Document:

Exhibit
10.1

    

    Certain
portions of this Agreement have been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission.  Text omitted from this Agreement has been marked with an
asterisk < * >.

    

    SUPPLY
AGREEMENT

    

    THIS
SUPPLY AGREEMENT, dated as of October 6, 2010 (this “Agreement”),
is made by and between Ener1, Inc., a Florida, USA, corporation (“Ener1”),
as represented by Bruce Curtis, acting on the basis of the authority granted to
him under the bylaws of Ener1, and Open Joint Stock Company “Mobile Gas Turbine
Electric Powerplants”, a Russian corporation (“MGTES”),
as represented by General Director Oleg Valentinovich Braghin, acting on the
basis of the charter of MGTES.  Ener1 and MGTES are each referred to
herein as a “Party”
and, together, as the “Parties.”

    

    WHEREAS, Ener1 has
developed or has possession of patented and proprietary technology and other
intellectual property relating to, among other things, lithium-ion batteries and
battery cells designed for various applications including electric energy
storage (collectively, “Ener1
Technology”);

    

    WHEREAS, MGTES seeks to
utilize Ener1 Technology in the implementation of a grid energy storage system
(the “GES
Systems”) in Russia as part of its development of smart-grid technologies
(the “Smart-Grid
Technologies Program”); and

    

    WHEREAS, Ener1 is
interested in designing, developing, manufacturing and selling lithium-ion
batteries and related products using Ener1 Technology to MGTES, and MGTES is
interested in purchasing such lithium-ion batteries and related products from
Ener1, in connection with the implementation of the GES Systems and for such
other purposes as the Parties may mutually agree, all in accordance with the
terms and conditions set forth in this Agreement.

    

    NOW,
THEREFORE, in consideration of the mutual covenants contained herein, the
Parties agree as follows: 

    

    1.             SUBJECT
OF THIS AGREEMENT.

    

    1.1           Sale
and Purchase of the Units.  Ener1 undertakes to sell and
supply, within the timeframe stipulated herein, the Units (as defined below) to
MGTES (or another person designated by MGTES) and to perform and render related
works and services in connection therewith as specified in this Agreement, and
MGTES undertakes to accept and pay for such Units and related works and services
supplied as per the terms and conditions of this Agreement.  The
Parties agree that the term “Unit”
means a separate, independent and ready-for-operation unit used to power the GES
Systems comprised of lithium-ion batteries and specified battery elements, parts
and equipment to be sold by Ener1 to MGTES under this
Agreement.

    
      
         

      

      
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    1.2           Specification.
Each Unit shall in all respects conform to the Specification.  The
term “Specification”
means the specifications set forth in Exhibits
1A, 1B, 1C and 1D, each as amended to take into account the terms of
reference to be delivered by MGTES and described further in Section
1.4 (the “Terms
of Reference”).  The Specification shall be subject to the
mutual agreement of and signed by the Parties (or a “joint-working group” to be
established by the Parties).  The Specification may also include
information pertaining to technical specifications, bundling of the Unit
components, a plan to ensure quality of the Units, warranty periods and warranty
terms for the Units, and the value and terms of delivery of the
Units.  The Parties acknowledge and agree that the Specification is
intended to supplement the terms of this Agreement, and that if there is any
conflict between the terms of this Agreement and the Specification, the terms of
this Agreement shall prevail.  The Parties further acknowledge and
agree that the Specification may be amended and updated from time to time by
mutual agreement of the Parties in accordance with Section
1.3.  All references to “this Agreement” shall, unless the
context clearly intends otherwise, be deemed to include the Exhibits to this
Agreement, as amended, modified and supplemented by the Parties.

    

    1.3           Production
Timeline; Changes to Specification.  The Schedule of Work set
forth in Exhibit
1В
(the
“Schedule of Work”) indicates the anticipated timeline of the development
and production of the Units.  The Parties acknowledge and agree that
during the engineering development stage and the pilot production stage outlined
in the Schedule of Work, modifications may be necessary to the Specification in
order to make the transactions contemplated by this Agreement feasible, in which
case each Party shall negotiate in good faith to enter into an amendment to the
Specification as, and to the extent, necessary to accommodate such
modifications, and such amended Specification, upon execution thereof by the
Parties, shall become part of this Agreement. The procedure for introducing
amendments shall be agreed by the Parties
additionally.  Notwithstanding the foregoing, Exhibit
1D sets forth the key technical and material aspects of the
Specification, the modification of which would have a material impact on the
economics or feasibility of the transactions contemplated by this Agreement (the
“Key
Technical Parameters”), and any change to the Key Technical Parameters
shall be subject to a change in the Purchase Price (as defined below) that is
mutually satisfactory to the Parties.

