213) (6,770,790)
Net deferred tax assets ................................. 1,804,376 1,180,753
----------- -----------
Net deferred income taxes ............................... $ -- $ --
=========== ===========
</TABLE>
F-16
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 4--INCOME TAXES--(CONTINUED)
There were no income taxes paid for the years ended June 30, 1995, 1996 and
1997. For financial reporting purposes, loss from continuing operations before
income taxes included the following:
JUNE 30,
-----------------------------------------------
1995 1996 1997
----------- ----------- -----------
United States ............ $(2,743,611) $(1,605,015) $(6,916,312)
Foreign .................. (648,067) (1,634,337) (330,042)
----------- ----------- -----------
Total .................... $(3,391,678) $(3,239,352) $(7,246,354)
=========== =========== ===========
There are no undistributed earnings of Ultralife UK, the Company's foreign
subsidiary, at June 30, 1997.
NOTE 5--COMMITMENTS AND CONTINGENCIES
a. China Program
In July 1992, the Company entered into several agreements related to
the establishment of a manufacturing facility in China, for the production
and distribution of batteries. Changzhou Ultra Power Battery Co., Ltd., 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 a lithium battery manufacturing plant. China
Battery was required to pay approximately $6.0 million to the Company over
the first two years of the agreement, of which approximately $5.6 million
has been paid. The Company has been attempting to collect the balance due
under this contract. China Battery has indicated that these payments will
not be made until certain contractual issues have been resolved. Due to the
Chinese partner's questionable willingness to pay, the Company wrote off in
fiscal 1997 the entire balance owed to the Company as well as the Company's
investment. In December 1997, China Battery sent to the Company a letter
demanding reimbursement of losses they have incurred plus a refund for
certain equipment that the Company sold to China Battery. Although China
Battery has not taken any additional steps, there can be no assurance that
China Battery will not further pursue such a claim, which, if successful,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company believes that such a claim
is without merit.
F-17
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 5--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
b. Letter of Credit
During 1996, the Company opened an irrevocable letter of credit up to
a maximum of $334,000 with an interest rate of 3.75% a year and an
expiration date of December 31, 1998. It is collateralized by $334,000 of
the Company's investments.
If the Company fails to fulfill its obligations under an agreement,
the customer may draw the amount due. As of December 31, 1997, there has
been no draw on the irrevocable letter of credit.
c. Indemnity Agreement
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.
d. Purchase Commitments
As of December 31, 1997 the Company is committed to purchase
approximately $2,900,000 of production machinery and equipment.
e. Royalty Agreement
Technology underlying certain products of the Company are based in
part as non-exclusive transfer agreements. The Company made an original
payment for such technology and is required to make royalty and other
payments in the future which incorporate the licensed technology. The
license expires through 2007.
NOTE 6--STOCKHOLDERS' EQUITY
a. Preferred Stock
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 has 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.
F-18
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 6--STOCKHOLDERS' EQUITY--(CONTINUED)
b. Stock Options
The Company sponsors several stock-based compensation plans, all of
which are accounted for under the provisions of Accounting Principles Board
Opinion No. 25. Had compensation expense for all of the Company's
stock-based compensation been determined consistent with SFAS No. 123, the
Company's net loss would have been $4,249,214, $8,294,904, $3,663,224 and
$3,377,117 for the years ended June 30, 1996 and 1997 and for the six
months ended December 31, 1996 and 1997, compared with the reported losses
of $3,239,352, $7,246,354, $3,355,654 and $2,827,794. Loss per share would
have been $0.54, $1.05, $0.46 and $0.43 in the years ended June 30, 1996
and 1997, and for the six months ended December 31, 1996 and 1997,
respectively, as compared to reported loss per share of $0.41, $0.91, $0.42
and $0.36, respectively.
For purposes of this disclosure, the fair value of each fixed option
grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used
for grants in fiscal 1996 and 1997, and for the six months ended December
31, 1996 and 1997, respectively; expected option terms of three years for
all periods; expected stock volatility of approximately 46.6% for all
periods except approximately 56.0% for the six months ended December 31,
1997; expected dividend yields of 0% for all periods and risk free interest
rates of 5.7%, 5.8%, 5.8% and 6.0%. The weighted average fair value of
options granted was $7.22 in fiscal 1996, $4.18 in fiscal 1997 $4.15 for
the six months ended December 31, 1996 and $5.26 for the six months ended
December 31, 1997.
The stockholders of the Company have approved three stock option plans
that permit the grant of options. In addition, the stockholders of the
Company have approved the grant of options outside of these 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. There are currently 11,250 shares remaining to be granted under the
1991 plan. 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 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 that is substantially the same as the 1991 stock option plan. The
shareholders
F-19
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 6--STOCKHOLDERS' EQUITY--(CONTINUED)
b. Stock Options-(Continued)
have approved reservation of 1,150,000 shares of common stock for grant
under the plan. During 1997, the board of directors approved an amendment
to the plan increasing the number of common shares reserved by 500,000 to
1,650,000. 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 to purchase
150,000 shares at $11.00 per share under the terms of an employment
agreement and outside of any of the stock option plans. These options are
exercisable in annual increments of 30,000 shares over a five-year period
commencing March 1, 1995 until March 1, 2000.
This table summarizes data for the stock options issued by the Company:
<TABLE>
<CAPTION>
FISCAL
--------------------------------------------------------------------------
1995 1996 1997 DECEMBER 31, 1997
---------------------- ---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares under option
at beginning of year 1,130,000 $ 8.76 1,259,975 $10.67 1,194,425 $12.67 1,337,300 $11.51
Options granted .... 314,500 $15.08 190,000 $19.33 503,150 $10.12 306,300 $12.73
Options exercised .. (112,525) $ 5.13 (218,800) $ 6.56 (30,125) $ 5.15 (48,950) $ 9.35
Options canceled ... (72,000) $ 8.49 (36,750) $14.98 (330,150) $14.30 (77,300) $10.89
---------- ------ ---------- ------ ---------- ------ ---------- ------
Shares under option
at end of year ..... 1,259,975 $10.67 1,194,425 $12.67 1,337,300 $11.51 1,517,350 $10.89
---------- ------ ---------- ------ ---------- ------ ---------- ------
Options exercisable
at end of year ..... 531,100 $12.26 570,125 $13.88 826,300 $11.43 850,150 $11.74
</TABLE>
F-20
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 6--STOCKHOLDERS' EQUITY--(CONTINUED)
b. Stock Options-(Continued)
The following table represents additional information about stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE
NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES AT DEC. 31, 1997 LIFE EXERCISE PRICE DEC. 31, 1997 EXERCISE PRICE
- --------------- ---------------- ----------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$8.00 - 11.75 1,080,200 4.3 Years $ 9.95 594,250 $ 9.83
12.00 - 17.50 357,650 3.4 Years 15.19 204,500 14.83
18.25 - 24.50 79,500 3.4 Years 20.97 51,400 21.61
------------- --------- --------- ------- ------- -------
$8.00 - 24.50 1,517,350 4.1 Years $ 11.64 850,150 $ 11.74
------------- --------- --------- ------- ------- -------
</TABLE>
c. Warrants
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 issued additional warrants to purchase 100,000 shares of its
common stock. Those warrants were issued on April 22, 1997 and expire on
April 22, 1998. The exercise price is $12.00 per share. The Company has
committed to grant warrants to purchase 12,500 shares of its common stock
to the Empire State Development Corporation in connection with a $500,000
grant to be finalized in March, 1998. The warrants may be exercised through
December 31, 2002 at an exercise price equal to 60% of the average closing
price for the 10 trading days preceding the exercise date, but not less
than the average closing price during the 20 trading days prior to the
grant.
d. Reserved Shares
The Company has reserved 1,409,125, 2,159,125, 2,159,125 and 2,225,000
shares of common stock under the various stock option plans and warrants as
of June 30, 1995, 1996, and 1997 and December 31, 1997, respectively.
