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<SEC-DOCUMENT>0000950152-07-005041.txt : 20070823
<SEC-HEADER>0000950152-07-005041.hdr.sgml : 20070823
<ACCEPTANCE-DATETIME>20070611170248
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000950152-07-005041
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20070611

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ULTRALIFE BATTERIES INC
		CENTRAL INDEX KEY:			0000875657
		STANDARD INDUSTRIAL CLASSIFICATION:	MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690]
		IRS NUMBER:				161387013
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		2000 TECHNOLOGY PARKWAY
		CITY:			NEWARK
		STATE:			NY
		ZIP:			14513
		BUSINESS PHONE:		3153327100

	MAIL ADDRESS:	
		STREET 1:		2000 TECHNOLOGY PARKWAY
		CITY:			NEWARK
		STATE:			NY
		ZIP:			14513
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
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<TITLE>Ultralife Batteries, Inc.   Corresp</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">June&nbsp;11, 2007

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Kevin L. Vaughn<BR>
Branch Chief<BR>
United States Securities and Exchange Commission<BR>
100 F Street, N.E.<BR>
Washington, DC 20549

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Via: EDGAR Filing
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Re:&nbsp;&nbsp;Comments on Form&nbsp;10-K for the year ended December&nbsp;31, 2006
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Dear Mr.&nbsp;Vaughn:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Thank you for your letter dated May&nbsp;25, 2007 re: Ultralife Batteries, Inc. Form 10-K for the year
ended December&nbsp;31, 2006 SEC File No.&nbsp;0-20852. In the following paragraphs, we have provided
responses to the comments you raised.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SEC Comment 1:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We note your response to prior comment 1. Your proposed revisions do not provide all of the
disclosures required by Item 10(e) of Regulation&nbsp;S-K for </I><U><I>each</U> non-GAAP financial measure
presented in your Form 10-K. Specifically your proposed revisions do not provide disclosures
related to adjusted cost of products sold, adjusted gross margin or adjusted operating expenses.
Please revise future filings to remove these non-GAAP measures or provide the Item&nbsp;10(e)
disclosures for </I><U><I>each</U> measure listed. Alternatively, remove these non-GAAP measures and
present only the non-GAAP measure described.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Ultralife Response 1:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Upon further analysis and discussions by management, in connection with your comments, we have
decided to modify our going forward disclosures of our operating performance metric with a measure
that is more commonly used by companies, external securities analysts, investors and other
interested parties. See Ultralife Response 2 below for our proposed revised disclosure of our
going forward operating performance metric. The previously disclosed adjusted operating income
financial measure was primarily used to supplement our internal analysis of our U.S. GAAP
operational results between fiscal 2006 and fiscal 2005, and assist external securities analysts,
investors and other interested parties in their analysis, to specifically measure the impact from
the adoption of FASB 123(R) and the addition of amortization of intangible assets from the 2006
acquisitions. Therefore, the applicable narrative paragraphs and table relating to the previously
disclosed non-GAAP financial measure of adjusted operating income will be deleted in future
filings.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SEC Comment 2:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>You state that in your review, adjusted operating income is a more relevant measure that ties your
results more closely to the operating cash flows of the business. It appears that you view this
non-GAAP measure as a liquidity measure. As such, please address the following:</I>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Tell us why you believe operating income, which is generally viewed as a performance
measure, is the most directly comparable GAAP measure.</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Alternatively, revise future filings to reconcile the non-GAAP measure to the most
directly comparable GAAP liquidity measure, such as cash flows from operations.</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>If you elect to continue to present the reconciliation to operating income and present
the measure as a performance measure, revise to explain why you believe a measure that
excludes compensation charges and technology amortization charges is &#147;more relevant&#148; than
the GAAP measure that includes such charges.</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Further to the bullet above, revise future filings to discuss in detail the material
limitations of your non-GAAP measure, including, for example, a discussion of how your
non-GAAP measure does not consider all of the costs associated with operating your
business.</I></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Refer to Item 10(e) of Regulation&nbsp;S-K and Question 8 of Frequently Asked Questions Regarding the
Use of Non-GAAP Financial Measures dated June&nbsp;13, 2003. Please provide us with a draft of your
proposed revised disclosure.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Ultralife Response 2:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Upon further analysis and discussions by management, in connection with your comments and the
disclosure changes indicated in Ultralife Response 1 above, we intend to supplement the removal of
the previously disclosed non-GAAP financial measure with a more appropriate going forward non-GAAP
financial measure of Adjusted EBITDA. The following is our proposed disclosure for Adjusted
EBITDA, a non-GAAP financial measure, for your review. We intend to add this disclosure as a
