Document:

Exhibit 10.32

Exhibit 10.32

FORBEARANCE

AND AMENDMENT NUMBER TWO

TO

AMENDED AND RESTATED CREDIT AGREEMENT

This Forbearance and Amendment Number Two to Amended and Restated Credit Agreement (this
“Agreement”) is made and entered into as of January 22, 2010, by and between Ultralife Corporation
(formerly known as Ultralife Batteries, Inc.) (“Borrower”) and JPMorgan Chase Bank, N.A., as
Administrative Agent for itself and the other lenders under the facility (each a “Lender” and
collectively, the “Lenders”) (in such capacity, the “Agent”).

RECITALS

A. As of January 27, 2009, Borrower entered into that certain Amended and Restated Credit
Agreement, as amended (as may hereafter be amended and modified, the “Credit Agreement”) with the
Agent and the Lenders party thereto. The Credit Agreement and all documents, instruments and
agreements executed in connection therewith are collectively, the “Loan Documents.” Capitalized
terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement.

B. As of January 20, 2010, the amounts outstanding under the Loan Documents are as follows,
plus costs and expenses (“Obligations”):

	 	 	 	 	 
	Principal
	 	$	15,834,720.00	 
	Interest
	 	$	38,078.47	 
	Fees
	 	$	57,604.48	 
	 
	 	 	 
	TOTAL
	 	$	15,930,402.95	 

C. Borrower’s Obligations under the Credit Agreement are unconditionally guaranteed by each of
McDowell Research Co., Inc., RedBlack Communications, Inc., and Stationary Power Services, Inc. as
successor by merger of RPS Power Systems, Inc., and Stationary Power Services, Inc. (each a
“Guarantor” and collectively, the “Guarantors”) pursuant to the provisions of each Guarantor’s
respective guaranty (collectively, the “Guaranties”).

D. On October 30, 2009, Borrower advised the Agent that Borrower failed to comply with the
financial covenants in Section 6.09 of the Credit Agreement as of September 30, 2009 (the “Covenant
Default”).

E. By letter dated October 30, 2009, the Agent provided Borrower with notice of the Covenant
Default pursuant to Section 7(e) of the Credit Agreement (“Default Letter”).

F. On January 15, 2010, the Agent provided Borrower with notice that Events of Default exist
under the Loan Documents (“Demand Letter”) as a result of (i) the Covenant Default remaining
uncured more than thirty (30) days after the Agent sent the Default Letter, and (ii) Borrower’s
failure to pay interest and expenses when due as required pursuant to Section 7(b) of the Credit
Agreement (“Payment Default” and collectively with the Covenant Default, the “Disclosed Defaults”).

G. The Disclosed Defaults entitle the Agent and the Lenders to exercise the default remedies
set forth in the Loan Documents. Borrower and each of the Guarantors acknowledge receipt of all
notices of the Disclosed Defaults required under the Loan Documents or otherwise waive any notices
required under the Loan Documents.

 

 

 

H. Borrower and each of the Guarantors have requested that the Agent and the Lenders forbear
from exercising their respective rights and remedies under the Loan Documents arising on account of
the Disclosed Defaults for a period of time. The Agent and the Lenders have agreed to forbear from
exercising such respective rights and remedies, other than the Agent and Lenders right to terminate
the Commitments, until the Termination Date (as defined below) upon the terms and conditions set
forth herein.

AGREEMENTS

NOW, THEREFORE, in consideration of the Recitals, which are deemed a material part of this
Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed as follows:

1. In consideration of and as an express condition of the Agent’s and the Lenders’ agreement
to comply with the request of Borrower and the Guarantors to forbear from exercising their
respective rights and remedies on account of the Disclosed Defaults, other than the Agent and
Lenders right to terminate the Commitments, until the Termination Date (as defined below),
Borrower and each of the Guarantors agree to the Recitals set forth herein and to undertake the
actions hereinafter set forth.

2. In consideration for the agreements and representations made herein, the Agent and the
Lenders agree to a) forbear from exercising their respective rights and remedies under the Loan
Documents on account of the Disclosed Defaults (which are not waived but expressly preserved), and
b) delay the date which all Obligations are due and owing to the Agent and Lenders by the Borrower
and Guarantors pursuant to the Demand Letter, until the earlier of: (i) the end of business on
February 18, 2010; (ii) the occurrence of a default, other than the Disclosed Defaults, under the
Loan Documents, (iii) the date on which the Agent, at the direction of the Required Lenders, elects
to terminate the Forbearance Period (as defined below) upon the occurrence of the breach by the
Borrower of any term or condition of this Agreement, or iv) the date on which the transaction
contemplated by the RBS Commitment (as defined below) is closed. The earlier of (i), (ii) and
(iii) herein shall be referred to herein as the “Termination Date” and the period of time from the
effectiveness of this forbearance to the Termination Date shall be referred to as the “Forbearance
Period.”

3. The Agent’s and the Lenders’ forbearance in Paragraph 2 above shall be conditioned upon,
and shall not become effective until, satisfaction of the following:

	 	A.	 	Borrower and each of the Guarantors duly execute and deliver
this Agreement to the Agent, in form and substance acceptable to the Agent in
its sole discretion by 5:00 P.M. on January 22, 2010, and the Agreement is
agreed to and executed by the Agent and the Lenders; and

	 	B.	 	The representation and warranties contained in Section 7 of
this Agreement and in the Credit Agreement shall be true, correct and complete
as of the effective date of this Agreement as though made on such date; and

	 	C.	 	The Agent shall have received $62,500 from Borrower for the
benefit of the Agent and the Lenders on a pro rata basis in consideration of
the forbearance and modifications set forth herein; and

	 	D.	 	The Agent and each Lender shall have received all fees required
to be paid under the Credit Agreement, and all expenses for which invoices have
been presented to Borrower by the Agent and the Lenders (including the
reasonable fees and expenses of legal counsel) to date; and

 

 

 

	 	E.	 	Execution and delivery to the Agent of a completed initial
Collateral Status Certificate (as defined below) and such other and further
documentation as the Agent and the Lenders may reasonably deem necessary or
appropriate to accomplish the terms set forth herein, each in form and
substance reasonably acceptable to the Agent and the Lenders; and

	 	F.	 	Borrower is current with respect to all amounts currently due
and owing to the Agent and the Lenders under the Loan Documents as amended
hereby.

4. The Commitments are hereby terminated. Effective upon the satisfaction of all conditions
specified in Section 3 hereof, the Credit Agreement is hereby amended as follows:

A. The following definition is hereby added to Section 1.01 of the Credit Agreement in
the appropriate alphabetical order:

“Amendment No. 2” means that certain Forbearance and Amendment Number Two
to the Amended and Restated Credit Agreement dated as of January 22, 2010 among,
Borrower, Administrative Agent and Lenders.

B. The definition of “Commitment” set forth in Section 1.01 of the Credit Agreement
is hereby deleted in its entirety and replaced with the following:

“Commitment” means, with respect to each Lender, the commitment of such Lender to
make Revolving Loans expressed as an amount representing the maximum aggregate
amount of such Lender’s Revolving Credit Exposure. As of the effective date of the
Amendment No. 2, the aggregate amount of the Lenders’ Commitments is $0.

C. Schedule 2.01 of the Credit Agreement is deleted in its entirety. Borrower agrees
that the Lenders will not make Revolving Loans to Borrower during the Forbearance Period.

D. Section 2.04 of the Credit Agreement is deleted in its entirety.

E. Section 2.05 of the Credit Agreement is deleted in its entirety.

F. Section 2.06 of the Credit Agreement is deleted in its entirety.

G. Section 2.12(a) of the Credit Agreement is deleted in its entirety.

H. Section 5.01 of the Credit Agreement is hereby amended so that: (i) in subsection
(g) thereof the word “and” at the end of such subsection is hereby deleted, (ii) in
subsection (h) thereof the period ”.” at the end of such subsection is hereby deleted and
replaced with “; and” and (iii) the following subsection is added thereto:

(i) During the Forbearance Period (as defined in Amendment No. 2), on a monthly
basis, Borrower’s internally prepared financial statements for such month, including
balance sheet and related statements of operations and cash flows in form
historically prepared by Borrower.

I. The first sentence of Section 5.08 of the Credit Agreement is hereby superseded and
replaced in its entirety and amended to read as follows:

“The proceeds of the Revolving Loans will be used only for working capital purposes
of the Borrower in the ordinary course of business as evidenced by supporting
documents as requested by the Agent from time to time.”

 

 

 

5. Borrower and Guarantors each hereby covenant and agree with the Agent and the Lenders to
the following during the Forbearance Period (as applicable relative to their respective obligations
and in addition to, but not in limitation of unless expressly noted, any terms, conditions, and/or
covenants set forth in the Loan Documents):

	 	A.	 	Borrower and each of the Guarantors shall provide the Agent and the Lenders
with any information, documents, or reports concerning or related to the Indebtedness
under the Credit Agreement, the repayment thereof and their businesses, as the Agent
and/or the Lenders may request in their sole discretion, and shall make their
management, officers, employees, professionals, agents, and consultants, available to
the Agent and the Lenders upon request to answer any reasonable questions regarding the
matters set forth above; and

	 	B.	 	All information provided by Borrower and each of the Guarantors to the Agent
and/or the Lenders in connection with this Agreement, whether or not during the
Forbearance Period, including, without limitation, information on the exhibits attached
hereto or concerning financial status, assets, liabilities, or business plans, whether
communicated orally or in writing, shall be true and correct in all material respects.

	 	C.	 	Borrower shall provide evidence satisfactory to the Agent, as soon as available
but in any event at the end of each calendar week, during the Forbearance Period that
all payroll, sales and withholding taxes are currently paid and maintained.

	 	D.	 	Borrower agrees that the Obligations shall bear interest at the rate set forth
in Section 2.13(c) of the Credit Agreement.

	 	E.	 	Borrower shall, at all time during the Forbearance Period, remain in pro forma
compliance with the conditions precedent to closing of the $35,000,000 senior secured
credit facility offered to Borrower by RBS Business Capital, as set forth in the term
sheet dated November 2, 2009, as previously or hereafter amended (“RBS Commitment”).

	 	F.	 	Borrower shall provide to the Agent, as soon as available but in any event on
each Friday during the Forbearance Period, a rolling thirteen (13) week cash flow
forecast in form and substance reasonably acceptable to the Agent.

	 	G.	 	Borrower shall make payments on the outstanding principal amount of the
Obligations to Agent for the benefit of the Lenders in the following manner: (i) on
the date of execution and delivery of the Agreement, Borrower shall make a payment in
the amount of $1,500,000; (ii) on or before January 29, 2010, Borrower shall make a
payment in the amount of $3,500,000; and (iii) commencing February 5, 2010 and
continuing on each Friday thereafter during the Forbearance Period, Borrower shall make
a payment in the amount of $500,000.

	 	H.	 	Borrower shall immediately notify Agent of any change to the terms or status of
the RBS Commitment.

	 	I.	 	The “Margined Collateral Not Borrowed” identified on line 33 of the Collateral
Status Certificate (defined below) attached as Exhibit A, shall not drop below
$9,000,000 during the Forbearance Period.

	 	J.	 	Borrower and Guarantors shall deposit the proceeds of all Accounts (as defined
below) of the Borrower and Guarantors in bank accounts maintained with either of the
Lenders.

 

 

 

6. Borrower shall provide the Agent, as soon as available but in any event on every Friday
during the Forbearance Period, and at such other times as may be requested by the Agent, as of the
period then ended, a Collateral Status Certificate and supporting information in connection
therewith, together with any additional reports with respect to the Collateral Status as the Agent
may reasonably request.

	 	A.	 	For the purposes of defining Collateral Status, the following definitions shall
be applicable:

	 	i).	 	“Account” has the meaning assigned to such term
in the Security Agreement (as defined herein).

	 	ii).	 	“Account Debtor” means any Person obligated on
any of the Accounts.

	 	iii).	 	“Affiliate” means, with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the Person specified.

	 	iv).	 	“Collateral Status” means, at any time, the sum
of (a) up to 80% of Eligible Accounts at such time, plus (b) 30% of
Eligible Inventory, valued at the lower of cost or market value,
determined on a first-in-first-out basis, at such time, minus (c)
Reserves. The maximum amount of Inventory which may be included as
part of the Collateral Status is $10,000,000. The Agent and Lenders
may, in their discretion, reduce the advance rates set forth above,
adjust Reserves or reduce one or more of the other elements used in
computing the Collateral Status.

	 	v).	 	“Collateral Status Certificate” means a
certificate, signed and certified as accurate and complete by the chief
financial officer, principal accounting officer, treasurer or
controller of the Borrower, in substantially the form of Exhibit A or
another form which is acceptable to the Agent in its sole discretion.

	 	vi).	 	“Collateral” has the meaning assigned to such
term in the Security Agreement.

	 	vii).	 	“Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. “Controlling” and
“Controlled” have meanings correlative thereto.

	 	viii).	 	“Eligible Accounts” means, at any time, the Accounts of the Borrower
and Guarantors which the Agent determines in its discretion would be
eligible. Without limiting the Agent’s discretion provided herein,
Eligible Accounts shall not include any Account:

	 	a).	 	which is not subject to a first
priority perfected security interest in favor of the Agent;

	 	b).	 	which is subject to any Lien
other than (i) a Lien in favor of the Agent and (ii) a Permitted
Encumbrance which does not have priority over the Lien in favor
of the Agent;

	 	c).	 	with respect to which (i) is
unpaid more than 90 days after the date of the original invoice
therefor or more than 60 days after the original due date, or
(ii) which has been written off the books of
Borrower or any of the Guarantors or otherwise designated as
uncollectible;

 

 

 

	 	d).	 	which is owing by an Account
Debtor for which more than 50% of the Accounts owing from such
Account Debtor and its Affiliates are ineligible hereunder;

	 
	 	e).	 	which is owing by an Account
Debtor to the extent the aggregate amount of Accounts owing from
such Account Debtor and its Affiliates to all Borrower and
Guarantors exceeds 10% of the aggregate amount of Eligible
Accounts of Borrower and Guarantors;

	 
	 	f).	 	with respect to which any
covenant, representation, or warranty contained in this
Agreement, the Credit Agreement or in the Security Agreement has
been breached or is not true;

	 
	 	g).	 	which (i) does not arise from the
sale of goods or performance of services in the ordinary course
of business, (ii) is not evidenced by an invoice or other
documentation satisfactory to the Agent which has been sent to
the Account Debtor, (iii) represents a progress billing, (iv) is
contingent upon the Borrower’s or Guarantors’ completion of any
further performance, (v) represents a sale on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment,
cash-on-delivery or any other repurchase or return basis or (vi)
relates to payments of interest;

	 
	 	h).	 	for which the goods giving rise
to such Account have not been shipped to the Account Debtor or
for which the services giving rise to such Account have not been
performed by Borrower or any of the Guarantors or if such
Account was invoiced more than once;

	 
	 	i).	 	with respect to which any check
or other instrument of payment has been returned uncollected for
any reason;

	 
	 	j).	 	which is owed by an Account
Debtor which has (i) applied for, suffered, or consented to the
appointment of any receiver, custodian, trustee, or liquidator
of its assets, (ii) has had possession of all or a material part
of its property taken by any receiver, custodian, trustee or
liquidator, (iii) filed, or had filed against it, any request or
petition for liquidation, reorganization, arrangement,
adjustment of debts, adjudication as bankrupt, winding-up, or
voluntary or involuntary case under any state or federal
bankruptcy laws, (iv) has admitted in writing its inability, or
is generally unable to, pay its debts as they become due, (v)
become insolvent, or (vi) ceased operation of its business;

	 
	 	k).	 	which is owed by any Account
Debtor which has sold all or a substantially all of its assets;

	 
	 	l).	 	which is owed by an Account
Debtor which (i) does not maintain its chief executive office in
the U.S. or Canada or (ii) is not organized under applicable law
of the U.S., any state of the U.S., Canada, or any province of
Canada unless, in either case, such Account is
backed by a Letter of Credit acceptable to the Agent which is
in the possession of, and is directly drawable by, the Agent;

 

 

 

	 	m).	 	which is owed in any currency
other than U.S. dollars;

	 
	 	n).	 	which is owed by (i) the
government (or any department, agency, public corporation, or
instrumentality thereof) of any country other than the U.S.
unless such Account is backed by a Letter of Credit acceptable
to the Agent which is in the possession of the Administrative
Agent, or (ii) any Federal Account Debtor unless the Federal
Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727
et seq. and 41 U.S.C. § 15 et seq.), and any other steps
necessary to perfect the Lien of the Agent in such Account have
been complied with to the Agent’s satisfaction;

	 
	 	o).	 	which is owed by any Affiliate,
employee, officer, director, agent or stockholder of Borrower or
any of the Guarantors;

	 
	 	p).	 	which, for any Account Debtor,
exceeds a credit limit determined by the Agent, to the extent of
such excess;

	 
	 	q).	 	which is owed by an Account
Debtor or any Affiliate of such Account Debtor to which Borrower
or any of the Guarantors is indebted, but only to the extent of
such indebtedness or is subject to any security, deposit,
progress payment, retainage or other similar advance made by or
for the benefit of an Account Debtor, in each case to the extent
thereof;

	 
	 	r).	 	which is subject to any
counterclaim, deduction, defense, setoff or dispute but only to
the extent of any such counterclaim, deduction, defense, setoff
or dispute;

	 
	 	s).	 	which is evidenced by any
promissory note, chattel paper, or instrument;

	 
	 	t).	 	which is owed by an Account
Debtor located in any jurisdiction which requires filing of a
“Notice of Business Activities Report” or other similar report
in order to permit Borrower or any of the Guarantors to seek
judicial enforcement in such jurisdiction of payment of such
Account, unless Borrower or any of the Guarantors has filed such
report or qualified to do business in such jurisdiction;

	 
	 	u).	 	with respect to which such
Borrower or any of the Guarantors has made any agreement with
the Account Debtor for any reduction thereof, other than
discounts and adjustments given in the ordinary course of
business, or any Account which was partially paid and Borrower
created a new receivable for the unpaid portion of such Account;

	 
	 	v).	 	which does not comply in all
material respects with the requirements of all applicable laws
and regulations, whether Federal, state or local, including
without limitation the Federal Consumer Credit Protection Act,
the Federal Truth in Lending Act and Regulation Z of the Board;

 

 

 

	 	w).	 	which is for goods that have been
sold under a purchase order or pursuant to the terms of a
contract or other agreement or understanding (written or oral)
that indicates or purports that any Person other than such
Borrower or any of the Guarantors has or has had an ownership
interest in such goods, or which indicates any party other than
such Borrower or Guarantors as payee or remittance party;

	 
	 	x).	 	which was created on cash on
delivery terms; or

	 
	 	y).	 	which the Agent determines may
not be paid by reason of the Account Debtor’s inability to pay
or which the Agent otherwise determines is unacceptable for any
reason whatsoever.

In the event that an Account which was previously an Eligible Account
ceases to be an Eligible Account hereunder, Borrower shall notify the
Agent thereof on and at the time of submission to the Agent of the
next Collateral Status Certificate. In determining the amount of an
Eligible Account, the face amount of an Account may, in the Agent’s
discretion, be reduced by, without duplication, to the extent not
reflected in such face amount, (i) the amount of all accrued and
actual discounts, claims, credits or credits pending, promotional
program allowances, price adjustments, finance charges or other
allowances (including any amount that Borrower or any of the
Guarantors may be obligated to rebate to an Account Debtor pursuant
to the terms of any agreement or understanding (written or oral)) and
(ii) the aggregate amount of all cash received in respect of such
Account but not yet applied by such Borrower or Guarantors to reduce
the amount of such Account.

	 	ix).	 	“Eligible Inventory” means, at any time, the
Inventory of the Borrower and Guarantors which the Agent determines in
its discretion would be eligible. Without limiting the Agent’s
discretion provided herein, Eligible Inventory shall not include any
Inventory:

	 	a).	 	which is not subject to a first
priority perfected Lien in favor of the Agent;

	 
	 	b).	 	which is subject to any Lien
other than (i) a Lien in favor of the Administrative Agent and
(ii) a Permitted Encumbrance which does not have priority over
the Lien in favor of the Agent;

	 
	 	c).	 	which is, in the Agent’s opinion,
slow moving, obsolete, unmerchantable, defective, used, unfit
for sale, not salable at prices approximating at least the cost
of such Inventory in the ordinary course of business or
unacceptable due to age, type, category and/or quantity;

	 
	 	d).	 	with respect to which any
covenant, representation, or warranty contained in the Credit
Agreement or the Security Agreement has been breached or is not
true and which does not conform to all standards imposed by any
Governmental Authority;

 

 

 

	 	e).	 	in which any Person (as defined
below) other than such Borrower or any of the Guarantors shall
(i) have any direct or indirect ownership,
interest or title to such Inventory or (ii) be indicated on
any purchase order or invoice with respect to such Inventory
as having or purporting to have an interest therein;

	 
	 	f).	 	which is not finished goods or
which constitutes work-in-process, spare or replacement parts,
subassemblies, packaging and shipping material, manufacturing
supplies, samples, prototypes, displays or display items,
bill-and-hold goods, goods that are returned or marked for
return, repossessed goods, defective or damaged goods, goods
held on consignment, or goods which are not of a type held for
sale in the ordinary course of business;

	 
	 	g).	 	which is not located in the U.S.;

	 
	 	h).	 	which is in transit;

	 
	 	i).	 	which is located in any location
leased by such Borrower or any of the Guarantors unless (i) the
lessor has delivered to the Agent a Landlord Waiver Agreement
(as defined in the Security Agreement) or (ii) a Reserve for
rent, charges, and other amounts due or to become due with
respect to such facility has been established by the Agent in
its discretion;

	 
	 	j).	 	which is located in any third
party warehouse or is in the possession of a bailee (other than
a third party processor), unless (i) such warehouseman or bailee
has delivered to the Agent a Landlord Waiver Agreement and such
other documentation as the Agent may require or (ii) an
appropriate Reserve has been established by the Agent in its
discretion;

	 
	 	k).	 	which is being processed offsite
at a third party location or outside processor, or is in-transit
to or from said third party location or outside processor;

	 
	 	l).	 	which is a discontinued product
or component thereof;

	 
	 	m).	 	which is the subject of a
consignment by such Borrower or any of the Guarantors as
consignor;

	 
	 	n).	 	which is perishable;

	 
	 	o).	 	which contains or bears any
intellectual property rights licensed to such Borrower or any of
the Guarantors unless the Agent is satisfied that it may sell or
otherwise dispose of such Inventory without (i) infringing the
rights of such licensor, (ii) violating any contract with such
licensor, or (iii) incurring any liability with respect to
payment of royalties other than royalties incurred pursuant to
sale of such Inventory under the current licensing agreement;

	 
	 	p).	 	which is not reflected in a
current perpetual inventory report of such Borrower or
Guarantors;

	 
	 	q).	 	for which reclamation rights have
been asserted by the seller; or

 

 

 

	 	r).	 	which the Agent otherwise
determines is unacceptable for any reason whatsoever.

In the event that Inventory which was previously Eligible Inventory
ceases to be Eligible Inventory hereunder, Borrower shall notify the
Agent thereof on and at the time of submission to the Agent of the
next Collateral Status Certificate.

	 	x).	 	“Inventory” has the meaning assigned to such
term in the Security Agreement.

	 	xi).	 	“Net Orderly Liquidation Value” means, with
respect to Inventory of Borrower, the orderly liquidation value thereof
as determined in a manner acceptable to the Agent by an appraiser
acceptable to the Agent, net of all costs of liquidation thereof.

	 	xii).	 	“Person” means any natural person,
corporation, limited liability company, trust, joint venture,
association, company, partnership, Governmental Authority or other
entity.

	 	xiii).	 	“Reserves” means any and all reserves which the Agent deems
necessary, in its discretion, to maintain with respect to the
Collateral.

	 	xiv).	 	“Security Agreement” means collectively the
General Security Agreement given by Borrower to the Agent dated as of
June 30, 2004 and the General Security Agreements given by each of the
Guarantors to the Agent as the same may be modified, amended or
reaffirmed.

	 	B.	 	Borrower shall provide the Agent, as soon as available but in any event at the
end of each calendar month, and at such other times as may be requested by the Agent,
in form satisfactory to the Agent, a detailed aging of the Borrower’s and Guarantors’
Accounts (1) including all invoices aged by invoice date and due date (with an
explanation of the terms offered) and (2) reconciled to the Collateral Status
Certificate delivered as of such date prepared in a manner reasonably acceptable to the
Agent, together with a summary specifying the name, address, and balance due for each
account debtor.

	 	C.	 	Borrower shall provide the Agent, as soon as available but in any event at the
end of each calendar month, and at such other times as may be requested by the Agent,
in form satisfactory to the Agent a schedule detailing the Borrower’s and Guarantors’
Inventory, in form satisfactory to the Agent, (1) by location (showing Inventory in
transit, any Inventory located with a third party under any consignment, bailee
arrangement, or warehouse agreement), by class (raw material, work-in-process and
finished goods), by product type, and by volume on hand, which Inventory shall be
valued at the lower of cost (determined on a first-in, first-out basis) or market and
adjusted for Reserves as the Agent has previously indicated to the Borrower are deemed
by the Agent to be appropriate, (2) including a report of any variances or other
results of Inventory counts performed by the Borrower or any Guarantors since the last
Inventory schedule (including information regarding sales or other reductions,
additions, returns, credits issued by Borrower or Guarantors and complaints and claims
made against the Borrower or Guarantors), and (3) reconciled to the Collateral Status
Certificate delivered as of such date.

 

 

 

	 	D.	 	Subject to the limitations set forth below, the Agent is authorized by Borrower
and the Lenders, from time to time, at the direction of the Required Lenders, (but
shall have absolutely no obligation to), to make Loans to the Borrower, on behalf of
all Lenders, which
the Required Lenders, in their discretion, deem necessary or desirable (i) to
preserve or protect the Collateral, or any portion thereof, (ii) to enhance the
likelihood of, or maximize the amount of, repayment of the Loans and other
Obligations, or (iii) to pay any other amount chargeable to or required to be paid
by the Borrowers pursuant to the terms of this Agreement, including payments of
reimbursable expenses (including costs, fees, and expenses as described in Section
9.03) and other sums payable under the Loan Documents (any of such Loans are herein
referred to as “Protective Advances”). Protective Advances may be made even if the
conditions precedent set forth in Section 4.02 of the Credit Agreement have not been
satisfied. The Protective Advances shall be secured by the Liens in favor of the
Agent for the benefit of the Lenders in and to the Collateral and shall constitute
Obligations hereunder. All Protective Advances shall be at the discretion of the
Agent. The Agent may request the Lenders to make a Revolving Loan to repay a
Protective Advance and Lenders shall make such Revolving Loan directly to the Agent.

Upon the making of a Protective Advance by the Agent (whether before or after the
occurrence of a Default), each Lender shall be deemed, without further action by any
party hereto, to have unconditionally and irrevocably purchased from the Agent
without recourse or warranty, an undivided interest and participation in such
Protective Advance in proportion to its Applicable Percentage. From and after the
date, if any, on which any Lender is required to fund its participation in any
Protective Advance purchased hereunder, the Agent shall promptly distribute to such
Lender, such Lender’s applicable percentage of all payments of principal and
interest and all proceeds of Collateral received by the Agent in respect of such
Protective Advance.

