Document:

EXHIBIT 10.31

 

NET LEASE

 

THIS NET LEASE is made as of May 12, 2009, by and between 39000 Associates LLC, a Michigan limited liability company, whose address is 500 Griswold, 10th Floor, Detroit, MI 48226 (“Landlord”), and A123 Systems, Inc., a Delaware corporation, whose address is Arsenal on the Charles, 321 Arsenal Street, Watertown, MA 02472 (“Tenant”).

 

Section 1

Premises

 

1.01         Landlord hereby leases to Tenant the real property located at 39000 West Seven Mile Road in the City of Livonia, Wayne County, State of Michigan, consisting of 291,000 rentable square feet as more particularly described on Exhibit A and shown on Exhibit B, attached hereto, together with and subject to any easements or agreements that benefit such real property (the “Land”), together with the building and all other improvements located on or under the Land (the “Improvements”) (the Land and the Improvements, collectively, will constitute and be referred to in this Lease as the “Premises”).

 

Section 2

Permitted Use

 

2.01         Tenant will have exclusive use of the Premises for all legal purposes.  Without limiting the foregoing, Tenant may use the leased premises for research and development, design, fabrication, component assembly, installation and testing of hybrid and electric transportation and electric power grid solutions and administrative/general office use and other uses related to its business operations.  From and after the Commencement Date, Tenant will have access and use of the entire Premises, including the roof, twenty-four (24) hours a day, seven (7) days a week during the Term (as the same may be extended).

 

Section 3

Term

 

3.01         The Commencement Date shall be the date on which the parties execute this Lease and shall terminate on the last day of the month in which the 10th anniversary  of the Commencement Date occurs (as may be extended hereunder “Term”).  Landlord shall deliver physical possession of the Premises to Tenant on the Commencement Date free and clear of all occupants and debris and personal property but otherwise in the condition the same are in as of the date hereof.  If the Commencement Date is not the first day of a month, then each “lease year” will commence on the first day of the month following the Commencement Date.

 

3.02         Landlord shall pay to Tenant an improvement allowance in the amount of $100,000.00 to be used for all Tenant expenses of any nature arising under this Lease, payable in four consecutive monthly installments of $25,000.00 with the first installment due within ten days from the date hereof. If Landlord fails to make any such payment, Tenant shall be entitled to offset the unpaid amount against Tenant’s next obligations to pay Rent, together with interest on such amounts at the Default Rate, from the date the same should initially have been paid, until the date so offset.

 

3.03         Provided Tenant is not then in default of the terms and conditions of this Lease beyond any applicable cure period, Tenant will have two (2) options to extend this Lease Term for periods of five (5) years each from and after the expiration of the then current Term.   Such options to extend the Lease Term shall be deemed validly exercised only if Landlord receives Tenant’s written notice of exercise of option to extend the

 

 

lease term no later than nine (9) months prior to the expiration of the then current Lease Term.  Time is of the essence in the delivery of the written notices of exercise.  The giving of such notice by Tenant shall automatically extend the Lease and no instrument of renewal need be executed.  In the event that Tenant fails to give such notice to Landlord, this Lease shall automatically terminate at the end of the initial term and the Tenant shall have no further option to extend the term of this Lease.  During each extended Lease Term, all terms and conditions of the Lease will continue and remain in full force and effect provided, however, the Basic Rent during such extended Term shall be, at Tenant’s election (to be exercised pursuant to Section 4.02), either (a) as set forth in the chart below in this Section 3.03, or (b) at 95% of the then current fair market rate of the Premises as determined by comparison to the market rate for comparable properties in the I-275 corridor in the immediately surrounding area (determined pursuant to Section 4.02).

 

	
If Tenant elects to extend   the Lease Term for one additional five (5) year term and selects option   (a) above:
    
	
 
    	
 
    	
 
    
	
(i) Basic Rent during the first year of the first extension term   (Year 11)
    	
 
    	
$181,875.00 per month
    
	
(ii)  Basic Rent during the second year of the first extension   term (Year 12)
    	
 
    	
$187,331.25 per month
    
	
(iii)  Basic Rent during the third year of the first extension   term (Year 13)
    	
 
    	
$192,951.19 per month
    
	
(iv)  Basic Rent during the fourth year of the first extension   term (Year 14)
    	
 
    	
$198,739.73 per month
    
	
(v)  Basic Rent during the fifth year of the first extension   term (Year 15)
    	
 
    	
$204,701.92 per month
    
	
 
    	
 
    	
 
    
	
If Tenant elects to extend   the Lease Term for a second five (5) year term and selects option   (a) above:
    
	
 
    	
 
    	
 
    
	
(vi)  Basic Rent during the first year of the second extension   term (Year 16)
    	
 
    	
$210,842.98 per month
    
	
(vii)  Basic Rent during the second year of the second extension   term (Year 17)
    	
 
    	
$217,168.27 per month
    
	
(viii)  Basic Rent during the third year of the second extension   term (Year 18)
    	
 
    	
$223,683.32 per month
    
	
(ix)  Basic Rent during the fourth year of the second extension   term (Year 19)
    	
 
    	
$230,393.82 per month
    
	
(x)  Basic Rent during the fifth year of the second extension   term (Year 20)
    	
 
    	
$237,305.63 per month
    

 

3.04         Upon request of either Landlord or Tenant, the other will forthwith execute a written instrument confirming the Commencement Date, the Rent Commencement Date, the then applicable Basic Rent and the expiration date of the Term, and such other facts as may reasonably be requested.

 

 

Section 4

Basic Rent and Additional Rent

 

4.01         Tenant will pay to Landlord, as basic net annual rent (“Basic Rent”), for the original Term of this Lease, as follows:

 

	
(i)            June 1, 2009   (the “Rent Commencement Date”) through May 31, 2010
    	
 
    	
$43,750.00 per month 
    
	
 
    	
 
    	
 
    
	
(ii)           June 1, 2010   through May 31, 2019
    	
 
    	
$127,312.50 per month 
    

 

4.02         The process for the determination of the current fair market rate will be as follows:  within 15 days of receipt of Tenant’s notice of exercise of option to extend, Landlord will notify Tenant of Landlord’s estimation of the fair market rate for the Premises using Landlord’s best good-faith efforts. If Landlord and Tenant cannot agree on the fair market rate of the Premises at least eight months before the beginning of an extension term, then Tenant shall have the right to rescind Tenant’s exercise of the extension option by written notice to Landlord, in which event the lease shall terminate upon the end of the initial term.  If Tenant does not rescind Tenant’s exercise of the extension option, then Tenant shall elect either to accept as the Basic Rent for such extension term the scheduled rent chart set forth in Section 3.01 or to enter into arbitration to determine the fair market rent.  If Tenant elects to arbitrate, Landlord and Tenant will try to agree on a single appraiser not later than seven months before the beginning of the extension term. If a single appraiser is appointed as described above, then that appraiser will determine the fair market rate. If Landlord and Tenant cannot agree on a single appraiser within seven months before the beginning of the extension term, then Landlord and Tenant will each appoint one appraiser not later than six months before the beginning of an extension term. Within 10 days thereafter, the two appointed appraisers will propose their estimates of fair market rate and will appoint a third appraiser. If the two appointed appraisers cannot agree on a third appraiser, a third appraiser will be appointed by the American Institute of Real Estate Appraisers. The third appraiser shall select the proposal from Landlord’s and Tenant’s appraisers that most closely reflect the third appraiser’s own view of fair market rate.  If either Landlord or Tenant fails to appoint its appraiser within the prescribed time period, or if a party’s appraiser fails to propose a fair market rate within the time periods set forth above, the single appraiser appointed (or proposing a fair market rate, as applicable) will determine the fair market rate. If both parties fail to appoint appraisers within the prescribed time periods, then the first appraiser appointed by a party will determine the fair market rate. Each party will bear the cost of its own appraiser and the parties will share equally the cost of the single or third appraiser, if applicable. Appraisers must have at least ten years experience in the appraisal of industrial/manufacturing property for comparable properties in the I-275 corridor in the immediately surrounding area, and be members of professional organizations such as the American Institute of Real Estate Appraisers or the equivalent.  For the purpose of this appraisal, the term “fair market rate” for the Premises means the net rent that a ready and willing tenant would pay for the Premises (including Landlord’s maintenance obligations hereunder, but without any material tenant improvement allowance or rent abatement period) as fixed minimum rent to a ready and willing Landlord of the Premises assuming such space was exposed for lease on the open market for a reasonable period of time, could be used for the permitted use hereunder and was improved to its then existing level; provided, however, that in determining the fair market rent, appraisers shall be instructed to ignore any increase in the fair market rate of the property attributable to the dry rooms, warehouse and racking equipment, and information technology equipment  installed by Tenant.

 

In the event that 95% of the fair market rate for either extension term is determined by this appraisal process (“Appraisal Rent”) to be less than the rent schedule listed in Section 3.03 but greater than the rent schedule listed below for such extension term, then the Appraisal Rent shall apply for such extension term.  In the event that the Appraisal Rent for either extension term is determined to be less than the “floor” rent for such extension term set

 

 

forth in the chart below in this Section 4.02, the rent for such extension term shall be (notwithstanding the result of the fair market rate determination) as follows:

 

	
First five (5) year extension term:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(i)      Basic   Rent during the first year of the first extension term  (Year 11)
    	
 
    	
$145,500.00 per month
    
	
(ii)     Basic   Rent during the second year of the first extension term  (Year 12)
    	
 
    	
$149,865.00 per month
    
	
(iii)    Basic   Rent during the third year of the first extension term  (Year 13)
    	
 
    	
$154,360.95 per month
    
	
(iv)    Basic   Rent during the fourth year of the first extension term  (Year 14)
    	
 
    	
$158,991.78 per month
    
	
(v)     Basic   Rent during the fifth year of the first extension term  (Year 15)
    	
 
    	
$163,761.53 per month
    
	
 
    	
 
    	
 
    
	
Second five (5) year extension term:

 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(vi)  Basic Rent during the first year of the second extension   term  (Year 16)
    	
 
    	
$168,674.38 per month
    
	
(vii)  Basic Rent during the second year of the second extension   term  (Year 17)
    	
 
    	
$173,734.61 per month
    
	
(viii)  Basic Rent during the third year of the second extension   term  (Year 18)
    	
 
    	
$178,946.65 per month
    
	
(ix)  Basic Rent during the fourth year of the second extension   term  (Year 19)
    	
 
    	
$184,315.05 per month
    
	
(x)  Basic Rent during the fifth year of the second extension   term  (Year 20)
    	
 
    	
$189,844.50 per month
    

 

4.03         If the Rent Commencement Date is not the first day of a month, Basic Rent for the partial month will be prorated and paid on the Rent Commencement Date so that thereafter all monthly installments of Basic Rent will be due and payable on the first day of each and every month during the Term.  Each monthly installment of Basic Rent will be paid in advance, without any set-offs or deductions and without any prior demand, on the first day of each and every month during the Term at the office of Landlord at the address first shown above, or at such other place as Landlord, from time to time, may designate in writing.

 

4.04         It is the intention of the parties that the Basic Rent payable hereunder will be absolutely net to Landlord, so that this Lease will yield to Landlord the net annual rent specified herein during the Term of this

 

 

Lease; and that except as provided in Sections 8.01 and 8.03, all costs, expenses, and obligations of every kind and nature whatsoever relating to the Premises will be paid by Tenant.  Any payment required by Tenant under this Lease other than Basic Rent is referred to as “Additional Rent” (Basic Rent and Additional Rent is sometimes collectively referred to as “Rent”).  Any Basic Rent or Additional Rent payable by Tenant to Landlord pursuant to this Lease not received by Landlord within five days of the due date will be subject to a late charge of 2% of the amount of such delinquent payment; however, Tenant will be entitled to one written notice per lease year before the imposition of a late charge.  In addition to the foregoing late charge, a Basic Rent or Additional Rent not paid when due will bear interest at the rate of 3% over the prime rate then in effect as published in the Wall Street Journal, but in no event in excess of the highest rate then allowed under any applicable usury laws during the period of such delinquency (“Default Rate”).  Tenant acknowledges that such late and interest charges cover Landlord’s administrative costs, are reasonable, and are not to be construed as a penalty.  Such late charge and default interest rate will be due and payable together with the next regular installment of Basic Rent.  In addition to the foregoing charges, if Tenant defaults in the payment of any payment required to be made by Tenant hereunder, Landlord may, but will not be obligated to, make such payment in which event the amount thereof will be payable as Additional Rent to Landlord by Tenant upon demand together with interest at the Default Rate from the date of such payment by Landlord until receipt of such payment; and upon default of such payment, Landlord will have the same remedies as on default in the payment of Basic Rent.  The obligation hereunder to pay late charges, interest, and other costs exists in addition to, not in place of, the other default provisions set forth herein.

 

4.05         Upon delivery to Tenant of a fully executed lease Tenant will simultaneously deliver to Landlord the sum of $43,750.00, representing the first full monthly installment of Basic Rent.

 

Section 5

Taxes and Assessments

 

5.01         Tenant will pay as Additional Rent all taxes and assessments (including special assessments, if any), that may be levied or assessed by any lawful authority during the Term of this Lease against the Premises, or any part thereof, or against any building at any time situated thereon (collectively “Taxes”).  “Taxes” will include, without limitation, any present or future enactment by the United States, the State of Michigan, the city or municipality in which the Premises is located, or any political subdivision thereof, or any governmental authority having jurisdiction thereover that imposes a tax and/or assessment of any kind or nature upon, against, or with respect to the rentals and other charges payable by Tenant to Landlord derived from the Premises, or with respect to Landlord’s (or the individuals or entities which form the Landlord herein) ownership of the Land and/or the Improvements, as currently taxed, and/or either in addition to, or by way of substitution for, all or any part of the Taxes levied or assessed against the Premises, exclusive only of general income taxes and inheritance, estate, succession, transfer, gift, franchise, or capital stock tax, or any income taxes arising out of or related to ownership and operation of income-producing real estate, and any increase in taxes and assessments resulting from Landlord’s sale of, or other transfer of its interest in the Building (Landlord represents to Tenant that it has not received any written notice of any pending assessments).

 

All such Taxes will be paid by Tenant to Landlord or directly to the assessing or collecting authority, if Landlord so directs in writing, on or before the date same become delinquent.  Upon request by Landlord’s institutional mortgage lender (“Mortgagee”), an estimated amount of such Taxes will be paid monthly by Tenant pursuant to the requirements of a tax escrow account established by such Mortgagee, provided the escrow arrangements are reasonably satisfactory to Tenant.

 

The Taxes for the first and last years of the Term, or any extensions thereof, will be prorated between Landlord and Tenant in accordance with the local custom for such proration, so that Tenant will be responsible only for such Taxes as may be attributable to the period included in the Term of this Lease.

 

 

Section 6

Utilities

 

6.01         Tenant will pay as Additional Rent all charges and assessments made against the Premises for water, sewer, gas, electricity, telephone, heating, air conditioning, and for the consumption and use of all utilities of any nature, as and when due, during the Term and continuance of this Lease.  Upon the Commencement Date, all such utilities shall be placed in Tenant’s name.

 

Section 7

Insurance

 

7.01         Tenant will maintain a policy insuring the Improvements against so-called “all risk” perils for full replacement cost, including loss of rental income, which policy will name Landlord as the named insured (and loss payee), and Landlord’s Mortgagee as “mortgagee” under a standard mortgagee clause.

 

7.02         Tenant will maintain commercial general liability insurance including Landlord and Landlord’s Mortgagee as additional insureds.  The limits of this coverage will be not less than $2,000,000.00 per occurrence, and $4,000,000.00 general aggregate, provided that these limits of coverage may be increased, for commercially reasonable reasons consistent with industry standards, upon written notice by Landlord to Tenant.  Such limits may be achieved through use of primary and excess/umbrella coverage.

 

7.03         Tenant will maintain so-called “all risk” perils property insurance for full replacement cost insuring all of Tenant’s stock and trade, inventory, movable trade fixtures, equipment, leasehold improvements, furniture, furnishings, and all personal property of any nature located at the Premises.  Notwithstanding anything in this Lease to the contrary, all of the aforementioned property will remain at Tenant’s sole risk, and Landlord will not be liable under any circumstances for any damage to or loss of such property arising from acts of negligence of any person, or for any reason whatsoever except to the extent such damage or loss is due to the negligence or misconduct of Landlord, its agents or employees.  In no event will the Landlord be liable to Tenant for any loss of profits, damage to equipment, lost or stolen equipment, or personal property, or any special, consequential, or indirect, direct, or punitive damages.  Tenant will be solely responsible and obligated to obtain business interruption insurance and other necessary insurance coverage for such losses.

 

7.04         All insurance required by this Section to be carried by Tenant will be in such form and will provide such coverage and extended coverage and be written by such underwriters and insurance companies as Landlord, or Landlord’s Mortgagee, may reasonably require.  Unless otherwise specified by Landlord, all insurance policies required by this Section 7 will (i) be issued by an insurance company having a Best rating of “A, IX” or better, (ii) require 30 days written notice to Landlord and to Mortgagee before cancellation or change in coverage, scope, or the amount of the policy, and (iii) provide that such insurance company waives all right of recovery by way of subrogation against Landlord, or its Mortgagee, in connection with any damage covered by such policy.  A certificate of insurance, together with the evidence of payment of premium, will be delivered to Landlord prior to the Commencement Date and thereafter at the expiration of the term of the policy.  If Tenant fails to obtain and maintain all or any of the insurance required by this Section, then upon ten days written notice to Tenant, Landlord may (but will not be required to) procure or renew such insurance; and any amounts paid by Landlord for such insurance will be immediately payable by Tenant to Landlord as Additional Rent.  At Landlord’s request, the casualty and/or liability insurance required by this Section  will be obtained by Landlord (upon consultation with Tenant) at Tenant’s expense; and Tenant will pay (or reimburse) Landlord for the premiums of such insurance, as Additional Rent, within 20 days after receipt of an invoice therefore.

 

7.05         Each party does hereby release and discharge the other party and all of its members, partners, officers, directors, shareholders, agents, employees, and affiliates from and against any liability arising out of any loss, damage, or injury caused by fire or any other casualty for which insurance (permitting waiver of

 

 

liability and subrogation) is, or required to be, carried by the injured party at the time of such loss, damage, or injury to the extent of any recovery by the injured party under such insurance.

 

7.06         Tenant will comply, at its own expense, with any requirements pertaining to the Premises requested or imposed by any insurance company which is necessary for the maintenance of the insurance provided for in this Section 7.

 

Section 8

Condition of Premises / Maintenance

 

8.01         Notwithstanding anything to the contrary contained in this Lease, Landlord shall maintain, at Landlord’s sole cost and expense, in good appearance, maintenance and repair, the structural integrity of the roof and exterior walls of the building that comprises a part of the Improvements, and the detention ponds on the Premises, except for any such required maintenance and repairs resulting from Tenant’s negligent acts or omissions.

 

8.02         Except as provided in Section 8.01, Tenant will, at its own expense, keep and maintain the Premises, including, but not limited to the foundation, windows, window frames, doors, all structures, all electrical, mechanical, plumbing and utility systems, and all portions of the Land, including the grounds, landscaping, sprinkler system, sidewalks, driveways, underground utility lines, and parking areas, in good appearance, maintenance, and repair, including any and all replacements thereof, and Tenant will also be responsible for any repairs, additions, or alterations to the Improvements or to any of the systems located therein or on or under the Land that are required by any law, statute, ordinance, rule, regulation, governmental authority, or insurance carrier.

 

8.03         No other representations, either expressed or implied, have been made by Landlord or Landlord’s agent that are not expressly set forth herein; and Tenant hereby agrees to accept the Premises in “as is” condition subject only to the obligation of Landlord to ensure that upon the Commencement Date of the Lease, the Premises will be vacant, broom clean and free of any equipment and furniture from previous tenants, and all building systems will be in good working condition.

 

Section 9

Use of Premises

 

9.01         Landlord represents, to the best of its knowledge, that upon the Commencement Date, the base building core, shall, and surrounding site work, comply with all current applicable laws, regulations, and building codes, including, without limitation, all applicable zoning, land use and environmental laws and agreements, the requirements of all easement and encumbrance documents, and all laws governing nondiscrimination in public accommodations and public facilities that pertain to the Americans with Disabilities Act (ADA) and all accommodations thereunder; and Tenant covenants to keep the same in compliance throughout the Term.  Landlord further represents and warrants to Tenant that (a) the uses of the Premises contemplated hereunder for office, warehouse, manufacturing, and distribution purposes are permitted as of right at the Premises; (b) Landlord holds fee simple title to the Premises, subject to no mortgage other than The Private Bank and Trust Company; (c) Landlord has full power and authority to enter into this Lease and has obtained all consents and taken all actions necessary in connection therewith; and (d) no other party has any possessory right to the Premises or has claimed the same.

 

9.02         Tenant will not use, or permit any person to use, the Premises, or any part thereof, for any immoral purpose or any use or purpose in violation of the laws of the United States, the laws, ordinances, or other regulations of the federal government, the state, or the municipality in which the Premises are located, or

 

 

of any other lawful authorities.  Tenant will promptly comply, at Tenant’s sole cost and expense, with all laws, ordinances, rules, regulations, and orders affecting the Premises hereby leased, including the cleanliness, health, safety, occupation, access, and use of the Premises.

 

9.03         All signs and advertising displayed in and about the Premises will only advertise the business carried on upon the Premises.  No sign will be displayed, except as approved in advance, in writing, by Landlord, which approval will not be unreasonably withheld or delayed.  Tenant will promptly comply, at Tenant’s sole cost and expense, with all laws, ordinances, rules, orders, and regulations in any way relating to Tenant’s sign(s) or advertising.

 

9.04         Landlord has provided Tenant a Phase I Environmental Report, dated April 10, 2009 prepared by Bureau Veritas North America, Inc., as their Project No. 11009-109058.00.  Landlord represents to Tenant that this Report constitutes all of Landlord’s knowledge and information pertaining to the environmental condition of the Premises. Landlord and Tenant shall promptly deliver to the other any subsequent environmental assessments performed by them.  Except to the extent used in connection with the operation of Tenant’s business in compliance with applicable laws, Tenant will not manufacture, use, store, generate, treat, or dispose of any hazardous substance on the Premises, or cause, suffer, or permit the same to be done by any person or entity.  For purposes of this Section, the term “hazardous substance” will mean any substance, the manufacture, use, treatment, storage, transportation, or disposal of which is regulated by any law having as its object the protection of public health, natural resources, or the environment.  Each party will promptly supply to the other party (i) all notices, demands, inquiries, or claims received from any person or entity as a result of hazardous substances alleged to be on or emanating from the Premises or any adjacent property, and (ii) any notices, reports, or applications for licenses, permits, or approvals submitted by or on behalf of Tenant to any environmental regulatory agency affecting the Premises or any adjacent property.  Tenant will promptly furnish to Landlord any information requested by Landlord concerning Tenant’s operations on the Premises, unless such information is of a proprietary nature.  In the event that any hazardous or toxic substance is discovered to have been released by Tenant, its employees, agents, invitees, contractors, suppliers, or third parties under Tenant’s control, upon or emanating from the Premises during the Term of this Lease, whether such discovery is made during the Term of this Lease or after the expiration of the Term (as the same may be extended), or indicated in the environmental audit report or resulting from such additional investigation and testing, Tenant will, at its sole cost and expense, take all steps required by law to remediate any contamination or damage resulting therefrom, in full compliance with all applicable laws and regulations and to the reasonable satisfaction of Landlord respecting the commercial/industrial use of the Premises. If such remediation is required after expiration of the Term, Landlord shall provide Tenant with reasonable access rights to the Premises to enable Tenant to perform its obligations. Tenant will defend, indemnify, and hold Landlord harmless from and against any liabilities, including, without limitation, judgments, fines, penalties, court costs, and actual attorneys’ fees claimed or asserted against or sustained by Landlord resulting from Tenant’s failure to fully comply with the provisions of this Section.  Landlord hereby agrees to defend, indemnify and hold Tenant harmless from and against any and all loss, cost, damage, claim or expense (including legal fees) incurred in connection with or arising out of or relating in any way to the presence of hazardous or toxic materials or oil as of the date hereof in or on the Premises or the release by Landlord, its employees, agents, invitees, contractors, suppliers, or third parties under Landlord’s control, upon or emanating from the Premises during the Term of this Lease, whether such discovery is made during the Term of this Lease or within six months after the expiration of the Term (as the same may be extended), or indicated in the environmental audit report or resulting from such additional investigation and testing.

 

 

Section 10

Damage by Fire or Other Casualty

 

10.01       In the event that, at any time during the Term of this Lease, any of the Improvements on the Premises are partially destroyed or damaged in whole or in part by fire or other casualty under insurance carried by Landlord and Tenant as required herein, so as to become partially or totally untenantable, then, at Tenant’s election, the damage to the Premises will be repaired out of the insurance proceeds to be provided by Tenant hereunder, such work to be performed by either Landlord or Tenant, as selected by Tenant; and the Basic Rent will be abated in proportion to the floor area of the Premises rendered untenantable to the extent Landlord receives the proceeds of the rent insurance required to be carried by Tenant hereunder.  The obligation of the Landlord hereunder will be limited to reconstructing the Premises, substantially to the plans and specifications for the original construction as may be reasonably practicable under the circumstances, and subject to any applicable building or zoning rules and regulations.  In no event will Landlord be required to repair or replace Tenant’s supplies, trade fixtures, furnishings, or equipment.

 

10.02       Notwithstanding anything to the contrary contained in this Lease, if any of the Improvements on the Premises are partially destroyed or damaged in whole or in part by fire or other casualty, Tenant shall have the right, exercisable by notice to Landlord, to terminate this Lease if (a) during the last year of the Term (as same may be extended) the Premises are damaged by fire or other casualty and, in Tenant’s reasonable estimation, are not able to be restored within three (3) months from the date on which actual restoration work would commence, or (b) at any point during the Term, the Premises are damaged by fire or other casualty and, in Tenant’s reasonable estimation, are not able to be restored within nine (9) months from the date on which actual restoration work would commence.

 

10.03       Notwithstanding anything to the contrary contained in this Lease, either Tenant or Landlord shall have the right, exercisable by notice to the other party, to terminate this Lease if any of the Improvements on the Premises are partially destroyed or damaged in whole or in part by fire or other casualty (a) in the last nine (9) months of the Term and term extension options pursuant to Section 3.03 are available but not exercised by Tenant, or (b) in the last year of the Term and no further term extension options are available to Tenant.

 

Section 11

Alterations

 

11.01       Tenant may make interior cosmetic alterations or improvements (i.e., painting, carpeting, flooring, etc) without Landlord’s prior consent.  All exterior cosmetic alterations or improvement will require Landlord’s prior written consent, but such consent may not be unreasonably withheld, conditioned, or delayed.  Non-cosmetic alterations or improvements costing in excess of $500,000.00 per year shall be subject to Landlord’s prior written consent, not to be unreasonably withheld, conditioned, or delayed.  Landlord’s failure to withhold its approval in writing (specifying in reasonable detail the reasons for withholding approval) within fifteen (15) days after request therefor by Tenant shall be deemed to be a grant of consent by Landlord.  Except for the dry rooms, warehouse and racking equipment, and information technology equipment  which shall remain the property of Tenant and may be removed by Tenant upon the termination of this Lease, any other structural alterations, additions or improvements shall become part of the Premises and the property of Landlord.  Tenant shall remove its personal property, trade fixtures, and moveable equipment at the end of the Term.

 

Section 12

Eminent Domain

 

12.01       If any material portion of the Premises is taken under the power of eminent domain, Tenant may, at its option and in its sole discretion, at any time after the entry of the verdict or order for such taking, terminate this Lease upon at least ninety (90) days prior written notice to Landlord.  If the entire Premises is taken under the power of eminent domain, then the Term of this Lease will cease as of the day actual possession will be taken by such power; and the Rent will be paid up to that date with a prorata refund by Landlord of any prepaid Rent.

