<PAGE>
 
                                                                   EXHIBIT 10.18
                               BankBoston, N.A.
                              100 Federal Street
                          Boston, Massachusetts 02110



                            As of December 16, 1998

SatCon Technology Corporation
SatCon Film Microelectronics, Inc.
K&D MagMotor Corp.
161 First Street
Cambridge, Massachusetts  02142

Attention:  David B. Eisenhaure, President

Dear David:

This letter (this "Letter Agreement") will confirm that BankBoston, N.A. (the
"Bank") holds available for SATCON TECHNOLOGY CORPORATION, SATCON FILM
MICROELECTRONICS, INC., and K&D MAGMOTOR CORP. (collectively, the "Borrowers") a
$2,000,000 demand discretionary line of credit.  All capitalized terms used but
not defined in the text of this Letter Agreement shall have the meanings
specified on Annex 1 attached hereto.
             -------                 

All borrowings under this line (each a "Loan" and collectively, the "Loans")
will be the joint and several obligations of the Borrowers and will be used by
the Borrowers for working capital purposes and capital expenditures.  All
outstanding amounts borrowed will be payable on demand.

Upon satisfaction of the Closing Conditions, borrowings will be made available
at the Bank's sole discretion, subject to Borrowing Base Availability, and will
bear interest at the Bank's Alternate Base Rate in effect from time to time plus
                                                                            ----
1.5% per annum.  Loans will be available on a same-day basis and prepayment of
Loans may be made without penalty.

Loans will be evidenced by a Demand Promissory Note in the form of Annex 2
                                                                   -------
attached hereto (the "Note").  Each borrowing and the corresponding information
will be recorded on such Note on the day of borrowing.  The Bank's corresponding
records of debit and credit will be additional evidence of Loans made hereunder.

The Borrowers shall also be permitted to request that standby and documentary
letters of credit be issued for their account in lieu of Loans hereunder,
provided that at the time the Borrowers request the issuance of a letter of
--------                                                                   
credit and after giving effect to the issuance thereof, the LC Amount (as
hereinafter defined) shall not exceed (i) $250,000 or (ii) an amount which, when
added to the current debit balance in the Loan Account, would not exceed the
Borrowing Base Availability.  If in our discretion we agree to issue such
letters of credit, the Borrowers shall enter into such agreements and execute
such documents as the Bank customarily requires in like transactions, including
without limitation, a letter of credit application and agreement.  Any and all
amounts drawn under letters of credit shall be immediately due and payable by
the Borrowers to the Bank and, in any event, shall bear interest at four percent
(4%) above the Alternate Base Rate then in effect until fully paid.  All standby
letters of credit shall bear such fees as are mutually agreed to by the Bank and
the Borrowers, and all standby and documentary letters of credit shall bear such
other fees as are customarily charged by the Bank on such letters of credit.

<PAGE>
 
The anticipated availability of borrowings under this demand discretionary
facility is subject to our usual conditions that we continue to be satisfied
with the affairs of the Borrowers and to any changes in government regulations
or monetary policies.  In addition, availability of borrowings will at all times
be subject to Borrowing Base Availability.

Each Borrower agrees that it will not, without our prior written consent, create
or suffer to exist any security interest, lien or other encumbrance
("Encumbrances") upon or with respect to any of its properties or assets, except
for Encumbrances in favor of the Bank pursuant to the Security Agreement between
such Borrower and the Bank of even date herewith.  Each Borrower also agrees
that it does not have any indebtedness, nor will it incur any indebtedness,
other than the indebtedness reflected hereby, customary trade debt (not for
borrowed money) in the ordinary course of business, and the $600,000
indebtedness to Albert R. Snider by SatCon Film Microelectronics, Inc. as
reflected in that certain Promissory Note dated March 1, 1995, so long as such
debt is promptly paid and discharged when due or in conformity with customary
trade terms and practices, without our prior written consent.  No Borrower will,
without our prior written consent, declare any dividends or make any
distributions or other payments (other than salary in the ordinary course of
business) to its shareholders.

Each Borrower represents and warrants to us that it is not in default under any
material agreement or instrument to which it is a party or by which it is bound
and that it is in compliance with all laws, statutes, regulations and rules
applicable to it.  Further, each Borrower agrees to notify us promptly of the
occurrence (or, if known, the anticipated occurrence) of any of the following
events:  (i) any default under this Letter Agreement or the other Loan Documents
or any default, acceleration or demand under any other agreement or instrument
to which it is a party, by which it is bound or of which it is a guarantor, (ii)
any material adverse change in the business, properties, condition (financial or
otherwise) or prospects of any Borrower, or (iii) any failure of any Borrower to
comply with any law, statute, regulation or rule applicable to it or the receipt
of any notice regarding such potential non-compliance.

The Borrowers will furnish to the Bank such financial or other information
regarding their business and operations as we may reasonably request, by prior
written notice, from time to time, including, in any event, annual financial
statements (including a balance sheet and related statements of income and cash
flow) within 90 days after the end of each fiscal year certified by independent
public accountants acceptable to the Bank, quarterly financial statements
(including a balance sheet and related statements of income and cash flow)
within 45 days after the end of each fiscal quarter certified by the chief
financial officer of Satcon on behalf of the Borrowers, monthly financial
statements (including a balance sheet and related statements of income and cash
flow) within 30 days after the end of each fiscal month certified by the chief
financial officer of Satcon on behalf of the Borrowers, and monthly borrowing
base reports (along with detailed accounts receivable aging reports), in form
satisfactory to the Bank, within 7 days after the end of each fiscal month.  All
such monthly and quarterly financial statements shall be on a consolidated and
consolidating basis and all such annual financial statements shall be on a
consolidated basis.  All such financial statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied.

As a condition to entering into this Letter Agreement and the financing
contemplated hereby, we shall require a perfected first-priority security
interest in all assets of each Borrower, as more fully described in the Security
Agreement referred to above, securing all of the Borrowers' joint and several
obligations to the Bank hereunder, under the Note and under the other Loan
Documents (collectively, the "Obligations").

Upon acceptance of this Letter Agreement, the Borrowers will pay to the Bank a
non-refundable set-up fee of $10,000 (the "Fee"), less any amounts previously
paid to the Bank as a deposit.  The Borrowers will also pay all reasonable
costs, fees and expenses in connection with the preparation and negotiation of
the terms of this Letter Agreement and other Loan Documents (whether or not the
facility closes), and in connection with the amendment, administration or
enforcement hereof or thereof.

