**Exhibit 10.3**

 

ConfidentialMaterials omitted and filed separately with the

Securitiesand Exchange Commission. Asterisks denote omissions.

 

**CPREME****TM **-**A123 SYSTEMS SALES AGREEMENT**

 

 

This Sales Agreement (“Agreement”)is made and entered into between **ConocoPhillipsSpecialty Products Inc.**, a Delaware corporation with an office at600 North Dairy Ashford, Houston, Texas 77079 (“Seller”) and A123Systems, Inc., a Delaware corporation, with an office at Arsenal on theCharles, 321 Arsenal Street, Watertown, Massachusetts 02472 (“Buyer”).

 

WHEREAS, Seller is amanufacturer of graphite powder; and

 

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

 

NOW, THEREFORE, the partiesagree as follows:

 

1.             Product.

 

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

 

2.             Forecast, Quantity and LeadTimes.

 

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

 

(b)           Notwithstandingthe forgoing Seller  shall be capable ofproviding Buyer with a minimum of [**] per month in January, 2010 ramping to[**] per month by [**] and [**] per month by [**] (collectively “MinimumCapacity”).  Seller will immediatelynotify Buyer in the event Seller has reason to believe Seller will not be ableto supply Buyer with the amount of Product required under the Forecast.

 

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

 

a.     2010 - [**];

b.     2011 – [**];

c.     2012 – [**];

d.     2013 – [**].

 

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(d)           If Seller fails to meetproduct specifications or is unable to produce the Annual  Minimum Purchase volume, Buyer will berelieved of the obligation to purchase the Annual Minimum Purchase by theamount of the shortfall.

 

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

 

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

 

(g)           Productpurchased by Buyer in 2010 prior to the Effective Date of this Agreement willbe applied towards the 2010 Annual Minimum Purchase.

 

(h)           If Buyer isrequired to pay a Variance Payment for 2012 or 2013, Buyer will have untilApril 1, 2015, to continue to purchase Product and re-claim the 2012 or2013 Variance Payment provided that after April 1, 2014, no more that[**], may be applied to re-claim the Variance Payment.  The price charged for Product purchased tore-claim the Variance Payment will be equal to the 2013 contract price with aprice adjustment to be negotiated for reasonable storage charges.

 

(i)            PurchaseOrders.  Seller agrees to sell to Buyer,and Buyer agrees to purchase from Seller the amount of Buyer’s requirementsspecified in the applicable purchase orders issued to Seller for anode materialin Buyer’s  manufacturing facilities orA123 Systems approved subcontractors’ manufacturing facility.

 

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

 

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

 

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3.             Price.

 

The price for Product is setforth in Exhibit #1. Freight will be Ex-Works in accordance with Incoterms2000.

 

4.             Payment Terms.

 

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

 

5.             Term and Termination; End ofLife.

 

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

 

(b)           End ofLife/Changes to material process or equipment.  If any of the component parts of any Productthat Seller purchases from some other source ceases being produced for anyreason, Seller  will notify Buyer as soonas it learns of the planned discontinuance and will, at Seller’s sole costpurchase enough of the components to meet its obligations under this Agreementuntil another source is identified and qualified to meet the productspecification and such qualification to be at Seller’s sole cost.  In the event that a last time buy of acomponent is required, Seller and Buyer will mutually agree as to the total quantity of that component that mustbe purchased by Seller  to meetrequirements under this Agreement.  Incase of a capacity constraint or limited availability of raw materials,Seller  reserves the right to allocateProduct to customers based on historic purchases over the previous 12-monthsprovided however that in no event shall such allocation relieve Seller of itobligation to provide the Minimum Capacity set forth in Section 2.   Seller shall not ship any product to Buyerwith any material changes to current formulation, equipment, process, rawmaterials or manufacturing location without Buyers approval in writing. Sellershall in writing provide reasonable notice to Buyer prior to any plannedchanges. Buyer’s approval will not be unreasonably withheld.

 

(c)           Discontinuanceof Product[**].  Sellermay discontinue manufacture and supply of Product only upon termination of thisAgreement by either Party.  [**] of thisAgreement.

 

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6.             Default.

 

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

 

(b)         Seller shallhave the right to change the terms of such credit at any time if Sellerdetermines, in its reasonable discretion, that the financial condition of Buyerwarrants such a change.

