Document:

Exhibit 10.16

 

Confidential
Materials omitted and filed separately with the

Securities and
Exchange Commission.  Asterisks denote
omissions.

 

	
  BAE
  SYSTEMS

  	
   

  
	
  DOC
  1

  
	
  A123
  Systems

  
	
  May 16
  2007

  

 

GENERAL
PROVISIONS

COMMERCIAL
SUBCONTRACTS/PURCHASE ORDERS

 

1                  Acceptance of Contract/Terms
and Conditions

2                  Applicable Laws

3                  Assignment

4                  Changes

5                  Contract Direction

6                  Customer Communication

7                  Default

8                  Definitions

9                  Disputes/Jury Waiver

10            Electronic Contracting

11            Export Control

12            Extras

13            Foreign Corrupt Practices
Prohibition

14            Furnished
Property

15            Gratuities/Kickbacks
Prohibition

16            Independent
Contractor Relationship

17            Information of
BAE SYSTEMS

18            Information of
Seller

19            Inspection and
Acceptance

20            Insurance/Entry
on BAE SYSTEMS Property

21            Intellectual
Property

22            Maintenance of
Records

23            New Materials

24            Offset
Credit/Cooperation

25            Open Source
Software

26            Packing and
Shipment

27            Parts
Obsolescence

28            Payments, Taxes,
and Duties

29            Precedence

30            Quality Control
System

31            Release of
Information

32            Severability

33            Stop Work Order

34            Survivability

35            Termination for
Convenience

36            Timely
Performance

37            Waiver,
Approvals, and Remedies

38            Warranty

 

1.                          ACCEPTANCE
OF CONTRACT/TERMS AND CONDITIONS

 

(a)         This Contract integrates,
merges, and supersedes any prior offers, negotiations, and agreements
concerning the subject matter hereof and constitutes the entire agreement
between the parties.

 

(b)        SELLER’s execution of
Subcontract Order #81659 shall constitute SELLER’s unqualified acceptance of
this Contract.

 

(c)         ADDITIONAL
OR DIFFERING TERMS OR CONDITIONS PROPOSED BY SELLER OR INCLUDED IN SELLER’S
ACKNOWLEDGMENT HEREOF ARE HEREBY OBJECTED TO BY BAE SYSTEMS AND HAVE NO EFFECT
UNLESS EXPRESSLY ACCEPTED IN WRITING BY BAE SYSTEMS.  ADDITIONAL OR DIFFERING PRE-PRINTED TERMS OR
CONDITIONS INCLUDED IN BAE SYSTEM’S PURCHASE ORDERS ARE HEREBY OBJECTED TO BY
SELLER AND HAVE NO EFFECT UNLESS EXPRESSLY ACCEPTED IN WRITING BY SELLER.

 

2.                          APPLICABLE
LAWS

 

(a)         This Contract and all matters
arising from or related to it shall be governed by and construed in accordance
with the law of the State from which this Contract is issued (New York),
excluding its choice of law rules.

 

(b)        (1)                       SELLER shall
comply with all applicable laws, orders, rules, regulations, and ordinances.
SELLER shall procure all licenses and permits, and pay all fees and other
required charges necessary to conduct its business, all at SELLER’s expense.

 

(2)                      SELLER shall be
responsible for compliance with all requirements and obligations relating to
its employees under all applicable local, state, and federal statutes,
ordinances, rules, and obligations including, but not limited to, employer’s
obligations under laws relating to: income tax withholding and reporting; civil
rights; equal employment opportunity; discrimination on the basis of age, sex,
race, color, religion, disability, national origin, or veteran status;
overtime; minimum wage; social security contribution and withholding;
unemployment insurance; employer’s liability insurance; worker’s compensation;
veteran’s rights; and all other employment, labor, or benefits related laws.

 

(3)                      If: (i) BAE
SYSTEMS’ contract price or fee is reduced; (ii) BAE SYSTEMS’ costs are
determined to be unallowable; (iii) any fines, penalties or interest are
assessed on BAE SYSTEMS; or (iv) BAE SYSTEMS incurs any other costs or
damages, each as a direct result of any violation of applicable laws, orders,
rules, regulations, or ordinances by SELLER, its directors, officers,
employees, agents, suppliers, or subcontractors at any tier, BAE SYSTEMS may
proceed as provided for in subparagraph 2(b)(4) below.

 

(4)                      Upon the
occurrence of any of the circumstances identified in subparagraph 2(b)(3) above
and resulting from the violation so specified, BAE SYSTEMS may make a reduction
of corresponding amounts (in whole or in part) in the price, or in the costs
and fee, of this Contract, and/or may demand payment (in whole or in part) of
the corresponding amounts  up to the value of the Work that caused such fines, penalties or
interest to be assessed.; provided, however, that SELLER shall first be
provided with a reasonable opportunity to cure in accordance with Section 7(a) below.  SELLER shall promptly pay amounts so
demanded.

 

(c)         [SELLER represents that each
chemical substance constituting or contained in Work sold or otherwise
transferred to BAE SYSTEMS hereunder is on the list of chemical substances
compiled and published by the Administrator of the Environmental Protection
Agency pursuant to the Toxic Substances Control Act (15 U.S.C. Sec. 2601 et
seq.) as amended.]

 

1

 

(d)        SELLER shall provide to BAE
SYSTEMS with each delivery any Material Safety Data Sheet (29 C.F.R. 1910.1200)
applicable to the Work in conformance with and containing such information as
required by the Occupational Safety and Health Act of 1970 and regulations
promulgated thereunder, or its state approved counterpart.

 

3.                          ASSIGNMENT

 

Any
assignment of SELLER’s contract rights or delegation of duties shall be void,
unless prior written consent is given by BAE SYSTEMS, which shall not be
unreasonably withheld or delayed.  The
foregoing shall not apply to any sale or transfer of all or substantially all
of SELLER’s assets or capital stock in an acquisition or merger.  However, SELLER may assign rights to be paid
amounts due, or to become due, to a financing institution if BAE SYSTEMS is
promptly furnished a signed copy of such assignment reasonably in advance of
the due date for payment of any such amounts. 
Amounts assigned to an assignee shall be subject to setoffs or
recoupment for any present or future claims of BAE SYSTEMS against SELLER.  BAE SYSTEMS shall have the right to make
settlements and/or adjustments in price without notice to the assignee.

 

4.                          CHANGES

 

(a)         The BAE SYSTEMS Procurement
Representative may at any time, by prior written notice, and without notice to
sureties or assignees, make changes within the general scope of this Contract
in any one or more of the following:  (i) technical
requirements and descriptions, specifications, statement of work (“SOW”),
drawings or designs; (ii) shipment or packing methods; (iii) place of
delivery, inspection  or
acceptance; (iv) reasonable adjustments in quantities or delivery
schedules or both; (v) amount of BAE SYSTEMS furnished property; and (vi) if
this Contract includes services: (x) description of services to be
performed; (y) time of performance (e.g., hours of the day, days of the
week, etc.); and (z) place of performance. SELLER shall use commercially
reasonable best efforts to comply immediately with such direction.

 

(b)        If any such change causes an
increase or decrease in the cost of, or the time required for, performance of
any part of this Contract, BAE SYSTEMS shall make a mutually agreed equitable
adjustment in the Contract price and/or delivery schedule, and the parties
shall modify the Contract accordingly. Changes to the delivery schedule will be
subject to a price adjustment only.

 

(c)         Any claim for an equitable
adjustment by SELLER must be submitted in writing to BAE SYSTEMS Procurement
Representative within [**] from the date of notice of the change, unless BAE
SYSTEMS and SELLER agree in writing to a longer period.

 

(d)        Failure to agree to any
adjustment shall be resolved in accordance with paragraph 9 “Disputes/Jury
Waiver.”  However, nothing contained in
this paragraph 4 shall excuse SELLER from proceeding without delay in the
performance of this Contract as changed, provided that the adjustment in
question is not deemed material in SELLER’s reasonable judgment.

 

5.                          CONTRACT
DIRECTION

 

(a)         Only the BAE SYSTEMS
Procurement Representative has authority make changes in, to amend, or to
modify this Contract. Such changes, amendments or modifications must be in
writing.

 

(b)        BAE SYSTEMS program,
operations, engineering, technical, or other personnel may from time to time
render assistance, give technical advice, discuss, or exchange information with
SELLER’s personnel concerning the Work hereunder. Such actions shall not be
deemed to be a change under paragraph 4 “Changes” and shall not be the basis
for equitable adjustment. If SELLER believes the foregoing creates an actual or
constructive change, SELLER shall notify the BAE SYSTEMS Procurement
Representative and shall not accept such direction or perform said action
unless authorized under subparagraph 5(a).

 

(c)         Except as otherwise provided
herein, all notices to be furnished by SELLER shall be sent to the BAE SYSTEMS
Procurement Representative.

 

6.                          CUSTOMER
COMMUNICATION

 

BAE
SYSTEMS shall be solely responsible for all liaison and coordination with the
Customer or any higher tier contractor(s) as it affects this Contract or
any Work thereunder or related thereto. Except as required by law, SELLER shall
not communicate with the Customer, and any higher tier contractor(s), with
respect to this Contract or any Work thereunder or related thereto, without
prior approval of the BAE SYSTEMS Procurement Representative. SELLER shall
promptly notify BAE SYSTEMS of any communications, initiated by the Customer or
any higher tier contractor(s), that affects this Contract or any Work
thereunder or related thereto.

 

7.                          DEFAULT

 

(a)         BAE SYSTEMS, by written
notice, may terminate this Contract for default, in whole or in part, if SELLER
fails to comply with any of the material terms of this Contract, fails to make
progress as to endanger performance of this Contract, or fails to provide
adequate assurance of future performance. SELLER shall have [**] (or such
longer period as BAE SYSTEMS may authorize in writing) to cure any such failure
after receipt of written notice from BAE SYSTEMS.  Default involving delivery schedule delays
shall not be subject to the cure provision.

 

(b)        BAE SYSTEMS shall not be
liable to pay for any Work not accepted (pursuant to Section 19 below);
however, BAE SYSTEMS may require SELLER to deliver to BAE SYSTEMS any supplies
and materials, and drawings that SELLER has specifically produced or acquired
for the terminated portion of this Contract. BAE SYSTEMS and SELLER shall agree
on the amount of payment for these other deliverables.

 

(c)         SELLER shall continue all
Work not terminated.

 

(d)        If after termination under
subparagraph 7(a), it is later determined that SELLER was not in default, such
termination shall be deemed a Termination for Convenience.

 

8.                          DEFINITIONS

 

The following terms shall have the meanings set forth
below:

 

(a)         “BAE SYSTEMS” means the BAE
SYSTEMS legal entity as identified on the face of the Contract.

 

(b)        “BAE SYSTEMS Procurement
Representative” means the person authorized by BAE SYSTEMS’ cognizant
procurement organization to administer and/or execute this Contract.

 

(c)         “Contract” means the
instrument of contracting, such as “PO”, “Purchase Order”, or other such type
designation, including all referenced documents, exhibits and attachments.  If these terms and conditions are
incorporated into a “master” agreement that provides for releases, (in the form
of a purchase order or other such document) the term “Contract” shall also mean
the release document for the Work to be performed.

 

2

 

(d)        “Customer” means the entity
with whom BAE SYSTEMS has or anticipates having a contractual relationship to
provide services or goods that utilize or incorporate the Work. For purposes of
paragraphs 14 (FURNISHED PROPERTY) and 16 (INDEPENDENT CONTRACTOR
RELATIONSHIP), “Customer” shall include any higher tier contractor(s).

