ULTRALIFE BATTERIES INC
CREDIT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>e18556ex10-1.txt
<DESCRIPTION>CREDIT AGREEMENT
<TEXT>
                                                                    Exhibit 10.1

================================================================================

                                  [LOGO] CHASE

                                CREDIT AGREEMENT

                                   dated as of

                                  June 30, 2004

                                      among

                            ULTRALIFE BATTERIES, INC.

                            The Lenders Party Hereto

                                       and

                              JPMORGAN CHASE BANK,
                             as Administrative Agent

================================================================================

<PAGE>

                                TABLE OF CONTENTS

                                    ARTICLE I

                                   Definitions

SECTION 1.01.  Defined Terms.................................................. 1
SECTION 1.02.  Classification of Loans and Borrowings.........................13
SECTION 1.03.  Terms Generally ...............................................13
SECTION 1.04.  Accounting Terms; GAAP.........................................13

                                   ARTICLE II

                                   The Credits

SECTION 2.01.  Commitments....................................................14
SECTION 2.02.  Loans and Borrowings...........................................14
SECTION 2.03.  Requests for Revolving Borrowings..............................14
SECTION 2.04.  Term Loan Commitment...........................................15
SECTION 2.05.  Term Loan Borrowings...........................................17
SECTION 2.06.  Letters of Credit..............................................18
SECTION 2.07.  Funding of Borrowings..........................................21
SECTION 2.08.  Interest Elections.............................................22
SECTION 2.09.  Termination and Reduction of Commitments.......................23
SECTION 2.10.  Repayment of Loans; Evidence of Debt...........................23
SECTION 2.11.  Prepayment of Loans............................................24
SECTION 2.12.  Fees...........................................................25
SECTION 2.13.  Interest.......................................................26
SECTION 2.14.  Alternate Rate of Interest.....................................26
SECTION 2.15.  Increased Costs................................................27
SECTION 2.16.  Break Funding Payments.........................................28
SECTION 2.17.  Taxes..........................................................28
SECTION 2.18.  Payments Generally; Pro Rata Treatment; Sharing of Set-offs....29
SECTION 2.19.  Mitigation Obligations; Replacement of Lenders.................31

                                   ARTICLE III

                         Representations and Warranties

SECTION 3.01.  Organization; Powers...........................................31
SECTION 3.02.  Authorization; Enforceability..................................31
SECTION 3.03.  Governmental Approvals; No Conflicts...........................32
SECTION 3.04.  Financial Condition; No Material Adverse   Change..............32
SECTION 3.05.  Properties.....................................................32
SECTION 3.06.  Litigation and Environmental Matters...........................32
SECTION 3.07.  Compliance with Laws and Agreements............................33
SECTION 3.08.  Investment and Holding Company Status..........................33
SECTION 3.09.  Taxes..........................................................33
SECTION 3.10.  ERISA..........................................................33
SECTION 3.11.  Disclosure.....................................................33

<PAGE>

                                   ARTICLE IV

                                   Conditions

SECTION 4.01.  Effective Date.................................................34
SECTION 4.02.  Each Credit Event..............................................34

                                    ARTICLE V

                              Affirmative Covenants

SECTION 5.01.  Financial Statements and Other Information.....................35
SECTION 5.02.  Notices of Material Events.....................................36
SECTION 5.03.  Existence; Conduct of Business.................................36
SECTION 5.04.  Payment of Obligations.........................................36
SECTION 5.05.  Maintenance of Properties; Insurance...........................37
SECTION 5.06.  Books and Records; Inspection Rights...........................37
SECTION 5.07.  Compliance with Laws...........................................37
SECTION 5.08.  Use of Proceeds and Letters of Credit..........................37

                                   ARTICLE VI

                               Negative Covenants

SECTION 6.01.  Indebtedness...................................................37
SECTION 6.02.  Liens..........................................................38
SECTION 6.03.  Fundamental Changes............................................39
SECTION 6.04.  Investments, Loans, Advances, Guarantees and Acquisitions......39
SECTION 6.05.  Swap Agreements................................................40
SECTION 6.06.  Restricted Payments............................................40
SECTION 6.07.  Transactions with Affiliates...................................40
SECTION 6.08.  Restrictive Agreements.........................................41
SECTION 6.09.  Subsidiary Indebtedness........................................41

                                   ARTICLE VII

               Events of Default..............................................41

<PAGE>

                                  ARTICLE VIII

               The Administrative Agent.......................................43

                                   ARTICLE IX

                                  Miscellaneous

SECTION 9.01.  Notices........................................................45
SECTION 9.02.  Waivers; Amendments............................................45
SECTION 9.03.  Expenses; Indemnity; Damage Waiver.............................46
SECTION 9.04.  Successors and Assigns.........................................47
SECTION 9.05.  Survival.......................................................50
SECTION 9.06.  Counterparts; Integration;  Effectiveness......................50
SECTION 9.07.  Severability...................................................51
SECTION 9.08.  Right of Setoff................................................51
SECTION 9.09.  Governing Law; Jurisdiction; Consent to
               Service of Process.............................................51
SECTION 9.10.  WAIVER OF JURY TRIAL...........................................51
SECTION 9.11.  Headings.......................................................52
SECTION 9.12.  Confidentiality................................................52
SECTION 9.13.  Interest Rate Limitation.......................................52
SECTION 9.14.  USA Patriot Act Notice.........................................52

SCHEDULES:

Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.08 -- Existing Restrictions

EXHIBITS:

Exhibit A -- Form of Assignment and Assumption
Exhibit B -- Form of Opinion of Borrower's Counsel
Exhibit C -- Form of Term Note

<PAGE>

      CREDIT  AGREEMENT dated as of June 30, 2004,  among  Ultralife  Batteries,
Inc.,  the Lenders party  hereto,  and JPMorgan  Chase Bank,  as  Administrative
Agent.

      The parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions

      SECTION 1.01.  Defined  Terms.  As used in this  Agreement,  the following
terms have the meanings specified below:

      "ABR", when used in reference to any Loan or Borrowing,  refers to whether
such Loan, or the Loans  comprising  such Borrowing,  are bearing  interest at a
rate determined by reference to the Alternate Base Rate.

      "Adjusted LIBO Rate" means,  with respect to any Eurodollar  Borrowing for
any Interest Period, an interest rate per annum (rounded upwards,  if necessary,
to the next  1/16 of 1%)  equal to (a) the LIBO  Rate for such  Interest  Period
multiplied by (b) the Statutory Reserve Rate.

      "Administrative  Agent"  means  JPMorgan  Chase Bank,  in its  capacity as
administrative agent for the Lenders hereunder.

      "Administrative  Questionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.

      "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.

      "Alternate  Base Rate"  means,  for any day, a rate per annum equal to the
Prime Rate in effect on such day. Any change in the Alternate Base Rate due to a
change in the Prime Rate shall be effective  from and  including  the  effective
date of such change in the Prime Rate.

      "Applicable  Percentage" means, with respect to any Lender, the percentage
of the total Commitments or Term Loan Commitments, as applicable, represented by
such Lender's  Commitment.  If the Commitments  have terminated or expired,  the
Applicable  Percentages  shall be  determined  based upon the  Commitments  most
recently in effect, giving effect to any assignments.

      "Applicable  Revolving  Rate" means,  for any day, with respect to any ABR
Revolving  Loan or  Eurodollar  Revolving  Loan, or with respect to the facility
fees payable  hereunder,  as the case may be, the applicable  rate per annum set
forth below under the caption "ABR Spread", "Eurodollar Spread" or "Facility Fee
Rate", as the case may be, based upon the ratio, applicable on such date, of the
Borrower's  Consolidated  Total  Funded  Debt to EBITDA  measured at each Fiscal
Quarter end, for the four Fiscal Quarter period then ended,  taken together as a
single accounting period:

<PAGE>

      ----------------------- ---------------- ---------------- ----------------
           Total Funded          Facility        Eurodollar           ABR
           Debt/EBITDA           Fee Rate          Spread           Spread
      ----------------------- ---------------- ---------------- ----------------
      less than or equal to       25 bps           75 bps            0 bps
             .50 to 1
      ----------------------- ---------------- ---------------- ----------------
       greater than .50 to        25 bps           85 bps            0 bps
       1, but less than or
        equal to .75 to 1
      ----------------------- ---------------- ---------------- ----------------
       greater than .75 to        30 bps           100 bps           0 bps
       1, but less than or
        equal to 1.00 to 1
      ----------------------- ---------------- ---------------- ----------------
       greater than 1.00 to       35 bps           125 bps           0 bps
       1, but less than or
        equal to 1.25 to 1
      ----------------------- ---------------- ---------------- ----------------
       greater than 1.25 to       45 bps           150 bps           0 bps
       1, but less than or
        equal to 1.50 to 1
      ----------------------- ---------------- ---------------- ----------------
       greater than 1.50 to       50 bps           200 bps           0 bps
       1, but less than or
        equal to 1.75 to 1
      ----------------------- ---------------- ---------------- ----------------
       greater than 1.75 to       60 bps           250 bps           0 bps
       1, but less than or
        equal to 2.00 to 1
      ----------------------- ---------------- ---------------- ----------------

      The  Applicable  Revolving Rate shall be the basis points number set forth
above which  corresponds to the Consolidated  Total Funded  Debt/EBITDA Ratio of
the Borrower for the Fiscal Quarter most recently ended and for which  financial
statements  have been  received  pursuant  to  Section  5.01 of this  Agreement;
provided  further  that if  Borrower  at any time  shall  fail to  deliver  such
financial reports to the Administrative  Agent within the time required pursuant
to ss. 5.01 of this Agreement,  then the Applicable Revolving Rate shall revert,
as of the last date on which such financial statements could have been delivered
in compliance with ss. 5.01, to the highest rate provided,  until such financial
reports shall have been delivered.

      "Applicable  Term Rate" means,  for any day,  with respect to any ABR Term
Loan or Eurodollar  Term Loan, as the case may be, the applicable rate per annum
set forth below under the caption "ABR Spread" or  "Eurodollar  Spread",  as the
case may be,  based upon the Ratio,  applicable  on such date of the  Borrower's
Consolidated  Total Funded Debt to EBITDA  measured at each Fiscal  Quarter end,
for the four  Fiscal  Quarter  period  then  ended,  taken  together as a single
accounting period:


                                        2
<PAGE>

      ----------------------------- ----------------------- -------------------
               Total Funded               Eurodollar               ABR
               Debt/EBITDA                 Spread                 Spread
      ----------------------------- ----------------------- -------------------
       less than or equal to .50           125 bps                0 bps
                  to 1
      ----------------------------- ----------------------- -------------------
       greater than .50 to 1, but          135 bps                0 bps
       less than or equal to .75
                  to 1
      ----------------------------- ----------------------- -------------------
       greater than .75 to 1, but          150 bps                0 bps
       less than or equal to 1.00
                  to 1
      ----------------------------- ----------------------- -------------------
      greater than 1.00 to 1, but          175 bps                0 bps
       less than or equal to 1.25
                  to 1
      ----------------------------- ----------------------- -------------------
      greater than 1.25 to 1, but          200 bps                0 bps
       less than or equal to 1.50
                  to 1
      ----------------------------- ----------------------- -------------------
      greater than 1.50 to 1, but          250 bps                25 bps
       less than or equal to 1.75
                  to 1
      ----------------------------- ----------------------- -------------------
      greater than 1.75 to 1, but          300 bps                50 bps
       less than or equal to 2.00
                  to 1
      ----------------------------- ----------------------- -------------------

      The Applicable  Term Rate shall be the basis points number set forth above
which  corresponds to the  Consolidated  Total Funded  Debt/EBITDA  Ratio of the
Borrower for the Fiscal  Quarter  most  recently  ended and for which  financial
statements  have been  received  pursuant  to  Section  5.01 of this  Agreement;
provided  further  that if  Borrower  at any time  shall  fail to  deliver  such
financial reports to the Administrative  Agent within the time required pursuant
to ss. 5.01 of this Agreement, then the Applicable Term Rate shall revert, as of
the last date on which such  financial  statements  could have been delivered in
compliance  with ss. 5.01, to the highest rate  provided,  until such  financial
reports shall have been delivered.

      "Approved Fund" has the meaning assigned to such term in Section 9.04.

      "Assignment  and  Assumption"  means an assignment and assumption  entered
into by a Lender and an Eligible  Assignee  (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative  Agent,
in  substantially  the form of  Exhibit  A or any  other  form  approved  by the
Administrative Agent.

      "Availability  Period"  means the period from and  including the Effective
Date  to but  excluding  the  earlier  of the  Maturity  Date  and  the  date of
termination of the Commitments.

      "Board" means the Board of Governors of the Federal  Reserve System of the
United States of America.

      "Borrower" means Ultralife Batteries, Inc., a Delaware corporation.

      "Borrowing" means (a) Revolving Loans of the same Type, made, converted or
continued on the same date and, in the case of Eurodollar  Loans,  as to which a
single Interest Period is in effect or (b) the Term Loan.

      "Borrowing  Request"  means a request by the  Borrower  for a Borrowing in
accordance with Section 2.03.



                                        3
<PAGE>

      "Business  Day" means any day that is not a Saturday,  Sunday or other day
on which  commercial banks in New York City are authorized or required by law to
remain closed;  provided that, when used in connection  with a Eurodollar  Loan,
the term  "Business  Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.

      "Capital Lease  Obligations"  of any Person means the  obligations of such
Person to pay rent or other  amounts  under  any lease of (or other  arrangement
conveying the right to use) real or personal property, or a combination thereof,
which  obligations  are required to be  classified  and accounted for as capital
leases on a balance  sheet of such  Person  under  GAAP,  and the amount of such
obligations  shall be the  capitalized  amount thereof  determined in accordance
with GAAP.

      "Change in Control" means (a) the  acquisition  of ownership,  directly or
indirectly,  beneficially  or of  record,  by any  Person or group  (within  the
meaning of the  Securities  Exchange Act of 1934 and the rules of the Securities
and Exchange  Commission  thereunder as in effect on the date hereof), of Equity
Interests  representing  more than 20% of the  aggregate  ordinary  voting power
represented by the issued and outstanding Equity Interests of the Borrower;  (b)
occupation  of a majority of the seats (other than vacant seats) on the board of
directors of the Borrower by Persons who were neither (i) nominated by the board
of directors of the Borrower nor (ii)  appointed by directors so  nominated;  or
(c) the acquisition of direct or indirect  Control of the Borrower by any Person
or group.

      "Change in Law" means the occurrence, after the date of this Agreement, of
any of the  following:  (a) the  adoption  or taking  effect  of any law,  rule,
regulation or treaty,  (b) any change in any law, rule,  regulation or treaty or
in the administration, interpretation or application thereof by any Governmental
Authority or (c) the making or issuance of any  request,  guideline or directive
(whether or not having the force of law) by any Governmental Authority.

      "Class",  when  used in  reference  to any Loan or  Borrowing,  refers  to
whether such Loan, or the Loans comprising such Borrowing,  are Revolving Loans,
or Term Loans.

      "Code"  means the Internal  Revenue Code of 1986,  as amended from time to
time.

      "Commitment"  means,  with respect to each Lender,  the commitment of such
Lender to make  Revolving  Loans and to  acquire  participations  in  Letters of
Credit  hereunder,  expressed as an amount  representing  the maximum  aggregate
amount of such Lender's Revolving Credit Exposure hereunder,  as such commitment
may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or
increased  from  time to  time  pursuant  to  assignments  by or to such  Lender
pursuant to Section 9.04. The initial amount of each Lender's  Commitment is set
forth on Schedule 2.01, or in the  Assignment  and Assumption  pursuant to which
such  Lender  shall have  assumed its  Commitment,  as  applicable.  The initial
aggregate amount of the Lenders' Commitments is $ 15,000,000.

      "Consolidated  Current  Assets"  means  all  assets  of  Borrower  and any
Subsidiaries  which should,  in accordance with GAAP  consistently  applied,  be
classified as current assets.

      "Consolidated  Current Liabilities" means all Indebtedness of Borrower and
any Subsidiaries which should, in accordance with GAAP consistently  applied, be
classified as current liabilities after eliminating inter-company items.

      "Consolidated  Liabilities"  means and  includes  all items which would be
included in determining  total  liabilities of Borrower and any  Subsidiaries in
accordance with GAAP consistently applied.

      "Consolidated Total Funded Debt" means with respect to any Person, (a) all
obligations  of such  Person and its  subsidiaries  for  borrowed  money or with
respect to deposits or advances of any kind, (b) all  obligations of such Person
and  its  subsidiaries  evidenced  by  bonds,   debentures,   notes  or  similar
instruments,  (c) all obligations of such Person and its subsidiaries upon which
interest  charges are  customarily  paid, (d) all obligations of such Person and
its  subsidiaries  under  conditional  sale or other title retention  agreements
relating  to  property  acquired  by such  Person or its  subsidiaries,  (e) all
obligations of



                                        4
<PAGE>

such Person and its  subsidiaries  in respect of the deferred  purchase price of
property  or  services  (excluding  current  accounts  payable  incurred  in the
ordinary  course of  business),  and (f) all Capital Lease  Obligations  of such
Person  and its  subsidiaries.  "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.

      "Default"  means  any event or  condition  which  constitutes  an Event of
Default or which  upon  notice,  lapse of time or both  would,  unless  cured or
waived, become an Event of Default.

      "Disclosed  Matters"  means the  actions,  suits and  proceedings  and the
environmental matters disclosed in Schedule 3.06.

      "dollars" or "$" refers to lawful money of the United States of America.

      "EBIT"  means for any  period  and in respect of any Person the sum of (i)
the net income of such Person for such period  computed in accordance with GAAP,
plus (ii) the interest  expense of such Person for such  period,  plus (iii) the
income tax expense of such Person for such period.

      "EBITDA"  means for any period and in respect of any Person the sum of (i)
the net income of such Person for such period  computed in accordance with GAAP,
plus (ii) the interest  expense of such Person for such  period,  plus (iii) the
income tax expense of such Person for such period, plus (iv) the amount reported
as the  depreciation  of the assets of such Person for such  period  computed in
accordance  with  GAAP,  plus (v) the amount  reported  as the  amortization  of
intangibles  assets of such Person for such period  computed in accordance  with
GAAP,  and as such item is used in the  computation  of such Person's net income
for such period.

      "Effective  Date"  means the date on which  the  conditions  specified  in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).

      "Eligible Assignee" has the meaning assigned to such term in Section 9.04.

      "Environmental   Laws"  means  all  laws,   rules,   regulations,   codes,
ordinances,  orders,  decrees,  judgments,   injunctions,   notices  or  binding
agreements  issued,  promulgated or entered into by any Governmental  Authority,
relating in any way to the  environment,  preservation or reclamation of natural
resources,  the  management,  release or  threatened  release  of any  Hazardous
Material or to health and safety matters.

      "Environmental  Liability"  means any  liability,  contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties  or  indemnities),  of the  Borrower  or any  Subsidiary  directly  or
indirectly  resulting from or based upon (a) violation of any Environmental Law,
(b)  the  generation,  use,  handling,  transportation,  storage,  treatment  or
disposal of any Hazardous  Materials,  (c) exposure to any Hazardous  Materials,
(d) the  release or  threatened  release  of any  Hazardous  Materials  into the
environment  or (e) any  contract,  agreement  or other  consensual  arrangement
pursuant to which  liability  is assumed or imposed  with  respect to any of the
foregoing.

      "Equity Interests " means shares of capital stock,  partnership interests,
membership  interests in a limited liability company,  beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other  rights  entitling  the holder  thereof to purchase or acquire any such
equity interest.

      "ERISA"  means the Employee  Retirement  Income  Security Act of 1974,  as
amended from time to time.

      "ERISA   Affiliate"   means  any  trade  or   business   (whether  or  not
incorporated) that, together with the Borrower,  is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes



                                        5
<PAGE>

of  Section  302 of ERISA and  Section  412 of the Code,  is treated as a single
employer under Section 414 of the Code.

      "ERISA Event" means (a) any "reportable event", as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived);  (b) the existence  with
respect  to any Plan of an  "accumulated  funding  deficiency"  (as  defined  in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing  pursuant to Section  412(d) of the Code or Section 303(d) of ERISA of an
application  for a waiver of the minimum  funding  standard  with respect to any
Plan; (d) the  incurrence by the Borrower or any of its ERISA  Affiliates of any
liability  under Title IV of ERISA with respect to the  termination of any Plan;
(e) the receipt by the Borrower or any ERISA  Affiliate  from the PBGC or a plan
administrator  of any notice  relating to an intention to terminate  any Plan or
Plans or to appoint a trustee to administer  any Plan; (f) the incurrence by the
Borrower or any of its ERISA  Affiliates  of any  liability  with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice,  or the receipt by
any  Multiemployer  Plan from the Borrower or any ERISA Affiliate of any notice,
concerning  the  imposition of Withdrawal  Liability or a  determination  that a
Multiemployer  Plan is, or is expected to be,  insolvent  or in  reorganization,
within the meaning of Title IV of ERISA.

      "Eurodollar",  when used in reference to any Loan or Borrowing,  refers to
whether such Loan, or the Loans comprising such Borrowing,  are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.

      "Event of Default" has the meaning assigned to such term in Article VII.

      "Excluded  Taxes" means,  with respect to the  Administrative  Agent,  any
Lender,  the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder,  (a) taxes imposed on or
measured by its overall net income  (however  denominated),  and franchise taxes
imposed  on it (in  lieu  of net  income  taxes),  by the  jurisdiction  (or any
political  subdivision  thereof)  under  the laws of  which  such  recipient  is
organized  or in which its  principal  office is located  or, in the case of any
Lender,  in which its  applicable  lending  office is  located,  (b) any  branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other  jurisdiction  in which the Borrower is located and (c) in the case
of a Foreign  Lender  (other  than an  assignee  pursuant  to a  request  by the
Borrower  under Section  9.04,  any  withholding  tax that is imposed on amounts
payable to such Foreign  Lender at the time such Foreign  Lender becomes a party
hereto (or designates a new lending  office) or is  attributable to such Foreign
Lender's  failure or  inability  (other  than as a result of a Change in Law) to
comply with Section 2.17,  except to the extent that such Foreign Lender (or its
assignor,  if any) was  entitled,  at the time of  designation  of a new lending
office (or  assignment),  to receive  additional  amounts from the Borrower with
respect to such withholding tax pursuant to Section 2.17.

      "Federal Funds  Effective Rate" means,  for any day, the weighted  average
(rounded  upwards,  if  necessary,  to the  next  1/100  of 1%) of the  rates on
overnight Federal funds  transactions with members of the Federal Reserve System
arranged by Federal funds brokers,  as published on the next succeeding Business
Day by the  Federal  Reserve  Bank  of New  York,  or,  if  such  rate is not so
published for any day that is a Business Day, the average (rounded  upwards,  if
necessary,  to the  next  1/100 of 1%) of the  quotations  for such day for such
transactions  received  by the  Administrative  Agent from three  Federal  funds
brokers of recognized standing selected by it.

      "Financial   Officer"  means  the  chief  financial   officer,   principal
accounting officer, treasurer or controller of the Borrower.

      "Foreign  Lender"  means any Lender that is organized  under the laws of a
jurisdiction  other than that in which the Borrower is located.  For purposes of
this  definition,  the United  States of  America,  each State  thereof  and the
District of Columbia shall be deemed to constitute a single jurisdiction.

      "GAAP" means generally accepted accounting principles in the United States
of America.



                                        6
<PAGE>

      "Governmental  Authority"  means the  government  of the United  States of
America, any other nation or any political subdivision thereof, whether state or
local,  and any agency,  authority,  instrumentality,  regulatory  body,  court,
central  bank or  other  entity  exercising  executive,  legislative,  judicial,
taxing,  regulatory  or  administrative  powers or functions of or pertaining to
government  (including any  supra-national  bodies such as the European Union or
the European Central Bank.

      "Guarantee" of or by any Person (the  "guarantor")  means any  obligation,
contingent or otherwise,  of the guarantor  guaranteeing  or having the economic
effect of guaranteeing  any Indebtedness or other obligation of any other Person
(the  "primary  obligor") in any manner,  whether  directly or  indirectly,  and
including any obligation of the guarantor,  direct or indirect,  (a) to purchase
or pay (or  advance  or  supply  funds  for the  purchase  or  payment  of) such
Indebtedness  or other  obligation or to purchase (or to advance or supply funds
for the purchase of) any  security for the payment  thereof,  (b) to purchase or
lease property,  securities or services for the purpose of assuring the owner of
such  Indebtedness or other obligation of the payment  thereof,  (c) to maintain
working capital,  equity capital or any other financial  statement  condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness  or other  obligation  or (d) as an account party in respect of any
letter of credit or letter of guaranty  issued to support such  Indebtedness  or
obligation; provided, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.