 

(c)         Notwithstandingany other provision, if: (a) Buyer fails to make any payment withinpayment terms, then Seller shall have the right to issue a written paymentdemand notice to Buyer.  If Buyer failsto make payment within a period of [**] from the written notice thereofprovided such notice is sent by overnight courier or (b) Buyer’s financialcondition does become impaired or unsatisfactory to Seller, in Seller’sreasonable discretion, then Seller may suspend deliveries to Buyer until suchtime as satisfactory credit arrangements are made with Seller, includingpayment of past due invoices and which may include providing an irrevocableletter of credit in a form and substance specified by Seller, issued andconfirmed (if required) by a bank acceptable to Seller and in an amountsufficient to cover the estimated credit exposure to Seller, or Seller mayrequire Buyer to pay by cash in advance. Buyer’s failure to cure any default within the [**] cure period or meetany obligation under this section shall give Seller the right to seek paymentof the amounts due and  immediatelysuspend further shipments  as it’sexclusive non-judicial remedy.

 

7.             Title and Risk of Loss;Delivery.

 

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

 

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

 

8.             Product Management and Dutyto Warn.

 

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

 

Buyer acknowledges that itis familiar with, and will take all reasonable steps necessary to inform, warn,and familiarize its employees, agents, customers, and contractors who mayhandle the Product, of all hazards pertaining to and proper procedures for safeuse of the Product and of the containers or equipment in which the Product maybe handled, shipped, or stored.  Buyeralso undertakes to label as appropriate any materials which it makes or resellsthat include Product.

 

**BUYER SHALLINDEMNIFY AND DEFEND THE SELLER AND ITS AFFILIATED ENTITIES FROM AND AGAINSTANY THIRD PARTY CLAIM,**

 

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**LIABILITYOR EXPENSE INCLUDING INJURY OR DEATH EXCEPT TO THE EXTENT THAT THE CLAIM,LIABILITY OR EXPENSE IS CAUSED BY SELLER’S NEGLIGENCE, PRODUCT DEFECTSATTRIBUTABLE TO SELLER’S NEGLIGENCE OR THE FAILURE OF THE PRODUCT TO MEET THESPECIFICATIONS CONTAINED IN ATTACHED EXHIBIT A WHEN DELIVERED TOBUYER.  EXPENSE AS USED HEREIN SHALLINCLUDE REASONABLE ATTORNEYS FEES.**

 

**SELLERSHALL INDEMNIFY AND DEFEND THE BUYER AND ITS AFFILIATED ENTITIES FROM ANDAGAINST ANY THIRD PARTY CLAIM, LIABILITY OR EXPENSE INCLUDING INJURY OR DEATHEXCEPT TO THE EXTENT THAT THE CLAIM, LIABILITY OR EXPENSE IS CAUSED BY BUYER’SNEGLIGENCE OR PRODUCT DEFECTS ATTRIBUTABLE TO BUYER’S NEGLIGENCE. EXPENSE ASUSED HEREIN SHALL INCLUDE REASONABLE ATTORNEYS FEES.**

 

9.             Limited Warranty.

 

Seller warrants that theProduct sold under this Agreement  willbe free from defects in materials  andworkmanship and shall meet the mutually agreed upon  specifications for a period of [**] from receiptof shipment.  This warranty does notcover any Product which (a) has been used in a manner not authorized bythe specifications; or (b) has not been stored and handled in accordancewith Product Storage Instructions set forth in Exhibit 4 provided that the failure of the Product is directlyattributable to the improper storage of the Product or the use of the Productin a manner not authorized by the specifications.

 

**OTHER THANTHE WARRANTY SPECIFIED IN THIS SECTION 9,****SELLER DOES NOT MAKE AND EXPRESSLY DISCLAIMS, AND BUYER EXPRESSLYWAIVES, ANY OTHER WARRANTIES INCLUDING BUT NOT LIMITED TO WARRANTIES OFMERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, REGARDLESS OF WHETHER ORALOR WRITTEN, EXPRESS OR IMPLIED, OR ALLEGEDLY ARISING FROM ANY USAGE OF ANYTRADE OR FROM ANY COURSE OF DEALING.**

 

10.           Warranty Remedy andLimitation of Liability.

 

Seller’s liability forbreach of warranty  shall be limited toreplacement of non-conforming  Product orrefund of the purchase price thereof, at Seller’s option, and any loss, damageor cost for which Seller is obligated to indemnify Buyer pursuant to the termsof this Agreement.

