EX-10.1



 









Exhibit 10.1





 

 






AMENDMENT NUMBER FIVE TO CREDIT AGREEMENT




dated as of June 29, 2006




between




ULTRALIFE BATTERIES, INC.




and




THE LENDERS PARTY THERETO




and




JPMORGAN CHASE BANK, N.A.,

as Administrative Agent




 

 














 



 








AMENDMENT NUMBER FIVE TO CREDIT AGREEMENT




     This Amendment, dated as of June 29, 2006, is made by and between ULTRALIFE BATTERIES, INC.
(the “Borrower”) and the Lenders party to the Credit Agreement and JPMORGAN CHASE BANK,
N.A. (formerly known as JPMorgan Chase Bank) as Administrative Agent for the Lenders (in such
capacity, the “Agent”).



Statement of the Premises




     The Borrower, the Lenders and the Agent have previously entered into, among other agreements,
a Credit Agreement, dated as of June 30, 2004, which was amended by Amendment Number One dated as
of September 24, 2004, Amendment Number Two dated as of May 4, 2005, Amendment Number Three dated
as of August 5, 2005 and Amendment Number Four dated as of November 1, 2005 and that certain waiver
letter dated May 3, 2006 (the “Credit Agreement‘). Borrower has advised the Agent and the
Lenders that Borrower is in active negotiations regarding the acquisition by Borrower of certain of
the assets of McDowell Research, Ltd. for a purchase price of approximately $25,000,000.00, which
may be paid by a mix of cash and a subordinated note which is convertible into common stock of the
Borrower. Borrower has further advised the Agent and Lenders that Borrower has created and/or
acquired a holding company in Hong Kong named Able New Energy Co. Limited and an operating company
in the People’s Republic of China named Able New Energy Co. Ltd. The Borrower, the Lenders and the
Agent desire to amend the Credit Agreement in contemplation of such acquisitions as referenced
herein.



Statement of Consideration




     Accordingly, in consideration of the premises and under the authority of Section 5-1103 of the
New York General Obligations Law, the parties agree as follows:



Agreement




     1. Defined Terms. The terms “this Agreement”, “hereunder” and similar
references in the Credit Agreement shall be deemed to refer to the Credit Agreement as amended by
this Amendment Number Five. Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to such terms in the Credit Agreement.



     2. Amendment. Effective upon the satisfaction of all conditions specified in Section 4
hereof, the Credit Agreement is hereby amended as follows:



          A. The Definition “EBIT”, as set forth in Section 1.01 of the Credit Agreement, is
hereby superseded and replaced in its entirety and amended to read:





“EBIT” means for any period and in respect of any Person the sum of (i) the
net income of such Person for such period computed in accordance with GAAP, plus
(ii) the interest expense of such Person for such period, plus (iii) the income tax
expense of such Person for such period, plus (iv) the non-cash stock compensation
expenses of such Person for such period to the extent such are treated as non-cash
charges against operating earnings.



          B. The Definition “EBITDA”, as set forth in Section 1.01 of the Credit Agreement, is
hereby superseded and replaced in its entirety and amended to read:





“EBITDA” means for any period and in respect of any Person the sum
of (i) the net income of such Person for such period computed in accordance
with GAAP, plus (ii) the interest expense of such Person for such period,
plus (iii) the income









 



2



tax expense of such Person for such period, plus (iv) the non-cash stock
compensation expenses of such Person for such period to the extent such are
treated as non-cash charges against operating earnings, plus (v) the amount
reported as the depreciation of the assets of such Person for such period
computed in accordance with GAAP, plus (vi) the amount reported as the
amortization of intangible assets of such Person for such period computed in
accordance with GAAP, and as such item is used in the computation of such
Person’s net income for such period, minus (vii) all items which would be
classified as extraordinary non-cash gains of such Person in accordance with
GAAP consistently applied, plus (viii) all items which would be classified
as extraordinary non-cash losses of such Person in accordance with GAAP
consistently applied.



          C. The following Definitions are hereby added to Section 1.01 of the Credit Agreement in the
appropriate alphabetical order:





“Able Acquisition” means collectively, the acquisition by Borrower of the
stock or other ownership interests in Able New Energy Co. Limited, a Hong Kong
holding company (“Able Holding”) and the acquisition by Able Holding of an operating
company in the People’s Republic of China named Able New Energy Co. Ltd. (“Able
Operating’).




