ULTRALIFE BATTERIES INC
GENERAL SECURITY AGREEMENT
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>e18556ex10-2.txt
<DESCRIPTION>GENERAL SECURITY AGREEMENT
<TEXT>
                                                                    Exhibit 10.2

                           GENERAL SECURITY AGREEMENT

      GENERAL  SECURITY  AGREEMENT  dated  as of  June  30,  2004  by  Ultralife
Batteries,  Inc., a Delaware  corporation  ("Debtor") in favor of JPMorgan Chase
Bank,  in its capacity as  Collateral  Agent for the Lenders party to the Credit
Agreement described below.

                              W I T N E S S E T H :

      WHEREAS,  Debtor,  Collateral  Agent and  Lenders  are parties to a Credit
Agreement  dated as of June 30,  2004 (as the same may be amended  and in effect
from time to time,  the  "Credit  Agreement"),  pursuant to which  Lenders  have
agreed to make loans available to Debtor; and

      WHEREAS,  it is a condition  precedent to the  availability  of such loans
under the Credit Agreement that Debtor shall have granted the security interests
contemplated by this Agreement in order to secure the payment and performance of
Debtor's indebtedness and obligations under the Credit Agreement;

      NOW,  THEREFORE,  in  consideration of the premises and in order to induce
Lenders to make the loans available to Debtor under the Credit Agreement, Debtor
hereby agrees with  Collateral  Agent for its benefit and the benefit of Lenders
as follows:

SECTION 1.        Definitions

      1.1 Certain  Defined  Terms.  Terms  defined in the UCC and not  otherwise
defined herein shall have the respective meanings provided for in the UCC. Terms
defined in the Credit  Agreement and not otherwise  defined herein or in the UCC
shall have the respective  meanings  provided for in the Credit  Agreement.  The
following terms, as used herein, have the meanings set forth below:

      "Collateral" has the meaning assigned to that term in Section 2.

      "Control" means "control" as defined in the UCC.

      "Copyright  License" means any oral or written  agreement now or hereafter
in existence granting to Debtor any right to use any copyright,  as the same may
be amended and in effect from time to time.

      "Copyrights"  means  collectively  all  of  the  following  now  owned  or
hereafter  created  or  acquired  by  Debtor:  (a) all  copyrights,  rights  and
interests in copyrights, works protectable by copyright, copyright registrations
and copyright applications,  including,  without limitation, those listed in the
schedules to the Copyright  Security  Agreement;  (b) all renewals of any of the
foregoing; (c) all income, royalties,  damages and payments now or hereafter due
and/or  payable  under  any of  the  foregoing  or  with  respect  to any of the
foregoing,  including, without limitation, damages or payments for past, present
or future infringements of any of the foregoing;  (d) the right to sue for past,
present  and  future  infringements  of any of the  foregoing;  (e)  all  rights
corresponding to any of the foregoing throughout the world; and (f) all goodwill
associated with and symbolized by any of the foregoing.

      "Copyright  Security  Agreement" means the copyright security agreement to
be executed  and  delivered  by Debtor to Lender,  substantially  in the form of
Exhibit A, as the same may be amended and in effect from time to time.

      "Depository Account" has the meaning assigned to that term in Section 7.

      "Intellectual   Property"  means   collectively   all  of  the  following:
Copyrights,   Copyright  Licenses,  Patents,  Patent  Licenses,  Trademarks  and
Trademark Licenses.

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                                       2

      "Patent  License" means any oral or written  agreement now or hereafter in
existence granting to Debtor any right to use any invention on which a patent is
in existence, as the same may be amended and in effect from time to time.

      "Patents" means  collectively  all of the following now owned or hereafter
created or  acquired by any  Debtor:  (a) all  patents  and patent  applications
including,  without  limitation,  those  listed in the  schedules  to the Patent
Security  Agreement and the  inventions and  improvements  described and claimed
therein, and patentable inventions; (b) the reissues, divisions,  continuations,
renewals,  extensions and continuations-in-part of any of the foregoing; (c) all
income,  royalties,  damages and payments now or  hereafter  due and/or  payable
under any of the foregoing or with respect to any of the  foregoing,  including,
without   limitation,   damages  and  payments  for  past,  present  and  future
infringements  of any of the foregoing;  (d) the right to sue for past,  present
and future  infringements of any of the foregoing;  (e) all rights corresponding
to any of the foregoing  throughout the world;  and (f) all goodwill  associated
with any of the foregoing.

      "Patent Security  Agreement" means the patent security  agreement executed
and  delivered by Debtor to Lender,  substantially  in the form of Exhibit B, as
the same may be amended and in effect from time to time.

      "Secured Obligations" has the meaning assigned to that term in Section 3.

      "Security  Interests"  means the security  interests  granted  pursuant to
Section 2 hereof and pursuant to the Copyright  Security  Agreement,  the Patent
Security  Agreement and the Trademark Security  Agreement,  as well as all other
security  interests  created or assigned as additional  security for the Secured
Obligations  pursuant to the  provisions  of this  Agreement  and the other Loan
Documents.

      "Trademark  License" means any oral or written  agreement now or hereafter
in existence granting to Debtor any right to use any trademark,  as the same may
be amended and in effect from time to time.

      "Trademarks"  means  collectively  all  of  the  following  now  owned  or
hereafter  created or  acquired  by Debtor:  (a) all  trademarks,  trade  names,
corporate names, company names, business names, fictitious business names, trade
styles,  service marks, logos, other business identifiers,  prints and labels on
which any of the  foregoing  have  appeared  or appear,  all  registrations  and
recordings  thereof,  and all  applications in connection  therewith  including,
without  limitation,  those listed in the  schedules to the  Trademark  Security
Agreement;  (b) all renewals  thereof;  (c) all income,  royalties,  damages and
payments now or hereafter due and/or  payable under any of the foregoing or with
respect to any of the  foregoing  including,  without  limitation,  damages  and
payments for past, present and future infringements of any of the foregoing; (d)
the  right to sue for  past,  present  and  future  infringements  of any of the
foregoing;  (e) all rights  corresponding to any of the foregoing throughout the
world;  and  (f) all  goodwill  associated  with  and  symbolized  by any of the
foregoing.

      "Trademark  Security  Agreement"  means the trademark  security  agreement
executed and delivered by Debtor to Lender  substantially in the form of Exhibit
C, as the same may be amended and in effect from time to time.

      "UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of New York,  provided  that if by reason of mandatory  provisions  of
law,  the  perfection  or the  effect of  perfection  or  non-perfection  of the
Security  Interest in any Collateral or the availability of any remedy hereunder
is  governed by the  Uniform  Commercial  Code as in effect on or after the date
hereof in any other jurisdiction,  "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or  non-perfection or availability of
such remedy.

      1.2 Other Definition Provisions. References to "Sections, " "subsections,"
"Exhibits"  and  "Schedules"  shall be to  Sections,  subsections,  Exhibits and
Schedules,   respectively,  of  this  Agreement  unless  otherwise  specifically
provided. Any of the terms defined in subsection 1.1 may, unless the

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                                       3

context otherwise  requires,  be used in the singular or the plural depending on
the reference.  All references to statutes and related regulations shall include
(unless otherwise  specifically  provided herein) any amendments of same and any
successor statutes and regulations.

SECTION 2.        Grant of Security Interests

      To  secure  the  payment,   performance  and  observance  of  the  Secured
Obligations,  Debtor  hereby  grants to  Collateral  Agent,  for the  benefit of
Collateral Agent and Lenders, a continuing security interest in, right of setoff
against,  and (except as to Trademarks as to which Debtor grants only a security
interest) a collateral  assignment to Collateral Agent of, all right,  title and
interest of Debtor in all  personal  property  (the  "Collateral"),  whether now
owned or existing or  hereafter  acquired  or arising  and  regardless  of where
located including,  without limitation, all of the types of Collateral described
in Schedule A, attached hereto and made a part hereof.

      Notwithstanding the foregoing, so long as no Event of Default has occurred
and is continuing,  Debtor shall have the exclusive,  non-transferable right and
license to use the Intellectual Property.

SECTION 3.        Security for Obligations

      This Agreement  secures the payment and  performance of all  indebtedness,
liabilities  and  obligations  of Debtor now  existing or  hereafter  created or
arising under this Agreement or any other agreement with Collateral  Agent,  any
Lender and/or any of the affiliates of Collateral Agent or any affiliates of any
Lender (including, without limitation, any and all indebtedness, liabilities and
obligations arising under or in respect to any Swap Agreement) and all renewals,
extensions,  restructurings  and  refinancings  of any of the  above  including,
without limitation,  any additional indebtedness which may be extended to Debtor
pursuant to any restructuring or refinancing of Debtor's  indebtedness under the
Credit Agreement,  and including any post-petition  interest accruing during any
bankruptcy,  reorganization or other similar  proceeding (all such indebtedness,
liabilities and obligations of Debtor being  collectively  referred to herein as
the "Secured Obligations").

