# SECURITY AGREEMENT

This
SECURITY AGREEMENT is made and entered into this 23rd day of January,
2003, by and between BZINFIN SA, a BVI limited corporation (Secured Party),
ENER1 GROUP, INC., (Debtor), and ENER1 BATTERY COMPANY (Battery)
and is made with reference to the following facts:

A.    
          Secured Party and Debtor have heretofore entered into that certain Loan
          Agreement, dated as of January 21, 2003 (the Loan Agreement),
          pursuant to which Debtor has become indebted to Secured Party for the principal
          amount of 1'000'000.- $ Dollars (U.S.$ one million), with interest thereon at
          the rate of 30% per annum, all as more particularly set forth in the Loan
          Agreement.

B.    
          As security for the prompt and complete payment of all indebtedness evidenced by
          the Loan Agreement and for certain other obligations of Debtor set forth in
          Section 2 below, Debtor and Battery have agreed that, inasmuch as the parties
          hereto acknowledge that Debtor has provided substantial financial support to
          Battery and the parties contemplate that such support will continue into the
          future, it is therefore deemed to be in the best interests of Battery to grant
          Secured Party a security interest in the property hereinafter described, but
          that such security interest shall not exceed, however, an amount equal to the
          value of the principal sum hereunder, plus accrued interest thereon.

NOW, THEREFORE, in
consideration of the foregoing and the mutual promises and agreements hereinafter
contained, the parties hereto hereby agree as follows:

1.    
          Grant of Security Interest. Debtor hereby agrees to grant to Secured
          Party and each of Secured Partys successors, a continuing security
          interest, subject to the terms hereof, in all of its right, title and interest
          in and to the following described property, together with any and all proceeds,
          increases, substitutions, replacements, repairs, additions and accessions
          thereof and thereto, all of the foregoing being hereinafter collectively
          referred to as the Collateral.

Generally and with respect to
each particular item of Collateral, the security interest herein granted herein shall
not begin to exist or attach until the completion of the restructuring of the loan
arrangements between Ener1 S.r.l. and Meliorbanca Gallo & C. S.p.A. and the execution
by all parties thereto and delivery of all documents necessary to implement such
restructuring. Once such initial effectiveness and attachment occurs in accordance with
the foregoing, further attachment of the security interest with respect to additional
items of Collateral shall occur as soon as Debtor acquires rights in and to such item of
Collateral,:

|a) | All inventories and merchandise, now owned or hereafter acquired, including, but
          not limited to, inventories of raw materials, work in process, finished
          products, goods in transit, materials used or consumed in the manufacture or
          production thereof, all packing materials, supplies and containers relating to
          or used in connection with the foregoing, all goods in which Debtor has an
          interest in mass or an interest or right as a consignee and all goods which are
          returned to or repossessed by Debtor, wherever located, whether used or consumed
          in Debtor s business, held for sale or lease, furnished under service
          contracts, or otherwise, and all bills of lading, warehouse receipts, documents
          of title or general intangibles relating to any of the foregoing ( the
          Inventory);
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|b) | All goods, equipment, machinery, plant equipment, tooling, molds, furniture,
          furnishings, fixtures (whether or not attached to real property, except to the
          extent that any such items that are attached to the real property of Battery are
          the subject of the current real estate mortgage and security interest previously
          given by Battery on its real property), trade fixtures, motor vehicles and
          rolling stock, materials and parts, now owned or hereafter acquired ( the
          Equipment).
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Nothing in this Security Agreement
shall be deemed to constitute an assumption or acceptance by Secured Party of any
obligation of Debtor under any of the Collateral or under any contract or agreement for
the purchase, sale, lease or other disposition of the Collateral. Debtor hereby confirms
that, notwithstanding the above grant of security interests in favor of Secured Party or
any exercise by Secured Party of any rights or remedies hereunder, Debtor shall remain
liable for any and all liabilities and obligations arising under or in respect of the
Collateral and shall indemnify and hold Secured Party harmless from and against all such
liabilities and obligations.

2.    
          Obligations to be Secured. Whether or not recovery upon any of the
          following secured obligations is now or hereafter becomes barred by any statute
          of limitations or is now or hereafter becomes otherwise unenforceable, the
          security interests herein granted shall secure the prompt and complete payment
          and performance of each indebtedness arising under the Loan Agreement, as well
          as any and all sums and expenses including, without limitation, attorneys
          fees, court costs and collection and receivers expenses, advanced or
          incurred by Secured Party in connection with the perfection and protection of
          the security interests herein granted, the preservation or disposition of the
          Collateral, or any part thereof, or the enforcement by Secured Party of any of
          the foregoing obligations whether upon default by Debtor or otherwise.