“Amendment No. 5” means that certain Amendment Number Five to Credit
Agreement dated as of June 29, 2006 among Borrower, Administrative Agent and
Lenders.




“Consolidated Senior Funded Debt” means Consolidated Total Funded Debt less
Subordinated Debt.




“McDowell Acquisition” means the acquisition by Borrower of certain assets
of McDowell Research, Ltd. for a purchase price of approximately $25,000,000, which
may be paid in a mix of cash and a subordinated convertible note pursuant to that
certain Asset Purchase Agreement dated May 1, 2006 by and among McDowell Research
Ltd., Thomas Hauke, Earl Martin, Sr., James Evans, Frank Alexander, the Borrower and
MR Acquisition Corporation (the “Purchase Agreement”).




“Subordinated Debt” means indebtedness and liabilities of the Borrower which
have been subordinated by written agreement to indebtedness owed by Borrower to
Lenders in form and substance acceptable to Lenders, and shall include the
Subordinated Convertible Promissory Note in the principal sum of $20,000,000 in
favor of McDowell Research, Ltd. given in connection with the McDowell Acquisition.



          D. The Definitions “Applicable Revolving Rate” and “Applicable Term Rate” as
set forth in Section 1.01 of the Credit Agreement are hereby amended so that the term “Consolidated
Total Funded Debt” as used therein is superseded and replaced in its entirety with “Consolidated
Senior Funded Debt” each time it appears therein.




          E. The Definition “Commitment” as set forth in Section 1.01 of the Credit Agreement is
hereby amended so that the figure “$15,000,000” contained therein is superseded and replaced in its
entirety with “$20,000,000”.




          F. The Definition “Maturity Date” as set forth in Section 1.01 of the Credit Agreement
is hereby superseded and replaced in its entirety and amended to read:




“Maturity Date” means (i) in respect of the Revolving Loans
(including any reference in respect of Letters of Credit), June 30, 2008,
and (ii) in respect of Term Loans, July 1, 2009.










 



3




          G. Schedule 2.01 of the Credit Agreement is hereby superseded and replaced in its entirety
with the Schedule 2.01 attached to this Amendment.




          H. Section 6.01 of the Credit Agreement, entitled “Indebtedness”, is hereby amended so
that the following subsection (g) is added to the end thereof:





     (g) Acquisition Indebtedness of up to $20,000,000 in connection with
the McDowell Acquisition, provided such Indebtedness is fully subordinate to
the Indebtedness owed to the Lenders on terms satisfactory to the Lenders.



          I. Section 6.04 of the Credit Agreement, entitled “Investments, Loans, Advances,
Guarantees and Acquisitions”, is hereby amended so that subsection (c) is hereby superseded and
replaced in its entirety and amended to read:





     (c) loans or other advances made by the Borrower to any Subsidiary and made by
any Subsidiary to the Borrower or any other Subsidiary; provided, however, loans or
other advances and/or investments to or in Able Holding and/or Able Operating shall
not exceed $2,000,000 at any one time outstanding.



          J. Section 6.04 of the Credit Agreement, entitled “Investments, Loans, Advances,
Guarantees and Acquisitions”, is hereby further amended so that the following subsections (f)
and (g) are added to the end thereof:





     (f) The McDowell Acquisition, subject to the terms, covenants and conditions of Amendment No.
5.




     (g) The Able Acquisition, subject to the terms, covenants and conditions of Amendment No. 5.



          K. Section 6.09(a) of the Credit Agreement, entitled “Minimum EBITDA and Debt to Earnings
Ratio”, is superseded and replaced in its entirety and amended to read:




