Document:

Exhibit 10.38

                               As of June 1, 2001

Ultralife Batteries, Inc.
2000 Technology Parkway
Newark, NY  14513

Ultralife Batteries (UK) Ltd.
18 Nuffield Way
Abingdon, Oxfordshire, OX 14
1TG England

      Re:   Third Amendment to Financing Agreements ("Amendment")

Gentlemen:

      Reference is made to the Loan and Security Agreement dated June 15, 2000,
between you and the undersigned (the "Loan Agreement"). All capitalized terms
not otherwise defined herein shall have the meanings given such terms in the
Loan Agreement.

      Borrowers have requested that Lender agree to certain modifications to the
Loan Agreement. Subject to the terms and conditions hereof, the Lender agrees
with the Borrowers as follows:

      (1) Section 9.15 of the Loan Agreement is deleted and replaced with the
following:

      "9.15 Adjusted Net Worth. Borrowers shall, at all times, maintain an
      Adjusted Net Worth of not less than $35,000,000.00."

      (2) Borrowers acknowledge and agree that at any time that the Adjusted Net
Worth of the Borrowers shall be less than $40,000,000, Lender shall establish an
Availability Reserve of $1,000,000, which Availability Reserve shall remain in
effect until the Borrowers' Adjusted Net Worth, as evidenced by the financial
statements of Borrowers furnished to Lender pursuant to Section 9.6, equals or
exceeds $40,000,000.

      (3) In connection with the execution and delivery of this Amendment,
Borrowers shall pay to Lender a fee of $10,000.00, which fee shall be fully
earned and non-refundable on the date hereof.

      (4) Within thirty (30) days of the date of this Amendment, Borrowers shall
obtain an updated appraisal of their Equipment from an appraiser acceptable to
Lender and in form and substance satisfactory to Lender.

<PAGE>

Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
As of June 1, 2001
Page 2

      (5) In connection with the execution and delivery of this Amendment, if
requested by Lender, the Borrowers shall furnish to the Lender certified copies
of all requisite corporate action and proceedings of the Borrowers in connection
with this Amendment.

      (6) Each Borrower confirms and agrees that (a) all representations and
warranties contained in the Loan Agreement and in the other Financing Agreements
are on the date hereof true and correct in all material respects (except for
changes that have occurred as permitted by the covenants in Section 9 of the
Loan Agreement), and (b) it is unconditionally liable for the punctual and full
payment of all Obligations, including, without limitation, all charges, fees,
expenses and costs (including attorneys' fees and expenses) under the Financing
Agreements, and that Borrowers have no defenses, counterclaims or setoffs with
respect to full, complete and timely payment of all Obligations.

      (7) Borrowers hereby agree to pay to Lender all reasonable attorney's fees
and costs which have been incurred or may in the future be incurred by Lender in
connection with the negotiation and preparation of this Amendment and any other
documents and agreements prepared in connection with this Amendment. The
undersigned confirm that the Financing Agreements remain in full force and
effect without amendment or modification of any kind, except for the amendments
explicitly set forth herein. The undersigned further confirm that after giving
effect to this Amendment, no Event of Default or events which with notice or the
passage of time or both would constitute an Event of Default have occurred and
are continuing. Except as explicitly provided herein, the execution and delivery
of this Amendment by Lender shall not be construed as a waiver by Lender of any
Event of Default under the Financing Agreements. This Amendment shall be deemed
to be a Financing Agreement and, together with the other Financing Agreements,
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior dealings, correspondence, conversations
or communications between the parties with respect to the subject matter hereof.

                  [Remainder of Page Left Intentionally Blank]

<PAGE>

Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
As of June 1, 2001
Page 3

      If you accept and agree to the foregoing please sign and return the
enclosed copy of this letter. Thank you.

                                Very truly yours,

                                    CONGRESS FINANCIAL CORPORATION
                                    (NEW ENGLAND)

                                    By: /s/Marc E. Swartz
                                        ----------------------------------------
                                        Name: Marc E. Swartz
                                        Title: Senior Vice President

                                    AGREED:

                                    ULTRALIFE BATTERIES, INC.

                                    By: /s/Robert W. Fishback
                                        ----------------------------------------
                                        Name:Robert W. Fishback
                                        Title:Vice President - Finance & CFO

                                    ULTRALIFE BATTERIES (UK) Ltd.

                                    By: /s/William A. Schmitz
                                        ----------------------------------------
                                        Name:William A. Schmitz
                                        Title:Vice President - Primary BatteriesExhibit 10.40

December 1, 2000

Eric Dix
301 Silverhill Rd.
Newark, NY  14513

Dear Eric:

This shall serve to confirm what we have discussed over the past couple of weeks
regarding your continued employment at Ultralife. You had expressed a desire to
have an increased sense of job security, including severance provisions, as you
are contemplating the purchase of a home locally.

To that end, pending approval by the Board of Directors on December 5th, should
your employment be terminated by the Company, except for "cause" (which shall be
defined as gross negligence, willful misconduct, illegal drug use, theft or
conviction of a felony), you will be entitled to one-year of continuation of
salary, benefits and stock option vesting and exercise.

Any reduction in salary or meaningful reduction of responsibility may, at the
employee's discretion, be construed as an involuntary termination and all of the
above terms apply.