 

 

12.02       If a material portion of the Premises is taken by eminent domain and Tenant does not elect to terminate this Lease, this Lease will terminate only as to the parts so taken as of the day possession will be taken by such public authority; thereafter, all of the Terms herein will continue in effect, except the Basic Rent will be reduced equitably to reflect the configuration of the Premises following the taking.  If this Lease is not terminated following such a condemnation or taking, Landlord, as soon as is reasonably practicable after such condemnation or taking and the determination and payment of Landlord’s award on account thereof, will expend as much as may be necessary of the net amount awarded to Landlord (and released by the Mortgagee) to restore (consistent, however, with zoning laws and building codes then in existence) so much of the Improvements to as nearly like its condition prior to such taking as will be economically practicable.

 

12.03       The whole of any award or compensation for any portion of the Premises taken, condemned, or conveyed in lieu of taking or condemnation will be solely the property of and payable to Landlord, except that portion attributable to Tenant’s loss of business and moving expenses.

 

Section 13

Assignment or Subletting

 

13.01       Tenant may not assign, sublet, encumber, or in any manner transfer this Lease or any interest in this Lease without the prior written consent of Landlord, which consent will not be unreasonably withheld or delayed.  Notwithstanding anything to the contrary contained in this Lease, Tenant may, without Landlord’s prior written consent, but upon notice to Landlord, sublet all or any portion of the Premises or assign Tenant’s interest in this Lease to: (a) a subsidiary, affiliate, parent or other entity to Tenant which controls, is controlled by, or is under common control with, Tenant; (b) a successor entity to Tenant resulting from merger, consolidation, non-bankruptcy reorganization, or government action; or (c) a purchaser of all or any significant portion of Tenant’s stock or assets.  Tenant shall not enter into a merger or sale of its stock or assets as a sham transaction intended solely to circumvent the restriction on assignment otherwise applicable hereunder.

 

Section 14

Bankruptcy or Insolvency

 

14.01       If, at any time, (i) a petition in bankruptcy is filed by or against Tenant, (ii) Tenant will be adjudicated as bankrupt or insolvent, (iii) a receiver or trustee is appointed for all or a portion of Tenant’s property, (iv) Tenant makes an assignment for the benefit of creditors, (v) Tenant voluntarily or involuntarily takes advantage of any debtor relief proceedings under present or future law, or (vi) any of Tenant’s property is levied upon or attached under process against Tenant, then Tenant will be deemed to have committed a material breach of this Lease; and in any of said events, this Lease, at the option of Landlord, may be canceled and terminated; and Landlord may reenter the Premises; but, notwithstanding such termination, Tenant will remain liable for all Rent and damages which may be due at the time of such termination as herein provided and nothing herein will be deemed to preclude Landlord from obtaining the maximum amount recoverable from Tenant under law in any proceeding referred to in this Lease; and Tenant hereby covenants that in the event of a termination or reentry under this Section, Tenant will be liable to Landlord for the maximum amount recoverable from Tenant under the law pertaining to the proceeding resulting in such reentry or termination by Landlord.  As used in this Section, “Tenant” includes any guarantor of Tenant’s obligations under this Lease.

 

Section 15

Breach and Remedies

 

15.01       If Tenant should fail to pay any Basic Rent, Additional Rent, or any sum required by this Lease to be paid to Landlord at the time or in the manner provided herein, or if default is made by Tenant in any of the other covenants or conditions contained herein, and such default continues for thirty (30) days after written

 

 

notice from Landlord to Tenant of such default, then, in any such event, Landlord will, at its option, in addition to, and not exclusive of, any other remedy Landlord may have under this Lease or by law, without any further demand or notice, be entitled to any one or more of the following remedies:  (i) to re-enter the Premises and eject all persons in accordance with applicable law, (ii) to declare this Lease at an end and terminated by notice to Tenant delivered prior to the expiration of the cure period described in Section 15.02 without cure having been made, (iii) to recover from Tenant Rent or any other sum due Landlord under this Lease, (iv) to recover from Tenant any actual, direct (but not consequential or indirect) damages sustained by Landlord, including, without limitation, all costs and expenses including reasonable legal fees and costs, court filing fees, and leasing commissions, and (vii) to continue this Lease in effect and relet the Premises or any part thereof, as agent for and for the account of the Tenant, on such terms and conditions as Landlord may deem advisable, in which event the rents received on such reletting will be applied first to the expense of such reletting and collection, including necessary renovation and alteration fees, reasonable attorney fees, and any real estate commissions paid, and thereafter toward the payment of all sums due or to become due Landlord hereunder; and if a sufficient sum is thus realized to pay such sums and other charges, Tenant will pay Landlord any deficiency on demand, notwithstanding Landlord may have released said Premises for an amount in excess of the Rent stipulated in this Lease in prior or subsequent months; and Landlord may bring an action for such deficiency at the time of any reletting.  Landlord shall use commercially reasonable efforts to mitigate damages caused by Tenant’s default.  The failure of Landlord to release all or any part of the Premises will not release or affect Tenant’s liability for Rent or damages.  If Landlord elects any one or more remedies granted above, Landlord will have the right to elect one or more other remedies at any time thereafter.  No action of Landlord will be construed as an election to terminate this Lease unless a court so orders or written notice of such intention is given by Landlord to Tenant.

 

15.02       Notwithstanding anything to the contrary contained in this Lease, Landlord may not exercise any of its rights or remedies under this Lease or at law or in equity with respect to Tenant’s failure to perform or observe any of its monetary or non-monetary obligations or covenants under this Lease except as follows:  With respect to a monetary default, Tenant will be entitled to a seven day written notice and opportunity to cure up to once per Lease Year.  With respect to a non-monetary obligation or covenant, Tenant will be entitled to a 30 day notice and opportunity to cure provided; however, that if any such non-monetary failure is not reasonably susceptible of being cured within such 30 day period, Landlord may not exercise any such rights or remedies unless Tenant fails to commence to cure such failure within such 30 day period or thereafter fails to diligently pursue a cure to completion.

 

Section 16

Surrender of Premises on Termination

 

16.01       At the expiration or earlier termination of the Term, Tenant will surrender the Premises broom clean and in at least as good condition as it was on the Commencement Date, reasonable wear and tear excepted, and, promptly upon surrender, will deliver all keys, access cards and alarm codes, for the Premises to Landlord at the place fixed for payment of Rent.  Neither the maintenance obligations contained in Section 8.02 nor any other provision of this Lease shall be interpreted so as to require Tenant to surrender the Premises to Landlord in a condition better than the same were in as of the Commencement Date.  All costs and expenses incurred by Landlord in connection with repairing or restoring the Premises to the condition called for herein, together with the costs, if any, of removing from the Premises any property of Tenant left therein, will be invoiced to Tenant and payable as Additional Rent within twenty (20) days after delivery of notice.  Tenant will, at its expense, repair any damage to the Premises or the building caused by the installation or removal of such furniture, fixtures, alterations, or additions so removed and restore the Premises to good condition and repair.  Notwithstanding the foregoing, Tenant shall not be required to remove any wiring or cabling installed during the Term.

 

 

Section 17

Right to Mortgage, Subordination, Estoppel Certificate

 

17.01       Tenant agrees to execute and deliver within 10 days after request by Landlord a written statement, acceptable to Tenant in its reasonable discretion, in recordable form which certifies (i) that this Lease is in full force and effect, (ii) the date of commencement and termination of this Lease, (iii) that Rent is paid currently without any set-off or defense thereto, (iv) the amount of Rent, if any, paid in advance, (v) that there are no uncured defaults by Landlord or stating those claimed by Tenant, provided that such facts are accurate and ascertainable, (vi) such other information requested by Landlord’s Mortgagee, and (vii) containing a subordination, non-disturbance and attornment provision, all substantially as set forth in the form annexed.

 

17.02       If any Mortgagee requests reasonable modifications to this Lease as a condition to financing or refinancing the Premises, Tenant will not unreasonably withhold or delay its consent thereto provided such modifications do not (i) increase Tenant’s obligations or (ii) adversely affect the leasehold interest hereby created, except Tenant may be required to give notices of any defaults by Landlord to such lender and/or permit the curing of such defaults by such lender within such time as lender may reasonably require.  Landlord shall reimburse Tenant for the legal costs incurred by Tenant in reviewing the proposed modifications.

 

17.03       Landlord reserves the right to subordinate this Lease to the lien of any mortgage now or hereafter placed upon the Premises; and Tenant agrees to execute any documents reasonably acceptable to Tenant, requested by Landlord or any Mortgagee to confirm any such subordination within five business days of such necessary request, provided such document(s) contain a non-disturbance provision, all substantially as set forth in the form of subordination, non-disturbance, and attornment agreement annexed.

 

17.04       At the request of any Mortgagee, this Lease may be made prior (superior) to any such mortgage, and Tenant will then execute such other documents and agreements giving priority to this Lease as such Mortgagee may require.  Tenant agrees that upon such Mortgagee’s filing for record in the applicable Register of Deed’s Office of a Notice of Subordination or any document executed unilaterally by such Mortgagee subordinating the lien of the mortgage to this Lease, such Lease will be prior to such mortgage.

 

17.05       Landlord will use best efforts to obtain from its Mortgagee a non-disturbance provision for the benefit of Tenant stating that Tenant’s rights under the Lease will not be disturbed by any Mortgagee or holder of a note secured by a mortgage placed on the Premises at any time.

 

17.06       In the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed in lieu of foreclosure made relating to the Land or building of which the demised Premises is a part, Tenant will attorn to the purchaser upon any such foreclosure or sale (“Purchaser”) and recognize such Purchaser as the Landlord under this Lease.  In the event of any such attornment, this Lease will continue in full force and effect as a direct lease between Tenant and the Purchaser upon all the terms, covenants, conditions, and agreements set forth in this Lease.  However, in no event will the Purchaser be:  (i) bound by any payment of Basic Rent or Additional Rent made by the Tenant to the Landlord for more than one month in advance, or (ii) bound by any amendment or modification of termination of the Lease affecting the interest of the Purchaser made without the written consent of Landlord’s Mortgagee or the Purchaser, or (iii) except with respect to accrued offset rights, liable for any act or omission of any prior landlord (including Landlord), or (iv) liable for the return of any security deposit (unless any such security deposit has actually been received by such Purchaser).

 

 

Section 18

Quiet Enjoyment

 

18.01       Landlord agrees that at all times when Tenant is not in default under the provisions of and during the Term of this Lease, Tenant’s quiet and peaceful enjoyment of the Premises will not be disturbed or interfered with by Landlord or by any person claiming by, through, or under Landlord.

 

Section 19

Holding Over

 

19.01       If Tenant remains in possession of the Premises for more than two (2) weeks after the expiration of this Lease without executing a new Lease, or exercising any available Lease extension options, if any, it will be deemed to be occupying the Premises as a tenant from month-to-month, subject to all of the provisions of this Lease to the extent that they can be applicable to a month-to-month tenancy, except that the Basic Rent for each month will be 110% of the regular daily amount of Basic Rent owing by Tenant for the last month of the Term (or extended Term, if applicable), together with the payment of Additional Rent as required to be paid under the Terms of this Lease; provided, however, that if Landlord will have notified Tenant that Landlord has executed, or is prepared to execute, a lease with a new tenant for the Premises, or any portion thereof, then the Basic Rent for each month of holdover will be 125% of the regular monthly installments of Basic Rent owing by Tenant for the last month of the Term (or extended Term, if applicable) together with the payment of Additional Rent as required to be paid under the Terms of this Lease pending the delivery of possession by Tenant as herein provided.  With respect to holdovers of two weeks or less, holdover rent shall be charged at a daily rate for the number of days of such holdover.  In no event will the Tenant be liable to Landlord for any special, consequential, or indirect, or punitive damages.

 

Section 20

Security Deposit

 

20.01       Intentionally Omitted.

 

Section 21

Broker’s Commission

 

21.01       Landlord represents and warrants to Tenant that it has not dealt with any broker or finder regarding this transaction other than Grubb & Ellis Company and Danny Samson whose commissions will be paid by Landlord pursuant to a separate agreement.  Tenant represents and warrants to Landlord that it has not dealt with any broker or finder regarding this transaction other than Grubb & Ellis Company, Danny Samson, and  T3 Realty Advisors.  Each party agrees to indemnify and hold harmless the other from all loss, damage, cost, and expenses, including attorneys’ fees, that the other party may suffer as a result of any claim brought by any other broker, sales person, or finder with whom such indemnifying party is alleged to have dealt with in connection with this transaction.

 

Section 22

General

 

22.01       No smoking is allowed anywhere in any building which is part of the Premises.

 

22.02       Tenant will indemnify, defend, and hold harmless the Landlord from any liability for any claims or liabilities that arise in connection with damages to any person or property, in, on, or about the Premises from any cause arising out of Tenant’s use and occupancy of the Premises except to the extent such damage is due to the negligence or misconduct of Landlord, its agents or employees.

 

 

22.03       The terms of this Lease are privileged and confidential, intended only for the use of Landlord and Tenant.  Both parties shall keep the terms of this Lease and any negotiations or agreements related hereto strictly confidential and shall not disclose the same to any other persons or entities excepting only (i) attorneys agents or employees involved in this transaction who have agreed to keep all such information confidential as herein provided (ii) as mutually and specifically agreed otherwise, (iii) as required by Landlord in connection with any financing transactions, or (iv) as required by order of any court or governmental authority with jurisdiction.  Upon written request by Tenant, Landlord shall enter into a commercially reasonable confidentiality agreement covering any confidential information that is disclosed by Tenant.

 

22.04       In the event the square footage (or approximate square footage) of the Improvements, Land, or Premises is identified in this Lease, the parties agree that the Premises will be deemed to include such square footage as set forth therein (or on any Exhibit); and in no event will Landlord or Tenant have the right to challenge or modify the Basic Rent, Additional Rent, or any other sums due hereunder as a result of any claimed or actual error or omission in the square footage of the Premises.

 

22.05       Subject to reasonable guidelines and precautions imposed by Tenant, Landlord may enter the Premises, at reasonable times and upon three business days’ prior notice to Tenant for any commercially reasonable purpose.  Landlord will have the right to enter the Premises after notice to Tenant at any time should Landlord determine in its reasonable discretion a hazard or emergency exists.  Tenant shall have the right to accompany Landlord at all times during the periods Landlord accesses the Premises pursuant to this Section.  Landlord shall keep confidential any confidential or proprietary information of which Landlord becomes aware during any such period of access.  Landlord shall use diligent efforts to minimize inconvenience to Tenant during such periods of access.

 

22.06       Tenant will be responsible for and pay, before delinquency, all municipal, county, and/or state taxes assessed during the Term against any personal property of any kind owned or placed in, upon, or about the Premises by Tenant.

 

22.07       The submission of this Lease to Tenant is for examination purposes only and does not constitute a reservation of, or option for, Tenant to lease, or otherwise create any interest of Tenant in, the Premises.  The return to Landlord by Tenant of executed copies of this Lease will not be binding upon Landlord, notwithstanding any preparation nor anticipatory reliance or expenditures by Tenant, and notwithstanding any representation made by any broker or agent of Landlord, unless and until Landlord has, in fact, executed and actually delivered a fully-executed copy of this Lease to Tenant.

 

22.08       Tenant will pay all Rent to Landlord in U.S. currency; or in the event of payment by check or money order, such funds will be cleared and available for use by Landlord by the due date.  Landlord will have no obligation to accept Rent after the due date except as herein provided or to accept less than the full amount of Rent due and owing.  If Landlord accepts less than the full amount of Rent owing, Landlord may apply such payment towards any of Tenant’s obligations due Landlord.  Landlord’s acceptance of partial payment of Rent will not be construed as a waiver of (i) the amount still unpaid or (ii) a default under this Lease.  If any check given to Landlord by Tenant is not honored by the bank upon which it is drawn, Landlord, at its option, may require all payments made by Tenant to Landlord over the following six months to be paid by a bank or cashier’s check.

 

22.09       The term “Landlord” as used in this Lease is limited to mean and include only the owner of fee title to the Premises at the time in question; and in the event of any transfer or transfers of the title to such fee, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) will automatically be freed and relieved from and after the date of such transfer or conveyance of all liability for the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed.  Landlord shall be deemed to be in default of this Lease if Landlord fails to make any payments to

 

 

Tenant required under this Lease and such failure continues for ten (10) days after written notice from Tenant to Landlord, or if Landlord shall be in default in the prompt and full performance of any other of its promises, covenants or agreements contained in this Lease and such default in performance continues for more than thirty (30) days after written notice thereof from Tenant to Landlord specifying the particulars of such default or breach of performance; provided, however, that if the default complained of, other than for the payment of monies, is of such a nature that the same cannot be rectified or cured within such thirty (30) day period, then such default shall be deemed to be rectified or cured if Landlord, within such thirty (30) day period, shall have commenced such cure and shall continue thereafter with due diligence to cause such cure to be completed.  Upon any default of this Lease by Landlord, Tenant shall be entitled to pursue any and all remedies available to Tenant at law or in equity.  If Landlord fails to perform any provision of this Lease upon Landlord’s part to be performed, and if, as a consequence of such default, Tenant recovers a money judgment against Landlord, such judgment must be satisfied only out of the proceeds of sale received upon execution of such judgment levied against the right, title, and interest of Landlord in the Premises only, and not against any other property or interests of Landlord; and neither Landlord nor any of its partners, members, employees, or affiliates will be liable for any deficiency.  Landlord will not be personally liable for any deficiency beyond its interest in the Premises.  If Landlord shall at any time be in default pursuant to the terms and conditions of this Lease attributable to its failure to perform any act which Landlord is obligated to perform under this Lease, and (except in the case of emergency) should such failure continue beyond applicable grace periods, Tenant may, but shall not be obligated so to do, after ten (10) business days’ written notice to and demand upon Landlord explicitly setting forth the basis for Tenant’s claim of default and specifying that Tenant intends to invoke Tenant’s rights under this Section 22.09 (or without notice to or demand upon Landlord in the case of any emergency) (“Tenant’s Self-Help Notice”), and without waiving, or releasing Landlord from, any obligations of Landlord in this Lease contained, perform such act which Landlord is obligated to perform under this Lease in such manner and to such extent as may be reasonably necessary. All sums reasonably so incurred and paid by Tenant and all reasonable and necessary costs and expenses of Tenant incidental to Tenant’s proper exercise of self-help rights pursuant to this Section 22.09, together with interest thereon at the Default Rate, shall be payable to the Tenant within thirty (30) days of Tenant’s furnishing Landlord an invoice therefor, accompanied by reasonable substantiation, and Landlord covenants to pay any such sum or sums with interest as aforesaid if not timely paid. If Landlord fails to reimburse Tenant for the sums paid by Tenant within thirty (30) days of Tenant’s invoice (together with supporting documentation), then subject to the last sentence of this paragraph, Tenant shall have the right to offset the amount of such sums demanded by Tenant against Rent payable under this Lease until offset in full. Notwithstanding the foregoing, Tenant shall have no right to reduce any monthly installment of Rent by more than thirty-three percent (33%) of the amount of Rent which would otherwise have been due and payable by Tenant to Landlord, unless the aggregate amount of such deductions over the remainder of the Term (as the same may have been extended) will be insufficient to fully reimburse Tenant for the amount demanded by Tenant, in which event Tenant may effect such offset by making deductions from each monthly installment of Rent in equal monthly amounts over the balance of the remainder of the Term.

 

22.10       Landlord, in its discretion, reserves the right to establish reasonable, nondiscriminatory rules and regulations pertaining to the maintenance and operation of the Premises and to do such other acts as in the Landlord’s judgment may be desirable in order to preserve, protect, and promote the Premises.  If no rules or regulations are annexed, Landlord reserves the right to establish such reasonable rules or regulations as Landlord determines in its sole and reasonable judgment to be necessary for the orderly and efficient operation of the building provided such rules do not unreasonably interfere with Tenant’s conduct of its business or use and enjoyment of the Premises.

 

22.11       Landlord will not be liable to the Tenant, or to anyone claiming by, through, or under Tenant, for any loss or damage arising out of any acts or omissions of persons occupying any part of the Premises, or for the cessation of the heating, elevator, lighting, ventilating, air conditioning, power, and water systems, or cleaning, or other services, if any, or for the interruption of the use of any facilities by reason of accidents, strikes, or the making of repairs, alterations, or improvements, or for any disruptions caused as a result of any

 

 

tenant improvements or maintenance work, or inability to secure a proper supply of fuel, gas, steam, water, electricity (or any utility), labor, or supplies, or due to the Improvements or any part thereof, or appurtenance thereof becoming out of order, or for theft or burglary, or terrorist activity, or caused by water, snow, frost, steam, sewage, gases, fire, smoke, toxic mold, or electric current, or the bursting or leakage of any tanks, pipes, or conduits conveying any of the same, or suffered through any act or neglect of the Tenant, its employees, associates, or agents, or other occupants of the building, and none of the above will be considered or construed as an actual or constructive eviction of the Tenant, nor will it, in any way, operate to release the Tenant from the prompt and punctual performance of all the covenants and agreements contained in this Lease.

 

22.12       Landlord shall indemnify and save harmless Tenant, and the directors, officers, agents, and employees of Tenant, against and from all claims, expenses, or liabilities of whatever nature (a) arising directly or indirectly from any default or breach by Landlord or Landlord’s contractors, licensees, agents, servants, or employees under any of the terms or covenants of this Lease; or (b) arising directly or indirectly from any accident, injury, or damage to any person or property, to the extent such accident, injury, or damage results, or is claimed to have resulted, from any negligent act or omission, or negligence on the part of Landlord, or Landlord’s contractors, licensees, agents, servants, employees, or customers, or anyone claiming by or through Landlord; provided, however, that in no event shall Landlord be obligated under this Section 22.12 to indemnify or save harmless Tenant, or the directors, officers, agents, employees of Tenant, to the extent such claim, expense, or liability results from any omission, fault, negligence, or other misconduct of Tenant or the officers, agents, or employees of Tenant.  This indemnity and hold harmless agreement shall include, without limitation, indemnity against all expenses, attorneys’ fees and liabilities incurred in connection with any such claim or proceeding brought thereon and the defense thereof with counsel reasonably acceptable to Tenant.  At the request of Tenant, Landlord shall defend any such claim or proceeding directly on behalf and for the benefit of Tenant.

 

22.13       This Lease, including any printed forms, riders, schedules, or exhibits attached hereto, sets forth all of the covenants, agreements, conditions, and understandings between Landlord and Tenant concerning the Premises; and there are no covenants, agreements, inducements, representations, conditions, or understandings, either oral or written, between the parties hereto, other than those set forth herein.  This Lease may be modified or amended only by a written agreement signed by the party to be bound.  The covenants, conditions, and agreements herein are binding on the heirs, successors, representatives, and assigns of the parties hereto, provided, however, that no assignment by, from, through, or under Tenant in violation of the provisions hereof will vest in such purported assignee any right, title, or interest whatsoever.  Whenever possible, each provision of this Lease will be interpreted in such a manner as to be valid under applicable law; and to the extent any provision is invalid or prohibited under applicable law, such provision will be ineffective to the extent of such validity or provision, without invalidating the remainder of such provision, or the remaining provisions of this Lease.  The failure of either party to insist on strict performance of any condition herein provided or exercise any other rights will not be construed as a waiver of such condition or option.  Each of the parties hereto acknowledge that they or their attorneys have participated in the negotiation and preparation of this Lease; and in order to avoid the application of any rule construing contractual language against the drafter, both parties agree that the provisions contained herein will be construed without prejudice to the party who actually memorialized the document in its final form.  Tenant acknowledges it has been given an opportunity to have this Lease reviewed by legal counsel of its choice.  This Lease will not confer any rights or remedies upon any third parties other than the parties to this Lease and their respective successors and permitted assigns.

 

22.14       Tenant shall not use, occupy, suffer or permit the Premises (or any part thereof) to be used in any manner, or suffer or permit anything to be brought into or kept therein, which would, in Landlord’s reasonable judgment, (a) be in violation of any law, ordinance, or regulation, (b) interfere with any adjoining property, (c) make unobtainable at standard rates from any reputable insurance company any fire insurance with extended coverage or liability, elevator, boiler, umbrella, terrorism, environmental, or other insurance (unless

 

 

Tenant pays the increase), (d) cause injury or damage to the Premises, (e) constitute a public or private nuisance, or (f) violate any certificate of occupancy pertaining to the Premises.

 

22.15       If any governmental license or permit shall be required for the proper and lawful conduct of Tenant’s business in (or any approved subtenant’s business) or occupancy of the Premises, then Tenant, at its sole expense, shall procure and thereafter maintain (or cause to be maintained) such license or permit and submit the same to Landlord for inspection upon Landlord’s request.  Tenant shall comply with the terms and conditions of each such license and/or permit.

 

22.16       Tenant represents, warrants and covenants that Tenant is not (i) listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the Treasury (“OFAC”) pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (“Order”) and all applicable provisions of Title III of the USA PATRIOT ACT (Public Law No. 107-56 (October 26, 2001)); (ii) listed on the Denied Persons List and Entity List maintained by the United States Department of Commerce; (iii) listed on the List of Terrorists and List of Disbarred Parties maintained by the United States Department of State; (iv) listed on any list or qualification of “Designated Nationals” as defined in the Cuban Assets Control Regulations 31 C.F.R. Part 515; (v) listed on any other publicly available list of terrorists, terrorist organizations or narcotics traffickers maintained by the United States Department of State, the United States Department of Commerce or any other governmental authority or pursuant to the Order, the rules and regulations of OFAC (including without limitation the Trading with the Enemy Act, 50 U.S.C. App. 1-44; the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06; the unrepealed provision of the Iraqi Sanctions Act, Publ. L. No. 101-513; the United Nations Participation Act, 22 U.S.C. § 2349 aa-9; The Cuban Democracy Act, 22 U.S.C. §§ 60-01-10; The Cuban Liberty and Democratic Solidarity Act, 18 U.S.C. §§ 2332d and 233; and The Foreign Narcotic Kingpin Designation Act, Publ. L. No. 106-201, all as may be amended from time to time); or any other applicable requirements contained in any enabling legislation or other Executive Orders in respect of the Order (the Order and such other rules, regulations, legislation or orders are collectively called the “Orders”); (vi) engaged in activities prohibited in the Orders; or (vii) has not been convicted, pleaded nolo contendere, indicted, arraigned or custodially detained on charges involving money laundering or predicate crimes to money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes or in connection with the Bank Secrecy Act (31 U.S.C. §§ 5311 et. seq.).

 

22.17       Unless specifically stated to the contrary in this Lease, any notice, demand, request, or other communication or document which may be or is required to be given hereunder will be in writing and may be sent by United States certified mail, return receipt requested, postage prepaid, by personal delivery, by overnight delivery service, by facsimile, or by other comparably reliable means and will be deemed to have been given upon the date of receipt or two days after the date of mailing, whichever of such dates is the first to occur.  Landlord and Tenant may use a nationally-recognized courier express company to send overnight notices or demands, in which event the date of delivery of such notice or demand will be deemed to be the day after the date of delivery of such notice or demand to the express company, as indicted on the receipt of such company.  Notices to Landlord will be given at the address set forth for the payment of Rent, and notices to Tenant will be given at Arsenal on the Charles, 321 Arsenal Street, Watertown, MA 02472, Attention: General Counsel, with a copy to Paul Jakubowski, Esq., WilmerHale LLP, 60 State Street, Boston, MA 02109, or to such other address as may have been last furnished in writing to the other party for such purpose.

 

22.18       In the event of any litigation between the parties regarding this Lease, the losing party will pay to the prevailing party all reasonable expenses and court costs, including reasonable attorneys’ fees incurred by the prevailing party.  A party will be considered the prevailing party if (i) it initiated the litigation and substantially obtains the relief it sought either through trial or judgment, (ii) the other party withdraws its action without substantially obtaining the relief it sought, or (iii) it did not initiate the litigation and judgment is entered for either party but without substantially granting the relief sought.

 

 

22.19       Regardless of any reference to the words “sole” or “absolute” (but except for matters which will have an adverse effect on the (a) structural integrity of the Premises; (b) the Premises’ plumbing, heating, life safety, ventilating, air conditioning, mechanical or electrical systems; or (c) the exterior appearance of the Premises, whereupon in each such case Landlord’s or Tenant’s duty is to act in good faith and in compliance with this Lease), any time the consent of Landlord or Tenant is required, such consent shall not be unreasonably withheld, conditioned or delayed.  Whenever this Lease grants Landlord or Tenant the right to take action, exercise discretion, establish rules and regulations or make allocations or other determinations, Landlord and Tenant shall act reasonably and in good faith.