SECTION 4.        Debtor Remains Liable

      Anything herein to the contrary  notwithstanding:  (a) Debtor shall remain
liable under the  contracts  and  agreements  included in its  Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed;  (b) the exercise
by Collateral Agent of any of the rights hereunder shall not release Debtor from
any of its duties or obligations under the contracts and agreements  included in
the Collateral;  and (c) neither  Collateral Agent nor any Lender shall have any
obligation  or liability  under the  contracts  and  agreements  included in the
Collateral  by reason of this  Agreement,  nor  shall  Collateral  Agent nor any
Lender  be  obligated  to  perform  any of the  obligations  or duties of Debtor
thereunder  or to take any action to collect  or enforce  any claim for  payment
assigned hereunder.

SECTION 5.        Representations and Warranties

      In order to induce  Collateral  Agent to enter into this Agreement for its
benefit  and the  benefit of the  Lenders,  Debtor  represents  and  warrants to
Collateral Agent and to each Lender as follows:

      5.1 Binding  Obligation.  This  Agreement is the legally valid and binding
obligation  of  Debtor,  enforceable  against it in  accordance  with its terms,
except as enforcement may be limited by bankruptcy, insolvency,  reorganization,
moratorium,  or similar  laws or  equitable  principles  relating to or limiting
creditor's rights generally.

      5.2 Location of Equipment and Inventory.  All of the Equipment,  Inventory
and  Fixtures of Debtor are located at the places  specified  on Schedule I. All
hereafter acquired Equipment, Inventory or Fixtures of Debtor will be located at
the  places  specified  on  Schedule  I hereto,  except as  otherwise

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                                       4

permitted  hereunder.  None of said  locations  are  leased  by Debtor as lessee
except those designated as such on Schedule I.

      5.3  Ownership of  Collateral;  Bailees.  Except for matters  disclosed on
Schedule II, other Permitted  Encumbrances  and the Security  Interests,  Debtor
owns its Collateral, and will own all after-acquired Collateral,  free and clear
of any Lien.  No  effective  financing  statement  or other form of lien  notice
covering all or any part of its  Collateral is on file in any recording  office,
except for those in favor of  Collateral  Agent and as disclosed on Schedule II.
Except as disclosed on Schedule II, none of the  Collateral is in the possession
of any consignee, bailee, warehouseman, agent or processor. Debtor does not sell
any  Inventory to any customer on approval or on any other basis which  entitles
the  customer  to  return,  or which may  obligate  Debtor to  repurchase,  such
Inventory.

      5.4 Office Locations;  Fictitious Names. The jurisdiction of organization,
mailing address,  principal place of business, chief executive office and office
where Debtor keeps its books and records  relating to its  Accounts,  Documents,
General Intangibles, Instruments and Investment Property is located at the place
specified  on Schedule I. Debtor has no other  places of business  except  those
separately specified on Schedule I. Debtor does not do business and has not done
business during the past five years under any trade-name or fictitious  business
name except as disclosed on Schedule III.

      5.5 Perfection.  Collateral Agent has a valid, attached security interest,
and upon completion of all necessary steps for perfection, will have a perfected
and except for the Permitted  Encumbrances  and as set forth on Schedule 6.02 to
the Credit  Agreement,  first  priority  security  interest  in the  Collateral,
securing the payment of the Secured Obligations, and such Security Interests are
entitled to all of the rights,  priorities  and benefits  afforded by the UCC or
other  applicable law as enacted in any relevant  jurisdiction  which relates to
perfected security interests.

      5.6 Governmental Authorizations;  Consents. No authorization,  approval or
other  action  by,  and no notice to or filing  with,  any  domestic  or foreign
governmental  authority  or  regulatory  body or consent of any other  Person is
required  either (a) for the grant by Debtor of the Security  Interests  granted
hereby or for the execution, delivery or performance of this Agreement by Debtor
or (b) for the  perfection of or the exercise by Collateral  Agent of its rights
and remedies hereunder.

      5.7 Accounts.  Each existing and each hereafter  arising Account,  Payment
Intangible and other General  Intangibles  representing an obligation of payment
owed to the Debtor ("Payment Obligations") constitutes,  or will constitute, the
legally valid and binding  obligation of the customer obligated to pay the same.
The amount  represented by Debtor to Collateral  Agent as owing by each customer
is, or will be, the correct amount actually and  unconditionally  owing,  except
for normal cash discounts and allowances where  applicable.  No customer has any
defense,  set-off,  claim or  counterclaim  against  Debtor that can be asserted
against  Collateral  Agent,  whether in any  proceeding  to  enforce  Collateral
Agent's rights in the Collateral or otherwise except defenses,  setoffs,  claims
or  counterclaims  that are not, in the aggregate,  material to the value of the
Accounts.  None of the Payment  Obligations are, nor will any hereafter  arising
Payment Obligations be, evidenced by a promissory note or other Instrument other
than a check.

      5.8 Intellectual  Property.  Debtor's  Copyrights,  Patents and Trademarks
listed on the respective  schedules to each of the Copyright Security Agreement,
the Patent Security Agreement and the Trademark  Security  Agreement  constitute
all of the federally  registered  Copyrights,  Patents and  Trademarks  owned by
Debtor.  To  the  best  of  Borrower's   knowledge,   all  federally  registered
Copyrights,  Patents and Trademarks  owned by Debtors are valid,  subsisting and
enforceable  and all filings  necessary  to maintain the  effectiveness  of such
registrations have been made.

      5.9 Inventory. All Debtor's Inventory is of good and merchantable quality,
free from any defects,  such Inventory is not subject to any licensing,  patent,
trademark,  trade name or  copyright  agreement  with any Person that  restricts
Debtor's ability to manufacture and/or sell its Inventory and the completion and
manufacture  of such  Inventory by a Person other than Debtor would be permitted
under any  contract  to which  Debtor is a party or to which such  Inventory  is
subject.

<PAGE>
                                       5

      5.10 Accurate Information. All information heretofore, herein or hereafter
supplied  to the  Collateral  Agent or any Lender by or on behalf of Debtor with
respect to its  Collateral  is and will be accurate and complete in all material
respects.

SECTION 6.        Further Assurances; Covenants

      6.1 Other  Documents and Actions.  Debtor will,  from time to time, at its
expense,  promptly execute and deliver all further instruments and documents and
take all further action that may be necessary or desirable,  or that  Collateral
Agent  may  request,  in order to  create,  perfect  and  protect  any  security
interests  granted or  purported  to be granted  hereby or pursuant to any other
Loan Document or to enable  Collateral  Agent to exercise and enforce its rights
and remedies  hereunder,  or under any other Loan  Document  with respect to the
Collateral.  Without limiting the generality of the foregoing,  Debtor will: (a)
execute  and file such  financing  or  continuation  statements,  or  amendments
thereto,  and such other instruments,  documents or notices, as may be necessary
or desirable,  or as Collateral Agent may request,  in order to create,  perfect
and preserve the security interests granted or purported to be granted hereby or
pursuant to any other Loan Document with respect to the  Collateral;  (b) at any
reasonable   time,  upon  demand  by  Collateral  Agent  after  and  during  the
continuance of an Event of Default,  exhibit its Collateral to allow  inspection
of such Collateral by Collateral Agent or Persons designated by Collateral Agent
and to examine and make copies of the records of Debtor related thereto,  and to
discuss such Collateral and the records of Debtor with respect thereto with, and
to be advised as to the same by, Debtor's  officers and employees and, after the
occurrence  and during the  continuance  of an Event of Default,  in the case of
Debtor's Accounts,  Documents,  General Intangibles,  Instruments and Investment
Property  with any Person  which is or may be  obligated  thereon;  and (c) upon
Collateral  Agent's request,  appear in and defend any action or proceeding that
may affect  Debtor's title to or Collateral  Agent's  security  interest in with
respect to the  Collateral.  Without  limiting the  generality of the foregoing,
Debtor  shall  use its  reasonable  best  efforts  to obtain a  Landlord  Waiver
Agreement (as defined  herein) from each of its existing  landlords with respect
to any premises of Debtor located in the United States of America.  For purposes
herein, the term "Landlord Waiver Agreement" shall mean a written agreement from
the  landlord of such  premises in favor of the  Collateral  Agent,  in form and
substance  reasonably  satisfactory to the Collateral  Agent,  pursuant to which
such landlord  will  acknowledge  Collateral  Agent's  security  interest in the
Collateral, waive any security interest, lien or other claim by such landlord to
the  Collateral and agree to permit  Collateral  Agent access to the premises in
order  to  exercise  its  rights  and  remedies  and  otherwise  deal  with  the
Collateral.

