Exhibit 10.29
As of March 25, 2003
Ultralife Batteries, Inc.
2000 Technology Parkway
Newark, NY 14513
Ultralife Batteries (UK) Ltd.
18 Nuffield Way
Abingdon, Oxfordshire, OX 14
1TG England
Re: Fifth Amendment to Financing Agreements ("Amendment")
Gentlemen:
Reference is made to the Loan and Security Agreement dated June 15, 2000,
as amended, between you and the undersigned (the "Loan Agreement"). All
capitalized terms not otherwise defined herein shall have the meanings given
such terms in the Loan Agreement.
Borrowers have requested that Lender agree to certain modifications to the
Loan Agreement. Subject to the terms and conditions hereof, the Lender agrees
with the Borrowers as follows:
(1) Section 1.12(k) is amended to add the following at the end of such
section prior to the semi-colon (;): "(Eligible Government Accounts)".
(2) Section 1.12(m) is deleted in its entirety and replaced with the
following:
"(m) such Accounts of a single account debtor or its affiliates do
not constitute more than twenty (20%) percent of all otherwise
Eligible Accounts, except as to Eligible Kidde Safety Accounts,
which shall not exceed $1,250,000 in the aggregate, and Eligible
Government Accounts which shall not exceed fifty five (55%) of all
Accounts for the period from April 1, 2003 through August 30, 2003
and fifty (50%) percent of all Accounts thereafter (but the portion
of the Accounts not in excess of such percentages or limits may be
deemed Eligible Accounts);"
(3) Section 1.14 is deleted and replaced with the following (and all
references in the Financing Agreements to "Fyrentics" shall be deemed to be
changed to "Kidde Safety"):
"1.14 "Eligible Kidde Safety Account" shall mean any Account arising
out of a sale of Inventory to Kidde PLC ("Kidde Safety") that
satisfies the criteria for Eligible Accounts hereunder other than
the limitation set forth in clause
Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
As of March 25, 2003
Page 2
(e) and (m) to the definition of Eligible Accounts, which shall not
apply; provided, however, that the aggregate outstanding amount of
all Eligible Accounts for Kidde Safety shall not exceed $1,250,000
(but such Eligible Accounts not in excess of such amount shall be
deemed to be Eligible Accounts)."
(4) Section 2.2(b) is amended to delete "one and one half (1.5%)" from the
third line thereof and to replace it with "one and three quarters (1.75%)" and
to delete "four and one half (4.5%)" in the seventh line thereof and to replace
it with "four and three quarters (4.75%)".
(5) Section 9.7 is amended to delete clause (b)(ii) therefrom, such that
Borrowers shall not have the right to sell, transfer, or dispose of Equipment
without the prior written consent of Lender.
(6) Section 9.15 of the Loan Agreement is deleted and replaced with the
following:
"9.15 Adjusted Net Worth. Borrowers shall, at all times, maintain an
Adjusted Net Worth, excluding any and all equity contributions or
infusions to the Parent, of not less than $19,182,000.00 plus,
commencing on January 1, 2004 and on the first day of each fiscal
year of the Borrowers' thereafter, fifty percent (50%) of the
consolidated net income (but not loss) of the Parent, as determined
in accordance with GAAP excluding all of extraordinary or
nonrecurring gains, for the Borrowers' fiscal year ending December
31, 2003 and for each fiscal year thereafter."
(7) The first sentence of Section 12.1(a) is deleted and replaced with the
following:
"This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and
shall continue in full force and effect for a term ending on June
30, 2004 (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof."
(8) Section 12.1(c)(iii) is deleted and replaced with the following:
"(iii) 0.5% (one-half of one percent) of Maximum Credit
From the second anniversary of the date hereof to and
including June 30, 2004."
Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
As of March 25, 2003
Page 3
(9) Simultaneously with this Amendment, Ultralife (UK) will enter into a
supplemental agreement to the Equipment Mortgage in form and substance
satisfactory to Lender to grant to Lender a valid, first priority fixed charge
on the Equipment acquired by Ultralife (UK) since the original closing date.
(10) Lender agrees to release its lien on the accounts receivable of
Ultralife (UK) in order to permit Ultralife (UK) to obtain financing from a UK
based financing institution, subject to an intercreditor agreement with such
financial institution acceptable to Lender.
(11) Borrower shall engage an appraiser, acceptable to Lender, within
thirty (30) days of the date hereof to conduct an appraisal of all of Parent's
Equipment located in the United States, and shall cause such appraiser to
promptly prepare and deliver to Lender an appraisal of such Equipment in form
and substance satisfactory to Lender.