 

(e)         “Electronic Signature” means
an electronic sound, symbol, or process attached to or logically associated
with a record and executed or adopted by a person with the intent to sign the
record.

 

(f)           “Open Source” means with
respect to Software and any licenses of same, that Software provided under a
license which permits the user to run, copy, distribute, study, change, modify
and/or improve the Software but which prohibits the user from: (a) withholding
improvements and/or modifications made by the user to the source code when
and/if user thereafter distributes the Software; and/or (b) adding
restrictions on use when redistributing or transferring the Software to third
parties. For purposes of this Contract, “Open Source” Software shall also
include “Free Software” as defined by the Free Software Foundation Inc.  By way of example and not limitation, “Open
Source” licenses shall include such licenses as the GNU General Public License,
the Mozilla Public License 1.1, Apache Software License Version 2.0, the
Academic Free License 2.0, and Open Software License 2.0.

 

(g)        “PO” or “Purchase Order” as
used in any document constituting a part of this Contract shall mean this “Contract”.

 

(h)        “SELLER” means the party
identified on the face of this Contract with whom BAE SYSTEMS is contracting.
For the purposes of paragraphs 6 (CUSTOMER COMMUNICATION) and 16 (INDEPENDENT
CONTRACTOR RELATIONSHIP) only, “SELLER” shall also include SELLER’s agents,
representatives, subcontractors, and suppliers at any tier.

 

(i)            “Software” means: (1) computer
programs, source code, source code listings, executable code, machine readable
code, object code listings, design details, algorithms, processes, flow charts,
formulae, and related material that would enable software to be read,
reproduced, recreated, or recompiled; (2) associated documentation such as
operating manuals, application manuals, and installation and operating
instructions that explain the capabilities of software and provide instructions
on using the software; and (3) derivative works, enhancements,
modifications, and copies of those items identified in (1) and (2) above.

 

(j)            “Work” means all required
articles, materials, supplies, goods and services, including, but not limited
to, technical data and Software constituting the subject matter of this
Contract.

 

9.                         DISPUTES/JURY
WAIVER

 

(a)         All disputes arising from or
related to this Contract, which are not disposed of by mutual agreement may be
decided by recourse to an action at law or in equity in accordance with
subparagraph 9(b) below. Until final resolution of any dispute hereunder
(with the exception of those relating to payment), SELLER shall diligently
proceed with the performance of this Contract as directed by BAE SYSTEMS.

 

(b)        BAE SYSTEMS and SELLER agree
to timely notify each other of any claim, dispute or cause of action arising
from or related to this Contract, and to negotiate in good faith to resolve any
such claim, dispute or cause of action. 
To the extent that such negotiations fail, BAE SYSTEMS AND SELLER AGREE THAT ANY LAWSUIT OR CAUSE OF ACTION THAT
ARISES FROM OR IS RELATED TO THIS CONTRACT SHALL BE FILED WITH AND LITIGATED
ONLY IN A COURT OF COMPETENT JURISDICTION WITHIN THE STATE FROM WHICH THIS
CONTRACT WAS ISSUED (NEW YORK); AND BAE SYSTEMS AND SELLER EACH HEREBY CONSENT
AND AGREE TO THE PERSONAL JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
OF COMPETENT JURISDICTION LOCATED WITHIN THE STATE FROM WHICH THIS CONTRACT WAS
ISSUED WITH RESPECT TO ANY SUCH CLAIM, DISPUTE OR CAUSE OF ACTION AND WAIVE ANY
DEFENSE OR OBJECTION TO THE EXERCISE OF PERSONAL JURISDICTION AND/OR VENUE BY
ANY SUCH COURT.

 

(c)         TO THE
EXTENT PERMITTED BY APPLICABLE LAWS, BAE SYSTEMS AND SELLER EACH WAIVE ANY
RIGHTS WHICH EITHER MAY HAVE TO TRIAL BEFORE A JURY OF ANY DISPUTE ARISING
FROM, OR RELATED TO, THIS CONTRACT. SELLER AND BAE SYSTEMS FURTHER STIPULATE
AND CONSENT THAT ANY SUCH LITIGATION BEFORE A COURT OF COMPETENT JURISDICTION
SHALL BE NON-JURY.

 

10.                   ELECTRONIC
CONTRACTING

 

BAE
SYSTEMS and SELLER agree that if this Contract, or any order, ancillary
agreement, or correspondence is transmitted electronically neither BAE SYSTEMS
nor SELLER shall contest the validity thereof, on the basis that this Contract,
or the order, acknowledgement, ancillary agreement, or correspondence exists
only in electronic form, an electronic record was used in its creation or
formation, or it contains only an Electronic Signature or it was generated
automatically, without human intervention by a system intended for the purposes
of generating same.

 

11.                   EXPORT
CONTROL

 

(a)         SELLER
shall comply with all applicable United States export control laws and
regulations, including, but not limited to, the requirements of the Arms Export
Control Act, 22 U.S.C. 2751-2794, the International Traffic in Arms Regulation
(ITAR), 22 C.F.R. 120 et seq., the Export Administration Act, 50 U.S.C. app.
2401-2420, and the Export Administration Regulations, 15 C.F.R. 730-774. SELLER
shall obtain all required export licenses or agreements necessary to perform
SELLER’s Work, as applicable.

 

(b)        Without limiting
the foregoing,  SELLER shall not
transfer any export controlled item, data or services, to include transfer to “Foreign
Persons” employed by or associated with, or under contract to SELLER or SELLER’s
lower-tier suppliers, without the authority of a United States Government
export license, export agreement, or applicable license exemption or exception.  For
purposes of this paragraph 11, “Foreign 
Persons” shall mean any natural person who is not a lawful permanent
resident as defined by 8 U.S.C. 1101(a)(20) or who is not a protected
individual as defined by 8 U.S.C. 1324b(a)(3). It also means any foreign
corporation, business association, partnership, trust, society or any other
entity or group that is not incorporated or organized to do business in the
United States, as well as international organizations, foreign governments and
any agency or subdivision of foreign governments (e.g. diplomatic missions).

 

(c)         SELLER shall notify BAE
SYSTEMS if any use, sale, import or export by BAE SYSTEMS of Work to be
delivered under this Contract is restricted by any export control laws or
regulations applicable to SELLER.

 

(d)        SELLER shall immediately
notify the BAE SYSTEMS Procurement Representative if SELLER is listed in any
Denied 

 

3

 

Parties List or if SELLER’s export privileges are
otherwise denied, suspended or revoked in whole or in part by any government
entity or agency.

 

(e)         If SELLER is engaged in the
business of either exporting or manufacturing (whether exporting or not)
defense articles or furnishing defense services, SELLER represents that it
maintains an effective export/import compliance program in accordance with the
ITAR and it is registered with the United States Office of Defense Trade
Controls (unless covered by one of the exemptions set forth in 22 C.F.R. 122.1)
as required by the ITAR.

 

(f)           Where SELLER is a signatory
under a BAE SYSTEMS export license or export agreement (e.g., TAA, MLA), SELLER
shall provide prompt notification to the BAE SYSTEMS Procurement Representative
in the event of changed circumstances affecting said license or agreement.

 

(g)        SELLER shall indemnify, hold
harmless and, at BAE SYSTEMS’ election, defend 
BAE SYSTEMS, its directors, officers, employees, and agents from and
against all losses, costs, claims, causes of action, damages, liabilities and
expense, including, but not limited to, reasonable attorneys’ fees, all expense
of litigation and/or settlement, and court costs, arising from or related to
any breach of SELLER, its directors, officers, employees, agents, suppliers, or
subcontractors at any tier in the performance of any of its obligations under
this paragraph 11. SELLER shall include the requirements of this paragraph 11
in all agreements with lower tier subcontractors.

 

12.                   EXTRAS

 

Work
shall not be supplied in excess of quantities specified in this Contract. SELLER
shall be liable for handling charges and return shipment costs for any excess
quantities.

 

13.                   FOREIGN
CORRUPT PRACTICES PROHIBITION

 

(a)         By accepting
this Contract, SELLER certifies and represents that it has not made or
solicited and will not make or solicit any offer, payment, promise to pay, or
authorization to pay any money, gift, or anything of value to any governmental
official or any political party, party official or candidate, either directly
or through an intermediary, corruptly for the purpose of influencing any
official act, omission, or exercise of influence by the recipient, to assist
BAE SYSTEMS  or SELLER in obtaining or
retaining business.

 

(b)        SELLER shall
ensure that all lower tier subcontracts include this paragraph 13.

 

14.                   FURNISHED PROPERTY

 

(a)         BAE SYSTEMS may provide to
SELLER property owned by either BAE SYSTEMS or its Customer (Furnished
Property). Unless previously authorized in writing by the BAE SYSTEMS
Procurement Representative, Furnished Property shall be used only for the
performance of this Contract.

 

(b)        Title to Furnished Property
shall remain in BAE SYSTEMS or its Customer as applicable. SELLER shall clearly
mark (if not so marked) all Furnished Property to show its ownership.

 

(c)         The Furnished Property shall
be supplied in “as-is” condition unless otherwise expressly agreed in writing.
Except for reasonable wear and tear, SELLER shall be responsible for, and shall
promptly notify BAE SYSTEMS of, any loss or damage to Furnished Property while
in SELLER’s care, custody, or control. Without additional charge, SELLER shall
manage, maintain, preserve, and insure Furnished Property in accordance with
good commercial practice.

 

(d)        At BAE SYSTEMS’ request,
and/or upon completion of this Contract SELLER shall submit, in an acceptable
form, inventory lists of Furnished Property and shall deliver or make such
other disposal as may be directed by BAE SYSTEMS.

 

15.                   GRATUITIES/KICKBACKS
PROHIBITION

 

No gratuities (in the form of entertainment, gifts or otherwise) or
kickbacks shall be offered or given by SELLER, or anyone acting on SELLER’s
behalf, to any employee of BAE SYSTEMS with a view toward securing favorable
treatment as a supplier.

 

16.                   INDEPENDENT
CONTRACTOR RELATIONSHIP

 

(a)         SELLER’s relationship to BAE
SYSTEMS shall be that of an independent contractor and this Contract does not
create an agency, partnership, or joint venture relationship between BAE
SYSTEMS and SELLER or BAE SYSTEMS and SELLER personnel. SELLER personnel
engaged in performing Work under this Contract shall be deemed employees of
SELLER and shall not for any purposes be considered employees or agents of BAE
SYSTEMS. SELLER assumes full responsibility for the actions and supervision of
such personnel while engaged in Work under this Contract.  BAE SYSTEMS assumes no liability for SELLER
personnel.

 

(b)        Nothing contained in this
Contract shall be construed as granting to SELLER or any personnel of SELLER
rights under any BAE SYSTEMS benefit plan.

 

(c)         SELLER personnel: (i) will
not remove BAE SYSTEMS or its Customer’s assets from BAE SYSTEMS’ or Customer’s
premises without BAE SYSTEMS authorization; (ii) will use BAE SYSTEMS or
Customer assets only for purposes of this Contract; (iii) will only
connect with, interact with or use BAE SYSTEMS’ computer networks and
equipment, communications resources, programs, tools or routines as BAE SYSTEMS
agrees, all at SELLER’s risk and expense, and then only in compliance with
applicable BAE SYSTEMS policies; and (iv) will not share or disclose user
identifiers, passwords, cipher keys or computer dial port telephone numbers.
BAE SYSTEMS may monitor any communications made over or data stored in BAE
SYSTEMS computer networks and equipment or communications resources.

