Exhibit 4.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of the ___ day
of _____, 2002 between ULTRALIFE BATTERIES, INC., a Delaware corporation (the
"Company") and _______________ (the "Purchaser").
The Company desires to issue and sell, and the Purchaser desires to buy,
shares of the Common Stock, $0.10 par value (the "Common Stock") of the Company
on the terms and conditions set forth in this Agreement.
In consideration of the covenants and conditions set forth in this
Agreement, the parties agree as follows:
1. Sale of Shares. The Company agrees to sell, transfer and assign
to the Purchaser and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchaser agrees to
purchase ________ newly issued shares (the "Shares") of Common Stock at a
purchase price of $3.00 per share for an aggregate purchase price of $________.
2. Closing. The closing of the purchase and sale of the Shares (the
"Closing") shall be held concurrently with the execution and delivery of this
Agreement at the offices of the Company, or at any other time and place or in
such other manner to which the Company and the Purchaser may agree. At the
Closing, the Company shall authorize its transfer agent to issue to the
Purchaser a certificate representing the Shares bearing the legend required by
Section 7 of this Agreement. Within ten (10) business days of the Closing, the
Company will cause to be delivered to the Purchaser a certificate representing
the Shares.
3. Representations of the Company. The Company represents, warrants
and agrees as follows:
(a) Neither the execution nor delivery by the Company of this
Agreement will conflict with or violate any provision of the Articles of
Incorporation, Bylaws or any agreement to which the Company is a party.
(b) The Shares, when issued, sold, delivered and paid for in
accordance with the terms hereof, will be duly and validly issued, fully paid
and nonassessable.
(c) The sale and issuance of the Shares in accordance with the
terms of and on the basis of the representations and warranties set forth in
this Agreement, will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act").
(d) This Agreement has been duly executed and delivered by the
Company and is enforceable against the Company in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, fraudulent transfer, marshalling or similar
laws affecting creditors' rights and remedies generally,
and general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing (regardless of whether
such enforceability is considered in a proceeding in equity or at law). Except
for any notice of issuance to or listing of additional shares with NASDAQ, if
required, all consents, approvals, orders or authorizations of, or
registrations, qualifications, designations or filings with any federal or state
governmental authority on the part of the Company required in connection with
the consummation of the transactions contemplated herein have been obtained and
are effective.
4. Representations of the Purchaser. The Purchaser represents,
warrants and agrees as follows:
(a) It is the Purchaser's present intention to acquire the
Shares hereunder for the Purchaser's own account as principal and that the
shares are being and will be acquired for the purpose of investment and not with
a view to distribution or resale.
(b) The Purchaser has such knowledge and experience in
business and financial matters that the Purchaser is capable of evaluating the
merits and risks of the investment contemplated hereby.
(c) The Purchaser has full power and authority to execute,
deliver and perform this Agreement and to make this Agreement the valid and
enforceable obligation of the Purchaser.
(d) The Purchaser understands that the Shares will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act and that the Shares may only be resold in compliance with applicable federal
and state securities laws.
(e) The Purchaser's domicile is located at the Purchaser's
address set forth on the signature page hereto.
(f) The Purchaser is an "Accredited Investor" as defined in
Rule 501(a) of the Securities Act, a copy of which is set forth on Exhibit A to
this Agreement, and the Purchaser has certified to the Company the basis for
that Purchaser's Accredited Investor status by checking the appropriate category
on Exhibit A and signing and dating that Exhibit.
(g) The Purchaser acknowledges that the Company has entered
into or expects to enter into separate but substantially identical stock
purchase agreements (the "Other Stock Purchase Agreements" and together with
this Agreement, the "Stock Purchase Agreements") with other purchasers ("Other
Purchasers") providing for the sale to the Other Purchasers of shares of Common
Stock. This Agreement and the Other Stock Purchase Agreements are separate
agreements and the sales of such shares to the Purchaser and the Other
Purchasers are and will be deemed to be separate sales.
