Exhibit 10.2

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.: 1

Number of Shares of Common Stock: 12,500,000

Date of Issuance:  January 25, 2012 (“Issuance Date”)

 

A123 Systems, Inc., a Delaware corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [                            ], the registered holder
hereof or its permitted assigns (the “Holder”), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon exercise of this Warrant to Purchase Common
Stock (including any Warrants to Purchase Common Stock issued in exchange,
transfer or replacement hereof, the “Warrant”), at any time or times on or after
the six month and one day anniversary of the date hereof (the “Exercisability
Date”), but not after 11:59 p.m., New York time, on the Expiration Date (as
defined below), Twelve Million Five Hundred Thousand (12,500,000) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). 
Except as otherwise defined herein, capitalized terms in this Warrant shall have
the meanings set forth in Section 16.  This Warrant is the Warrant to purchase
Common Stock (this “Warrant”) issued pursuant to (i) Section 2 of that certain
Subscription Agreement (the “Subscription Agreement”), dated as of January 19,
2012 (the “Subscription Date”), by and between the Company and the Holder (the
“Subscription Agreement”) and (ii) the Company’s Registration Statement on Form
S-3 (File number 333-173122) (the “Registration Statement”).

 

1.               EXERCISE OF WARRANT.

 

(a)          Mechanics of Exercise.  Subject to the terms and conditions hereof,
this Warrant may be exercised by the Holder on any day on or after the
Exercisability Date, in whole or in part, by delivery of a written notice, in
the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s
election to exercise this Warrant.  Within two (2) days following the Exercise
Notice, the Holder shall make payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to which
this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by
wire transfer of immediately available funds, or provided the conditions for
cashless exercise set forth in Section 1(d) are satisfied, by notifying the
Company that this Warrant is being exercised pursuant to a Cashless Exercise (as
defined in Section 1(d)).  The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder.  Execution and
delivery of the Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares.  On or before the first (1st) Business Day following the date
on which the Company has received the Exercise Notice, the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Notice to the Holder and the Company’s transfer agent (the “Transfer
Agent”).  On or before the third (3rd) Business Day following the date on which
the Company has received the Exercise Notice (the “Share Delivery Date”) and
provided that prior to such time the Company shall have received

 

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

 

the Aggregate Exercise Price (or notice of a Cashless Exercise) with respect to
the Warrant Shares to be purchase pursuant to such Exercise Notice, the Company
shall (X) upon the request of the Holder, provided that the Transfer Agent is
participating in The Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program, credit such aggregate number of Warrant Shares to which the
Holder is entitled pursuant to such exercise to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal At Custodian system, or
(Y) issue and dispatch by overnight courier to the address as specified in the
Exercise Notice, a certificate, registered in the Company’s share register in
the name of the Holder or its designee, for the number of shares of Common Stock
to which the Holder is entitled pursuant to such exercise if the Transfer Agent
is not participating in the DTC Fast Automated Securities Transfer Program. 
Upon delivery of the Exercise Notice, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares, as the case may
be.  If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three Business Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares purchasable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised.  No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but rather the number of shares of
Common Stock to be issued shall be rounded to the nearest whole number. 
Issuance and delivery of certificates for shares of Common Stock upon exercise
of this Warrant shall be made without charge to the Holder for any issue or
transfer tax, transfer agent fee or other incidental tax or expense in respect
of the issuance of such certificates, all of which taxes and expenses shall be
paid by the Company; provided, however, that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or the Warrants in a name
other than that of the Holder or an affiliate thereof. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

(b)         Exercise Price.  For purposes of this Warrant, “Exercise Price”
means $2.71, subject to adjustment as provided herein.

 

(c)          Company’s Failure to Timely Deliver Securities.  If the Company
shall fail for any reason or for no reason to issue to the Holder within three
(3) Business Days of receipt of the Exercise Notice in compliance with the terms
of this Section 1 (other than due to the failure of Holder to deliver the
Aggregate Exercise Price (or notice of a Cashless Exercise) relating to such
Exercise Notice), a certificate for the number of Warrant Shares to which the
Holder is entitled and register such shares of Common Stock on the Company’s
share register or to credit the Holder’s balance account with DTC for such
number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of shares of Common
Stock issuable upon such exercise that the Holder anticipated receiving from the
Company (a “Buy-

 

2

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

 

In”), then the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such certificate
(and to issue such Warrant Shares) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such Warrant Shares and pay cash to the Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) the number of shares of
Common Stock purchased in the Buy-In, times (B) the Closing Bid Price on the
date of exercise.