                                       2
<PAGE>
 
The Borrowers shall have the right to terminate this Letter Agreement upon prior
written notice to the Bank.  The Bank shall have the right to terminate this
Letter Agreement at any time.

Please sign the form of acceptance on the enclosed counterpart of this Letter
Agreement and the Note attached hereto as Annex 2, and return the same, together
                                          -------                               
with all of the other Loan Documents, to the undersigned, and complete all of
the other acts necessary to fulfill the Closing Conditions, on or before
December 16, 1998.

                                       3
<PAGE>
 
We are pleased to be of service to you.

                             Very truly yours,

                                                 BANKBOSTON, N.A.



                                                 By: /s/ Henry L. Petrillo
                                                     --------------------------
                                                     Title: Director


Accepted and Agreed:

SATCON TECHNOLOGY CORPORATION



By: /s/ David B. Eisenhaure
    ----------------------------
    Title:  President


SATCON FILM MICROELECTRONICS, INC.



By: /s/ David B. Eisenhaure
    ----------------------------
    Title:  President


K&D MAGMOTOR CORP.



By: /s/ David B. Eisenhaure
    ----------------------------
    Title:  President


Date:  December 16, 1998

                                       4
<PAGE>
 
                                    ANNEX 1
                                    -------

"Alternate Base Rate" shall mean the higher of (i) the annual rate of interest
announced from time to time by the Bank at its head office in Boston,
Massachusetts as its "Base Rate" and (ii) one-half of one percent (1/2%) above
the overnight federal funds effective rate as published by the Board of
Governors of the Federal Reserve System, as in effect from time to time.  Any
change in the Base Rate shall result in a corresponding change on the same day
in the rate of interest accruing from and after such day on the unpaid balance
of principal of the Loans, if any, effective on the day of such change in the
Base Rate.

"Borrowing Base Availability" shall mean an amount equal to the lesser of (i)
$2,000,000 less the LC Amount and (ii) the sum of 80% of the Eligible Accounts
           ----                                                               
Receivable of the Borrowers plus 40% of the Eligible Inventory of the Borrowers,
                            ----                                                
provided that the Bank reserves the right, in its sole discretion, to increase
--------                                                                      
or decrease the foregoing percentage or to modify the eligibility requirements
at any time.

"Closing Conditions" shall mean each of the following:

 
     (i)    the Bank has received duly authorized, executed and delivered
            originals of each of the Loan Documents, each in form and substance
            satisfactory to the Bank;
                                                  
     (ii)   the Bank has completed satisfactory management and trade checkings;
 
     (iii)  there has not occurred any material adverse change in the condition
            (financial or otherwise), operations, assets, income and/or
            prospects of any Borrower;
     
     (iv)   each Borrower is in compliance with all of the terms of each Loan
            Document;

     (v)    the Bank has received each of the other items required to be
            delivered by the Borrowers on the Closing Agenda attached as Annex 3
                                                                         -------
            to the Letter Agreement; and

     (vi)   there has not been any change in any law or regulation or
            interpretation thereof that, in the Bank's opinion, would make it
            illegal or against the policy of any governmental agency or
            authority for the Bank to make the Loans hereunder.

"Eligible Accounts Receivable" shall mean the aggregate accounts receivable of a
Borrower:

     (i)    in which the Bank has a valid and perfected first-priority security
            interest;

     (ii)   which are not unpaid more than 90 days from the date the
            corresponding service was rendered or performed by such Borrower;

     (iii)  which arose in the ordinary course of business;

     (iv)   which are not progress or advance billings for work not yet
            performed (including, without limitation, advance billings for up-
            front "non-recurring engineering" and "burn-in charges");

     (v)    which do not arise from the rendering of services on a contract
            basis; and

     (vi)   which have not been designated by the Bank in its sole discretion as
            unacceptable.

"Base Inventory" shall mean inventory (other than work-in-process) as to which a
Borrower has acquired title, the Bank has acquired a valid and perfected first-
priority security interest, and such Borrower has furnished to the Bank
information relating thereto as provided in this Letter Agreement.  Inventory
immediately loses the status of Base Inventory if and when a Borrower sells it,
otherwise passes title thereto or consumes it or the Bank releases or transfers
its security interest therein.  Anything herein to the contrary notwithstanding,
Base 

<PAGE>
 
Inventory shall exclude all inventory owned by K&D MagMotor Corp. unless and
until it institutes a tracking system capable of reporting changes in its
inventory on a monthly basis, which system shall be satisfactory to the Bank in
its sole discretion.

"Eligible Inventory" shall mean the net value of Base Inventory, calculated at
the lesser of fair market value or cost determined on the "first in, first out"
basis after taking into account charges and liens (other than those of the Bank)
of all kinds against the Base Inventory, changes in the market value thereof,
and transportation, processing and other handling charges affecting the value
thereof, all as determined by the Bank in its sole discretion, which
determination shall be final and binding upon the Borrowers.

"Loan Documents" shall mean, collectively, (i) this Letter Agreement, (ii) the
Note, (iii) the separate Security Agreements of even date herewith between each
Borrower and the Bank, (iv) the separate Solvency Certificates of each Borrower
of even date herewith in favor of the Bank, and (v) the letters of credit issued
pursuant to this Letter Agreement and all documents, instruments and contracts
(including applications) delivered in connection therewith, as any of the
foregoing may be amended from time to time; along with any and all other
agreements, certificates or documents executed and delivered by any Borrower to
the Bank in connection with the foregoing or the transactions contemplated
hereby or thereby, whether executed and delivered on or before the Closing Date
or at any time thereafter.

"LC Amount" shall mean, with respect to all letters of credit issued by the Bank
and outstanding at any time, an aggregate amount equal to the sum of (i) the
maximum amount then available to be drawn under such letters of credit (without
regard to whether any conditions to drawing could then be met), plus (ii) the
aggregate amount of any unreimbursed draws under such letters of credit.

                                      2 
<PAGE>
 

                         SATCON TECHNOLOGY CORPORATION
                      SATCON FILM MICROELECTRONICS, INC.
                              K&D MAGMOTOR CORP.