 

(d)        Intentionally
Omitted

 

17.                   INFORMATION
OF BAE SYSTEMS

 

Information provided by BAE SYSTEMS to SELLER remains the property of
BAE SYSTEMS.  SELLER shall comply with
all proprietary information markings and restrictive legends applied by BAE
SYSTEMS to anything provided hereunder to SELLER.  SELLER shall not use any  BAE SYSTEMS provided information for any
purpose except to perform this Contract and shall not disclose such information
to third parties without the prior written consent of BAE SYSTEMS.

 

18.                   INFORMATION
OF SELLER

 

SELLER
shall not provide any proprietary information to BAE SYSTEMS without prior
execution by BAE SYSTEMS of a Proprietary Information or Non-Disclosure
Agreement that expressly covers the performance of Work under this Contract.

 

4

 

19.                   INSPECTION
AND ACCEPTANCE

 

(a)         BAE SYSTEMS may inspect all  Work at reasonable times and places,
including, when  practicable and
upon prior notice, during manufacture and before shipment. BAE SYSTEMS shall
perform such inspections in a manner that will not unduly delay the Work.
SELLER shall provide all information, facilities, and  assistance necessary for safe and convenient inspection  without additional charge.

 

(b)        No such inspection (or
election not to inspect) shall relieve SELLER of its obligations to furnish all
Work in strict accordance with the requirements of this Contract. BAE SYSTEMS’
final inspection and acceptance shall be upon delivery of the applicable Work
at destination.  The applicable warranty
period shall begin immediately following such delivery, except as otherwise
expressly provided in Section 7B of the Special Terms and Conditions.

 

(c)         If SELLER delivers
non-conforming Work, BAE SYSTEMS shall be entitled to the warranty remedies set
forth in Section 38 below..

 

(d)        When Work is not ready at the
time specified by the SELLER for inspection, BAE SYSTEMS may charge to the
SELLER the additional cost of inspection.

 

(e)         BAE SYSTEMS may also charge
the SELLER for any costs of additional inspection and/or transportation when
rejection makes reinspection necessary.

 

(f)           SELLER shall not re-tender
rejected Work without disclosing the corrective action taken.

 

20.                   INSURANCE/ENTRY
ON BAE SYSTEMS OR CUSTOMER PROPERTY

 

(a)         In the event that SELLER, its
employees, agents, or subcontractors enter the site(s) of BAE SYSTEMS or
its Customer for any reason in connection with this Contract, then SELLER and
its subcontractors shall procure and maintain worker’s compensation (with a
waiver of subrogation in favor of BAE SYSTEMS), automobile liability, comprehensive
general liability (bodily injury and property damage) insurance in amounts
reasonably acceptable to BAE SYSTEMS, and such other insurance as BAE SYSTEMS
may reasonably require, all of which shall be consistent with applicable
industry standards and SELLER’s existing coverage. SELLER shall indemnify, hold
harmless and, at BAE SYSTEMS’ election, defend BAE SYSTEMS, its directors,
officers, employees, and agents from and against all losses, costs, claims,
penalties, causes of action, damages, liabilities, fees, and expenses,
including, but not limited to, reasonable attorneys’ fees, all expenses of
litigation and/or settlement, and court costs, by reason of property damage or
loss or personal injury or death to any person arising from or related to the negligence
or willful misconduct of SELLER, its directors, officers, employees, agents,
suppliers, or subcontractors while on the site(s) of BAE SYSTEMS or its
Customers. With respect to any injury, including, but not limited to, death, to
employees of SELLER or SELLER’s agents, subcontractors or suppliers, SELLER’s
obligation to indemnify and defend in accordance with this paragraph 20 shall
apply regardless of cause. SELLER shall provide BAE SYSTEMS thirty (30) days
advance written notice prior to the effective date of any cancellation or
change in the term or coverage of any of SELLER’s required insurance, provided
however such notice shall not relieve SELLER of its obligations to procure and
maintain the required insurance.  If
requested, SELLER shall send a “Certificate of Insurance” showing SELLER’s
compliance with these requirements. SELLER shall name BAE SYSTEMS as an
additional insured for the duration of this Contract. Insurance maintained
pursuant to this paragraph 20 shall be considered primary as respects the
interest of BAE SYSTEMS and is not contributory with any insurance that BAE
SYSTEMS may carry. “Subcontractor” as used in this subparagraph 20(a) shall
include SELLER’s subcontractors at any tier.

 

(b)        SELLER shall ensure that
personnel assigned to work on BAE SYSTEMS’ or Customer’s premises comply with
any on-premises guidelines. Unless otherwise authorized in writing by BAE
SYSTEMS, SELLER’s personnel assigned to work on BAE SYSTEMS’ or Customer’s
premises shall while on BAE SYSTEMS’ or Customer’s premises (i) not bring
weapons of any kind; (ii) not manufacture, sell, distribute, possess, use
or be under the influence of controlled substances or alcoholic beverages; (iii) not
possess hazardous materials of any kind; (iv) remain in authorized areas
only; and/or (v) not solicit BAE SYSTEMS’ employees for employment during
business hours.

 

(c)         All SELLER personnel,
property, and vehicles entering or leaving BAE SYSTEMS’ or Customer’s premises
are subject to search.

 

(d)        SELLER shall promptly notify
BAE SYSTEMS and provide a report of any and all physical altercations, assaults
or harassment, and accidents or security incidents involving death, personal
injury or loss of or misuse of or damage to BAE SYSTEMS’ or Customer’s
property, while on BAE SYSTEMS’ or its Customer’s premises.

 

(e)         BAE SYSTEMS may, at its sole
discretion, remove or require SELLER to remove any specified employee of SELLER
from BAE SYSTEMS’ or Customer’s premises and request that such employee not be
reassigned to any BAE SYSTEMS premises under this Contract. Any costs arising
from or related to removal of SELLER’s employee shall be borne solely by SELLER
and not charged to this Contract.

 

21.                   INTELLECTUAL
PROPERTY

 

(a)         Intentionally
Omitted

 

(b)        Intentionally Omitted

 

(c)         SELLER warrants that the Work
performed and delivered under this Contract will not infringe or otherwise
violate the intellectual property rights of any third party in the United
States or any foreign country and is free and clear of all liens, licenses,
claims, and encumbrances.

 

(d)        SELLER shall indemnify, hold
harmless and, at BAE SYSTEMS’ election, defend BAE SYSTEMS and its Customer
from and against all losses, costs, claims, penalties, causes of action,
damages, liabilities, fees, and expenses, including, but not limited to,
reasonable attorneys’ fees, arising from or related to any action by a third
party that is based upon a claim that the Work performed or delivered under
this Contract infringes or otherwise violates the intellectual property rights
of any person or entity. If an injunction is obtained against BAE SYSTEMS’ use
of the Work or a portion thereof as a result of infringement or
misappropriation of the intellectual property of any third party, SELLER shall
either (i) procure for BAE SYSTEMS and Customer the right to continue
using the Work or (ii) replace or modify the Work so it becomes
non-infringing. This indemnity and hold harmless provision shall not be
considered an allowable cost under any provisions of this Contract except with
regard to allowable insurance costs.

 

5

 

SELLER shall have no liability or obligation
hereunder with respect to any infringement claim if such infringement is caused
by (i) use of Work by BAE SYSTEMS in an application or environment other
than as specified in applicable specifications or documentation; (ii) modification
of the Work by any party other than SELLER; or (iii) the combination,
operation or use of the Work with other product(s) or services not
supplied by SELLER where the Work would not by itself be infringing.   BAE SYSTEMS agrees to defend SELLER from and
against all liabilities, obligations, costs, expenses and judgments, including
court costs, reasonable attorneys fees and expert fees, arising out of any of
the circumstances stated in subsections (i) - (iv) above.

 

THIS SECTION STATES SELLER’S ENTIRE AND
EXCLUSIVE LIABILITY AND OBLIGATION, AND LICENSEE’S EXCLUSIVE REMEDY, WHETHER
STATUTORY, CONTRACTUAL, EXPRESS, IMPLIED OR OTHERWISE, FOR CLAIMS OF INTELLECTUAL
PROPERTY INFRINGEMENT.

 

22.                   MAINTENANCE
OF RECORDS

 

(a)         SELLER shall maintain
complete and accurate records in accordance with generally accepted accounting
principles and good commercial practices to substantiate SELLER’s charges
hereunder. SELLER shall retain such records for [**] from final payment of this
Contract.

 

(b)        BAE SYSTEMS shall have access
to such records, and any other records SELLER is required to maintain under
this Contract, for the purpose of audit during normal business hours, upon reasonable
notice for so long as such records are required to be retained. Audit rights
shall be available to BAE SYSTEMS on all performance related reports and other
records, except records pertaining to proprietary indirect cost data. Audit of
any proprietary indirect cost data may be accomplished through a mutually
agreeable third party auditor from a nationally recognized firm of certified
public accountants.

 

23.                   NEW
MATERIALS

 

Unless
authorized in writing by the BAE SYSTEMS Procurement Representative, all Work
to be delivered hereunder shall consist of new materials, and shall not be
used, or reconditioned, remanufactured or of such age as to impair its
usefulness or safety.

 

24.                   OFFSET
CREDIT/COOPERATION

 

All
offset or countertrade credit value resulting from this Contract, and any lower
tier subcontracts, shall accrue solely to the benefit of BAE SYSTEMS.  SELLER shall cooperate with BAE SYSTEMS in
the fulfillment of any foreign offset/countertrade obligations.

 

25.                   OPEN
SOURCE SOFTWARE

 

Without the prior written approval of BAE SYSTEMS, which BAE SYSTEMS may
withhold in its sole discretion, SELLER shall not incorporate any Open Source
Software, including any source code governed by an Open Source license, into
Work to be performed and/or delivered under this Contract. Before BAE SYSTEMS
will consider providing written approval for the incorporation of such Open
Source Software, SELLER shall first identify all Open Source Software
incorporated into Work to be performed and/or delivered under this Contract,
including a complete source code listing of the Software comprising the Work
with a description of the operation of the Software in English and
machine-readable form, together with copies of any licenses required to be
accepted.

 

26.                   PACKING
AND SHIPMENT

 

(a)         Unless otherwise specified,
all Work is to be packed in accordance with good commercial practice.

 

(b)        A complete packing list shall
be enclosed with all shipments. SELLER shall mark containers or packages with
necessary lifting, loading, and shipping information, including the BAE SYSTEMS
Contract number, item number, dates of shipment, and the names and addresses of
consignor and consignee. Bills of lading shall include this Contract number.

 

(c)         Unless otherwise specified,
delivery shall be FOB Destination.

 

27.                   PARTS
OBSOLESCENCE

 

BAE SYSTEMS may desire to place additional orders for items purchased
hereunder. SELLER shall provide BAE SYSTEMS with a “Last Time Buy Notice” at
least [**] prior to any action to discontinue any item purchased under this
Contract.

 

28.                   PAYMENTS,
TAXES, AND DUTIES

 

(a)         Unless otherwise provided,
terms of payment shall be net [**] from the latest of the following: (i) BAE
SYSTEMS’ receipt of SELLER’s proper invoice; (ii) scheduled delivery date
of the Work; or (iii) actual delivery of the Work. BAE SYSTEMS shall have
a right of setoff against payments due or at issue under this Contract or any
other contract between BAE SYSTEMS and SELLER.

 

(b)        Each payment made shall be
subject to reduction to the extent of amounts which are found by BAE SYSTEMS in
good faith not to have been properly payable under the terms of this Contract
and shall also be subject to reduction for overpayments.