 

[Signatures Next Page]

 

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Net Lease as of the day and year first above written.

 

	
Signed:
    	
 
    
	
 
    	
 
    
	
LANDLORD:
    	
TENANT:
    
	
 
    	
 
    
	
39000 Associates LLC
    	
A123 Systems, Inc.
    
	
a Michigan limited liability company
    	
a Delaware corporation
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
/s/ JoAnne Thompson
    	
 
    	
 
    	
/s/ Michael Rubino
    
	
By: 
    	
JoAnne Thompson
    	
 
    	
By: 
    	
Michael Rubino
    
	
Its: 
    	
CFO
    	
 
    	
Its: 
    	
VP and CFO
    

 

 

Exhibit A — Premises

 

LEGAL DESCRIPTION

 

Land situated in the City of Livonia, Wayne County, Michigan, described as follows:

 

Part of the Southwest 1⁄4 of Section 6, Town 1 South, Range 9 East, City of Livonia, Wayne County, Michigan, more particularly described as:

 

Commencing at the Southwest corner of said Section 6; thence North 81 degrees 53 minutes 21 seconds West 0.61 feet to the Historical location of the Southwest corner of said Section 6; thence South 88 degrees 14 minutes 49 seconds East 947.38 feet, along the South line of said Section 6 and the centerline of Seven Mile Road; thence North 01 degrees 45 minutes 11 seconds East 60.00 feet to the Point of Beginning; thence North 03degrees 00 minutes 56 seconds East 160.04 feet to the Easterly line of Pentagon Centre Condominium, being Wayne County Condominium Plan 437, Master Deed recorded in Liber 29370 Page 706, Wayne County Records, as amended; thence following seven courses along the Easterly of said Pentagon Centre Condominium, North 29 degrees 16 minutes 42 seconds East 173.19 feet and North 02 degrees 15 minutes 12 seconds West 308.12 feet and South 85 degrees 24 minutes 31 seconds West 183.49 feet and North 04 degrees 35 minutes 47 seconds West 41.82 feet and North 24 degrees 54 minutes 13 seconds East 350.00 feet and North 20 degrees 45 minutes 47 seconds West 190.00 feet and North 04 degrees 54 minutes 13 seconds East 592.96 feet; thence South 59 degrees 47 minutes 02 seconds East 75.48 feet; thence South 84 degrees 29 minutes 49 seconds East 165.30 feet; thence North 15 degrees 30 minutes 11 seconds East 325.68 feet; thence South 88 degrees 47 minutes 02 seconds East 547.97 feet (previously described as 546.01 feet) to the Westerly Right-Of-Way line of I-275 Highway; thence the following nine courses along the Westerly right-of-way line of said I-275 Highway, 49.32 feet along a curve to the right, said curve having a radius of 5593.38 feet, a central angle of 00 degrees 30 minutes 19 seconds and a chord bearing and distance of South 19 degrees 19 minutes 55 seconds East 49.32 feet (previously described as 49.33 feet along a curve to the right, said curve having a radius of 5593.58 feet, a central angle of 00 degrees 30 minutes 19 seconds and a chord bearing and distance of South 22 degrees 23 minutes 29 seconds East 49.33 feet) and South 16 degrees 42 minutes 14 seconds East 173.87 feet and South 02 degrees 03 minutes 16 seconds West 886.13 feet and South 24 degrees 29 minutes 57 seconds West 175.73 feet and South 35 degrees 22 minutes 18 seconds West 443.28 feet and South 01 degrees 45 minutes 11 seconds West 213.05 feet and South 46 degrees 45 minutes 11 seconds West 175.78 feet and North 88 degrees 14 minutes 49 seconds West 210.00 feet and South 01 degrees 45 minutes 11 seconds West 40.00 feet to the Northerly Right-of-Way line of said Seven Mile Road; thence North 88 degrees 14 minutes 49 seconds West 248.59 feet (previously described as 248.95 feet), along the Northerly Right-of-Way line of said Seven Mile Road to the Point of Beginning.  All of the above being subject to easements, restrictions and right-of-ways of record.

 

 

Exhibit B — Plans

 

 

 

Exhibit B — Plans (continued)

 

 

 

SAMPLE - TENANT ESTOPPEL

 

Mortgagee:

 

Re:                             Lease (the “Lease”) between                                             , as Landlord, and                                                (“Tenant”) dated                                        for approximately                    square feet of space (“the “Premises”) in                                           ,                                     , MI (the “Project”).

 

Ladies and Gentlemen:

 

Tenant understands that [Mortgagee] (together with any of its successors of or assignees or subsequent holders of the Loan, the (“Lender”) intends to make a loan (the “Loan”) to Landlord or Landlord’s successor or designee approved by Lender (“Borrower”) to be secured by the Project.  Tenant presently leases the Premises pursuant to the Lease; and, in connection with the foregoing, Tenant does hereby certify to Borrower and Lender as follows:

 

A.                           Tenant acknowledges that the initial term of the original Lease commenced on                                      and now expires                             , unless sooner terminated in accordance with the terms of the Lease.  Tenant has no further option to renew or extend the lease term, except:                                                                                        .

 

B.                             The currently monthly base rent under the Lease is $               and has been paid by Tenant through                               .  Tenant is obligated to pay rent to Landlord at the rate set forth in the Lease.  Tenant is current with respect to, and is paying the full rent and other charges stipulated in, the Lease with no present offsets, deductions, defenses, or claims; and Tenant has not prepaid any rent or other amounts to Landlord other than rent and other charges due and payable in the calendar month of this certification.

 

C.                             To Tenant’s knowledge, the Lease is in full force and effect; there are no amendments or modifications of any kind to the Lease, except as referenced above (if any); there are no other promises, agreements, understandings, or commitments between Landlord and Tenant relating to the Premises leased under the Lease; and Tenant has not given Landlord any notice of termination thereunder.

 

D.                            There has not been and is now no subletting of the Premises, or any part thereof, or assignment by Tenant of the Lease, or any rights therein, to any party, except                                           .

 

E.                              A security (or no security) deposit has been given by Tenant under the terms of, or with respect to, the Lease.

 

F.                              To Tenant’s knowledge, no uncured default, event of default, or breach by Landlord exists under the Lease; no known facts or circumstances currently exist that, with the passage of time, will or could constitute a default, event of default, or breach under the Lease.  Tenant has made no claim against Landlord alleging Landlord’s default under the Lease.

 

G.                             Tenant is in complete possession of the Premises and has accepted the Premises, including any work of Landlord performed thereon pursuant to the terms and provisions of the Lease.

 

H.                            Tenant has no option or right to purchase the Project of which the Premises is a part.

 

I.                                 Tenant agrees to provide copies of all notices given Landlord under the Lease to Lender at the following address:

 

 

	
 
    	
Lender:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
With copies to:
    	
 
    	
 
    

 

J.                                        Tenant acknowledges that Lender is about to make the Loan to Borrower and receive as part of the security for such loan (i) a mortgage encumbering Borrower’s fee interest in the Project and the rents, issues, and profits of the Lease (the “Mortgage”), and (ii) an assignment of leases and rents (“Assignment of Leases”) which affects the Lease, and that Lender (and persons or entities to whom the Mortgage and/or Assignment of Leases may subsequently be assigned) is relying upon the representations and warranties contained herein in making such Loan.  Further, Tenant has notice that the Lease and the rent and all other sums due thereunder have been assigned or are to be assigned to Lender as security for the aforesaid loan secured by the Mortgage.  In the event that Lender (or any person or entity to whom the Mortgage and/or the Assignment of Leases may subsequently be assigned) notifies Tenant of a default under the Mortgage and/or the Assignment of Leases and demand that Tenant pay its rent and all other sums due under the Lease to Lender (or such future lender), Tenant shall honor such demand and pay its rent and all other sums due under the Lease directly to Lender (or such future lender) or as otherwise required pursuant to such notice.  Tenant agrees to notify Lender of any default(s) by Landlord under the Lease; Lender shall have the same right to cure such default(s) as is provided to Landlord under the Lease.

 

K.                                    Tenant agrees that Landlord and Lender shall be entitled to rely upon Tenant’s certifications set forth herein.  The undersigned representative of Tenant is duly authorized and fully qualified to execute this instrument on behalf of Tenant.

 

IN WITNESS WHEREOF, Tenant has executed this instrument on                                                   .

 

	
 
    	
TENANT:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

 

SAMPLE - SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT

 

THIS SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT executed on the date(s) indicated on each acknowledgment, but to be effective as of                                     , among [Mortgagee]                                          (hereinafter referred to as “Lender”),                                                              (hereinafter referred to as “Tenant”), and (hereinafter referred to as “Landlord”).

 

S  T  A  T  E  M  E  N  T      O  F      B  A  C  K  G  R  O  U  N  D

 

Landlord and Tenant have entered into that certain lease (hereinafter referred to as the “Lease”) dated                     , [amended by a                              dated                 ] relating to the premises described therein (hereinafter referred to as the “Premises”) and being part of the Property (as hereinafter described).  Lender has made or has committed to make a loan to Landlord secured by a mortgage (hereinafter referred to as the “Mortgage”) and an assignment of leases and rents from Landlord to Lender covering certain property described in Exhibit A attached hereto and by this reference made a part hereof (the “Property”) which includes the Premises.  Tenant has agreed that the Lease shall be subject and subordinate to the Mortgage held by Lender, provided Tenant is assured of continued occupancy of the Premises under the terms of the Lease.

 

S  T  A  T  E  M  E  N  T      O  F      A  G  R  E  E  M  E  N  T

 

For and in consideration of the mutual covenants herein contained, the sum of $10.00 and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged,  it is hereby agreed as follows:

 

1.                                       Lender, Tenant, and Landlord do hereby covenant and agree that the Lease with all rights, options (including options to acquire or lease all or any part of the Premises), liens, and charges created thereby is and shall continue to be subject and subordinate in all respects to the Mortgage and to any renewals, modifications, consolidations, replacements, and extensions thereof and to all advancements made thereunder.

 

2.                                       Lender does hereby agree with Tenant that, in the event Lender becomes the owner of the Premises by foreclosure, conveyance in lieu of foreclosure, or otherwise (a) the Lease shall continue in full force and effect as a direct Lease between the succeeding owner of the Property and Tenant, upon and subject to all of the terms, covenants, and conditions of the Lease, for the balance of the term of the Lease; and Lender will not disturb the possession of Tenant or any of Tenant’s rights under the Lease, and (b) the Premises shall be subject to the Lease, and Lender shall recognize Tenant as the tenant of the Premises for the remainder of the term of the Lease in accordance with the provisions thereof; provided, however, that Lender shall not be subject to any claims or defenses which Tenant might have against any prior landlord (including Landlord), but Lender agrees that Tenant shall have the right to apply accrued rent offset rights against the rent payable under the Lease until such offsets have been exhausted; nor shall Lender be liable for any act or omission of any prior landlord (including Landlord), nor shall Lender be bound by any rent or additional rent which Tenant might have paid for more than the current month or any security deposit or other prepaid charge paid to any prior landlord (including Landlord), nor shall it be bound by any amendment or modification of the Lease made without its written consent.   Nothing contained herein shall prevent Lender from naming Tenant in any foreclosure or other action or proceeding initiated by Lender pursuant to the Mortgage to the extent necessary under applicable law in order for Lender to avail itself of and complete the foreclosure or other remedy.

 

3.                                       Tenant does hereby agree with Lender that, in the event Lender becomes the owner of the Premises by foreclosure, conveyance in lieu of foreclosure, or otherwise, then Tenant shall attorn to and recognize

 

 

Lender as the Landlord under the Lease for the remainder of the term thereof; and Tenant shall perform and observe its obligations thereunder, subject only to the terms and conditions of the Lease.  Tenant further covenants and agrees to execute and deliver upon request of Lender an appropriate agreement of attornment to Lender and any subsequent titleholder of the Premises, such agreement to be in form reasonably acceptable to Tenant.

 

4.                                       Tenant acknowledges that Landlord will execute and deliver to Lender an assignment of the Lease as security for said loan.  Tenant agrees to notify Lender of any default(s) by Landlord under the Lease; Lender shall have the same right to cure such default(s) as is provided to Landlord under the Lease.

 

5.                                       Lender shall have no obligation or incur any liability with respect to the construction or completion of the improvements in which the Premises are located, or for completion of the Premises, or any improvements for Tenant’s use and occupancy.  Lender shall have no obligations nor incur any liability with respect to any warranties of any nature whatsoever, including, without limitation, any warranties respecting use, compliance with zoning, hazardous wastes, or environmental laws, Landlord’s title, Landlord’s authority, habitability, or fitness for purpose or possession.  In the event that Lender shall acquire title to the Premises [or the Property], Lender shall have no obligation, nor incur any liability, beyond Lender’s then equity interest, if any, in the Premises; and Tenant shall look exclusively to such equity interest of Lender, if any, in the Property for the payment and discharge of any obligations or liability imposed upon Lender hereunder under the Lease or under any new lease of the Property.

 

6.                                       If any portion or portions of this Agreement shall be held invalid or inoperative, then all of the remaining portions shall remain in full force and effect; and, so far as is reasonable and possible, effect shall be given to the intent manifested by the portion or portions held to be invalid or inoperative.

 

7.                                       This Agreement shall be governed by and construed in accordance with the laws of the State in which the Property is located.

 

8.                                       Lender shall not, either by virtue of the Mortgage, the Assignment of Leases, or this Agreement, be or become a mortgagee in possession or be or become subject to any liability or obligation under the Lease or otherwise until Lender shall have acquired the interest of Landlord in the Premises, by foreclosure or otherwise; and then such liability or obligation of Lender under the Lease shall extend only to those liabilities or obligations accruing subsequent to the date that Lender has acquired the interest of Landlord in the Premises as modified by the terms of this Agreement.

 

9.                                       Any and all notices, elections, approvals, consents, demands, requests, and responses thereto (“Communications”) permitted or required to be given under this Agreement shall be in writing and shall be deemed to have been properly given and shall be effective upon the earlier of receipt thereof or deposit thereof in the United States mail, postage prepaid, certified with return receipt requested, to the other party at the address of such other party set forth herein below or at such other address within the continental United States as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the time period in which a response to any Communications must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective with respect to Communications sent prior to the time of receipt thereof.  Any notice, if given to Lender, must be addressed as follows, subject to change as provided hereinabove:

 

Lender:

 

 

With copies to:

 

and, if given to Tenant, must be addressed as follows, subject to change as provided hereinabove:

 

 

and, if given to Landlord, must be addressed as follows, subject to change as provided hereinabove:

 

 

10.                                 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, successors-in-title, and assigns.  When used herein, the term “Landlord” refers to Landlord and to any successor to the interest of Landlord under the Lease; and the term “Lender” refers to Lender and to any successor-in-interest of Lender under the Mortgage.

 

11.                                 This Agreement may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page.  Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signatures thereon and may be attached to another counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal to be effective as of the date set forth in the first paragraph hereof.

 

	
 
    	
LENDER:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
                                                                                                        ,
    
	
 
    	
a
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
STATE   OF
    	
§
    
	
 
    	
§
    
	
COUNTY   OF
    	
§
    

 

BEFORE ME, a Notary Public in and for said County and State, personally appeared [Name], [Title] of [Company] a                                                                   , LENDER in the foregoing; and he/she acknowledged that he/she did sign said instrument for and on behalf of said corporation, as the voluntary act and deed of said corporation, for all the uses and purposes therein mentioned.

 

IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my notarial seal on                                                                                                     .

 

	
 
    	
 
    
	
 
    	
Notary   Public
    
	
 
    	
 
    
	
 
    	
Commission   Expiration Date:
    

 

 

	
 
    	
TENANT:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
                                                                                                       ,
    
	
 
    	
a
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(CORPORATE   SEAL)
    
	
 
    	
 
    
	
 
    	
 
    
	
STATE   OF
    	
§
    
	
 
    	
§
    
	
COUNTY   OF
    	
§
    

 

BEFORE ME, a Notary Public in and for said County and State, personally appeared [Name], [Title} of [Company], a                                  , TENANT in the foregoing; and he/she acknowledged that he/she did sign said instrument for and on behalf of said                               , as the voluntary act and deed of said corporation, for all the uses and purposes therein mentioned.

 

IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my notarial seal on                                                                                                     .

 

	
 
    	
 
    
	
 
    	
Notary   Public
    
	
 
    	
 
    
	
 
    	
Commission   Expiration Date:
    

 

 

	
 
    	
LANDLORD:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
                                                                                                       ,
    
	
 
    	
a
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
Authorized   Member
    
	
 
    	
 
    
	
 
    	
 
    
	
STATE   OF
    	
§
    
	
 
    	
§
    
	
COUNTY   OF
    	
§
    

 

BEFORE ME, a Notary Public in and for said County and State, personally appeared                   , Authorized Member                                                                    , LANDLORD in the foregoing; and he/she acknowledged that he/she did sign said instrument for and on behalf of said company as the voluntary act and deed of said company, for all the uses and purposes therein mentioned.

 

IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my notarial seal on                                                                                                     .

 

	
 
    	
 
    
	
 
    	
Notary   Public
    
	
 
    	
 
    
	
 
    	
Commission   Expiration Date:Exhibit 10.32

 

TERM LOAN AND SECURITY AGREEMENT

 

This TERM LOAN AND SECURITY AGREEMENT (the “Agreement”) dated August 2, 2006 by and among SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 (“SVB”), as agent (the “Agent”), and the Lenders listed on Schedule 1.1 and otherwise party hereto, including without limitation, SVB and GOLD HILL VENTURE LENDING 03, L.P. (“Gold Hill”) and A123 SYSTEMS, INC., a Delaware corporation, whose address is Arsenal on the Charles, One Kingsbury Avenue, Watertown, MA 02472 (“Borrower”) provides the terms on which Lenders shall extend credit to Borrower and Borrower shall repay Lenders. The parties agree as follows:

 

1    ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. The term “financial statements” includes the notes and schedules attached hereto. The terms “including” and “includes” always mean “including (or includes) without limitation,” in this or any Loan Document. Capitalized terms in this Agreement shall have the meanings set forth in Article 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code, to the extent such terms are defined therein.

 

2    LOAN AND TERMS OF PAYMENT

 

2.1    Promise to Pay.

 

Borrower hereby unconditionally promises to pay Lenders the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions as and when due in accordance with this Agreement.

 

2.1.1    Term Loan Facility.

 

(a)    Availability.    Subject to the terms and conditions of this Agreement, Lenders agree, severally and not jointly, to lend to Borrower from time to time prior to the Commitment Termination Date, advances (each an “Advance” and collectively the “Advances”) in an aggregate amount not to exceed the Term Loan, according to each Lender’s pro rata share of the Term Loan (based upon the respective Commitment Percentage of each Lender). When repaid, the Advances may not be re-borrowed. Lenders’ obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the Commitment Termination Date. For purposes of this Section, the minimum amount of each Advance is One Million Dollars ($1,000,000.00).

 

(b)    Borrowing Procedure.    To obtain an Advance, Borrower must notify Agent by facsimile or telephone by 12:00 noon Eastern time five (5) Business Days prior to the date the Advance is to be made. If such notification is by telephone, Borrower must promptly confirm the notification by delivering to Agent a completed Payment/Advance Form in the form attached as Exhibit B (the Payment/Advance Form). On the Funding Date, each Lender shall credit and/or transfer (as applicable) to Borrower’s deposit account, an amount equal to its Commitment Percentage multiplied by the amount of the Advance. Each Lender may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee. Each Lender may rely on any telephone notice given by a person whom such Lender reasonably believes is a Responsible Officer or designee.

 

 

2.2    Termination of Commitment to Lend.

 

Each Lender’s obligation to lend the undisbursed portion of the Obligations shall terminate if, in such Lender’s sole discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations.

 

2.3    Interest Rate, Payments.

 

(a)    Principal and Interest Payments On Payment Dates.    For each Advance, Borrower shall make consecutive equal monthly payments of principal and interest, calculated by Agent based upon: (1) the amount of the Advance, (2) the interest rate set forth in Section 2.3(b) below, and (3) an amortization schedule equal to the Repayment Period (individually, the “Scheduled Payment”, and collectively, “Scheduled Payments”), on the first Business Day of the month following the month in which the Funding Date occurs (or commencing on the Funding Date if the Funding Date is the first Business Day of the month) with respect to such Advance and continuing thereafter during the Repayment Period on the first Business Day of each successive calendar month (each a “Payment Date”). All unpaid principal and accrued interest is due and payable in full on the last Payment Date with respect to such Advance. Payments received after 2:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. An Advance may only be prepaid in accordance with Sections 2.3(d) and 2.3(e).

 

(b)    Interest Rate.    Borrower shall pay interest on each Payment Date on the unpaid principal amount of each Advance until the Advance has been paid in full. Interest shall accrue at the fixed per annum rate equal to the aggregate of the Prime Rate and two and one-half of one percent (2.50%) determined by Agent as of the Funding Date for each Advance. Interest is computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to the applicable interest rate plus four percent (4%) (the “Default Rate”).

 

(c)    Final Payment.    On the Maturity Date with respect to each Advance, Borrower shall pay, in addition to the unpaid principal and accrued interest and all other amounts due on such date with respect to such Advance, an amount equal to the Final Payment.

 

(d)    Mandatory Prepayment Upon an Acceleration.    If the Advances are accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to Lenders an amount equal to the sum of: (i) all outstanding principal plus accrued interest, (ii) the Final Payment plus (iii) all other sums, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

(e)    Permitted Prepayment of Loans.    Borrower shall have the option to prepay all, but not less than all, of the Advances advanced by Lenders under this Agreement, provided Borrower (i) provides written notice to Agent of its election to prepay the Advances at least five (5) days prior to such prepayment, and (ii) pays, on the date of such prepayment: (i) all outstanding principal plus accrued interest, (ii) the Final Payment plus (iii) all other sums, including the Prepayment Fee, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

(f)    Debit of Accounts.    Agent may debit any of Borrower’s deposit or operating accounts including Account Number                                     , but excluding deposit accounts exclusively used for payroll, payroll taxes and other employee wages and benefit payments, for principal and interest payments when due or any amounts Borrower owes Lenders, when due. Agent shall promptly notify Borrower after it debits Borrower’s accounts. These debits shall not constitute a set-off.

 

2.4    Fees.

 

Borrower shall pay to Agent:

 

(a)    Final Payment.    The Final Payment, when due hereunder;

 

(b)    Prepayment Fee.    The Prepayment Fee, as defined herein, if and when applicable; and

 

 

(c)    Lenders’ Expenses.    All Lenders’ Expenses (including reasonable attorneys’ fees and expenses) incurred through and after the Closing Date, when due.

 

2.5    Additional Costs.    If any new law or regulation increases any Lender’s costs or reduces its income for any loan, Borrower shall pay the increase in cost or reduction in income or additional expense; provided, however, that Borrower shall not be liable for any amount attributable to any period before 180 days prior to the date Agent notifies Borrower of such increased costs. Each Lender agrees that it shall allocate any increased costs among its customers similarly affected in good faith and in a manner consistent with such Lender’s customary practice.

 

3    CONDITIONS OF LOANS

 

3.1    Conditions Precedent to Initial Credit Extension.

 

The Lenders’ obligation to make the initial Credit Extension is subject to the condition precedent that Agent shall have received, in form and substance satisfactory to Agent, such documents and completion of such other matters, as Agent may reasonably deem necessary or appropriate, including, without limitation, the following:

 

(a)   this Agreement;

 

(b)   a certificate of the Secretary of Borrower with respect to articles, by-laws, incumbency and resolutions authorizing the execution and delivery of this Agreement, the Loan Documents, and all transactions related thereto, including the Warrant;

 

(c)   intentionally deleted;

 

(d)   Perfection Certificate by Borrower;

 

(e)   a legal opinion of Borrower’s counsel (authority and enforceability);

 

(f)    Warrants to Purchase Stock;

 

(g)   Account Control Agreement/Investment Account Control Agreements (SVB and other financial institutions);

 

(h)   VCOC Letter Agreement;

 

(i)    Right to Invest Letter Agreement;

 

(j)    insurance certificate;

 

(k)   payment of the fees and Lenders Expenses then due;

 

(l)    Certificate of Foreign Qualification (if applicable);

 

(m)  Certificate of Good Standing/Legal Existence; and

 

(n)   such other documents, and completion of such other matters, as Agent may reasonably deem necessary or appropriate.

 

 

3.2    Conditions Precedent to all Credit Extensions.

 

The obligations of Lenders to make each Credit Extension, including the initial Credit Extension, is subject to the following:

 

(a)   timely receipt of any Payment/Advance Form; and

 

(b)   the representations and warranties in Article 5 shall be true in all material respects on the date of the Payment/Advance Form and on the effective date of each Credit Extension (except to the extent such representations and warranties relate to a specific date) and no Event of Default shall have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Article 5 remain true in all material respects (except to the extent such representations and warranties relate to a specific date).

 

4    CREATION OF SECURITY INTEREST

 

4.1    Grant of Security Interest.    Borrower hereby grants Agent, for the ratable benefit of the Lenders, and to each Lender, to secure the payment and performance in full of all of the Obligations and the performance of each of Borrower’s duties under the Loan Documents, a continuing security interest in, and pledges to Agent, for the ratable benefit of the Lenders, and to each Lender, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Subject to Section 5.2, Borrower warrants and represents that the security interest granted herein shall be a first priority security interest in the Collateral. The Collateral may be subject to Permitted Liens.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by, any material license (other than over the counter software that is commercially available to the public) or other material agreement with respect to which Borrower is the licensee that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property. Borrower shall provide written notice to Agent within ten (10) days after entering or becoming bound by, any such license or agreement which is reasonably likely to have a material impact on Borrower’s business or financial condition. Borrower shall take such steps as Agent reasonably requests to obtain the consent of, authorization by or waiver by, any person whose consent or waiver is necessary for all such licenses or contract rights to be deemed “Collateral” and for Lenders to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement, whether now existing or entered into in the future. Notwithstanding the foregoing, the terms of the preceding sentence shall not apply to, and the Collateral shall not include, license agreements solely for the use of intellectual property of a third party, with respect to which license Borrower is the licensee.

 

If Borrower shall, at any time, acquire a commercial tort claim, Borrower shall promptly notify Agent in a writing signed by Borrower of the brief details thereof and grant to Agent and Lenders in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Agent.

 

4.2    Termination by Borrower.

 

Borrower may terminate this agreement by sending written notice to Agent and paying in full all Obligations. If this Agreement is terminated, Lenders’ and Agent’s lien and security interest in the Collateral shall continue until Borrower fully satisfies the Obligations.

 

4.3    Authorization to File Financing Statements.

 

Borrower hereby authorizes Agent to file UCC financing statements, without notice to Borrower, with all appropriate jurisdictions, in order to perfect or protect Agent’s and Lenders’ interest or rights hereunder, including a notice that any disposition of the Collateral by either Borrower or any other Person, shall be deemed to violate the rights of the Lenders under the Code.

 

 

5    REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants to Agent and each Lender as follows:

 

5.1    Due Organization and Authorization.

 

Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so would not reasonably be expected to have a material adverse effect on Borrower’s business or operations. In connection with this Agreement, Borrower delivered to Agent and Lenders a perfection certificate signed by Borrower and entitled “Perfection Certificate”. Borrower represents and warrants to Agent and each Lender that: (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; and (b) Borrower is an organization of the type, and is organized in the jurisdiction, set forth in the Perfection Certificate; and (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; and (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address if different, and (e) all other information set forth on the Perfection Certificate pertaining to Borrower is accurate and complete in all material respects. If Borrower does not now have an organizational identification number, but later obtains one, Borrower shall forthwith notify Agent of such organizational identification number.

 

The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s organizational documents, nor shall they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default would reasonably be expected to have a material adverse effect on Borrower’s business or operations.