3.    
          Valid Agreement. This Agreement has been duly authorized and constitutes
          the legal, valid and binding obligation of Debtor enforceable against Debtor in
          accordance with its terms.

Except for the security interest
granted to Secured Party, Debtor has, and will at all times during the term hereof above,
good and marketable title to all and every part of the Collateral, free and clear of any
mortgage, pledge, lien, security interest, lease or other title retention agreement, or
any other adverse claim of any nature whatsoever, with the exception, however, of any
security interest or other interest in the nature of a security interest, that may be
currently held by Meliorbanca Gallo & C. S.p.A., to which Secured Partys
security interest herunder shall be subordinate, notwithstanding any other language
hereuder. In addition to the foregoing and notwithstanding Section 4 below, Secured Party
acknowledges that Debtor and Battery are currently seeking financing for Battery based on
the Collateral and that full or partial release or subordination of existing security
interests in the Collateral may be required to complete such financing. Therefore, Secured
Party agrees that, in order to facilitate the completion of any such financing, Secured
Party will cooperate with Debtor, Battery and the financing party, including full or
partial release or subordination of its security interest in the Collateral as necessary
to facilitate and complete any such financing, As a shareholder in the Debtor, Secured
Party acknowledges its interest in the completion of any such financing. To the knowledge
of Battery, no effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording office in the
current location of the Collateral.

4.    
          Release of Security Interest. Upon payment in full of all principal and
          interest due under the Promissory Note, Promissory Note, the Security Interest
          granted hereunder shall immediately terminate and Secured Party shall execute
          any and all documents reasonably requested by Debtor or its affiliates (a) to
          effect such release, (b) to facilitate the consummation of any financing or
          investment the completion of which may be required to make such payment(s) under
          the Promissory Note. Section 3 above shall take precedence over this Section 4.

5.    
          Procedures in the Event of Default. Should an Event of Default occur
          under the Loan Agreement (as defined therein), Secured Party shall be entitled
          to cause some or all of the Collateral to be sold or licensed to pay off the
          amounts then owing under the Loan Agreement, provided that any proceeds
          of such sale or sales (or revenue from licenses, as the case may be) in excess
          of the total amount owed by Debtor to Secured Party under the Loan Agreement
          (including all interest, penalties, costs and attorneys fees) shall be the
          property of Debtor.

7.    
          Financing Statements. Debtor shall execute, and Secured Party shall be
          thereafter entitled to file, UCC-1 Financing Statements with the Florida
          Secretary of State evidencing the Security Interests created by this Security
          Agreement.

8.    
          Governing Law; Arbitration; Other. The interpretation and enforcement of
          this Agreement shall be governed in all respects by the laws of the Commonwealth
          of Virginia, without giving effect to the conflict of laws principles thereof.
          Disputes arising out of this Security Agreement or the performance thereof
          and/or any other agreement made herewith, including, without limitation, the
          Loan Agreement, the Promissory Note, or any subscription or investment
          agreements shall be resolved by arbitration in Geneva, Switzerland under and in
          accordance with the Rules of the Geneva Chamber of Commerce. However, Secured
          Party may, at its sole option, also be free to commence and pursue claims in any
          court of competent jurisdiction, including, without limitation, state or federal
          courts located in the State of Florida. The arbitration shall be conducted in
          English, and there shall be three arbitrators, one each selected by each of
          Secured Party and Debtor, and the third selected by the first two, all of whom
          must be a members of the Geneva Bar and who are and have been in professional
          practice not less than fifteen years. Capitalized terms used herein and not
          defined herein shall be deemed to have the meanings assigned to them in the Loan
          Agreement.

[THIS SPACE INTENTIONALLY BLANK.  SIGNATURE PAGE TO FOLLOW.]

IN
WITNESS WHEREOF, this Agreement was executed as of the day and year first above written.

| | LENDER:
BZINFIN SA
By:
Name:_______________________________
Title:________________________________
BORROWER:
ENER1 GROUP, INC.
By:_________________________________
Name:_______________________________
Title:________________________________
ENER1 BATTERY COMPANY
By:_________________________________
Name:_______________________________
Title:________________________________
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# EXHIBIT A

# COLLATERAL