Document:

QuickLinks
 -- Click here to rapidly navigate through this document

 
 

  Exhibit 10.16    
    

 LOAN AND SECURITY AGREEMENT

(Operating Line of Credit)  

        This LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of August 2, 2006,
between SILICON VALLEY BANK, a California chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and
with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 (FAX 617-969-5965) ("Bank") and  A123 SYSTEMS, INC., a
Delaware corporation, with offices at Arsenal on the Charles, One Kingsbury Avenue, Watertown, Massachusetts 02472 (FAX
617-778-5749) ("Borrower"), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. 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. 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 Bank the unpaid principal amount of all Advances hereunder with all interest, fees and finance charges due thereon as and when due in accordance with this Agreement 

        2.1.1    Financing of Accounts.    

        (a)    Availability.    Subject to the terms of this Agreement, Borrower may request that Bank finance specific
Eligible Accounts and Placeholder Invoices. Bank shall finance such Eligible Accounts and Placeholder Invoices by extending credit to Borrower in an amount equal to the result of the Advance Rate
multiplied by the face amount of the Eligible Account and/or Placeholder Invoice (the "Advance"). Bank may, in its sole discretion, after consultation with Borrower, change the percentage of the
Advance Rate for a particular Eligible Account or Placeholder Invoice on a case by case basis. When Bank makes an Advance, the Eligible Account or Placeholder Invoice becomes a "Financed Receivable."
Notwithstanding the foregoing, in the event that Borrower's Adjusted Quick Ratio is less than 1.50 to 1.0 at any time, Bank will not agree to finance any further Placeholder Invoices (until such time
as Borrower's Adjusted Quick Ratio is equal to or greater than 1.50 to 1.0). 

        (b)    Maximum Advances.    The aggregate face amount of all Financed Receivables outstanding at any time may not
exceed the Facility Amount. In addition, the aggregate amount of Advances made based upon Placeholder Invoices may not exceed Two Million Dollars ($2,000,000.00). 

        (c)    Borrowing Procedure.    Borrower will deliver an Invoice Transmittal for each Eligible Account it offers. Bank
may rely on information set forth in or provided with the Invoice Transmittal. 

        (d)    Credit Quality; Confirmations.    Bank may, at its option, conduct a credit check of the Account Debtor for
each Account requested by Borrower for financing hereunder in order to approve any such Account Debtor's credit before agreeing to finance such Account. Bank may also verify directly with the
respective Account Debtors the validity, amount and other matters relating to the Accounts (including confirmations of Borrower's representations in Section 5.3 and Section 5.4) by means
of mail, telephone or otherwise, either in the name of Borrower or Bank from time to time in its sole discretion. 

 

        (e)    Accounts Notification/Collection.    Bank may notify any Person owing Borrower money with respect to a Financed
Receivable of Bank's security interest in the funds and verify and/or collect the amount of the Account, provided, however, that prior to the occurrence of an Event of Default, Bank will endeavor to
provide Borrower with notice prior to collecting any Accounts from Account Debtors (it being understood and recognized by Borrower that Bank's failure to provide such notice shall not result in any
liability of the Bank and shall in no way limit this Agreement). 

        (f)    Early Termination.    This Agreement may be terminated prior to the Maturity Date as follows: (i) by
Borrower, effective two (2) Business Days after written notice of termination is given to Bank; or (ii) by Bank at any time after the occurrence of an Event of Default, without notice,
effective immediately. If this Agreement is terminated by Borrower for any reason, Borrower shall pay to Bank a termination fee in an amount equal to Twenty Thousand Dollars ($20,000.00) (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, Bank agrees to waive the Early Termination Fee if Bank agrees to refinance and redocument this Agreement under another division of Bank (in its sole
and exclusive discretion) prior to the Maturity Date. 

        (g)    Maturity.    This Agreement shall terminate and all Obligations outstanding hereunder shall be immediately due
and payable on the Maturity Date. 

        (h)    Suspension of Advances.    Borrower's ability to request that Bank finance Eligible Accounts hereunder will
terminate if, in Bank'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. 

        2.2    Collections, Finance Charges, Remittances and Fees.    The
Obligations shall be subject to the following fees and Finance Charges. Unpaid fees and Finance Charges may, in Bank's discretion, accrue interest and fees as described in Section 9.2 hereof. 

        2.2.1    Collections.    Collections will be credited to the Financed
Receivable Balance for such Financed Receivable, but if there is an Event of Default, Bank may apply Collections to the Obligations in any order it chooses. If Bank receives a payment for both a
Financed Receivable and a non-Financed Receivable, the funds will first be applied to the Financed Receivable and, if there is no Event of Default then existing, the excess will be
remitted to Borrower, subject to Section 2.2.7. 

        2.2.2    Loan Fees.    

        (a)   A
fully earned, non-refundable facility fee of Twenty Five Thousand Dollars ($25,000.00) is due upon execution of this Agreement (the "Facility Fee"). 

        (b)   A
fully earned, non-refundable anniversary fee of Twenty Five Thousand Dollars ($25,000.00) (the "Anniversary Fee"), which Anniversary Fee shall be earned as
of the date hereof, and shall be payable on the earlier to occur of (i) the date that is one year from the Closing Date, or (ii) the early termination of this Agreement. Notwithstanding
the foregoing, if the aggregate amount of the Finance Charges received by Bank, after the Closing Date and on or prior to the date that is one (1) year from the Closing Date, is equal to or
greater than Fifty Thousand Dollars ($50,000.00), then Bank agrees to waive the Anniversary Fee. 

The
Facility Fee and the Anniversary Fee are hereinafter collectively referred to as the "Loan Fees". 