Additionally, subject to shareholder authorization of the Company's 2000 Stock
Option Plan, and subject to Board approval, you will be granted an additional
75,000 stock options of Ultralife common shares which vest over a five-year
period, the price of which will be determined by the Board at its December 5,
2000 meeting.

I trust this will satisfactorily address your concerns.

Yours very truly,

/s/ JOHN D. KAVAZANJIAN
-----------------------
John D. Kavazanjian

cc:  Pete Comerford

                             Ultralife ConfidentialExhibit 10.41

                                 W I N T H R O P

                            Financial Services [Logo]

                                                 Lease Agreement Number UL022101

                                 Lease Agreement

This Lease Agreement, dated February 21, 2001 , by and between WINTHROP
RESOURCES CORPORATION (the "Lessor") with an office located at 11100 Wayzata
Boulevard, Suite 800, Minnetonka, Minnesota 55305 and ULTRALIFE BATTERIES, INC.
(the "Lessee") with an office located at 2000 Technology Parkway, Newark, NY
14513

      Lessor hereby leases or grants to the Lessee the right to use and Lessee
      hereby rents and accepts the right to use the equipment listed by serial
      number and related services, and software and related services on the
      Lease Schedule(s) attached hereto or incorporated herein by reference from
      time to time (collectively, the equipment, software and services are the
      "Equipment"), subject to the terms and conditions hereof, as supplemented
      with respect to each item of Equipment by the terms and conditions set
      forth in the appropriate Lease Schedule. The term "Lease Agreement" shall
      include this Lease Agreement and the various Lease Schedule(s) identifying
      each item of Equipment or the appropriate Lease Schedule(s) identifying
      one or more particular items of Equipment.

1. Term

      This Lease Agreement is effective from the date it is executed by both
parties. The term of this Lease Agreement, as to all Equipment designated on any
particular Lease Schedule, shall commence on the Installation Date for all
Equipment on such Lease Schedule and shall continue for an initial period ending
that number of months from the Commencement Date as set forth in such Lease
Schedule (the "Initial Term") and shall continue from year to year thereafter
until terminated. The term of this Lease Agreement as to all Equipment
designated on any particular Lease Schedule may be terminated without cause at
the end of the Initial Term or any year thereafter by either party mailing
written notice of its termination to the other party not less than one-hundred
twenty (120) days prior to such termination date.

2. Commencement Date

      The Installation Date for each item of Equipment shall be the day said
item of Equipment is installed at the Location of Installation, ready for use,
and accepted in writing by the Lessee. The Commencement Date for any Lease
Schedule is the first of the month following installation of all the Equipment
on the Lease Schedule, unless the latest Installation Date for any Equipment on
the Lease Schedule falls on the first day of the month, in which case that is
the Commencement Date. The Lessee agrees to complete, execute and deliver a
Certificate of Acceptance to Lessor upon installation of the Equipment.

3. Lease Charge

      The lease charges for the Equipment leased pursuant to this Lease
Agreement shall be the aggregate "Monthly Lease Charge(s)" as set forth on each
and every Lease Schedule executed pursuant hereto (the aggregate "Monthly Lease
Charge(s)" are the "Lease Charges"). Lessee agrees to pay to Lessor the Lease
Charges in accordance with the Lease Schedule(s), and the payments shall be made
at Lessor's address indicated thereon. The Lease Charges shall be paid by Lessee
monthly in advance with the first full month's payment due on the Commencement
Date. The Lease Charge for the period from the installation date to the
Commencement Date shall be an amount equal to the "Monthly Lease Charge" divided
by thirty (30) and multiplied by the number of days from and including the
Installation Date to the Commencement Date and such amount shall be due and
payable upon receipt of an invoice from Lessor. Charges for taxes made in
accordance with Section 4 and charges made under any other provision of this
Lease Agreement and payable by Lessee shall be paid to Lessor at Lessor's
address specified on the Lease Schedule(s) on the date specified in invoices
delivered to Lessee. If payment , as specified above, is not received by Lessor
on the due date, Lessee agrees to and shall pay, to the extent permitted by law,
on demand, as a late charge, an amount equal to one and one-half percent (1
1/2%), or the maximum percentage allowed by law if less, of the amount past due
("Late Charges"). Late Charges will accrue until billed by Lessor. Late Charges
shall be charged and added to any past due amount(s) on the date such payment is
due and every thirty (30) days thereafter until all past due amounts are paid in
full to Lessor.

4. Taxes

      In addition to the Lease Charges set forth in Section 3, the Lessee shall
reimburse Lessor for all license or registration fees, assessments, sales and
use taxes, rental taxes, gross receipts taxes, personal property taxes and other
taxes now or hereafter imposed by any government, agency, province or otherwise
upon the Equipment, the Lease Charges or upon the ownership, leasing, renting,
purchase, possession or use of the Equipment, whether the same be assessed to
Lessor or Lessee

<PAGE>

(the "Taxes"). Lessor shall file all property tax returns and pay all Taxes when
due. Lessee, upon notice to Lessor, may, in Lessee's own name, contest or
protest any Taxes, and Lessor shall honor any such notice except when in
Lessor's sole opinion such contest is futile or will cause a levy or lien to
arise on the Equipment or cloud Lessor's title thereto. Lessee shall, in
addition, be responsible to Lessor for the payment and discharge of any
penalties or interest as a result of Lessee's actions or inactions. Nothing
herein shall be construed to require Lessee to be responsible for any federal or
state taxes or payments in lieu thereof, imposed upon or measured by the net
income of Lessor, or state franchise taxes of Lessor, or except as provided
hereinabove, any penalties or interest resulting from Lessor's failure to timely
remit such tax payments.