          (a) Debt to Earnings Ratio. The Borrower shall:





maintain the ratio at the Fiscal Quarter ending July 1, 2006 of (x) Consolidated
Senior Funded Debt measured at the subject Fiscal Quarter end, to (y) EBITDA for the
four Fiscal Quarter period then ended taken together as a single accounting period,
at or below 4.25 to 1;




maintain the ratio at the Fiscal Quarter ending September 30, 2006 of (x)
Consolidated Senior Funded Debt measured at the subject Fiscal Quarter end, to (y)
EBITDA for the four Fiscal Quarter period then ended taken together as a single
accounting period, at or below 2.50 to 1;




maintain the ratio at the Fiscal Quarter ending December 31, 2006 of (x)
Consolidated Senior Funded Debt measured at the subject Fiscal Quarter end, to (y)
EBITDA for the four Fiscal Quarter period then ended taken together as a single
accounting period, at or below 2.00 to 1;




thereafter at each Fiscal Quarter end of (X) Consolidated Senior Funded Debt
measured at the subject Fiscal Quarter end, to (Y) EBITDA, measured for the four
Fiscal Quarter period then ended, taken together as a single accounting period, at
or below 2.00 to 1.



          L. Section 6.09(b) of the Credit Agreement entitled “Minimum EBIT and EBIT to Interest
Expense Ratio” is superseded and replaced in its entirety and amended to read:










 



4




          (b) Minimum EBIT and EBIT to Interest Expense Ratio. The Borrower shall:





at the Fiscal Quarter ending July 1, 2006, attain EBIT for the Fiscal Quarter of not
less than $500,000;




at the Fiscal Quarter ending September 30, 2006, attain EBIT for the Fiscal Quarter
of not less than $2,500,000;




at the Fiscal Quarter ending December 31, 2006 of (x) EBIT measured for the four
Fiscal Quarter period then ended, taken together as a single accounting period, to
(y) interest expense measured for the four Fiscal Quarter period then ended, taken
together as a single accounting period, at or above 5.00 to 1;




thereafter at each Fiscal Quarter end of (I) EBIT, measured for the four Fiscal
Quarter period then ended, taken together as a single accounting period to (II)
interest expense, measured for the four Fiscal Quarter period then ended, taken
together as a single accounting period, at or above 5.00 to 1.



          M. Section 6.09(c) of the Credit Agreement entitled “Current Assets to Liabilities
Ratio” is hereby amended so that the following provision is added to the end thereof:





Subordinated Debt under the McDowell Acquisition, as evidenced by the Subordinated
Note (as defined in Amendment No. 5) shall be excluded from the calculation of
Consolidated Liabilities hereunder.



     3. Representations. The Borrower hereby represents and warrants to the Lenders and the
Agent that: (i) the covenants, representations and warranties set forth in the Credit Agreement are
true and correct on and as of the date of execution hereof as if made on and as of said date and as
if each reference therein to the Credit Agreement were a reference to the Credit Agreement as
amended by this Amendment; (ii) no Default or Event of Default specified in the Credit Agreement
has occurred and is continuing, (iii) since the date of the Credit Agreement, there has been no
material adverse change in the financial condition or business operations of the Borrower which has
not been disclosed to Lenders; (iv) the making and performance by the Borrower of this Amendment
have been duly authorized by all necessary corporate action, and do not, and will not, (a)
contravene the Borrower’s certificate of incorporation or by-laws, (b) violate any law, including
without limitation the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, or any rule, regulation (including Regulations T, U or X of the Board of Governors of
the Federal Reserve System) order, writ, judgment, injunction, decree, determination or award, and
(c) conflict with or result in the breach of, or constitute a default under, any material contract,
loan agreement, indenture, note, mortgage, deed of trust or any other material instrument or
agreement binding on the Borrower or any Subsidiary or any of their properties or result in or
require the creation or imposition of any lien upon or with respect to any of their properties; (v)
this Amendment has been duly executed and delivered by the Borrower and is the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in accordance with its terms;
(vi) no authorization or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body or any other third party is required for (a) the due
execution, delivery or performance by the Borrower of this Amendment or any other agreement or
document related hereto or contemplated hereby to which the Borrower is or is to be a party or
otherwise bound except for required filings and approvals under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder, or (b) the exercise by the Agent
or any Lender of its rights under the Credit Agreement as modified by this Amendment; and (vii) the
security interests and charges granted by the Borrower and its Subsidiary pursuant to the Security
Agreements continue to constitute valid, binding and enforceable, first in priority Liens on the
Collateral, subject only to Liens permitted under the terms of the Security Agreements and Credit
Agreement.