(h) The Purchaser has no contract, understanding, agreement or
arrangement with any person to sell, transfer or pledge to such person or anyone
else any of the Shares the Purchaser hereby purchases (in whole or in part) and
that the Purchaser has no present plans to enter into any such contract,
undertaking, agreement or arrangement.
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(i) The Purchaser will provide, if requested, any additional
information that may be requested or required to determine the Purchaser's
eligibility to purchase the Shares.
(j) The Purchaser acknowledges that the Purchaser's
representations, warranties, acknowledgements and agreements in this Agreement
will be relied upon by the Company in determining the Purchaser's suitability as
a purchaser of the Shares.
(k) The Purchaser has not retained a broker or finder in
connection with the Purchaser's purchase of the Shares and to the Purchaser's
knowledge there are no other persons entitled to compensation in connection with
the sale of the Shares to the Purchaser other than consulting fees due to
Xxxxxxx Xxxxxx.
5. Company Information. The Purchaser and the Company agree that
each is capable of evaluating the merits and risks of the purchase and sale,
respectively, of the Shares hereunder. The Purchaser acknowledges that it has
reviewed the Company's (i) Annual Report on Form 10-K for the fiscal year ended
June 30, 2001, as filed with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); (ii) Proxy Statement for its 2001 Annual Meeting of Shareholders; (iii)
Quarterly Reports on Form 10-Q, as amended, for the fiscal quarters ended
September 30, 2001 and December 31, 2001 as filed with the SEC pursuant to the
Exchange Act; and (iv) all other reports filed with the SEC since December 31,
2001. Since December 31, 2001, the Company has filed with the SEC all reports,
documents, definitive proxy statements and all other filings required to be
filed with the SEC. The Purchaser further acknowledges that it has reviewed the
Risk Factors of the Company set forth on Exhibit B to this Agreement. The
Purchaser further acknowledges that it has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Shares that have been requested by the
Purchaser. The Purchaser further acknowledges that it has been afforded the
opportunity to meet with and ask questions of senior officers of the Company
concerning the Company's business, finance and operations, including in
particular the Company's business, finances and operations since December 31,
2001.
6. Registration Rights. On or before June 30, 2002, the Company
shall prepare and file with the SEC a resale registration statement (the
"Registration Statement") on Form S-3 covering the Shares (including any shares
of the Company's Common Stock issued as, or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as, a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Shares), provided that Form S-3 is available to the Company for such
purpose. The Company shall take all actions necessary or desirable to qualify to
use Form S-3 for the registration of the resale of the Shares. The Company shall
be required to file only one Registration Statement. The Purchaser and the
Company agree that promptly after the Closing, they shall enter into a separate
Registration Rights Agreement consistent with the provisions of this Section 6,
which Registration Rights Agreement shall contain customary representations and
warranties and provisions regarding indemnification and contribution.
7. Legend. The Purchaser understands and acknowledges that the
certificates evidencing the Shares will bear the following legend: "THE
SECURITIES EVIDENCED BY
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THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE ACT; (II) IN COMPLIANCE WITH RULE 144; OR (III)
AFTER RECEIPT OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ULTRALIFE
BATTERIES, INC. THAT SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID
SALE, OFFER OR DISTRIBUTION."
8. Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original but all of which will be deemed one
instrument.
9. Expenses and Taxes. The Company shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the
execution, delivery and performance of this Agreement and any other instruments
and documents to be delivered hereunder and agrees to save the Purchaser
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and filing fees.
10. Survival of Representations and Warranties. All representations
and warranties made in this Agreement or any other instrument or document
delivered in connection herewith shall survive the execution and delivery
hereof.
11. Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior or contemporaneous
understandings or agreements concerning the subject matter hereof.
12. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
13. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. The rights of
the parties under this Agreement are unique and, accordingly, the parties shall,
in addition to such other remedies as may be available to any of them at law or
in equity, have the right to enforce their rights hereunder by actions of
specific performance to the extent permitted by law.
14. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of the Agreement for any other purpose.
15. Amendments and Waivers. This Agreement may not be amended,
supplemented or otherwise modified except by an instrument in writing signed by
both parties that specifically refers to this Agreement. Either party hereto
may, only by an instrument in writing, waive compliance by the other party
hereto with any term or provision of this Agreement on the part of such other
party to be performed or complied with. The waiver by a party hereto of a breach
of any term or provision of this Agreement shall not be construed as a waiver of
any
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subsequent breach. Any amended or waiver effected in accordance with this
Section 15 shall be binding upon each party and its permitted assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ULTRALIFE BATTERIES, INC.
By:
--------------------------------------
Name:
Title:
THE PURCHASER:
---------------------------
Print Name
------------------------------------------
Signature
Address:
---------------------------------
---------------------------------
Social Security Number or
Employment Identification Number:
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EXHIBIT A
Section 501(a) of the Securities Act of 1933, as Amended:
"As used in Regulation D (17 CFR xx.xx. 230.501-230.508), the following terms
shall have the meaning indicated:
(a) Accredited investor. "Accredited investor" shall mean any person who
comes within any of the following categories, or who the issuer
reasonably believes comes within any of the following categories, at
the time of the sale of the securities to that person:
(1) Any bank as defined in section 3(a)(2) of the [Securities Act
of 1933, as amended (the "Act")], or any savings and loan
association or other institution as defined in section
3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant
to section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in section 2(13) of the Act; any
investment company registered under the Investment Company Act
of 1940 or a business development company as defined in
section 2(a)(48) of that Act; any Small Business Investment
Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment
Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality
of a state or its political subdivisions, for the benefit of
its employees, if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the
investment decision is made by a plan fiduciary, as defined in
section 3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered adviser, or
if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited
investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general
partner of that issuer;
(5) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the
same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in ss. 230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors."
The undersigned Purchaser hereby certifies to the Company that the Purchaser is
an "Accredited Investor" on the basis of the box checked above.
PURCHASER
Date:
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Print Name
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Signature
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EXHIBIT B
RISK FACTORS
Please carefully consider all information provided by the Company. In
particular, the following factors could cause actual results to differ
materially from the matters described in the forward-looking statements, with
material and adverse effects on the Company's business, operating results,
financial condition and the value of Ultralife stock.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company commenced operations in March 1991 and has incurred net operating
losses since its inception. Losses have resulted principally from research and
development, manufacturing and general and administrative costs. No assurance
can be given that the Company will generate an operating profit or achieve
profitability in the future.
UNCERTAINTY ABOUT THE COMPANY'S ABILITY TO GENERATE POSITIVE CASH FLOWS AND
CONTINUE AS A GOING CONCERN
The Company has been in a negative cash flow situation since its inception. The
Company's current cash and credit situation is strained. While the Company is
focusing intently on increasing revenues and reducing costs and expenses, there
can be no assurance that these efforts will bring the Company to a cash
generating position. The Company's inability to successfully attain a positive
cash flow position could have a material adverse effect on the Company's
business, financial condition, and results of operations. Such material adverse
effects could include a violation of debt covenants, an inability to pay vendors
in a timely fashion, or could impact upon its ability to continue as a going
concern. If the Company is unsuccessful in generating positive cash flows, it
may result in the need to further access the capital markets for additional debt
or equity funding, and there can be no assurance that the Company would be
successful in doing so.