5. Delivery and Freight Costs

      Lessee shall accept delivery of the Equipment and allow the Equipment to
be installed within seven (7) days after delivery.

      All transportation charges upon the Equipment for delivery to Lessee's
designated Location of Installation are to be paid by Lessee. All rigging,
drayage charges, structural alterations, rental of heavy equipment and/or other
expense necessary to place the Equipment at the Location of Installation are to
be promptly paid by Lessee.

6. Installation

      Lessee agrees to pay for the actual installation of the Equipment at
Lessee's site. Lessee shall make available and agrees to pay for all costs
associated with providing a suitable place of installation and necessary
electrical power, outlets and air conditioning required for operating the
Equipment as defined in the Equipment manufacturer's installation manual or
instructions. All supplies consumed or required by the Equipment shall be
furnished and paid for by Lessee.

7. Return to Lessor

      On the day following the last day of the lease term associated with a
Lease Schedule (the "Return Date"), Lessee shall cause and pay for the Equipment
on that Lease Schedule to be deinstalled, packed using the manufacturer's
standard packing materials and shipped to a location designated in writing by
Lessor (the "Return Location"). If the Equipment on the applicable Lease
Schedule is not at the Return Location within ten (10) days of the Return Date,
or Lessee fails to deinstall and ship the Equipment on the Return Date, then any
written notice of termination delivered by Lessee shall become void, and the
Lease Schdule shall continue in accordance with this Lease Agreement.
Irrespective of any other provision hereof, Lessee will bear the risk of damage
from fire, the elements or otherwise until delivery of the Equipment to the
Return Location. At such time as the Equipment is delivered to the Lessor at the
Return Location, the Equipment will be at the risk of Lessor.

8. Maintenance

      Lessee, at its sole expense, shall maintain the Equipment in good working
order and condition. Lessee shall enter into, pay for and maintain in force
during the entire term of any Lease Schedule, a maintenance agreement with the
manufacturer of the Equipment providing for continuous uninterrupted maintenance
of the Equipment (the "Maintenance Agreement"). Lessee will cause the
manufacturer to keep the Equipment in good working order in accordance with the
provisions of the Maintenance Agreement and make all necessary adjustments and
repairs to the Equipment. The manufacturer is hereby authorized to accept the
directions of Lessee with respect thereto. Lessee agrees to allow the
manufacturer full and free access to the Equipment. All maintenance and service
charges, whether under the Maintenance Agreement or otherwise, and all expenses,
if any, of the manufacturer's customer engineers incurred in connection with
maintenance and repair services, shall be promptly paid by Lessee. Lessee
warrants that all of the Equipment shall be in good working order operating
according to manufacturer's specification and eligible for the manufacturer's
standard maintenance agreement upon delivery to and inspection and testing by
the Lessor. If the Equipment is not operating according to manufacturer's
specification, in good working order and/or eligible for the manufacturer's
standard maintenance agreement, Lessee agrees to reimburse Lessor for all costs,
losses, expenses and fees associated with such equipment and the repair or
replacement thereof.

9. Location, Ownership and Use

      The Equipment shall, at all times, be the sole and exclusive property of
Lessor. Lessee shall have no right or property interest therein, except for the
right to use the Equipment in the normal operation of its business at the
Location of Installation, or as otherwise provided herein. The Equipment is and
shall remain personal property even if installed in or attached to real
property. Lessor shall be permitted to display notice of its ownership on the
Equipment by means of a suitable stencil, label or plaque affixed thereto.

      Lessee shall keep the Equipment at all times free and clear from all
claims, levies, encumbrances and process. Lessee shall give Lessor immediate
notice of any such attachment or other judicial process affecting any of the
Equipment. Without Lessor's written permission, Lessee shall not attempt to or
actually: (i) pledge, lend, create a security interest in, sublet, exchange,
trade, assign, swap, use for an allowance or credit or otherwise; (ii) allow
another to use; (iii) part with possession; (iv) dispose of; or (v) remove from
the Location of Installation, any item of Equipment. If any item of Equipment is
exchanged, assigned, traded, swapped, used for an allowance or credit or
otherwise to acquire new or different equipment (the "New Equipment") without
Lessor's prior written consent, then all of the New Equipment shall become
Equipment owned by Lessor subject to this Lease Agreement and the applicable
Lease Schedule.

      Any feature(s) installed on the Equipment at the time of delivery which
are not specified on the Lease Schedule(s) are and shall remain the sole
property of the Lessor.

      Lessee shall cause the Equipment to be operated in accordance with the
applicable vendor's or manufacturer's manual of instructions by competent and
qualified personnel.

<PAGE>

10. Financing Statement

      Lessor is hereby authorized by Lessee to cause this Lease Agreement or
other instruments, including Uniform Commercial Code Financing Statements, to be
filed or recorded for the purposes of showing Lessor" interest in the Equipment.
Lessee agrees to execute any such instruments as Lessor may request from time to
time.