 



5


     4. Conditions of Effectiveness. The effectiveness of each and all of the modifications
contained in the Amendment is subject to the satisfaction, in form and substance satisfactory to
the Agent, of each of the following conditions precedent:



          A. Agent shall have received 4 duplicate original counterparts of this Amendment executed by
Borrower, Lenders and Agent.



          B. Agent shall have received a secretarial certificate of the Borrower in a form reasonably
acceptable to Agent, certifying that the organizational documents and the incumbency of officers of
the Borrower attached to the June 30, 2004 secretary’s certificate of Borrower are true and correct
as of the date of execution hereof, and attaching authorizing resolutions for the McDowell
Acquisition, Able Acquisition and the incurrence of additional indebtedness under the Credit
Agreement.



          C. Agent and Lenders shall have received a true, correct and complete copy of the Purchase
Agreement covering the McDowell Acquisition, which Purchase Agreement shall be satisfactory to the
Lenders.



          D. Agent and Lenders shall have received a true, correct and complete copy of the form of
subordinated convertible note to be used in the McDowell Acquisition which note shall be acceptable
to the Agent and Lenders in all respects (the “Subordinate Note”).



          E. Agent and Lenders shall have received a true, correct and complete copy of the form of
subordination agreement to be executed and approved by McDowell Research Ltd. which agreement shall
be acceptable to the Lenders in all respects (the “Subordination Agreement”).



          F. The Agent and Lenders shall have received appropriate UCC searches against the sellers in
the McDowell Acquisition.



          G. As of the effective date of this Amendment, no Default or Event of Default shall have
occurred and be continuing.



          H. The representation and warranties contained in Section 3 hereof and in the Credit Agreement
shall be true, correct and complete as of the effective date of this Amendment as though made on
such date.



          I. The Agent shall have received all fees for the benefit of the Lenders and itself as agent
as set forth in the Memorandum of Understanding between the parties hereto dated June 23, 2006.



          J. The Agent shall have received such other approvals or documents as any Lender through the
Agent may reasonably request, and all legal matters incident to the foregoing shall be satisfactory
to the Agent and its counsel.



     5. Covenants.



          A. Borrower covenants to deliver to Agent, promptly upon Agent’s request, copies of any
documents and agreements related to the Purchase Agreement as Agent may reasonably request, upon
the closing of the McDowell Acquisition including, without limitation, a copy of the executed
Subordinated Note and Subordination Agreement.




          B. Borrower hereby covenants and agrees to cooperate with the Agent in any manner reasonably
necessary in order to promptly continue, or in the case of after-acquired property, create a first
lien in favor of the Agent, on behalf of the Lenders, in all personal property assets acquired by
Borrower or its subsidiaries in connection with the McDowell Acquisition, including without
limitation, (i) delivering to Agent evidence of termination of any and all material liens (as
determined by Lenders in their sole discretion) on the assets to be acquired by Borrower or its
subsidiaries upon or prior to the date the McDowell Acquisition is closed; notwithstanding the
foregoing, the Borrower has requested the Lenders










 



6



and Agent to consent to its assumption under the McDowell Acquisition of approximately $83,000 of
equipment financing indebtedness and the liens on the specific equipment in connection therewith,
and by signing below the Agent and Lenders consent to such indebtedness and such liens to the
extent of such indebtedness, but not to any extensions, increases or refinancings thereof, (ii)
causing MR Acquisition Corporation (the “Acquisition Sub”) to execute and deliver to the Agent for
the benefit of the Lenders a guaranty and security agreement in form and content acceptable to
Lenders on the date the McDowell Acquisition is closed; (iii) executing and delivering or causing
Acquisition Sub to execute and deliver any Assignment of Claims with respect to government
contracts as requested by the Agent within 30 days after the date the McDowell Acquisition is
closed, or such later date as consented to by the Agent, and (iv) obtaining appropriate landlord
waivers as requested by Agent within 30 days after the date the McDowell Acquisition is closed, or
such later date as consented to by the Agent.