 

(d)         Cashless Exercise.  Notwithstanding anything contained herein to the
contrary, if a registration statement covering the Warrant Shares that are the
subject of the Exercise Notice (the “Unavailable Warrant Shares”) or an
exemption from registration is not available for the resale of such Unavailable
Warrant Shares, then in lieu of making the cash payment otherwise contemplated
to be made to the Company upon such exercise, the Holder can elect instead to
receive upon such exercise the “Net Number” of shares of Common Stock determined
according to the following formula (a “Cashless Exercise”):

 

Net Number = (A x B) - (A x C)

D

 

For purposes of the foregoing formula:

 

A= the total number of shares with respect to which this Warrant is then being
exercised.

 

B= the arithmetic average of the Closing Sale Prices of the shares of Common
Stock for the five (5) consecutive Trading Days ending on the date immediately
preceding the date of the Exercise Notice.

 

C= the Exercise Price then in effect for the applicable Warrant Shares at the
time of such exercise.

 

D= the Closing Sale Price on the date of the Exercise Notice.

 

(e)          Rule 144.  For purposes of Rule 144(d)(3)(ii) promulgated under the
Securities Act, as in effect on the date hereof, it is intended that the Warrant
Shares issued in a Cashless Exercise shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.

 

(f)            Disputes.  In the case of a dispute as to the determination of
the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed.

 

(g)         Beneficial Ownership Limitation.  The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right to exercise
this Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person’s

 

3

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

 

affiliates) would beneficially own in excess of 4.99% (the “Maximum Percentage”)
of the shares of the total number of the then issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise).  The Company shall be entitled to rely on receipt of an
Exercise Notice as an indication that Holder will not, pursuant to such
exercise, exceed the Maximum Percentage.  For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by
such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, it being acknowledged by the Holder that the Company is not
representing to the Holder that such calculation is in compliance with Section
13(d) of the Exchange Act and the Holder is solely responsible for any schedules
required to be filed in accordance therewith. For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (1) the
Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other
public filing with the Securities and Exchange Commission, as the case may be,
(2) a more recent public announcement by the Company or (3) any other notice by
the Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or oral request
of the Holder, the Company shall within three (3) Business Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including the Warrants, by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported.  By written notice to the Company, the Holder may from time to time
increase or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to the Holder and not to any other holder of the Warrants.  For the avoidance of
doubt, to the extent the limitation set forth in this Section 1(g) applies, the
determination (i) of whether the exercise of this Warrant may be effected
(vis-a-vis other Options or Convertible Securities owned by the Holder or any of
its affiliates) and (ii) of which such Options or Convertible Securities shall
be convertible, exercisable or exchangeable (as the case may be, as among all
such securities owned by the Holder) shall, subject to such Maximum Percentage
limitation, be determined on the basis of the first submission to the Company
for conversion, exercise or exchange (as the case may be).  Upon such a change
by a Holder of the beneficial ownership limitation from such 4.99% limitation to
such 9.99% limitation, the beneficial ownership limitation may not be further
waived by such Holder.  The provisions of this paragraph shall be construed and
implemented in a manner other than in strict conformity with the terms of this
Section 1(g) to correct this paragraph (or any

 

4

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

 

portion hereof) which may be defective or inconsistent with the intended
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.

 