    

    1.4           Terms
of Reference. The Terms of Reference specify, at minimum, the
following:  (i) Unit and Unit component quantity and delivery
requirements, (ii) ancillary works and services to be provided by Ener1, (iii)
technical parameters and functional properties of the Units, (iv) requirements
regarding the design and manufacture of the Units, (v) environmental, fire and
other safety requirements of the Units, (vi) technical documentation to provided
with the Units, (vii) training of the operational and maintenance staff, (viii)
Unit and Unit component labeling and packaging, and (ix) field (in-place)
testing of the Units, (x) requirements on providing reports, as well as other
terms and conditions pertaining to supply, commissioning into operation and
operation of the Units.

    

    1.5           Unit
Quality Control; Spare Parts. The Units shall be new and free from any
liens or encumbrances, and shall come with the spare parts required in the
Specification, with special tools and accessories required for assembly,
adjustment, operation and subsequent maintenance and repairs of the Units, all
as provided in the Specification.

    

    1.6           Unit
Services. The works and services related to the Units to be provided by
Ener1 shall include but not be limited to the following:

    

    1.6.1        designing
and modification, including fine-tuning, the Units to achieve the state required
in accordance with the Terms of Reference in all respects;

    

    1.6.2        technical
support until launch and during trial industrial operation (field testing) of
the Units;

    
      
         

      

      
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    1.6.3        participation
in “joint research” in accordance with Section
8 of this Agreement; and

    

    1.6.4        training
the MGTES staff with respect to the operation and maintenance of the
Units.

    

    2.             PRICE
OF UNITS.

    

    2.1           Pricing.
The Specification sets forth, in Exhibit 1C, the purchase price for two Units
and related equipment, services and other items.    All
amounts payable by MGTES hereunder for the Units and related equipment, services
and other items are referred to herein as the “Purchase
Price”.

    

    2.2           Items
Included as Part of the Purchase Price. The Parties acknowledge and agree
that the Purchase Price includes all expenditures of Ener1 in connection with
the supply of the Ener1's Units on the terms agreed by the Parties in the
Specification, including performance of accompanying works and services,
including, but not limited to expenditures on design, manufacture and
transportation of the Units to the locations indicated in the Specification
(hereinafter
the “Supply Locations”), containers, packaging, transportation insurance,
customs clearance, customs fees, start-up works, training of MGTES personnel,
technical support (including supervision during installation and start-up
works), modification of the Ener1's Units to the state requirements according to
the Terms of Reference, as well as additional expenditures on providing to
obtain insurance of risks under Section 9 hereof. MGTES shall compensate to
Ener1 all customs clearance expenses for the Units in the Russian Federation and
related documented costs and expenses for custom broker services and all
required customs fees and duties pursuant to the terms of the Agreement. MGTES
shall pay for all, not included in the Purchase Price, costs related to
transporting the Units from the Supply Location to the Placement
Locations.  

    

    2.3           VAT.
The Purchase Price does not include VAT which is payable by MGTES directly to
the relevant taxing authority.  With respect to each Unit and its
components and other parts to be delivered to MGTES hereunder, MGTES shall pay
all applicable VAT for such items at the time such items are imported into the
Russian Federation during customs clearance.

    

    2.4           Changes
to Purchase Price. The Purchase Price shall not be subject to change as
the Parties change the Specification unless changes are made to the Key
Technical Parameters that materially increase the production costs of the
Units.  In such situations requiring an increase in pricing, the
Parties shall negotiate in good faith to agree on a mutually acceptable increase
to the Purchase Price, and the Specification shall be amended to reflect such
change.