                            DEMAND PROMISSORY NOTE
                            ----------------------


$2,000,000                                             December 16, 1998
                                                      Boston, Massachusetts



          FOR VALUE RECEIVED, the undersigned (collectively, the "Borrowers"),
by this promissory note ("this Note"), absolutely and unconditionally, and
jointly and severally, promise to pay to the order of BANKBOSTON, N.A. (the
"Bank"), at the head office of the Bank in Boston, Massachusetts, ON DEMAND, TWO
MILLION DOLLARS ($2,000,000) or, if less, the aggregate principal amount of all
loans made by the Bank to the Borrowers as shown in the schedule attached hereto
(the "Note Schedule"), together with interest on each loan from the date such
loan is made until the maturity thereof at the applicable rate set forth in the
Note Schedule.

          Interest on the principal amount of each loan shall be payable in
arrears ON DEMAND, provided that unless sooner demanded interest on each loan
                   --------                                                  
shall be payable on the first day of each successive calendar month, beginning
on the first of such dates occurring after the date of such loan and when such
loan is due.

          Loans shall bear interest at a rate per annum equal to the rate of
interest from time to time in effect under that certain Discretionary Demand
Line Letter of even date herewith among the Borrowers and the Bank (the "Line
Letter").

          Upon demand, there shall become absolutely due and payable by the
Borrowers and the Borrowers hereby jointly and severally promise to pay to the
Bank, the balance (if any) of the principal hereof then remaining unpaid, all of
the unpaid interest accrued hereon and all (if any) other amounts payable on or
in respect of this Note or the indebtedness evidenced hereby.

          Interest shall be computed on the basis of a 360-day year and paid for
the actual number of days elapsed.  All payments hereunder shall be made in
lawful currency of the United States of America in immediately available and
freely transferable funds.  All payments hereunder shall be made without set-off
or counterclaim and free and clear of and without any deduction of any kind for
any taxes, levies, fees, deductions, withholdings, restrictions or conditions of
any nature.

          Overdue payments of principal of any loan (whether after demand or
otherwise), and, to the extent permitted by applicable law, overdue interest,
fees, expenses and other charges, shall bear interest, payable on demand and
compounded daily, at a rate per annum equal to 4% above the Base Rate.

          The Borrowers will have the right to prepay the unpaid principal of
each loan in full or in part without penalty or charge, provided that all of the
                                                        --------                
unpaid interest accrued on the amount so prepaid to the date of such payment
must be paid at the time of any such prepayment.  The Borrowers will be entitled
at the Bank's discretion to reborrow all or any part of the principal of any
loan repaid or prepaid prior to demand by the Bank.

          To the extent permitted by law and not expressly required under any of
the Loan Documents, the Borrowers hereby irrevocably waive presentment, demand,
notice of dishonor, protest and all other demands and notices in connection with
the delivery, acceptance, performance and enforcement of this Note.  The
Borrowers hereby 

                                       1
<PAGE>
 
absolutely and irrevocably consent and submit to the jurisdiction of the Courts
of the Commonwealth of Massachusetts and of any Federal Court located in the
said Commonwealth in connection with any actions or proceedings brought against
the Borrowers by the Bank arising out of or relating to this Note.

          EACH BORROWER HEREBY WAIVES TRIAL BY JURY, AND HEREBY WAIVES RIGHTS OF
SETOFF, IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS NOTE, THE LINE LETTER OF EVEN DATE HEREWITH, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO AMONG THE BORROWERS
AND THE BANK.  EACH BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED
AND FREELY MADE.

          The failure of the Bank to exercise all or any of its rights,
remedies, powers or privileges hereunder in any instance shall not constitute a
waiver thereof in that or in any other instance.

          All notices, demands or other communications to or upon the Borrowers
pursuant to this Note shall be in writing, either delivered in hand or sent to
the undersigned by first-class mail, postage prepaid, or by telex, telefax,
facsimile transmission or telegraph, addressed to the undersigned, marked
"Attention:  David B. Eisenhaure" at the address of the Borrowers set forth
below or at such other address as the Borrowers shall have designated in a
written notice to the Bank.

          Should all or any part of the indebtedness represented by this Note be
collected by action at law, or in bankruptcy, insolvency, receivership or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after default, the Borrowers hereby jointly and severally promise to
pay to the Bank, upon demand by the Bank at any time, in addition to principal,
interest and all (if any) other amounts payable on or in respect of this Note or
the indebtedness evidenced hereby, all court costs and reasonable attorneys'
fees and all other reasonable collection charges and expenses incurred or
sustained by the Bank.

          This instrument shall have the effect of an instrument executed under
seal and shall be governed by the laws of the Commonwealth of Massachusetts
without regard to its conflicts of law rules.

          Each of the Borrowers shall be jointly and severally liable for the
full amount owing under this Note.

                                       2
<PAGE>
 
          IN WITNESS WHEREOF, this NOTE has been duly executed by each of the
undersigned on the date first above written in Boston, Massachusetts.

[SEAL]

Attest:                                     SATCON TECHNOLOGY CORPORATION



/s/ Michael C. Turmelle                     By: /s/ David B. Eisenhaure
-----------------------------                  -----------------------------
                                               Title:  President

                                            Address:  161 First Street
                                            Cambridge, Massachusetts  02142


Attest:                                     SATCON FILM
                                            MICROELECTRONICS, INC.


/s/ Michael C. Turmelle                     By: /s/ David B. Eisenhaure
-----------------------------                  -------------------------------
                                               Title:  President

                                            Address:  161 First Street
                                            Cambridge, Massachusetts  02142



Attest:                                     K&D MAGMOTOR CORP.


/s/ Michael C. Turmelle                     By: /s/ David B. Eisenhaure
-----------------------------                  -------------------------------
                                               Title:  President

                                            Address:  161 First Street
                                            Cambridge, Massachusetts  02142

                                       3
<PAGE>
 
                       NOTE SCHEDULE TO PROMISSORY NOTE

                           DATED:  December 16, 1998

<TABLE>
<CAPTION>
                                                      Date and
                        Principal                     Amount of
                        Amount of      Interest        Payment       Notation
     Date of Loan          Loan          Rate         Received       Made By
     ------------          ----          ----         --------       -------
     <S>                <C>            <C>            <C>            <C> 
 
 
                                       Base Rate
                                       plus 1.5%*
</TABLE> 

______________________________________
*    The Base Rate shall have the meaning set forth in the Line Letter.

                                       4
<PAGE>
 
                         SATCON TECHNOLOGY CORPORATION

                              SECURITY AGREEMENT


     This SECURITY AGREEMENT is made as of December 16, 1998 between SATCON
TECHNOLOGY CORPORATION ("SatCon"), a Delaware corporation having its principal
place of business and chief executive office at 161 First Street, Cambridge,
Massachusetts 02142, and BANKBOSTON, N.A. (the "Bank"), a national banking
association with its head office at 100 Federal Street, Boston, Massachusetts
02110.