11. Alterations and Attachments

      Upon prior written notice to Lessor, Lessee may, at its own expense, make
minor alterations in or add attachments to the Equipment, provided such
alterations and attachments shall not interfere with the normal operation of the
Equipment and do not otherwise involve the pledge, assignment, exchange, trade
or substitution of the Equipment or any component or part thereof. All such
alterations and attachments to the Equipment shall become part of the Equipment
leased to Lessee and owned by Lessor. If, in Lesor's sole determiantion, the
alteration or attachment reduces the value of the Equipment or interferes with
the normal and satisfactory operation or maintenance of any of the Equipment, or
creates a safety hazard, Lessee shall, upon notice from Lessor to that effect,
promptly remove the alteration or attachment at Lessee's expense and restore the
Equipment to the condition the Equipment was in just prior to the alteration or
attachment.

12. Loss and Damage

      Lessee shall assume and bear the risk of loss, theft and damage (including
any governmental requisition, condemnation or confiscation ) to the Equipment
and all component parts thereof from any and every cause whatsoever, whether or
not covered by insurance. No loss or damage to the Equipment or any component
part thereof shall impair any obligation of Lessee under this Lease Agreement,
which shall continue in full force and effect except as hereinafter expressly
provided. Lessee shall repair or cause to be repaired all damage to the
Equipment. In the event that all or part of the damage to the Equipment. In the
event that all or part of the Equipment shall, as a result of any cause
whatsoever, become lost, stolen, destroyed or otherwise rendered irreparably
unusable or damaged (collectively, the "Loss") then Lessee shall, within ten
(10) days after the Loss, fully inform Lessor in writing of such a Loss and
shall pay to Lessor the following amounts: (i) the Monthly Lease Charges (and
other amounts) due and owing under this Lease Agreement at the time of the Loss,
plus (ii) one-hundred twelve (112%) percent of the original cost of the
Equipment subject to the Loss amortized by the Monthly Lease Charges received by
Lessor during the Initial Term using an amortization rate of 350 basis points
over the interest rate of the three (3) year United States Treasury Note as
reported by The Wall Street Journal on the Commencement Date (collectively, the
sum of (i) plus (ii) shall be the "Casualty Loss Value"). Upon receipt by Lessor
of the Casualty Loss Value: (i) the applicable Equipment shall be removed from
the Lease Schedule; and (ii) Lessee's obligation to pay Lease Charges associated
with the applicable Equipment shall cease. Lessor may request, and Lessee shall
complete, an affidavit(s) which swears out the facts supporting the Loss of any
item of Equipment.

13. Insurance

      Until the Equipment is returned to Lessor or as otherwise herein provided,
whether or not this Lease Agreement has terminated as to the Equipment, Lessee,
at its expense, shall maintain: (i) property and casualty insurance insuring the
Equipment for its Casualty Loss Value naming Lessor or its assigns as sole loss
payee; and (ii) comprehensive public liability and third-party property
insurance naming Lessor and its assigns as additional loss payees. The insurance
shall cover the interest of both the Lessor and Lessee in the Equipment, or as
the case may be, shall protect both the Lessor and Lessee in respect to all
risks arising out of the condition, delivery, installation, maintenance, use or
operation of the Equipment. All such insurance shall provide for thirty (30)
days prior written notice to Lessor of cancellation, restriction, or reduction
of coverage. Lessee hereby irrevocably appoints Lessor as Lessee's
attorney-in-fact to make claim for, receive payment of and execute and endorse
all documents, checks or drafts for loss or damage or return premium under any
insurance policy issued on the Equipment. Prior to installation of the
Equipment, all policies or certificates of insurance shall be delivered to
Lessor by Lessee. Lessee agrees to keep the Equipment insured with an insurance
company which is at least "A" rated by A.M. Best. The proceeds of any loss or
damage insurance shall be payable to Lessor, but Lessor shall remit all such
insurance proceeds to Lessee at such time as Lessee either (i) provides Lessor
satisfactory proof that the damage has been repaired and the Equipment has been
restored to good working order and condition or (ii) pays to Lessor the Casualty
Loss Value. It is understood and agreed that any payments made by Lessee or its
insurance carrier for loss or damage of any kind whatsoever to the Equipment are
not made as accelerated rental payments or adjustments of rental, but are made
solely as indemnity to Lessor for loss or damage of its Equipment.

14. Enforcement of Warranties

      Upon receipt of a written request from Lessee, Lessor shall, so long as
this Lease Agreement is in force, take all reasonable action requested by Lessee
to enforce the Equipment manufacturer's warranties, expressed or implied, issued
on or applicable to the Equipment, which are enforceable by Lessor in its own
name. Lessor shall obtain for Lessee all service furnished by manufacturer in
connection therewith; provided, however, that Lessor shall not be required to
commence any suit or action or resort to litigation to enforce any such warranty
unless Lessee shall first pay to Lessor in advance all expenses in connection
therewith, including attorney's fees.

      If any such warranty shall be enforceable by Lessee in its own name,
Lessee shall, upon receipt of written request from Lessor, so long as this Lease
Agreement is in force, take all reasonable action requested by Lessor to enforce
any such warranty, which is enforceable by Lessee in its own name; provided,
however, that Lessee shall not be obligated to

<PAGE>

commence any suit or action or resort to litigation to enforce any such warranty
unless Lessor shall pay all expenses in connection therewith.