 

(c)         Payment shall be deemed to
have been made as of the date of mailing BAE SYSTEMS’ payment or electronic
funds transfer.

 

(d)        Unless otherwise specified,
prices include all applicable federal, state and local taxes, duties, tariffs,
and similar fees imposed by any government, all of which shall be listed
separately on the invoice.

 

29.                   PRECEDENCE

 

Any
inconsistencies in this Contract shall be resolved in accordance with the
following descending order of precedence: (1) face of the Purchase Order,
release document or schedule, (which shall include continuation sheets), as
applicable, to include any special terms and conditions; (2) any
master-type agreement (such as corporate, operating group, or blanket
agreements); (3) representations and certifications; (4) these terms
and conditions; (5) statement of work; and (6) specifications or
drawings.

 

30.                   QUALITY
CONTROL SYSTEM

 

(a)         SELLER shall provide and
maintain a quality control system to an industry recognized Quality Standard
and in compliance with any other specific quality requirements identified in
this Contract.

 

(b)        Records of all quality control
inspection work by SELLER shall be kept complete and available to BAE SYSTEMS
and its Customers.

 

31.                   RELEASE
OF INFORMATION

 

Except
as required by law, no public release of any information, or confirmation or
denial of same, with respect to this Contract or the 

 

6

 

subject
matter hereof, shall be made by SELLER without the prior written approval of
BAE SYSTEMS Procurement Representative.

 

32.                   SEVERABILITY

 

Each paragraph and provision
of this Contract is severable, and if one or more paragraphs or provisions are
declared invalid, the remaining provisions of this Contract will remain in full
force and effect.

 

33.                   STOP
WORK ORDER

 

(a)         SELLER shall stop Work for up
to [**] in accordance with the terms of any written notice received from BAE
SYSTEMS, or for such longer period of time as BAE SYSTEMS and SELLER may agree
and shall take all reasonable steps to minimize the incurrence of costs
allocable to the Work during the period of Work stoppage.

 

(b)        Within such period, BAE
SYSTEMS shall either terminate or continue the Work by written order to
SELLER.  In the event of a continuation,
an equitable adjustment in accordance with paragraph 4 “Changes” shall be made
to the price, delivery schedule, or other provision affected by the Work
stoppage, if applicable, provided that the claim for equitable adjustment is
made within [**] after such continuation.

 

34.                   SURVIVABILITY

 

If
this Contract expires, is completed, or is terminated, SELLER shall not be
relieved of those obligations contained in the following provisions:

 

Applicable Laws

Disputes/Jury Waiver

Electronic
Contracting

Export
Control

Furnished
Property

Independent Contractor Relationship

Information of BAE SYSTEMS

Insurance/Entry
on BAE SYSTEMS or Customer Property

Intellectual Property

Maintenance of Records

Parts Obsolescence

Release of Information

Warranty

 

35.                   TERMINATION
FOR CONVENIENCE

 

(a)         For specially performed Work:
BAE SYSTEMS may terminate part or all of this Contract for its  convenience by  giving  written notice
to SELLER. Upon receipt of such notice SELLER shall immediately:  (i) cease work; (ii) prepare and
submit to BAE SYSTEMS an itemization of all completed and partially completed
deliverables, services and costs incurred by SELLER in connection with the
Work; (iii) deliver to BAE SYSTEMS deliverables satisfactorily completed
up to the date of termination at the agreed upon prices in this Contract;
and  (iv) deliver upon request any
Work in process. SELLER shall use reasonable efforts to mitigate BAE SYSTEMS’
liability under this paragraph 34 by, among other actions, accepting the return
of, returning to its suppliers, selling to others, or otherwise using the
canceled deliverables (including raw materials or work in process) and provided
such expenses do not exceed the prices set forth in this Contract. BAE SYSTEMS’
only obligation shall be to pay SELLER (i) a percentage of the price
reflecting the percentage of the Work performed in accordance with the Contract
schedule prior to the notice of termination and (ii) the costs incurred by
SELLER in connection with the performance of the Work, plus reasonable charges
that SELLER can demonstrate to the satisfaction of BAE SYSTEMS, using generally
accepted accounting principles, have resulted from the termination.  SELLER shall not be paid for any Work
performed or costs incurred which reasonably could have been avoided following
SELLER’s receipt of notice from BAE SYSTEMS.

 

(b)        For other than specially
performed Work:  BAE SYSTEMS may
terminate part or all of this Contract for its convenience by giving thirty
(30) days prior written notice to SELLER and BAE SYSTEMS’ only obligation to
SELLER shall  be payment of SELLER’s
standard restocking or service  charge,
not to exceed [**] of the price of the terminated Work.

 

(c)         In either case, SELLER shall
continue all Work not terminated.

 

(d)        In no event shall BAE SYSTEMS
be liable for lost or anticipated profits, or unabsorbed indirect costs or
overhead, or for any sum in excess of the total Contract price.  SELLER’s termination claim shall be submitted
within [**] from the effective date of the termination.

 

36.                   TIMELY
PERFORMANCE

 

(a)      SELLER’s timely performance
is a critical element of this Contract.

 

(b)     Unless advance shipment has
been authorized in writing by BAE SYSTEMS, BAE SYSTEMS may store at SELLER’s
expense, or return, shipping charges collect, all Work received in advance of
the scheduled delivery date.

 

(c)         If SELLER becomes aware of
difficulty in performing the Work, SELLER shall timely notify BAE SYSTEMS, in
writing, giving pertinent details.  This
notification shall not change any delivery schedule.

 

(d)        In the event of a termination
or change, no claim will be allowed for any manufacture or procurement in
advance of SELLER’s normal flow time unless there has been prior written
consent by BAE SYSTEMS’ Procurement Representative.

 

(e)         Without limiting any
provision in the previous section, SELLER shall not be liable or be deemed to
be in breach of this Contract for any failure to perform, or delay in
performing, any of the SELLER’s obligations in relation to the Work if the
delay or failure was due to any cause beyond the SELLER’s reasonable
control.  Causes beyond the SELLER’s
reasonable control shall include, but not be limited to, acts of God, flood,
explosion, natural catastrophe, storms, fire or accident; war or threat of war,
terrorism, blockade, sabotage, insurrection, riot or civil disturbance; acts,
restrictions, regulations, laws, prohibitions or measures of any kind on the
part of any governmental, international, federal, state or local authority;
import or export regulations or embargoes; strikes or other industrial actions
or trade disputes (whether involving employees of the SELLER or a third party).

 

37.                   WAIVER,
APPROVAL, AND REMEDIES

 

(a)      Failure by BAE SYSTEMS to
enforce any provision(s) of this Contract shall not be construed as a
waiver of the requirement(s) of such provision(s), or as a waiver of the
right of BAE SYSTEMS thereafter to enforce each and every such provision(s).

 

(b)        BAE SYSTEMS’ approval of
documents shall not relieve SELLER from complying with any requirements of this
Contract.

 

7

 

(c)      The rights and remedies of
BAE SYSTEMS in this Contract are cumulative and in addition to any other rights
and remedies provided by law or in equity.

 

38.                   WARRANTY

 

Warranty
will be as defined in the Special Terms and Conditions.

 

8

 

BAE
SYSTEMS Special Terms and Conditions

Dated:
5/16/2007 — BAE Systems Revision - Final

 

Definitions

 

Background Intellectual Property — Patents, trade secret rights,
copyrights, or other intellectual property in solely-owned intellectual
property that either (a) was developed or otherwise acquired by the Party
prior to the effective date of this Agreement; or (b) was initially
developed by the Party or otherwise acquired by the Party for purposes outside
of but during the Term of this Agreement. 
For avoidance of doubt, SELLER’s Background Intellectual Property shall
include, without limitation,  SELLER’s
proprietary Energy Storage Cells, Energy Storage Modules and Energy Storage
Systems and their related components, materials and chemistry, SELLER’s Battery
Management Systems and all related software, SELLER’s product specifications,
manufacturing and development methodologies, cell and system level electronics,
know-how and research, experimental and development work, design details, and
engineering information..

 

Energy Storage Cell — The smallest individually packaged Energy
Storage device.  Examples include but are
not limited to: 1) an AA, AAA, or D size battery; 2) A123 cell ANR26650M1, and
3) a single ultra capacitor.

 

Energy Storage Module — Any series/parallel combination of
individual energy storage cells packaged with the necessary interconnect
components to form a field replaceable unit. 
The Energy Storage Module may also include control electronics as required.

 

Energy Storage System (ESS) - 
 A field replaceable unit
consisting of either Energy Storage Modules
or Energy Storage Cells contained within
an enclosure that may include any of the following: 1) a central control and
monitoring device capable of communicating with external controllers; 2) high
voltage disconnect and circuit protection components: and 3) a thermal
management system to maintain the Energy Storage Modules
or Energy Storage Cells at a safe
operating temperature.

 

BAE Systems’ Energy Storage
Module — The Energy Storage Module developed under this contract for BAE
Systems and controlled under BAE Systems’ part number [**] and derivatives
thereof (for avoidance of doubt, in cases where this module is modified as a
result of BAE Systems directed changes or A123 proposed changes that are
approved by BAE Systems, and such changes result in a new part number, this new
part number will be included and become a part of this definition).

 

BAE Systems’ Energy Storage
System — The Energy Storage System developed under this contract for BAE
Systems and controlled under BAE Systems’ part number [**] and derivatives
thereof (for avoidance of doubt, in cases where this ESS is modified as a
result of BAE Systems directed changes or A123 proposed changes that are
approved by BAE Systems, and such changes result in a new part number, this new
part number will be included and become a part of this definition).

 

Development Program — The work to be performed by A123
Systems to design, develop, integrate, manufacture, and test the BAE Systems
Energy Storage System in accordance with the requirements of this
contract.  The Development
Program will be considered complete when all deliverables called for
by the contract are delivered and accepted by BAE Systems.

 

Production Program — The work to be performed to
manufacture, test, and support the BAE Systems Energy Storage System.  The Production Program
will commence on the date the Development Program
is complete and the BAE Systems Energy Storage
System is manufactured using the production tools, processes, and
procedures identified and approved at the Production Readiness Review and the
first piece (First Article) from the first production lot is delivered and
accepted by BAE Systems.  The first BAE
Systems Energy Storage System utilizing the aforementioned production tools,
processes, and procedures will be ordered by BAE Systems no later than the
completion of the Production Readiness Review.

 

1

 

Special
Terms and Conditions

 

Article 1
— Supply Limitations

 

1.01             Except as expressly provided in Sections
1.02, 1.03 and 1.04 below, nothing in this Contract will prohibit or restrict
in any way Seller from supplying Energy Storage Cells, Energy Storage Modules,
Energy Storage Systems  to any Customer
or other third party.  Nothing in this
Contract will prohibit or restrict in any way Seller from supplying or
licensing its Background Intellectual Property to any Customer or third party.

 

1.02             A123 will not supply or sell the BAE
Systems’ Energy Storage System to anyone other than BAE Systems without BAE
Systems’ prior written approval.

 

1.03             A123 will not supply or sell the BAE
Systems’ Energy Storage Module to anyone other than BAE Systems without BAE
Systems’ prior written approval.