 

**EXCEPT FORCLAIMS ARISING UNDER SECTION 13 AND 24, OR FROM SELLER’S GROSS NEGLIGENCEAND WILLFUL MISCONDUCT, BUYERS TOTAL LIABILITY ARISING FROM THIS AGREEMENT FORANY CLAIMS OF ANY NATURE WHETHER BASED IN CONTRACT, TORT (INCLUDINGNEGLIGENCE), INDEMNITY, CONTRIBUTION, STRICT LIABILITY OR OTHERWISE, WILL NOTEXCEED THE SUM OF $[**]  AND SELLER’S**

 

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

 

12.           Taxes.

 

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

 

13.           Patent Defense andIndemnification.

 

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

 

(a)           alleges thatthe Product (as used in this Section, the term “Product” includes theingredients thereof taken both singularly and collectively) purchased hereunderor its method of manufacture infringes a claim of any Patent or other thirdparty intellectual property right or involves the misappropriation of a tradesecret by Seller; or

 

(b)           alleges thatthe use or application of the Product purchased hereunder for using as an anodematerial in a Lithium—ion battery infringes a claim of any Patent or otherthird party intellectual property right.

 

Seller shall not beobligated in any way under this Section to defend, indemnify and holdBuyer harmless for any suit, claim or demand alleging infringement of a claimof any

 

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Patent or other third partyintellectual property right which is based on Buyer (x) using the Productpurchased hereunder for any purpose other than an anode material in aLithium-ion battery, or (y) combining the Product purchased hereunder withany other material if the Product alone is not infringing, or (z) which isbased on an improper or unauthorized way that Buyer handles or introduces theProduct purchased hereunder into the Buyer’s product if not in accordance withSeller’s written instructions.  Seller’sobligations set forth herein shall be conditioned on Buyer promptly advisingSeller in writing of any suit, claim or demand for which Seller is obligatedunder this Section, and on Seller having sole charge and direction of thedefense and/or settlement of any such suit, claim or demand.  Buyer shall have the right to be representedby advisory counsel of its selection at its own expense.

 

14.           Contingencies.

 

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

 

(b)           Quantities notpurchased or sold due to the provisions of this Section need not be madeup later.

 

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

 

15.           Representations,Warranties, and Covenants.

 

(a)           Buyer herebyrepresents and warrants to Seller that:

 

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

 

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instrumentality of anygovernment nor officials, representatives, agents or candidates of anypolitical party and shall not become such while this Agreement remains ineffect.

 

(ii)   The execution, delivery, andperformance by Buyer of this Agreement does not and shall not violate any lawsor regulations presently binding on Buyer or Seller (including withoutlimitation the United States export control laws and regulations).

 

(b)           Seller herebyrepresents and warrants to Buyer that:

 

(i)    Seller is a company of goodstanding established according to the laws of the State of Delaware and has itsprincipal place of business in 600 North Dairy Ashford, Houston, Texas77079.  Its officers, directors, employees,agents, and shareholders are neither officials, employees, or representativesof any government or of any department, agency, or instrumentality of anygovernment nor officials, representatives, agents or candidates of anypolitical party and shall not become such while this Agreement remains ineffect.

 

(ii)   The execution, delivery, andperformance by Seller of this Agreement does not and shall not violate any lawsor regulations presently binding on Buyer or Seller (including withoutlimitation the United States export control laws and regulations).

 

16.           Ethics;Conflicts of Interest.

 

Buyershall not pay any salaries, commissions, or fees, or make any payments or grantany rebates to any employee or officer of Seller, or to any designee of anySeller’s employee or officer, or favor any employee or officer of Seller, orany designee of any Seller employee or officer, with gifts or entertainment ofsignificant cost or value, or enter into any business arrangements with anyemployee or officer of Seller other than as a representative of Seller.