      "Hazardous  Materials"  means all explosive or  radioactive  substances or
wastes  and all  hazardous  or toxic  substances,  wastes  or other  pollutants,
including  petroleum or petroleum  distillates,  asbestos or asbestos containing
materials,  polychlorinated  biphenyls,  radon gas, infectious or medical wastes
and all other  substances  or wastes of any  nature  regulated  pursuant  to any
Environmental Law.

      "Indebtedness"  of  any  Person  means,  without   duplication,   (a)  all
obligations  of such Person for  borrowed  money or with  respect to deposits or
advances of any kind,  (b) all  obligations  of such Person  evidenced by bonds,
debentures,  notes or similar  instruments,  (c) all  obligations of such Person
upon which interest  charges are  customarily  paid, (d) all obligations of such
Person under  conditional sale or other title retention  agreements  relating to
property acquired by such Person,  (e) all obligations of such Person in respect
of the  deferred  purchase  price of  property or  services  (excluding  current
accounts  payable  incurred  in  the  ordinary  course  of  business),  (f)  all
Indebtedness of others secured by (or for which the holder of such  Indebtedness
has an existing  right,  contingent or otherwise,  to be secured by) any Lien on
property  owned or  acquired  by such  Person,  whether or not the  Indebtedness
secured  thereby  has  been  assumed,  (g)  all  Guarantees  by such  Person  of
Indebtedness of others,  (h) all Capital Lease  Obligations of such Person,  (i)
all obligations,  contingent or otherwise, of such Person as an account party in
respect of letters of credit and  letters of guaranty  and (j) all  obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances.  The
Indebtedness  of any Person shall include the  Indebtedness  of any other entity
(including  any  partnership  in which such Person is a general  partner) to the
extent such Person is liable  therefor  as a result of such  Person's  ownership
interest in or other  relationship  with such  entity,  except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.

      "Indemnified Taxes" means Taxes other than Excluded Taxes.

      "Index Debt" means senior, unsecured,  long-term indebtedness for borrowed
money of the Borrower  that is not  guaranteed by any other Person or subject to
any other credit enhancement.

      "Interest  Election Request" means a request by the Borrower to convert or
continue a Revolving Borrowing or Term Loan Borrowing in accordance with Section
2.08.

      "Interest  Payment Date" means (a) with respect to any ABR Loan, the first
day of each month,  (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Eurodollar  Borrowing  with an Interest  Period of more than three
months'  duration,  each day prior to the last day of such Interest  Period that
occurs  at  intervals  of three  months'  duration  after  the first day of such
Interest Period.



                                        7
<PAGE>

      "Interest  Period"  means with respect to any  Eurodollar  Borrowing,  the
period  commencing on the date of such  Borrowing and ending on the  numerically
corresponding  day in the calendar  month that is one, two,  three or six months
thereafter, as the Borrower may elect, provided, that (i) if any Interest Period
would end on a day other than a Business  Day,  such  Interest  Period  shall be
extended to the next succeeding Business Day unless, in the case of a Eurodollar
Borrowing  only,  such  next  succeeding  Business  Day  would  fall in the next
calendar  month,  in which  case  such  Interest  Period  shall  end on the next
preceding  Business Day and (ii) any Interest Period  pertaining to a Eurodollar
Borrowing  that  commences on the last Business Day of a calendar month (or on a
day for which there is no  numerically  corresponding  day in the last  calendar
month of such  Interest  Period)  shall end on the last Business Day of the last
calendar  month of such  Interest  Period.  For purposes  hereof,  the date of a
Borrowing  initially  shall be the date on which such  Borrowing is made and, in
the case of a Revolving Borrowing, thereafter shall be the effective date of the
most recent conversion or continuation of such Borrowing.

      "Issuing Bank" means JPMorgan Chase Bank, in its capacity as the issuer of
Letters of Credit hereunder,  and its successors in such capacity as provided in
Section  2.06(i).  The Issuing Bank may, in its  discretion,  arrange for one or
more Letters of Credit to be issued by  Affiliates of the Issuing Bank, in which
case the term "Issuing  Bank" shall include any such  Affiliate  with respect to
Letters of Credit issued by such Affiliate.

      "LC  Disbursement"  means a payment made by the Issuing Bank pursuant to a
Letter of Credit.

      "LC Exposure"  means,  at any time,  the sum of (a) the aggregate  undrawn
amount of all outstanding  Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Lender at any time shall be
its Applicable Percentage of the total LC Exposure at such time.

      "Lenders"  means the Persons  listed on Schedule 2.01 and any other Person
that shall have become a party hereto  pursuant to an Assignment and Assumption,
other than any such  Person  that  ceases to be a party  hereto  pursuant  to an
Assignment and Assumption.

      "Letter of  Credit"  means any letter of credit  issued  pursuant  to this
Agreement.

      "LIBO  Rate"  means,  with  respect to any  Eurodollar  Borrowing  for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service,  or any successor to or
substitute  for such  Service,  providing  rate  quotations  comparable to those
currently  provided  on  such  page  of  such  Service,  as  determined  by  the
Administrative  Agent from time to time for purposes of providing  quotations of
interest rates applicable to dollar deposits in the London interbank  market) at
approximately   11:00  a.m.,  London  time,  two  Business  Days  prior  to  the
commencement  of such Interest  Period,  as the rate for dollar  deposits with a
maturity  comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar  Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered  by  the  principal  London  office  of  the  Administrative   Agent  in
immediately  available  funds in the London  interbank  market at  approximately
11:00 a.m.,  London time,  two Business Days prior to the  commencement  of such
Interest Period.

      "Lien" means, with respect to any asset, (a) any mortgage,  deed of trust,
lien, pledge, hypothecation,  encumbrance, charge or security interest in, on or
of such asset,  (b) the interest of a vendor or a lessor  under any  conditional
sale  agreement,  capital lease or title  retention  agreement (or any financing
lease having  substantially  the same economic  effect as any of the  foregoing)
relating to such asset and (c) in the case of securities,  any purchase  option,
call or similar right of a third party with respect to such securities.

      "Loans"  means the loans made by the Lenders to the  Borrower  pursuant to
this Agreement.



                                        8
<PAGE>

      "Loan  Documents"  mean this  Agreement,  the Notes,  any letter of credit
application or agreement  referred to in Section 2.06(a)  executed and delivered
by the  Borrower to the Issuing  Bank,  the  Security  Agreements  and any other
document or instrument executed and delivered by the Borrower in connection with
the Transactions.

      "Material  Adverse  Effect"  means a  material  adverse  effect on (a) the
business, assets, operations, prospects or condition, financial or otherwise, of
the  Borrower  and the  Subsidiaries  taken as a whole,  (b) the  ability of the
Borrower to perform any of its obligations  under this Agreement or the Security
Agreement,  or (c) the rights of or benefits available to the Lenders under this
Agreement or the Security Agreement.

      "Material  Indebtedness"  means  Indebtedness  (other  than the  Loans and
Letters of Credit), or obligations in respect of one or more Swap Agreements, of
any one or more of the Borrower and its  Subsidiaries in an aggregate  principal
amount exceeding $1,000,000.  For purposes of determining Material Indebtedness,
the "principal  amount" of the  obligations of the Borrower or any Subsidiary in
respect of any Swap Agreement at any time shall be the maximum  aggregate amount
(giving effect to any netting  agreements)  that the Borrower or such Subsidiary
would be required to pay if such Swap Agreement were terminated at such time.

      "Maturity Date" means (i) in respect of the Revolving Loans (including any
reference in respect to Letters of Credit),  August 1, 2007, and (ii) in respect
of the Term Loans, July 1, 2009.

      "Moody's" means Moody's Investors Service, Inc.

      "Multiemployer  Plan"  means a  multiemployer  plan as  defined in Section
4001(a)(3) of ERISA.

      "Notes" means the notes evidencing the Loans  hereunder,  and "Note" means
any one of the Notes.

      "Other  Taxes" means all present or future stamp or  documentary  taxes or
any other excise or property  taxes,  charges or similar levies arising from any
payment made  hereunder or from the execution,  delivery or  enforcement  of, or
otherwise with respect to, this Agreement.

      "Participant" has the meaning set forth in Section 9.04(c)(i).

      "PBGC"  means the Pension  Benefit  Guaranty  Corporation  referred to and
defined in ERISA and any successor entity performing similar functions.

      "Permitted Encumbrances" means:

      (a)  Liens  imposed  by law for  taxes  that are not yet due or are  being
contested in compliance with Section 5.04;

      (b) carriers', warehousemen's,  mechanics', materialmen's, repairmen's and
other like Liens imposed by law,  arising in the ordinary course of business and
securing  obligations  that are not  overdue  by more  than 30 days or are being
contested in compliance with Section 5.04;

      (c)  pledges  and  deposits  made in the  ordinary  course of  business in
compliance with workers'  compensation,  unemployment insurance and other social
security laws or regulations;

      (d) deposits to secure the performance of bids, trade  contracts,  leases,
statutory  obligations,  surety and appeal  bonds,  performance  bonds and other
obligations of a like nature, in each case in the ordinary course of business;

      (e) judgment liens in respect of judgments that do not constitute an Event
of Default under clause (k) of Article VII; and



                                        9
<PAGE>

      (f) easements, zoning restrictions, rights-of-way and similar encumbrances
on real  property  imposed by law or arising in the ordinary  course of business
that do not secure any monetary  obligations and do not materially  detract from
the value of the  affected  property or interfere  with the ordinary  conduct of
business of the Borrower or any Subsidiary;

provided  that the term  "Permitted  Encumbrances"  shall not  include  any Lien
securing Indebtedness.

      "Permitted Investments" means:

      (a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (or by any
agency thereof to the extent such  obligations  are backed by the full faith and
credit of the United States of America),  in each case maturing  within one year
from the date of acquisition thereof;

      (b) investments in commercial paper maturing within 270 days from the date
of  acquisition  thereof and having,  at such date of  acquisition,  the highest
credit rating obtainable from S&P or from Moody's;

      (c) investments in certificates of deposit,  banker's acceptances and time
deposits maturing within 180 days from the date of acquisition thereof issued or
guaranteed  by or placed  with,  and money  market  deposit  accounts  issued or
offered by, any domestic  office of any commercial bank organized under the laws
of the  United  States of  America  or any State  thereof  which has a  combined
capital and surplus and undivided profits of not less than $500,000,000;

      (d) fully  collateralized  repurchase  agreements  with a term of not more
than 30 days for securities  described in clause (a) above and entered into with
a financial  institution  satisfying the criteria described in clause (c) above;
and

      (e) money  market  funds that (i) comply  with the  criteria  set forth in
Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of
1940,  (ii) are rated AAA by S&P and Aaa by  Moody's  and (iii)  have  portfolio
assets of at least $5,000,000,000.

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

      "Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the  provisions of Title IV of ERISA or Section 412 of the Code
or  Section  302 of ERISA,  and in respect  of which the  Borrower  or any ERISA
Affiliate  is (or, if such plan were  terminated,  would under  Section  4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.

      "Prime Rate" means the rate of interest per annum publicly  announced from
time to time by JPMorgan Chase Bank as its prime rate in effect at its principal
office in New York City;  each change in the Prime Rate shall be effective  from
and including the date such change is publicly announced as being effective.

      "Register" has the meaning set forth in Section 9.04.

      "Related  Parties"  means,  with  respect to any  specified  Person,  such
Person's Affiliates and the respective partners, directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.

      "Required  Lenders" means, at any time,  Lenders having  Revolving  Credit
Exposures, and unused Commitments representing at least 66.67% of the sum of the
total Revolving Credit Exposures and unused  Commitments at such time,  provided
however, that the percentage shall be 100% during any period that there are only
two (2) Lenders hereunder.



                                       10
<PAGE>

      "Restricted Payment" means any dividend or other distribution  (whether in
cash,  securities or other property) with respect to any Equity Interests in the
Borrower or any Subsidiary, or any payment (whether in cash, securities or other
property),  including  any sinking  fund or similar  deposit,  on account of the
purchase, redemption,  retirement,  acquisition,  cancellation or termination of
any such Equity Interests in the Borrower or any option,  warrant or other right
to acquire any such Equity Interests in the Borrower.

      "Revolving Credit Exposure" means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure at such time.

      "Revolving Loan" means a Loan made pursuant to Section 2.03.

      "Security  Agreements"  means (i) the security  agreements  granted by the
Borrower to the Lenders and the Administrative Agent of even date herewith, (ii)
such security  agreements  or other  agreements  or  instruments,  regardless of
nomenclature,  granted and/or executed by the Borrower's  Subsidiary,  Ultralife
Batteries  (UK) Ltd for the purpose of  creating a "charge"  on the  property of
Ultralife  Batteries (UK) Ltd as security for the Borrower's  obligations to the
Lenders,  and (iii) any future Security Agreements executed and delivered to the
Lenders and the  Administrative  Agent by any Person which shall secure any part
of the  debts,  liabilities  and  obligations  of the  Borrower  under  the Loan
Documents, and all modifications and amendments thereto.

      "S&P" means Standard & Poor's.

      "Statutory  Reserve Rate" means a fraction  (expressed as a decimal),  the
numerator of which is the number one and the  denominator of which is the number
one minus the  aggregate  of the  maximum  reserve  percentages  (including  any
marginal,  special,  emergency or supplemental  reserves) expressed as a decimal
established  by the  Board to which the  Administrative  Agent is  subject  with
respect to the Adjusted LIBO Rate, for eurocurrency  funding (currently referred
to as  "Eurocurrency  Liabilities"  in Regulation D of the Board).  Such reserve
percentages   shall  include  those  imposed  pursuant  to  such  Regulation  D.
Eurodollar  Loans shall be deemed to constitute  eurocurrency  funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions  or  offsets  that may be  available  from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.

      "subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation,  limited liability company,  partnership,  association or other
entity the accounts of which would be  consolidated  with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared  in  accordance  with  GAAP as of  such  date,  as  well  as any  other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests  representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership,  more than 50% of the general partnership interests are, as of such
date,  owned,  controlled  or held,  or (b) that is, as of such date,  otherwise
Controlled,  by the parent or one or more  subsidiaries  of the parent or by the
parent and one or more subsidiaries of the parent.

      "Subsidiary" means any subsidiary of the Borrower.

      "Swap  Agreement"  means any agreement with respect to any swap,  forward,
future or derivative  transaction or option or similar agreement  involving,  or
settled by reference to, one or more rates, currencies,  commodities,  equity or
debt  instruments or securities,  or economic,  financial or pricing  indices or
measures  of  economic,  financial  or  pricing  risk or  value  or any  similar
transaction or any combination of these  transactions;  provided that no phantom
stock or similar  plan  providing  for  payments  only on  account  of  services
provided by current or former directors,  officers,  employees or consultants of
the Borrower or the Subsidiaries shall be a Swap Agreement.



                                       11
<PAGE>

      "Taxes"  means all  present  or future  taxes,  levies,  imposts,  duties,
deductions,  withholdings,  assessments,  fees or other  charges  imposed by any
Governmental  Authority,  including any interest,  additions to tax or penalties
applicable thereto.

      "Term  Loan"  means  an ABR  Loan or a  Eurodollar  Loan  made by a Lender
pursuant to ss.2.04 hereof.

      "Term Loan  Commitment"  means respect to each Lender,  the  commitment of
such Lender to make Term Loans,  expressed as an amount representing the maximum
aggregate  amount  of  such  Lender's  Term  Loan  Exposure  hereunder,  as such
commitment may be reduced or increased from time to time pursuant to assignments
by or to such  Lender  pursuant  to Section  9.04.  The  initial  amount of each
Lender's  Term  Loan  Commitment  is  set  forth  on  Schedule  2.01,  or in the
Assignment and  Assumption  pursuant to which such Lender shall have assumed its
Term  Loan  Commitment,  as  applicable.  The  initial  aggregate  amount of the
Lenders' Term Loan Commitments is $ 10,000,000.

      "Term Loan  Exposure"  means,  with respect to any Lender at any time, the
sum of the  outstanding  principal  amount of such  Lender's  Term Loans at such
time.

      "Term  Note"  means  a  Note  of  the  Borrower  issued  to  a  Lender  in
substantially the form of Exhibit C hereto.

      "Transactions"  means  the  execution,  delivery  and  performance  by the
Borrower of this Agreement,  the Security Agreement, the borrowing of Loans, the
use of the proceeds thereof and the issuance of Letters of Credit hereunder.

      "Type", when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.

      "Unused  Commitment"  means  the  daily  average  of the  sum  of (i)  the
aggregate Commitment minus (ii) the aggregate Revolving Credit Exposure.

      "Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer  Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.

      "Winthrop  L/C" means the Letter of Credit to be issued for the account of
the Borrower and the benefit of Winthrop Resources  Corporation in the amount of
$3,600,000.

      SECTION 1.02. Classification of Loans and Borrowings. For purposes of this
Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving
Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a
"Eurodollar Revolving Loan"). Borrowings also may be classified and referred to
by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar
Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing").

      SECTION 1.03. Terms Generally. The definitions of terms herein shall apply
equally to the  singular  and plural  forms of the terms  defined.  Whenever the
context may require,  any pronoun  shall  include the  corresponding  masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed  by the phrase  "without  limitation".  The word "will"
shall be  construed  to have the same  meaning  and effect as the word  "shall."
Unless the context requires  otherwise (a) any definition of or reference to any
agreement,  instrument or other document  herein shall be construed as referring
to such  agreement,  instrument or other  document as from time to time amended,
supplemented  or  otherwise  modified  (subject  to  any  restrictions  on  such
amendments,  supplements or modifications  set forth herein),  (b) any reference
herein to any Person shall be construed to include such Person's  successors and
assigns, (c) the words "herein," "hereof" and "hereunder",  and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any



                                       12
<PAGE>

particular  provision hereof,  (d) all references herein to Articles,  Sections,
Exhibits and Schedules  shall be construed to refer to Articles and Sections of,
and Exhibits and Schedules  to, this  Agreement and (e) any reference to any law
or regulation  herein shall,  unless otherwise  specified,  refer to such law or
regulation as amended,  modified or  supplemented  from time to time and (f) the
words  "asset" and  "property"  shall be  construed to have the same meaning and
effect  and to  refer  to  any  and  all  tangible  and  intangible  assets  and
properties, including cash, securities, accounts and contract rights.

      SECTION  1.04.  Accounting  Terms;  GAAP.  Except as  otherwise  expressly
provided  herein,  all  terms of an  accounting  or  financial  nature  shall be
construed  in  accordance  with GAAP,  as in effect from time to time;  provided
that,  if the  Borrower  notifies  the  Administrative  Agent that the  Borrower
requests an amendment  to any  provision  hereof to eliminate  the effect of any
change occurring after the date hereof in GAAP or in the application  thereof on
the operation of such  provision (or if the  Administrative  Agent  notifies the
Borrower that the Required  Lenders request an amendment to any provision hereof
for such  purpose),  regardless  of whether any such  notice is given  before or
after such change in GAAP or in the  application  thereof,  then such  provision
shall be interpreted  on the basis of GAAP as in effect and applied  immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

                                   ARTICLE II

                                   The Credits

      SECTION  2.01.  Revolving  Loan  Commitments.  Subject  to the  terms  and
conditions set forth herein,  each Lender agrees to severally (not jointly) make
Revolving Loans to the Borrower from time to time during the Availability Period
in an  aggregate  principal  amount  that will not  result in (a) such  Lender's
Revolving Credit Exposure  exceeding such Lender's  Commitment or (b) the sum of
the total Revolving Credit Exposures exceeding the total Commitments. Within the
foregoing  limits and subject to the terms and conditions set forth herein,  the
Borrower may borrow, prepay and reborrow Revolving Loans.

      SECTION 2.02. Loans and Borrowings.  (a) Each Revolving Loan shall be made
as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably
in accordance with their  respective  Commitments.  The failure of any Lender to
make any Loan  required to be made by it shall not  relieve any other  Lender of
its  obligations  hereunder;  provided that the  Commitments  of the Lenders are
several and no Lender shall be  responsible  for any other  Lender's  failure to
make Loans as required.

      (b) Subject to Section 2.14,  each Revolving  Borrowing shall be comprised
entirely  of ABR  Loans or  Eurodollar  Loans as the  Borrower  may  request  in
accordance  herewith.  Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign  branch or Affiliate of such Lender to make such
Loan;  provided that any exercise of such option shall not affect the obligation
of the  Borrower  to  repay  such  Loan in  accordance  with  the  terms of this
Agreement.

      (c) At the  commencement  of  each  Interest  Period  for  any  Eurodollar
Revolving  Borrowing,  such Borrowing shall be in an aggregate amount that is an
integral  multiple of $500,000  and not less than  $1,000,000.  At the time that
each ABR Revolving  Borrowing is made,  such Borrowing  shall be in an aggregate
amount that is an integral  multiple  of  $100,000  and not less than  $100,000;
provided that an ABR Revolving  Borrowing may be in an aggregate  amount that is
equal to the entire unused balance of the total  Commitments or that is required
to finance the  reimbursement  of an LC  Disbursement as contemplated by Section
2.06(e).  Borrowings of more than one Type and Class may be  outstanding  at the
same time; provided that there shall not at any time be more than a total of six
Eurodollar Borrowings outstanding.

      (d)  Notwithstanding  any other provision of this Agreement,  the Borrower
shall not be  entitled  to  request,  or to elect to  convert or  continue,  any
Borrowing if the Interest Period  requested with respect thereto would end after
the Maturity Date.



                                       13
<PAGE>

      SECTION 2.03.  Requests for Revolving  Borrowings.  To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone (a) in the case of a Eurodollar Borrowing,  not later than 11:00 a.m.,
New York  City  time,  three  Business  Days  before  the  date of the  proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New
York City time,  one  Business  Day before the date of the  proposed  Borrowing;
provided  that any such  notice of an ABR  Revolving  Borrowing  to finance  the
reimbursement  of an LC  Disbursement  as contemplated by Section 2.06(e) may be
given not later than 10:00 a.m., New York City time, on the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the  Administrative  Agent
of a written  Borrowing Request in a form approved by the  Administrative  Agent
and signed by the Borrower.  Each such telephonic and written  Borrowing Request
shall specify the following information in compliance with Section 2.02:

      (i)   the aggregate amount of the requested Borrowing;

      (ii)  the date of such Borrowing, which shall be a Business Day;

      (iii) whether  such  Borrowing  is to be an ABR  Borrowing or a Eurodollar
            Borrowing;

      (iv)  in the case of a Eurodollar  Borrowing,  the initial Interest Period
            to be applicable  thereto,  which shall be a period  contemplated by
            the definition of the term "Interest Period"; and

      (v)   the location and number of the Borrower's account to which funds are
            to be disbursed, which shall comply with the requirements of Section
            2.07.

If no election as to the Type of  Revolving  Borrowing  is  specified,  then the
requested Revolving  Borrowing shall be an ABR Borrowing.  If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing,  then
the Borrower shall be deemed to have selected an Interest  Period of one month's
duration.  Promptly  following receipt of a Borrowing Request in accordance with
this Section,  the Administrative  Agent shall advise each Lender of the details
thereof  and of the  amount  of  such  Lender's  Loan  to be made as part of the
requested Borrowing.

      SECTION 2.04.  Term Loan  Commitment.  (a) Each Lender agrees to severally
(not jointly), on the terms and subject to the conditions of this Agreement, and
in reliance upon the representations and warranties of the Borrower  hereinafter
set forth,  make the Term Loan to the Borrower on the Effective Date each in the
amount of the  Lender's  Term Loan  Commitment  and in the  aggregate  principal
amount of $10,000,000.

      (b) The Term Loan shall be evidenced by Term Notes of the Borrower  issued
to the  Lenders,  dated as of the  Effective  Date,  payable to the order of the
Lenders in the aggregate principal amount of $10,000,000.

      (c)  The  principal  amount  of the  Term  Loan  shall  be  payable  in 60
installments  due on the first Business Day of each month,  commencing on August
1, 2004 and continuing  through July 1, 2009, at which time the entire principal
balance  shall  be all  due  and  payable,  in  equal  monthly  installments  of
$166,666.67.

      SECTION 2.05. Term Loan Borrowings.  (a) Subject to Section 2.14, the Term
Loan shall be  comprised  entirely  of an ABR Loan or a  Eurodollar  Loan as the
Borrower may request in accordance herewith.

