Exhibit 10.3

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.

 

CPREMETM  - A123 SYSTEMS SALES AGREEMENT

 

 

This Sales Agreement (“Agreement”) is made and entered into between
ConocoPhillips Specialty Products Inc., a Delaware corporation with an office at
600 North Dairy Ashford, Houston, Texas 77079 (“Seller”) and A123 Systems, Inc.,
a Delaware corporation, with an office at Arsenal on the Charles, 321 Arsenal
Street, Watertown, Massachusetts 02472 (“Buyer”).

 

WHEREAS, Seller is a manufacturer of graphite powder; and

 

WHEREAS, Buyer desires to purchase graphite powder from Seller to be used solely
for manufacture of Li-ion cells and batteries in Buyer’s facilities and approved
subcontractors, upon the terms and conditions set forth herein;

 

NOW, THEREFORE, the parties agree as follows:

 

1.             Product.

 

Product (“Product”) is defined as CPREME Graphite Powder.  Seller shall provide
to Buyer all material safety data sheets (MSDS) applicable to the Product
purchased at or before the time of the initial shipment.  All updates to such
MSDS shall be provided to Buyer with the first shipment after updating.  The
Product will conform to the specifications attached in Exhibit 2.

 

2.             Forecast, Quantity and Lead Times.

 

(a)           Forecasts:  It is agreed that Buyer will  provide Seller upon
request, a rolling six (6) month forecast for the Product ( “Forecast”).  No
Forecast shall be considered in any manner or to any extent to be a binding
commitment to purchase Products on the part of Buyer.  Seller shall utilize the
Forecast solely for planning and inventory purposes.

 

(b)           Notwithstanding the forgoing Seller  shall be capable of providing
Buyer with a minimum of [**] per month in January, 2010 ramping to [**] per
month by [**] and [**] per month by [**] (collectively “Minimum Capacity”). 
Seller will immediately notify Buyer in the event Seller has reason to believe
Seller will not be able to supply Buyer with the amount of Product required
under the Forecast.

 

(c)           Subject to Buyer’s right under this Agreement to make “Variance
Payments” (as hereinafter defined) in lieu of purchases, Buyer agrees to
purchase annual volumes of Product (the “Annual Minimum Purchase)as follows:

 

a.     2010 - [**];

b.     2011 – [**];

c.     2012 – [**];

d.     2013 – [**].

 

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(d)           If Seller fails to meet product specifications or is unable to
produce the Annual  Minimum Purchase volume, Buyer will be relieved of the
obligation to purchase the Annual Minimum Purchase by the amount of the
shortfall.

 

(e)           If the Annual Minimum Purchase has not been purchased by Buyer by
the applicable year end, Buyer agrees to pay a fee equal to $[**] for the
difference between the amount actually purchased in that calendar year and the
Annual Minimum Purchase (“Variance Payment”).  Buyer agrees to pay the Variance
Payment within [**] after date of Seller’s invoice.

 

(f)            Buyer shall receive credit for any Variance Payment in the
following year at a rate of $[**].  This credit shall reduce the price of
ongoing purchases of Product until the prior year’s variance payment has been
re-claimed in its entirety and the prior year’s Annual Minimum Purchase has been
satisfied.  Once the prior year’s annual minimum purchase has been satisfied,
subsequent purchases begin to count towards the current year’s Annual Minimum
Purchase.

 

(g)           Product purchased by Buyer in 2010 prior to the Effective Date of
this Agreement will be applied towards the 2010 Annual Minimum Purchase.

 

(h)           If Buyer is required to pay a Variance Payment for 2012 or 2013,
Buyer will have until April 1, 2015, to continue to purchase Product and
re-claim the 2012 or 2013 Variance Payment provided that after April 1, 2014, no
more that [**], may be applied to re-claim the Variance Payment.  The price
charged for Product purchased to re-claim the Variance Payment will be equal to
the 2013 contract price with a price adjustment to be negotiated for reasonable
storage charges.

 

(i)            Purchase Orders.  Seller agrees to sell to Buyer, and Buyer
agrees to purchase from Seller the amount of Buyer’s requirements specified in
the applicable purchase orders issued to Seller for anode material in Buyer’s 
manufacturing facilities or A123 Systems approved subcontractors’ manufacturing
facility.

 

(j)            Long Lead Time Items.   Seller  shall notify Buyer  in writing if
any of the components, materials or supplies  have a lead time of greater than
90 days.   Buyer  may authorize Seller  in writing to purchase, in amounts
beyond the amount necessary to fill accepted Purchase Orders, the components,
materials, and supplies with lead times greater than ninety (90) days at the
time the order is placed (“Long Lead Time Components”) plus 30 days to account
for the order, shipment, receipt and manufacturing time. Subject to Buyers’
approval, Seller  may purchase Long Lead Time Components sufficient to meet all
deliveries under the Purchase Orders and Product Forecast in effect at the time
the order with the supplier is placed.

 

(k)           The quantity of Product delivered shall be determined based upon
bill of lading weights.

 

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3.             Price.

 

The price for Product is set forth in Exhibit #1. Freight will be Ex-Works in
accordance with Incoterms 2000.

 

4.             Payment Terms.

 

For Products shipped to [**], Buyer shall pay the invoices [**] after date of
Seller’s invoice. For Product shipped to [**], Buyer shall pay invoices [**]
after date of invoice.