          C. The Borrower hereby covenants to deliver to Agent pledges of 65% of all of the outstanding
and issued stock of Able Holding pursuant to a pledge agreement governed by the laws of the State
of New York, as well as a separate pledge agreement relating to the pledge of the stock of Able
Holding governed by the laws of the People Republic of China (“PRC”) as prepared by the Agent’s PRC
counsel, together with any ancillary document such counsel may require within 90 days hereof. Such
pledge agreements shall also contain a covenant by Borrower, Able Holding and Able Operating that
each shall not grant to any person a lien on or otherwise encumber the assets of Able Operating or
consent to any such lien or encumbrance. Given the potential for negative tax implications for the
Borrower, with respect to the deemed dividend rule, the Agent and Lenders are not requiring a
security interest in all personal property of Able Holding and Able Operating in consideration for
the Lenders’ consent to the Able Acquisition at this time, however, the Agent and Lenders hereby
reserve all rights with respect to such requirement if such circumstances change.




          E. Borrower agrees to pay all out-of-pocket expenses and fees of the Agent and Lenders in
connection with the negotiation, preparation and execution of this Amendment and any related
document, including the reasonable fees and disbursements of counsel to the Agent whether or not
the McDowell Acquisition closes.




     6. Reference to and Effect on Loan Documents.



          A. Upon the effectiveness hereof, each reference in the Credit Agreement to “this Agreement,”
“hereunder,’ “hereof,” “herein,” or words of like import, and each reference in the other Loan
Documents to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended
hereby.




          B. Except as specifically amended above, the Credit Agreement, and all other Loan Documents
shall remain in full force and effect and are hereby ratified and confirmed.




          C. The amendments set forth in Section 2 hereto are only applicable and shall only be
effective in the specific instance and for the specific purpose for which made, are expressly
limited to the facts and circumstances referred to herein, and shall not operate as (i) a waiver
of, or consent to non-compliance with any other provision of the Credit Agreement or any other Loan
Document, (ii) a waiver or modification of any right, power or remedy of either the Agent or any
Lender under the Credit Agreement or any Loan Document, or (iii) a waiver or modification of, or
consent to, any Event of Default or Default under the Credit Agreement or any Loan Document.




     7. Governing Law. This Amendment shall be governed and construed in accordance with
the laws of the State of New York without regard to any conflicts-of-laws rules which would require
the application of the laws of any other jurisdiction.



     8. Headings. Section headings in this Amendment are included herein for convenience
of reference only and shall not constitute a part of this Amendment for any other purpose.









 



7


     9. Execution in Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all or which taken together shall
constitute but one and the same instrument.



[Signature Pages Follow]












 



 




     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their
respective representatives thereunto duly authorized as of the date first above written.




	 	 	 	 	 
	 	ULTRALIFE BATTERIES, INC. 	 
	 	 	 
	 	By:  	                                  /s/ Robert W. Fishback
 	 
	 	 	Name:  	Robert W. Fishback 	 
	 	 	Title:  	VP — Finance & CFO 	 
	 
	ADMINISTRATIVE AGENT:       	JPMORGAN CHASE BANK, N.A., as Agent

 	 
	 	By:  	/s/ Thomas C. Strasenburgh
 	 
	 	 	Name:  	Thomas C. Strasenburgh 	 
	 	 	Title:  	Vice President 	 
	 
	LENDERS:                    	JPMORGAN CHASE BANK, N.A.

 	 
	 	By:  	/s/ Thomas C. Strasenburgh
 	 
	 	 	Name:  	Thomas C. Strasenburgh 	 
	 	 	Title:  	Vice President 	 
	 
	 	MANUFACTURERS AND TRADERS

TRUST COMPANY

 	 
	 	By:  	/s/ Jon Fogle
 	 
	 	 	Jon Fogle, Vice President 	 
	 	 	 	 









 



 

	 	 	 	 	 




Schedule 2.01




Commitments as of June 29, 2006




	 	 	 	 	 	 	 	 	 
	 	 	Amount	 	Percentage
	 
	 	 	 	 	 	 	 	 
	Commitments to Make Revolving Loans — $20,000,000
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	JPMorgan Chase Bank, N.A.
	 	$	12,000,000	 	 	 	60	%
	Manufacturers and Traders Trust Company
	 	$	8,000,000	 	 	 	40	%
	 
	 	 	 	 	 	 	 	 
	Term Loan Commitments — $6,166,667
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	JPMorgan Chase Bank, N.A.
	 	$	3,700,000.20	 	 	 	60	%
	Manufacturers and Traders Trust Company
	 	$	2,466,666.80	 	 	 	40	%