      (b) At the  commencement  of each Interest  Period for any Eurodollar Term
Borrowing,  such Borrowing  shall be in an aggregate  amount that is an integral
multiple of  $500,000  and not less than  $1,000,000.  At the time that each ABR
Term Borrowing is made, such Borrowing  shall be in an aggregate  amount that is
an integral multiple of $100,000 and not less than $100,000.



                                       14
<PAGE>

      SECTION  2.06.  Letters of Credit.  (a) General.  Subject to the terms and
conditions set forth herein, the Borrower may request the issuance of Letters of
Credit  for  its  own  account,   in  a  form   reasonably   acceptable  to  the
Administrative  Agent and the  Issuing  Bank,  at any time and from time to time
during the Availability  Period. In the event of any  inconsistency  between the
terms and  conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.

      (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
To request  the  issuance  of a Letter of Credit (or the  amendment,  renewal or
extension of an outstanding  Letter of Credit),  the Borrower shall hand deliver
or telecopy (or transmit by electronic communication,  if arrangements for doing
so  have  been  approved  by the  Issuing  Bank)  to the  Issuing  Bank  and the
Administrative  Agent  (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended,  renewed or extended,
and  specifying  the date of issuance,  amendment,  renewal or extension  (which
shall be a Business  Day),  the date on which such Letter of Credit is to expire
(which  shall comply with  paragraph  (c) of this  Section),  the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit.  If requested by the Issuing  Bank,  the Borrower also shall submit a
letter of credit  application on the Issuing Bank's  standard form in connection
with any  request  for a Letter of Credit.  A Letter of Credit  shall be issued,
amended, renewed or extended only if (and upon issuance,  amendment,  renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent and
warrant  that),  after giving  effect to such  issuance,  amendment,  renewal or
extension (i) the LC Exposure  shall not exceed  $5,000,000  and (ii) the sum of
the total Revolving Credit Exposures shall not exceed the total Commitments.

      (c) Expiration Date. Each Letter of Credit shall expire at or prior to the
close of  business on the earlier of (i) the date one year after the date of the
issuance of such  Letter of Credit (or, in the case of any renewal or  extension
thereof,  one year after such  renewal or  extension)  and (ii) the date that is
five Business Days prior to the Maturity Date;  provided  however,  the Winthrop
L/C initial  expiration date may be thirteen (13) months after date of issuance,
and, if extended to its Final Expiration Date according to its terms, may expire
one Business Day prior to the Maturity Date.

      (d) Participations. By the issuance of a Letter of Credit (or an amendment
to a Letter of Credit  increasing  the amount  thereof)  and without any further
action on the part of the Issuing Bank or the  Lenders,  the Issuing Bank hereby
grants to each Lender,  and each Lender hereby acquires from the Issuing Bank, a
participation  in such  Letter  of  Credit  equal  to such  Lender's  Applicable
Percentage  of the aggregate  amount  available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and  unconditionally  agrees to pay to the Administrative  Agent, for
the account of the Issuing Bank, such Lender's Applicable  Percentage of each LC
Disbursement  made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in paragraph (e) of this Section,  or of any  reimbursement
payment  required  to be refunded to the  Borrower  for any reason.  Each Lender
acknowledges and agrees that its obligation to acquire  participations  pursuant
to this paragraph in respect of Letters of Credit is absolute and  unconditional
and  shall  not  be  affected  by any  circumstance  whatsoever,  including  any
amendment,  renewal or extension of any Letter of Credit or the  occurrence  and
continuance  of a Default or reduction or termination  of the  Commitments,  and
that each such payment shall be made without any offset, abatement,  withholding
or reduction whatsoever.

      (e)  Reimbursement.  If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement
by paying to the  Administrative  Agent an amount equal to such LC  Disbursement
not  later  than  12:00  noon,  New York  City  time,  on the date  that such LC
Disbursement  is made,  if the Borrower  shall have  received  notice of such LC
Disbursement  prior to 10:00 a.m., New York City time, on such date, or, if such
notice has not been  received by the  Borrower  prior to such time on such date,
then not later than 12:00 noon, New York City time, on (i) the Business Day that
the Borrower  receives  such notice,  if such notice is received  prior to 10:00
a.m.,  New York City  time,  on the day of  receipt,  or (ii) the  Business  Day
immediately following the



                                       15
<PAGE>

day that the Borrower receives such notice, if such notice is not received prior
to such time on the day of receipt;  provided that, if such LC  Disbursement  is
not less than $100,000, the Borrower may, subject to the conditions to borrowing
set forth  herein,  request in  accordance  with  Section 2.03 or 2.05 that such
payment be financed with an ABR Revolving Borrowing in an equivalent amount and,
to the extent so financed,  the Borrower's obligation to make such payment shall
be discharged  and replaced by the resulting  ABR  Revolving  Borrowing.  If the
Borrower  fails to make such payment when due,  the  Administrative  Agent shall
notify each Lender of the applicable LC Disbursement,  the payment then due from
the Borrower in respect thereof and such Lender's Applicable Percentage thereof.
Promptly  following  receipt  of  such  notice,  each  Lender  shall  pay to the
Administrative Agent its Applicable  Percentage of the payment then due from the
Borrower,  in the same manner as provided in Section  2.07 with respect to Loans
made by such Lender (and  Section  2.07 shall apply,  mutatis  mutandis,  to the
payment obligations of the Lenders), and the Administrative Agent shall promptly
pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly
following receipt by the  Administrative  Agent of any payment from the Borrower
pursuant to this  paragraph,  the  Administrative  Agent shall  distribute  such
payment to the Issuing Bank or, to the extent that  Lenders  have made  payments
pursuant to this  paragraph to reimburse the Issuing Bank,  then to such Lenders
and the Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement
(other than the funding of ABR Revolving Loans as contemplated  above) shall not
constitute  a Loan and shall not  relieve  the  Borrower  of its  obligation  to
reimburse such LC Disbursement.

      (f)  Obligations  Absolute.  The  Borrower's  obligation  to  reimburse LC
Disbursements  as provided in paragraph  (e) of this Section  shall be absolute,
unconditional  and  irrevocable,  and shall be performed  strictly in accordance
with the terms of this Agreement under any and all circumstances  whatsoever and
irrespective  of (i) any lack of  validity  or  enforceability  of any Letter of
Credit or this Agreement,  or any term or provision  therein,  (ii) any draft or
other  document  presented  under a  Letter  of  Credit  proving  to be  forged,
fraudulent  or invalid in any respect or any  statement  therein being untrue or
inaccurate  in any respect,  (iii) payment by the Issuing Bank under a Letter of
Credit  against  presentation  of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever,  whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the  Administrative  Agent,  the Lenders nor the Issuing Bank,  nor any of their
Related Parties,  shall have any liability or  responsibility by reason of or in
connection  with the issuance or transfer of any Letter of Credit or any payment
or  failure  to  make  any  payment  thereunder  (irrespective  of  any  of  the
circumstances  referred to in the preceding sentence),  or any error,  omission,
interruption,  loss or delay in transmission or delivery of any draft, notice or
other  communication  under or relating to any Letter of Credit  (including  any
document required to make a drawing thereunder),  any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank;  provided that the foregoing  shall not be construed to excuse the
Issuing Bank from  liability to the Borrower to the extent of any direct damages
(as  opposed  to  consequential  damages,  claims in respect of which are hereby
waived by the Borrower to the extent  permitted by  applicable  law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining  whether  drafts  and other  documents  presented  under a Letter of
Credit comply with the terms thereof.  The parties hereto  expressly agree that,
in the  absence of gross  negligence  or willful  misconduct  on the part of the
Issuing Bank (as finally determined by a court of competent  jurisdiction),  the
Issuing Bank shall be deemed to have exercised care in each such  determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that,  with respect to documents  presented  which appear on their
face to be in substantial  compliance with the terms of a Letter of Credit,  the
Issuing Bank may, in its sole  discretion,  either  accept and make payment upon
such documents without responsibility for further  investigation,  regardless of
any notice or information to the contrary,  or refuse to accept and make payment
upon such  documents if such  documents  are not in strict  compliance  with the
terms of such Letter of Credit.

      (g) Disbursement  Procedures.  The Issuing Bank shall,  promptly following
its receipt thereof,  examine all documents purporting to represent a demand for
payment  under a Letter of Credit.  The Issuing Bank shall  promptly  notify the
Administrative Agent and the Borrower by telephone (confirmed by



                                       16
<PAGE>

telecopy)  of such demand for  payment and whether the Issuing  Bank has made or
will make an LC  Disbursement  thereunder;  provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its  obligation to
reimburse  the  Issuing  Bank  and  the  Lenders  with  respect  to any  such LC
Disbursement.

      (h) Interim Interest.  If the Issuing Bank shall make any LC Disbursement,
then,  unless the Borrower shall  reimburse such LC  Disbursement in full on the
date  such LC  Disbursement  is made,  the  unpaid  amount  thereof  shall  bear
interest,  for each day from and including the date such LC Disbursement is made
to but excluding the date that the Borrower reimburses such LC Disbursement,  at
the rate per annum then applicable to ABR Revolving Loans; provided that, if the
Borrower fails to reimburse such LC Disbursement  when due pursuant to paragraph
(e) of this Section, then Section 2.13(d) shall apply. Interest accrued pursuant
to this  paragraph  shall be for the  account of the Issuing  Bank,  except that
interest  accrued on and after the date of payment  by any  Lender  pursuant  to
paragraph  (e) of this  Section to  reimburse  the Issuing Bank shall be for the
account of such Lender to the extent of such payment.

      (i)  Replacement  of the Issuing Bank. The Issuing Bank may be replaced at
any time by written agreement among the Borrower,  the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank. The  Administrative  Agent
shall notify the Lenders of any such  replacement  of the Issuing  Bank.  At the
time any such  replacement  shall become  effective,  the Borrower shall pay all
unpaid fees  accrued for the account of the replaced  Issuing  Bank  pursuant to
Section 2.12(b). From and after the effective date of any such replacement,  (i)
the  successor  Issuing  Bank shall have all the rights and  obligations  of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all  previous  Issuing  Banks,  as the  context  shall  require.  After  the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall  continue to have all the rights and  obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.

      (j) Cash  Collateralization.  If any Event of Default  shall  occur and be
continuing,  on the  Business  Day that the  Borrower  receives  notice from the
Administrative  Agent or the  Required  Lenders  demanding  the  deposit of cash
collateral pursuant to this paragraph,  the Borrower shall deposit in an account
with the Administrative  Agent, in the name of the Administrative  Agent and for
the  benefit of the  Lenders,  an amount in cash equal to the LC  Exposure as of
such date plus any  accrued  and  unpaid  interest  thereon;  provided  that the
obligation to deposit such cash collateral shall become  effective  immediately,
and such deposit shall become  immediately  due and payable,  without  demand or
other  notice of any kind,  upon the  occurrence  of any Event of  Default  with
respect to the  Borrower  described  in clause (h) or (i) of Article  VII.  Such
deposit shall be held by the Administrative  Agent as collateral for the payment
and  performance of the  obligations of the Borrower under this  Agreement.  The
Administrative  Agent shall have exclusive  dominion and control,  including the
exclusive right of withdrawal, over such account. Other than any interest earned
on the  investment  of such  deposits,  which  investments  shall be made at the
option and sole  discretion of the  Administrative  Agent and at the  Borrower's
risk and expense, such deposits shall not bear interest. Interest or profits, if
any,  on such  investments  shall  accumulate  in such  account.  Moneys in such
account  shall be applied by the  Administrative  Agent to reimburse the Issuing
Bank for LC  Disbursements  for  which it has not been  reimbursed  and,  to the
extent not so applied,  shall be held for the satisfaction of the  reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated (but subject to the consent of Lenders with LC
Exposure representing greater than 66.67% of the total LC Exposure),  be applied
to satisfy  other  obligations  of the  Borrower  under this  Agreement.  If the
Borrower  is  required to provide an amount of cash  collateral  hereunder  as a
result of the occurrence of an Event of Default,  such amount (to the extent not
applied as aforesaid)  shall be returned to the Borrower  within three  Business
Days after all Events of Default have been cured or waived.

      SECTION 2.07. Funding of Borrowings.  (a) Each Lender shall make each Loan
to be made by it  hereunder on the  proposed  date  thereof by wire  transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such



                                       17
<PAGE>

purpose by notice to the Lenders.  The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
New  York  City and  designated  by the  Borrower  in the  applicable  Borrowing
Request;  provided that ABR Revolving Loans made to finance the reimbursement of
an LC  Disbursement  as  provided  in Section  2.06(e)  shall be remitted by the
Administrative Agent to the Issuing Bank.

      (b) Unless the  Administrative  Agent  shall have  received  notice from a
Lender prior to the  proposed  date of any  Borrowing  that such Lender will not
make  available  to  the  Administrative  Agent  such  Lender's  share  of  such
Borrowing,  the  Administrative  Agent may assume that such Lender has made such
share  available on such date in  accordance  with  Section  2.07(a) and may, in
reliance upon such  assumption,  make available to the Borrower a  corresponding
amount.  In such  event,  if a  Lender  has not in fact  made  its  share of the
applicable Borrowing available to the Administrative  Agent, then the applicable
Lender  and the  Borrower  severally  agree to pay to the  Administrative  Agent
forthwith on demand such  corresponding  amount with interest thereon,  for each
day from and including the date such amount is made available to the Borrower to
but excluding  the date of payment to the  Administrative  Agent,  at (i) in the
case of a payment to be made by such  Lender,  the greater of the Federal  Funds
Effective Rate and a rate determined by the  Administrative  Agent in accordance
with banking industry rules on interbank  compensation and (ii) in the case of a
payment to be made by the Borrower,  the interest rate  applicable to ABR Loans.
If the Borrower and such Lender  shall pay such  interest to the  Administrative
Agent for the same or an  overlapping  period,  the  Administrative  Agent shall
promptly  remit to the Borrower the amount of such interest paid by the Borrower
for such period.  If such Lender pays its share of the  applicable  Borrowing to
the Administrative Agent, then the amount so paid shall constitute such Lender's
Loan included in such  Borrowing.  Any payment by the Borrower  shall be without
prejudice  to any claim the  Borrower  may have against a Lender that shall have
failed to make such payment to the Administrative Agent.

      SECTION 2.08. Interest Elections. (a) Each Borrowing initially shall be of
the Type  specified in the  applicable  Borrowing  Request and, in the case of a
Eurodollar Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request.  Thereafter, the Borrower may elect to convert such Borrowing
to a  different  Type  or to  continue  such  Borrowing  and,  in the  case of a
Eurodollar  Borrowing,  may elect Interest Periods therefor,  all as provided in
this Section. The Borrower may elect different options with respect to different
portions of the affected  Borrowing,  in which case each such  portion  shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans  comprising  each such  portion  shall be  considered  a  separate
Borrowing.

      (b) To make an  election  pursuant to this  Section,  the  Borrower  shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing  Request  would be required  under  Section 2.03 if the Borrower  were
requesting a Borrowing of the Type  resulting  from such  election to be made on
the effective  date of such election.  Each such  telephonic  Interest  Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Borrower.

      (c) Each telephonic and written  Interest  Election  Request shall specify
the following information in compliance with Section 2.02:

            (i)   the Borrowing to which such Interest  Election Request applies
                  and, if  different  options are being  elected with respect to
                  different  portions  thereof,   the  portions  thereof  to  be
                  allocated  to each  resulting  Borrowing  (in  which  case the
                  information to be specified pursuant to clauses (iii) and (iv)
                  below shall be specified for each resulting Borrowing);

            (ii)  the  effective  date of the  election  made  pursuant  to such
                  Interest Election Request, which shall be a Business Day;



                                       18
<PAGE>

            (iii) whether the resulting Borrowing is to be an ABR Borrowing or a
                  Eurodollar Borrowing; and

            (iv)  if the  resulting  Borrowing  is a Eurodollar  Borrowing,  the
                  Interest  Period to be applicable  thereto after giving effect
                  to such election,  which shall be a period contemplated by the
                  definition of the term "Interest Period".

If any such Interest  Election Request requests a Eurodollar  Borrowing but does
not  specify  an  Interest  Period,  then the  Borrower  shall be deemed to have
selected an Interest Period of one month's duration.

      (d)  Promptly  following  receipt of an  Interest  Election  Request,  the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.

      (e) If the Borrower fails to deliver a timely  Interest  Election  Request
with respect to a Eurodollar  Borrowing  prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such  Interest  Period such  Borrowing  shall be  converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default
has occurred and is continuing and the  Administrative  Agent, at the request of
the Required  Lenders,  so notifies the  Borrower,  then, so long as an Event of
Default is continuing (i) no outstanding Revolving Borrowing may be converted to
or continued as a Eurodollar  Borrowing and (ii) unless repaid,  each Eurodollar
Borrowing  shall be  converted  to an ABR  Borrowing  at the end of the Interest
Period applicable thereto.

      SECTION  2.09.  Termination  and  Reduction  of  Commitments.  (a)  Unless
previously terminated, the Commitments shall terminate on the Maturity Date.

      (b) The Borrower may at any time  terminate,  or from time to time reduce,
the Commitments; provided that (i) each reduction of the Commitments shall be in
an  amount  that  is an  integral  multiple  of  $1,000,000  and not  less  than
$5,000,000,  and (ii) the Borrower shall not terminate or reduce the Commitments
if, after giving effect to any concurrent  prepayment of the Loans in accordance
with Section 2.11, the sum of the Revolving  Credit  Exposures  would exceed the
total Commitments.

      (c) The Borrower shall notify the Administrative  Agent of any election to
terminate or reduce the Commitments under paragraph (b) of this Section at least
three  Business  Days  prior  to the  effective  date  of  such  termination  or
reduction,  specifying  such election and the effective  date thereof.  Promptly
following  receipt of any notice,  the  Administrative  Agent  shall  advise the
Lenders of the contents thereof.  Each notice delivered by the Borrower pursuant
to this Section shall be  irrevocable;  provided that a notice of termination of
the  Commitments  delivered  by the  Borrower  may  state  that  such  notice is
conditioned  upon the  effectiveness of other credit  facilities,  in which case
such  notice  may be revoked by the  Borrower  (by notice to the  Administrative
Agent on or prior to the  specified  effective  date) if such  condition  is not
satisfied.  Any termination or reduction of the Commitments  shall be permanent.
Each  reduction of the  Commitments  shall be made ratably  among the Lenders in
accordance with their respective Commitments.

      SECTION  2.10.  Repayment  of Loans;  Evidence of Debt.  (a) The  Borrower
hereby  unconditionally  promises  to pay to the  Administrative  Agent  for the
account of each  Lender  the then  unpaid  principal  amount of each Loan on the
applicable Maturity Date.

      (b) Each Lender shall  maintain in accordance  with its usual  practice an
account or accounts  evidencing the  indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.

      (c) The  Administrative  Agent shall  maintain  accounts in which it shall
record (i) the amount of each Loan made  hereunder,  the Class and Type  thereof
and the Interest Period applicable thereto,  (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to



                                       19
<PAGE>

each  Lender  hereunder  and  (iii)  the  amount  of  any  sum  received  by the
Administrative  Agent hereunder for the account of the Lenders and each Lender's
share thereof.

      (d) The entries made in the accounts  maintained pursuant to paragraph (b)
or (c) of this  Section  shall be prima  facie  evidence  of the  existence  and
amounts of the obligations  recorded  therein;  provided that the failure of any
Lender  or the  Administrative  Agent to  maintain  such  accounts  or any error
therein shall not in any manner  affect the  obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.

      (e) Any Lender may request that Revolving Loans made by it be evidenced by
a Note. In such event,  the Borrower shall prepare,  execute and deliver to such
Lender a Note  payable to the order of such  Lender (or,  if  requested  by such
Lender, to such Lender and its registered assigns) and in a form approved by the
Administrative Agent. Thereafter,  the Loans evidenced by such Note and interest
thereon shall at all times (including after assignment pursuant to Section 9.04)
be represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).

      (f) Term Loans shall be evidenced by Term Notes in accordance with Section
2.04(b)

      SECTION 2.11.  Prepayment of Loans.  (a) The Borrower shall have the right
at any time and from time to time to prepay any  Borrowing  in whole or in part,
subject to prior notice in accordance with paragraph (b) of this Section.

      (b) The  Borrower  shall  notify  the  Administrative  Agent by  telephone
(confirmed  by  telecopy)  of  any  prepayment  hereunder  (i) in  the  case  of
prepayment of a Eurodollar  Borrowing,  not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment,  or (ii) in the case of
prepayment of an ABR  Borrowing,  not later than 11:00 a.m., New York City time,
one  Business  Day  before the date of  prepayment.  Each such  notice  shall be
irrevocable  and shall specify the prepayment  date and the principal  amount of
each Borrowing or portion  thereof to be prepaid;  provided that, if a notice of
prepayment is given in connection  with a conditional  notice of  termination of
the  Commitments as contemplated by Section 2.09, then such notice of prepayment
may be revoked if such  notice of  termination  is  revoked in  accordance  with
Section  2.09.  Promptly  following  receipt of any such  notice  relating  to a
Revolving  Borrowing,  the Administrative  Agent shall advise the Lenders of the
contents thereof. Each partial prepayment of any Revolving Borrowing shall be in
an amount  that would be  permitted  in the case of an  advance  of a  Revolving
Borrowing of the same Type as provided in Section  2.02.  Each  prepayment  of a
Borrowing  shall  be  applied  ratably  to the  Loans  included  in the  prepaid
Borrowing.  Prepayments  shall be accompanied by accrued  interest to the extent
required by Section 2.13.

      SECTION 2.12.  Fees. (a) The Borrower agrees to pay to the  Administrative
Agent for the account of each Lender a facility  fee,  which shall accrue at the
Applicable  Revolving Rate on of the Unused Commitment of such Lender during the
period from and including the Effective  Date to but excluding the date on which
such Commitment terminates. Accrued facility fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the date
on which the Commitments  terminate,  commencing on the first such date to occur
after the date hereof;  provided that any facility fees accruing  after the date
on which the Commitments terminate shall be payable on demand. All facility fees
shall be  computed  on the basis of a year of 360 days and shall be payable  for
the actual  number of days elapsed  (including  the first day but  excluding the
last day).

      (b) The  Borrower  agrees to pay (i) to the  Administrative  Agent for the
account of each Lender a participation fee with respect to its participations in
Letters of Credit, which shall accrue at the same Applicable Revolving Rate used
to determine the interest rate  applicable to Eurodollar  Revolving Loans on the
average daily amount of such Lender's LC Exposure (excluding any portion thereof
attributable  to  unreimbursed  LC  Disbursements)  during the  period  from and
including  the  Effective  Date to but  excluding the later of the date on which
such Lender's Commitment  terminates and the date on which such Lender ceases to
have any LC Exposure,  and (ii) to the Issuing Bank a fronting fee,  which shall
accrue  at the rate or rates  per  annum  separately  agreed  upon  between  the
Borrower  and the Issuing  Bank on the average



                                       20
<PAGE>

daily amount of the LC Exposure  (excluding any portion thereof  attributable to
unreimbursed  LC  Disbursements)  during  the  period  from  and  including  the
Effective  Date to but  excluding  the later of the date of  termination  of the
Commitments and the date on which there ceases to be any LC Exposure, as well as
the  Issuing  Bank's  standard  fees with  respect to the  issuance,  amendment,
renewal  or  extension  of any  Letter  of  Credit  or  processing  of  drawings
thereunder.  Participation  fees and fronting fees accrued through and including
the last day of March,  June,  September  and  December  of each  year  shall be
payable on the third  Business Day  following  such last day,  commencing on the
first such date to occur after the Effective  Date;  provided that all such fees
shall be payable  on the date on which the  Commitments  terminate  and any such
fees accruing after the date on which the Commitments terminate shall be payable
on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be  payable  within  10 days  after  demand.  All  participation  fees and
fronting  fees shall be computed on the basis of a year of 360 days and shall be
payable  for the  actual  number of days  elapsed  (including  the first day but
excluding the last day).

      (c) The Borrower agrees to pay to the  Administrative  Agent,  for its own
account,  fees  payable in the amounts and at the times  separately  agreed upon
between the Borrower and the Administrative Agent.

      (d)  All  fees  payable  hereunder  shall  be paid on the  dates  due,  in
immediately  available  funds,  to the  Administrative  Agent (or to the Issuing
Bank,  in the  case of fees  payable  to it) for  distribution,  in the  case of
facility fees and  participation  fees,  to the Lenders.  Fees paid shall not be
refundable under any circumstances.