(h)         Insufficient Authorized Shares.  If at any time from and after the
Exercisability Date and while any of the Warrants remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon exercise of the
Warrants at least 100% of the maximum number of shares of Common Stock as shall
from time to time be necessary to effect the exercise of all of the Warrants
then outstanding (without regard to any limitations on exercise) (the “Required
Reserve Amount”) (an “Authorized Share Failure”), then the Company shall take
all action necessary to increase the Company’s authorized shares of Common Stock
to an amount sufficient to allow the Company to reserve the Required Reserve
Amount for the Warrants then outstanding.  Without limiting the generality of
the foregoing sentence, as soon as practicable after the date of the occurrence
of an Authorized Share Failure, but in no event later than one hundred and
eighty (180) days after the occurrence of such Authorized Share Failure (the
“Authorized Share Failure Deadline”), and assuming such Authorized Share Failure
still exists, the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.  In the event that upon any exercise of this Warrant at any time from
and after the Authorized Share Failure Deadline, the Company does not have
sufficient authorized shares to deliver in satisfaction of such exercise, then
unless the Holder elects to void such exercise, the Company shall pay to the
Holder within three (3) Trading Days of the applicable exercise, cash in an
amount equal to the product of (i) the number of Warrant Shares that the Company
is unable to deliver pursuant hereto and (ii) the Black Scholes Value.

 

2.               ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:

 

(a)          Stock Dividends and Splits. Without limiting any provision of
Section 2(b) or Section 4, if the Company, at any time on or after the
Subscription Date, (i) pays a stock dividend on one or more classes of its then
outstanding shares of Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii)
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a smaller number of shares (a “Stock Combination Event”), then in each such
case the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event.  Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this

 

5

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

 

paragraph shall become effective immediately after the effective date of such
subdivision or combination.  If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated
hereunder, then the calculation of such Exercise Price shall be adjusted
appropriately to reflect such event. Simultaneously with any adjustment to the
Exercise Price pursuant to this paragraph, the number of Warrant Shares that may
be purchased upon exercise of this Warrant shall be increased or decreased
proportionately, so that after such adjustment the aggregate Exercise Price
payable hereunder for the adjusted number of Warrant Shares shall be the same as
the aggregate Exercise Price in effect immediately prior to such adjustment
(without regard to any limitations on exercise contained herein).

 

(b)         Other Events. If any event occurs of the type contemplated by the
provisions of Section 2(a) but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features, other than the
issuance of Excluded Securities (as defined below)), then the Company’s board of
directors shall in good faith determine and implement an appropriate adjustment
in the Exercise Price and the number of Warrant Shares (if applicable) so as to
protect the rights of the Holder, provided that no such adjustment pursuant to
this Section 2(b) will increase the Exercise Price or decrease the number of
Warrant Shares as otherwise determined pursuant to this Section 2.

 

(c)          Calculations. All calculations under this Section 2 shall be made
by rounding to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company, and
the disposition of any such shares shall be considered an issue or sale of
Common Stock.

 

3.               RIGHTS UPON DISTRIBUTION OF ASSETS.   In addition to any
adjustments pursuant to Section 2 above, if the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
securities (other than stock or securities in which an adjustment is being made
pursuant to Section 2(a)), property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case, upon any exercise of this Warrant that occurs
after the record date fixed for determination of stockholders entitled to
receive such Distribution, the Holder shall be entitled to receive, in addition
to the Warrant Shares otherwise issuable upon such exercise (if applicable), the
Distribution that such Holder would have been entitled to receive in respect of
such number of Warrant Shares had the Holder been the record holder of such
Warrant Shares immediately prior to the record date for such Distribution or, if
no such record is taken, the date as of which the record holders of shares of
Common Stock are to be determined for the participation in such Distribution
(provided, however, to the extent that the Holder’s right to participate in any
such Distributions would result in the Holder exceeding the Maximum Percentage,
then the Holder shall not be entitled to participate in such Distribution to
such extent (or the beneficial ownership of any such shares of Common Stock as a
result of such Distribution to such extent) and such Distribution to such extent
shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage).

 

6

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

 

4.               PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(a)          Purchase Rights.  In addition to any adjustments pursuant to
Section 2 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the
Maximum Percentage) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of shares of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided,
however, to the extent that the Holder’s right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).