     WHEREAS, SatCon has requested the Bank to enter into a certain
Discretionary Demand Line Letter of even date herewith (the "Letter Agreement")
pursuant to which the Bank may, in its discretion, make loans to SatCon, SatCon
Film Microelectronics, Inc. ("FMI"), and K&D MagMotor Corp. ("K&D") upon the
terms and subject to the conditions set forth therein;

     WHEREAS, the Bank is unwilling to enter into the Letter Agreement and to
make any discretionary loans thereunder unless SatCon shall execute and deliver
this Security Agreement and grant the security interests herein provided;

     NOW, THEREFORE, in order to induce the Bank to enter into the Letter
Agreement and to make or extend to SatCon, FMI, and K&D one or more
discretionary loans, advances, or other extensions of credit, and in
consideration thereof, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:

     1.   Definitions.  The following terms shall have the meanings set forth
          -----------                                                        
below.  All capitalized terms used herein, but not defined herein, shall have
the same meanings as set forth in the Letter Agreement.  Terms not otherwise
defined herein shall have the meanings ascribed to them, if any, under the
Massachusetts Uniform Commercial Code.

          "Account and Accounts Receivable" means individually and collectively,
all rights to payment for goods sold or leased or for services rendered, all
sums of money or other proceeds due or becoming due thereon (including, without
limitation, all accounts receivable, notes, bills, drafts, acceptances,
instruments, documents, chattel paper and all other debts, obligations and
liabilities in whatever form owing to any Person for goods sold by it or for
services rendered by it), all guaranties and security therefor, and all right,
title and interest of such Person in the goods or services giving rise thereto
and the rights pertaining to such goods, including rights of reclamation and
stoppage in transit, and all related insurance, whether any of the foregoing be
now existing or hereafter arising, now or hereafter received by or owing or
belonging to such Person.

          "Collateral" means all personal property and fixtures of SatCon of
every kind and description, tangible or intangible, whether now or hereafter
existing, whether now owned or hereafter acquired, and wherever located,
including, but not limited to, the following: all Inventory of SatCon; all
furniture, fixtures and similar property of SatCon; all machinery and equipment
of SatCon; all Accounts of SatCon; all contract rights of SatCon, including
without limitation, all rights of SatCon as a bailee; all other rights of SatCon
to the payment of money, including without limitation amounts due from
Affiliates, bailors, tax refunds, and insurance proceeds; any and all rights
SatCon may have pursuant to a bailee's lien; all interests of SatCon in goods as
to which an Account shall have arisen; all files, records (including without
limitation computer programs, tapes and related electronic data processing
software and electronic data) and writings of SatCon or in which SatCon has an
interest in any way relating to the foregoing property; all goods, instruments,
documents of title, policies and certificates of insurance, securities,
investment property, chattel paper, deposits, cash or other property owned by
SatCon or in which SatCon has an interest which are now or may hereafter be in
the possession of the Bank or as to which the Bank may now or hereafter control
possession by documents of title or otherwise (including, without limitation,
the issued and outstanding capital stock of any subsidiaries of SatCon and all
balances or other sums credited by or due from the Bank or any of its branch or
affiliate offices); all general intangibles of SatCon (including without
limitation all patents, trademarks, trade names, service marks,

                                      1 
<PAGE>
 
copyrights and applications for any of the foregoing; all goodwill connected
with the use of and symbolized by trademarks, trade names and service marks of
SatCon; all rights to use patents, trademarks, trade names, service marks and
copyrights of any person; and any rights of SatCon to retrieval from third
parties of electronically processed and recorded information pertaining to any
of the types of collateral referred to in this definition); any other property
of SatCon, real or personal, tangible or intangible, in which the Bank now has
or hereafter acquires a security interest or which is now or may hereafter be in
the possession of the Bank; any sums at any time credited by or due from the
Bank to SatCon, including deposits; and proceeds and products of and accessions
to all of the foregoing; provided, however, that the definition of Collateral 
                         --------  -------
shall not include any contracts or general intangibles for which a grant of a
security interest therein is prohibited by contract.

          "Inventory" means all of SatCon's inventory of whatever name, nature,
kind or description, all goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials, materials
used or consumed by SatCon, parts, supplies, all wrapping, packaging,
advertising, labeling, and shipping materials, devices, names and marks, all
contracts, rights and documents relating to any of the foregoing, whether any of
the foregoing be now existing or hereafter arising, wherever located, now owned
or hereafter acquired by SatCon.

          "Obligations" shall mean all of the joint and several obligations of
payment and performance of SatCon, FMI, and K&D under the Letter Agreement.

     2.   Satisfaction of Obligations.  SatCon hereby promises to pay or 
          ---------------------------   
otherwise satisfy all Obligations when the same shall become due, whether at
maturity, by acceleration or otherwise.

     3.   Grant of Security Interest.
          -------------------------- 

     3.1  Collateral.  As security for the prompt and unconditional payment and
          ----------                                                           
performance of the Obligations, SatCon hereby grants to the Bank, a continuing
security interest in all Collateral, whether now owned or existing or hereafter
arising or acquired and wherever located; and in each case in all proceeds,
products, and accessions thereof, all causes of action and remedies relating
thereto and all guaranties and security therefor.  SatCon agrees that the
security interest herein granted has attached and shall continue until the
Obligations have been paid, performed and indefeasibly discharged in full and
the Bank has terminated the discretionary credit facility provided under the
Letter Agreement.

     3.2  Deposits.  Any and all deposits or other sums at any time credited by 
          --------   
or due from the Bank or any of its affiliates to SatCon shall at all times
constitute security for Obligations and may be set-off against any Obligations
at any time whether or not they are then adequate.  Any and all instruments,
documents, policies and action, general intangibles, chattel paper, cash,
property and the proceeds thereof (whether or not the same are Collateral or
proceeds thereof) owned by SatCon or in which SatCon has an interest, which now
or hereafter are at any time in the possession or control of the Bank or any of
its affiliates or in transit by mail or carrier to or from the Bank or such
affiliate or in the possession of any third party acting on its behalf, without
regard to whether the Bank or such affiliate received the same in pledge, for
safekeeping, as agent for collection or transmission or otherwise or had
conditionally released the same, shall constitute security for Obligations and
may be applied at any time to Obligations which are then owing, whether due or
not due.