 

5.             Term and Termination; End of Life.

 

(a)           This Agreement shall be for a term commencing on the Effective
Date and ending on December 31, 2014, (the “Initial Term”) and from day to day
thereafter, provided however, that Buyer may terminate this Agreement upon not
less than one year’s written notice  and Seller may terminate this Agreement
upon not less than two year’s written notice.  For avoidance of doubt, and
notwithstanding the foregoing, no termination may be effective prior to the
expiration of the Initial Term. Without limiting the foregoing, after
December 31, 2013, (i) unless the Parties agree otherwise, Buyer may, but is not
required to, purchase a volume of Product consistent with its Forecast up to
[**]/calendar year, and (ii) unless the Parties agree otherwise, the price of
Product shall be the same as that during 2013.

 

(b)           End of Life/Changes to material process or equipment.  If any of
the component parts of any Product that Seller purchases from some other source
ceases being produced for any reason, Seller  will notify Buyer as soon as it
learns of the planned discontinuance and will, at Seller’s sole cost purchase
enough of the components to meet its obligations under this Agreement until
another source is identified and qualified to meet the product specification and
such qualification to be at Seller’s sole cost.  In the event that a last time
buy of a component is required, Seller and Buyer  will mutually agree as to the
total quantity of that component that must be purchased by Seller  to meet
requirements under this Agreement.  In case of a capacity constraint or limited
availability of raw materials, Seller  reserves the right to allocate Product to
customers based on historic purchases over the previous 12-months provided
however that in no event shall such allocation relieve Seller of it obligation
to provide the Minimum Capacity set forth in Section 2.   Seller shall not ship
any product to Buyer with any material changes to current formulation,
equipment, process, raw materials or manufacturing location without Buyers
approval in writing. Seller shall in writing provide reasonable notice to Buyer
prior to any planned changes. Buyer’s approval will not be unreasonably
withheld.

 

(c)           Discontinuance of Product[**].  Seller may discontinue manufacture
and supply of Product only upon termination of this Agreement by either Party. 
[**] of this Agreement.

 

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6.             Default.

 

(a)         Any credit Seller may elect to extend to Buyer shall be upon
Seller’s credit terms.

 

(b)         Seller shall have the right to change the terms of such credit at
any time if Seller determines, in its reasonable discretion, that the financial
condition of Buyer warrants such a change.

 

(c)         Notwithstanding any other provision, if: (a) Buyer fails to make any
payment within payment terms, then Seller shall have the right to issue a
written payment demand notice to Buyer.  If Buyer fails to make payment within a
period of [**] from the written notice thereof provided such notice is sent by
overnight courier or (b) Buyer’s financial condition does become impaired or
unsatisfactory to Seller, in Seller’s reasonable discretion, then Seller may
suspend deliveries to Buyer until such time as satisfactory credit arrangements
are made with Seller, including payment of past due invoices and which may
include providing an irrevocable letter of credit in a form and substance
specified by Seller, issued and confirmed (if required) by a bank acceptable to
Seller and in an amount sufficient to cover the estimated credit exposure to
Seller, or Seller may require Buyer to pay by cash in advance.  Buyer’s failure
to cure any default within the [**] cure period or meet any obligation under
this section shall give Seller the right to seek payment of the amounts due and 
immediately suspend further shipments  as it’s exclusive non-judicial remedy.

 

7.             Title and Risk of Loss; Delivery.

 

Title and risk of loss to the Product shall pass to Buyer in accordance with Ex
Works  Seller’s dock.

 

Except as provided elsewhere in this Agreement, Buyer will have no
responsibility or liability on account of anything that may be done, happen or
arise with respect to Product before risk of loss has passed to Buyer, and
Seller will have no responsibility or liability on account of anything that may
be done, happen or arise with respect to Product after risk of loss has passed
to Buyer.

 

8.             Product Management and Duty to Warn.

 

Guidelines for managing Product are attached hereto and made a part of this
Agreement as Exhibit 3, attached hereto and incorporated herein.  Buyer agrees
to follow the Product Management Guidelines as the same may be amended from time
to time by the mutual agreement of the parties.

 

Buyer acknowledges that it is familiar with, and will take all reasonable steps
necessary to inform, warn, and familiarize its employees, agents, customers, and
contractors who may handle the Product, of all hazards pertaining to and proper
procedures for safe use of the Product and of the containers or equipment in
which the Product may be handled, shipped, or stored.  Buyer also undertakes to
label as appropriate any materials which it makes or resells that include
Product.

 

BUYER SHALL INDEMNIFY AND DEFEND THE SELLER AND ITS AFFILIATED ENTITIES FROM AND
AGAINST ANY THIRD PARTY CLAIM,

 

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LIABILITY OR EXPENSE INCLUDING INJURY OR DEATH EXCEPT TO THE EXTENT THAT THE
CLAIM, LIABILITY OR EXPENSE IS CAUSED BY SELLER’S NEGLIGENCE, PRODUCT DEFECTS
ATTRIBUTABLE TO SELLER’S NEGLIGENCE OR THE FAILURE OF THE PRODUCT TO MEET THE
SPECIFICATIONS CONTAINED IN ATTACHED EXHIBIT A WHEN DELIVERED TO BUYER.  EXPENSE
AS USED HEREIN SHALL INCLUDE REASONABLE ATTORNEYS FEES.

 

SELLER SHALL INDEMNIFY AND DEFEND THE BUYER AND ITS AFFILIATED ENTITIES FROM AND
AGAINST ANY THIRD PARTY CLAIM, LIABILITY OR EXPENSE INCLUDING INJURY OR DEATH
EXCEPT TO THE EXTENT THAT THE CLAIM, LIABILITY OR EXPENSE IS CAUSED BY BUYER’S
NEGLIGENCE OR PRODUCT DEFECTS ATTRIBUTABLE TO BUYER’S NEGLIGENCE. EXPENSE AS
USED HEREIN SHALL INCLUDE REASONABLE ATTORNEYS FEES.