15. Warranties, Disclaimers, and Indemnity

      Lessor warrants that at the time the Equipment is delivered to Lessee,
Lessor will have full right, power and authority to lease the Equipment to
Lessee. EXCEPT FOR THE WARRANTY IN THE SENTENCE DIRECTLY PRECEDING THIS ONE, THE
LESSOR DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING THE WRRANTY
OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. LESSEE ACKNOWLEDGES
THAT IT IS NOT RELYING ON LESSOR'S SKILL OR JUDGMENT IT IS NOT RELYING ON
LESSOR'S SKILL OR JUDGEMENT TO SELECT OR FURNISH GOODS SUITABLE FOR ANY
PARTICULAR PURPOSE AND THAT THERE ARE NO WARRANTIES CONTAINED IN THIS LEASE
AGREEMENT. LESSOR SHALL NOT BE LIABLE FOR DAMAGES, INCLUDING SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OF
THE EQUIPMENT OR ITS USE BY LESSEE, AND SHALL NOT BE LIABLE FOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH
LESSOR'S FAILURE TO PERFORM ITS OBLIGATION HEREUNDER. THIS LEASE AGREEMENT IS A
"FINANCE LEASE" AS THAT TERM IS DEFINED AND USED IN ARTICLE 2A OF THE UNIFORM
COMMERCIAL CODE. NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM
COMMERCIAL CODE WILL BE CONFERRED ON LESSEE.

      Lessee agrees that Lessor shall not be liable to Lessee for, and Lessee
shall indemnify, defend and hold Lessor harmless with respect to, any claim from
a third party for any liability, claim, loss, damage or expense of any kind or
nature, whether based upon a theory of strict liability or otherwise, caused,
directly or indirectly, by: (i) the inadequacy of any item of Equipment,
including software, for any purpose; (ii) any deficiency or any latent or other
defects in any Equipment, including software, whether or not detectable by
Lessee; (iii) the selection, manufacture, rejection, ownership, lease,
possession, maintenance, operation, use or performance of any item of Equpment,
including software; (iv) any interruption or loss of service, use or performance
of any item of Equipment, including software; (v) patent, trademark or copyright
infringement; or (vi) any loss of business or other special, incidental or
consequential damages whether or not resulting from any of the foregoing.
Lessee's duty to defend and indemnify Lessor shall survive the expiration,
termination, cancellation or assignment of this Lease Agreement or a Lease
Schedule and shall be binding upon Lessee" successors and permitted assigns.

16. Event of Default

      The occurrence of any of the following events shall constitute an Event of
Default under this Lease Agreement and/or any Lease Schedule:

      (1)   the nonpayment by Lessee of any Lease Charges when due, or the
            nonpayment by Lessee of any other sum required hereunder to be paid
            by Lessee which non-payment continues for a period of ten (10) days
            from the date when due;
      (2)   the failure of Lessee to perform any other term, covenant or
            condition of this Lease Agreement, any Lease Schedule or any other
            document, agreement or instrument executed pursuant hereto or in
            connection herewith, which is not cured within ten (10) days after
            written notice thereof from Lessor;
      (3)   Lessee attempts to or does remove, transfer, sell, swap, assign,
            sublease, trade, exchange, encumber, receive an allowance or credit
            for, or part with possession of, any item of Equipment;
      (4)   Lessee ceases doing business as a going concern, is insolvent, makes
            an assignment for the benefit of creditors, fails to pay its debts
            as they become due, offers a settlement to creditors or calls a
            meeting of creditors for any such purpose, files a voluntary
            petition in bankruptcy, is subject to an involuntary petition in
            bankruptcy, is adjudicated bankrupt or insolvent, files or has filed
            against it a petition seeking any reorganization, arrangement or
            composition, under any present or future statute, law or regulation;
      (5)   any of Lessee's representations or warranties made herein or on any
            statement or certificate at any time given in writing pursuant
            hereto or in connection herewith shall be false or misleading in any
            material respect;
      (6)   Lessee defaults under or otherwise has accelerated any material
            obligation, credit agreement, loan agreement, conditional sales
            contract, lease, indenture or debenture; or Lessee defaults under
            any other agreement now existing or hereafter made with Lessor; or
      (7)   the breach or repudiation by any party thereto of any guaranty,
            subordination agreement or other agreement running in favor of
            Lessor obtained in connection with this Lease Agreement.

17. Remedies

      Should any Event of Default occur and be continuing, Lessor may, in order
to protect its interests and reasonably expected profits, with or without notice
or demand upon Lessee, pursue and enforce, alternatively, successively and/or
concurrently, any one or more of the following remedies:

      (1)   recover from Lessee all accrued and unpaid Lease Charges and other
            amounts due and owing on the date of the default;
      (2)   recover from Lessee from time to time all Lease Charges and other
            amounts as and when becoming due hereunder;
      (3)   accelerate, cause to become immediately due and recover the present
            value of all Lease Charges and other amounts due and/or likely to
            become due

<PAGE>

            hereunder from the date of the default to the end of the lease term
            using a discount rate of six (6%) percent;
      (4)   cause to become immediately due and payable and recover from Lessee
            the Casualty Loss Value of the Equipment;
      (5)   terminate any or all of the Lessee's rights, but not its
            obligations, associated with the lease of Equipment under this Lease
            Agreement;
      (6)   retake (by Lessor, independent contractor, or by requiring Lessee to
            assemble and surrender the Equipment in accordance with the
            provisions of Section 7 herein above) possession of the Equipment
            without terminating the Lease Schedule or the Lease Agreement free
            from claims by Lessee which claims are hereby expressly waived by
            Lessee;
      (7)   require Lessee to deliver the Equipment to a location designated by
            Lessor;
      (8)   proceed by court action to enforce performance by Lessee of its
            obligations associated with any Lease Schedule and/or this Lease
            Agreement; and/or
      (9)   pursue any other remedy Lessor may otherwise have, at law, equity or
            under any statute, and recover damages and expenses (including
            attorneys' fees) incurred by Lessor by reason of the Event of
            Default.