        2.2.3    Finance Charges.    In computing Finance Charges on the
Obligations under this Agreement, all Collections received by Bank shall be deemed applied by Bank on account of the Obligations three (3) Business Days after receipt of the Collections.
Borrower will pay a finance charge (the "Finance Charge") on each Financed Receivable which is equal to the Applicable Rate divided by 360  multiplied  

2

 

 by the number of days each such Financed Receivable is outstanding multiplied by the outstanding Financed Receivable Balance.
The Finance Charge is payable when the Advance made based on such Financed Receivable is payable in accordance with Section 2.3 hereof. 

        2.2.4    Collateral Handling Fee.    Borrower will pay to Bank a
collateral handling fee equal to 0.05% per month of the Financed Receivable Balance for each Financed Receivable outstanding based upon a 360 day year (the "Collateral Handling Fee"); provided,
however, if Borrower is unable to maintain an Adjusted Quick Ratio of at least 1.50 to 1.0 at any time during any Reconciliation Period, then the Collateral Handling Fee will be equal to 0.25% per
month of the Financed Receivable Balance for each Financed Receivable outstanding effective as of such Reconciliation Period and for each Reconciliation Period thereafter in which the Borrower's
Adjusted Quick Ratio is less than 1.50 to 1.0 at any time. This fee is charged on a daily basis which is equal to the Collateral Handling Fee divided by 30, multiplied by the number of days each such
Financed Receivable is outstanding, multiplied by the outstanding Financed Receivable Balance. The Collateral Handling Fee is payable when the Advance made based on such Financed Receivable is payable
in accordance with Section 2.3 hereof. In computing Collateral Handling Fees under this Agreement, all Collections received by Bank shall be deemed applied by Bank on account of Obligations
three (3) Business Days after receipt of the Collections. 

        2.2.5    Accounting.    After each Reconciliation Period, Bank will
provide an accounting of the transactions for that Reconciliation Period, including the amount of all Financed Receivables, all Collections, Adjustments, Finance Charges, Collateral Handling Fee and
the Loan Fees. If Borrower does not object to the accounting in writing within thirty (30) days it shall be considered accurate. All Finance Charges and other interest and fees are calculated
on the basis of a 360 day year and actual days elapsed. 

        2.2.6    Deductions.    Bank may deduct fees, Finance Charges,
Advances which become due pursuant to Section 2.3, and other amounts due pursuant to this Agreement from any Advances made or Collections received by Bank. 

        2.2.7    Lockbox; Account Collection Services.    As and when directed
by Bank from time to time, at Bank's option and at the sole and exclusive discretion of Bank (regardless of whether an Event of Default has occurred), Borrower shall direct each Account Debtor (and
each depository institution where proceeds of Accounts are on deposit) to remit payments with respect to the Accounts to a lockbox account established with Bank or to wire transfer payments to a cash
collateral account that Bank controls (collectively, the "Lockbox"). It will be considered an immediate Event of Default if the Lockbox is not set-up and operational within
forty-five (45) days from the date of such direction by Bank. Until such Lockbox is established, the proceeds of the Accounts shall be paid by the Account Debtors to an address
consented to by Bank. Upon receipt by Borrower of such proceeds, Borrower shall immediately transfer and deliver same to Bank, along with a detailed cash receipts journal. Provided no Event of Default
exists or an event that with notice or lapse of time will be an Event of Default, within three (3) days of receipt of such amounts by Bank, Bank will turn over to Borrower the proceeds of the
Accounts other than Collections with respect to Financed Receivables and the amount of Collections in excess of the amounts for which Bank has made an Advance to Borrower, less any amounts due to
Bank, such as the Finance Charge, the Loan Fees, payments due to Bank, and other fees and expenses due and payable hereunder; provided, however, Bank may hold such excess amount with respect to
Financed Receivables as a reserve until the end of the applicable Reconciliation Period if Bank, in its reasonable discretion, determines that other Financed Receivable(s) may no longer qualify as an
Eligible Account at any time prior to the end of the subject Reconciliation Period. This Section does not impose any affirmative duty on Bank to perform any act other than as specifically set forth
herein. All Accounts and the proceeds thereof are Collateral and if an Event of Default occurs, Bank may apply the proceeds of such Accounts to the Obligations. 

3

 

        2.2.8    Good Faith Deposit.    Borrower has paid to Bank a Good Faith
Deposit of Fifteen Thousand Dollars ($15,000.00) (the "Good Faith Deposit") to initiate Bank's due diligence review process. Any portion of the Good Faith Deposit not utilized to pay Bank Expenses
will be applied to the Loan Fees. 

        2.3    Repayment of Obligations; Adjustments.    

        2.3.1    Repayment.    

          (i)  Borrower
will repay each Advance made based upon an Eligible Account on the earliest of: (a) the date on which payment is received of the Financed Receivable
with respect to which the Advance was made, (b) the date on which the Financed Receivable is no longer an Eligible Account, (c) the date on which any Adjustment is asserted to the
Financed Receivable (but only to the extent of the Adjustment if the Financed Receivable remains otherwise an Eligible Account), (d) the date on which there is a breach of any warranty or
representation set forth in Section 5.3, or (e) the Maturity Date (including any early termination). Each payment will also include all accrued Finance Charges and Collateral Handling
Fees with respect to such Advance and all other amounts then due and payable hereunder. 

         (ii)  Borrower
will repay each Advance made based upon a Placeholder Invoice on the earliest of: (a) Borrower's issuance of an invoice based upon such purchase order,
(b) at such time when any of the representations or warranties set forth in Section 5.4 are not then true and correct in all material respects with respect to such Placeholder Invoice;
(c) the date on which there is a breach of any warranty or representation set forth in Section 5.4 or an Event of Default occurs under this Agreement, (d) Borrower's failure to
maintain, at any time, an Adjusted Quick Ratio of at least 1.50 to 1.0; or (e) the Maturity Date (including any early termination). Each payment will also include all accrued Finance Charges
and Collateral Handling Fees with respect to such Advance and all other amounts then due and payable hereunder. 