     3.3  Insurance.  SatCon hereby assigns to the Bank, all sums, including,
          ---------                                                          
without limitation, return of premiums, which may become payable under any of
SatCon's policies of insurance and directs each insurance company issuing any
such policy to make payment thereof directly to the Bank.

     3.4  Obtaining Consents to Assignments.  SatCon shall use its best efforts,
          ---------------------------------                                     
in good faith, to obtain consents to assign to the Bank all contracts and
general intangibles for which a grant of a security interest therein is
prohibited by contract.

                                       2
<PAGE>
 
     4.   Collateral.
          ---------- 

          4.1  Location of Collateral.  SatCon's principal place of business is 
               ----------------------          
located at the address shown on Exhibit A attached hereto and the records 
                                ---------
relating to SatCon's Accounts Receivable are kept at that address. SatCon will
not change such principal place of business without giving at least thirty (30)
days' prior written notice to the Bank. The Collateral will be kept at the
location(s) listed on Exhibit A and such new locations as SatCon shall establish
                      ---------
not sooner than seven (7) days after having given written notice thereof to the
Bank.

          4.2  Instruments.  If any Accounts Receivable are at any time 
               -----------          
evidenced by promissory notes, trade acceptances or other instruments for the
payment of money, SatCon will immediately deliver the same to the Bank,
appropriately endorsed to the Bank's order and, regardless of the form of such
endorsement and to the extent permitted by law, SatCon hereby waives
presentment, demand, notice of dishonor, protest, notice of protest and all
other notices with respect thereto.

          4.3  No Transfers.  Except as expressly permitted by the Letter 
               ------------          
Agreement, SatCon shall not sell, lease or transfer or further encumber any of
the Collateral (except that Inventory (if any) may be sold in the ordinary
course of business and obsolete assets may be sold for their fair market value
provided that SatCon shall, immediately upon receipt of any cash in excess of
$5,000 from any such divestiture of Collateral, pay such amounts to the Bank to
apply to the Discretionary Demand Line to the extent there is any balance then
outstanding) without the prior written consent of the Bank until the Bank has
determined that the Obligations have been indefeasibly paid in full.

          4.4  Representations.  SatCon represents, warrants and agrees as 
               ---------------          
follows:

               (a)  SatCon has no knowledge of any fact that would impair the
validity or make uncollectible any material amount of the Collateral that is
Accounts Receivable, chattel paper, general intangibles, contract rights,
documents or instruments, and, to the best of SatCon's knowledge, each obligor
liable upon such Collateral has and will have capacity to contract.

               (b)  The items making up the Inventory at any time are and will
be salable in the ordinary course of SatCon's business.

               (c)  Each Account Receivable is and will be a true and correct
statement of the actual indebtedness incurred by each account debtor with
respect thereto, and arises and will arise out of or in connection with the sale
or lease of goods or for the rendering of services by SatCon to each such
account debtor.

               (d)  No presently effective financing statement under the Uniform
Commercial Code naming SatCon as debtor is on file in any jurisdiction and
SatCon has not signed any presently effective security agreement authorizing any
secured party thereunder to file a financing statement except for the Bank and
as otherwise permitted in the Letter Agreement.

               (e)  SatCon's exact legal name is set forth at the beginning of
this Agreement and SatCon does not conduct business under any other name except
as set forth on Exhibit A attached hereto.
                --------- 

               (f)  At the time that SatCon pledges, sells, assigns or transfers
to the Bank any instrument, document of title, security, chattel paper or other
property or any proceeds or products thereof, or any interest therein, such
entity shall be the lawful owner thereof, or the lawful holder of the leasehold
interest therein, and shall have the right to pledge, sell, assign or transfer
the same, and SatCon shall defend the same against the claims and demands of all
persons.

     5.   Proceeds of Collateral.
          ---------------------- 

          5.1  Collection By SatCon.  SatCon will collect with diligence, to 
               -------------------- 
the extent consistent with its collection policies, all of the proceeds of
SatCon's Accounts Receivable, Inventory, instruments, chattel paper, general

                                       3
<PAGE>
 
intangibles, and contract rights pursuant to this Agreement.  The Bank will at
any time have the right to require SatCon (i) to enter into a lockbox
arrangement with the Bank or its representative or designee for the collection
of such remittances and payments or (ii) to maintain its deposit account(s) at
the Bank or, in the alternative, at another financial institution which has
agreed to accept drafts drawn on it by the Bank under a written depository
transfer agreement with the Bank, and to block SatCon's account and waive its
own rights as against such account.

          5.2  Collection By the Bank.  At the Bank's request, SatCon will 
               ----------------------   
notify account debtors that Collateral has been assigned to the Bank, and that
payments by such debtors shall be made directly to the Bank, and give
instruction and/or dictate on billings to such debtors that their Accounts
Receivable shall be paid to the Bank.  The Bank may at any time, without prior
notice to SatCon, collect the proceeds of SatCon's Accounts Receivable,
Inventory, instruments, chattel paper, general intangibles and contract rights
and give notice of assignment thereof to any and all debtors thereof, and SatCon
does hereby make, constitute and appoint the Bank its irrevocable, true and
lawful attorney in fact with power to receive, open and dispose of all mail
addressed to SatCon; to take possession of, sign, endorse the name of SatCon
upon and collect any notes, drafts, money orders, demands, checks, instruments,
payments (including payments payable under or with respect to any policy of
insurance), evidences of payment, agreements, documents, and other writings that
may come into the possession of the Bank in connection with the Collateral or as
proceeds of Collateral; in SatCon's name or otherwise, to demand, sue for,
collect and give acquittances for, any and all moneys due or to become due upon
the Collateral; to compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to do any and all things necessary or
desirable to carry out the purposes herein contemplated.