 

5.2    Collateral.

 

Borrower has good title to the Collateral, free of Liens except Permitted Liens. Borrower has no deposit account, other than the deposit accounts with Lenders and deposit accounts described in the Perfection Certificate delivered to Agent and Lenders in connection herewith. The Collateral is not in the possession of any third party bailee (such as a warehouse). Except as hereafter disclosed to the Lenders in writing by Borrower, none of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate. In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee other than as set forth in the Perfection Certificate, then Borrower will first receive the written consent of Lenders and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Agent and Lenders. All Inventory is in all material respects of good and marketable quality, free from material defects.

 

5.3    Litigation.

 

Except as shown in the Perfection Certificate, there are no actions or proceedings pending or, to the knowledge of Borrower’s Responsible Officers, threatened against Borrower or any Subsidiary in which an adverse decision would reasonably be expected to have a material adverse effect on Borrower’s business or operations.

 

5.4    No Material Deterioration in Financial Statements.

 

All consolidated financial statements for Borrower, and any Subsidiary, delivered to Agent, fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations, subject to year-end adjustments and absence of footnotes There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Agent.

 

 

5.5    Solvency.

 

The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is able to pay its debts (including trade debts) as they mature.

 

5.6    Regulatory Compliance.

 

Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which would reasonably be expected to have a material adverse effect on Borrower’s business or operations. None of Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than in compliance in all material respects with applicable law.

 

Borrower and each Subsidiary has timely filed all required tax returns (or extensions thereof) and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to obtain or make such consents, declarations, notices or filings would not reasonably be expected to have a material adverse effect on Borrower’s business or operations.

 

5.7    Subsidiaries.

 

Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments and the following wholly-owned subsidiaries: (i) A123 Securities Corporation, (ii) T/J Technologies, Inc., (iii) A123China Chang Zhou, (iv) A123China Zhenjiang, and (v) A123 Materials Company (collectively, the “Wholly-Owned Subs”).

 

5.8    Full Disclosure.

 

No written representation, warranty or other statement of Borrower in any certificate or written statement given to Agent or any Lender (taken together with all such written certificates and written statements given to Agent or any Lender) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading, it being recognized by Agent that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results.

 

6    AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1    Government Compliance.

 

Borrower shall maintain its and all Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which would reasonably be expected to have a material adverse effect on Borrower’s business.

 

 

6.2    Financial Statements, Reports, Certificates.

 

(a)   Borrower shall deliver to Agent: (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations during the period certified by a Responsible Officer and in a form acceptable to Agent; (ii) as soon as available, but no later than two hundred ten (210) days after the last day of Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Agent; (iii) in the event that Borrower’s stock becomes publicly held, within five (5) days of filing, Borrower shall provide to Agent copies of or electronic notice of links to all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (iv) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that would reasonably be expected to result in damages or costs to Borrower or any Subsidiary of Two Hundred Fifty Thousand Dollars ($250,000.00) or more; (v) Board projections, annually and within thirty (30) days of Board approval; and (vi)other financial information reasonably requested by Agent.

 

(b)   Within thirty (30) days after the last day of each month, Borrower shall deliver to Agent with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in the form of Exhibit C.

 

6.3    Inventory; Returns.

 

Borrower shall keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors shall follow Borrower’s customary practices as they exist at the Closing Date. Borrower must promptly notify Agent of all returns, recoveries, disputes and claims, that involve more than Fifty Thousand Dollars ($50,000.00).

 

6.4    Taxes.

 

Borrower shall make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments (other than taxes and assessments which Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP) and will deliver to Agent, on demand, appropriate certificates attesting to such payments.

 

6.5    Insurance.

 

Borrower shall keep its business and the Collateral insured for risks and in amounts, and as Lenders and Agent may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Lenders and Agent in Lenders’ and Agent’s reasonable discretion. All property policies shall have a lender’s loss payable endorsement showing each Lender as an additional loss payee and all liability policies shall show the Lenders and Agent as an additional insured and all policies shall provide that the insurer must give Agent on behalf of Lenders at least twenty (20) days notice before canceling its policy. At Agent’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Agent’s option, be payable to Agent on behalf of Lenders on account of the Obligations. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to One Hundred Thousand Dollars ($100,000.00), in the aggregate, toward the replacement or repair of destroyed or damaged property; provided that (i) any such replaced or repaired property (a) shall be of equal or like value as the replaced or repaired Collateral and (b) shall be deemed Collateral in which Lenders have been granted a first priority security interest and (ii) after the occurrence and during the continuation of an Event of Default all proceeds payable under such casualty policy shall, at the option of Agent, be payable to Agent, for the ratable benefit of the Lenders, on account of the Obligations. If Borrower fails to obtain insurance as required under Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and

 

 

Agent, Agent may make all or part of such payment or obtain such insurance policies required in Section 6.5, and take any action under the policies Agent deems prudent.

 

6.6    Accounts

 

(a)   In order to permit Agent to monitor Borrower’s financial performance and condition, Borrower, shall maintain its depository and operating accounts with Agent and a majority of Borrower’s cash or securities in excess of that amount used for Borrower’s operations shall be maintained or administered through Agent. In addition to the foregoing, as of the Effective Date and at all times thereafter, Borrower shall maintain a minimum balance, maintained or administered through Agent, of the lesser of: (i) Five Million Dollars ($5,000,000.00) in unrestricted cash or securities, or (ii) an amount equal to at least ninety-five percent (95.0%) of the dollar value of the Borrower’s and its Affiliates’, in the aggregate, cash or securities (excluding cash or securities required to be maintained outside of the United States, in the ordinary course of business).

 

(b)   Borrower shall identify to Agent, in writing, any bank or securities account opened by Borrower with any institution other than Agent. In addition, for each such account that Borrower at any time opens or maintains, Borrower shall, at Agent’s request and option, pursuant to an agreement in form and substance reasonably acceptable to the Lenders and Agent, cause the depository bank or securities intermediary to agree that such account is the collateral of Agent, and enter into a “control agreement” on behalf of Lenders pursuant to the terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees.

 

6.7    Further Assurances.

 

Borrower shall execute any further instruments and take further action as Agent reasonably requests to perfect or continue Agent’s and Lenders’ security interest in the Collateral or to effect the purposes of this Agreement.

 

7    NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Agent’s prior written consent:

 

7.1    Dispositions.

 

Convey, sell, lease, transfer, assign or otherwise dispose of (collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, including the intellectual property, except for Transfers of (a) Inventory in the ordinary course of business; (b) licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (c) worn-out or obsolete Equipment. Borrower shall not enter into an agreement with any Person other than the Lenders which restricts the subsequent granting to Agent or Lenders of a security interest in the Intellectual Property.

 

7.2    Changes in Business, Ownership, Management or Locations of Collateral.

 

Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto, or have a material change in its ownership such that the holders of at least 50% of the voting securities of Borrower prior to any transaction or series of transactions do not continue to hold at least 50% of such securities (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as Borrower identifies to Agent the venture capital investors prior to the closing of the investment), or have change in management such that either: (A) any one (1) out of the three (3) Key Persons resigns, is terminated, or is no longer actively involved in the management of the Borrower in his/her current position and a replacement reasonably satisfactory to Agent for such Key Person is not made within one hundred twenty (120) days after departure from Borrower, or (B) any two (2) out of the three (3) Key Persons resign, are terminated, or are no longer actively involved in the management of the Borrower in their current positions. Borrower shall not, without at least thirty (30) days prior written notice to Agent: (a) relocate its chief

 

 

executive office, or add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Twenty-Five Thousand Dollars ($25,000.00) in Borrower’s assets or property), or (b) change its jurisdiction of organization, or (c) change its organizational structure or type, or (d) change its legal name, or (e) change any organizational number (if any) assigned by its jurisdiction of organization.

 

7.3    Mergers or Acquisitions.

 

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (a) such transactions would result in a decrease of no more than twenty-five percent (25.0%) of Tangible Net Worth; and (b) no Event of Default has occurred and is continuing or would exist after giving effect to the transactions; and (c) no Indebtedness (other than trade payables and current operating expenses incurred in the ordinary course of business) shall be assumed by Borrower in connection with such transactions; and (d) Borrower is the surviving legal entity. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

7.4    Indebtedness.

 

Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

 

7.5    Encumbrance.

 

Create, incur, or allow any Lien on any of its property, including the Intellectual Property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein. The Collateral may also be subject to Permitted Liens.

 

7.6    Distributions; Investments.

 

(a)   Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends (except those payable in common stock) or make any distribution or payment on or redeem, retire or purchase any capital stock, provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of Two Hundred Thousand Dollars ($200,000.00) per fiscal year.

 

7.7    Transactions with Affiliates.

 

Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

 

7.8    Subordinated Debt.

 

Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt, without Agent’s prior written consent.

 

 

7.9    Compliance.

 

Become an “investment company” or a company controlled by an “investment company,” under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, or permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation would reasonably be expected to have a material adverse effect on Borrower’s business or operations or permit any of its Subsidiaries to do so.

 

8    EVENTS OF DEFAULT

 

Any one of the following shall constitute an Event of Default:

 

8.1    Payment Default.

 

Borrower fails to pay any of the Obligations within three (3) Business Days after their due date. During such three (3) Business Day period the failure to cure the default shall not constitute an Event of Default (but no Credit Extension shall be made during such cure period).

 

8.2    Covenant Default.

 

(a)   If Borrower fails to perform any obligation under Sections 6.2, or 6.6, or violates any of the covenants contained in Article 7 of this Agreement, or

 

(b)   If Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, or any of the Loan Documents, and as to any default under such other material term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be made during such cure period). Grace periods provided under this section shall not apply, among, other things, to any covenants that are required to be satisfied, completed or tested by a date certain.

 

8.3    Intentionally Deleted.

 

8.4    Attachment.

 

(a)   Any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (b) the service of process upon Borrower seeking to attach, by trustee or similar process, any funds of Borrower on deposit with the Lenders and/or Agent, or any entity under control of Lenders and/or Agent (including a subsidiary); (c) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim becomes a Lien on a material portion of Borrower’s assets in an amount in excess of Two Hundred Thousand Dollars ($200,000.00); or (e) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within ten (10) days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions shall be made during the cure period).

 

 

8.5    Insolvency.

 

(a)   Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45)days (but no Credit Extensions shall be made before any Insolvency Proceeding is dismissed).

 

8.6    Other Agreements.

 

If there is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000.00).

 

8.7    Judgments.

 

If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000.00) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment).

 

8.8    Misrepresentations.

 

If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Agent and/or Lenders or to induce Agent and/or Lenders to enter this Agreement or any Loan Document.

 

8.9    Subordinated Debt.

 

A default or breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination agreement with Lenders or any creditor that has signed a subordination agreement with Lenders breaches any terms of the subordination agreement.

 

8.10    Lien Priority

 

There is an impairment in the priority of Lenders’ security interest in the Collateral.

 

8.11    SVB Loan Agreement.

 

An Event of Default (as such term is defined in the SVB Loan Agreement) occurs under the SVB Loan Agreement.

 

9    RIGHTS AND REMEDIES

 

9.1    Rights and Remedies.

 

When an Event of Default occurs and continues Agent may, without notice or demand, do any or all of the following:

 

(a)   Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Agent and/or Lenders);

 

 

(b)   Stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Agent and/or Lenders;

 

(c)   Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Agent considers advisable, and notify any Person owing Borrower money of Agent’s, and Lenders’ security interest in such funds and verify and/or collect the amounts owed by such account debtor. After the occurrence of an Event of Default, any amounts received by Borrower shall be held in trust by Borrower for Agent, and, if requested by Agent, Borrower shall immediately deliver such receipts to Agent in the form received from the account debtor, with proper endorsements for deposit;

 

(d)   Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower shall assemble the Collateral if Agent requests and make it available as Agent designates and which is reasonably convenient to Lenders and Borrower. Subject to the rights of third parties, to the extent such third parties’ rights are senior to Lenders, may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Subject to the rights of third parties, to the extent such third parties’ rights are senior to Lenders, Borrower grants Agent for the benefit of Lenders a license to enter and occupy any of its premises, without charge, to exercise any of Agent’s rights or remedies;

 

(e)   Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Agent or Lenders owing to or for the credit or the account of Borrower;

 

(f)    Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Agent is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, Mask Works, rights of use of any name, trade secrets, trade names, Trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Agent’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Agent for benefit of Lenders;

 

(g)   Deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any control agreement or similar agreements providing control of any Collateral; and

 

(h)   Exercise all rights and remedies and dispose of the Collateral according to the Code.

 

9.2    Power of Attorney.

 

Borrower hereby irrevocably appoints Agent as its lawful attorney-in-fact, to be effective upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against account debtors; (c) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Agent determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; and (e) transfer the Collateral into the name of Agent for the benefit of Lenders or a third party as the Code permits. Borrower hereby appoints Agent as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Agent and Lenders are under no further obligation to make Credit Extensions hereunder. Agent’s foregoing appointment as Borrower’s attorney in fact, and all of Agent’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Lenders’ and Agent’s obligation to provide Credit Extensions terminates.

 

 

9.3    Lenders’ Expenses

 

Any amounts paid by Lenders as provided herein shall constitute Lenders’ Expenses and are immediately due and payable, and shall bear interest at the then applicable rate hereunder and be secured by the Collateral. No payments by Lenders shall be deemed an agreement to make similar payments in the future or Agent’s and Lenders’ waiver of any Event of Default.

 

9.4    Agent’s and Lenders’ Liability for Collateral.

 

So long as Agent and Lenders comply with reasonable banking practices regarding the safekeeping of Collateral and Section 9-207 of the Code, Agent and Lenders shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

 

9.5    Remedies Cumulative.

 

Agent’s rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative. Agent has all rights and remedies provided under the Code, by law, or in equity. Agent’s exercise of one right or remedy is not an election, and Agent’s waiver of any Event of Default is not a continuing waiver. Agent’s delay is not a waiver, election, or acquiescence. No waiver hereunder shall be effective unless signed by Agent and each Lender and then is only effective for the specific instance and purpose for which it was given.

 

9.6    Demand Waiver.

 

Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Agent on which Borrower is liable.

 

10    NOTICES

 

All notices or demands by any party to this Agreement or any related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by facsimile at the addresses listed below. Either Lender, Agent or Borrower may change its notice address by giving the other party written notice.

 

	
If   to Borrower:
    	
 
    	
A123   Systems, Inc.

Arsenal   on the Charles, One Kingsbury Avenue

Watertown,   Massachusetts 02472

Attn:   Chief Financial Officer

Fax:   (617) 778-5749
    
	
 
    	
 
    	
 
    
	
With   a copy to:
    	
 
    	
Wilmer   Cutler Pickering Hale and Dorr LLP

1100   Winter Street, Suite 4650

Waltham,   MA 02451

Attn:   John H. Chory, Esq.

Fax:   (781) 966-2100
    
	
 
    	
 
    	
 
    
	
If   to Agent: 

or   SVB:
    	
 
    	
Silicon   Valley Bank

One   Newton Executive Park, Suite 200

2221   Washington Street

Newton,   Massachusetts 02462

Attn:   Mr. David Rodriquez

Fax:   (617) 969-5478
    

 

 

	
with   a copy to:
    	
 
    	
Riemer &   Braunstein LLP

3   Center Plaza

Boston,   Massachusetts 02108

Attn:   David A. Ephraim, Esquire

Fax:   (617) 880-3456
    
	
 
    	
 
    	
 
    
	
If   to Gold Hill:
    	
 
    	
Gold   Hill Venture Lending 03, L.P.

One   Newton Executive Park, Suite 100

2221   Washington Street

Newton,   Massachusetts 02462

Attn:   Mr. David Fischer

Fax:   (617) 527-0505
    

 

11    CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER

 

Massachusetts law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Lenders, and Agent each submit to the exclusive jurisdiction of the State and Federal courts in Massachusetts; provided however, that if for any reason Lenders cannot avail themselves of such courts in the Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, AGENT SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH AGENT DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE LENDERS’ OR AGENT’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.

 

BORROWER, AGENT, AND LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12    GENERAL PROVISIONS

 

12.1    Successors and Assigns.

 

This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or Obligations under it without Agent’s prior written consent which may be granted or withheld in Agent’s discretion. Lenders and Agent have the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Lenders’ obligations, rights and benefits under this Agreement, the Loan Documents or any related agreement, including, without limitation, an assignment to any Affiliate or any related party.

 

12.2    Indemnification.

 

Borrower hereby indemnifies, defends and holds Agent and the Lenders and their respective directors, officers, employees, and agents harmless against: (a) all obligations, demands, claims, and liabilities asserted by any other party or Person in connection with the transactions contemplated by the Loan Documents; and (b) all losses, or Lenders’ Expenses incurred, or paid by Lenders and/or Agent from, following, or consequential to transactions between Lenders and Borrower (including reasonable attorneys’ fees and expenses), except for losses caused by Lenders’ or Agent’s gross negligence or willful misconduct.

 

 

12.3    Right of Set Off.

 

Borrower hereby grants to Agent for the ratable benefit of Lenders, and to each Lender, a lien, security interest and right of set off as security for all Obligations to Agent and each Lender, hereunder, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Agent or any entity under the control of Agent (including an Agent subsidiary) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Agent or Lenders, as appropriate, may set-off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.4    Time of Essence.

 

Time is of the essence for the performance of all Obligations in this Agreement.

 

12.5    Severability of Provision.

 

Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

 

12.6    Amendments in Writing, Integration.

 

All amendments to this Agreement must be in writing signed by Agent, Lenders and Borrower. This Agreement and the Loan Documents represent the entire agreement about this subject matter, and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.

 

12.7    Counterparts.

 

This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.

 

12.8    Survival.

 

All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms, and all Obligations have been satisfied. The obligation of Borrower in Section 12.2 to indemnify each Lender and Agent shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

 

12.9    Confidentiality.

 

In handling any confidential information, Lenders and Agent shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Lenders’ and Agent’s subsidiaries or affiliates in connection with their business with Borrower (provided, however, Lenders and Agent use commercially reasonable efforts in obtaining their subsidiaries’ and affiliates’ agreement to the terms of this provision); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided,

 

 

however, Lenders and Agent shall use commercially reasonable efforts in obtaining such prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) as required in connection with Lenders’ and Agent’s examination or audit; and (e) as Agent considers appropriate in exercising remedies under this Agreement. The obligations of Lender and Agent under this Section 12.9 shall not apply to information that either: (i) is in the public domain or in Lenders’ and/or Agent’s possession when disclosed to Lenders and/or Agent, or becomes part of the public domain after disclosure to Lenders and/or Agent through no fault of Lender or Agent; or (ii) is disclosed to Lenders and/or Agent by a third party, if Lenders and/or Agent does not know that the third party is prohibited from disclosing the information.

 

13    DEFINITIONS

 

13.1    Definitions.

 

In this Agreement:

 

“Accounts” are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing, as such definition may be amended from time to time according to the Code.

 

“Advance” or “Advances” is defined in Section 2.1.1(a).

 

“Affiliate” is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

 

“Agent” means, SVB, not in its individual capacity, but solely in its capacity as agent on behalf of and for the benefit of the Lenders.

 

“Board” means Borrower’s board of directors.

 

“Borrower’s Books” are all Borrower’s books and records including ledgers, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition and all computer programs or storage or any equipment containing the information.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Agent is closed.

 

“Closing Date” is the date of this Agreement.

 

“Code” is the Uniform Commercial Code as adopted in Massachusetts as amended and in effect from time to time.

 

“Collateral” is any and all properties, rights and assets of Borrower or the power to transfer rights, in the property described on Exhibit A.

 

“Commitment Percentage” is set forth in Schedule 1.1, as amended from time to time.

 

“Commitment Termination Date” is the earlier of                        , 2007 [date which is 364 days from the Closing Date] and the written termination of this Agreement by Borrower.

 

 

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

 

“Copyrights” are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work, whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held.

 

“Credit Extension” is each Advance, or any other extension of credit by Lenders for Borrower’s benefit.

 

“Equipment” is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

 

“Final Payment” is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the Maturity Date for such Advance equal to the Loan Amount for such Advance multiplied by the Final Payment Percentage.

 

“Final Payment Percentage” is, for each Advance, three percent (3.0%).

 

“Funding Date” is any date on which an Advance is made to or on account of Borrower.

 

“GAAP” is generally accepted accounting principles in the United States.

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual Property”: is any Copyrights, Copyright rights, Copyright applications, Copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, now owned or later acquired; any Patents, Trademarks, service marks and applications therefor; any trade secret rights, including any rights to unpatented inventions, now owned or hereafter acquired.

 

“Inventory” is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or

 

 

possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title.

 

“Investment” is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

 

“Key Person” means, Chief Executive Officer, Chief Financial Officer, and Chief Technical Officer.

 

“Lender” is any one of the Lenders.

 

“Lenders” shall mean the Persons identified on Schedule 1.1 hereto and each assignee that becomes a party to this Agreement pursuant to Section 12.1.

 

“Lenders’ Expenses” are all audit fees and expenses and reasonable costs or expenses (including reasonable attorneys’ fees and expenses) of Agent and Lenders for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings).

 

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

 

“Loan Amount” in respect to each Advance is the original principal amount of such Advance.

 

“Loan Documents” are, collectively, this Agreement, any guaranties executed by any guarantor, and any other present or future agreement between Borrower and/or for the benefit of Lenders and Agent in connection with this Agreement, all as amended, extended or restated, other than agreements executed solely in connection with the issuance of any equity securities of Borrower to the Lenders.

 

“Mask Works” are all mask works or similar rights available for the protection of semiconductor chips, now owned or later acquired.

 

“Maturity Date” is with respect to each Advance, the last day of the Repayment Period for each such Advance, or if earlier, the date of prepayment or acceleration of such Advance by Agent following an Event of Default.

 

“Obligations” are liabilities, obligations, covenants, agreements, debts, principal, interest, Final Payment, Prepayment Fee, Lenders’ Expenses, and other amounts Borrower owes Lenders and/or Agent pursuant to this Agreement now or later, other than any obligations of Borrower solely pursuant to equity documents between Borrower and Lenders, including interest accruing after Insolvency Proceedings begin.

 

“Patents” are patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

“Payment Date” is defined in Section 2.3(a).

 

“Permitted Indebtedness” is:

 

(a)   Borrower’s indebtedness to Lenders and Agent under this Agreement or the Loan Documents;

 

(b)   Indebtedness existing on the Closing Date and shown on the Perfection Certificate;

 

(c)   Subordinated Debt;

 

 

(d)   Indebtedness to trade creditors incurred in the ordinary course of business;

 

(e)   Indebtedness secured by Permitted Liens;

 

(f)    Unsecured Indebtedness owed by T/J Technologies, Inc. to United Bank and Trust- Washtenaw pursuant to a working capital line in an aggregate principal amount not to exceed Seven Hundred Fifty Thousand Dollars ($750,000.00);

 

(g)   Unsecured indebtedness in the amount of $1,300,000.00 owed to Black and Decker;

 

(h)   Reimburse obligations pursuant to letters of credit issued in favor of suppliers in connection with the purchase of equipment;

 

(i)    Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness listed in (a) through (h) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be; and

 

(j)    Advances from, or indebtedness to, the Chinese government in connection with the construction of additional factories in China.

 

“Permitted Investments” are:

 

(a)   Investments shown on the Perfection Certificate and existing on the Closing Date; and

 

(b)   (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any state maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., (iii) SVB’s certificates of deposit issued maturing no more than 1 year after issue, and (iv) any other investments administered through the Lenders;

 

(c)   Investments in Wholly-Owned Subsidiaries (provided that distributions or Investments from Borrower or any Subsidiary of Borrower in T/J Technologies, Inc. in excess of Three Hundred Thousand Dollars ($300,000.00) per year in the aggregate are prohibited without the consent of Agent) or other subsidiaries to fund current operating expenses and capital expenditures in the ordinary course of business or joint ventures that may be established from time to time;

 

(d)   Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors; and

 

(e)   advances in the amount of approximately One Million Three Hundred Thousand Dollars ($1,300,000.00) to Sumisho Metalex Corporation for the purchase of equipment located in China.

 

“Permitted Liens” are:

 

(a)   Liens existing on the Closing Date and shown on the Perfection Certificate or arising under this Agreement or other Loan Documents;

 

 

(b)   Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Agent’s security interests;

 

(c)   Purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000.00) in the aggregate amount outstanding, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment;

 

(d)   Liens described on Perfection Certificate;

 

(e)   Carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, or other like liens arising in the ordinary course of business which are not overdue for a period of more than thirty (30) days or which are being contested in good faith by appropriate proceedings if they have no priority over any of Lenders’ security interest;

 

(f)    Pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance of self-insurance arrangements;

 

(g)   Deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower;

 

(h)   Leases or subleases and non-exclusive licenses or sublicenses granted in the ordinary course of Borrower’s business, if the leases, subleases, licenses and sublicenses do not prohibit granting Agent a security interest; and

 

(i)    Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (h), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase.

 

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

 

“Prepayment Fee” shall be an amount equal to:

 

(i)  three percent (3.0%) of the principal portion of any Advance prepaid on or before one year from the date of this Agreement; and

 

(ii)  two percent (2.0%) of the principal portion of any Advance prepaid after one year, but on or before two years from the date of this Agreement; and

 

(iii)  one percent (1.0%) of the principal portion of any Advance prepaid after two years from the date of this Agreement, but prior to the applicable Maturity Date.

 

“Prime Rate” is SVB’s most recently announced “prime rate,” even if it is not Lenders’ lowest rate.

 

 

“Repayment Period” as to each Advance, is a period of time equal to thirty-six (36) consecutive months.

 

“Responsible Officer” is each of the Chief Executive Officer, President, Chief Financial Officer and the Controller of Borrower.

 

“Schedule” is any attached schedule of exceptions.

 

“Scheduled Payment” is defined in Section 2.3(a).

 

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s debt to Lenders (pursuant to a subordination agreement entered into between Agent, Borrower and the subordinated creditor), on terms acceptable to Agent and Lenders.

 

“Subsidiary” is any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person.

 

“SVB Loan Agreement” is that certain Loan and Security Agreement (Operating Line of Credit) as of even date herewith, as amended from time to time, by and between Borrower and SVB.

 

“Tangible Net Worth” is, on any date, the total assets of Borrower minus (a) any amounts attributable to (i) goodwill, (ii) intangible items including unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, (iii) notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total Liabilities, plus (c) Subordinated Debt.

 

“Term Loan” is an Advance or Advances of up to Three Million Dollars ($3,000,000.00).

 

“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current portion of Subordinated Debt permitted by Lenders to be paid by Borrower, but excluding all other Subordinated Debt.

 

[Remainder of Page Intentionally Left Blank]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed instrument as of the date first above written.

 

	
 
    	
BORROWER:
    
	
 
    	
 
    
	
 
    	
A123   SYSTEMS, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael Rubino 
    
	
 
    	
Name:
    	
Michael   Rubino
    
	
 
    	
Title:
    	
CFO,   VP Finance
    
	
 
    	
 
    	
 
    
	
 
    	
SILICON   VALLEY BANK, as Agent and as a LENDER
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Dave Rodriguez 
    
	
 
    	
Name:
    	
Dave   Rodriguez
    
	
 
    	
Title:
    	
Vice   President
    
	
 
    	
 
    	
 
    
	
 
    	
GOLD   HILL VENTURE LENDING 03, L.P., as LENDER
    
	
 
    	
 
    
	
 
    	
By:   GOLD HILL VENTURE LENDING PARTNERS 03, LLC, its General Partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   David Fischer 
    
	
 
    	
Name:
    	
David   Fischer
    
	
 
    	
Title:
    	
Manager
    

 

 

Schedule 1.1

 

LENDERS AND COMMITMENTS

 

	
Lender
    	
 
    	
Commitment
    	
 
    	
Commitment Percentage
    	
 
    
	
Silicon Valley Bank
    	
 
    	
$
    	
1,250,000.00
    	
 
    	
41.66
    	
%
    
	
Gold Hill Venture Lending 03, L.P. 
    	