      Upon repossession of the Equipment, Lessor shall have the right to lease,
sell or otherwise dispose of such Equipment in a commercially reasonable manner,
with our without notice, at a public or private sale. Lessor's pursuit and
enforcement of any one or more remedies shall not be deemed an election or
waiver by Lessor of any other remedy. Lessor shall not be obligated to sell or
re-lease the Equipment. Any sale or re-lease may be held at such place or places
as are selected by Lessor, with or without having the Equipment present. Any
such sale or re-lease, may be at wholesale or retail, in bulk or in parcels.
Time and exactitude of each of the terms and conditions of this Lease Agreement
are hereby declared to be of the essence. Lessor may accept past due payments in
any amount without modifying the terms of this Lease Agreement and without
waiving any rights of Lessor hereunder.

18. Costs and Attorneys' Fees

      In the event of any default, claim, proceeding, including a bankruptcy
proceeding, arbitration, mediation, counter-claim, action (whether legal or
equitable), appeal or otherwise, whether initiated by Lessor or Lessee (or a
debtor-in-possession or bankruptcy trustee), which arises out of, under, or is
related in any way to this Lease Agreement, any Lease Schedule, or any other
document, agreement or instrument executed pursuant hereto or in connection
herewith, or any governmental examination or investigation of Lessee, which
requires Lessor's participation (individually and collectively, the "Claim"),
Lessee, in addition to all other sums which Lessee may be called upon to pay
under the provisions of this Lease Agreement, shall pay to Lessor, on demand,
all costs, expenses and fees paid or payable in connection with the Claim,
including, but not limited to, Attorneys' fees and out-of-pocket costs,
including travel and related expenses incurred by Lessor or its attorneys.

19. Lessor's Performance Option

      Should Lessee fail to make any payment or to do any act as provided by
this Lease Agreement, then Lessor shall have the right (but not the obligation),
without notice to Lessee of its intention to do so and without releasing Lessee
from any obligation hereunder to make or to do the same, to make advances to
preserve the Equipment or Lessor's title thereto, and to pay, purchase, contest
or compromise any insurance premium, encumbrance, charge, tax, lien or other sum
which in the judgment of Lessor appears to affect the Equipment, and in
exercising any such rights, Lessor may incur any liability and expend whatever
amounts in its absolute discretion it may deem necessary therefor. All sums so
incurred or expended by Lessor shall be due and payable by Lessee within ten
(10) days of notice thereof.

20. Quiet Possession and Inspection

      Lessor hereby covenants with Lessee that Lessee shall quietly possess the
Equipment subject to and in accordance with the provisions hereof so long as
Lessee is not in default hereunder; provided, however, that Lessor or its
designated agent may, at any and all reasonable times during business hours,
enter Lessee's premises for the purposes of inspecting the Equipment and the
manner in which it is being used.

21. Assignments

      This Lease Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Lessee, however,
shall not assign this Lease Agreement or sublet any of the Equipment without
first obtaining the prior written consent of Lessor and its assigns, if any.
Lessee acknowledges that the terms and conditions of this Lease Agreement have
been fixed in anticipation of the possible assignment of Lessor's rights under
this Lease Agreement and in and to the Equipment as collateral security to a
third party ("Assignee" herein) which will rely upon and be entitled to the
benefit of the provisions of this Lease Agreement. Lessee agrees to provide
Lessor or its potential assigns with Lessee's most recent audited and its most
current financial statements. Lessee agrees with Lessor and such Assignee to
recognize in writing any such assignment within fifteen (15) days after receipt
of written notice thereof and to pay thereafter all sums due to Lessor hereunder
directly to such Assignee if directed by Lessor, notwithstanding any defense,
set-off or counterclaim whatsoever (whether arising from a breach of this Lease
Agreement or not) that Lessee may from time to time have against Lessor. Upon
such assignment, the Lessor shall remain obligated to perform any obligations it
may have under this Lease Agreement and the Assignee shall (unless otherwise
expressly agreed to in writing by the Assignee) have not obligation to perform
such obligations. Any such assignment shall be subject to Lessee's rights to use
and possess the Equipment so long as Lessee is not in default hereunder.

<PAGE>

22. Survival of Obligations

      All covenants, agreements, representations, and warranties contained in
this Lease Agreement, any Lease Schedule, or in any document attached thereto,
shall be for the benefit of Lessor and Lessee and their successors, any assignee
or secured party. Further, all covenants, agreements, representations, and
warranties contained in this Lease Agreement, any Lease Schedule, or in any
document attached thereto, shall survive the execution and delivery of this
Lease Agreement and the expiration or other termination of this Lease Agreement.