 

(b)         Fundamental Transactions.   The Company shall not enter into or be
party to a Fundamental Transaction unless the Successor Entity either (i)
assumes in writing all of the obligations of the Company under this Warrant in
accordance with the provisions of this Section 4(b), including agreements to
deliver to the Holder in exchange for this Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant, including, without limitation, which is exercisable
for a corresponding number of shares of capital stock equivalent to the shares
of Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such adjustments to
the number of shares of capital stock and such exercise price being for the
purpose of protecting the economic value of this Warrant immediately prior to
the consummation of such Fundamental Transaction) and agrees to succeed to, and
be substituted for (so that from and after the date of the applicable
Fundamental Transaction, the provisions of this Warrant and the Subscription
Agreement referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Warrant with the same effect as
if such Successor Entity had been named as the Company herein or (ii) upon
consummation of such Fundamental Transaction, delivers to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the applicable Fundamental Transaction, in lieu
of the shares of Common Stock (or other securities, cash, assets or other
property (except such items still issuable under Sections 3 and 4 above, which
shall continue to be receivable thereafter)) issuable upon the exercise of this
Warrant prior to the applicable Fundamental Transaction, such shares of publicly
traded common stock (or its equivalent) of the Successor Entity (including its
Parent Entity) which the Holder would have been entitled to receive upon the
happening of the applicable

 

7

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

 

Fundamental Transaction had this Warrant been exercised immediately prior to the
applicable Fundamental Transaction (without regard to any limitations on the
exercise of this Warrant), as adjusted in accordance with the provisions of this
Warrant (and the Holder shall no longer have the right to receive Warrant Shares
upon exercise of this Warrant). Notwithstanding the foregoing, and without
limiting Section 1(g) hereof, the Holder may elect, at its sole option, by
delivery of written notice to the Company to waive this Section 4(b) to permit
the Fundamental Transaction without the assumption of this Warrant.  In addition
to and not in substitution for any other rights hereunder, prior to the
consummation of each Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), to the
extent not already made by the Successor Entity, the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon an exercise of this Warrant at any time after the consummation
of the applicable Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property (except such items still issuable under Sections 3 and 4(a)
above, which shall continue to be receivable thereafter)) issuable upon the
exercise of the Warrant prior to such Fundamental Transaction, such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of the applicable Fundamental
Transaction had this Warrant been exercised immediately prior to the applicable
Fundamental Transaction (without regard to any limitations on the exercise of
this Warrant). Provision made pursuant to the preceding sentence shall be in a
form and substance reasonably satisfactory to the Holder. Notwithstanding the
foregoing, in the event of a Fundamental Transaction, at the request of the
Holder (which may be required by the Company if the Successor Entity is not
publicly traded) delivered before the 90th day after the public disclosure of
such Fundamental Transaction by the Company pursuant to a Current Report on Form
8-K filed with the SEC, the Company (or the Successor Entity) shall purchase
this Warrant from the Holder by paying to the Holder, within five Business Days
after such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Fundamental
Transaction.

 

(c)          Application. The provisions of this Section 4 shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied as if this Warrant (and any such subsequent warrants) were
fully exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).

 

5.               NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder.  Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the

 

8

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

 

Exercise Price then in effect, (ii) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, and (iii) shall, so long as this Warrant is outstanding, take all
action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
exercise of this Warrant, 100% of the number of shares of Common Stock issuable
upon exercise of this Warrant then outstanding (without regard to any
limitations on exercise).

 

6.               WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  Except as otherwise
specifically provided herein, the Holder, solely in such Person’s capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person’s capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant.  In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.

 

7.               REISSUANCE OF WARRANTS.

 

(a)          Transfer of Warrant.  If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

 

(b)         Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

 

(c)          Exchangeable for Multiple Warrants.  This Warrant is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Warrant or Warrants (in accordance with Section 7(d)) representing in
the aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated

 

9

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

 

by the Holder at the time of such surrender; provided, however, that no Warrants
for fractional shares of Common Stock shall be given.

 

(d)   Issuance of New Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to
Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which,
when added to the number of shares of Common Stock underlying the other new
Warrants issued in connection with such issuance, does not exceed the number of
Warrant Shares then underlying this Warrant), (iii) shall have an issuance date,
as indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.

 

8.     NOTICES.  Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 6 of Annex I to the Subscription Agreement.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon each adjustment of the Exercise Price and the number of
Warrant Shares, setting forth in reasonable detail, and certifying, the
calculation of such adjustment(s) and (ii) at least fifteen (15) days prior to
the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock,
(B) with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder and (iii) at least ten
(10) Trading Days prior to the consummation of any Fundamental Transaction.  To
the extent that any notice provided hereunder constitutes, or contains,
material, non-public information regarding the Company or any of its
Subsidiaries, the Company shall, prior to opening of the Principal Market on the
Trading Day immediately following the day notice is given file such notice with
the Securities and Exchange Commission pursuant to a Current Report on Form 8-K.
It is expressly understood and agreed that the time of execution specified by
the Holder in each Exercise Notice shall be definitive and may not be disputed
or challenged by the Company.