NOTE 7--401(K) PLAN
The Company maintains 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' contributions. Effective January 1, 1997, the Board of Directors
F-21
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 7--401(K) PLAN - (CONTINUED)
approved Company matching of employee contributions up to a maximum of 3% of the
employee's income. For the year ended June 30, 1997 and the six months ended
December 31, 1997, the Company contributed $74,760 and $72,000 respectively.
NOTE 8--INVENTORIES
The composition of inventories were:
JUNE 30, DECEMBER 31,
--------------------------- ----------
1996 1997 1997
---------- ---------- ----------
Raw materials ............... $3,311,440 $2,993,858 $2,081,026
Work in process ............. 4,329,111 547,468 1,528,183
Finished products ........... 1,589,981 2,647,345 721,713
---------- ---------- ----------
9,230,532 6,188,671 4,330,922
Less: Reserve for
obsolescence ............. 792,741 885,919 840,412
---------- ---------- ----------
$8,437,791 $5,302,752 $3,490,510
========== ========== ==========
NOTE 9--RELATED PARTY TRANSACTIONS
The Company held approximately 332,369 shares (market value of $5,982,642),
339,016 shares (market value of $3,552,194) and 345,795 (market value of
$2,787,972) of Intermagnetics General Corporation ("IGC") at June 30, 1996 and
1997 and at December 31, 1997, respectively. IGC is considered to be a related
party since certain directors of the Company also serve as officers or directors
of IGC.
NOTE 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 China
Battery as well as various research and development contracts with other
companies and the U.S. Government. There are no inter-segment sales. U.S. sales
to foreign customers during the years ended June 30, 1995 1996, and 1997 and for
the six months ended December 31, 1996 and 1997 were $608,427, $1,381,352,
$2,124,709, $1,162,332 and $861,203, respectively.
F-22
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 10--BUSINESS SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
---------------------------------------------- -----------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Business Segment Results
Net Sales:
Batteries ...................... $ 11,212,643 $ 12,623,646 $ 14,765,364 $ 7,444,019 $ 7,572,849
Technology contracts ........... 3,430,640 2,477,887 1,175,754 593,747 1,425,976
------------ ------------ ------------ ------------ ------------
$ 14,643,283 $ 15,101,533 $ 15,941,118 $ 8,037,766 $ 8,998,825
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes:
Batteries ...................... $ (3,346,856) $ (5,010,631) $ (5,261,013) $ (2,346,524) $ (1,764,811)
Technology contracts ........... 413,523 524,180 (62,295) (50,740) (7,376)
Corporate administration ....... (458,345) 1,247,099 (1,923,046) (958,390) (1,055,606)
------------ ------------ ------------ ------------ ------------
$ (3,391,678) $ (3,239,352) $ (7,246,354) $ (3,355,654) $ (2,827,793)
------------ ------------ ------------ ------------ ------------
Depreciation and amortization:
Batteries ...................... $ 613,246 $ 806,664 $ 841,261 $ 608,863 $ 532,235
Technology contracts ........... -- -- -- -- --
Corporate administration ....... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 613,246 $ 806,664 $ 841,261 $ 608,863 $ 532,235
------------ ------------ ------------ ------------ ------------
Identifiable assets:
Batteries ...................... $ 12,796,090 $ 21,808,067 $ 25,833,503 $ 24,877,228 $ 27,133,239
Technology contracts ........... 2,525,582 2,121,544 1,742,019 1,263,260 1,421,672
Corporate administration ....... 47,271,476 36,703,318 23,819,581 29,951,453 21,327,431
------------ ------------ ------------ ------------ ------------
$ 62,593,148 $ 60,632,929 $ 51,395,103 $ 56,091,941 $ 49,882,342
------------ ------------ ------------ ------------ ------------
Capital expenditures:
Batteries ...................... $ 1,839,558 $ 6,661,725 $ 8,913,223 $ 5,021,686 $ 5,704,712
Technology contracts ........... -- -- -- -- --
Corporate administration ....... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 1,839,558 $ 6,661,725 $ 8,913,223 $ 5,021,686 $ 5,704,712
------------ ------------ ------------ ------------ ------------
</TABLE>
F-23
<PAGE>
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Including data applicable to unaudited periods)
NOTE 10--BUSINESS SEGMENT INFORMATION--(CONTINUED)
Information concerning geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
---------------------------------------------- -----------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
North America ......... $ 8,202,047 $ 10,967,546 $ 10,611,602 $ 5,302,290 $ 7,140,358
Europe ................ 6,441,236 4,133,987 5,329,516 2,735,476 1,858,467
------------ ------------ ------------ ------------ ------------
$ 14,643,283 $ 15,101,533 $ 15,941,118 $ 8,037,766 $ 8,998,825
------------ ------------ ------------ ------------ ------------
Loss before income taxes:
North America ......... $ (2,743,611) $ (1,605,015) $ (6,916,312) $ (3,079,383) $ (3,457,711)
Europe ................ (648,067) (1,634,337) (330,042) (276,271) 629,918
------------ ------------ ------------ ------------ ------------
$ (3,391,678) $ (3,239,352) $ (7,246,354) $ (3,355,654) $ (2,827,793)
------------ ------------ ------------ ------------ ------------
Identifiable assets:
North America ......... $ 57,602,334 $ 56,367,177 $ 46,327,939 $ 50,776,275 $ 43,696,940
Europe ................ 4,990,814 4,265,752 5,067,164 5,315,668 6,185,402
------------ ------------ ------------ ------------ ------------
$ 62,593,148 $ 60,632,929 $ 51,395,103 $ 56,091,943 $ 49,882,096
------------ ------------ ------------ ------------ ------------
</TABLE>
F-24
<PAGE>
[INSIDE BACK COVER PAGE]
Proposed pictures for inside back cover:
Top: Picture of array of primary batteries
Caption: Ultralife produces a family of primary (non-rechargeable)
lithium batteries including high rate, 9-volt, and thin cell
batteries.
Bottom
left: Picture of Ultralife 9-volt battery package ("Ultralife 10 Year Smoke
Detector Battery")
Caption: Ultralife's 9-volt battery, featured in many commercially
available smoke detectors, is the only standard 9-volt battery with a
10-year guaranteed life.
Bottom
right: Picture of 9-volt batteries with private labels: Energizer, American
Sensors, First Alert, etc.
Caption: Ultralife produces 9-volt batteries under a number of
private labels, some of which are pictured above.
<PAGE>
====================================== ======================================
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE 2,500,000 SHARES
CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE [LOGO]
RELIED UPON AS HAVING BEEN ULTRALIFE BATTERIES, INC.