7. As a material inducement to the Agent and the Lenders to enter into this Agreement,
Borrower and each of the Guarantors (as appropriate relative to their respective obligations)
hereby represent and warrant that:

	 	A.	 	Each of the Recitals set forth above is true and correct in all material respects;

	 	B.	 	Except for the Disclosed Defaults, to the best of their knowledge, Borrower and
each of the Guarantors have complied with all of their respective obligations under the
Loan Documents in all material respects. There is no Default or Event of Default which
has occurred and is continuing under any of the Loan Documents other than the Disclosed
Defaults;

	 	C.	 	Except for the Disclosed Defaults arising out of breaches of representations
and warranties contained in the Loan Documents, the representations and warranties set
forth in Loan Documents remain true and correct in all material respects as of the date
of this Agreement;

	 	D.	 	The execution, delivery, and performance of this Agreement, and any other
document required herein, is within the corporate powers of Borrower and the
Guarantors, has been duly authorized by all necessary corporate action and does not and
will not: (i) require any consent or approval of the board of directors of Borrower or
the Guarantors; (ii) violate any provision of the articles of incorporation of Borrower
or the Guarantors, its bylaws, any other document of corporate governance, or any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to Borrower or the Guarantors; (iii) require
the consent or approval of, or filing or registration with, any governmental body,
agency or authority; (iv) cause any breach of, or constitute a default under, any
contract, indenture or other agreement or instrument under which Borrower or any
Guarantor is a party or by which it or its properties may be bound or affected; or (v)
result in the imposition of any lien, charge or encumbrance upon any property of
Borrower or any Guarantor;

 

 

 

	 	E.	 	This Agreement constitutes, and any of the documents required herein will
constitute upon execution and delivery, legal, valid, and binding obligations of the
Borrower and each of the Guarantors, enforceable in accordance with its terms;

	 	F.	 	Borrower and each of the Guarantors do not, and hereby covenant that they will
not, contest that the Agent and the Lender have and will continue to possess valid and
perfected security interests in, and liens upon, all of the property as set forth in
the Loan Documents; and

	 	G.	 	All information provided by Borrower and each of the Guarantors to the Agent
and/or the Lenders, previously or in connection with this Agreement, including, without
limitation, information on the exhibits attached hereto and concerning financial
status, assets, liabilities, or business plans, whether communicated orally or in
writing, is true and correct in all material respects.

8. In the event that Borrower or any of the Guarantors fails to satisfy any covenants,
representations, warranties, or agreements of this Agreement or any other Loan Document (other than
the violations giving rise to the Disclosed Defaults), such failure shall immediately without
further notice constitute an event of default under this Agreement (“Forbearance Default”) and the
Agent and the Lenders shall be deemed to have no obligation to forbear in exercising any of its
rights or remedies under the Loan Documents, this Agreement, or any agreement or document executed
in connection herewith.

9. Upon the occurrence of a Forbearance Default as defined in Paragraph 8 hereof, the Agent
and the Lenders may, at their option, terminate their obligations under this Agreement and the Loan
Documents; and thereafter the Agent and the Lenders shall be entitled to immediately exercise all
respective rights and remedies available to the Agent and the Lenders herein and in the Loan
Documents, under the Uniform Commercial Code, and any other state or federal law. Notwithstanding
the foregoing, however, the representations, warranties, acknowledgments, covenants, and agreements
made by Borrower and Guarantors herein shall survive the Agent’s and the Lenders’ election to
terminate its obligations hereunder in the event of a Forbearance Default.

10. Borrower and each of the Guarantors acknowledge and agree that: (i) the Disclosed Defaults
have occurred and are existing under the Loan Documents as of the date of this Agreement; and (ii)
the Agent and the Lenders are entitled to take all actions legally available to them under the Loan
Documents or applicable law upon the occurrence of an event of default without any further or
additional notice to Borrower or the Guarantors.

11. Borrower and each of the Guarantors restate, acknowledge and agree that: (i) the amounts
set forth in Recital B above are outstanding under the Obligations without claim, offset,
counterclaim, defense or affirmative defense of any kind and the Obligations remain the continuing
and individual obligations of Borrower and each of the Guarantors, until all amounts due
thereunder, including attorneys’ fees and costs incurred by the Agent and the Lenders in connection
with this Agreement or enforcement of the Loan Documents, are paid in full; (ii) the liens and
security interests granted to the Agent and the Lenders by Borrower and each of the Guarantors are
and remain valid security interests in the assets of those parties; and (iii) as of the date
hereof, Borrower and each of the Guarantors hereby release, discharge, and agree to hold harmless
the Agent and the Lenders and their representatives, agents, employees, attorneys, directors,
officers, parents, affiliates, assigns, insurers, subsidiaries, and their successors and assigns
(collectively, the “Released Parties”) from any and all claims, defenses, affirmative defenses,
setoffs, counterclaims, actions, causes of action, suits, controversies, agreements, provisions,
liabilities and demands in law or in equity, whether known or unknown (collectively, the “Claims”)
which Borrower or any of the Guarantors ever had, now has, or may hereafter have against or related
to the Released Parties through the date of this Agreement, including, but not limited to, Claims
relating to or arising out of the Loan Documents or the transactions described therein, the
Obligations, the Agent’s and the Lenders’ administration of the Loan Documents, the banking
relationship of Borrower or any of the Guarantors with the Agent and/or the Lenders, or this
Agreement.

 

 

 

12. Each of the Guarantors hereby acknowledges and agrees to the continuing authenticity and
enforceability of each of the Guaranties notwithstanding the agreements set forth herein. Each of
the Guarantors hereby ratify and reaffirm each of the Guaranties in their entirety, confirm the
continuing validity of each of the Guaranties and agree that each of the Guaranties shall remain in
full force and effect until the Obligations have been paid in full in cash to the Agent and the
Lenders and all remaining obligations of the Borrower and each of the Guarantors to the Agent and
the Lenders under the Loan Documents and this Agreement have been performed to the Agent’s and the
Lenders’ satisfaction. The Guaranties are incorporated herein by reference.

13. Each of the Guarantors agrees that, as of the date hereof, it has no claims or defenses of
any kind by way of offset or otherwise to the payment and satisfaction in full of the Obligations
to Agent and the Lenders pursuant to each of the Guaranties. To the extent that any such claim or
defense may presently exist or may arise in the future, each of the Guarantors expressly waive any
and all claims or defenses against any of the Released Parties that now or hereafter exist by
reason of, among other things, and without limitation: (i) any and all amendments or modifications
of any document or instrument; (ii) any and all alterations, accelerations, extensions or other
changes in the time or manner of payment or performance of the Obligations; (iii) any and all
increases or decreases in the rate of interest or other charges; (iv) the release, substitution or
addition of any collateral or any shareholder of the corporation; (v) any failure of the Agent or
the Lenders to give notice of default to the Borrower or any shareholder; (vi) any failure of the
Agent or the Lenders to pursue the Borrower or any of the Borrower’s property with due diligence;
or (vii) any failure of the Agent or the Lenders to resort to the collateral or to remedies which
may be available to it.

14. The agreements set forth herein constitute the terms and conditions of forbearance only
and not a novation. Except as specifically set forth in this Agreement, the Loan Documents shall
remain in full force and effect and are hereby ratified and confirmed. To the extent that any
provision of this Agreement conflicts with any terms or conditions set forth in the Loan Documents,
the provisions of this Agreement shall supersede and control. Borrower and each of the Guarantors
shall continue to comply with all undertakings, obligations and representations set forth in the
Loan Documents to the extent not modified in this Agreement. Except as expressly provided herein,
the execution and delivery of this Agreement shall not: (i) constitute an extension, modification,
or waiver of any aspect of the Loan Documents or any right or remedy thereunder; (ii) extend the
terms of the Loan Documents or the due date of any of the loans set forth therein; (iii) establish
a course of dealing between the Agent and/or the Lenders and Borrower and/or any of the Guarantors
or give rise to any obligation on the part of the Agent or the Lenders to extend, modify or waive
any term or condition of the Loan Documents; or (iv) give rise to any defenses or counterclaims to
the Agent’s or the Lenders’ right to compel payment of any loan or to otherwise enforce their
respective rights and remedies under the Loan Documents.

15. Borrower and each of the Guarantors acknowledge that it: (i) has been represented, or had
the opportunity to be represented, by its own legal counsel in connection with the Loan Documents
and this Agreement, including, without limitation, with respect to the releases set forth in
Paragraph 11 above; (ii) that it has exercised independent judgment with respect to the Loan
Documents and this Agreement; (iii) that it has not relied on the Agent or the Lenders or on their
counsel for any advice with respect to the Loan Documents or this Agreement; and (iv) has had a
reasonable opportunity to consider whether there may be future damages, injuries, claims,
obligations, or liabilities which presently are unknown, unforeseen or not yet in existence and
consciously intends to release them. Based upon the foregoing, no rule of contract construction or
interpretation shall be employed to construe this Agreement more strictly against one party or the
other.

16. This Agreement has been negotiated, executed, and delivered in the State of New York and
shall be deemed to have been made in the State of New York. The validity of this Agreement, its
construction, interpretation, and enforcement as well as the rights of the parties hereunder
(including, without limitation, with respect to the collateral) shall be determined under, governed
by, and construed in accordance with the internal laws of the State of New York (without regard to
its conflict of law principles).

 

 

 

17. Each provision of this Agreement shall be severable from every other provision of this
Agreement for the purpose of determining the legal enforceability of any specific provision.

18. This Agreement and the other documents referred to herein contain the entire agreement
between the Agent, the Lenders, Borrower, and the Guarantors, or any of them, with respect to the
subject matter hereof and supersedes all previous communications and negotiations. No
representation, undertaking, promise, or condition concerning the subject matter hereof shall be
binding upon the Agent or the Lenders unless clearly expressed in this Agreement or in the other
documents referred to herein. Any discussions and correspondence about the terms of a possible
extension, modification, and/or restructuring of the Loan Documents shall be deemed to be in the
nature of settlement negotiations. Accordingly, any such discussions and correspondence will not
be admissible in any legal or administrative proceedings and shall not be actionable under any
theory of law or utilized for any purpose without the consent of all parties. No agreement which
is reached herein shall give rise to any claim or cause of action except for breach of the express
provisions of a legally binding written agreement.

19. Nothing contained in this Agreement or any other document referred to herein, nor any
action taken pursuant hereto or thereto, shall be construed as: (i) permitting or obligating the
Agent or the Lenders to act as financial or business advisor or consultant to Borrower or any of
the Guarantors; (ii) permitting or obligating the Agent or the Lenders to control or to conduct the
operations of Borrower or any of the Guarantors; (iii) creating any fiduciary obligation on the
part of the Agent or the Lenders to Borrower or any of the Guarantors; or (iv) causing Borrower or
any of the Guarantors to be treated as an agent of the Agent or the Lenders.

20. This Agreement may be executed in any number of counterparts, all of which taken together
shall constitute one agreement. Any of the parties hereto may execute this Agreement by signing,
whether by facsimile or portable document format transmission or otherwise, any such counterpart.

21. BORROWER AND EACH OF THE GUARANTORS HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT SITUATED IN NEW YORK CITY, NEW YORK, AND WAIVE ANY OBJECTION BASED ON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS, WITH REGARD TO ANY
ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR
ANY DOCUMENT DELIVERED HEREUNDER OR IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR
CONNECTED TO ANY OF THE FOREGOING. BORROWER AND EACH OF THE GUARANTORS WAIVE PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON THEM, AND CONSENT TO ALL SUCH SERVICE OF PROCESS MADE BY MAIL OR BY
MESSENGER DIRECTED TO THEM AT THE ADDRESSES SPECIFIED IN THE LOAN DOCUMENTS. NOTHING HEREIN SHALL
AFFECT THE AGENT’S OR THE LENDERS’ RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW, OR LIMIT
THE AGENT’S OR THE LENDERS’ RIGHT TO BRING PROCEEDINGS AGAINST BORROWER OR ANY OF THE GUARANTORS OR
ANY OF THEIR PROPERTY OR ASSETS IN THE COMPETENT COURTS OF ANY OTHER JURISDICTION OR JURISDICTIONS.

22. BORROWER AND EACH OF THE GUARANTORS HEREBY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, ANY DOCUMENT DELIVERED
HEREUNDER OR IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF THE
FOREGOING. BORROWER AND EACH OF THE GUARANTORS REPRESENT THAT THIS WAIVER IS KNOWINGLY, WILLINGLY
AND VOLUNTARILY GIVEN.

23. BORROWER AND EACH OF THE GUARANTORS HEREBY WAIVE ANY RIGHT ANY OF THEM MAY NOW OR
HEREAFTER HAVE TO CLAIM OR RECOVER FROM THE AGENT
OR THE LENDERS ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR
ACTUAL DAMAGES).

 

 

 

24. This Agreement shall be binding on Borrower, the Guarantors and each of their respective
successors and assigns, and shall inure solely to the benefit of the Agent, the Lenders, their
successors, assigns, and affiliates. No third-party or other person or entity shall have any
rights or benefits under this Agreement.

25. Borrower agrees to pay on demand all costs and expenses of the Agent and the Lenders in
connection with the preparation, execution and delivery of this Agreement and the other documents
related hereto, including the fees and out-of-pocket expenses of counsel for the Agent and the
Lenders.

[Signature Page Follows]

 

 

 

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

	 	 	 	 	 	 	 	 	 
	 	 	ULTRALIFE CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Philip A. Fain	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Philip A. Fain	 	 
	 

	 	 	 	Title:
	 	Chief Financial Officer and Treasurer	 	 
	 
	 	 	 	 	 	 	 	 
	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	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Jon Fogle	 	 
	 

	 	 	 	Title:
	 	Vice PresidentExhibit 10.33

Exhibit 10.33

CREDIT AGREEMENT

by and among

ULTRALIFE CORPORATION,

McDOWELL RESEARCH CO., INC.,

REDBLACK COMMUNICATIONS, INC.,

AND

STATIONARY POWER SERVICES, INC.

and

RBS BUSINESS CAPITAL,

a division of

RBS ASSET FINANCE, INC.

DATED AS OF FEBRUARY 17, 2010

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE I DEFINITIONS
	 	 	1	 
	1.01 Certain Definitions
	 	 	1	 
	1.02 Construction
	 	 	17	 
	1.03 Accounting Principles
	 	 	17	 
	 
	 	 	 	 
	ARTICLE II REVOLVING CREDIT FACILITY
	 	 	17	 
	2.01 Revolving Credit Loans
	 	 	17	 
	2.02 Revolving Credit Note
	 	 	18	 
	2.03 Borrowing Base
	 	 	18	 
	2.04 Making of Revolving Credit Loans
	 	 	18	 
	2.05 Letters of Credit Subfacility
	 	 	20	 
	2.06 Issuance, Amendment and Renewal of Letters of Credit
	 	 	22	 
	2.07 Drawings and Reimbursements
	 	 	23	 
	2.08 Role of Issuing Bank
	 	 	23	 
	2.09 Obligations Absolute
	 	 	24	 
	2.10 Cash Collateral
	 	 	25	 
	2.11 Letter of Credit Fees
	 	 	26	 
	2.12 Hedging Contracts
	 	 	26	 
	 
	 	 	 	 
	ARTICLE III INTEREST RATES; FEES; PAYMENTS; INDEMNITIES
	 	 	26	 
	3.01 Interest Rates
	 	 	26	 
	3.02 Interest After Default
	 	 	27	 
	3.03 Usury
	 	 	27	 
	3.04 LIBOR Rate Lending Unlawful
	 	 	28	 
	3.05 Unavailability of LIBOR Rate
	 	 	28	 
	3.06 Revolving Credit Fees
	 	 	28	 
	3.07 Letter of Credit Fees
	 	 	29	 
	3.08 Other Customary Fees
	 	 	29	 
	3.09 LIBOR Breakage Fee
	 	 	29	 
	3.10 Repayments, Prepayments and Interest
	 	 	29	 
	3.11 Payments — Generally
	 	 	30	 
	3.12 Increased Costs
	 	 	30	 
	3.13 Increased Capital Costs
	 	 	31	 
	3.14 Indemnities
	 	 	31	 
	(a) General Indemnities
	 	 	31	 
	(b) Environmental Indemnity
	 	 	31	 
	(c) Limitation on Indemnities
	 	 	32	 
	3.15 Taxes
	 	 	32	 
	3.16 Loan Account
	 	 	33	 
	3.17 Prepayment; Termination of Commitment
	 	 	33	 

 

- i -

 

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES
	 	 	33	 
	4.01 Organization and Qualification
	 	 	33	 
	4.02 Power to Carry on Business; Licenses
	 	 	33	 
	4.03 Authority and Authorization
	 	 	34	 
	4.04 Execution and Binding Effect
	 	 	34	 
	4.05 Absence of Conflicts
	 	 	34	 
	4.06 Authorizations and Filings
	 	 	34	 
	4.07 Ownership and Control
	 	 	35	 
	4.08 Officers and Directors
	 	 	35	 
	4.09 Subsidiaries
	 	 	35	 
	4.10 Business
	 	 	35	 
	4.11 Title to Property
	 	 	35	 
	4.12 Financial Statements
	 	 	35	 
	4.13 Taxes
	 	 	36	 
	4.14 Contracts
	 	 	36	 
	4.15 Litigation
	 	 	37	 
	4.16 Compliance with Laws
	 	 	37	 
	4.17 Pension Plans
	 	 	37	 
	4.18 Patents, Licenses, Franchises
	 	 	37	 
	4.19 Environmental Matters
	 	 	38	 
	4.20 Proceeds
	 	 	38	 
	4.21 Margin Stock
	 	 	38	 
	4.22 Investment Company Act
	 	 	38	 
	4.23 Application of Certain Laws and Regulations
	 	 	39	 
	4.24 No Event of Default; Compliance with Agreements
	 	 	39	 
	4.25 No Material Adverse Change
	 	 	39	 
	4.26 Accurate and Complete Disclosure
	 	 	39	 
	4.27 Security Interest
	 	 	39	 
	4.28 Account Warranties
	 	 	40	 
	4.29 Inventory Warranties
	 	 	40	 
	4.30 Swaps
	 	 	41	 
	4.31 Solvency
	 	 	41	 
	 
	 	 	 	 
	ARTICLE V CONDITIONS OF LENDING
	 	 	41	 
	5.01 Initial Loans
	 	 	41	 
	(a) Representations and Warranties; Events of
Default and Potential Defaults
	 	 	41	 
	(b) Proceedings and Incumbency — Borrowers
	 	 	41	 
	(c) Opinion of Counsel
	 	 	42	 
	(d) Agreement and Notes
	 	 	42	 
	(e) Security Agreements
	 	 	42	 
	(f) UCC Financing Statements
	 	 	42	 
	(g) Patent Security Agreement
	 	 	42	 
	(h) Trademark Security Agreement
	 	 	42	 
	(i) Pledge Agreements
	 	 	42	 
	(j) Negative Pledge Agreement
	 	 	42	 

 

- ii -

 

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	(k) Subordination Agreement
	 	 	42	 
	(l) Landlord/Bailee Waivers
	 	 	43	 
	(m) Assignment of Claims
	 	 	43	 
	(n) Borrowing Base; Excess Availability
	 	 	43	 
	(o) Operating Accounts; Cash Management
	 	 	43	 
	(p) Other Documents and Conditions
	 	 	43	 
	(q) Details, Proceedings and Documents
	 	 	44	 
	(r) Fees and Expenses
	 	 	44	 
	5.02 Each Additional Loan
	 	 	44	 
	 
	 	 	 	 
	ARTICLE VI AFFIRMATIVE COVENANTS
	 	 	45	 
	6.01 Reporting and Information Requirements
	 	 	45	 
	(a) Annual Audited Reports
	 	 	45	 
	(b) Monthly Reports
	 	 	45	 
	(c) Compliance Certificate
	 	 	46	 
	(d) Borrowing Base Certificate
	 	 	46	 
	(e) Accounts Receivable Statements and Collateral Reports
	 	 	46	 
	(f) Accounts Payable Statements
	 	 	46	 
	(g) Inventory Certifications
	 	 	46	 
	(h) Audit Reports
	 	 	47	 
	(i) Guarantors’ Financial Statements
	 	 	47	 
	(j) Projections
	 	 	47	 
	(k) Visitation; Audits
	 	 	47	 
	(l) Inventory Appraisals
	 	 	47	 
	(m) Notice of Event of Default
	 	 	48	 
	(n) Notice of Material Adverse Change
	 	 	48	 
	(o) Exchange Act Filings
	 	 	48	 
	(p) Rating Agencies
	 	 	48	 
	(q) Reports to Governmental Agencies and other Creditors
	 	 	48	 
	(r) Notice of Proceedings
	 	 	48	 
	(s) Updates to Schedules
	 	 	48	 
	(t) Further Information
	 	 	49	 
	6.02 Preservation of Existence and Franchises
	 	 	49	 
	6.03 Insurance
	 	 	49	 
	6.04 Maintenance of Properties
	 	 	49	 
	6.05 Payment of Liabilities
	 	 	49	 
	6.06 Financial Accounting Practices
	 	 	50	 
	6.07 Compliance with Laws
	 	 	50	 
	6.08 Pension Plans
	 	 	50	 
	6.09 Continuation of and Change in Business
	 	 	51	 
	6.10 Use of Proceeds
	 	 	51	 
	6.11 Lien Searches
	 	 	51	 
	6.12 Environmental Matters
	 	 	51	 
	6.13 Cash Management and Operating Accounts
	 	 	51	 
	6.14 Interest Rate Protection
	 	 	52	 
	6.15 Equipment Leasing Commitment Letter
	 	 	52	 
	6.16 Further Assurances
	 	 	52	 

 

- iii -

 

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE VII NEGATIVE COVENANTS
	 	 	52	 
	7.01 Liens
	 	 	52	 
	7.02 Debt
	 	 	53	 
	7.03 Guarantees and Contingent Liabilities
	 	 	54	 
	7.04 Loans and Investments
	 	 	54	 
	7.05 Dividends and Related Distributions
	 	 	55	 
	7.06 Leases
	 	 	55	 
	7.07 Merger; Consolidation; Business Acquisitions
	 	 	55	 
	7.08 Dispositions of Assets
	 	 	55	 
	7.09 Self-Dealing
	 	 	56	 
	7.10 Margin Stock
	 	 	56	 
	7.11 Consolidated Tax Returns
	 	 	56	 
	7.12 Ownership and Control
	 	 	56	 
	7.13 Changes in Organizational Documents
	 	 	56	 
	7.14 Foreign Assets Control Regulations, Etc.
	 	 	56	 
	7.15 Negative Pledges
	 	 	56	 
	7.16 Financial Maintenance Covenants
	 	 	57	 
	 
	 	 	 	 
	ARTICLE VIII DEFAULTS
	 	 	57	 
	8.01 Events of Default
	 	 	57	 
	8.02 Consequences of an Event of Default
	 	 	59	 
	8.03 Set-Off
	 	 	60	 
	8.04 Payments Set Aside
	 	 	60	 
	 
	 	 	 	 
	ARTICLE IX JOINT AND SEVERAL LIABILITY
	 	 	61	 
	9.01 Joint and Several Liability
	 	 	61	 
	 
	 	 	 	 
	ARTICLE X MISCELLANEOUS
	 	 	63	 
	10.01 Holidays
	 	 	63	 
	10.02 Records
	 	 	64	 
	10.03 Amendments and Waivers
	 	 	64	 
	10.04 No Implied Waiver; Cumulative Remedies
	 	 	64	 
	10.05 Notices
	 	 	64	 
	10.06 Expenses; Taxes; Attorneys’ Fees
	 	 	65	 
	10.07 Severability
	 	 	66	 
	10.08 LIMITATION OF LIABILITY
	 	 	66	 
	10.09 Governing Law; Consent to Jurisdiction
	 	 	66	 
	10.10 Prior Understandings
	 	 	66	 
	10.11 Duration; Survival
	 	 	66	 
	10.12 Term of Agreement
	 	 	67	 
	10.13 Counterparts
	 	 	67	 
	10.14 Successors and Assigns
	 	 	67	 
	10.15 No Third-Party Beneficiaries
	 	 	67	 
	10.16 Participation
	 	 	67	 
	10.17 Patriot Act Notice
	 	 	67	 
	10.18 Exhibits
	 	 	67	 
	10.19 WAIVER OF TRIAL BY JURY
	 	 	67	 

 

- iv -

 

CREDIT AGREEMENT

THIS CREDIT AGREEMENT, dated as of February 17, 2010, by and between ULTRALIFE CORPORATION, a
Delaware corporation (“Ultralife”), McDOWELL RESEARCH CO., INC., a Delaware corporation
(“McDowell”), REDBLACK COMMUNICATIONS, INC., a Maryland corporation (“RedBlack Communications”),
and STATIONARY POWER SERVICES, INC., a Florida corporation (“Stationary Power Services”, and
together with Ultralife, McDowell and RedBlack Communications, each individually a “Borrower” and
collectively, the “Borrowers” as hereinafter further defined).

AND

RBS BUSINESS CAPITAL, a division of RBS Asset Finance, Inc., a New York corporation (the “Lender”).

R E C I T A L S :

WHEREAS, the Borrowers have requested that the Lender provide a revolving line of credit
facility to the Borrowers for general working capital, general corporate purposes, letter of credit
foreign exchange support and to refinance certain existing indebtedness to the Existing Lender (as
hereinafter defined); and

WHEREAS, Lender is willing to provide such financing on the terms, and subject to the
conditions, set forth in this Agreement;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained in this
Agreement, and intending to be legally bound, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.01 Certain Definitions. In addition to other words and terms defined elsewhere in this
Agreement, the following words and terms have the following meanings, respectively, unless the
context otherwise clearly requires:

“Able New Energy – China” means ABLE New Energy Co. Ltd., a company organized under the laws
of China.

“Able New Energy – Hong Kong” means ABLE New Energy Co. Limited, a company organized under the
laws of Hong Kong.

 

- 1 -

 

“Account” means any account, contract right, general intangible, chattel paper, instrument or
document representing any right to payment for goods sold or services rendered, whether or not
earned by performance and whether or not evidenced by a contract, instrument or document, which is
now owned or hereafter acquired by a Borrower.

“Adjusted LIBOR Rate” means, relative to any LIBOR Rate Loan to be made, continued or
maintained as, or converted into, a LIBOR Rate Loan for any LIBOR Interest Period, a rate per annum
determined by dividing (x) the LIBOR Rate for such LIBOR Interest Period by (y) a percentage equal
to one hundred percent (100%) minus the LIBOR Reserve Percentage.

“Administrative Borrower” means Ultralife, in its capacity as Administrative Borrower on
behalf of itself and the other Borrowers pursuant to Section 2.04(e) of this Agreement and its
successors and assigns in such capacity.

“Affiliate” means any person or entity that is not a Borrower which directly or indirectly
controls, or is controlled by, or is under common control with, a Borrower. For each individual
who is an Affiliate within the meaning of the foregoing, the term “Affiliate” shall include any
other individual related to such Affiliate by consanguinity within the second degree or in a step
or adoptive relationship within such second degree or related by affinity with such Affiliate or
any such individual, and any person directly or indirectly controlled by any of the foregoing. The
term “control” means the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise.

“Agreement” means this Credit Agreement, as amended, modified or supplemented from time to
time.

“Bankruptcy Code” shall mean 11 U.S.C. §§ 101 et seq. as the same may be modified or amended
from time to time.

“Blocked Account Agreement” shall have the meaning assigned to such term in Section 6.13 of
this Agreement.

“Borrowers” means, collectively, the following (together with their respective successors and
assigns) (a) Ultralife Corporation, a Delaware corporation; (b) McDowell Research Co., Inc., a
Delaware corporation; (c) RedBlack Communications, Inc., a Maryland corporation; (d) Stationary
Power Services, Inc., a Florida corporation; and (e) any Person that at any time after the date
hereof becomes a Borrower. Each of the Borrowers is sometimes referred to in this Agreement
individually as a “Borrower”.

“Borrowing Base” has the meaning assigned to that term in Section 2.03 of this Agreement.