        2.3.2    Repayment on Event of Default.    When there is an Event of
Default, Borrower will, if Bank demands (or, upon the occurrence of an Event of Default under Section 8.5, immediately without notice or demand from Bank) repay all of the Advances. The demand
may, at Bank's option, include the Advance for each Financed Receivable then outstanding and all accrued Finance Charges, the Early Termination Fee, Collateral Handling Fee, reasonable attorneys' and
professional fees, court costs and expenses, and any other Obligations. 

        2.3.3    Debit of Accounts.    Bank may debit any of Borrower's
deposit accounts for payments or any amounts Borrower owes Bank hereunder. Bank shall promptly notify Borrower when it debits Borrower's accounts. These debits shall not constitute a
set-off. 

        2.3.4    Adjustments.    If at any time during the term of this
Agreement any Account Debtor asserts an Adjustment or if Borrower issues a credit memorandum or if any of the representations, warranties or covenants set forth in Section 5.3 or
Section 5.4 are no longer true in all material respects, Borrower will promptly advise Bank. 

        2.4    Power of Attorney.    Borrower irrevocably appoints Bank and
its successors and assigns as attorney-in-fact and authorizes Bank, to: (i) following the occurrence and during the continuation of an Event of Default, sell, assign,
transfer, pledge, compromise, or discharge all or any part of the Financed Receivables; (ii) following the occurrence and during the continuation of an Event of Default, demand, collect, sue,
and give releases to any Account Debtor for monies due and compromise, prosecute, or defend any action, claim, case or proceeding about the Financed Receivables, including filing a claim or voting a
claim in any bankruptcy case in Bank's or Borrower's name, as Bank chooses; (iii) following the occurrence and during the continuation of an Event of Default, prepare, file and sign Borrower's
name on any notice, claim, assignment, demand, draft, or notice of or satisfaction of lien or mechanics' lien or similar document; (iv) regardless of whether there has been an Event of Default,
notify all Account Debtors to pay Bank directly; (v) regardless of whether there has been an Event of Default, receive and open mail addressed to Borrower, (vi) regardless of whether
there has been an Event of 

4

 

Default,
endorse Borrower's name on checks or other instruments (to the extent necessary to pay amounts owed pursuant to this Agreement); and (vii) regardless of whether there has been an Event
of Default, execute on Borrower's behalf any instruments, documents, financing statements to perfect Bank's interests in the Financed Receivables and Collateral and do all other acts and things
necessary or expedient, as determined solely and exclusively by Bank, to protect or preserve, Bank's rights and remedies under this Agreement, as directed by Bank. 

        3    CONDITIONS OF LOANS    

        3.1    Conditions Precedent to Initial Advance.    Bank's agreement to
make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank
may reasonably deem necessary or appropriate, including, without limitation, subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the
following: 

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

        (b)   subordination
agreements/intercreditor agreements by certain Persons; 

        (c)   Perfection
Certificate by Borrower; 

        (d)   a
legal opinion of Borrower's counsel (authority/enforceability); 

        (e)   Warrant
to Purchase Stock; 

        (f)    Account
Control Agreement/Investment Account Control Agreement; 

        (g)   insurance
certificates; 

        (h)   payment
of the fees and Bank Expenses then due and payable; 

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

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

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

        3.2    Conditions Precedent to all Advances.    Bank's agreement to
make each Advance, including the initial Advance, is subject to the following: 

        (a)   receipt
of the Invoice Transmittal; 

        (b)   Bank
shall have (at its option) conducted the confirmations and verifications as described in Section 2.1.1(d); and 

        (c)   each
of the representations and warranties in Article 5 shall be true on the date of the Invoice Transmittal and on the effective date of each Advance (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 Advance. Each Advance is Borrower's
representation and warranty on that date that the representations and warranties in Article 5 remain true (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 Bank, 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 and
assigns to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products 

5

 

thereof.
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 Bank 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 Bank 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 Bank 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 (such consent or authorization may include a licensor's agreement to a contingent assignment of the license to Bank if the Bank
determines that is necessary in its good faith judgment), 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
the Agreement is terminated, Bank's lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations. If Borrower shall at any time, acquire
a commercial tort claim with a value reasonably likely to exceed One Hundred Thousand Dollars ($100,000.00), Borrower shall promptly notify Bank of the brief details thereof and upon request of Bank
grant to Bank in 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 reasonably satisfactory to Bank. 

        4.2    Authorization to File Financing Statements.    Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions in order to perfect or protect Bank's interest or rights hereunder, which financing
statements may indicate the Collateral as "all assets of the Debtor (other than Intellectual Property)" or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all
in Bank's discretion and may also include a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code. 

        5    REPRESENTATIONS AND WARRANTIES    

Borrower
represents and warrants 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. Borrower
represents and warrants to Bank 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. If
Borrower does not now have an organizational identification number, but later obtains one, Borrower shall forthwith notify Bank of such organizational identification number. 

6

 

  
        The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's organizational documents, nor 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. All inventory is in all material respects of good and marketable quality, free from material defects. Borrower has no deposit account, other than the deposit accounts
with Bank and deposit accounts described in the Perfection Certificate delivered to Bank in connection herewith or otherwise maintained in accordance with Section 6.5 hereof. Except as set
forth on the Perfection Certificate, the Collateral is not in the possession of any third party bailee (such as a warehouse). Except as hereafter disclosed to Bank in writing by Borrower, none of the
components of the Collateral with a value in excess of Fifty Thousand Dollars ($50,000.00) in the aggregate 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 Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. 

