Exhibit 10.1
SETTLEMENT AGREEMENT
     This Settlement Agreement (Agreement) is entered into among the United
States of America, acting through the United States Department of Justice and on
behalf of Department of Defense (collectively the “United States”) and Ultralife
Corporation, formerly known as Ultralife Batteries, Inc. (hereafter collectively
referred to as “the Parties”), through their authorized representatives.
RECITALS
     A. Ultralife Corporation (“Ultralife”) is a Delaware corporation
headquartered in Newark, New York that develops, manufactures and markets
high-energy power and communication systems including, among other things, a
variety of non-rechargeable and rechargeable batteries, charging systems and
accessories for use in military products and applications. At all relevant times
herein, Ultralife has sold its BA5390 lithium-manganese dioxide non-rechargeable
battery to the United States, including sales pursuant to Contract Nos.
DAAB07-03-C-A214; DAAB07-03-C-A220; and W15P7T-04-C-C002.
     B. The United States contends that it has certain civil claims against
Ultralife arising from Ultralife’s failure to furnish accurate, complete, and
current cost or pricing data to the United States pursuant 10 U.S.C. § 2306a for
Contract Nos. DAAB07-03-C-A214; DAAB07-03- C-A220; and W15P7T-04-C-C002. As a
result, the United States contends that Ultralife overstated material costs for
several direct material items, and the United States was overcharged under
Contract Nos. DAAB07-03-C-A214; DAAB07-03-C-A220; and W15P7T-04-C-C002 during
the period from May 15, 2003 through March 14, 2005. That conduct is referred to
below as the Covered Conduct.
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     C. This Settlement Agreement is neither an admission of liability by
Ultralife nor a concession by the United States that its claims are not well
founded. By entering into this Agreement, Ultralife does not admit to any
impropriety, wrongdoing or liability of any sort.
     To avoid the delay, uncertainty, inconvenience, and expense of protracted
litigation of the above claims, and in consideration of the mutual promises and
obligations of this Settlement Agreement, the Parties agree and covenant as
follows:
TERMS AND CONDITIONS
     1. Ultralife shall pay to the United States the sum of two million, seven
hundred thousand ($2,700,000) (the “Settlement Amount”), plus interest accrued
thereon at the rate of 2.625% per annum from May 6, 2011, and continuing until
and including the day before the final payment is made under this Agreement. On
the Effective Date of this Agreement, this sum shall constitute a debt due and
immediately owing to the United States. The Settlement Amount shall be paid as
follows:
          a. Ultralife shall pay to the United States the Settlement Amount plus
interest accrued thereon at the rate of 2.625% per annum, in accordance with the
payment schedule attached hereto as Exhibit A (“Payment Schedule”). Within 7
business days after the Effective Date of this Agreement, Ultralife shall pay
the United States the initial fixed payment in the amount of $1,000,000 and
thereafter make principal payments with interest according to the schedule in
Exhibit A.
          b. All payments set forth in Paragraph 1(a) shall be made to the
United States by electronic funds transfer pursuant to written instructions to
be provided by the Office of the United States Attorney for the Western District
of New York to Peter F. Comerford, Esq., counsel for Ultralife. The entire
balance of the Settlement Amount, or any portion thereof, plus
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any interest accrued on the principal as of the date of any prepayment, may be
prepaid without penalty.
     2. If Ultralife fails to make any of the payments described in Paragraph
1(a) above at the specified time, upon written notice to Ultralife of this
default, Ultralife shall have ten (10) calendar days to cure the default. If the
default is not cured within the ten-day period: (a) the remaining unpaid
principal portion of the Settlement Amount shall become accelerated and
immediately due and payable, with interest at a simple rate of 2.625% from the
Effective Date of this Agreement to the date of default, and at a simple rate of
12% per annum from the date of default until the date of payment; (b) the United
States may pursue any and all actions for collection as it may choose,
including, without limitation, filing an action for specific performance of this
Agreement; and (c) the United States may offset the remaining unpaid balance of
the Settlement Amount (inclusive of interest) from any amounts due and owing to
Ultralife by any department, agency, or agent of the United States. Ultralife
agrees not to contest any collection action undertaken by the United States
pursuant to this Paragraph 2, and to pay the United States all reasonable costs
incurred in any such collection action, including attorney’s fees and expenses.
     3. Subject to the exceptions in Paragraph 4 (concerning excluded claims)
below, and conditioned upon Ultralife’s full payment of the Settlement Amount,
the United States releases Ultralife, together with its current and former
parent corporations; direct and indirect subsidiaries; brother or sister
corporations; divisions; current or former owners,officers, directors, and
affiliates; and the successors and assigns of any of them, from any civil or
administrative monetary claim the United States has for the Covered Conduct
under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Program Fraud Civil
Remedies Act, 31 U.S.C. §§
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3801-3812; the Truth in Negotiations Act, 10 U.S.C. § 2306a; the anti-fraud
section of the Contract Disputes Act, as amended, 41 U.S.C. § 7101(c); or the
common law theories of breach of contract, payment by mistake, unjust
enrichment, and fraud.
     4. Notwithstanding the release given in paragraph 3 of this Agreement, or
any other term of this Agreement, the following claims of the United States are
specifically reserved and are not released:

  a.   Any liability arising under Title 26, U.S. Code (Internal Revenue Code);
    b.   Any criminal liability;     c.   Any administrative liability,
including the suspension and debarment rights of any federal agency;     d.  
Any liability to the United States (or its agencies) for any conduct other than
the Covered Conduct;     e.   Any liability based upon obligations created by
this Agreement;     f.   Any liability for express or implied warranty claims or
other claims for defective or deficient products or services, including quality
of goods and services;     g.   Any liability for failure to deliver goods or
services due; and     h.   Any liability for personal injury or property damage
or for other consequential damages arising from the Covered Conduct.