 

1.04             A123 will not work with General Motors
(including its Subsidiaries, Affiliates, Successors or Assigns) or supply or
sell Energy Storage Modules or Energy Storage Systems directly to General
Motors for use by General Motors in vehicles with a gross vehicle weight over [**]
pounds for a period of [**] from the date the Development Program is complete
and the Production Program for the BAE Systems’ Energy Storage System
commences; provided, however, that it is acknowledged and agreed that the
foregoing restriction shall not apply to the supply or sale of Energy Storage
Modules or Energy Storage Systems by A123 to General Motors for use in
non-commercial passenger vehicles.  
SELLER shall provide BAE Systems with written notice of such date and
BAE Systems shall confirm its concurrence in writing.  The foregoing restriction shall be null and
void in the event that BAE Systems terminates this Contract for convenience in
accordance with Section 35 of the General Provisions, Commercial
Subcontracts/Purchase Orders

 

1.05             A123 will ensure that BAE Systems has the
most cost competitive pricing for Energy Storage  Modules
or Energy Storage Systems in similar applications on a $ per rated KW basis
based on similar volume and terms.

 

1.06             A123, unless legally bound to do
otherwise, will continue to provide BAE Systems with  information on Energy Storage Cells, Energy
Storage Modules, and Energy Storage Systems being developed by A123 for Hybrid
and Electric Vehicles having reasonable application to the business and
products of BAE Systems.  Opportunities
may exist for BAE Systems to use these products as is or tailor the standard
products to create a BAE Systems specific ESS. 
A123 will provide these products to BAE Systems on most favored customer
terms based on volume and terms.

 

1.07             In instances where BAE Systems is
offering high power Lithium Ion ESS, unless specifically directed otherwise by
its Customer, BAE Systems will sell only A123 based solutions into its new and
existing properties for a period of [**] from the date the Development Program
is complete and the Production Program for the BAE Systems’ Energy Storage
System commences..   A123 will
commit to pricing levels that assure that A123 ESS and/or battery modules are
cost competitive on a total cost of ownership basis compared to other hybrid
electric ESS and/or batteries sold for vehicles over [**] pounds.  A123 will be within [**]% price/performance
of any other high power Lithium Ion solution on the market on a $ per rated KW
basis based on similar volume and terms. 
If A123 falls outside of this range, BAE Systems will have no obligation
for current subcontract requirements and A123 will have [**] to correct the
deficiency and, should it fail to do so, BAE Systems shall be relieved from its
future obligations hereunder to sell such A123 solutions and may pursue other
alternatives.

 

Article 2
- Rights and Licenses

 

2.01 Title to
Intellectual Property.   For the purposes of this
Agreement, “Intellectual Property” shall mean any legally enforceable rights,
worldwide, under statute or common law with respect to inventive subject 

 

2

 

matter or discoveries
(hereinafter, “Inventions”) or original works of authorship, including, but not
limited to, patents, copyrights (including mask works), trademarks and trade
secrets.  In the event that any
Intellectual Property concerning the subject matter of this Agreement is made,
conceived or created during the term of this Agreement, the Parties agree that
all right, title and interest in and to such Intellectual Property shall vest
as follows:

 

Intellectual Property
made, conceived, or created by one or more employees of one of the Parties
hereto (whether or not made in conjunction with one or more third parties, so
long as it is not based in whole or in material part on the Intellectual
Property of the other Party) shall be the sole property of that Party (and
subject to any agreement between that Party and any such third parties as may
be involved).  Except for the BAE Systems’
Energy Storage Module and BAE Systems’ Energy Storage System, Intellectual
Property made, conceived, or created jointly by one or more employees of one
Party hereto together with one or more employees of the other Party hereto (and
any third parties brought into the creation process by agreement of both
Parties) (“Joint IP”) shall be  jointly owned
by the Parties  (and, to the extent agreed by
third parties), with each Party owning all
such Joint IP without a duty to account or pay royalties to the other Party.  With respect to the  BAE Systems’ Energy Storage Module and BAE Systems’ Energy
Storage System, BAE Systems shall own the Intellectual Property relating solely
to the respective design specifications and/or parameters of the BAE Systems’
Energy Storage Module and BAE Systems’ Energy Storage System that are unique to
BAE Systems and defined in the required drawing deliverable and controlled
under a defined BAE Systems part number.

 

2.02 Protection, Filing,
Prosecution, Maintenance and Registrations:

 

a.     Joint IP
may be patented jointly at common expense. 
In the event that one Party declines to participate in obtaining patent
protection on a particular Joint IP, the declining Party shall forfeit its
share of the patent and all counterparts, anywhere in the world, and the other
Party may proceed to patent the Invention as its solely-owned property. The
declining Party shall, and hereby agrees to, furnish the filing Party, at the
filing Party’s sole expense, with all documents, papers, assignments, or other
assistance that may be necessary or desirable for filing, prosecution and
maintenance of such patents.

 

b.     The costs
of preparing, filing, and maintaining registrations for such Joint IP shall be
borne by the Parties electing to participate in the application for such
registrations or patents.  So far as
practicable, but subject to grouping of applications to take advantage of
common prosecution of applications for substantially similar subject matter,
the Parties will equally divide the joint applications for registration that
each is to file hereunder.  The Parties
shall equally divide between them the total yearly sum of all annuity and
maintenance payments due for that year. The other Party shall, and hereby
agrees to, furnish the filing Party with all documents, papers, assignments, or
other assistance that may be necessary or desirable for filing and maintenance
of such applications and registration resulting therefrom.

 

2.03  Cross License.  Each Party agrees to grant and does hereby
grant to the other Party a non-exclusive, royalty-free license (without the
right to sublicense) to use the Party’s Background Intellectual Property,
provided that such use is only to the extent necessary for  the purpose set forth in this Contract.  The Parties acknowledge and agree that each
Party owns all right, title and interest in and to its respective
Background  Intellectual Property.

 

2.04  No Further Licenses.  Except for the license granted in Article 2.03
herein,  no licenses are either granted
or implied by one Party to the other Party under any trademark, patent,
copyright, trade secret or by this Agreement or by disclosing Proprietary
Information to the other Party under this Agreement.

 

Article 3 — Fleet Defect
(Production Program Only)

 

In the event that at any time prior to the expiration
of the warranty period set forth in Article 7B below to BAE Systems, BAE
Systems determines that cumulative failures of any kind in the same components
in the same or similar application indicate the existence of a systemic design
or manufacturing defect, BAE Systems may, in consultation with SELLER,
reasonably determine the existence of a fleet defect.  The SELLER shall, upon five days notice from
BAE Systems of such determination, submit a correction plan and, upon approval
of such correction plan by BAE Systems, shall make and implement any such
design 

 

3

 

modifications, repairs, adjustments and replacements
on all delivered and non-delivered items and shall correct or prevent such
failures, at no additional cost to BAE Systems. 
Notwithstanding the absence of other specific evidence of such design or
manufacturing defect, the existence of cumulative failures in a number of items
that exceed [**] percent ([**]%) of all the items delivered under this
contract, shall in, and of itself, constitute a basis for a fleet defect
determination. This calculation to determine the percentage of failures shall
apply at any point after acceptance of [**] Work items.

 

Notwithstanding the date of expiration or commencement
of any warranty period as to any particular item or component, system, or
subsystem, the SELLER shall retrofit/repair all units then in service, and
shall implement any necessary design or material modifications as to items not
yet delivered.  If any such
retrofit/repair work is required, the guarantee/warranty period for the item
shall be extended by [**] from the completion of such retrofit/repair work or
the expiration of the previously effective guarantee period, whichever is
later.

 

The SELLER, having
produced an item to meet the intent of a component specification, and BAE
Systems, having integrated the item into a system of components, agree to work
together to determine the root cause and responsibility of a fleet defect.

 

To the extent the SELLER
is responsible for the fleet defect, a plan to remove or accommodate the defect
for the satisfaction of the end user is to be developed, mutually agreed upon,
and executed.  Remedies also may include
those available under warranty including the option to repair or replace
equipment delivered.

 

Article 4 — Unexcused Delivery Delay
(Production Program Only)

 

If BAE SYSTEMS is assessed
and is required under contract to pay liquidated damages to a BAE Systems
customer for unexcused late delivery of the applicable Units (pursuant to a
mutually agreed and documented delivery schedule) and such unexcused late
delivery is due solely to SELLER, then executives of BAE Systems and SELLER
shall promptly meet to determine in good faith a fair and reasonable  means of compensation to BAE Systems for such
loss, the governing principle being that SELLER shall fully compensate BAE
Systems for its loss up to  the value of
the Units that caused such direct liquidated damages to be assessed.

 

It is expressly understood that
this provision shall be the sole and exclusive remedy except for  any remedies available to BAE Systems in the event of
SELLER’s  default allowed for by contract
or law for such unexcused late delivery.

 

Article 5 - AFTERMARKET SPARES AND REPAIR SERVICES

 

SELLER agrees that it will not provide OEM replacement, spares, and
repair services for the equipment purchased under this Contract directly to
customers of BAE SYSTEMS or offer these same products and services to
owner/operators of buses equipped with BAE SYSTEMS provided propulsion
systems.  Notwithstanding the above,
SELLER shall supply or make available spare parts, maintenance, repair, and
overhaul support to BAE Systems for a period of [**] from delivery of the BAE
Systems Energy  Storage System or BAE Systems
Energy Storage Module.  Within [**] from the effective
date of this Contract, the parties shall cooperate in good faith to identify
and mutually agree on the conditions that the aforementioned spare parts and
support will be supplied or made available.

 

Article 6
- TITLE

 

SELLER warrants that it has
title to all Equipment furnished hereunder, free and clear of all liens and
encumbrances, and the right to sell such Equipment.

 

Complete legal and equitable
title of each item of Equipment covered by this Contract shall pass to BAE
Systems upon SELLER’s completion of properly packaging the Equipment and
Equipment is loaded onto BAE SY Systems Shipper’s Truck. This provision shall
apply irrespective of any terms of payment specified in the Contract. Passage
of title pursuant to this provision shall not release or waive any continuing
or subsequent responsibility of SELLER under this Contract.

 

4

 

Article 7
— WARRANTY

 

A.  Development Program

 

SELLER
agrees that Work furnished under this phase of the Contract, excluding the
Prototype units (which are provided “AS-IS”), but including the Engineering
Development Units, will conform to all specifications, drawings, samples and
descriptions, and other requirements of this Contract and be free of defects in
design, material and workmanship. The warranty shall begin upon final delivery
and extend for a period of [**].  If any
non-conformity with Work appears during the foregoing warranty period, SELLER
shall promptly repair, replace, or reperform the Work at no cost to BAE
Systems.  Transportation of replacement
Work and return of non-conforming work and repeat performance of Work shall be
at SELLER’s expense. If repair or replacement or reperformance of Work is not
timely, BAE Systems may elect to return the non-conforming Work or repair or
replace Work or reprocure the Work at SELLER’s expense.  All warranties shall run to BAE Systems.

 

B.  Production Program

 

SELLER
agrees that Work furnished under this phase of the contract shall strictly
conform to all specifications, drawings, and descriptions, and other
requirements of this Contract and be free from defects in design, material and
workmanship.  The warranty period shall begin
[**] after final delivery or upon delivery to the End User whichever occurs
sooner and extend for an initial period of [**] during which time
non-conforming units will be replaced or repaired (in total compliance to
drawings and specifications) at no cost to BAE Systems.  The foregoing warranty shall continue for an
additional [**] period during which time repairs and replacements to
non-conforming units shall be repaired or replaced at a partial cost to BAE
Systems, the terms of which shall be negotiated and agreed to by both parties
at a time to be determined by both parties. Nothing in this warranty shall
conflict or void any part of Article 3 — Fleet Defect which shall apply in
its entirety.

