Exhibit 10.1

 

EXECUTION COPY

 

 

 

LOAN AGREEMENT

 

dated as of

 

August 16, 2012

 

between

 

A123 SYSTEMS, INC.

 

and

 

WANXIANG AMERICA CORPORATION

 

 

 

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TABLE OF CONTENTS

 

 

 

Page

 

 

ARTICLE I DEFINITIONS

1

 

 

SECTION 1.01.

Defined Terms

1

SECTION 1.02.

Terms Generally

17

SECTION 1.03.

Accounting Terms; GAAP

17

 

 

 

ARTICLE II THE CREDIT

17

 

 

SECTION 2.01.

Commitment

17

SECTION 2.02.

Borrowing Procedures; Requests for Loans

18

SECTION 2.03.

Termination and Reduction of Commitment

18

SECTION 2.04.

Repayment; Evidence of Debt

18

SECTION 2.05.

Prepayment of Loans

19

SECTION 2.06.

Fees

19

SECTION 2.07.

Interest

20

SECTION 2.08.

Increased Costs

21

SECTION 2.09.

Taxes

21

SECTION 2.10.

Payments Generally; Allocation of Proceeds

24

SECTION 2.11.

Indemnity for Returned Payments

24

SECTION 2.12.

Allocation of Purchase Price

25

SECTION 2.13.

Letters of Credit

25

SECTION 2.14.

Permitted Alternative Bridge Financing

27

 

 

 

ARTICLE III REPRESENTATIONS AND WARRANTIES

27

 

 

SECTION 3.01.

Organization; Powers

27

SECTION 3.02.

Authorization; Enforceability

27

SECTION 3.03.

Governmental Approvals; No Conflicts

27

SECTION 3.04.

Financial Condition; No Material Adverse Change

28

SECTION 3.05.

Properties

28

SECTION 3.06.

Litigation and Environmental Matters

28

SECTION 3.07.

Compliance with Laws and Agreements

29

SECTION 3.08.

Investment Company Status

29

SECTION 3.09.

Taxes

29

SECTION 3.10.

ERISA

30

SECTION 3.11.

Disclosure

30

SECTION 3.12.

Material Agreements

30

SECTION 3.13.

Solvency

30

SECTION 3.14.

Insurance

31

SECTION 3.15.

Capitalization and Subsidiaries

31

SECTION 3.16.

Security Interest in Collateral

31

SECTION 3.17.

Employment Matters

31

SECTION 3.18.

Common Enterprise

31

SECTION 3.19.

Margin Rules

31

SECTION 3.20.

Competing Businesses

32

SECTION 3.21.

Change of Control Payments

32

SECTION 3.22.

Excluded Subsidiaries

32

 

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TABLE OF CONTENTS
(Continued)

 

 

 

Page

 

 

ARTICLE IV CONDITIONS

32

 

 

SECTION 4.01.

Effective Date

32

SECTION 4.02.

Initial Loan

33

SECTION 4.03.

Each Subsequent Loan

35

 

 

 

ARTICLE V AFFIRMATIVE COVENANTS

36

 

 

SECTION 5.01.

Financial Statements and Other Information

36

SECTION 5.02.

Notices of Material Events

38

SECTION 5.03.

Existence; Conduct of Business

39

SECTION 5.04.

Payment of Obligations; Taxes

39

SECTION 5.05.

Maintenance of Properties

39

SECTION 5.06.

Books and Records; Inspection Rights

39

SECTION 5.07.

Compliance with Laws

40

SECTION 5.08.

Use of Proceeds

40

SECTION 5.09.

Insurance

40

SECTION 5.10.

Casualty and Condemnation

40

SECTION 5.11.

Additional Collateral; Further Assurances

40

SECTION 5.12.

Shares Reserve

41

SECTION 5.13.

Specified Agreements

41

SECTION 5.14.

Employee Retention

42

SECTION 5.15.

Post-Closing Governmental Approvals

42

 

 

 

ARTICLE VI NEGATIVE COVENANTS

42

 

 

SECTION 6.01.

Indebtedness

42

SECTION 6.02.

Liens

43

SECTION 6.03.

Mergers; Nature of Business

44

SECTION 6.04.

Investments, Loans, Advances, Guarantees and Acquisitions

44

SECTION 6.05.

Asset Sales

45

SECTION 6.06.

Sale and Leaseback Transactions

45

SECTION 6.07.

Restricted Payments; Certain Payments of Indebtedness

45

SECTION 6.08.

Transactions with Affiliates

46

SECTION 6.09.

Restrictive Agreements

46

SECTION 6.10.

Amendment of Material Documents

46

SECTION 6.11.

Capital Expenditures

47

SECTION 6.12.

Minimum Liquidity

47

SECTION 6.13.

Existing Letters of Credit

47

 

 

 

ARTICLE VII EVENTS OF DEFAULT

47

 

 

ARTICLE VIII MISCELLANEOUS

50

 

 

SECTION 8.01.

Notices

50

SECTION 8.02.

Waivers; Amendments

52

SECTION 8.03.

Expenses; Indemnity; Damage Waiver

52

SECTION 8.04.

Successors and Assigns

54

 

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TABLE OF CONTENTS
(Continued)

 

 

 

Page

 

 

SECTION 8.05.

Survival

55

SECTION 8.06.

Counterparts; Integration; Effectiveness

55

SECTION 8.07.

Severability

55

SECTION 8.08.

Right of Setoff

55

SECTION 8.09.

Governing Law; Jurisdiction; Consent to Service of Process

56

SECTION 8.10.

WAIVER OF JURY TRIAL

56

SECTION 8.11.

Headings

57

SECTION 8.12.

Confidentiality

57

SECTION 8.13.

Nonreliance; Violation of Law

57

SECTION 8.14.

USA PATRIOT Act

57

SECTION 8.15.

Disclosure

57

SECTION 8.16.

Interest Rate Limitation

58

SECTION 8.17.

Termination and Release

58

 

 

 

ARTICLE IX

 

58

 

 

 

SECTION 9.01.

Designation of Agent

58

SECTION 9.02.

Intercreditor Matters

59

SECTION 9.03.

Actions by and Communications with the Agent

59

SECTION 9.04.

Payments

59

SECTION 9.05.

Independent Analysis

59

SECTION 9.06.

Actions in Concert

59

 

SCHEDULES:

 

Schedule 1.01 – Existing Letters of Credit

Schedule 3.03 – Governmental Approvals

Schedule 3.04 – Material Adverse Effect Exceptions

Schedule 3.05 - Properties

Schedule 3.06 - Disclosed Matters

Schedule 3.09 - Tax Matters

Schedule 3.12 - Specified Agreements

Schedule 3.14 - Insurance

Schedule 3.15 - Capitalization and Subsidiaries

Schedule 6.01 - Existing Indebtedness

Schedule 6.02 - Existing Liens

Schedule 6.04 - Existing Investments

Schedule 6.09 - Existing Restrictions

 

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TABLE OF CONTENTS
(Continued)

 

 

 

Page

 

 

 

EXHIBITS:

 

 

 

 

 

Exhibit A

Form of Opinion of Borrower’s Counsel

 

Exhibit B

Form of Compliance Certificate

 

Exhibit C

[Reserved]

 

Exhibit D

List of Closing Documents

 

Exhibit E

Form of Bridge Warrants

 

Exhibit F

[Reserved]

 

Exhibit G

Form of Borrowing Request

 

Exhibit H

Form of Note

 

 

iv

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This LOAN AGREEMENT, dated as of August 16, 2012 (as it may be amended,
restated, supplemented or otherwise modified from time to time, this
“Agreement”), is entered into by and between A123 SYSTEMS, INC. (the “Borrower”)
and WANXIANG AMERICA CORPORATION (“Wanxiang”) as the initial lender (the
“Lender”) hereunder and as agent for itself and each other Person that may from
time to time be a “Lender” hereunder.

 

The parties hereto agree as follows:

 

ARTICLE I

 

Definitions

 

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

 

“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.

 

“Agreement” has the meaning assigned to such term in the preamble.

 

“Alternative Financing” means debt or equity financing from a Person which is
not the Lender or an Affiliate of the Lender; provided that the term
“Alternative Financing” shall not include (i) any Indebtedness permitted under
Section 6.01 or (ii) any Equity Interests issued in accordance with stock option
plans or other benefit plans for management or employees of the Borrower or any
Loan Party in effect as of July 31, 2012.

 

“Alternative Financing Event” shall occur if (i) the Initial Loan is advanced by
the Lender and (ii) within one year after the date of the Initial Loan the
Borrower or any Subsidiary receives Alternative Financing without the Lender’s
approval; provided that, if any such Alternative Financing occurs after the
later of (x) one hundred eighty (180) days following the date of the Initial
Loan and (y) the Securities Purchase Agreement Termination Date and if, as of
the date of such Alternative Financing, the condition to closing set forth in
Section 4.10 of the Securities Purchase Agreement shall, through no fault of the
Borrower, not have been satisfied, then the incurrence of such Alternative
Financing shall not give rise to an Alternative Financing Event.

 

“Availability Period” means the period from and including the Effective Date to
but excluding the earliest of (i) the eighteen (18) month anniversary of the
Effective Date, (ii) the Senior Secured Convertible Notes Issuance Date,
(iii) the occurrence of a Prepayment Event and (iv) the date of termination of
the commitment of the Lender to make Loans pursuant to Article VII.

 

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

 

“Borrower” has the meaning assigned to such term in the preamble.

 

“Borrowing Date” has the meaning assigned to such term in Section 2.01.

 

“Borrowing Request” means a request by the Borrower for a Loan in accordance
with Section 2.02.

 

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“Bridge Warrant Shares” means any shares of Common Stock issued upon the
exercise of the Bridge Warrants.

 

“Bridge Warrants” means the Initial Bridge Warrants and the Subsequent Bridge
Warrants.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
remain closed.

 

“Capital Expenditures” means, without duplication, any expenditure for any
purchase or other acquisition of any asset which would be classified as a fixed
or capital asset on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with GAAP; provided that, for purposes of
Section 6.11, such amounts will be measured on a “net” basis after giving effect
to matching programs from the U.S. Department of Energy.

 

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

 

“Card/FX Obligations” means the obligations described in clause (ii) of the
definition of Existing Letters of Credit.

 

“Change in Control” means the occurrence of any of the following circumstances:

 

(a) any “person” (other than the Lender or its Affiliates) or “group” (other
than a group of which the Lender or any of its Affiliates is a member) (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act and
the rules of the Securities and Exchange Commission thereunder as in effect on
the date hereof) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of either (x) 30% of
the aggregate ordinary voting power represented by issued and outstanding Common
Stock or (y) 30% or more of the shares of Voting Stock of the Borrower not held
by such Person or Persons as of the date hereof;

 

(b) during any period of twelve (12) consecutive months, a majority of the
members of the board of directors of the Borrower cease to be composed of
individuals (i) who were members of that board on the first day of such period,
(ii) whose election or nomination to that board was approved by (x) individuals
referred to in clause (i) above constituting at the time of such election or
nomination at least a majority of that board or equivalent governing body or
(y) the Lender or its Affiliates, (iii) any individual who was nominated by the
Lender or its Affiliates or appointed to the board with the consent of the
Lender or its Affiliates in connection with issuance by the Borrower of its
Senior Secured Convertible Notes or (iv) whose election or nomination to that
board was approved by individuals referred to in clauses (i), (ii) and
(iii) above constituting at the time of such election or nomination at least a
majority of that board ; or

 

(c) the acquisition of direct or indirect Control of the Borrower by any Person
other than the Lender and its Affiliates or group that does not include the
Lender or any of its Affiliates.

 

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“Change in Law” means (a) the adoption of any law, rule, regulation or treaty
(including any rules or regulations issued under or implementing any existing
law) after the date of this Agreement, (b) any change in any law, rule,
regulation or treaty or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement, or (c) compliance by
the Lender with any request, guideline or directive (whether or not having the
force of law) of any Governmental Authority made or issued after the date of
this Agreement; provided that notwithstanding anything herein to the contrary,
(i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all
requests, rules, guidelines or directives thereunder, issued in connection
therewith or in implementation thereof, and (ii) all requests, rules, guidelines
and directives promulgated by the Bank for International Settlements, the Basel
Committee on Banking Supervision (or any successor or similar authority) or the
United States or foreign regulatory authorities, shall in each case be deemed to
be a “Change in Law”, regardless of the date enacted, adopted, issued or
implemented.

 

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

 

“Collateral” has the meaning assigned to such term in the Security Agreement.

 

“Collateral Access Agreement” has the meaning assigned to such term in the
Security Agreement.

 

“Collateral Documents” means, collectively, the Security Agreement, the
Mortgages and any other documents pursuant to which a Person grants a Lien upon
any real or personal property as security for payment of the Secured
Obligations.

 

“Commitment” means the aggregate commitment of the Lender to make the Loans and
procure issuance of the Letter of Credit pursuant to Article II, in an aggregate
principal amount and face amount at any one time outstanding not to exceed
Seventy-Five Million Dollars ($75,000,000), as such amount is reduced from time
to time in accordance with this Agreement.

 

“Common Stock” means the Borrower’s common stock, par value $0.001 per share.

 

“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. 

 

“Controlling” and “Controlled” have meanings correlative thereto.

 

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

 

“Deposit Account Control Agreement” has the meaning assigned to such term in the
Security Agreement.

 

“Disclosed Matters” means the actions, suits and proceedings and the
environmental matters disclosed in the Borrower’s publicly available filings
with the Securities and Exchange Commission filed on or prior to the date hereof
or in Schedule 3.06.

 

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

 

“Effective Date” means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 8.02).

 

3

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

 

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

 

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

 

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

 

“ERISA Affiliate” means any trade or business (whether or not incorporated)
that, together with the Borrower, is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of
ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.

 

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

 

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

 

4

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“Excluded Subsidiary” means, as of the Effective Date, each of Grid Storage
Holdings LLC, A123 Systems UK, Ltd. and A123 Systems China Co., Ltd., but only
for so long as each such Subsidiary (i) owns no Intellectual Property (as
defined in the Security Agreement), (ii) owns no other material property other
than any such property used in the process of winding down the operations of
such Subsidiary and (iii) is inactive, in the process of winding down or being
liquidated or is otherwise immaterial.

 

“Excluded Taxes” means, with respect to any payment made by any Loan Party under
any Loan Document, any of the following Taxes imposed on or with respect to the
Lender:

 

(a)           Taxes imposed on (or measured by) net income (however denominated)
or franchise Taxes by the United States of America, or by the jurisdiction under
the laws of which the Lender is organized or in which its principal office is
located or that are Other Connection Taxes,

 

(b)           any branch profits Taxes imposed by the United States of America
or any similar Taxes imposed by any other jurisdiction in which the Lender is
located,

 

(c)           U.S. federal withholding Taxes imposed on amounts payable to or
for the account of the Lender with respect to an applicable interest in the
Loans or Commitment pursuant to a law in effect on the date on which (i) the
Lender acquires such interest in the Loans or Commitment or (ii) the Lender
changes its lending office, except in each case to the extent that, pursuant to
Section 2.09, amounts with respect to such Taxes were payable either to the
Lender’s assignor immediately before the Lender became a party hereto or to the
Lender immediately before it changed its lending office,

 

(d)           Taxes attributable to the Lender’s failure to comply with
Section 2.09(f), and

 

(e)           any U.S. federal withholding Taxes imposed under FATCA.

 

“Existing Convertible Notes” means (i) the HB Notes and (ii) the 3.75%
Convertible Subordinated Notes issued pursuant to that certain indenture (as
amended, supplemented or otherwise modified from time to time) dated as of
April 6, 2011.

 

“Existing Letters of Credit” means (i) letters of credit issued by Silicon
Valley Bank for the account of the Borrower set forth on Schedule 1.01 and
(ii) certain reimbursement obligations of the Borrower to Silicon Valley Bank in
respect of merchant card services, business credit card services and foreign
exchange transactions, in each case for clauses (i) and (ii), as in effect on
the Effective Date and not giving effect to any renewals or extensions thereof.

 

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this
Agreement (or any amended or successor version that is substantively comparable
and not materially more onerous to comply with), any current or future
regulations or official interpretations thereof and any agreements entered into
pursuant to Section 1471(b)(1) of the Code.

 

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

 

5

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

 

“Financing Fee” has the meaning assigned to such term in Section 2.06(a).

 

“Fixtures” has the meaning assigned to such term in the Security Agreement.

 

“Foreign Lender” has the meaning assigned to such term in Section 2.09(f)(B).

 

“Fundamental Change” shall occur if any of the following have occurred, directly
or indirectly, in one or more related transactions:

 

(a)                                  any sale, transfer, assignment, conveyance
or other disposition (including pursuant to a sale and leaseback transaction or
a grant of an exclusive license) of all or substantially all the assets of the
Borrower or any other Loan Party;

 

(b)                                 any consolidation or merger of the Borrower
or any other Loan Party with or into another Person (whether or not the Borrower
or such other Loan Party is the surviving entity);

 

(c)                                  any liquidation, winding up or dissolution
of the Borrower of any other Loan Party;

 

(d)                                 any reorganization, recapitalization or
reclassification of the Voting Stock of the Borrower; or

 

(e)                                  any Change in Control.

 

“Funding Account” has the meaning assigned to such term in Section 4.02(h).

 

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

 

“Governmental Authority” means the government of the United States of America,
any political subdivision thereof, whether state or local, any other nation or
any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.

 

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

 

6

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

 

“HB Notes” means, collectively, any notes issued to Hudson Bay Master Fund Ltd.
and certain other buyers pursuant to the Amended and Restated Securities
Purchase Agreement, dated May 23, 2012 between the Borrower and such buyers,
including, without limitation, the 6% Senior Convertible Notes in aggregate
original principal amount of $50,000,000 issued by the Borrower on May 24, 2012,
as the same may from time to time be amended, restated, supplemented or
otherwise modified.

 

“Indebtedness” of any Person means, without duplication, (a) all obligations of
such Person for borrowed money or with respect to deposits or advances of any
kind, (b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such Person under conditional
sale or other title retention agreements relating to property acquired by such
Person, (d) all obligations of such Person in respect of the deferred purchase
price of property or services (excluding current accounts payable incurred in
the ordinary course of business), which purchase price is (i) due more than 90
days after the date of incurrence or the obligations in respect thereof or
(ii) evidenced by a note or similar written instrument), (e) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (f) all Guarantees by such Person of Indebtedness of others,
(g) that portion of Capital Lease Obligations of such Person that is properly
classified as a liability on a balance sheet in conformity with GAAP, (h) all
obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (i) all obligations,
contingent or otherwise, of such Person in respect of bankers’ acceptances,
(j) all obligations of such Person under any liquidated earn-out and (k) any
other Off-Balance Sheet Liability of such Person.  The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.

 

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or
with respect to any payment made by any Loan Party under any Loan Document and
(b) Other Taxes.

 

“Initial Bridge Warrants” means Warrants to Purchase Common Stock issued in
connection with the Initial Loan made on or about the Effective Date, which
warrants shall be in substantially the form of Exhibit E hereto, duly completed
in accordance with the instructions for “W1” set forth therein.

 

“Initial Loan” has the meaning assigned to such term in Section 2.01.

 

“Initial Loan Date” has the meaning assigned to such term in Section 4.02.

 

“Interest Payment Date” means the first day of each calendar quarter and the
Maturity Date, and if such day is not a Business Day, the immediately succeeding
Business Day.

 

“IRS” means the United States Internal Revenue Service.

 

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“Junior Lien Intercreditor Agreement” shall mean any intercreditor agreement by
and among the Junior Representative, the Loan Parties and the Lender, in form
and substance satisfactory to the Lender.