     5. Ultralife waives and shall not assert any defenses Ultralife may have to
any criminal prosecution or administrative action relating to the Covered
Conduct that may be based in whole or in part on a contention that, under the
Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the
Excessive Fines Clause in the Eighth Amendment
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of the Constitution, this Agreement bars a remedy sought in such criminal
prosecution or administrative action. Nothing in this paragraph or any other
provision of this Agreement constitutes an agreement by the United States
concerning the characterization of the Settlement Amount for purposes of the
Internal Revenue laws, Title 26 of the United States Code.
     6. Ultralife fully and finally releases the United States, its agencies,
officers, agents, employees, and servants, from any claims (including attorney’s
fees, costs, and expenses of every kind and however denominated) that Ultralife
has asserted, could have asserted, or may assert in the future against the
United States, its agencies, officers, agents, employees, and servants, related
to the Covered Conduct and the United States’ investigation and prosecution
thereof.
     7. Ultralife agrees to the following:
     a. Unallowable Costs Defined: All costs (as defined in the Federal
Acquisition Regulation, 48 C.F.R. § 31.205-47) incurred by or on behalf of
Ultralife, and its present or former officers, directors, employees,
shareholders, and agents in connection with:

  (1)   the matters covered by this Agreement;     (2)   the United States’
audit(s) and civil and criminal investigations of the matters covered by this
Agreement;     (3)   Ultralife’s investigation, defense, and corrective actions
undertaken in response to the United States’ audit(s) and civil and any criminal
investigations in connection with the matters covered by this Agreement
(including attorney’s fees);     (4)   the negotiation and performance of this
Agreement;

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  (5)   the payment Ultralife makes to the United States pursuant to this
Agreement, are unallowable costs for government contracting purposes
(hereinafter referred to as Unallowable Costs).