     6.   Protection of Security Interest.
          ------------------------------- 

          6.1  By SatCon.  SatCon shall continuously take all steps that are 
               --------- 
reasonably necessary or prudent to protect and maintain the security interest of
the Bank in the Collateral.  Without limiting the generality of the foregoing,
SatCon will:

               6.1.1  No Liens.  Not create, grant or permit to exist any 
                      --------    
security interest or lien in or on any of the Collateral, except as permitted by
the Letter Agreement;

               6.1.2  Books.  Keep and maintain separate books relating to the 
                      -----       
Collateral at its principal place of business listed on Exhibit A attached
                                                        ---------
hereto, not remove the same without the prior written consent of the Bank, which
consent shall not be unreasonably withheld, and allow the Bank access to the
books and to the Collateral at any reasonable time, upon notice, for the purpose
of examination, verification, copying, extracting or other purposes as the Bank
may reasonably require;

               6.1.3  Maintenance.  Maintain, preserve and protect all 
                      ----------- 
Collateral, keep all Collateral in good condition and repair (ordinary wear and
tear and obsolete items excepted);

               6.1.4  Copies.  Deliver to the Bank promptly at its reasonable 
                      ------      
request all schedules, lists, invoices, original bills of lading, documents of
title, original purchase orders, receipts, agreements, writings and other items
relating to the Collateral;

               6.1.5  Notice.  Upon reasonable request of the Bank, make, stamp 
                      ------      
or record on any of SatCon's books relating to the Collateral entries or legends
with respect to the Bank's security interest, including, without limitation,
notation of the security interest of the Bank on any certificates of title or
other evidence of ownership outstanding with respect thereto;

               6.1.6  Filings.  Join with the Bank at its request from time to 
                      -------     
time in executing financing statements, amendments thereto and continuation
statements, and pay the cost of filing the same wherever the Bank reasonably
deems necessary, and do, make, execute and deliver all additional and further
acts, things, deeds, powers of attorney, assurances, writings, and instruments
that the Bank may reasonably require to vest completely in it and assure to it
its rights hereunder and in and to the Collateral;

                                      4 
<PAGE>
 
               6.1.7  Assignments Under the Federal Assignment of Claims Act.  
                      ------------------------------------------------------  
If any Accounts Receivable arise from contracts with the United States or any
department, agency or instrumentality thereof, SatCon will immediately notify
the Bank thereof and execute any instruments and take any steps reasonably
requested by the Bank in order that all monies due and to become due thereunder
shall be assigned to the Bank and notice thereof given to the Federal
authorities under the Federal Assignment of Claims Act;

               6.1.8  Adverse Interests.  Promptly notify the Bank of the 
                      -----------------   
existence of any claims, liens, security interests, rights, attachments or other
encumbrances (except those permitted under the Letter Agreement) that may be or
become adverse to the interest of the Bank in any of the Collateral; and defend
the Collateral against all claims, liens, security interests, demands and other
encumbrances of third parties at any time claiming an interest in the Collateral
that is adverse to the security interest granted to the Bank (other than those
expressly permitted by the Letter Agreement), and reimburse the Bank for any
reasonable expenses it may incur in satisfying any of the foregoing;

               6.1.9  Insurance. Maintain insurance on the Collateral as 
                      ---------   
required by the Bank, it being understood that SatCon's insurance, as of the
date of this Security Agreement, is acceptable to the Bank;

               6.1.10  Loss.  Notify the Bank in the event of a material loss 
                       ----
of or damage to the Collateral; of any loss, theft, damage or destruction to or
of any material assets(s) of SatCon not covered by insurance; of any reclamation
or repossession of or any action by a creditor to reclaim or repossess any
material asset(s) of SatCon; of any material adverse change in the Collateral;
and of any other occurrence that may materially or adversely affect the security
interest of the Bank in the Collateral;

               6.1.11  Inventory.  At least annually and whenever else 
                       ---------   
reasonably requested by the Bank, take a physical listing of all Inventory (if
any) and provide a copy (certified by an authorized officer of SatCon, on behalf
of SatCon, to be true, correct and complete) of any listing of Inventory, and
perform any and all further steps reasonably requested by the Bank to perfect
the Bank's security interest in Inventory;

               6.1.12  Valuation.  Notify the Bank in the event of any change 
                       ---------   
in the basis for valuing Inventory;

               6.1.13  Name.  Notify the Bank at least 30 days before changing 
                       ----
its legal name or doing business under any name other than its legal name or the
names set forth on Exhibit A;
                   --------- 

               6.1.14  Expenses.  Pay all expenses incurred with respect to the 
                       --------    
purchase, manufacture, delivery, use, repair, storage or other handling of the
Collateral, and reimburse the Bank for all reasonable expenses and all taxes
that the Bank may incur in connection with the protection of its security
interest in the Collateral.

               6.2  Bank Action.  The Bank is hereby authorized and permitted 
                    ----------- 
to take any action at any time (except as expressly limited below) it reasonably
deems necessary or prudent to protect the Collateral or its security interest in
the Collateral, and SatCon agrees to reimburse the Bank for all reasonable costs
and expenses incurred by the Bank in connection therewith.  Without limiting the
generality of the foregoing (but subject to the Bank's reasonably determining it
necessary or prudent), SatCon hereby grants to the Bank the right, at the Bank's
sole discretion:

               6.2.1  U.C.C. Statements.  To sign and file in the name and on 
                      -----------------  
behalf of SatCon one or more financing statements under any applicable Uniform
Commercial Code naming SatCon as debtor and the Bank as secured party and
indicating therein the types or describing the items of Collateral herein
specified;

               6.2.2  Communication with Debtors.  In its own name or in the 
                      --------------------------
name of others, and upon prior notice to SatCon, to communicate with account
debtors solely in order to verify with them to the Bank's reasonable
satisfaction the existence, amount and terms of any Accounts Receivable and the
absence of any reductions, discounts, defenses or offsets with respect thereto;
and

                                       5
<PAGE>
 
               6.2.3  Taxes.  (i) Discharge taxes and liens levied or placed on 
                      -----       
Collateral except those contested in accordance with the terms of the Letter
Agreement; (ii) pay for insurance thereon or the maintenance and preservation
thereof; or (iii) if SatCon shall fail to make deposits in respect of F.I.C.A.
and withholding taxes, make such deposits or pay such taxes, in whole or in
part, or set up such reserves as the Bank shall deem reasonably necessary in
respect of SatCon's liability therefor.  Any amount so paid, deposited or
reserved for shall constitute a Loan under the Letter Agreement.  Nothing herein
shall be deemed to obligate the Bank to do any of the foregoing and the making
of any one or more such payments, deposits or reserves shall not constitute an
agreement by the Bank to take any further or similar action or a waiver of any
right of the Bank hereunder.