 
    	
$
    	
1,750,000.00
    	
 
    	
58.34
    	
%
    
	
TOTAL
    	
 
    	
$
    	
3,000,000.00
    	
 
    	
100.00
    	
%
    

 

 

EXHIBIT A

 

The Collateral consists of all right, title and interest of Borrower in and to the following:

 

All goods, equipment, inventory, contract rights or rights to payment of money, license agreements, franchise agreements, general intangibles (including payment intangibles), accounts (including health-care receivables), documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities, and all other investment property supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

 

All Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

 

The Collateral does not include:

 

(1)     Any Copyright rights, Copyright applications, Copyright registrations, Mask Works, and like protections in each work of authorship and derivative work, whether published or unpublished, now owned or later acquired; any Patents, Trademarks, service marks and applications therefor; any trade secret rights, including any rights to unpatented inventions, now owned or hereafter acquired. Notwithstanding the foregoing, the Collateral shall include all accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing;

 

(2)     All fixed assets of the Borrower owned as of December 31, 2005, including manufacturing equipment, fixtures, equipment, leasehold improvements, lab equipment of any type, office equipment, computer equipment and other fixed assets, including all proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located, and all products and proceeds of the foregoing including without limitation proceeds of insurance policies insuring the foregoing and all books and records respect thereto, other than fixed assets located at Borrower’s locations in China; and

 

(3)     Any equipment purchased for Sumisho Metalex Corporation located in China.

 

 

EXHIBIT B

 

Loan Payment/Advance Request Form
 Deadline for same day processing is 2:00 p.m. E.S.T.

	
 
    	
Fax   To:
    	
Date:
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
LOAN PAYMENT:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
SAMPLE DOCUMENTS CLIENT NAME   (BORROWER)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
From Account #
    	
 
    	
To   Account #
    
	
 
    	
(Deposit   Account #)
    	
 
    	
             (Loan   Account #)
    
	
 
    	
 
    	
 
    	
 
    
	
Principal $
    	
and/or   Interest $
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Authorized Signature:
    	
 
    	
 
    	
     Phone   Number:
    
	
 
    	
 
    	
 
    
	
LOAN ADVANCE:
    	
 
    	
 
    
	
Complete Outgoing Wire Request section below if all   or a portion of the funds from this loan advance are for an outgoing wire.
    
	
 
    	
 
    	
 
    
	
From Account #
    	
To Account #      
    	
 
    
	
 
    	
(Loan   Account #)
    	
 
    	
             (Deposit   Account #)
    
	
 
    	
 
    	
 
    
	
Amount   of Advance $
    	
 
    	
 
    
								

 

All Borrower’s representation and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone transfer request for an advance, but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date:

 

	
Authorized Signature:
    	
 
    	
 
    	
     Phone   Number:
    

 

 

OUTGOING WIRE REQUEST

Complete only if all or a portion of funds from the loan advance above are to be wired.

 

Deadline for same day processing is 12:00pm, P.S.T.

 

	
Beneficiary   Name:
    	
Amount   of Wire: $
    	
 
    
	
 
    	
 
    	
 
    
	
Beneficiary   Bank:
    	
Account   Number:
    	
 
    
	
 
    	
 
    	
 
    
	
City   and Sate:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Beneficiary   Bank Transit (ABA) #:
    	
 
    	
Beneficiary   Bank Code (Swift, Sort, Chip, etc.):
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(For International Wire Only)
    
	
 
    	
 
    	
 
    
	
Intermediary   Bank:
    	
Transit   (ABA) #:
    	
 
    
	
 
    	
 
    	
 
    
	
For   Further Credit to:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Special   Instruction:
    	
 
    	
 
    

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

 

	
Authorized   Signature:
    	
2nd Signature   (If Required):
    	
 
    
	
 
    	
 
    	
 
    
	
Print   Name/Title:
    	
Print   Name/Title:
    	
 
    
	
 
    	
 
    	
 
    
	
Telephone   #
    	
Telephone   #
    	
 
    

 

 

EXHIBIT C
 COMPLIANCE CERTIFICATE

 

	
TO:
    	
SILICON   VALLEY BANK, AS AGENT
    
	
FROM:
    	
A123   SYSTEMS, INC.
    

 

The undersigned authorized officer of A123 Systems, Inc. certifies that under the terms and conditions of the Loan and Security Agreement between Borrower, Lenders, and Agent (the “Agreement”), (i) Borrower is in complete compliance for the period ending                          with all required covenants except as noted below and (ii) there are no Events of Default, and all representations and warranties in the Agreement are true and correct in all material respects on this date. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

	
 
    	
Reporting Covenant
    	
 
    	
Required
    	
 
    	
Complies
    	
 
    
	
 
    	
Monthly   financial statements with CC
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes
    	
 
    	
No
    	
 
    
	
 
    	
Annual   financial statements (CPA Audited)
    	
 
    	
FYE   within 210 days
    	
 
    	
Yes
    	
 
    	
No
    	
 
    
	
 
    	
10-Q,   10-K and 8-K
    	
 
    	
Within   5 days after filing with SEC
    	
 
    	
Yes
    	
 
    	
No
    	
 
    
	
 
    	
Projections
    	
 
    	
Annually,   w/i 30 days of Board approval
    	
 
    	
Yes
    	
 
    	
No
    	
 
    

 

	
 
    	
Comments   Regarding Exceptions: See Attached.
    	
 
    	
AGENT   USE ONLY
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
A123 Systems, Inc.
    	
 
    	
Received   by:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
AUTHORIZED SIGNER
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Sincerely,
    	
 
    	
Date:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Verified:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Signature
    	
 
    	
 
    	
AUTHORIZED SIGNER
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Date:
    	
 
    	
 
    
	
 
    	
Title
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Compliance   Status:           Yes    No
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Date
    	
 
    	
 
    	
 
    	
 
    

 

 

FIRST LOAN MODIFICATION AGREEMENT

 

This First Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of July 10, 2007 (the “Effective Date”), by and between SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 (“SVB”), as agent (the “Agent”), and the other Lenders that are now or hereafter become a “Lender” under the Loan Agreement (as hereinafter defined), including without limitation, SVB and GOLD HILL VENTURE LENDING 03, L.P. (“Gold Hill”) and A123 SYSTEMS, INC., a Delaware corporation with its chief executive office located at Arsenal on the Charles, One Kingsbury Avenue, Watertown, MA 02472 (“Borrower”).

 

1.    DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS.    Among other indebtedness and obligations which may be owing by Borrower to the Lenders, Borrower is indebted to the Lenders pursuant to a loan arrangement dated as of August 2, 2006, evidenced by, among other documents, a certain Term Loan and Security Agreement dated as of August 2, 2006, between Borrower and the Lenders (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.    DESCRIPTION OF COLLATERAL.    Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Agent, for the ratable benefit of the Lenders, the “Security Documents”).

 

Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.    DESCRIPTION OF CHANGE IN TERMS.

 

A     Modifications to Loan Agreement.

 

1.     The Loan Agreement shall be amended by inserting the following new Section 2.1.2 entitled “2007 Term Loan Facility” to appear immediately after Section 2.1.1:

 

“2.1.2 2007 Term Loan Facility.

 

(a)    Availability.    Subject to the terms and conditions herein, SVB shall lend to Borrower from time to time prior to the 2007 Commitment Termination Date, advances (each a “2007 Term Advance” and collectively the “2007 Term Advances”) in an aggregate amount not to exceed the 2007 Term Loan. When repaid, the 2007 Term Advances may not be re-borrowed. SVB’s obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the 2007 Commitment Termination Date. For purposes of this Section, the minimum amount of each 2007 Term Advance is Five Hundred Thousand Dollars ($500,000.00).

 

(b)    Borrowing Procedure.    To obtain a 2007 Term Advance, Borrower must notify SVB by facsimile or telephone by 12:00 noon Eastern time on the date the 2007 Term Advance is to be made. If such notification is by telephone, Borrower must promptly confirm the notification by delivering to SVB a completed Payment/Advance Form in the form attached as Exhibit B (the Payment/Advance Form). On the Funding Date for each 2007 Term Advance, SVB shall credit such 2007 Term Advance to one of Borrower’s deposit accounts. SVB may make 2007 Term Advances under this Agreement based on instructions from a Responsible Officer or his or her designee. SVB may rely on any telephone notice given by a person whom SVB reasonably believes is a Responsible Officer or designee.

 

 

(c)    Interest Payments.    Commencing on the first 2007 Payment Date of the month following the month in which the Funding Date occurs (or commencing on the Funding Date if the Funding Date is the first Business Day of the month), Borrower shall make monthly payments of interest on account of the 2007 Term Advances at the rate set forth in Section 2.1.2(e).

 

(d)    Repayment.    Commencing on the applicable Amortization Date, and continuing on the 2007 Payment Date of each month thereafter, for each 2007 Term Advance, Borrower shall make consecutive equal monthly payments of principal and interest, calculated by SVB based upon: (1) the amount of the 2007 Term Advance, (2) the interest rate set forth in Section 2.1.2(e) below, and (3) an amortization schedule equal to the Repayment Period. All unpaid principal and accrued interest is due and payable in full on the last 2007 Payment Date with respect to such 2007 Term Advance. Payments received after 2:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. A 2007 Term Advance may only be prepaid in accordance with Sections 2.1.2(f) and 2.1.2(g).

 

(e)    Interest Rate.    Borrower shall pay interest on each 2007 Payment Date on the unpaid principal amount of each 2007 Term Advance until such 2007 Term Advance has been paid in full. Interest shall accrue at the fixed per annum rate of interest equal to the aggregate of the Prime Rate and one and one-quarter of one percent (1.25%), which rate shall be fixed as of the Funding Date for each 2007 Term Advance; provided, however, on the first (1st) day of the month following the occurrence of an IPO Event, interest shall accrue at a fixed per annum rate equal to the Prime Rate, which rate shall be fixed as of the Funding Date for each 2007 Term Advance. Interest is computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to the applicable rate as set forth above plus the Default Rate.

 

(f)    Mandatory Prepayment of 2007 Term Advances Upon an Acceleration.    If the 2007 Term Advances are accelerated following the occurrence of an Event of Default or otherwise, Borrower shall immediately pay to SVB an amount equal to the sum of: (i) all outstanding principal plus accrued interest, (ii) the Prepayment Fee with regard to such 2007 Term Advance plus (iii) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

(g)    Permitted Prepayment of 2007 Term Advances.    Borrower shall have the option to prepay, at any time, all of the 2007 Term Advances advanced by SVB under this Agreement, provided Borrower (i) provides written notice to SVB of its election to prepay such 2007 Term Advance at least five (5) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued interest with regard to the 2007 Term Advances, (B) the Prepayment Fee, plus (C) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts with respect to such 2007 Term Advance.”

 

2.     The Loan Agreement shall be amended by deleting the following text appearing in Section 6.6 thereof, entitled “Accounts”:

 

“(a) In order to permit Agent to monitor Borrower’s financial performance and condition, Borrower, shall maintain its depository and operating accounts with Agent and a majority of Borrower’s cash or securities in excess of that amount used for Borrower’s operations shall be maintained or administered through Agent. In addition to the foregoing, as of the Effective Date and at all times thereafter, Borrower shall maintain a minimum balance, maintained or administered through Agent, of the lesser of: (i) Five Million Dollars ($5,000,000.00) in unrestricted cash or securities, or (ii) an amount equal to at least ninety-five percent (95.0%) of the dollar value of the Borrower’s and its Affiliates’, in the aggregate, cash or securities (excluding

 

 

cash or securities required to be maintained outside of the United States, in the ordinary course of business).”

 

and inserting in lieu thereof the following:

 

“(a) In order to permit Agent to monitor Borrower’s financial performance and condition, Borrower, shall maintain its depository and operating accounts with Agent and a majority of Borrower’s cash or securities in excess of that amount used for Borrower’s operations shall be maintained or administered through Agent. In addition to the foregoing, as of the Effective Date and at all times thereafter, Borrower shall maintain a minimum balance, maintained or administered through Agent, of the lesser of: (i) Five Million Dollars ($5,000,000.00) in unrestricted cash or securities, or (ii) an amount equal to at least ninety-five percent (95.0%) of the dollar value of the Borrower’s and its Affiliates’, in the aggregate, cash or securities (excluding cash or securities required to be maintained outside of the United States, in the ordinary course of business). Notwithstanding the foregoing, in the event that Borrower’s and its Affiliates’ aggregate cash or securities is less than Twenty Million Dollars ($20,000,000.00) at any time, Borrower shall maintain a minimum balance, maintained or administered through Agent, of the lesser of: (i) Ten Million Dollars ($10,000,000.00) in unrestricted cash or securities, or (ii) an amount equal to at least ninety-five percent (95.0%) of the dollar value of the Borrower’s and its Affiliates’, in the aggregate, cash or securities (excluding cash or securities required to be maintained outside of the United States, in the ordinary course of business).”

 

3.     The Loan Agreement shall be amended by inserting the following new Section 6.8 thereof to appear immediately after Section 6.7 thereof:

 

“6.8 Financial Covenants. Borrower shall maintain at all times, to be tested as of the last day of each month, unless otherwise noted:

 

(a)   Liquidity Ratio. Commencing with the month ending June 30, 2007, and as of the last day of each month thereafter, a Liquidity Ratio of at least 2.0 to 1.0.

 

(b)   Minimum Quarterly Revenue. Borrower shall maintain, to be tested as of the last day of each quarter, minimum quarterly revenue of at least (i) Eight Million Dollars ($8,000,000.00) as of and for the quarter ending June 30, 2007, (ii) Nine Million Dollars ($9,000,000.00) as of and for the quarter ending September 30, 2007, (iii) Seven Million Dollars ($7,000,000.00) as of and for the quarters ending December 31, 2007 and March 31, 2008, and (iv) with respect to the quarter ending June 30, 2008 and for each quarter in each fiscal year thereafter, an amount equal to the greater of Nine Million Dollars ($9,000,000.00) or sixty percent (60.0%) of the Board-approved plan for such fiscal quarter.”

 

4.     The Loan Agreement shall be amended by deleting the following text appearing in Section 8.2 thereof, entitled “Covenant Default”:

 

“(a) If Borrower fails to perform any obligation under Sections 6.2, or 6.6, or violates any of the covenants contained in Article 7 of this Agreement, or”

 

and inserting in lieu thereof the following:

 

“(a) If Borrower fails to perform any obligation under Sections 6.2, 6.6, or 6.8, or violates any of the covenants contained in Article 7 of this Agreement, or”

 

 

5.     The Loan Agreement shall be amended by deleting the following appearing as Section 8.3 thereof:

 

“ “8.3 Intentionally Deleted.”

 

and inserting in lieu thereof the following:

 

“8.3 Material Adverse Change.

 

A Material Adverse Change occurs.”

 

6.     The Loan Agreement shall be amended by deleting the following text appearing in Section 9.1 thereof, entitled “Rights and Remedies”:

 

“ When an Event of Default occurs and continues Agent may, without notice or demand, do any or all of the following:

 

(a)   Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Agent and/or Lenders);”

 

and inserting in lieu thereof the following:

 

“ When an Event of Default occurs and continues Agent may, without notice or demand, do any or all of the following:

 

(a)   Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Agent and/or Lenders). Notwithstanding the foregoing, if the only Event of Default that occurs is a result of Borrower’s violation of Section 6.8 or Section 8.3, then only those Obligations outstanding related to 2007 Term Advances shall become immediately due and payable upon such declaration by Agent;”

 

7.     The Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof:

 

“ “Credit Extension” is each Advance, or any other extension of credit by Lenders for Borrower’s benefit.”

 

“ “Funding Date” is any date on which an Advance is made to or on account of Borrower.”

 

“ “Prepayment Fee” shall be an amount equal to:

 

(i)    three percent (3.0%) of the principal portion of any Advance prepaid on or before one year from the date of this Agreement; and

 

(ii)   two percent (2.0%) of the principal portion of any Advance prepaid after one year, but on or before two years from the date of this Agreement; and

 

 

(iii)  one percent (1.0%) of the principal portion of any Advance prepaid after two years from the date of this Agreement, but prior to the applicable Maturity Date.”

 

“ “Repayment Period” as to each Advance, is a period of time equal to thirty-six (36) consecutive months.”

 

and inserting in lieu thereof the following:

 

“ “Credit Extension” is each Advance, 2007 Term Advance, or any other extension of credit by Lenders or SVB for Borrower’s benefit.”

 

“ “Funding Date” is any date on which a Credit Extension is made to or on account of Borrower.”

 

“ “Prepayment Fee” shall be as follows:

 

(a)   with respect to Advances:

 

(i)    three percent (3.0%) of the principal portion of any Advance prepaid on or before one year from the date of this Agreement; and

 

(ii)   two percent (2.0%) of the principal portion of any Advance prepaid after one year, but on or before two years from the date of this Agreement; and

 

(iii)  one percent (1.0%) of the principal portion of any Advance prepaid after two years from the date of this Agreement, but prior to the applicable Maturity Date.

 

(b)   with respect to 2007 Term Advances:

 

(i)    one percent (1.0%) of the outstanding principal amount of the 2007 Term Advances, if the prepayment occurs on or prior to December 31, 2008; and

 

(ii)   zero percent (0%) of the outstanding principal amount of the 2007 Term Advances, if the prepayment occurs after December 31, 2008.”

 

“ “Repayment Period” as to each Advance or 2007 Term Advance, is a period of time equal to thirty-six (36) consecutive months.”

 

8.     The Loan Agreement shall be amended by inserting the following definitions to appear alphabetically in Section 13.1 thereof:

 

“ “2007 Commitment Termination Date” is July 10, 2008.”

 

“ “2007 Payment Date” is the first Business Day of the month.”

 

“ “2007 Term Advance” or “2007 Term Advances” is defined in Section 2.1.2(a).”

 

“ “2007 Term Loan” is a 2007 Term Advance or 2007 Term Advances in an aggregate amount of up to Ten Million Dollars ($10,000,000.00).”

 

 

“ “Amortization Date” is for each 2007 Term Advance, the earlier to occur of (i) the first (1st) day of the month following the month which is ninety (90) days from the Funding Date with respect to such 2007 Term Advance, or (ii) the first (1st) day of the month following the month in which the 2007 Commitment Termination Date occurs.”

 

“ “IPO Event” occurs when Borrower consummates an initial public offering of its securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in proceeds to Borrower, net of underwriting discounts and commissions, of at least $50,000,000.00.”

 

“ “Liquidity Ratio” is a ratio of Borrower’s (a) Quick Assets, to (b) all Obligations (other than that portion of the Obligations due and owing to Gold Hill) plus all Obligations (as defined in the SVB Loan Agreement) in connection with the SVB Loan Agreement.”

 

“ “Material Adverse Change” is: (a) a material impairment in the perfection or priority of Lenders’ security interest in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Agent determines, based upon information available to it and in its reasonable judgment, that there is a substantial likelihood that Borrower shall fail to comply with one or more of the financial covenants in Article 6 during the next succeeding financial reporting period.”

 

“ “Quick Assets” is, on any date, Borrower’s unrestricted cash plus net billed accounts receivable determined according to GAAP.”

 

9.     Schedule 1.1 of the Loan Agreement is hereby replaced with the Schedule 1.1 attached as Exhibit A hereto.

 

10.   The Compliance Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit B hereto.

 

4.    ANNUAL AUDITED FINANCIAL STATEMENTS.    Notwithstanding the terms of the Loan Agreement to the contrary, Borrower must deliver to Bank its annual audited financial statements with respect to its fiscal year ended December 31, 2006 on or before September 30, 2007.

 

5.    FEES.    The Borrower shall pay to SVB fully earned, non-refundable modification fees of (i) Twenty Five Thousand Dollars ($25,000.00) on the Effective Date, and (ii) Twenty Five Thousand Dollars ($25,000.00) on the earlier to occur of: (a) the early termination of the Loan Agreement by Borrower; or (b) December 1, 2007, if at any of those times the aggregate amount of 2007 Term Advances made by SVB is less than Five Million Dollars ($5,000,000.00).

 

6.    RATIFICATION OF PERFECTION CERTIFICATE.    Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in those certain Perfection Certificates each dated as of August 2, 2006, between Borrower and Lenders, and acknowledges, confirms and agrees that the disclosures and information Borrower provided to Lenders in the Perfection Certificates have not changed, as of the date hereof.

 

7.    CONSISTENT CHANGES.    The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

8.    RATIFICATION OF LOAN DOCUMENTS.    Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Agent, for the ratable benefit of the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

 

9.    NO DEFENSES OF BORROWER.    Borrower hereby acknowledges and agrees that, as of the Effective Date, Borrower has no offsets, defenses, claims, or counterclaims against Agent or Lenders with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Agent or Lenders, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Agent and Lenders from any liability thereunder.

 

10.    CONTINUING VALIDITY.    Borrower understands and agrees that in modifying the existing Obligations, Agent and Lenders are relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lenders’ agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate any Lender to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Lenders and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Agent in writing. No maker will be released by virtue of this Loan Modification Agreement.

 

11.    COUNTERSIGNATURE.    This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower, Agent and Lenders.

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

[The remainder of page intentionally left blank]

 

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

	
BORROWER:
    	
 
    	
LENDERS:
    
	
 
    	
 
    	
 
    
	
A123 SYSTEMS, INC.
    	
 
    	
SILICON VALLEY BANK, as Agent and Lender
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/   Michael Rubino
    	
 
    	
By:
    	
/s/   Dave Rodriguez
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Michael   Rubino
    	
 
    	
Name:
    	
Dave   Rodriguez
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
CFO
    	
 
    	
Title:
    	
SVP
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
GOLD HILL VENTURE LENDING 03, L.P., as LENDER
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:   GOLD HILL VENTURE LENDING PARTNERS 03, LLC, its General Partner
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:
    	
/s/   David Fischer
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    	
David   Fischer
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Title:
    	
Manager
    	
 
    

 

 

SCHEDULE 1.1

 

LENDERS AND COMMITMENTS

 

	
Lender 
    	
 
    	
Commitment
    	
 
    	
Commitment Percentage
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TERM LOAN
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Silicon Valley Bank 
    	
 
    	
$
    	
1,250,000.00
    	
 
    	
41.66
    	
%
    
	
Gold Hill Venture Lending   03, L.P. 
    	
 
    	
$
    	
1,750,000.00
    	
 
    	
58.34
    	
%
    
	
TOTAL
    	
 
    	
$
    	
3,000,000.00
    	
 
    	
100.00
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2007 TERM LOAN
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Silicon Valley Bank 
    	
 
    	
$
    	
10,000,000.00
    	
 
    	
100
    	
%
    
	
Gold Hill Venture Lending   03, L.P. 
    	
 
    	
$
    	
0
    	
 
    	
0
    	
%
    
	
TOTAL
    	
 
    	
$
    	
10,000,000.00
    	
 
    	
100
    	
%
    

 

 

EXHIBIT B
 COMPLIANCE CERTIFICATE

 

	
TO:
    	
 
    	
SILICON   VALLEY BANK, AS AGENT
    
	
FROM:
    	
 
    	
A123   SYSTEMS, INC.
    

 

The undersigned authorized officer of A123 Systems, Inc. certifies that under the terms and conditions of the Loan and Security Agreement between Borrower, Lenders, and Agent (the “Agreement”), (i) Borrower is in complete compliance for the period ending                                     with all required covenants except as noted below and (ii) there are no Events of Default, and all representations and warranties in the Agreement are true and correct in all material respects on this date. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

	
Reporting Covenant
    	
 
    	
Required
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Monthly   financial statements with CC
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes  No
    
	
Annual   financial statements (CPA Audited)
    	
 
    	
FYE   within 210 days
    	
 
    	
Yes  No
    
	
10-Q,   10-K and 8-K
    	
 
    	
Within   5 days after filing with SEC
    	
 
    	
Yes  No
    
	
Projections
    	
 
    	
Annually,   w/i 30 days of Board approval
    	
 
    	
Yes  No
    

 

	
Financial Covenant
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    	
 
    
	
Maintain on a Monthly Basis:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Minimum Liquidity Ratio
    	
 
    	
2.0:1.0
    	
 
    	
:1.0
    	
 
    	
Yes  No
    	
 
    
	
Maintain on a Quarterly Basis:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Minimum Quarterly Revenue*
    	
 
    	
$
    	
 
    	
*
    	
$
    	
 
    	
 
    	
Yes  No
    	
 
    
										

 

*              As set forth in Section 6.8(b) of the Loan and Security Agreement.

 

	
Comments   Regarding Exceptions: See Attached. 
    	
 
    	
AGENT   USE ONLY 
    
	
 
    	
 
    	
Received   by:
    	
 
    
	
A123   Systems, Inc. 
    	
 
    	
 
    	
    AUTHORIZED   SIGNER 
    
	
 
    	
 
    	
 
    	
 
    
	
Sincerely,   
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Verified:
    	
 
    
	
Signature   
    	
 
    	
 
    	
    AUTHORIZED SIGNER
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Date:
    	
 
    
	
Title
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Compliance   Status:
    	
Yes
    	
No
    
	
 
    	
 
    	
 
    
	
Date
    	
 
    	
 
    
								

 

 

SECOND LOAN MODIFICATION AGREEMENT

 

This Second Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of September 24, 2008, by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 (“SVB”), as agent (the “Agent”), and the other Lenders that are now or hereafter become a “Lender” under the Loan Agreement (as hereinafter defined), including without limitation, SVB and GOLD HILL VENTURE LENDING 03, L.P. (“Gold Hill”) and (b) A123 SYSTEMS, INC., a Delaware corporation with its chief executive office located at 321 Arsenal Street, Watertown, MA 02472 (“Borrower”).

 

1.    DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS.    Among other indebtedness and obligations which may be owing by Borrower to the Lenders, Borrower is indebted to the Lenders pursuant to a loan arrangement dated as of August 2, 2006, evidenced by, among other documents, a certain Term Loan and Security Agreement dated as of August 2, 2006, between Borrower and the Lenders, as amended by a certain First Loan Modification Agreement dated as of July 10, 2007, between Borrower and the Lenders (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.    DESCRIPTION OF COLLATERAL.    Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Agent, for the ratable benefit of the Lenders, the “Security Documents”). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.    DESCRIPTION OF CHANGE IN TERMS.

 

A.

Modifications to Loan Agreement. 

1.

Borrower and SVB hereby agree that no 2007 Term Advances were made pursuant to Section 2.1.2 of the Loan Agreement and that Borrower has no ability to request that SVB make any 2007 Term Advances as the 2007 Commitment Termination Date has passed.

 

2.

The Loan Agreement shall be amended by deleting the following text appearing in Section 2.1.2 thereof:

 

“     (c)     Interest Payments. Commencing on the first 2007 Payment Date of the month following the month in which the Funding Date occurs (or commencing on the Funding Date if the Funding Date is the first Business Day of the month), Borrower shall make monthly payments of interest on account of the 2007 Term Advances at the rate set forth in Section 2.1.2(e).

 

(d)   Repayment. Commencing on the applicable Amortization Date, and continuing on the 2007 Payment Date of each month thereafter, for each 2007 Term Advance, Borrower shall make consecutive equal monthly payments of principal and interest, calculated by SVB based upon: (1) the amount of the 2007 Term Advance, (2) the interest rate set forth in Section 2.1.2(e) below, and (3) an amortization schedule equal to the Repayment Period. All unpaid principal and accrued interest is due and payable in full on the last 2007 Payment Date with respect to such 2007 Term Advance. Payments received after 2:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. A 2007 Term Advance may only be prepaid in accordance with Sections 2.1.2(f) and

 

 

(e)   Interest Rate. Borrower shall pay interest on each 2007 Payment Date on the unpaid principal amount of each 2007 Term Advance until such 2007 Term Advance has been paid in full. Interest shall accrue at the fixed per annum rate of interest equal to the aggregate of the Prime Rate and one and one-quarter of one percent (1.25%), which rate shall be fixed as of the Funding Dale for each 2007 Term Advance; provided, however, on the first (1st) day of the month following the occurrence of an IPO Event, interest shall accrue at a fixed per annum rate equal to the Prime Rate, which rate shall be fixed as of the Funding Date for each 2007 Term Advance. Interest is computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to the applicable rate as set forth above plus the Default Rate.”

 

and inserting in lieu thereof the following:

 

“    (c)    Interest Payments. Commencing on the first 2007 Payment Date of the month following the month in which the Funding Date occurs (or commencing on the Funding Date if the Funding Date is the first Business Day of the month), Borrower shall make monthly payments of interest on account of the 2007 Term Advances at the rate set forth in Section 2.3(b)(iv).