        5.3    Financed Receivables.    

        (a)   Borrower
represents and warrants for each Financed Receivable (other than Financed Receivables based Upon Placeholder Invoices): 

          (i)  Each
Financed Receivable is an Eligible Account (as to the determination by Bank as to whether an Account is an Eligible Account based upon Bank's discretion, Bank has
not notified Borrower, and Borrower has no knowledge, that a particular Financed Receivable is no longer an Eligible Account); 

         (ii)  Borrower
is the owner with legal right to sell, transfer, assign and encumber such Financed Receivable; 

        (iii)  The
correct amount is on the Invoice Transmittal and is not disputed (or, if disputed, the disputed portion is not included as a Financed Receivable); 

        (iv)  Payment
is not contingent on any obligation or contract and Borrower has fulfilled all its obligations as of the Invoice Transmittal date; 

         (v)  Each
Financed Receivable is based on an actual sale and delivery of goods and/or services rendered, is due to Borrower, is not past due or in default (other than that it
may be past due, provided that it continues to be an Eligible Account), has not been previously sold, assigned, transferred, or pledged and is free of any liens, security interests and encumbrances
other than Permitted Liens; 

        (vi)  There
are no defenses, offsets, counterclaims or agreements for which the Account Debtor may claim any deduction or discount (or if there are any defenses, offsets,
counterclaims or agreements, such amounts are not included as a Financed Receivable); 

       (vii)  Borrower
reasonably believes no Account Debtor is insolvent or subject to any Insolvency Proceedings; and 

      (viii)  Bank
has the right to endorse and/ or require Borrower to endorse all payments received on Financed Receivables and all proceeds of Collateral. 

        (b)   Borrower
represents and warrants that, at the time of each Advance, Borrower does not anticipate filing or having filed against it an Insolvency Proceeding. 

7

 

        5.4    Representations regarding Placeholder Invoices.    With respect
to Placeholder Invoices, Borrower represents and warrants that the estimated face value amount determined by Borrower is based upon the best information available to Borrower and accurately and fully
(considering all known discounts
available to each such Account Debtor) reflects same. In addition, Borrower represents and warrants that there are no discounts, offsets or other rights of any Account Debtor under any Placeholder
Invoice (or if there are any discounts, offsets or other rights, such discounted amounts are not included in the amount of borrowings to be made with respect to such Placeholder Invoice), and that the
goods ordered by the purchase order which is the subject of each Placeholder Invoice are designated for shipment within ninety (90) days of the date of Borrower's request for an Advance. 

        5.5    Litigation.    Except as described on 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 which would reasonably be expected to
have a material adverse effect on Borrower's business or operations. 

        5.6    No Material Deterioration in Financial Statements.    All
consolidated financial statements for Borrower and any Subsidiary delivered to Bank fairly present in all material respects Borrower's consolidated financial condition and Borrower's consolidated
results of operations, subject to year end adjustments and the 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 Bank. 

        5.7    Solvency.    Borrower is able to pay its debts (including trade
debts) as they mature. 

        5.8    Regulatory Compliance.    Borrower is not an "investment
company" or a company "controlled" by an "investment company" under the Investment Company Act. 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. 

        5.9    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"). 

        5.10    Full Disclosure.    No written representation, warranty or
other statement of Borrower in any certificate or written statement given to Bank 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 Bank 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. 

8

 

        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 or operations. 

        6.2    Financial Statements, Reports, Certificates.    

        (a)   Borrower
shall deliver to Bank: (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 Bank; (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 prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) in the event that Borrower's stock
becomes publicly held, within five (5) days of filing, copies of 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) budgets, sales projections, operating plans or other financial information reasonably
requested by Bank. 

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

        (c)   Borrower
will allow Bank to audit Borrower's Collateral, including, but not limited to, Borrower's Accounts and accounts receivable, at Borrower's expense, upon
reasonable notice to Borrower; provided, however, prior to the occurrence of an Event of Default, Borrower shall be obligated to pay for not more than one (1) audit per year. After the
occurrence and during the continuation of an Event of Default, Bank may audit Borrower's Collateral, including, but not limited to, Borrower's Accounts and accounts receivable at Borrower's expense
and at Bank's sole and exclusive discretion and without notification and authorization from Borrower. 

        (d)   Upon
Bank's request, provide a written report respecting any Financed Receivable, if payment of any Financed Receivable does not occur by its due date and include the
reasons for the delay. 

        (e)   Provide
Bank with, as soon as available, but no later than thirty (30) days following each Reconciliation Period, an aged listing of accounts receivable and
accounts payable by invoice date, in form acceptable to Bank. 

        (f)    Provide
Bank with, as soon as available, but no later than, thirty (30) days following each Reconciliation Period, a Deferred Revenue report, in form acceptable
to Bank. 

        6.3    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 Bank, on demand, appropriate certificates attesting to such payments. 

9

 

        6.4    Insurance.    Borrower shall keep its business and the
Collateral insured for risks and in amounts, and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All property
policies shall have a lender's loss payable endorsement showing Bank as an additional loss payee and all liability policies shall show Bank as an additional insured and all policies shall provide that
the insurer must give Bank at least twenty (20) days notice before canceling its policy. At Bank's request, Borrower shall deliver certified copies of policies and
evidence of all premium payments. Proceeds payable under any policy shall, at Bank' s option, be payable to Bank on account of the Obligations. If Borrower, fails to obtain insurance as required under
this Section or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this
Section and take any action under the policies Bank deems prudent. 

        6.5    Accounts.    

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

        (b)   Borrower
shall identify to Bank, in writing, any bank or securities account opened by Borrower, with any institution other than Bank. In addition, for each such account
that Borrower at any time opens or maintains, Borrower shall, at Bank's request and option, pursuant to an agreement in form and substance reasonably acceptable to Bank, cause the depository bank or
securities intermediary to agree that such account is the collateral of Bank, and enter into a "control agreement" 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. 