    

    3.             PROCEDURE
AND TERMS OF PAYING FOR THE UNITS.

    

    3.1           Payment
in U.S. Dollars. All payments to be made by MGTES to Ener1 under this
Agreement shall be made by wire transfer of immediately available funds in
USD.

    

    3.2           Payment
Milestones.  The payment milestones (each, a “Payment
Milestone”) Purchase
Price hereunder are set forth in Exhibit
1C, including the invoices and other documents to be submitted or
obtained by Ener1 as a condition for executing such Payment
Milestones.

    

    4.             TERMS
OF SUPPLY.

    

    4.1           General.
Ener1 shall deliver the Units to MGTES on the terms DDP, VAT excluded to the
Supply Location (not including VAT) (according to Incoterms 2000), within the
timeframe and on the terms agreed upon by the Parties in the
Specification.

    
      
         

      

      
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    4.2           Incoterms-2000.
For the purposes hereof, the terms of delivery and other trade terms used to
describe the obligations of the Parties with respect to the matters described in
this Section
4 shall be interpreted in accordance with the publication INCOTERMS-2000 published by the
International Chamber of Commerce (publication No 560), unless a different
interpretation is stipulated in this Agreement.

    

    4.3           Warranties
with Respect to Delivery and Units. Ener1 hereby warrants that: (i)
delivery of the Units in accordance with this Agreement will not violate any
agreements to which Ener1 is subject in any material manner, (ii) the Units will
be new and unused, and not encumbered by any liens or other encumbrances, and
(iii) the Units will not violate any third party’s intellectual property rights,
including patent and licensing rights. Should Ener1 be in breach of this Section
4.3, Ener1 shall, independently and at its own expense, cure such
breaches as promptly as practicable, and reimburse MGTES for its real damage
incurred as a result of such breach.

    

    4.4           Packaging.
Packaging and labeling of the Units, as well as documentation for the Units,
shall be in compliance with the requirements set forth in the Specification in
all respects. Notwithstanding the foregoing sentence, Ener1 shall deliver the
Units in containers and packaging that guarantee their preservation while in
transit to the applicable Placement Location (as defined in Exhibit
1A). In particular, the packaging shall, without any limitations, be able
to endure intense lifting-transportation handling and exposure to extreme
temperatures, salt and precipitation during transportation by sea, as well as
outdoor storage, all to the extent customary for the type of Units being shipped
as well as shipping method and location.  For these purposes, MGTES
shall specify the restrictions on dimensions of the packaged Units and their
weight so that all cargo packages shipped to MGTES hereunder comply with all
applicable laws and regulations of the Russian Federation.

    

    4.5           Supply
Schedule. The shipping and delivery schedule of the Units shall be
consistent with the anticipated timeline in the Specification. Both Parties
shall use good faith and commercially reasonable efforts to meet the target
dates set forth in the Specification. If Ener1 has reason to believe that a
shipping/supply will be delayed, Ener1 shall promptly notify MGTES of such
possible delay, including a description of the extent and cause of the delay. If
Ener1 is late in shipping/supplying a Unit in accordance with the Specification
(after giving effect to any valid postponements contemplated by the
Specification), MGTES shall be entitled to receive liquidated damages in
accordance with the applicable provisions of Section
13. For purposes hereof, (i) a Unit shall be deemed supplied on the date
on which the Parties or their authorized representatives sign the Report on
External Examination of the Units' transportation package (Attachment 1B, Table
2, Cl. 3) for such Unit at the Supply Location, and (ii) a Unit shall be deemed
shipped on the date on which Ener1 has transferred such Unit to the applicable
carrier at the shipping location as specified in the Specification (the “Shipping
Location”), which date is specified in the appropriate report document
indicated in the Specification.

    

    4.6           Risk
of Loss and Ownership Title. The ownership title to the Units shall be
passed by Ener1 to MGTES at the time of signing the reporting documents for
Stage No. 1, as indicated in Specification (Exhibit 1B, Table 2, Cl. 1)). Risk
of loss, damage and destruction of the Units will simultaneously pass to MGTES
upon delivery of the Units to the Supply Location in accordance with the
Specification.

    
      
         

      

      
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    5.             DOCUMENTATION
AND CERTIFICATION.