 

17.           TechnicalAssistance**.**

 

**ANYTECHNICAL ADVICE, ASSISTANCE OR TESTING FURNISHED BY SELLER TO BUYER WITHRESPECT TO THE SELECTION OR USE OF THE PRODUCT DELIVERED TO BUYER HEREUNDERWILL BE GIVEN AND ACCEPTED AT BUYER’S SOLE RISK, AND EXCEPT FOR**** ****GROSSNEGIGENCE OR WILLFUL MISCONDUCT SELLER WILL HAVE NO LIABILITY WHATSOEVER FORTHE USE OF, OR RESULTS OBTAINED FROM, SUCH ADVICE, ASSISTANCE OR TESTING.**

 

18.           Compliance with Laws.

 

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

 

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

 

19.           Notices.

 

All notices required underthis Agreement shall be given in writing by letter, facsimile or overnight mailaddressed to the parties at the addresses below or such other address as theparty may designate:

 

ConocoPhillips SpecialtyProducts Inc.

600 N. Dairy Ashford Rd

Houston, Texas77079-1175,  USA

Attn: Manager, Composite Graphite

Facsimile:  (+1) 832-486-2881

 

A123Systems, Inc.

Arsenalon the Charles, 321 Arsenal Street

Watertown,Massachusetts 02472

Attention:  GeneralCounsel

Facsimile:  617-778-5749

 

20.           Assignment.

 

Neither party shall assignor transfer its rights and obligations under this Agreement without the priorwritten consent of the other party, such consent not to be unreasonablywithheld.

 

21.           Waiver of Breach.

 

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

 

22.           Governing Law.

 

THIS AGREEMENT SHALL BEGOVERNED BY AND INTERPRETED ACCORDING TO THE LAWS OF STATE OF TEXAS WITHOUTREGARD TO ITS CONFLICT OF LAWS RULES.

 

23.           Dispute Resolution.

 

The parties shall attempt toresolve any disputes by negotiation.  Anydispute under this Agreement, which cannot be settled amicably, shall befinally settled by arbitration in accordance with the Rules of Arbitrationof the International Chamber of Commerce by the arbitrators; one selected byBuyer, one by Seller, and one by the first two arbitrators.  The arbitration shall be held in Houston,Texas, if brought by Buyer and Boston,

 

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Massachusetts if brought bySeller  and conducted in the Englishlanguage.  The decision of thearbitrators shall be final, binding, and enforceable on the parties.

 

24.           Confidentiality.

 

Each party agrees that itwill keep, and cause its employees to keep, confidential the terms andconditions of this Agreement, including but not limited to pricing, and anyknow-how and technical, business, or other information disclosed to it duringthe performance of this Agreement until such time as the same has becomeavailable to the general public through no fault of such party.  The obligations of confidentiality hereincontained shall continue to be observed, notwithstanding the expiration orearlier termination of this Agreement. Buyer agrees to make no effort, either directly or indirectly, norenable any third party, to analyze or in any way attempt to determine thephysical or chemical property or composition of Product without Seller’s priorwritten consent.

 

25.           Entire Agreement;Interpretation.

 

This Agreement is executedin two originals in the English language or may be executed in multiplecounterparts and each counterpart shall represent a fully executed original asif signed by each Party.  This Agreementand its exhibits replaces and supersedes any prior agreements and constitutesthe entire Agreement between Seller and Buyer as to the subject matter setforth herein; there are no promises, representations or warranties other thanas set forth in this Agreement.   ThisAgreement may be modified only by instrument in writing specifically statingthat it is an amendment to this Agreement and executed by both parties heretobut no modification hereof shall be effected by the acknowledgment oracceptance of purchase orders or printed forms containing different oradditional terms and conditions.  Theprovisions of this Agreement will take precedence over, govern and control anypurchase order, sales acknowledgement, invoice or other writing between theSeller and Buyer despite subsequent issuance, it being agreed and understood,without limitation, that any pre-printed terms and conditions appearing on anyother writing, communication or transmittal between Seller and Buyer pertainingto the subject matter of this Agreement will be null and void and have no forceor effect.

 

**THEWARRANTIES, OBLIGATIONS, LIABILITIES AND REMEDIES OF THE PARTIES, AS PROVIDEDHEREIN, ARE EXCLUSIVE AND IN LIEU OF ANY OTHERS AVAILABLE AT LAW OR IN EQUITY.**

 

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

 

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

 

The provisions of thisAgreement which by their nature are intended to survive the termination,cancellation, completion or expiration of the Agreement, including but notlimited to any expressed limitations of or releases from liability, shallcontinue as valid and enforceable obligations of the parties notwithstandingany such termination, cancellation, completion or expiration.