AUTHORIZED BY THE COMPANY OR ANY OF
THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO COMMON STOCK
SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY TO ANY PERSON
IN ANY JURISDICTION WHERE AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE ---------------------------
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION PROSPECTUS
CONTAINED HEREIN IS CORRECT AS OF , 1998
ANY TIME SUBSEQUENT TO THE DATE
HEREOF. ---------------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary............... 3
Risk Factors..................... 8
Use of Proceeds..................14
Price Range of Common Stock......15
Dividend Policy..................15
Capitalization...................16
Dilution.........................17
Selected Consolidated
Financial Data..................18
Management's Discussion
and Analysis of Financial
Condition and Results LEHMAN BROTHERS
of Operations...................20
Business.........................25 A.G. EDWARDS & SONS, INC.
Management.......................43
Principal Stockholders...........46 PENNSYLVANIA MERCHANT GROUP
Description of Capital Stock.....48
Shares Eligible for Future Sale..50
Underwriting.....................51
Legal Counsel....................53
Experts..........................53
Additional Information...........53
Information Incorporated
by Reference....................53
Glossary of Technical Terms......55
Index to Consolidated
Financial Statements...........F-1
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the Company in
connection with the issuance and distribution of the securities being registered
hereunder, other than underwriting discounts and commissions. Except for the
Securities and Exchange Commission registration fee and the NASD filing fee, all
amounts are estimates.
SEC registration fee............................................. $ 13,145.94
NASD filing fee.................................................. 4,360.00
Nasdaq National Market listing fee............................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Accounting fees and expenses..................................... *
Miscellaneous expenses........................................... *
Total........................................................ $ *
===========
- ----------
*To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of the State of Delaware (the
"GCL") enables a corporation in its original certificate of incorporation or an
amendment thereto to eliminate or limit the personal liability of a director to
a corporation or its stockholders for violations of the director's fiduciary
duty, except (i) for any breach of a director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the GCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions), or
(iv) for any transaction from which a director derived an improper personal
benefit. The Restated Certificate of Incorporation of the Company provides in
effect for the elimination of the liability of directors to the extent permitted
by the GCL.
Section 145 of the GCL provides, in summary, that directors and officers of
Delaware corporations are entitled, under certain circumstances, to be
indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. The Company's By-laws
entitle officers and directors of the Company to indemnification to the fullest
extent permitted by the GCL.
The Company has entered into an agreement with each of its directors and certain
officers which provide for indemnification by the Company against certain
liabilities, including liabilities under the Securities Act.
The Company maintains a directors and officers liability insurance policy with
National Union Fire Insurance Company. The policy insures the directors and
officers of the Company against loss arising from certain claim or claims made
against such directors or officers by reason of certain wrongful acts. The
policy provides a combined limit of liability of $3,000,000 per policy year for
both directors' and officers' liability coverage at an annual premium of
$75,000.
II-1
<PAGE>
ITEM 16. EXHIBITS.
Exhibit
Number Description
- ------ -----------
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Company
(as amended through December 27, 1995)
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2
of the Company's Registration Statement on Form S-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 S-1 filed December 23, 1992 (File
No. 33-54470)).
10.1* Lease agreement between Wayne County Industrial Development
Agency and the Company, dated as of February 1, 1998.
5.1* Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1* Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ernst & Young LLP
24.1 Powers of Attorney of certain directors and officers of the
Company (included as part of Signature Pages)
- ---------
*To be filed by amendment
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13 (a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) To deliver or cause to be delivered with the prospectus to each person to
whom the prospectus is sent or given, the latest annual report, to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
II-2
<PAGE>
(3) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 15 above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newark, State of New York, on February 27, 1998.
ULTRALIFE BATTERIES, INC.
By: /S/ BRUCE JAGID
------------------------
Bruce Jagid
Chairman and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bruce Jagid and Martin G. Rosansky, each acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/S/ BRUCE JAGID Chairman of the Board,
- -------------------------- Chief Executive Officer February 27, 1998
Bruce Jagid
/S/ MARTIN G. ROSANSKY Vice Chairman of the Board February 27, 1998
- --------------------------
Martin G. Rosansky
/S/ JOSEPH N. BARRELLA President, Chief Technology February 27, 1998
- -------------------------- Officer and Director
Joseph N. Barrella (Principal Executive Officer)
/S/ FREDERICK F. DRULARD Chief Financial Officer February 27, 1998
- -------------------------- (Principal Financial and
Frederick F. Drulard Accounting Officer)
/S/ JOSEPH C. ABELES Director February 27, 1998
- --------------------------
Joseph C. Abeles
/S/ ARTHUR M. LIEBERMAN Director February 27, 1998
- --------------------------
Arthur M. Lieberman
II-4
<PAGE>
/S/ RICHARD A. HANSEN Director February 27, 1998
- --------------------------
Richard A. Hansen
/S/ CARL H. ROSNER Director February 27, 1998
- --------------------------
Carl H. Rosner
II-5
[2,500,000] SHARES
ULTRALIFE BATTERIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
February , 1998
LEHMAN BROTHERS INC.
A.G. EDWARDS & SONS, INC.
PENNSYLVANIA MERCHANT GROUP
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Ultralife Batteries, Inc., a Delaware corporation (the "Company"),
proposes to sell an aggregate of [2,500,000] shares (the "Firm Stock") of the
Company's Common Stock, par value $0.10 per share (the "Common Stock"). In
addition, the Company proposes to grant to the Underwriters named in Schedule 1
hereto (the "Underwriters") an option to purchase up to an additional [375,000]
shares of the Common Stock on the terms and for the purposes set forth in
Section 2 (the "Option Stock"). The Firm Stock and the Option Stock, if
purchased, are hereinafter collectively called the "Stock." This is to confirm
the agreement concerning the purchase of the Stock from the Company by the
Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company with respect to itself and Ultralife Batteries (UK) Ltd., a company
formed under the laws of England (the "Subsidiary") represents, warrants and
agrees that:
(a) A registration statement on Form S-3 and [an] amendment[s]
thereto with respect to the Stock have (i) been prepared by the
Company in conformity with the requirements of the United States
Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations (the "Rules and Regulations") of the United
States Securities and Exchange Commission (the "Commission")
<PAGE>
thereunder, (ii) been filed with the Commission under the Securities
Act and (iii) become effective under the Securities Act. Copies of
such registration statement and the amendment[s] thereto have been
delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement,
"Effective Time" means the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the Effective Time; "Preliminary Prospectus"
means each prospectus included in such registration statement, or
amendments thereof, before it became effective under the Securities
Act and any prospectus filed with the Commission by the Company with
the consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time, including
any documents incorporated by reference therein at such time and all
information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 5(a) hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to paragraph
(b) of Rule 430A of the Rules and Regulations; and "Prospectus" means
such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
Reference made herein to any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act, as of the date of such Preliminary
Prospectus or the Prospectus, as the case may be, and any reference to
any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any document filed
under the United States Securities Exchange Act of 1934, as amended
(the "Exchange Act"), after the date of such Preliminary Prospectus or
the Prospectus, as the case may be, and incorporated by reference in
such Preliminary Prospectus or the Prospectus, as the case may be, and
any reference to any amendment to the Registration Statement shall be
deemed to include any annual report of the Company filed with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as
2
<PAGE>
of the applicable filing date (as to the Prospectus and any amendment
or supplement thereto) contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to information contained in
or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus,
when they were filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus, when such documents
are filed with the Commission, will conform in all material respects
to the requirements of the Exchange Act and the rules and regulations
of the Commission thereunder and will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(d) The Company has registered the Common Stock with the
Commission pursuant to Section 12 of the Exchange Act, and all
documents filed with the Commission under the Exchange Act, when they
were filed, conformed in all respects to the requirements of the
Exchange Act and the Rules and Regulations thereunder and did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(e) The Company and the Subsidiary have been duly incorporated
and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the financial position,
stockholders' equity, results of operations, business or prospects of
the Company and the Subsidiary, taken as a whole (herein, a "Material
Adverse Effect"), and have all power and authority necessary to own or
hold their respective properties and to conduct the businesses in
which they are engaged as described in the Registration Statement;
3
<PAGE>
and the Subsidiary is not a "significant subsidiary," as such term is
defined in Rule 405 of the Rules and Regulations.