subsection of Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Adjusted EBITDA</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure,
as a supplemental measure of our operating performance. We define Adjusted EBITDA as net income
(loss)&nbsp;before net interest expense, provision (benefit)&nbsp;for income taxes, depreciation and
amortization, plus expenses that we do not consider reflective of our ongoing operations. We use
Adjusted EBITDA as a supplemental measure to review and assess our operating performance and to
enhance comparability between periods. We also believe the use of Adjusted EBITDA facilitates
investors&#146; use of operating performance comparisons from period to period and company to company by
backing out potential differences caused by variations in such items as capital structures
(affecting relative interest expense and
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">stock-based compensation expense), the book amortization of intangible assets (affecting
relative amortization expense), the age and book value of facilities and equipment (affecting
relative depreciation expense) and other non-cash expenses. We also present Adjusted EBITDA because
we believe it is frequently used by securities analysts, investors and other interested parties as
a measure of financial performance. We reconcile Adjusted EBITDA to net income (loss), the most
comparable financial measure under U.S. generally accepted accounting principles (&#147;U.S. GAAP&#148;).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use Adjusted EBITDA in our decision-making processes relating to the operation of our
business together with U.S. GAAP financial measures such as income (loss)&nbsp;from operations. We
believe that Adjusted EBITDA permits a comparative assessment of our operating performance,
relative to our performance based on our U.S. GAAP results, while isolating the effects of
depreciation and amortization, which may vary from period to period without any correlation to
underlying operating performance, and of non-cash stock-based compensation, which is a non-cash
expense that varies widely among companies. We provide information relating to our Adjusted EBITDA
so that securities analysts, investors and other interested parties have the same data that we
employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a
valuable indicator of our operating performance on a consolidated basis and of our ability to
produce operating cash flows to fund working capital needs, to service debt obligations and to fund
capital expenditures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The term Adjusted EBITDA is not defined under U.S. GAAP, and is not a measure of operating
income, operating performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted
EBITDA has limitations as an analytical tool, and when assessing our operating performance,
Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss)&nbsp;or
other consolidated statement of operations data prepared in accordance with U.S. GAAP. Some of
these limitations include, but are not limited to, the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Adjusted EBITDA (1)&nbsp;does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments; (2)&nbsp;does not reflect changes in,
or cash requirements for, our working capital needs; (3)&nbsp;does not reflect the
interest expense, or the cash requirements necessary to service interest or principal
payments, on our debt; (4)&nbsp;does not reflect income taxes or the cash requirements for
any tax payments; and (5)&nbsp;does not reflect all of the costs associated with operating
our business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and Adjusted
EBITDA does not reflect any cash requirements for such replacements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>while stock-based compensation is a component of cost of products sold and
operating expenses, the impact on our consolidated financial statements compared to
other companies can vary significantly due to such factors as assumed life of the
stock-based awards and assumed volatility of our common stock; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other companies may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compensate for these limitations by relying primarily on our U.S. GAAP results and using
Adjusted EBITDA only supplementally. Adjusted EBITDA is calculated as follows for the periods
presented:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>Years Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

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<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,332</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add (Less): income tax provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,104</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: depreciation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,309</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: amortization expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjusted EBITDA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(39</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,165</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We acknowledge that (1)&nbsp;we are responsible for the adequacy and accuracy of the disclosure in
the filing; (2)&nbsp;staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and (3)&nbsp;we may not
assert staff comments as a defense in any proceeding initiated by the Commission or any person
under the federal securities laws of the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If you have any questions, I can be reached at (315)&nbsp;359-6614.
</DIV>

<DIV align="left">
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sincerely,</DIV></TD>
</TR>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><u>/s/ Robert W. Fishback</u></DIV></TD>
</TR>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Robert W. Fishback<BR>
VP-Finance and Chief Financial Officer</DIV></TD>
</TR>
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