    

    5.1           Governmental
Approvals.  The Parties shall cooperate in good faith to ensure
that the Units conform to and be accompanied by appropriate certificates,
permits and other documents required by the applicable laws and regulations of
the Russian Federation, which may include:

    

    5.1.1        a
permit for use, issued by bodies of Rostechnadzor of the Russian
Federation;

    

    5.1.2        a
GOST-R certificate of conformity;

    

    5.1.3        a
positive industrial safety expert review; and

    

    5.1.4        an
environmental certificate of conformity (or a letter regarding the permit for
use) issued by the bodies of Rospotrebnadzor of the Russian
Federation;

    

    5.2           Allocation
of Responsibilities for Governmental Approvals.  Any expenses
involved in obtaining documents and certifications specified in Section 5.1
shall be borne by Ener1. Ener1 shall obtain all such documents and
certifications in place at least 30 calendar days before the date on which the
first Unit is commissioned for pilot operation.

    

    5.2.1      
 Government
Delays. Neither Party shall have any liability toward the other Party, or
pay any penalty or liquidated damages pursuant to any provision of this
Agreement, due to any delay in performance of an obligation under this Agreement
that is due directly or indirectly to the unjustified refusal or delay to issue
certificates, permits or other documents required pursuant to the applicable
laws and regulations of the Russian Federation or the U.S.A., provided that the
Party that has not performed its obligation to obtain a such permit or
certificate has timely submitted all data and documents required pursuant to the
applicable laws and regulations of the Russian Federation or the U.S.A. and that
such refusal or delay occurred due to an unjustified action or inaction of
Russian federal state administrative bodies or administrative bodies of the
U.S.A. which are beyond the control of the defaulting Party.

    

    5.3           Unit-Related
Documents. Ener1 shall, simultaneously with supply of the Units, deliver
the following documents  to MGTES as specified in the Specification in
connection with the supply of the Units, unless otherwise agreed to by the
Parties:

    

    5.3.1        packing
lists and shipping specifications;

    

    5.3.2        Ener1's
warranty certificates;

    

    5.3.3        certificate
of origin;

    

    5.3.4        technical
documentation indicated in the Specification;

    

    5.3.5        documents
required, as per the effective Russian Federation legislation, for refunding VAT
paid by MGTES in accordance with Section
2.3; or

    

    5.3.6        such
other documents mutually agreed to by the Parties.

    

    5.4           Documents
in Russian. The list of documents to be presented in Russian shall be set
forth in the Specification.

    

    5.5           Evaluation
Tests and Documentation.  In order to conduct an evaluation of
the Units for their use as part of the Unified National Power Grid of the
Russian Federation (RF UNPG), the Parties agree on the following
procedures:

    
      
         

      

      
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    5.5.1        the
Parties shall jointly prepare a set of documents to conduct evaluation,
including a list of metrics whereby tests of the Units must be performed for
Unit evaluation purposes (the “Evaluation
Tests”), as well as the range of permissible values of such
metrics;

    

    5.5.2        Ener1,
within a timeframe agreed upon with MGTES and using MGTES experts, shall conduct
Evaluation Tests of the Units by means of an international organization
specialized is in the area of consulting, testing and certifying power
engineering equipment (for instance, KEMA);

    

    5.5.3        in
the event of an unsatisfactory result of Evaluation Tests, Ener1, at its own
expense, shall fine-tune the Units and perform repeat Evaluation Tests following
the procedure stipulated in Section 5.5.2;

    

    5.5.4        Ener1
shall submit Evaluation Test results to MGTES for approval; and

    

    5.5.5        following
approval by MGTES of the Evaluation Test results, the Units shall be considered
compliant, in which case, the Parties shall sign a report on evaluating the
Units.

    

    6.             UNIT
ACCEPTANCE.

    

    6.1           General.
Stages of Unit acceptance (each, an “Acceptance
Stage”) shall
be as set forth in the Specification.  Ener1 shall, at least 14
calendar days before the proposed acceptance date with respect to an Acceptance
Stage taking place within the USA, or 7 calendar days before the proposed
acceptance date with respect to an Acceptance Stage taking place within the
Russian Federation, notify MGTES in writing, including via facsimile
communication, of such proposed acceptance date for such Acceptance Stage. In
turn, MGTES shall notify Ener1, at least 7 calendar days before a proposed
acceptance date, on the stages of the Units acceptance at the Placement
Locations, of such proposed date of the Units acceptance, and such notice shall
be in writing, including via facsimile communication.  Each Party
shall make one or more of its authorized representatives available for each such
Acceptance Stage (save for the stage No.2 specified in the Specification), and
such representative shall be authorized to deem the applicable Acceptance Stage
satisfied (or unsatisfied) on behalf of such Party in accordance with Section 6.2.