(f) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus; the Company is the sole stockholder of
the Subsidiary and all of the issued shares of capital stock of the
Subsidiary have been duly and validly authorized and issued and are
fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims. Other than the
Subsidiary, the Company does not own, have a material interest in or
control directly or indirectly, any corporation, association or
entity.
(g) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable and the Stock will conform to the description thereof
contained in the Prospectus; and the issuance of the Stock is not
subject to preemptive or other similar rights.
(h) This Agreement has been duly authorized, executed and
delivered by the Company and is enforceable in accordance with its
terms.
(i) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or the Subsidiary is a party or by
which the Company or the Subsidiary is bound or to which any of the
property or assets of the Company or the Subsidiary is subject, nor
will such actions result in any violation of the provisions of the
certificate of incorporation, by-laws or other constituent documents
of the Company or the Subsidiary or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or the Subsidiary or any of their
properties or assets; and except for the registration of the Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act, and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
4
<PAGE>
required for the execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby.
(j) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by
such person or the right to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(k) Except as described in the Registration Statement, the
Company has not sold or issued any shares of Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee benefit
plans, stock option or other employee compensation plans or pursuant
to outstanding options outstanding prior to the commencement of such
six-month period.
(l) Neither the Company nor the Subsidiary has sustained, since
the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or the Subsidiary or
any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general
affairs, management, financial position, stockholders' equity or
results of operations of the Company or the Subsidiary, otherwise than
as set forth or contemplated in the Prospectus.
(m) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included or incorporated by reference in the Prospectus present fairly
the financial condition and results of operations of the Company and
the Subsidiary purported to be shown thereby, at the dates and for the
periods indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved. The selected and summary financial
and statistical data and information included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis substantially consistent with the financial
statements presented therein.
5
<PAGE>
(n) To the knowledge of the Company, each of Ernst & Young LLP
and Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose respective reports appear in the
Prospectus and who have each delivered an initial letter referred to
in Section 7(h) hereof, are independent public accountants as required
by the Securities Act and the Rules and Regulations.
(o) The Company and the Subsidiary have good and marketable title
in fee simple to all real property and good and marketable title to
all personal property owned by each of them, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiary and all real and personal property and buildings held under
lease by the Company and the Subsidiary are held by each of them, as
the case may be, under valid, subsisting and enforceable leases, with
such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the
Company or the Subsidiary, as the case may be.
(p) The Company and the Subsidiary carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in
similar businesses in similar industries all of which insurance is in
full force and effect.
(q) The Company and the Subsidiary own or possess, free and clear
of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind
whatsoever, adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and licenses
necessary for the conduct of their businesses and neither the Company
nor the Subsidiary has any reason to believe that the conduct of their
respective businesses will conflict with, or has received any notice
of any claim of conflict with, any such rights of others.
(r) There are no legal or governmental proceedings pending to
which the Company or the Subsidiary is a party or of which any
property or assets of the Company or the Subsidiary is the subject
which, if determined adversely to the Company or the Subsidiary, might
have a Material Adverse Effect; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
6
<PAGE>
(s) The conditions for the use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.
(t) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations.
(u) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(v) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent.
(w) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(x) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof or,
if requests for extensions to file such returns have been made, such
requests for extension have been timely filed and any such extensions
have been granted and have not expired, and has paid all taxes due
thereon, and no tax deficiency has been determined adversely to the
Company or the Subsidiary which has had nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the
Company or the Subsidiary, might have a Material Adverse Effect.
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(y) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities other than securities issued or granted pursuant to
employee benefit plans, stock or other employee compensation plans,
(ii) incurred any liability or obligation, direct or contingent, other
than liabilities and obligations which were incurred in the ordinary
course of business, (iii) entered into any transaction not in the
ordinary course of business or (iv) declared or paid any dividend on
its capital stock.
(z) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing
assets at reasonable intervals.
(aa) Neither the Company nor the Subsidiary is (i) in violation
of its certificate of incorporation, by-laws or other constituent
documents, (ii) in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which it is
a party or by which it is bound or to which any of its properties or
assets is subject, (iii) in violation in any material respect of any
law, ordinance, governmental rule, regulation or court decree to which
it or its property or assets may be subject or has failed to obtain
any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of its
property or to the conduct of its business and (iv) has received any
notice of proceedings relating to the revocation or modification of
any such license, permit, certificate, franchise or authorization
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
(ab) Neither the Company nor the Subsidiary, nor any director,
officer, agent, employee or other person associated with or acting on
behalf of the Company or the Subsidiary, has used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of
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any provision of the Foreign Corrupt Practices Act of 1977; or made
any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(ac) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous substances
by the Company or the Subsidiary (or, to the knowledge of the Company
or the Subsidiary, any of its predecessors in interest) at, upon or
from any of the property now or previously owned or leased by the
Company or the Subsidiary in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or
which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except
for any violation or remedial action which would not have, or could
not be reasonably likely to have, singularly or in the aggregate with
all such violations and remedial actions, a material adverse effect on
the general affairs, management, financial position, stockholders'
equity or results of operations of the Company or the Subsidiary;
there has been no material spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto such property
or into the environment surrounding such property of any toxic wastes,
medical wastes, solid wastes, hazardous wastes or hazardous substances
due to or caused by the Company or the Subsidiary or with respect to
which the Company or the Subsidiary has knowledge, except for any such
spill, discharge, leak, emission, injection, escape, dumping or
release which would not have or would not be reasonably likely to
have, singularly or in the aggregate with all such spills, discharges,
leaks, emissions, injections, escapes, dumpings and releases, a
material adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
or the Subsidiary; and the terms "hazardous wastes," "toxic wastes,"
"hazardous substances" and "medical wastes" shall have the meanings
specified in any applicable local, state, federal and foreign laws or
regulations with respect to environmental protection.
(ad) Neither the Company nor the Subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission
thereunder.
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell [2,500,000] shares of
the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule l hereto. Each
Underwriter shall be obligated to purchase from the Company that number of
shares of the Firm Stock which represents the same proportion of the
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number of shares of the Firm Stock to be sold by the Company as the number of
shares of the Firm Stock set forth opposite the name of such Underwriter in
Schedule l represents of the total number of shares of the Firm Stock to be
purchased by all of the Underwriters pursuant to this Agreement. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to [375,000] shares of Option Stock. Such option is granted solely
for the purpose of covering overallotments in the sale of Firm Stock and is
exercisable as provided in Section 4 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule l hereto. The respective purchase obligations of each Underwriter with
respect to the Option Stock shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be $ per
share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein.