     7.   Remedies.
          -------- 

          7.1  Action after Demand.  Whenever the Bank shall have made demand 
               ------------------- 
for payment of the Obligations, the Bank may, at its option and without notice
to SatCon:

               7.1.1  Immediately, or from time to time, take possession of the
Collateral, or any of it, wherever it may be found, using all necessary force so
to do but without breach of the peace, or, from time to time, require SatCon to
assemble the Collateral, or any of it, and make it available to the Bank at a
place designated by the Bank that is reasonably convenient to SatCon and the
Bank, and SatCon waives all claims for damages due to, arising from or connected
with any such taking;

               7.1.2  From time to time, proceed in the foreclosure of the
Bank's security interest and sale of the Collateral, or any of it, in any manner
permitted by law or provided for herein;

               7.1.3  Sell, lease or otherwise dispose of the Collateral, or any
of it, at public or private sale, with or without having the Collateral, or any
of it, at the place of sale, and upon terms and in such manner as the Bank may
determine. Except for Collateral which is perishable or threatens to decline
speedily in value or which is of a type customarily sold on a recognized market,
the Bank shall give SatCon at least ten (10) days' prior written notice of the
time and place of any public sale of Collateral or of the time after which any
private sale or other intended disposition is to be made, which notice SatCon
agrees is reasonable.  The Bank may bid for any of the Collateral at any public
sale and acquire the same free from any redemption right, and in lieu of paying
cash therefor may make settlement for the selling price by crediting upon the
Obligations the net selling price after deducting all reasonable costs and
expenses in any way relating thereto;

               7.1.4  From time to time in the Bank's sole discretion, postpone
the time (until a time after the originally scheduled time) and change the place
of any proposed public sale of any of the Collateral that has been noticed as
provided above, upon at least one (1) day prior written notice to SatCon (which
notice SatCon agrees is reasonable) of the new time and place of such sale
(which time shall be at least seven (7) days after such notice of postponement
is given to SatCon) whenever, in the Bank's reasonable judgment, such
postponement or change is necessary or appropriate in order that the provisions
of this Security Agreement applicable to such sale may be fulfilled or in order
to obtain more favorable conditions under which such sale may take place;

               7.1.5  In case of any sale by the Bank of any of the Collateral
on credit or for future delivery (which may be elected in the Bank's sole
discretion), retain the Collateral so sold until the full selling price is paid
by the purchaser, and the Bank shall incur no liability in case of failure of
the purchaser to take up and pay for the Collateral so sold. In case of any such
failure, the Collateral so sold may again be similarly sold;

               7.1.6  Retain the Collateral, or any of it, in satisfaction of
the Obligations secured hereby;

               7.1.7  Act as attorney for SatCon in obtaining, adjusting,
settling and canceling insurance, endorsing any checks or drafts, and applying
any amounts collected or received by the Bank to obligations or at the option of
the Bank, releasing the same to SatCon, provided that no amount so released
                                        --------
shall be deemed a payment on any Obligations secured hereby;

                                       6
<PAGE>
 
               7.1.8  Settle, compromise or adjust any suit, action or
proceeding against SatCon with respect to any Collateral and in connection
therewith, give such discharges or releases as the Bank may deem appropriate
and, generally, sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Bank were absolute owner thereof for all purposes;

               7.1.9  As to the Collateral that is Accounts Receivable, chattel
paper, deposit accounts, instruments, general intangibles or contract rights,
the Bank may, in its own name or in the name of SatCon:

                              (i)    Take any action permitted under Section 5.2
               relating to such Collateral or in connection therewith, sign and
               endorse any invoices, drafts against debtors, assignments,
               verifications and notices in connection therewith or in
               connection with other documents relating to the Collateral;

                              (ii)   Receive payment of, receipt for, settle,
               compromise or adjust and give discharges and releases for or in
               respect of any and all moneys, claims and other amounts due and
               to become due at any time under or arising out of the Collateral;

                              (iii)  File any claim and take other action in any
               court of law or equity or otherwise deemed appropriate by the
               Bank for the purpose of collecting any and all such Collateral
               whenever payable relating thereto, although the Bank shall not be
               required or obligated in any manner to make any demand or make
               any inquiry as to the nature or sufficiency of any payment
               received by it, or present or file any claim or take any action
               to collect or enforce the payment of any amounts that may have
               been assigned to it or to which it may be entitled hereunder at
               any time or times;

                              (iv)   Give written notice to officials of the
               United States Post Office to effect change or changes of address
               so that all mail addressed to SatCon may be delivered directly to
               a Post Office box or to any other depository that may be selected
               by the Bank (which is hereby consented to by SatCon), and
               receive, open and dispose of all mail addressed to SatCon; and

                              (v)    Direct obligors or any other party liable
               for the payment thereunder to make payment of any and all moneys
               at any time payable in connection therewith directly to the Bank
               or to an agent specified by it; and notwithstanding the
               foregoing, neither this Security Agreement nor the receipt by the
               Bank of any payment pursuant hereto shall cause the Bank to be
               under any obligation or liability in any respect to an obligor or
               any other party for the performance or observance of any of the
               representations, warranties, conditions or terms of any invoice,
               agreement or other document issued or executed in connection with
               any Account Receivable;

               7.1.10  Exercise any and all remedies of a secured party under
the Massachusetts or other applicable Uniform Commercial Code or as otherwise
provided by law.

          7.2  Additional Provisions.
               --------------------- 

               7.2.1  SatCon authorizes the Bank to carry out the remedial steps
set forth in Section 7.1 above and irrevocably makes, constitutes, and appoints
the Bank and any officer or agent thereof with full power of substitution as
SatCon's true and lawful attorney in fact in connection therewith.

               7.2.2  SatCon hereby waives, to the full extent permitted by law,
the benefit of all appraisement, valuation, stay, extension and redemption laws
now or hereafter in force and all rights of marshaling in the event of any sale
or other disposition of any of the Collateral.

                                       7
<PAGE>
 
               7.2.3  Prior to any such disposition of Collateral, the Bank may,
at its option, cause any of the Collateral to be repaired or reconditioned in
such manner and to such extent as the Bank reasonably deems advisable, and any
reasonable sums expended therefor by the Bank shall constitute loans to be
repaid by SatCon and shall be secured hereby.  The Bank shall have the right to
pursue any remedy that it may have hereunder or by law.  If a sufficient sum is
not realized from any such disposition of Collateral to pay all of the
Obligations, SatCon hereby promises and agrees to pay the Bank any deficiency
and the security interest herein granted shall continue in accordance with
Section 3.1 hereof in Collateral not so disposed of.