 

- 2 -

 

“Business Day” means:

	 	(a)	 	any day which is neither a Saturday or Sunday nor a legal
holiday on which commercial banks are authorized or required to be closed in
Pittsburgh, Pennsylvania;

	 	(b)	 	when such term is used to describe a day on which a borrowing,
payment, prepaying, or repaying is to be made in respect of any LIBOR Rate
Loan, any day which is: (i) neither a Saturday or Sunday nor a legal holiday on
which commercial banks are authorized or required to be closed in New York
City; and (ii) a London Banking Day; and

	 	(c)	 	when such term is used to describe a day on which an interest
rate determination is to be made in respect of any LIBOR Rate Loan, any day
which is a London Banking Day.

“Capital Expenditure” means any expenditure made or liability incurred which is, in accordance
with GAAP, treated as a capital expenditure and not as an expense item for the year in which it was
made or incurred, as the case may be.

“Capitalized Lease Obligations” means any amount payable with respect to any lease of any
tangible or intangible property (whether real, personal or mixed), however denoted, which is
required by GAAP to be reflected as a liability on the face of the balance sheet of the lessee.

“Change of Control” means (a) with respect to the beneficial owners of common shares of
Ultralife holding in excess of five percent (5%) of such shares as of the date of this Agreement
(based upon Exchange Act filings of beneficial ownership with the U.S. Securities and Exchange
Commission), the acquisition of ownership, directly or indirectly, beneficially or of record, by
such Person or group, of such shares or other equity interests representing more than 49% of the
aggregate ordinary voting power represented by the issued and outstanding common shares or other
equity interests of Ultralife; (b) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any other Person or group (within the meaning of the Exchange Act and
the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of
common shares or other equity interests representing more than 30% of the aggregate ordinary voting
power represented by the issued and outstanding common shares or other equity interests of
Ultralife or any of its Subsidiaries; or (c) occupation of a majority of the seats (other than
vacant seats) on the board of directors of Ultralife or any of its Subsidiaries by Persons who were
neither (i) nominated by the board of directors of Ultralife or any of its Subsidiaries nor (ii)
appointed by directors so nominated.

“Closing Date” means February 17, 2010, or such other date upon which the parties may agree.

“Code” means the Uniform Commercial Code as in effect on the date of this Agreement, and as
amended from time to time, of the state or states having jurisdiction with respect to all or any
portion of the collateral granted or assigned to the Lender from time to time under or in
connection with this Agreement.

 

- 3 -

 

“Collateral” means the “Collateral” granted or assigned to the Lender from time to time under
or in connection with this Agreement or any of the Security Agreements.

“Consolidated EBITDA” for any period of determination shall mean (i) the sum of consolidated
net income (or loss) (exclusive of extraordinary gains and losses), depreciation, amortization,
other non-cash charges to consolidated net income, interest expense and income tax expense minus
(ii) non-cash credits to consolidated net income (or loss) of Ultralife and its Subsidiaries, for
such period determined on a consolidated basis in accordance with GAAP.

“Consolidated Fixed Charges” shall mean for any period of determination the sum of cash
interest expense, cash tax expense, scheduled principal installments on Debt (as adjusted for
prepayments), unfunded Capital Expenditures and dividends and other distributions paid during such
period, in each case of Ultralife and its Subsidiaries, for such period determined on a
consolidated basis in accordance with GAAP.

“Debt” means (i) indebtedness or liability for borrowed money, or for the deferred purchase
price of property or services (including third party and intercompany trade obligations) whether
such indebtedness or liability is matured or unmatured, liquidated or unliquidated, direct or
contingent, and joint or several; (ii) Capitalized Lease Obligations; (iii) current liabilities in
respect of unfunded vested benefits under any Plan; (iv) obligations under letters of credit;
(v) all guaranties, endorsements (other than for collection or deposit in the ordinary course of
business), and other contingent obligations to purchase, to provide funds for payment, to supply
funds to invest in any person or entity, or otherwise to assure a creditor against loss; (vi)
obligations under any agreement in respect of any rate swap transaction or any other cap, floor,
collar or other derivative transaction; (vii) Hedging Obligations (whether owed to the Lender or
any Lender Affiliate); and (viii) obligations secured by any lien on property owned by such person
or entity, whether or not the obligations have been assumed.

“Eligible Accounts” means an Account, net of any prepayments, progress payments, deposits and
retentions, owing to a Borrower which met the specifications established from time to time by the
Lender, in its sole discretion, at the time it came into existence and continues to meet such
specifications until it is collected in full. As of the date of this Agreement, an Account, to be
an Eligible Account, must meet the following specifications at the time it comes into existence and
continue to meet such specifications until it is collected in full:

	 	(a)	 	The Account is not more than ninety (90) days from the date of the invoice
therefor;

	 	(b)	 	The Account arose from the performance of services or an outright sale of goods
by such Borrower in the ordinary course of such Borrower’s business and such goods have
been shipped, or services provided, to the account debtor and such Borrower has
possession of, or has delivered to the Lender, in the case of goods, shipping and
delivery receipts evidencing such shipment and, in the case of services, receipts or
other evidence satisfactory to the Lender that such services have been provided;

 

- 4 -

 

	 	(c)	 	The Account is not subject to any prior assignment, claim, lien, or security
interest, and such Borrower will not make any further assignment of the Account or
create any further security interest in the Account, nor permit its rights in the
Account to be reached by attachment, levy, garnishment or other judicial process;

	 	(d)	 	The Account is not subject to set-off, credit, allowance or adjustment by the
account debtor, except discounts allowed for prompt payment, and the account debtor has
not complained as to its liability on the Account and has not returned, or retained the
right to return, any of the goods from the sale of which the Account arose;

	 	(e)	 	The Account does not arise from a sale of goods that are delivered or to be
delivered outside the United States of America, or from a sale of goods to an account
debtor domiciled outside of the United States of America, unless such Borrower has
arranged letter of credit facilities satisfactory to the Lender;

	 	(f)	 	The Account arose in the ordinary course of such Borrower’s business and did
not arise from the performance of services or a sale of goods to a creditor, supplier,
an employee or an Affiliate of such Borrower;

	 	(g)	 	The Account does not arise with respect to an account debtor from whom fifty
percent (50%) or more of the Accounts are more than ninety (90) days from the date of
the invoice therefor or are otherwise deemed ineligible in accordance with the
eligibility criteria for Eligible Accounts;

	 	(h)	 	The Account is not an Account with respect to a single account debtor whose
Accounts constitute more than thirty five percent (35%) of all Eligible Accounts,
provided that the portion of such accounts not in excess of all Eligible Accounts,
which otherwise meet the eligibility criteria for Eligible Accounts, shall constitute
Eligible Accounts;

	 	(i)	 	The Account is not evidenced by chattel paper or an instrument of any kind;

	 	(j)	 	The Account does not arise out of contracts with the United States or any
department, agency, or instrumentality of the United States, unless such Borrower has
executed any instruments and taken any steps required by the Lender in order that all
monies due and to become due under such contracts shall be assigned to the Lender and
notice thereof given to the government under the Federal Assignment of Claims Act;
provided, however, that the Borrower shall not be required to assign any such Account
in an amount less than $250,000 in compliance with the Federal Assignment of Claims
Act, provided that (i) each such Account (an “Unassigned US Account”) which otherwise
meets all of the specifications to be an Eligible Account shall be an Eligible Account
for purposes of this Agreement, and (ii) the aggregate sum of all Unassigned US
Accounts
shall not at any time exceed $250,000 (whether one or more Unassigned US Accounts);

 

- 5 -

 

	 	(k)	 	The Account is not subject to any other prohibition (under the applicable Law,
by contract or otherwise) against its assignment or requiring notice of or consent to
any assignment to the Lender, unless all such required notices have been given, all
such required consents have been received and all other procedures have been complied
with such that such Account shall have been duly and validly assigned to the Lender;

	 	(l)	 	The Account does not constitute a finance charge or lease receivable;

	 	(m)	 	The account debtor with respect to such Account is not located in New Jersey or
any other state or jurisdiction denying creditors access to its courts in the absence
of qualification to transact business in such state of the filing of a Notice of
Business Activities Report or other similar filing, unless such Borrower has either
qualified as a foreign corporation authorized to transact business in such state or
jurisdiction or has filed a Notice of Business Activities Report or similar filing with
the applicable state or jurisdiction agency for the then current year;

	 	(n)	 	No notice of bankruptcy, insolvency or material adverse change of the account
debtor has been received by or is known to such Borrower;

	 	(o)	 	The Account does not arise out of a contract for which such Borrower has
provided a performance or other bond;

	 	(p)	 	The Account has not been factored with, or sold or assigned to, any factoring
company; and

	 	(q)	 	The Lender has not notified the Administrative Borrower that the Lender has
determined, in its sole discretion, the Account or account debtor is unsatisfactory.

The Lender may require, in its sole discretion, that certain reserves be established against
certain Accounts from time to time.

 

- 6 -

 

“Eligible Inventory” means raw material inventory and finished goods inventory which is owned
by a Borrower, which is subject to the Lender’s perfected first priority lien and security interest
as provided in a Security Agreement executed and delivered by such Borrower and which is not
subject to a prior security interest held by a third party and which meets the specifications
established by the Lender in its sole discretion from time to time. As of the date of this
Agreement, Eligible Inventory shall not include:

	 	(a)	 	any of such Borrower’s finished goods inventories not held for sale or held
pursuant to a consignment sale, bill and hold, guaranteed sale, sale or return or
similar arrangement;

	 
	 	(b)	 	any of such Borrower’s work-in-progress inventories;

	 	(c)	 	any of such Borrower’s stores and supplies, solvents and spare and machine
maintenance parts used in the general operations and maintenance of the machinery and
equipment of such Borrower;

	 	(d)	 	inventory-in-transit or inventories not otherwise in such Borrower’s possession
at an Eligible Location;

	 	(e)	 	inventory produced in violation of the Fair Labor Standards Act and subject to
the “hot goods” provision contained in 29 U.S.C. § 215(a)(1);

	 	(f)	 	inventory determined by the Lender, in its sole discretion, to be slow moving,
obsolete, damaged or not currently usable or salable in the ordinary course of such
Borrower’s business; or

	 	(g)	 	any of such Borrower’s inventories allocated or identified to purchase orders
or contracts received from any customer of such Borrower, as to which inventories such
customer has filed or intends to file UCC Financing Statements or to otherwise perfect
a security interest; or

	 	(h)	 	the Lender has not notified the Administrative Borrower that the Lender has
determined in its sole discretion, that the inventory is unsatisfactory.

The Eligible Inventory shall be valued, for the purposes of this Agreement, at the lower of
cost (determined on a first-in-first-out basis) or market value.

“Eligible Inventory Sublimit” means a sublimit established by the Lender, in its sole
discretion, from time to time to limit the maximum amount of the Revolving Credit Loans which may
be made based on the Eligible Inventory. As of the date of this Agreement, the Eligible Inventory
Sublimit is equal to Twelve Million Five Hundred Thousand Dollars ($12,500,000).

“Eligible Locations” means Ultralife’s premises located at 2000 Technology Parkway, Newark,
New York 14513, and any other location as to which a Borrower has delivered a landlord’s or
bailee’s waiver satisfactory to Lender in its sole discretion.

“Environmental Laws” means any federal, state or local laws, ordinances, rules, regulations or
policies, including permits, judicial and administrative orders, judgments, consents, decrees
issued, or entered into, governing or relating to the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous Materials.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974 as in effect as of the
date of this Agreement and as amended from time to time in the future.

 

- 7 -

 

“Event of Default” means any of the Events of Default described in Section 8.01 of this
Agreement.

“Excess Availability” means, as of the date of determination, the maximum amount of Revolving
Credit Loans that would be available to the Borrowers, as determined by the Lender by subtracting
the Revolving Credit Usage as of such day (including any Revolving Credit Loans made or to be made,
and Letters of Credit issued or to be issued, as of such day) from the Borrowing Base as of such
date.

“Exchange Act” shall mean the Securities Exchange Act of 1934, together with all rules,
regulations and interpretations thereunder or related thereto.

“Existing Lender” means JP Morgan Chase Bank, N.A., as administrative agent, and the lenders
party to that certain Amended and Restated Credit Agreement dated as of January 27, 2009.

“Fixed Charge Coverage Ratio” shall mean the ratio of (i) Consolidated EBITDA for the four (4)
fiscal quarter period ending as of the date of determination, to (ii) Consolidated Fixed Charges;
provided, however, that (x) for the fiscal period ending March 28, 2010, the Fixed Charge Coverage
Ratio shall be tested based on the two (2) fiscal quarter period ending on that date, (y) for the
fiscal period ending June 27, 2010, the Fixed Charge Coverage Ratio shall be tested based on the
three (3) fiscal quarter period ending on that date, and (z) for the fiscal period ending September
26, 2010 and each fiscal quarter thereafter, the Fixed Charge Coverage Ratio shall be tested based
on the four (4) fiscal quarter period ending on the date of determination.

“GAAP” means generally accepted accounting principles (as such principles may change from time
to time) applied on a consistent basis (except for changes in application in which the Borrowers’
independent certified public accountants concur).

“Guarantors” shall mean all of, and “Guarantor” shall mean any one of, as the context may
require, each Subsidiary, and each other Person, that becomes a Guarantor after the date hereof
pursuant to this Agreement. As of the date of this Agreement, there are no Guarantors.

“Guaranty Agreements” shall mean any Guaranty Agreement which may in the future be executed
and delivered to the Lender by any Subsidiary pursuant to the terms of this Agreement, as each such
agreement may be amended, modified or supplemented from time to time.

“Hazardous Materials” shall mean (a) asbestos in any form; (b) urea formaldehyde foam
insulation; (c) transformers or other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyl in excess of fifty (50) parts per million; or (d) any other chemical,
material, air pollutant, toxic pollutant, waste, or substance that is regulated as toxic or
hazardous or exposure to which is prohibited, limited or regulated by the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the
Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, and
the Clean Water Act, or any amendment thereto, or any other federal, state, county,
regional, local, or other governmental authority or which, even if not so regulated, may or could
pose a hazard to the health and safety of the occupants of the Property or the owners of property
adjacent to the Property and is either (i) present in amounts in excess of that permitted or deemed
safe under applicable law or (ii) handled, stored or otherwise used in any way that is prohibited
or deemed unsafe under applicable law.

 

- 8 -

 

“Hedging Contracts” means, interest rate swap agreements, interest rate cap agreements,
interest rate collar agreements, foreign exchange agreements, currency swap agreements,
cross-currency rate swap agreements, currency option agreements or any other agreements or
arrangements entered into between one or more of the Borrowers and the Lender and/or a Lender
Affiliate (or another financial institution acceptable to Lender) and designed to protect the
Borrowers against fluctuations in interest rates or currency exchange rates.

“Hedging Obligations” means, with respect to a Borrower, all liabilities of such Borrower to
the Lender or any Lender Affiliate under Hedging Contracts.

“Interest Payment Date” means, relative to any LIBOR Rate Loan having an LIBOR Interest Period
of three months or less, the last Business Day of such LIBOR Interest Period, and as to any LIBOR
Rate Loan having an LIBOR Interest Period longer than three months, each Business Day which is
three months, or a whole multiple thereof, after the first day of such LIBOR Interest Period and
the last day of such LIBOR Interest Period.

“Issuing Bank” means a Lender Affiliate in its capacity as issuer of Letters of Credit issued
by it as described in Section 2.05 of this Agreement.

“LA Interest Payment Date” means, initially, the 15th day of March, 2010, and
thereafter the day of each succeeding month which numerically corresponds to such date or, if a
month does not contain a day that numerically corresponds to such date, the LA Interest Payment
Date shall be the last day of such month.

“LA Interest Period” means, with respect to any LIBOR Advantage Loan, the period commencing on
(and including) the date hereof (the “Start Date”) and ending on (but excluding) the date which
numerically corresponds one month later, and thereafter, each one month period ending on the day of
such month that numerically corresponds to the Start Date. If an LA Interest Period is to end in a
month for which there is no day which numerically corresponds to the Start Date, the LA Interest
Period will end on the last day of such month. Notwithstanding the date of commencement of any LA
Interest Period, interest shall only begin to accrue as of the date the initial LIBOR Advantage
Loan is made hereunder.

“LA Margin” means 4.50% (450 basis points) per annum.

“Law” means any law (including common law), constitution, statute, treaty, regulation, rule,
ordinance, order, injunction, writ, decree or award of any Official Body.

“L/C Application” means an application form or forms for issuances and amendments of standby
or commercial documentary letters of credit as shall at any time be in use at the Lender.

 

- 9 -

 

“L/C Commitment” means the commitment of the Lender to issue Letters of Credit from time to
time under Section 2.05 in an aggregate outstanding amount at any time not to exceed on any date
the lesser of (i) Five Million Dollars ($5,000,000.00), and (ii) the aggregate availability, as
determined by Section 2.03 of this Agreement; provided that the L/C Commitment is a part of
the Revolving Credit Commitment, rather than a separate, independent commitment.

“L/C Obligations” means at any time the sum of, without duplication, (i) the aggregate undrawn
face or stated amount of all Letters of Credit then outstanding, plus (ii) the amount of all
unreimbursed drawings under all Letters of Credit, plus (iii) the aggregate amount of the
Borrowers’ unpaid obligations in respect to all Letters of Credit (whether or not outstanding)
under this Agreement and the LC-Related Documents, including any indebtedness, liability or
obligation of any kind whatsoever, however arising, whether present or future, related or
unrelated, fixed or contingent, or paid, incurred, or arising in connection with any Letters of
Credit (including any drafts or acceptances thereunder), all amounts charged or chargeable to the
Borrowers or by the Lender (or by any correspondent bank which opens, issues or is involved with
such Letter of Credit), including any and all charges, expenses, fees and commissions, and all
duties and taxes and costs of insurance which may pertain either directly or indirectly to such
Letter of Credit.

“L/C – Related Documents” means the Letters of Credit, the L/C Applications and any other
document relating to any Letter of Credit, including any standard form documents used by the Lender
for letter of credit issuances.

“Lease Obligation” means an obligation of a lessee under a lease of any tangible or intangible
property (whether real, personal or mixed), including, without limitation, with respect to any
period under any such lease, the aggregate amounts payable by such lessee to or on behalf of the
lessor for such period, including, without limitation, property taxes, insurance, interest and
amortized charges which such lessee is required to pay pursuant to such lease. Whenever it is
necessary to determine the amount of Lease Obligations for any period with respect to which any of
the rentals under the relevant lease are not definitely determinable by the terms of the lease, all
such rentals will be estimated in a reasonable amount for such period.

“Lender” means RBS Business Capital, a division of RBS Asset Finance, Inc., a New York
corporation, with an office at 525 William Penn Place, Mailstop 153-2470, Pittsburgh, Pennsylvania
15219.

“Lender Affiliate” means Citizens Bank, N.A., or any affiliated banking institution of
Citizens Bank, N.A. which (i) provides cash management and operating account services to the
Borrowers as described in Section 6.13; (ii) issues Letters of Credit as described in Section 2.05
of this Agreement; or (iii) is a party to a Hedging Contract.

“Letters of Credit” has the meaning assigned to such term in Section 2.05 of this Agreement.

 

- 10 -

 

“LIBOR Advantage Loan” shall mean any loan or advance for which the applicable rate of
interest is based upon the LIBOR Advantage Rate.

“LIBOR Advantage Rate” means, relative to any LA Interest Period, the offered rate for
delivery in two London Banking Days of deposits of U.S. Dollars for a term coextensive with the
designated LA Interest Period which the British Bankers’ Association fixes as its LIBOR rate as of
11:00 a.m. London time on the day on which such Interest Period commences. If the first day of any
Interest Period is not a day which is both a (i) Business Day, and (ii) a London Banking Day, the
LIBOR Advantage Rate shall be determined by reference to the next preceding day which is both a
Business Day and a London Banking Day. If for any reason the LIBOR Advantage Rate is unavailable
and/or the Lender is unable to determine the LIBOR Advantage Rate for any LA Interest Period, the
Lender may, at is discretion, either: (a) select a replacement index based on the arithmetic mean
of the quotations, if any, of the interbank offered rate by first class banks in London or New York
with comparable maturities or (b) accrue interest at a rate equal to the Prime Rate plus the LIBOR
Margin as of the first day of any Interest Period for which the LIBOR Advantage Rate is unavailable
or cannot be determined.

“LIBOR Interest Period” means, relative to any LIBOR Rate Loan:

	 	(i)	 	initially, the period beginning on (and including) the date on
which such LIBOR Rate Loan is made or continued as, or converted into, a LIBOR
Rate Loan pursuant to Section 2.04 of this Agreement and ending on (but
excluding) the day which numerically corresponds to such date one, three or six
months thereafter (or, if such month has no numerically corresponding day, on
the last Business Day of such month), in each case as the Administrative
Borrower may select in its notice pursuant to Section 2.04 of this Agreement;
and

	 	(ii)	 	thereafter, each period commencing on the last day of the next
preceding LIBOR Interest Period applicable to such LIBOR Rate Loan and ending
one, three or six months thereafter, as selected by the Administrative Borrower
by irrevocable notice to the Lender pursuant to Section 2.04 of this Agreement;

provided, however, that

	 	(a)	 	at no time may there be more than ten (10) LIBOR Interest
Periods in effect with respect to the LIBOR Rate Loans;

	 	(b)	 	LIBOR Interest Periods commencing on the same date for LIBOR
Rate Loans comprising part of the same advance under this agreement shall be of
the same duration;

	 	(c)	 	LIBOR Interest Periods for LIBOR Rate Loans in connection with
which the Borrowers have or may incur Hedging Obligations with the Lender or a
Lender Affiliate shall be of the same duration as the relevant periods set
under the applicable Hedging Contracts;

 

- 11 -

 

	 	(d)	 	if such LIBOR Interest Period would otherwise end on a day
which is not a Business Day, such LIBOR Interest Period shall end on the next
following Business Day unless such day falls in the next calendar month, in
which case such LIBOR Interest Period shall end on the first preceding Business
Day; and

	 	(e)	 	no LIBOR Interest Period may end later than the termination of
this Agreement.

“LIBOR Rate” means, relative to any LIBOR Interest Period, the offered rate for deposits of
U.S. Dollars in an amount approximately equal to the amount of the requested LIBOR Rate Loan for a
term coextensive with the designated LIBOR Interest Period which the British Bankers’ Association
fixes as its LIBOR rate as of 11:00 a.m. London time on the day which is two London Banking Days
prior to the beginning of such LIBOR Interest Period. If such day is not a London Banking Day, the
LIBOR Rate shall be determined on the next preceding day which is a London Banking Day. If for any
reason the Lender cannot determine such offered rate by the British Bankers’ Association, the
Lender may, in its discretion, select a replacement index based on the arithmetic mean of the
quotations, if any, of the interbank offered rate by first class banks in London or New York for
deposits in comparable amounts and maturities.

“LIBOR Rate Loan” means any loan or advance the rate of interest applicable to which is based
upon the LIBOR Rate.

“LIBOR Rate Margin” means 4.50% (450 basis points) per annum.

“LIBOR Reserve Percentage” means, relative to any day of any LIBOR Interest Period, the
maximum aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve
requirements (including all basic, emergency, supplemental, marginal and other reserves and taking
into account any transitional adjustments or other scheduled changes in reserve requirements) under
any regulations of the Board of Governors of the Federal Reserve System (the “Board”) or other
governmental authority having jurisdiction with respect thereto as issued from time to time and
then applicable to assets or liabilities consisting of “Eurocurrency Liabilities”, as currently
defined in Regulation D of the Board, having a term approximately equal or comparable to such LIBOR
Interest Period.

“Lien” means any mortgage, deed of trust, pledge, lien, security interest, charge or other
encumbrance or security arrangement of any nature, including, but not limited to, any conditional
sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as,
or having the effect of, security.

“Loan” or “Loans” means the Revolving Credit Loans or any loan or advance made by the Lender
to the Borrowers under this Agreement.

 

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“Loan Document” or “Loan Documents” mean, singularly or collectively as the context may
require, (i) this Agreement, (ii) the Notes, (iii) the Security Agreements, (iv) the UCC-1
financing statements filed in accordance with the Security Agreements, (v) the Patent Security
Agreements, (vi) the Trademark Security Agreements, (vii) the Pledge Agreements, (viii) the
Negative Pledge – Real Estate, (ix) the Subordination Agreement, and any and all other documents,
instruments, certificates and agreements executed and delivered in connection with this Agreement,
as any of them may be amended, modified, extended or supplemented from time to time.

“London Banking Day” means a day on which dealings in US dollars deposits are transacted in
the London interbank market.

“Material Adverse Change” means any set of circumstances or events which (a) has or could
reasonably be expected to have any material adverse effect whatsoever upon the validity or
enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected
to be material and adverse to the business, properties, assets, financial condition, results of
operations or prospects of a Borrower, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Borrowers to duly and punctually pay or perform its
Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the
ability of the Lender, to the extent permitted, to enforce its legal remedies pursuant to this
Agreement or any other Loan Document.

“Maturity Date” means, unless accelerated sooner pursuant to the terms of this Agreement, the
third anniversary of the Closing Date (or if such date shall not be a Business Day, then the next
succeeding Business Day), or such later date to which the Lender may extend the Revolving Credit
Commitment in its sole discretion.

“McDowell Research” means McDowell Research Co., Inc., a Delaware corporation, with its chief
executive offices located at 2000 Technology Parkway, Newark, New York 14513.

“NOLV Percentage” shall mean the fraction, expressed as a percentage, (a) the numerator of
which is the amount equal to the amount of the recovery in respect of the Inventory at such time on
a “net orderly liquidation value” basis as set forth in the most recent acceptable appraisal of
Inventory received by Lender in accordance with Section 6.01(l), net of operating expenses,
liquidation expenses and commissions, and (b) the denominator of which is the applicable original
cost of the aggregate amount of the Inventory subject to such appraisal.

“Note” or “Notes” mean the Revolving Credit Note and any other note or notes of the Borrowers
executed and delivered pursuant to this Agreement, together with all extensions, renewals,
refinancings or refundings in whole or in part.

 

- 13 -

 

“Obligations” shall mean and include any and all loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrowers (or any one or more of them) to the Lender
or to any other direct or indirect subsidiary or affiliate of the Lender of any kind or nature,
present or future (including, without limitation, any interest accruing thereon after maturity, or
after the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to any Borrower, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding), whether or not evidenced by any note,
guaranty or other instrument, whether arising under any agreement, instrument or
document, (including, without limitation, this Agreement and the other Loan Documents) whether or
not for the payment of money, whether arising by reason of an extension of credit, opening of a
letter of credit, loan, equipment lease or guarantee, under any Hedge Agreement, or in any other
manner, whether arising out of overdrafts or deposit or other accounts or electronic funds
transfers (whether through automated clearing houses or otherwise) or out of the Lender’s
non-receipt of or inability to collect funds or otherwise not being made whole in connection with
depository transfer check or other similar arrangements, whether direct or indirect (including
those acquired by assignment or participation), absolute or contingent, joint or several, due or to
become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated,
regardless of how such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, including, but not limited
to, any and all of any Borrowers’ indebtedness and/or liabilities under this Agreement, the other
Loan Documents or under any other agreement between the Lender and any Borrower and any amendments,
extensions, renewals or increases and all costs and expenses of the Lender incurred in the
documentation, negotiation, modification, enforcement, collection or otherwise in connection with
any of the foregoing, including but not limited to reasonable attorneys’ fees and expenses and all
obligations of any Borrower to the Lender to perform acts or refrain from taking any action.

“Office,” when used in connection with the Lender, means its office located at 525 William
Penn Place, Mailstop 153-2470, Pittsburgh, Pennsylvania 15219, or such other office of the Lender
as the Lender may designate in writing from time to time.