      6.2  Collateral  Agent  Authorized.  The Debtor  irrevocably  appoints the
Collateral  Agent as its lawful  attorney  and agent and  grants the  Collateral
Agent  the power to  execute,  authenticate  and to file,  with or  without  any
signature and by electronic means, any Financing Statement, Addendum, Amendment,
Continuation Statement or other Record, in the Debtor's name and on the Debtor's
behalf  including any filing which  further  describes  for  identification  any
Commercial Tort Claim which may come into existence in the future.

      6.3 Corporate or Name Change.  Debtor will give Collateral  Agent at least
thirty  (30) days prior  written  notice of any such  change in  Debtor's  name,
identity, jurisdiction of organization,  mailing address or corporate structure.
With  respect to any change,  Debtor  will  promptly  execute  and deliver  such
documents and take such actions as Collateral Agent deems necessary or desirable
to create,  perfect and preserve the security  interests of Collateral  Agent in
the Collateral.

      6.4 Business Locations. Subject to the next sentence, Debtor will keep its
Collateral (other than Collateral in the possession of Collateral Agent and cash
on deposit in Depository  Accounts and other permitted  deposit accounts) at the
locations  specified on Schedule I. Debtor will give  Collateral  Agent at least
thirty (30) days prior written notice of any change in Debtor's chief  executive
office and principal place of business or of any new location of business or any
new  location for any of Debtor's  Collateral.  With respect to any new location
(which in any event shall be within the continental United States),  Debtor will
execute such documents and take such actions as Collateral Agent deems necessary
to perfect  and  preserve  Collateral  Agent's  security  interest  in  Debtor's
Collateral.

<PAGE>
                                       6

      6.5 Bailees.  No Collateral in excess of $200,000  shall at any time be in
the possession or control of any warehouseman,  bailee or any of Debtor's agents
or  processors  without  Collateral  Agent's  prior  written  consent and unless
Collateral Agent, if Collateral Agent has so requested,  has received  warehouse
receipts or bailee lien waivers  satisfactory  to Collateral  Agent prior to the
commencement  of such  storage.  Debtor  shall,  upon the request of  Collateral
Agent, notify any such warehouseman,  bailee, agent or processor of the Security
Interests  created  hereby  and  shall  instruct  such  Person  to hold all such
Collateral  for  Collateral   Agent's  account  subject  to  Collateral  Agent's
instructions.

      6.6 Instruments.  After and during the continuance of an Event of Default,
Debtor will deliver and pledge to Collateral Agent all Instruments duly endorsed
and accompanied by duly executed  instruments of transfer or assignment,  all in
form and substance satisfactory to Collateral Agent. Debtor will also deliver to
Collateral  Agent all security  agreements  securing any Instruments and execute
UCC-3  financing  statements  assigning to  Collateral  Agent any UCC  financing
statements filed by Debtor in connection with such security  agreements.  Debtor
will mark  conspicuously  all chattel paper with a legend, in form and substance
satisfactory to Collateral Agent,  indicating that such chattel paper is subject
to the Security Interests.

      6.7 Filing Requirements. None of the Equipment (other than motor vehicles)
is covered by any certificate of title. Upon request of Collateral Agent, Debtor
shall promptly  deliver to Collateral  Agent any and all  certificates of title,
applications  for title or similar  evidence of ownership of all  Equipment  and
shall cause  Collateral  Agent to be named as lienholder on any such certificate
of title or other evidence of ownership.  None of the Collateral is of a type in
which security interests or liens may be registered, recorded or filed under, or
notice  thereof  given  under,  any  federal  statute or  regulation  except for
Collateral  described on the schedules to the Copyright Security Agreement,  the
Patent Security  Agreement and the Trademark  Security  Agreement.  Debtor shall
promptly  notify  Collateral  Agent  in  writing  upon  acquiring  any  interest
hereafter in Collateral that is of a type where a security  interest or lien may
be  registered,  recorded or filed under,  or notice  thereof  given under,  any
federal statute or regulation.  Debtor shall promptly inform Collateral Agent of
any deletions from (other than in the ordinary course of Debtor's  business) its
Equipment and shall not permit any such items to become  Fixtures to real estate
other  than  real  estate  subject  to  mortgages  or deeds of trust in favor of
Collateral  Agent  and  except if the  aggregate  value of the  Equipment  which
becomes a Fixture  after the date  hereof  does not exceed  $100,000  in each of
Debtor's  premises.  The legal description and street address of the property on
which any  Fixtures  are located is set forth on Schedule I,  together  with the
name and common address of the record owner of each such property.

      6.8 Investment  Property  Covenants.  Debtor will take any and all actions
required or  requested  by  Collateral  Agent,  from time to time,  to (a) cause
Collateral Agent to obtain exclusive Control of any Investment Property owned by
Debtor  in a manner  acceptable  to  Collateral  Agent and (b)  obtain  from any
issuers of  Investment  Property  and such  other  Persons,  for the  benefit of
Collateral Agent,  written  confirmation of Collateral Agent's Control over such
Investment  Property.  For purposes of this  subsection  6.8,  Lender shall have
exclusive  Control  of  Investment  Property  if (I)  such  Investment  Property
consists  of  certificated  securities  and Debtor  delivers  such  certificated
securities  to  Collateral   Agent  (with   appropriate   endorsements  if  such
certificated  securities are in registered form); (ii) such Investment  Property
consists  of  uncertificated  securities  and either (x)  Debtor  delivers  such
uncertificated  securities to Lender or (y) the issuer thereof agrees,  pursuant
to  documentation  in form and substance  satisfactory  to Lender,  that it will
comply with instructions originated by Lender without further consent by Debtor;
and (iii) such Investment Property consists of security  entitlements and either
(x)  Lender  becomes  the  entitlement  holder  thereof  or (y) the  appropriate
securities  intermediary agrees, pursuant to documentation in form and substance
satisfactory to Collateral  Agent,  that it will comply with entitlement  orders
originated by Lender without further consent by Debtor.

      6.9 Account  Covenants.  Except as otherwise  provided in this  subsection
6.9, Debtor shall continue to collect, at its own expense, all amounts due or to
become due Debtor  under the Accounts and other  Payment  Obligations  and apply
such  amounts  as are so  collected  to the  outstanding  balances  thereof.  In
connection with such  collections,  Debtor may take (and, at Collateral  Agent's
direction  while

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an Event of  Default  is  continuing,  shall  take)  such  action  as  Debtor or
Collateral  Agent may deem  necessary or advisable to enforce  collection of the
Accounts and other Payment  Obligations;  provided,  that Collateral Agent shall
have the right at any time after the occurrence and during the  continuance of a
Default or an Event of Default to: (a) notify the  customers  or obligors  under
any Accounts and other Payment  Obligations  of the  assignment of such Accounts
and other Payment  Obligations to Collateral  Agent and to direct such customers
or  obligors to make  payment of all  amounts  due or to become due  directly to
Collateral Agent; (b) enforce  collection of any such Accounts and other Payment
Obligations;  and (c) adjust, settle or compromise the amount or payment of such
Accounts and other  Payment  Obligations.  After the  occurrence  and during the
continuance  of a Default or an Event of Default (I) all  amounts  and  Proceeds
received by Debtor with respect to its Accounts  and other  Payment  Obligations
shall be  received  in trust  for the  benefit  of  Collateral  Agent,  shall be
segregated  from  other  funds of  Debtor  and shall be  forthwith  paid over to
Collateral   Agent  in  the  same  form  as  so  received  (with  any  necessary
endorsement)  to be held in the  Depository  Account  pursuant  to  Section 7 or
applied  pursuant  to  Section  14.  Each  Debtor  shall not  adjust,  settle or
compromise the amount or payment of any Account or other Payment Obligations, or
release wholly or partly any customer or obligor thereof, or allow any credit or
discount  thereon  (other than credits and  discounts in the ordinary  course of
business  and in amounts  which are not  material  to Debtor)  without the prior
consent of Collateral Agent.

      6.10 Intellectual  Property Covenants.  Debtor shall concurrently herewith
deliver  to  Collateral  Agent the  Copyright  Security  Agreement,  the  Patent
Security Agreement and the Trademark Security Agreement and all other documents,
instruments  and other items as may be necessary  for  Collateral  Agent to file
such  agreements with the United States  Copyright  Office and the United States
Patent and  Trademark  Office.  If, before the Secured  Obligations  are paid in
full,  Debtor  acquires  any new  federally  registered  Copyrights,  Patents or
Trademarks  or rights  thereto,  Debtor  shall give to  Collateral  Agent prompt
written notice thereof,  and shall amend the respective  security  agreements to
include any such new federally  registered  Copyrights,  Patents or  Trademarks.
Debtor  shall:  (a)  prosecute  diligently  any  copyright,  patent or trademark
application  at any time  pending;  (b) make  application  for  registration  or
issuance of all new  copyrights,  patents and  trademarks as  reasonably  deemed
appropriate by Debtor;  (c) preserve and maintain all rights in its Intellectual
Property;  and (d) use its best  efforts  to obtain  any  consents,  waivers  or
agreements  necessary to enable  Collateral  Agent to exercise its remedies with
respect to Debtor's Intellectual Property. Debtor shall not abandon any material
right to file a  copyright,  patent or  trademark  application  nor shall Debtor
abandon any material  pending  copyright,  patent or trademark  application,  or
Copyright,  Patent, or Trademark without the prior written consent of Collateral
Agent.  Debtor  represents and warrants to Collateral  Agent that the execution,
delivery and performance of this Agreement by Debtor will not violate or cause a
default  under any of its  Intellectual  Property or any agreement in connection
therewith.