      SECTION 2.13. Interest.  (a) The Loans comprising each ABR Borrowing shall
bear  interest (i) in the case of an ABR Revolving  Loan, at the Alternate  Base
Rate  plus the  Applicable  Revolving  Rate,  or (ii) in the case of an ABR Term
Loan, at the Alternate Base Rate plus the Applicable Term Rate to such Loan.

      (b) The Loans comprising each Eurodollar Borrowing shall bear interest (i)
in the case of a Eurodollar  Revolving  Loan,  at the Adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Revolving Rate,
or (ii) in the case of a Eurodollar Term Loan, at the adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Term Rate.

      (c) Notwithstanding the foregoing,  if any principal of or interest on any
Loan or any fee or other amount  payable by the  Borrower  hereunder is not paid
when due,  whether at stated  maturity,  upon  acceleration  or otherwise,  such
overdue amount shall bear interest,  after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise  applicable to such Loan as provided in the preceding  paragraphs
of this  Section  or (ii) in the  case of any  other  amount,  2% plus  the rate
applicable to ABR Revolving Loans as provided in paragraph (a) of this Section.

      (d)  Accrued  interest  on each Loan  shall be  payable in arrears on each
Interest  Payment Date for such Loan and, in the case of Revolving  Loans,  upon
termination of the  Commitments;  provided that (i) interest accrued pursuant to
paragraph (c) of this Section  shall be payable on demand,  (ii) in the event of
any  repayment  or  prepayment  of any Loan (other than a  prepayment  of an ABR
Revolving Loan prior to the end of the Availability Period), accrued interest on
the  principal  amount  repaid or  prepaid  shall be payable on the date of such
repayment  or  prepayment  and  (iii)  in the  event  of any  conversion  of any
Eurodollar  Loan  prior  to the end of the  current  Interest  Period  therefor,
accrued  interest  on such Loan shall be payable on the  effective  date of such
conversion.

      (e) All interest  hereunder  computed by reference to the LIBO Rate and/or
Adjusted  LIBO Rate shall be computed on the basis of a year of 360 days and all
interest  computed by reference to the Alternate  Base Rate shall be computed on
the basis of a year of 365 days (or 366 days in a leap  year),  and in each case
shall be payable for the actual number of days elapsed  (including the first day
but excluding the last day). The applicable  Alternate Base Rate,  Adjusted LIBO
Rate or LIBO Rate shall be



                                       21
<PAGE>

determined  by  the  Administrative  Agent,  and  such  determination  shall  be
conclusive absent manifest error.

      SECTION 2.14. Alternate Rate of Interest.  If prior to the commencement of
any Interest Period for a Eurodollar Borrowing:

      (a) the  Administrative  Agent determines  (which  determination  shall be
conclusive  absent  manifest  error) that adequate and  reasonable  means do not
exist for  ascertaining  the Adjusted LIBO Rate or the LIBO Rate, as applicable,
for such Interest Period; or

      (b) the  Administrative  Agent is advised by the Required Lenders that the
Adjusted LIBO Rate or the LIBO Rate,  as  applicable,  for such Interest  Period
will not  adequately  and fairly reflect the cost to such Lenders (or Lender) of
making or  maintaining  their Loans (or its Loan) included in such Borrowing for
such Interest Period;

then the Administrative  Agent shall give notice thereof to the Borrower and the
Lenders by  telephone  or telecopy as promptly as  practicable  thereafter  and,
until the  Administrative  Agent  notifies the Borrower and the Lenders that the
circumstances  giving  rise to such  notice no longer  exist,  (i) any  Interest
Election Request that requests the conversion of any Revolving  Borrowing to, or
continuation  of any  Revolving  Borrowing as, a Eurodollar  Borrowing  shall be
ineffective and (ii) if any Borrowing  Request  requests a Eurodollar  Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing.

      SECTION 2.15. Increased Costs.

      (a) Increased Costs Generally. If any Change in Law shall:

            (i)   impose,  modify  or  deem  applicable  any  reserve,   special
                  deposit,   compulsory   loan,   insurance  charge  or  similar
                  requirement  against  assets  of,  deposits  with  or for  the
                  account  of, or credit  extended  or  participated  in by, any
                  Lender  (except  any  reserve  requirement  reflected  in  the
                  Adjusted LIBO Rate) or the Issuing Bank;

            (ii)  subject any Lender or the Issuing  Bank to any tax of any kind
                  whatsoever  with  respect  to this  Agreement,  any  Letter of
                  Credit,  any  participation  in a  Letter  of  Credit  or  any
                  Eurodollar Loan made by it, or change the basis of taxation of
                  payments to such Lender or the Issuing Bank in respect thereof
                  (except  for  Indemnified  Taxes or  Other  Taxes  covered  by
                  Section 2.17 and the  imposition of, or any change in the rate
                  of, any  Excluded  Tax  payable by such  Lender or the Issuing
                  Bank); or

            (iii) impose  on  any  Lender  or the  Issuing  Bank  or the  London
                  interbank  market  any  other   condition,   cost  or  expense
                  affecting  this  Agreement  or  Eurodollar  Loans made by such
                  Lender or any Letter of Credit or participation therein;

and the result of any of the  foregoing  shall be to  increase  the cost to such
Lender of making or  maintaining  any  Eurodollar  Loan (or of  maintaining  its
obligation to make any such Loan), or to increase the cost to such Lender or the
Issuing Bank of  participating  in, issuing or maintaining  any Letter of Credit
(or of  maintaining  its  obligation to participate in or to issue any Letter of
Credit),  or to reduce  the amount of any sum  received  or  receivable  by such
Lender or the Issuing  Bank  hereunder  (whether of  principal,  interest or any
other  amount)  then,  upon  request of such  Lender or the  Issuing  Bank,  the
Borrower  will pay to such Lender or the Issuing  Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.

      (b) Capital  Requirements.  If any Lender or the Issuing  Bank  determines
that any Change in Law affecting  such Lender or the Issuing Bank or any lending
office of such Lender or such Lender's or



                                       22
<PAGE>

the Issuing Bank's holding company,  if any, regarding capital  requirements has
or would have the effect of reducing the rate of return on such  Lender's or the
Issuing  Bank's capital or on the capital of such Lender's or the Issuing Bank's
holding company, if any, as a consequence of this Agreement,  the Commitments of
such  Lender or the Loans made by, or  participations  in Letters of Credit held
by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level
below that which such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's  holding  company  could have achieved but for such Change in Law (taking
into consideration such Lender's or the Issuing Bank's policies and the policies
of such Lender's or the Issuing Bank's  holding  company with respect to capital
adequacy),  then from time to time the  Borrower  will pay to such Lender or the
Issuing  Bank,  as the case may be,  such  additional  amount or amounts as will
compensate  such  Lender or the  Issuing  Bank or such  Lender's  or the Issuing
Bank's holding company for any such reduction suffered.

      (c)  Certificates  for  Reimbursement.  A  certificate  of a Lender or the
Issuing Bank setting forth the amount or amounts  necessary to  compensate  such
Lender  or the  Issuing  Bank or its  holding  company,  as the case may be,  as
specified in paragraph  (a) or (b) of this Section and delivered to the Borrower
shall be conclusive absent manifest error. The Borrower shall pay such Lender or
the  Issuing  Bank,  as the case  may be,  the  amount  shown as due on any such
certificate within 10 days after receipt thereof.

      (d) Delay in  Requests.  Failure or delay on the part of any Lender or the
Issuing  Bank  to  demand  compensation  pursuant  to  this  Section  shall  not
constitute a waiver of such Lender's or the Issuing  Bank's right to demand such
compensation,  provided that the Borrower  shall not be required to compensate a
Lender or the Issuing  Bank  pursuant to this  Section for any  increased  costs
incurred or  reductions  suffered  more than nine months  prior to the date that
such Lender or the Issuing  Bank,  as the case may be,  notifies the Borrower of
the Change in Law giving rise to such increased  costs or reductions and of such
Lender's or the Issuing Bank's intention to claim compensation  therefor (except
that, if the Change in Law giving rise to such increased  costs or reductions is
retroactive,  then the nine-month  period referred to above shall be extended to
include the period of retroactive effect thereof).

      SECTION 2.16. Break Funding  Payments.  In the event of (a) the payment of
any principal of any  Eurodollar  Loan other than on the last day of an Interest
Period applicable  thereto  (including as a result of an Event of Default),  (b)
the conversion of any Eurodollar Loan other than on the last day of the Interest
Period  applicable  thereto,  (c) the  failure to borrow,  convert,  continue or
prepay  any  Eurodollar  Loan on the  date  specified  in any  notice  delivered
pursuant hereto  (regardless of whether such notice may be revoked under Section
2.11(b) and is revoked in accordance  therewith),  or (d) the  assignment of any
Eurodollar  Loan other than on the last day of the  Interest  Period  applicable
thereto as a result of a request by the Borrower pursuant to Section 2.19, then,
in any such event,  the Borrower shall compensate each Lender for the loss, cost
and expense  attributable to such event. In the case of a Eurodollar  Loan, such
loss,  cost or  expense  to any  Lender  shall be  deemed to  include  an amount
determined  by such  Lender  to be the  excess,  if any,  of (i) the  amount  of
interest which would have accrued on the principal  amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such  Loan,  for the  period  from the date of such event to the last day of the
then current  Interest  Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such  Loan),  over  (ii) the  amount  of  interest  which  would  accrue on such
principal  amount for such period at the  interest  rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable  amount  and period  from other  banks in the  eurodollar  market.  A
certificate  of any Lender  setting forth any amount or amounts that such Lender
is  entitled to receive  pursuant  to this  Section  shall be  delivered  to the
Borrower and shall be conclusive  absent manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

      SECTION 2.17. Taxes.

      (a) Payments  Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower  hereunder or under any other Loan Document  shall be
made free and clear of and without  reduction or withholding for any Indemnified
Taxes or Other  Taxes,  provided  that if the  Borrower  shall  be



                                       23
<PAGE>

required by applicable law to deduct any Indemnified  Taxes (including any Other
Taxes)  from such  payments,  then (i) the sum  payable  shall be  increased  as
necessary  so that after making all required  deductions  (including  deductions
applicable  to additional  sums payable  under this Section) the  Administrative
Agent,  Lender or Issuing Bank, as the case may be,  receives an amount equal to
the sum it would  have  received  had no such  deductions  been  made,  (ii) the
Borrower shall make such  deductions and (iii) the Borrower shall timely pay the
full amount deducted to the relevant  Governmental  Authority in accordance with
applicable law.

      (b)  Payment  of  Other  Taxes  by  the  Borrower.  Without  limiting  the
provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.

      (c)  Indemnification  by the Borrower.  The Borrower  shall  indemnify the
Administrative  Agent,  each Lender and the Issuing  Bank,  within 10 days after
demand  therefor,  for the full amount of any  Indemnified  Taxes or Other Taxes
(including   Indemnified  Taxes  or  Other  Taxes  imposed  or  asserted  on  or
attributable to amounts  payable under this Section) paid by the  Administrative
Agent,  such Lender or the Issuing Bank, as the case may be, and any  penalties,
interest and  reasonable  expenses  arising  therefrom or with respect  thereto,
whether or not such  Indemnified  Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental  Authority. A certificate as to
the amount of such payment or liability delivered to the Borrower by a Lender or
the  Issuing  Bank  (with  a  copy  to  the  Administrative  Agent),  or by  the
Administrative  Agent on its own behalf or on behalf of a Lender or the  Issuing
Bank, shall be conclusive absent manifest error.

      (d)  Evidence of  Payments.  As soon as  practicable  after any payment of
Indemnified  Taxes or Other Taxes by the Borrower to a  Governmental  Authority,
the  Borrower  shall  deliver  to the  Administrative  Agent the  original  or a
certified copy of a receipt  issued by such  Governmental  Authority  evidencing
such payment,  a copy of the return  reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.

      (e) Status of Lenders. Any Foreign Lender that is entitled to an exemption
from or reduction of withholding tax under the law of the  jurisdiction in which
the  Borrower  is  resident  for tax  purposes,  or any  treaty  to  which  such
jurisdiction is a party,  with respect to payments  hereunder or under any other
Loan Document shall deliver to the Borrower  (with a copy to the  Administrative
Agent),  at the  time  or  times  prescribed  by  applicable  law or  reasonably
requested by the Borrower or the  Administrative  Agent, such properly completed
and executed  documentation  prescribed  by  applicable  law as will permit such
payments to be made without withholding or at a reduced rate of withholding.  In
addition,  any Lender, if requested by the Borrower or the Administrative Agent,
shall  deliver  such  other  documentation   prescribed  by  applicable  law  or
reasonably  requested by the Borrower or the Administrative Agent as will enable
the Borrower or the Administrative Agent to determine whether or not such Lender
is subject to backup withholding or information reporting requirements.

      Without  limiting the generality of the  foregoing,  in the event that the
Borrower  is resident  for tax  purposes  in the United  States of America,  any
Foreign  Lender shall deliver to the Borrower and the  Administrative  Agent (in
such number of copies as shall be requested by the recipient) on or prior to the
date on which such Foreign  Lender  becomes a Lender under this  Agreement  (and
from  time  to  time  thereafter  upon  the  request  of  the  Borrower  or  the
Administrative  Agent, but only if such Foreign Lender is legally entitled to do
so), whichever of the following is applicable:

      (i)   duly  completed  copies of  Internal  Revenue  Service  Form  W-8BEN
            claiming  eligibility  for benefits of an income tax treaty to which
            the United States of America is a party,

      (ii)  duly completed copies of Internal Revenue Service Form W-8ECI,

      (iii) in the  case  of a  Foreign  Lender  claiming  the  benefits  of the
            exemption for portfolio  interest  under section 881(c) of the Code,
            (x) a certificate  to the effect that such Foreign Lender is not (A)
            a "bank" within the meaning of section 881(c)(3)(A) of the Code, (B)
            a "10 percent



                                       24
<PAGE>

            shareholder"   of  the  Borrower   within  the  meaning  of  section
            881(c)(3)(B) of the Code, or (C) a "controlled foreign  corporation"
            described in section 881(c)(3)(C) of the Code and (y) duly completed
            copies of Internal Revenue Service Form W-8BEN, or

      (iv)  any other form  prescribed by applicable law as a basis for claiming
            exemption from or a reduction in United States  Federal  withholding
            tax duly completed together with such supplementary documentation as
            may be  prescribed  by  applicable  law to permit  the  Borrower  to
            determine the withholding or deduction required to be made.

      (f) Treatment of Certain Refunds. If the Administrative Agent, a Lender or
the Issuing  Bank  determines,  in its sole  discretion,  that it has received a
refund of any Taxes or Other  Taxes as to which it has been  indemnified  by the
Borrower  or with  respect to which the  Borrower  has paid  additional  amounts
pursuant to this  Section,  it shall pay to the Borrower an amount equal to such
refund (but only to the extent of indemnity payments made, or additional amounts
paid,  by the  Borrower  under this  Section  with respect to the Taxes or Other
Taxes  giving rise to such  refund),  net of all  out-of-pocket  expenses of the
Administrative  Agent,  such Lender or the Issuing Bank, as the case may be, and
without  interest  (other than any interest  paid by the  relevant  Governmental
Authority  with respect to such refund),  provided  that the Borrower,  upon the
request of the Administrative  Agent, such Lender or the Issuing Bank, agrees to
repay the amount  paid over to the  Borrower  (plus any  penalties,  interest or
other  charges   imposed  by  the  relevant   Governmental   Authority)  to  the
Administrative  Agent,  such  Lender  or  the  Issuing  Bank  in the  event  the
Administrative  Agent, such Lender or the Issuing Bank is required to repay such
refund to such Governmental Authority.  This paragraph shall not be construed to
require  the  Administrative  Agent,  any  Lender  or the  Issuing  Bank to make
available its tax returns (or any other  information  relating to its taxes that
it deems confidential) to the Borrower or any other Person.

      SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
(a) The  Borrower  shall make each  payment  required to be made by it hereunder
(whether of principal,  interest, fees or reimbursement of LC Disbursements,  or
of amounts  payable  under Section  2.15,  2.16 or 2.17, or otherwise)  prior to
12:00 noon, New York City time, on the date when due, in  immediately  available
funds, without set-off or counterclaim.  Any amounts received after such time on
any date may, in the discretion of the  Administrative  Agent, be deemed to have
been received on the next  succeeding  Business Day for purposes of  calculating
interest thereon. All such payments shall be made to the Administrative Agent at
its offices at 270 Park Avenue,  New York, New York,  except payments to be made
directly  to the  Issuing  Bank as  expressly  provided  herein and except  that
payments  pursuant to Sections 2.15,  2.16, 2.17 and 9.03 shall be made directly
to the Persons entitled thereto.  The Administrative  Agent shall distribute any
such  payments  received  by it for  the  account  of any  other  Person  to the
appropriate  recipient  promptly  following  receipt  thereof.  If  any  payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next  succeeding  Business Day, and, in the case of any
payment accruing  interest,  interest thereon shall be payable for the period of
such extension. All payments hereunder shall be made in dollars.

      (b) If at any time insufficient funds are received by and available to the
Administrative  Agent to pay fully all  amounts of  principal,  unreimbursed  LC
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first,  towards  payment of interest  and fees then due  hereunder,  ratably
among the parties  entitled  thereto in accordance  with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
and unreimbursed LC Disbursements then due hereunder,  ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties.

      (c) If any Lender shall, by exercising any right of setoff or counterclaim
or otherwise,  obtain  payment in respect of any principal of or interest on any
of its Loans or other obligations hereunder resulting in such Lender's receiving
payment  of a  proportion  of the  aggregate  amount of its  Loans  and  accrued
interest  thereon  or other  such  obligations  greater  than its pro rata share
thereof as provided herein,  then the Lender  receiving such greater  proportion
shall (a) notify the  Administrative  Agent of such fact,  and (b) purchase (for
cash at face value)  participations  in the Loans and such other  obligations of
the other Lenders, or make such other adjustments as shall be equitable, so that
the  benefit  of all such



                                       25
<PAGE>

payments shall be shared by the Lenders ratably in accordance with the aggregate
amount of principal of and accrued  interest on their respective Loans and other
amounts owing them, provided that:

      (i)   if any such  participations  are purchased and all or any portion of
            the payment  giving rise thereto is recovered,  such  participations
            shall be rescinded and the purchase  price restored to the extent of
            such recovery, without interest; and

      (ii)  the provisions of this paragraph  shall not be construed to apply to
            (x) any payment made by the Borrower  pursuant to and in  accordance
            with the express terms of this Agreement or (y) any payment obtained
            by a Lender  as  consideration  for the  assignment  of or sale of a
            participation  in  any  of  its  Loans  or   participations   in  LC
            Disbursements  to any  assignee  or  participant,  other than to the
            Borrower or any  Subsidiary  thereof (as to which the  provisions of
            this paragraph shall apply).

      The Borrower  consents to the foregoing  and agrees,  to the extent it may
effectively  do  so  under   applicable   law,  that  any  Lender   acquiring  a
participation  pursuant to the foregoing  arrangements  may exercise against the
Borrower rights of setoff and counterclaim with respect to such participation as
fully as if such Lender were a direct  creditor of the Borrower in the amount of
such participation.

      If any Lender shall, by exercising any right of set-off or counterclaim or
otherwise,  obtain  payment in respect of any principal of or interest on any of
its Revolving  Loans or  participations  in LC  Disbursements  resulting in such
Lender receiving payment of a greater  proportion of the aggregate amount of its
Revolving Loans and  participations  in LC  Disbursements  and accrued  interest
thereon  than the  proportion  received  by any other  Lender,  then the  Lender
receiving  such  greater  proportion  shall  purchase  (for cash at face  value)
participations in the Revolving Loans and  participations in LC Disbursements of
other  Lenders to the extent  necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance  with the aggregate  amount
of principal of and accrued  interest on their  respective  Revolving  Loans and
participations in LC Disbursements; provided that (i) if any such participations
are  purchased  and all or any  portion of the payment  giving  rise  thereto is
recovered,  such  participations  shall  be  rescinded  and the  purchase  price
restored  to the  extent  of such  recovery,  without  interest,  and  (ii)  the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower  pursuant to and in  accordance  with the express  terms of this
Agreement  or  any  payment  obtained  by a  Lender  as  consideration  for  the
assignment of or sale of a participation  in any of its Loans or  participations
in LC Disbursements  to any assignee or participant,  other than to the Borrower
or any  Subsidiary  or  Affiliate  thereof (as to which the  provisions  of this
paragraph shall apply).  The Borrower  consents to the foregoing and agrees,  to
the  extent it may  effectively  do so under  applicable  law,  that any  Lender
acquiring a participation  pursuant to the foregoing  arrangements  may exercise
against the  Borrower  rights of set-off and  counterclaim  with respect to such
participation  as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.

      (d) Unless the  Administrative  Agent shall have received  notice from the
Borrower  prior to the date on which any  payment  is due to the  Administrative
Agent for the  account of the  Lenders or the Issuing  Bank  hereunder  that the
Borrower will not make such payment,  the  Administrative  Agent may assume that
the Borrower has made such payment on such date in accordance  herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event,  if the  Borrower  has not in
fact made such  payment,  then each of the Lenders or the Issuing  Bank,  as the
case may be, severally agrees to repay to the Administrative  Agent forthwith on
demand  the amount so  distributed  to such  Lender or the  Issuing  Bank,  with
interest  thereon,  for each day from and  including  the date  such  amount  is
distributed  to it to but  excluding  the date of payment to the  Administrative
Agent,  at the greater of the Federal Funds Effective Rate and a rate determined
by the  Administrative  Agent  in  accordance  with  banking  industry  rules on
interbank compensation.

      (e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.06(d) or (e), 2.07(b) or 2.18(d),  then the Administrative
Agent may, in its discretion  (notwithstanding  any contrary  provision hereof),
apply any amounts thereafter received by the Administrative Agent for the





                                       26
<PAGE>

account of such Lender to satisfy such Lender's  obligations under such Sections
until all such unsatisfied obligations are fully paid.

      SECTION  2.19.  Mitigation   Obligations;   Replacement  of  Lenders.  (a)
Designation of a Different Lending Office.  If any Lender requests  compensation
under Section 2.15, or requires the Borrower to pay any additional amount to any
Lender or any  Governmental  Authority for the account of any Lender pursuant to
Section  2.17,  then such Lender  shall use  reasonable  efforts to  designate a
different lending office for funding or booking its Loans hereunder or to assign
its rights and  obligations  hereunder  to another of its  offices,  branches or
affiliates,  if, in the judgment of such Lender,  such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Sections 2.15 or 2.17,
as the case may be, in the future and (ii) would not subject  such Lender to any
unreimbursed cost or expense and would not otherwise be  disadvantageous to such
Lender.  The Borrower  hereby  agrees to pay all  reasonable  costs and expenses
incurred by any Lender in connection with any such designation or assignment.

      (b)  Replacement of Lenders.  If any Lender  requests  compensation  under
Section 2.15, or if the Borrower is required to pay any additional amount to any
Lender or any  Governmental  Authority for the account of any Lender pursuant to
Section  2.17,  or if any  Lender  defaults  in its  obligation  to  fund  Loans
hereunder, then the Borrower may, at its sole expense and effort, upon notice to
such  Lender and the  Administrative  Agent,  require  such Lender to assign and
delegate,  without  recourse (in accordance with and subject to the restrictions
contained in, and consents  required by,  Section  9.04),  all of its interests,
rights and obligations under this Agreement and the related Loan Documents to an
assignee  that shall  assume such  obligations  (which  assignee  may be another
Lender, if a Lender accepts such assignment), provided that:

      (i)   the  Borrower  shall  have  paid  to the  Administrative  Agent  the
            assignment  fee  specified  in  Section  9.04 (in the event that the
            replacement  of a Lender  hereunder  is as a result of the  replaced
            Lender's  default of its  obligation to fund Loans  hereunder,  such
            defaulting  Lender  shall  indemnify  the  Borrower  for  reasonable
            expenses  incurred in seeking  and  securing a  replacement  Lender,
            including without limitation the assignment fee specified in Section
            9.04);

      (ii)  such Lender  shall have  received  payment of an amount equal to the
            outstanding   principal  of  its  Loans  and  participations  in  LC
            Disbursements,  accrued interest thereon, accrued fees and all other
            amounts  payable to it hereunder and under the other Loan  Documents
            (including any amounts under Section 2.16) from the assignee (to the
            extent of such outstanding  principal and accrued interest and fees)
            or the Borrower (in the case of all other amounts);

      (iii) in the  case of any  such  assignment  resulting  from a  claim  for
            compensation  under  Section  2.15 or  payments  required to be made
            pursuant to Section 2.17, such assignment will result in a reduction
            in such compensation or payments thereafter; and

      (iv)  such assignment does not conflict with applicable law.