 

“Junior Representative” means, with respect to any series of Permitted Second
Priority Indebtedness, the trustee, administrative agent, collateral agent,
security agent or similar agent under the indenture or agreement pursuant to
which such Indebtedness is issued, incurred or otherwise obtained, as the case
may be, and each of their successors in such capacities.

 

“Latest Maturity Date” means, at any date of determination, the later of (a) the
Maturity Date and (b) the maturity date in respect of the Senior Secured
Convertible Notes.

 

“LC Collateral Account” has the meaning assigned to such term in
Section 2.13(f).

 

“LC Disbursement” means any payment made by the Lender to or for the benefit of
the LC Issuer in reimbursement for any drawing that shall have been made under
the Letter of Credit.

 

“LC Face Amount” means, at any time, the aggregate face amount of the Letter of
Credit at such time.

 

LC Fee” has the meaning assigned to such term in Section 2.13(e).

 

“LC Issuer” means any entity that issues the Letter of Credit pursuant to
Section 2.13(a).

 

“LC Obligations” means, collectively, (a) all Reimbursement Obligations, (b) all
interest payable hereunder in respect of Reimbursement Obligations, (c) all fees
payable hereunder pursuant to Section 2.13(e), (d) a letter of credit fee equal
to $250,050, and (e) all opening, confirming, advisory, drawing, processing and
other customary charges by the LC Issuer to the Lender.

 

“Letter of Credit” has the meaning assigned to such term in Section 2.13.

 

“Lender” has the meaning assigned to such term in the preamble.  The term
“Lender” shall include any successors and assigns of Wanxiang as the initial
Lender pursuant to Section 8.04.  In the event that, by reason of any assignment
or participation, more than one Person shall then have rights and obligations
hereunder as “Lender,” Wanxiang shall act as agent for all such Lenders.

 

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

 

“Loan” has the meaning assigned to such term in Section 2.01.

 

“Loan Documents” means this Agreement, any promissory notes issued pursuant to
this Agreement, the Collateral Documents, the Loan Guaranty, the Bridge Warrants
and all other agreements, instruments, documents and certificates identified in
Section 4.01 executed and delivered to, or in favor of, the Lender and including
all other pledges, powers of attorney, consents, assignments, contracts, notices
and all other written matter whether heretofore, now or hereafter executed by or
on behalf of any Loan Party, or any employee of any Loan Party, and delivered to
the Lender in connection with this

 

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Agreement or the transactions contemplated hereby.  Any reference in this
Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall refer to this Agreement or
such Loan Document as the same may be in effect at any and all times such
reference becomes operative.

 

“Loan Guarantor” means each Subsidiary of the Borrower that delivers or becomes
a party to a Loan Guaranty.

 

“Loan Guaranty” means each Guarantee, in form and substance satisfactory to the
Lender, delivered by each Loan Guarantor, as it may be amended or modified and
in effect from time to time.

 

“Loan Parties” means the Borrower, the Loan Guarantors and their successors and
assigns.

 

“MA-CEC” has the meaning assigned to such term in Section 2.01(b).

 

“MA-CEC Intercreditor Agreement” has the meaning assigned to such term in
Section 2.01(b).

 

“MA-CEC LSA” has the meaning assigned to such term in Section 2.01(b).

 

“Mandatory Prepayment Date” has the meaning assigned to such term in
Section 2.05.

 

“Margin Stock” has the meaning assigned to such term in Section 3.19.

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, operations, prospects or condition, financial or otherwise, of the
Borrower and the Subsidiaries taken as a whole, (b) the ability of any Loan
Party to perform any of its obligations under the Loan Documents to which it is
a party, (c) the Collateral, or the Lender’s Liens on the Collateral or the
priority of such Liens, or (d) the rights of or benefits available to the Lender
under any of the Loan Documents.

 

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

 

“Maturity Date” means August 15, 2014.

 

“Moody’s” means Moody’s Investors Service, Inc.

 

“Mortgages” means any mortgage, deed of trust or other agreement which conveys
or evidences a Lien in favor of the Lender securing the Obligations on real
property of a Loan Party, including any amendment, modification or supplement
thereto.

 

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

 

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“Nasdaq” means either NASDAQ Global Select Market or NASDAQ Capital Market.

 

“NPA Obligations” means all unpaid principal of and accrued and unpaid interest
on the Senior Secured Convertible Notes, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the Loan Parties
to the holders of the Senior Secured Convertible Notes or any indemnified party
arising under or in connection with the Securities Purchase Agreement, the
Senior Secured Convertible Notes or any instrument, document or agreement
executed in connection therewith.

 

“Obligations” means all unpaid principal of and accrued and unpaid interest on
the Loans, all accrued and unpaid fees and all expenses, reimbursements,
indemnities and other obligations of the Loan Parties to the Lender or any
indemnified party arising under the Loan Documents, including, without
limitation, all LC Obligations.

 

“Off-Balance Sheet Liability” of a Person means (a) any repurchase obligation or
liability of such Person with respect to accounts or notes receivable sold by
such Person, (b) any indebtedness, liability or obligation under any so-called
“synthetic lease” transaction entered into by such Person, or (c) any
indebtedness, liability or obligation arising with respect to any other
transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the balance sheets of
such Person (other than operating leases).

 

“Other Connection Taxes” means, with respect to the Lender, Taxes imposed as a
result of a present or former connection between the Lender and the jurisdiction
imposing such Taxes (other than a connection arising from the Lender having
executed, delivered, enforced, become a party to, performed its obligations
under, received payments under, received or perfected a security interest under,
or engaged in any other transaction pursuant to, or enforced, any Loan
Document), or sold or assigned an interest in any Loan Document).

 

“Other Taxes” means any present or future stamp, court, documentary, intangible,
recording, filing or similar excise or property Taxes that arise from any
payment made under, from the execution, delivery, performance, enforcement or
registration of, or from the registration, receipt or perfection of a security
interest under, or otherwise with respect to, any Loan Document, except any such
Taxes that are Other Connection Taxes imposed with respect to an assignment.

 

“Participant” has the meaning assigned to such term in Section 8.04(c).

 

“Participant Register” has the meaning assigned to such term in Section 8.04(c).

 

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

 

“Permitted Encumbrances” means:

 

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

 

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

 

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

 

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

 

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

 

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

 

(g)                                 Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;

 

(h)                                 any interest of a lessor or sublessor under
any lease of real estate permitted hereunder;

 

(i)                                     non-exclusive outbound licenses of
patents, copyrights, trademarks and other intellectual property rights granted
by the Borrower or any of its Subsidiaries in the ordinary court of business and
not interfering in any respect with the ordinary conduct of or materially
detracting from the value of the business of the Borrower or such Subsidiary;

 

(j)                                     purported Liens evidenced by the filing
of precautionary UCC financing statements relating solely to operating leases of
personal property entered into in the ordinary course of business;

 

(k)                                  exclusive licenses in effect as of the date
of this Agreement that do not purport to grant a security interest therein and
are limited in geographical scope to territories outside of the United States;
and

 

(l)                                     Liens existing as of the Effective Date
on the Excluded Property (as defined in the Security Agreement); provided that,
with respect to the MA-CEC Collateral and the Choose Michigan Collateral (each
as defined in the Security Agreement), the Indebtedness secured thereby (other
than any interest accruing thereon) shall not be increased and upon repayment of
any such Indebtedness the related Lien in such MA-CEC Collateral and such Choose
Michigan Collateral shall cease to be a Permitted Encumbrance;

 

provided that the term “Permitted Encumbrances” shall not include any Lien
securing Indebtedness, except with respect to clause (e) above.

 

“Permitted First Priority Bridge Indebtedness” shall mean secured Indebtedness
incurred by the Borrower in the form of one or more series of first lien (or
other priority lien) secured notes or loans; provided that (a) such Indebtedness
has commercially reasonably terms; (b) the Lender has consented to such
Indebtedness, such consent not to be unreasonably withheld; (c) such
Indebtedness shall not be subject to any prepayment fee or similar feature;
(d) no Person shall have received or be entitled to receive any Equity Interest
in the Borrower or any of its Subsidiaries in connection with the incurrence of
such Indebtedness; (e) the Lender shall, on demand, have the unconditional right
to acquire

 

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or refinance such Indebtedness for an amount not greater than the outstanding
principal amount thereof (it being understood that the Borrower shall thereupon
pay all accrued and unpaid interest and related breakage costs in connection
therewith); (f) the aggregate principal amount of such Indebtedness shall not be
less than the lesser of (i) $75,000,000 and (ii) the aggregate amount of the
Obligations as of the date of incurrence of such Indebtedness; (g) the proceeds
of such Indebtedness shall be applied toward the repayment in full of the
Obligations hereunder; and (h) the Person or Persons funding such Indebtedness
shall have assumed all obligations and liabilities of the Lender in respect of
the Letter of Credit, in a manner satisfactory to the Lender and the LC Issuer.

 

“Permitted Investments” means:

 

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

 

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

 

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

 

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

 

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

 

“Permitted Second Priority Indebtedness” shall mean secured Indebtedness
incurred by the Borrower in the form of one or more series of second lien (or
other junior lien) secured notes or second lien (or other junior lien) secured
loans; provided that (a) such Indebtedness has a maturity no earlier than, and a
Weighted Average Life to Maturity equal to or greater than the Latest Maturity
Date, (b) such Indebtedness has commercial terms and provisions (including,
without limitation as relates to any prepayment fee or similar feature)
reasonably satisfactory to the Lender, (c) such Indebtedness is not at any time
guaranteed by any Subsidiaries other than Subsidiaries that are Loan Guarantors,
(d) such Indebtedness does not have scheduled amortization payments of principal
or payments of principal and is not subject to mandatory redemption, repurchase,
prepayment, sinking fund obligations or prepayments at the option of the holders
thereof (except customary asset sale or change of control provisions that
provide for the prior repayment in full of the Loans and all other Obligations),
in each case prior to the Latest Maturity Date at the time such Indebtedness is
incurred, (e) such Indebtedness is secured by the Collateral on a second
priority (or other junior priority) basis to the liens securing the Secured
Obligations and is not secured by any property or assets of the Borrower or any
Subsidiary other than the Collateral, (f) a Supplemental Financing Event shall
have occurred prior to the incurrence of such Indebtedness, (g) the Lender shall
have consented to such Indebtedness, such consent not to be unreasonably
withheld, (h) the aggregate principal amount of such Indebtedness does not
exceed the difference between (i) $75,000,000

 

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and (ii) the amount equal to the sum of the aggregate outstanding principal
amount of the Loans and Reimbursement Obligations under this Agreement plus the
undrawn LC Face Amount, and (i) the Borrower, the Loan Parties, the Lender and
the Junior Representative for such Indebtedness shall have executed and
delivered a Junior Lien Intercreditor Agreement subordinating the liens and
rights of payment and enforcement of the Junior Representative (and all Persons
for whom the Junior Representative acts as agent in connection with such
Indebtedness) to the prior liens and rights of payment and enforcement of the
Lender on such terms as shall be satisfactory to the Lender, (j) no Person shall
have received or be entitled to receive any Equity Interest in the Borrower or
any of its Subsidiaries in connection with the incurrence of such Indebtedness,
and (k) the Lender shall, on demand, have the unconditional right to acquire or
refinance such Indebtedness for an amount not greater than the outstanding
principal amount thereof (it being understood that the Borrower shall thereupon
pay all accrued and unpaid interest and related breakage costs in connection
therewith).

 

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

 

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

 

“Prepayment Event” means the occurrence of any of the following events:

 

(a)                                  a Fundamental Change shall occur; or

 

(b)                                 the Borrower shall procure any Alternative
Financing;

 

provided that, the procurement by the Borrower of Alternative Financing shall
not constitute a Prepayment Event under clause (b) above if, on the incurrence
thereof, (i) such Alternative Financing constitutes Permitted Second Priority
Indebtedness and (ii) the aggregate principal amount of the Permitted Second
Priority Indebtedness then outstanding does not exceed the limit set forth in
definition of Permitted Second Priority Indebtedness.

 

“Prepayment Fee” has the meaning assigned to such term in Section 2.06(c).

 

“Projections” has the meaning assigned to such term in Section 5.01(f).

 

“Reimbursement Obligations” has the meaning assigned to such term in
Section 2.13.

 

“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors of such Person and such Person’s Affiliates.

 

“Report” means reports prepared by the Lender or another Person showing the
results of appraisals, field examinations or audits pertaining to the assets of
the Loan Parties from information furnished by or on behalf of the Borrower,
after the Lender has exercised its rights of inspection pursuant to this
Agreement.

 

“Requirement of Law” means, as to any Person, the Certificate of Incorporation
and By-laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case

 

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applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.

 

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

 

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial
Services LLC business.

 

“Secured Obligations” means (i) all Obligations and (ii) all NPA Obligations;
provided that “Secured Obligations” shall exclude any obligations in connection
with Lender’s Equity Interests or Voting Stock in Borrower or any of its
Subsidiaries or warrant agreements and other similar instruments granted to
Lender in connection with the Equity Interests or Voting Stock of Borrower or
its Subsidiaries.

 

“Securities Account Control Agreement” has the meaning assigned to such term in
the Security Agreement.

 

“Securities Purchase Agreement” means that certain Securities Purchase Agreement
dated August 15, 2012 between the Borrower and Wanxiang Clean Energy USA Corp.

 

“Securities Purchase Agreement Termination Date” means the date the Securities
Purchase Agreement shall for any reason terminate or cease to be in effect.

 

“Security Agreement” means that certain Pledge and Security Agreement, dated as
of the Initial Loan Date between the Loan Parties and the Lender, and any other
pledge or security agreement entered into after the date of this Agreement by
any other Loan Party (as required by this Agreement or any other Loan Document),
or any other Person, as the same may be amended, restated or otherwise modified
from time to time.

 

Senior Secured Convertible Notes” means the Borrower’s 8.0% Senior Secured
Convertible Notes in the aggregate amount of up to $200,000,000, issued after
the Effective Date and purchased by the Lender or its Affiliates pursuant to the
Securities Purchase Agreement.

 

“Senior Secured Convertible Notes Issuance Date” means a date on which the
Borrower issues its Senior Secured Convertible Notes.

 

“Specified Agreements” means the material agreements and contracts to which any
Loan Party is a party or is bound as of the date of this Agreement and that are
set forth on Schedule 3.12.

 

“Subordinated Indebtedness” of a Person means any Indebtedness of such Person,
the payment of which is subordinated to payment of the Secured Obligations to
the written satisfaction of the Lender.

 

“Subsequent Bridge Warrants” means Warrants to Purchase Common Stock issued
(i) in connection with the second Loan hereunder, which warrants shall be in
substantially the form of Exhibit E hereto, duly completed in accordance with
the instructions for “W2” set forth therein, and (ii) in

 

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connection with the third Loan hereunder, which warrants shall be in
substantially the form of Exhibit E hereto, duly completed in accordance with
the instructions for “W3” set forth therein.

 

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

 

“Subsidiary” means any direct or indirect subsidiary of the Borrower or a Loan
Party, as applicable.

 

“Supplemental Financing Event” means the occurrence of any of the following
circumstances:

 

(a)                                  a funding hereunder shall fail to have been
made under the following circumstances:

 

(i)                                   the Borrower shall have requested a Loan
in accordance with Section 2.02 on or after October 8, 2012;

 

(ii)                                  the Borrower shall have used its best
efforts to timely satisfy the conditions to subsequent Loans set forth in
Section 4.03  in respect of the requested Loan, but one or more of such
conditions (other than clause (i) or (j) thereof) shall not have been satisfied
as of the date proposed for the making of the requested Loan; and

 

(iii)                               the Lender shall have advised the Borrower
that the requested Loan would not be made by reason of the failure of the
Borrower to satisfy the conditions set forth in Section 4.03 (other than clause
(i) or (j) thereof); or

 

(b)                                 a funding hereunder shall fail to have been
made under the following circumstances:

 

(i)                                     the Borrower shall have requested a Loan
in accordance with Section 2.02 on or after October 8, 2012;

 

(ii)                                  the Borrower shall have timely satisfied
the conditions to subsequent Loans set forth in Section 4.03 (other than clause
(i) or (j) thereof) in respect of the requested Loan, but through no fault of
the Borrower the condition set forth in Section 4.03(i) or (j) shall not have
been satisfied as of the date proposed for the making of the requested Loan; and

 

(iii)                               the Lender shall have advised the Borrower
that the requested Loan would not be made by reason of the inability to satisfy
the condition set forth in clause (i) or (j) of Section 4.03.

 

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

 

“Tax Returns” means any federal, state, local or foreign return, declaration,
report, statement, claim for refund, amended returns and declarations of
estimated taxes (including all attached schedules) filed or required to be filed
with any Governmental Entity with respect to Taxes.

 

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

 

“Term Loan Rate” means a rate per annum equal to 10.0%.

 

“Transactions” means the execution, delivery and performance by the Borrower of
this Agreement, the borrowing of Loans, the use of the proceeds thereof and the
issuance of the Bridge Warrants.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of New York or any other state the laws of which are required to be
applied in connection with the issue of perfection of security interests.

 

“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).

 

“U.S. Tax Compliance Certificate” has the meaning assigned to such term in
Section 2.09(f)(B)(iii).

 

“Wanxiang” has the meaning assigned to such term in the preamble.

 

“Weighted Average Life to Maturity” shall mean, when applied to any Indebtedness
at any date, the number of years obtained by dividing: (a) the sum of the
products obtained by multiplying (i) the amount of each then-remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by (b) the then-outstanding principal
amount of such Indebtedness.

 

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

 

“Withholding Agent” means any Loan Party and the Lender.

 

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SECTION 1.02.                                   Terms Generally.  The
definitions of terms herein shall apply equally to the singular and plural forms
of the terms defined.  Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms.  The words
“include,” “includes” and “including” shall be deemed to be followed by the
phrase “without limitation.”  The word “will” shall be construed to have the
same meaning and effect as the word “shall.”  Unless the context requires
otherwise, (a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (b) any reference herein to any Person shall
be construed to include such Person’s successors and assigns, (c) the words
“herein,” “hereof” and “hereunder,” and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits
and Schedules to, this Agreement, (e) any reference in any definition to the
phrase “at any time” or “for any period” shall refer to the same time or period
for all calculations or determinations within such definition, and (f) the words
“asset” and “property” shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.

 

SECTION 1.03.                                   Accounting Terms; GAAP.  Except
as otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time; provided that, if after the date hereof there occurs any change in GAAP or
in the application thereof on the operation of any provision hereof and the
Borrower notifies the Lender that the Borrower requests an amendment to any
provision hereof to eliminate the effect of such change in GAAP or in the
application thereof (or if the Lender notifies the Borrower that the Lender
requests an amendment to any provision hereof for such purpose), regardless of
whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of
GAAP as in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision amended
in accordance herewith.  Notwithstanding any other provision contained herein,
all terms of an accounting or financial nature used herein shall be construed,
and all computations of amounts and ratios referred to herein shall be made,
without giving effect to any election under Statement of Financial Accounting
Standards 159 (or any other Financial Accounting Standard having a similar
result or effect) to value any Indebtedness or other liabilities of any Loan
Party the Borrower or any Subsidiary at “fair value,” as defined therein.

