A123 SYSTEMS, INC.

On October 16, 2012, the Company and its subsidiaries entered into an asset purchase agreement (the “JCI Asset Purchase Agreement”) with Johnson Controls, Inc. (“JCI”).  Pursuant to the JCI Asset Purchase Agreement,  JCI agreed to acquire the Company’s automotive business assets and certain liabilities, including all of its automotive technology, certain products and customer contracts, its facilities in Livonia and Romulus, Michigan and the Company’s equity interest in Shanghai Advanced Traction Battery Systems Co. Ltd., the Company’s joint venture with SAIC Motor Co., Ltd., for an aggregate purchase price of $116.0 million. Additionally, pursuant to the JCI Asset Purchase Agreement, the Company granted JCI the option to acquire its cathode powder manufacturing facilities in China for an additional purchase price of $9.0 million. The JCI Asset Purchase Agreement was subject to proposed bidding procedures and receipt of higher and better bid(s) at auction (the “Auction”). The JCI Asset Purchase Agreement called for the Company to pay a break-up fee in certain circumstances, including the Bankruptcy Court approving a higher bid at or as a result of the Auction. The Asset Purchase Agreement also provided for the reimbursement of specified expenses of JCI incurred by JCI in connection with the Asset Purchase Agreement. In conjunction with the Asset Purchase Agreement and the Chapter 11 Filing, the Company received a commitment from JCI for $72.5 million in debtor in possession financing (the “JCI DIP Loan Agreement”) to support the Company’s continued operations during the pendency of the bankruptcy case. On the date the agreement was executed, the Company received $15.5 million in financing from JCI.

presentation of comprehensive loss. This guidance, effective retrospectively for the interim and annual periods beginning on or after December 15, 2011, requires presentation of total comprehensive loss, the components of net loss and the components of other comprehensive loss either in a single continuous statement of comprehensive loss or in two separate but consecutive statements. In December 2011, the FASB issued an amendment to this guidance which indefinitely defers the requirement to present reclassification adjustments out of accumulated other comprehensive loss either in a single continuous statement of comprehensive loss by component in both the statement in which net loss is presented and the statement in which other comprehensive loss is presented. This guidance is effective for annual periods beginning after December 15, 2011. In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified out of Accumulative Other Comprehensive Income (ASU 2013-02), which replaces the presentation requirements for reclassifications out of accumulated other comprehensive loss in ASU 2011-05 and ASU 2011-12. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive loss by component and to present significant amounts reclassified out of accumulated other comprehensive loss by respective line items of net loss if the amount reclassified is required to be reclassified to net loss in its entirety. ASU 2013-02 is effective in periods beginning after December 15, 2012 and should be applied prospectively. The Company adopted the amended guidance to ASC 2011-065 requiring presentation of comprehensive loss in two consecutive financial statements for the nine months ended September 30, 2012. The implementation of this guidance did not have a material impact on the Company’s condensed consolidated results of operations or financial position. The adoption of ASU 2013-02 is not anticipated to have any impact on our financial position, results of operations or cash flows.

The Company conducted its annual goodwill test as of September 30, 2012. The Company assesses goodwill and other intangible assets and long-lived assets for impairment annually as of October 1, or when changes in circumstances indicate that the carrying value may not be recoverable, as required by U.S. generally accepted accounting principles. The goodwill impairment test involves a two-step process. The first step is a comparison of the Company’s fair value to its carrying value. If the Company’s fair value exceeds its carrying value, no further procedures are required. However, if the Company’s fair value is less than its carrying value, an impairment of goodwill may exist, requiring a second step to measure the amount of impairment loss. In this step, the Company’s fair value is allocated to all of the assets and liabilities, including any unrecognized intangible assets, in an analysis to calculate the implied fair value of goodwill in the same manner as if Company was being acquired in a business acquisition. If the implied fair value of goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference. Based on the following facts: (i) challenges in the Company’s industries and its declining sales during the three months ended September 30, 2012, (ii) limited demand for end products that are manufactured with equipment sold by the Company, (iii) the liquidity challenges faced, (iv) the deterioration of its customers financial condition, and (v) the sustained decline in its stock price and a significant decline in its financial outlook for the next few years, the Company determined that sufficient impairment indicators existed to require performance of an additional interim goodwill impairment analysis as of September 30, 2012 as opposed to waiting until October 1, 2012. The results of the first step of the impairment test indicated that goodwill was impaired as of September 30, 2012.  As such, the Company calculated the enterprise value, using the Company’s debt balance of $178.5 million and calculated fair value of its equity of $80.8 million (calculated using the common stock outstanding and Company’s stock price), and determined that the implied fair value of goodwill was substantially lower than the carrying value of goodwill. As a result, the Company recorded a $9.6 million goodwill impairment charge on September 30, 2012.

Each Bridge Warrant will have an aggregate exercise price of $25.0 million (subject to a reduction to 40% of such aggregate price in the event that certain government grants or tax credits cease to be available to the Company). New issuances of Common Stock after the later of 180 days after the date of the Initial Loan or the termination of the purchase agreement for the 8.00% Convertible Notes generally are excluded from the calculation of Wanxiang’s fully diluted ownership. The Bridge Warrants may be exercised for cash or by offset of amounts payable under the Bridge Loan Facility and will expire on the fifth anniversary of their issue date. None of the Bridge Warrants will be exercisable until the earlier of (i) the time the Company’s shareholders vote on the proposed issuances of Common Stock pursuant to exercise of the Bridge Warrants and the Convertible Note Warrants (each as defined below) and the conversion of the 8.00% Convertible Notes and (ii) the termination of the Company’s obligation to seek the approval of its shareholders.  After such vote or termination has occurred, the exercise of the Bridge Warrants will be subject to the further limitations set forth below.  The exercise of the Bridge Warrants in an amount greater than 9.99% of the issued and outstanding Common Stock after giving effect to such issue will be conditioned on receipt of a favorable determination from CFIUS. Additionally, before the Shareholder Approval has been obtained, the Bridge Warrants may only be exercised to the extent such issuance would not require Shareholder Approval under NASDAQ rules and regulations.  In addition, subject to exceptions set forth therein, the Bridge Warrants may not be exercised if such exercise would result in Wanxiang’s obtaining greater than 49.9% beneficial ownership of the issued and outstanding Common Stock until the later of (a) such time as all of the 6.00% Convertible Notes and related warrants have been converted, redeemed or otherwise are no longer outstanding and (b) such time as all of the Company’s 2016 Notes have been converted, redeemed or otherwise are no longer outstanding.

On February 6, 2013, we filed with the Bankruptcy Court a proposed Joint Plan of Liquidation (as may be amended, modified or supplemented from time to time, the “Proposed Plan”) and related disclosure statement (as may be amended, modified or supplemented from time to time, the “Disclosure Statement”) for the resolution and satisfaction of all Claims against and Interests in us. The Plan provides for the liquidation of assets of the Estate, including the investigation and prosecution of Estate Causes of Action, by a Liquidation Trust to be formed pursuant to the proposed Plan and a Liquidation Trust Agreement. The Liquidation Trust is to be managed by a Liquidation Trustee as well as by a Liquidation Trust Oversight Committee selected by the Official Creditors’ Committee. The Liquidation Trust shall be responsible for making distributions to holders of claims and, if applicable, interests, as well as all other administrative tasks necessary for ultimate resolution of the Chapter 11 cases, pursuant to the terms of the proposed Plan and the Liquidation Trust Agreement.