UNCERTAINTY OF CURRENT DEMAND FOR EXISTING PRODUCTS AND FUTURE DEMAND FOR NEW
PRODUCTS IN THE COMPANY'S PRIMARY BATTERY PRODUCT LINE
Although the Company is currently in volume production for its various primary
battery products, there can be no assurance that this demand will continue. The
Company is in the process of developing new battery configurations for both OEM
and military applications and there can be no assurance as to the market
acceptance and/or military qualification of these batteries. The Company's
inability to manufacture and sell these new products could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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UNCERTAINTY OF MARKET ACCEPTANCE OF ADVANCED RECHARGEABLE BATTERIES
Although the Company is capable of volume production of its rechargeable
batteries, the Company's advanced rechargeable batteries have not yet achieved
wide market acceptance and there can be no assurance that market acceptance of
its technology or advanced rechargeable batteries will ever be achieved. The
introduction of new products is subject to the inherent risks of unforeseen
delays and the time necessary to achieve market success for any individual
product is uncertain. If volume production and/or market penetration of the
Company's advanced rechargeable batteries is delayed for any reason, the
Company's competitors may introduce emerging technologies or refine existing
technologies which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company routinely reviews the appropriateness of the carrying value of its
assets. If facts and circumstances indicate that the carrying amount of a
long-lived asset may be impaired, an evaluation of recoverability would be
performed. If an impairment is determined to exist, a loss would be recognized
to the extent the carrying value of the asset is in excess of its fair value.
Such an impairment charge could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON OEM RELATIONSHIPS AND THEIR PRODUCTS FOR SALE OF BATTERIES
The Company intends to continue to promote demand for, and awareness of, its
batteries, in part, through the development of relationships with OEMs that
manufacture products which require the performance characteristics of the
Company's batteries. The success of any such relationship is dependent upon the
general business condition of the OEM and the ability of the Company to produce
its batteries at the quality and cost and within the time frame required by such
OEMs. Failure to develop a sufficient number of relationships with OEMs could
have a material adverse effect on the Company's business, financial condition
and results of operations.
A substantial portion of the Company's business will depend upon the success of
products sold by OEMs that use the Company's batteries. Therefore, the Company's
success is substantially dependent upon the acceptance of the OEMs' products in
the marketplace. The Company is subject to many risks beyond its control that
influence the success or failure of a particular product manufactured by an OEM,
including among others, competition faced by the OEM in its particular industry;
market acceptance of the OEM's product; the engineering, sales and marketing and
management capabilities of the OEM; technical challenges unrelated to the
Company's technology or products faced by the OEM in developing its products;
and, the financial and other resources of the OEM.
RISKS RELATING TO GROWTH AND EXPANSION
Rapid growth of the Company's primary or advanced rechargeable battery
businesses, or other segments of its business, may significantly strain the
Company's management, operations and technical resources. If the Company is
successful in obtaining rapid
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market penetration of its batteries, the Company will be required to deliver
large volumes of quality products to its customers on a timely basis at a
reasonable cost to those customers. There can be no assurance, however, that the
Company's business will achieve rapid growth or that its efforts to expand its
manufacturing and quality control activities will be successful or that it will
be able to satisfy commercial scale production requirements on a timely and
cost-effective basis. The Company will also be required to continue to improve
its operations, management and financial systems and controls. Failure by the
Company to manage its growth effectively could have an adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION; TECHNOLOGICAL OBSOLESCENCE
The primary and rechargeable battery industry is characterized by intense
competition with a large number of companies offering or seeking to develop
technology and products similar to those of the Company. The Company is subject
to competition from manufacturers of traditional rechargeable batteries, such as
nickel-cadmium batteries, from manufacturers of rechargeable batteries of more
recent technologies, such as nickel-metal hydride, lithium-ion liquid
electrolyte and lithium-metal solid-polymer batteries, as well as from companies
engaged in the development of batteries incorporating new technologies.