“Official Body” means any government or political subdivision or any agency, authority,
bureau, central lender, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

“Other Subsidiaries” means, as of the date of this Agreement, each direct and indirect
Subsidiary of Ultralife not a party to this Agreement. As of the date of this Agreement, Able New
Energy – Hong Kong, Able New Energy – China, Ultralife UK and Ultralife India are Other
Subsidiaries.

“PBGC” means the Pension Benefit Guaranty Corporation.

“Permitted Encumbrances” has the meaning assigned to that term in Section 7.01 of this
Agreement.

“Person” shall mean any individual, sole proprietorship, partnership, corporation, business
trust, joint stock company, trust, unincorporated organization, association, limited liability
company, institution, public benefit corporation, joint venture, entity or government (whether
Federal, state, county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof).

 

- 14 -

 

“Plan” means any deferred compensation program, including both single and multiemployer plans,
subject to Title IV of ERISA and established and maintained for employees of Ultralife or any
Subsidiary or any controlled group of trades or businesses under common
control as defined respectively in Sections 1563 and 414(c) of the Internal Revenue Code of 1986,
as amended, of which Ultralife or any Subsidiary is or becomes a part.

“Pledge Agreements” shall mean all of and “Pledge Agreement” shall mean any one of, as the
context may require, (i) the Pledge Agreement dated on or about the date hereof, executed and
delivered to Lender by Ultralife relating to the shares of Able Energy-Hong Kong, Ultralife-UK and
Ultralife-India; (ii) any supplemental pledge agreements required under the laws of the respective
jurisdictions of Able Energy-Hong Kong, Ultralife-UK and Ultralife-India in connection with the
Pledge Agreement described in the foregoing clause (i); and (iii) any other Pledge Agreement
executed and delivered to Lender by any Borrower, Guarantor or other Person pursuant to the terms
of this Agreement, as each such agreement may be amended, modified or supplemented from time to
time.

“Potential Default” means any event or condition which with notice or the passage of time
would constitute an Event of Default.

“Prime Rate” shall mean a rate per annum equal to the rate of interest announced by the Lender
Affiliate in Pittsburgh, Pennsylvania from time to time as its “Prime Rate”. Any change in the
Prime Rate shall be effective immediately from and after such change in the Prime Rate. Interest
accruing by reference to the Prime Rate shall be calculated on the basis of actual days elapsed and
a 360-day year. The Borrowers acknowledge that the Lender may make loans to its customers above,
at or below the Prime Rate.

“RedBlack Communications” means RedBlack Communications, Inc., a Maryland corporation, with
its chief executive offices located at 44180 Airport View Drive, Hollywood, Maryland 20636.

“Revolving Credit Commitment” means Thirty Five Million Dollars ($35,000,000).

“Revolving Credit Loans” has the meaning assigned to that term in Section 2.01 of this
Agreement.

“Revolving Credit Note” means the Revolving Credit Note of the Borrowers executed and
delivered pursuant to Section 2.02 of this Agreement, together with all amendments, extensions,
renewals, refinancings or refundings in whole or in part.

“Revolving Credit Usage” means at any time the sum of the Revolving Credit Loans outstanding,
plus the aggregate undrawn face amount of any outstanding Letters of Credit.

“Security Agreements” shall mean all of, and “Security Agreement” shall mean any one of, as
the context may require, (i) the Security Agreement dated on or about the date hereof, executed and
delivered to Lender by McDowell Research, (ii) the Security Agreement dated on or about the date
hereof, executed and delivered to Lender by Red Black Communications, (iii) the Security Agreement
dated on or about the date hereof, executed and delivered to Lender by Stationary Power Services,
and (iv) any Security Agreement executed and delivered to the Lender by any Borrower, Guarantor or
other Person pursuant to the terms of this Agreement, as each such agreement may be amended,
modified or supplemented from time to time.

 

- 15 -

 

“Solvent” shall mean, with respect to any person or entity on a particular date, that on such
date (i) the fair value of the property of such person or entity is greater than the total amount
of liabilities, including, without limitation, contingent liabilities, of such person or entity,
(ii) the present fair saleable value of the assets of such person or entity is not less than the
amount that will be required to pay the probable liability of such person or entity on its debts as
they become absolute and matured, (iii) such person or entity is able to realize upon its assets
and pay its debts and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such person or entity does not intend to, and does
not believe that it will, incur debts or liabilities beyond such person’s or entity’s ability to
pay as such debts and liabilities mature, and (v) such person or entity is not engaged in business
or a transaction, and is not about to engage in business or a transaction, for which such person’s
or entity’s property would constitute unreasonably small capital after giving due consideration to
the prevailing practice in the industry in which such person or entity is engaged. In computing
the amount of contingent liabilities at any time, it is intended that such liabilities will be
computed at the amount which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or matured liability.

“Start Date” has the meaning assigned to that term in the definition of “LA Interest Period”
above.

“Stationary Power Services” means Stationary Power Services, Inc., a Florida corporation, with
its chief executive offices located at 4902 113th Avenue North, Clearwater, Florida 33760.

“Subordination Agreement” means the Subordination Agreement dated on or about the date of this
Agreement, as amended, modified or supplemented from time to time, executed and delivered by and
among William Maher, the Lender and Ultralife, pursuant to which all sums due to William Maher by
Ultralife under that certain Amended and Restated Three-Year Subordinated Convertible Promissory
Note dated March 28, 2009 shall be subordinated to the prior payment of all sums due to the Lender.

“Subsidiary” means any corporation or other entity of which a majority of the outstanding
capital stock or other ownership interests entitled to vote for the election of directors, or other
Persons performing similar functions for such entity, is at such time directly or indirectly owned
by a Borrower.

“Ultralife” means Ultralife Corporation, a Delaware corporation, with its chief executive
offices located at 2000 Technology Parkway, Newark, New York 14513.

“Ultralife India” means Ultralife Batteries India Private Limited, a company organized under
the laws of India.

“Ultralife UK” means Ultralife Batteries (UK) Ltd., a company organized under the laws of the
United Kingdom.

 

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“Unassigned US Account” has the meaning assigned to that term in subsection (j) of the
definition of “Eligible Accounts” above.

1.02 Construction. Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the other Loan Documents:
(a) references to the plural include the singular, the plural, the part and the whole, “or” has
the inclusive meaning represented by the phrase “and/or,” and “including” has the meaning
represented by the phrase “including, without limitation”; (b) the words “hereof,” “herein,”
“hereunder,” “hereto” and similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular provision of this
Agreement or such other Loan Document; (c) the section and other headings contained in this
Agreement or such other Loan Document and the Table of Contents (if any), preceding this Agreement
or such other Loan Document are for reference purposes only and shall not control or affect the
construction of this Agreement or such other Loan Document or the interpretation thereof in any
respect; (d) article, section, subsection, clause, schedule and exhibit references are to this
Agreement or other Loan Document, as the case may be, unless otherwise specified; and (e) reference
to any agreement (including this Agreement and any other Loan Document, together with the schedules
and exhibits hereto or thereto), document or instrument means such agreement, document or
instrument as amended, modified, replaced, substituted for, superseded or restated.

1.03 Accounting Principles. Except as otherwise provided in this Agreement, all computations
and determinations as to accounting or financial matters and all financial statements to be
delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), and all accounting or financial terms shall have
the meanings ascribed to such terms by GAAP.

ARTICLE II

REVOLVING CREDIT FACILITY

2.01 Revolving Credit Loans. Subject to the terms and conditions and relying upon the
representations and warranties set forth in this Agreement and the other Loan Documents, the Lender
agrees to make revolving credit loans (the “Revolving Credit Loans”) to the Borrowers at any time
or from time to time on or after the Closing Date to and including the Business Day immediately
preceding the Maturity Date in an aggregate principal amount not exceeding at any one time
outstanding the Borrowing Base. If at any time the sum of all Revolving Credit Loans outstanding,
the outstanding Letters of Credit exceeds the Borrowing Base, the Borrowers shall immediately repay
to the Lender, in funds immediately available, the amount of such excess, together with all accrued
interest on the amount of such repayment. Subject to the provisions of this Agreement, the
Borrowers may borrow, repay and reborrow under this Section 2.01. Unless the Lender, in its sole
discretion, shall have agreed to extend the Maturity Date of the revolving credit facility, the
revolving credit
facility established pursuant to this Section 2.01 shall terminate and the Revolving Credit Loans
shall be due and payable on the Maturity Date. The Borrowers shall use the proceeds of the
Revolving Credit Loans for general working capital, general corporate purposes, letter of credit
support and to refinance the outstanding obligations under its credit facility with the Existing
Lender.

 

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2.02 Revolving Credit Note. The obligations of the Borrowers to repay the unpaid principal
amount of the Revolving Credit Loans made to the Borrowers by the Lender and to pay interest on the
unpaid principal amount will be evidenced in part by the Revolving Credit Note of the Borrowers
dated the Closing Date, in substantially the form attached as Exhibit “A” to this
Agreement, with the blanks appropriately filled. The executed Revolving Credit Note will be
delivered by the Borrowers to the Lender on the Closing Date.

2.03 Borrowing Base. The maximum borrowing availability under this Agreement applicable to
the Revolving Credit Loans shall be equal on any day during the term of this Agreement to the
lesser of (i) the Revolving Credit Commitment, or (ii) an amount equal to the sum of up to
eighty-five percent (85%) of the aggregate book value of Eligible Accounts of each Borrower, plus
the lesser of (x) up to seventy percent (70%) of the aggregate book value of Eligible Inventory of
each Borrower, or (y) eighty five percent (85%) of the NOLV Percentage applicable to each category
of Eligible Inventory of each Borrower; provided, however, that in no event shall the portion of
the Revolving Credit Loans based on Eligible Inventory of all of the Borrowers exceed the Eligible
Inventory Sublimit (the lesser of the amounts described in clauses (i) and (ii) of this sentence is
sometimes referred to in this Agreement as the “Borrowing Base”). The maximum borrowing
availability of Revolving Credit Loans for each Borrower under this Agreement shall be limited to
the amount of the borrowing base availability as shown on the most recent Borrowing Base
Certificate received by the Lender for such Borrower. The Borrowing Base shall be further reduced
by (i) the face amount of any Letters of Credit outstanding as of the date of the determination,
(ii) in the Lender’s sole discretion, the outstanding Hedging Obligations, and (iii) any other
reserve or reserves created and maintained by the Lender from time to time and in its sole
discretion to reflect events, conditions, contingencies or risks which effect the Eligible Accounts
or the Eligible Inventory or otherwise affect the assets, business, operations or financial
condition of the Borrowers.

2.04 Making of Revolving Credit Loans.

(a) LIBOR Advantage Loan Request. By delivering a borrowing request to the Lender on or
before 10:00 a.m., New York time, on a Business Day, the Administrative Borrower may from time to
time irrevocably request, on not less than one nor more than three Business Days’ notice, that a
LIBOR Advantage Loan be made. On the terms and subject to the conditions of this Agreement, each
LIBOR Advantage Loan shall be made available to the Administrative Borrower no later than 11:00
a.m. New York time on the day the LIBOR Advantage Loan is made by deposit to the account of the
Administrative Borrower as shall have been specified in its borrowing request. Notwithstanding the
foregoing, the Administrative
Borrower may provide the Lender with written notice (in the form and with information required in
this Section 2.04) of any such borrowing request for a LIBOR Advantage Loan by telecopy on the day,
and by mail within one Business Day after the day, any such request is made. The Lender is
entitled to rely on any such request made in accordance with the terms of this Agreement.

 

- 18 -

 

(b) Conversion to LIBOR Rate Loans. By delivering a conversion notice to the Lender on or
before 10:00 a.m., New York time, on a Business Day, the Administrative Borrower may from time to
time irrevocably elect, on not less than two nor more than five Business Days’ notice, that all, or
any portion, in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000, of
any LIBOR Advantage Loan be converted on any day into a LIBOR Rate Loan, with a LIBOR Interest
Period of one, two or three months; provided, however, that no portion of the outstanding principal
amount of any LIBOR Advantage Loans may be converted to LIBOR Rate Loans when any Event of Default
has occurred and is continuing and provided, further, that all accrued interest on the principal
amount of any LIBOR Advantage Loan to be converted hereunder shall be paid in full.

(c) LIBOR Loan Request. By delivering a borrowing request to the Lender on or before 10:00
a.m., New York time, on a Business Day, the Administrative Borrower may from time to time
irrevocably request, on not less than two nor more than five Business Days’ notice, that a LIBOR
Rate Loan be made in a minimum amount of $1,000,000 and integral multiples of $500,000, with a
LIBOR Interest Period of one, two or three months. On the terms and subject to the conditions of
this Agreement, each LIBOR Rate Loan shall be made available to the Administrative Borrower no
later than 11:00 a.m. New York time on the first day of the applicable LIBOR Interest Period by
deposit to the account of the Administrative Borrower as shall have been specified in its borrowing
request.

(d) Continuation and Conversion Elections. By delivering a conversion notice to the Lender on
or before 10:00 a.m., New York time, on a Business Day, the Administrative Borrower may from time
to time irrevocably elect, on not less than two nor more than five Business Days’ notice, that all
or any portion of any LIBOR Rate Loan, in an aggregate minimum amount of $1,000,000 and integral
multiples of $500,000 be converted on the last day of a LIBOR Interest Period into a LIBOR Rate
Loan with a different LIBOR Interest Period; provided, however, that no portion of
the outstanding principal amount of any LIBOR Rate Loan may be converted to, or be continued as, a
LIBOR Rate Loan when any Event of Default has occurred and is continuing, and no portion of the
outstanding principal amount of any LIBOR Rate Loan may be converted to LIBOR Rate Loan of a
different duration if such LIBOR Rate Loan relates to any Hedging Obligation. In the absence of
delivery of a conversion notice with respect to any LIBOR Rate Loan at least two Business Days
before the last day of the then current LIBOR Interest Period with respect thereto, such LIBOR Rate
Loan shall, on such last day, automatically continue as a LIBOR Rate Loan with the same LIBOR
Interest Period.

(e) Appointment of Administrative Borrower.

(i) Each Borrower hereby irrevocably appoints and constitutes the Administrative
Borrower as its agent and attorney-in-fact to request and receive Loans
and Letters of Credit pursuant to this Agreement and the other Loan Documents from
Lender in the name or on behalf of such Borrower. Lender may disburse the Loans to such bank
account of the Administrative Borrower or a Borrower or otherwise make such Loans to a
Borrower and provide such Letters of Credit to a Borrower as the Administrative Borrower may
designate or direct, without notice to any other Borrowers or Guarantor. Notwithstanding
anything to the contrary contained herein, Lender may at any time and from time to time
require that Loans to or for the account of any Borrower be disbursed directly to an
operating account of such Borrower.

 

- 19 -

 

(ii) The Administrative Borrower hereby accepts the appointment by the Borrowers to act
as the agent and attorney-in-fact of the Borrowers pursuant to this Section 2.04(e). The
Administrative Borrower shall ensure that the disbursement of any Loans to each Borrower
requested by or paid to or for the account of Parent, or the issuance of any Letter of
Credit for a Borrower hereunder, shall be paid to or for the account of such Borrower.

(iii) Each Borrower and Guarantor hereby irrevocably appoints and constitutes the
Administrative Borrower as its agent to receive statements on account and all other notices
from the Lender with respect to the Obligations or otherwise under or in connection with
this Agreement and the other Loan Documents.

(iv) Any notice, election, representation, warranty, agreement or undertaking by or on
behalf of any other Borrower or Guarantor by the Administrative Borrower shall be deemed for
all purposes to have been made by such Borrower or Guarantor, as the case may be, and shall
be binding upon and enforceable against such Borrower or Guarantor to the same extent as if
made directly by such Borrower or Guarantor.

(v) No purported termination of the appointment of the Administrative Borrower as agent
as aforesaid shall be effective, except after ten (10) days’ prior written notice to the
Lender.

2.05 Letters of Credit Subfacility. (a) Subject to the conditions and on the terms
hereinafter set forth in this Agreement, and in reliance upon the representations and warranties of
the Borrowers contained in Article IV, the Administrative Borrower may request the Issuing Bank to
(i) from time to time on any Business Day, during the period from the Closing Date to the day which
is five (5) Business Days prior to the Maturity Date, issue standby and documentary letters of
credit (“Letters of Credit”) for the account of a Borrower in an aggregate stated amount at any one
time that, together with the aggregate face or stated amount of all other outstanding Letters of
Credit issued pursuant hereto, does not exceed the L/C Commitment, and to amend or renew Letters of
Credit previously issued by it, and (ii) honor drafts under Letters of Credit; provided, that the
Issuing Bank shall not be obligated to issue, extend or renew any Letter of Credit if as of the
date of issuance, extension or renewal of such Letter of Credit (the “Issuance Date”) and after
giving effect to such issuance, extension or renewal, (A) the aggregate outstanding Revolving
Credit Loans exceeds the borrowing base availability as determined pursuant to Section 2.03 of this
Agreement, or (B) the
L/C Obligations exceed the L/C Commitment. If on any date the L/C Obligations exceed the L/C
Commitment, the Borrowers shall immediately, without further notice or demand by the Lender, prepay
the outstanding principal amount of the Revolving Credit Loans by an amount equal to the applicable
excess. Within the foregoing limits, and subject to the other terms and conditions hereof; the
Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the
Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit
which have expired or which have been drawn upon and reimbursed.

 

- 20 -

 

(b) Neither the Lender nor the Issuing Bank is under any obligation to, and shall not, issue,
extend or renew any Letter of Credit if:

(i) any order, judgment or decree of any Official Body or arbitrator shall by its terms
purport to enjoin or restrain the Issuing Bank from issuing such Letter of Credit, or any
requirement or obligation under any Law applicable to the Lender or any request or directive
(whether or not having the force of law) from any Official Body with jurisdiction over the
Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall impose upon the
Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital
requirement (for which the Lender is not otherwise compensated hereunder) not in effect on
the Closing Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or
expense which was not applicable on the Closing Date and which the Issuing Bank in good
faith deems material to it;

(ii) on or prior to the Business Day prior to the requested date of issuance, extension
or renewal of such Letter of Credit, one or more of the applicable conditions contained in
Article V is not then satisfied;

(iii) such Letter of Credit is a standby Letter of Credit, the expiration date of such
standby Letter of Credit would be (A) more than one year after the Issuance Date, or (B)
after the date which is five (5) Business Days prior to the Maturity Date;

(iv) such Letter of Credit is a merchandise Letter of Credit, the expiration date of
the requested merchandise Letter of Credit is (A) more than ninety days after the Issuance
Date, or (B) after the date which is five (5) Business Days prior to the Maturity Date;

(v) the requested Letter of Credit does not provide for drafts, or is not otherwise in
form and substance acceptable to the Lender and the Issuing Bank, or the issuance of a
Letter of Credit shall violate any applicable policies of the Lender or the Issuing Bank; or

(vi) such Letter of Credit is to be denominated in a
currency other than U.S. Dollars.

 

- 21 -

 

2.06 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter of Credit shall
be issued upon the irrevocable written request of the Administrative Borrower received by the
Lender at least three (3) Business Days (or such shorter time as the Lender may agree in a
particular instance in its sole discretion) prior to the proposed date of issuance. Each such
request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an
original writing, in the form of an L/C Application (or such other form as shall be acceptable to
the Issuing Bank), and shall specify in form and detail satisfactory to the Lender and the Issuing
Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day);
(ii) the face amount of the Letter of Credit; (iii) the expiration date of the Letter of Credit;
(iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the
beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such
other matters as the Issuing Bank may require.

(b) Unless such issuance is not then permitted under Section 2.05(b) or one or more conditions
specified in Article V are not then satisfied, the Issuing Bank shall, subject to the terms and
conditions hereof, issue a Letter of Credit for the account of a Borrower on the requested Issuance
Date in accordance with the Issuing Bank’s usual and customary business practices.

(c) From time to time while a Letter of Credit is outstanding and prior to the Maturity Date,
the Lender will, upon the written request of the Administrative Borrower received by the Lender at
least three (3) Business Days (or such shorter time as the Lender may agree in a particular
instance in its sole discretion) prior to the proposed date of amendment, cause the Issuing Bank to
amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit
shall be made by facsimile, confirmed immediately in an original writing, made in the form of an
L/C Application and shall specify in form and detail satisfactory to the Lender and the Issuing
Bank the following: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of
the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment;
and (iv) such other matters as the Issuing Bank may require. The Lender and the Issuing Bank shall
be under no obligation to amend any Letter of Credit if (x) the Lender and the Issuing Bank would
have no obligation at such time to issue such Letter of Credit in its amended form under the terms
of this Agreement; or (y) the beneficiary of any such Letter of Credit does not accept the proposed
amendment to the Letter of Credit.

(d) The Lender agrees that, while a Letter of Credit is outstanding and prior to the Maturity
Date, at the option of the Borrower for which the Letter of Credit is issued and upon the written
request of the Administrative Borrower received by the Lender at least three (3) Business Days (or
such shorter time as the Lender may agree in a particular instance in its sole discretion) prior to
the proposed date of notification of renewal, the Lender may cause the Issuing Bank to renew the
Letter of Credit issued by it as requested by the Administrative Borrower. Each such request for
renewal of a Letter of Credit shall be made by facsimile, confirmed immediately in an original
writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to
the Lender and the Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of
notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised
expiration date of the Letter of Credit; and (iv) such other matters as the Issuing Bank may
require. The Lender and the Issuing Bank shall be under
no obligation so to renew any Letter of Credit if (A) the Lender and the Issuing Bank would
have no obligation at such time to issue or amend such Letter of Credit in its renewed form under
the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept
the proposed renewal of the Letter of Credit. If any outstanding Letter of Credit shall provide
that it shall be automatically renewed unless the beneficiary thereof receives notice from the
Issuing Bank that such Letter of Credit shall not be renewed, and if at the time of renewal the
Issuing Bank would be entitled to authorize the automatic renewal of such Letter of Credit in
accordance with this Section 2.06 upon the request of the Administrative Borrower but the Issuing
Bank shall not have received any L/C Application from the Administrative Borrower with respect to
such renewal or other written direction by the Administrative Borrower with respect thereto, the
Issuing Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and the
Administrative Borrower and the Lender hereby authorize such renewal, and, accordingly, the Issuing
Bank shall be deemed to have received an L/C Application from the Administrative Borrower
requesting such renewal.

 

- 22 -

 

(e) The Issuing Bank may, at its election, deliver any notices of termination or other
communications to any Letter of Credit beneficiary or transferee, and take any other action as
necessary or appropriate, at any time and from time to time, in order to cause the expiration date
of such Letter of Credit to be a date not later than the date which is five (5) Business Days prior
to the Maturity Date.

(f) This Agreement shall control in the event of any irreconcilable conflict with any
L/C-Related Document (other than an issued Letter of Credit).

2.07 Drawings and Reimbursements. (a) In the event of any request for a drawing under a
Letter of Credit by the beneficiary or transferee thereof, the Lender will promptly notify the
Administrative Borrower in writing of such request. The Borrowers shall reimburse the Lender prior
to 10:00 a.m. (prevailing time in Pittsburgh, Pennsylvania), on each date that any amount is paid
by the Issuing Bank under any Letter of Credit in the amount so paid by the Issuing Bank. In the
event the Borrowers fail to reimburse the Issuing Bank in the full amount of any drawing under any
Letter of Credit by 10:00 a.m. (prevailing time in Pittsburgh, Pennsylvania) on the date of such
draw, the Borrowers shall be deemed to have requested that a Revolving Credit Loan in an amount
equal to such unreimbursed amount be made by the Lender to be disbursed as of the date of the
drawing under such Letter of Credit, subject to the amount of the unutilized portion of the
Revolving Credit Commitment and subject to the conditions set forth in Section 5.02.

(b) With respect to any unreimbursed drawing that is not converted into a Revolving Credit
Loan because of the Borrowers’ failure to satisfy the conditions set forth in Section 5.02 or for
any other reason, the Borrowers shall be deemed to have incurred from the Lender an extension of
credit in the amount of such drawing and such amount shall be due and payable on demand (together
with interest) and shall bear interest at a rate per annum equal to the LIBOR Advantage Rate plus
the LIBOR Rate Margin plus two percent (2.0%).

2.08 Role of Issuing Bank. (a) The Lender and the Borrowers agree that, in paying any drawing
under a Letter of Credit, the Issuing Bank shall
not have any responsibility to obtain any document (other than any sight draft, other
documents and certificates expressly required by the Letter of Credit) or to ascertain or inquire
as to the validity or accuracy of any such document or the authority of the person or entity
executing or delivering any such document (other than to determine that the sight draft, other
documents and certificates required to be delivered comply on their face with the requirements of
the applicable Letter of Credit).

 

- 23 -

 

(b) The Borrowers hereby assume all risks of the acts or omissions of any beneficiary or
transferee with respect to its use of any Letter of Credit; provided, however, that this assumption
is not intended to, and shall not, preclude any of the Borrower’s pursuing such rights and remedies
as it may have against the beneficiary or transferee at law or under any other agreement. Neither
the Lender, the Issuing Bank, any of the Lender Affiliates, nor any of the respective
correspondents, participants or assignees of the Lender or the Issuing Bank, shall be liable or
responsible for any of the matters described in clauses (i) through (vii) of Section 2.09;
provided, however, anything in such clauses to the contrary notwithstanding, that a Borrower may
have a claim against the Issuing Bank, and the Issuing Bank may be liable to such Borrower, to the
extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages as
determined by a final judgment of a court of competent jurisdiction to have been caused by the
Issuing Bank’s willful misconduct or gross negligence or the Issuing Bank’s willful failure to pay
under any Letter of Credit after the presentation to it by the beneficiary of a sight draft, other
documents and certificates strictly complying with the terms and conditions of a Letter of Credit.
In furtherance and not in limitation of the foregoing: (i) the Issuing Bank may accept documents
that appear on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary; and (ii) the Issuing Bank shall not be
responsible for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

2.09 Obligations Absolute. The obligations of the Borrowers under this Agreement and any
L/C-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to
repay the Lender for any drawing under a Letter of Credit converted into Revolving Credit Loans,
shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of
this Agreement and each such other L/C-Related Document under all circumstances, including the
following:

(i) any lack of validity or enforceability of this Agreement or any L/C Related
Document;

(ii) any change in the time, manner or place of payment of, or in any other term of,
all or any of the obligations of the Borrowers in respect of any Letter of Credit or any
other amendment or waiver of or any consent to departure from all or any of such obligation;

(iii) the existence of any claim, set-off, defense or other right that any of the
Borrowers may have at any time against any beneficiary or any transferee of any Letter
of Credit (or any person or entity for whom any such beneficiary or any such transferee
may be acting), the Lender, the Issuing Bank or any other person or entity, whether in
connection with this Agreement, the transactions contemplated hereby or by the L/C-Related
Documents or any unrelated transaction;

 

- 24 -

 

(iv) any draft, demand, certificate or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect unless the Issuing Bank has
prior knowledge thereof or any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit;

(v) any payment by the Issuing Bank under any Letter of Credit against presentation of
a draft or certificate that does not strictly comply with the terms of any Letter of Credit;
or any payment made by the Issuing Bank under any Letter of Credit to any person or entity
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative of or successor to any beneficiary
or any transferee of any Letter of Credit, including any arising in connection with any
bankruptcy or insolvency proceeding;

(vi) any exchange, release or non-perfection of any collateral, or any release or
amendment or waiver of or consent to departure from any other guarantee, for all or any of
the obligations of the Borrowers in respect of any Letter of Credit; or

(vii) any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing, including any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrowers or any Guarantor;

provided, however, the foregoing shall not be construed to restrict or otherwise limit any claim a
Borrower may have against the Lender, the Issuing Bank or any correspondent, participant or
assignee of the Lender or the Issuing Bank permitted under Section 2.08(b).