        6.6    Further Assurances.    Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or continue Bank's 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 Bank'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
(i) of inventory in the ordinary course of business; (ii) of licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of
business; or (iii) of worn-out or obsolete equipment. Borrower shall not enter into an agreement with any Person other than Bank which restricts the subsequent granting of a
security interest in the Intellectual Property. 

        7.2    Changes in Business, Ownership, Management or Business
Locations.    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 change in its ownership such that the holders of at least fifty percent (50.0%) of the voting securities of Borrower prior to any transaction or series of transaction do not
continue to hold at least fifty percent (50.0%) 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 Bank 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 

10

 

terminated,
or is no longer actively involved in the management of the Borrower in his/her current position and a replacement reasonably satisfactory to Bank 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 Bank: (i) 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 (ii) change its jurisdiction of organization, or (iii) change its organizational structure or type, or (iv) change its legal name, or (v) 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.    (i) 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 (ii) pay any dividends (except those payable in
common stock) or make any distribution or payment 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 Bank'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 Advance for that purpose; fail to meet the minimum funding requirements of ERISA, or permit a Reportable Event or 

11

 

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 could 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 is an Event of Default: 

        8.1    Payment Default.    Borrower fails to pay any of the
Obligations when due; 

        8.2    Covenant Default.    

        (a)   If
Borrower fails to perform any obligation under Sections 2.2.7, 6.2, or 6.5 or violates any of the covenants contained in Article 7 or
Section 5.10 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 in any of
the Loan Documents, and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such 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 reasonable 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 Advances will
be made during such cure period); provided, however, grace and cure periods provided under this section shall not apply to financial covenants or any other covenants that are required to be satisfied,
completed or tested by a date certain; 

        8.3    Intentionally omitted.    

        8.4    Attachment.    (i) 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; (ii) the service of process upon Bank
or Borrower seeking to attach, by trustee or similar process, any funds of Borrower on deposit with Bank, or any entity under the control of Bank (including a subsidiary); (iii) Borrower is
enjoined, restrained, or prevented by court order from conducting any material part of its business; (iv) a judgment or other claim becomes a Lien on a portion of Borrower's assets in an amount
in excess of Two Hundred Thousand Dollars ($200,000.00); or (v) 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; 

        8.5    Insolvency.    (i) Borrower is unable to pay its debts
(including trade debts) as they become due or otherwise becomes insolvent; (ii) Borrower begins an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against Borrower and
not dismissed or stayed within forty-five (45) days (but no Advances 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 One Hundred Thousand Dollars ($100,000.00) or that could have a material adverse effect on Borrower's business or operations; 

        8.7    Judgments.    (a) 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 Advances will be made prior to the satisfaction or stay of such judgment), or (b) (a) if a final judgment or judgments shall be rendered against
Borrower and shall remain unsatisfied and 

12

 

unstayed
for a period of ten (10) days (provided that no Advances 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 Bank or to induce Bank 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 Bank, or any creditor that has signed a subordination agreement with Bank breaches any terms of the
subordination agreement. 

        8.10    Lien Priority.    There is an impairment in the priority of
Bank's security interest in the Collateral. 

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

        9    BANK'S RIGHTS AND REMEDIES    

        9.1    Rights and Remedies.    When an Event of Default occurs and
continues Bank 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 Bank); 

        (b)   Stop
advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank; 

        (c)   Settle
or adjust disputes and claims directly with Account Debtors for amounts, on terms and in any order that Bank considers advisable and notify any Person owing
Borrower money of Bank's security interest in such funds and verify the amount of such account. Borrower shall collect all payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank 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 Bank
requests and make it available as Bank designates and which is reasonably convenient to Bank and Borrower. Subject to the rights of third parties, to the extent such third parties' rights are senior
to Bank, Bank 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 Bank, Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise any of Bank's rights or remedies; 

        (e)   Apply
to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank 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. Bank 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 Bank's exercise of its rights under this Section, Borrower's rights under all licenses and all franchise agreements inure to Bank's benefit; 

13

 

 

        (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    Bank Expenses; Unpaid Fees.    Any amounts paid by Bank as
provided herein shall constitute Bank Expenses and are immediately due and payable, and shall bear interest at the Default Rate and be secured by the Collateral. No payments by Bank shall be deemed an
agreement to make similar payments in the future or Bank's waiver of any Event of Default. In addition, any amounts advanced hereunder which are not based on Financed Receivables (including, without
limitation, unpaid fees and Finance Charges as described in Section 2.2) shall accrue interest at the Default Rate and be secured by the Collateral. 

        9.3    Bank's Liability for Collateral.    So long as Bank complies
with reasonable banking practices regarding the safekeeping of Collateral and Section 9-207 of the Code, Bank 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. 

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

        9.5    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 Bank on which Borrower is liable. 

        9.6    Default Rate.    After the occurrence of an Event of Default,
all Obligations shall accrue interest at the Applicable Rate plus three percent (3.0%) per annum (the "Default Rate"). 

        10    NOTICES    

        Notices
or demands by either party about this Agreement must be in writing and personally delivered or sent by an overnight delivery service, by certified mail postage prepaid return
receipt requested, or by fax to the addresses listed at the beginning of this Agreement. A party may change notice address by written notice to the other party. 

        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 Bank each submit to the exclusive jurisdiction of the State and Federal courts
in Massachusetts; provided, however, that if for any reason Bank cannot avail itself of such courts in the Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa
Clara County, California. NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK'S RIGHTS AGAINST BORROWER OR ITS PROPERTY. 