 

9.     AMENDMENT AND WAIVER.  Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder.

 

10.   SEVERABILITY.  If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the Company and the Holder
(collectively, the “Parties”) as to the

 

10

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

 

subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the Parties or the practical
realization of the benefits that would otherwise be conferred upon the Parties.
The Parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

11.   GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Nothing contained
herein shall be deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Company in any other jurisdiction to
collect on the Company’s obligations to the Holder or to enforce a judgment or
other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

12.   CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any Person as
the drafter hereof.  The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined in the Securities Purchase Agreement) in such other Transaction
Documents unless otherwise consented to in writing by the Holder.

 

13.   DISPUTE RESOLUTION. In the case of a dispute as to the determination of
the Exercise Price, the Closing Sale Price, the Closing Bid Price or fair market
value or the arithmetic calculation of the Warrant Shares (as the case may be),
the Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile
(i) within two (2) Business Days after receipt of the applicable notice giving
rise to such dispute to the Company or the Holder (as the case may be) or
(ii) if no notice gave rise to such dispute, at any time after the Holder
learned of the circumstances giving rise to such dispute (including, without
limitation, as to whether any issuance or sale or deemed issuance or sale was an
issuance or sale or deemed issuance or sale of Excluded Securities). If the
Holder and the Company are unable to agree upon such determination or
calculation (as the

 

11

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

 

case may be) of the Exercise Price, the Closing Sale Price, the Closing Bid
Price or fair market value or the number of Warrant Shares (as the case may be)
within three (3) Business Days of such disputed determination or arithmetic
calculation being submitted to the Company or the Holder (as the case may be),
then the Company shall, within two (2) Business Days submit via facsimile
(a) the disputed determination of the Exercise Price, the Closing Sale Price,
the Closing Bid Price or fair market value (as the case may be) to an
independent, reputable investment bank by the Company and approved by the Holder
or (b) the disputed arithmetic calculation of the Warrant Shares to the
Company’s independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant (as the case may be) to perform
the determinations or calculations (as the case may be) and notify the Company
and the Holder of the results no later than ten (10) Business Days from the time
it receives such disputed determinations or calculations (as the case may be).
Such investment bank’s or accountant’s determination or calculation (as the case
may be) shall be binding upon all parties absent demonstrable error.

 

14.   REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Warrant shall be cumulative and in
addition to all other remedies available under this Warrant and the other
Transaction Documents, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. Amounts set forth or provided for herein
with respect to payments, exercises and the like (and the computation thereof)
shall be the amounts to be received by the Holder and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company shall provide all information and
documentation to the Holder that is requested by the Holder to enable the Holder
to confirm the Company’s compliance with the terms and conditions of this
Warrant (including, without limitation, compliance with Section 2 hereof).

 

15.   TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company.

 

16.   CERTAIN DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

 

(a)           “Black Scholes Value” means the value of the unexercised portion
of this Warrant remaining on the date of the Holder’s request, which value is
calculated using the Black Scholes Option Pricing Model obtained from the “OV”
function on Bloomberg utilizing (i) an underlying price per share equal to, in
the event of an Authorized Share Failure, the VWAP on the exercise date, or, in
the event of a Fundamental Transaction, the VWAP on the Trading Day immediately
preceding the consummation of the applicable Fundamental Transaction, (ii) a
strike price equal to the Exercise Price in effect on the of date of the
Holder’s request, (iii) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the greater of (1) the remaining term of
this Warrant as of the date of the Holder’s request and (2) the remaining term
of this Warrant as of the date of consummation of the applicable Fundamental
Transaction or as of the date of the Holder’s request pursuant to
Section 4(c) if such request is prior to the date of the consummation of the
applicable Fundamental Transaction,

 

12

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

 

(iv) a zero cost of borrow and (v) an expected volatility equal to the greater
of 100% and the 30-day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 365-day annualization factor) as of the Trading Day
immediately following the earlier to occur of the public disclosure or
consummation of the applicable Fundamental Transaction.