 

ARTICLE II

 

The Credit

 

SECTION 2.01.                                   Commitment.  (a) Subject to the
terms and conditions set forth herein, the Lender agrees to make term loans
(each, a “Loan”) to the Borrower from time to time, on any Business Day during
the Availability Period (each such date, a “Borrowing Date”); provided that, the
Borrower shall not be permitted to request a Loan on more than three
(3) occasions during the Availability Period. The initial Loan (the “Initial
Loan”) shall be in the principal amount of Fifteen Million Dollars
($15,000,000)  and shall be made on the Effective Date following satisfaction of
the conditions precedent set forth in Sections 4.01 and 4.02.  A second and
third Loan, each in the principal amount of Twenty-Five Million Dollars
($25,000,000), shall be made on such Borrowing Dates as may be requested by the
Borrower, subject to the satisfaction of the conditions precedent set forth in
Section 4.03.  Amounts repaid or prepaid in respect of any Loans may not be
reborrowed.

 

(b) Proceeds of each Loan shall, following satisfaction by the Borrower of all
applicable conditions precedent to the making of such Loan, be remitted by the
Lender to such account of the

 

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Borrower as the Borrower may direct in the related Borrowing Request; provided
that, in the case of the Initial Loan, proceeds of such Loan in an amount equal
to $2,500,000 (the “Reserve Amount”) shall be held in reserve by the Lender for
(x) disbursement to the Borrower on the date following the Borrowing Date on
which (i) the Massachusetts Clean Energy Technology Center (the “MA-CEC”) shall
have confirmed, to the satisfaction of the Lender, that the security interest of
the MA-CEC in the “Subordinate Collateral” (as such term is defined in that
certain Loan and Security Agreement, dated as of October 8, 2010, between the
MA-CEC and the Borrower, the “MA-CEC LSA”) is subordinate and junior to the
security interest of the Lender in such assets and properties and (ii) the
Borrower shall have requested that MA-CEC, and MA-CEC shall have agreed that it
would, promptly execute an intercreditor agreement (the “MA-CEC Intercreditor
Agreement”) with the Lender as contemplated in Section 1.4(d) of the MA-CEC LSA
or (y) at the request of the Borrower, remittance of such Reserve Amount to the
MA-CEC if the effect of such remittance, together with the application of any
funds remitted to the MA-CEC by the Borrower, would be the satisfaction in full
of all obligations of the Borrower to the MA-CEC, termination of the MA-CEC LSA
and termination and release of all security interests granted by the Borrower to
the MA-CEC pursuant thereto.

 

SECTION 2.02.                                   Borrowing Procedures; Requests
for Loans.  To request a Loan, the Borrower shall notify the Lender of such
request by telephone not later than 12:00 noon, New York City time, on the
Business Day immediately preceding the date of the requested Loan.  Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or facsimile or other electronic communication to the
Lender of a written Borrowing Request in a form approved by the Lender and
signed by the Borrower.  Each such telephonic and written Borrowing Request
shall specify the date of such Loan, which shall be a Business Day.

 

SECTION 2.03.                                   Termination and Reduction of
Commitment.  On each Borrowing Date the Commitment shall be reduced by
$25,000,000.  Unless previously terminated or reduced to zero, the Commitment
shall terminate simultaneously with the termination of the Availability Period.

 

SECTION 2.04.                                   Repayment; Evidence of Debt.

 

(a)                                  The Borrower hereby unconditionally
promises to pay to the Lender in full in cash, to the extent not previously
paid, the then-unpaid principal amount of all Loans on the Maturity Date.

 

(b)                                 The Lender, acting solely for purposes of
Treasury Regulation Section 5f.103-1(c) as an agent of the Borrower, shall
maintain in accordance with its usual practice an account evidencing the
indebtedness of the Borrower to the Lender or any assignee resulting from each
Loan or assignment made by the Lender pursuant to this Agreement, including the
amounts of principal and interest payable and paid to the Lender or any assignee
from time to time hereunder.  Such account shall be available for inspection by
the Borrower and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.

 

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

 

(d)                                 The Lender may request that Loans made by it
be evidenced by one or more promissory notes.  In such event, the Borrower shall
prepare, execute and deliver to the Lender a promissory note or notes payable to
the Lender (or, if requested by the Lender, to the Lender and

 

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its registered assigns) in substantially the form of Exhibit H.  Thereafter, the
Loan(s) evidenced by such promissory note and interest thereon shall at all
times (including after assignment pursuant to Section 8.04) be represented by
one or more promissory notes in such form payable to the payee named therein
(or, if such promissory note is a registered note, to such payee and its
registered assigns).

 

SECTION 2.05.                                   Prepayment of Loans.

 

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

 

(b)                                 The Borrower shall notify the Lender by
telephone (confirmed by facsimile) of any prepayment hereunder not later than
12:00 noon, New York City time, on the date of prepayment.  Each such notice
shall be irrevocable and shall specify the prepayment date and the principal
amount of each Loan or portion thereof to be prepaid.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.07.

 

(c)                                  No later than the Business Day immediately
following the occurrence of a Prepayment Event (the “Mandatory Prepayment
Date”), the Borrower shall (i) prepay the Obligations in an amount equal to the
sum of (A) the aggregate outstanding principal amount of the Loans, together
with all accrued and unpaid interest thereon plus (B) all then unpaid
Reimbursement Obligations, together with all accrued and unpaid interest
thereon, plus (C) any amounts then due and payable under Section 2.06 and
(ii) remit and pledge to the Lender as cash collateral an amount equal to 105%
of the undrawn LC Face Amount.

 

SECTION 2.06.                                   Fees.

 

(a)                                  Financing Fee.  Subject to Section 2.06(b),
if an Alternative Financing Event shall occur prior to the Senior Secured
Convertible Notes Issuance Date, the Borrower shall on the Mandatory Prepayment
Date pay to the Lender as liquidated damages and compensation for the costs of
being prepared to make funds available hereunder and in respect of the Senior
Secured Convertible Notes an amount equal to the excess of $13,750,000 over the
amount (if any) previously paid by the Borrower pursuant to Section 14.3 of the
Securities Purchase Agreement (the “Financing Fee”).  The Borrower, the other
Loan Parties and the Lender agree that such amount is a reasonable calculation
of the Lender’s lost profits under this Agreement and in respect of the Senior
Secured Convertible Notes in view of the difficulties and impracticality of
determining actual damages based on a failure to consummate the transactions
contemplated by this Agreement and the Securities Purchase Agreement.

 

(b)                                 Financing Fee Deferral and Forgiveness.  In
the event the Borrower shall incur Permitted First Priority Bridge Indebtedness
and repay (and, as applicable, cash collateralize) in full all the Obligations
hereunder as required under Section 2.05(c), the obligation of the Borrower to
pay the Financing Fee to the Lender in connection therewith shall be deferred
and become due and payable in full on the Securities Purchase Agreement
Termination Date; provided that if (x) the Securities Purchase Agreement
Termination Date occurs more than one hundred eighty (180) following the date of
the Initial Loan and (y) as of the Securities Purchase Agreement Termination
Date, the condition to closing set forth in Section 4.10 of the Securities
Purchase Agreement shall, through no fault of the Borrower, not have been
satisfied, then the Borrower shall not be obligated to pay the Financing Fee
arising in connection with the Permitted First Priority Bridge Indebtedness. 
Furthermore, in the event the Senior Secured Convertible

 

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Notes Issuance Date shall occur, and the Lender shall purchase the Senior
Secured Convertible Notes contemplated under the Securities Purchase Agreement,
the Borrower shall cease to have any obligation to pay the Financing Fee arising
in connection with the Permitted First Priority Bridge Indebtedness.

 

(c)                                  Prepayment Fee.  Subject to
Section 2.06(d), if a Prepayment Event shall occur prior to the Senior Secured
Convertible Notes Issuance Date, the Borrower shall on the Mandatory Prepayment
Date pay a fee (the “Prepayment Fee”) to the Lender in an amount equal to (i) in
the case of any Prepayment Event occurring during the period from the date
hereof to and including the first anniversary of the date hereof, ten percent
(10%) of the sum of the aggregate principal amount of the Loans and
Reimbursement Obligations outstanding plus the undrawn LC Face Amount on such
date, before giving effect to any prepayment on such date, and (ii) in the case
of any Prepayment Event occurring after the first anniversary of the date
hereof, eight percent (8%) of the sum of the aggregate principal amount of the
Loans and Reimbursement Obligations outstanding plus the undrawn LC Face Amount
on such date, before giving effect to any prepayment on such date.

 

(d)                                 Prepayment Fee Deferral.  In the event the
Borrower shall incur Permitted First Priority Bridge Indebtedness and repay
(and, as applicable, cash collateralize) in full all the Obligations hereunder
as required under Section 2.05(c), the obligation of the Borrower to pay the
Prepayment Fee to the Lender in connection therewith shall be deferred and
become due and payable in full on the Securities Purchase Agreement Termination
Date.

 

(e)                                  Survival.  The obligations of the Borrower
under this Section 2.06 shall survive termination of this Agreement and shall
continue in effect until the date that is one year after the date of the Initial
Loan hereunder; provided that if, prior to such date, an Alternative Financing
Event shall have occurred, the obligations of the Borrower under this
Section 2.06 shall continue in effect until any amount due under clause
(a) hereof in connection with such Alternative Financing Event shall have been
paid in full to the Lender or shall have ceased to be an obligation of the
Borrower pursuant to the terms of Section 2.06(b).

 

(f)                                    General.  All fees payable hereunder
shall be paid on the dates due, in immediately available funds, to the Lender. 
Fees paid shall not be refundable under any circumstances.

 

SECTION 2.07.                                   Interest.

 

(a)                                  All Loans and Reimbursement Obligations
shall bear interest at the Term Loan Rate.

 

(b)                                 Accrued interest on each Loan and the
Reimbursement Obligations shall be payable in arrears on each Interest Payment
Date for such Loan and the Reimbursement Obligations and upon termination of the
Commitment; provided that (i) interest accrued pursuant to paragraph (c) of this
Section shall be payable on demand and (ii) in the event of any repayment or
prepayment of any Loan or Reimbursement Obligation, accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment.

 

(c)                                  Notwithstanding the foregoing, during the
occurrence and continuance of an Event of Default, all Loans and Reimbursement
Obligations and other amounts outstanding hereunder shall bear interest at 6½%
plus the Term Loan Rate.

 

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(d)                                 All interest hereunder shall be computed on
the basis of a year of three hundred sixty (360) days and shall be payable for
the actual number of days elapsed.

 

SECTION 2.08.                                   Increased Costs.

 

(a)                                  If any Change in Law shall subject the
Lender to any Taxes on its loans, loan principal, commitments, or other
obligations, (other than (i) Taxes imposed on or with respect to any payment
made by any Loan Party under any Loan Document and (ii) Other Connection Taxes
on gross or net income, profits or receipts (including value-added or similar
Taxes)), and the result of any of the foregoing shall be to reduce the amount of
any sum received or receivable by the Lender hereunder (whether of principal,
interest or otherwise), then the Borrower will pay to the Lender such additional
amount or amounts as will compensate the Lender for such additional costs
incurred or reduction suffered.

 

(b)                                 A certificate of the Lender setting forth
the amount or amounts necessary to compensate the Lender as specified in
paragraph (a) of this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error.  The Borrower shall pay the Lender the amount
shown as due on any such certificate within ten (10) days after receipt thereof.

 

(c)                                  Failure or delay on the part of the Lender
to demand compensation pursuant to this Section shall not constitute a waiver of
the Lender’s right to demand such compensation; provided that the Borrower shall
not be required to compensate the Lender pursuant to this Section for any
increased costs or reductions incurred more than one hundred eighty (180) days
prior to the date that the Lender notifies the Borrower of the Change in Law
giving rise to such increased costs or reductions and of the Lender’s intention
to claim compensation therefor; provided further that, if the Change in Law
giving rise to such increased costs or reductions is retroactive, then the one
hundred eighty (180)-day period referred to above shall be extended to include
the period of retroactive effect thereof.

 

SECTION 2.09.                                   Taxes.

 

(a)                                  Withholding of Taxes; Gross-Up.  Each
payment by any Loan Party under any Loan Document shall be made without
withholding for any Taxes, unless such withholding is required by any applicable
law.  If any Withholding Agent determines, in its sole discretion exercised in
good faith, that it is so required to withhold Taxes, then such Withholding
Agent may so withhold and shall timely pay the full amount of withheld Taxes to
the relevant Governmental Authority in accordance with applicable law.  If such
Taxes are Indemnified Taxes, then the amount payable by such Loan Party shall be
increased as necessary so that, net of such withholding (including such
withholding applicable to additional amounts payable under this Section), the
Lender receives the amount it would have received had no such withholding been
made.

 

(b)                                 Payment of Other Taxes by the Borrower.  The
Borrower shall timely pay any Other Taxes to the relevant Governmental Authority
in accordance with applicable law.

 

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

 

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(d)                                 Indemnification by the Borrower.  The Loan
Parties shall jointly and severally indemnify the Lender for any Indemnified
Taxes that are paid or payable by the Lender in connection with any Loan
Document (including amounts paid or payable under this Section 2.09(d)) and any
reasonable expenses arising therefrom or with respect thereto, whether or not
such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority.  The indemnity under this Section 2.09(d) shall
be paid within ten (10) days after the Lender delivers to the Borrower a
certificate stating the amount of any Indemnified Taxes so paid or payable by
the Lender and describing the basis for the indemnification claim.  Such
certificate shall be conclusive of the amount so paid or payable absent manifest
error.

 

(e)                                  Treatment of Certain Refunds.  If the
Lender determines, in its sole discretion, exercised in good faith, that it has
received a refund of any Taxes as to which it has been indemnified pursuant to
this Section 2.09 (including additional amounts paid pursuant to this
Section 2.09), it shall pay to the indemnifying party an amount equal to such
refund (but only to the extent of indemnity payments made under this
Section with respect to the Taxes giving rise to such refund), net of all
out-of-pocket expenses (including any Taxes) of the Lender and without interest
(other than any interest paid by the relevant Governmental Authority with
respect to such refund).  Such indemnifying party, upon the request of the
Lender, shall repay to the Lender the amount paid pursuant to this
Section 2.09(e) (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) in the event the Lender is required to repay
such refund to such Governmental Authority.  This Section shall not be construed
to require the Lender to make available its tax returns (or any other
information relating to its taxes which it deems confidential) to the Borrower
or any other Person.  Notwithstanding anything to the contrary in this
Section 2.09(e), in no event will the Lender be required to pay any amount to
any indemnifying party pursuant to this Section 2.09 if such payment would place
the Lender in a less favorable position (on a net after-Tax basis) than the
Lender would have been in if the indemnification payments or additional amounts
giving rise to such refund had never been paid.  This Section 2.09(e) shall not
be construed to require the Lender to make available its Tax returns (or any
other information relating to its Taxes which it deems confidential) to the
indemnifying party or any other Person.

 

(f)                                    Any Lender that is entitled to an
exemption from or reduction of withholding Tax with respect to payments made
under any Loan Document shall deliver to the Borrower, at the time or times
required by Law or as set out below, the following documents:

 

(A)                              any Lender that is a United States Person as
defined in Section 7701(a)(30) of the Code shall deliver to the Borrower on or
prior to the date on which such Lender becomes a Lender under this Agreement
(and from time to time thereafter upon the reasonable request of the Borrower),
executed originals of IRS Form W-9 certifying that such Lender is exempt from
U.S. federal backup withholding tax;

 

(B)                                any Lender that is not a United States Person
as defined in Section 7701(a)(30) of the Code (a “Foreign Lender”) shall, to the
extent it is legally entitled to do so, deliver to the Borrower (in such number
of copies as shall be requested by the Borrower) on or prior to the date on
which such Foreign Lender becomes a Lender under this Agreement (and from time
to time thereafter upon the reasonable request of the Borrower), whichever of
the following is applicable:

 

(i)                                     in the case of a Foreign Lender claiming
the benefits of an income tax treaty to which the United States is a party
(x) with respect to

 

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payments of interest under any Loan Document, executed originals of IRS
Form W-8BEN establishing an exemption from, or reduction of, U.S. federal
withholding Tax pursuant to the “interest” article of such tax treaty and
(y) with respect to any other applicable payments under any Loan Document, IRS
Form W-8BEN establishing an exemption from, or reduction of, U.S. federal
withholding Tax pursuant to the “business profits” or “other income” article of
such tax treaty;

 

(ii)                                  executed originals of IRS Form W-8ECI;

 

(iii)                               in the case of a Foreign Lender claiming the
benefits of the exemption for portfolio interest under Section 881(c) of the
Code, (x) a certificate to the effect that such Foreign Lender is not a “bank”
within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent
shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the
Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of
the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS
Form W-8BEN; or

 

(iv)                              to the extent a Foreign Lender is not the
beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS
Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate, IRS Form W-9,
and/or other certification documents from each beneficial owner, as applicable;
provided that if the Foreign Lender is a partnership and one or more direct or
indirect partners of such Foreign Lender are claiming the portfolio interest
exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate on
behalf of each such direct and indirect partner;

 

(C)                                any Foreign Lender shall, to the extent it is
legally entitled to do so, deliver to the Borrower (in such number of copies as
shall be requested by the Borrower) on or prior to the date on which such
Foreign Lender becomes a Lender under this Agreement (and from time to time
thereafter upon the reasonable request of the Borrower), executed originals of
any other form prescribed by applicable law requested by the Borrower as a basis
for claiming exemption from or a reduction in U.S. federal withholding Tax, duly
completed, together with such supplementary documentation as may be prescribed
by applicable law to permit the Borrower to determine the withholding or
deduction required to be made; and

 

(D)                               if a payment made to a Lender under any Loan
Document would be subject to U.S. federal withholding Tax imposed by FATCA if
such Lender were to fail to comply with the applicable reporting requirements of
FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as
applicable), such Lender shall deliver to the Borrower at the time or times
prescribed by law and at such time or times reasonably requested by the Borrower
such documentation prescribed by applicable law (including as prescribed by
Section 1471(b)(3)(C)(i) of the Code) and such additional documentation
reasonably requested by the Borrower as may be necessary for the Borrower to
comply with its obligations under FATCA and to determine that such Lender has
complied with such Lender’s obligations under FATCA or to determine the amount
to deduct and withhold from such payment.  Solely for purposes of this clause
(D), “FATCA” shall include any amendments made to FATCA after the date of this
Agreement.

 

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Each Lender agrees that if any form or certification it previously delivered
becomes inaccurate, it shall update such form or certification or promptly
notify the Borrower in writing of its legal inability to do so.

 

(g)                                 For purposes of this Section 2.09, the term
“Lender” includes any assignee pursuant to Section 8.04(b) and the term
“applicable law” includes FATCA.

 

SECTION 2.10.                                   Payments Generally; Allocation
of Proceeds.

 

(a)                                  The Borrower shall make each payment
required to be made by it hereunder (whether of principal, interest or fees, or
of amounts payable under Sections 2.08 or 2.09, or otherwise) prior to
2:00 p.m., New York City time, on the date when due, in immediately available
funds, without set off or counterclaim.  Any amounts received after such time on
any date may, in the discretion of the Lender, be deemed to have been received
on the next succeeding Business Day for purposes of calculating interest
thereon.  All such payments shall be made to the Lender to an account designated
by the Lender in writing.  If any payment hereunder shall be due on a day that
is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension.  All
payments hereunder shall be made in dollars.

 

(b)                                 Any proceeds of Collateral received by the
Lender for application under this Agreement (i) not constituting a specific
payment of principal, interest, fees or other sum payable under the Loan
Documents (which shall be applied as specified by the Borrower), or (ii) after
an Event of Default has occurred and is continuing and the Lender so elects such
funds shall be applied ratably first, to pay any fees, indemnities, or expense
reimbursements including amounts then due to the Lender from the Borrower,
second, to pay interest then due and payable on the Loans and the Reimbursement
Obligations, third, to prepay principal on the Loans and the unreimbursed
Reimbursement Obligations on a pro rata basis, fourth, to pay an amount to the
Lender equal to one hundred five percent (105%) of the undrawn LC Face Amount,
to be held as cash collateral for such Obligations, and fifth, to the payment of
any other Secured Obligation due to the Lender by the Borrower.  The Lender
shall have the continuing and exclusive right to apply and reverse and reapply
any and all such proceeds and payments to any portion of the Secured
Obligations.