 

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

 
| **CONOCOPHILLIPS SPECIALTY** |                 | **A123  SYSTEMS, INC.** |
|------------------------------|----------------------|------------------------------|
| **PRODUCTS INC.**            |                 |                         |
| By:                          | /s/ Michael W. Brown |                         | By: | /s/ Michael Rubino |
| Name:                        | Michael W. Brown     |                         | Name: | Michael Rubino |
| Title:                       | President            |                         | Title: | Chief Financial Officer  and |
|                         |                 |                         | VP of Finance and  Administration |

 

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Exhibit 1

Form ofProduct Schedule

 

ProductSchedule No. 1

 

Dated        

 

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

 

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

 

Specifications attached inExhibit 2

 

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

 

Pricing — Pricing willbe in US Dollars.

 

Effective Date throughDecember 31, 2010: $[**]

 

January 1, 2011 throughApril 1, 2014: $[**]

 

Note: Seller agrees to makeavailable [**] of the Product to Buyer during 2010. Buyer agrees to place apurchase order upon execution of this Agreement for  [**] at a price of $[**]. Buyer agrees totake delivery of the [**] no later than April 1, 2011. This quantity willbe applied against the total committed quantity of [**] of the Products definedin paragraph 2 of this Agreement.

 

Both Parties are inagreement that the lithium ion battery market is extremely competitive and willwork together to further reduce cost, beyond what is listed above. This may bethrough qualification of alternative materials, new designs or technologies.

 

Seller agrees make areasonable best effort to stock one month’s worth of Product for Buyer, basedon current forecast.

 

Pricing will include thefollowing:

 

a.               Material cost

b.              Labor

c.               Test

d.              Mark-Up

e.               Lead time of quoted assembly

f.                 Lead time of all componentsin the quoted assembly

Project Schedule — Deliverieswill be made per A123 Purchase Order.

 

Markings —Products willinclude barcodes per the Specification.

 

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

 
| CONOCO SPECIALITY  PRODUCTS, INC. |           | A123SYSTEMS, INC |
|-----------------------------------|----------------|-----------------------|
|                              |           |                  |
|                              |           |                  |
| By:                               | /s/ M.W. Brown |                  | By: | /s/ Michael Rubino |
| Name:                             | M.W. Brown     |                  | Name: | Michael Rubino |
| Title:                            | President      |                  | Title: | CFO |
|                              |           |                  |   |   |
| 6/21/10                           |           |                  |

 

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CPREME® – Al23 SYSTEMS SALES AGREEMENT

 

EXHIBIT 2

 

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[**]

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

 

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CPREME® – Al23 SYSTEMS SALES AGREEMENT

 

EXHIBIT 3

 

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|                                | **CPreme® Graphites, Anode Powder (All Grades)** |
|--------------------------------|-------------------------------------------------------|
|                           |
| **Material Safety Data Sheet** |

 

**1.  Product and CompanyIdentification**

 
| **Product  Name:**                       | CPreme®  Graphites Anode Powder (All Grades)                          |
|------------------------------------------|----------------------------------------------------------------------------|
| ** **                               |                                                                       |
| **MSDS  Number:**                        | 801538                                                                     |
| ** **                               |                                                                       |
| **Intended  Use:**                       | Substrate  for secondary lithium ion battery anodes and other applications |
| ** **                               |                                                                       |
| **Manufacturer/Supplier:**               | ConocoPhillips                                                             |
| ** **                               | 600  N. Dairy Ashford                                                      |
| ** **                               | Houston,  Texas 77079-1175                                                 |
| ** **                               |                                                                       |
| **Emergency  Health and Safety Number:** | Chemtrec:  800-424-9300 (24 Hours)                                         |
| ** **                               |                                                                       |
| **MSDS  Information:**                   | Phone:  800-762-0942                                                       |
| ** **                               | Email:  MSDS@conocophillips.com                                            |
| ** **                               | Internet: http://w3.conocophillips.com/NetMSDS/                            |

 