A Lender shall not be required to make any such  assignment  or  delegation  if,
prior  thereto,  as a result  of a  waiver  by such  Lender  or  otherwise,  the
circumstances  entitling the Borrower to require such  assignment and delegation
cease to apply.

                                   ARTICLE III

                         Representations and Warranties

      The Borrower represents and warrants to the Lenders that:



                                       27
<PAGE>

      SECTION  3.01.  Organization;   Powers.  Each  of  the  Borrower  and  its
Subsidiaries is duly organized,  validly existing and in good standing under the
laws of the  jurisdiction  of its  organization,  has all  requisite  power  and
authority  to carry on its  business  as now  conducted  and,  except  where the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good  standing  in, every  jurisdiction  where such  qualification  is
required.

      SECTION 3.02. Authorization;  Enforceability.  The Transactions are within
the Borrower's  corporate  powers and have been duly authorized by all necessary
corporate  and, if required,  stockholder  action.  This Agreement has been duly
executed  and  delivered  by the Borrower  and  constitutes  a legal,  valid and
binding  obligation of the Borrower,  enforceable in accordance  with its terms,
subject to  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other  laws  affecting  creditors'  rights  generally  and  subject  to  general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.

      SECTION 3.03. Governmental  Approvals; No Conflicts.  The Transactions (a)
do not require any consent or approval of,  registration  or filing with, or any
other action by, any Governmental  Authority,  except such as have been obtained
or made and are in full force and effect,  (b) will not  violate any  applicable
law or regulation or the charter,  by-laws or other organizational  documents of
the  Borrower  or any of its  Subsidiaries  or  any  order  of any  Governmental
Authority,  (c) will not  violate  or result in a default  under any  indenture,
agreement  or  other  instrument  binding  upon  the  Borrower  or  any  of  its
Subsidiaries  or its assets,  or give rise to a right  thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries,  and (d) will not
result in the creation or imposition of any Lien on any asset of the Borrower or
any of its Subsidiaries, except in favor of the Agent and Lenders.

      SECTION 3.04.  Financial  Condition;  No Material Adverse Change.  (a) The
Borrower has heretofore  furnished to the Lenders its consolidated balance sheet
and statements of income,  stockholders  equity and cash flows (i) as of and for
the fiscal year ended December 31, 2003, reported on by  PriceWaterhouseCoopers,
independent  public  accountants,  and (ii) as of and for the fiscal quarter and
the  portion of the fiscal  year ended March 27,  2004,  certified  by its chief
financial  officer.  Such financial  statements  present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP,  subject to year-end audit  adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.

      (b) Since December 31, 2003,  there has been no material adverse change in
the  business,  assets,  operations,   prospects  or  condition,   financial  or
otherwise, of the Borrower and its Subsidiaries,  taken as a whole. The Borrower
has  disclosed to the Lenders  certain  casualty  loss events more  particularly
described in Schedule 3.04,  which may have an adverse effect on its assets as a
result of the loss, but will not have a Material Adverse Effect.

      SECTION 3.05.  Properties.  (a) Each of the Borrower and its  Subsidiaries
has good title to, or valid  leasehold  interests  in, all its real and personal
property material to its business, except for minor defects in title that do not
interfere with its ability to conduct its business as currently  conducted or to
utilize such properties for their intended purposes.

      (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use,
all trademarks,  tradenames, copyrights, patents and other intellectual property
material  to its  business,  and  the  use  thereof  by  the  Borrower  and  its
Subsidiaries  does not infringe upon the rights of any other Person,  except for
any  such  infringements  that,  individually  or in the  aggregate,  could  not
reasonably be expected to result in a Material Adverse Effect.

      SECTION  3.06.  Litigation  and  Environmental  Matters.  (a) There are no
actions,  suits or  proceedings  by or before  any  arbitrator  or  Governmental
Authority  pending  against or, to the  knowledge  of the  Borrower,  threatened
against or  affecting  the Borrower or any of its  Subsidiaries  (i) as to which
there is a  reasonable  possibility  of an adverse  determination  and that,  if
adversely  determined,  could  reasonably



                                       28
<PAGE>

be expected,  individually or in the aggregate,  to result in a Material Adverse
Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or
the Transactions.

      (b) Except for the Disclosed  Matters and except with respect to any other
matters that, individually or in the aggregate, could not reasonably be expected
to result in a Material  Adverse  Effect,  neither the  Borrower  nor any of its
Subsidiaries (i) has failed to comply with any  Environmental  Law or to obtain,
maintain or comply with any permit, license or other approval required under any
Environmental Law, (ii) has become subject to any Environmental Liability, (iii)
has received notice of any claim with respect to any Environmental  Liability or
(iv) knows of any basis for any Environmental Liability.

      (c)  Since  the date of this  Agreement,  there  has been no change in the
status of the Disclosed  Matters that,  individually  or in the  aggregate,  has
resulted in, or  materially  increased  the  likelihood  of, a Material  Adverse
Effect.

      SECTION 3.07.  Compliance with Laws and  Agreements.  Each of the Borrower
and its  Subsidiaries is in compliance with all laws,  regulations and orders of
any Governmental  Authority applicable to it or its property and all indentures,
agreements and other instruments  binding upon it or its property,  except where
the failure to do so, individually or in the aggregate,  could not reasonably be
expected to result in a Material Adverse Effect.  No Default has occurred and is
continuing.

      SECTION 3.08. Investment and Holding Company Status.  Neither the Borrower
nor any of its  Subsidiaries  is (a) an  "investment  company" as defined in, or
subject  to  regulation  under,  the  Investment  Company  Act of  1940 or (b) a
"holding  company" as defined  in, or subject to  regulation  under,  the Public
Utility Holding Company Act of 1935.

      SECTION 3.09.  Taxes. Each of the Borrower and its Subsidiaries has timely
filed or caused to be filed all Tax returns  and  reports  required to have been
filed and has paid or caused to be paid all Taxes  required to have been paid by
it,  except (a) Taxes  that are being  contested  in good  faith by  appropriate
proceedings and for which the Borrower or such  Subsidiary,  as applicable,  has
set aside on its books  adequate  reserves or (b) to the extent that the failure
to do so could not  reasonably  be  expected  to result  in a  Material  Adverse
Effect.

      SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected
to occur that,  when taken  together  with all other such ERISA Events for which
liability  is  reasonably  expected to occur,  could  reasonably  be expected to
result in a Material Adverse Effect.

      SECTION  3.11.  Disclosure.  The Borrower has disclosed to the Lenders all
agreements,  instruments and corporate or other  restrictions to which it or any
of its  Subsidiaries  is  subject,  and all  other  matters  known to it,  that,
individually  or in the aggregate,  could  reasonably be expected to result in a
Material  Adverse  Effect.  None of the  other  reports,  financial  statements,
certificates or other  information  furnished by or on behalf of the Borrower to
the  Administrative  Agent or any Lender in connection  with the  negotiation of
this  Agreement or delivered  hereunder  (as modified or  supplemented  by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements  therein,  in the light
of the circumstances under which they were made, not misleading;  provided that,
with respect to projected  financial  information,  the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.

                                   ARTICLE IV

                                   Conditions

      SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue  Letters of Credit  hereunder  shall not become
effective until the date on which each of the following  conditions is satisfied
(or waived in accordance with Section 9.02):



                                       29
<PAGE>

      (a) The  Administrative  Agent (or its counsel)  shall have  received from
each party hereto either (i) a counterpart of this Agreement signed on behalf of
such party or (ii) written  evidence  satisfactory to the  Administrative  Agent
(which may include  telecopy  transmission  of a signed  signature  page of this
Agreement) that such party has signed a counterpart of this Agreement.

      (b) The  Administrative  Agent  shall have  received a  favorable  written
opinion  (addressed  to the  Administrative  Agent and the Lenders and dated the
Effective  Date) of  Harter,  Secrest & Emery  LLP,  counsel  for the  Borrower,
substantially in the form of Exhibit B, and covering such other matters relating
to the Borrower,  this  Agreement or the  Transactions  as the Required  Lenders
shall reasonably  request.  The Borrower hereby requests such counsel to deliver
such opinion.

      (c) The  Administrative  Agent  shall have  received  such  documents  and
certificates as the  Administrative  Agent or its counsel may reasonably request
relating to the organization,  existence and good standing of the Borrower,  the
authorization  of the  Transactions  and any other legal matters relating to the
Borrower,  this  Agreement  or the  Transactions,  all  in  form  and  substance
satisfactory to the Administrative Agent and its counsel.

      (d) The Administrative Agent shall have received a certificate,  dated the
Effective  Date and signed by the  President,  a Vice  President  or a Financial
Officer of the Borrower,  confirming compliance with the conditions set forth in
paragraphs (a), (b) and (c) of Section 4.02.

      (e) The  Administrative  Agent (or its counsel)  shall have  received from
each party thereto all Loan Documents  either (i) signed on behalf of such party
or (ii) written  evidence  satisfactory to the  Administrative  Agent (which may
include telecopy  transmission of a signed signature page of the respective Loan
Document) that such party has signed a counterpart of the Loan Document.

      (f) The  Administrative  Agent  shall  have  received  all fees and  other
amounts due and payable on or prior to the  Effective  Date,  including,  to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrower hereunder.

      (g) The Security Agreements and UCC-1 Financing  Statements shall create a
valid  attached and perfected  security  interest or lien in and to the property
purported  to be subject to the same,  first in  priority,  except as  otherwise
provided in this Agreement or has been agreed to by the Required Lenders.

      The Administrative  Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing,  the  obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at
or prior to 3:00 p.m.,  New York City time,  on July 2, 2004 (and,  in the event
such conditions are not so satisfied or waived,  the Commitments shall terminate
at such time).

      SECTION 4.02.  Each Credit Event.  The obligation of each Lender to make a
Loan on the occasion of any Borrowing,  and of the Issuing Bank to issue, amend,
renew or extend  any Letter of Credit,  is  subject to the  satisfaction  of the
following conditions:

      (a) The  representations  and warranties of the Borrower set forth in this
Agreement  shall be true and correct on and as of the date of such  Borrowing or
the date of issuance,  amendment, renewal or extension of such Letter of Credit,
as applicable.

      (b) At the time of and  immediately  after giving effect to such Borrowing
or the issuance,  amendment,  renewal or extension of such Letter of Credit,  as
applicable, no Default shall have occurred and be continuing.

      (c) There shall not have  occurred,  or be  threatened a Material  Adverse
Effect in respect of the Borrower or any Subsidiary.



                                       30
<PAGE>

      Each  Borrowing and each  issuance,  amendment,  renewal or extension of a
Letter of Credit shall be deemed to constitute a representation  and warranty by
the Borrower on the date thereof as to the matters  specified in paragraphs  (a)
and (b) of this Section.

                                    ARTICLE V

                              Affirmative Covenants

      Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder shall have been paid in
full and all  Letters of Credit  shall have  expired  or  terminated  and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that (unless  waived in  accordance  with the  provisions of ss.9.02
hereof):

      SECTION 5.01. Financial Statements;  Ratings Change and Other Information.
The Borrower will furnish to the Administrative Agent and each Lender:

      (a) within 90 days after the end of each fiscal year of the Borrower,  its
audited  consolidated  balance  sheet  and  related  statements  of  operations,
stockholders'  equity and cash flows as of the end of and for such year, setting
forth in each case in comparative form the figures for the previous fiscal year,
and the management  letter, all reported on by  PriceWaterhouseCoopers  or other
independent public accountants of recognized national standing (without a "going
concern" or like  qualification  or exception and without any  qualification  or
exception  as to the scope of such audit) to the effect  that such  consolidated
financial  statements  present  fairly in all material  respects  the  financial
condition  and  results  of  operations  of the  Borrower  and its  consolidated
Subsidiaries  on a  consolidated  basis in  accordance  with  GAAP  consistently
applied;

      (b)  within  45 days  after  the end of each  of the  first  three  fiscal
quarters of each fiscal year of the Borrower, its consolidated balance sheet and
related statements of operations,  stockholders' equity and cash flows as of the
end of and for such fiscal  quarter and the then  elapsed  portion of the fiscal
year,  setting  forth  in each  case in  comparative  form the  figures  for the
corresponding  period or periods of (or, in the case of the balance sheet, as of
the end of) the previous  fiscal  year,  all  certified by one of its  Financial
Officers as presenting fairly in all material  respects the financial  condition
and results of operations of the Borrower and its consolidated Subsidiaries on a
consolidated  basis in accordance  with GAAP  consistently  applied,  subject to
normal year-end audit adjustments and the absence of footnotes;

      (c)  concurrently  with any delivery of financial  statements under clause
(a) or (b) above,  a certificate  of a Financial  Officer of the Borrower in the
form of Exhibit D (i)  certifying as to whether a Default has occurred and, if a
Default has  occurred,  specifying  the details  thereof and any action taken or
proposed  to be taken  with  respect  thereto,  (ii)  setting  forth  reasonably
detailed  calculations  demonstrating  compliance  with Section 6.09,  and (iii)
stating  whether any change in GAAP or in the  application  thereof has occurred
since the date of the audited financial  statements  referred to in Section 3.04
and, if any such change has  occurred,  specifying  the effect of such change on
the financial statements accompanying such certificate;

      (d)  concurrently  with any delivery of financial  statements under clause
(a) above, a certificate of the accounting  firm that reported on such financial
statements  stating whether they obtained  knowledge  during the course of their
examination of such financial statements of any Default under Section 5.01(a) or
Section 6.09 of this Agreement  (which  certificate may be limited to the extent
required by accounting rules or guidelines);

      (e)  promptly  after the same  become  publicly  available,  notice of the
availability at http://  www.sec.gov and/or  http://www.edgar-online.com  of, or
alternatively  shall provide  copies of, all periodic and other  reports,  proxy
statements and other  materials filed by the Borrower or any Subsidiary with the
Securities and Exchange Commission,  or any Governmental Authority succeeding to
any or all of the functions of said Commission,  or with any national securities
exchange, or distributed by the Borrower to its shareholders  generally,  as the
case may be;



                                       31
<PAGE>

      (f)  promptly  after  Moody's or S&P shall have  announced a change in the
rating  established  or  deemed  to have been  established  for the Index  Debt,
written notice of such rating change; and

      (g)  promptly  following  any  request  therefor,  such other  information
regarding  the  operations,  business  affairs and  financial  condition  of the
Borrower or any Subsidiary,  or compliance with the terms of this Agreement,  as
the Administrative Agent or any Lender may reasonably request.

      SECTION 5.02. Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:

      (a) the occurrence of any Default;

      (b) the filing or  commencement  of any action,  suit or  proceeding by or
before  any  arbitrator  or  Governmental  Authority  against or  affecting  the
Borrower  or  any  Affiliate  thereof  that,  if  adversely  determined,   could
reasonably be expected to result in a Material Adverse Effect;

         (c) the occurrence of any ERISA Event that,  alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its  Subsidiaries in an aggregate amount exceeding
$500,000; and

      (d) any other development that results in, or could reasonably be expected
to result in, a Material Adverse Effect.

Each notice  delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or  development  requiring such notice and any action taken
or proposed to be taken with respect thereto.

      SECTION 5.03. Existence;  Conduct of Business. The Borrower will, and will
cause each of its  Subsidiaries  to, do or cause to be done all things necessary
to preserve, renew and keep in full force and effect its legal existence and the
rights, licenses,  permits, privileges and franchises material to the conduct of
its  business;  provided  that the  foregoing  shall not  prohibit  any  merger,
consolidation, liquidation or dissolution permitted under Section 6.03.

      SECTION 5.04.  Payment of  Obligations.  The Borrower will, and will cause
each of its  Subsidiaries  to, pay its  obligations,  including Tax liabilities,
that,  if not paid,  could result in a Material  Adverse  Effect before the same
shall become  delinquent or in default,  except where (a) the validity or amount
thereof is being  contested in good faith by  appropriate  proceedings,  (b) the
Borrower or such  Subsidiary has set aside on its books  adequate  reserves with
respect  thereto in  accordance  with GAAP and (c) the  failure to make  payment
pending such contest  could not  reasonably  be expected to result in a Material
Adverse Effect.

      SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and
will  cause each of its  Subsidiaries  to, (a) keep and  maintain  all  property
material to the conduct of its  business in good  working  order and  condition,
ordinary wear and tear excepted,  and (b) maintain,  with financially  sound and
reputable insurance companies,  insurance in such amounts and against such risks
as are  customarily  maintained  by  companies  engaged  in the same or  similar
businesses operating in the same or similar locations.

      SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and
will cause each of its  Subsidiaries to, keep proper books of record and account
in  which  full,  true  and  correct  entries  are  made  of  all  dealings  and
transactions in relation to its business and activities.  The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the Administrative  Agent or any Lender,  upon reasonable prior notice, to visit
and inspect its  properties,  to examine  and make  extracts  from its books and
records,  and to discuss its affairs,  finances and condition  with its officers
and  independent  accountants,  all at such  reasonable  times  and as  often as
reasonably requested.



                                       32
<PAGE>

      SECTION 5.07. Compliance with Laws. The Borrower will, and will cause each
of its Subsidiaries to, comply with all laws,  rules,  regulations and orders of
any Governmental  Authority  applicable to it or its property,  except where the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect.

      SECTION 5.08.  Use of Proceeds and Letters of Credit.  The proceeds of the
Revolving  Loans will be used only for the working capital needs of the Borrower
in the ordinary course of business. The proceeds of the Term Loans shall only be
used for the Capital  Expenditures of the Borrower,  as disclosed at the time of
the request repayment of existing indebtedness to Congress Financial Corporation
(New England) and working  capital needs of the Borrower in the ordinary  course
of business.  No part of the proceeds of any Loan will be used, whether directly
or  indirectly,  for  any  purpose  that  entails  a  violation  of  any  of the
Regulations of the Board, including Regulations T, U and X.

                                   ARTICLE VI

                               Negative Covenants

      Until the Commitments  have expired or terminated and the principal of and
interest on each Loan and all fees payable  hereunder have been paid in full and
all Letters of Credit have expired or terminated and all LC Disbursements  shall
have been  reimbursed,  the Borrower  covenants and agrees with the Lenders that
(unless waived in accordance with the provisions of ss.9.02 hereof):

      SECTION 6.01. Indebtedness. The Borrower will not, and will not permit any
Subsidiary  to,  create,  incur,  assume or  permit  to exist any  Indebtedness,
except:

      (a) Indebtedness created hereunder;

      (b)  Indebtedness  existing  on the date  hereof and set forth in Schedule
6.01 and extensions,  renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof;

      (c)  Indebtedness  of the Borrower to any Subsidiary and of any Subsidiary
to the Borrower or any other Subsidiary;

      (d)  Guarantees by the Borrower of  Indebtedness  of any Subsidiary and by
any Subsidiary of Indebtedness of the Borrower or any other Subsidiary;

      (e) Indebtedness of the Borrower or any Subsidiary incurred to finance the
acquisition,  construction  or  improvement  of any  fixed  or  capital  assets,
including Capital Lease  Obligations and any Indebtedness  assumed in connection
with the  acquisition of any such assets or secured by a Lien on any such assets
prior to the acquisition thereof,  and extensions,  renewals and replacements of
any such  Indebtedness  that do not increase the  outstanding  principal  amount
thereof;  provided that (i) such  Indebtedness is incurred prior to or within 90
days  after  such  acquisition  or  the  completion  of  such   construction  or
improvement and (ii) the aggregate principal amount of Indebtedness permitted by
this clause (e) shall not exceed $1,000,000 at any time outstanding; and

      (f)  Indebtedness of the Borrower or any Subsidiary as an account party in
respect of trade letters of credit.

      SECTION  6.02.  Liens.  The  Borrower  will not,  and will not  permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
(including,  without  limitation,  all  real  property)  or asset  now  owned or
hereafter  acquired by it, or assign or sell any income or  revenues  (including
accounts receivable) or rights in respect of any thereof, except:

      (a) Permitted Encumbrances;



                                       33
<PAGE>

      (b) any Lien on any  property or asset of the  Borrower or any  Subsidiary
existing on the date hereof and set forth in Schedule  6.02;  provided  that (i)
such Lien shall not apply to any other  property or asset of the Borrower or any
Subsidiary  and (ii) such Lien  shall  secure  only those  obligations  which it
secures on the date hereof and  extensions,  renewals and  replacements  thereof
that do not increase the outstanding principal amount thereof;

      (c) any Lien  existing on any  property or asset prior to the  acquisition
thereof by the Borrower or any  Subsidiary  or existing on any property or asset
of any Person that becomes a Subsidiary  after the date hereof prior to the time
such Person becomes a Subsidiary;  provided that (i) such Lien is not created in
contemplation  of or in connection with such acquisition or such Person becoming
a  Subsidiary,  as the case may be,  (ii) such Lien shall not apply to any other
property or assets of the Borrower or any  Subsidiary  and (iii) such Lien shall
secure only those  obligations  which it secures on the date of such acquisition
or the date such Person becomes a Subsidiary, as the case may be; and

      (d) Liens on fixed or capital assets acquired,  constructed or improved by
the Borrower or any Subsidiary; provided that (i) such security interests secure
Indebtedness  permitted  by clause  (e) of  Section  6.01,  (ii)  such  security
interests and the  Indebtedness  secured thereby are incurred prior to or within
90 days  after  such  acquisition  or the  completion  of such  construction  or
improvement,  (iii) the Indebtedness secured thereby does not exceed 100% of the
cost of acquiring,  constructing  or improving  such fixed or capital assets and
(iv) such security  interests shall not apply to any other property or assets of
the Borrower or any Subsidiary or to any real property.

      SECTION 6.03. Fundamental Changes. (a) The Borrower will not, and will not
permit any Subsidiary to, merge into or  consolidate  with any other Person,  or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease  or  otherwise   dispose  of  (in  one  transaction  or  in  a  series  of
transactions)  all or substantially  all of its assets,  or all or substantially
all of the stock of any of its Subsidiaries (in each case,  whether now owned or
hereafter  acquired),  or  liquidate or  dissolve,  except that,  if at the time
thereof  and  immediately  after  giving  effect  thereto no Default  shall have
occurred and be continuing  (i) any  Subsidiary may merge into the Borrower in a
transaction  in  which  the  Borrower  is the  surviving  corporation,  (ii) any
Subsidiary may merge into any Subsidiary in a transaction in which the surviving
entity is a  Subsidiary,  (iii) any  Subsidiary  may  sell,  transfer,  lease or
otherwise  dispose of its assets to the  Borrower or to another  Subsidiary  and
(iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good
faith that such  liquidation  or  dissolution  is in the best  interests  of the
Borrower and is not materially disadvantageous to the Lenders; provided that any
such merger involving a Person that is not a wholly owned Subsidiary immediately
prior to such merger  shall not be  permitted  unless also  permitted by Section
6.04.

      (b) The Borrower will not, and will not permit any of its Subsidiaries to,
engage to any material  extent in any business other than businesses of the type
conducted by the Borrower and its  Subsidiaries on the date of execution of this
Agreement and businesses reasonably related thereto.

      SECTION 6.04. Investments,  Loans, Advances,  Guarantees and Acquisitions.
The Borrower will not, and will not permit any of its Subsidiaries to, purchase,
hold or acquire (including pursuant to any merger with any Person that was not a
wholly owned  Subsidiary  prior to such merger) any capital stock,  evidences of
indebtedness or other securities  (including any option,  warrant or other right
to  acquire  any of the  foregoing)  of,  make or  permit  to exist any loans or
advances  to,  Guarantee  any  obligations  of,  or make or  permit to exist any
investment or any other interest in, any other Person,  or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other
Person constituting a business unit, except:

      (a) Permitted Investments;

      (b) investments by the Borrower existing on the date hereof in the capital
stock of its Subsidiaries;



                                       34
<PAGE>

         (c) loans or advances made by the Borrower to any  Subsidiary  and made
by any Subsidiary to the Borrower or any other Subsidiary;

      (d) Guarantees constituting Indebtedness permitted by Section 6.01;

      (e) The loan (and  extensions,  renewals and replacements of any such loan
that  do not  increase  the  outstanding  principal  amount  thereof)  due  from
Ultralife  Taiwan,  Inc., and potential future advances  against  purchases from
Ultralife Taiwan, Inc., all as more particularly described in Schedule 6.04.