 

(c)                                  At the election of the Lender, all payments
of fees, premiums, reimbursable expenses (including, without limitation, all
reimbursement for fees and expenses pursuant to Section 8.03), and other sums
payable as of the Effective Date under the Loan Documents, may be paid from the
proceeds of the Initial Loan made hereunder.

 

SECTION 2.11.                                   Indemnity for Returned
Payments.  If after receipt of any payment which is applied to the payment of
all or any part of the Obligations, the Lender is for any reason compelled to
surrender such payment or proceeds to any Person because such payment or
application of proceeds is invalidated, declared fraudulent, set aside,
determined to be void or voidable as a preference, impermissible setoff, or a
diversion of trust funds, or for any other reason, then the Obligations or part
thereof intended to be satisfied shall be revived and continued and this
Agreement shall continue in full force as if such payment or proceeds had not
been received by the Lender.  The provisions of this Section 2.13 shall be and
remain effective notwithstanding any contrary action which may have been taken
by the Lender in reliance upon such payment or application of proceeds.  The
provisions of this Section 2.13 shall survive the termination of this Agreement.

 

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SECTION 2.12.                                   Allocation of Purchase Price. 
The Lender and the Borrower shall endeavor in good faith to agree, as soon as
reasonably practicable, to an allocation of the purchase price hereunder between
any Loan and its related Bridge Warrants.

 

SECTION 2.13.                                   Letters of Credit

 

(a)                                  General.  Subject to the terms and
conditions set forth herein, in connection with the Initial Loan to be made by
the Lender on or about the Effective Date, the Borrower may request that the
Lender procure the issuance of one or more letters of credit (collectively, the
“Letter of Credit”) for the benefit of Silicon Valley Bank to back-stop the
Existing Letters of Credit; provided that the aggregate face amount of the
Letter of Credit shall not exceed $10,000,000.

 

(b)                                 Terms of the Letter of Credit.  Unless the
Lender shall otherwise agree, the Letter of Credit shall contain, and the
issuance thereof shall be subject to, the following terms and conditions:

 

(i)                                   the aggregate face amount of the Letter of
Credit shall not exceed an amount equal to $10,000,000;

 

(ii)                                contemporaneous with the issuance of the
Letter of Credit, Silicon Valley Bank shall release to the Borrower in
immediately available funds all cash collateral then held by Silicon Valley Bank
as collateral security for the Existing Letters of Credit (other than in respect
of the Card/FX Obligations);

 

(iii)                             the expiry date for the Letter of Credit shall
be October 24, 2013, or such later date as may be acceptable to the Lender or
such earlier date on which the face amount thereof shall be reduced to zero;

 

(iv)                            with respect to each Existing Letter of Credit,
the aggregate face amount of the Letter of Credit shall permanently reduce on
the first extension or renewal date of such Existing Letter of Credit following
the Effective Date (or on such later date as shall be acceptable to the Lender),
without regard to whether such Existing Letter of Credit is extended or renewed,
with the amount of such reduction being equal to the undrawn face amount of such
Existing Letter of Credit;

 

(v)                               a drawing under the Letter of Credit may be
made by Silicon Valley Bank on presentment of a statement that a drawing has
been made on an Existing Letter of Credit in an amount equal to the amount then
being requested to be drawn under the Letter of Credit, and neither the LC
Issuer, nor any advising or confirming bank, nor the Lender shall have any duty
to inquire, investigate or otherwise undertake any measures to confirm the truth
or accuracy of any such statement by Silicon Valley Bank in connection with any
such presentment;

 

(vi)                              upon the honoring of any drawing under the
Letter of Credit, the face amount of the Letter of Credit shall permanently
reduce by the amount of such drawing; and

 

(vii)                           in the event the Lender is required to provide
the LC Issuer any cash collateral or other assets as collateral security for the
reimbursement obligations of the Lender in connection therewith, such cash
collateral and other assets (A) shall be provided solely from the assets of the
Lender, (B) shall not constitute or be deemed to constitute the proceeds of any

 

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advance or other extension of credit made by the Lender to the Borrower and (C)
neither the Borrower nor any Loan Party shall have or be deemed to have any
interest therein.

 

(c)                                  Reimbursement.  Each LC Disbursement made
by the Lender to or for the benefit of the LC Issuer shall constitute an advance
by the Lender to the Borrower in a principal amount equal to the amount of such
LC Disbursement.  The Borrower unconditionally promises to pay to the Lender in
full in cash, to the extent not previously paid, the then-unpaid principal
amount of all such advances (the “Reimbursement Obligations”) on the Maturity
Date.  Until repaid by the Borrower in full, the Reimbursement Obligations
outstanding from time to time shall bear interest at the rate and payable on the
dates set forth in Section 2.07.

 

(d)                                 Obligations Absolute.  The Borrower’s
obligation to pay the LC Obligations shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(i) any lack of validity or enforceability of the Letter of Credit or this
Agreement, or any term or provision therein or herein, (ii) any draft or other
document presented under the Letter of Credit proving to be forged, fraudulent
or invalid in any respect or any statement therein being untrue or inaccurate in
any respect, (iii) payment by the LC Issuer under the Letter of Credit against,
or payment by Silicon Valley Bank under any Existing Letter of Credit against,
presentation of a draft or other document that does not comply with the terms of
the Letter of Credit or an Existing Letter of Credit, as applicable, or (iv) any
other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a
legal or equitable discharge of, or provide a right of setoff against, the
Borrower’s obligations hereunder.  Neither the LC Issuer nor Lender shall have
any liability or responsibility by reason of or in connection with the issuance
of the Letter of Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission
or delivery of any draft, notice or other communication under or relating to the
Letter of Credit (including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence arising from
causes beyond the control of the LC Issuer or the Lender.  With respect to
documents presented which appear on their face to be in substantial compliance
with the terms of the Letter of Credit, the LC Issuer may, in its sole
discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of the
Letter of Credit.

 

(e)                                  Letter of Credit Fee.  The Borrower agrees
to pay to the Lender a letter of credit fee (the “LC Fee”) for procuring the
Letter of Credit.  The LC Fee shall accrue from the Effective Date to the date
the Letter of Credit is surrendered for cancellation and shall, for each day, be
equal to 10% per annum on the undrawn LC Face Amount on such day.  During the
occurrence and continuance of an Event of Default, such rate per annum shall
increase to 16½% . The LC Fee shall be payable in arrears on each Interest
Payment Date and on the date the Letter of Credit is surrendered for
cancellation.  In addition, the Borrower agrees to pay to the Lender all fees,
costs and expenses of the Lender with respect to procuring and arranging for the
issuance of the Letter of Credit or processing of drawings thereunder.  Such
fees, costs and expenses incurred through and including the last day of each
calendar quarter shall be payable on each Interest Payment Date; provided that
all fees, costs and expenses incurred by the Lender in connection with the
initial issuance of the Letter of Credit shall be payable in full on the
Effective Date.

 

(f)                                    Cash Collateralization.  If any Default
shall occur and be continuing, on the Business Day immediately following the
Business Day on which the Borrower receives notice

 

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from the Lender demanding the deposit of cash collateral pursuant to this
paragraph, the Borrower shall deposit in an account designated by the Lender in
writing (the “LC Collateral Account”), an amount in cash equal to 105% of the
undrawn LC Face Amount; provided that the obligation to deposit such cash
collateral shall become effective immediately, and such deposit shall become
immediately due and payable, without demand or other notice of any kind, upon
the occurrence of any Event of Default with respect to the Borrower described in
clause (h) or (i) of Article VII.  Such deposit shall be held by the Lender as
collateral for the payment and performance of the Secured Obligations in a
non-interest bearing account and shall not bear any interest.  Moneys in the LC
Collateral Account shall be applied by the Lender for the unpaid LC Obligations
and, to the extent not so applied, shall be held for the satisfaction of the
reimbursement obligations of the Borrower in respect of future LC Disbursements
and Reimbursement Obligations or, if the maturity of the Loans has been
accelerated, be applied to satisfy other Secured Obligations.  If the Borrower
is required to provide an amount of cash collateral hereunder as a result of the
occurrence of a Default, such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within five Business Days after all such
Defaults have been cured or waived as confirmed in writing by the Lender.

 

SECTION 2.14.                                   Permitted Alternative Bridge
Financing.

 

(a)                                  Permitted First Priority Bridge
Indebtedness.  If the events described in clause (b) of the definition herein of
“Supplemental Financing Event” shall have occurred, the Borrower shall be
permitted to incur Permitted First Priority Bridge Indebtedness.

 

(b)                                 Exercise of Right to Purchase.  In the event
the Lender shall elect in its sole discretion to acquire or refinance any
Permitted First Priority Bridge Indebtedness, the Borrower shall use its
reasonable best efforts to facilitate such acquisition or refinancing with the
effect that the Lender shall thereupon hold a first priority security interest
in the Collateral.

 

ARTICLE III

 

Representations and Warranties

 

Each Loan Party represents and warrants to the Lender that:

 

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

 

SECTION 3.02.                                   Authorization; Enforceability. 
The Transactions are within each Loan Party’s organizational powers and have
been duly authorized by all necessary organizational actions and, if required,
actions by equity holders.  The Loan Documents to which each Loan Party is a
party have been duly executed and delivered by such Loan Party and constitute a
legal, valid and binding obligation of such Loan Party, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.

 

SECTION 3.03.                                   Governmental Approvals; No
Conflicts.  The consummation of the Transactions by the Loan Parties (a) do not
require any consent or approval of, registration or filing with,

 

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or any other action by, any Governmental Authority, except (i) as set forth in
Schedule 3.03, (ii) for such as have been obtained or made and are in full force
and effect, (iii) for filings necessary to perfect Liens created pursuant to the
Loan Documents and (iv) such as are applicable to the Lender by virtue of its
owners or its relationship with China, Chinese entities and Chinese nationals,
(b) will not violate any Requirement of Law applicable to any Loan Party or any
of its Subsidiaries, (c) will not violate or result in a material default under
any indenture, agreement or other instrument binding upon any Loan Party or any
of its Subsidiaries or the assets of any Loan Party or any of its Subsidiaries,
or give rise to a right thereunder to require any payment to be made by any Loan
Party or any of its Subsidiaries, and (d) will not result in the creation or
imposition of any Lien on any asset of any Loan Party or any of its
Subsidiaries, except Liens created pursuant to the Loan Documents.

 

SECTION 3.04.                                   Financial Condition; No Material
Adverse Change.

 

(a)                                  The Borrower has heretofore furnished to
the Lender its consolidated balance sheet and statements of income, stockholders
equity and cash flows (i) as of and for the fiscal year ended 2011, reported on
by Deloitte & Touche, LLP, independent public accountants, and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended March 31, 2012,
certified by its Financial Officer.  Such financial statements present fairly,
in all material respects, the financial position and results of operations and
cash flows of the Borrower and its consolidated Subsidiaries as of such dates
and for such periods in accordance with GAAP, subject, in the case of the
statements referred to in clause (ii) above, to normal year-end audit,
adjustments, that would not in the aggregate be material, and the absence of
footnotes.

 

(b)                                 Except for the items listed on Schedule
3.04, no event, change or condition has occurred that has had, or could
reasonably be expected to have, a Material Adverse Effect, since December 31,
2011.

 

SECTION 3.05.                                   Properties.

 

(a)                                  As of the date of this Agreement,
Schedule 3.05 sets forth the address of each parcel of real property that is
owned or leased by each Loan Party.  Each of such leases and subleases is valid
and enforceable in accordance with its terms and is in full force and effect,
and no default by any Loan Party party thereto or, to its knowledge, any other
party to any such lease or sublease exists.  Each of the Loan Parties and its
Subsidiaries has good and indefeasible title to, or valid leasehold interests
in, all of its real and personal property, free of all Liens other than those
permitted by Section 6.02.

 

(b)                                 Each Loan Party and its Subsidiaries owns,
or is licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property necessary to its business as currently conducted, a
correct and complete list of which, as of the date of this Agreement, is set
forth on Schedule 3.05, and the use thereof by each Loan Party and its
Subsidiaries does not infringe in any material respect upon the rights of any
other Person, and each Loan Party’s rights thereto are not subject to any
licensing agreement or similar arrangement.

 

SECTION 3.06.                                   Litigation and Environmental
Matters.

 

(a)                                  There are no actions, suits or proceedings
by or before any arbitrator or Governmental Authority pending against or, to the
knowledge of any Loan Party, threatened against or affecting any Loan Party or
any of its Subsidiaries (i) as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect (other than the

 

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Disclosed Matters) or (ii) that seeks to enjoin the performance of any
obligations under this Agreement or the Transactions.

 

(b)                                 Except for the Disclosed Matters, (i) no
Loan Party nor any of its Subsidiaries has received written notice of any claim
with respect to any Environmental Liability or knows of any basis for any
Environmental Liability, and (ii) except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, neither any Loan Party nor any of its Subsidiaries
(1) has failed to comply with any Environmental Law or to obtain, maintain or
comply with any permit, license or other approval required under any
Environmental Law or (2) has become subject to any Environmental Liability.

 

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

 

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

 

SECTION 3.08.                                   Investment Company Status. 
Neither any Loan Party nor any of its Subsidiaries is an “investment company” as
defined in, or subject to regulation under, the Investment Company Act of 1940.

 

SECTION 3.09.                                   Taxes.  All material Tax Returns
required to be filed by each Loan Party and its Subsidiaries have in fact been
filed on a timely basis.  Such Tax Returns were correct and complete in all
material respects.  All material Taxes imposed upon each Loan Party and/or its
Subsidiaries and upon their property, income or franchises, that are due and
payable (whether or not shown on any Tax Return) have been paid, except for any
Taxes the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which the
Company or a Subsidiary, as the case may be, has established adequate reserves
in accordance with GAAP.  At Lender’s request, a Loan Party and/or its
Subsidiaries will deliver documentary evidence of the payment of Taxes, or a
particular Tax, to the Lender.  Except as set forth in Schedule 3.09, no Liens
for Taxes (other than Permitted Encumbrances) have been filed and no claims are
being asserted with respect to any such Taxes, and no Taxes are being contested
by a Loan Party or any of its Subsidiaries.  Each Loan Party and its
Subsidiaries have made in accordance with GAAP adequate book provision for
liability for Taxes as of the date hereof (including, without limitation, any
payment due pursuant to any tax sharing or allocation agreement) as such Taxes
are or may become payable in respect of all tax periods ending on or prior to
such date.  Except as set forth in Schedule 3.09, neither any Loan Party nor any
of its Subsidiaries is currently the beneficiary of any extension of time within
which to file any Tax Return with respect to income Taxes or any other material
Taxes.  No claim has been made in the last six (6) years by a Governmental
Authority in a jurisdiction in which a Loan Party or its Subsidiaries does not
file Tax Returns that it is or may be subject to an income Tax or any other
material Tax by that jurisdiction.  Except as set forth in Schedule 3.09, no
Loan Party or any Subsidiary knows of any proposed additional Tax assessment
against any of them.  Except as set forth in Schedule 3.09, no Tax Return of a
Loan Party or any of its Subsidiaries is under audit or examination by any
Governmental Authority and no notice of such an audit or examination or any
assertion of any claim for Taxes has been given or made by any Governmental
Authority.  Neither any Loan Party nor any of its Subsidiaries has participated
in a “reportable transaction” within the meaning of Treasury Regulation
1.6011-4(b).

 

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SECTION 3.10.                                   ERISA.  No ERISA Event has
occurred or is reasonably expected to occur that, when taken together with all
other such ERISA Events for which liability is reasonably expected to occur,
could reasonably be expected to result in a Material Adverse Effect.  The
present value of all accumulated benefit obligations under each Plan (based on
the assumptions used to fund such Plans) did not, as of the date of the most
recent financial statements reflecting such amounts, if any, exceed the fair
market value of the assets of such Plan by an amount that could reasonably be
expected to result in a Material Adverse Effect.  All required contributions
have been and will be made in accordance with the provisions of each
Multiemployer Plan, except to the extent the same could not individually, or in
the aggregate, reasonably be expected to result in a Material Adverse Effect,
and with respect to any Loan Party, there are, have been and will be no material
Withdrawal Liabilities, except to the extent the same could not individually, or
in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

SECTION 3.11.                                   Disclosure.  The Borrower has
disclosed to the Lender all agreements, instruments and corporate or other
restrictions to which it or any of its Subsidiaries is subject, and all other
matters known to it, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.  None of the reports, financial
statements, certificates or other information furnished by or on behalf of any
Loan Party to the Lender in connection with the negotiation of this Agreement or
any other Loan Document (as modified or supplemented by other information so
furnished) contains any material misstatement of fact or omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that, with
respect to projected financial information, the Borrower represents only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time delivered and, if such projected financial information
was delivered prior to the Effective Date, as of the Effective Date, it being
recognized by the Lender that such projections as to future events are not to be
viewed as facts and that actual results during the period or periods covered by
any such projections may differ from the projected results.

 

SECTION 3.12.                                   Material Agreements.  All
Specified Agreements are listed on Schedule 3.12.  No Loan Party is in default
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in (a) any Specified Agreement or (b) any
agreement or instrument evidencing or governing Indebtedness.

 

SECTION 3.13.                                   Solvency.

 

(a)                                  Immediately after the consummation of the
Transactions to occur on the Effective Date, (i) the fair value of the assets of
each Loan Party, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (ii) the present fair saleable value of
the property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (iii) each Loan Party will be able to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (iv) no Loan Party will have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted after
the Effective Date.

 

(b)                                 No Loan Party intends to, or will permit any
of its Subsidiaries to, and believes that it or any of its Subsidiaries will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by it or any such
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness or the Indebtedness of any such Subsidiary.

 

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SECTION 3.14.                                   Insurance.  Schedule 3.14 sets
forth a description of all insurance maintained by or on behalf of the Loan
Parties and the Subsidiaries as of the Effective Date.  As of the Effective
Date, all premiums in respect of such insurance have been paid.  The Borrower
believes that the insurance maintained by or on behalf of the Borrower and the
Subsidiaries is adequate.

 

SECTION 3.15.                                   Capitalization and
Subsidiaries.  Schedule 3.15 sets forth as of the Effective Date (a) a correct
and complete list of the name and relationship to the Borrower of each
Subsidiary of the Borrower, (b) a true and complete listing of each class of
each of the Borrower’s authorized Equity Interests, of which all of such issued
shares are validly issued, outstanding, fully paid and non-assessable, and
(c) the type of entity of the Borrower and each of its Subsidiaries.  All of the
issued and outstanding Equity Interests owned by any Loan Party has been (to the
extent such concepts are relevant with respect to such ownership interests) duly
authorized and issued and is fully paid and non-assessable.

 

SECTION 3.16.                                   Security Interest in
Collateral.  The provisions of this Agreement and the other Loan Documents
create legal and valid Liens on all the Collateral in favor of the Lender, and
such Liens constitute perfected and continuing Liens on the Collateral, securing
the Secured Obligations, enforceable against the applicable Loan Party, and
having priority over all other Liens on the Collateral except in the case of
(a) Permitted Encumbrances, to the extent any such Permitted Encumbrances would
have priority over the Liens in favor of the Lender pursuant to any applicable
law, and (b) Liens perfected only by possession (including possession of any
certificate of title) to the extent the Lender has not obtained or does not
maintain possession of such Collateral.