 

9.             Limited Warranty.

 

Seller warrants that the Product sold under this Agreement  will be free from
defects in materials  and workmanship and shall meet the mutually agreed upon 
specifications for a period of [**] from receipt of shipment.  This warranty
does not cover any Product which (a) has been used in a manner not authorized by
the specifications; or (b) has not been stored and handled in accordance with
Product Storage Instructions set forth  in Exhibit 4 provided that the failure
of the Product is directly attributable to the improper storage of the Product
or the use of the Product in a manner not authorized by the specifications.

 

OTHER THAN THE WARRANTY SPECIFIED IN THIS SECTION 9, SELLER DOES NOT MAKE AND
EXPRESSLY DISCLAIMS, AND BUYER EXPRESSLY WAIVES, ANY OTHER WARRANTIES INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, REGARDLESS OF WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, OR ALLEGEDLY
ARISING FROM ANY USAGE OF ANY TRADE OR FROM ANY COURSE OF DEALING.

 

10.           Warranty Remedy and Limitation of Liability.

 

Seller’s liability for breach of warranty  shall be limited to replacement of
non-conforming  Product or refund of the purchase price thereof, at Seller’s
option, and any loss, damage or cost for which Seller is obligated to indemnify
Buyer pursuant to the terms of this Agreement.

 

EXCEPT FOR CLAIMS ARISING UNDER SECTION 13 AND 24, OR FROM SELLER’S GROSS
NEGLIGENCE AND WILLFUL MISCONDUCT, BUYERS TOTAL LIABILITY ARISING FROM THIS
AGREEMENT FOR ANY CLAIMS OF ANY NATURE WHETHER BASED IN CONTRACT, TORT
(INCLUDING NEGLIGENCE), INDEMNITY, CONTRIBUTION, STRICT LIABILITY OR OTHERWISE,
WILL NOT EXCEED THE SUM OF $[**]  AND SELLER’S

 

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TOTAL LIABILITY WILL NOT EXCEED THE SUM OF $[**] THIS CONSTITUTES A PARTY’S
MAXIMUM LIABILITY EVEN IF THE PRODUCT HAS BEEN MIXED WITH OTHER MATERIALS OR
USED IN SPECIALIZED EQUIPMENT.  EXCEPT FOR CLAIMS ARISING UNDER SECTION 13 OR
SECTION 24 OR EITHER PARTY’S WILLFUL MISCONDUCT, IN NO EVENT WILL EITHER PARTY
BE LIABLE TO THE OTHER PARTY FOR ANY LOST PROFITS OR ANY INDIRECT,
CONSEQUENTIAL, INCIDENTAL, SPECIAL, CONTINGENT, EXEMPLARY OR PUNITIVE DAMAGES
INCURRED BY BUYER OR RESULTING FROM OR ARISING OUT OF THIS AGREEMENT INCLUDING,
WITHOUT LIMITATION, LOSS OF USE, LOSS OF PROFIT, OR BUSINESS INTERRUPTION,
HOWEVER SAME MAY BE CAUSED AND REGARDLESS OF A PARTY’S SOLE OR CONCURRENT
NEGLIGENCE.

 

12.           Taxes.

 

In addition to the price provided herein, Buyer will pay Seller an amount equal
to any Tax related to sales made pursuant to this Agreement, or to the
transportation, production, or use of the Product, and assessed on Seller by any
governmental authority or that Seller is required to collect from Buyer under
applicable law.  For purposes of the foregoing sentence, the term “Tax” shall
include, without limitation, sales, use and excise taxes, duties (including
dumping duties), or other assessments or charges (including
Superfund/environmental levies, Goods & Services Taxes, or the like), but such
term shall not include any income or franchise tax measured by Seller’s net
income or margin, or any gross receipts tax imposed by any jurisdiction on
Seller for the privilege of Seller doing business in that jurisdiction  Any
personal property taxes assessed upon the value of the Product will be paid by
the party having title thereto at the time such taxes are assessed. If Buyer is
exempt from the payment of any Tax, Buyer will furnish to Seller proper
exemption certificates, taxpayer identification number, or other documentation
acceptable to Seller to cover the Product purchased hereunder.

 

13.           Patent Defense and Indemnification.

 

Seller shall indemnify and hold Buyer harmless in connection with any suit,
claim or demand that:

 

(a)           alleges that the Product (as used in this Section, the term
“Product” includes the ingredients thereof taken both singularly and
collectively) purchased hereunder or its method of manufacture infringes a claim
of any Patent or other third party intellectual property right or involves the
misappropriation of a trade secret by Seller; or

 

(b)           alleges that the use or application of the Product purchased
hereunder for using as an anode material in a Lithium—ion battery infringes a
claim of any Patent or other third party intellectual property right.

 

Seller shall not be obligated in any way under this Section to defend, indemnify
and hold Buyer harmless for any suit, claim or demand alleging infringement of a
claim of any

 

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Patent or other third party intellectual property right which is based on Buyer
(x) using the Product purchased hereunder for any purpose other than an anode
material in a Lithium-ion battery, or (y) combining the Product purchased
hereunder with any other material if the Product alone is not infringing, or
(z) which is based on an improper or unauthorized way that Buyer handles or
introduces the Product purchased hereunder into the Buyer’s product if not in
accordance with Seller’s written instructions.  Seller’s obligations set forth
herein shall be conditioned on Buyer promptly advising Seller in writing of any
suit, claim or demand for which Seller is obligated under this Section, and on
Seller having sole charge and direction of the defense and/or settlement of any
such suit, claim or demand.  Buyer shall have the right to be represented by
advisory counsel of its selection at its own expense.