        BORROWER
AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, 

14

 

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 Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has 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,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents or any related agreement 

        12.2    Indemnification.    Borrower hereby indemnifies, defends and
holds Bank and its 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 Bank Expenses, incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower
(including reasonable attorneys' fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct 

        12.3    Right of Set-Off.    Borrower hereby grants to
Bank, a lien, security interest and right of set-off as security for all Obligations to Bank, 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 Bank or any entity under the control of Bank (including a Bank 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, Bank 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 BANK 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 both Bank 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 (other than any obligations solely in connection with the Warrant) have
been satisfied. The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run. 

15

 

        12.9    Confidentiality.    In handling any confidential information,
Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (i) to Bank's subsidiaries or affiliates in
connection with their business with Borrower (provided, however, Bank shall use commercially reasonable efforts in obtaining such subsidiary's or affiliate's agreement to the terms of this provision);
(ii) to prospective transferees or purchasers of any interest in the Advances (provided; however, Bank shall use commercially reasonable efforts in obtaining such prospective transferee's or
purchaser's agreement to the terms of this provision); (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank's examination or audit;
and (v) as Bank considers appropriate in exercising remedies under this Agreement The obligations of Bank under this Section 12.9 shall not apply to information that either (a) is
in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a
third party, if Bank 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. 

        "Account Debtor" is as defined in the Code and shall include, without limitation, (i) any person liable on any Financed Receivable,
such as, a guarantor of the Financed Receivable and any issuer of a letter
of credit or banker's acceptance, or (ii) customers of Borrower who have placed a purchase order with Borrower which is the subject of any Placeholder Invoice. 

        "Adjusted Quick Ratio" is the ratio of Quick Assets to Current Liabilities minus Deferred Revenue. 

        "Adjustments" are all discounts, allowances, returns, disputes, counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account Debtor for any Financed Receivable. 

        "Advance" is defined in Section 2.1.1. 

        "Advance Rate" eighty percent (80.0%), net of any offsets related to each specific Account Debtor other than Deferred Revenue, or such
other percentage as Bank establishes under Section 2.1.1; provided however, if Borrower is unable to maintain an Adjusted Quick Ratio of at least 1.50 to 1.0, then the Advance Rate will be
eighty percent (80.0%) net of any offsets related to each specific Account Debtor, including, without limitation, Deferred Revenue. 

        "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. 

        "Anniversary Fee" is defined in Section 2.2.2. 

        "Applicable Rate" is a per annum rate equal to the Prime Rate; provided however, if Borrower is unable to maintain an Adjusted Quick Ratio
of at least 1.50 to 1.0 at any time during any Reconciliation Period, then the Applicable Rate will be a per annum rate equal to the Prime Rate plus three quarters of one percent (0.75%) effective as
of such Reconciliation Period and for each Reconciliation Period thereafter in which the Borrower's Adjusted Quick Ratio is less than 1.50 to 1.0 at any time. 

16

 

        "Bank Expenses" are all audit fees and expenses and reasonable costs or expenses (including reasonable attorneys' fees and expenses) for
preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). 

        "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 Bank is closed. 

        "Closing Date" is the date of this Agreement. 

        "Code" is the Uniform Commercial Code as adopted in Massachusetts, as amended and as may be 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. 

        "Collateral Handling Fee" is defined in Section 2.2.4. 

        "Collections" are all funds received by Bank from or on behalf of an Account Debtor for Financed Receivables. 

        "Compliance Certificate" is attached as Exhibit B. 

        "Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) 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; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) 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. 

        "Current Liabilities" are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of
Borrower's Total Liabilities which mature within one (1) year. 

        "Default Rate" is defined in Section 9.6. 

        "Deferred Revenue" is all amounts received or invoiced, as appropriate, in advance of performance under contracts and not yet recognized
as revenue. 

        "Early Termination Fee" is defined in Section 2.1.1. 

        "Eligible Accounts" are billed Accounts in the ordinary course of Borrower's business that meet all Borrower's representations and
warranties in Section 5.3, have been, at the option of Bank, confirmed in accordance with Section 2.1.l(d), and are due and owing from Account Debtors deemed creditworthy by Bank in its
good faith business judgment. Without limiting the fact that the determination of which Accounts are eligible hereunder is a matter of Bank reasonable discretion in each instance, Eligible 

17

 

Accounts
shall not include the following Accounts (which listing may be amended or changed in Bank's discretion with notice to Borrower): 

        (a)   Accounts
that the Account Debtor has not paid within ninety (90) days of invoice date (provided that Bank may permit Accounts which have not been paid within one
hundred twenty (120) days to be included as Eligible Accounts in its sole and absolute discretion in each instance); 

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

        (c)   Accounts
for which the Account Debtor does not have its principal place of business in the United States, unless agreed to by Bank in writing, in its sole discretion, on
a case-by-case basis (it being acknowledged by Bank that, based upon Bank's credit review, Accounts owing from Black & Decker Macao Commercial Offshore Ltd are
Eligible Accounts as of the Closing Date, provided that the eligibility of such accounts remains subject
to Bank's ongoing credit review of such Accounts, and that such eligibility may be restored if Borrower obtains credit insurance acceptable to Bank in its sole and absolute discretion); 

        (d)   Accounts
for which the Account Debtor is a federal, state or local government entity or any department, agency, or instrumentality thereof except for Accounts of the
United States if the payee has assigned its payment rights to Bank and the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727); 

        (e)   Accounts
for which Borrower owes the Account Debtor, but only up to the amount owed (sometimes called "contra" accounts, accounts payable, customer deposits or credit
accounts); 

        (f)    Accounts
for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or other terms
if the Account Debtor's payment may be conditional; 

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

        (h)   Accounts
in which the Account Debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (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; or 

        (i)    Accounts
for which Bank reasonably determines collection to be doubtful or any Accounts which are unacceptable to Bank for any reason in its reasonable discretion
following consultation with Borrower. 