 

SECTION 3.17.                                   Employment Matters.  As of the
Effective Date, there are no strikes, lockouts or slowdowns against any Loan
Party or any Subsidiary pending or, to the knowledge of the Borrower,
threatened, except such as is not reasonably likely to have a Material Adverse
Effect.  The hours worked by and payments made to employees of the Loan Parties
and the Subsidiaries have not been in violation of the Fair Labor Standards Act
or any other applicable Federal, state, local or foreign law dealing with such
matters.  All payments due from any Loan Party or any Subsidiary, or for which
any claim may be made against any Loan Party or any Subsidiary, on account of
wages and employee health and welfare insurance and other benefits, have been
paid or accrued as a liability on the books of the Loan Party or such
Subsidiary.

 

SECTION 3.18.                                   Common Enterprise.  The
successful operation and condition of each of the Loan Parties is dependent on
the continued successful performance of the functions of the group of the Loan
Parties as a whole and the successful operation of each of the Loan Parties is
dependent on the successful performance and operation of each other Loan Party. 
Each Loan Party expects to derive benefit (and its board of directors or other
governing body has determined that it may reasonably be expected to derive
benefit), directly and indirectly, from (a) successful operations of each of the
other Loan Parties and (b) the credit extended by the Lender to the Borrower
hereunder, both in their separate capacities and as members of the group of
companies.  Each Loan Party has determined that execution, delivery, and
performance of this Agreement and any other Loan Documents to be executed by
such Loan Party is within its purpose, in furtherance of its direct and/or
indirect business interests, will be of direct and indirect benefit to such Loan
Party, and is in its best interest.

 

SECTION 3.19.                                   Margin Rules.  The Borrower does
not own any Margin Stock, as defined in Regulation U of the Board of Governors
of the United States Federal Reserve System, or any successor thereto, as in
effect from time to time (the “Margin Stock”).  No part of the proceeds of the
Loans made hereunder will be used to purchase or carry any Margin Stock, or to
extend credit to others for the purpose of purchasing or carrying any such
Margin Stock or for any purpose that violates, or is inconsistent with, the
provisions of Regulation T, U or X of such Board of Governors.

 

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SECTION 3.20.                                   Competing Businesses.  The
Borrower and each other Loan Party each acknowledges that the Lender has
disclosed to the Loan Parties that the Lender and certain of its Affiliates
currently have interests in certain business ventures, including Zhejiang
Wanxiang Ener1 Power Systems Co., Ltd. and Ener1, Inc., and may acquire
interests in other business ventures, that compete with some or all of the
business of the Loan Parties, and that the existence of any such interests shall
not limit the discretion, rights or remedies of the Lender under this Agreement
or any of the other Loan Documents.

 

SECTION 3.21.                                   Change of Control Payments. 
Neither the Borrower nor any of its Subsidiaries will become obligated to pay,
accelerate the timing of or increase the amount of, any separation, severance,
retention, bonus or change in control payment or similar benefit as a result of
the consummation of any of the Transactions.

 

SECTION 3.22.                                   Excluded Subsidiaries.  Each
Excluded Subsidiary designated as such by the Borrower on the Effective Date
qualifies as an Excluded Subsidiary as of such date.

 

ARTICLE IV

 

Conditions

 

SECTION 4.01.                                   Effective Date.  The Agreement
shall not become effective until the date on which each of the following
conditions is satisfied (or waived in accordance with Section 8.02):

 

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

 

(b)                                 Financial Statements and Projections.  The
Lender shall have received (i) audited consolidated financial statements of the
Borrower for the three most recent fiscal years ended prior to the Effective
Date as to which such financial statements are available, (ii) unaudited interim
consolidated financial statements of the Borrower for each fiscal quarter ended
after the date of the latest applicable financial statements delivered pursuant
to clause (i) of this paragraph as to which such financial statements are
available, and such financial statements shall not, in the reasonable judgment
of the Lender, reflect any material adverse change in the consolidated financial
condition of the Borrower, as reflected in the audited, consolidated financial
statements described in clause (i) of this paragraph, and (iii) projections
through 2016; provided that receipt of such projections shall not be deemed to
represent approval by the Lender of such projections.

 

(c)                                  Representation and Warranties.  The
representations and warranties of the Borrower and each other Loan Party set
forth in this Agreement shall be true and correct with the same effect as though
made on and as of such date (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct only as of such specified date).

 

(d)                                 No Default.  No Default shall have occurred
and be continuing.

 

(e)                                  Lien Searches.  The Lender shall have
received the results of a recent lien search in each of the jurisdictions where
assets of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Loan Parties, except for liens permitted by
Section 6.02

 

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or discharged on or prior to the Effective Date pursuant to a pay-off letter or
other documentation satisfactory to the Lender.

 

(f)                                    Approvals.  All governmental and
third-party approvals necessary in connection with the Transactions (including
any approvals from Hudson Bay Capital) shall have been obtained on terms
satisfactory to the Lender in its sole discretion and shall be in full force and
effect.

 

(g)                                 Insurance.  The Lender shall have received
evidence of insurance coverage in form, scope and substance reasonably
satisfactory to the Lender and otherwise in compliance with the terms of
Section 5.09 and Section 4.12 of the Security Agreement.

 

The Lender shall notify the Borrower of the Effective Date, and such notice
shall be conclusive and binding absent manifest error.

 

SECTION 4.02.                                   Initial Loan.  The obligation of
the Lender to make the Initial Loan on or after the Effective Date on any date
(such date, the “Initial Loan Date”) is subject to the satisfaction of the
following additional conditions on or prior to such date:

 

(a)                                  Loan Documents and Other Documents.  The
Lender (or its counsel) shall have received (i) duly executed copies of the Loan
Documents and written opinion of the Loan Parties’ counsel, addressed to the
Lender in substantially the form of Exhibit A, (ii) a duly executed copy of the
Registration Rights Agreement dated the Initial Loan Date to which the Borrower,
the Lender and Wanxiang Clean Energy USA Corp. are parties and (iii) such other
documents as the Lender or its counsel may have reasonably requested and which
documents are listed on the list of closing documents attached hereto as Exhibit
D.

 

(b)                                 Closing Certificates; Certified Certificate
of Incorporation; Good Standing Certificates.  The Lender shall have received
(i) a certificate of each Loan Party, dated the Initial Loan Date and executed
by its Secretary or Assistant Secretary, which shall (A) certify the resolutions
of its Board of Directors, members or other body authorizing the execution,
delivery and performance of the Loan Documents to which it is a party,
(B) identify by name and title and bear the signatures of the Financial Officers
and any other officers of such Loan Party authorized to sign the Loan Documents
to which it is a party, and (C) attach the certificate or articles of
incorporation or organization of each Loan Party certified by the relevant
authority of the jurisdiction of organization of such Loan Party and a true and
correct copy of its by-laws or operating, management or partnership agreement,
and (ii) a good standing certificate for each Loan Party from its jurisdiction
of organization.

 

(c)                                  Representation and Warranties.  The
representations and warranties of the Borrower and each other Loan Party set
forth in this Agreement shall be true and correct with the same effect as though
made on the Initial Loan Date (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct only as of such specified date).

 

(d)                                 No Default.  At the time of and immediately
after giving effect to the making of such Loan, no Default shall have occurred
and be continuing.

 

(e)                                  Representations and Warranties and No
Default Certificate.  The Lender shall have received a certificate, signed by a
Financial Officer of the Borrower and each other Loan Party, dated as of the
Initial Loan Date (i) stating that no Default has occurred and is continuing

 

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and (ii) stating that the representations and warranties contained in
Article III are true and correct as of the Initial Loan Date.

 

(f)                                    Fees.  The Lender shall have received all
fees required to be paid, and all out-of-pocket expenses for which invoices have
been presented (including the reasonable fees and expenses of legal counsel), on
or before the Initial Loan Date.  All such amounts will be paid with proceeds of
the Initial Loan and will be reflected in the funding instructions given by the
Borrower to the Lender on or before the Initial Loan Date.

 

(g)                                 Pay-Off Letter.  The Lender shall have
received satisfactory pay-off letters for all existing Indebtedness to be repaid
from the proceeds of the Initial Loan, confirming that all Liens upon any of the
property of the Loan Parties constituting Collateral will be terminated
concurrently with such payment and all cash collateral pledged to secure letters
of credit issued or guaranteed as part of such Indebtedness shall be released
concurrently to the Borrower; provided that Silicon Valley Bank shall be
permitted to retain its Liens on cash collateral securing obligations in respect
of the Card/FX Obligations.

 

(h)                                 Funding Account.  The Lender shall have
received a notice setting forth the deposit account of the Borrower (the
“Funding Account”) to which the Lender is authorized by the Borrower to transfer
the proceeds of any Loans requested or authorized pursuant to this Agreement.

 

(i)                                     Pledged Stock; Stock Powers; Pledged
Notes.  The Lender shall have received (i) the certificates representing the
shares of Capital Stock pledged pursuant to the Security Agreement, together
with an undated stock power for each such certificate executed in blank by a
duly authorized officer of the pledgor thereof, and (ii) each promissory note
(if any) pledged to the Lender pursuant to the Security Agreement endorsed
(without recourse) in blank (or accompanied by an executed transfer form in
blank) by the pledgor thereof.

 

(j)                                     Filings, Registrations and Recordings. 
Each document (including any Uniform Commercial Code financing statement)
required by the Collateral Documents or under law or reasonably requested by the
Lender to be filed, registered or recorded in order to create in favor of the
Lender a perfected Lien on the Collateral described therein, prior and superior
in right to any other Person (other than with respect to Liens expressly
permitted by Section 6.02), shall be in proper form for filing, registration or
recordation.

 

(k)                                  Tax Forms.  The Lender shall have received
a properly completed and signed IRS Form W-8 or W-9, as applicable, for each
Loan Party.

 

(l)                                     Silicon Valley Bank Letters of Credit. 
The Borrower shall have provided written instructions to Silicon Valley Bank to
advise all beneficiaries of outstanding letters of credit issued by Silicon
Valley Bank for the account of the Borrower that such letters of credit will not
be renewed or extended on the then current expiration date.

 

(m)                               Approvals.  All governmental and third-party
approvals necessary in connection with the Transactions (including any approvals
from Hudson Bay Capital) shall have been obtained on terms satisfactory to the
Lender in its sole discretion and shall be in full force and effect.

 

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(n)                                 Common Stock.  The Common Stock shall be
listed for trading on Nasdaq and shall not have been suspending from trading
(other than trading suspension of not more than two (2) days occurring on the
Effective Date as a result of business announcements by the Borrower).

 

(o)                                 Bridge Warrants.  The Lender shall have
received validly issued Initial Bridge Warrants, evidencing its right to acquire
shares of Common Stock on the terms and conditions set forth therein.

 

(p)                                 Absence of Certain Events.  No circumstance
or event shall be continuing at such time that could reasonably be expected
interfere in any material respect with the Borrower’s ability to comply with its
obligations under this Agreement or the Bridge Warrants (other than due to the
absence of sufficient authorized and unreserved shares in excess of
130,000,000).

 

Acceptance of proceeds of the Initial Loan shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof as to the
matters specified in this Section 4.02.

 

SECTION 4.03.                                   Each Subsequent Loan.  The
obligation of the Lender to make a Loan on the occasion of any request for a
Loan (other than the Initial Loan) is subject to the satisfaction of the
following conditions:

 

(a)                                  Representations and Warranties.  The
representations and warranties of the Borrower and each other Loan Party set
forth in this Agreement shall be true and correct with the same effect as though
made on and as of the date of the making of such Loan (it being understood and
agreed that any representation or warranty which by its terms is made as of a
specified date shall be required to be true and correct only as of such
specified date).

 

(b)                                 No Default.  At the time of and immediately
after giving effect to the making of such Loan no Default shall have occurred
and be continuing.

 

(c)                                  Approvals.  All governmental and
third-party approvals necessary in connection with the Transactions (including
any approvals from Hudson Bay Capital) shall have been obtained on terms
satisfactory to the Lender in its sole discretion and shall be in full force and
effect.

 

(d)                                 Common Stock.  The Common Stock shall be
listed for trading on Nasdaq and shall not have been suspending from trading
(other than trading suspension of not more than two (2) days occurring on the
Effective Date as a result of business announcements by the Borrower).

 

(e)                                  Bridge Warrants.  The Lender shall have
received validly issued Subsequent Bridge Warrants evidencing its right to
acquire shares of Common Stock on the terms and conditions set forth therein in
substantially the applicable form of Exhibit E, in each case with such revisions
as are contemplated therein made in a manner satisfactory to both the Lender and
the Borrower.

 

(f)                                    Absence of Certain Events.  No
circumstance or event shall be continuing at such time that could reasonably be
expected interfere with the Borrower’s ability to comply with its obligations
under this Agreement or the Bridge Warrants (other than due to the absence of
sufficient authorized and unreserved shares in excess of 130,000,000).

 

(g)                                 Post-closing Deliveries.  The Lender shall
have received all Mortgages, real estate-related deliverables, Collateral Access
Agreements, Deposit Account Control Agreements

 

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and Securities Account Control Agreements required to be delivered after the
Effective Date pursuant to Section 5.11(c) on terms satisfactory to the Lender
in its sole discretion.

 

(h)                                 Employee Retention.  The Lender shall have
received evidence reasonably satisfactory to it that the composition of both the
research and development and the engineering teams of the Borrower and each
Subsidiary remains substantially the same as on the Effective Date, subject to
customary turn-over applicable to the same or similar business operating in the
same or similar locations, and, in any event, the collective experience level
and expertise thereof shall not have diminished to any material extent by reason
of employee resignations or departures since the Effective Date.

 

(i)                                     Chinese Government Approval.  Chinese
government approval of the making of such Loan under this Agreement shall have
been obtained on terms satisfactory to the Lender in its sole discretion and
shall be in full force and effect.

 

(j)                                     CFIUS.  The Committee on Foreign
Investment in the United States (“CFIUS”) shall have determined that the
transactions contemplated by this Agreement and the Senior Convertible Note
Purchase Agreement do not present any unresolved national security issues.

 

(k)                                  MA-CEC.  Unless the Lender shall agree in
its sole discretion to defer satisfaction of the condition set forth in this
clause (k), (i) MA-CEC and the Lender shall have entered into the MA-CEC
Intercreditor Agreement in form and substance reasonably satisfactory to the
Lender or (ii) the Lender shall have received evidence reasonably satisfactory
to it that all outstanding obligations of the Borrower to the MA-CEC have been
satisfied in full, the MA-CEC LSA has been terminated and all security interests
of the MA-CEC granted by the Borrower to the MA-CEC in any of its property
pursuant to the MA-CEC LSA have been terminated and released.

 

Acceptance of proceeds of each Loan shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof as to the
matters specified in items (a) through (k) of this Section 4.03.

 

ARTICLE V

 

Affirmative Covenants

 

Until the Commitment has expired or terminated, the Letter of Credit has been
surrendered for cancellation and all Obligations (other than any inchoate
indemnity obligations under Section 8.03) have been paid in full, each Loan
Party executing this Agreement covenants and agrees, jointly and severally with
all of the other Loan Parties, with the Lender that:

 

SECTION 5.01.                                   Financial Statements and Other
Information.  The Borrower will furnish to the Lender:

 

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

 

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accordance with GAAP consistently applied, and the Borrower will use its
commercially reasonable efforts to cause such financial statements to be
accompanied by any management letter prepared by said accountants;

 

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

 

(c)                                  within twenty (20) days after the end of
each fiscal month of the Borrower, its consolidated balance sheet and related
statements of operations, stockholders’ equity and cash flows as of the end of
and for such fiscal month and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the corresponding
period or periods of (or, in the case of the balance sheet, as of the end of)
the previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;

 

(d)                                 concurrently with any delivery of financial
statements under clause (a), (b) or (c) above, a certificate of a Financial
Officer of the Borrower in substantially the form of Exhibit B  (i) certifying,
in the case of the financial statements delivered under clause (b) or (c), as
presenting fairly in all material respects the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes, (ii) certifying
as to whether a Default has occurred and, if a Default has occurred, specifying
the details thereof and any action taken or proposed to be taken with respect
thereto, (iii) certifying as to the representations and warranties contained in
this Agreement and the other Loan Documents, (iv) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.12, and
(v) stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate;

 

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

 

(f)                                    as soon as available, but in any event no
later than the end of, and no earlier than sixty (60) days prior to the end of
each fiscal year of the Borrower, a copy of the plan and forecast (including a
projected consolidated balance sheet, income statement and funds flow statement)
of the Borrower for each month of the upcoming fiscal year (the “Projections”)
in form reasonably satisfactory to the Lender;

 

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(g)                                 as soon as possible and in any event within
ten (10) days of filing thereof, copies of all tax returns filed by any Loan
Party with the U.S. Internal Revenue Service after the Effective Date;

 

(h)                                 promptly after the same become publicly
available, copies of all periodic and other reports, proxy statements and other
materials filed by the Borrower or any Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or all of
the functions of said Commission, or with any national securities exchange, or
distributed by the Borrower to its shareholders generally, as the case may be;
and

 

(i)                                     promptly following any request therefor,
such other information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary, or compliance with the terms of
this Agreement, as the Lender may reasonably request, unless the provision of
such information could reasonably be expected to result in a violation of any
applicable law.

 

Documents required to be delivered pursuant to clauses (a), (b) and (h) of this
Section 5.01 may be delivered electronically and if so delivered, shall be
deemed to have been delivered on the date on which such documents are filed for
public availability on the SEC’s Electronic Data Gathering and Retrieval System;
provided that the Borrower shall notify (which may be by facsimile or electronic
mail) the Lender of the posting of any such documents and provide to the Lender
by electronic mail electronic versions (i.e., soft copies) of such documents, if
requested.

 

SECTION 5.02.                                   Notices of Material Events.  The
Borrower will furnish to the Lender prompt (but in any event within any time
period that may be specified below) written notice of the following:

 

(a)                                  the occurrence of any Default;

 

(b)                                 receipt of any notice of any governmental
investigation or any litigation commenced or threatened against any Loan Party
that (i) seeks damages in excess of $1,000,000, (ii) seeks injunctive relief,
(iii) is asserted or instituted against any Plan, its fiduciaries or its assets,
(iv) alleges criminal misconduct by any Loan Party, (v) is commenced by the
Securities and Exchange Commission, (vi) alleges the violation of any law
regarding, or seeks remedies in connection with, any Environmental Laws;
(vii) contests any tax, fee, assessment, or other governmental charge in excess
of $1,000,000, or (vii) involves any product recall;

 

(c)                                  any Lien (other than Permitted Encumbrances
or Liens permitted under Section 6.02) or claim made or asserted against any of
the Collateral;

 

(d)                                 any loss, damage, or destruction to the
Collateral in the amount of $1,000,000 or more, whether or not covered by
insurance;

 

(e)                                  within two (2) Business Days of receipt
thereof, any and all default notices received under or with respect to any
leased location or public warehouse where Collateral with a value in excess of
$1,000,000 is located;

 

(f)                                    all material amendments to Specified
Agreements, together with a copy of each such amendment;

 

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(g)                                 the occurrence of any ERISA Event that,
alone or together with any other ERISA Events that have occurred, could
reasonably be expected to result in liability of the Borrower and its
Subsidiaries in an aggregate amount exceeding $1,000,000; and

 

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

 

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

 

SECTION 5.03.                                   Existence; Conduct of Business. 
Each Loan Party will, and will cause each Subsidiary to, (a) do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, qualifications, licenses, permits,
franchises, governmental authorizations, intellectual property rights, licenses
and permits material to the conduct of its business, and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 6.03, and
(b) carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducted.