 

14.           Contingencies.

 

(a)           Neither party will be in breach of its obligations hereunder to
the extent that performance is prevented or delayed as a result of any of the
following contingencies: (a) any cause beyond the reasonable control of the
party concerned; (b) labor disturbance, whether or not involving the employees
of the party concerned or otherwise, and whether or not the disturbance could be
settled by acceding to the demands of a labor group; or (c) compliance with a
request or order of a person purporting to act on behalf of any government or
governmental department or agency (including but not limited to EPA and OSHA);
or shortage in raw material, transportation, power, manufacturing capacity
(except as Seller’s capacity made available to Buyer and Buyer’s obligation to
purchase [**] of Product as described in Section 2) or product itself from a
party’s then contemplated source of supply, unless such shortage could have been
avoided by Seller by purchasing Long Lead Time items in accordance with
Section 2(c.).  Seller  reserves the right to allocate Product to customers
based on historic purchases over the previous 12-months provided however, that
nothing in this Section 14 shall relieve Seller of its obligation to provide the
Minimum Capacity set forth in Section 2.

 

(b)           Quantities not purchased or sold due to the provisions of this
Section need not be made up later.

 

(c)           Nothing in this Section will excuse Buyer from its obligations to
make payments when due.

 

15.           Representations, Warranties, and Covenants.

 

(a)           Buyer hereby represents and warrants to Seller that:

 

(i)    Buyer is a company of good standing established according to the laws of
the State of Delaware and has its principal place of business in Arsenal on the
Charles, 321 Arsenal Street, Watertown, Massachusetts 02472.  Its officers,
directors, employees, agents, and shareholders are neither officials, employees,
or representatives of any government or of any department, agency, or

 

--------------------------------------------------------------------------------

 

instrumentality of any government nor officials, representatives, agents or
candidates of any political party and shall not become such while this Agreement
remains in effect.

 

(ii)   The execution, delivery, and performance by Buyer of this Agreement does
not and shall not violate any laws or regulations presently binding on Buyer or
Seller (including without limitation the United States export control laws and
regulations).

 

(b)           Seller hereby represents and warrants to Buyer that:

 

(i)    Seller is a company of good standing established according to the laws of
the State of Delaware and has its principal place of business in 600 North Dairy
Ashford, Houston, Texas 77079.  Its officers, directors, employees, agents, and
shareholders are neither officials, employees, or representatives of any
government or of any department, agency, or instrumentality of any government
nor officials, representatives, agents or candidates of any political party and
shall not become such while this Agreement remains in effect.

 

(ii)   The execution, delivery, and performance by Seller of this Agreement does
not and shall not violate any laws or regulations presently binding on Buyer or
Seller (including without limitation the United States export control laws and
regulations).

 

16.           Ethics; Conflicts of Interest.

 

Buyer shall not pay any salaries, commissions, or fees, or make any payments or
grant any rebates to any employee or officer of Seller, or to any designee of
any Seller’s employee or officer, or favor any employee or officer of Seller, or
any designee of any Seller employee or officer, with gifts or entertainment of
significant cost or value, or enter into any business arrangements with any
employee or officer of Seller other than as a representative of Seller.

 

17.           Technical Assistance.

 

ANY TECHNICAL ADVICE, ASSISTANCE OR TESTING FURNISHED BY SELLER TO BUYER WITH
RESPECT TO THE SELECTION OR USE OF THE PRODUCT DELIVERED TO BUYER HEREUNDER WILL
BE GIVEN AND ACCEPTED AT BUYER’S SOLE RISK, AND EXCEPT FOR  GROSS NEGIGENCE OR
WILLFUL MISCONDUCT SELLER WILL HAVE NO LIABILITY WHATSOEVER FOR THE USE OF, OR
RESULTS OBTAINED FROM, SUCH ADVICE, ASSISTANCE OR TESTING.

 

18.           Compliance with Laws.

 

This Agreement is made specifically subject to, and Buyer expressly agrees that
Buyer shall comply with and abide by, all applicable laws, rules, regulations,
orders and ordinances (now existing or that may be hereafter enacted or
promulgated), including, but

 

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not limited to U.S. export control and economic sanctions laws, and Buyer will
not export, re-export or otherwise transfer the Product, or any technical
information disclosed to Buyer concerning the Product, in violation of such
laws.

 

19.           Notices.

 

All notices required under this Agreement shall be given in writing by letter,
facsimile or overnight mail addressed to the parties at the addresses below or
such other address as the party may designate:

 

ConocoPhillips Specialty Products Inc.

600 N. Dairy Ashford Rd

Houston, Texas 77079-1175,  USA

Attn: Manager, Composite Graphite

Facsimile:  (+1) 832-486-2881

 

A123 Systems, Inc.

Arsenal on the Charles, 321 Arsenal Street

Watertown, Massachusetts 02472

Attention:  General Counsel

Facsimile:  617-778-5749

 

20.           Assignment.

 

Neither party shall assign or transfer its rights and obligations under this
Agreement without the prior written consent of the other party, such consent not
to be unreasonably withheld.

 

21.           Waiver of Breach.

 

Either party may waive the breach of any part of this Agreement by the other
party;  however, any such waiver shall not be a waiver of any other part of this
Agreement or of any subsequent breach of the same part.

 

22.           Governing Law.

 

THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED ACCORDING TO THE LAWS OF
STATE OF TEXAS WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES.