    

    6.2           Testing
and Acceptance Report.  Testing and demonstration for each
Acceptance Stage shall be performed in the presence of an authorized Ener1
representative and an authorized MGTES representative, except as otherwise
provided in the Specification. The date of Unit acceptance for the respective
stage shall be the date of signing by the Parties of the respective report
documents listed in the Specification.

    

    If the
authorized representatives of Ener1 and/or MGTES, who have been informed of the
place and time of Unit acceptance in according with Clause 6.1 hereof, fail to
appear for the Unit acceptance on any stage of acceptance a record of this shall
be made in the respective Unit acceptance act, the acceptance is performed and
the act is signed by the representatives who have come. In this case, the act
shall have legal force.

    

    6.3           Scope
and Timeframe.  The timeframes, report documents and scope of
Unit acceptance for each Acceptance Stage shall be set forth in the
Specification.  The draft report documents for an Acceptance Stage
shall be prepared by Ener1 and forwarded to MGTES in advance for approval, such
approval not to be unreasonably withheld, prior to the date on which the
applicable Acceptance Stage is to be held.

    
      
         

      

      
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    6.4           Breach
by Ener1. If, prior to an Acceptance Stage, Ener1 is in breach of this
Agreement, MGTES shall have the right to withhold approval of such Acceptance
Stage until such breach has been cured to MGTES’s reasonable
satisfaction.

    

    6.5           Claims
for Defects, detected after the acceptance. In instances when the damage
to packaging or a shortage of Units or their separate components could not have
been detected during the visual inspection performed when the Units were
supplied to the Supply Location, MGTES shall be entitled to make claims for
quantity and integrity of the Units within 30 calendar days from the date of the
Unit acceptance act for the respective stage. In this case, Ener1 shall be
obliged to repair the detected defects within the terms indicated in Clause
6.8 hereof.

    

    6.6           Damage
Identified during acceptance. If, in the course of Unit acceptance,
violations of provisions contained in this Agreement are identified, MGTES shall
prepare a “Reclamation act” that specifies the violations identified and actions
required to be taken by the Parties to remedy them, and the act shall be signed
by both Parties. The act shall constitute grounds for MGTES not to sign the
acceptance act for the applicable Unit acceptance stage and not to pay the
remainder of the amounts due for the Units, which do not comply with the
requirements of the Agreement or are supplied in violation of its terms. In such
event Ener1 shall eliminate the revealed violations within the timeframes
specified in Clause 6.8 hereof.

    

    6.7           Damage
Identified with respect to Quality. MGTES may accept a Unit or Unit
components, as far as their quantity, without conducting a preliminary
inspection of their quality if such Unit or Unit components are contained within
proper containers and packaging and lack visible defects. MGTES may, following
acceptance of such Unit or Unit components as far as quantity, inspect their
quality, including by way of conducting necessary tests during starting-up and
adjustment works and putting into operation, and, should defects then be
identified, shall notify Ener1 of such defects in writing.  In that
case, Ener1 shall be required to correct such defects within the timeframe
specified in Section
6.8.

    

    6.8           Damage
Correction Procedures.  If, in the course of Unit acceptance
pursuant to Section
6.5, 6.6 or 6.7,
the Parties have identified that a Unit is not complete and/or fail to conform
to the quality requirements as set forth in the Specification, the Parties shall
determine, in a supplemental agreement hereto (an “Agreement
to Correct Units”), a reasonable period of time for delivering the parts
of such Unit that failed to be delivered and/or replacing the defective parts of
such Unit, which shall not relieve Ener1 from liability under Section
13. Should Ener1 fail to remove identified violations within the
timeframe specified in the applicable Agreement to Correct Units, MGTES may make
claims against Ener1 concerning proper performance of this Agreement, in the
amount of reasonable expenses incurred by it in removing the defects and
confirmed by appropriate documentation. Payment of expenses incurred in remedial
action and of penalties shall not relieve Ener1 from the obligation to transfer,
at the request of MGTES, short-supplied Unit components and/or replace defective
parts of the applicable Unit.