3. Offering of Stock by the Underwriters. Upon authorization by the
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Chadbourne & Parke LLP, 30
Rockefeller Plaza, New York, New York 10112, at 10:00 A.M., New York City time,
on the third full business day following the date of this Agreement or at such
other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to as
the First Delivery Date. On the First Delivery Date, the Company shall deliver
or cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer of immediately
available funds to a bank account designated by the Company. Time shall be of
the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Stock shall be registered in such names and
in such denominations as the Representatives shall request in writing not less
than two full business days prior to the
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First Delivery Date. For the purpose of expediting the checking and packaging of
the certificates for the Firm Stock, the Company shall make the certificates
representing the Firm Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 2 may be exercised, in whole or in
part, at any time and from time to time, upon written notice being given to the
Company by the Representatives. Such notice shall set forth the aggregate number
of shares of Option Stock as to which the option is being exercised, the names
in which the shares of Option Stock are to be registered, the denominations in
which the shares of Option Stock are to be issued and the date and time, as
determined by the Representatives, when the shares of Option Stock are to be
delivered; provided, however, that this date and time shall not be earlier than
the First Delivery Date nor earlier than the second business day after the date
on which the option shall have been exercised nor later than the fifth business
day after the date on which the option shall have been exercised. The date and
time the shares of Option Stock are delivered are sometimes referred to as the
"Second Delivery Date" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "Delivery Date."
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer of immediately
available funds to a bank account designated by the Company. Time shall be of
the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names and
in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
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5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than Commission's close of business
on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be required
by Rule 430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or to the
Prospectus except as permitted herein; to advise the Representatives,
promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with
copies thereof; to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long
as the delivery of the Prospectus is required in connection with the
offering or sale of the Stock; to advise the Representatives, promptly
after it receives notice thereof, of the issuance by the Commission of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request:
(i) conformed copies of the Registration Statement as originally filed
with the Commission and each amendment thereto, (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus
and (iii) every document incorporated by reference in the Prospectus
(excluding exhibits thereto); and, if the delivery of a prospectus is
required at any time after the Effective Time in connection with the
offering or sale of the Stock or any other securities relating
12
<PAGE>
thereto and if at such time any events shall have occurred as a result
of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus
in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to file such document and to
prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may from
time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect
such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or any Prospectus pursuant
to Rule 424 of the Rules and Regulations, to furnish a copy thereof to
the Representatives and counsel for the Underwriters and obtain the
consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date (but in no
event later than 15 months after the Effective Date), to make
generally available to the Company's security holders and to deliver
to the Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by
the Company to its shareholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
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<PAGE>
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock;
(i) Without the prior written consent of Lehman Brothers Inc. on
behalf of the Representatives, whether directly or indirectly, for a
period of 90 days subsequent to the date of the Prospectus, not to (1)
offer for sale, sell, pledge or otherwise dispose of (or enter into
any transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the future
of) any shares of Common Stock (other than the Stock and shares issued
pursuant to employee benefit plans, stock option or equity plans or
other employee compensation plans existing on the date hereof or
pursuant to currently outstanding options, warrants or rights), or
securities convertible into or exchangeable for Common Stock (other
than the grant of options pursuant to option plans existing on the
date hereof), or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the
economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise; and to cause each officer and
director of the Company and Intermagnetics General Corporation to
furnish to the Representatives, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for
the Underwriters, pursuant to which each such person shall agree that
without the prior written consent of Lehman Brothers Inc. on behalf of
the Representatives, whether directly or indirectly, for a period of
90 days subsequent to the date of the Prospectus, not to (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of)
any shares of Common Stock or securities convertible into or
exchangeable for Common Stock or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock
or other securities, in cash or otherwise;
(j) Prior to the Effective Date, to apply for the listing of the
Stock for quotation on the Nasdaq National Market and to use its best
efforts to effect such listing, subject only to official notice of
listing, prior to the First Delivery Date;
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(k) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary of the Company shall become an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus or any documents
incorporated by reference therein, all as provided in this Agreement; (d) the
costs of producing and distributing this Agreement and any other related
documents in connection with the offering, purchase, sale and delivery of the
Stock; (e) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of sale of the
Stock; (f) any applicable listing or other fees, including the fees for
quotation of the Stock on the Nasdaq National Market; (g) the fees and expenses
of qualifying the Stock under the securities laws of the several jurisdictions
as provided in Section 5(h) and of preparing, printing and distributing a Blue
Sky Memorandum (including related fees and expenses of counsel to the
Underwriters); and (h) all other costs and expenses incident to the performance
of the obligations of the Company under this Agreement; provided that, except as
provided in this Section 6 and in Section 11 the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Stock which they may sell and the expenses of advertising
any offering of the Stock made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of their respective
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 5(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the
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Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus
or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of
Chadbourne & Parke LLP, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is
required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby,
shall be reasonably satisfactory in all material respects to counsel
for the Underwriters, and the Company shall have furnished to such
counsel all documents and information that they may reasonably request
to enable them to pass upon such matters.
(d) Parker Chapin Flattau & Klimpl, LLP shall have furnished to
the Representatives its written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form
and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification and has all power and
authority necessary and has obtained all material authorizations,
approvals, orders, licenses, certificates, franchises and permits
of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
employee benefits, environmental or similar matters) to own or
hold its properties and conduct the business in which it is
engaged as described in the Registration Statement and
Prospectus; and the Company has no subsidiaries other than
Ultralife Batteries (UK), Ltd.;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company
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(including the shares of Stock being delivered on such Delivery
Date) and the outstanding warrants or options to purchase stock
have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description thereof
contained in the Prospectus and the form of the certificate for
the Stock conforms to the requirements of the laws of the State
of Delaware. There are no outstanding warrants, options,
convertible securities or other similar securities or rights to
purchase securities of the Company or the Subsidiary, except as
described in the Prospectus;
(iii) There are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the voting or
transfer of, any shares of the Stock pursuant to the Company's
certificate of incorporation or by-laws or, to such counsel's
knowledge, any agreement or other instrument to which the Company
is a party or by which it may be bound;
(iv) The Company and the Subsidiary have good and marketable
title in fee simple to all real property owned by them, in each
case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not
materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of
such property by the Company or the Subsidiary; and all real
property and buildings held under lease by the Company or the
Subsidiary are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company or the Subsidiary, and
all personal property owned by the Company or the Subsidiary is