Manufacturers of nickel-cadmium and nickel-metal hydride batteries include
Eveready, Sanyo Electric Co. Ltd., Sony Corp., Toshiba Corp., Matsushita
Electric Industrial Co., Ltd. and Duracell International, Inc. Manufacturers of
lithium-ion liquid electrolyte batteries currently include Saft-Soc des ACC,
Sony Corp., Toshiba Corp., Matsushita Electric Industrial Co., Ltd., Sanyo
Electric Co. Ltd. and Duracell International, Inc. Valence Technology, Inc.,
Lithium Technology Corporation, and Yuasa-Exide, Inc. have developed prototype
solid-polymer batteries and are constructing commercial-scale manufacturing
facilities. The Company also competes with large and small manufacturers of
alkaline, carbon-zinc, seawater, high rate and primary batteries as well as
other manufacturers of lithium batteries. There can be no assurance that the
Company will be successful in competing with these manufacturers, many of which
have substantially greater financial, technical, manufacturing, distribution,
marketing, sales and other resources. A number of companies with substantially
greater resources than the Company are pursuing the development of a wide
variety of battery technologies, including both liquid electrolyte lithium and
solid electrolyte lithium batteries, which are expected to compete with the
Company's technology. Other companies undertaking research and development
activities of solid-polymer batteries have already developed prototypes and are
constructing commercial scale production facilities. If such other companies
successfully market their batteries prior to the introduction of the Company's
products, there will be a material adverse effect on the Company's business,
financial condition and results of operations. The market for the Company's
products is characterized by changing technology and evolving industry
standards, often resulting in product obsolescence or short product lifecycles.
Although the Company believes that its batteries are comprised of
state-of-the-art technology, there can be no assurance that competitors will not
develop technologies or products that would render the Company's technology and
products obsolete or less marketable.
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DEPENDENCE ON KEY PERSONNEL
Because of the specialized, technical nature of the Company's business, the
Company is highly dependent on certain members of its management, marketing,
engineering and technical staff, the loss of whose services could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition to developing manufacturing capacity that
meets the rigorous tolerances necessary for the Company's high volume production
capability, the Company must attract, recruit and retain a sizeable workforce of
technically competent employees. The ability of the Company to pursue
effectively its business strategy will depend upon, among other factors, the
successful recruitment and retention of additional highly skilled and
experienced managerial, marketing, engineering and technical personnel. There
can be no assurance that the Company will be able to retain or recruit such
personnel.
SAFETY RISKS; DEMANDS OF ENVIRONMENTAL AND OTHER REGULATORY COMPLIANCE
Components of the Company's batteries contain certain elements that are known to
pose safety risks. The Company's primary battery products incorporate lithium
metal, which when it reacts with water may cause fires if not handled properly.
In addition to a December 1996 fire at the Company's Abingdon, England facility,
a fire occurred August 1997 at the Company's Newark, New York facility and fires
occurred in July 1994 and September 1995 at the Company's Abingdon, England
facility, each of which temporarily interrupted certain manufacturing operations
in a specific area of the facility. Although the Company incorporates safety
procedures in its research, development and manufacturing processes that are
designed to minimize safety risks, there can be no assurance that an accident in
its facilities or one involving its products will not occur. Although the
Company currently has in force insurance policies which cover loss of its plant
and machinery, leasehold improvements, inventory and business interruption, any
accident, whether at the Company's manufacturing facilities or from the use of
its products, may result in significant production delays or claims for damages
resulting from injuries, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. National,
state and local regulations impose various environmental controls on the
manufacture, storage, use and disposal of lithium batteries and/or of certain
chemicals used in the manufacture of lithium batteries. Although the Company
believes that its operations are in substantial compliance with current
environmental regulations and that, except as noted below, there are no
environmental conditions that will require material expenditures for clean-up at
its present or former facilities or at facilities to which it has sent waste for
disposal, there can be no assurance that changes in such laws and regulations
will not impose costly compliance requirements on the Company or otherwise
subject it to future liabilities. Moreover, state and local governments may
enact additional restrictions relating to the disposal of lithium batteries used
by customers of the Company which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the transportation of batteries which contain lithium metal is regulated by the
U.S. Department of Transportation and by certain foreign regulatory agencies
that consider lithium to be a hazardous material. The Company currently ships
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its lithium batteries in accordance with regulations established by the U.S.
Department of Transportation. There can be no assurance that additional or
modified regulations relating to the manufacture, transportation, storage, use
and disposal of materials used to manufacture the Company's batteries or
restricting disposal of batteries will not be imposed or as to the effect such
regulations may have on the Company or its customers.