 

23.           Dispute Resolution.

 

The parties shall attempt to resolve any disputes by negotiation.  Any dispute
under this Agreement, which cannot be settled amicably, shall be finally settled
by arbitration in accordance with the Rules of Arbitration of the International
Chamber of Commerce by the arbitrators; one selected by Buyer, one by Seller,
and one by the first two arbitrators.  The arbitration shall be held in Houston,
Texas, if brought by Buyer and Boston,

 

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Massachusetts if brought by Seller  and conducted in the English language.  The
decision of the arbitrators shall be final, binding, and enforceable on the
parties.

 

24.           Confidentiality.

 

Each party agrees that it will keep, and cause its employees to keep,
confidential the terms and conditions of this Agreement, including but not
limited to pricing, and any know-how and technical, business, or other
information disclosed to it during the performance of this Agreement until such
time as the same has become available to the general public through no fault of
such party.  The obligations of confidentiality herein contained shall continue
to be observed, notwithstanding the expiration or earlier termination of this
Agreement.  Buyer agrees to make no effort, either directly or indirectly, nor
enable any third party, to analyze or in any way attempt to determine the
physical or chemical property or composition of Product without Seller’s prior
written consent.

 

25.           Entire Agreement; Interpretation.

 

This Agreement is executed in two originals in the English language or may be
executed in multiple counterparts and each counterpart shall represent a fully
executed original as if signed by each Party.  This Agreement and its exhibits
replaces and supersedes any prior agreements and constitutes the entire
Agreement between Seller and Buyer as to the subject matter set forth herein;
there are no promises, representations or warranties other than as set forth in
this Agreement.   This Agreement may be modified only by instrument in writing
specifically stating that it is an amendment to this Agreement and executed by
both parties hereto but no modification hereof shall be effected by the
acknowledgment or acceptance of purchase orders or printed forms containing
different or additional terms and conditions.  The provisions of this Agreement
will take precedence over, govern and control any purchase order, sales
acknowledgement, invoice or other writing between the Seller and Buyer despite
subsequent issuance, it being agreed and understood, without limitation, that
any pre-printed terms and conditions appearing on any other writing,
communication or transmittal between Seller and Buyer pertaining to the subject
matter of this Agreement will be null and void and have no force or effect.

 

THE WARRANTIES, OBLIGATIONS, LIABILITIES AND REMEDIES OF THE PARTIES, AS
PROVIDED HEREIN, ARE EXCLUSIVE AND IN LIEU OF ANY OTHERS AVAILABLE AT LAW OR IN
EQUITY.

 

The parties acknowledge and agree the terms and conditions of this Agreement,
including but not limited to those relating to allocations of, releases from,
exclusions against and limitations of liability, have been freely and fairly
negotiated.  Each party acknowledges that in executing this Agreement they have
relied solely on their own judgment, belief, and knowledge, and such advice as
they may have received from their own counsel, and they have not been influenced
by any representation or statements made by any other party or its counsel.  No
provision in this Agreement is to be interpreted for or against any party
because that party or its counsel drafted such provision.  In the event that any

 

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portion or all of this Agreement is held to be void or unenforceable, the
parties agree to negotiate in good faith to amend the commercial and other terms
of the Agreement in order to affect the intent of the parties as set forth in
this Agreement.

 

The provisions of this Agreement which by their nature are intended to survive
the termination, cancellation, completion or expiration of the Agreement,
including but not limited to any expressed limitations of or releases from
liability, shall continue as valid and enforceable obligations of the parties
notwithstanding any such termination, cancellation, completion or expiration.

 

IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.

 

CONOCOPHILLIPS SPECIALTY

 

A123 SYSTEMS, INC.

PRODUCTS INC.

 

 

By:

/s/ Michael W. Brown

 

By:

/s/ Michael Rubino

Name:

Michael W. Brown

 

Name:

Michael Rubino

Title:

President

 

Title:

Chief Financial Officer and

 

 

 

VP of Finance and Administration

 

--------------------------------------------------------------------------------

 

 

Exhibit 1

Form of Product Schedule

 

Product Schedule No. 1

 

Dated        

 

This PRODUCT SCHEDULE NO.1 TO MANUFACTURE AND SUPPLY AGREEMENT (this “Schedule
No. [ 1]”) is made by and between A123 Systems, Inc. (“A123”), and Conoco
Phillips (“SUPPLIER”), pursuant to the Manufacture and Supply Agreement between
A123 and SUPPLIER dated                   .

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, covenants and agreements hereinafter set forth the parties hereto
agree as follows:

 

Specifications attached in Exhibit 2

 

Manufacturing Location Requirements.  Ponca City, Oklahoma: Batesville,
Arkansas; Sanborn, NY or as mutually agreed

 

Pricing — Pricing will be in US Dollars.

 

Effective Date through December 31, 2010: $[**]

 

January 1, 2011 through April 1, 2014: $[**]

 

Note: Seller agrees to make available [**] of the Product to Buyer during 2010.
Buyer agrees to place a purchase order upon execution of this Agreement for 
[**] at a price of $[**]. Buyer agrees to take delivery of the [**] no later
than April 1, 2011. This quantity will be applied against the total committed
quantity of [**] of the Products defined in paragraph 2 of this Agreement.

 

Both Parties are in agreement that the lithium ion battery market is extremely
competitive and will work together to further reduce cost, beyond what is listed
above. This may be through qualification of alternative materials, new designs
or technologies.

 

Seller agrees make a reasonable best effort to stock one month’s worth of
Product for Buyer, based on current forecast.