**2.  HazardsIdentification**

 
| **Emergency Overview**                                                | **NFPA** |
|-----------------------------------------------------------------------|----------|
|                                                                  |     |
| This material is not considered hazardous according to OSHA criteria. |          |

 

**Appearance:**Dark gray or black

**Physical****Form:****Solid

**Odor:**No distinctodor

 

**Potential Health Effects**

**Eye:**Dusts may beabrasive and irritating to the eyes and cause stinging, watering, and redness.

 

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

 

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

 

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

 

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

 

**SeeSection 11 for additionalToxicity Information.**

 

**3.  Composition / Information on Ingredients**

 
| **Component**        | ** ** | **CASRN** | ** ** | **Concentration*** |
|----------------------|------------|-----------|------------|--------------------|
| Graphite,  Synthetic |       | 7782-42-5 |       | 100                |

 

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

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

**Status:** Final |
|-------------------------------------------------------------------------------|-------------------------------|

 

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

**Status:** Final |
|------------------------------------------------------------------------------------------|-------------------------------|

 

**4.  First Aid Measures**

 

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

 

**SkinContact:** First aid is not normally required. However, it isgood practice to wash any chemical from the skin.

 

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

 

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

 

**5.  Fire-Fighting Measures**

 

**NFPA704 Hazard Class**

 
| **Health:** 0 | **Flammability:** 0 | **Instability:** 0 | (0-Minimal,  1-Slight, 2-Moderate, 3-Serious, 4-Severe) |
|---------------|---------------------|--------------------|---------------------------------------------------------|

 

**UnusualFire & Explosion Hazards:** No unusual fire orexplosion hazards are expected.

 

**ExtinguishingMedia:**Use extinguishing agent suitable for type of surrounding fire.

 

**FireFighting Instructions:** For fires beyond the incipient stage, emergency responders in theimmediate hazard area should wear bunker gear. When**the potential chemical hazard is unknown, in enclosed orconfined spaces, a self contained breathing apparatus should be**worn. In addition, wear other appropriateprotective equipment as conditions warrant (see Section 8).

 

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

 

**SeeSection 9 for Flammable Properties Including Flash Point and Flammable(Explosive) Limits**

 

**6. ****Accidental****Release****Measures**

 

**PersonalPrecautions:** Stay upwind and away from spill/release. Notifypersons down wind of the spill/release, isolate immediate hazard area and keepunauthorized personnel out. Wear appropriate protective equipment, includingrespiratory protection, as conditions warrant (see Section 8). See Sections 2and 7 for additional information on hazards and precautionary measures.

 

**EnvironmentalPrecautions:** Contain spill if it can be done safely. Preventspilled material from entering sewers, storm drains, other unauthorizeddrainage systems, and natural waterways. Use water sparingly to minimizeenvironmental contamination and reduce disposal requirements.

 

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

 

**7.  Handling andStorage**

** **

**Precautionsfor safe handling:** Wash thoroughly after handling. Use good personalhygiene practices and wear appropriate personal protective equipment.

 

Donot wear contaminated clothing or shoes.

** **

**Conditionsfor safe storage:** Keep container(s) tightly closed. Use and storethis material in cool, dry, well-ventilated areas. Store only in approvedcontainers. Keep away from any incompatible material (see Section 10). Protectcontainer(s) against physical damage.

 

**8.  Exposure Controls /Personal Protection**

 
| **Component**       | ** ** | **US-ACGIH** | ** ** | **OSHA** | ** ** | **Other** |
|---------------------|------------|--------------|------------|----------|------------|-----------|
| Graphite, Synthetic |       | TWA: 2 mg/m3 |       | —   |       | —    |

 

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

** **

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

 

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

 

**RespiratoryProtection:**Where there is potential for airborne exposure above the exposure limit a NIOSH certifiedair purifying respirator equipped with N95 filters may be used.

 

Arespiratory protection program that meets or is equivalent to OSHA 29 CFR 1910.134and ANSI Z88.2 should be followed whenever workplace conditions warrant arespirator’s use. Air purifying respirators provide limited protection andcannot be used in atmospheres that exceed the maximum use concentration (asdirected by regulation or the manufacturer’s instructions), in oxygen deficient(less than 19.5 percent oxygen) situations, or under conditions that areimmediately dangerous to life and health (IDLH).