               7.2.4  The receipt of the Bank for the purchase money paid at any
sale of Collateral made by the Bank shall be a sufficient discharge therefor to
any purchaser of any of the Collateral sold as provided above.  No such
purchaser (or its representatives or assigns) other than the Bank, after paying
such purchase money and receiving such receipt, shall be bound to see to the
application of such purchase money or any part thereof or be answerable in any
manner for any loss, misapplication or nonapplication of any such purchase
money, or be bound to inquiry as to the authorization, necessity, expediency or
regularity of any such sale.

               7.2.5  Under no circumstances shall the Bank be deemed to assume
any responsibility for or obligation or duty with respect to any part or all of
the Collateral of any nature or kind, or any matter or proceedings arising out
of or relating thereto, but the same shall be at SatCon's sole risk at all
times, it being acknowledged that the Bank will act in a commercially reasonable
manner.  The Bank shall not be required to take any action of any kind to
collect, preserve or protect its or SatCon's rights in the Collateral or against
other parties.  The Bank's prior recourse to any part or all of the Collateral
shall not constitute a condition of any demand, suit or proceeding for payment
or collection of the Obligations.

          7.3  Priority of Payment.  Any amounts collected pursuant to action 
               -------------------           
taken under this Section 7 shall be paid to the Bank and applied first, to the
payment of any reasonable costs incurred by the Bank in taking such action; and
second, to payment of all sums due to the Bank in respect of Obligations; and
the excess, if any, shall be paid to SatCon.

          7.4  No Remedy Exclusive.  No remedy herein conferred upon or 
               -------------------          
reserved to the Bank is intended to be exclusive of any other available remedy
or remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute.  No course of dealing on the part of
the Bank and no delay or omission to exercise any right or power accruing upon
demand for payment of the Obligations shall impair such right or power or shall
be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient.  In order
to entitle the Bank to exercise any remedy reserved to it in this Section 7, it
shall not be necessary to give any notice, other than any notice or notices
expressly required in this Section 7.

     8.   General.
          ------- 

          8.1  Successors and Assigns.  This Security Agreement shall inure to 
               ----------------------
the benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made.  No other person shall acquire or have any right under or by virtue of
this Security Agreement.

          8.2  Provisions to Survive.  All representations, warranties, 
               ---------------------
covenants and agreements contained in this Security Agreement shall survive the
execution and delivery of the Loan Documents.

          8.3  Severability.  If any provision of this Security Agreement shall 
               ------------          
be held invalid or unenforceable by any court of competent jurisdiction, that
holding shall not invalidate or render unenforceable any other provision hereof.

          8.4  Amendments.  This Security Agreement may be amended, modified and
               ----------          
supplemented only by written agreement of the parties hereto.

                                       8
<PAGE>
 
          8.5  Waivers.  No waiver of any rights or remedies hereunder shall be 
               -------   
deemed made by the Bank or any subsequent holder of the Note under any
circumstances unless in writing and duly signed on behalf of the Bank or such
holder, as the case may be.  Any such written waiver shall apply only to the
particular instance specified therein and shall not impair the further exercise
of the right or remedy involved.

          8.6  Execution and Counterparts.  This Security Agreement may be 
               --------------------------        
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.

          8.7  Captions.  Captions and headings in this Security Agreement are 
               --------    
for convenience only and in no way define, limit or describe the scope or intent
of the provisions hereof.

          8.8  Written Notices.  Any notices, expressly required by this 
               ---------------
Agreement to be in writing, to any party hereto shall be deemed to have been
given when delivered by hand, when sent by telecopy, when delivered to any
overnight delivery service freight pre-paid or 3 days after deposit in the
mails, postage prepaid, and addressed to such party at its address given at the
beginning of this Agreement or at any other address specified in writing.
Written notices to SatCon shall be sent to the attention of David B. Eisenhaure,
President, or to such other officer as may be designated by SatCon, with a copy
to Hale and Dorr LLP, 60 State Street, Boston, Masachusetts 02109, Attention:
Jeffrey Carp, Esq., and written notices to the Bank shall be sent to the
attention of Paul G. Holian, Assistant Vice President, or such other officer as
may be designated by the Bank, with a copy to Goulston & Storrs, P.C., 400
Atlantic Avenue, Boston, MA 02110-3333, Attention: Philip A. Herman, Esq.  Any
notice, unless otherwise specified, may be given orally or in writing.

          8.9  GOVERNING LAW.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
               -------------    
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW).  ANY LEGAL
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OBLIGATION MAY BE INSTITUTED IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS
OR OF THE UNITED STATES OF AMERICA FOR THE DISTRICT OF MASSACHUSETTS, AND SATCON
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH
ACTION OR PROCEEDING, PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT LIMIT THE
BANK'S RIGHTS TO BRING ANY LEGAL ACTION OR PROCEEDING IN ANY OTHER APPROPRIATE
JURISDICTION IN WHICH EVENT, AT THE BANK'S OPTION, THE LAWS OF SUCH JURISDICTION
OR OF THE COMMONWEALTH OF MASSACHUSETTS SHALL APPLY.  PERSONAL JURISDICTION OVER
SATCON MAY BE OBTAINED BY THE MAILING (POSTAGE PREPAID) OF A SUMMONS OR SIMILAR
LEGAL DOCUMENT TO SATCON'S ADDRESS FOR NOTICES UNDER THIS AGREEMENT.

          8.10  Exhibits.  The Exhibits attached hereto are incorporated herein 
                --------  
for all purposes, and shall be considered a part of this Agreement.

                                       9
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and sealed by their duly authorized officers or representatives,
all as of the date first above written.


                                            SATCON TECHNOLOGY CORPORATION



                                            By:  /s/ David B. Eisenhaure
                                                 ---------------------------
                                                 Title:


                                            BANKBOSTON, N.A.



                                            By:  /s/ Henry L. Petrillo 
                                                 ---------------------------
                                                 Title: Director

                                      10
<PAGE>
 
                                   EXHIBIT A
                                   ---------

I.   SatCon's Principal Place of Business:
     -------------------------------------

          Address:  161 First Street
                    Cambridge, MA  02142



II.  Other Locations of Collateral:
     ------------------------------

          Address:  530 Turnpike Street, North Andover, MA 01845

                    121 Higgins Street, Worcester, MA 01806

III. Other Names:
     ------------

                                      11