 

Pricing will include the following:

 

a.               Material cost

b.              Labor

c.               Test

d.              Mark-Up

e.               Lead time of quoted assembly

f.                 Lead time of all components in the quoted assembly

Project Schedule — Deliveries will be made per A123 Purchase Order.

 

Markings —Products will include barcodes per the Specification.

 

IN WITNESS WHEREOF, the Parties hereto have caused this Project Schedule No. 1
to Manufacture and Supply Agreement to be executed in their names by their
properly and duly authorized officers or representatives as of the date first
above written.

 

CONOCO SPECIALITY PRODUCTS, INC.

 

A123SYSTEMS, INC

 

 

 

 

 

 

By:

/s/ M.W. Brown

 

By:

/s/ Michael Rubino

Name:

M.W. Brown

 

Name:

Michael Rubino

Title:

President

 

Title:

CFO

 

 

 

 

 

6/21/10

 

 

 

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CPREME® – Al23 SYSTEMS SALES AGREEMENT

 

EXHIBIT 2

 

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[**]

A total of 18 pages were omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.

 

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CPREME® – Al23 SYSTEMS SALES AGREEMENT

 

EXHIBIT 3

 

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CPreme® Graphites, Anode Powder (All Grades)

 

Material Safety Data Sheet

 

1.  Product and Company Identification

 

Product Name:

CPreme® Graphites Anode Powder (All Grades)

 

 

MSDS Number:

801538

 

 

Intended Use:

Substrate for secondary lithium ion battery anodes and other applications

 

 

Manufacturer/Supplier:

ConocoPhillips

 

600 N. Dairy Ashford

 

Houston, Texas 77079-1175

 

 

Emergency Health and Safety Number:

Chemtrec: 800-424-9300 (24 Hours)

 

 

MSDS Information:

Phone: 800-762-0942

 

Email: MSDS@conocophillips.com

 

Internet: http://w3.conocophillips.com/NetMSDS/

 

2.  Hazards Identification

 

Emergency Overview

NFPA

 

 

This material is not considered hazardous according to OSHA criteria.

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Appearance: Dark gray or black

Physical Form: Solid

Odor: No distinct odor

 

Potential Health Effects

Eye: Dusts may be abrasive and irritating to the eyes and cause stinging,
watering, and redness.

 

Skin: Prolonged or repeated contact with dusts may be abrasive and mildly
irritating to the skin. Skin absorption is unlikely.

 

Inhalation (Breathing): Low degree of toxicity by inhalation.

 

Ingestion (Swallowing): No harmful effects expected from ingestion.

 

Signs and Symptoms: Repeated overexposures to dusts may result in irritation of
the respiratory tract, pneumoconiosis (dust congested lungs), pneumonitis (lung
inflammation), coughing, and shortness of breath.

 

See Section 11 for additional Toxicity Information.

 

3.  Composition / Information on Ingredients

 

Component

 

CASRN

 

Concentration*

Graphite, Synthetic

 

7782-42-5

 

100

 

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* All concentrations are percent by weight unless ingredient is a gas. Gas
concentrations are in percent by volume.

 

801538 - CPreme® Graphites, Anode Powder (All Grades)
Date of Issue:

 

Status: Final

 

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801538 - CPreme® Graphites, Anode Powder (All Grades)
Date of Issue: 26-Sep-2008

 

Status: Final

 

4.  First Aid Measures

 

Eye Contact: If irritation or redness develops from exposure, flush eyes with
clean water. If symptoms persist, seek medical attention.

 

Skin Contact: First aid is not normally required. However, it is good practice
to wash any chemical from the skin.

 

Inhalation (Breathing): First aid is not normally required. If breathing
difficulties develop, move victim away from source of exposure and into fresh
air in a position comfortable for breathing. Seek immediate medical attention.

 

Ingestion (Swallowing): First aid is not normally required; however, if
swallowed and symptoms develop, seek medical attention.

 

5.  Fire-Fighting Measures

 

NFPA 704 Hazard Class

 

Health: 0

Flammability: 0

Instability: 0

(0-Minimal, 1-Slight, 2-Moderate, 3-Serious, 4-Severe)

 

Unusual Fire & Explosion Hazards: No unusual fire or explosion hazards are
expected.

 

Extinguishing Media: Use extinguishing agent suitable for type of surrounding
fire.

 

Fire Fighting Instructions: For fires beyond the incipient stage, emergency
responders in the immediate hazard area should wear bunker gear. When the
potential chemical hazard is unknown, in enclosed or confined spaces, a self
contained breathing apparatus should be worn. In addition, wear other
appropriate protective equipment as conditions warrant (see Section 8).

 

Isolate immediate hazard area and keep unauthorized personnel out. Contain spill
if it can be done safely. Move undamaged containers from immediate hazard area
if it can be done safely. Cool equipment exposed to fire with water, if it can
be done safely.

 

See Section 9 for Flammable Properties Including Flash Point and Flammable
(Explosive) Limits

 

6.  Accidental Release Measures

 

Personal Precautions: Stay upwind and away from spill/release. Notify persons
down wind of the spill/release, isolate immediate hazard area and keep
unauthorized personnel out. Wear appropriate protective equipment, including
respiratory protection, as conditions warrant (see Section 8). See Sections 2
and 7 for additional information on hazards and precautionary measures.

 

Environmental Precautions: Contain spill if it can be done safely. Prevent
spilled material from entering sewers, storm drains, other unauthorized drainage
systems, and natural waterways. Use water sparingly to minimize environmental
contamination and reduce disposal requirements.