 

**Suggestionsprovided in this section for exposure control and specific types of protectiveequipment are based on readily available Information. Users should consult withthe specific manufacturer to confirm the performance of their protectiveequipment. Specific situations may require consultation with industrialhygiene, safety, or engineering professionals.**

 

**9.  Physical andChemical Properties**

 

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

 
| **Appearance:**                                     | Dark  gray or black           |
|-----------------------------------------------------|-------------------------------|
| **Physical Form:**                                  | Solid                         |
| **Odor:**                                           | No  distinct odor             |
| **Odor Threshold:**                                 | No  data                      |
| **pH:**                                             | Not  applicable               |
| **Vapor Pressure:**                                 | Not  applicable               |
| **Vapor Density (air=1):**                          | Not  applicable               |
| **Boiling Point/Range:**                            | No  data                      |
| **Melting/Freezing Point:**                         | No  data                      |
| **Solubility in Water:**                            | Insoluble                     |
| **Partition Coefficient (n-octanol/water)  (Kow):** | No  data                      |
| **Specific Gravity:**                               | 2.24  @ 68°F (20°C) |
| **Bulk Density:**                                   | 0.5-1.1  g/cc                 |
| **Percent Volatile:**                               | Not  applicable               |
| **Evaporation Rate (nBuAc=1):**                     | No  data                      |
| **Flash Point:**                                    | N/A                           |
| **Test Method:**                                    | Not  applicable               |
| **LEL (vol % in air):**                             | No  data                      |
| **UEL (vol % in air):**                             | No  data                      |
| **Autoignition Temperature:**                       | No  data                      |

 

**10.  Stabilityand Reactivity**

 

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

 

**Conditionsto Avoid:** None known.

 

**Materialsto Avoid (Incompatible Materials):** Avoid contact with strongoxidizing agents and strong reducing agents. 

 

**HazardousDecomposition Products:** Not anticipated under normal conditions ofuse.

 

**Hazardous Polymerization:** Not known to occur.

 

**11.  T****oxicological Information**

 

**ChronicData:**

 

**Graphite,Synthetic**

***Target Organs:*****Chronic lung irritation(pneumoconiosis) due to deposition ofdust particles in the lungs, has been reported among workers exposed tocarbon or graphite-containing dusts. The amount of silica in the dust isconsidered important in determining whether fibrosis can result from long termexposure to the dust. Since synthetic graphite is derived only from petroleum (and not coal) feedstocks, nocrystalline silica should be present.

 

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**Graphite, Synthetic**

 

**Acute Data:**

 
| **Component**       | ** ** | **Oral LD50**            | ** ** | **Dermal LD50**          | ** ** | **Inhalation LC50**       |
|---------------------|------------|--------------------------|------------|--------------------------|------------|---------------------------|
| Graphite, Synthetic |       | >  5 g/kg (estimated) |       | >  2 g/kg (estimated) |       | No  information available |

 

**12.  Ecological Information**

 

**Ecological Information:** No adverse environmental orecological effects are expected.

 

**13.  Disposal Considerations**

 

The generator of a waste is always responsible for making properhazardous waste determinationsand needs to consider state and localrequirements in addition to federal regulations.

 

This material, if discarded as produced, would not be a federallyregulated RCRA “listed” hazardous waste and is not believed to exhibitcharacteristics of hazardous waste. See Sections 7 and 8 for information onhandling, storage and personal protection and Section 9 for physical/chemicalproperties. It is possible that the material as produced contains constituentswhich are not required to be listed in the MSDS but could affect the hazardouswaste determination. Additionally, use which results in chemical or physicalchange of this material could subject it to regulation as a hazardous waste.