      6.11  Equipment  Covenants.   Debtor  shall  cause  its  Equipment  to  be
maintained and preserved in the same condition, repair and working order as when
new, ordinary wear and tear excepted,  and in accordance with any manufacturer's
manual,  and shall promptly make or cause to be made all repairs,  replacements,
and other  improvements in connection  therewith that are necessary or desirable
to such end.

      6.12 Protection of Collateral; Insurance. Debtor will do nothing to impair
the rights of Collateral  Agent in the Collateral.  Debtor assumes all liability
and  responsibility  in connection  with the Collateral  acquired by it, and the
liability of Debtor to pay the Secured  Obligations  shall in no way be affected
or diminished by reason of the fact that such  Collateral  may be lost,  stolen,
damaged,  or for any reason  whatsoever  unavailable to Debtor.  The Debtor will
have and maintain Insurance at its expense at all times in such amounts, in such
form,  containing  such terms and written by such companies as may be reasonably
satisfactory to Collateral  Agent. All policies of Insurance shall be payable to
the  Collateral  Agent and the Debtor,  as their  interests  may  appear,  shall
identify  the  Collateral  Agent as Lenders  Loss Payee,  and shall  provide for
thirty (30) days' written notice of  cancellation  or modification to Collateral
Agent.  Collateral  Agent is  authorized by the Debtor to act as its attorney in
collecting,  adjusting,  settling or cancelling such Insurance and endorsing any
drafts drawn by insurers.  Collateral  Agent may apply any proceeds of Insurance
received  by it to  the  Secured  Obligations,  whether  due or  not;  provided,
however,  that Collateral Agent will hold such proceeds as a special deposit for
use by the Debtor in

<PAGE>
                                       8

replacing any damaged  Collateral  which gave rise to such proceeds,  so long as
the Debtor is taking steps to replace such  Collateral with due diligence and in
good faith and so long as no Event of Default  shall have  occurred.  The Debtor
will  immediately  notify  Collateral  Agent  of any  damage  to or  loss of the
Collateral  in excess of $500,000.  Not later than the  expiration  date of each
policy of Insurance then in effect, the Debtor shall deliver to Collateral Agent
a certificate of Insurance  certifying as to (i) the extension of such policy or
the issuance of a renewal  policy  therefor,  describing  the same in reasonable
detail  satisfactory  to Collateral  Agent,  and (ii) the payment in full of the
portion of the premium  therefor then due and payable (or  accompanied  by other
proof of such  payment  satisfactory  to Secured  Party).  The  Debtor  shall be
required  forthwith  to notify  Collateral  Agent (by  telephone,  confirmed  in
writing)  if the Debtor  shall  determine  at any time not to, or at any time be
unable to, extend or renew any such policy then in effect.

      6.13 Taxes and  Claims.  Debtor will pay when due all  property  and other
taxes,  assessments  and  governmental  charges  imposed  upon,  and all  claims
against,   Debtor's  Collateral  (including  claims  for  labor,  materials  and
supplies);  provided  that no such tax,  assessment  or  charge  need be paid if
Debtor is contesting the same in good faith by appropriate  proceedings promptly
instituted and diligently  conducted and if Debtor has established  such reserve
or other appropriate provision,  if any, as shall be required in conformity with
GAAP; and provided  further that the same can be contested  without risk of loss
or forfeiture or material impairment of the Collateral or the use thereof.

      6.14 Collateral Description. Debtor will furnish to Collateral Agent, from
time to time upon request,  statements  and schedules  further  identifying  and
describing  its  Collateral  and such other  information,  reports and  evidence
concerning its Collateral  (and in particular its Accounts) as Collateral  Agent
may reasonably  request,  all in reasonable detail. The Debtor will at all times
keep  accurate  and  complete  records of the  Accounts,  Instruments  and other
Collateral  and will deliver  such  reconciliation  reports and other  financial
information to Collateral  Agent as Collateral  Agent may at any time reasonably
request. Collateral Agent, or any of its agents, shall have the right to call at
the  Debtor's  place or places of  business  at  reasonable  intervals  and upon
reasonable  notice to inspect,  audit,  make test  verifications  and  otherwise
examine and make extracts from the books, records,  journals,  orders, receipts,
correspondence and other data relating to any of the Collateral.

      6.15 Use of Collateral. Debtor will not use or permit its Collateral to be
used  unlawfully  or in violation of any  provision  of  applicable  law, or any
policy of insurance covering any of the Collateral.

      6.16 Records of Collateral.  Debtor shall keep full and accurate books and
records  relating to its Collateral and shall stamp or otherwise mark such books
and records in such manner as Collateral Agent may reasonably request indicating
that the Collateral is subject to the Security Interests.

      6.17  Federal  Claims.   Debtor  shall  notify  Collateral  Agent  of  any
Collateral which constitutes a claim against the United States government or any
instrumentality  or agency thereof,  the assignment of which claim is restricted
by  federal  law and  will  execute  and  deliver  to the  Collateral  Agent  an
Assignment  of  Claims  Under  United  States  Government  Contract  in the form
prescribed by the Collateral Agent. Upon the request of Collateral Agent, Debtor
shall take such steps as may be necessary to comply with any applicable  federal
assignment of claims laws.

      6.18 Hot Goods. Debtor represents and covenants that none of its Inventory
has been or will be produced in  violation  of any  provision  of the Fair Labor
Standards Act of 1938, as amended, or in violation of any other law.

SECTION 7.        Bank Accounts; Collection of Accounts and Payments

      Upon  request by  Collateral  Agent at any time after an Event of Default,
Debtor  shall  enter  into  a  blocked  account   agreement   ("Blocked  Account
Agreement"),  in a form  specified  by  Collateral  Agent,  with each  financial
institution  with which Debtor  maintains from time to time any deposit accounts
(general or special).  Pursuant to the Blocked  Account  Agreements and pursuant
hereto,  Debtor grants and shall grant to Collateral  Agent,  a continuing  lien
upon,  and  security  interest  in, all such  accounts and all funds

<PAGE>
                                       9

at any time paid,  deposited,  credited or held in such  accounts  (whether  for
collection,  provisionally  or otherwise) or otherwise in the possession of such
financial  institutions,  and  each  such  financial  institution  shall  act as
Collateral Agent's agent in connection therewith.  At any time after an Event of
Default,  Debtor shall not  establish  any deposit  account  with any  financial
institution  unless prior thereto Collateral Agent and Debtor shall have entered
into a Blocked Account Agreement with such financial institution.

      Upon  Collateral  Agent's  request at any time after an Event of  Default,
Debtor shall  establish  lock-box or blocked  accounts  (collectively,  "Lockbox
Accounts")  in Debtor's  name with such banks as are  acceptable  to  Collateral
Agent  ("Collecting  Banks"),  subject  to  irrevocable  instructions  in a form
specified by Collateral  Agent,  to which the obligors of all Accounts and other
Payment  Obligations  shall  directly  remit all  payments on Accounts and other
Payment  Obligations  and in which  Debtor  will  immediately  deposit  all cash
payments  for  Inventory  or  other  cash  payments   constituting  proceeds  of
Collateral in the identical form in which such payment was made, whether by cash
or check.  In addition,  Collateral  Agent may establish one or more  depository
accounts at each Collecting Bank or at a centrally  located bank  (collectively,
the  "Depository  Account").  From and after receipt by any  Collecting  Bank of
written notice from  Collateral  Agent to such  Collecting Bank that an Event of
Default has  occurred  and is  continuing,  all amounts held or deposited in the
Lockbox  Accounts  held by such  Collecting  Bank  shall be  transferred  to the
Depository  Account.  Subject to the  foregoing,  Debtor  hereby agrees that all
payments  received by Collateral Agent whether by cash,  check, wire transfer or
any other  instrument,  made to such Lockbox  Accounts or otherwise  received by
Collateral  Agent and whether on the Accounts or as proceeds of other Collateral
or otherwise will be the sole and exclusive property of Collateral Agent. Debtor
shall,  acting  as  trustee  for  Collateral  Agent,  receive,  as the  sole and
exclusive  property of Collateral Agent, any moneys,  checks,  notes,  drafts or
other  payments  relating to and/or  constituting  proceeds of Accounts or other
Collateral  which come into the  possession  or under the  control of Debtor and
immediately upon receipt thereof,  Debtor or such Persons shall deposit the same
or cause the same to be deposited in kind, in a Lockbox Account.