In connection with the Company's purchase/lease of its Newark, New York facility
in 1998, a consulting firm performed a Phase I and II Environmental Site
Assessment which revealed the existence of contaminated soil and ground water
around one of the Company's buildings. The Company retained an engineering firm
which estimated that the cost of remediation should be in the range of $230,000.
There can be no assurance, however, that this will be the case. In February
1998, the Company entered into an agreement with a third party which provides
that the Company and this third party would retain an environmental consulting
firm to conduct a supplemental Phase II investigation to verify the existence of
the contaminants and further delineate the nature of the environmental concern.
The third party agreed to reimburse the Company for fifty percent of the cost
associated with remediating the environmental concern. This investigation has
recently been completed, and the Company has submitted a proposed work plan to
the New York State Department of Environmental Conservation for review. There
can be no assurance that the Company will not face claims resulting in
substantial liability which would have a material adverse effect on the
Company's business, financial condition and results of operations in the period
in which such claims are resolved.
LIMITED SOURCES OF SUPPLY
Certain materials used in the Company's products are available only from a
single or a limited number of suppliers. Additionally, the Company may elect to
develop relationships with a single or limited number of suppliers for materials
that are otherwise generally available. Although the Company believes that
alternative suppliers are available to supply materials that could replace
materials currently used by the Company and that, if necessary, the Company
would be able to redesign its products to make use of such alternatives, any
interruption in its supply from any supplier that serves as the Company's sole
source could delay product shipments and have a material adverse effect on the
Company's business, financial condition and results of operations. Although the
Company has experienced interruptions of product deliveries by sole source
suppliers, none of such interruptions has had a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will not experience a material interruption of
product deliveries from sole source suppliers which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGIES
The Company believes that its success is less dependent on the legal protection
that its patents and other proprietary rights may or will afford than on the
knowledge, ability, experience and technological expertise of its employees. The
Company claims proprietary rights in various unpatented technologies, know how,
trade secrets and trademarks
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relating to its products and manufacturing processes. There can be no assurance
as to the degree of protection these various claims may or will afford, or that
the Company's competitors will not independently develop or patent technologies
that are substantially equivalent or superior to the Company's technology. It is
the policy of the Company to protect its proprietary rights in its products and
operations through contractual obligations, including nondisclosure agreements
with certain employees, customers, consultants and strategic partners. There can
be no assurance as to the degree of protection these contractual measures may or
will afford. The Company, however, has had patents issued and patent
applications pending in the U.S. and elsewhere. There can be no assurance (i)
that patents will be issued from any pending applications, or that the claims
allowed under any patents will be sufficiently broad to protect the Company's
technology, (ii) that any patents issued to the Company will not be challenged,
invalidated or circumvented, or (iii) as to the degree or adequacy of protection
any patents or patent applications may or will afford. If the Company is found
to be infringing third party patents, there can be no assurance that it will be
able to obtain licenses with respect to such patents on acceptable terms, if at
all. Failure of the Company to obtain necessary licenses could result in delays
in product shipment or the introduction of new products, and costly attempts to
design around such patents could foreclose the development, manufacture or sale
of the Company's products.
DEPENDENCE ON TECHNOLOGY TRANSFER AGREEMENTS
The Company's research and development of advanced rechargeable battery
technology and products utilizes internally-developed technology, acquired
technology and certain patents and related technology licensed by the Company
pursuant to non-exclusive, technology transfer agreements. There can be no
assurance that the Company's competitors will not develop, independently or
through the use of similar technology transfer agreements, rechargeable battery
technology or products that are substantially equivalent or superior to the
technologies and products currently under research and development by the
Company.
RISKS RELATED TO CHINA JOINT VENTURE PROGRAM
In July 1992, the Company entered into several agreements related to the
establishment of a manufacturing facility in Changzhou, China, for the
production and distribution in and from China of 2/3A lithium primary batteries.