2.10 Cash Collateral. Upon (i) the request of the Lender, (A) if the Issuing Bank has honored
any full or partial drawing request on any Letter of Credit and such drawing has resulted in an
Revolving Credit Loan hereunder, or (B) if, as of the Maturity Date, any Letters of Credit may for
any reason remain outstanding and partially or wholly undrawn, (ii) the occurrence of the
circumstances described in Section 2.05 requiring the Borrowers to provide cash collateral to the
Lender, or (iii) the termination of the Revolving Credit Commitment, then, the Borrowers shall
immediately upon demand from the Lender, pledge and deposit with or deliver to the Lender cash or
deposit account balances in separate blocked accounts pursuant to documentation in form and
substance satisfactory to the Lender in an amount equal to the L/C Obligations (“Cash Collateral”).
The Lender shall have exclusive dominion and control over such account, including the exclusive
right to withdraw Cash Collateral for application to the L/C Obligations. Other than any interest
earned on the investment of such deposit, which investments shall be made at the option and sole
discretion of the Lender, such deposits shall not bear interest. Interest or profits, if any, on
such investments shall accumulate in such account. Any cash collateral provided by the Borrowers
hereunder (to
the extent not applied as aforesaid) shall be returned to the Administrative Borrower within
three (3) Business Days after all Events of Default have been cured or waived.

 

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2.11 Letter of Credit Fees. The Borrowers shall pay to the Lender Letter of Credit Fees at
the times and in the amounts as provided for in Section 3.07, and the Borrower shall also pay to
the Lender or the Issuing Bank from time to time on demand the normal issuance, presentation,
amendment and other processing fees, and other standard costs and charges, of the Lender or the
Issuing Bank relating to Letters of Credit as from time to time are in effect.

2.12 Hedging Contracts. Subject to the terms and conditions hereof, any applicable Hedging
Contract and any applicable Laws, a Lender Affiliate and a Borrower may from time to time enter
into interest rate protection, currency exchange and other derivative transactions in the ordinary
course of the Borrower’s business. The Administrative Borrower may request the Lender Affiliate to
enter into any such interest rate protection, currency exchange and other derivative transaction by
delivering to Lender Affiliate at the Lender Affiliate’s Office, Lender Affiliate’s form of Hedging
Contract, completed to the satisfaction of the Lender Affiliate, and, such other certificates,
documents and other papers and information as Lender may reasonably request. A Borrower may not,
however, enter into any Hedging Contract to the extent that the amount of any resulting Hedging
Obligation would then cause the sum of (i) the outstanding Revolving Credit Loans plus (ii)
outstanding Letters of Credit plus (iii) outstanding Hedging Obligations to exceed the Borrowing
Base. All disbursements or payments related to Hedging Obligations shall be deemed to be Revolving
Credit Loans and shall bear interest at the interest rate or rates determined in accordance with
Section 3.01 of this Agreement.

ARTICLE III

INTEREST RATES; FEES; PAYMENTS; INDEMNITIES

3.01 Interest Rates. (a) Interest on the outstanding principal amount of each Revolving
Credit Loan, when classified as a: (i) LIBOR Rate Loan, shall accrue during each LIBOR Interest
Period at a rate per annum equal to the sum of the Adjusted LIBOR Rate for such LIBOR Interest
Period plus the LIBOR Rate Margin, and be due and payable on each Interest Payment Date and on the
Maturity Date, and (ii) LIBOR Advantage Loan, shall accrue at a rate per annum equal to the sum of
the LIBOR Advantage Rate for such LA Interest Period plus the LA Margin, and be due and payable on
each LA Interest Payment Date and on the Maturity Date. Interest on a LIBOR Advantage Loan shall
be calculated for the actual number of days elapsed on the basis of a 360-day year, including the
first day of the applicable period to, but not including, the date of repayment. The Borrowers
shall not have the option to select a LIBOR Rate Loan with respect to the Loans to be made on the
Closing Date but may thereafter convert all or any portion to one or more LIBOR Rate Loans in
accordance with the terms of this Article III.

(b) The interest rates under Section 3.01(a) above hereof shall from time to time be increased
or decreased, as the case may be, based on the then applicable Excess Availability and in
accordance with the following pricing grid:

	 	 	 
	Excess Availability	 	LIBOR Rate Plus
	 
	 	 
	Greater than $10,000,000

	 	400 basis points
	 
	 	 
	Greater than $7,500,000 but less
than or equal to $10,000,000

	 	425 basis points
	 
	 	 
	Greater than $5,000,000 but less
than or equal to $7,500,000

	 	450 basis points
	 
	 	 
	Greater than $3,000,000 but less
than or equal to $5,000,000

	 	475 basis points

 

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The Excess Availability shall be determined as of the end of each quarter, commencing as of the end
of the fourth fiscal quarter following the Closing Date. The Excess Availability shall be as shown
on the financial statements and certificates to be delivered pursuant to Section 6.01 hereof. Any
interest rate adjustments made based on the foregoing pricing grid shall be applicable to the
Borrowers only for so long as the applicable Excess Availability (as shown on the foregoing pricing
grid) is maintained and, in the event the applicable Excess Availability is no longer maintained,
the interest rates under Section 3.01(a) above shall increase or decrease to the rates applicable
to the Excess Availability achieved by the Borrowers. Any applicable reduction or increase shall
be effective as of the first Business Day of the month following receipt by the Lender of the
financial statements and certificate showing the Excess Availability, provided that in the event
the financial statements and certificates are not timely delivered, any rate reduction then in
effect shall be immediately discontinued as of the day such documents were due until the first
Business Day of the month following receipt by the Lender of proper documents indicating that a
reduction is applicable.

3.02 Interest After Default. To the extent permitted by Law, upon the occurrence of an Event
of Default and until such time such Event of Default shall have been cured or waived:

(a) the rate of interest for each Loan and the Letter of Credit Fees otherwise respectively
applicable pursuant to Section 3.01 or Section 3.07 shall be increased by two percent (2.0%) per
annum (until, in the case of LIBOR Rate Loans, the expiration of the applicable Interest Period);
and

(b) each other Obligation hereunder if not paid when due shall bear interest at a rate per
annum equal to the sum of the rate of interest applicable to LIBOR Advantage Loan plus two percent
(2.0%) per annum from the time such Obligation becomes due and payable and until it is paid in
full.

(c) The Borrowers acknowledge that such increased rates reflect, among other things, the fact
that such Loans or other amounts have become a substantially greater risk given their default
status and that the Lender is entitled to additional compensation for such risk; and, all such
interest shall be payable by Borrowers upon demand by Lender.

3.03 Usury. In the event the rates of interest provided for in Section 3.01 above or any of
them are finally determined by any Official Body to exceed the maximum rate of interest permitted
by applicable usury or similar Laws, their or its application will be suspended and there will be
charged instead the maximum rate of interest permitted by such Laws.

 

- 27 -

 

3.04 LIBOR Rate Lending Unlawful. If the Lender shall determine (which determination shall,
upon notice thereof to the Administrative Borrower be conclusive and binding on the Borrowers) that
the introduction of or any change in or in the interpretation of any law, rule, regulation or
guideline, (whether or not having the force of law) makes it unlawful, or any central bank or other
governmental authority asserts that it is unlawful, for the Lender to make, continue or maintain
any LIBOR Rate Loan as, or to convert any loan into, a LIBOR Rate Loan of a certain duration, the
obligations of the Lender to make, continue, maintain or convert into any such LIBOR Rate Loans
shall, upon such determination, forthwith be suspended until the Lender shall notify the
Administrative Borrower that the circumstances causing such suspension no longer exist, and all
LIBOR Rate Loans of such type shall automatically convert into loans accruing interest at the Prime
Rate plus the LIBOR Margin at the end of the then current LIBOR Interest Periods with respect
thereto or sooner, if required by such law or assertion.

3.05 Unavailability of LIBOR Rate. In the event that the Administrative Borrower shall have
requested a LIBOR Rate Loan in accordance with Section 2.04 and the Lender, in its sole discretion,
shall have determined that U.S. dollar deposits in the relevant amount and for the relevant LIBOR
Interest Period are not available to the Lender or the Lender Affiliate in the London interbank
market; or by reason of circumstances affecting the Lender or the Lender Affiliate in the London
interbank market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate
applicable to the relevant LIBOR Interest Period; or the LIBOR Rate no longer adequately and fairly
reflects the Lender’s cost of funding loans; upon notice from the Lender to the Administrative
Borrower, the obligations of the Lender under Section 2.04 to make or continue any loans as, or to
convert any loans into, LIBOR Rate Loans of such duration shall forthwith be suspended until the
Lender shall notify the Administrative Borrower that the circumstances causing such suspension no
longer exist.

3.06 Revolving Credit Fees.

(a) Facility Fee. On the Closing Date, the Borrowers shall pay the Lender, as consideration
for the commitment to extend a revolving credit facility pursuant to the terms of this Agreement, a
facility fee equal to $262,500 (0.75% of the Revolving Credit Commitment). Such facility fee shall
be deemed fully earned as of the Closing Date.

(b) Unused Line Fee. Accruing from the date hereof until the Maturity Date, the Borrowers
agree to pay to the Lender, as consideration for the Lender’s Revolving Credit Commitment
hereunder, a nonrefundable fee (the “Unused Line Fee”) equal to 0.50% per annum (computed on the
basis of a year of 360 days, as the case may be, and actual days elapsed) on the average daily
difference between the amount of such Lender’s Revolving Credit Commitment as the same may be
constituted from time to time and the Revolving Credit Usage. Unused Line Fees shall be payable
monthly in arrears on the last Business Day of each month and on the Maturity Date or upon
acceleration of the Notes.

 

- 28 -

 

3.07 Letter of Credit Fees. The Borrowers shall pay to Issuing Bank (i) fees for each standby
Letter of Credit for the period from and excluding the Issuance Date of same to and including the
date of expiration or termination, equal to the average daily face amount of each outstanding
standby Letter of Credit multiplied by four and one-half percent (4.50%) per annum (or the then
applicable LIBOR Rate Margin), such fees to be calculated on the basis of a 360-day year and shall
be paid quarterly in arrears commencing with the last Business Day of each March, June, September
and December following the issuance of each Letter of Credit and on the Maturity Date. Letters of
Credit with term less than one year shall be prorated, (ii) fees for each documentary Letter of
Credit equal to two percent (2.0%) of the face amount of each outstanding documentary Letter of
Credit, payable coincident with, and as a condition of, the issuance or renewal of each such
documentary Letter of Credit; and (iii) the Issuing Bank’s then in effect customary fees and
administrative expenses payable with respect to Letters of Credit (all of the foregoing fees, the
“Letter of Credit Fees”). All Letter of Credit Fees payable hereunder shall be deemed earned in
full on the date when the same are due and payable hereunder and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason.

3.08 Other Customary Fees. The Borrowers shall also pay to Lender for the Lender’s sole
account the Lender’s then in effect customary fees and administrative expenses payable with respect
to advances made under this Agreement as the Lender may generally charge or incur from time to time
in connection with the issuance, maintenance, modification (if any), assignment or transfer (if
any), negotiation and administration of the Loans.

3.09 LIBOR Breakage Fee. Upon: (i) any default by the Borrowers in making any borrowing of,
conversion into or continuation of any LIBOR Rate Loan following the Administrative Borrower’s
delivery of a borrowing request or continuation/conversion notice hereunder or (ii) any prepayment
of a LIBOR Rate Loan on any day that is not the last day of the relevant LIBOR Interest Period
(regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise),
the Borrowers shall pay an amount (“LIBOR Breakage Fee”), as calculated by the Lender, equal to the
amount of any losses, expenses and liabilities (including without limitation any loss of margin and
anticipated profits) that Lender may sustain as a result of such default or payment. The Borrowers
understand, agree and acknowledge that: (i) the Lender does not have any obligation to purchase,
sell and/or match funds in connection with the use of the LIBOR Rate as a basis for calculating the
rate of interest on a LIBOR Rate Loan, (ii) the LIBOR Rate may be used merely as a reference in
determining such rate, and (iii) the Borrowers have accepted the LIBOR Rate as a
reasonable and fair basis for calculating the LIBOR Breakage Fee and other funding losses
incurred by the Lender. The Borrowers further agree to pay the LIBOR Breakage Fee and other
funding losses, if any, whether or not the Lender elects to purchase, sell and/or match funds.

3.10 Repayments, Prepayments and Interest. (a) LIBOR Advantage Loans. Interest on
the LIBOR Advantage Loans will be due and payable on each LA Interest Payment Date and on the
Maturity Date.

(b) Repayments Continuations and Conversions. LIBOR Rate Loans shall mature and
become payable in full on the last day of the LIBOR Interest Period relating to such LIBOR Rate
Loan. Upon maturity, a LIBOR Rate Loan may be continued for an additional LIBOR Interest Period or
may be converted to LIBOR Advantage Loan.

 

- 29 -

 

(c) Voluntary Prepayment of LIBOR Rate Loans. LIBOR Rate Loans may be prepaid upon
the terms and conditions set forth in this Agreement. For LIBOR Rate Loans in connection with
which the Borrowers have or may incur Hedging Obligations, additional obligations may be associated
with prepayment, in accordance with the terms and conditions of the applicable Hedging Contracts.
The Administrative Borrower shall give the Lender, no later than 10:00 a.m., New York City time, at
least four (4) Business Days notice of any proposed prepayment of any LIBOR Rate Loans, specifying
the proposed date of payment of such LIBOR Rate Loans, and the principal amount to be paid. Each
partial prepayment of the principal amount of LIBOR Rate Loans shall be in an integral multiple of
$500,000 and accompanied by the payment of all charges outstanding on such LIBOR Rate Loans
(including the LIBOR Breakage Fee) and of all accrued interest on the principal repaid to the date
of payment.

3.11 Payments — Generally. (a) All payments to be made in respect of principal, interest,
fees or other amounts due from the Borrowers under this Agreement or under the Notes are payable at
3:00 p.m. E.S.T. on the day when due, without presentment, demand, protest or notice of any kind,
all of which are expressly waived, and an action for the payments will accrue immediately. All
such payments must be made to the Lender at its Office in U.S. Dollars and in funds immediately
available at such Office, without setoff, counterclaim or other deduction of any nature. After
maturity of any part of the Loans (by demand, at maturity, by acceleration or otherwise), interest
on such part of the Loans will be due and payable on demand. All such payments shall be applied at
the option of the Lender to accrued and unpaid interest, outstanding principal and other sums due
under this Agreement in such order as the Lender, in its sole discretion, shall elect.

(b) Any payment required to be made by the Borrowers to the Lender under this Agreement or any
other Loan Document may, at the Lender’s option, be deducted when due from any deposit or other
account (general or special, time or demand, provisional or final) of a Borrower with the Lender.
With respect to any commitment or other fee, or any other cost or expense (including attorneys’
fees), due and payable to the Lender under the Loan Documents, each of the Borrowers hereby
irrevocably authorizes the Lender to debit any of its deposit accounts with the Lender in an amount
such that the aggregate amount debited from all such deposit accounts does not exceed such fee or
other cost or expense. If there are insufficient funds in such deposit accounts to cover the
amount of the fee or other cost or expense then due,
such debits will be reversed (in whole or in part, in Lender’s sole discretion) and such amount not
debited shall be deemed to be unpaid. No such debit under this Section 3.11 shall be deemed a
set-off.

(c) If the Borrowers fail to pay any installment of principal, interest or other amount under
this Agreement within ten (10) days of when due, in addition to making payment of the installment
then due, the Borrowers shall pay to the Lender a late charge in an amount equal to five percent
(5.0%) of such overdue installment.

3.12 Increased Costs. If, on or after the date hereof, the adoption of any applicable law,
rule or regulation or guideline (whether or not having the force of law), or any change therein, or
any change in the interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration thereof, or compliance
by the Lender with any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency: (a) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System of the United States)
against assets of, deposits with or for the account of, or credit extended by, the Lender or shall
impose on the Lender or on the London interbank market any other condition affecting its LIBOR Rate
Loans or its obligation to make LIBOR Rate Loans; or (b) shall impose on the Lender any other
condition affecting its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans, and the result
of any of the foregoing is to increase the cost to the Lender of making or maintaining any LIBOR
Rate Loan, or to reduce the amount of any sum received or receivable by the Lender under this
agreement with respect thereto, by an amount deemed by the Lender to be material, then, within 15
days after demand by the Lender, the Borrowers shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such increased cost or reduction.

 

- 30 -

 

3.13 Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness,
interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline,
decision or request (whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital required or expected
to be maintained by the Lender, or person controlling the Lender, and the Lender determines (in its
sole and absolute discretion) that the rate of return on its or such controlling person’s capital
as a consequence of its commitments or the loans made by the Lender is reduced to a level below
that which the Lender or such controlling person could have achieved but for the occurrence of any
such circumstance, then, in any such case upon notice from time to time by the Lender to the
Administrative Borrower, the Borrowers shall immediately pay directly to the Lender additional
amounts sufficient to compensate the Lender or such controlling person for such reduction in rate
of return. A statement of the Lender as to any such additional amount or amounts (including
calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive
and binding on the Borrowers. In determining such amount, the Lender may use any method of
averaging and attribution that it (in its sole and absolute discretion) shall deem applicable.

3.14 Indemnities.

(a) General Indemnities. The Borrowers will indemnify the Lender against any loss or expense
which the Lender sustains or incurs as a consequence of an Event of Default, including, without
limitation, any failure of the Borrowers to pay when due (at maturity, by acceleration or
otherwise) any principal, interest, fee or any other amount due under this Agreement or the other
Loan Documents. If the Lender sustains or incurs any such loss or expense it will from time to
time notify the Administrative Borrower in writing of the amount determined in good faith by the
Lender (which determination will be conclusive) to be necessary to indemnify the Lender for the
loss or expense. Such amount will be due and payable by the Borrowers to the Lender within ten
(10) days after presentation by the Lender of a statement setting forth a brief explanation of and
the Lender’s calculation of such amount, which statement shall be conclusively deemed correct
absent manifest error. Any amount payable to the Lender under this Section 3.14 will bear interest
at the LIBOR Advantage Rate plus the LA Margin (computed for the actual number of days elapsed on
the basis of a year of 360 days) plus two percent (2.0%) from the due date until paid (before and
after judgment).

 

- 31 -

 

(b) Environmental Indemnity. The Borrowers covenant and agree, at the Borrowers’ sole cost
and expense, to indemnify, protect and save the Lender, its directors, officers, employees, agents,
successors and assigns, harmless against and from any and all damages, losses, liabilities,
obligations, fines, penalties, claims, assessments, litigation, demands, defenses, judgments,
suits, proceedings, costs, disbursements or expenses (including, without limitation, attorneys’ and
experts’ reasonable fees and disbursements) of any kind or of any nature whatsoever that may at any
time be imposed upon, incurred by or asserted or awarded against the Lender, arising from or out of
(i) the failure of any of the Borrowers to comply with, and to keep its premises in compliance
with, the Environmental Laws; and (ii) the presence, use, removal, release, storage, generation,
disposal or manufacture of any Hazardous Materials on, in, under or affecting all or any portion of
the Borrowers’ premises or (if any liability shall attach to such premises or any holder of such
premises due to matters arising on and/or migrating from any surrounding area) any surrounding
areas.

(c) Limitation on Indemnities. In no event shall the Borrowers be liable to the Lender, or
any other Person seeking indemnification pursuant to this Section 3.14, for any liabilities caused
by the gross negligence or willful misconduct of the Person seeking indemnification.

3.15 Taxes. All payments by the Borrowers of principal of, and interest on, LIBOR Rate Loans
and all other amounts payable hereunder shall be made free and clear of and without deduction for
any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties,
withholdings or other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Lender’s net income or receipts
(such non-excluded items being called “Taxes”). In the event that any withholding or deduction
from any payment to be made by the Borrowers hereunder is required in respect of any Taxes pursuant
to any applicable law, rule or regulation, then the Borrowers will:

	 	(a)	 	pay directly to the relevant authority the full amount required
to be so withheld or deducted;

	 	(b)	 	promptly forward to the Lender an official receipt or other
documentation satisfactory to the Lender evidencing such payment to such
authority; and

	 	(c)	 	pay to the Lender such additional amount or amounts as is
necessary to ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received had no such withholding or
deduction been required.

Moreover, if any Taxes are directly asserted against the Lender with respect to any payment
received by the Lender hereunder, the Lender may pay such Taxes and the Borrowers will promptly pay
such additional amount (including any penalties, interest or expenses) as is necessary in order
that the net amount received by the Lender after the payment of such Taxes (including any Taxes on
such additional amount) shall equal the amount the Lender would have received had not such Taxes
been asserted.

 

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If the Borrowers fail to pay any Taxes when due to the appropriate taxing authority or fails to
remit to the Lender the required receipts or other required documentary evidence, the Borrowers
shall indemnify the Lender for any incremental Taxes, interest or penalties that may become payable
by the Lender as a result of any such failure.

3.16 Loan Account. The Lender will open and maintain on its books a loan account (the “Loan
Account”) with respect to Loans made, repayments, prepayments, the computation and payment of
interest and fees and the computation and final payment of all other amounts due and sums paid to
the Lender under this Agreement. Except in the case of manifest error in computation, the Loan
Account will be conclusive and binding on the Borrower as to the amount at any time due to the
Lender from the Borrowers under this Agreement or the Notes.

3.17 Prepayment; Termination of Commitment. In the event the Borrowers terminate the
Revolving Credit Commitment prior to the Maturity Date, the Borrowers shall pay the Lender (i) an
early termination premium equal to the sum of the Revolving Credit Commitment multiplied by 1.00%,
if such termination occurs in the first twelve (12) month period immediately following the Closing
Date, and (ii) an early termination premium equal to the sum of the Revolving Credit Commitment
multiplied by 50%, if such termination occurs in the second twelve month period immediately
following the Closing Date. The Borrowers shall not be required to pay the Lender an early
termination premium in the third twelve month period following the Closing Date if no Event of
Default has occurred and is continuing. If an Event of Default has occurred and is continuing, the
Borrowers shall pay early termination premium equal to the sum of the Revolving Credit Commitment
multiplied by .50% in the third twelve month period following the Closing Date. No premium will be
earned if the revolving credit facilities are moved into the New York Middle Market Group of the
Lender Affiliate.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrowers, individually and collectively, represent and warrant to the Lender that:

4.01 Organization and Qualification. Each of the Borrowers and each of the Other Subsidiaries
is a corporation or entity duly incorporated or formed, validly existing and in good standing under
the laws of its jurisdiction of incorporation or formation. Except as described in Schedule
4.01 to this Agreement, each of the Borrowers is duly qualified or licensed to do business as a
foreign corporation and is in good standing in all jurisdictions in which the ownership of its
properties or the nature of its activities or both makes such qualification or licensing necessary
except where the failure to be so qualified or licensed would not have a material and adverse
effect on the assets, business, operations or financial condition of such Borrower or the ability
of such Borrower to perform its obligations under this Agreement and the other Loan Documents to
which it is a party. Schedule 4.01 to this Agreement states as of the Closing Date the
jurisdiction of incorporation of each of the Borrowers and each of the Other Subsidiaries and the
jurisdiction in which each of the Borrowers is qualified to do business as a foreign corporation.

 

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4.02 Power to Carry on Business; Licenses. Each of the Borrowers and each of the Other
Subsidiaries has all requisite power and authority to own and operate its properties and to carry
on its business as now conducted and as presently planned to be conducted in all material respects.
Each of the Borrowers and each of the Other Subsidiaries has all licenses, permits, consents and
governmental approvals or authorizations necessary to carry on its business as now conducted except
where the failure to have any such license, permit, consent, approval or authorization would not
have a material and adverse effect on the assets, business, operations or financial condition of
such Borrower or the ability of such Borrower or Subsidiary to perform its obligations under this
Agreement and the other Loan Documents to which it is a party.

4.03 Authority and Authorization. Each of the Borrowers has corporate power and authority to
execute and deliver this Agreement and the other Loan Documents to which it is a Party, to make the
borrowings provided for in this Agreement, to execute and deliver the Notes in evidence of such
borrowings and to perform its obligations under this Agreement and the other Loan Documents. All
such action has been duly and validly authorized by all necessary corporate proceedings on the part
of each of the Borrowers. Neither the execution and delivery of this Agreement and the other Loan
Documents, nor the consummation of the transactions contemplated in any of them, nor the
performance of or compliance with their terms and conditions will conflict with or result in a
breach of or a default under the articles of incorporation or the by-laws of any of the Borrowers.

4.04 Execution and Binding Effect. This Agreement and the other Loan Documents have been duly
and validly executed and delivered by the Borrowers and each such document or agreement constitutes
a legal, valid and
binding obligation of each of the Borrowers enforceable in accordance with its terms, except to the
extent that the enforceability thereof may be limited by applicable Bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors’ rights generally and by general
equitable principles (regardless if whether the issue of enforceability is considered in a
proceeding in equity or at law).

4.05 Absence of Conflicts. Neither the execution and delivery of this Agreement and the other
Loan Documents, nor the consummation of the transactions contemplated in any of them, nor the
performance of or compliance with their terms and conditions will conflict with or result in (a) a
breach of or a default under any agreement or instrument to which any of the Borrowers is a party
or by which it or any of its properties (now owned or acquired in the future) may be subject or
bound, or (b) a violation of any applicable Law, except where such breach, default or violation
would not have a material and adverse effect on the assets, business, operations or financial
condition of such Borrower or the ability of such Borrower or Subsidiary to perform its obligations
under this Agreement and the other Loan Documents to which it is a party. Neither the execution
and delivery of this Agreement and the other Loan Documents, nor the consummation of the
transactions contemplated in any of them, nor the performance of or compliance with their terms and
conditions will result in the creation or imposition of any Lien upon any property (now owned or
acquired in the future) of the Borrowers, other than Liens granted in favor of the Lender and other
Permitted Encumbrances.

4.06 Authorizations and Filings. No authorization, consent, approval, license, exemption or
other action by, and no registration, qualification, designation, declaration or filing with, any
Official Body is or will be necessary in connection with the execution and delivery of this
Agreement and the other Loan Documents, the consummation of the transactions contemplated in any of
them, or the performance of or compliance with the terms and conditions of this Agreement and the
other Loan Documents.

 

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4.07 Ownership and Control. Schedule 4.07 to this Agreement states as of the Closing
Date the authorized capitalization of each of the Borrowers (including stock of such Borrower held
in treasury), the number of shares of each class of stock units issued and outstanding of such
Borrower and the number and percentage of outstanding stock units of each such class of shares and,
with respect to Ultralife, and based upon Exchange Act filings of beneficial ownership with the
U.S. Securities and Exchange Commission, the beneficial owners of such shares holding in excess of
twenty percent (20%) of such shares. The outstanding stock has been duly authorized and validly
issued and is fully paid and nonassessable. Schedule 4.07 to this Agreement describes as
of the Closing Date all outstanding options, rights and warrants issued by each of the Borrowers
for the acquisition of stock of such Borrower, all outstanding securities or obligations
convertible into such stock and all agreements by such Borrower to issue or sell such stock.
Schedule 4.07 to this Agreement describes as of the Closing Date all options, sale
agreements, pledges, proxies, voting trusts, powers of attorney and other agreements or instruments
binding upon any of its members with respect to beneficial or record ownership of or voting rights
with respect to shares of the stock of such Borrower.

4.08 Officers and Directors. Schedule 4.08 to this Agreement states as of the Closing
Date (i) the officers and directors of each of the Borrowers, and (ii) the officers and directors
of each of the Other Subsidiaries.

4.09 Subsidiaries. Schedule 4.09 to this Agreement states as of the Closing Date each
of the Subsidiaries and the jurisdiction of incorporation of each such Subsidiary.