23. Corporate Authority

      The parties hereto covenant and warrant that the persons executing this
Lease Agreement and each Lease Schedule on their behalf have been duly
authorized to do so, and this Lease Agreement and any Lease Schedule constitute
a valid and binding obligation of the parties hereto. The Lessee will, if
requested by Lessor, provide to Lessor, Certificates of Authority naming the
officers of the Lessee who have the authority to execute this Lease Agreement
and any Lease Schedules attached thereto.

24. Landlords' and Mortgagees' Waiver

      If requested, Lessee shall furnish waivers, in form and substance
satisfactory to Lessor, from all landlords and mortgagees of any premises upon
which any Equipment is located.

25. Miscellaneous

      This Lease Agreement, the Lease Schedule(s), attached riders and any
documents or instruments issued or executed pursuant hereto will have been made,
executed and delivered in, and shall be governed by the internal laws (as
opposed to conflicts of law provisions) and decisions of, the State of
Minnesota. Lessee and Lessor consent to jurisdiction of any local, state or
federal court located within Minnesota. Venue shall be in Minnesota and Lessee
hereby waives local venue and any objection relating to Minnesota being an
improper venue to conduct any proceeding relating to this Lease Agreement. At
Lessor's sole election and determination, Lessor may select an alternative
forum, including arbitration or mediation, to adjudicate any dispute arising out
of this Lease Agreement.

      This Lease Agreement was jointly drafted by the parties, and the parties
hereby agree that neither should be favored in the construction, interpretation
or application of any provision or any ambiguity. There are no unwritten or oral
agreements between the parties. This Lease Agreement and associated Lease
Schedule(s) constitute the entire understanding and agreement between Lessor and
Lessee with respect to the lease of the Equipment superseding all prior
agreements, understandings, negotiations, discussions, proposals,
representations, promises, commitments and offers between the parties, whether
oral or written. No provision of this Lease Agreement or any Lease Schedule
shall be deemed waived, amended, discharged or modified orally or by custom,
usage or course of conduct unless such waiver, amendment or modification is in
writing and signed by an officer of each of the parties hereto. If any one or
more of the provisions of this Lease Agreement or any Lease Schedule is for any
reason held invalid, illegal or unenforceable, the remaining provisions of this
Lease Agreement and any such Lease Schedule will be unimpaired, and the invalid,
illegal or unenforceable provisions shall be replaced by a mutually acceptable
valid, legal and enforceable provision that is closest to the original intention
of the parties. Lessee agrees that neither the manufacturer, nor the supplier,
nor any of their salespersons, employees or agents are agents of Lessor.

      Any notice provided for herein shall be in writing and sent by certified
or registered mail to the parties at the addresses stated on page 1 of this
Lease Agreement.

      This Lease Agreement shall not become effective until delivered to Lessor
at its offices at Minnetonka, Minnesota and executed by Lessor. If this Lease
Agreement shall be executed by Lessor prior to being executed by Lessee, it
shall become void at Lessor's option five (5) days after the date of Lessor's
execution hereof, unless Lessor shall have received by such date a copy hereof
executed by a duly authorized representative of Lessee.

      This Lease Agreement is made subject to the terms and conditions included
herein and Lessee's acceptance is effective only to the extent that such terms
and conditions are consistent with the terms and conditions herein. Any
acceptance which contains terms and conditions which are in addition to or
inconsistent with the terms and conditions herein will be a counter-offer and
will not be binding unless agreed to in writing by Lessor.

      The terms used in this Lease Agreement, unless otherwise defined, shall
have the meanings ascribed to them in the Lease Schedule(s).

26. REPOSSESSION

      LESSEE ACKNOWLEDGES THAT, PURSUANT TO THE SECTION 17 HEREOF, LESSOR HAS
BEEN GIVEN THE RIGHT TO REPOSSESS THE EQUIPMENT SHOULD LESSEE BECOME IN DEFAULT
OF ITS OBLIGATIONS HEREUNDER. LESSEE HEREBY WAIVES THE RIGHT, IF ANY, TO REQUIRE
LESSOR TO GIVE LESSEE NOTICE AND A JUDICIAL HEARING PRIOR TO EXERCISING SUCH
RIGHT OF REPOSSESSION.

27. Net Lease

      This Lease Agreement is a net lease and Lessee's obligations to pay all
Lease Charges and other amounts payable hereunder shall be absolute and
unconditional and, except as expressly provided herein, shall not be subject to
any: (i) delay, abatement, reduction, defense, counterclaim, set-off, or
recoupment; (ii) discontinuance or termination of any license; (iii) Equipment
failure, defect or deficiency; (iv) damage to or destruction of the Equipment;
or (v) dissatisfaction with the Equipment or otherwise, including any present or
future claim against Lessor or the manufacturer, supplier, reseller or vendor of
the Equipment. To the extent that the Equipment includes intangible (or
intellectual) property, Lessee understands and agrees that: (i) Lessor is not a
party to and does not have any responsibility under any software license and/or
other agreement

<PAGE>

with respect to any software; and (ii) Lessee will be responsible to pay all of
the Lease Charges and perform all its other obligations under this Lease
Agreement despite any defect, deficiency, failure, termination, dissatisfaction,
damage or destruction of any software or software license. Except as expressly
provided herein, this Lease Agreement shall not terminate for any reason,
including any defect in the Equipment or Lessor's title thereto or any
destruction or loss of use of any item of Equipment.