 

C.  Warranty Exclusions

 

SELLER shall have no liability or obligation hereunder with respect to any
breach or claimed breach of warranty under Sections 8A and 8B
above if such breach or claimed breach is caused by the use of the BAE
Systems Energy Storage System or BAE Systems Energy Storage Module in (i) an
application or environment other than as specified in applicable
specifications, documentation or guidelines (collectively, the “Operating
Parameters”) or (ii) the modification or alteration of the BAE Systems
Energy Storage System or BAE Systems Energy Storage Module by any party other
than SELLER or its authorized representatives. 
Within [**] of the effective date of the Contract, the parties shall
cooperate in good faith to identify and mutually agree on the Operating
Parameters and compliance reporting mechanisms. 
Any implied warranty of merchantability and fitness for a particular
purpose is hereby disclaimed.

 

Article 8
— LIMITATION OF LIABILITY

 

Neither SELLER nor BAE
Systems shall be liable to the other for any indirect, liquidated,
consequential, exemplary or incidental damages (including damages for loss of
business profits, business interruption, loss of business information, and the
like) arising out of this contract or the use or inability to use the
WORK.  Except for (a) breach of a
Party’s  confidentiality obligations
under the  PIA or a Party’s breach of Article 2
above, (b) A Party’s willful misconduct in performing its obligations
under this contract, (c) third party liability claims (to the extent of
a  Party’s indemnification  obligations expressly set forth  in this agreement), or  (D) Third Party  product liability claims  ( arising from the fault of each party
pursuant to a final judgment of joint liability (with such Party’s liability
reduced to the extent of the fault of the other Party ) and provided that the
Parties first seek full recovery from their respective insurers before pursuing
claims against the other  pursuant to
this clause d), In no case shall either Party’s’ aggregate liability to each
other  for all matters arising out of the
subject matter of this Contract, whether 
contract, tort or 

 

5

 

otherwise, exceed the
greater of [**] DOLLARS ($[**]) or the value of invoices issued by SELLER
during the preceding twelve month period.

 

ARTICLE 9
— CONFIDENTIALITY

 

For the avoidance of
doubt, all confidential and proprietary information disclosed by the parties
pursuant to this Contract shall be governed by the terms and conditions of the
Proprietary Information Agreement entered into between the parties dated August 16,
2007.

 

ARTICLE 10 — OPTION PRICING AND
DELIVERY

 

SELLER hereby grants to
BAE Systems an irrevocable option during the Development Program to procure an
additional quantity of [**] pre-production Energy Storage Systems (ESS) units
at a cost of $[**] each.  Delivery of the
optional ESS units shall be [**] after the option is exercised by the BAE
Systems.

 

In addition, the SELLER
also grants an irrevocable option to BAE Systems to procure ESS during the
Production Program in accordance with the pricing provided in the following
table.

 

Production ESS Pricing

 

	
  Minimum 

  Annual 

  Quantity

  	
   

  	
  CY 2008

  	
   

  	
  CY 2009

  	
   

  	
  CY 2010

  	
   

  	
  CY 2011

  	
   

  	
  CY 2012

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  

 

Production ESS Delivery

 

	
  Quantity [**] per week

  	
  Delivery commences [**]
  After Receipt of Order (ARO)

  
	
  Quantity [**] per week

  	
  Delivery commences [**]
  After Receipt of Order (ARO)

  
	
  Quantity [**]

  	
  To Be Negotiated

  

 

All
terms and conditions as agreed to in this Purchase Order (81659) shall be
applicable to any Purchase order for any of the Options identified herein.

 

The
exercise of this Option shall be at the discretion of BAE Systems and shall be
in writing by the Buyer’s Subcontract representative.

 

Buyer
is under no obligation whatsoever to exercise and/or procure any of the [**]
ESS units identified herein.

 

6

 

Amendment 1

 

This Amendment #1 (“Amendment”)  to  the
BAE SYSTEMS Special Terms and Conditions Dated: 5/16/2007 is hereby issued to
incorporate the following terms and conditions. 
This Amendment 1 shall be effective as of December 10, 2008
(“Effective Date”).

 

Article 7 of the Special Terms
and Conditions, Sections (B) and (C) are hereby deleted and replaced
with the following:

 

B. 
Production Program

 

SELLER agrees that Work furnished under this phase of
the contract shall strictly conform to all specifications, drawings, and
descriptions, and other requirements of this Contract and be free from defects
in design, material and workmanship.  The
warranty period shall begin [**] after final delivery or upon delivery to the
End User whichever occurs sooner (“Warranty Commencement Date”) and extend for
an initial period of [**] during which time non-conforming units will be
replaced or repaired (in total compliance to drawings and specifications) at no
cost to BAE Systems.

 

The foregoing warranty shall continue for an
additional [**] period provided however, that the warranty shall only apply to
the  BAE Energy Storage System as a
whole, BAE Energy Storage Module and Battery Management System during which
time  any non-conforming   BAE Energy Storage System, BAE Energy
Storage Module and Battery Management System shall be repaired or replaced at a
partial cost to BAE Systems, at the cost sharing percentages set forth below.

 

	
  Extended Warranty Period ([**] 

  calculated from the Warranty 

  Commencement Date)

  	
   

  	
  BAE prorated warranty coverage

  
	
  [**]

  	
   

  	
  [**]% of the
  then-current replacement charge for the BAE Energy Storage System, BAE Energy
  Storage Module or Battery Management System and diagnostic and labor costs at
  the time of the claim (i.e. A123 shall cover [**]% of the cost).

  
	
  [**]

  	
   

  	
  [**]% of the
  then-current replacement charge for the BAE Energy Storage System, BAE Energy
  Storage Module or Battery Management System and diagnostic and labor costs at
  the time of the claim (i.e. A123 shall cover [**]% of the cost).

  

 

Spare Parts – The Spare Part List attached hereto as Exhibit A
details  the components of the BAE Energy
Storage System that may be purchased separately and the cost of such Spare
Parts.  The Spare Parts List shall remain
in effect for a period of [**] from the Effective Date of this Amendment unless
otherwise mutually agreed upon by the parties in writing. Thereafter the
pricing for the items on the Spare Parts list shall be mutually agreed upon on
an annual basis.   The Spare Parts will
fall into two categories; (1) Spare Parts that may be installed by BAE
Systems trained personnel and (2) Spare Parts that must be installed by
Seller or Seller’s designated agent which may include BAE systems
personnel.   The cost of shipping is not
included in the price of the Spare Part and shall be BAE Systems’ sole
responsibility.

 

The Seller’s labor costs for diagnostic and repair
services are not included in the price of the Spare Parts.  In the event of a valid warranty claim during
[**] of the warranty period,  Seller’s
labor costs for diagnostic and repair services shall be shared by the parties
based on the cost sharing percentages set forth above.   The Seller’s labor costs for diagnostic and
repair services if a BAE Energy Storage System is returned shall be $[**] per
unit.  The Seller’s labor costs and
diagnostic and repair services if the Energy Storage Modules  or Battery Management System  is returned shall be $[**].

 

 

For Spare Parts provided to BAE as a result of a valid
warranty claim, the warranty period for the Spare Part shall be
coterminous with the warranty period for the original BAE Systems Energy
Storage System which was covered by warranty.

 

Nothing in this warranty shall conflict or void any
part of Article 3 — Fleet Defect which shall apply in its entirety.

 

Warranty Claims will be processed in accordance with
the Claim Process attached hereto as Exhibit B.

 

C. 
Warranty Exclusions

 

	
  1.1.

  	
   

  	
  SELLER shall have no
  liability or obligation hereunder with respect to any breach or claimed
  breach of warranty under Sections 7A and 7B above if such breach or claimed
  breach is caused by (i) the use of the BAE Systems Energy Storage System
  or BAE Systems Energy Storage Module in a manner contrary to the Operating
  Parameters or (ii) the modification or alteration of the BAE Systems
  Energy Storage System or BAE Systems Energy Storage Module by any party other
  than SELLER or its authorized representatives (iii) damage to the BAE
  Systems Energy Storage System or BAE Systems Energy Storage Module resulting
  from a collision, vehicle fire, flooding or water exposure, crushing impact,
  rodent or other pest infestation, improper maintenance or other electrical
  service procedures affecting the product.

  

 

IN WITNESS WHEREOF, the
Parties hereto have caused their duly authorized representatives to execute and
deliver this Amendment as of the Effective Date first indicated above.

 

	
  BAE
  Systems

  	
   

  	
  A123
  Systems, Inc.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Lou Schlagter

  	
   

  	
  By:

  	
  /s/
  Michael Rubino

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  Lou
  Schlagter 

  	
   

  	
  Name:

  	
  Michael
  Rubino 

  
	
  Title:

  	
  Subcontracts
  Program Manager

  	
   

  	
  Title:

  	
  CFO

  

 

 

Exhibit A — Spare
Parts List

Exhibit B — Warranty
Claim Process

 

 

Exhibit A

Spare Parts List

 

	
  Part No.

  	
   

  	
  Part

  	
   

  	
  Part Price

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  

 

 

Exhibit B

Warranty Claim
Process

 

The
parties have mutually agreed on the following warranty claim process:

 

1.     For warranty claims during the warranty period, the
non-conforming BAE Systems’ Energy Storage System, BAE Systems’ Energy Storage
Module, Battery Management System or Spare Part (in [**] of the Warranty
Period), as applicable (the “Product”), shall be returned to BAE Systems’
Johnson City NY service location at BAE Systems’ cost  and BAE Systems shall notify A123 Systems
promptly of the alleged warranty claim. In cases where this is not practical,
BAE Systems may elect to have the defective Product shipped directly from the
point where the unit defect was discovered at BAE Systems’ cost.

 

2.     A123 Systems’ Customer Service representative shall
collect the appropriate information from BAE Systems.  This information shall include at the
minimum:

 

a.     Serial number of Product

b.     Description of symptoms of Product
failure mode(s)

c.     All data from [**] corresponding to the
Product

 

3.     After review of the warranty claim A123 may issue a
Return Material Authorization (RMA) number and arrange for transportation of
the Products from the Johnson City NY service location to A123 Systems’
facility in Hopkinton MA at BAE Systems’ cost.

 

4.     A123 Systems will inspect and diagnose the returned
Product to determine if the Product is in breach of Warranty.  A123 will generate a Failure Diagnosis Report
for review by BAE Systems.  The Failure
Diagnosis Report will identify the failure and, in the event that A123 determines
that the failure constitutes a valid warranty claim, A123 Systems shall either
repair or replace the Product.

 

a.     If the returned Product is determined to
be ‘no trouble found’ then BAE Systems shall be debited the  $[**] for the Energy Storage Systems, and
$[**] for either the Energy Storage Modules or Battery Management Systems.

b.     If BAE Systems requests a more detailed
root cause analysis, A123 will quote this on a time and material basis.

c.     A123 Systems will determine if a failed
Product is to be repaired or replaced.

d.     During [**] of the warranty period, A123
shall repair or replace the  Product  and deliver it to the Johnson City NY service
location at A123 Systems’ cost.  During
[**] of the warranty period, A123 shall repair or replace the Product and
deliver the Product to the Johnson City NY service location on a shared cost
basis based on the cost sharing percentages set forth in Section 7(b).  Transportation to Johnson City NY service
location will be at A123’s cost.QuickLinks
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  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

 
 

  SECOND LOAN MODIFICATION AGREEMENT    
    

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

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

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

3.    DESCRIPTION OF CHANGE IN TERMS.

	A.
	Modifications
to Loan Agreement.

	1.
	Borrower
and SVB hereby agree that no 2007 Term Advances were made pursuant to Section 2.1.2 of the Loan Agreement and that Borrower has no ability to
request that SVB make any 2007 Term Advances as the 2007 Commitment Termination Date has passed.