(12) Within thirty (30) days of the date hereof, Parent shall enter into a
collateral assignment in form and substance satisfactory to Lender of the option
to acquire the real property, buildings and improvements located at 2000
Technology Parkway, Newark, New York held by Parent and shall cause such
collateral assignment to be duly recorded in the appropriate real estate
recording offices.
(13) In connection with the execution and delivery of this Amendment,
Borrowers shall pay to Lender a fee of $25,000.00, which fee shall be fully
earned and non-refundable on the date hereof.
(14) In connection with the execution and delivery of this Amendment, if
requested by Lender, the Borrowers shall furnish to the Lender certified copies
of all requisite corporate action and proceedings of the Borrowers in connection
with this Amendment.
(15) Each Borrower confirms and agrees that (a) except as set forth on
Exhibit A hereto, all representations and warranties contained in the Loan
Agreement and in the other Financing Agreements are on the date hereof true and
correct in all material respects (except for changes that have occurred as
permitted by the covenants in Section 9 of the Loan Agreement), and (b) it is
unconditionally liable for the punctual and full payment of all Obligations,
including, without limitation, all charges, fees, expenses and costs (including
attorneys' fees and expenses) under the Financing Agreements, and that Borrowers
have no defenses, counterclaims or setoffs with respect to full, complete and
timely payment of all Obligations.
Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
As of March 25, 2003
Page 4
(16) Borrowers hereby agree to pay to Lender all reasonable attorney's
fees and costs which have been incurred or may in the future be incurred by
Lender in connection with the negotiation and preparation of this Amendment and
any other documents and agreements prepared in connection with this Amendment.
The undersigned confirm that the Financing Agreements remain in full force and
effect without amendment or modification of any kind, except for the amendments
explicitly set forth herein. The undersigned further confirm that after giving
effect to this Amendment, no Event of Default or events which with notice or the
passage of time or both would constitute an Event of Default have occurred and
are continuing. Except as explicitly provided herein, the execution and delivery
of this Amendment by Lender shall not be construed as a waiver by Lender of any
Event of Default under the Financing Agreements. This Amendment shall be deemed
to be a Financing Agreement and, together with the other Financing Agreements,
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior dealings, correspondence, conversations
or communications between the parties with respect to the subject matter hereof.
[Remainder of Page Left Intentionally Blank]
Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
As of March 25, 2003
Page 5
If you accept and agree to the foregoing please sign and return the
enclosed copy of this letter. Thank you.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
By: /s/ Melissa Post
-------------------------
Name: Melissa Post
Title: Vice President
AGREED:
ULTRALIFE BATTERIES, INC.
By: /s/ Robert W. Fishback
-------------------------
Name: Robert W. Fishback
Title: VP - Finance & CFO
ULTRALIFE BATTERIES (UK) Ltd.
By: /s/ Peter F. Comerford
-------------------------
Name: Peter F. Comerford
Title: Director
Exhibit A
Ultralife Batteries, Inc.
Additional Representations and Warranties
March 21, 2003
This shall update the Loan and Security Agreement by and between Congress
Financial Corporation (New England), as Lender, and Ultralife Batteries, Inc.
and Ultralife Batteries (UK) Ltd., as Borrowers, dated June 15, 2000.
Section 8.2, "Financial Statements; No Material Adverse Change", is updated as
follows:
In October 2002, the Company sold a portion of its equity investment
in Ultralife Taiwan, Inc., reducing its ownership interest from
approximately 30% to approximately 11%. In exchange, the Company received
total consideration of $2.4 million in cash and the return of 700,000
shares of the Company's common stock. Previously, the Company had reported
that it expected to record at least a $2.4 million non-operating gain on
this transaction; however, because the accounting issues are complex, the
Company and its independent auditors have not yet finalized the
appropriate accounting treatment of the Company's investment. It is likely
that the Company will be required to restate prior period financial
results relating to the accounting for its equity ownership interest in
UTI. Although these restatements would only affect non-operating earnings,
they may nonetheless have a negative impact on previously reported
earnings per share. In connection with these restatements, the Company may
be required to amend certain of its prior filings with the Securities and
Exchange Commission (the "SEC") and may be required to file other reports
with the SEC, including a Form 10-Q for the three months ended December
31, 2002.