        "ERISA" is the Employee Retirement Income Security Act of 1974, and its regulations. 

        "Events of Default" are set forth in Article 8. 

        "Facility Amount" is Six Million Two Hundred Fifty Thousand Dollars ($6,250,000.00). 

        "Facility Fee" is defined in Section 2.2.2. 

        "Finance Charges" is defined in Section 2.2.3. 

        "Financed Receivables" are all those Eligible Accounts and Placeholder Invoices, including their proceeds which Bank finances and makes an
Advance, as set forth in Section 2.1.1. A Financed Receivable stops being a Financed Receivable (but remains Collateral) when the Advance made for the Financed Receivable has been fully paid. 

        "Financed Receivable Balance" is the total outstanding gross face amount, at any time, of any Financed Receivable. . 

18

 

        "GAAP" is generally accepted accounting principles. 

        "Good Faith Deposit" is defined in Section 2.2.8. 

        "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. 

        "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. 

        "Invoice Transmittal" shows Eligible Accounts which Bank may finance and, for each such Account, includes the Account Debtor's, name,
address, invoice amount, invoice date and invoice number. 

        "Intellectual Property" is any 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. 

        "Key Person" means, Chief Executive Officer, Chief Financial Officer, and Chief Technical Officer. 

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

        "Loan Documents" are, collectively, this Agreement, any note, or notes or guaranties executed by Borrower or any guarantor, and any other
present or future agreement between Borrower and/or for the benefit of Bank 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 Bank. 

        "Loan Fees" is defined in Section 2.2.2. 

        "Lockbox" is defined in Section 2.2.7. 

        "Maturity Date" is August 1, 2008. 

        "Obligations" are all advances, liabilities, obligations, covenants and duties owing, arising, due or payable by Borrower to Bank now or
later under this Agreement or any other document, instrument or agreement, account (including those acquired by assignment) primary or secondary, other than any obligations of Borrower solely pursuant
to equity documents between Borrower and Bank, such as all Advances, Finance Charges, Loan Fees, Early Termination Fee, Collateral Handling Fee, interest, fees, expenses, professional fees and
attorneys' fees, or other amounts now or hereafter owing by Borrower to Bank in connection with this Agreement 

        "Perfection Certificate" is a certain Perfection Certificate completed and delivered by Borrower to Bank in connection with this Agreement 

        "Permitted Indebtedness" is: 

        (a)   Borrower's
indebtedness to Bank under this Agreement or the Loan Documents; 

        (b)   Subordinated
Debt; 

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

19

 

        (d)   Indebtedness
secured by Permitted Liens; 

        (e)   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); 

        (f)    unsecured
Indebtedness in the amount of $ 1,300,000 owed to Black and Decker; 

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

        (h)   Extensions,
refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness listed in (a) through (g) 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 

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

        "Permitted Investments" are: 

        (a)   (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) Bank's certificates of deposit issued maturing no more than 1 year after issue, and (iv) any other investments administered through Bank; 

        (b)   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 Bank) 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; 

        (c)   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 

        (d)   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
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 Bank's security interests; 

        (c)   Purchase
money Liens securing no more than One Hundred Thousand Dollars ($100,000.00) in the aggregate amount outstanding (i) on equipment acquired or held by
Borrower incurred for financing the acquisition of the equipment, 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; 

20

 

        (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 Bank's 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 Bank 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, trust, unincorporated
organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency. 

        "Placeholder Invoice" is the estimated face value amount (as determined by Borrower, subject to Section 5.4 hereof) of an invoice
for a receivable that will be generated (but has not yet been generated) pursuant to a purchase order signed by an Account Debtor, designated for shipment within
ninety (90) days of the date of Borrower's request for an Advance, and deemed acceptable by Bank in its good faith business judgment. 

        "Prime Rate" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. 

21

 

  
        "Quick Assets" is, on any date, Borrower's unrestricted cash at Bank and net billed accounts receivable which are Eligible Accounts
hereunder determined according to GAAP. 

        "Reconciliation Period" is each calendar month. 

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

        "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's debt to Bank (pursuant to a subordination agreement entered
into between Bank, Borrower and the subordinated creditor), on terms acceptable to Bank. 

        "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. 

        "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 Agreement" is that certain Term Loan and Security Agreement as of even date herewith, as amended from time to time, by and
among Borrower, Bank (as agent), arid the lenders listed there including, without limitation, Gold Hill Venture Lending 03, L.P. 

        "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 Bank to be paid by Borrower, but excluding all other Subordinated Debt. 

        "Warrant" is that certain Warrant to Purchase Stock dated as of the Closing Date and executed by Borrower in favor of Bank. 

22

 

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

					
	 BORROWER:
	 	 
	
  A123 SYSTEMS, INC.
	 	 
	 By
	 	 /s/ Michael Rubino

	 	 
	 Name:
	 	Michael Rubino

	 	 
	 Title:
	 	CFO, VP Finance

	 	 
	
  BANK:
	 	 
	
  SILICON VALLEY BANK
	 	 
	 By
	 	

	 	 
	 Name:
	 	

	 	 
	 Title:
	 	

	 	 

23

 

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

					
	 BORROWER:
	 	 
	
  A123 SYSTEMS, INC.
	 	 