 

(b)           “Bloomberg” means Bloomberg, L.P.

 

(c)           “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

 

(d)           “Closing Bid Price” and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or the last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, the board of directors of the Company shall use
its good faith judgment to determine the fair market value.  The board of
directors’ determination shall be binding upon all parties absent demonstrable
error.  All such determinations shall be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

 

(e)           “Common Stock” means (i) the Company’s shares of common stock, par
value $0.001 per share, and (ii) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.

 

(f)            “Convertible Securities” means any stock or other security (other
than Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(g)           “Eligible Market” means The New York Stock Exchange, the NYSE
Amex, the Nasdaq Global Market, the Nasdaq Capital Market or the Principal
Market.

 

(h)           “Excluded Securities” means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company in their
capacity as

 

13

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

 

such pursuant to any stock or option plan or employment agreement duly adopted
for such purpose, by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise or exchange of or
conversion of the securities issued hereunder or pursuant to the Subscription
Agreement and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
exercise price, exchange price or conversion price of such securities, and
(c) securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company, provided
that any such issuance shall only be to a Person (or to the equity holders of a
Person) which is, itself or through its subsidiaries, an operating company or an
owner of an asset in a business synergistic with the business of the Company and
shall provide to the Company additional benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.

 

(i)            “Expiration Date” means the date that is twenty-four (24) months
following the Exercisability Date, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal Market (a
“Holiday”), the next date that is not a Holiday.

 

(j)            “Fundamental Transaction” means that (i) the Company or any of
its Subsidiaries shall, directly or indirectly, in one or more related
transactions, (1) consolidate or merge with or into (whether or not the Company
or any of its Subsidiaries is the surviving corporation) any other Person, or
(2) sell, lease, license, assign, transfer, convey or otherwise dispose of all
or substantially all of its respective properties or assets to any other Person,
or (3) allow any other Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than 50% of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of the Company
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (4) consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with any other Person whereby such other
Person acquires more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
other Person or other Persons making or party to, or associated or affiliated
with the other Persons making or party to, such stock or share purchase
agreement or other business combination), or (5) reorganize, recapitalize or
reclassify the Common Stock, or (ii) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) is or shall become the “beneficial owner”
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.

 

(k)           “Options” means any rights, warrants or options to subscribe for
or purchase shares of Common Stock or Convertible Securities.

 

14

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

 

(l)            “Parent Entity” of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

 

(m)          “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.

 

(n)           “Principal Market” means the Nasdaq Global Select Market.

 

(o)           “Successor Entity” means the Person (or, if so elected by the
Holder, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into.

 

(p)           “Trading Day” means any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.

 

(q)           “Voting Stock” of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers or trustees of such Person (irrespective of
whether or not at the time capital stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).

 

(r)            “VWAP” has the meaning set forth in Section 3(c) of the
Subscription Agreement.

 

[signature page follows]

 

15

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

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock
to be duly executed as of the Issuance Date set out above.

 

 

 

 

A123 SYSTEMS, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

Name: David Prystash

 

 

Title: Chief Financial Officer

 

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

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

123 SYSTEMS, INC.

 

The undersigned holder hereby exercises the right to purchase
                                   of the shares of Common Stock (“Warrant
Shares”) of A123 Systems, Inc., a Delaware corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). 
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

 

1.  Form of Exercise Price.  The Holder intends that payment of the Exercise
Price shall be made as:

 

                           a “Cash Exercise” with respect to
                                   Warrant Shares; and/or

 

                           a “Cashless Exercise” with respect to
                               Warrant Shares.

 

2.  Payment of Exercise Price.  In the event that the Holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$                             to the Company in accordance with the terms of the
Warrant.

 

3.  Delivery of Warrant Shares.  The Company shall deliver to the Holder
                     Warrant Shares in accordance with the terms of the Warrant.

 

Date:                                    ,

 

 

 

 

 

 

 

 

Name of Registered Holder

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

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

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs American
Stock Transfer and Trust Company, LLC to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
                , 2012 from the Company and acknowledged and agreed to by
American Stock Transfer and Trust Company, LLC.

 

 

 

A123 SYSTEMS, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

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