 

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

 

**14.  Transportation Information**

 

**U.S. Department of Transportation (DOT)**
| **Shipping Description:** | *** *** | ***Not regulated*** |
|---------------------------|--------------|---------------------|

** **

**International MaritimeDangerous Goods (IMDG)**
| **Shipping Description:** | *** *** | ***Not regulated*** |
|---------------------------|--------------|---------------------|

** **

**International CivilAviation Org. / International Air Transport Assoc. (ICAO/IATA)**
| **UN/ID #:** | *** *** | ***Not regulated*** |
|--------------|--------------|---------------------|

 
| ** **                     | ** ** | **LTD. QTY** | ** ** | **Passenger Aircraft** | ** ** | **Cargo Aircraft Only** | ** ** |
|--------------------------------|------------|-------------------|------------|-----------------------------|------------|-----------------------------------|------------|
| **Packaging Instruction #:**   |       | —            |       | —                      |       | —                            |       |
| **Max. Net Qty. Per Package:** |       | —            |       | —                      |       | —                            |       |

 

**15. Regulatory Information**

 

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

This material does not contain anychemicals subject to the reporting requirements of SARA 302 and 40 CFR372.

 

**CERCLA/SARA - Section 311/312 (Title III Hazard Categories)**
| **Acute  Health:**    |   | No |
|-----------------------|--------|----|
| **Chronic  Health:**  |   | No |
| **Fire  Hazard:**     |   | No |
| **Pressure  Hazard:** |   | No |
| **Reactive  Hazard:** |   | No |

 

**CERCLA/SARA - Section 313and 40 CFR 372:**

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

 

**EPA (CERCLA) Reportable Quantity (in pounds):**

This material does not contain any chemicals with CERCLA ReportableQuantities.

 

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**California Proposition 65:**

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

 

**Canadian Regulations:**

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

 

WHMIS Hazard Class

None

 
| **Component**                  | ** ** | **AICS** | ** ** | **DSL** | ** ** | **NDSL** | ** ** | **CHINA** | ** ** | **ELINCS** | ** ** | **EINECS** | ** ** | **ENCS** | ** ** | **KOREA** | ** ** | **PICCS** | ** ** | **TSCA** |
|--------------------------------|------------|----------|------------|---------|------------|----------|------------|-----------|------------|------------|------------|------------|------------|----------|------------|-----------|------------|-----------|------------|----------|
| Graphite, Synthetic  7782-42-5 |       | x        |       | x       |       |     |       | x         |       |       |       | x          |       |     |       | x         |       | x         |       | x        |

 

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

 

**U.S. Export Control Classification Number:**EAR99

** **

**Other Regulatory lnformation**

 

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

 

Import Harmonized Tariff Schedule (HTS) Code - 3801.10.50

 

**16. Other Information**

 
| **Date of Issue:**                           | 26-Sep-2008                                                                                                                          |
|----------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|
| **Status:**                                  | Final                                                                                                                                |
| **Previous Issue Date:**                     | 22-Feb-2008                                                                                                                          |
| **Revised Sections or Basis for  Revision:** | Product Name / Synonyms (Section  1)  Composition (Section 3)  Personal Protective Equipment (Section 8)  Toxicological (Section 11) |
| **MSDS Number:**                             | 801538                                                                                                                               |

 

**Guide to Abbreviations:**

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

 

**Disclaimer of Expressed andImplied Warranties:**

The information presented in this MaterielSafety Data Sheet is based on data believed to be accurate as of the date thisMaterial Safety Data Sheet was prepared. HOWEVER, NO WARRANTY OFMERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, OR ANY OTHER WARRANTY ISEXPRESSED OR IS TO BE IMPLIED REGARDING THE ACCURACY OR COMPLETENESS OF THEINFORMATION PROVIDED ABOVE, THE RESULTS TO BE OBTAINED FROM THE USE OF THISINFORMATION OR THE PRODUCT, THE SAFETY OF THIS PRODUCT, OR THE HAZARDS RELATEDTO ITS USE. No responsibility is assumed for any damage or injury resultingfrom abnormal use or from any failure to adhere to recommended practices. Theinformation provided above, and the product, are furnished on the conditionthat the person receiving them shall make their own determination as to thesuitability of the product for their particular purpose and on the conditionthat they assume the risk of their use. In addition, no authorization is givennor implied to practice any patented invention without a license.

 

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Exhibit 4

CPreme® Graphite Powder Storage Instructions

 

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

 

1.               Product must bestored in the original containers and packaging with original seals andmanufacturing markings intact. Product labeling should not be removed and keptlegible throughout storage.

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

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

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

5.                Product mustbe stored in an insect end pest free environment.

6.               Product must bestored and handled in conditions that do not allow contamination by any othermaterials including water, solvents, dust, chemicals or solids.

 

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