	 By
	 	

	 	 
	 Name:
	 	

	 	 
	 Title:
	 	

	 	 
	
  BANK:
	 	 
	
  SILICON VALLEY BANK
	 	 
	 By
	 	 /s/ Dave Rodriguez

	 	 
	 Name:
	 	Dave Rodriguez

	 	 
	 Title:
	 	VP

	 	 

24

 

 
 

EXHIBIT A    
    

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

        All
goods, equipment, inventory, contract rights or rights to payment of money, leases, 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. To the extent a court of competent jurisdiction holds that a security interest in any Intellectual Property is necessary to have
a security interest in any accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing Intellectual Property, then the Collateral
shall, effective as of the Closing Date, include the Intellectual Property, to the extent necessary to permit perfection of Bank's security interest in such accounts, license and royalty fees and
other revenues, proceeds, or income arising out of or relating to any of the Intellectual Property; 

        (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. 

25

 

 
 

  EXHIBIT B    
    

  

SILICON VALLEY BANK

SPECIALTY FINANCE DIVISION

Compliance Certificate  

        I, as authorized officer of A123 Systems, Inc. ("Borrower") certify under the Loan and Security Agreement (the "Agreement") between Borrower and Silicon
Valley Bank ("Bank") as follows (all capitalized terms used herein shall have the meaning set forth in the Agreement): 

Borrower represents and warrants for each Financed Receivable (other than Financed Receivables based on Placeholder Invoices):

Each
Financed Receivable is an Eligible Account (as to the determination by Bank as to whether an Account is an Eligible Account based upon Bank's discretion, Bank has not notified Borrower that a
particular Financed Receivable is no longer an Eligible Account). 

Borrower
is the owner with legal right to sell, transfer, assign and encumber such Financed Receivable; 

The
correct-amount is on the Invoice Transmittal and is not disputed (or, if disputed, the disputed portion is not included as a Financed Receivable); 

Payment
is not contingent on any obligation or contract and Borrower has fulfilled all its obligations as of the Invoice Transmittal date; 

Each
Financed Receivable is based on an actual sale and delivery of goods and/or services rendered, is due to Borrower, is not past due or in default (other than that it may be past due, provided that
it continues to be an Eligible Account), has not been previously sold, assigned, transferred, or pledged and is free of any liens, security interests and encumbrances other than Permitted Liens; 

There
are no defenses, offsets, counterclaims or agreements for which the Account Debtor may claim any deduction or discount (or if there are any defenses, offsets, counterclaims or agreements, such
amounts are not included as a Financed Receivable); 

It
reasonably believes no Account Debtor is insolvent of subject to any Insolvency Proceedings; 

Bank
has the right to endorse and/ or require Borrower to endorse all payments received on Financed Receivables and all proceeds of Collateral. 

Borrower represents and warrants that, at the time of each Advance, Borrower does not anticipate filing or having filed against it an Insolvency
Proceeding.

Additionally, Borrower represents and warrants as follows:

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. The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's organizational documents, nor constitute an event of default
under any material agreement by which Borrower is bound. Borrower is not in default under 

26

 

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. 

Borrower
has good title to the Collateral, free of Liens except Permitted Liens. All inventory is in all material respects of good and marketable quality, free from material defects. 

Borrower
is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act. 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 with all material respects. 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. 

With
respect to Placeholder Invoices, Borrower represents and warrants that the estimated face value amount determined by Borrower is based upon the best information available to Borrower and
accurately and fully (considering all known discounts available to each such Account Debtor) reflects same. In addition, Borrower represents and warrants that there are no discounts, offsets or other
rights of any Account Debtor under any Placeholder Invoice (or if there are any discounts, offsets or other rights, such discounted amounts are not included in the amount of borrowings to be made with
respect to such Placeholder Invoice), and that the goods ordered by the purchase order which is the subject of each Placeholder Invoice are designated for shipment within ninety (90) days of
the date of Borrower's request for an Advance. 

All
representations and warranties in the Agreement are true and correct in all material respects on this date, and Borrower represents that there is no existing Event of Default. 

Sincerely, 

Signature 

Title 

Date 

27

QuickLinks

Exhibit 10.16

EXHIBIT A

EXHIBIT BQuickLinks
 -- Click here to rapidly navigate through this document

 
 

  Exhibit 10.17    
    

 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
	

Title	 	Date:	 	

	

Date	 	Compliance Status:                Yes    No

   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:
	 	

	 Name:
	 	 Michael Rubino

	 	 Name:
	 	

	 Title:
	 	 CFO

	 	 Title:
	 	

	
	 	 	 	 
 GOLD HILL VENTURE LENDING 03, L.P., as LENDER

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

	
	 	 	 	 By:
	 	

	
	 	 	 	 Name:
	 	

	
	 	 	 	 Title:
	 	

        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:
	 	

	 	 By:
	 	 /s/ Dave Rodriguez

	 Name:
	 	

	 	 Name:
	 	 Dave Rodriguez

	 Title:
	 	

	 	 Title:
	 	 SVP

	
	 	 	 	 
 GOLD HILL VENTURE LENDING 03, L.P., as LENDER

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

	
	 	 	 	 By:
	 	

	
	 	 	 	 Name:
	 	

	
	 	 	 	 Title:
	 	

        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:
	 	

	 	 By:
	 	

	 Name:
	 	

	 	 Name:
	 	

	 Title:
	 	

	 	 Title:
	 	

	
	 	 	 	 
 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.

 A123 Systems, Inc.

Sincerely,

Signature

Title

Date	 	AGENT USE ONLY

Received
by:                                        
       

                          AUTHORIZED SIGNER

Date:                                        
                   

Verified:                                       
               

                   AUTHORIZED SIGNER

Date:                                        
                   

Compliance Status:        Yes    No

QuickLinks

Exhibit 10.17

Schedule 1.1 LENDERS AND COMMITMENTS

EXHIBIT A

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

EXHIBIT C COMPLIANCE CERTIFICATE

SCHEDULE 1.1 LENDERS AND COMMITMENTS

EXHIBIT B COMPLIANCE CERTIFICATE

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}]]