 

Methods for Containment and Clean-Up: Notify appropriate federal, state, and
local agencies. Carefully shovel or sweep up spilled material and place in a
suitable container. Minimize dust generation.

 

7.  Handling and Storage

 

Precautions for safe handling: Wash thoroughly after handling. Use good personal
hygiene practices and wear appropriate personal protective equipment.

 

Do not wear contaminated clothing or shoes.

 

Conditions for safe storage: Keep container(s) tightly closed. Use and store
this material in cool, dry, well-ventilated areas. Store only in approved
containers. Keep away from any incompatible material (see Section 10). Protect
container(s) against physical damage.

 

8.  Exposure Controls / Personal Protection

 

Component

 

US-ACGIH

 

OSHA

 

Other

Graphite, Synthetic

 

TWA: 2 mg/m3

 

—

 

—

 

Note: State, local or other agencies or advisory groups may have established
more stringent limits. Consult an industrial hygienist or similar professional,
or your local agencies, for further information.

 

Eye/Face Protection: The use of eye/face protection is not normally required;
however, good industrial hygiene practice suggests the use of eye protection
that meets or exceeds ANSI Z.87.1 whenever working with chemicals.

 

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Skin/Hand Protection: The use of skin protection is not normally required;
however, good industrial hygiene practice suggests the use of gloves or other
appropriate skin protection whenever working with chemicals.

 

Respiratory Protection: Where there is potential for airborne exposure above the
exposure limit a NIOSH certified air purifying respirator equipped with N95
filters may be used.

 

A respiratory protection program that meets or is equivalent to OSHA 29 CFR
1910.134 and ANSI Z88.2 should be followed whenever workplace conditions warrant
a respirator’s use. Air purifying respirators provide limited protection and
cannot be used in atmospheres that exceed the maximum use concentration (as
directed by regulation or the manufacturer’s instructions), in oxygen deficient
(less than 19.5 percent oxygen) situations, or under conditions that are
immediately dangerous to life and health (IDLH).

 

Suggestions provided in this section for exposure control and specific types of
protective equipment are based on readily available Information. Users should
consult with the specific manufacturer to confirm the performance of their
protective equipment. Specific situations may require consultation with
industrial hygiene, safety, or engineering professionals.

 

9.  Physical and Chemical Properties

 

Note: Unless otherwise stated, values are determined at 20°C (68°F) and 700 mm
Hg (1 atm). Data represent typical values and are not intended to be
specifications.

 

Appearance:

Dark gray or black

Physical Form:

Solid

Odor:

No distinct odor

Odor Threshold:

No data

pH:

Not applicable

Vapor Pressure:

Not applicable

Vapor Density (air=1):

Not applicable

Boiling Point/Range:

No data

Melting/Freezing Point:

No data

Solubility in Water:

Insoluble

Partition Coefficient (n-octanol/water) (Kow):

No data

Specific Gravity:

2.24 @ 68°F (20°C)

Bulk Density:

0.5-1.1 g/cc

Percent Volatile:

Not applicable

Evaporation Rate (nBuAc=1):

No data

Flash Point:

N/A

Test Method:

Not applicable

LEL (vol % in air):

No data

UEL (vol % in air):

No data

Autoignition Temperature:

No data

 

10.  Stability and Reactivity

 

Stability: Stable under normal ambient and anticipated conditions of use.

 

Conditions to Avoid: None known.

 

Materials to Avoid (Incompatible Materials): Avoid contact with strong oxidizing
agents and strong reducing agents.

 

Hazardous Decomposition Products: Not anticipated under normal conditions of
use.

 

Hazardous Polymerization: Not known to occur.

 

11.  Toxicological Information

 

Chronic Data:

 

Graphite, Synthetic

Target Organs: Chronic lung irritation (pneumoconiosis) due to deposition of
dust particles in the lungs, has been reported among workers exposed to carbon
or graphite-containing dusts. The amount of silica in the dust is considered
important in determining whether fibrosis can result from long term exposure to
the dust. Since synthetic graphite is derived only from petroleum (and not coal)
feedstocks, no crystalline silica should be present.

 

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Graphite, Synthetic

 

Acute Data:

 

Component

 

Oral LD50

 

Dermal LD50

 

Inhalation LC50

Graphite, Synthetic

 

> 5 g/kg (estimated)

 

> 2 g/kg (estimated)

 

No information available

 

12.  Ecological Information

 

Ecological Information: No adverse environmental or ecological effects are
expected.

 

13.  Disposal Considerations

 

The generator of a waste is always responsible for making proper hazardous waste
determinations and needs to consider state and local requirements in addition to
federal regulations.

 

This material, if discarded as produced, would not be a federally regulated RCRA
“listed” hazardous waste and is not believed to exhibit characteristics of
hazardous waste. See Sections 7 and 8 for information on handling, storage and
personal protection and Section 9 for physical/chemical properties. It is
possible that the material as produced contains constituents which are not
required to be listed in the MSDS but could affect the hazardous waste
determination. Additionally, use which results in chemical or physical change of
this material could subject it to regulation as a hazardous waste.

 

Container contents should be completely used and containers should be emptied
prior to discard.

 

14.  Transportation Information

 

U.S. Department of Transportation (DOT)

Shipping Description:

 

Not regulated

 

International Maritime Dangerous Goods (IMDG)

Shipping Description:

 

Not regulated

 

International Civil Aviation Org. / International Air Transport Assoc.
(ICAO/IATA)

UN/ID #:

 

Not regulated

 

 

 

LTD. QTY

 

Passenger Aircraft

 

Cargo Aircraft Only

 

Packaging Instruction #:

 

—

 

—

 

—

 

Max. Net Qty. Per Package:

 

—

 

—

 

—

 

 

15. Regulatory Information

 

CERCLA/SARA - Section 302 Extremely Hazardous Substances and TPQs (in pounds):

This material does not contain any chemicals subject to the reporting
requirements of SARA 302 and 40 CFR 372.