free and clear of all liens as do not materially affect the value
of such properties and do not interfere with the use made or
proposed to be made of such properties by the Company or the
Subsidiary, as the case may be;
(v) To such counsel's knowledge and other than as set forth
in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or the Subsidiary is a party or of
which any property or assets of the Company or the Subsidiary is
the subject which might, individually or in the aggregate, have a
Material Adverse Effect; and, to such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the
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Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose is
pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations,
any documents incorporated by reference in the Prospectus (other
than the financial statements and related schedules therein, as
to which such counsel need express no opinion) when they were
filed with the Commission complied as to form in all material
respects with the requirements of the Exchange Act and the Rules
and Regulations of the Commission thereunder;
(viii) To such counsel's knowledge, there are no contracts
or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by
the Securities Act or by the Rules and Regulations which have not
been described or filed as exhibits to the Registration Statement
or incorporated therein by reference as permitted by the Rules
and Regulations;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding
agreement of the Company, and is enforceable against the Company
in accordance with its terms, except insofar as rights to
indemnity and/or contribution may be limited by United States
federal or state securities laws or the public policy underlying
such laws;
(x) The issue, sale and delivery of the shares of Stock
being delivered on such Delivery Date by the Company, the
execution, delivery and performance of this Agreement, the
compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions contemplated
hereby (a) do not conflict and will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which
the Company or the Subsidiary is a party or by which the Company
or the Subsidiary is bound
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or to which any of the property or assets of the Company or the
Subsidiary is subject, nor will such actions result in any
violation of the provisions of the certificate of incorporation
or by-laws or other constituent documents of the Company or the
Subsidiary or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or the Subsidiary or any of their properties or assets
and (b) will not result in the imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the
Subsidiary under any such indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument, nor will any
such action result in any violation of any existing law,
regulation or ruling (assuming compliance with all state
securities laws), judgment, injunction, order or decree to be
applicable to the Company, the Subsidiary or any of their
properties; and, except for the registration of the Stock under
the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") or
under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and
performance of this Agreement, by the Company or the Subsidiary,
the valid issuance, sale and delivery of the Stock to the
Underwriters and the consummation of the transactions
contemplated hereby;
(xi) To such counsel's knowledge, except as set forth in the
Prospectus, there are no contracts, agreements or understandings
between the Company and any person granting such person the right
to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company
owned or to be owned by such person, or the right (other than
rights which have been waived or satisfied or not yet exercised)
to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act;
(xii) Except as described in the Registration Statement, to
such counsel's knowledge there is not claim, action or
proceeding, pending or threatened, which challenges the rights of
the Company with respect to any trademarks, service marks,
copyrights, service names, trade names, patents,
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copyrights licenses (and applications therefor) and other
intellectual property rights used in the conduct of the Company's
businesses (including, without limitation, any such licenses or
intellectual property rights described in the Prospectus as being
owned or possessed by the Company) which, singly or in the
aggregate, if the subject of a decision, ruling or finding
unfavorable to the Company, would result in a Material Adverse
Effect; and nothing has come to such counsel's attention which
causes such counsel to believe that the Company of the
Subsidiary's current product, technology and processes do not
infringe on, or conflict with, any patents, copyrights, licenses
(or applications therefor) or other intellectual property rights
currently held by third parties; and
(xiii) The statements under the captions "Risk Factors --
Shares Eligible for Future Sale," "Business--Battery Safety;
Regulatory Matters; Environmental Considerations,"
"Business--Legal Proceedings," "Principal Stockholders,"
"Description of Capital Stock," "Shares Eligible for Future
Sale," and "Additional Information" have been reviewed by such
counsel, and insofar as they refer to statements of law,
descriptions of statutes, rules or regulations or legal
conclusions, are correct in all material respects.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States
of America, the laws of the State of New York and the General
Corporation Law of the State of Delaware. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Company in connection with
previous financing transactions and has acted as counsel to the
Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that (I) the
Registration Statement, as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading or (II) any documents incorporated by
reference in the Prospectus when they were filed with the Commission
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the
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statements therein, in light of the circumstances under which they
were made, not misleading.
(e) [U.K. Counsel] shall have furnished to the Representatives,
its written opinion, as counsel to Ultralife Batteries UK, Ltd.,
addressed to the Underwriters and dated such delivery date, in form
and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) The Subsidiary is duly incorporated and is validly
existing as a private limited liability company and is in good
standing under the laws of England;
(ii) The Subsidiary has the power in its Memorandum of
Association to carry on business as a general commercial company
and, inter alia, to purchase or by any other means acquire and
take options over any property and any rights or privileges of
any kind over or in respect of any property and accordingly has
full power and corporate authority to own and lease its
properties and to conduct its business as described in the
Registration Statement and the Prospectus;
(iii) Neither the Memorandum or the Articles of Association
of the Subsidiary nor any agreements of the Subsidiary contain
any pre-emptive or other rights to subscribe for or to purchase
shares or any other securities of the Subsidiary;
(iv) Except that the directors of the Subsidiary may in
their absolute discretion and without any reason decline to
register the transfer of any shares in the capital of the
Subsidiary, neither the Memorandum and Articles of Association of
the Subsidiary nor any agreement, indenture or instrument to
which the Subsidiary is a party contains any restrictions upon
the voting or transfer of any securities of the Subsidiary. In
relation to voting at general meetings of the Subsidiary, on a
show of hands every member who is present in person or by duly
authorized representative has one vote and on a poll every member
has one vote for every share of which he is the holder;
(v) The authorized share capital of the Subsidiary is
L.____________ divided into ___________ Ordinary Shares of L.1
each, of which ____________ Ordinary Shares of (pound)1 each have
been issued;
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(vi) The Company is the registered holder of all of the
issued Ordinary Shares and all such shares have been validly
issued, are fully paid up and were not issued in violation of the
Memorandum and Articles of Association of the Subsidiary or any
agreement to which the Subsidiary is a party;
(vii) The Subsidiary has passed the written Special
Resolution dated 23rd May 1994 attached as Annex H permitting its
board of directors by resolution to allot securities of any kind,
but has not filed any additional resolutions to authorize the
issue of warrants, convertible securities or other similar
securities nor to enable it to grant any options over its shares.
Such counsel's inspection of the Minute Books of the Company on
_________ 1998 did not reveal any allotment by the board of
directors of any securities except for those referred to as
issued under paragraph (v) above;
(viii) By the execution and delivery of the Company of the
Underwriting Agreement the Subsidiary is not, nor with the giving
of notice or lapse of time or both would it be, in violation of
or in default under, and consummation by the Company of the
transactions contemplated thereby will not result in a breach or
violation of, or constitute a default under, the Memorandum or
Articles of Association of the Subsidiary or any agreement,
indenture or instrument to which the Subsidiary is a party which
would result in a material adverse effect or result in the
creation or imposition of any lien, charge, claim or encumbrance
upon, any property or asset of the Subsidiary;
(ix) The performance by the Company of its obligations under
the Underwriting Agreement will not violate any law, rule,
administrative regulation or decree of any English court or any
United Kingdom governmental agency or body having jurisdiction
over the Subsidiary or any of its properties which would result
in a material adverse effect or result in the creation or
imposition of any lien, charge, claim or encumbrance upon, any
property or asset of the Subsidiary;
(x) No consent, approval, authorization or order of any
English court, governmental agency, body or financial institution
is required in connection with the consummation by the Company of
the transactions contemplated by the Agreement;