      SECTION 6.05. Swap Agreements.  The Borrower will not, and will not permit
any of its  Subsidiaries  to,  enter  into any Swap  Agreement,  except (a) Swap
Agreements  entered into to hedge or mitigate risks to which the Borrower or any
Subsidiary has actual exposure (other than those in respect of Equity  Interests
of the Borrower or any of its  Subsidiaries),  and (b) Swap  Agreements  entered
into in order to effectively cap, collar or exchange  interest rates (from fixed
to floating rates, from one floating rate to another floating rate or otherwise)
with respect to any interest-bearing  liability or investment of the Borrower or
any Subsidiary.

      SECTION  6.06.  Restricted  Payments.  The Borrower will not, and will not
permit any of its  Subsidiaries  to,  declare or make,  or agree to pay or make,
directly or  indirectly,  any  Restricted  Payment,  except (a) the Borrower may
declare and pay dividends with respect to its Equity Interests payable solely in
additional  shares of its common  stock,  (b)  Subsidiaries  may declare and pay
dividends ratably with respect to their Equity  Interests,  and (c) the Borrower
may make  Restricted  Payments  pursuant to and in accordance  with stock option
plans or other benefit plans for management or employees of the Borrower and its
Subsidiaries.

      SECTION 6.07.  Transactions  with  Affiliates.  The Borrower will not, and
will not permit any of its Subsidiaries  to, sell,  lease or otherwise  transfer
any property or assets to, or purchase,  lease or otherwise acquire any property
or assets from, or otherwise engage in any other  transactions  with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on terms
and conditions not less favorable to the Borrower or such  Subsidiary than could
be  obtained  on  an  arm's-length  basis  from  unrelated  third  parties,  (b)
transactions between or among the Borrower and its wholly owned Subsidiaries not
involving  any other  Affiliate  and (c) any  Restricted  Payment  permitted  by
Section 6.06.

      SECTION 6.08. Restrictive Agreements.  The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly,  enter into, incur or
permit to exist any agreement or other arrangement that prohibits,  restricts or
imposes any condition  upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Subsidiary to pay dividends or other  distributions  with
respect to any shares of its capital stock or to make or repay loans or advances
to the  Borrower or any other  Subsidiary  or to Guarantee  Indebtedness  of the
Borrower or any other  Subsidiary;  provided  that (i) the  foregoing  shall not
apply to restrictions and conditions  imposed by law or by this Agreement,  (ii)
the foregoing  shall not apply to  restrictions  and conditions  existing on the
date hereof  identified  on Schedule  6.08 (but shall apply to any  extension or
renewal of, or any  amendment or  modification  expanding the scope of, any such
restriction  or  condition),  (iii) the  foregoing  shall not apply to customary
restrictions  and conditions  contained in agreements  relating to the sale of a
Subsidiary  pending such sale,  provided such  restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted  hereunder,
(iv) clause (a) of the foregoing  shall not apply to  restrictions or conditions
imposed by any  agreement  relating to secured  Indebtedness  permitted  by this
Agreement  if such  restrictions  or  conditions  apply only to the  property or
assets securing such  Indebtedness and (v) clause (a) of the foregoing shall not
apply to customary  provisions in leases [and other  contracts]  restricting the
assignment thereof.

      SECTION 6.09. Financial Covenants. So long as any of the Obligations shall
remain unpaid or the Lenders shall have any Commitment under this Agreement:



                                       35
<PAGE>

      (a) Debt to Earnings  Ratio.  The  Borrower  shall  maintain  the ratio of
Consolidated  Total Funded Debt to EBITDA at or below 2.00 to 1 measured at each
Fiscal  Quarter  end,  for the four Fiscal  Quarter  period  then  ended,  taken
together as a single accounting period.

      (b) EBIT to Interest  Expense Ratio. The Borrower shall maintain the ratio
of EBIT to the  interest  expense at or above 5.00 to 1 measured  at each Fiscal
Quarter end, for the four Fiscal Quarter period then ended,  taken together as a
single accounting period.

      (c) Current Assets to Liabilities  Ratio.  The Borrower shall maintain the
ratio of Consolidated Current Assets to Consolidated Liabilities at or above 1.4
to 1 at each Fiscal Quarter end.

                                   ARTICLE VII

                                Events of Default

      If any of the following events ("Events of Default") shall occur:

      (a) the  Borrower  shall fail to pay any  installment  of principal of any
Loan or any reimbursement  obligation in respect of any LC Disbursement when and
as the same shall become due and payable,  whether at the due date thereof or at
a date  fixed for  prepayment  thereof  or  otherwise,  and such  failure  shall
continue  unremedied for a period of three Business  Days.  Notwithstanding  the
previous  sentence,  the Borrower's failure to pay all sums due hereunder on the
Maturity Date shall be an immediate Event of Default;

      (b) the Borrower  shall fail to pay any interest on any Loan or any fee or
any other  amount  (other  than an  amount  referred  to in  clause  (a) of this
Article) payable under this Agreement, when and as the same shall become due and
payable,  and such  failure  shall  continue  unremedied  for a period  of three
Business Days;

      (c) any  representation or warranty made or deemed made by or on behalf of
the Borrower or any  Subsidiary in or in connection  with this  Agreement or any
amendment  or  modification  hereof  or  waiver  hereunder,  or in  any  report,
certificate,  financial  statement or other document furnished pursuant to or in
connection with this Agreement or any amendment or modification hereof or waiver
hereunder,  shall prove to have been  materially  incorrect  when made or deemed
made;

      (d) the Borrower shall fail to observe or perform any covenant,  condition
or agreement  contained in Section 5.02,  5.03 (with  respect to the  Borrower's
existence) or 5.08 or in Article VI;

      (e) the Borrower shall fail to observe or perform any covenant,  condition
or agreement  contained in this Agreement  (other than those specified in clause
(a), (b) or (d) of this Article), and such failure shall continue unremedied for
a period of 30 days after notice  thereof from the  Administrative  Agent to the
Borrower (which notice will be given at the request of any Lender);

      (f) the Borrower or any Subsidiary shall fail to make any payment (whether
of principal or interest  and  regardless  of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable;

      (g)  any  event  or   condition   occurs  that  results  in  any  Material
Indebtedness  becoming  due prior to its  scheduled  maturity or that enables or
permits  (with or without  the giving of notice,  the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled
maturity;  provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the  voluntary  sale or transfer of the property
or assets securing such Indebtedness;

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<PAGE>

      (h)  an  involuntary  proceeding  shall  be  commenced  or an  involuntary
petition shall be filed seeking (i) liquidation,  reorganization or other relief
in respect of the Borrower or any  Subsidiary or its debts,  or of a substantial
part of its assets, under any Federal, state or foreign bankruptcy,  insolvency,
receivership  or similar law now or hereafter in effect or (ii) the  appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue  undismissed for 60
days or an order or decree  approving or ordering any of the foregoing  shall be
entered;

      (i) the  Borrower or any  Subsidiary  shall (i)  voluntarily  commence any
proceeding or file any petition  seeking  liquidation,  reorganization  or other
relief under any Federal, state or foreign bankruptcy, insolvency,  receivership
or similar law now or hereafter in effect,  (ii) consent to the  institution of,
or fail to  contest  in a timely  and  appropriate  manner,  any  proceeding  or
petition described in clause (h) of this Article,  (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,  conservator or
similar official for the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding,  (v) make a general  assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing;

      (j) the Borrower or any Subsidiary  shall become unable,  admit in writing
its inability or fail generally to pay its debts as they become due;

      (k) one or more judgments for the payment of money in an aggregate  amount
in excess of $500,000 shall be rendered against the Borrower,  any Subsidiary or
any combination  thereof and the same shall remain  undischarged for a period of
30 consecutive days during which execution shall not be effectively  stayed,  or
any action shall be legally taken by a judgment  creditor to attach or levy upon
any assets of the Borrower or any Subsidiary to enforce any such judgment;

      (l) an ERISA  Event  shall  have  occurred  that,  in the  opinion  of the
Required  Lenders,  when taken  together  with all other ERISA  Events that have
occurred,  could  reasonably  be expected to result in liability of the Borrower
and its  Subsidiaries in an aggregate  amount exceeding (i) $500,000 in any year
or (ii) $500,000 for all periods;

      (m) a Change in Control shall occur;

      (n) The Security Agreements shall at any time or for any reason cease: (A)
to create a valid and perfected security interest or lien in and to the property
purported to be subject to the same for any reason other than the failure of the
secured  parties  thereunder  to (i) file and/or  continue  any UCC-1  Financing
Statement;  or (ii) take any  action  required  of it to  perfect  its  security
interest,  or (B) to be in full force and effect or shall be  declared  null and
void, or the validity or enforceability  thereof shall be contested by any party
thereto  or any  party  thereto  shall  deny it has  any  further  liability  or
obligations to the secured parties thereunder; or

      (o) The Loan Documents  shall at any time or for any reason cease to be in
full force and effect or shall be  declared  null and void,  or the  validity or
enforceability  thereof  shall be  contested  by  Borrower  or any Person  party
thereto or Borrower or any Person  party  thereto  shall deny it has any further
liability or obligations thereunder.

then,  and in every such event (other than an event with respect to the Borrower
described  in clause  (h) or (i) of this  Article),  and at any time  thereafter
during the continuance of such event, the  Administrative  Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then  outstanding  to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable),  and thereupon the principal of the Loans so
declared to be due and payable,  together with accrued  interest thereon and all
fees and other obligations of the Borrower accrued  hereunder,  shall become due
and payable immediately, without presentment, demand, protest or



                                       37
<PAGE>

other notice of any kind, all of which are hereby waived by the Borrower; and in
case of any event with respect to the Borrower described in clause (h) or (i) of
this Article, the Commitments shall automatically terminate and the principal of
the Loans then outstanding,  together with accrued interest thereon and all fees
and other  obligations of the Borrower accrued  hereunder,  shall  automatically
become due and payable, without presentment,  demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower.

                                  ARTICLE VIII

                            The Administrative Agent

      SECTION  8.1.  Appointment  and  Authority.  Each of the  Lenders  and the
Issuing  Bank  hereby  irrevocably  appoints  JPMorgan  Chase Bank to act on its
behalf as the Administrative  Agent hereunder and under the other Loan Documents
and as  Collateral  Agent  under the  Security  Agreements  and  authorizes  the
Administrative  Agent to take such  actions on its behalf and to  exercise  such
powers as are  delegated  to the  Administrative  Agent by the  terms  hereof or
thereof,  together  with such  actions and powers as are  reasonably  incidental
thereto. All references in this Article VIII to "Administrative  Agent" shall be
inclusive  of the  Administrative  Agent's  role as  Collateral  Agent under the
Security  Agreements.  The provisions of this Article are solely for the benefit
of the Administrative  Agent, the Lenders and the Issuing Bank, and the Borrower
shall not have rights as a third party beneficiary of any of such provisions.

      SECTION 8.2. Rights as a Lender.  The Person serving as the Administrative
Agent  hereunder  shall have the same  rights and  powers in its  capacity  as a
Lender as any other  Lender and may  exercise the same as though it were not the
Administrative  Agent and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated or unless the context otherwise requires, include the Person
serving as the Administrative Agent hereunder in its individual  capacity.  Such
Person and its  Affiliates may accept  deposits from,  lend money to, act as the
financial  advisor or in any other advisory capacity for and generally engage in
any kind of business  with the  Borrower or any  Subsidiary  or other  Affiliate
thereof  as if such  Person  were not the  Administrative  Agent  hereunder  and
without any duty to account therefor to the Lenders.

      SECTION 8.3.  Exculpatory  Provisions.  The Administrative Agent shall not
have any duties or  obligations  except those  expressly set forth herein and in
the other Loan Documents.  Without limiting the generality of the foregoing, the
Administrative Agent:

      (a)  shall  not be  subject  to any  fiduciary  or other  implied  duties,
regardless of whether a Default has occurred and is continuing;

      (b) shall not have any duty to take any  discretionary  action or exercise
any  discretionary  powers,  except  discretionary  rights and powers  expressly
contemplated hereby or by the other Loan Documents that the Administrative Agent
is required to exercise as directed in writing by the Required  Lenders (or such
other number or  percentage  of the Lenders as shall be  expressly  provided for
herein or in the other Loan Documents),  provided that the Administrative  Agent
shall not be required to take any action that,  in its opinion or the opinion of
its  counsel,  may  expose  the  Administrative  Agent to  liability  or that is
contrary to any Loan Document or applicable law; and

      (c) shall not,  except as expressly set forth herein and in the other Loan
Documents, have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Borrower or any of its Affiliates that
is communicated to or obtained by the Person serving as the Administrative Agent
or any of its Affiliates in any capacity.

      The  Administrative  Agent shall not be liable for any action taken or not
taken by it (i) with the consent or at the request of the  Required  Lenders (or
such other number or percentage of the Lenders as shall be necessary,  or as the
Administrative  Agent shall believe in good faith shall be necessary,  under the
circumstances  as  provided  in Section  9.02 and  Article  VII,  or (ii) in the
absence of its own gross




                                       38
<PAGE>

negligence or willful misconduct.  The Administrative  Agent shall be deemed not
to have knowledge of any Default unless and until notice describing such Default
is given to the  Administrative  Agent by the Borrower,  a Lender or the Issuing
Bank.

      The Administrative  Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement,  warranty or representation made in
or in  connection  with this  Agreement  or any other  Loan  Document,  (ii) the
contents of any  certificate,  report or other document  delivered  hereunder or
thereunder or in  connection  herewith or therewith,  (iii) the  performance  or
observance of any of the covenants,  agreements or other terms or conditions set
forth herein or therein or the  occurrence  of any Default,  (iv) the  validity,
enforceability,  effectiveness or genuineness of this Agreement,  any other Loan
Document or any other agreement,  instrument or document or (v) the satisfaction
of any  condition  set forth in Article VI or  elsewhere  herein,  other than to
confirm   receipt  of  items   expressly   required  to  be   delivered  to  the
Administrative Agent.

      SECTION 8.4. Reliance by Administrative  Agent. The  Administrative  Agent
shall be entitled to rely upon,  and shall not incur any  liability  for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing (including any electronic message, Internet or intranet website
posting or other  distribution)  believed  by it to be genuine  and to have been
signed, sent or otherwise authenticated by the proper Person. The Administrative
Agent also may rely upon any  statement  made to it orally or by  telephone  and
believed by it to have been made by the proper  Person,  and shall not incur any
liability for relying  thereon.  In  determining  compliance  with any condition
hereunder to the making of a Loan,  or the issuance of a Letter of Credit,  that
by its terms must be  fulfilled to the  satisfaction  of a Lender or the Issuing
Bank, the  Administrative  Agent may presume that such condition is satisfactory
to such Lender or the Issuing  Bank unless the  Administrative  Agent shall have
received  notice to the  contrary  from such Lender or the Issuing Bank prior to
the  making  of such  Loan  or the  issuance  of  such  Letter  of  Credit.  The
Administrative  Agent may consult with legal counsel (who may be counsel for the
Borrower),  independent  accountants and other experts selected by it, and shall
not be liable for any  action  taken or not taken by it in  accordance  with the
advice of any such counsel, accountants or experts.

      SECTION 8.5.  Delegation of Duties. The  Administrative  Agent may perform
any and all of its duties and exercise its rights and powers  hereunder or under
any other Loan  Document by or through any one or more  sub-agents  appointed by
the Administrative  Agent. The  Administrative  Agent and any such sub-agent may
perform  any and all of its  duties  and  exercise  its  rights and powers by or
through their  respective  Related Parties.  The exculpatory  provisions of this
Article  shall apply to any such  sub-agent  and to the  Related  Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities  provided
for herein as well as activities as Administrative Agent.

      SECTION 8.6. Resignation of Administrative Agent. The Administrative Agent
may at any time give notice of its resignation to the Lenders,  the Issuing Bank
and the Borrower.  Upon receipt of any such notice of resignation,  the Required
Lenders shall have the right,  in consultation  with the Borrower,  to appoint a
successor,  which shall be a bank with an office in  Rochester,  New York; or an
Affiliate  of any such bank with an office in  Rochester,  New York.  If no such
successor  shall have been so appointed  by the Required  Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation,  then the retiring  Administrative Agent may on
behalf of the Lenders and the Issuing Bank,  appoint a successor  Administrative
Agent  meeting  the   qualifications  set  forth  above  provided  that  if  the
Administrative  Agent  shall  notify  the  Borrower  and  the  Lenders  that  no
qualifying  Person has accepted such  appointment,  then such resignation  shall
nonetheless become effective in accordance with such notice and (1) the retiring
Administrative  Agent  shall be  discharged  from  its  duties  and  obligations
hereunder  and under the other Loan  Documents  [(except that in the case of any
collateral security held by the Administrative Agent on behalf of the Lenders or
the Issuing Bank under any of the Loan  Documents,  the retiring  Administrative
Agent  shall  continue  to hold such  collateral  security  until such time as a
successor   Administrative   Agent   is   appointed)   and  (2)  all   payments,
communications  and  determinations  provided  to be made by, to or through  the
Administrative  Agent shall instead be made by or to each Lender and the Issuing
Bank  directly,  until such time as the  Required  Lenders  appoint a  successor
Administrative  Agent  as  provided  for  above  in  this  paragraph.  Upon  the
acceptance of a



                                       39
<PAGE>

successor's appointment as Administrative Agent hereunder,  such successor shall
succeed to and become  vested with all of the  rights,  powers,  privileges  and
duties of the  retiring  (or  retired)  Administrative  Agent,  and the retiring
Administrative  Agent shall be discharged from all of its duties and obligations
hereunder or under the other Loan Documents (if not already discharged therefrom
as provided  above in this  paragraph).  The fees  payable by the  Borrower to a
successor  Administrative  Agent  shall  be the  same as  those  payable  to its
predecessor  unless  otherwise  agreed between the Borrower and such  successor.
After the retiring  Administrative  Agent's resignation  hereunder and under the
other Loan  Documents,  the  provisions  of this  Article and Section 9.03 shall
continue in effect for the benefit of such retiring  Administrative  Agent,  its
sub-agents and their respective  Related Parties in respect of any actions taken
or omitted to be taken by any of them while the  retiring  Administrative  Agent
was acting as Administrative Agent.

      SECTION 8.7.  Non-Reliance on Administrative Agent and Other Lenders. Each
Lender and the Issuing Bank acknowledges that it has,  independently and without
reliance  upon the  Administrative  Agent or any  other  Lender  or any of their
Related  Parties and based on such  documents and  information  as it has deemed
appropriate,  made its own  credit  analysis  and  decision  to enter  into this
Agreement.  Each Lender and the  Issuing  Bank also  acknowledges  that it will,
independently  and without reliance upon the  Administrative  Agent or any other
Lender  or any of  their  Related  Parties  and  based  on  such  documents  and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan  Document  or any related  agreement  or any  document  furnished
hereunder or thereunder.

      SECTION  8.8.  No Other  Duties,  etc.  Anything  herein  to the  contrary
notwithstanding,  none of the Bookrunners or Arrangers  listed on the cover page
hereof shall have any powers, duties or responsibilities under this Agreement or
any of the other Loan Documents,  except in its capacity, as applicable,  as the
Administrative Agent, a Lender or the Issuing Bank hereunder.

                                   ARTICLE IX

                                  Miscellaneous

      SECTION 9.01. Notices  Generally.  Except in the case of notices and other
communications  expressly  permitted  to be given by  telephone  (and  except as
provided in paragraph (b) below), all notices and other communications  provided
for  herein  shall be in writing  and shall be  delivered  by hand or  overnight
courier service, mailed by certified or registered mail or sent by telecopier as
follows:

      (i)   if to the Borrower,  to it at 2000 Technology  Parkway,  Newark, New
            York 14513,  Attention of Chief  Financial  Officer  (Telecopier No.
            315-331-3925;  Telephone No. 315-332-7100), with a copy to: Peter F.
            Comerford,  Esq. at 2000 Technology Parkway, Newark, New York 14513,
            (Telecopier No. 315-331-7048; Telephone No. 315-332-7100);

      (ii)  if to the Administrative  Agent, to JPMorgan Chase Bank at One Chase
            Square, Rochester, New York 14643, Attention of Ultralife Batteries,
            Inc. Account Representative (Telecopier No. 585-258-7604;  Telephone
            No. 585-258-0822);

      (iii) if to the Issuing Bank, to it at JPMorgan  Chase Bank,  Attention of
            Ultralife Batteries,  Inc., Account  Representative  (Telecopier No.
            585-258-7604; Telephone No. 585-258-0822); and

      (iv)  if to a Lender,  to it at its  address  (or  telecopier  number) set
            forth in its Administrative Questionnaire.

      Notices sent by hand or overnight courier service,  or mailed by certified
or registered  mail,  shall be deemed to have been given when received;  notices
sent by telecopier shall be deemed to have been given when sent (except that, if
not given during normal  business  hours for the  recipient,  shall be deemed to
have been given at the  opening of  business  on the next  business  day for the
recipient).  Notices



                                       40
<PAGE>

delivered through electronic  communications to the extent provided in paragraph
(b) below, shall be effective as provided in said paragraph (b).

      (b) Electronic  Communications.  Notices and other  communications  to the
Lenders  and the  Issuing  Bank  hereunder  may be  delivered  or  furnished  by
electronic  communication  (including e-mail and Internet or intranet  websites)
pursuant to procedures approved by the Administrative  Agent. The Administrative
Agent or the Borrower may, in its discretion,  agree to accept notices and other
communications  to  it  hereunder  by  electronic   communications  pursuant  to
procedures  approved by it,  provided  that approval of such  procedures  may be
limited to particular notices or communications.

      Unless the  Administrative  Agent  otherwise  prescribes,  (i) notices and
other communications sent to an e-mail address shall be deemed received upon the
sender's receipt of an  acknowledgement  from the intended recipient (such as by
the "return receipt requested"  function,  as available,  return e-mail or other
written acknowledgement), provided that if such notice or other communication is
not sent  during the normal  business  hours of the  recipient,  such  notice or
communication  shall be deemed to have been sent at the  opening of  business on
the next  business day for the  recipient,  and (ii)  notices or  communications
posted to an Internet  or intranet  website  shall be deemed  received  upon the
deemed  receipt by the intended  recipient at its e-mail address as described in
the foregoing  clause (i) of notification  that such notice or  communication is
available and identifying the website address therefor.

      (c) Change of  Address,  Etc.  Any party  hereto may change its address or
telecopier  number for notices and other  communications  hereunder by notice to
the other parties hereto.

      SECTION  9.02.  Waivers;  Amendments.  (a)  No  failure  or  delay  by the
Administrative  Agent, the Issuing Bank or any Lender in exercising any right or
power  hereunder  shall  operate  as a waiver  thereof,  nor shall any single or
partial   exercise  of  any  such  right  or  power,   or  any   abandonment  or
discontinuance of steps to enforce such a right or power,  preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and  remedies of the  Administrative  Agent,  the  Issuing  Bank and the Lenders
hereunder  are  cumulative  and are not exclusive of any rights or remedies that
they would  otherwise  have.  No waiver of any  provision  of this  Agreement or
consent  to any  departure  by the  Borrower  therefrom  shall  in any  event be
effective  unless the same shall be permitted by paragraph  (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which  given.  Without  limiting the  generality  of the
foregoing,  the making of a Loan or issuance of a Letter of Credit  shall not be
construed as a waiver of any Default,  regardless of whether the  Administrative
Agent,  any Lender or the Issuing  Bank may have had notice or knowledge of such
Default at the time.

      (b) Neither this Agreement nor any provision hereof may be waived, amended
or modified  except  pursuant to an agreement or agreements  in writing  entered
into by the  Borrower  and  the  Required  Lenders  or by the  Borrower  and the
Administrative Agent with the consent of the Required Lenders;  provided that no
such  agreement  shall (i) increase  the  Commitment  of any Lender  without the
written consent of such Lender,  (ii) reduce the principal amount of any Loan or
LC  Disbursement  or reduce  the rate of  interest  thereon,  or reduce any fees
payable hereunder,  without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement,  or any interest thereon, or any fees payable hereunder,  or
reduce  the  amount  of,  waive or excuse  any such  payment,  or  postpone  the
scheduled date of expiration of any  Commitment,  without the written consent of
each Lender  affected  thereby,  (iv) change Section  2.18(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby,  without the
written consent of each Lender, (v) change any of the provisions of this Section
or the definition of "Required Lenders" or any other provision hereof specifying
the number or  percentage  of  Lenders  required  to waive,  amend or modify any
rights  hereunder  or make any  determination  or grant any  consent  hereunder,
without the written  consent of each Lender,  (vi) release,  waive or modify the
terms of any  Guarantee  without the written  consent of each  Lender,  or (vii)
release or terminate any Lien on real or personal  property  without the written
consent of each Lender;  provided  further that no such  agreement  shall amend,
modify or otherwise affect the rights or duties of the  Administrative  Agent or
the  Issuing  Bank   hereunder   without  the  prior  written   consent  of  the
Administrative Agent or the Issuing Bank, as the case may be.