	2.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 2.1.2 thereof: 

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

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

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

accrue
at a fixed per annum rate equal to the Prime Rate, which rate shall be fixed as of the Funding Date for each 2007 Term Advance. Interest is computed on the basis of a three hundred sixty
(360) day year for the actual number of days elapsed. Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to the applicable rate
as set forth above plus the Default Rate." 

and
inserting in lieu thereof the following: 

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

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

        (e)   Intentionally
omitted."  

	3.
	The
Loan Agreement shall be amended by inserting the following new Sections 2.1.3, 2.1.4, 2.1.5, 2.1.6 and 2.1.7, to appear immediately after
Section 2.1.2 thereof: 

        2.1.3  2008
Term Loan Facility. 

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

        (b)   Borrowing Procedure.    To obtain a 2008 Term Advance, Borrower must notify SVB by facsimile or telephone by
12:00 noon Eastern time on the date the 2008 Term Advance is to be made. If such notification is by telephone, Borrower must promptly confirm the notification by delivering to SVB a completed
Payment/Advance Form in the form attached as Exhibit B (the Payment/Advance Form). On the Funding Date for each 2008 Term Advance, SVB shall
credit such 2008 Term Advance to one of Borrower's deposit accounts, SVB may make 2008 Term Advances under this Agreement based on instructions from a Responsible Officer or his or her designee. SVB
may rely on any telephone notice given by a person whom SVB reasonably believes is a Responsible Officer or designee. 

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

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

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

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

        2.1.4  Revolving Advances.

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

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

        2.1.5  Letters of Credit Sublimit,

        (a)   As
part of the Revolving Line, SVB shall issue or have issued Letters of Credit for Borrower's account at Borrower's request, subject to the terms and conditions of this
Agreement. The aggregate face amount of all letters of credit issued hereunder (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) shall at all times reduce the
amount otherwise available for Revolving Advances under the Revolving Line. The face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve) may not exceed the lesser of the Borrowing Base and the Revolving Line, inclusive of Credit Extensions made pursuant to Sections 2.1.4, 2.1.6 and 2.1.7. If, on the Revolving
Line Maturity Date, or the effective date of the termination of the Revolving Line, there are any outstanding Letters of Credit, then on such date Borrower shall provide to SVB cash collateral in an
amount equal to 100% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by SVB in its good faith business
judgment), to secure all of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to SVB in its soie discretion and shall be subject to
the terms and conditions of SVB's standard Application 

and
Letter of Credit Agreement (the "Letter of Credit Application"). Borrower agrees to execute any further documentation in connection with the Letters of Credit as SVB may reasonably request.
Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guaranteed by SVB and opened for Borrower's account or by SVB's interpretations of any
Letter of Credit issued by SVB for Borrower's account, and Borrower understands and agrees that SVB shall not be liable for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto, absent SVB's gross negligence or willful misconduct. 

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

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

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

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

        2.1.7  Cash Management Services Sublimit.    Borrower may use ail or a portion of the Revolving Line in an amount up
to the lesser of the Borrowing Base and the Revolving Line, inclusive of Credit Extensions made pursuant to Sections 2.1.4, 2.1.5 and 2.1.6, for SVB's cash management services which may include
merchant services, direct 

deposit
of payroll, business credit card, and check cashing services identified in SVB's various cash management services agreements (collectively, the "Cash Management Services"). Any amounts SVB
pays on behalf of Borrower for any Cash Management Services and for which SVB is not reimbursed will be treated as Revolving Advances under the Revolving Line and will accrue interest at the interest
rate applicable to Revolving Advances."  

	4.
	The
Loan Agreement shall be amended by deleting the following, appearing as Section 2.2 thereof: 

"    2.2    Termination of Commitment to Lend.

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

and
inserting in lieu thereof the following: 

        2.2   Termination of Commitment to Lend.

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

	5.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 2.3 thereof: 

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

and
inserting in lieu thereof the following: 

"    (b)    Interest Rate: Interest Provisions.

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

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

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

        (iv)  2007 Term Advances.    Borrower shall pay interest on each 2007 Payment Date on the unpaid principal amount of
each 2007 Term Advance until such 2007 Term Advance has been paid in full. Subject to Section 2.3(b)(vi), interest shall accrue at the 

fixed
per annum rate of interest equal to the aggregate of the Prime Rate and one and one-quarter of one percent (1.25%), which rate shall be fixed as of the Funding Date for each 2007
Term Advance; provided, however, on the first (1st) day of the month following the occurrence of an IPO Event, subject to Section 2,3(b)(vi), interest shall accrue at a fixed per annum rate
equal to the Prime Rate, which rate shall be fixed as of the Funding Date for each 2007 Term Advance. 

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

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

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

	6.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 2.4 thereof: 

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

and
inserting in lieu thereof the following: 

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

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

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

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

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

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

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

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

	7.
	The
Loan Agreement shall be amended by inserting the following new Section 2.6, appearing after Section 2.5 thereof: 

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

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

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

	9.
	The
Loan Agreement shall be amended by deleting the following text, appearing in Section 5.2 thereof: 

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

and
inserting in lieu thereof the following: 

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

	10.
	The
Loan Agreement shall be amended by deleting the following, appearing as Section 5.3 thereof: 

"    5.3    Litigation.

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

and
inserting in lieu thereof the following: 

        5.3   Litigation.

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

	11.
	The
Loan Agreement shall be amended by deleting the following, appearing as Section 5.7 thereof: 

"    5.7    Subsidiaries.

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

and
inserting in lieu thereof the following: 

"    5.7    Subsidiaries.

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

	12.
	The
Loan Agreement shall be amended by inserting the following new Section 5.9, appearing after Section 5.8 thereof: 

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

	13.
	The
Loan Agreement shall be amended by deleting the following text, appearing in Section 6.2(a) thereof: 

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

and
inserting in lieu thereof the following: 

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

	14.
	The
Loan Agreement shall be amended by inserting the following text, appearing at the end of Section 6.2 thereof: 

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

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

	15.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 6.6 thereof: 

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

and
inserting in lieu thereof the following: 

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

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

	16.
	The
Loan Agreement shall be amended by deleting the following text, appearing in Section 6.8 thereof: 

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

and
inserting in lieu thereof the following: 

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

	17.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 7.2 thereof: 

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

and
inserting in lieu thereof the following: 

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

	18.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 7.6 thereof: 

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

and
inserting in lieu thereof the following: 

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

	19.
	The
Loan Agreement shall be amended by deleting the following, appearing as Section 7.7 thereof: 

        7.7   Transactions with Affiliates.

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

and
inserting in lieu thereof the following: 

"    7.7    Transactions with Affiliates. 

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

	20.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 9.1 thereof: 

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

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

and
inserting in lieu thereof the following: 

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

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

	21.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 9.1 thereof: 

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

and
inserting in lieu thereof the following: 

"    (h)    terminate
any FX Forward Contracts; and 

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

	22.
	The
Loan Agreement shall be amended by deleting the following text appearing in Section 12.6 thereof: 

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

and
inserting in lieu thereof the following: 

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

	23.
	The
Loan Agreement shall be amended by inserting the following new Section 12.10, appearing after Section 12.9 thereof: 

"    12.10 A123 Securities Corporation. Agent and Lenders hereby agree that, when used in Sections 5, 6, 7 and 8 of this Agreement, the
term "Subsidiary" and "Subsidiaries" shall not include A123 Securities Corporation. In addition, Agent and Lenders hereby acknowledge and agree that A123 Securities Corporation is not making any
representations, covenants, or agreements hereunder, and no representations are being made on its behalf. Borrower hereby acknowledges and agrees that if A123 Securities Corporation undertakes any
action which, if undertaken by Borrower, would result in a violation of this Agreement or an Event of Default, then Agent and Lenders shall have all of its respective rights and remedies with respect
to Borrower as if such misrepresentation was made or action was undertaken by Borrower or any other Subsidiary."  

	24.
	The
Loan Agreement shall be amended by deleting the following text, appearing in the definition of Permitted Indebtedness in Section 13.1 thereof: 

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

and
inserting in lieu thereof the following: 

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

	25.
	The
Loan Agreement shall be amended by deleting the following text, appearing in the definition of Permitted Liens in Section 13.1 thereof: 

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

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

and
inserting in lieu thereof the following: 

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

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

	26.
	The
Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof: 

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

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

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

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

"    "Prepayment Fee" shall be as follows: 

(a)    with
respect to Advances: 

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

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

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

(b)    with
respect to 2007 Term Advances: 

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

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

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

and
inserting in lieu thereof the following: 

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

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

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

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

"    "Prepayment Fee" shall be as follows: 

        (a)   with
respect to Advances: 

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

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

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

        (b)   with
respect to 2007 Term Advances: 

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

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

        (c)   with
respect to 2008 Term Advances: 

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

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

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

	27.
	The
Loan Agreement shall be amended by inserting the following definitions to appear alphabetically in Section 13.1 thereof: 

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

        "2008 Effective Date" is September 24, 2008." 

        "2008 Payment Date" is the first Business Day of the month." 

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

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

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

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

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

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

"    "Cash Management Services" is defined in Section 2.1.7." 

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

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

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

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

 

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

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

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

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

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

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

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

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

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

        (l)    Accounts
subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment
requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower's failure to perform in accordance with the contract; 

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

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

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

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

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

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

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

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

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

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

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

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

"    "FX Forward Contract" is defined in Section 2.1.6." 

"    "FX Reduction Amount" is defined in Section 2.1.6." 

"    "FX Reserve" is defined in Section 2.1,6." 

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

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

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

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

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

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

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

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

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

	28.
	Schedule 1.1
of the Loan Agreement is hereby replaced with the Schedule 1.1 attached as  Exhibit A hereto.

	29.
	The
Compliance Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the
Compliance Certificate attached as Exhibit B hereto.

	30.
	The
Loan Agreement shall be amended by inserting the Borrowing Base Certificate attached hereto as  Exhibit C as Exhibit D thereto. 

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

5.    RATIFICATION OF PERFECTION CERTIFICATE.    Except as set forth on Exhibit D  hereto, Borrower hereby ratifies, confirms and reaffirms, all and
singular, the terms and disclosures contained in that certain Perfection Certificate dated as of
August 2, 2006, between Borrower and Lenders, and acknowledges, confirms and agrees that the disclosures and information Borrower provided to Lenders in the Perfection Certificate have not
changed, as of the date hereof. The modifications set forth on Exhibit D shall be incorporated into the Perfection Certificate by reference and,
accordingly, all references in the Loan Agreement to Perfection Certificate shall mean and include the Perfection Certificate (as defined in the Loan Agreement) as updated by the terms on  Exhibit D. 

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

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

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

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

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

[The
remainder of this page is intentionally left blank] 

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

							
	BORROWER:	 	LENDERS:
	

A123 SYSTEMS, INC.	
 	
SILICON VALLEY BANK, as Agent and Lender
	
By:	
 	
/s/ Michael Rubino

 	
 	
By:	
 	
  

 
	
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/ Robin Gill

 
	
Name:	
 	
 

 	
 	
Name:	
 	
Robin Gill

 
	
Title:	
 	
  

 	
 	
Title:	
 	
VP

 
	

 	
 	
 	
 	
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

 

  Exhibit A  

 Schedule 1.1  

 Lenders and Commitments  

										
	Lender

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

 Exhibit B  

 EXHIBIT C

COMPLIANCE CERTIFICATE  

TO:
SILICON VALLEY BANK, AS AGENT 

FROM:
A123 SYSTEMS, INC. 