 

SECTION 5.04.                                   Payment of Obligations; Taxes. 
Each Loan Party will, and will cause each Subsidiary to, (a) file all material
Tax Returns required to be filed in any jurisdiction and pay and discharge all
Taxes shown to be due and payable on such returns before the same shall become
delinquent or in default and (b) pay or discharge all Material Indebtedness and
all other material liabilities and obligations before the same shall become
delinquent or in default, except, in each case, where (x) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (y) such
Loan Party or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP, and (z) such liabilities would not
result in aggregate liabilities in excess of $1,000,000 and none of the
Collateral becomes subject to forfeiture or loss as a result of the contest;
provided, however, each Loan Party will, and will cause each Subsidiary to,
remit withholding taxes and other payroll taxes to appropriate Governmental
Authorities as and when claimed to be due, notwithstanding the foregoing
exceptions.

 

SECTION 5.05.                                   Maintenance of Properties.  Each
Loan Party will, and will cause each Subsidiary to, keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted.

 

SECTION 5.06.                                   Books and Records; Inspection
Rights.  Each Loan Party will, and will cause each Subsidiary to, (a) keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities, and (b) permit any representatives designated by the Lender
(including employees of the Lender, or any consultants, accountants, lawyers and
appraisers retained by the Lender, upon reasonable prior notice, to visit and
inspect its properties, to conduct at the Loan Party’s premises field
examinations of the Loan Party’s assets, liabilities, books and records,
including examining and making extracts from its books and records,
environmental assessment reports and Phase I or Phase II studies, and to discuss
its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times during normal business hours and as
often as reasonably requested.  The Loan Parties acknowledge that the Lender,
after exercising its rights of inspection, may prepare certain Reports
pertaining to the Loan Parties’ assets for internal use by the Lender.  After
the occurrence and during the continuance of any Event of Default, each Loan
Party shall provide the Lender with access to its suppliers.

 

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SECTION 5.07.                                   Compliance with Laws.  Each Loan
Party will, and will cause each Subsidiary to, comply with all Requirements of
Law applicable to it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

 

SECTION 5.08.                                   Use of Proceeds.  The proceeds
of the Loans shall be used to fund general corporate purposes, capital
investments and debt recapitalization ; provided that no more than 25% of each
Loan shall be used for purposes of funding debt recapitalization.  No part of
the proceeds of any Loan will be used, whether directly or indirectly, (a) for
any purpose that entails a violation of any of the Regulations of the Board,
including Regulations T, U and X, or (b) to make any acquisition.

 

SECTION 5.09.                                   Insurance.  Each Loan Party
will, and will cause each Subsidiary to, maintain with financially sound and
reputable carriers having a financial strength rating of at least A- by
A.M. Best Company (a) insurance in such amounts (with no greater risk retention)
and against such risks (including (i) loss or damage by fire and loss in
transit; (ii) theft, burglary, pilferage, larceny, embezzlement, and other
criminal activities; (iii) business interruption; (iv) general liability; and
(v) and such other hazards, as is customarily maintained by companies of
established repute engaged in the same or similar businesses, operating in the
same or similar locations, and (b) all insurance required pursuant to the
Collateral Documents.  The Borrower will furnish to the Lender, information in
reasonable detail as to the insurance so maintained, including but not limited
to long-form lender loss payable endorsements (in the case of property
insurance) or additional insured endorsements (in the case of liability
insurance), which endorsements shall be delivered to the Lender by no later than
30 days after the Effective Date.

 

SECTION 5.10.                                   Casualty and Condemnation.  The
Borrower will (a) furnish to the Lender prompt written notice of any casualty or
other insured damage to any material portion of the Collateral or the
commencement of any action or proceeding for the taking of any material portion
of the Collateral or interest therein under power of eminent domain or by
condemnation or similar proceeding and (b) ensure that the Net Proceeds of any
such event (whether in the form of insurance proceeds, condemnation awards or
otherwise) are collected and applied in accordance with the applicable
provisions of this Agreement and the Collateral Documents.

 

SECTION 5.11.                                   Additional Collateral; Further
Assurances.

 

(a)                                  Subject to applicable law, the Borrower and
each Subsidiary that is a Loan Party shall, unless the Lender otherwise
consents, cause each Subsidiary of the Borrower formed or acquired after the
date of this Agreement in accordance with the terms of this Agreement to become
a Loan Party by executing a supplement to a Loan Guaranty.  Upon execution and
delivery thereof, each such Person (i) shall automatically become a Loan
Guarantor hereunder and thereupon shall have all of the rights, benefits,
duties, and obligations in such capacity under the Loan Documents, and (ii) will
grant Liens to the Lender, in any property of such Loan Party which constitutes
Collateral, including any parcel of real property located in the U.S. owned by
any Loan Party.

 

(b)                                 The Borrower and each Subsidiary that is a
Loan Party will cause 100% of the issued and outstanding Equity Interests of
each of its Subsidiaries to be subject at all times to a first priority,
perfected Lien in favor of the Lender pursuant to the terms and conditions of
the Loan Documents or other security documents as the Lender shall reasonably
request; provided that, unless otherwise requested by the Lender, no Loan Party
shall be required to create or perfect any Lien under the laws of jurisdiction
other than the United States, each state thereof or the District of Columbia.

 

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(c)                                  Without limiting the foregoing, each Loan
Party will, and will cause each Subsidiary to, execute and deliver or cause to
be executed and delivered, to the Lender such documents, agreements and
instruments, and will take or cause to be taken such further actions (including
the filing and recording of financing statements, fixture filings, mortgages,
deeds of trust and other documents and such other actions or deliveries of the
type required by Section 4.01, as applicable), which may be required by law or
which the Lender may, from time to time, reasonably request to carry out the
terms and conditions of this Agreement and the other Loan Documents and to
ensure perfection and priority of the Liens created or intended to be created by
the Collateral Documents, all at the expense of the Loan Parties; provided,
however, that (x) no Deposit Account Control Agreement or Securities Account
Control Agreements are required to be delivered hereunder prior to the date
which is thirty (30) days after the Effective Date or such later date as the
Lender may agree in its sole discretion and (y) no Mortgages or other real
estate-related deliverables or Collateral Access Agreements are required to be
delivered hereunder prior to the date which is sixty (60) days after the
Effective Date or such later date as the Lender may agree in its sole
discretion; provided, further, that unless otherwise requested by the Lender, no
foreign-law governed pledge, security agreement or similar agreement shall be
required to create or perfect any Lien on any Collateral.

 

(d)                                 If any asset with an individual value in
excess of $100,000 (including any real property or improvements thereto or any
interest therein) is acquired by the Borrower or any Subsidiary that is a Loan
Party after the Effective Date (other than assets constituting Collateral under
the Security Agreement that become subject to the Lien in favor of the Security
Agreement upon acquisition thereof), the Borrower will (i) notify the Lender,
and, if requested by the Lender, cause such assets to be subjected to a Lien
securing the Secured Obligations and (ii) take, and cause each Subsidiary that
is a Loan Party to take, such actions as shall be necessary or reasonably
requested by the Lender to grant and perfect such Liens, including actions
described in paragraph (c) of this Section, all at the expense of the Loan
Parties.

 

(e)                                  Notwithstanding anything herein to the
contrary, no Excluded Subsidiary shall be required to execute a Loan Guaranty
and become a Loan Guarantor for so long as such Subsidiary shall remain an
Excluded Subsidiary.  If any Excluded Subsidiary shall cease to qualify as an
Excluded Subsidiary, the Borrower shall (i) promptly notify the Lender thereof
and (ii) if requested by the Lender, shall cause such Subsidiary that ceased to
qualify as an Excluded Subsidiary to become a Loan Guarantor by executing a
supplement to the Loan Guaranty within 30 days following such request.

 

Notwithstanding anything in this Agreement to the contrary, no Loan Party will
be required to take any steps to deliver any foreign-law governed pledges,
security agreements or similar agreements or create or perfect any Lien under
the laws of any jurisdiction other that the United States, each state thereof or
the District of Columbia to the extent such agreements or actions are not
legally permissible or possible in such jurisdiction.

 

SECTION 5.12.                                   Shares Reserve. The Borrower
shall maintain a reserve of authorized shares of its Common Stock in an amount
equal to the Required Reserve Amount (as defined in the Bridge Warrants);
provided, however, that this Section 5.12 shall not be deemed to be breached
unless an Authorized Share Failure (as defined in the Bridge Warrants) has
occurred and is continuing as of the Authorized Share Failure Deadline (as
defined in the Bridge Warrants).

 

SECTION 5.13.                                   Specified Agreements.  The
Borrower and each Subsidiary that is a Loan Party shall comply with the terms
and conditions of the Specified Agreements.

 

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SECTION 5.14.                                   Employee Retention.

 

(a)                                  At any time prior to the Senior Secured
Convertible Notes Issuance Date, the composition of both the research and
development and the engineering teams of the Borrower and each Subsidiary shall
remain substantially the same as on the Effective Date, subject to customary
turn-over applicable to the same or similar business operating in the same or
similar locations, and, in any event, the collective experience level and
expertise thereof shall not have diminished to any material extent by reason of
employee resignations or departures since the Effective Date; and

 

(b)                                 From and after the Senior Secured
Convertible Notes Issuance Date, the Borrower shall use commercially reasonable
efforts to ensure that the composition of both the research and development and
the engineering teams of the Borrower and each Subsidiary shall remain
substantially the same as on the Senior Secured Convertible Notes Issuance Date,
subject to customary turn-over applicable to the same or similar business
operating in the same or similar locations.

 

SECTION 5.15.                                   Post-Closing Governmental
Approvals.  The Borrower shall deliver to the Lender by no later than thirty
(30) days after the Effective Date (or such later date as the Lender shall agree
to in its sole discretion) evidence reasonably satisfactory to the Lender that
the Borrower has obtained all governmental consents and approvals that are
listed on Schedule 3.03.

 

ARTICLE VI

 

Negative Covenants

 

Until the Commitment has expired or terminated, the Letter of Credit has been
surrendered for cancellation and all Obligations (other than any inchoate
indemnity obligations under Section 8.03) have been paid in full, each Loan
Party executing this Agreement covenants and agrees, jointly and severally with
all of the other Loan Parties, with the Lender that:

 

SECTION 6.01.                                   Indebtedness.  No Loan Party
will, nor will it permit any Subsidiary to, create, incur or suffer to exist any
Indebtedness, except:

 

(a)                                  the Secured Obligations;

 

(b)                                 Indebtedness existing on the date hereof and
set forth in Schedule 6.01;

 

(c)                                  Indebtedness owed to any Person providing
workers’ compensation, health, disability or other employee benefits or
property, casualty or liability insurance, pursuant to reimbursement or
indemnification obligations to such Person, in each case incurred in the
ordinary course of business;

 

(d)                                 Indebtedness of the Borrower or any
Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety
bonds and similar obligations, in each case provided in the ordinary course of
business;

 

(e)                                  Indebtedness in respect of the Senior
Secured Convertible Notes;

 

(f)                                    Indebtedness constituting Permitted
Second Priority Indebtedness in the aggregate principal amount not to exceed the
difference between (i) $75,000,000 and (ii) the

 

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amount equal to the sum of the aggregate outstanding principal amount of the
Loans and Reimbursement Obligations under this Agreement and the undrawn LC Face
Amount;

 

(g)                                 Indebtedness of the Borrower or any
Subsidiary represented by Capital Lease Obligations or purchase money
obligations, in each case, incurred for the purpose of financing all or any
portion of the purchase price or cost of construction, design or installation of
property, plant and equipment in an aggregate principal amount, including any
refinancing thereof, not to exceed $2,000,000 at any time outstanding;

 

(h)                                 Indebtedness in respect of the Existing
Letters of Credit and any replacements thereof to the extent permitted by
Section 6.13 (with such Existing Letters of Credit being deemed to have a
principal amount equal to the maximum potential liability of the Borrower and
its Subsidiaries thereunder) in an aggregate principal amount, not to exceed
$10,000,000 at any time outstanding;

 

(i)                                     Indebtedness of A123 Systems (China)
Materials Co., Ltd. to the Borrower an aggregate principal amount not to exceed
$60,000,000 at any time outstanding; and

 

(j)                                     Indebtedness owed to the Borrower or any
Loan Party.

 

SECTION 6.02.                                   Liens.  No Loan Party will, nor
will it permit any Subsidiary to, create, incur, assume or permit to exist any
Lien on any property or asset now owned or hereafter acquired by it, or assign
or sell any income or revenues (including accounts receivable) or rights in
respect of any thereof, except:

 

(a)                                  Liens created pursuant to any Loan
Document;

 

(b)                                 Permitted Encumbrances;

 

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

 

(d)                                 Liens arising by virtue of any statutory or
common law provision relating to banker’s lines or similar rights;

 

(e)                                  Liens granted by a Subsidiary that is not a
Loan Party in favor of the Borrower or another Loan Party in respect of
Indebtedness owed by such Subsidiary;

 

(f)                                    Liens to secure Indebtedness (including
Capital Lease Obligations) incurred pursuant to Section 6.01(g) covering only
the assets acquired with or financed by such Indebtedness; provided that such
Lien shall not apply to any other property or asset of the Borrower or any
Subsidiary;

 

(g)                                 Liens on the Collateral on a pari passu
basis securing Indebtedness in respect of the Senior Secured Convertible Notes
so long as such Indebtedness is permitted by Section 6.01;

 

(h)                                 Liens on cash and cash equivalents in an
amount not to exceed $10,000,000 securing the obligations of the Borrower in
connection with (x) the Card/FX Obligations and (y)

 

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letters of credit that constitute replacements of the Existing Letters of Credit
permitted by Sections 6.01(h) and 6.13; and

 

(i)                                     Liens on the Collateral securing
obligations in respect of Permitted Second Priority Indebtedness permitted by
Section 6.01(f); provided that a Junior Representative acting on behalf of the
holders of such Indebtedness shall have become party to or otherwise subject to
the provisions of a Junior Lien Intercreditor Agreement in form and substance
satisfactory to the Lender.

 

SECTION 6.03.                                   Mergers; Nature of Business.

 

(a)                                  No Loan Party will, nor will it permit any
Subsidiary to, merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it, or liquidate or dissolve,
except that, if at the time thereof and immediately after giving effect thereto
no Event of Default shall have occurred and be continuing, (i) any Subsidiary of
the Borrower that is a Loan Party may merge into the Borrower in a transaction
in which the Borrower is the surviving corporation, (ii) any Loan Party (other
than the Borrower) may merge into any other Loan Party in a transaction in which
the surviving entity is a Loan Party, and (iii) any Subsidiary that is not a
Loan Party may liquidate or dissolve if the Borrower determines in good faith
that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lender.

 

(b)                                 No Loan Party will, nor will it permit any
Subsidiary to, engage in any business other than businesses of the type
conducted by the Borrower and its Subsidiaries on the date hereof and businesses
reasonably related thereto.

 

SECTION 6.04.                                   Investments, Loans, Advances,
Guarantees and Acquisitions.  No Loan Party will, nor will it permit any
Subsidiary to, form any subsidiary after the Effective Date, or purchase, hold
or acquire (including pursuant to any merger with any Person that was not a Loan
Party and a wholly owned Subsidiary prior to such merger) any evidences of
indebtedness or Equity Interest of, make or permit to exist any loans or
advances to, Guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other
Person constituting a business unit (whether through purchase of assets, merger
or otherwise), except:

 

(a)                                  Permitted Investments;

 

(b)                                 investments in existence on the date hereof
and described in Schedule 6.04;

 

(c)                                  investments by the Borrower and the
Subsidiaries in Equity Interests in their respective Subsidiaries that are Loan
Parties, provided that any such Equity Interests held by a Loan Party shall be
pledged pursuant to the Security Agreement (subject to the limitations
applicable to common stock of a Foreign Subsidiary referred to in Section 5.12);

 

(d)                                 subject to Sections 4.2(a) and 4.4 of the
Security Agreement, notes payable, or stock or other securities issued by any
Person obligated on an account receivable owing to a Loan Party pursuant to
negotiated agreements with respect to settlement of such account receivable in
the ordinary course of business, consistent with past practices;

 

(e)                                  investments received in connection with the
dispositions of assets permitted by Section 6.05;

 

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(f)                                    investments constituting deposits
described in clauses (c) and (d) of the definition of the term “Permitted
Encumbrances”;

 

(g)                                 investments in A123 Systems (China)
Materials Co., Ltd. made in the ordinary course of business through intercompany
Indebtedness permitted by Section 6.01(i); and

 

(h)                                 Capital Expenditures permitted pursuant to
Section 6.11.

 

SECTION 6.05.                                   Asset Sales.  No Loan Party
will, nor will it permit any Subsidiary to, sell, transfer, lease, grant
exclusive licenses (other than Permitted Encumbrances) or otherwise dispose of
any asset, including any Equity Interest owned by it, nor will the Borrower
permit any Subsidiary to issue any additional Equity Interest in such Subsidiary
(other than to the Borrower or another Subsidiary in compliance with
Section 6.04), except:

 

(a)                                  sales, transfers and dispositions of
(i) inventory in the ordinary course of business and (ii) used, obsolete, worn
out or surplus equipment or property in the ordinary course of business or (iii)
assets disposed of in connection with the winding up or liquidation of any
Excluded Subsidiary;

 

(b)                                 sales, transfers and dispositions of assets
to the Borrower or any Subsidiary, provided that any such sales, transfers or
dispositions involving a Subsidiary shall be made in compliance with
Section 6.08;

 

(c)                                  sales, transfers and dispositions of
accounts receivable in connection with the compromise, settlement or collection
thereof;

 

(d)                                 sales, transfers and dispositions of
Permitted Investments and other investments permitted by clause (f) of
Section 6.04; and

 

(e)                                  dispositions resulting from any casualty or
other insured damage to, or any taking under power of eminent domain or by
condemnation or similar proceeding of, any property or asset of the Borrower or
any Subsidiary;

 

provided that all sales, transfers, leases and other dispositions permitted
hereby (other than those permitted by paragraphs (b) and (e) above) shall be
made for fair value and for at least 75% cash consideration.

 

SECTION 6.06.                                   Sale and Leaseback
Transactions.  No Loan Party will, nor will it permit any Subsidiary to, enter
into any arrangement, directly or indirectly, whereby it shall sell or transfer
any property, real or personal, used or useful in its business, whether now
owned or hereafter acquired, and thereafter rent or lease such property or other
property that it intends to use for substantially the same purpose or purposes
as the property sold or transferred.

 

SECTION 6.07.                                   Restricted Payments; Certain
Payments of Indebtedness.

 

(a)                                  No Loan Party will, nor will it permit any
Subsidiary to, declare or make, or agree to pay or make, directly or indirectly,
any Restricted Payment, or incur any obligation (contingent or otherwise) to do
so, except (i)  Subsidiaries may declare and pay dividends ratably with respect
to their Equity Interests and (ii) the Borrower may make Restricted Payments,
not exceeding $1,000,000 during any fiscal year, pursuant to and in accordance
with stock option

 

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plans or other benefit plans for management or employees of the Borrower and its
Subsidiaries in effect as of July 31, 2012.

 

(b)                                 No Loan Party will, nor will it permit any
Subsidiary to, make or agree to pay or make, directly or indirectly, any payment
or other distribution (whether in cash, securities or other property) of or in
respect of principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any Indebtedness, if an
Event of Default has occurred and is continuing or would result therefrom,
except:

 

(i)                                     payment of Indebtedness created under
the Loan Documents; and

 

(ii)                                  payment of regularly scheduled interest
and principal payments as and when due in respect of any Indebtedness, other
than payments in respect of the Subordinated Indebtedness prohibited by the
subordination provisions thereof.