 

(d)   Repayment.    Commencing on the applicable Amortization Date, and continuing on the 2007 Payment Date of each month thereafter, for each 2007 Term Advance, Borrower shall make consecutive equal monthly payments of principal and interest, calculated by SVB based upon: (1) the amount of the 2007 Term Advance, (2) the interest rate set forth in Section 2.3(b)(iv) below, and (3) an amortization schedule equal to the Repayment Period. All unpaid principal and accrued interest is due and payable in full on the last 2007 Payment Date with respect to such 2007 Term Advance. Payments received after 2:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. A 2007 Term Advance may only be prepaid in accordance with Sections 2.1.2(f) and

 

(e)   Intentionally omitted.”

 

3.

The Loan Agreement shall be amended by inserting the following new Sections 2.1.3, 2.1.4, 2.1.5, 2.1.6 and 2.1.7, to appear immediately after Section 2.1.2 thereof:

 

2.1.3  2008 Term Loan Facility.

 

(a)   Availability.    Subject to the terms and conditions herein, SVB shall lend to Borrower from time to time prior to the 2008 Commitment Termination Date, advances (each a “2008 Term Advance” and collectively the “2008 Term Advances”) in an aggregate amount not to exceed the 2008 Term Loan. When repaid, the 2008 Term Advances may not be re-borrowed. SVB’s obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the 2008 Commitment Termination Date. For purposes of this Section 2.1.3, the minimum amount of each 2008 Term Advance is Five Hundred Thousand Dollars ($500,000.00).

 

(b)   Borrowing Procedure.    To obtain a 2008 Term Advance, Borrower must notify SVB by facsimile or telephone by 12:00 noon Eastern time on the date the 2008 Term Advance is to be made. If such notification is by telephone, Borrower must promptly confirm the notification by delivering to SVB a completed Payment/Advance Form in the form attached as Exhibit B (the Payment/Advance Form). On the Funding 

 

 

Date for each 2008 Term Advance, SVB shall credit such 2008 Term Advance to one of Borrower’s deposit accounts, SVB may make 2008 Term Advances under this Agreement based on instructions from a Responsible Officer or his or her designee. SVB may rely on any telephone notice given by a person whom SVB reasonably believes is a Responsible Officer or designee.

 

(c)   Interest Payments.    Commencing on the first 2008 Payment Date of the month following the month in which the Funding Date occurs (or commencing on the Funding Date if the Funding Date is the first Business Day of the month), Borrower shall make monthly payments of interest on account of the 2008 Term Advances at the rate set forth in Section 2.3(b)(ii).

 

(d)   Repayment.    Commencing on the applicable Amortization Date, and continuing on the 2008 Payment Date of each month thereafter, each 2008 Term Advance shall be repaid in (i) thirty-six (36) equal monthly installments of principal, plus (ii) monthly payments of accrued and unpaid interest at the rate set forth in Section 2.3(b)(ii) below. All unpaid principal and accrued interest is due and payable in full on the last 2008 Payment Date with respect to such 2008 Term Advance. Payments received after 2:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. A 2008 Term Advance may only be prepaid in accordance with Sections 2.1.3(e) and 2.1.3(f).

 

(e)   Mandatory Prepayment of 2008 Term Advances Upon an Acceleration.    If the 2008 Term Advances are accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to SVB an amount equal to the sum of: (i) all outstanding principal plus accrued interest, (ii) the Prepayment Fee with regard to such 2008 Term Advance, if applicable, plus (iii) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

(f)    Permitted Prepayment of 2008 Term Advances,    Borrower shall have the option to prepay, at any time, all of the 2008 Term Advances advanced by SVB under this Agreement, provided Borrower (i) provides written notice to SVB of its election to prepay such 2008 Term Advance at least five (5) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued interest with regard to the 2008 Term Advances, (B) the Prepayment Fee with respect to such 2008 Term Advance, if applicable, plus (C) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts with respect to such 2008 Term Advance.

 

2.1.4  Revolving Advances.

 

(a)   Availability.    Subject to the terms and conditions of this Agreement, SVB shall make Revolving Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

 

(b)   Termination; Repayment.    The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Revolving Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

 

 

2.1.5  Letters of Credit Sublimit,

 

(a)   As part of the Revolving Line, SVB shall issue or have issued Letters of Credit for Borrower’s account at Borrower’s request, subject to the terms and conditions of this Agreement. The aggregate face amount of all letters of credit issued hereunder (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) shall at all times reduce the amount otherwise available for Revolving Advances under the Revolving Line. The face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed the lesser of the Borrowing Base and the Revolving Line, inclusive of Credit Extensions made pursuant to Sections 2.1.4, 2.1.6 and 2.1.7. If, on the Revolving Line Maturity Date, or the effective date of the termination of the Revolving Line, there are any outstanding Letters of Credit, then on such date Borrower shall provide to SVB cash collateral in an amount equal to 100% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by SVB in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to SVB in its soie discretion and shall be subject to the terms and conditions of SVB’s standard Application and Letter of Credit Agreement (the “Letter of Credit Application”). Borrower agrees to execute any further documentation in connection with the Letters of Credit as SVB may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guaranteed by SVB and opened for Borrower’s account or by SVB’s interpretations of any Letter of Credit issued by SVB for Borrower’s account, and Borrower understands and agrees that SVB shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto, absent SVB’s gross negligence or willful misconduct.

 

(b)   The obligation of Borrower to immediately reimburse SVB for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application.

 

(c)   Borrower may request that SVB issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, SVB shall treat such demand as a Revolving Advance to Borrower of the equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

 

(d)   To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, SVB may create a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount up to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by SVB from time to time to account for fluctuations in the exchange rate. SVB shall provide notice to Borrower of any Letter of Credit Reserve and adjustments thereto promptly after the creation of such Letter of Credit Reserve and any adjustment thereto. The availability of funds under the Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding.

 

2.1.6  Foreign Exchange Sublimit.    As part of the Revolving Line, Borrower may enter into foreign exchange contracts with SVB under which Borrower commits to purchase from or sell to SVB and SVB commits to purchase from or sell to Borrower a 

 

 

specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date (the “Settlement Date”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of each outstanding FX Forward Contract in a maximum aggregate amount equal to Eight Hundred Thousand Dollars ($800,000.00) (such maximum shall be the “FX Reserve”). The aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the amount of the FX Reserve. The amount otherwise available for Credit Extensions under the Revolving Line shall be reduced by an amount equal to ten percent (10%) of each outstanding FX Forward Contract (the “FX Reduction Amount”), inclusive of Credit Extensions made pursuant to Sections 2.1.4, 2.1.5 and 2.1.7. Any amounts needed to fully reimburse SVB will be treated as Revolving Advances under the Revolving Line and will accrue interest at the interest rate applicable to Revolving Advances.

 

2.1.7  Cash Management Services Sublimit.    Borrower may use ail or a portion of the Revolving Line in an amount up to the lesser of the Borrowing Base and the Revolving Line, inclusive of Credit Extensions made pursuant to Sections 2.1.4, 2.1.5 and 2.1.6, for SVB’s cash management services which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in SVB’s various cash management services agreements (collectively, the “Cash Management Services”). Any amounts SVB pays on behalf of Borrower for any Cash Management Services and for which SVB is not reimbursed will be treated as Revolving Advances under the Revolving Line and will accrue interest at the interest rate applicable to Revolving Advances.”

 

4.

The Loan Agreement shall be amended by deleting the following, appearing as Section 2.2 thereof:

 

“    2.2    Termination of Commitment to Lend.

 

Each Lender’s obligation to lend the undisbursed portion of the Obligations shall terminate if, in such Lender’s sole discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations.”

 

and inserting in lieu thereof the following:

 

2.2   Termination of Commitment to Lend.

 

Each Lender’s obligation to lend the undisbursed portion of the Obligations shall terminate if, in such Lender’s sole discretion, there has been a material adverse change in the general affairs, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations.”

 

5.

The Loan Agreement shall be amended by deleting the following text appearing in Section 2.3 thereof:

 

“    (b)    Interest Rate.    Borrower shall pay interest on each Payment Date on the unpaid principal amount of each Advance until the Advance has been paid in full. Interest shall accrue at the fixed per annum rate equal to the aggregate of the Prime Rate and two and one-half of one percent (2.50%) determined by Agent as of the Funding Date for each Advance. Interest is computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. Any amounts outstanding during the continuance of an 

 

 

Event of Default shall bear interest at a per annum rate equal to the applicable interest rate plus four percent (4%) (the “Default Rate”).”

 

and inserting in lieu thereof the following:

 

“     (b)    Interest Rate: Interest Provisions.

 

(i)    Advances.    Borrower shall pay interest in arrears on each Payment Date on the unpaid principal amount of each Advance until the Advance has been paid in full. Subject to Section 2.3(b)(vi), interest shall accrue at the fixed per annum rate equal to the aggregate of the Prime Rate and two and one-half of one percent (2.50%) determined by Agent as of the Funding Date for each Advance.

 

(ii)   2008 Term Advances.    Borrower shall pay interest on each 2008 Payment Date on the unpaid principal amount of each 2008 Term Advance until such 2008 Term Advance has been paid in full. Subject to Section 2.3(b)(vi), interest shall accrue at the floating per annum rate of interest equal to the aggregate of the Prime Rate and one-half of one percent (0.50%).

 

(hi)  Revolving Line.    Subject to Section 2.3(b)(vi), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate, which interest shall be payable monthly in arrears.”

 

(iv)  2007 Term Advances.    Borrower shall pay interest on each 2007 Payment Date on the unpaid principal amount of each 2007 Term Advance until such 2007 Term Advance has been paid in full. Subject to Section 2.3(b)(vi), interest shall accrue at the fixed per annum rate of interest equal to the aggregate of the Prime Rate and one and one-quarter of one percent (1.25%), which rate shall be fixed as of the Funding Date for each 2007 Term Advance; provided, however, on the first (1st) day of the month following the occurrence of an IPO Event, subject to Section 2,3(b)(vi), interest shall accrue at a fixed per annum rate equal to the Prime Rate, which rate shall be fixed as of the Funding Date for each 2007 Term Advance.

 

(v)   360-Day Year.    Interest is computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.

 

(vi)  Default Rate.    Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to the applicable interest rate plus four percent (4%) (the “Default Rate”).

 

(vii) Adjustment to Interest Rate.    With respect to Credit Extensions that have a floating interest rate, changes to the interest rate of any such Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.”

 

6.

The Loan Agreement shall be amended by deleting the following text appearing in Section 2.4 thereof:

 

“    (c)    Lenders’ Expenses.    All Lenders’ Expenses (including reasonable attorneys’ fees and expenses) incurred through and after the Closing Date, when due.”

 

and inserting in lieu thereof the following:

 

 

“    (c)    Additional Fee.    An additional fee equal to Thirty Thousand Dollars ($30,000.00) on December 1, 2008, if at such time the aggregate amount of 2008 Term Advances made by SVB is less than Five Million Dollars ($5,000,000.00);

 

(d)   Letter of Credit Fee.    SVB’s customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance, each anniversary of the issuance (for multi-year Letters of Credit), and the renewal of such Letter of Credit by SVB;

 

(e)   2008 Term Loan Commitment Fee.    A fully earned, non-refundable commitment fee of Twenty Thousand Dollars ($20,000.00), on the 2008 Effective Date;

 

(f)    Revolving Line Commitment Fee.    A fully earned, non-refundable commitment fee of Twenty Thousand Dollars ($20,000.00), on the 2008 Effective Date;

 

(g)   Anniversary Fee.    A fully earned, non-refundable anniversary fee of Twenty Thousand Dollars ($20,000,00), which fee shall be earned as of the date hereof, and shall be payable on the date that is one year from the 2008 Effective Date;

 

(h)   Unused Revolving Line Facility Fee.    A fee (the “Unused Revolving Line Facility Fee”), payable monthly, in arrears, on a calendar year basis, in an amount equal to one quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Line, as determined by SVB. The unused portion of the Revolving Line, for the purposes of this calculation, shall include amounts reserved under the Cash Management Services Sublimit for products provided and under the Foreign Exchange Sublimit for FX Forward Contracts, Notwithstanding the foregoing, for any month in which Borrower maintained an average balance of at least One Million Five Hundred Thousand Dollars ($ 1,500,000.00) in unrestricted funds in a demand deposit account with SVB, Borrower need not pay the Unused Revolving Line Facility Fee. Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Facility Fee previously earned by SVB pursuant to this Section notwithstanding any termination of the Agreement or the suspension or termination of SVB’s obligation to make loans and advances-hereunder;

 

(i)    Early Termination Fee.    If this Agreement is terminated by SVB or by Borrower for any reason prior to the date that is one (1) year from the 2008 Effective Date, in addition to any applicable Prepayment Fee, Borrower shall pay to SVB a termination fee in an amount equal to Forty Thousand Dollars ($40,000.00) (the “Early Termination Fee”). The Early Termination Fee shall be due and payable on the effective date of such termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations. Notwithstanding the foregoing, SVB agrees to waive the Early Termination Fee if SVB agrees to refinance and redocument this Agreement under another division of SVB (in its sole and exclusive discretion) prior to sucli date; and

 

(j)    Lenders’ Expenses.    All Lenders’ Expenses (including reasonable attorneys’ fees and expenses) incurred through and after the Closing Date, when due.”

 

7.

The Loan Agreement shall be amended by inserting the following new Section 2.6, appearing after Section 2.5 thereof:

 

“    2.6    Overadvances.    If, at any time, the sum of (a) the outstanding principal amount of any Revolving Advances (including any amounts used for Cash Management 

 

 

Services), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to SVB in cash such excess.”

 

The Loan Agreement shall be amended by inserting the following new Section 3.3, appearing after Section 3.2 thereof:

 

“    3.3    Procedures for Borrowing.    Subject to the prior satisfaction of all other applicable conditions to the making of a Revolving Advance set forth in this Agreement, to obtain a Revolving Advance (other than Revolving Advances under Sections 2.1.5 or 2.1.7), Borrower shall notify SVB (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon Eastern time on the Funding Date of the Revolving Advance. Together with any such electronic or facsimile notification, Borrower shall deliver to SVB by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. SVB may rely on any telephone notice given by a person whom SVB reasonably believes is a Responsible Officer or designee. SVB shall credit Revolving Advances to the Designated Deposit Account. SVB may make Revolving Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Revolving Advances are necessary to meet Obligations which have become due.”

 

9.

The Loan Agreement shall be amended by deleting the following text, appearing in Section 5.2 thereof:

 

“In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee other than as set forth in the Perfection Certificate, then Borrower will first receive the written consent of Lenders and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Agent and Lenders.”

 

and inserting in lieu thereof the following:

 

“In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral with an aggregate value in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) to a bailee other than as set forth in the Perfection Certificate, then Borrower will first receive the written consent of Lenders and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Agent and Lenders.”

 

10.

The Loan Agreement shall be amended by deleting the following, appearing as Section 5.3 thereof:

 

“    5.3    Litigation.

 

Except as shown in the Perfection Certificate, there are no actions or proceedings pending or, to the knowledge of Borrower’s Responsible Officers, threatened against Borrower or any Subsidiary in which an adverse decision would reasonably be expected to have a material adverse effect on Borrower’s business or operations.”

 

and inserting in lieu thereof the following:

 

 

     5.3   Litigation.

 

Except as shown in the Perfection Certificate, there are no actions or proceedings pending or, to the knowledge of Borrower’s Responsible Officers, threatened in writing against Borrower or any Subsidiary, which would reasonably be expected to have a materia! adverse effect on Borrower’s business or operations.”

 

11.

The Loan Agreement shall be amended by deleting the following, appearing as Section 5.7 thereof:

 

“    5.7    Subsidiaries.

 

Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments and the following wholly-owned subsidiaries: (i) A123 Securities Corporation, (ii) T/J Technologies, Inc., (iii) A123China Chang Zhou, (iv) A123China Zhenjiang, and (v) A123 Materials Company (collectively, the “Wholly-Owned Subs”).”

 

and inserting in lieu thereof the following:

 

“    5.7    Subsidiaries.

 

Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments and the following wholly-owned subsidiaries: (i) A123 Securities Corporation, (ii) A123 Systems (China) Co., Ltd., (iii) A123 Systems (China) Materials Co., Ltd., (iv) A123 Systems (Zhenjiang) Co., Ltd., (v) Enerland Co., Ltd. and (vi) Changchun Farad Electric Co., Ltd. (collectively, the “Wholly-Owned Subsidiaries”).”

 

12.

The Loan Agreement shall be amended by inserting the following new Section 5.9, appearing after Section 5.8 thereof:

 

“    5.9    Accounts Receivable.    For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts are true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be. Whether or not an Event of Default has occurred and is continuing, SVB may notify any Account Debtor owing Borrower money of SVB’s security interest in such funds and verify the amount of such Eligible Account, provided that unless an Event of Default is continuing SVB shall work with Borrower to establish reasonably satisfactory notification and verification processes. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Except as disclosed to SVB in writing, Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements on ail documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.”

 

13.

The Loan Agreement shall be amended by deleting the following text, appearing in Section 6.2(a) thereof:

 

 

“    (ii) as soon as available, but no later than two hundred ten (210) days after the last day of Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Agent;”

 

and inserting in lieu thereof the following:

 

“    (ii)    as soon as available, but no later than one hundred eighty (180) days after the last day of Borrower’s fiscal year, audited consolidated financial statements of Borrower prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Agent;”

 

14.

The Loan Agreement shall be amended by inserting the following text, appearing at the end of Section 6.2 thereof:

 

“    (c)    Within thirty (30) days after the last day of each month, so long as Credit Extensions pursuant to Sections 2.1.4, 2.1.5, 2.1.6, or 2.1.7 are outstanding, and in connection with each request for a Credit Extension pursuant to Section 2.1.4, 2.1.5, 2.1.6, or 2.1.7, deliver to SVB a duly completed Borrowing Base Certificate signed by a Responsible Officer, with aged listings of accounts receivable and accounts payable (by invoice date).

 

(d)   Allow SVB to audit Borrower’s Collateral at Borrower’s expense. Such audits shall be conducted no more often than one (1) time every twelve (12) months unless an Event of Default has occurred and is continuing.”

 

15.

The Loan Agreement shall be amended by deleting the following text appearing in Section 6.6 thereof:

 

“    (a)    In order to permit Agent to monitor Borrower’s financial performance and condition, Borrower, shall maintain its depository and operating accounts with Agent and a majority of Borrower’s cash or securities in excess of that amount used for Borrower’s operations shall be maintained or administered through Agent. In addition to the foregoing, as of the Effective Date and at all times thereafter, Borrower shall maintain a minimum balance, maintained or administered through Agent, of the lesser of: (i) Five Million Dollars ($5,000,000.00) in unrestricted cash or securities, or (ii) an amount equal to at least ninety-five percent (95.0%) of the dollar value of the Borrower’s and its Affiliates’, in the aggregate, cash or securities (excluding cash or securities required to be maintained outside of the United States, in the ordinary course of business). Notwithstanding the foregoing, in the event that Borrower’s and its Affiliates’ aggregate cash or securities is less than Twenty Million Dollars ($20,000,000.00) at any time, Borrower shall maintain a minimum balance, maintained or administered through Agent, of the lesser of: (i) Ten Million Dollars ($10,000,000.00) in unrestricted cash or securities, or (ii) an amount equal to at least ninety-five percent (95.0%) of the dollar value of the Borrower’s and its Affiliates’, in the aggregate, cash or securities (excluding cash or securities maintained outside of the United States, in the ordinary course of business).”

 

and inserting in lieu thereof the following:

 

 

“    (a)    In order to permit Agent to monitor Borrower’s financial performance and condition, Borrower, shall maintain its primary operating accounts with Agent and a majority (greater than 50%) of Borrower’s cash or securities in excess of that amount used for Borrower’s operations shall be maintained or administered through Agent. In addition to the foregoing, in the event that Borrower’s and its Affiliates’ aggregate cash

 

or securities is less than Twenty Million Dollars ($20,000,000.00) at any time, Borrower shall maintain a minimum balance, maintained or administered through Agent, of the lesser of: (i) Fifteen Million Dollars ($15,000,000.00) in unrestricted cash or securities, or (ii) an amount equal to at least ninety-five percent (95.0%) of the dollar value of Borrower’s and its Affiliates’, in the aggregate, cash or securities (excluding cash or securities maintained outside of the United States, in the ordinary course of business).”

 

16.

The Loan Agreement shall be amended by deleting the following text, appearing in Section 6.8 thereof:

 

“    (b)    Minimum Quarterly Revenue.    Borrower shall maintain, to be tested as of the last day of each quarter, minimum quarterly revenue of at least (i) Eight Million Dollars ($8,000,000,00) as of and for the quarter ending June 30, 2007, (ii) Nine Million Dollars ($9,000,000,00) as of and for the quarter ending September 30, 2007, (iii) Seven Million Dollars ($7,000,000.00) as of and for the quarters ending December 31, 2007 and March 31, 2008, and (iv) with, respect to the quarter ending June 30, 2008 and for each quarter in each fiscal year thereafter, an amount equal to the greater of Nine Million Dollars ($9,000,000.00) or sixty percent (60.0%) of the Board-approved plan for such fiscal quarter,”

 

and inserting in lieu thereof the following:

 

(b)   Tangible Net Worth.    Tangible Net Worth of at least One Hundred Twenty Million Dollars ($120,000,000.00). Notwithstanding the foregoing, the amount required in the prior sentence shall increase by an amount equal to fifty percent (50.0%) of the net proceeds received by Borrower from the sale of its equity or the incurrence of Subordinated Debt after the 2008 Effective Date.”

 

17.

The Loan Agreement shall be amended by deleting the following text appearing in Section 7.2 thereof:

 

“or have change in management such that either: (A) any one (1) out of the three (3) Key Persons resigns, is terminated, or is no longer actively involved in the management of the Borrower in his/her current position and a replacement reasonably satisfactory to Agent for such Key Person is not made within one hundred twenty (120) days after departure from Borrower, or (B) any two (2) out of the three (3) Key Persons resign, are terminated, or are no longer actively involved in the management of the Borrower in their current positions.”

 

and inserting in lieu thereof the following:

 

“or, until the occurrence of the IPO Event, have change in management such that either: (A) any one (1) out of the three (3) Key Persons resigns, is terminated, or is no longer actively involved in the management of the Borrower in his/her current position and a replacement reasonably satisfactory to Agent for such Key Person is not made within one hundred twenty (120) days after departure from Borrower, or (B) any two (2) out of the 

 

 

three (3) Key Persons resign, are terminated, or are no longer actively involved in the management of the Borrower in their current positions.”

 

18.

The Loan Agreement shall be amended by deleting the following text appearing in Section 7.6 thereof:

 

“(a) Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so;”

 

and inserting in lieu thereof the following:

 

“(a) Directly or indirectly acquire or own any Person, or make any Investment in any Person, or permit anyof its Subsidiaries to do so, in each case other than Permitted Investments;”

 

19.

The Loan Agreement shall be amended by deleting the following, appearing as Section 7.7 thereof:

 

7.7   Transactions with Affiliates.

 

Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.”

 

and inserting in lieu thereof the following:

 

“    7.7    Transactions with Affiliates.

 

Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (a) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person, or (b) the sale of Borrower’s stock and/or the issuance of Subordinated Debt to venture capital investors provided that the sale of such stock or the issuance of Subordinated Debt is not otherwise prohibited hereunder, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.”

 

20.

The Loan Agreement shall be amended by deleting the following text appearing in Section 9.1 thereof:

 

“    When an Event of Default occurs and continues Agent may, without notice or demand, do any or all of the following:

 

(a)   Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Agent and/or Lenders). Notwithstanding the foregoing, if the only Event of Default that occurs is a result of Borrower’s violation of Section 6.8 or Section 8.3, then only those Obligations outstanding related to 2007 Term Advances shall become immediately due and payable upon such declaration by Agent;”

 

 

and inserting in lieu thereof the following:

 

“    When an Event of Default occurs and continues Agent may, without notice or demand, do any or all of the following:

 

(a)   Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Agent and/or Lenders). Notwithstanding the foregoing, if the only Event of Default that occurs is a result of Borrower’s violation of Section 6.8 or Section 8.3, then only those Obligations outstanding related to Credit Extensions made pursuant to Sections 2.1.2, 2.1.3, 2.1.4, 2.1.5, 2.1.6 and 2.1.7 shall become immediately due and payable upon such declaration by Agent;”

 

21.

The Loan Agreement shall be amended by deleting the following text appearing in Section 9.1 thereof:

 

(h)   Exercise all rights and remedies and dispose of the Collateral according to the Code.”

 

and inserting in lieu thereof the following:

 

“    (h)    terminate any FX Forward Contracts; and

 

(i)    Exercise all rights and remedies and dispose of the Collateral according to the Code.”

 

22.

The Loan Agreement shall be amended by deleting the following text appearing in Section 12.6 thereof:

 

“All amendments to this Agreement must be in writing signed by Agent, Lenders and Borrower.”

 

and inserting in lieu thereof the following:

 

“All amendments to this Agreement must be in writing signed by Agent, Lenders and Borrower; provided, however the signature of Gold Hill shall only be required for amendments to Section 2.1.1, Section 2.3(a), Section 2.3(b)(i), Section 2.3(b)(v), Section 2.3(b)(vi). Section 2.3(c), Section 2.3(d), Section 2.3(e), Section 2.4(a), Section 2.4(b), Section 2.5, Section 8 (other than Section 8.3), Schedule 1.1, and the definitions of Commitment Percentage, Commitment Termination Date, Final Payment, Final Payment Percentage, Loan Amount, Maturity Date, Prepayment Fee, Repayment Period, or Term Loan.”

 

23.

The Loan Agreement shall be amended by inserting the following new Section 12.10, appearing after Section 12.9 thereof:

 

“    12.10 A123 Securities Corporation. Agent and Lenders hereby agree that, when used in Sections 5, 6, 7 and 8 of this Agreement, the term “Subsidiary” and “Subsidiaries” shall not include A123 Securities Corporation. In addition, Agent and Lenders hereby acknowledge and agree that A123 Securities Corporation is not making any representations, covenants, or agreements hereunder, and no representations are being 

 

 

made on its behalf. Borrower hereby acknowledges and agrees that if A123 Securities Corporation undertakes any action which, if undertaken by Borrower, would result in a violation of this Agreement or an Event of Default, then Agent and Lenders shall have all of its respective rights and remedies with respect to Borrower as if such misrepresentation was made or action was undertaken by Borrower or any other Subsidiary.”

 

24.

The Loan Agreement shall be amended by deleting the following text, appearing in the definition of Permitted Indebtedness in Section 13.1 thereof:

 

“    (f)    Unsecured Indebtedness owed by T/J Technologies, Inc. to United Bank and Trust- Washtenaw pursuant to a working capital line in an aggregate principal amount not to exceed Seven Hundred Fifty Thousand Dollars ($750,000.00);”

 

and inserting in lieu thereof the following:

 

(f)    Indebtedness of (i) any or all of A123 Systems (China) Co., Ltd., A123 Systems (China) Materials Co., Ltd., A123 Systems (Zhenjiang) Co., Ltd. and Changchun Farad Electric Co., Ltd., Borrower’s Chinese Subsidiaries, and Changchun Guoji Electronic Technology Co., Ltd., a Chinese entity that is currently forty-five percent (45.0%) owned by Changchun Farad Electric Co., Ltd., so long as such Indebtedness is not guaranteed by, or become an obligation (contingent or otherwise) of Borrower or any other Subsidiary (other than one of the entities listed above); and (ii) Enerland Co., Ltd., Borrower’s Korean Subsidiary, so long as such Indebtedness is not guaranteed by, or become an obligation (contingent or otherwise) of Borrower or any other Subsidiary;”

 

25.

The Loan Agreement shall be amended by deleting the following text, appearing in the definition of Permitted Liens in Section 13.1 thereof:

 

“    (i)    Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (h), but any extension, renewal or replacement

 

Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase.”