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(xi) All descriptions in the Prospectus of all legal or
governmental proceedings, contract and other documents relating
to the Subsidiary, and the description of the consequences to the
Subsidiary of such laws, proceedings or documents are accurate in
all material respects;
(xii) Searches made on ____________ 1998 of the Register of
the Chancery Division of the High Court, the Commercial Court
Register and the Central Index of Winding Up Petitions at the
Royal Courts of Justice in London and the Patents County Court
reveal no record of any current action or proceeding against the
Subsidiary in such divisions of the relevant Court including,
without limitation, claims, actions, or proceedings in respect of
patents, trademarks, licenses and other intellectual property
rights owned, used or enjoyed by the Subsidiary;
(xiii) There are no security interests in favor of any third
party in respect of any assets of the Subsidiary;
(xiv) The statements in the Prospectus which refer to
statements of law, descriptions of statutes, rules or regulations
or legal conclusions, with respect of the laws of England, are
correct in all material respects; and
(xv) The Subsidiary has obtained all material
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all United Kingdom
governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over employee
benefit, environmental or similar matters), to own or lease its
properties and conduct its business as described in the
Registration Statement and the Prospectus, and the Subsidiary has
not received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order,
consent, license, certificate, franchise, or permit which, singly
or in the aggregate, is the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(f) [Intellectual Property Counsel] shall have furnished to the
Representatives, its written opinion, as special intellectual property
counsel to the Company, addressed to the Underwriters and dated such
delivery date, in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) The list of patents and patent applications (the "Patent
List") annexed hereto as Annex __ is a complete and correct
listing of all the patents (each a "Patent" and together the
"Patents") owned by, and all the
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<PAGE>
applications for patents filed by or on behalf of (the "Pending
Applications"), the Company or its Subsidiary or any person
legally bound to assign full right, title and interest therein
and thereto to the Company or its Subsidiary;
(ii) Such counsel has no reason to believe that either the
Company or the Subsidiary, does not have full right and title in
and to each of the Patents, as well as full right and title in
the Pending Applications, or that the Company or the Subsidiary
is not the beneficiary of legally binding, enforceable and
non-transferable assignments or similar agreements with respect
to the Patents and the Pending Applications, and such counsel has
conducted and caused to be conducted by foreign attorneys or
agents searches of the assignment records of the United States
Patent Office and of foreign Patent Offices with regard to the
Company's record ownership of the Patents and the Pending
Applications, have reviewed the list of record owners of the
Patents and the Pending Applications, and have no knowledge of
any facts which would lead such counsel to believe that the
Company may be precluded from having clear title to the Patents
and Pending Applications referenced in the Patent List;
(iii) Such counsel has no knowledge that the Company lacks
or will be unable to obtain any rights or licenses to use all
patents, trademarks, service marks, trade names, copyrights and
know-how necessary to conduct the business now or proposed to be
operated by the Company as described in the Prospectus, except as
described in the Prospectus. Such counsel is unaware of any facts
which form a basis for a finding of unenforceability or
invalidity of any of the Patents or patent rights owned or
licensed by the Company. To the best of such counsel's knowledge,
the Company has not received any notice of infringement or of
conflict with rights or claims of others with respect to any
patents, trademarks, service marks, trade names, copyrights or
know-how. Such counsel are not aware of any patents of others
which are infringed by specific products or processes referred to
in the Prospectus in such a manner as to materially and adversely
affect the Company;
(iv) To such counsel's knowledge, each Patent is valid and
each U.S. Patent enjoys a presumption of validity under the laws
of the United States, and each Pending Application has been duly
and validly filed in the jurisdiction or jurisdictions noted
opposite its name in the Patent List and is pending therein
subject only to customary legal review and similar procedures;
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<PAGE>
(v) To such counsel's knowledge, each Patent owned by the
Company is owned by it free and clear of all liens, claims and
encumbrances of any nature or kind whatsoever. To such counsel's
knowledge, other than patent and trademark prosecution by the
Company or the Subsidiary, there are no legal or governmental
proceedings pending relating to patent rights, trade secrets,
service marks or other proprietary information or materials of
the Company, and to the best of such counsel's knowledge no such
proceedings are threatened or contemplated by governmental
authorities or others;
(vi) Such counsel has read the sections of the Registration
Statement and the Prospectus captioned "Risk Factors --
Dependence on Proprietary Technologies" and "Business -- Patents,
Trade Secrets and Trademarks" and have participated in
conferences with representatives of the Company at which the
contents of those sections and related matters were discussed.
The statements in the Registration Statement and the Prospectus
under the captions "Risk Factors - Dependence on Proprietary
Technologies" and "Business - Patents, Trade Secrets and
Trademarks" are accurate and complete statements or summaries of
the matters therein set forth and nothing has come to such
counsel's attention that would lead such counsel to believe that
either of those sections in the Registration Statements, as of
the date it was declared effective under the Securities Act by
the Commission, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that those sections in the Prospectus, as of its date and as of
the Closing Date, includes an untrue statement of a material fact
or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; and
(vii) Based upon such counsel's discussions with Parker
Chapin Flattau & Klimpl, counsel to the Company, with respect to
the transactions contemplated by the Registration Statement, and
such counsel's discussions with the responsible employees,
officers and representatives of the Company and its Subsidiaries,
such counsel does not know of any material contracts or other
documents, relating to the Company's patents or proprietary
information, other than those filed as an exhibit to the
Registration Statement, or described in the Registration
Statement or the Prospectus.
(g) The Representatives shall have received from Chadbourne &
Parke
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<PAGE>
LLP, counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(h) At the time of execution of this Agreement, the
Representatives shall have received from each of Ernst & Young, LLP
and Arthur Andersen, LLP a letter, in form and substance satisfactory
to the Representatives, addressed to the Underwriters and dated the
date hereof (i) confirming that each of them are independent public
accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, and (ii) stating, as of the date hereof (or, with respect
to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date
hereof), the conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection with
registered public offerings.
(i) With respect to the letter of Arthur Andersen, LLP referred
to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities
Act and are in compliance with the applicable requirements relating to
the qualification of accountants under Rule 2-01 of Regulation S-X of
the Commission, (ii) stating, as of the date of the bring-down letter
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior to
the date of the bring-down letter), the conclusions and findings of
such firm with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(j) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its Chief Financial Officer
stating that:
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<PAGE>
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Sections 7(a) and 7(k)
have been fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective
Date, the Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not omit to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) since the
Effective Date no event has occurred which should have been set
forth in a supplement or amendment to the Registration Statement
or the Prospectus.
(k) (i) Neither the Company nor the Subsidiary shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii) since such
date there shall not have been any change in the capital stock or
long-term debt of the Company or the Subsidiary or any change, or any
development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company or the Subsidiary, otherwise
than as set forth or contemplated in the Prospectus, the effect of
which, in any such case described in clause (i) or (ii), is, in the
judgment of the Representatives, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or
the delivery of the Stock being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum trading prices shall have
been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction, (ii) a banking moratorium
shall have been declared by Federal or state authorities, (iii) the
United States shall have become engaged in hostilities, or there shall
have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse
change
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<PAGE>
in general economic, political or financial conditions (or the effect
of international conditions on the financial markets in the United
States shall be such) as to make it, in the judgment of a majority in
interest of the several Underwriters, impracticable or inadvisable to
proceed with the public offering or delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(m) The Nasdaq National Market shall have approved the Stock for
listing, subject only to official notice of listing.