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

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

					
	Reporting Covenant

 
	 	Required 	 	Complies 
	 Monthly financial statements with CC
	 	Monthly within 30 days	 	Yes    No
	 Annual financial statements (CPA Audited)
	 	 FYE within 180 days
	 	 Yes    No

	 Borrowing Base Certificate w/ A/R and A/P agings, if required
	 	 Monthly within 30 days when borrowing
	 	 Yes    No

	 10-Q, 10-K and 8-K
	 	 Within 5 days after filing with SEC
	 	 Yes    No

	 Projections
	 	 Annually, within 30 days of Board approval
	 	 Yes    No

 

										
	Financial Covenant

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

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

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

  AUTHORIZED SIGNER
	
 Sincerely,	
 	
Date:

Verified:
	

 	
 	

  AUTHORIZED SIGNER
	

  Signature	
 	
Date

  Compliance Status:        Yes    No
	

  Title	
 	

 
	

  Date	
 	

 

 Exhibit C  

 EXHIBIT D—BORROWING BASE CERTIFICATE  

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

 

										
	 ACCOUNTS RECEIVABLE	 	 	 	 	 	 	 
	1.	 	Accounts Receivable (invoiced) Book Value as of	 	 	 	 	$	 	 
	2.	 	Additions (please explain on reverse)	 	 	 	 	$	 	 
	3.	 	TOTAL ACCOUNTS RECEIVABLE	 	 	 	 	$	 	 
	

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	
 	
 	

 	
 	
 	

 	
 
	4.	 	Amounts over 90 days due	 	 	 	 	$	 	 
	5.	 	Balance of 50% over 90 day accounts	 	 	 	 	$	 	 
	6.	 	Foreign Accounts	 	 	 	 	$	 	 
	7.	 	Foreign Invoiced Accounts	 	 	 	 	$	 	 
	8.	 	Contra/Customer Deposit Accounts	 	 	 	 	$	 	 
	9.	 	Intercompany/Employee Accounts	 	 	 	 	$	 	 
	10.	 	Credit balances over 90 days	 	 	 	 	$	 	 
	10.	 	Concentration Limits	 	 	 	 	$	 	 
	11.	 	U.S. Governmental Accounts	 	 	 	 	$	 	 
	12.	 	Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts	 	 	 	 	$	 	 
	13.	 	Accounts with Progress/Milestone/Pre-billings; Contract Accounts	 	 	 	 	$	 	 
	14.	 	Accounts for Retainage Billings	 	 	 	 	$	 	 
	15.	 	Trust Accounts	 	 	 	 	$	 	 
	16.	 	Bill and Hold Accounts	 	 	 	 	$	 	 
	17.	 	Unbilled Accounts	 	 	 	 	$	 	 
	18.	 	Non-Trade Accounts	 	 	 	 	$	 	 
	19.	 	Accounts with Extended Term Invoices (beyond 120 days)	 	 	 	 	$	 	 
	20.	 	Accounts subject to Chargebacks	 	 	 	 	$	 	 
	21.	 	Disputed Accounts	 	 	 	 	$	 	 
	22.	 	Other (please explain on reverse)	 	 	 	 	$	 	 
	23.	 	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS	 	 	 	 	$	 	 
	24.	 	Eligible Accounts (#3 minus #24)	 	 	 	 	$	 	 
	25.	 	ELIGIBLE AMOUNT OF ACCOUNTS (80% of #25)	 	 	 	 	$	 	 
	

BALANCES	
 	
 	

 	
 	
 	

 	
 
	27.	 	Maximum Loan Amount	 	 	 	 	$	 	 
	28.	 	Total Funds Available (Lesser of #27 or #26)	 	 	 	 	$	 	 
	29.	 	Present balance owing on Line of Credit	 	 	 	 	$	 	 
	30.	 	Outstanding under Sublimits	 	 	 	 	$	 	 
	31.	 	RESERVE POSITION (#27 minus #29 and #30)	 	 	 	 	$	 	 

[Continued
on following page.] 

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

							
	COMMENTS:	 	SVB USE ONLY

Received by:
	 	 	 	 	 	 	

  AUTHORIZED SIGNER
	By:	 	

  Authorized Signer	 	Date:

Verified:	 	 
	Date:	 	 	 	

  AUTHORIZED SIGNER
	 	 	 	 	Date:	 	 
	 	 	 	 	Compliance Status:        Yes    No

 Exhibit D  

 Modifications to Perfection Certificate  

 EXHIBIT D  

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

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

and Gold Hill Venture Lending 03, L.P.  

   AMENDMENT TO PERFECTION CERTIFICATE  

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

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

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

AI23
Systems (China) Co., Ltd. 

A123
Systems (China) Materials Co., Ltd. 

A123
Systems (Zhenjiang) Co., Ltd. 

A123
Securities Corporation

Enerland Co., Ltd.

Changchun
Farad Electronic Co., Ltd.

Changchun
Guoji Electronic Technology Co., Ltd.* 

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

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

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

        (i)    Bank
Accounts—Silicon Valley Bank 

        (ii)   Investment
Accounts—Silicon Valley Bank 

        (iii)   Payroll
Accounts— Silicon Valley Bank 

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

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

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

					
	Mailing Address

 
	 	City 	 	State 
	 321 Arsenal Street
	 	Watertown	 	MA

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

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

					
	Mailing Address

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

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

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

									
	Name

 
	 	Mailing Address 	 	City 	 	State 	 	Nature of Possession 
	 -None-
	 	 	 	 	 	 	 	 

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

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

SEE
APPENDIX A 

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

Schedule A  

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

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

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

Enerland Co., Ltd.
("Enerland") (by acquisition) 

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

	(b)
	The
following is a list of all other names (including trade names or similar appellations) used by the Company, or any of its divisions or other business
units, or any other business or organization to which the Company became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, now
or at any time during the past five years together with the dates such names were used: 

Hymotion
(Ontario)  

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

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

	(d)
	The
following is the type of organization of the Company: 

Chapter C
Corporation (TJT) 

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

Corporation
(Province of Ontario)  

	(e)
	The
jurisdiction of organization of the Company is as follows: 

Michigan
(TJT) 

Republic
of Korea (Enerland) 

Province
of Ontario (Ontario)  

	(f)
	The
following is the Company's state issued organizational identification number, if any: 

472-117
(TJT) 

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

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

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

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

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

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

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

        -None-

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

Schedule B 

Middlesex
County Register of Deeds

208 Cambridge Street

East Cambridge, MA 02141 

Washtenaw
County Register of Deeds

P.O. Box 8645

Ann Arbor, MI 48107 

Washtenaw
County Register of Deeds

200 N. Main, Suite 110

Ann Arbor, MI 48104 

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

Appendix A

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

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

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

[End of Amendment to Perfection Certificate]

 
 

  THIRD LOAN MODIFICATION AGREEMENT    
    

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

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

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

        3.    DESCRIPTION OF CHANGE IN TERMS.    

	A.
	Modifications
to Loan Agreement.

	1.
	The
Loan Agreement shall be amended by deleting the following text, appearing in Section 2.1.3 thereof: 

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

and
inserting in lieu thereof the following: 

        "  (a)    Availability.    Subject to the terms and conditions herein, SVB shall lend to Borrower from
time to time prior to the 2008 Commitment Termination Date, advances (each a "2008 Term Advance" and collectively the "2008 Term Advances") in an aggregate amount not to exceed the 2008 Term Loan.
When repaid, the 2008 Term Advances may not be re-borrowed. SVB's obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of
Default, or (ii) the 2008 Commitment Termination Date. For purposes of this Section 2.1.3, the minimum amount of each 2008 Term Advance is Five Hundred Thousand Dollars ($500,000.00).
Notwithstanding the forgoing, the Borrower hereby acknowledges, confirms, and agrees that no 2008 Term Advances shall be made by Bank until the occurrence of the Equity Event." 

 

	2.
	The
Loan Agreement shall be amended by deleting the following text, appearing in Section 2.3(b)(ii) thereof: 

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

and
inserting in lieu thereof the following: 

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

	3.
	The
Loan Agreement shall be amended by deleting the following text, appearing in Section 6.8 thereof: 

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

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

and
inserting in lieu thereof the following: 

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

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

	4.
	The
Loan Agreement shall be amended by inserting the following definitions to appear alphabetically in Section 13.1 thereof: 

        "
2009 Effective Date" is March 16, 2009." 

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

	5.
	The
Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof: 

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

and
inserting in lieu thereof the following: 

        "  Revolving Line Maturity Date" is September 24, 2010." 

2

 

	6.
	The
Compliance Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the
Compliance Certificate attached as Exhibit A hereto.

	B.
	Waiver.

	1.
	Lenders
hereby waive Borrower's existing default under the Loan Agreement by virtue of Borrower's failure to comply with the financial covenant set forth in
Section 6.8(b) of the Loan Agreement (relative to the requirement that Borrower maintain a certain tangible net worth) as of the months ending November 30, 2008, December 31,
2008, January 31, 2009 and February 28, 2009 (as required prior to this Loan Modification Agreement). Lenders' waiver of Borrower's compliance with such covenant shall apply only to the
foregoing specific periods. 

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

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

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

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

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

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

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

3

 

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

							
	 BORROWER:	 	LENDERS:
	
A123 SYSTEMS, INC.	
 	
SILICON VALLEY BANK, as Agent and Lender
	
 By:	
 	
/s/ Michael Rubino

 	
 	
By:	
 	
/s/ Robin Gill

 
	
 Name:	
 	
Michael Rubino

 	
 	
Name:	
 	
Robin Gill

 
	
 Title:	
 	
CFO

 	
 	
Title:	
 	
VP

 
	

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

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

 	
 	
 	
 	
By:	
 	
/s/ Rob Helm

 
	

 	
 	
 	
 	
Name:	
 	
Rob Helm

 
	

 	
 	
 	
 	
Title:	
 	
Managing Director, Gold Hill Capital

 

4

 

 
 

  Exhibit A    
    

 
    EXHIBIT C
  COMPLIANCE CERTIFICATE    
    

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

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

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

							
	Reporting Covenant

 
	 	Required 	 	Complies 
	 Monthly financial statements with CC
	 	 Monthly within 30 days
	 	 Yes
	 	 No

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

 

												
	Financial Covenants

 
	 	Required 	 	Actual 	 	Complies 	 	 

	Minimum Liquidity Ratio	 	2.5:1.0	 	 	      :1.0	 	Yes	 	No	 	 
	Equity Event	 	Occur by 3/31/2009	 	 	 	 	Yes	 	No	 	N/A

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

 AUTHORIZED SIGNER
	Sincerely,	 	Date:	 	

 
	

 	
 	
Verified:	
 	

 
	

  Signature	 	 	 	

 AUTHORIZED SIGNER
	

  Title	 	Date:	 	

 
	

  Date	 	Compliance Status:                Yes    No

7

 

 
 

  Exhibit B    
    
    AMENDMENT TO PERFECTION CERTIFICATE    
    

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

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

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

					
	Mailing Address

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

[End of Amendment to Perfection Certificate]

9

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

SECOND LOAN MODIFICATION AGREEMENT

THIRD LOAN MODIFICATION AGREEMENT

Exhibit A

EXHIBIT C COMPLIANCE CERTIFICATE

Exhibit B AMENDMENT TO PERFECTION CERTIFICATE

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}]]