 

and inserting in lieu thereof the following:

 

“    (i)    Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (h), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase; and

 

(j)    Liens incurred by (i) A123 Systems (China) Co., Ltd., A123 Systems (China) Materials Co., Ltd., A123 Systems (Zhenjiang) Co., Ltd. and Changchun Farad Electric Co., Ltd., Borrower’s Chinese Subsidiaries, (ii) Changchun Guoji Electronic Technology Co., Ltd., a Chinese entity that is currently forty-five percent (45.0%) owned by Changchun Farad Electric Co., Ltd. and (iii) Enerland Co., Ltd., Borrower’s Korean Subsidiary, in connection with any such entity’s incurrence of Indebtedness as described in subsection (f) of the definition of Permitted Indebtedness.”

 

 

26.

The Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof:

 

“    “Amortization Date” is for each 2007 Term Advance, the earlier to occur of (i) the first (1st) day of the month following the month which is ninety (90) days from the Funding Date with respect to such 2007 Term Advance, or (ii) the first (1) day of the month following the month in which the 2007 Commitment Termination Date occurs.”

 

“    “Credit Extension” is each Advance, 2007 Term Advance, or any other extension of credit by Lenders or SVB for Borrower’s benefit.”

 

“    “Liquidity Ratio” is a ratio of Borrower’s (a) Quick Assets, to (b) all Obligations (other than that portion of the Obligations due and owing to Gold Hill) plus all Obligations (as defined in the SVB Loan Agreement) in connection with the SVB Loan Agreement.”

 

“    “Obligations” are liabilities, obligations, covenants, agreements, debts, principal, interest, Final Payment, Prepayment Fee, Lenders’ Expenses, and other amounts Borrower owes Lenders and/or Agent pursuant to this Agreement now or later, other than any obligations of Borrower solely pursuant to equity documents between Borrower and Lenders, including interest accruing after Insolvency Proceedings begin.”

 

“    “Prepayment Fee” shall be as follows:

 

(a)    with respect to Advances:

 

(i)    three percent (3.0%) of the principal portion of any Advance prepaid on or before one year from the date of this Agreement; and

 

(ii)   two percent (2.0%) of the principal portion of any Advance prepaid after one year, but on or before two years from the date of this Agreement; and

 

(iii)  one percent (1.0%) of the principal portion of any Advance prepaid after two years from the date of this Agreement, but prior to the applicable Maturity Date.

 

(b)    with respect to 2007 Term Advances:

 

(i)    one percent (1.0%) of the outstanding principal amount of the 2007 Term Advances, if the prepayment occurs on or prior to December 31, 2008; and

 

(ii)   zero percent (0%) of the outstanding principal amount of the 2007 Term Advances, if the prepayment occurs after December 31, 2008.”

 

“    “Quick Assets” is, on any date, Borrower’s unrestricted cash plus net billed accounts receivable determined according to GAAP.”

 

and inserting in lieu thereof the following:

 

“    “Amortization Date” is (a) for each 2007 Term Advance, the earlier to occur of (i) the first (Ist) Business Day of the month following the month which is ninety (90) days from the Funding Date with respect to such 2007 Term Advance, or (ii) the first 

 

 

(1st) Business Day of the month following the month in which the 2007 Commitment Termination Date occurs, and (b) for each 2008 Term Advance, the earlier to occur of (i) the first (1st) Business Day of the month following the month which is ninety (90) days from the Funding Date with respect to such 2008 Term Advance, or (ii) the first (1st) Business Day of the month following the month in which the 2008 Commitment Termination Date occurs”

 

“    “Credit Extension” is any Advance, Revolving Advance, 2007 Term Advance, 2008 Term Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by Agent, SVB, or any Lender for Borrower’s benefit.”

 

“Liquidity Ratio” is a ratio of Borrower’s (a) Quick Assets, to (b) all Obligations (other than that portion of the Obligations due and owing to Gold Hill).”

 

“    “Obligations” are liabilities, obligations, covenants, agreements, debts, principal, interest, Final Payment, Prepayment Fee, Early Termination Fee, Lenders’ Expenses, and other amounts Borrower owes Lenders, SVB and/or Agent pursuant to this Agreement now or later, other than any obligations of Borrower solely pursuant to equity documents between Borrower and Lenders, including interest accruing after Insolvency Proceedings begin.”

 

“    “Prepayment Fee” shall be as follows:

 

(a)   with respect to Advances:

 

(i)    three percent (3.0%) of the principal portion of any Advance prepaid on or before one year from the date of this Agreement; and

 

(ii)   two percent (2.0%) of the principal portion of any Advance prepaid after one year, but on or before two years from the date of this Agreement; and

 

(iii)  one percent (1.0%) of the principal portion of any Advance prepaid after two years from the date of this Agreement, but prior to the applicable Maturity Date.

 

(b)   with respect to 2007 Term Advances:

 

(i)    one percent (1.0%) of the outstanding principal amount of the 2007 Term Advances, if the prepayment occurs on or prior to December 31, 2008; and

 

(ii)   zero percent (0%) of the outstanding principal amount of the 2007 Term Advances, if the prepayment occurs after December 31, 2008.

 

(c)   with respect to 2008 Term Advances:

 

(i)    one percent (1.0%) of the outstanding principal amount of the 2008 Term Advances, if the prepayment occurs prior to December 31, 2009; and

 

(ii)   zero percent (0%) of the outstanding principal amount of the 2008 Term Advances, if the prepayment occurs on or after December 31, 2009.”

 

 

 

“    “Quick Assets” is, on any date, Borrower’s unrestricted cash plus net billed accounts receivable plus marketable securities that are immediately available for sale determined according to GAAP.”

 

27.

The Loan Agreement shall be amended by inserting the following definitions to appear alphabetically in Section 13.1 thereof:

 

“2008 Commitment Termination Date” is twelve (12) months from the 2008 Effective Date.”

 

“2008 Effective Date” is September 24, 2008.”

 

“2008 Payment Date” is the first Business Day of the month.”

 

“2008 Term Advance” or “2008 Term Advances” is defined in Section 2.1.3(a).”

 

“2008 Term Loan” is a 2008 Term Advance or 2008 Term Advances in an aggregate amount of up to Fifteen Million Dollars ($15,000,000.00).”

 

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.”

 

“    “Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to any Letter of Credit Reserve, minus (c) any FX Reduction Amount, minus (d) any unreimburseci amounts used for Cash Management Services, and minus (e) the outstanding principal balance of any Revolving Advances.”

 

“    “Borrowing Base” is eighty percent (80.0%) of Eligible Accounts, as determined by SVB from Borrower’s most recent Borrowing Base Certificate; provided, however, that SVB may decrease the foregoing percentage in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by SVB, may adversely affect Collateral.”

 

“    “Borrowing Base Certificate” is that certain certificate in the form attached hereto as Exhibit D.”

 

“    “Cash Management Services” is defined in Section 2.1.7.”

 

“    “Early Termination Fee” is defined in Section 2.4(i).”

 

“    “Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.9. SVB reserves the right, at any time after the 2008 Effective Date to adjust any of the criteria set forth below and to establish, new criteria in its good faith business judgment, upon prior written notice to Borrower. Unless SVB agrees otherwise in writing, Eligible Accounts shall not include:

 

 

(a)   Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;

 

(b)   Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within ninety (90) days of invoice date;

 

(c)   Accounts owing from an Account Debtor which does not have its principal place of business in the United States or Canada, unless otherwise approved by SVB in writing in its sole discretion on a case-by-case basis, except for Accounts for which the Account Debtor is Black & Decker Macao Commercial Offshore Ltd. or STL Technology Co., Ltd.;

 

(d)   Accounts billed and/or payable outside of the United States or Canada, unless otherwise approved by SVB in writing in its sole discretion on a case-by-case basis, except for Accounts for which the Account Debtor is Black & Decker Macao Commercial Offshore Ltd. or STL Technology Co., Ltd.;

 

(e)   Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise—sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts), but only up to the amount owed, with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the ordinary course of its business;

 

(f)    Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or agent;

 

(g)   Accounts with credit balances over ninety (90) days from invoice date;

 

(h)   Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrower exceed thirty percent (30%) of all Accounts; provided that, for Accounts for which the Account Debtor is Black & Decker or STL, such percentage shall be fifty percent (50%), provided that at no point shall the total obligations of Black & Decker and STL to Borrower, in the aggregate, exceed fifty percent (50%) of all Eligible Accounts;

 

(i)    Accounts owing from an Account Debtor which is a United States government entity or any department, agency; or instrumentality thereof in excess of One Million Dollars ($1,000,000) in the aggregate unless Borrower has assigned its payment rights to SVB and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

 

(j)    Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account Debtor’ s payment may be conditional;

 

(k)   Accounts owing from an Account Debtor that has not been invoiced or where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings), but excluding an amount equal to the amount of the non-refundable deposits that are contractually required to be paid by the Account Debtor;

 

(l)    Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or

 

 

fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to perform in accordance with the contract;

 

(m)  Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

 

(n)   Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

 

(o)   Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor (but excluding an amount equal to the amount of the non-refundable deposits that are contractually required to be paid by the Account Debtor) unless SVB, Borrower, and the Account Debtor have entered into an agreement acceptable to SVB in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts);

 

(p)   Accounts for which the Account Debtor has not been invoiced;

 

(q)   Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’s business;

 

(r)   Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond one hundred twenty (120) days;

 

(s)   Accounts subject to chargebacks or others payment deductions taken by an Account Debtor, but only to the extent of the chargeback or payment deduction;

 

(t)    Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

 

(u)   Accounts for which SVB in its good faith business judgment determines collection to be doubtful; and

 

(v)   other Accounts SVB deems ineligible in the exercise of its good faith business judgment.”

 

“    “Foreign Currency” means lawful money of a country other than the United States.”

 

“    “FX Business Day” is any day when (a) SVB’s Foreign Exchange Department is conducting its normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to SVB from the entity from which SVB shall buy or sell such Foreign Currency.”

 

“    “FX Forward Contract” is defined in Section 2.1.6.”

 

“    “FX Reduction Amount” is defined in Section 2.1.6.”

 

 

“    “FX Reserve” is defined in Section 2.1,6.”

 

“    “IPO Event” is Borrower’s initial underwritten public offering and sale of its securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, or any successor statute.”

 

“    “Letter of Credit” means a standby letter of credit issued by SVB or another institution based upon an application, guarantee, indemnity or similar agreement on the part of SVB as set forth in Section 2.1.5.”

 

“    “Letter of Credit Application” is defined in Section 2.1.5(a)

 

“    “Letter of Credit Reserve” has the meaning set forth in Section 2.1.5(d).”

 

“    “Revolving Advance” or “Revolving Advances” means an advance (or advances) under the Revolving Line.”

 

“    “Revolving Line” is a Revolving Advance or Revolving Advances in an amount equal to Eight Million Dollars ($8,000,000.00).”

 

“    “Revolving Line Maturity Date” is two (2) years from the 2008 Effective Date.”

 

“    “Tangible Net Worth” is, on any date, the total assets of Borrower minus (a) any amounts attributable to (i) goodwill, (ii) intangible items including unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, (iii) notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total Liabilities, plus (c) Subordinated Debt.”

 

“    “Unused Revolving Line Facility Fee” is defined in Section 2.4(h).”

 

28.

Schedule 1.1 of the Loan Agreement is hereby replaced with the Schedule 1.1 attached as Exhibit A hereto.

 

29.

The Compliance Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit B hereto.

 

30.

The Loan Agreement shall be amended by inserting the Borrowing Base Certificate attached hereto as Exhibit C as Exhibit D thereto.

 

4.    FEES.    Borrower shall pay to SVB the fees as set forth in the Loan Agreement. Borrower shall also reimburse SVB and Lenders for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

 

5.    RATIFICATION OF PERFECTION CERTIFICATE.    Except as set forth on Exhibit D hereto, Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in that certain Perfection Certificate dated as of August 2, 2006, between Borrower and Lenders, and acknowledges, confirms and agrees that the disclosures and information Borrower provided to Lenders in the Perfection Certificate have not changed, as of

 

 

the date hereof. The modifications set forth on Exhibit D shall be incorporated into the Perfection Certificate by reference and, accordingly, all references in the Loan Agreement to Perfection Certificate shall mean and include the Perfection Certificate (as defined in the Loan Agreement) as updated by the terms on Exhibit D.

 

6.    CONSISTENT CHANGES.    The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

7.    RATIFICATION OF LOAN DOCUMENTS.    Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Agent, for the ratable benefit of the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

8.    NO DEFENSES OF BORROWER.    Borrower hereby acknowledges and agrees that, as of the Effective Date, Borrower has no offsets, defenses, claims, or counterclaims against Agent or Lenders with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Agent or Lenders, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Agent and Lenders from any liability thereunder.

 

9.    CONTINUING VALIDITY.    Borrower understands and agrees that in modifying the existing Obligations, Agent and Lenders are relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lenders’ agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate any Lender to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Lenders and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Agent in writing. No maker will be released by virtue of this Loan Modification Agreement.

 

10.    COUNTERSIGNATURE.    This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower, Agent and Lenders.

 

[The remainder of this page is intentionally left blank]

 

 

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

	
BORROWER:
    	
LENDERS:
    
	
 
    	
 
    	
 
    	
 
    
	
A123 SYSTEMS, INC.
    	
SILICON   VALLEY BANK, as Agent and Lender
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/   Michael Rubino 
    	
 
    	
By:
    	
/s/   Robin Gill 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Michael   Rubino 
    	
 
    	
Name:
    	
Robin   Gill 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
CFO   
    	
 
    	
Title:
    	
VP   
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
GOLD   HILL VENTURE LENDING 03, L.P., as LENDER
    
	
 
    	
 
    	
 
    	
 
    	
 

	
 
    	
 
    	
By:
    	
GOLD   HILL VENTURE LENDING PARTNERS 03, LLC, its General Partner
    	
 

	
 
    	
 
    	
 
    	
 
    	
 

	
 
    	
 
    	
By:
    	
/s/   David Fischer 
    	
 

	
 
    	
 
    	
 
    	
 
    	
 

	
 
    	
 
    	
Name:
    	
David   Fischer 
    	
 

	
 
    	
 
    	
 
    	
 
    	
 

	
 
    	
 
    	
Title:
    	
Manager   
    	
 

 

 

Exhibit A

 

Schedule 1.1

 

Lenders and Commitments

 

	
Lender 
    	
 
    	
Commitment
    	
 
    	
Commitment Percentage
    	
 
    
	
TERM LOAN
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Silicon Valley Bank
    	
 
    	
$
    	
1,250,000.00
    	
 
    	
41.66
    	
%
    
	
Gold Hill Venture Lending 03, L.P. 
    	
 
    	
$
    	
1,750,000.00
    	
 
    	
58.34
    	
%
    
	
TOTAL
    	
 
    	
$
    	
3,000,000.00
    	
 
    	
100.00
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2007 TERM LOAN
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Silicon Valley Bank
    	
 
    	
$
    	
10,000,000.00
    	
 
    	
100
    	
%
    
	
Gold Hill Venture Lending 03, L.P. 
    	
 
    	
$
    	
0
    	
 
    	
0
    	
%
    
	
TOTAL
    	
 
    	
$
    	
10,000,000.00
    	
 
    	
100
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2008 TERM LOAM
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Silicon Valley Bank
    	
 
    	
$
    	
15,000,000.00
    	
 
    	
100
    	
%
    
	
Gold Hill Venture Lending 03, L.P. 
    	
 
    	
$
    	
0
    	
 
    	
0
    	
%
    
	
TOTAL
    	
 
    	
$
    	
15,000,000.00
    	
 
    	
100
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
REVOLVING LINE
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Silicon Valley Bank
    	
 
    	
$
    	
8,000,000.00
    	
 
    	
100
    	
%
    
	
Gold Hill Venture Lending 03, L.P. 
    	
 
    	
$
    	
0
    	
 
    	
0
    	
%
    
	
TOTAL
    	
 
    	
$
    	
8,000,000.00
    	
 
    	
100
    	
%
    

 

 

Exhibit B

 

EXHIBIT C
 COMPLIANCE CERTIFICATE

 

TO: SILICON VALLEY BANK, AS AGENT

 

FROM: A123 SYSTEMS, INC.

 

The undersigned authorized officer of A123 Systems, Inc. certifies that under the terms and conditions of the Loan and Security Agreement between Borrower, Lenders, and Agent (as amended, the “Agreement”), (i) Borrower is in complete compliance for the period ending                        with all required covenants except as noted below and (ii) there are no Events of Default, and all representations and warranties in the Agreement are trae and correct in all material respects on this date (provided that those representations and warranties expressly referring to a specific date shall be tree and correct in all material respects as of such date). Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next (except for the absence of footnotes and subject to year-end adjustments) except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

	
Reporting Covenant 
    	
 
    	
Required
    	
 
    	
Complies
    	
 
    
	
Monthly financial statements with CC
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes    No
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Annual financial statements (CPA Audited)
    	
 
    	
FYE   within 180 days
    	
 
    	
Yes    No
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Borrowing Base Certificate w/ A/R and A/P agings,   if required
    	
 
    	
Monthly   within 30 days when borrowing
    	
 
    	
Yes    No
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
10-Q, 10-K and 8-K
    	
 
    	
Within   5 days after filing with SEC
    	
 
    	
Yes    No
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Projections
    	
 
    	
Annually,   within 30 days of Board approval
    	
 
    	
Yes    No
    	
 
    

 

	
Financial Covenant 
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    	
 
    
	
Maintain on a Monthly Basis:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Minimum. Liquidity Ratio
    	
 
    	
2.0:1.0
    	
 
    	
:1.0
    	
 
    	
Yes    No
    	
 
    
	
Tangible Net Worth
    	
 
    	
$
    	
*
    	
 
    	
$
    	
 
    	
 
    	
Yes    No
    	
 
    
										

 

*              As set forth in Section 6.8(b) of the Agreement.

 

	
Comments   Regarding Exceptions: See Attached.
    	
AGENT   USE ONLY
    
	
 
    	
Received   by:
    
	
 
    	
 
    
	
A123   Systems, Inc.
    	
 
    
	
 
    	
AUTHORIZED SIGNER
    

 

 

	
Sincerely,
    	
 
    	
Date:
    
	
 
    	
 
    	
Verified:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Date   
    
	
Signature
    	
 
    	
 
    
	
 
    	
 
    	
Compliance   Status:        Yes    No
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Date
    	
 
    	
 
    

 

 

Exhibit C

 

EXHIBIT D—BORROWING BASE CERTIFICATE

 

	
Borrower:
    	
 
    	
A123   Systems, Inc.
    
	
Lender:
    	
 
    	
Silicon   Valley Bank
    
	
Commitment   Amount:
    	
 
    	
$8,000,000.00
    

 

	
ACCOUNTS RECEIVABLE
    	
 
    	
 
    
	
1.
    	
Accounts   Receivable (invoiced) Book Value as of
    	
 
    	
$
    
	
2.
    	
Additions   (please explain on reverse)
    	
 
    	
$
    
	
3.
    	
TOTAL   ACCOUNTS RECEIVABLE
    	
 
    	
$
    
	
 
    	
 
    	
 
    	
 
    
	
ACCOUNTS RECEIVABLE DEDUCTIONS (without   duplication)
    	
 
    	
 
    
	
4.   
    	
Amounts   over 90 days due
    	
 
    	
$
    
	
5.   
    	
Balance   of 50% over 90 day accounts
    	
 
    	
$
    
	
6.   
    	
Foreign   Accounts
    	
 
    	
$
    
	
7.   
    	
Foreign   Invoiced Accounts
    	
 
    	
$
    
	
8.   
    	
Contra/Customer   Deposit Accounts
    	
 
    	
$
    
	
9.
    	
Intercompany/Employee   Accounts
    	
 
    	
$
    
	
10.
    	
Credit   balances over 90 days
    	
 
    	
$
    
	
10.
    	
Concentration   Limits
    	
 
    	
$
    
	
11.
    	
U.S.   Governmental Accounts
    	
 
    	
$
    
	
12.
    	
Promotion   or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts
    	
 
    	
$
    
	
13.
    	
Accounts   with Progress/Milestone/Pre-billings; Contract Accounts
    	
 
    	
$
    
	
14.
    	
Accounts   for Retainage Billings
    	
 
    	
$
    
	
15.
    	
Trust   Accounts
    	
 
    	
$
    
	
16.
    	
Bill   and Hold Accounts
    	
 
    	
$
    
	
17.
    	
Unbilled   Accounts
    	
 
    	
$
    
	
18.
    	
Non-Trade   Accounts
    	
 
    	
$
    
	
19.
    	
Accounts   with Extended Term Invoices (beyond 120 days)
    	
 
    	
$
    
	
20.
    	
Accounts   subject to Chargebacks
    	
 
    	
$
    
	
21.
    	
Disputed   Accounts
    	
 
    	
$
    
	
22.
    	
Other   (please explain on reverse)
    	
 
    	
$
    
	
23.
    	
TOTAL   ACCOUNTS RECEIVABLE DEDUCTIONS
    	
 
    	
$
    
	
24.
    	
Eligible   Accounts (#3 minus #24)
    	
 
    	
$
    
	
25.
    	
ELIGIBLE   AMOUNT OF ACCOUNTS (80% of #25)
    	
 
    	
$
    
	
 
    	
 
    	
 
    	
 
    
	
BALANCES
    	
 
    	
 
    
	
27.
    	
Maximum   Loan Amount
    	
 
    	
$
    
	
28.
    	
Total   Funds Available (Lesser of #27 or #26)
    	
 
    	
$
    
	
29.
    	
Present   balance owing on Line of Credit
    	
 
    	
$
    
	
30.
    	
Outstanding   under Sublimits
    	
 
    	
$
    
	
31.
    	
RESERVE   POSITION (#27 minus #29 and #30)
    	
 
    	
$
    

 

[Continued on following page.]

 

 

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

 

	
 
    	
COMMENTS: 
    	
SVB   USE ONLY 
    
	
 
    	
 
    	
Received   by:
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
By: 
    	
 
    	
 
    	
Date:   
    	
 
    
	
 
    	
 
    	
Authorized Signer
    	
Verified:
    	
 
    
	
 
    	
Date:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
AUTHORIZED   SIGNER
    
	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
Compliance   Status:        Yes    No
    
						

 

 

Exhibit D

 

Modifications to Perfection Certificate

 

EXHIBIT D

 

To Second Loan Modification Agreement dated as of September 24, 2008

 

by and among A123 Systems, Inc., Silicon Valley Bank,

 

and Gold Hill Venture Lending 03, L.P.

 

 

AMENDMENT TO PERFECTION CERTIFICATE

 

In connection with the execution of that certain Second Loan Modification Agreement (the “Agreement”) by and among A123 Systems, Inc. (unless otherwise noted, the “Company”), Silicon Valley Bank, and Gold Hill Venture Lending 03, L.P., dated as of September 24, 2008, the perfection certificate to which this Amendment is attached is hereby amended as set forth below. The Agreement is being executed in connection with that certain Term Loan and Security Agreement dated as of August 2, 2006, among the Company, Silicon Valley Bank, and Gold Hill Venture Lending 03, L.P. (as amended, the “Loan Agreement”), Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Perfection Certificate to which this Amendment relates, or, to the extent not defined therein, the meaning ascribed to them in the Agreement.

 

1.     Section 1(c) of the Perfection Certificate is hereby deleted and replaced with the following language:

 

(c)     The following is a list of all subsidiaries of the Company (whether wholly owned, or where the Company has a controlling or majority interest):

 

AI23 Systems (China) Co., Ltd.

 

A123 Systems (China) Materials Co., Ltd.

 

A123 Systems (Zhenjiang) Co., Ltd.

 

A123 Securities Corporation

 

Enerland Co., Ltd.

 

Changchun Farad Electronic Co., Ltd.

 

Changchun Guoji Electronic Technology Co., Ltd.*

 

*       This entity is owned 45% by Changchun Farad Electronic Co., Ltd.

 

2.     Section 1(h) of the Perfection Certificate is hereby deleted and replaced with the following language:

 

(h)   The Company currently maintains its bank and investment accounts at:

 

(i)    Bank Accounts—Silicon Valley Bank

 

(ii)   Investment Accounts—Silicon Valley Bank

 

(iii)  Payroll Accounts— Silicon Valley Bank

 

(iv)  Other depository/operating accounts—Silicon Valley Bank

 

3.     Section 2(a) of the Perfection Certificate is hereby deleted and replaced with thefollowing language:

 

(a)     The following is the mailing address of the Company:

 

	
 
    	
Mailing Address
    	
 
    	
City
    	
 
    	
State
    	
 
    
	
 
    	
321   Arsenal Street
    	
 
    	
Watertown
    	
 
    	
MA
    	
 
    

 

 

4.     Section 2(c) of the Perfection Certificate is hereby deleted and replaced with the following language:

 

(c)   If different from the addresses set forth in subparagraphs (a) and (b) above, the following are all other locations in which the Company maintains any books or records relating to any of the Collateral consisting of accounts, instruments, chattel paper, general intangibles or mobile goods:

 

	
 
    	
Mailing Address
    	
 
    	
City
    	
 
    	
State
    	
 
    
	
 
    	
3850   Research Park Dr.
    	
 
    	
Ann   Arbor
    	
 
    	
MI
    	
 
    
	
 
    	
28200   Plymouth Road
    	
 
    	
Livonia
    	
 
    	
MI
    	
 
    

 

5.     Section 2(e) of the Perfection Certificate is hereby deleted and replaced with the following language:

 

(e)   The following are the names and addresses of all persons or entities other than the Company (such as lessees, bailees, consignees, warehousemen, or purchasers of chattel paper), which have possession or are intended to have possession of any of the Collateral consisting of instruments, chattel paper, inventory or equipment and the nature of such party’s possession {such as lessee, bailee, consignee, warehouseman, purchaser of chattel paper, or other):

 

	
 
    	
Name
    	
 
    	
Mailing Address
    	
 
    	
City
    	
 
    	
State
    	
 
    	
Nature of Possession
    	
 
    
	
 
    	
-None-
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

6.     Section 6 of the Perfection Certificate is hereby deleted and replaced with the following language:

 

Litigation.    Actions or proceedings pending or, to the knowledge of Borrower’s Responsible Officers, threatened in writing against Borrower or any Subsidiary, which would reasonably be expected to cause a material adverse change:

 

SEE APPENDIX A

 

7.     Schedule A to the Perfection Certificate is hereby deleted and replaced with the following language:

 

Schedule A

 

For purposes of this Schedule A only, the term “Company” shall refer to the business or organization to which A123 Systems, Inc., has become the successor by merger, consolidation, acquisition, change inform, nature or jurisdiction or otherwise, now or at any time during the past five (5) years.