(n) You shall have been furnished such additional documents and
certificates as you or counsel for the Underwriters may reasonably
request related to this Agreement and the transactions contemplated
hereby.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter,
its officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Stock), to which that Underwriter, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto or (B) in
any blue sky application or other document prepared or executed by the Company
(or based upon any written information furnished by the Company) specifically
for the purpose of qualifying any or all of the Stock under the securities laws
of any state or other jurisdiction (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred
28
<PAGE>
to in any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in conformity
with written information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its directors
(including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company), and each person, if
any, who controls the Company within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of that Underwriter
specifically for inclusion therein, and shall reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director,
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<PAGE>
officer or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred. The foregoing indemnity agreement is in addition to
any liability which any Underwriter may otherwise have to the Company or any
such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company under this Section 8 if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those Underwriters,
officers, employees and controlling persons to be jointly represented by
separate counsel and in that event the fees and expenses of such separate
counsel shall be paid by the Company. No indemnifying party shall (i) without
the prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless, such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent
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<PAGE>
shall not be unreasonably withheld), but if settled with the consent of the
indemnifying party or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Stock or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock purchased under this Agreement (before deducting expenses)
received by the Company, on the one hand, and the total underwriting discounts
and commissions received by the Underwriters with respect to the shares of the
Stock purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 8(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be deemed to
include, for purposes of this Section 8(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8(d), no Underwriter shall be required to
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<PAGE>
contribute any amount in excess of the amount by which the total price at which
the Stock underwritten by it and distributed to the public was offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
paid or become liable to pay by reason of any untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 8(d) are several in proportion to their respective
underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
9. Defaulting Underwriters. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Stock which the defaulting Underwriter agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining nondefaulting Underwriters in Schedule 1
hereto; provided, however, that the remaining nondefaulting Underwriters shall
not be obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.09% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded,
the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representatives who so agree, shall have the right, but
shall not be obligated, to purchase, in such proportion as may be agreed upon
among them, all the Stock to be purchased on such Delivery Date. If the
remaining Underwriters or other underwriters satisfactory to the Representatives
do not elect to purchase the shares which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such Delivery Date, this Agreement
(or, with respect to the Second Delivery Date, the obligation of the
Underwriters to purchase,
32
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and of the Company to sell, the Option Stock) shall terminate without liability
on the part of any non-defaulting Underwriter or the Company, except that the
Company will continue to be liable for the payment of expenses to the extent set
forth in Sections 6 and 11. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement unless the context requires
otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Firm Stock which a defaulting Underwriter agreed but failed
to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If other
underwriters are obligated or agree to purchase the Stock of a defaulting or
withdrawing Underwriter, either the Representatives or the Company may postpone
the Delivery Date for up to seven full business days in order to effect any
changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 7(k) or 7(l), shall have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company shall
fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled, the Company will reimburse the Underwriters for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred by
the Underwriters in connection with this Agreement and the proposed purchase of
the Stock, and upon demand the Company shall pay its proportionate share of the
full amount thereof to the Representative(s). If this Agreement is terminated
pursuant to Section 10 by reason of the default of one or more Underwriters, the
Company shall not be obligated to reimburse any defaulting Underwriter on
account of those expenses.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
33
<PAGE>
212-526-6588), with a copy, in the case of any notice pursuant to Section
8(d), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., Three World Financial Center, 10th Floor, New York, NY
10285;
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Bruce Jagid (Fax: 201-930-1144) with a
copy to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas,
New York, New York 10036, Attention: Henry Rothman, Esq.;
provided, however, that any notice to an Underwriter pursuant to Section 8(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company and
their respective personal representatives and successors. This Agreement and the
terms and provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and agreements of
the Company contained in this Agreement shall also be deemed to be for the
benefit of the person or persons, if any, who control any Underwriter within the
meaning of Section 15 of the Securities Act and (B) the indemnity agreement of
the Underwriters contained in Section 8(c) of this Agreement shall be deemed to
be for the benefit of directors of the Company, officers of the Company who have
signed the Registration Statement and any person controlling the Company within
the meaning of Section 13 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 13, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations, warranties
and agreements of the Company and the Underwriters contained in this Agreement
or made by or on behalf on them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
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<PAGE>
15. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PROVISIONS.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
35
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
and the Underwriters, please indicate your acceptance in the space provided for
that purpose below.
Very truly yours,
ULTRALIFE BATTERIES, INC.
By:
------------------------------
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
A.G. EDWARDS & SONS, INC.
PENNSYLVANIA MERCHANT GROUP LTD
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By:
---------------------------
Authorized Representative
36
<PAGE>
SCHEDULE 1
Number of Number of
Underwriters Firm Shares Option Shares
- ------------ ----------- -------------
Lehman Brothers Inc. ...........................
A.G. Edwards & Sons, Inc........................
Pennsylvania Merchant Group ....................
TOTAL [2,500,000] [375,000]
---------- ---------
EXHIBIT 4.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ULTRALIFE BATTERIES, INC.
FIRST. NAME. The name of the Corporation is Ultralife Batteries,
Inc. (The "Corporation").
SECOND. PURPOSE AND POWERS. The purpose for which the Corporation is
organized is as follows:
To engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of the State of Delaware.
THIRD. CAPITALIZATION. The total number of shares of stock that the
Corporation shall have authority to issue is 13 million shares, consisting of 12
million shares of Common Stock, par value $.10 per share (the "Common Stock")
and 1 million shares of Preferred Stock, $.10 par value (the "Preferred Stock").
The voting powers, designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the classes of stock of the Corporation are as follows:
I. SHARES OF COMMON STOCK. All shares of Common Stock will be
identical and will entitle the holders thereof to the same rights and
privileges.
A. VOTING RIGHTS. Except as otherwise required by law, the
holders of Common Stock shall be entitled to one vote per share on each matter
on which the stockholders of the Corporation shall be entitled to vote.
B. DIVIDENDS. The Board of Directors of the Corporation may
cause dividends or other distributions to be paid to the holders of shares of
Common Stock out of funds legally available for the payment of dividends by
declaring an amount per share as a dividend or other distribution.
C. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation and after payment shall have been made to the holders of Preferred
Stock of the full amount to which they may be entitled, the holders of shares of
Common Stock shall be entitled, to the exclusion of the holders of shares of
Preferred Stock, to share ratably, share for share, in all remaining assets of
the Corporation available for distribution to its stockholders. Neither a
consolidation or merger of the Corporation with or into any other corporation,
nor a merger of any other corporation into the
<PAGE>
Corporation, nor a reorganization of the Corporation, nor the purchase or
redemption of all or part of the outstanding shares of any class or classes of
the Corporation, nor a sale or transfer of all or any part of its assets shall
be considered a liquidation, dissolution or winding up of the Corporation within
the meaning of this paragraph.
II. PREFERRED STOCK. The Board of Directors of the Corporation
shall have the full authority permitted by law to fix by resolution full,
limited or no voting powers and such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions of any series of Preferred Stock that may be desired.
FOURTH. ELECTIONS BY BALLOT. Elections of directors need not be by
written ballot.
FIFTH. AMENDMENT OF BYLAWS. The Board of Directors shall have the
power, in addition to the stockholders, to make, alter or repeal the bylaws of
the Corporation.
SIXTH. LIMIT ON LIABILITY AND INDEMNIFICATION.
A. LIABILITY. To the full extent that the General corporation
Law of the State of Delaware, as it exists on the date hereof or may hereafter
be amended, permits the limitation or elimination of the liability of directors
or officers, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages.
B. INDEMNIFICATION. To the full extent permitted by the General
Corporation Law of the State of Delaware, as it exists on the date hereof or may
hereafter be amended, and any other applicable law, the Corporation shall
indemnify a director of the Corporation who is or was a party to any proceeding
by reason of the fact that such person is or was such a director or is or was
serving at the request of the Corporation as a director of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The Board of Directors is hereby empowered to contract in advance to indemnify
any director.
SEVENTH. AMENDMENT OF CERTIFICATE OF INCORPORATION. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders are granted subject to this
reservation.
EIGHTH. REGISTERED OFFICE.
The registered office of the Corporation is to be located at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, in the
County of New Castle, in the State of Delaware. The name of its registered agent
at that address is The Corporation Trust Company.
-2-
EXHIBIT 23.2
Consent of Independent Auditors
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm, included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Rochester, NY
February 26, 1998
EXHIBIT 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated August
31, 1995, with respect to the 1995 consolidated financial statements of
Ultralife Batteries, Inc. and Subsidiary included in the Registration Statement
(Form S-3) and related Prospectus of Ultralife Batteries, Inc. and Subsidiary
for the registration of 2,500,000 shares of its common stock.
/s/ Ernst & Young LLP
Syracuse, New York
February 26, 1998