 

CERCLA/SARA - Section 311/312 (Title III Hazard Categories)

Acute Health:

 

No

Chronic Health:

 

No

Fire Hazard:

 

No

Pressure Hazard:

 

No

Reactive Hazard:

 

No

 

CERCLA/SARA - Section 313 and 40 CFR 372:

This material does not contain any chemicals subject to the reporting
requirements of SARA 313 and 40 CFR 372.

 

EPA (CERCLA) Reportable Quantity (in pounds):

This material does not contain any chemicals with CERCLA Reportable Quantities.

 

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California Proposition 65:

This material does not contain any chemicals which are known to the State of
California to cause cancer, birth defects or other reproductive harm at
concentrations that trigger the warning requirements of California Proposition
65.

 

Canadian Regulations:

This product has been classified in accordance with the hazard criteria of the
Controlled Products Regulations (CPR) and the MSDS contains all the information
required by the Regulations.

 

WHMIS Hazard Class

None

 

Component

 

AICS

 

DSL

 

NDSL

 

CHINA

 

ELINCS

 

EINECS

 

ENCS

 

KOREA

 

PICCS

 

TSCA

Graphite, Synthetic
7782-42-5

 

x

 

x

 

 

 

x

 

 

 

x

 

 

 

x

 

x

 

x

 

Legend: AICS - Australia Inventory of Chemical Substances, DSL - Domestic
Substances List (Canada), NDSL - Non-Domestic Substances List (Canada), CHINA -
Inventory List, ELINCS - EU List of Notified Chemical Substances, EINECS -
European Inventory of Existing Commercial Chemical Substances, ENCS - Japan
Existing and New Chemical Substances, KOREA - Existing and Evaluated Chemical
Substances, PICCS - Philippines Inventory of Chemicals and Chemical Substances,
TSCA - United States Section 8(b) Inventory

 

U.S. Export Control Classification Number: EAR99

 

Other Regulatory lnformation

 

U.S. Export Code (Schedule B) - 380110

 

Import Harmonized Tariff Schedule (HTS) Code - 3801.10.50

 

16. Other Information

 

Date of Issue:

26-Sep-2008

Status:

Final

Previous Issue Date:

22-Feb-2008

Revised Sections or Basis for Revision:

Product Name / Synonyms (Section 1)
Composition (Section 3)
Personal Protective Equipment (Section 8)
Toxicological (Section 11)

MSDS Number:

801538

 

Guide to Abbreviations:

ACGIH = American Conference of Governmental Industrial Hygienists; CASRN =
Chemical Abstracts Service Registry Number; CEILING = Ceiling Limit (15
minutes); CERCLA = The Comprehensive Environmental Response, Compensation, and
Liability Act; EPA = Environmental Protection Agency; IARC = International
Agency for Research on Cancer; LEL = Lower Explosive Limit; NE = Not
Established; NFPA = National Fire Protection Association; NTP = National
Toxicology Program; OSHA = Occupational Safety and Health Administration; PEL =
Permissible Exposure Limit (OSHA); SARA = Superfund Amendments and
Reauthorization Act; STEL = Short Term Exposure Limit (15 minutes); TLV =
Threshold Limit Value (ACGIH); TWA = Time Weighted Average (8 hours); UEL =
Upper Explosive Limit; WHMIS = Worker Hazardous Materials Information System
(Canada)

 

Disclaimer of Expressed and Implied Warranties:

The information presented in this Materiel Safety Data Sheet is based on data
believed to be accurate as of the date this Material Safety Data Sheet was
prepared. HOWEVER, NO WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR
PURPOSE, OR ANY OTHER WARRANTY IS EXPRESSED OR IS TO BE IMPLIED REGARDING THE
ACCURACY OR COMPLETENESS OF THE INFORMATION PROVIDED ABOVE, THE RESULTS TO BE
OBTAINED FROM THE USE OF THIS INFORMATION OR THE PRODUCT, THE SAFETY OF THIS
PRODUCT, OR THE HAZARDS RELATED TO ITS USE. No responsibility is assumed for any
damage or injury resulting from abnormal use or from any failure to adhere to
recommended practices. The information provided above, and the product, are
furnished on the condition that the person receiving them shall make their own
determination as to the suitability of the product for their particular purpose
and on the condition that they assume the risk of their use. In addition, no
authorization is given nor implied to practice any patented invention without a
license.

 

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Exhibit 4

CPreme® Graphite Powder Storage Instructions

 

CPreme® anode powder (“Product”) is warranted to maintain the manufacturer’s
specification for a period of 3 years from the product shipment date if stored
properly as described in this exhibit. Failure to follow these storage
instructions will void the warranty.

 

1.               Product must be stored in the original containers and packaging
with original seals and manufacturing markings intact. Product labeling should
not be removed and kept legible throughout storage.

2.               Product must be stored in a clean, indoor, temperature and
humidity controlled space.

3.               Product shall be kept dry, free from moisture or condensation
and can not be dipped or submerged in water or any other liquids.

4.               Product and the packaging should be kept free of dust (blowing
or settling).

5.               Product must be stored in an insect end pest free environment.

6.               Product must be stored and handled in conditions that do not
allow contamination by any other materials including water, solvents, dust,
chemicals or solids.

 

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