28. Headings

      Section headings herein are used for convenience only and shall not
otherwise affect the provisions of this Lease Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement to be
signed by their respective duly authorized representative.

Every Term is Agreed to and Accepted:    Every Term is Agreed to and Accepted:

WINTHROP RESOURCES CORPORATION           ULTRALIFE BATTERIES, INC.

By:    /s/Richard J. Pieper              By:    /s/Robert W. Fishback
   ---------------------------               ---------------------------------
Print                                    Print
Name:  Richard J. Pieper                 Name:  Robert W. Fishback
     -------------------------                --------------------------------

Title: Senior Vice President             Title: Vice President - Finance & CFO
      ------------------------                 -------------------------------
Date:  3/03/01                           Date:  2/27/01
      ------------------------                 -------------------------------

<PAGE>

                             LEASE SCHEDULE NO. 001

This Lease Schedule is issued pursuant to the Lease Agreement Number UL022101
dated February 21, 2001. The terms of the Lease Agreement and serial numbers
contained on Certificates of Acceptance are a part hereof and are incorporated
by reference herein.

         LESSOR                                      LESSEE
         Winthrop Resources Corporation              Ultralife Batteries, Inc.
         11100 Wayzata Boulevard                     2000 Technology Parkway
         Suite 800                                   Newark, NY 14513
         Minnetonka, MN 55305

         SUPPLIER OF EQUIPMENT                       LOCATION OF EQUIPMENT
         Various                                     Same As Above

Term of Lease from Commencement Date:  60 Months (20 quarters)
Monthly Lease Charge:  $38,241.00, due quarterly as $114,723.00
Anticipated Delivery and Installation:  February - July 2001
Security Deposit: Upon Lessee's execution of this Lease Schedule, Lessee shall
deliver a security deposit in the amount of $114,723.00. If there is no event of
default, this security deposit will be applied toward the total Lease Charges
associated with the last quarter of this Lease Schedule.

                                    EQUIPMENT
                                    ---------

MANUFACTURER   QTY    MACHINE/MODEL   EQUIPMENT DESCRIPTION (including features)
------------   ---    -------------   ------------------------------------------
LET                                   Lamination and Packaging System
LET                                   Tab Welding System
Various                               Other Related Equipment Costs
Various                               Installation Freight and Maintenance

Upon execution of this Lease Schedule, Lessee shall deliver a non-refundable sum
of money equal to the Security Deposit, which shall become the Security Deposit
after Lessor's receipt of a letter of credit satisfactory in all respects to
Winthrop Resources Corporation. If a letter of credit is not delivered by
Lessee, Lessor shall be entitled to retain any and all monies paid it by Lessee.
Lease Agreement Number UL022101 and this Lease Schedule 001 are subject to
Winthrop Resources Corporation receiving a letter of credit that is satisfactory
in all respects to Winthrop Resources Corporation, including, but not limited
to, the terms and conditions contained therein and the bank drawn thereon.
Obtaining this letter of credit is a condition precedent to Winthrop Resources
Corporation's obligations under Lease Agreement Number UL022101 and Lease
Schedule Number 001.

This Lease Schedule will be revised to reflect the exact cost and configuration
installed. The Monthly Lease Charge will be prorated and charged as interim rent
between the date an item of equipment is accepted and the Commencement Date.

Agreed to and Accepted:                     Agreed to and Accepted:

WINTHROP RESOURCES CORPORATION              ULTRALIFE BATTERIES, INC.
         "LESSOR"                                  "LESSEE"

By:    /s/ Richard J. Pieper              By:    /s/Robert W. Fishback
    -------------------------                  --------------------------------
Print                                     Print
Name:  Richard J. Pieper                  Name:  Robert W. Fishback
      -----------------------                   -------------------------------
Title: Senior Vice President              Title: Vice President - Finance & CFO
      -----------------------                    ------------------------------
Date:  3/03/01                            Date:  2/27/01
      -----------------------                    ------------------------------

<PAGE>

Rider Number: 001

Lease Agreement Number: UL022101

Lease Schedule Number: ALL

Lessee Name:                 Ultralife Batteries, Inc.

Lease Dated:                    February 21, 2001

                            INTEREST RATE FLUCTUATION

This lease is intended to be a fixed rate lease from commencement date to the
end of the term. The three year treasury rate is an integral part of the lease
rate in this lease. The Lessee and Lessor agree that the lease rate shall be
fixed for the interim period and that should the three year treasury note
increase between the execution date of this Agreement and commencement date, the
lease rate will be adjusted accordingly and will then be fixed for the term of
the lease.

Agreed to and Accepted:                     Agreed to and Accepted:

WINTHROP RESOURCES CORPORATION              ULTRALIFE BATTERIES, INC.
         "LESSOR"                                  "LESSEE"

By:    /s/ Richard J. Pieper              By:    /s/Robert W. Fishback
    -------------------------                  --------------------------------
Print                                     Print
Name:  Richard J. Pieper                  Name:  Robert W. Fishback
      -----------------------                   -------------------------------
Title: Senior Vice President              Title: Vice President - Finance & CFO
      -----------------------                    ------------------------------
Date:  3/03/01                            Date:  2/27/01
      -----------------------                    ------------------------------

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