4.10 Business. Schedule 4.10 to this Agreement describes the business of each of the
Borrowers and each of the Other Subsidiaries as presently conducted and presently planned to be
conducted.

4.11 Title to Property. Each of the Borrowers has good title in fee simple to all real
property and good title to all other property purported to be owned by it, including that reflected
in the most recent audited balance sheet referred to in Section 4.12 of this Agreement or submitted
pursuant to Section 6.01(a) of this Agreement (except as sold or otherwise disposed of in the
ordinary course of business), subject only to the Permitted Encumbrances.

4.12 Financial Statements.

(a) Annual Statements. The Administrative Borrower has delivered to the Lender audited
consolidated and consolidating balance sheets and related consolidated and consolidating statements
of income and retained earnings and cash flow of Ultralife and its Subsidiaries for the fiscal
years ending December 31, 2008 and December 31, 2007, as certified by BDO Seidman, LLC and
certified with only such qualifications as are described on Schedule 4.12 to this
Agreement. Such financial statements (including the notes) present fairly the consolidated and
consolidating financial condition of Ultralife and its Subsidiaries as of the end of such fiscal
period and the results of its operations and the changes in financial position for the fiscal
periods then ended, all in conformity with GAAP applied on a basis consistent with that of the
preceding fiscal period.

 

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(b) Year to Date Statements. The Administrative Borrower has delivered to the Lender an
internally prepared consolidated and consolidating balance sheets and related statements of income
and retained earnings of Ultralife and its Subsidiaries for the calendar month and year-to-date
ending December 31, 2009. Such financial statements present fairly the financial condition of
Ultralife and its Subsidiaries of the end of such period and the results of its operations for the
period then ended, all in conformity with accounting principles applied on a basis consistent with
that of the preceding fiscal period, subject to year-end adjustments.

(c) Financial Projections. The Administrative Borrower has delivered to the Lender financial
projections of Ultralife and its Subsidiaries for the fiscal year ending December 31, 2010 derived
from various assumptions of the Administrative Borrower’s management (the “Financial Projections”).
The Financial Projections represent a reasonable range of possible results in light of the history
of the business, present and foreseeable conditions and the intentions of the Borrowers’
managements. The Financial Projections reasonably reflect in all
material respects the estimated liabilities of Ultralife and its Subsidiaries upon consummation of
the transactions contemplated hereby as of the Closing Date.

(d) Accuracy of Financial Statements. As of December 31, 2009, neither Ultralife nor any of
its Subsidiaries had any liabilities, contingent or otherwise, or forward or long-term commitments
that are not disclosed in the historical financial statements or in the notes thereto, and except
as disclosed therein there are no unrealized or anticipated losses from any commitments of
Ultralife or any of its Subsidiaries that might result in a Material Adverse Change.

4.13 Taxes. All tax returns required to be filed by each of the Borrowers have been properly
prepared, executed and filed. All taxes, assessments, fees and other governmental charges upon
each of the Borrowers or upon any of the Borrowers’ properties, incomes, sales or franchises which
are due and payable have been paid, except taxes, assessments or charges subject to good faith
dispute for which a Borrower has created adequate reserves on its books. The reserves and
provisions for taxes on the books of each of the Borrowers are adequate for all open years and for
its current fiscal period. None of the Borrowers knows of any proposed additional assessment or
basis for any assessment for additional taxes (whether or not reserved against).

4.14 Contracts. Except as described in Schedule 4.14 to this Agreement, neither any
of the Borrowers nor any of the Other Subsidiaries is a party to nor subject to any agreement,
lease or instrument of any kind other than (i) agreements, leases and instruments which are
terminable at will by such Borrower or such Other Subsidiary without penalty, and (ii) agreements,
leases and instruments entered into in the ordinary course of such Borrower’s or such Other
Subsidiary’s business which are not, singly or in the aggregate, material to the assets, business,
operations or financial condition of such Borrower or such Other Subsidiary.

 

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4.15 Litigation. Except as described in Schedule 4.15 to this Agreement, there is no
pending or, to the Borrowers’ knowledge, contemplated or threatened action, suit or proceeding by
or before any Official Body against or affecting any of the Borrowers or any of the Other
Subsidiaries, at law or equity, which if adversely decided would have a material and adverse effect
on the assets, business, operations or financial condition of any of the Borrowers or any of the
Other Subsidiaries or on the ability of each of the Borrowers to perform its obligations under this
Agreement or the other Loan Documents to which it is a party.

4.16 Compliance with Laws. Neither any of the Borrowers nor any of the Other Subsidiaries is
in material violation of or subject to any material contingent liability on account of the failure
to be in compliance with any Law.

4.17 Pension Plans. Except as described in Schedule 4.17 to this Agreement, (a) each
Plan has been and will be maintained and funded in accordance with its terms and with all
provisions of ERISA and other applicable laws; (b) no
Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan;
(c) no liability to the PBGC has been incurred with respect to any Plan, other than for premiums
due and payable; (d) no Plan has been terminated, no proceedings have been instituted to terminate
any Plan, and there exists no intent to terminate or institute proceedings to terminate any Plan;
(e) no withdrawal, either complete or partial, has occurred or commenced with respect to any
multi-employer Plan, and there exists no intent to withdraw either completely or partially from any
multi-employer Plan; and (f) there has been no cessation of, and there is no intent to cease,
operations at a facility or facilities where such cessation could reasonably be expected to result
in a separation from employment of more than twenty percent (20%) of the total number of employees
who are participants under a Plan.

4.18 Patents, Licenses, Franchises. Each of the Borrowers and each of the Other Subsidiaries
owns or is licensed to use all of the patents, trademarks, service marks, trade names, copyrights,
licenses, franchises and permits and rights with respect to the foregoing necessary to own and
operate their respective properties and to carry on its business as presently conducted and
presently planned to be conducted without, to the Borrowers’ knowledge, conflict with the rights of
others, except where failure to so own or have license to use would not have a material and adverse
effect on the assets, business, operations or financial condition of such Borrower or the ability
of such Borrower or Subsidiary to perform its obligations under this Agreement and the other Loan
Documents to which it is a party. Schedule 4.18 to this Agreement sets forth a true and
correct list and description of each such patent, trademark, service mark, trade name, copyright,
license, franchise and permit and right with respect to the foregoing. Except as described in
Schedule 4.18 to this Agreement, no patent, trademark, service mark, trade name, copyright,
license, franchise or permit or right with respect to the foregoing is of material importance to
the assets, business, operations or financial condition of the Borrowers and the Borrowers know of
no reason to anticipate any material liability to any of the Borrowers in respect to any claim of
infringement of any of the foregoing.

 

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4.19 Environmental Matters. Except as described on Schedule 4.19 to this Agreement:

(a) None of the Borrowers nor any of their respective Affiliates is in violation, in any
material respect, of any of the Environmental Laws, the non-compliance with which could reasonably
be expected to have a material and adverse effect on the assets, business, operations or financial
condition of any of the Borrowers or on the ability of each of the Borrowers to perform its
obligations under this Agreement or the other Loan Documents to which it is a party; and

(b) None of the Borrowers nor any of their respective Affiliates have (i) owned or operated
any facility, property, or location that is or is reasonably expected to be subject to liability to
any Official Body or any other person under the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 USC § 9601 et seq (“CERCLA”) or under any corresponding state statute or
regulation concerning cleanup of waste disposal sites (collectively, “State Superfund Laws”) or
(ii) disposed of, treated, transported, or arranged, by contract, agreement or otherwise, for
disposal, treatment or transportation of Hazardous
Materials in a manner that has resulted in, or could reasonably be expected to result in, liability
to any Official Body or any other Person under CERCLA, any State Superfund Laws or any other
Environmental Laws, and none of the Borrowers nor any of their respective Affiliates have received
written notice of any pending or potential liability to any Official Body or any other Person under
CERCLA, any State Superfund Laws or any other Environmental Laws.

(c) No predecessor in interest of any of the Borrowers has arranged, by contract, agreement or
otherwise, for the disposal, treatment or transportation of Hazardous Materials in a manner that
has resulted in, or could reasonably be expected to result in, liability to any Official Body or
any other Person under CERCLA, any State Superfund Laws or any other Environmental Laws, other than
such liability that would not have a material and adverse effect on the assets, business,
operations or financial condition of any of the Borrowers or on the ability of each of the
Borrowers to perform its obligations under this Agreement or the other Loan Documents to which it
is a party.

4.20 Proceeds. The Borrowers will use the proceeds of the Revolving Credit Loans for payment
of fees associated with the Revolving Credit Loans, working capital, general corporate purposes,
letter of credit support and Hedging Contract support. The Borrowers will also use the proceeds of
the Revolving Credit Loans to repay its indebtedness to the Existing Lender.

4.21 Margin Stock. The Borrowers will make no borrowing under this Agreement for the purpose
of buying or carrying any “margin stock,” as such term is used in Regulation U and related
regulations of the Board of Governors of the Federal Reserve System, as amended from time to time.
The Borrowers do not own any “margin stock”. The Borrowers are not engaged in the business of
extending credit to others for such purpose, and no part of the proceeds of any borrowing under
this Agreement will be used to purchase or carry any “margin stock” or to extend credit to others
for the purpose of purchasing or carrying any “margin stock.”

4.22 Investment Company Act. None of the Borrowers is an “investment company” registered or
required to be registered under the Investment Company Act of 1940, as amended, nor is it
controlled by such a company.

 

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4.23 Application of Certain Laws and Regulations. None of the Borrowers nor any Affiliate of
any of the Borrowers is subject to any statute, rule or regulation which regulates the incurrence
of any Indebtedness, including without limitation, statutes or regulations relative to common or
interstate carriers or to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.

4.24 No Event of Default; Compliance with Agreements. No event has occurred and is continuing
and no condition exists which constitutes an Event of Default or Potential Default. None of the
Borrowers is (i) in violation of any term of any charter instrument or operating agreement or
(ii) in default under any agreement, lease or instrument to which such Borrower is a party or by
which it or any of its properties (now owned or acquired in the future) may be subject or bound,
except to the extent any such default would not have a material and adverse affect on the assets,
business, operations or financial condition of such Borrower or the ability of such Borrower to
perform its obligations under this Agreement and the other Loan Documents.

4.25 No Material Adverse Change. Except as described on Schedule 4.25 to this
Agreement, since September 27, 2009, there has been no Material Adverse Change with respect to any
of the Borrowers or any of the Other Subsidiaries.

4.26 Accurate and Complete Disclosure. No representation or warranty made by the Borrowers
under this Agreement or the other Loan Documents and no statement made by the Borrowers in any
financial statement (furnished pursuant to Sections 4.12 or 6.01 or otherwise), certificate,
report, exhibit or document furnished by the Administrative Borrower to the Lender pursuant to or
in connection with this Agreement is false or misleading in any material respect (including by
omission of material information necessary to make such representation, warranty or statement not
misleading).

4.27 Security Interest. The security interests in the Collateral granted to the Lender
pursuant to the Security Agreements (i) constitute and will continue to constitute a perfected
security interest under the Code entitled to all of the rights, benefits and priorities provided by
the Code; and (ii) except as otherwise permitted under Section 7.01 of this Agreement, are and will
continue to be superior and prior to the rights of all third parties existing on the date of this
Agreement or arising after the date of this Agreement, whether by lien or otherwise, to the full
extent provided by Law. All such action as is necessary or advisable to establish such rights of
the Lender has been taken or will be taken at or prior to the time required for such purpose, and
there will be upon execution and delivery of the Loan Documents no necessity of any further action
in order to preserve, protect and continue such rights, except the filing of continuation
statements with respect to such financing statements within six (6) months prior to each five (5)
year anniversary of the filing of such financing statements and continued possession by the Lender
of the collateral delivered to it. All filing fees and other expenses in connection with each such
action shall be paid by the Borrowers and the Lender shall be reimbursed by the Borrowers for any
such fees and expenses incurred by the Lender.

 

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4.28 Account Warranties. With respect to all accounts from time to time scheduled, listed or
referred to in any certificate, statement or report delivered to the Lender, the Borrowers,
individually and collectively, warrant and represent to the Lender that (a) the accounts are
genuine, are in all respects what they purport to be, and are not evidenced by a note, instrument
or judgment; (b) the accounts represent undisputed, bona fide transactions completed in accordance
with the terms and provisions contained in the documents delivered to the Lender with respect to
the accounts; (c) no payments have been or will be made on the accounts except payments immediately
delivered to the Lender pursuant to this Agreement; (d) except as described on Schedule
4.28, there are no material setoffs, counterclaims or disputes existing or asserted with
respect to the accounts and no
Borrower has made any agreement with any account debtor for any material deduction from any
account; (e) there are no facts, events or occurrences which in any way impair the validity or
enforcement of any account; (f) to the best of the Borrowers’ knowledge, all account debtors have
the capacity to contract and are solvent; (g) the services furnished and/or goods sold giving rise
to any account are not subject to any lien, claim, encumbrance or security interest except that of
the Lender; (h) to the best of the Borrowers’ knowledge, there are no proceedings or actions which
are threatened or pending against any account debtor which might result in any material adverse
change in such account debtor’s financial condition; (i) the account is not an account with respect
to which the account debtor is an Affiliate or a director, officer or employee of the Borrowers or
any Affiliate; (j) the account does not arise with respect to goods which have not been shipped or
arise with respect to services which have not been fully performed and accepted as satisfactory by
the account debtor; (k) the account is not an account with respect to which the account debtor’s
obligation to pay the account is conditional upon the account debtor’s approval or is otherwise
subject to any repurchase obligation or return right, as with sales made on a bill-and-hold,
guaranteed sale, sale-and-return, or sale on approval basis; (1) the amounts shown on the
applicable certificates, statements, each Borrower’s books and records and all invoices and
statements which may be delivered to the Lender with respect to such accounts are actually and
absolutely owing to such Borrowers and are not in any way contingent; and (m) the accounts are not
accounts which have been factored with a factoring company. The Administrative Borrower shall
immediately notify the Lender in the event that any such account ceases to satisfy the above
representations and warranties.

4.29 Inventory Warranties. With respect to all inventory from time to time scheduled, listed
or referred to in any certificate, statement or report delivered to the Lender, the Borrowers
warrant and represent that (a) such inventory is located on the premises listed on the Security
Agreements and is not in transit; (b) a Borrower has good, indefeasible and merchantable title to
such inventory and such inventory is not subject to any lien or security interest whatsoever except
for the security interest granted to the Lender; (c) such inventory is of good and merchantable
quality, free from material defects or obsolescence; (d) such inventory is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties;
and (e) the completion of manufacture and sale or other disposition of such inventory by the Lender
following an Event of Default shall not require the consent of any person and shall not constitutes
breach or default under any contract or agreement to which such Borrower is a party or to which the
inventory is subject. The Administrative Borrower shall immediately notify the Lender in the event
that any such inventory ceases to satisfy the above representations and warranties.

 

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4.30 Swaps. None of the Borrowers is a party to, nor will it be a party to, any swap
agreement whereby such Borrower has agreed or will agree to swap interest rates or currencies
unless same provides that damages upon termination following an event of default thereunder are
payable on an unlimited “two-way basis” without regard to fault on the part of either party.

4.31 Solvency. Prior to the Closing Date, each of the Borrowers was Solvent. Effective as of
the Closing Date and after giving effect to the
Revolving Credit Loans to be made under this Agreement, each of the Borrowers will be Solvent.

ARTICLE V

CONDITIONS OF LENDING

5.01 Initial Loans. The obligation of the Lender to make any Loan on the Closing Date is
subject to the accuracy as of the Closing Date of the representations and warranties contained in
this Agreement and the other Loan Documents, to the performance by the Borrowers of their
obligations to be performed under this Agreement and under the other Loan Documents on or before
the Closing Date and to the satisfaction of the following further conditions:

(a) Representations and Warranties; Events of Default and Potential Defaults. The
representations and warranties contained in Article IV shall be true and correct on and as of the
Closing Date. On the Closing Date, the Administrative Borrower shall have delivered a Certificate
to that effect signed by the President or other authorized officer of the Administrative Borrower.
On the Closing Date, no Event of Default and no Potential Default shall have occurred and be
continuing or exist or shall occur or exist after giving effect to the Loan to be made on such
date. On the Closing Date, the Administrative Borrower shall have delivered a Certificate to that
effect signed by the President or other authorized officer of the Administrative Borrower.

(b) Proceedings and Incumbency — Borrowers. On the Closing Date, each of the Borrowers shall
have delivered to the Lender a certificate, in form and substance satisfactory to the Lender, dated
the Closing Date and signed on behalf of such Borrower by the
Secretary or other authorized officer
of such Borrower, certifying as to (a) true copies of the certificate/articles of incorporation and
bylaws of such Borrower, each as in effect on such date; (b) true copies of all corporate action
taken by such Borrower relative to this Agreement and the other Loan Documents, including, but not
limited to, that described in Section 4.03 of this Agreement; and (c) the names, true signatures
and incumbency of the officers of such Borrower authorized to execute and deliver this Agreement
and the other Loan Documents. The Lender may conclusively rely on such certificate unless and
until a later certificate revising the prior certificate has been furnished to the Lender.

 

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(c) Opinion of Counsel. On the Closing Date, there shall have been delivered to the Lender
the written opinion, dated the Closing Date of Harter Secrest & Emery, LLP, counsel for the
Borrowers, in substantially the form attached as Exhibit “B” to this Agreement.

(d) Agreement and Notes. On the Closing Date, this Agreement and the Revolving Credit Note,
satisfactory in terms, form and substance to the Lender, shall have been executed and delivered by
the Borrowers to the Lender.

(e) Security Agreements. On the Closing Date, a Security Agreement, each satisfactory in
terms, form and substance to the Lender, shall have been executed and delivered by each of the
Borrowers to the Lender and shall be in effect, and all filings contemplated by such Security
Agreement shall have been made.

(f) UCC Financing Statements. On or before the Closing, all UCC-1 financing statements to be
filed pursuant to the Security Agreements and the other Loan Documents shall have been duly filed
and shall be in effect.

(g) Patent Security Agreement. On the Closing Date, a Patent Security Agreement, satisfactory
in terms, form and substance to the Lender, shall have been executed and delivered by Ultralife to
the Lender, and shall be in effect, and all filings contemplated by such Patent Security Agreement
shall have been made.

(h) Trademark Security Agreement. On the Closing Date, a Trademark Security Agreement, each
satisfactory in terms, form and substance to the Lender, shall have been executed and delivered by
Ultralife to the Lender, and shall be in effect, and all filings contemplated by such Trademark
Security Agreements shall have been made.

(i) Pledge Agreements. On the Closing Date, the Pledge Agreement, described in clause (i) of
the definition of “Pledge Agreements”, satisfactory in terms, form and substance to the Lender,
shall have been executed and delivered by Ultralife to the Lender. Within sixty (60) days after
the Closing Date, the Pledge Agreements described in clause (ii) of the definition of “Pledge
Agreements”, satisfactory in terms, form and substance to the Lender, shall be executed and
delivered by Ultralife to the Lender as required by the Lender.

(j) Negative Pledge Agreement. On the Closing Date, the Negative Pledge Agreement,
satisfactory in terms, form and substance to the Lender, shall have been executed and delivered by
Ultralife to the Lender.

(k) Subordination Agreement. On the Closing Date, the Subordination Agreement, satisfactory
in terms, form and substance to the Lender, shall have been executed and delivered by and among the
Lender, William Maher and Ultralife. The Lender shall have received true and correct copies of
each document, instrument and agreement governing or evidencing the obligations of Ultralife to
William Maher and each such document, instrument and agreement shall be satisfactory in terms,
forms and substance to the Lender.

 

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(l) Landlord/Bailee Waivers. On or before the Closing Date, the Borrowers shall have
delivered an executed landlord’s waiver or bailee waiver, as applicable, for each Eligible Location
and each such landlord or bailee waiver shall be satisfactory to the Lender in form and substance.

(m) Assignment of Claims. On or before the Closing Date, the Borrowers shall have delivered
an executed assignment of claims with respect to each contract with the United States government
for which the Borrowers intend to have the Accounts arising thereform be “Eligible Accounts”,
other than contracts related to the Unassigned US Accounts. Each such assignment of claim shall be
satisfactory to the Lender in form and substance and all required Notices of Assignment shall have
been submitted to and acknowledged by the appropriate government contracting and disbursing
officers.

(n) Borrowing Base; Excess Availability. On the Closing Date, the Borrowers shall have
delivered a Borrowing Base certificate, dated as of the Closing Date and satisfactory in form and
substance to the Lender, showing an Excess Availability in excess of $7,500,000 after giving effect
to the Revolving Loans to be made on the Closing Date.

(o) Operating Accounts; Cash Management. The Borrowers shall have established its operating
accounts and cash management systems at Citizens Bank, N.A. or another Lender Affiliate designated
by the Lender.

(p) Other Documents and Conditions. On or before the Closing Date, the following documents
and conditions shall have been delivered or satisfied by or on behalf of the Borrowers to the
Lender:

(i) Good Standing and Tax Lien Certificates. Good Standing Certificate of the Department of
State of its jurisdiction of incorporation certifying to the good standing and corporate status of
each of the Borrowers, good standing/foreign qualification certificates from other jurisdictions in
which each of the Borrowers is qualified to do business and tax lien or similar certificates of
each of the Borrowers from each jurisdiction in which each of the Borrowers is qualified to do
business.

(ii) Financial Statements and Projections — Borrowers. Financial statements and projections
of Ultralife and its Subsidiaries, in form and substance satisfactory to the Lender, as described
in Section 4.12 of this Agreement, including any available management letters. Lender shall have
had an opportunity to discuss Ultralife’s consolidated financial statements for the fiscal year
ending December 31, 2009 with the auditors of such statements and the results of such discussions
shall have been satisfactory to the Lender in its sole discretion.

(iii) Insurance. Evidence, in form and substance satisfactory to the Lender, that the
business and all assets of the Borrowers are adequately insured, together with a
copy of each casualty insurance policy or policies evidencing coverage satisfactory to the Lender
and endorsements providing that the Lender has been named as additional insured and lenders loss
payee on all policies of insurance covering the Collateral (as defined in the Security Agreements).

 

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(iv) Inventory Appraisal. An appraisal, satisfactory in form and substance to the Lender, of
the inventory appraisal conducted by Great American Group dated September 2009 and addressed to the
Lender.

(v) Lien Search. Copies of record searches (including UCC searches, real property title
reports, and judgment, suits, tax and other lien searches) evidencing that the Lender has a first
priority security interest in the Collateral described in the Security Agreements, except as
otherwise provided in Section 7.01 of this Agreement.

(vi) No Material Adverse Change. Evidence satisfactory to the Lender that no Material Adverse
Change has occurred with respect to the Borrowers since September 27, 2009, other than the matters
described on Schedule 4.25 to this Agreement.

(vii) Evidence of Ownership. Evidence satisfactory to the Lender regarding the identity of
each beneficial owner of common shares of Ultralife holding in excess of five percent (5%) of such
shares as of the date of this Agreement.

(viii) Pay-off Letter. A pay-off letter from the Existing Lender indicating the amount of
outstanding indebtedness to be repaid and confirming that its liens and security interests will be
released upon its receipt of such amount.

(ix) Termination Statements — Releases. Evidence satisfactory to the Lender that UCC
termination or release statements with respect to the liens on the Borrowers’ property not
permitted under Section 7.01 of this Agreement have been filed or satisfactory arrangements have
been made for such filing.

(x) Other Documents and Conditions. Such other documents and conditions as may be required to
be submitted to the Lender by the terms of this Agreement or of any Loan Document.

(q) Details, Proceedings and Documents. All legal details and proceedings in connection with
the transactions contemplated by this Agreement shall be satisfactory to the Lender and the Lender
shall have received all such counterpart originals or certified or other copies of such documents
and proceedings in connection with such transactions, in form and substance satisfactory to the
Lender, as the Lender may from time to time request.

(r) Fees and Expenses. The Borrowers shall have paid all fees and charges as required for the
Closing and relating to the Closing, including legal fees, closing costs, filing and notary fees,
and any other similar matters pertinent to the closing.

5.02 Each Additional Loan. At the time of making any Loans other than Loans made on the
Closing Date and after giving effect to the proposed borrowings, the representations and warranties
of the Borrowers contained in Article IV of this Agreement shall be true on and as of the date of
such additional Loan with the same effect as though such representations and warranties had been
made on and as of such date (except representations and warranties which expressly relate solely to
an earlier date or time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein), and the Borrowers shall have performed and
complied with all covenants and conditions of this Agreement; no Event of Default or Potential
Default shall have occurred and be continuing or shall exist, the making of the Loans shall not
contravene any Law applicable to the Borrowers or Lender, and the Administrative Borrower shall
have delivered to the Lender a duly executed and completed Borrowing Base Certificate.

 

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ARTICLE VI

AFFIRMATIVE COVENANTS

The Borrowers, individually and collectively, covenant to the Lender, unless the Lender shall
otherwise consent in writing, as follows:

6.01 Reporting and Information Requirements.

(a) Annual Audited Reports. As soon as practicable, and in any event within one hundred
twenty (120) days after the close of each fiscal year of Ultralife, the Administrative Borrower
will furnish to the Lender audited consolidated statements of income, retained earnings and cash
flow of Ultralife and its Subsidiaries for such fiscal year and an audited consolidated balance
sheet of Ultralife and its Subsidiaries as of the close of such fiscal year, and notes to each, all
in reasonable detail, setting forth in comparative form the corresponding figures for the preceding
fiscal year, prepared in accordance with generally accepted accounting principles applied on a
basis consistent with that of the preceding fiscal year (except for changes in application in which
such accountants concur) with such statements and balance sheet to be certified by independent
certified public accountants of recognized standing selected by the Administrative Borrower and
reasonably satisfactory to the Lender. The certificate or report of such accountants shall be free
of exception or qualifications not acceptable to the Lender and shall in any event contain a
written statement of such accountants substantially to the effect that such accountants examined
such statements and balance sheet in accordance with generally accepted auditing standards.

(b) Monthly Reports. As soon as practicable, and in any event within thirty (30) days after
the close of each calendar month, during the term of this Agreement, the Administrative Borrower
will furnish to the Lender consolidated and consolidating statements of income for Ultralife and
its Subsidiaries for such month and for the portion of the fiscal year to the end of such month,
and a consolidated and
consolidating balance sheet of Ultralife and its Subsidiaries as of the close of such month, all in
reasonable detail. All such income statements and balance sheets shall be prepared by the
Administrative Borrower and certified by the President, Treasurer or Chief Financial Officer of the
Administrative Borrower as presenting fairly the financial position of Ultralife and its
Subsidiaries as of the end of such month and the results of its operations for such periods,
subject to year end adjustment, in conformity with generally accepted accounting principles applied
in a manner consistent with that of the most recent audited financial statements furnished to the
Lender.

 

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(c) Compliance Certificate. Within one hundred twenty (120) days after the end of each fiscal
year of Ultralife, and within thirty (30) days after the end of each fiscal quarter of the
Borrower, the Administrative Borrower will deliver to the Lender a certificate, in the form
attached to this Agreement as Exhibit “C,” dated as of the end of such fiscal year or
quarter, as the case may be, signed on behalf of the Administrative Borrower by its President,
Treasurer or Chief Financial Officer, including a calculation of the financial maintenance
covenants set forth in Section 7.16 of this Agreement, and stating that, as of the date of the
certificate, no Event of Default or Potential Default has occurred and is continuing or exists, or
if an Event of Default or Potential Default has occurred and is continuing or exists, specifying in
detail the nature and period of existence of the Event of Default or Potential Default and any
action taken or contemplated to be taken by the Borrowers.