Changzhou Ultra Power Battery Co., Ltd., a company organized in China ("China
Battery"), purchased from the Company certain technology, equipment, training
and consulting services relating to the design and operation of a lithium
battery manufacturing plant. China Battery was required to pay approximately
$6.0 million to the Company over the first two years of the agreement, of which
approximately $5.6 million has been paid. The Company has been attempting to
collect the balance due under this contract. China Battery has indicated that
these payments will not be made until certain contractual issues have been
resolved. Due to China Battery's questionable willingness to pay, the Company
wrote off in fiscal 1997 the entire balance owed to the Company as well as the
Company's investment aggregating $805,000. Since China Battery has not purchased
technology, equipment, training or consulting services from the Company to
produce batteries other than 2/3 A lithium
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batteries, the Company does not believe that China Battery has the capacity to
become a competitor of the Company. The Company does not anticipate that the
manufacturing or marketing of 2/3 A lithium batteries will be a substantial
portion of its product line in the future. However, in December 1997, China
Battery sent to the Company a letter demanding reimbursement of an unspecified
amount of losses they have incurred plus a refund for certain equipment that the
Company sold to China Battery. The Company has attempted to initiate
negotiations to resolve the dispute. However, an agreement has not yet
materialized. Although China Battery has not taken any additional steps, there
can be no assurance that China Battery will not further pursue such a claim
which, if successful, would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that such a claim is without merit.
ABILITY TO INSURE AGAINST LOSSES
Because certain of the Company's primary batteries are used in a variety of
security and safety products and medical devices, the Company may be exposed to
liability claims if such a battery fails to function properly. The Company
maintains what it believes to be sufficient liability insurance coverage to
protect against potential claims; however, there can be no assurance that the
liability insurance will continue to be available, or that any such liability
insurance would be sufficient to cover any claim or claims.
POSSIBILTY OF WARRANTY CLAIMS
The Company provides warranties for its various products. The longest duration
warranty is a ten (10) year warranty on the Company's 9-volt battery when used
in certain smoke detector applications. The Company maintains a warranty reserve
to cover potential warranty claims. There can be no guarantee, however, that the
reserves will be sufficient to satisfy claims made. In the event the Company
experiences a significant rise in warranty claims made, such action could have a
material adverse effect on the Company's business, financial condition and
results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
Future announcements concerning the Company or its competitors, including
technological innovations or commercial products, litigation or public concerns
as to the safety or commercial value of one or more of the Company's products,
may cause the market price of the Common Stock to fluctuate substantially for
reasons which may be unrelated to operating results. These fluctuations, as well
as general economic, political and market conditions, may have a material
adverse effect on the market price of the Common Stock.
FORWARD-LOOKING STATEMENTS
This Agreement and information contained in documents provided or made
available to the Purchaser, contain forward-looking statements, as that term is
defined by federal securities laws, that relate to the financial condition,
results of operations, plans, objectives, future performance and business of the
Company. These statements are frequently preceded by, followed by or include the
words believes, expects, anticipates,
7
estimates or similar expressions. The Company has based these forward-looking
statements on its current expectations and projections about future events.
These statements relate to matters that are not historical facts are
forward-looking statements that involve risks and uncertainties, including
future demand for products and services, the successful commercialization of the
Company's batteries, general economic conditions, government and environmental
regulation, competition and customer strategies, technological innovations in
the primary and rechargeable battery industries, changes in business strategy or
development plans, capital deployment, business disruptions, including those
caused by fire, raw materials, supplies and other risks and uncertainties,
certain of which are beyond the Company's control. In addition to these risks,
in this Exhibit entitled Risk Factors, the Company has summarized a number of
the risks and uncertainties that could affect the actual outcome of the
forward-looking statements included elsewhere. The Company advises you not to
place undue reliance on these forward-looking statements in light of the
material risks and uncertainties to which they are subject. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may differ materially from those described
herein as anticipated, believed, estimated or expected. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
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