SECTION 8.        Collateral Agent Appointed Attorney-in-Fact

      Each  Debtor  hereby  irrevocable  appoints  Collateral  Agent as Debtor's
attorney-in-fact,  with full  authority  in the place and stead of Debtor and in
the  name  of  Debtor,  Collateral  Agent  or  otherwise,  from  time to time in
Collateral  Agent's  discretion to take any action and to execute any instrument
that Collateral  Agent may deem necessary or advisable after an Event of Default
to accomplish the purposes of this Agreement, including, without limitation:

      (a) to obtain  and  adjust  insurance  required  to be paid to  Collateral
Agent;

      (b) to ask, demand, collect, sue for, recover,  compound, receive and give
acquittance  and receipts  for moneys due and to become due,  extend the time of
payment of, make any allowances and other adjustments under or in respect of any
of the Collateral;

      (c) to receive,  endorse,  and  collect  any drafts or other  Instruments,
Documents and chattel paper, in connection with clauses (a) and (b) above;

      (d) to file any claims or take any  action or  institute  any  proceedings
that Collateral  Agent may deem necessary or desirable for the collection of any
of the  Collateral or otherwise to enforce the rights of  Collateral  Agent with
respect to any of the Collateral;

      (e) to pay or discharge taxes or Liens levied or placed upon or threatened
against  the  Collateral,  the  legality  or  validity  thereof  and the amounts
necessary to discharge the same to be determined by Collateral Agent in its sole
discretion,  and such payments made by Collateral Agent to become obligations of
Debtor to Collateral Agent, due and payable immediately without demand;

      (f) to sign and endorse any invoices,  freight or express bills,  bills of
lading, storage or warehouse receipts, assignments, verifications and notices in
connection with Accounts and other documents relating to the Collateral;

<PAGE>
                                       10

      (g) generally to sell,  transfer,  pledge, make any reasonable  allowances
and other  reasonable  adjustments  or make any  agreement  with  respect  to or
otherwise  deal with any of the  Collateral  as fully and  completely  as though
Collateral Agent were the absolute owner thereof for all purposes, and to do, at
Collateral  Agent's  option and  Debtor's  expense,  at any time or from time to
time,  all acts and things that  Collateral  Agent deems  necessary  to protect,
preserve or realize upon the Collateral.

      (h) to sign the Debtor's name on any Document, on invoices relating to any
Account,  on drafts against customers,  on schedules of assignments of Accounts,
on notices of assignment,  Financing  Statements  under the UCC and other public
records, on verifications of Accounts, and on notices to customers;

      (i) to file or record in any public  office  notices of  assignment or any
other public notice required to effect this Security Agreement;

      (j) to notify  the post  office  authorities  to change  the  address  for
delivery of the Debtor's mail to an address designated by Collateral Agent;

      (k) to receive, open and dispose of all mail addressed to the Debtor;

      (l) to discharge  Taxes,  liens or other  encumbrances  at any time levied
against or placed thereon;

      (m) to  send  requests  for  verification  of  Accounts  to  the  Debtor's
customers; and

      (n) to do all other things Collateral Agent deems reasonably  necessary or
desirable to carry out the purposes of this Agreement.

Debtor hereby  ratifies and approves all acts of Collateral  Agent made or taken
pursuant to this Section 8. Neither  Collateral Agent nor any Person  designated
by Collateral Agent shall be liable for any acts or omissions  (except as caused
by their  own  gross  negligence  or  willful  misconduct)  or for any  error of
judgment or mistake of fact or law. This power,  being coupled with an interest,
is irrevocable so long as this Agreement shall remain in force.

SECTION 9.        Transfers and Other Liens

      Except as otherwise  permitted herein or by the Credit  Agreement,  Debtor
shall not:

      (a) sell,  assign (by operation of law or otherwise) or otherwise  dispose
of, or grant any option  with  respect  to, any of its  Collateral,  except that
Debtor may (i) sell Inventory in the ordinary  course of business,  (ii) dispose
of up to $250,000  in book value of  Equipment  in any fiscal  year  without the
prior consent of the Collateral Agent; or

      (b) create or suffer to exist any lien,  security interest or other charge
or  encumbrance  upon  or  with  respect  to  any of its  Collateral  to  secure
indebtedness  of any Person  except for the  security  interest  created by this
Agreement or permitted under the Credit Agreement.

SECTION 10.       Remedies

      (a) If any  Event  of  Default  shall  have  occurred  and be  continuing,
Collateral  Agent may exercise in respect of the Collateral,  in addition to all
other rights and remedies provided for herein or otherwise  available to it, all
the rights and remedies of a secured  party on default under the UCC (whether or
not the UCC applies to the affected Collateral) and also may: (i) require Debtor
to, and Debtor  hereby  agrees that it will,  at its expense and upon request of
Collateral Agent  forthwith,  assemble all or part of its Collateral as directed
by Collateral  Agent and make it available to Collateral Agent at any reasonable
place or places  designated by  Collateral  Agent in which event Debtor shall at
its own expense (A)

<PAGE>
                                       11

forthwith  cause the same to be moved to the place or  places so  designated  by
Collateral Agent and thereby  delivered to Collateral  Agent, (B) store and keep
any Collateral so delivered to Collateral  Agent at such place or places pending
further action by Collateral  Agent, and (C) while Collateral shall be so stored
and kept, provide such guards and maintenance  services as shall be necessary to
protect the same and to preserve and maintain the Collateral in good  condition;
(ii)  withdraw  all cash in its  Depository  Accounts  and apply such  monies in
payment of the Secured Obligations; and (iii) without notice except as specified
below, sell, lease or otherwise dispose of its Collateral or any part thereof in
one or more  parcels at public or private  sale,  and without the  necessity  of
gathering  at the  place  of  sale of the  property  to be  sold,  at any of the
Collateral  Agent's  offices or elsewhere,  at such time or times,  for cash, on
credit or for future  delivery,  and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable.  Debtor agrees that,
to the extent  notice of sale shall be  required  by law, at least ten (10) days
notice  to Debtor of the time and  place of any  public  sale or the time  after
which any private sale is to be made shall constitute  reasonable  notification.
At any sale of the  Collateral,  if permitted by law,  Collateral  Agent may bid
(which  bid may be,  in  whole  or in  part,  in the  form  of  cancellation  of
indebtedness)  for the purchase of the Collateral or any portion thereof for the
account of Collateral Agent. Collateral Agent shall not be obligated to make any
sale of Collateral  regardless  of notice of sale having been given.  Collateral
Agent may adjourn any public or private  sale from time to time by  announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time  and  place to  which  it was so  adjourned.  To the  extent
permitted by law,  Debtor hereby  specifically  waives all rights of redemption,
stay or  appraisal  which  it has or may  have  under  any law now  existing  or
hereafter enacted.

      (b) Upon the occurrence and during the continuance of an Event of Default,
Collateral  Agent or its agents or attorneys shall have the right without notice
or demand or legal  process  (unless the same shall be  required  by  applicable
law), personally,  or by agents or attorneys,  (i) to enter upon, occupy and use
any premises owned or leased by Debtor or where the Collateral is located (or is
believed to be located) until the Secured  Obligations  are paid in full without
any  obligation  to pay rent to  Debtor,  to render  the  Collateral  useable or
saleable  and to remove the  Collateral  or any part  thereof  therefrom  to the
premises of Collateral  Agent or any agent of Collateral  Agent for such time as
Collateral  Agent may desire in order to  effectively  collect or liquidate  the
Collateral  and use in  connection  with  such  removal  any  and all  services,
supplies and other  facilities  of Debtor;  (ii) to take  possession of Debtor's
original  books and  records,  to  obtain  access to  Debtor's  data  processing
equipment,  computer hardware and software relating to the Collateral and to use
all of the  foregoing  and  the  information  contained  therein  in any  manner
Collateral Agent deems  appropriate;  and (iii) to notify postal  authorities to
change the address for  delivery of Debtor's  mail to an address  designated  by
Collateral  Agent and to  receive,  open and  dispose of all mail  addressed  to
Debtor.

      (c) Debtor  acknowledges  and agrees that a breach of any of the covenants
contained  in  Sections  6, 7 and 9 hereof  will  cause  irreparable  injury  to
Collateral  Agent and that  Collateral  Agent has no  adequate  remedy at law in
respect of such breaches and  therefore  agrees,  without  limiting the right of
Collateral Agent to seek and obtain specific performance of other obligations of
Debtor  contained in this Agreement,  that the covenants of Debtor  contained in
the  Sections  referred to in this  Section  shall be  specifically  enforceable
against Debtor.