(d) Borrowing Base Certificate. Each week, and more frequently upon the Lender’s request, the
Administrative Borrower will deliver to the Lender a completed Borrowing Base Certificate, in the
form attached hereto as Exhibit “D”, setting forth the borrowing base calculations for each
of the Borrowers, on a consolidating and consolidated basis, together with, if requested by the
Lender, an appropriately completed Collections Report, on a form supplied by, and satisfactory to,
the Lender, and such back up documentation and evidence as the Lender shall reasonably request.

(e) Accounts Receivable Statements and Collateral Reports. Within fifteen (15) days after the
end of each calendar month, and more frequently upon the Lender’s request, the Administrative
Borrower will deliver to the Lender (i) a schedule of each of the Borrower’s accounts receivable,
identifying all Eligible Accounts and the aging thereof by open invoice of each customer owed to
such Borrower, (ii) an Accounts Receivable Reconciliation in the form of Exhibit “E”, and
(iii) a Monthly Collateral Recap on a form supplied by, and satisfactory to, the Lender; and (iv)
such other reports concerning the Eligible Accounts as the Lender shall require, all certified as
to accuracy by the President, Treasurer or Chief Financial Officer of the Administrative Borrower
and all in such form as the Lender shall require. The reports delivered under this clause (f)
shall be prepared and delivered to the Lender on a consolidated and consolidating basis. The
Administrative Borrower shall also provide the Lender with all information requested by the Lender
with respect to any account debtor.

(f) Accounts Payable Statements. Within fifteen (15) days after the end of each calendar
month, and more frequently upon the Lender’s request, the Administrative Borrower will deliver to
the
Lender a detailed listing of each of the Borrower’s existing accounts payable on a consolidating
and consolidated basis, specifying the names of each creditor and the amount owed to such creditor
and such matters and information relating to the status of Borrowers’ accounts payable so scheduled
as the Lender may from time to time reasonably request. The reports delivered under this clause
(g) shall be prepared and delivered to the Lender on a consolidated and consolidating basis.

(g) Inventory Certifications. Within fifteen (15) days after the end of each calendar month,
and more frequently upon the Lender’s request, the Administrative Borrower will deliver to the
Lender a current schedule of the inventory of each of the Borrower’s in the form and substance
satisfactory to the Lender and a FIFO basis, itemizing and describing the kind, type, quality and
quantity of such inventory, as determined by physical counts taken annually, each Borrower’s costs
therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto, and
such other matters relating to the status of the inventory so scheduled as the Lender may from time
to time reasonably request. The reports delivered under this clause (h) shall be prepared and
delivered to the Lender on a consolidated and consolidating basis.

 

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(h) Audit Reports. Promptly upon receipt thereof, the Administrative Borrower will deliver to
the Lender one copy of each other report submitted to the Administrative Borrower by independent
accountants, including “comment” or management letters, in connection with any annual, interim or
special audit report made by them of the books of any of the Borrowers.

(i) Guarantors’ Financial Statements. As soon as practicable, and in any event within one
hundred twenty (120) days after the close of each fiscal year of each Guarantor, the Administrative
Borrower will furnish to the Lender financial statements of such Guarantor for such fiscal year,
all in reasonable detail and in such form as the Lender shall reasonably request.

(j) Projections. Not taken later than thirty (30) days prior to the commencement of the
applicable fiscal year, the Administrative Borrower will deliver to the Lender an annual budget of
the Borrowers, prepared on a consolidated and consolidating basis, for such fiscal year, together
with projections of profit and loss statements, cash flows, balance sheets and revolving credit
availability prepared on a quarterly basis.

(k) Visitation; Audits. Up to three (3) times in each year during the term of this Agreement,
each of the Borrowers will permit such persons as the Lender may designate to visit and inspect any
of its properties, to conduct field examinations of the collateral, to examine, and to make copies
and extracts from, its books and records and to discuss its affairs with its officers, employees
and independent accountants during normal business hours and after reasonable notice, unless an
Event of Default shall have occurred and be continuing, in which case at such times and as often as
the Lender may request. The Borrowers shall pay to the Lender the Lender’s then current field
examination fee ($900 per person-day as of the date of this Agreement) and shall reimburse the
Lender for the Lender’s
out-of-pocket costs in connection with any such audit. Each of the Borrowers authorizes its
officers, employees and independent accountants to discuss with the Lender its affairs.

(l) Inventory
Appraisals. Upon the Lender’s request, the Borrowers shall, at their expense,
no more than one (1) time in any twelve (12) month period, but at any time or times as the Lender
may request on or after an Event of Default, deliver or cause to be delivered to the Lender written
appraisals as to the inventory of the Borrowers in form, scope and methodology acceptable to the
Lender and by an appraiser acceptable to the Lender, addressed to the Lender and upon which the
Lender is expressly permitted to rely. The first such appraisal shall be delivered to the Lender
not more than ninety (90) days after the Closing Date.

 

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(m) Notice of Event of Default. Promptly upon becoming aware of an Event of Default or
Potential Default, the Administrative Borrower will give the Lender notice of the Event of Default
or Potential Default, together with a written statement of the President, Treasurer or Chief
Financial Officer of the Administrative Borrower, setting forth the details of the Event of Default
or Potential Default and any action taken or contemplated to be taken by the Borrowers.

(n) Notice of Material Adverse Change. Promptly upon becoming aware thereof, the
Administrative Borrower will give the Lender telephonic or telegraphic notice (with written
confirmation set on the same or next Business Day) about any Material Adverse Change.

(o) Exchange
Act Filings. Promptly after the same become publicly available, the
Administrative Borrower will deliver to the Lender notice of the availability at http://www.sec.gov
and/or http://www.edgar-online.com of, or alternatively shall provide copies of, any periodic and
other reports, proxy statements and other materials filed by Ultralife with the Securities and
Exchange Commission, or any Official Body succeeding to any or all of the functions of the
Securities and Exchange Commission, or with any national securities exchange, or distributed by
Ultralife to its shareholders generally, as the case may be. All such statements and filings shall
be filed in compliance with the Exchange Act and other applicable securities laws.

(p) Rating
Agencies. Promptly after Moody’s or S&P shall have announced a change in the
rating established or deemed to have been established for any of Ultralife’s Debt, the
Administrative Borrower will deliver to the Lender written notice of such rating change.

(q) Reports to Governmental Agencies and other Creditors. With reasonable promptness, the
Administrative Borrower will deliver to the Lender copies of all such financial reports, statements
and returns which any of the Borrowers shall file with any federal or state department, commission,
board, bureau, agency or instrumentality, other than the Exchange Act filings described in Section
6.01(o) of this Agreement, and any report, statement or return delivered by a Borrowers to any
supplier or other creditor.

(r) Notice of Proceedings. Promptly upon becoming aware thereof, the Administrative Borrower
will give the Lender notice of the commencement, existence or threat of all proceedings by or
before any Official Body against or affecting any of the Borrowers which, if adversely decided,
would have a material adverse effect on the assets, business, operations or financial condition of
such Borrower.

(s) Updates to Schedules. In the event that any of the information or disclosures provided on
any of the Schedules attached to this Agreement become incorrect in any material respect, the
Administrative Borrower shall promptly provide the Lender in writing with such revisions or updates
to such Schedule as may be necessary or appropriate to correct such Schedule (except to the extent
that the Administrative Borrower has given the Lender written notice under this Section 6.01);
provided, however, that no Schedule shall be deemed to have been amended, modified or superseded by
any such correction or update, nor shall any breach of warranty or representation resulting from
the inaccuracy or incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Lender, in its sole discretion, shall have accepted in writing such revisions or
updates to such Schedule.

 

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(t) Further Information. The Administrative Borrower will promptly furnish to the Lender such
other information concerning the Borrowers and the Collateral granted under the Security
Agreements, and in such form, as the Lender may reasonably request from time to time.

6.02 Preservation of Existence and Franchises. Each of the Borrowers will maintain, and shall
cause each Subsidiary to maintain, its corporate existence, rights and franchises in full force and
effect in its jurisdiction of incorporation. Each of the Borrowers will qualify and remain
qualified, and shall cause each Subsidiary to qualify and remain qualified, as a foreign
corporation in each jurisdiction in which failure to receive or retain qualification would have a
material adverse effect on the assets, business, operations or financial condition of such
Borrower.

6.03 Insurance. Each of the Borrowers will maintain, and shall cause each Subsidiary to
maintain, with financially sound and reputable insurers insurance with respect to its properties
and business and against such liabilities, casualties and contingencies and of such types and in
such amounts as is satisfactory to the Lender and as is customary in the case of corporations or
other entities engaged in the same or similar business or having similar properties similarly
situated. The Administrative Borrower will add the Lender as lenders loss payee to all policies of
insurance which insure against loss of or damage to the Collateral (as defined in the Security
Agreements) to provide the Lender with thirty (30) days’ advance notice of the termination of any
such policy of insurance.

6.04 Maintenance of Properties. Each of the Borrowers will maintain, and shall cause each
Subsidiary to maintain, or cause to be maintained in good repair, working order and condition the
properties now or in the future owned, leased or otherwise possessed by the Borrowers and shall
make or cause to be
made all needful and proper repairs, renewals, replacements and improvements to the properties so
that the business carried on in connection with the properties may be properly and advantageously
conducted at all times. The Administrative Borrower shall notify the Lender prior to any change in
the location of any of its properties or business.

6.05 Payment of Liabilities. The Borrowers will pay or discharge, and cause each Subsidiary
to pay or discharge:

(a) on or prior to the date on which penalties attach, all taxes, assessments and other
governmental charges or levies imposed upon it or any of its properties or income except taxes,
assessments or charges subject to good faith dispute for which such Borrower or Subsidiary has
created adequate reserves on its books;

(b) on or prior to the date when due, all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a
Lien upon any of its property, except such claims which are subject to good faith dispute and as to
which such Borrower or Subsidiary has created adequate reserves on its books;

 

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(c) on or prior to the date when due, all other lawful claims which, if unpaid, might result
in the creation of a Lien upon any of its property, except such claims which are subject to good
faith dispute and as to which such Borrower or Subsidiary has created adequate reserves on its
books;

(d) all intercompany trade liabilities so that none is due more than sixty (60) days after the
invoice date for each such liability owing to another Borrower or Subsidiary, as the case may be;
and

(e) all other current liabilities so that none is due more than ninety (90) days after the due
date for each liability, except current liabilities which are subject to good faith dispute and as
to which such Borrower or Subsidiary has created adequate reserves on its books.

6.06 Financial Accounting Practices. The Borrowers will make and keep, and cause each
Subsidiary to make and keep, books, records and accounts in conformity with generally accepted
accounting principles applied in a manner consistent with past practice.

6.07 Compliance with Laws. The Borrowers shall comply, and cause each Subsidiary to comply,
with all applicable Laws including, without limitation, all applicable Environmental Laws, the
non-compliance with which could reasonably be expected to result in Lender Environmental Damages or
have a material and adverse effect on the assets, business, operations or financial condition of
any of the Borrowers or on the ability of each of the Borrowers to perform its obligations under
this Agreement or the other Loan Documents to which it is a party.

6.08 Pension Plans. The Borrowers shall (a) keep in full force and effect any and all Plans
which are presently in existence or may, from time to time, come into existence under ERISA unless
such Plans can be terminated without material liability to the Borrowers in connection with such
termination; (b) make contributions to all of the Borrower’s Plans in a timely manner and in a
sufficient amount to comply with the requirements of ERISA; (c) comply with all material
requirements of ERISA which relate to such Plans so as to preclude the occurrence of any Reportable
Event, Prohibited Transaction (other than a Prohibited Transaction subject to an exemption under
ERISA) or material “accumulated funding deficiency” as such term is defined in ERISA; and
(d) notify the Lender immediately upon receipt by the Borrower of any notice of the institution of
any proceeding or other action which may result in the termination of any Plan. With respect to
any Plan, the Administrative Borrower shall deliver to the Lender, promptly after the filing or
receipt thereof, copies of all reports or notices which any of the Borrowers files or receives
under ERISA with or from the Internal Revenue Service, the Pension Benefit Guaranty Corporation, or
the U.S. Department of Labor, other than reports or notices which do not materially or adversely
(i) affect such Borrower, its business, assets or financial condition, or (ii) such Borrower’s
ability to perform its obligations under this Agreement.

 

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6.09 Continuation of and Change in Business. The Borrowers will continue to engage in the
businesses and activities described in Schedule 4.10 to this Agreement and the Borrowers
will not engage in any other businesses or activities without prior written consent of the Lender.

6.10 Use of Proceeds. The Borrowers will use the proceeds of the Revolving Credit Loans for
payment of fees associated with the Revolving Credit Loans, working capital, general corporate
purposes, letter of credit support and Hedging Contract support. The Borrowers will also use a
portion of the proceeds of the Revolving Credit Loans to repay its indebtedness to the Existing
Lender.

6.11 Lien Searches. The Lender may, but shall not be obligated to, conduct lien searches of
the Borrowers and their respective assets and properties on an annual basis and at such other times
as the Lender, in its sole discretion, may determine to be necessary. The Borrowers shall
reimburse the Lender for the Lender’s out-of-pocket costs in connection with such lien searches.

6.12 Environmental Matters. The Borrowers shall comply, and cause each Subsidiary to comply,
with all reasonable requests made by the Lender relating to compliance with all applicable
Environmental Laws and regulations, including, without limitation, performance of tests and studies
regarding environmental status of Borrowers’ principal places of business and correction of
violations of any applicable Environmental Laws and regulations that could reasonably be expected
to have a material and adverse effect on the assets, business, operations or financial condition of
any of the Borrowers or on the ability of each of the Borrowers to perform its obligations under
this Agreement or the other Loan Documents to which it is a party. Within forty-five (45) days
after the end of each fiscal year, the Administrative Borrower shall provide the Lender with a
letter or certificate, satisfactory in form and substance to the Lender, confirming that the
Borrowers are not in
violation of any Environmental Laws the non-compliance with which could reasonably be expected to
have a material and adverse effect on the assets, business, operations or financial condition of
any of the Borrowers or on the ability of each of the Borrowers to perform its obligations under
this Agreement or the other Loan Documents to which it is a party.

6.13 Cash Management and Operating Accounts. Each of the Borrowers shall establish and
maintain at Citizens Bank, N.A. or another Lender Affiliate designated by the Lender, its operating
accounts, blocked accounts and cash management accounts for the Security Agreements. Each if the
Borrowers will, upon the Lender’s request, establish and maintain a lockbox account for the
collection of the Accounts with Citizens Bank, N.A. or another Lender Affiliate designed by the
Lender. In the event that any Borrower establishes, with the Lender’s prior written consent, an
operating account at a financial institution which is not a Lender Affiliate, the Lender shall
receive a Deposit Control Agreement or Blocked Account Agreement, satisfactory in terms, form and
substance to the Lender (in either case, a “Blocked Account Agreement”), to perfect the Lender’s
security interests in such account.

 

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6.14 Interest Rate Protection. On the Closing Date, or within thirty (30) days after the
Closing Date, the Administrative Borrower shall have entered into an interest rate protection
agreement with a Lender Affiliate (or another financial institution acceptable to the Lender) for a
period of at least one year in an amount equal to at least seventy percent (70%) of the aggregate
principal amount of the Revolving Credit Loans funded on the Closing Date and with such other terms
and conditions as shall be acceptable to the Lender Affiliate (the “Interest Rate Protection
Agreement”). Documentation for the Interest Rate Protection Agreement shall be as that in a
standard International Swap Dealer Association Agreement, shall provide for the method of
calculating the reimbursable amount of the provider’s credit exposure in a reasonable and customary
manner, shall be reasonably satisfactory to the Lender and the Lender Affiliate. The Interest Rate
Protection Agreement shall be deemed to be a Hedging Contract under this Agreement.

6.15 Equipment Leasing Commitment Letter. On or before March 31, 2010, the Borrowers shall
have received a commitment letter for an equipment leasing transaction, on terms and pursuant to
documentation satisfactory to the Lender, with an equipment lender acceptable to the Lender (the
“Equipment Lessor”). On or before such date, the Lender and the Borrowers shall have received
confirmation that an intercreditor agreement, satisfactory in terms, form and substance to the
Lender, shall be entered into with the Equipment Lessor.

6.16 Further Assurances. Each of the Borrowers, at the Borrowers’ own cost and expense, will
cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts,
documents and assurances as the Lender may from time to time reasonably request in order more
effectively to carry out the intent and purposes of this Agreement and the transactions
contemplated by this Agreement and to cause the security interest or interests, the liens, or
conveyance granted under the Security Agreements or any other Loan Documents to be, at all times,
valid, perfected and enforceable against each of the Borrowers and all third parties.

ARTICLE VII

NEGATIVE COVENANTS

During the term of this Agreement, the Borrowers, individually and collectively, covenant and
agree that, unless the Lender shall otherwise consent in writing, the Borrowers will not and will
not allow any Subsidiary to:

7.01 Liens. Create, incur, assume or suffer to exist any Lien on any of its property or
assets, tangible or intangible, now owned or acquired in the future, or agree to become liable to
do so, except the following, being collectively referred to herein as the “Permitted Encumbrances”:

(a) Liens existing on the Closing Date and described in Schedule 7.01 to this
Agreement, Liens in favor of the Lender, and Liens securing Debt permitted under
Section 7.02 of this Agreement;

(b) Liens arising from taxes, assessments, charges, levies or claims described in
Section 6.05(a) of this Agreement that are not yet due or that remain payable without
penalty or to the extent permitted to remain unpaid under the exception to Section 6.05(a)
of this Agreement;

 

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(c) deposits or pledges to secure worker’s compensation, unemployment insurance, old
age benefits or other social security obligations, or in connection with or to secure the
performance of bids, tenders, trade contracts or leases, or to secure statutory obligations,
or stay, surety or appeal bonds, or other pledges or deposits of like nature and all in the
ordinary course of business;

(d) mechanics’, carriers’, workmen’s, repairmen’s or similar liens arising in the
ordinary course of business in respect of obligations which are not overdue, or deposits
made to obtain the release of such mechanics’, carriers’, workmen’s, repairmen’s or similar
liens which are being contested in good faith by appropriate proceedings and with respect to
which the Borrower has created reserves which are determined to be adequate by the
application of GAAP consistently applied; and

(e) zoning restrictions, easements, minor restrictions on the use of real property,
minor irregularities in title to real property and other minor Liens that do not secure the
payment of money or the performance of an obligation and that do not in the aggregate
materially detract from the value of a property or asset to, or materially impair its use in
the business of, the Borrower.

7.02 Debt. Create, incur, assume or suffer to exist any Debt, except:

(a) Debt under this Agreement, the Notes, the other Loan Documents or under any other
document, instrument or agreement between the Borrowers (or any one or more of them) and the
Lender;

(b) Debt existing on the Closing Date and described in Schedule 7.02 to this
Agreement, provided, however, that none of such indebtedness shall be extended, renewed or
refinanced without the prior written consent of the Lender;

(c) current accounts payable, accrued expenses and other current items arising out of
transactions (other than borrowings and other than those described in clause (d) below) in
the ordinary course of business;

(d) current intercompany accounts payable, accrued expenses and other current items
arising out of transactions among Borrowers and/or Subsidiaries in the ordinary course of
business, provided that no such payable, expense or other item is due more than sixty (60)
days after the invoice date therefor;

(e) Hedging Obligations to the Lender or any Lender Affiliate (or other financial
institution acceptable to the Lender in accordance with Section 6.14 of this Agreement);

 

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(f) Capitalized Lease Obligations described in Section 6.15 to this Agreement;

(g) Debt secured by purchase money security interests and capitalized leases in
equipment and fixtures, provided that the aggregate principal amount (including Capitalized
Lease Obligations) of all such additional Debt shall not exceed $500,000 in any fiscal year
of the Borrower and provided that the liens and security interests securing such
indebtedness are limited to the specific identified asset purchased with such indebtedness;
and

(h) Debt of any Subsidiary or any Borrower to Ultralife, subject in each case to the
limitations set forth in Section 7.04 of this Agreement.

7.03 Guarantees and Contingent Liabilities. Directly or indirectly assume, guarantee, endorse
or otherwise agree, become or remain directly or contingently liable upon or with respect to any
obligation or liability of any other person, firm or entity, except:

(a) guarantees existing on the Closing Date and described on Schedule 7.03 to this
Agreement, provided, however, that, except as permitted under clause (b) of this Section 7.03, the
maximum obligation represented by any such guarantee (as disclosed on Schedule 7.03 to this
Agreement) shall not be increased without the prior written consent of the Lender; and

(b) guarantees made or given by any Borrower after the Closing Date of indebtedness of any
other Borrower or Subsidiary and by any Subsidiary of indebtedness of any
Borrower, provided that (i) the aggregate sum of all such guarantees shall not in any event exceed
$2,000,000 at any one time outstanding, and (ii) no such guarantee shall be secured by any of the
assets of the guarantor.

7.04 Loans and Investments. Make or suffer to remain outstanding any loan or advance to, or
purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest
(whether general or limited) in, or any other interest in, or make any capital contribution to, any
other person, including any Subsidiary, or agree, become or remain liable to do any of the
foregoing, except:

(a) loans, advances and investments existing on the Closing Date and described on Schedule
7.04 to this Agreement, provided, however, that, except as permitted under clauses (b), (c) or
(d) of this Section 7.04, the principal outstanding amount of any such loan, advance or investment
shall not be increased without prior written consent of the Lender.

(b) loans or other advances and/or investments made by Ultralife after the Closing Date to or
in any of the other Borrowers in an aggregate amount not to exceed $1,000,000 at any one time
outstanding.

(c) loans or other advances and/or investments made by Ultralife after the Closing Date to or
in Able New Energy – Hong Kong and/or Able New Energy — China not to exceed $2,000,000 at any one
time outstanding, and

 

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(d) loans or other advances and/or investments made by Ultralife after the Closing Date to or
in Ultralife UK and/or Ultralife India in an aggregate amount not to exceed $1,000,000 at any one
time outstanding (notwithstanding the existence of any revolving credit commitment which Ultralife
has provided or may provide to Ultralife UK).

The Borrowers will not, and will not allow any Subsidiary to, make any loans or other advances
and/or investments to or in any Subsidiary which is not a Subsidiary as of the Closing Date.

7.05 Dividends and Related Distributions. Declare, make, pay, or agree, become or remain
liable to make or pay, any dividend or other distribution of any nature (whether in cash, property,
securities or otherwise) on account of or in respect of any shares of the capital stock of
Ultralife or on account of the purchase, redemption, retirement or acquisition of any shares of the
capital stock (or warrants, options or rights for any shares of the capital stock) of Ultralife.

7.06 Leases. Enter into or suffer to remain in effect any agreement to lease, as lessee, any
real or personal property, except:

(a) leases cancelable by the lessee without penalty on not more than thirty (30) days’
notice;

(b) leases existing on the Closing Date and described on Schedule 7.06 to this
Agreement; and

(c) leases of personal property (other than Capitalized Lease Obligations) not listed
on Schedule 7.06 having aggregate rentals not in excess of $300,000 in any fiscal
year of the Borrower.

7.07 Merger; Consolidation; Business Acquisitions. Merge or agree to merge with, or acquire
any material portion of the stock or assets or business of, any other person, corporation, firm or
other entity, other than a Borrower or a Subsidiary.

7.08 Dispositions of Assets. Sell, convey, assign, lease, abandon or otherwise transfer or
dispose of, voluntarily or involuntarily, any properties or assets, tangible or intangible, to any
other person, corporation, firm or other entity, other than a Borrower, except for sales of
inventory in the ordinary course of business.

 

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7.09 Self-Dealing. Enter into or carry out any loan, advance or other transaction (including,
without limitation, purchasing property or services or selling property or services) with any
Affiliate except that:

(a) Affiliates of a Borrower may render services to such Borrower for compensation at
the same rates generally paid by corporations engaged in the same or similar businesses for
the same or similar services; and

(b) a Borrower may, with the prior written consent of the Lender, enter into and carry
out other transactions with Affiliates if in the ordinary course of business, pursuant to
the reasonable requirements of the Borrower’s business upon terms reasonably found by the
board of directors of the Borrower after due inquiry to be fair and reasonable and no less
favorable to the Borrower than would be obtained in a comparable arm’s-length transaction.

7.10 Margin Stock. Use the proceeds of any Loans directly or indirectly to purchase or carry
any “margin stock” (within the meaning of Regulations U, G, T, or X of the Board of Governors of
the Federal Reserve System) or to extend credit to others for the purpose of purchasing or
carrying, directly or indirectly, any margin stock.

7.11 Consolidated Tax Returns. File, or consent to the filing of, any consolidated income tax
return with any person, corporation, firm or other entity, other than a Subsidiary.

7.12 Ownership and Control. Except as provided on Schedule 4.07 to this Agreement,
directly or indirectly, issue, transfer, sell or otherwise dispose of any interest in any Borrower
or any Subsidiary to any other person, corporation, firm or other entity, other than to a Borrower.

7.13 Changes in Organizational Documents. Amend in any respect its articles of organization
(including any provisions or resolutions relating to membership units), operating agreement or
other organizational documents without providing at least thirty (30) calendar days’ prior written
notice to the Lender.

7.14 Foreign Assets Control Regulations, Etc. Become a “blocked person” as described in the
Executive Order, the Trading with the Enemy Act or the Foreign Assets Control Regulations or engage
in any dealings or transactions, or be otherwise associated, with any such “blocked person”. In
addition, none of the requesting or borrowing of the Loans or the requesting or issuance, extension
or renewal of any Letter of Credit or the use of the proceeds of any thereof will violate the
Trading With the Enemy Act (50 USC §1 et seq., as amended) (the “Trading With the Enemy Act”) or
any of the foreign assets control regulations of the United States Treasury Department (31 C.F.R.,
Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any enabling
legislation or executive order relating thereto (including, but not limited to (a) Executive order
13224 of September 21, 2001 Blocking Property and Prohibiting Transactions with Persons Who Commit,
Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and
(b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (Public Law 107-56).

7.15 Negative Pledges. Enter into any agreement (for purposes of this Section 7.15, a
“Negative Pledge”) with any Person which prohibits any of the Borrowers or any of the Subsidiaries
from granting any Liens to the Lender, in the Collateral or the other assets or properties of such
Borrower or Subsidiary, other than Negative Pledges granted in connection with indebtedness secured
by purchase money security interests and capitalized leases permitted under Section 7.02(f) and
Section 7.02(g), provided that any such Negative Pledge granted in accordance with this clause be
limited to the asset acquired and be an ordinary and customary requirement of such purchase money
financing.

 

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7.16 Financial Maintenance Covenants.

(a) Permit or suffer the Fixed Charge Coverage Ratio to be less than 1.20 to 1.00 as of March
28, 2010, or as of any fiscal quarter end thereafter.

(b) Permit or suffer the Excess Availability to be less than $3,000,000 at any time.