 

SECTION 6.08.                                   Transactions with Affiliates. 
No Loan Party will, nor will it permit any Subsidiary to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (i) transactions that (a) are
in the ordinary course of business, (b) are at prices and on terms and
conditions not less favorable to such Loan Party or such Subsidiary than could
be obtained on an arm’s-length basis from unrelated third parties, and (c) are
approved in accordance with the applicable state laws and, if required, the
applicable Nasdaq listing requirements and (ii) transactions with the Lender or
any of its Affiliates.

 

SECTION 6.09.                                   Restrictive Agreements.  No Loan
Party will, nor will it permit any Subsidiary to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of such Loan
Party or any of its Subsidiaries to create, incur or permit to exist any Lien
upon any of its property or assets, or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any Equity Interests or to make
or repay loans or advances to the Borrower or any other Subsidiary or to
Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that
(i) the foregoing shall not apply to restrictions and conditions imposed by law
or by any Loan Document, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.09 (but shall
apply to any extension or renewal of, or any amendment or modification expanding
the scope of, any such restriction or condition), (iii) the foregoing shall not
apply to customary restrictions and conditions contained in agreements relating
to the sale of a Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness, and
(v) clause (a) of the foregoing shall not apply to customary provisions in
leases and other contracts restricting the assignment thereof.

 

SECTION 6.10.                                   Amendment of Material
Documents.  No Loan Party will, nor will it permit any Subsidiary to, amend,
modify or waive any of its rights under (a) any agreement relating to any
Subordinated Indebtedness, (b) its certificate of incorporation, by-laws,
operating, management or partnership agreement or other organizational
documents, or (c) the Specified Agreements; provided that the foregoing will not
apply to (i) amendments to the Borrower’s certificate of incorporation to
increase the number of authorized shares of Common Stock or (ii) amendments to
Specified Agreements that are immaterial in substance or that do not reduce the
economic benefit to the Loan Parties.

 

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SECTION 6.11.                                   Capital Expenditures.  The
Borrower will not, nor will it permit any Subsidiary to, incur or make any
Capital Expenditures (i) during the period from August 1, 2012 to December 31,
2012, in an aggregate amount exceeding $16,600,000 or (ii) during any subsequent
period, in an aggregate amount exceeding the amount specified therefor in a
budget for such period that shall have been approved by the Lender following its
review of the Projections for such period.

 

SECTION 6.12.                                   Minimum Liquidity.  The Borrower
shall maintain on deposit cash in an aggregate amount equal to not less than:

 

(a)  at any time during the period of time from the Effective Date until the
date all of the HB Notes shall have been extinguished (whether by repayment in
full or conversion into Common Stock of the Borrower or any combination thereof)
(the “HB Termination Date”), $40,000,000 (the “Minimum Liquidity Threshold”);
provided that if Section 15(n) in each HB Note shall provide that the “Minimum
Cash Balance” shall be not less than  $20,000,000 (or any greater amount that is
less than $40,000,000) (the “HBN Threshhold”), the Minimum Liquidity Threshold
shall be an amount equal to the HBN Threshold in effect from time to time until
the HB Termination Date;

 

(b)  at any time during the period of time from the HB Termination Date until
the Senior Secured Convertible Notes Issuance Date, $32,000,000; and

 

(c)  at any time from and after the Senior Secured Convertible Notes Issuance
Date, $40,000,000.

 

SECTION 6.13.                                   Existing Letters of Credit.  The
Borrower shall not renew or extend (or permit renewal or extension of) any
Existing Letter of Credit; provided that the foregoing shall not prohibit the
Borrower from obtaining replacements for such Existing Letters of Credit upon
the expiration thereof, it being understood that the Letter of Credit shall not
be available to support any such replacement.

 

ARTICLE VII

 

Events of Default

 

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

 

(a)                                  the Borrower shall fail to pay any
principal of any Loan or Reimbursement Obligation when and as the same shall
become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or otherwise;

 

(b)                                 the Borrower shall fail to pay any interest
on any Loan or Reimbursement Obligation or any fee or any other amount (other
than an amount referred to in clause (a) of this Article) payable under this
Agreement, when and as the same shall become due and payable, and such failure
shall continue unremedied for a period of three (3) Business Days;

 

(c)                                  any representation or warranty made or
deemed made by or on behalf of any Loan Party or any Subsidiary in or in
connection with this Agreement or any other Loan Document or any amendment or
modification hereof or thereof or waiver hereunder or thereunder, or in any
report, certificate, financial statement or other document furnished pursuant to
or in connection with this Agreement or any other Loan Document or any amendment
or

 

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modification hereof or thereof or waiver hereunder or thereunder, shall prove to
have been false, misleading or incomplete when made or deemed made;

 

(d)                                 any Loan Party shall fail to observe or
perform any covenant, condition or agreement contained in Section 5.02(a), 5.03
(with respect to a Loan Party’s existence) or 5.08 or in Article VI;

 

(e)                                  any Loan Party shall fail to observe or
perform any covenant, condition or agreement contained in this Agreement (other
than those which constitute a default under another Section of this Article),
and such failure shall continue unremedied for a period of ten (10) days after
the earlier of knowledge of such breach or notice thereof from the Lender;

 

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

 

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

 

(h)                                 an involuntary proceeding shall be commenced
or an involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of a Loan Party or any Subsidiary of
any Loan Party or its debts, or of a substantial part of its assets, under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Loan Party or
any Subsidiary of any Loan Party or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for
thirty (30) days or an order or decree approving or ordering any of the
foregoing shall be entered;

 

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

 

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

 

(k)                                  (i) one or more judgments for the payment
of money in an aggregate amount in excess of $2,000,000 (to the extent not
covered by an independent third-party insurer that has not denied coverage)
shall be rendered against any Loan Party, any Subsidiary of any Loan Party or
any combination thereof and the same shall remain undischarged for a period of
thirty (30)

 

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consecutive days during which execution shall not be effectively stayed, or any
action shall be legally taken by a judgment creditor to attach or levy upon any
assets of any Loan Party or any Subsidiary of any Loan Party to enforce any such
judgment; or (ii) any Loan Party or any Subsidiary of any Loan Party shall fail
within thirty (30) days to discharge one or more non-monetary judgments or
orders which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, which judgments or orders, in any such case, are
not stayed on appeal or otherwise being appropriately contested in good faith by
proper proceedings diligently pursued;

 

(l)                                     an ERISA Event shall have occurred that,
when taken together with all other ERISA Events that have occurred, could
reasonably be expected to result in a Material Adverse Effect;

 

(m)                               the occurrence of any “default,” as defined in
any Loan Document (other than this Agreement) or the breach of any of the terms
or provisions of any Loan Document (other than this Agreement), which default or
breach continues beyond the shorter of (i) any period of grace therein provided,
or (ii) ten (10) days after the earlier of knowledge of such breach or notice
thereof from the Lender;

 

(n)                                 the Loan Guaranty shall fail to remain in
full force or effect or any action shall be taken to discontinue or to assert
the invalidity or unenforceability of the Loan Guaranty, or any Loan Guarantor
shall fail to comply with any of the terms or provisions of the Loan Guaranty to
which it is a party, or any Loan Guarantor shall deny that it has any further
liability under the Loan Guaranty to which it is a party, or shall give notice
to such effect;

 

(o)                                 except as permitted by the terms of any
Collateral Document, (i) any Collateral Document shall for any reason fail to
create a valid security interest in any Collateral purported to be covered
thereby, or (ii) any Lien securing any Secured Obligation shall cease to be a
perfected, first priority Lien;

 

(p)                                 any Collateral Document shall fail to remain
in full force or effect or any action shall be taken to discontinue or to assert
the invalidity or unenforceability of any Collateral Document;

 

(q)                                 any material provision of any Loan Document
for any reason ceases to be valid, binding and enforceable in accordance with
its terms (or any Loan Party shall challenge the enforceability of any Loan
Document or shall assert in writing, or engage in any action or inaction based
on any such assertion, that any provision of any of the Loan Documents has
ceased to be or otherwise is not valid, binding and enforceable in accordance
with its terms);

 

(r)                                    during any period that the aggregate
outstanding principal amount of the HB Notes shall exceed $1,000,000, any “Event
of Default” thereunder shall occur;

 

(s)                                  the Common Stock shall be delisted from
Nasdaq or trading shall be suspended for more than five (5) consecutive trading
days or more than fifteen (15) trading days in any three hundred sixty-five
(365) day period;

 

(t)                                    either (i) the U.S. Department of Energy
$249,000,000 American Recovery and Reinvestment Act grant to the Borrower or
(ii) the State of Michigan $25,000,000 yearly tax credit ceases to be in effect
other than, in each case, as a result from, or pursuant to, actions by, or
directed by, the Lender or any of its Affiliates;

 

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(u)                                 the condition to closing set forth in
Section 4.9 of the Securities Purchase Agreement (Shareholder Approvals) shall
not have been satisfied on or prior to the 120th day after the Effective Date;
or

 

(v)                                 the Bridge Warrant Shares have not been
approved for listing on Nasdaq, subject to official notice of issuance, on or
prior to the 120th day after the Effective Date;

 

then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Lender may, by notice to the Borrower,
take either or both of the following actions, at the same or different times: 
(i) terminate the Commitment, whereupon the Commitment shall terminate
immediately, (ii) require the Borrower to comply with cash collateralization
requirements set forth in Section 2.13, and (iii) declare the Loans and unpaid
LC Obligations then outstanding to be due and payable in whole (or in part, in
which case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans and
unpaid LC Obligations so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower; and in case of any event with respect to the Borrower described in
clause (h) or ( i) of this Article, the Commitment shall automatically terminate
and the principal of the Loans and unpaid LC Obligations then outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrower accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.  Upon the occurrence and the continuance of an
Event of Default, the Lender may increase the rate of interest applicable to the
Loans and other Obligations as set forth in this Section 2.07(c) and exercise
any rights and remedies provided to the Lender under the Loan Documents or at
law or equity, including all remedies provided under the UCC.

 

ARTICLE VIII

 

Miscellaneous

 

SECTION 8.01.                                   Notices.

 

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

 

(i)                                     if to any Loan Party, to the Borrower
at:

 

A123 Systems, Inc.
200 West Street
Waltham, Massachusetts 02451
Attention:  David Vieau, President & CEO
Facsimile No:  (617) 924-8910

 

With a copy to:

 

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A123 Systems, Inc.
200 West Street
Waltham, Massachusetts 02451
Attention:  General Counsel
Facsimile No:  (617) 924-8910

 

With a copy to:

 

Latham & Watkins LLP
1000 Winter Street, Suite 3700
Waltham, Massachusetts 02451
Attention:  John Chory
Facsimile No:  (212) 751-4864

 

(ii)                                  if to the Lender, to Wanxiang America
Corporation at:

 

88 Airport Road
Elgin, Illinois 60123
Attention:  Paul Cumberland
Facsimile No:  (847) 931-4838

 

With a copy to:

 

Sidley Austin LLP
1 S. Dearborn St.
Chicago, Illinois 60603
Attention:  John R. Box

Attention:  Thomas P. Brown
Facsimile No:  (312) 853-7036

 

All such notices and other communications (i) sent by hand or overnight courier
service, or mailed by certified or registered mail, shall be deemed to have been
given when received, or (ii) sent by facsimile shall be deemed to have been
given when sent, provided that if not given during normal business hours for the
recipient, shall be deemed to have been given at the opening of business on the
next Business Day for the recipient.

 

(b)                                 Notices and other communications to the
Lender hereunder may be delivered or furnished by electronic communications
(including e-mail and internet or intranet websites) pursuant to procedures
approved by the Lender; provided that the foregoing shall not apply to notices
pursuant to Article II or to compliance and no Event of Default certificates
delivered pursuant to Section 5.01(d) unless otherwise agreed by the Lender. 
The Lender or the Borrower (on behalf of the Loan Parties) may, in its
discretion, agree to accept notices and other communications to it hereunder by
electronic communications pursuant to procedures approved by it; provided that
approval of such procedures may be limited to particular notices or
communications.  All such notices and other communications (i) sent to an e-mail
address shall be deemed received upon the sender’s receipt of an acknowledgement
from the intended recipient (such as by the “return receipt requested” function,
as available, return e-mail or other written acknowledgement), provided that if
not given during the normal business hours of the recipient, such notice or
communication shall be deemed to have been given at the opening of business on
the next Business Day for the recipient, and (ii) posted to an Internet or
intranet website shall be deemed received upon the deemed receipt by the
intended recipient at its e-mail address as

 

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described in the foregoing clause (b)(i) of notification that such notice or
communication is available and identifying the website address therefor.

 

(c)                                  Any party hereto may change its address or
facsimile number for notices and other communications hereunder by notice to the
other parties hereto.

 

SECTION 8.02.                                   Waivers; Amendments.

 

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

 

(b)                                 Neither this Agreement nor any other Loan
Document nor any provision hereof or thereof may be waived, amended or modified
except (i) in the case of this Agreement, pursuant to an agreement or agreements
in writing entered into by the Borrower and the Lender, or (ii) in the case of
any other Loan Document, pursuant to an agreement or agreements in writing
entered into by the Lender and the Loan Party or Loan Parties that are parties
thereto.

 

SECTION 8.03.                                   Expenses; Indemnity; Damage
Waiver.

 

(a)                                  The Borrower shall pay (i) all reasonable
and documented out-of-pocket expenses incurred by the Lender and its Affiliates,
including the reasonable fees, charges and disbursements of counsel for the
Lender (excluding the allocated costs of its internal legal department), in
connection with the credit facility provided for herein, the preparation and
administration of the Loan Documents or any amendments, modifications or waivers
of the provisions of the Loan Documents (whether or not the transactions
contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket
expenses incurred by the Lender, including the fees, charges and disbursements
of any counsel for the Lender (whether outside counsel or the allocated costs of
its internal legal department), in connection with the enforcement, collection
or protection of its rights in connection with the Loan Documents, including its
rights under this Section, or in connection with the Loans made, including all
such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.  Expenses being reimbursed by the
Borrower under this Section include, without limiting the generality of the
foregoing, costs and expenses incurred in connection with:

 

(i)                                     appraisals and insurance reviews;

 

(ii)                                  field examinations and the preparation of
Reports based on the fees charged by a third party retained by the Lender or the
internally allocated fees for each Person employed by the Lender with respect to
each field examination;

 

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(iii)                               background checks regarding senior
management and/or key investors, as deemed necessary or appropriate in the sole
discretion of the Lender;

 

(iv)                              taxes, fees and other charges for (A) lien and
title searches and title insurance and (B) recording the Mortgages, filing
financing statements and continuations, and other actions to perfect, protect,
and continue the Lender’s Liens;

 

(v)                                 sums paid or incurred to take any action
required of any Loan Party under the Loan Documents that such Loan Party fails
to pay or take; and

 

(vi)                              forwarding loan proceeds, collecting checks
and other items of payment, and establishing and maintaining the accounts and
lock boxes, and costs and expenses of preserving and protecting the Collateral.

 

(b)                                 The Borrower shall indemnify the Lender, and
each Related Party of the Lender (each such Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, penalties, incremental taxes, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of the Loan Documents or
any agreement or instrument contemplated thereby, the performance by the parties
hereto of their respective obligations thereunder or the consummation of the
Transactions or any other transactions contemplated hereby, (ii) any Loan or the
use of the proceeds therefrom, (iii) any actual or alleged presence or release
of Hazardous Materials on or from any property owned or operated by the Borrower
or any of its Subsidiaries, or any Environmental Liability related in any way to
the Borrower or any of its Subsidiaries, or (iv) the failure of the Borrower to
deliver to the Lender the required receipts or other required documentary
evidence with respect to a payment made by the Borrower for Taxes pursuant to
Section 2.09, (v) any actual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing, whether based on contract, tort or
any other theory and regardless of whether any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, penalties, liabilities or related
expenses are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence, bad faith or
willful misconduct of such Indemnitee or such Indemnitee’s Affiliates and the
respective directors, officers and employees of such Indemnitee and such
Indemnitee’s Affiliates.  This Section 8.03(b) shall not apply with respect to
Taxes other than any Taxes that represent losses or damages arising from any
non-Tax claim.

 

(c)                                  The relationship between any Loan Party on
the one hand and the Lender on the other hand shall be solely that of debtor and
creditor.  The Lender (i) shall not have any fiduciary responsibilities to any
Loan Party or (ii) does not undertake any responsibility to any Loan Party to
review or inform such Loan Party of any matter in connection with any phase of
any Loan Party’s business or operations.  To the extent permitted by applicable
law, no Loan Party shall assert, and each hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or the use of the
proceeds thereof.

 

(d)                                 All amounts due under this Section shall be
payable not later than ten (10) Business Days after written demand therefor.

 

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SECTION 8.04.                                   Successors and Assigns.

 

(a)                                  The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns permitted hereby, except that the Borrower may not assign
or otherwise transfer any of its rights or obligations hereunder without the
prior written consent of the Lender (and any attempted assignment or transfer by
the Borrower without such consent shall be null and void).  Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each of the Lender) any legal or equitable right, remedy or claim
under or by reason of this Agreement.

 

(b)                                 The Lender may assign to one or more
Eligible Assignees (as defined below) all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it).  For purposes of this Agreement,
“Eligible Assignee” means any Person other than a natural Person that is (i) a
Lender, an Affiliate of any Lender or, with respect to any Lender that is an
investment fund, any other investment fund that is managed or advised by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor, (ii) a commercial bank, insurance company, investment or mutual fund or
other Person that is an “accredited investor” (as defined in Regulation D under
the Securities Act) or (iii) a corporate entity that possesses financial
sophistication and standing similar to that of the Lender.  Subject to
notification of an assignment, the assignee shall be a party hereto and, to the
extent of the interest assigned, have the rights and obligations of the Lender
under this Agreement, and the Lender shall, to the extent of the interest
assigned, be released from its obligations under this Agreement (and, in the
case of an assignment covering all of the Lender’s rights and obligations under
this Agreement, the Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 2.08, 2.09 and 8.03).  The Borrower
hereby agrees to execute any amendment and/or any other document that may be
necessary to effectuate such an assignment, including an amendment to this
Agreement to provide for multiple lenders and an administrative agent to act on
behalf of such lenders.  Any assignment or transfer by the Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by the Lender of a
participation in such rights and obligations in accordance with paragraph (c) of
this Section.

 

(c)                                  The Lender may, without the consent of the
Borrower, sell participations to one or more banks or other entities (a
“Participant”) in all or a portion of the Lender’s rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans owing
to it); provided that (i) the Lender’s obligations under this Agreement shall
remain unchanged, (ii) the Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, and (iii) the Borrower
shall continue to deal solely and directly with the Lender in connection with
the Lender’s rights and obligations under this Agreement.  The Borrower agrees
that each Participant shall be entitled to the benefits of Sections 2.08 and
2.09 to the same extent as if it were the Lender and had acquired its interest
by assignment pursuant to paragraph (b) of this Section; provided that such
Participant (A) agrees to be subject to the provisions of Sections 2.09 and 2.10
as if it were an assignee under paragraph (b) of this Section; and (B) shall not
be entitled to receive any greater payment under Section 2.08 or 2.09, with
respect to any participation, than the Lender would have been entitled to
receive, except to the extent such entitlement to receive a greater payment
results from a Change in Law that occurs after the Participant acquired the
applicable participation.  The Lender shall, acting solely for this purpose as
an agent of the Borrower, maintain a register on which it enters the name and
address of each Participant and the principal amounts (and stated interest) of
each Participant’s interest in

 

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the Loans or other obligations under the Loan Documents (the “Participant
Register”); provided that the Lender shall have no obligation to disclose all or
any portion of the Participant Register (including the identity of any
Participant or any information relating to a Participant’s interest in any
commitments, loans, letters of credit or its other obligations under any Loan
Document) to any Person except to the extent that such disclosure is necessary
to establish that such commitment, loan, letter of credit or other obligation is
in registered form under Section 5f.103-1(c) of the United States Treasury
Regulations.  The entries in the Participant Register shall be conclusive absent
manifest error, and the Lender shall treat each Person whose name is recorded in
the Participant Register as the owner of such participation for all purposes of
this Agreement notwithstanding any notice to the contrary.