SECTION 11.       Assignment of Intellectual Property

      Debtor hereby grants a security  interest to the  Collateral  Agent in all
Intellectual  Property  and  collaterally  assigns,  transfers  and  conveys  to
Collateral Agent all non-Trademark Intellectual Property owned or used by Debtor
to the extent  necessary to enable  Collateral  Agent,  to be a fully  effective
assignment  upon the  occurrence  of any Event of  Default,  to  realize  on the
Collateral and any successor or assign to enjoy the benefits of the  Collateral.
This right and assignment shall inure to the benefit of Collateral Agent and its
successors, assigns and transferees,  whether by voluntary conveyance, operation
of law,  assignment,  transfer,  foreclosure,  deed in  lieu of  foreclosure  or
otherwise.  Such  right  and  assignment  is  granted  free of  charge,  without
requirement that any monetary payment whatsoever including,  without limitation,
any royalty or license fee, be made to Debtor or any other Person by  Collateral
Agent or any Lender.

<PAGE>
                                       12

SECTION 12.       Assigned Agreements

      If an Event of Default  has  occurred  and is  continuing,  Debtor  hereby
irrevocably authorizes and empowers Collateral Agent, without limiting any other
authorizations or empowerments contained in any of the other Loan Documents,  to
assert, either directly or on behalf of Debtor, any claims Debtor may have, from
time to time,  against any other party to any of the  agreements to which Debtor
is a party or to otherwise exercise any right or remedy of Debtor under any such
agreements (including, without limitation, the right to enforce directly against
any party to any such agreement all of Debtor's rights  thereunder,  to make all
demands and give all notices and to make all  requests  required or permitted to
be made by Debtor thereunder).

SECTION 13.       Limitation on Duty of Collateral Agent with Respect to
                  Collateral

      Beyond the safe custody thereof, Collateral Agent shall have no duty with
respect to any Collateral in its possession or control (or in the possession or
control of any agent or bailee) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which it accords
its own property. Collateral Agent shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by Collateral
Agent in good faith.

SECTION 14.       Application of Proceeds

      Upon the occurrence and during the continuance of an Event of Default, the
proceeds of any sale of, or other realization upon, all or any part of the
Collateral and any cash held in the Depository Accounts shall be applied: first,
to all fees, costs and expenses incurred by Collateral Agent or any Lender with
respect to the Credit Agreement, the other Loan Documents or the Collateral;
second, to accrued and unpaid interest on the Secured Obligations (including any
interest which but for the provisions of the Bankruptcy Code, would have accrued
on such amounts); third, to the principal amounts of the Secured Obligations
outstanding; and fourth, to any other indebtedness or obligations of Debtor
owing to Collateral Agent or any Lender under the Loan Documents. Any balance
remaining shall be delivered to Debtor.

SECTION 15.       Expenses

      Debtor shall pay all costs, fees and expenses of protecting, storing,
warehousing, appraising, insuring, handling, maintaining and shipping its
Collateral, all costs, fees and expenses of creating, perfecting, maintaining
and enforcing the Security Interest, and any and all excise, property, sales and
use taxes imposed by any federal, state, local or foreign authority on any of
the Collateral, or with respect to periodic appraisals and inspections of its
Collateral, or with respect to the sale or other disposition thereof. If Debtor
fails to promptly pay any portion of the above costs, fees and expenses when due
or to perform any other such obligation of Debtor under this Agreement,
Collateral Agent or any other Lender may, at its option, but shall not be
required to, pay or perform the same and charge Debtor's account for all fees,
costs and expenses incurred therefor, and Debtor agrees to reimburse Collateral
Agent or such Lender therefor on demand. All sums so paid or incurred by
Collateral Agent or any other Lender for any of the foregoing, any and all other
sums for which a Debtor may become liable hereunder and all fees, costs and
expenses (including attorneys' fees, legal expenses and court costs) incurred by
Collateral Agent or any other Lender in enforcing or protecting the Security
Interests or any of their rights or remedies under this Agreement shall be
payable on demand, shall constitute Secured Obligations, shall bear interest
until paid at the highest rate provided in the Credit Agreement and shall be
secured by the Collateral.

<PAGE>
                                       13

SECTION 16.       Notices

      Except in the case of notices and other communications expressly permitted
to be given by telephone, 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 telecopy, as follows:
(a) if to Debtor, to it at 2000 Technology Parkway, Newark, New York 14513,
Attention of Chief Financial Officer, (Telecopy No. 315-331-3925), with a copy
to: Peter F. Comerford, Esq. at 2000 Technology Parkway, Newark, New York 14513,
(Telecopy No. 315-331-7048), and (b) if to Collateral Agent, to JPMorgan Chase
Bank, Collateral Agent, One Chase Square, T-9, Rochester, New York 14643,
Attention of Ultralife Batteries, Inc. Account Representative (Telecopy No.
585-258-7604). Any party hereto may change its address or telecopy number for
notices and other communications hereunder by notice to the other parties
hereto. All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.

SECTION 17.       Successors and Assigns

      This Agreement is for the benefit of Collateral Agent and Lenders and
their successors and assigns, and in the event of an assignment of all or any of
the Secured Obligations, the rights hereunder, to the extent applicable to the
Secured Obligations so assigned, may be transferred with such Secured
Obligations. This Agreement shall be binding on Debtor and its successors and
assigns; provided that each Debtor may not delegate its obligations under this
Agreement without Collateral Agent's prior written consent.

SECTION 18.       Changes in Writing

      No amendment, modification, termination or waiver of any provision of this
Agreement shall be effective unless the same shall be in writing signed by
Collateral Agent.

SECTION 19.       Applicable Law

      Pursuant to Section 5-1401 of the New York General Obligations Law, the
whole of this Security Agreement and the rights and obligations of the Debtor
and the Collateral Agent hereunder shall be governed, construed and interpreted
in accordance with, the laws of the State of New York without regard to any
conflicts-of-laws rules which would require the application of the laws of any
other jurisdiction.

SECTION 20.       Failure or Indulgence Not Waiver; Remedies Cumulative

      No failure or delay on the part of Collateral Agent or any Lender in the
exercise of any power, right or privilege hereunder shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or any other right, power
or privilege. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

SECTION 21.       Headings

      Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

SECTION 22.       Counterparts

      This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.

<PAGE>
                                       14

SECTION 23.       Survival

      All representations and warranties of Debtor contained in this Agreement
shall survive the execution and delivery of this Agreement.

      Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.

                                     ULTRALIFE BATTERIES, INC., as Debtor

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

                                     JPMORGAN CHASE BANK., as Collateral Agent

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

<PAGE>

                                   SCHEDULE A
                                       to
                               Security Agreement
                                   granted by
              Ultralife Batteries, Inc. (the "Debtor") in favor of
         JPMorgan Chase Bank in its capacity as Collateral Agent for the
                      Lenders party to the Credit Agreement

Collateral Description Continued:

All of the  following  types of  Collateral,  now owned or  hereafter  acquired,
arising or existing, as such types are defined in the Uniform Commercial Code of
the State of New York as in effect from time to time,  and intending  thereby to
include as Collateral all personal property of the Debtor:

1.  Accessions            19. Farm Products            37. Payment Orders

2.  Accounts              20. Financial Assets         38. Proceeds

3.  As-Extracted          21. Fixtures                 39. Proceeds of a Letter
    Collateral                                             of Credit
                          22. General Intangibles
4.  Assets                                             40. Promissory Notes
                          23. Goods
5.  Cash Proceeds                                      41. Records
                          24. Health-Care-
6.  Certificated              Insurance                42. Securities Accounts
    Securities                Receivables
                                                       43. Securities
7.  Checks                25. Instructions
                                                       44. Securities
8.  Chattel Paper         26. Instruments                  Certificates

9.  Commercial Tort       27. Inventory                45. Security Entitlements
    Claims
                          28. Investment Property      46. Software
10. Commodity Accounts
                          29. Items                    47. Supply Contracts
11. Commodity Contracts
                          30. Leasehold Interests      48. Supporting
12. Contracts for Sale                                     Obligations
                          31. Letter-of Credit
13. Deposit Accounts          Rights                   49. Tangible Chattel
                                                           Paper
14. Documents             32. Manufactured Homes
                                                       50. Uncertificated
15. Drafts                33. Nonnegotiable                Securities
                              Instruments
16. Electronic Chattel
    Paper                 34. Noncash Proceeds

17. Entitlement Orders    35. Notes

18. Equipment             36. Payment Intangibles

<PAGE>

================================================================================
IN FURTHERANCE  OF THE FOREGOING  TYPES OF  COLLATERAL,  AND WITHOUT  LIMITATION
THEREOF, all of the following property, now owned or hereafter acquired, arising
or existing, together with all proceeds thereof:
================================================================================

51. All certificates of deposit and all uncertificated certificates of deposit.

52. All insurance  covering any type of Collateral  described in this Schedule A
or any part thereof against risks of fire, flood, theft, loss, nonconformity of,
defects  or  infringement  of rights  in,  or  damage or any other  risk of loss
whatsoever.