                                       41
<PAGE>

      SECTION 9.03. Expenses;  Indemnity; Damage Waiver. (a) Costs and Expenses.
The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates  (including the reasonable fees, charges
and disbursements of counsel for the  Administrative  Agent),  and shall pay all
fees and time charges and  disbursements  for  attorneys who may be employees of
the  Administrative  Agent,  in connection  with the  syndication  of the credit
facilities  provided  for  herein,  the  preparation,   negotiation,  execution,
delivery and  administration  of this  Agreement and the other Loan Documents or
any  amendments,  modifications  or waivers of the provisions  hereof or thereof
(whether  or not the  transactions  contemplated  hereby  or  thereby  shall  be
consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing
Bank in  connection  with the issuance,  amendment,  renewal or extension of any
Letter  of  Credit  or  any  demand  for  payment   thereunder   and  (iii)  all
out-of-pocket  expenses incurred by the Administrative  Agent, any Lender or the
Issuing Bank (including the fees,  charges and  disbursements of any counsel for
the  Administrative  Agent,  any Lender or the Issuing Bank),  and shall pay all
fees and time charges for attorneys  who may be employees of the  Administrative
Agent,  any Lender or the Issuing Bank, in connection  with the  enforcement  or
protection  of its rights (A) in  connection  with this  Agreement and the other
Loan  Documents,  including its rights under this Section,  or (B) in connection
with the Loans made or Letters of Credit  issued  hereunder,  including all such
out-of-pocket   expenses   incurred   during  any  workout,   restructuring   or
negotiations in respect of such Loans or Letters of Credit.

      (b)  Indemnification  by the Borrower.  The Borrower  shall  indemnify the
Administrative  Agent (and any sub-agent  thereof),  each Lender and the Issuing
Bank,  and each Related Party of any of the foregoing  Persons (each such Person
being called an "Indemnitee")  against,  and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related expenses (including
the fees,  charges and  disbursements of any counsel for any  Indemnitee)[,  and
shall indemnify and hold harmless each Indemnitee from all fees and time charges
and disbursements for attorneys who may be employees of any Indemnitee  incurred
by any  Indemnitee or asserted  against any  Indemnitee by any third party or by
the  Borrower  arising  out of, in  connection  with,  or as a result of (i) the
execution  or  delivery  of this  Agreement,  any  other  Loan  Document  or any
agreement or instrument  contemplated hereby or thereby,  the performance by the
parties hereto of their  respective  obligations  hereunder or thereunder or the
consummation of the transactions  contemplated hereby or thereby,  (ii) any Loan
or  Letter  of  Credit  or the use or  proposed  use of the  proceeds  therefrom
(including any refusal by the Issuing Bank to honor a demand for payment under a
Letter of Credit if the documents  presented in  connection  with such demand do
not strictly  comply with the terms of such Letter of Credit),  (iii) any actual
or alleged  presence or Release of  Hazardous  Materials on or from any property
owned  or  operated  by  the  Borrower  or  any  of  its  Subsidiaries,  or  any
Environmental  Liability  related  in  any  way to  the  Borrower  or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing,  whether based on contract, tort
or any other theory,  whether  brought by a third party or by the Borrower,  and
regardless  of whether any  Indemnitee  is a party  thereto,  provided that such
indemnity shall not, as to any Indemnitee,  be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) are determined by a
court of  competent  jurisdiction  by final and  nonappealable  judgment to have
resulted from the gross  negligence or willful  misconduct of such Indemnitee or
(y) result from a claim brought by the Borrower against an Indemnitee for breach
in bad faith of such Indemnitee's  obligations hereunder or under any other Loan
Document, if the Borrower has obtained a final and nonappealable judgment in its
favor on such claim as determined by a court of competent jurisdiction.

      (c)  Reimbursement  by Lenders.  To the extent that the  Borrower  for any
reason fails to indefeasibly  pay any amount required under paragraph (a) or (b)
of this Section to be paid by it to the  Administrative  Agent (or any sub-agent
thereof),  the Issuing Bank or any Related Party of any of the  foregoing,  each
Lender  severally  agrees  to pay to  the  Administrative  Agent  (or  any  such
sub-agent),  the Issuing  Bank or such Related  Party,  as the case may be, such
Lender's  Applicable  Percentage  (determined as of the time that the applicable
unreimbursed  expense or  indemnity  payment is sought) of such  unpaid  amount,
provided that the  unreimbursed  expense or  indemnified  loss,  claim,  damage,
liability  or related  expense,  as the case may be, was incurred by or asserted
against the Administrative  Agent (or any such sub-agent) or the Issuing Bank in
its capacity as such, or against any Related Party of any of the




                                       42
<PAGE>

foregoing acting for the Administrative Agent (or any such sub-agent) or Issuing
Bank in connection with such capacity. The obligations of the Lenders under this
paragraph (c) are several, not joint.

      (d) Waiver of Consequential  Damages, Etc. To the fullest extent permitted
by applicable law, the Borrower shall not assert,  and hereby waives,  any claim
against any  Indemnitee,  on any theory of  liability,  for  special,  indirect,
consequential  or  punitive  damages  (as  opposed to direct or actual  damages)
arising out of, in connection with, or as a result of, this Agreement, any other
Loan  Document  or  any  agreement  or  instrument   contemplated   hereby,  the
transactions contemplated hereby or thereby, any Loan or Letter of Credit or the
use of the proceeds  thereof.  No Indemnitee  referred to in paragraph (b) above
shall be liable for any damages arising from the use by unintended recipients of
any information or other materials distributed by it through telecommunications,
electronic or other  information  transmission  systems in connection  with this
Agreement or the other Loan Documents or the transactions contemplated hereby or
thereby.

      (e) Payments. All amounts due under this Section shall be payable promptly
after demand therefor.

      SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective  successors and assigns  permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), except that (i) the Borrower
may not assign or otherwise transfer any of its rights or obligations  hereunder
without the prior written  consent of each Lender (and any attempted  assignment
or transfer by the Borrower  without  such  consent  shall be null and void) and
(ii) no Lender  may  assign or  otherwise  transfer  its  rights or  obligations
hereunder  except in accordance  with this Section.  Nothing in this  Agreement,
expressed or implied,  shall be construed to confer upon any Person  (other than
the parties hereto,  their  respective  successors and assigns  permitted hereby
(including  any Affiliate of the Issuing Bank that issues any Letter of Credit),
Participants  (to the extent  provided in paragraph (c) of this Section) and, to
the extent  expressly  contemplated  hereby,  the Related Parties of each of the
Administrative  Agent,  the Issuing Bank and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.

      (b)   (i) Subject to the conditions set forth in paragraph  (b)(ii) below,
any Lender may  assign to one or more  assignees  all or a portion of its rights
and  obligations  under  this  Agreement  (including  all  or a  portion  of its
Commitment and the Loans at the time owing to it) with the prior written consent
(such consent not to be unreasonably withheld) of:

                  (A)   the  Borrower,  provided that no consent of the Borrower
                        shall be  required  for an  assignment  to a Lender,  an
                        Affiliate of a Lender,  an Approved Fund or, if an Event
                        of Default  under clause (a), (b), (h) or (i) of Article
                        VII has occurred and is continuing, any other assignee;

                  (B)   the  Administrative  Agent,  provided that no consent of
                        the  Administrative  Agent  shall  be  required  for  an
                        assignment  of all or any  portion  of a Term  Loan to a
                        Lender,  an Affiliate  of a Lender or an Approved  Fund;
                        and

                  (C)   the  Issuing  Bank,  provided  that  no  consent  of the
                        Issuing Bank shall be required for an  assignment of all
                        or any portion of a Term Loan to a Lender,  an Affiliate
                        of a Lender or an Approved Fund.

            (ii)  Assignments  shall  be  subject  to the  following  additional
conditions:

                  (A)   except  in the case of an  assignment  to a Lender or an
                        Affiliate  of a Lender or an  assignment  of the  entire
                        remaining amount of the assigning Lender's Commitment or
                        Loans of any  Class,  the  amount of the  Commitment  or
                        Loans  of the  assigning  Lender  subject  to each  such
                        assignment (determined as of the date the Assignment and
                        Assumption  with respect to such assignment is delivered
                        to the Administrative Agent)



                                       43
<PAGE>

                        shall not be less than  $5,000,000  or, in the case of a
                        Term Loan,  $1,000,000  unless each of the  Borrower and
                        the  Administrative  Agent otherwise  consent,  provided
                        that no such consent of the  Borrower  shall be required
                        if an Event of Default under clause (a), (b), (h) or (i)
                        of Article VII has occurred and is continuing;

                  (B)   each partial  assignment  shall be made as an assignment
                        of a  proportionate  part of all the assigning  Lender's
                        rights and obligations  under this  Agreement,  provided
                        that this clause  shall not be construed to prohibit the
                        assignment of a proportionate  part of all the assigning
                        Lender's  rights and obligations in respect of one Class
                        of Commitments or Loans;

                  (C)   except  in the case of an  assignment  by a Lender to an
                        Affiliate of that Lender, the parties to each assignment
                        shall execute and deliver to the Administrative Agent an
                        Assignment  and  Assumption,  together with a processing
                        and recordation fee of $3,500; and

                  (D)   the assignee, if it shall not be a Lender, shall deliver
                        to   the   Administrative    Agent   an   Administrative
                        Questionnaire.

      For the purposes of this Section 9.04(b), the term "Approved Fund" has the
following meaning:

      "Approved Fund" means any Person (other than a natural person) that is (or
will be)  engaged  in making,  purchasing,  holding or  otherwise  investing  in
commercial loans and similar  extensions of credit in the ordinary course of its
business and that is administered  or managed by (a) a Lender,  (b) an Affiliate
of a Lender or (c) an entity or an  Affiliate of an entity that  administers  or
manages a Lender.

            (iii)  Subject to  acceptance  and  recording  thereof  pursuant  to
paragraph  (b)(iv) of this Section,  from and after the effective date specified
in each  Assignment  and  Assumption  the assignee  thereunder  shall be a party
hereto  and,  to the extent of the  interest  assigned  by such  Assignment  and
Assumption,  have the rights and  obligations of a Lender under this  Agreement,
and the  assigning  Lender  thereunder  shall,  to the  extent  of the  interest
assigned by such  Assignment and  Assumption,  be released from its  obligations
under this Agreement (and, in the case of an Assignment and Assumption  covering
all of the assigning Lender's rights and obligations under this Agreement,  such
Lender shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a
Lender of rights or  obligations  under this Agreement that does not comply with
this Section  9.04 shall be treated for purposes of this  Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
paragraph (c) of this Section.

            (iv) The Administrative  Agent,  acting for this purpose as an agent
of the Borrower,  shall maintain at one of its offices a copy of each Assignment
and Assumption  delivered to it and a register for the  recordation of the names
and addresses of the Lenders, and the Commitment of, and principal amount of the
Loans and LC  Disbursements  owing to, each Lender  pursuant to the terms hereof
from  time to time  (the  "Register").  The  entries  in the  Register  shall be
conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the
Lenders may treat each Person whose name is recorded in the Register pursuant to
the terms  hereof as a Lender  hereunder  for all  purposes  of this  Agreement,
notwithstanding  notice to the  contrary.  The Register  shall be available  for
inspection by the Borrower,  the Issuing Bank and any Lender,  at any reasonable
time and from time to time upon reasonable prior notice.

            (v) Upon its receipt of a duly  completed  Assignment and Assumption
executed  by an  assigning  Lender and an  assignee,  the  assignee's  completed
Administrative  Questionnaire  (unless the  assignee  shall  already be a Lender
hereunder),  the processing and  recordation fee referred to in paragraph (b) of
this Section and any written  consent to such  assignment  required by paragraph
(b) of this Section,  the Administrative  Agent shall accept such Assignment and
Assumption and record the



                                       44
<PAGE>

information  contained therein in the Register. No assignment shall be effective
for purposes of this  Agreement  unless it has been  recorded in the Register as
provided in this paragraph.

      (c)   (i) Any  Lender  may,  without  the  consent  of the  Borrower,  the
Administrative  Agent or the Issuing Bank,  sell  participations  to one or more
banks or other entities (a  "Participant")  in all or a portion of such Lender's
rights and obligations  under this Agreement  (including all or a portion of its
Commitment  and the  Loans  owing  to  it);  provided  that  (A)  such  Lender's
obligations under this Agreement shall remain  unchanged,  (B) such Lender shall
remain solely  responsible  to the other parties  hereto for the  performance of
such  obligations and (C) the Borrower,  the  Administrative  Agent, the Issuing
Bank and the other Lenders shall  continue to deal solely and directly with such
Lender in  connection  with such  Lender's  rights  and  obligations  under this
Agreement.  Any agreement or instrument  pursuant to which a Lender sells such a
participation  shall  provide  that such Lender  shall  retain the sole right to
enforce this Agreement and to approve any amendment,  modification  or waiver of
any provision of this Agreement;  provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any  amendment,  modification  or waiver  described  in the first  proviso to
Section 9.02(b) that affects such  Participant.  Subject to paragraph (c)(ii) of
this Section, the Borrower agrees that each Participant shall be entitled to the
benefits  of  Sections  2.15,  2.16 and 2.17 to the same  extent as if it were a
Lender and had acquired its interest by assignment  pursuant to paragraph (b) of
this Section.  To the extent  permitted by law, each  Participant  also shall be
entitled to the  benefits of Section  9.08 as though it were a Lender,  provided
such  Participant  agrees to be subject  to Section  2.18(c) as though it were a
Lender.

            (ii) A  Participant  shall not be  entitled  to receive  any greater
payment  under Section 2.15 or 2.17 than the  applicable  Lender would have been
entitled to receive with respect to the participation  sold to such Participant,
unless  the  sale of the  participation  to such  Participant  is made  with the
Borrower's prior written  consent.  A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.17 unless
the Borrower is notified of the participation  sold to such Participant and such
Participant  agrees,  for the benefit of the  Borrower,  to comply with  Section
2.17(e) as though it were a Lender.

      (d) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure  obligations of such
Lender,  including  without  limitation  any  pledge  or  assignment  to  secure
obligations  to a Federal  Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security  interest;  provided that no such pledge
or  assignment  of a security  interest  shall  release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.

      SECTION 9.05.  Survival.  All covenants,  agreements,  representations and
warranties  made  by  the  Borrower  herein  and in the  certificates  or  other
instruments  delivered in connection with or pursuant to this Agreement shall be
considered  to have been  relied  upon by the  other  parties  hereto  and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit,  regardless of any investigation  made by
any  such  other   party  or  on  its  behalf  and   notwithstanding   that  the
Administrative  Agent,  the  Issuing  Bank or any  Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is  extended  hereunder,  and shall  continue in full force and effect as
long as the  principal of or any accrued  interest on any Loan or any fee or any
other  amount  payable  under this  Agreement is  outstanding  and unpaid or any
Letter of Credit is outstanding and so long as the Commitments  have not expired
or terminated.  The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article
VIII  shall  survive  and  remain in full  force and  effect  regardless  of the
consummation  of the  transactions  contemplated  hereby,  the  repayment of the
Loans,  the  expiration  or  termination  of  the  Letters  of  Credit  and  the
Commitments or the termination of this Agreement or any provision hereof.

      SECTION 9.06. Counterparts;  Integration; Effectiveness. (a) Counterparts;
Integration;  Effectiveness. This Agreement may be executed in counterparts (and
by  different  parties  hereto in different  counterparts),  each of which shall
constitute an original,  but all of which when taken together shall constitute a
single contract.  This Agreement and the other Loan Documents,  and any separate
letter



                                       45
<PAGE>

agreements with respect to fees payable to the Administrative Agent,  constitute
the entire contract among the parties  relating to the subject matter hereof and
supersede any and all previous agreements and  understandings,  oral or written,
relating to the subject matter hereof.  Except as provided in Section 4.01, this
Agreement  shall  become  effective  when it shall  have  been  executed  by the
Administrative  Agent and when the  Administrative  Agent  shall  have  received
counterparts  hereof that, when taken  together,  bear the signatures of each of
the other parties  hereto.  Delivery of an executed  counterpart  of a signature
page of this  Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.

      (b) Electronic Execution of Assignments.  The words "execution," "signed,"
"signature,"  and words of like import in any Assignment and Assumption shall be
deemed to include electronic  signatures or the keeping of records in electronic
form,   each  of  which  shall  be  of  the  same  legal  effect,   validity  or
enforceability  as a manually  executed  signature  or the use of a  paper-based
recordkeeping  system,  as the case may be, to the extent and as provided for in
any applicable law,  including the Federal  Electronic  Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and Records Act,
or any other  similar  state laws based on the Uniform  Electronic  Transactions
Act.

      SECTION 9.07.  Severability.  Any provision of this  Agreement  held to be
invalid,  illegal  or  unenforceable  in  any  jurisdiction  shall,  as to  such
jurisdiction,  be  ineffective to the extent of such  invalidity,  illegality or
unenforceability without affecting the validity,  legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a  particular  jurisdiction  shall not  invalidate  such  provision in any other
jurisdiction.

      SECTION 9.08. Right of Setoff.  If an Event of Default shall have occurred
and be continuing,  each Lender,  the Issuing Bank, and each of their respective
Affiliates  is  hereby  authorized  at any time and  from  time to time,  to the
fullest  extent  permitted by  applicable  law, to set off and apply any and all
deposits (general or special, time or demand,  provisional or final, in whatever
currency) at any time held and other  obligations (in whatever  currency) at any
time owing by such Lender,  the Issuing Bank or any such Affiliate to or for the
credit or the account of the Borrower  against any and all of the obligations of
the Borrower now or hereafter  existing  under this  Agreement or any other Loan
Document to such Lender or the Issuing Bank, irrespective of whether or not such
Lender or the Issuing  Bank shall have made any demand  under this  Agreement or
any other Loan  Document and although  such  obligations  of the Borrower may be
contingent  or unmatured or are owed to a branch or office of such Lender or the
Issuing  Bank  different  from the  branch or office  holding  such  deposit  or
obligated on such indebtedness.  The rights of each Lender, the Issuing Bank and
their  respective  Affiliates under this Section are in addition to other rights
and remedies  (including  other rights of setoff) that such Lender,  the Issuing
Bank or their  respective  Affiliates may have. Each Lender and the Issuing Bank
agrees to notify the Borrower and the  Administrative  Agent  promptly after any
such setoff and application, provided that the failure to give such notice shall
not affect the validity of such setoff and application.

      SECTION 9.09. Governing Law; Jurisdiction;  Consent to Service of Process.
(a)  Governing  Law.  This  Agreement  shall be governed  by, and  construed  in
accordance with, the law of the State of New York.

      (b)   Submission   to   Jurisdiction.   The   Borrower   irrevocably   and
unconditionally  submits,  for  itself  and its  property,  to the  nonexclusive
jurisdiction of the courts of the State of New York sitting in Monroe County and
of the United States District Court of the Western District of New York, and any
appellate court from any thereof,  in any action or proceeding arising out of or
relating to this  Agreement or any other Loan  Document,  or for  recognition or
enforcement  of any judgment,  and each of the parties  hereto  irrevocably  and
unconditionally  agrees  that  all  claims  in  respect  of any such  action  or
proceeding  may be heard and  determined in such New York State court or, to the
fullest extent  permitted by applicable law, in such Federal court.  Each of the
parties  hereto  agrees that a final  judgment in any such action or  proceeding
shall be conclusive  and may be enforced in other  jurisdictions  by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement or in
any other Loan Document  shall affect any right that the  Administrative  Agent,
any  Lender  or the  Issuing  Bank may



                                       46
<PAGE>

otherwise  have to bring any action or proceeding  relating to this Agreement or
any other Loan Document  against the Borrower or its properties in the courts of
any jurisdiction.

      (c) Waiver of Venue. The Borrower irrevocably and unconditionally  waives,
to the fullest extent permitted by applicable law, any objection that it may now
or hereafter have to the laying of venue of any action or proceeding arising out
of or  relating  to this  Agreement  or any  other  Loan  Document  in any court
referred to in paragraph (b) of this Section.  Each of the parties hereto hereby
irrevocably  waives,  to the fullest  extent  permitted by  applicable  law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.

      (d) Service of Process.  Each party hereto irrevocably consents to service
of process in the manner  provided for notices in Section 9.01.  Nothing in this
Agreement  will  affect  the right of any party  hereto to serve  process in any
other manner permitted by applicable law.

      SECTION 9.10. WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY  IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS  AGREEMENT  OR ANY OTHER LOAN  DOCUMENT OR THE  TRANSACTIONS
CONTEMPLATED  HEREBY OR THEREBY  (WHETHER  BASED ON CONTRACT,  TORT OR ANY OTHER
THEORY).  EACH  PARTY  HERETO (A)  CERTIFIES  THAT NO  REPRESENTATIVE,  AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER  PERSON  WOULD  NOT,  IN THE  EVENT OF  LITIGATION,  SEEK TO  ENFORCE  THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES  THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

      SECTION  9.11.  Headings.  Article and Section  headings  and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement  and  shall  not  affect  the   construction  of,  or  be  taken  into
consideration in interpreting, this Agreement.

      SECTION  9.12.  Confidentiality.  Each of the  Administrative  Agent,  the
Lenders and the  Issuing  Bank agrees to  maintain  the  confidentiality  of the
Information (as defined below),  except that Information may be disclosed (a) to
its Affiliates and to its and its Affiliates'  respective  partners,  directors,
officers,  employees,  agents,  advisors  and  other  representatives  (it being
understood  that the Persons to whom such disclosure is made will be informed of
the  confidential  nature  of such  Information  and  instructed  to  keep  such
Information  confidential),  (b)  to the  extent  requested  by  any  regulatory
authority purporting to have jurisdiction over it (including any self-regulatory
authority, such as the National Association of Insurance Commissioners),  (c) to
the extent  required by  applicable  laws or  regulations  or by any subpoena or
similar legal process, (d) to any other party hereto, (e) in connection with the
exercise  of any  remedies  hereunder  or under any other Loan  Document  or any
action or  proceeding  relating to this  Agreement or any other Loan Document or
the enforcement of rights  hereunder or thereunder,  (f) subject to an agreement
containing  provisions  substantially the same as those of this Section,  to (i)
any assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations  under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction
relating  to the  Borrower  and its  obligations,  (g) with the  consent  of the
Borrower or (h) to the extent such  Information (x) becomes  publicly  available
other than as a result of a breach of this  Section or (y) becomes  available to
the  Administrative  Agent,  any  Lender,  the  Issuing  Bank  or any  of  their
respective  Affiliates on a  nonconfidential  basis from a source other than the
Borrower.

      For purposes of this Section, "Information" means all information received
from the Borrower or any of its Subsidiaries  relating to the Borrower or any of
its  Subsidiaries  or any of their  respective  businesses,  other than any such
information  that is available to the  Administrative  Agent,  any Lender or the
Issuing Bank on a  nonconfidential  basis prior to disclosure by the Borrower or
any of its Subsidiaries, provided that, in the case of information received from
the Borrower or any of its Subsidiaries after the date hereof,  such information
is  clearly  identified  at the time of  delivery  as  confidential.  Any Person
required to maintain  the  confidentiality  of  Information  as provided in this
Section shall be  considered  to



                                       47
<PAGE>

have complied with its obligation to do so if such Person has exercised the same
degree of care to  maintain  the  confidentiality  of such  Information  as such
Person would accord to its own confidential information.

      Notwithstanding  anything herein to the contrary,  "Information" shall not
include,  and the  Borrower,  the  Administrative  Agent,  each  Lender  and the
respective  Affiliates of each of the foregoing  (and the  respective  partners,
directors,  officers,  employees,  agents, advisors and other representatives of
each of the foregoing and their  Affiliates),  and any other party, may disclose
to any and all Persons, without limitation of any kind, (a) any information with
respect to the U.S.  federal and state income tax treatment of the  transactions
contemplated hereby and any facts that may be relevant to understanding such tax
treatment,  which  facts  shall not  include  for this  purpose the names of the
parties or any other  Person  named  herein,  or  information  that would permit
identification  of the parties or such other  Persons,  or any pricing  terms or
other nonpublic business or financial  information that is unrelated to such tax
treatment or facts,  and (b) all  materials of any kind  (including  opinions or
other tax  analyses)  that are provided to any of the Persons  referred to above
relating to such tax treatment or facts.

      SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein to
the contrary,  if at any time the interest rate applicable to any Loan, together
with all fees,  charges and other  amounts which are treated as interest on such
Loan under applicable law (collectively the "Charges"), shall exceed the maximum
lawful rate (the "Maximum  Rate") which may be contracted for,  charged,  taken,
received  or  reserved  by the  Lender  holding  such  Loan in  accordance  with
applicable law, the rate of interest  payable in respect of such Loan hereunder,
together with all Charges  payable in respect  thereof,  shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been  payable in  respect  of such Loan but were not  payable as a result of the
operation  of this  Section  shall be  cumulated  and the  interest  and Charges
payable to such Lender in respect of other Loans or periods  shall be  increased
(but not above the Maximum Rate therefor) until such cumulated amount,  together
with  interest  thereon  at the  Federal  Funds  Effective  Rate to the  date of
repayment, shall have been received by such Lender.

      SECTION  9.14.  USA Patriot Act Notice.  Each Lender  hereby  notifies the
Borrower that pursuant to the  requirements of the USA Patriot Act (Title III of
Pub. L. 107-56  (signed into law October 26, 2001)) (the "Act"),  it is required
to obtain,  verify and record  information  that identifies the Borrower,  which
information  includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.


                                       48
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
duly  executed by their  respective  authorized  officers as of the day and year
first above written.

                                        ULTRALIFE BATTERIES, INC.

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


                                       49
<PAGE>

                                        JPMORGAN CHASE BANK, individually and as
                                        Administrative Agent,

                                        By:    /s/ Virginia S. Allen
                                        Name:  Virginia S. Allen
                                        Title: Vice President


                                       50
<PAGE>

                                        MANUFACTURERS AND TRADERS TRUST COMPANY

                                        By:    /s/ Jon M. Fogle
                                        Name:  Jon M. Fogle
                                        Title: Vice President


                                       51
<PAGE>

                                  Schedule 2.01

                                   Commitments

                                                        Amount        Percentage
                                                        ------        ----------
Commitments to Make Revolving Loans- $15,000,000

JPMorgan Chase Bank-                                  $9,000,000         60%
Manufacturers and Traders Trust Company               $6,000,000         40%

Term Loan Commitments- $10,000,000

JPMorgan Chase Bank-                                  $6,000,000         60%
Manufacturers and Traders Trust Company               $4,000,000         40%



<PAGE>

                                  Schedule 3.04
                         Changes Since December 31, 2003

On May 20, 2004, there was a fire at the Newark, New York facility. The fire
occurred when a tray of cells tipped over while being moved by an employee. Fire
suppression systems were triggered and activated; the local fire department
responded. The fire was contained to one room, and damage was limited to that
area and to the equipment and product in that room. Production was interrupted
for one day for cleaning. Deliveries were not affected. A claim has been
submitted to the Company's insurance carrier.

One June 5, 2004, a fire occurred at the Company's Abingdon, England subsidiary.
The fire began during the night when the building was unoccupied, originating in
a bunker area where discrepant or returned cells and batteries are stored for
disposal. Smoke and fire alarms were activated, and the local fire department
responded. Fire damage was limited to the bunker and reception areas, although
smoke and water damage, and utility disruption, caused a slow-down in
production. A claim has been submitted to the subsidiary's insurance carrier for
damage to equipment, material and product, and for business interruption.


<PAGE>

                                  Schedule 3.06

                                Disclosed Matters

<PAGE>

                                   Schedule F

      The Company is subject to legal proceedings and claims which arise in the
normal course of business. The Company believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or results of operations of the Company.

      In conjunction with the Company's purchase/lease of its Newark, New York
facility in 1998, the Company entered into a payment-in-lieu of tax agreement
which provides the Company with real estate tax concessions upon meeting certain
conditions. In connection with this agreement, 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 buildings. The Company
retained an engineering firm which estimated that the cost of remediation should
be in the range of $230. This cost, however, is merely an estimate and the cost
may in fact be much higher. In February, 1998, the Company entered into an
agreement with a third party which provides that the Company and this third
party will 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 (50%) of the cost of correcting the
environmental concern on the Newark property. The Company has fully reserved for
its portion of the estimated liability. Test sampling was completed in the
spring of 2001, and the engineering report was submitted to the New York State
Department of Environmental Conservation (NYSDEC) for review. NYSDEC reviewed
the report and, in January 2002, recommended additional testing. The Company
submitted a work plan to NYSDEC in October 2003, which was approved shortly
thereafter. The Company sought proposals from engineering firms to complete the
remedial work outlined in the work plan. A firm was selected to perform the
tasks associated with the remediation activities, which were completed in
December 2003. The test results were then forwarded to NYSDEC for comment.
NYSDEC responded to the Company in March 2004 requesting a report summarizing
the data, findings, discussions and conclusions. The report has been submitted
to NYSDEC who will review and make recommendations as to whether additional
remediation is required. Because the Company believes that the source of the
contamination has been removed, NYSDEC recommended that the Company conduct
quarterly monitoring of the groundwater for one year. The Company believes that
the final cost to remediate will not exceed the original estimate. The Company
awaits final comments from the NYSDEC and will begin the additional sampling
upon approval of the conclusions stated in the report. Because this is a
voluntary remediation, there is no requirement for the Company to complete the
project within any specific time frame. The ultimate resolution of this matter
may have a significant adverse impact on the results of operations in the period
in which it is resolved. Furthermore, the Company may face claims resulting in
substantial liability which could have a material adverse effect on the
Company's business, financial condition and the results of operations in the
period in which such claims are resolved.

      A retail end-user of a product manufactured by one of Ultralife's
customers (the "Customer") has made a claim against the Customer wherein it is
asserted that the Customer's product, which is powered by an Ultralife battery,
does not operate according to the Customer's product specification. No claim has
been filed against Ultralife. However, in the interest of fostering good
customer relations, in September 2002, Ultralife agreed to lend technical
support to the Customer in defense of its claim. The claim between the end-user
and the Customer has now been settled. Ultralife has renewed its commitment to
the Customer to honor its warranty by replacing any batteries that may be
determined to be defective. In the event a claim is filed against Ultralife and
it is ultimately determined that Ultralife's product was defective, replacement
of batteries to this Customer or end-user may have a material adverse effect on
the Company's financial position and results of operations.

<PAGE>

                                  Schedule 6.01

                              Existing Indebtedness

1. Revolving Credit Facility with Congress Financial Corporation (New England)-
approximately $5 million

2. Term Loan Congress Financial Corporation (New England)- approximately
$870,000

3. Revolving Credit Facility with Royal Bank of Scotland - approximately
$600,000

4. Letter of Credit with Congress Financial Corporation (New England) - $3.6
million

5. Credit Card facility with JPMorgan Chase Bank - $50,000

6. Capital Lease obligations with Wayne County IDA - approximately $85,000

Items  1, 2 and 4 shall be paid in full  with the  initial  advance  under  this
Credit Agreement and no further  Indebtedness to Congress Financial  Corporation
(New England) shall be permitted to be incurred under the terms of Section 6.01.

<PAGE>

                                  Schedule 6.02

                                 Existing Liens

<TABLE>
Creditor                            Address                    Collateral             Date of Lien
--------                            -------                    ----------             ------------
<S>                                 <C>                        <C>                         <C>
Winthrop Resources Corporation      111 Wayzata Boulevard      Leased Equipment            7/22/02
                                    Suite 800                                              8/15/02
                                    Minnetonka, Mn 55305

Wyssmont Company Inc.               1470 Bergen Blvd           Specific Equipment           4/4/03
                                    Fort Lee, New Jersey
                                    07024-2197
</TABLE>

Each Lien and the related Collateral are more specifically  described in the UCC
Search dated June __, 2004 of the Delaware Secretary of State's records enclosed
in the Loan Transcript

<PAGE>

                                  Schedule 6.04
            Investments, Loans, Advances, Guarantees and Acquisitions

Ultralife Taiwan Summary

In October 2003,  the Borrower  advanced  $2,350,000 to Ultralife  Taiwan,  Inc.
(UTI), in which the Borrower has an approximate  9.2% ownership  interest.  This
transaction  was done in order to provide short term financing to UTI while they
work to complete an  additional  equity  infusion into UTI to support its growth
plans.  This short-term  note  receivable was originally  scheduled to mature on
March 1, 2004 with interest  accruing at 3% per annum.  Effective March 1, 2004,
the Borrower extended the maturity date of this note to June 30, 2004,  allowing
UTI to continue its efforts to raise  additional  equity  capital.  The Borrower
will  reconsider  periodic  extensions  of this note  receivable  on a quarterly
basis. If UTI is successful in raising  additional funds, the Borrower may elect
to convert this note into shares of UTI common  stock.  In addition to the note,
the Borrower's  ownership  interest in UTI is reflected on the Borrower's  March
27,  2004  consolidated   balance  sheet.  The  amount  of  this  investment  is
$1,550,000, accounted for under the cost method of accounting. The Borrower does
not  guarantee  the  obligations  of UTI  and is not  required  to  provide  any
additional funding.  Because of their current uncertain financial condition, UTI
may not be able to raise the necessary  additional  funds from other  investors,
and the  Borrower  may not be able to recover or realize any gain on the note or
the Borrower's  investment.  In addition,  the Borrower  orders product from UTI
and, on occasion,  in order to help UTI with its financial  situation  will make
advance payments against amounts otherwise due on those purchase orders.

<PAGE>

                                  Schedule 6.08

                              Existing Restrictions

1.    Equipment Lease with Winthrop Resources Corporation.

2.    Ultralife Batteries (UK) Limited Revolving Credit Facility with Royal Bank
      of Scotland.

<PAGE>

                                    EXHIBIT A

                            ASSIGNMENT AND ASSUMPTION

      This Assignment and Assumption (the  "Assignment and Assumption") is dated
as of the  Effective  Date set forth  below and is entered  into by and  between
[Insert name of Assignor]  (the  "Assignor")  and [Insert name of Assignee] (the
"Assignee").  Capitalized  terms  used but not  defined  herein  shall  have the
meanings given to them in the Credit Agreement identified below (as amended, the
"Credit  Agreement"),  receipt of a copy of which is hereby  acknowledged by the
Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto
are hereby  agreed to and  incorporated  herein by reference  and made a part of
this Assignment and Assumption as if set forth herein in full.

      For an agreed  consideration,  the Assignor hereby  irrevocably  sells and
assigns to the  Assignee,  and the Assignee  hereby  irrevocably  purchases  and
assumes from the Assignor,  subject to and in accordance with the Standard Terms
and  Conditions and the Credit  Agreement,  as of the Effective Date inserted by
the Administrative  Agent as contemplated below (i) all of the Assignor's rights
and  obligations in its capacity as a Lender under the Credit  Agreement and any
other documents or instruments  delivered pursuant thereto to the extent related
to  the  amount  and  percentage  interest  identified  below  of  all  of  such
outstanding  rights  and  obligations  of  the  Assignor  under  the  respective
facilities  identified  below  (including  any letters of credit and  guarantees
included in such  facilities)  and (ii) to the extent  permitted  to be assigned
under applicable law, all claims, suits, causes of action and any other right of
the Assignor (in its capacity as a Lender) against any Person,  whether known or
unknown,  arising under or in connection  with the Credit  Agreement,  any other
documents or instruments  delivered  pursuant  thereto or the loan  transactions
governed  thereby  or in any way based on or  related  to any of the  foregoing,
including contract claims, tort claims, malpractice claims, statutory claims and
all other claims at law or in equity related to the rights and obligations  sold
and assigned  pursuant to clause (i) above (the rights and obligations  sold and
assigned  pursuant  to  clauses  (i) and (ii)  above  being  referred  to herein
collectively  as the "Assigned  Interest").  Such sale and assignment is without
recourse to the Assignor and,  except as expressly  provided in this  Assignment
and Assumption, without representation or warranty by the Assignor.

1. Assignor:
                           -----------------------------------------------------

2. Assignee:
                           -----------------------------------------------------

                           [and is an Affiliate/Approved Fund of [identify
                           Lender]]

3. Borrower(s):            Ultralife Batteries, Inc.

4. Administrative Agent:   JPMorgan Chase Bank, as the administrative agent
                           under the Credit Agreement

5. Credit Agreement:       The Credit Agreement dated as of June 30, 2004 among
                           Ultralife Batteries, Inc., the Lenders parties
                           thereto, and JPMorgan Chase Bank as Administrative
                           Agent

<PAGE>

6. Assigned Interest:

<TABLE>
<CAPTION>
------------------------------ ----------------------------- ----------------------------- ---------------------------
      Facility Assigned            Aggregate Amount of        Amount of Commitment/Loans     Percentage Assigned of
                                 Commitment/Loans for all              Assigned                 Commitment/Loans
                                         Lenders
------------------------------ ----------------------------- ----------------------------- ---------------------------
<S>                            <C>                           <C>                             <C>
                               $                             $                                               %
------------------------------ ----------------------------- ----------------------------- ---------------------------
                               $                             $                                               %
------------------------------ ----------------------------- ----------------------------- ---------------------------
                               $                             $                                               %
------------------------------ ----------------------------- ----------------------------- ---------------------------
</TABLE>

Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT
AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

                                    ASSIGNOR

                                    [NAME OF ASSIGNOR]

                                    By:
                                       -----------------------------------------
                                    Name:
                                         ---------------------------------------
                                    Title:
                                          --------------------------------------

                                    ASSIGNEE

                                    [NAME OF ASSIGNEE]

                                    By:
                                       -----------------------------------------
                                    Name:
                                         ---------------------------------------
                                    Title:
                                          --------------------------------------

[CONSENTED TO AND] ACCEPTED:

JPMORGAN CHASE BANK, as
Administrative Agent

By:
   ---------------------------------
Name:
     -------------------------------
Title:
      ------------------------------

[CONSENTED TO:]

[NAME OF RELEVANT PARTY]

By:
   ---------------------------------
Name:
     -------------------------------
Title:
      ------------------------------


                                       2
<PAGE>

                                     ANNEX 1

                              [__________________]

                        STANDARD TERMS AND CONDITIONS FOR
                            ASSIGNMENT AND ASSUMPTION

      1. Representations and Warranties.

            1.1. Assignor.  The Assignor (a) represents and warrants that (i) it
is the legal and beneficial  owner of the Assigned  Interest,  (ii) the Assigned
Interest is free and clear of any lien,  encumbrance  or other adverse claim and
(iii) it has full power and authority,  and has taken all action  necessary,  to
execute and  deliver  this  Assignment  and  Assumption  and to  consummate  the
transactions contemplated hereby; and (b) assumes no responsibility with respect
to (i) any statements,  warranties or  representations  made in or in connection
with the  Credit  Agreement  or any other  Loan  Document,  (ii) the  execution,
legality,  validity,  enforceability,  genuineness,  sufficiency or value of the
Loan Documents or any collateral  thereunder,  (iii) the financial  condition of
the  Borrower,  any of its  Subsidiaries  or  Affiliates  or  any  other  Person
obligated in respect of any Loan Document or (iv) the  performance or observance
by the Borrower,  any of its  Subsidiaries  or Affiliates or any other Person of
any of their respective obligations under any Loan Document.

            1.2. Assignee.  The Assignee (a) represents and warrants that (i) it
has full power and authority, and has taken all action necessary, to execute and
deliver this  Assignment  and  Assumption  and to  consummate  the  transactions
contemplated  hereby and to become a Lender under the Credit Agreement,  (ii) it
satisfies the requirements,  if any,  specified in the Credit Agreement that are
required to be  satisfied  by it in order to acquire the  Assigned  Interest and
become a Lender,  (iii) from and after the Effective  Date, it shall be bound by
the provisions of the Credit Agreement as a Lender thereunder and, to the extent
of the Assigned  Interest,  shall have the  obligations of a Lender  thereunder,
(iv) it has received a copy of the Credit Agreement, together with copies of the
most recent financial  statements delivered pursuant to Section 5.01 thereof, as
applicable,   and  such  other  documents  and  information  as  it  has  deemed
appropriate  to make its own credit  analysis  and  decision  to enter into this
Assignment and Assumption and to purchase the Assigned  Interest on the basis of
which it has made such analysis and decision  independently and without reliance
on the  Administrative  Agent or any  other  Lender,  and (v) if it is a Foreign
Lender,  attached to the Assignment and Assumption is any documentation required
to be  delivered  by it  pursuant  to the terms of the  Credit  Agreement,  duly
completed  and  executed  by the  Assignee;  and (b)  agrees  that  (i) it will,
independently and without reliance on the Administrative  Agent, the Assignor or
any other Lender,  and based on such documents and  information as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not  taking  action  under  the  Loan  Documents,  and (ii) it will  perform  in
accordance  with their  terms all of the  obligations  which by the terms of the
Loan Documents are required to be performed by it as a Lender.

      2. Payments.  From and after the Effective Date, the Administrative  Agent
shall make all payments in respect of the Assigned Interest  (including payments
of  principal,  interest,  fees and other  amounts) to the  Assignor for amounts
which have accrued to but excluding  the Effective  Date and to the Assignee for
amounts which have accrued from and after the Effective Date.

      3. General  Provisions.  This  Assignment and Assumption  shall be binding
upon,  and inure to the  benefit  of, the  parties  hereto and their  respective
successors  and assigns.  This  Assignment and Assumption may be executed in any
number of counterparts, which together shall constitute one instrument. Delivery
of an executed counterpart of a signature page of this Assignment and Assumption
by telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of New York.


<PAGE>

                                    EXHIBIT B

                       OPINION OF COUNSEL FOR THE BORROWER

                                [Effective Date]

To the Lenders and the Administrative
  Agent Referred to Below
c/o JPMorgan Chase Bank, as Administrative Agent
One Chase Square
Rochester, New York 14643

Dear Sirs:

      We have  acted as  counsel  for  Ultralife  Batteries,  Inc.,  a  Delaware
corporation (the  "Borrower"),  in connection with the Credit Agreement dated as
of June 30, 2004 (the "Credit  Agreement"),  among the  Borrower,  the banks and
other financial  institutions  identified therein as Lenders, and JPMorgan Chase
Bank, as  Administrative  Agent.  Terms defined in the Credit Agreement are used
herein with the same meanings.

      We have examined originals or copies, certified or otherwise identified to
[my/our]  satisfaction,  of such documents,  corporate records,  certificates of
public   officials  and  other   instruments   and  have  conducted  such  other
investigations  of fact and law as [I/we] have deemed necessary or advisable for
purposes of this opinion.

      Upon the basis of the foregoing, we are of the opinion that:

      1. The Borrower (a) is a corporation duly organized,  validly existing and
in good standing  under the laws of Delaware,  (b) has all  requisite  power and
authority  to carry on its  business as now  conducted  and (c) except where the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, New York and in every other  jurisdiction where such
qualification is required.

      2. The  Transactions  are within the Borrower's  corporate powers and have
been duly  authorized by all necessary  corporate and, if required,  stockholder
action.  The  Credit  Agreement  has been duly  executed  and  delivered  by the
Borrower and constitutes a legal,  valid and binding obligation of the Borrower,
enforceable  in accordance  with its terms,  subject to  applicable  bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally  and subject to general  principles  of equity,  regardless of whether
considered in a proceeding in equity or at law.

      3. The  Transactions  (a) do not  require  any  consent  or  approval  of,
registration or filing with, or any other action by, any Governmental Authority,
except such as have been obtained or made and are in full force and effect,  (b)
will not violate any  applicable  law or regulation  or the charter,  by-laws or
other organizational documents of the Borrower or any of its Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture,  agreement or other instrument binding upon the Borrower or
any of its  Subsidiaries  or its assets,  or give rise to a right  thereunder to
require any payment to be made by the Borrower or any of its  Subsidiaries,  and
(d) will not result in the  creation or  imposition  of any Lien on any asset of
the Borrower or any of its Subsidiaries.

      4. There are no actions,  suits or proceedings by or before any arbitrator
or Governmental Authority pending against or, to [my/our] knowledge,  threatened
against or  affecting  the Borrower or any of its  Subsidiaries  (a) as to which
there is a  reasonable  possibility  of an adverse  determination  and that,  if
adversely  determined,  could  reasonably  be expected,  individually  or in the
aggregate,  to have a Material


<PAGE>

Adverse Effect (other than the Disclosed Matters)
or (b) that involve the Credit Agreement or the Transactions.

      5. Neither the Borrower nor any of its  Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation  under, the Investment  Company
Act of 1940 or (b) a "holding  company" as defined in, or subject to  regulation
under, the Public Utility Holding Company Act of 1935.

      We are  members  of the bar of the  State of New  York  and the  foregoing
opinion is limited to the laws of the State of New York, the General Corporation
Law of the  State of  Delaware  and the  Federal  laws of the  United  States of
America.  This opinion is rendered  solely to you in  connection  with the above
matter.  This  opinion  may not be relied  upon by you for any other  purpose or
relied  upon by any other  Person  (other  than your  successors  and assigns as
Lenders and Persons that acquire participations in your Loans) without our prior
written consent.

                                                     Very truly yours,



                                       2
<PAGE>

                                    EXHIBIT C

                                    TERM NOTE

$_______________________                                     Rochester, New York
                                                                   June 30, 2004

      Ultralife Batteries,  Inc., (the "Borrower"),  for value received,  hereby
promises  to pay to the order of  [Lender  X] (the  "Lender")  at the  office of
JPMorgan  Chase Bank at One Chase  Square,  Rochester,  New York 14643,  for the
account of the  appropriate  Lending Office of the Lender,  the principal sum of
_______________________  Dollars  ($________________),  in  lawful  money of the
United  States of  America  and in  immediately  available  funds in sixty  (60)
consecutive  monthly  installments of principal,  as follows: 59 installments of
$_______________  each due on the first Business Day of each month commencing on
August 1,  2004 and a final  installment  due on July 1,  2009 of all  remaining
principal.  The Borrower also  promises to pay interest on the unpaid  principal
balance hereof,  for the period such balance is  outstanding,  at said office of
JPMorgan Chase Bank for the account of said Lender,  in like money, at the rates
of interest as provided in the Credit Agreement  described below, on the date(s)
and in the manner provided in said Credit Agreement.

      This is one of the Term Notes referred to in that certain Credit Agreement
(as amended from time to time the "Credit  Agreement") dated as of June 30, 2004
among the  Borrower,  the  Lenders  party  thereto  (including  the  Lender) and
JPMorgan  Chase  Bank as Agent and  evidences  the Term Loan made by the  Lender
thereunder.  All terms not defined  herein shall have the meanings given to them
in the Credit Agreement.

      The Credit  Agreement  provides  for the  acceleration  of the maturity of
principal upon the  occurrence of certain Events of Default and for  prepayments
on the terms and conditions specified therein.

      The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.

      This  Note  shall  be  governed  by,  and  interpreted  and  construed  in
accordance with, the laws of the State of New York.

                                        ULTRALIFE BATTERIES, INC.

                                        By:
                                           ---------------------------------
                                        Name:
                                             -------------------------------
                                        Title:
                                              ------------------------------



<PAGE>

                                    EXHIBIT D

                       CERTIFICATE OF A FINANCIAL OFFICER

                            CERTIFICATE OF COMPLIANCE
                                   Pursuant to
                                Credit Agreement
                            Dated as of June 30, 2004

      I,  the  undersigned,   ___________,  a  Financial  Officer  of  Ultralife
Batteries,  Inc., do certify to the JPMorgan Chase Bank (the "Bank") as required
under Section  5.01(c) of the Credit  Agreement (the  "Agreement"),  dated as of
June 30, 2004 between the Bank and the Borrower, as follows:

      1.    [No Default has  occurred  under the  Agreement,  and no  condition,
            event or act which, with the giving of notice or the passage of time
            or both,  would  constitute an Event of Default under the Agreement,
            has occurred and is continuing or exists as of the date hereof.] or

      1.    [A Default has occurred under the Agreement, and the details thereof
            and any action  taken or proposed to be taken with  respect  thereto
            are as follows:]

      2.    [No change in GAAP or in the application  thereof has occurred since
            the date of the audited financial  statements referred to in Section
            3.04] or

      2.    A change in GAAP or in the  application  thereof has occurred  since
            the date of the audited financial  statements referred to in Section
            3.04]:

      All terms used herein and not defined herein shall have the meanings given
to them in the Agreement.

      The Bank may rely on this  Certificate  in its evaluation of the Financial
Statements which it accompanies.

      IN WITNESS  WHEREOF,  I have executed this Certificate this _______ day of
_______________.

                                        ----------------------------------------
                                        [Name and Title]


</TEXT>
</DOCUMENT>