ARTICLE VIII

DEFAULTS

8.01 Events of Default. An “Event of Default” means the occurrence or existence of one or
more of the following events or conditions (whatever the reason for such Event of Default and
whether voluntary, involuntary or effected by operation of Law):

(a) The Borrowers shall fail to pay principal or interest on the Loans when due; or

(b) The Borrowers shall fail to pay when due any other fee, or other amount payable pursuant
to this Agreement, the Notes, the Security Agreement, any of the other Loan Documents or any other
document, instrument or agreement creating, evidencing or governing indebtedness of the Borrowers
to the Lender, including all agreements between the Lender or any Lender Affiliate and a Borrower
which give rise to Hedging Obligations, and such failure shall have continued for a period of ten
(10) days or for any other applicable grace period; or

(c) Any representation or warranty made by the Borrowers under this Agreement or any of the
other Loan Documents or by any Guarantor under a Guaranty Agreement or any statement made by any
Borrower or any Guarantor in any financial statement, certificate, report, exhibit or document
furnished by or for the Borrowers or the Guarantors, as the case may be, to the Lender pursuant to
this Agreement or the other Loan Documents shall prove to have been false or misleading in any
material respect as of the time when made; or

(d) The Lender’s security interest under any of the Security Agreements is or shall become
unperfected; or

(e) The Borrowers shall be in default in the performance or observance of Sections 6.04, 6.06,
6.11 and 6.16 of this Agreement and such default shall continue for a period of fifteen (15) days
after the Lender shall have given notice to the Administrative Borrower of such default; or

(f) The Borrowers shall be in default in the performance or observance of any other covenant,
agreement or duty under this Agreement, the other Loan Documents or any Hedging Contract beyond any
applicable grace or cure period expressly provided in such Loan Document; or

 

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(g) A Borrower shall (i) default (as principal or guarantor or other surety) in any payment of
principal of or interest on any obligation (or set of related obligations) for borrowed money,
beyond any period of grace with respect to the payment or, if an obligation (or set of related
obligations), is or are payable or repayable on demand, fails to pay or repay such obligation or
obligations when demanded, or (ii) default in the observance of any other covenant, term or
condition contained in any agreement or instrument by which an obligation (or set of related
obligations), is or are created, secured or evidenced, if the effect of such default is to cause,
or to permit the holder or holders of such obligation or obligations (or a trustee or agent
on behalf of such holder or holders) to cause, all or part of such obligation or obligations to
become due before its or their otherwise stated maturity; or

(h) One or more judgments for the payment of money shall have been entered against a Borrower,
which judgment or judgments shall have remained undischarged or unstayed for a period of thirty
(30) days; or

(i) A writ or warrant of attachment, garnishment, execution, distraint or similar process
shall have been issued against a Borrower or any of its properties which shall have remained
undischarged or unstayed for a period of thirty (30) days; or

(j) The indictment or threatened indictment of a Borrower or any guarantor under any criminal
statute, or commencement or threatened commencement of criminal or civil proceedings against
Borrower or any Guarantor pursuant to which statute or proceedings the penalties or remedies sought
or available include forfeiture of any of the property of the Borrowers or such Guarantor;

(k) A Material Adverse Change has occurred; or

(l) A Change of Control shall occur or exist; or

(m) NASDAQ either delists the Ultralife securities that are currently included for quotation
on the NASDAQ Global Market or issues a delisting determination letter to Ultralife for said
securities; or

(n) A proceeding shall be instituted in respect of any of the Borrowers:

(i) seeking to have an order for relief entered in respect of such Borrower, or seeking
a declaration or entailing a finding that such Borrower is insolvent or a similar
declaration or finding, or seeking dissolution, winding-up, charter revocation or
forfeiture, liquidation, reorganization, arrangement, adjustment, composition or other
similar relief with respect to such Borrower, its assets or its debts under any law relating
to Bankruptcy, insolvency, relief of debtors or protection of creditors, termination of
legal entities or any other similar law now or in the future in effect; or

 

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(ii) seeking appointment of a receiver, trustee, custodian, liquidator, assignee,
sequestrator or other similar official for such Borrower or for all or any substantial part
of its property; or

(o) A Borrower shall become insolvent, shall become generally unable to pay its debts as they
become due, shall voluntarily suspend transaction of its business, shall make a general assignment
for the benefit of creditors, shall institute a proceeding described in Section 8.01(n)(i) of this
Agreement or shall consent to any order for relief, declaration, finding or relief described in
Section 8.01(n)(i) of this Agreement, shall institute a proceeding described in Section 8.01(n)(ii)
of this Agreement or shall consent to the appointment or to the taking of possession by any such
official of all or any substantial part of its property whether or not any
proceeding is instituted, dissolves, winds-up or liquidates itself or any substantial part of its
property, or shall take any action in furtherance of any of the foregoing.

8.02 Consequences of an Event of Default.

(a) If an Event of Default specified in Sections 8.01(a) through (m) of this Agreement occurs
and continues or exists, the Lender will be under no obligation to make Loans and may demand the
unpaid principal amount of the Notes, interest accrued on the unpaid principal amount and all other
amounts owing by the Borrowers under this Agreement and the other Loan Documents to be immediately
due and payable without presentment, demand, protest or further notice of any kind, all of which
are expressly waived, and an action for any amounts due shall accrue immediately.

(b) If an Event of Default specified in Section 8.01(n) or (o) of this Agreement occurs and
continues or exists, the Lender will be under no further obligation to make Loans and the unpaid
principal amount of the Notes, interest accrued on the unpaid principal amount and all other
amounts owing by the Borrowers under this Agreement and the other Loan Documents shall become
immediately due and payable without presentment, demand, protest or notice of any kind, all of
which are expressly waived, and an action for any amounts due shall accrue immediately.

(c) If an Event of Default occurs and continues or exists, the Lender may, without notice to
the Administrative Borrower increase the rate of interest applicable to the Loans to the rate of
interest applicable to the Loans to the rate of interest specified in Section 3.02 of this
Agreement.

(d) If an Event of Default occurs or exists, the Lender may, in its sole discretion, reduce
the Borrowing Base by adjusting the advance rates or by creating such additional reserves as the
Lender shall, in its sole discretion, deem appropriate.

(e) If an Event of Default occurs and continues or exists, the Lender may, upon notice to the
Administrative Borrower, require the Borrowers to cause cash to be deposited and maintained in an
account with Lender, as cash collateral, in an amount equal to one hundred and five percent (105%)
of the outstanding Letters of Credit, and the Borrowers hereby irrevocably authorizes Lender, in
its discretion, on the Borrowers’ behalf and in the Administrative Borrower’s name, to open such an
account and to receive and maintain deposits therein, in the amounts required to be made by the
Borrowers. Lender will invest such cash collateral (less applicable reserves) in such short-term
money-market items as to which Lender and the Administrative Borrower mutually agree and the net
return on such investments shall be credited to such account and constitute additional cash
collateral. The Borrowers may not withdraw amounts credited to any such account except upon
payment and performance in full of all Obligations and termination of this Agreement.

 

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(f) If an Event of Default occurs and continues or exists, and whether or not the Lender shall
have accelerated the maturity of Loans pursuant to any of the foregoing provisions of this
Section 8.02, the Lender, if owed any amount with respect to the Notes, may
proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate
proceeding, whether for the specific performance of any covenant or agreement contained in this
Agreement or the Notes, including as permitted by applicable Law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise,
proceed to enforce the payment thereof or any other legal or equitable right of the Lender.

(g) If an Event of Default occurs and continues or exists, the Lender may exercise each and
every right and remedy granted to the Lender under the Loan Documents and under any applicable Law.

8.03 Set-Off. If the unpaid principal amount of the Notes, interest accrued on the unpaid
principal amount or other amount owing by the Borrowers under this Agreement or the other Loan
Documents shall have become due and payable (at maturity, by acceleration or otherwise), the
Lender, any Lender Affiliate and the holder of any participation in any Loan will each have the
right, in addition to all other rights and remedies available to it, without notice to the
Borrowers (or any of them), to set-off against and to appropriate and apply to such due and payable
amounts any debt owing to, and any other funds held in any manner for the account of, the Borrowers
(or any of them) by the Lender, by the Lender Affiliate or by such holder, including, without
limitation, all funds in all deposit accounts (whether time or demand, general or special,
provisionally credited or finally credited, or otherwise) now or in the future maintained by a
Borrower with the Lender, the Lender Affiliate or such holder. The Borrowers consent to and
confirm the foregoing arrangements and confirms the rights of lender’s lien and set-off described
in this Section 8.03. Nothing in this Agreement will be deemed a waiver or prohibition of or
restriction on the Lender’s rights, the Lender Affiliates’ rights or any such holder’s rights of
lender’s lien or set-off.

8.04 Payments Set Aside. To the extent that the Borrowers make a payment to the Lender, or
the Lender exercises its right of set-off, and such payment or the proceeds of such set-off or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or
required (including pursuant to any settlement entered into by the Lender in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any bankruptcy or insolvency
proceeding or otherwise, then to the extent of such recovery the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such set-off had not occurred.

 

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ARTICLE IX

JOINT AND SEVERAL LIABILITY

9.01 Joint and Several Liability. (a) It is the intention of the Borrowers and the Lender
that all of the Obligations shall be the joint and several obligations of all of the Borrowers
without preferences or distinction among them. Each of the Borrowers, jointly and severally, hereby
irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and several liability with each
other Borrower, with respect to the payment and performance of all of the Obligations. If and to
the extent that any of the Borrowers shall fail to make any payment with respect to any of the
Obligations as and when due or to perform any of such Obligations in accordance with the terms
thereof, then in each such event each other Borrower will make such payment with respect to, or
perform, such Obligations.

(b) The obligations and liabilities of each Borrower under this Section 9.01 shall be absolute
and unconditional, and joint and several, irrespective of the genuineness, validity, priority,
regularity or enforceability of this Agreement or any of the other Loan Documents or any other
circumstance which might otherwise constitute a legal or equitable discharge of such obligations
and liabilities. Each Borrower expressly agrees that the Lender may, in its sole and absolute
discretion, without notice to or further assent of such Borrower and without in any way releasing,
affecting or in any way impairing the joint and several obligations and liabilities of such
Borrower under this Section 9.01: (i) waive compliance with, or any defaults under, or grant any
other indulgences under or with respect to any of the Loan Documents; (ii) modify, amend, change or
terminate any provisions of any of the Loan Documents in accordance with the provisions of this
Agreement including, without limitation, the agreements of necessary parties; (iii) grant
extensions or renewals of or with respect to the Revolving Credit Loans or any of the Loan
Documents; (iv) effect any release, subordination, compromise or settlement in connection with this
Agreement or any of the other Loan Documents; (v) agree to the substitution, exchange, release or
other disposition of the Collateral or any part thereof or any other collateral for the Loans or to
the subordination of any lien or security interest therein; (vi) make advances for the purpose of
performing any term, provision or covenant contained in this Agreement or any of the Loan Documents
with respect to which the Borrowers shall then be in default; (vii) make future advances pursuant
to this Agreement or any of the other Loan Documents; (viii) assign, pledge, hypothecate or
otherwise transfer the Obligations, any of the Loan Documents or any interest therein, all as and
to the extent permitted by the provisions of this Agreement; (ix) deal in all respects with the
other Borrowers; (x) effect any release, compromise or settlement with any of the other Borrowers;
and (xi) provide debtor-in-possession financing or allow use of cash collateral in proceedings
under the Bankruptcy Code, it being expressly agreed by all of the Borrowers that any such
financing and/or use would be part of the Obligations.

 

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(c) The obligations and liabilities of each Borrower under this Section 9.01 shall be primary,
direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or
defense based upon any claim that a Borrower may have against any one or more of the other
Borrowers or the Lender and shall not be conditional or contingent upon pursuit or enforcement by
the Lender of any remedies it may have against the Borrowers with respect to this Agreement or any
of the other Loan Documents, whether pursuant to the terms thereof or by operation of law. Without
limiting the generality of the foregoing, the Lender shall not be required to make any demand upon
any of the Borrowers, or to sell the Collateral or otherwise pursue, enforce or exhaust its or
their remedies against the Borrowers, the Collateral either before, concurrently with or after
pursuing or enforcing its rights and remedies against any Borrower. Any one or more successive or
concurrent actions or proceedings may be brought against each Borrower, either in the same action,
if any, brought against any one or more of the
Borrowers or in separate actions or proceedings, as often as the Lender may deem expedient or
advisable. Without limiting the foregoing, it is specifically understood that any modification,
limitation or discharge of any of the liabilities or obligations of any one or more of the
Borrowers, or any obligor under any of the Loan Documents, arising out of, or by virtue of, any
Insolvency Proceeding initiated by or against any one or more of the Borrowers shall not modify,
limit, lessen, reduce, impair, discharge, or otherwise affect the liability of each of the other
Borrowers under this Section 9.01 in any manner whatsoever, and this Section 9.01 shall remain and
continue in full force and effect. It is the intent and purpose of this Section 9.01 that each
Borrower shall and does hereby waive all rights and benefits which might accrue by reason of any
such proceeding, and the Borrowers agree that they shall be liable for the full amount of the
obligations and liabilities under this Section 9.01, regardless of, and irrespective to, any
modification, limitation or discharge of the liability of any one or more of the Borrowers, any
guarantor or any obligor under any of the Loan Documents, that may result from any such
proceedings. Except as otherwise expressly provided for herein, the joint and several liability of
the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption,
merger, amalgamation or any other change whatsoever in the name, membership, constitution or place
of formation of any Borrower or the Lender. If at any time, any payment, or any part thereof, made
in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by the
Lender upon the insolvency, bankruptcy or reorganization of any of the Borrowers or any guarantors,
or otherwise, the provisions of this Section 9.01 will forthwith be reinstated in effect, as though
such payment had not been made.

(d) Each Borrower as a guarantor under this Article IX hereby unconditionally, jointly and
severally, irrevocably and expressly waives (i) presentment and demand for payment of the
Obligations and protest of non-payment; (ii) notice of acceptance of the joint and several
liability of the Borrowers under this Section 9.01 and of presentment, demand and protest thereof;
(iii) notice of the occurrence of any Event of Default and notice of all indulgences; (iv) notice
of any increase in the amount of any portion of or all of the Obligations; (v) demand for
observance, performance or enforcement of any of the terms or provisions of this Agreement or any
of the other Loan Documents; (vi) all errors and omissions in connection with the Lender’s
administration of the Obligations, except errors and omissions resulting from acts of bad faith;
(vii) any right or claim of right to cause a marshaling of the assets of any one or more of the
other Borrowers; and (viii) any act or omission of the Lender which changes the scope of the risk
of the Borrowers.

 

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(e) Each Borrower is accepting joint and several liability hereunder in consideration of the
financial accommodations to be provided by the Lender under this Agreement, for the mutual benefit,
directly and indirectly, of each Borrower and in consideration of the undertakings of each Borrower
to accept joint and several liability for the obligations of each Borrower. The Borrowers represent
and warrant to the Lender that each of them will derive benefits, directly and indirectly, from the
financial accommodations to be provided by the Lender under this Agreement (both in their separate
capacity and as a member of the integrated group to which each of the Borrowers is a part, the
continued successful operation of which is dependent, in part, upon performance of the functions of
the integrated group as a whole), because, among other reasons, (i) the terms of the consolidated
financing provided under this Agreement are more favorable than would otherwise be obtainable by
the Borrowers
individually, and (ii) the Borrowers’ additional administrative and other costs and reduced
flexibility associated with individual financing arrangements which would otherwise be required if
obtainable would substantially reduce the value to the Borrowers of the financing. The Borrowers in
the discretion of their respective management are to agree among themselves as to the allocation of
the benefits of the proceeds of the Loans, and the purposes for which such benefits and proceeds
will be used so long as any such allocations or purpose is not in violation of this Agreement.

(f) Without implying any limitation on the joint and several nature of the Obligations, the
Lender agrees that, subject to the limitations set forth in Sections 2.03 and 7.04 of this
Agreement, the Borrowers may create reasonable intercompany Indebtedness between or among the
Borrowers with respect to the allocation of the benefits and proceeds of the Loans made under this
Agreement. The Borrowers agree among themselves, and the Lender consents to that agreement, that
each Borrower shall have rights of contribution from all of the other Borrowers to the extent such
Borrower incurs Obligations in excess of the proceeds of the Loans received by, or allocated to
purposes for the direct benefit of, such Borrower. All such indebtedness and rights shall be, and
are hereby agreed by the Borrowers to be, subordinate in priority and payment to the indefeasible
repayment in full of the Obligations, and, unless the Lender agrees in writing otherwise, shall not
be exercised or repaid in whole or in part until all of the Obligations have been satisfied. The
Borrowers agree that all of such intercompany indebtedness and rights of contribution are part of
the Collateral and secure the Obligations. Each Borrower hereby waives all rights of counterclaim,
recoupment and offset between or among themselves arising on account of that indebtedness and
otherwise. Each Borrower shall not evidence the intercompany indebtedness or rights of contribution
by note or other instrument unless the same are assigned to the Lender, and shall not secure such
indebtedness or rights of contribution with any Lien or security, even though any such Lien and
security shall be part of the Collateral, unless the same are assigned to the Lender.

ARTICLE X

MISCELLANEOUS

10.01 Holidays. Except as otherwise provided in this Agreement, whenever any payment or
action to be made or taken under this Agreement or under any of the other Loan Documents is stated
to be due on a day which is not a Business Day, such payment or action will be made or taken on the
next following Business Day and such extension of time will be included in computing interest or
fees, if any, in connection with such payment or action.

 

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10.02 Records. The unpaid principal amount of the Notes, the unpaid interest accrued thereon,
the interest rate or rates applicable to such unpaid principal amount and the duration of such
applicability shall at all times be ascertained from the records of the Lender, which shall be
conclusive absent manifest error.

10.03 Amendments and Waivers. The Lender and the Borrowers may from time to time enter into
agreements amending,
modifying or supplementing this Agreement or any other Loan Document or changing the rights of the
Lender or of the Borrower under this Agreement or under any other Loan Document and the Lender may
from time to time grant waivers or consents to a departure from the due performance of the
obligations of the Borrowers under this Agreement, under the Notes or under any other Loan
Document. Any such agreement, waiver or consent must be in writing and will be effective only to
the extent specifically set forth in such writing. In the case of any such waiver or consent
relating to any provision of this Agreement, any Event of Default or Potential Default so waived or
consented to will be deemed to be cured and not continuing, but no such waiver or consent will
extend to any other or subsequent Event of Default or Potential Default or impair any right
consequent to any other or subsequent Event of Default or Potential Default.

10.04 No Implied Waiver; Cumulative Remedies. No course of dealing and no delay or failure of
the Lender in exercising any right, power or privilege under this Agreement or any other Loan
Document will affect any other or future exercise of any such right, power or privilege or exercise
of any other right, power or privilege, except as and to the extent that the assertion of any such
right, power or privilege shall be barred by an applicable statute of limitations; nor shall any
single or partial exercise of any such right, power or privilege or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude any further exercise
of such right, power or privilege or of any other right, power or privilege. The rights and
remedies of the Lender under this Agreement or any other Loan Document are cumulative and not
exclusive of any rights or remedies which the Lender would otherwise have.

10.05 Notices. All notices, requests, demands, directions and other communications
(collectively “Notices”) under the provisions of this Agreement must be in writing (including
telecopied communication) unless otherwise expressly permitted under this Agreement and must be
sent by first-class or first-class express mail, private overnight or next Business Day courier or
by telecopy with confirmation in writing mailed first class, in all cases with charges prepaid, and
any such properly given Notice will be effective when received. All notices will be sent to the
applicable party at the addresses stated below or in accordance with the last unrevoked written
direction from such party to the other parties.

	 	 	 
	If to the Borrowers:

	 	Ultralife Corporation

2000 Technology Parkway

Newark, NY 14513

Attention: General Counsel

Telephone: (315) 359-6609
	 
	 	 
	with a copy to:

	 	Harter Secrest & Emery LLP

1600 Bausch & Lomb Place

Rochester, NY 14604-2711

Attention: Jeffrey H. Bowen, Esq.

Telephone: (585) 231-1149

Telecopy: (585) 232-2152

 

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	If to the Lender

	 	RBS Business Capital,

a division of RBS Asset Finance, Inc.

525 William Penn Place

Mailstop 153-2470

Pittsburgh, PA 15219

Attention: Paul Rebholz, Vice President

Telephone: (412) 867-4216

Telecopy: (412) 867-4744
	 
	 	 
	with a copy to:

	 	Hiscock & Barclay, LLP

1701 Genesee Street

Utica, NY 13501

Attention: Francis X. Matt, III, Esq.

Telephone: (315) 624-7360

Telecopy: (315) 624-7359

10.06 Expenses; Taxes; Attorneys’ Fees. The Borrowers agree to pay or cause to be paid and to
save the Lender harmless against liability for the payment of all reasonable out-of-pocket
expenses, including, but not limited to, fees and expenses of counsel and paralegals for the
Lender, incurred by the Lender from time to time (i) arising in connection with the preparation,
execution, delivery and performance of this Agreement and the other Loan Documents; (ii) relating
to any requested amendments, waivers or consents to this Agreement, the Notes or any of the other
Loan Documents; (iii) arising in connection with the Lender’s enforcement or preservation of rights
under this Agreement or any of the other Loan Documents, including, but not limited, to such
expenses as may be incurred by the Lender in the collection of the outstanding principal amount of
the Lender; and (iv) arising in connection with any case under the Bankruptcy Code filed by or
against the Borrowers (or any of them). The Borrowers agree to pay all stamp, document, transfer,
recording or filing taxes or fees and similar impositions now or in the future determined by the
Lender to be payable in connection with this Agreement or any other Loan Document. The Borrowers
agree to save the Lender harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or delay in paying any
such taxes, fees or impositions. In the event of termination adverse to the Borrowers of any
action at law or suit in equity in relation to this Agreement or the other Loan Documents, the
Borrowers will pay, in addition to all other sums which the Borrowers may be required to pay, a
reasonable sum for attorneys’ and paralegals’ fees incurred by the Lender or the holder of the
Notes in connection with such action or suit. All payments due from the Borrowers under this
Section 10.06 will be added to and become part of the Loans until paid in full.

 

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10.07 Severability. The provisions of this Agreement are intended to be severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part in any
jurisdiction, the provision will, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the validity or enforceability of
the provision in any other jurisdiction or the remaining provisions of this Agreement in any
jurisdiction.

10.08 LIMITATION OF LIABILITY. NEITHER THE LENDER NOR ANY OF THE LENDER AFFILIATES OR ANY OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, CONTRACTORS, SERVANTS, EMPLOYEES, LICENSEES,
SUCCESSORS AND ASSIGNS SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND THE BORROWERS HEREBY WAIVE,
RELEASE AND AGREE NOT TO SUE ANY OF THEM UPON, ANY CLAIM FOR ANY SPECIAL, INDIRECT, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES SUFFERED OR INCURRED BY THE BORROWERS IN CONNECTION WITH, ARISING
OUT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS EXCEPT TO THE EXTENT
ARISING FROM THE GROSS NEGLIGENCE, BAD FAITH, FRAUD OR CRIMINAL OR WILLFUL MISCONDUCT OF THE
LENDER.

10.09 Governing Law; Consent to Jurisdiction. This Agreement will be deemed to be a contract
under the laws of the State of New York and for all purposes will be governed by and construed and
enforced in accordance with the laws of said State. The Borrowers consent to the exclusive
jurisdiction and venue of the federal and state courts located in Erie County, New York, in any
action on, relating to or mentioning this Agreement, the other Loan Documents, or any one or more
of them.

10.10 Prior Understandings. This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, among the parties relating to the
transactions provided for in this Agreement and the other Loan Documents.

10.11 Duration; Survival. All representations and warranties of the Borrowers contained in
this Agreement or made in connection with this Agreement or any of the other Loan Documents shall
survive the making of and will not be waived by the execution and delivery of this Agreement and
the other Loan Documents, by any investigation by the Lender, or the making of any Loan.
Notwithstanding termination of this Agreement or an Event of Default, all covenants and agreements
of the Borrowers will continue in full force and effect from and after the date of this Agreement
so long as the Borrowers may borrow under this Agreement and until payment in full of the Notes,
interest thereon, and all fees and other obligations of the Borrowers under this Agreement and the
Notes. Without limitation, it is understood that all obligations of the Borrowers to make payments
to or indemnify the Lender will survive the payment in full of the Notes and of all other
obligations of the Borrowers under this Agreement and the other Loan Documents.

 

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10.12 Term of Agreement. This Agreement will terminate when all indebtedness of the Borrower
to Lender, including, without limitation, the Loans and interest on the Loans is paid in full, and
the Borrowers have no right to
borrow under this Agreement and the Lender has no obligation to make Loans under this Agreement.

10.13 Counterparts. This Agreement may be executed in any number of counterparts and by the
different parties to this Agreement on separate counterparts each of which, when so executed, will
be deemed an original, but all such counterparts will constitute but one and the same instrument.

10.14 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of
the Lender, the Borrowers and their respective successors and assigns, except that none of the
Borrowers may assign or transfer any of its rights under this Agreement without the prior written
consent of the Lender.

10.15 No Third-Party Beneficiaries. The rights and benefits of this Agreement and the other
Loan Documents are not intended to, and shall not, inure to the benefit of any third party.

10.16 Participation. The Lender may from time to time sell, assign or grant one or more
participations in all or any part of the Loans made by the Lender or which may be made by the
Lender, or its right, title and interest in the Loans or in or to this Agreement, to another
lending officer, lender or financial institution. Except to the extent otherwise required by the
context of this Agreement, the word “Lender” where used in this Agreement means and includes any
holder of a Note originally issued to the Lender and each such holder of a Note will be bound by
and have the benefits of this Agreement, the same as if such holder had been a signatory to this
Agreement. In connection with any such sale, assignment or grant of participation, the Lender may
make available to any prospective purchaser, assignee or participant any information relative to
the Borrowers in the Lender’s possession.

10.17 Patriot Act Notice. The Lender hereby notifies the Borrowers that, pursuant to the
requirements of the Patriot Act, the Lender is required to obtain, verify and record information
that identifies the Borrowers and each of the Guarantors, which information includes the name and
address of the Borrowers and each of the Guarantors in accordance with the Patriot Act. The
Administrative Borrower shall provide, to the extent commercially reasonable, such information and
take such actions as are reasonably requested by the Lender in order to assist the Lender in
maintaining compliance with the Patriot Act.

10.18 Exhibits. All exhibits and schedules attached to this Agreement are incorporated and
made a part of this Agreement.

10.19 WAIVER OF TRIAL BY JURY. EACH OF THE BORROWERS AND THE LENDER EXPRESSLY, KNOWINGLY AND
VOLUNTARILY WAIVE ALL BENEFIT AND ADVANTAGE OF ANY RIGHT TO A TRIAL BY JURY, AND NEITHER THE
BORROWERS NOR THE LENDER WILL AT ANY TIME INSIST UPON, OR PLEAD OR IN ANY MANNER
WHATSOEVER CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF A TRIAL BY JURY IN ANY ACTION ARISING IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

 

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IN WITNESS WHEREOF, and intending to be legally bound, the parties, by their duly authorized
officers, have executed and delivered this Agreement as of the date set forth at the beginning of
this Agreement.

	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	ULTRALIFE CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Peter F. Comerford
 

Secretary

	 	 	 	By:
	 	/s/ Philip A. Fain
 

Philip A. Fain, Chief Financial Officer
	 	 
	 
	 	 	 	 	 	 	 	 
	[CORPORATE SEAL]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	McDOWELL RESEARCH CO., INC.	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Peter F. Comerford
 

Secretary

	 	 	 	By:
	 	/s/ Philip A. Fain
 

Philip A. Fain, Treasurer
	 	 
	 
	 	 	 	 	 	 	 	 
	[CORPORATE SEAL]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	REDBLACK COMMUNICATIONS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Peter F. Comerford
 

Secretary

	 	 	 	By:
	 	/s/ Philip A. Fain
 

Philip A. Fain, Treasurer
	 	 
	 
	 	 	 	 	 	 	 	 
	[CORPORATE SEAL]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	STATIONARY POWER SERVICES, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Peter F. Comerford
 

Secretary

	 	 	 	By:
	 	/s/ Philip A. Fain
 

Philip A. Fain, President
	 	 
	 
	 	 	 	 	 	 	 	 
	[CORPORATE SEAL]
	 	 	 	 	 	 	 	 
	 	 	 	 	RBS BUSINESS CAPITAL,

a division of RBS Asset Finance, Inc.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Ronald L. Tassone
 

Ronald L. Tassone
	 	 
	 

	 	 	 	 	 	Senior Vice President	 	 

 

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