53. All of Debtor's  right,  title and  interest  in all of its books,  records,
ledger sheets, files and other data and documents, including records in any form
(digital or other) and  recorded in or through any  tangible  medium  (magnetic,
lasergraphic or other) and all is retrievable in perceivable form, together with
all  machinery  and  processes  (including  computer  programming  instructions)
required  to read and print such  records  relating  to any types of  Collateral
described in this Schedule A.

54. All patent  rights  throughout  the world,  including  all letters  patents,
patent applications,  patent licenses, patentable inventions,  modifications and
improvements  thereof, all rights to any and all letters patent and applications
for  letters  patent,   all  divisions,   renewals,   reissues,   continuations,
continuations-in-part,  extensions and  reexaminations  of any of the foregoing,
all  shop  rights,  all  proceeds  of,  and  rights  associated  with any of the
foregoing  (including license royalties and proceeds of infringement suits), the
right to sue third parties for past,  present or future  infringements of any of
the foregoing and for breach or  enforcement  of any of the  foregoing,  and all
rights  corresponding to each of the foregoing throughout the world (the "Patent
Rights").

55. All information  concerning the subject matter of the Patent Rights, and all
other  confidential  or proprietary or useful  information  and all know-how and
common law or statutory trade secrets  obtained by or used in or contemplated at
any  time  for use in the  business  of  Debtor,  and  all  other  research  and
development  work by Debtor  whether or not the same is a patentable  invention,
including  without  limitation  all design and  engineering  data,  shop rights,
instructions,   procedures,  standards,  specifications,   plans,  drawings  and
designs.

56. All trademarks, trade names, corporate names, company names, business names,
fictitious  business names, trade styles,  service marks,  certification  marks,
collective marks, logos, other source of business identifiers, prints and labels
on which any of the  foregoing  have  appeared  or appear,  designs  and general
intangibles  of a like  nature  (each  of the  foregoing  items  being  called a
"Trademark"),  now  existing  anywhere  in the  world or  hereafter  adopted  or
acquired,  whether  currently in use or not, all  registrations  and  recordings
thereof and all  applications  in connection  therewith,  whether  pending or in
preparation for filing, including registrations,  recordings and applications in
the United States Patent and Trademark  Office or in any office or agency of the
United  States of  America  or any State  thereof or any  foreign  country,  all
Trademark licenses, all reissues, extensions or renewals of any of the foregoing
items  all of the  goodwill  of the  business  connected  with  the use of,  and
symbolized by the foregoing items all proceeds of, and rights  associated  with,
the  foregoing,  including  any claim by Debtor  against third parties for past,
present  or  future  infringement  or  dilution  of  any  Trademark,   Trademark
registration   or  Trademark   license,   including  any  Trademark,   Trademark
registration or Trademark license,  or for any injury to the goodwill associated
with the use of any such Trademark or for breach or enforcement of any Trademark
license.

57. All  copyrights  and all  semiconductor  chip  product mask works of Debtor,
whether statutory or common law, registered or unregistered, now or hereafter in
force  throughout  the world,  including,  without  limitation,  all of Debtor's
right,  title and interest in and to all copyrights and mask works registered in
the  United  States  Copyright  Office  or  anywhere  else in the  world and all
applications for registration  thereof,  whether pending or in preparation,  all
copyright and mask work licenses,  the right to sue for past, present and future
infringements of any thereof,  all rights  corresponding  thereto throughout the
world,  all

<PAGE>

extensions and renewals of any thereof and all proceeds of the foregoing,
including, without limitation, licenses, royalties, income, payments, claims,
damages and proceeds of suit.

58. (A) all computer and other electronic data processing  hardware,  integrated
computer systems,  central  processing units,  memory units,  display terminals,
printers,  features, computer elements, card readers, tape drives, hard and soft
disk drives, cables, electrical supply hardware,  generators,  power equalizers,
accessories  and all  peripheral  devices and other related  computer  hardware,
whether now owned,  licensed or leased or hereafter  acquired by Debtor; (B) all
software  programs  including  source  code  and  object  code  and all  related
applications and data files), whether now owned, licensed or leased or hereafter
acquired  by Debtor,  designed  for use on the  computers  and  electronic  data
processing  hardware described in clause (A) above; (C) all firmware  associated
therewith,  whether  now owned,  licensed  or leased or  hereafter  acquired  by
Debtor; (D) all documentation  (including flow charts, logic diagrams,  manuals,
guides and specifications) for such hardware, software and firmware described in
the preceding clauses (A), (B) and (C), whether now owned, licensed or leased or
hereafter  acquired  by Debtor;  and (v) all rights  with  respect to all of the
foregoing,  including,  without  limitation,  any and all copyrights,  licenses,
options,   warranties,   service  contracts,   program  services,  test  rights,
maintenance  rights,  support  rights,  improvement  rights,  renewal rights and
indemnifications  and  any  substitutions,   replacements,  additions  or  model
conversions of any of the foregoing.

<PAGE>

                                   SCHEDULE I

              Jurisdiction of Organization: Chief Executive Office;
        Locations of Books and Records, Equipment, Inventory and Fixtures

<TABLE>
<S>                              <C>
1. Jurisdiction of Organization: Delaware

2. Mailing Address:              2000 Technology Parkway, Newark, New York 14513

3. Principal Place of Business:  2000 Technology Parkway, Newark, New York 14513

4. Chief Executive Office:       2000 Technology Parkway, Newark, New York 14513

5. Location of Books and
   Records:                      2000 Technology Parkway, Newark, New York 14513

6. Locations of Equipment,
   Inventory and Fixtures:       2000 Technology Parkway, Newark, New York 14513
                                 3000 Technology Parkway, Newark, New York 14513
                                 1000 Davis Road, Elgin, Illinois 60123 (Bailment)
                                 488 Route 5 West, Elbridge, New York 13060 (Bailment)
                                 515 Lee Road, Rochester, New York 14606 (Bailment)
                                 266 Murray Street, Newark, New York 14513
                                 39 Breck Street, Rochester, New York 14609 (Bailment)
                                 18 Nuffield Way, Abingdon, Oxfordshire, England OX141TG UK

</TABLE>

<PAGE>

                                   SCHEDULE II

               Liens; Financing Statements; Goods in Possession of
            Consignees, Bailees, Warehousemen, Agents and Processors

Existing Liens

<TABLE>
<CAPTION>
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

Bailment of Collateral with Material Value

Master Molded Products Corporation, 1000 Davis Road, Elgin, Illinois 60123
Monroe FTZ Operators, Inc., 39 Breck Street, Rochester, New York 14609

Goods owned by Third Parties in the Possession of Ultralife Batteries, Inc.
(Security Interest does not attach)

Badger Technologies, Inc. has equipment on site at 2000 Technology Parkway,
Newark, New York 14513. The Debtor has no interest in the following equipment of
Badger Technologies, Inc.:

<PAGE>

                                  SCHEDULE III

                        Trade Names and Fictitious Names
                          (Present and Past Five Years)

<PAGE>

2

                                    EXHIBIT A

                          COPYRIGHT SECURITY AGREEMENT

      WHEREAS, Ultralife Batteries, Inc., a Delaware corporation ("Grantor"),
owns the Copyrights and applications for Copyrights listed on Schedule 1 annexed
hereto; and

      WHEREAS, Grantor, JPMorgan Chase Bank, as Collateral Agent ("Collateral
Agent") and Lenders are parties to a Credit Agreement dated June 30, 2004 (as
the same may be amended and in effect from time to time, the "Credit
Agreement"), providing for extensions of credit to be made to Grantor by
Lenders; and

      WHEREAS, pursuant to the terms of the General Security Agreement dated as
of June 30, 2004 (as the same may be amended and in effect from time to time,
the "Security Agreement") by Grantor in favor of Collateral Agent (in such
capacity, "Grantee), Grantor has granted to Grantee for the benefit of Lenders a
security interest in substantially all the assets of Grantor including all
right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Copyrights (as defined in the Security Agreement), together
with the goodwill of the business symbolized by Grantor's Copyrights and all
proceeds thereof, to secure the payment of all amounts owing by Grantor under
the Credit Agreement;

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Copyright Collateral"),
whether presently existing or hereafter created or acquired:

      (1)   each Copyright and application for Copyright listed on Schedule 1
            annexed hereto, together with any reissues, extensions or renewals
            thereof, and all of the goodwill of the business connected with the
            use of, and symbolized by each Copyright; and

      (2)   all products and proceeds of the foregoing, including, without
            limitation, any claim by Grantor against third parties for past,
            present or future (a) infringement or dilution of any Copyright, or
            (b) injury to the goodwill associated with any Copyright.