     b. Future Treatment of Unallowable Costs: Unallowable Costs will be
separately determined and accounted for by Ultralife, and Ultralife shall not
charge such Unallowable Costs directly or indirectly to any contract with the
United States.
     c. Treatment of Unallowable Costs Previously Submitted for Payment: Within
90 days of the Effective Date of this Agreement, Ultralife shall identify and
repay by adjustment to future claims for payment or otherwise any Unallowable
Costs included in payments previously sought by Ultralife or any of its
subsidiaries or affiliates from the United States. Ultralife agrees that the
United States, at a minimum, shall be entitled to recoup from Ultralife any
overpayment plus applicable interest and penalties as a result of the inclusion
of such Unallowable Costs on previously-submitted requests for payment. The
United States, including the Department of Justice and/or the affected agencies,
reserves its rights to audit, examine, or re-examine Ultralife’s books and
records and to disagree with any calculations submitted by Ultralife or any of
its subsidiaries or affiliates regarding any Unallowable Costs included in
payments previously sought by Ultralife, or the effect of any such Unallowable
Costs on the amount of such payments.
     8. Ultralife warrants that it has reviewed its financial situation and that
it currently is solvent within the meaning of 11 U.S.C. §§ 547(b)(3) and
548(a)(1)(B)(ii)(I), and shall remain solvent following payment to the United
States of the Settlement Amount. Further, the Parties warrant that, in
evaluating whether to execute this Agreement, they (a) have intended that the
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mutual promises, covenants, and obligations set forth constitute a
contemporaneous exchange for new value given to Ultralife, within the meaning of
11 U.S.C. § 547(c)(1); and (b) conclude that these mutual promises, covenants,
and obligations do, in fact, constitute such a contemporaneous exchange.
Further, the Parties warrant that the mutual promises, covenants, and
obligations set forth herein are intended to and do, in fact, represent a
reasonably equivalent exchange of value that is not intended to hinder, delay,
or defraud any entity to which Ultralife was or became indebted to on or after
the date of this transfer, within the meaning of 11 U.S.C. § 548(a)(1).
     9. If within 91 days of the Effective Date of this Agreement or of any
payment made under this Agreement, Ultralife commences, or a third party
commences, any case, proceeding, or other action under any law relating to
bankruptcy, insolvency, reorganization, or relief of debtors (a) seeking to have
any order for relief of Ultralife’s debts, or seeking to adjudicate Ultralife as
bankrupt or insolvent; or (b) seeking appointment of a receiver, trustee,
custodian, or other similar official for Ultralife or for all or any substantial
part of Ultralife’s assets, Ultralife agrees as follows:
     a. Ultralife’s obligations under this Agreement may not be avoided pursuant
to 11 U.S.C. § 547, and Ultralife shall not argue or otherwise take the position
in any such case, proceeding, or action that: (i) Ultralife’s obligations under
this Agreement may be avoided under 11 U.S.C. § 547; (ii) Ultralife was
insolvent at the time this Agreement was entered into, or became insolvent as a
result of the payment made to the United States; or (iii) the mutual promises,
covenants, and obligations set forth in this Agreement do not constitute a
contemporaneous exchange for new value given to Ultralife.
     b. If Ultralife’s obligations under this Agreement are avoided for any
reason, including, but not limited to, through the exercise of a trustee’s
avoidance powers under the
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Bankruptcy Code, the United States, at its sole option, may rescind the releases
in this Agreement and bring any civil and/or administrative claim, action, or
proceeding against Ultralife for the claims that would otherwise be covered by
the releases provided in Paragraph 3, above. Ultralife agrees that (i) any such
claims, actions, or proceedings brought by the United States (including any
proceedings to exclude Ultralife from participation in) are not subject to an
“automatic stay” pursuant to 11 U.S.C. § 362(a) as a result of the action, case,
or proceedings described in the first clause of this Paragraph, and Ultralife
shall not argue or otherwise contend that the United States’ claims, actions, or
proceedings are subject to an automatic stay; (ii) Ultralife shall not plead,
argue, or otherwise raise any defenses under the theories of statute of
limitations, laches, estoppel, or similar theories, to any such civil or
administrative claims, actions, or proceeding that are brought by the United
States within 60 calendar days of written notification to Ultralife that the
releases have been rescinded pursuant to this Paragraph, except to the extent
such defenses were available on April 16, 2010; and (iii) the United States has
a valid claim against Ultralife in an amount not less than $2,700,000, and the
United States may pursue its claim in the case, action, or proceeding referenced
in the first clause of this Paragraph, as well as in any other case, action, or
proceeding.
     c. Ultralife acknowledges that its agreements in this Paragraph are
provided in exchange for valuable consideration provided in this Agreement. This
Agreement is intended to be for the benefit of the Parties only.
     10. Each Party shall bear its own legal and other costs incurred in
connection with this matter, including the preparation and performance of this
Agreement.
     11. Each party and signatory to this Agreement represents that it freely
and voluntarily enters in to this Agreement without any degree of duress or
compulsion.
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     12. This Agreement is governed by the laws of the United States. The
exclusive jurisdiction and venue for any dispute relating to this Agreement is
the United States District Court for the Western District of New York. For
purposes of construing this Agreement, this Agreement shall be deemed to have
been drafted by all Parties to this Agreement and shall not, therefore, be
construed against any Party for that reason in any subsequent dispute.
     13. This Agreement constitutes the complete agreement between the Parties.
This Agreement may not be amended except by written consent of the Parties.
     14. The undersigned counsel represent and warrant that they are fully
authorized to execute this Agreement on behalf of the persons and entities
indicated below.
     15. This Agreement may be executed in counterparts, each of which
constitutes an original and all of which constitute one and the same Agreement.
     16. This Agreement is binding on Ultralife’s successors, transferees,
heirs, and assigns.
     17. All parties consent to the United States’ disclosure of this Agreement,
and information about this Agreement, to the public.
     18. This Agreement is effective on the date of signature of the last
signatory to the Agreement (Effective Date of this Agreement). Facsimiles of
signatures shall constitute acceptable, binding signatures for purposes of this
Agreement.
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THE UNITED STATES OF AMERICA

                DATED: June 1, 2011  /s/ Robert G. Trusiak       Robert G.
Trusiak      Assistant U.S. Attorney
Western District of New York        and
    DATED: June 1, 2011  /s/ Colin M. Huntley       Colin M. Huntley      Trial
Attorney
Commercial Litigation Branch
Civil Division
United States Department of Justice     

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ULTRALIFE CORPORATION
Formerly Known As Ultralife Batteries, Inc.

                DATED: 1 June 2011  /s/ Peter F. Comerford       Peter F.
Comerford     Vice President of Administration & General Counsel
Ultralife Corporation            DATED: 6/1/2011  /s/ Thomas A. DeSimon      
Thomas A. DeSimon      Harris Beach PLLC

Counsel to Ultralife Corporation     

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EXHIBIT A
SETTLEMENT PAYMENT SCHEDULE

                                  Date   Payment   Interest (2.625%)   Principal
  Balance  
06-08-2011
  $ 1,005,048.63     $ 5,048.63     $ 1,000,000     $ 1,700,000  
12-01-2011
  $ 588,979.50     $ 22,312.50     $ 566,667.00     $ 1,133,333.00  
06-01-2012
  $ 581,542.00     $ 14,875.00     $ 566,667.00     $ 566,666.00  
12-01-2012
  $ 574,103.49     $ 7,437.49     $ 566,666.00     $ 0  
 
                               
Total
  $ 2,749,673.62     $ 49,673.62     $ 2,700,000.00          

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