 

(a)

The exact legal name of the Company as it appears in its certificate of incorporation, as amended to date, is as follows:

 

T/J Technologies, Inc. (“TJT”) (by merger)

 

Enerland Co., Ltd. (“Enerland”) (by acquisition)

 

2080418 Ontario Inc. d/b/a Hymotion (“Ontario”) (by asset acquisition)

 

(b)

The following is a list of all other names (including trade names or similar appellations) used by the Company, or any of its divisions or other business units, or any other business or organization to which the Company became the successor by merger, consolidation, acquisition, change in form, nature or

 

 

jurisdiction of organization or otherwise, now or at any time during the past five years together with the dates such names were used:

 

Hymotion (Ontario)

 

(c)

The following is a list of all subsidiaries of the Company (whether wholly owned, or where the Company has a controlling or majority interest):

 

Changchun Farad Electronic Co., Ltd. (subsidiary of Enerland)

 

(d)

The following is the type of organization of the Company:

 

Chapter C Corporation (TJT)

 

Korean joint stock company (Enerland) (incorporated 12/19/00)

 

Corporation (Province of Ontario)

 

(e)

The jurisdiction of organization of the Company is as follows:

 

Michigan (TJT)

 

Republic of Korea (Enerland)

 

Province of Ontario (Ontario)

 

(f)

The following is the Company’s state issued organizational identification number, if any:

 

472-117 (TJT)

 

(g)

The Company’s federal taxpayer identification number is: 38-3014290 (TJT)

 

(h)

The Company currently maintains its bank and investment accounts at: 

(i)

Bank Accounts—United Bank & Trust-Washtenaw (TJT); Industrial Bank of Korea (Enerland)

 

(ii)

Investment Accounts—United Bank & Trust-Washtenaw (TJT); Industrial Bank of Korea (Enerland)

 

(iii)

Payroll Accounts- United Bank & Trust-Washtenaw (TJT); Industrial Bank of Korea (Enerland)

 

 

(iv)

Other depository/operating accounts—United Bank & Trust-Washtenaw (TJT); Industrial Bank of Korea (Enerland)

 

(i)

The Company currently has the following commercial tort claims against other parties:

 

-None-

 

Schedule B to the Perfection Certificate is hereby deleted and replaced with the following language:

 

Schedule B

 

Middlesex County Register of Deeds
 208 Cambridge Street
 East Cambridge, MA 02141

 

Washtenaw County Register of Deeds
 P.O. Box 8645
 Ann Arbor, MI 48107

 

Washtenaw County Register of Deeds
 200 N. Main, Suite 110
 Ann Arbor, MI 48104

 

9.     Appendix A and Rider 1 to the Perfection Certificate are hereby deleted and replaced with the following language:

 

Appendix A

 

In 2005 and 2006, we received communications from Flydro-Quebec, a Canadian utility company, alleging that the cathode material of our batteries infringes U.S. Patent No. 5,910,382 and U.S. Patent No. 6,514,640 that had been granted to The University of Texas, or UT, and that relate to certain electrode materials used in lithium-ion batteries. We refer to these patents by the last three digits of the patent number. The ‘382 and ‘640 patents include claims that claim to cover battery cathode material having a particular crystal structure and chemical formula. We contend that our cathode material has a different crystal structure and chemical formula.

 

We believe that UT subsequently licensed the patents to Hydro-Quebec, which in turn licensed the technology to companies that make and sell electrode materials for batteries. On April 7, 2006, we commenced an action in the United States District Court for the District of Massachusetts seeking a declaratory judgment that our products do not infringe these patents and that the patents are invalid. On September 8, 2006, we also requested reexamination of the two patents by the U.S. Patent & Trademark Office, or PTO.

 

On September 11, 2006, Hydro-Quebec and UT commenced an action in the United States District Court for the Northern District of Texas against us, one of our customers, whom we have agreed to indemnify, and one of our suppliers alleging infringement of the two patents and, in a later amended complaint, false advertising. The plaintiffs’ complaint alleges infringement of various claims of the ‘382 Patent and various claims of the ‘640 Patent and that we and our customer have engaged in false advertising by making representations about the source and nature of our technology. The complaint seeks injunctive relief, including against making, using or selling any product containing the patented technology, actual damages in an unspecified amount, increased and/or treble damages, interest, costs, and attorney fees. In October 2006 and January 2007, the PTO granted our requests for reexamination of the two patents.

 

 

[End of Amendment to Perfection Certificate]

 

 

THIRD LOAN MODIFICATION AGREEMENT

 

This Third Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of March 16, 2009, by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 (“SVB”), as agent (the “Agent”), and the other Lenders that are now or hereafter become a “Lender” under the Loan Agreement (as hereinafter defined), including without limitation, SVB and GOLD HILL VENTURE LENDING 03,  L.P. (“Gold Hill”) and (b) A123 SYSTEMS, INC., a Delaware corporation with its chief executive office located at 321 Arsenal Street, Watertown, MA 02472 (“Borrower”).

 

1.    DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS.    Among other indebtedness and obligations which may be owing by Borrower to the Lenders, Borrower is indebted to the Lenders pursuant to a loan arrangement dated as of August 2, 2006, evidenced by, among other documents, a certain Term Loan and Security Agreement dated as of August 2, 2006, between Borrower and the Lenders, as amended by a certain First Loan Modification Agreement dated as of July 10, 2007, between Borrower and the Lenders, and as further amended by a certain Second Loan Modification dated as of September 24, 2008, between Borrower and the Lenders (the “Second Amendment”) (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.    DESCRIPTION OF COLLATERAL.    Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Agent, for the ratable benefit of the Lenders, the “Security Documents”). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.    DESCRIPTION OF CHANGE IN TERMS.

 

A.

Modifications to Loan Agreement. 

1.

The Loan Agreement shall be amended by deleting the following text, appearing in Section 2.1.3 thereof:

 

“  (a)    Availability.    Subject to the terms and conditions herein, SVB shall lend to Borrower from time to time prior to the 2008 Commitment Termination Date, advances (each a “2008 Term Advance” and collectively the “2008 Term Advances”) in an aggregate amount not to exceed the 2008 Term Loan. When repaid, the 2008 Term Advances may not be re-borrowed. SVB’s obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the 2008 Commitment Termination Date. For purposes of this Section 2.1.3, the minimum amount of each 2008 Term Advance is Five Hundred Thousand Dollars ($500,000.00)”

 

and inserting in lieu thereof the following:

 

“  (a)    Availability.    Subject to the terms and conditions herein, SVB shall lend to Borrower from time to time prior to the 2008 Commitment Termination Date, advances (each a “2008 Term Advance” and collectively the “2008 Term Advances”) in an aggregate amount not to exceed the 2008 Term Loan. When repaid, the 2008 Term Advances may not be re-borrowed. SVB’s obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the 2008 Commitment Termination Date. For purposes of this Section 2.1.3, the minimum amount of each 2008 Term Advance is Five Hundred Thousand Dollars ($500,000.00). Notwithstanding the forgoing, the Borrower hereby acknowledges, confirms, and agrees

 

 

that no 2008 Term Advances shall be made by Bank until the occurrence of the Equity Event.”

 

2.

The Loan Agreement shall be amended by deleting the following text, appearing in Section 2.3(b)(ii) thereof:

 

“  (ii)    2008 Term Advances.    Borrower shall pay interest on each 2008 Payment Date on the unpaid principal amount of each 2008 Term Advance until such 2008 Term Advance has been paid in full. Subject to Section 2.3(b)(vi), interest shall accrue at the floating per annum rate of interest equal to the aggregate of the Prime Rate and one-half of one percent (0.50%).”

 

and inserting in lieu thereof the following:

 

“  (ii)    2008 Term Advances.    Borrower shall pay interest on each 2008 Payment Date on the unpaid principal amount of each 2008 Term Advance until such 2008 Term Advance has been paid in full. Subject to Section 2.3(b)(vi), interest shall accrue at the floating per annum rate of interest equal to the aggregate of the Prime Rate and one-half of one percent (0.50%). Commencing on the 2009 Effective Date and subject to Section 2.3(b)(vi), interest shall accrue at the floating per annum rate of interest equal to the aggregate of the Prime Rate and three-quarters of one percent (0.75%).”

 

3.

The Loan Agreement shall be amended by deleting the following text, appearing in Section 6.8 thereof:

 

“  (a)    Liquidity Ratio.    Commencing with the month ending June 30, 2007, and as of the last day of each month thereafter, a Liquidity Ratio of at least 2.0 to 1.0.

 

(b)    Tangible Net Worth.    Tangible Net Worth of at least One Hundred Twenty Million Dollars ($120,000,000.00). Notwithstanding the foregoing, the amount required in the prior sentence shall increase by an amount equal to fifty percent (50.0%) of the net proceeds received by Borrower from the sale of its equity or the incurrence of Subordinated Debt after the 2008 Effective Date.”

 

and inserting in lieu thereof the following:

 

“  (a)     Liquidity Ratio.    Commencing with the month ending June 30, 2007, and as of the last day of each month thereafter, a Liquidity Ratio of at least 2.0 to 1.0. Commencing with the month ending December 31, 2008, and as of the last day of each month thereafter, a Liquidity Ratio of at least 2.5 to 1.0.

 

(b)    Equity Event.    Provide evidence to Agent, on or prior to March 31, 2009, that the Equity Event has occurred by such date.”

 

4.

The Loan Agreement shall be amended by inserting the following definitions to appear alphabetically in Section 13.1 thereof:

 

“ 2009 Effective Date” is March 16, 2009.”

 

 

       “Equity Event” is the receipt by Borrower, after the 2009 Effective Date but on or before March 31, 2009, of unrestricted net cash proceeds to Borrower of at least Fifty Million Dollars ($50,000,000.00) from the closing of an equity round of financing.”

 

5.

The Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof:

 

        “  “Revolving Line Maturity Date” is two (2) years from the 2008 Effective Date.”

 

and inserting in lieu thereof the following:

 

        “  Revolving Line Maturity Date” is September 24, 2010.”

 

6.

The Compliance Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit A hereto.

 

B.

Waiver. 

1.

Lenders hereby waive Borrower’s existing default under the Loan Agreement by virtue of Borrower’s failure to comply with the financial covenant set forth in Section 6.8(b) of the Loan Agreement (relative to the requirement that Borrower maintain a certain tangible net worth) as of the months ending November 30, 2008, December 31, 2008, January 31, 2009 and February 28, 2009 (as required prior to this Loan Modification Agreement). Lenders’ waiver of Borrower’s compliance with such covenant shall apply only to the foregoing specific periods.

 

        4.    FEES.    Borrower shall pay to SVB a modification fee equal to Five Thousand Dollars ($5,000.00), which fee shall be due and payable on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse SVB and Lenders for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

 

        5.    RATIFICATION OF PERFECTION CERTIFICATE.    Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of August 2, 2006, between Borrower and Lenders, as amended by the Second Amendment and the additional Amendment attached hereto as Exhibit B, and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Lenders in the Perfection Certificate have not changed, as of the date hereof.

 

        6.    CONSISTENT CHANGES.    The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

        7.    RATIFICATION OF LOAN DOCUMENTS.    Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Agent, for the ratable benefit of the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

        8.    NO DEFENSES OF BORROWER.    Borrower hereby acknowledges and agrees that, as of the Effective Date, Borrower has no offsets, defenses, claims, or counterclaims against Agent or Lenders with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Agent or Lenders, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Agent and Lenders from any liability thereunder.

 

9.    CONTINUING VALIDITY.    Borrower understands and agrees that in modifying the existing Obligations, Agent and Lenders are relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lenders’ agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate any Lender to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Lenders and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Agent in writing. No maker will be released by virtue of this Loan Modification Agreement.

 

10.    COUNTERSIGNATURE.    This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower, Agent and Lenders.

 

3

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

	
BORROWER:
    	
LENDERS:
    
	
 
    	
 
    
	
A123 SYSTEMS, INC.
    	
SILICON VALLEY BANK, as Agent and Lender
    
	
 
    	
 
    
	
By:
    	
/s/   Michael Rubino
    	
 
    	
By:
    	
/s/   Robin Gill
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Michael   Rubino
    	
 
    	
Name:
    	
Robin   Gill
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
CFO
    	
 
    	
Title:
    	
VP
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
GOLD HILL VENTURE LENDING 03, L.P., as LENDER
    
	
 
    	
 
    
	
 
    	
By:   GOLD HILL VENTURE LENDING PARTNERS 03, LLC, its General Partner
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Rob Helm
    
	
 
    	
 
    	
 
    
	
 
    	
Name:   
    	
Rob   Helm
    
	
 
    	
 
    	
 
    
	
 
    	
Title:   
    	
Managing   Director, Gold Hill Capital
    

 

 

Exhibit A

 

EXHIBIT C
 COMPLIANCE CERTIFICATE

 

	
TO:
    	
SILICON   VALLEY BANK, AS AGENT
    
	
FROM:
    	
A123   SYSTEMS, INC.
    

 

The undersigned authorized officer of A123 Systems, Inc. certifies that under the terms and conditions of the Loan and Security Agreement between Borrower, Lenders, and Agent (as amended, the “Agreement”), (i) Borrower is in complete compliance for the period ending                with all required covenants except as noted below and (ii) there are no Events of Default, and all representations and warranties in the Agreement are true and correct in all material respects on this date (provided that those representations and warranties expressly referring to a specific date shall be true and correct in all material respects as of such date). Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next (except for the absence of footnotes and subject to year-end adjustments) except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

	
Reporting Covenant
    	
 
    	
Required
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Monthly   financial statements with CC
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes
    	
 
    	
No
    
	
Annual   financial statements (CPA Audited)
    	
 
    	
FYE   within 180 days
    	
 
    	
Yes
    	
 
    	
No
    
	
Borrowing Base Certificate w/ A/R and A/P agings,   if required
    	
 
    	
Monthly   within 30 days when borrowing
    	
 
    	
Yes
    	
 
    	
No
    
	
10-Q,   10-K and 8-K
    	
 
    	
Within   5 days after filing with SEC
    	
 
    	
Yes
    	
 
    	
No
    
	
Projections
    	
 
    	
Annually,   w/in 30 days of Board approval
    	
 
    	
Yes
    	
 
    	
No
    

 

	
Financial Covenants 
    	
 
    	
Required 
    	
 
    	
Actual 
    	
 
    	
Complies
    	
 
    	
 
    
	
Minimum   Liquidity Ratio
    	
 
    	
2.5:1.0
    	
 
    	
:1.0
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
 
    
	
Equity   Event
    	
 
    	
Occur   by 3/31/2009
    	
 
    	
 
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    

 

	
 
    	
Comments   Regarding Exceptions: See Attached.
    	
AGENT   USE ONLY
    
	
 
    	
 
    	
 
    
	
 
    	
A123 Systems, Inc.
    	
Received   by:
    	
 
    
	
 
    	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    	
 
    
	
 
    	
Sincerely,
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Verified:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Signature
    	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Title
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Compliance   Status:                          Yes    No
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Date
    	
 
    	
 
    
						

 

 

Exhibit B

 

AMENDMENT TO PERFECTION CERTIFICATE

 

In connection with the execution of that certain Third Loan Modification Agreement (the “Agreement”) by and between A123 Systems, Inc. (unless otherwise noted, the “Company”) and Silicon Valley Bank, dated as of March 16, 2009, the Amendment to Perfection Certificate dated September 24, 2008 to which this Amendment is attached is hereby amended as set forth below. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Perfection Certificate to which this Amendment relates, or, to the extent not defined therein, the meaning ascribed to them in the Agreement.

 

1.

Section 2(c) of the Perfection Certificate is hereby deleted and replaced with the following language: 

(c)

If different from the addresses set forth in subparagraphs (a) and (b) above, the following are all other locations in which the Company maintains any books or records relating to any of the Collateral consisting of accounts, instruments, chattel paper, general intangibles or mobile goods:

 

	
Mailing Address
    	
 
    	
City
    	
 
    	
State
    
	
3850 Research Park Drive
    	
 
    	
Ann   Arbor
    	
 
    	
MI
    
	
46500 Humboldt
    	
 
    	
Novi
    	
 
    	
MI
    

 

[End of Amendment to Perfection Certificate]

 

 

FOURTH LOAN MODIFICATION AGREEMENT

 

This Fourth Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of March 31 2009, by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business as 3003 Tasman Drive, Santa Clara, California 95054 (“SVB”), as agent (the “Agent”), and the other Lenders that are now or hereafter become a “Lender” under the Loan Agreement (as hereinafter defined), including without limitation, SVB and GOLD HILL VENTURE LENDING 03, L.P. (“Gold Hill”) and (b) A123 SYSTEMS, INC., a Delaware corporation with its chief executive office located at 321 Arsenal Street, Watertown, MA 02472 (“Borrower”).

 

1.             DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to the Lenders, Borrower is indebted to the Lenders pursuant to a loan arrangement dated as of August 2, 2006, evidenced by, among other documents, a certain Term Loan and Security Agreement dated as of August 2, 2006, between Borrower and the Lenders, as amended by a certain First Loan Modification Agreement dated as of July 10, 2007, between Borrower and the Lenders, as further amended by a certain Section Loan Modification dated as of September 24, 2008, between Borrower and the Lenders (the “Second Amendment”), and as amended by a certain Third Loan Modification dated as of March 16, 2009, between Borrower and the Lenders (the “Third Amendment”) (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.             DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Agent, for the ratable benefit of the Lenders, the “Security Documents”). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.             DESCRIPTION OF CHANGE IN TERMS.

 

A.            Modifications to Loan Agreement.

 

1.                                             The Loan Agreement shall be amended by deleting the following text, appearing in Section 6.8 thereof:

 

“                         (b) Equity Event. Provide evidence to Agent, on or prior to March 31, 2009, that the Equity Event has occurred by such date.”

 

and inserting in lieu thereof the following:

 

“ (b)           Equity Event. Provide evidence to Agent, on or prior to April 7, 2009, that the Equity Event has occurred by such date.”

 

2.                                             The Loan Agreement shall be amended by deleting the following definition, appearing in Section 13.1 thereof:

 

“               “Equity Event” is the receipt by Borrower, after the 2009 Effective Date but on or before March 31, 2009, of unrestricted net cash proceeds to Borrower of at least Fifty Million Dollars ($50,000,000.00) from the closing of an equity round of financing.”

 

and inserting in lieu thereof the following:

 

“               “Equity Event” is the receipt by Borrower, after the 2009 Effective Date but on or before April 7, 2009, of unrestricted net cash

 

 

proceeds to Borrower of at least Fifty Million Dollars ($50,000,000.00) from the closing of an equity round of financing.”

 

3.                                             The Loan Agreement shall be amended such that the reference on the Compliance Certificate to “Occur by 3/31/2009” shall be deemed to be “Occur by 4/7/2009”

 

4.             FEES. Borrower shall reimburse SVB and Lenders for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

 

5.             RATIFICATION OF PERFECTION CERTIFICATE. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of August 2, 2006, between Borrower and Lenders, as amended by the Third Amendment, and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Lenders in the Perfection Certificate have not changed, as of the date hereof.

 

6.             CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

7.             RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Agent, for the ratable benefit of the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

8.             NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that, as of the Effective Date, Borrower has no offsets, defenses, claims, or counterclaims against Agent or Lenders with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims or counterclaims against Agent or Lenders, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Agent and Lenders from any liability thereunder.

 

9.             CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Agent and Lenders are relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lenders’ agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate any Lender to make any future modification to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Lenders and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Agent in writing. No maker will be released by virtue of this Loan Modification Agreement.

 

10.           COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower, Agent and Lenders.

 

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

	
BORROWER:
    	
 
    	
LENDERS:
    
	
 
    	
 
    	
 
    
	
A123   SYSTEMS, INC.
    	
 
    	
SILICON   VALLEY BANK, as Agent and Lender
    
	
 
    	
 
    	
 
    
	
By:   /s/ Michael Rubino
    	
 
    	
By:   /s/ Dave Rodriguez
    
	
 
    	
 
    	
 
    
	
Name:    Michael Rubino
    	
 
    	
Name:    Dave Rodriguez
    
	
 
    	
 
    	
 
    
	
Title:    CFO
    	
 
    	
Title:    SVP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
GOLD   HILL VENTURE LENDING 03, L.P., as Lender
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:   /s/ R. Helm
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name:    Rob Helm
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:    Managing Director
    

 

 

FIFTH LOAN MODIFICATION AGREEMENT

 

This Fifth Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of September 24 2010, by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business as 3003 Tasman Drive, Santa Clara, California 95054 (“SVB”), as agent (“Agent”), and the other Lenders that are now or hereafter become a “Lender” under the Loan Agreement (as hereinafter defined), including without limitation, SVB and GOLD HILL VENTURE LENDING 03, L.P. (“Gold Hill”) and (b) A123 SYSTEMS, INC., a Delaware corporation with its chief executive office located at 321 Arsenal Street, Watertown, MA 02472 (“Borrower”).

 

1.             DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS.  Among other indebtedness and obligations which may be owing by Borrower to the Lenders, Borrower is indebted to the Lenders pursuant to a loan arrangement dated as of August 2, 2006, evidenced by, among other documents, a certain Term Loan and Security Agreement dated as of August 2, 2006, between Borrower and the Lenders, as amended by a certain First Loan Modification Agreement dated as of July 10, 2007, between Borrower and the Lenders, as further amended by a certain Section Loan Modification dated as of September 24, 2008, between Borrower and the Lenders (the “Second Amendment”), as amended by a certain Third Loan Modification dated as of March 16, 2009, between Borrower and the Lenders (the “Third Amendment”), and as further amended by a certain Fourth Loan Modification Agreement dated as of March 31, 2009 (as amended, the “Loan Agreement”).  Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.             DESCRIPTION OF COLLATERAL.  Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Agent, for the ratable benefit of the Lenders, the “Security Documents”).  Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.             DESCRIPTION OF CHANGE IN TERMS.

 

A.            Modifications to Loan Agreement.

 

1.                                            The Loan Agreement shall be amended by deleting the following provision appearing as Section 2.6 thereof:

 

“2.6        Overadvances.  If, at any time, the sum of (a) the outstanding principal amount of any Revolving Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letters of Credit Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either the Revolving Line of the Borrowing Base, Borrower shall immediately pay to SVB in cash such excess.”

 

and inserting in lieu thereof the following:

 

“2.6        Overadvances.  If, at any time, the sum of (a) the outstanding principal amount of any Revolving Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either (i) the Revolving Line or (ii) the aggregate of (x) the Borrowing Base, plus (y) the Permitted Overadvance, Borrower shall immediately pay to SVB in cash such excess.”

 

2.                                             The Loan Agreement shall be amended by deleting the following definition, appearing in Section 13.1 thereof:

 

 

“                  “Availability Amount” is (a) the lesser of (i) the Revolving Line or  (ii) the amount available under the Borrowing Base minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to any Letter of Credit Reserve, minus (c) any FX Reduction Amount, minus (d) any unreimbursed amounts used for Cash Management Services, and minus (e) the outstanding principal balances of any Revolving Advances

 

“                  “Revolving Line Maturity Date” is September 24, 2010.”

 

and inserting in lieu thereof the following:

 

“                  “Availability Amount” is (a) the lesser of (i) the Revolving Line of (ii) the aggregate amount of (x) the amount available under the Borrowing Base, plus (y) the Permitted Overadvance, minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to any Letter of Credit Reserve, minus (c) any FX Reduction Amount, minus (d) any unreimbursed amounts used for Cash Management Services, and minus (e) the outstanding principal balance of any Revolving Advances

 

“                  “Revolving Line Maturity Date” is December 23, 2010.”

 

3.                                       The Loan Agreement shall be amended by inserting the following new    definitions to appear alphabetically in Section 13.1 thereof:

 

“                  “2010 Effective Date” is September 24, 2010.”

 

“                  “Permitted Overadvance” is an Advance of Advances under the Revolving Line up to (i) Four Million Dollars ($4,000,000.00) from the 2010 Effective Date through and including the Revolving Line Maturity Date.”

 

4.             FEES.  Borrower shall pay to SVB a modification fee equal to Five Thousand Dollars ($5,000.00), which fee shall be due and payable on the date hereof and shall be deemed fully earned as of the date hereof.  Borrower shall also reimburse SVB and Lenders for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

 

5.             CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

6.             RATIFICATION OF LOAN DOCUMENTS.  Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Agent, for the ratable benefit of the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

7.             NO DEFENSES OF BORROWER.  Borrower hereby acknowledges and agrees that, as of the Effective Date, Borrower has no offsets, defenses, claims, or counterclaims against Agent or Lenders with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims or counterclaims against Agent or Lenders, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Agent and Lenders from any liability thereunder.

 

8.             CONTINUING VALIDITY.  Borrower understands and agrees that in modifying the existing Obligations, Agent and Lenders are relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents.  Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect.  Lenders’ agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate any Lender to make any future modification to the Obligations.  Nothing in this Loan Modification Agreement shall

 

 

constitute a satisfaction of the Obligations.  It is the intention of Lenders and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Agent in writing.  No maker will be released by virtue of this Loan Modification Agreement.

 

9.             COUNTERSIGNATURE.  This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower, Agent and Lenders.

 

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

	
BORROWER:
    	
 
    	
LENDERS:
    
	
 
    	
 
    	
 
    
	
A123   SYSTEMS, INC.
    	
 
    	
SILICON   VALLEY BANK, as Agent and Lender
    
	
 
    	
 
    	
 
    
	
By:   /s/ Michael Rubino
    	
 
    	
By:   /s/ Robin Gil
    
	
 
    	
 
    	
 
    
	
Name:    Michael Rubino
    	
 
    	
Name:    Robin Gill
    
	
 
    	
 
    	
 
    
	
Title:    CFO
    	
 
    	
Title:    VP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
GOLD   HILL VENTURE LENDING 03, L.P., as Lender
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:   /s/ David Fischer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name:    David Fischer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:    Manager
    

 

 

SIXTH LOAN MODIFICATION AGREEMENT

 

This Sixth Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of January 26 2011, but effective as of December 23, 2020,  by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business as 3003 Tasman Drive, Santa Clara, California 95054 (“SVB”), as agent (“Agent”), and the other Lenders that are now or hereafter become a “Lender” under the Loan Agreement (as hereinafter defined), including without limitation, SVB and GOLD HILL VENTURE LENDING 03, L.P. (“Gold Hill”) and (b) A123 SYSTEMS, INC., a Delaware corporation with its chief executive office located at 321 Arsenal Street, Watertown, MA 02472 (“Borrower”).

 

1.             DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS.  Among other indebtedness and obligations which may be owing by Borrower to the Lenders, Borrower is indebted to the Lenders pursuant to a loan arrangement dated as of August 2, 2006, evidenced by, among other documents, a certain Term Loan and Security Agreement dated as of August 2, 2006, between Borrower and the Lenders, as amended by a certain First Loan Modification Agreement dated as of July 10, 2007, between Borrower and the Lenders, as further amended by a certain Section Loan Modification dated as of September 24, 2008, between Borrower and the Lenders (the “Second Amendment”), as amended by a certain Third Loan Modification dated as of March 16, 2009, between Borrower and the Lenders (the “Third Amendment”), as amended by a certain Fourth Loan Modification Agreement dated as of March 31, 2009, and as further amended by a certain Fifth Loan Modification Agreement dated as of September 24, 2010  (as amended, the “Loan Agreement”).  Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.             DESCRIPTION OF COLLATERAL.  Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Agent, for the ratable benefit of the Lenders, the “Security Documents”).  Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.             DESCRIPTION OF CHANGE IN TERMS.

 

A.            Modifications to Loan Agreement.

 

1.                                             The Loan Agreement shall be amended by deleting the following definition, appearing in Section 13.1 thereof:

 

“                 “Revolving Line Maturity Date” is December 23, 2010.”

 

and inserting in lieu thereof the following:

 

“                  “Revolving Line Maturity Date” is March 22, 2011.”

 

4.             FEES.  Borrower shall pay to SVB a modification fee equal to Five Thousand Dollars ($5,000.00), which fee shall be due and payable on the date hereof and shall be deemed fully earned as of the date hereof.  Borrower shall also reimburse SVB and Lenders for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

 

5.             CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

6.             RATIFICATION OF LOAN DOCUMENTS.  Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Agent, for the ratable benefit of the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

7.             NO DEFENSES OF BORROWER.  Borrower hereby acknowledges and agrees that, as of the Effective Date, Borrower has no offsets, defenses, claims, or counterclaims against Agent or Lenders with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims or

 

 

counterclaims against Agent or Lenders, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Agent and Lenders from any liability thereunder.

 

8.             CONTINUING VALIDITY.  Borrower understands and agrees that in modifying the existing Obligations, Agent and Lenders are relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents.  Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect.  Lenders’ agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate any Lender to make any future modification to the Obligations.  Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations.  It is the intention of Lenders and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Agent in writing.  No maker will be released by virtue of this Loan Modification Agreement.

 

9.             COUNTERSIGNATURE.  This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower, Agent and Lenders.

 

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

	
BORROWER:
    	
 
    	
LENDERS:
    
	
 
    	
 
    	
 
    
	
A123   SYSTEMS, INC.
    	
 
    	
SILICON   VALLEY BANK, as Agent and Lender
    
	
 
    	
 
    	
 
    
	
By:   /s/  John Granara
    	
 
    	
By:     /s/ Robin Gil
    
	
 
    	
 
    	
 
    
	
Name:     John Granara
    	
 
    	
Name:     Robin Gill
    
	
 
    	
 
    	
 
    
	
Title:  Interim CFO and VP Finance
    	
 
    	
Title:    VP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
GOLD   HILL VENTURE LENDING 03, L.P., as Lender
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:   /s/ David Fischer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name:    David Fischer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:    Manager

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