      The security interest granted hereby is granted in conjunction with the
security interests granted to Grantee pursuant to the Security Agreement.
Grantor hereby acknowledges and affirms that the rights and remedies of Grantee
with respect to the security interest in the Copyright Collateral made and
granted hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein. Terms defined in the Security Agreement and not otherwise defined herein
shall have the respective meanings provided for in the Security Agreement.

      IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement
to be duly executed by its duly authorized officer as of the 30th day of June,
2004

                                           ULTRALIFE BATTERIES, INC., as Debtor

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

<PAGE>

ACKNOWLEDGED:

JPMORGAN CHASE BANK, as Collateral Agent

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

                                 ACKNOWLEDGMENT

STATE OF NEW YORK        )
COUNTY OF _____________  )  ss:

      On the 30th day of June, 2004 before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say that
he is ______________ of Ultralife Batteries, Inc., the corporation described in
and which executed the foregoing instrument; that he signed his name thereto by
order of the board of directors of said corporation.

                                           ____________________________________
                                           Notary Public
{Seal}
My commission expires:_____________________

STATE OF NEW YORK        )
COUNTY OF MONROE         )  ss:

      On the 30th day of June, 2004 before me personally appeared Virginia S.
Allen, to me known, who being by me duly sworn, did depose and say that she is a
Vice President of JPMorgan Chase Bank, as Collateral Agent, the corporation
described in and which executed the foregoing instrument; that she signed her
name thereto by order of the board of directors of said corporation.

                                           ___________________________________
                                           Notary Public
{Seal}
My commission expires:_____________________

<PAGE>

                                   Schedule 1
                                       to
                          Copyright Security Agreement

                                   COPYRIGHTS

                             COPYRIGHT APPLICATIONS

<PAGE>

2

                                    EXHIBIT B

                            PATENT SECURITY AGREEMENT

      WHEREAS, Ultralife Batteries, Inc., a Delaware corporation ("Grantor"),
owns the Patents and applications for Patents listed on Schedule 1 annexed
hereto; and

      WHEREAS, Grantor, JPMorgan Chase Bank, as Collateral Agent ("Collateral
Agent") and Lenders are parties to a Credit Agreement dated June 30, 2004 (as
the same may be amended and in effect from time to time, the "Credit
Agreement"), providing for extensions of credit to be made to Grantor by
Lenders; and

      WHEREAS, pursuant to the terms of the General Security Agreement dated as
of June 30, 2004 (as the same may be amended and in effect from time to time,
the "Security Agreement") by Grantor in favor of Collateral Agent (in such
capacity, "Grantee"), Grantor has granted to Grantee for the benefit of Lenders
a security interest in substantially all the assets of Grantor including all
right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Patents (as defined in the Security Agreement), and all
products and proceeds thereof, to secure the payment of all amounts owing by
Grantor under the Credit Agreement;

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Patent Collateral"),
whether presently existing or hereafter created or acquired:

      (1)   each Patent and application for Patent listed on Schedule 1 annexed
            hereto, together with any reissues, continuations or extensions
            thereof, and all of the goodwill of the business connected with the
            use of and symbolized by, each such Patent; and

      (2)   all products and proceeds of the foregoing, including, without
            limitation, any claim by Grantor against third parties for past,
            present or future (a) infringement or dilution of any Patent, or (b)
            injury to the goodwill associated with any Patent.

      The security interest granted hereby is granted in conjunction with the
security interests granted to Grantee pursuant to the Security Agreement.
Grantor hereby acknowledges and affirms that the rights and remedies of Grantee
with respect to the security interest in the Patent Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provision of which are incorporated by reference herein as if fully set forth
herein. Terms defined in the Security Agreement and not otherwise defined herein
shall have the respective meanings provided for in the Security Agreement.

      IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to
be duly executed by its duly authorized officer as of the 30th day of June,
2004.

                                           ULTRALIFE BATTERIES, INC., as Debtor

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


<PAGE>
                                       2

ACKNOWLEDGED:

JPMORGAN CHASE BANK, as Collateral Agent

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

                                 ACKNOWLEDGMENT

STATE OF NEW YORK        )
COUNTY OF _____________  )  ss:

      On the 30th day of June, 2004 before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say that
he is ______________ of Ultralife Batteries, Inc., the corporation described in
and which executed the foregoing instrument; that he signed his name thereto by
order of the board of directors of said corporation.

                                           ____________________________________
                                           Notary Public
{Seal}
My commission expires:_____________________

STATE OF NEW YORK        )
COUNTY OF MONROE         )  ss:

      On the 30th day of June, 2004 before me personally appeared Virginia S.
Allen, to me known, who being by me duly sworn, did depose and say that she is a
Vice President of JPMorgan Chase Bank, as Collateral Agent, the corporation
described in and which executed the foregoing instrument; that she signed her
name thereto by order of the board of directors of said corporation.

                                           ___________________________________
                                           Notary Public
{Seal}
My commission expires:_____________________

<PAGE>

                                   Schedule 1
                                       to
                            Patent Security Agreement

                                     PATENTS

                               PATENT APPLICATIONS

<PAGE>

2

                                    EXHIBIT C

                          TRADEMARK SECURITY AGREEMENT

      WHEREAS, Ultralife Batteries, Inc., a Delaware corporation ("Grantor"),
owns the Trademarks and applications for Trademarks listed on Schedule 1 annexed
hereto; and

      WHEREAS, Grantor, JPMorgan Chase Bank, as Collateral Agent ("Collateral
Agent") and Lenders are parties to a Credit Agreement dated June 30, 2004 (as
same may be amended and in effect from time to time, the "Credit Agreement"),
providing for extensions of credit to be made to Grantor by Lenders; and

      WHEREAS, pursuant to the terms of the General Security Agreement dated as
of June 30, 2004 (as the same may be amended and in effect from time to time,
the "Security Agreement") by Grantor in favor of Collateral Agent (in such
capacity, "Grantee"), Grantor has granted to Grantee for the benefit of Lenders
a security interest in substantially all the assets of Grantor including all
right, title and interest of Grantor in, to and under all now owned and
hereafter acquired Trademarks (as defined in the Security Agreement), together
with the goodwill of the business symbolized by Grantor's Trademarks, and all
proceeds thereof, to secure the payment of all amounts owing by Grantor under
the Credit Agreement;

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Trademark Collateral"),
whether presently existing or hereafter created or acquired:

      (1)   each Trademark and application for Trademark listed on Schedule 1
            annexed hereto, together with any reissues, continuations or
            extensions thereof, and all of the goodwill of the business
            connected with the use of, and symbolized by, each Trademark; and

      (2)   all products and proceeds of the foregoing, including, without
            limitation, any claim by Grantor against third parties for past,
            present or future (a) infringement or dilution of any Trademark, or
            (b) injury to the goodwill associated with any Trademark.

      The security interest granted hereby is granted in conjunction with the
security interests granted to Grantee pursuant to the Security Agreement.
Grantor hereby acknowledges and affirms that the rights and remedies of Grantee
with respect to the security interest in the Trademark Collateral made and
granted hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein. Terms defined in the Security Agreement and not otherwise defined herein
shall have the respective meanings provided for in the Security Agreement.

      IN WITNESS WHEREOF, Grantor has caused this Trademark Security Agreement
to be duly executed by its duly authorized officer as of the 30th day of June,
2004.

                                           ULTRALIFE BATTERIES, INC., as Debtor

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


<PAGE>
                                       2

ACKNOWLEDGED:

JPMORGAN CHASE BANK, as Collateral Agent

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

                                 ACKNOWLEDGMENT

STATE OF NEW YORK        )
COUNTY OF _____________  )  ss:

      On the 30th day of June, 2004 before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say that
he is ______________ of Ultralife Batteries, Inc., the corporation described in
and which executed the foregoing instrument; that he signed his name thereto by
order of the board of directors of said corporation.

                                           ____________________________________
                                           Notary Public
{Seal}
My commission expires:_____________________

STATE OF NEW YORK        )
COUNTY OF MONROE         )  ss:

      On the 30th day of June, 2004 before me personally appeared Virginia S.
Allen, to me known, who being by me duly sworn, did depose and say that she is a
Vice President of JPMorgan Chase Bank, as Collateral Agent, the corporation
described in and which executed the foregoing instrument; that she signed her
name thereto by order of the board of directors of said corporation.

                                           ___________________________________
                                           Notary Public
{Seal}
My commission expires:_____________________

<PAGE>

                                   Schedule 1
                                       to
                          Trademark Security Agreement

                                   TRADEMARKS

                             TRADEMARK APPLICATIONS


</TEXT>
</DOCUMENT>