 

(d)                                 To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 8.08 as though it
were the Lender, provided such Participant agrees to be subject to
Section 2.10(b) as though it were the Lender.

 

SECTION 8.05.                                   Survival.  All covenants,
agreements, representations and warranties made by the Loan Parties in the Loan
Documents and in the certificates or other instruments  delivered in connection
with or pursuant to this Agreement or any other Loan Document shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of the Loan Documents and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Lender, the Lender may have had notice or
knowledge of any Event of Default or incorrect representation or warranty at the
time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid
and so long as the Commitment has not expired or terminated.  The provisions of
Sections 2.06, 2.08, 2.09 and Article VIII shall survive and remain in full
force and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the
Commitment or the termination of this Agreement or any provision hereof.

 

SECTION 8.06.                                   Counterparts; Integration;
Effectiveness.  This Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract.  This Agreement, the other Loan Documents and any separate letter
agreements with respect to fees payable to the Lender constitute the entire
contract among the parties relating to the subject matter hereof and supersede
any and all previous agreements and understandings, oral or written, relating to
the subject matter hereof.  Except as provided in Section 4.01, this Agreement
shall become effective when it shall have been executed by the Lender and when
the Lender shall have received counterparts hereof which, when taken together,
bear the signatures of each of the other parties hereto, and thereafter shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.  Delivery of an executed counterpart of a signature
page of this Agreement by facsimile or other electronic transmission shall be
effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 8.07.                                   Severability.  Any provision of
any Loan Document held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions thereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.

 

SECTION 8.08.                                   Right of Setoff.  If an Event of
Default shall have occurred and be continuing, the Lender and each of its
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any obligations at any
time owing by the Lender

 

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or Affiliate to or for the credit or the account of the Borrower or such Loan
Guarantor against any of and all the Secured Obligations held by the Lender,
irrespective of whether or not the Lender shall have made any demand under the
Loan Documents and although such obligations may be unmatured.  The rights of
each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which the Lender may have.

 

SECTION 8.09.                                   Governing Law; Jurisdiction;
Consent to Service of Process.

 

(a)                                  The Loan Documents (other than those
containing a contrary express choice of law provision) shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of New York.

 

(b)                                 Each Loan Party hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any U.S. Federal or New York State court sitting in New York,
New York in any action or proceeding arising out of or relating to any Loan
Documents, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court.  Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.  Nothing in this Agreement or
any other Loan Document shall affect any right that the Lender may otherwise
have to bring any action or proceeding relating to this Agreement or any other
Loan Document against any Loan Party or its properties in the courts of any
jurisdiction.

 

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

 

(d)                                 Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in
Section 8.01.  Nothing in this Agreement or any other Loan Document will affect
the right of any party to this Agreement to serve process in any other manner
permitted by law.

 

SECTION 8.10.                                   WAIVER OF JURY TRIAL.  EACH
PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

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SECTION 8.11.                                   Headings.  Article and Section
headings and the Table of Contents used herein are for convenience of reference
only, are not part of this Agreement and shall not affect the construction of,
or be taken into consideration in interpreting, this Agreement.

 

SECTION 8.12.                                   Confidentiality.  The Lender
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority; provided, unless specifically prohibited by
applicable law or court order, the Lender shall make reasonable efforts to
notify the Borrower of any request by any Chinese regulatory authority or
representative thereof, (c) to the extent required by any Requirement of Law or
by any subpoena or similar legal process, provided, unless specifically
prohibited by applicable law or court order, the Lender shall make reasonable
efforts to notify the Borrower of any request by any Chinese regulatory
authority or representative thereof, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to
(i) any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or
(ii) any actual or prospective counterparty (or its advisors) to any swap or
derivative transaction relating to the Loan Parties and their obligations,
(g) with the consent of the Borrower, or (h) to the extent such Information
(i) becomes publicly available other than as a result of a breach of this
Section or (ii) becomes available to the Lender on a non-confidential basis from
a source other than the Borrower; provided that, any failure by the Lender to
notify the Borrower of the requested disclosures in accordance with clauses (b)
and (c) above shall not give rise to any liability for the Lender.  For the
purposes of this Section, “Information” means all information received from the
Borrower relating to the Borrower or its business, other than any such
information that is available to the Lender on a non-confidential basis prior to
disclosure by the Borrower; provided that, in the case of information received
from the Borrower after the date hereof, such information is clearly identified
at the time of delivery as confidential.  Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.

 

SECTION 8.13.                                   Nonreliance; Violation of Law. 
The Lender hereby represents that it is not relying on or looking to any margin
stock for the repayment of the Loans provided for herein.  Anything contained in
this Agreement to the contrary notwithstanding, the Lender shall not be
obligated to extend credit to the Borrower in violation of any Requirement of
Law.

 

SECTION 8.14.                                   USA PATRIOT Act.  The Lender is
subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the “Act”) and hereby notifies the Borrower
that pursuant to the requirements of the Act, it is required to obtain, verify
and record information that identifies the Borrower, which information includes
the name and address of the Borrower and other information that will allow the
Lender to identify the Borrower in accordance with the Act.

 

SECTION 8.15.                                   Disclosure.  Each Loan Party
hereby acknowledges and agrees that the Lender and/or its Affiliates from time
to time may hold investments in, make other loans to or have other relationships
with any of the Loan Parties and their respective Affiliates.  In addition, each
Loan Party hereby acknowledges that the Lender holds Bridge Warrants from the
Borrower.

 

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SECTION 8.16.                                   Interest Rate Limitation. 
Notwithstanding anything herein to the contrary, if at any time the interest
rate applicable to any Loan, together with all fees, charges and other amounts
which are treated as interest on such Loan under applicable law (collectively
the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which
may be contracted for, charged, taken, received or reserved by the Lender
holding such Loan in accordance with applicable law, the rate of interest
payable in respect of such Loan hereunder, together with all Charges payable in
respect thereof, shall be limited to the Maximum Rate and, to the extent lawful,
the interest and Charges that would have been payable in respect of such Loan
but were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to the Lender in respect of other
Loans or periods shall be increased (but not above the Maximum Rate therefor)
until such cumulated amount, together with interest thereon at the Federal Funds
Effective Rate to the date of repayment, shall have been received by the Lender.

 

SECTION 8.17.                                   Termination and Release.  Upon
the termination of the Commitment hereunder, the surrender of the Letter of
Credit for cancellation and indefeasible payment in full in cash or other
immediately available funds of all Obligations (other than any inchoate
indemnity obligations under Section 8.03), this Agreement shall terminate and be
of no further force and effect (other than with respect to any provisions of
this Agreement that survive the termination hereof), the Lien securing the
Obligations hereunder granted to the Lender, solely in its capacity as the
Lender hereunder, shall be released and the Lender shall, at the sole cost and
expense of the Borrower, execute such documents and take such other steps as
reasonably requested by the Borrower to effectuate such release.  The
termination and release contemplated in this Section 8.17 shall not release,
terminate, impair, diminish or otherwise affect any of the NPA Obligations, any
Lien granted by the Borrower or any other Loan Party to secure the NPA
Obligations or any other obligation or liability of the Borrower or any other
Loan Party to any Person other than the Lender in its capacity as “Lender”
hereunder.  Without limiting the generality of the foregoing, following the
termination and release contemplated herein, all obligations and liabilities of,
and all Liens granted by, the Borrower or any Loan Party to Wanxiang or any of
its Affiliates acting in any capacity other than as Lender hereunder shall
continue be in full force and effect in accordance with any such documents
governing such obligations, liabilities and Liens until indefeasible payment in
full in cash or other immediately available funds of such obligations and
liabilities.

 

ARTICLE IX

 

Role of Agent

 

In the event that the Lender shall at any time assign any portion of its
interest hereunder pursuant to Section 8.04, with the effect that there shall be
more than one “Lender” hereunder (each, a “Participating Lender”), and at all
times that there shall be more than one Participating Lender hereunder, the
provisions of this Article IX shall apply.

 

SECTION 9.01.                                   Designation of Agent.  Wanxiang
shall act as agent (the “Agent”) for all Participating Lenders hereunder, as
collateral agent for all Participating Lenders under the Security Agreement for
purposes of any grant of collateral security being made by the Borrower in
connection with this Agreement and as agent for the Participating Lenders under
or in connection with any other Loan Document.  Each Participating Lender
irrevocably appoints the Agent as its agent and authorizes the Agent to take
such actions on its behalf and to exercise such powers as are set forth for the
Agent in the Security Agreement and as are delegated to the Agent by the
Participating Lenders from time to time, together with such actions and powers
as are reasonably incidental thereto.  Each Participating Lender acknowledges
that Wanxiang will be acting as collateral agent under the Security Agreement in
respect of all “Lenders” from time to time parties to this Agreement and all
Persons from time to time holding the Senior Secured Convertible Notes or
interests therein (the “Holders”), and that the collateral security

 

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being provided by the Borrower to such Lender and such Holders will be a single
pool of assets and interests in property to be shared by such Lenders and such
Holders as secured parties on a pari passu basis.  Notwithstanding anything
herein to the contrary, the provisions of this Section 9.01 shall apply at all
times without regard to how many “Lenders” are party hereto at such time.

 

SECTION 9.02.                                   Intercreditor Matters.  The
Participating Lenders shall agree among themselves on their respective voting
rights and related intercreditor matters for purposes of this Agreement and
shall timely provide instructions and direction to the Agent in accordance with
such agreement in respect of any action to be taken by the Lender, any consent
to be obtained from the Lender or any right or discretion to be exercised by the
Lender under the Loan Documents.  Unless otherwise agreed among the
Participating Lenders, the rights and priorities of the Participating Lenders
shall at all times be pari passu.  Nothing contained herein shall impair,
diminish or otherwise modify the right of any Participating Lender to receive
its respective interest in any payment due the Lender hereunder.

 

SECTION 9.03.                                   Actions by and Communications
with the Agent.  Notwithstanding the existence of several Participating Lenders
hereunder, the Borrower shall be permitted to assume that any notice or
instruction from the Agent, or any action taken by the Agent, shall have been
duly authorized by the Participating Lenders without any requirement that the
Borrower at any time seek confirmation thereof from any Participating Lender. 
Any communication in connection with this Agreement made by the Borrower to the
Agent shall be deemed to be a communication by the Borrower to all Participating
Lenders.

 

SECTION 9.04.                                   Payments.  Unless otherwise
instructed by the Agent, each payment to be made by the Borrower hereunder to
the Lender shall be made to the Agent and payment when so made shall be deemed
to be payment to each Participating Lender of its respective interest therein. 
The Agent shall assume responsibility for allocating among and disbursing to the
Participating Lenders in accordance with their respective interests any payment
made by the Borrower to the Agent for the benefit of the Participating Lenders.

 

SECTION 9.05.                                   Independent Analysis.  Each
Participating Lender acknowledges that it has, independently and without
reliance upon the Agent or any other Participating Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement.  Each Participating Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Participating Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.

 

SECTION 9.06.                                   Actions in Concert.  Each
Participation Lender agrees that no Participating Lender shall have the right to
individually seek to realize upon the security granted by any Collateral
Document, it being understood and agreed that such rights and remedies may be
exercised solely by the Agent for the benefit of the Participating Lenders upon
the terms of the Collateral Documents.

 

59

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

 

 

 

A123 SYSTEMS, INC.

 

 

 

 

 

By:

/s/ David P. Vieau

 

Name:

David P. Vieau

 

Title:

President & CEO

 

 

 

 

 

WANXIANG AMERICA CORPORATION

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

Signature Page to Loan Agreement

 

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EXHIBIT A

 

OPINION OF COUNSEL FOR THE BORROWER

 

(attached)

 

Exh. A-1

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EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

To:                              WANXIANG AMERICA CORPORATION

 

This Compliance Certificate is furnished pursuant to that certain Loan Agreement
dated as of August 15, 2012 (as amended, modified, renewed or extended from time
to time, the “Agreement”) between A123 Systems, Inc. (the “Borrower”) and
Wanxiang America Corporation, as Lender.  Unless otherwise defined herein,
capitalized terms used in this Compliance Certificate have the meanings ascribed
thereto in the Agreement.

 

THE UNDERSIGNED HEREBY CERTIFIES THAT:

 

1.                                       I am the duly elected
                     of the Borrower;

 

2.                                       I have reviewed the terms of the
Agreement and I have made, or have caused to be made under my supervision, a
detailed review of the transactions and conditions of the Borrower and its
Subsidiaries during the accounting period covered by the attached financial
statements [for quarterly or monthly financial statements add:  and such
financial statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence of
footnotes];

 

3.                                       The examinations described in paragraph
2 did not disclose, except as set forth below, and I have no knowledge of
(i) the existence of any condition or event which constitutes a Default during
or at the end of the accounting period covered by the attached financial
statements or as of the date of this Certificate or (ii) any change in GAAP or
in the application thereof that has occurred since the date of the audited
financial statements referred to in Section 3.04 of the Agreement;

 

4.                                       Except as set forth below, the
representations and warranties of the Borrower and the other Loan Parties
contained in Article III of the Agreement and any representations and warranties
of the Borrower and the other Loan Parties that are contained in any other Loan
Document are true and correct on and as of the date hereof, except to the extent
that such representations and warranties specifically refer to an earlier date,
in which case they are true and correct as of such earlier date, and except that
for purposes of this Compliance Certificate, the representations and warranties
contained in subsection (a) of Section 3.04 of the Agreement shall be deemed to
refer to the most recent statements furnished pursuant to clauses (a), (b) and
(c), respectively, of Section 5.01 of the Agreement, including the statements in
connection with which this Compliance Certificate is delivered;

 

5.                                       I hereby certify that no Loan Party has
changed (i) its name, (ii) its chief executive office, (iii) principal place of
business, (iv) the type of entity it is or (v) its state of incorporation or
organization without having given the Lender the notice required by Section 4.15
of the Security Agreement; [and

 

6.                                       Schedule I attached hereto sets forth
financial data and computations evidencing the Borrower’s compliance with
certain covenants of the Agreement, all of which data and computations are true,
complete and correct.]

 

Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the (i) nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is

 

Exh. B-1

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

 

taking, or proposes to take with respect to each such condition or event or
(ii) the change in GAAP or the application thereof and the effect of such change
on the attached financial statements:

 

 

 

 

 

 

 

 

Described below are the exceptions, if any, to paragraph 4 by listing, in
detail, of any representation or warranty contained in the Agreement or any Loan
Document which is not true and correct on and as of the date hereof:

 

 

 

 

 

 

 

 

Exh. B-2

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

 

The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this                day of
                                      .

 

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

Exh. B-3

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

 

SCHEDULE I

 

Compliance as of                   ,          with
Provisions of       and         of
the Agreement

 

Exh. B-4

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

 

EXHIBIT C

 

[RESERVED]

 

Exh. C-1

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

 

EXHIBIT D

 

LIST OF CLOSING DOCUMENTS

 

(Attached)

 

Exh. D-1

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

 

EXHIBIT E

 

FORM OF BRIDGE WARRANTS

 

(Attached)

 

Exh. E-1

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

 

EXHIBIT F

 

[RESERVED]

 

Exh. F

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

 

EXHIBIT G

 

FORM OF BORROWING REQUEST

 

[Date]

 

Wanxiang America Corporation

88 Airport Road
Elgin, Illinois 60123

 

Ladies and Gentlemen:

 

The undersigned, A123 Systems, Inc. (the “Borrower”) refers to that certain Loan
Agreement dated as of August 15, 2012 (as amended, restated, supplemented or
otherwise modified from time to time, the “Loan Agreement”) between the Borrower
and Wanxiang America Corporation, as Lender. Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Loan Agreement.

 

The undersigned hereby gives the Lender notice, pursuant to Section 2.02 of the
Loan Agreement, that it hereby requests a Loan (the “Proposed Loan”), and that
the Borrowing Date for the Proposed Loan is
                                          , 20    .(1)

 

The undersigned hereby acknowledges that this Borrowing Request is irrevocable
and binding on the Borrower.

 

The undersigned hereby certifies that:

 

(A)  The representations and warranties of the Borrower and each other Loan
Party set forth in Article III of the Loan Agreement are true and correct on and
as of the date hereof (except for those representations and warranties which by
their terms are made as of a specified date, which representations and
warranties shall be true and correct on and as of such date); and

 

(B)  No Default has occurred and is continuing, or would result from such Loan.

 

The undersigned hereby represents and warrants that the conditions to lending
specified in Section [4.02][4.03] of the Loan Agreement are satisfied as of the
date hereof.

 

 

 

A123 SYSTEMS, INC.

 

 

 

By:

 

 

Name:

 

Title:

 

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

(1)  The Borrowing Date shall be a Business Day.

 

Exh. G-1

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

 

EXHIBIT H

 

FORM OF NOTE

 

August [    ], 2012

 

A123 SYSTEMS, INC., a Delaware corporation (the “Borrower”), promises to pay to
WANXIANG AMERICA CORPORATION (the “Lender”) the aggregate unpaid principal
amount of all Loans made by the Lender to the Borrower pursuant to Article II of
the Agreement (as hereinafter defined), in immediately available funds to the
Lender, together with interest on the unpaid principal amount hereof at the
rates and on the dates set forth in the Agreement.  The Borrower shall pay the
principal of and accrued and unpaid interest on the Loans in full on the
Maturity Date.

 

The Lender shall, and is hereby authorized to, record on the schedule attached
hereto, or to otherwise record in accordance with its usual practice, the date
and amount of each Loan and the date and amount of each principal payment
hereunder.

 

This Note is one of the Notes issued pursuant to, and is entitled to the
benefits of, the Loan Agreement dated as of August 15, 2012 (which, as it may be
amended or modified and in effect from time to time, is herein called the
“Agreement”), between the Borrower and the Lender, to which Agreement reference
is hereby made for a statement of the terms and conditions governing this Note,
including the terms and conditions under which this Note may be prepaid or its
maturity date accelerated.  Capitalized terms used herein and not otherwise
defined herein are used with the meanings attributed to them in the Agreement.

 

In the event of default hereunder, the undersigned agree to pay all costs and
expenses of collection, including reasonable attorneys’ fees.  The undersigned
waive demand, presentment, notice of nonpayment, protest, notice of protest and
notice of dishonor.

 

This Note is issued with “original issue discount” for United States federal
income tax purposes.  For information on the issue price, amount of original
issue discount, issue date and yield to maturity for the Note, please contact
A123 Systems, Inc., 200 West Street, Waltham, MA 02451, Attention: Chief
Financial Officer.(2)

 

THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF.

 

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

(2)  OID legend to be added if appropriate based on warrant valuation.

 

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

 

 

A123 SYSTEMS, INC., a Delaware
corporation

 

 

 

By:

 

 

Print Name:

 

 

Title:

 

 

Exh. H-1

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

 

SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF A123 SYSTEMS, INC.,
DATED AUGUST [    ], 2012

 

Date

 

Principal
Amount of
Loan

 

Principal
Amount
Paid

 

Unpaid
Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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