Section 8.6, "Litigation", is updated as follows:
In August 1998, the Company, its Directors, and certain underwriters
were named as defendants in a complaint filed in the United States
District Court for the District of New Jersey by certain shareholders,
purportedly on behalf of a class of shareholders, alleging that the
defendants, during the period April 30, 1998 through June 12, 1998,
violated various provisions of the federal securities laws in connection
with an offering of 2,500,000 shares of the Company's Common Stock. The
complaint alleged that the Company's offering documents were materially
incomplete, and as a result misleading, and that the purported class
members purchased the Company's Common Stock at artificially inflated
prices and were damaged thereby. Upon a motion made on behalf of the
Company, the Court dismissed the shareholder action, without prejudice,
allowing the complaint to be refiled. The shareholder action was
subsequently refiled, asserting substantially the same claims as in the
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As of March 25, 2003
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prior pleading. The Company again moved to dismiss the complaint. By
Opinion and Order dated September 28, 2000, the Court dismissed the
action, this time with prejudice, thereby barring plaintiffs from any
further amendments to their complaint and directing that the case be
closed. Plaintiffs filed a Notice of Appeal to the Third Circuit Court of
Appeals and the parties submitted their briefs. Subsequently, the parties
notified the Court of Appeals that they had reached an agreement in
principle to resolve the outstanding appeal and settle the case upon terms
and conditions which require submission to the District Court for
approval. Upon application of the parties and in order to facilitate the
parties' pursuit of settlement, the Court of Appeals issued an Order dated
May 18, 2001 adjourning oral argument on the appeal and remanding the case
to the District Court for further proceedings in connection with the
proposed settlement.
Subsequent to the parties entering into the settlement agreement,
the Company's insurance carrier commenced liquidation proceedings. The
insurance carrier informed the Company that in light of the liquidation
proceedings, it would no longer fund the settlement. In addition, the
value of the insurance policy is in serious doubt. In April 2002, the
Company and the insurance carrier for the underwriters offered to proceed
with the settlement. Plaintiffs' counsel has accepted the terms of the
proposed settlement, amounting to $175,000 for the Company, and the matter
must now be approved by the Court and by the shareholders comprising the
class. Based on the terms of the proposed settlement, the Company has
established reserves for its share of the settlement costs and associated
expenses.
In the event settlement is not reached, the Company will continue to
defend the case vigorously. The amount of alleged damages, if any, cannot
be quantified, nor can the outcome of this litigation be predicted.
Accordingly, management cannot determine whether the ultimate resolution
of this litigation could have a material adverse effect on the Company's
financial position and results of operations.
A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer"), has made a claim against the Customer wherein
it is asserted that the Customer's product, which is powered by an
Ultralife battery, does not operate according to the Customer's product
specification. No claim has been filed against Ultralife. However, in the
interest of fostering good customer relations, in September 2002,
Ultralife has agreed to lend technical support to the Customer in defense
of its claim. Additionally, Ultralife will honor its warranty by replacing
any batteries that may be determined to be defective. In the event a claim
is filed against Ultralife and it is ultimately determined that
Ultralife's product
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As of March 25, 2003
Page 8
was defective, replacement of batteries to this Customer or end-user may
have a material adverse effect on the Company's financial position and
results of operations.
Section 8.11, "Environmental Compliance", is updated as follows:
In conjunction with the Company's purchase/lease of its Newark, New
York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a
consulting firm performed a Phase I and II Environmental Site Assessment
which revealed the existence of contaminated soil and ground water around
one of the buildings. The Company retained an engineering firm which
estimated that the cost of remediation should be in the range of $230,000.
This cost, however, is merely an estimate and the cost may in fact be much
higher. In February, 1998, the Company entered into an agreement with a
third party which provides that the Company and this third party will
retain an environmental consulting firm to conduct a supplemental Phase II
investigation to verify the existence of the contaminants and further
delineate the nature of the environmental concern. The third party agreed
to reimburse the Company for fifty percent (50%) of the cost of correcting
the environmental concern on the Newark property. The Company has fully
reserved for its portion of the estimated liability. Test sampling was
completed in the spring of 2001, and the engineering report was submitted
to the New York State Department of Environmental Conservation (NYSDEC)
for review. NYSDEC reviewed the report and, in January 2002, recommended
additional testing. The Company responded by submitting a work plan to
NYSDEC, which was approved in April 2002. The Company has sought proposals
from engineering firms to complete the remedial work contained in the work
plan, but it is unknown at this time whether the final cost to remediate
will be in the range of the original estimate, given the passage of time.
Because this is a voluntary remediation, there is no requirement for the
company to complete the project within any specific time frame. The
ultimate resolution of this matter may have a significant adverse impact
on the results of operations in the period in which it is resolved.
Furthermore, the Company may face claims resulting in substantial
liability which could have a material adverse effect on the Company's
business, financial condition and the results of operations in the period
in which such claims are resolved.