    

    6.9           Rejection
of Unit.  MGTES may decline a Unit delivered in violation of
the product range, completeness, quantity and/or quality requirements specified
in the Specification by giving written notice thereof to Ener1 (a “Rejection
Notice”) if Ener1 fails to perform its obligations to correct such
violation in all respects within one hundred (100) calendar days of the date on
which MGTES notified Ener1 of such violation in writing pursuant to
Section 6.5, 6.6 or 6.7 (or such date on which such violation was to be
corrected pursuant to an Agreement to Correct Units).  If MGTES
delivers a Rejection Notice, the Unit subject to such Rejection Notice shall not
be accepted, shall not be paid for, and Ener1 shall return previously paid
amounts with respect to such Unit within 30 calendar days of the date on which
such Rejection Notice was delivered to Ener1, and Ener1 shall reimburse MGTES
for related, documented damages.

    
      
         

      

      
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    6.10         Ener1
Representatives. Ener1 based on a written request of MGTES shall make its
representatives available to arrive to the place indicated in MGTES’s request
and advise MGTES on the causes of any defects or deficiencies in the Units, the
anticipated timeframe for curing any such defects or deficiencies, and any other
inquiries reasonably made by MGTES with respect thereto. If a representative of
Ener1 does not arrive for consideration of defects detected during the
acceptance of the Units and completion of a respective Act during the terms
indicated in MGTES’s request, MGTES shall involve an independent expert
(hereinafter ”Expert”). The competence of the Expert in the question of
determining the quantity and quality of the Units shall be confirmed by the
licenses and certificates of the Expert. The costs of involving such an Expert
shall be compensated by Ener1 based on confirming documents.

    

    6.11         Disputes.
If the Parties are unable to agree on the nature, significance, quantity or any
other aspect of a defect and/or deficiency in a Unit or Unit components, an
independent expert reasonably acceptable to both Parties shall be appointed to
evaluate and mediate the dispute.  The conclusion of the expert on the
questions that arose during the Unit acceptance is final and all the actions of
the Parties shall be based on this decision and shall not contradict it. The
guilty Party shall bear all of the costs of such expert.

    

    7.           
 WARRANTIES.

    

    7.1           Conformance
with Specification.  Ener1 shall ensure conformity of the
quality of the Units supplied hereunder to the requirements contained in the
Specification in all respects.  MGTES is required to promptly notify
Ener1 in writing of any and all matters of non-conformity.  The
Parties shall enter into an Agreement to Correct Units with respect to any such
non-conformity in accordance with Section
6.8.

    

    7.2           Warranty
Period.  The total warranty period for each Unit warranty under
this Section
7 shall commence on the date of the signing act of acceptance of the
putting Units into pilot launch of each Unit
as set out in Table 3 and expire on the date that is < * > days after such
date.  The first < * > days of the warranty will cover the trial
industrial operation period of the Units (including guarantees indicated in the
Specification on Capacity of the accumulator battery of the Units, AC Nominal
Power, efficiency of the Units during double transformation and Unit Utilization
Factor) and materials and workmanship, and the remaining < * > days of the
warranty will cover parts, assemblies, materials and workmanship
only.

    

    In the
event the Units are replaced within the effective Warranty Period, Ener1 shall
provide a warranty for such Units for the period equal to the initial period
specified in this Section.

    

    In the
event the Units are repaired under Warranty, the Warranty Period shall be
extended by the duration of the period within which the Units were not used due
to the revealed defects.

    

    The
parts supplied in the replacement of defective parts or new parts supplied for
the warranty repair shall be subject to a new warranty period equal to the
period specified in this Section and applied on the same conditions. This
measure shall not cover the remaining parts of the Units with respect to which
the warranty period will be extended by the duration of the period within which
the Units were not used due to revealed defects.

    
      
         

      

      
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    7.3           Provision
of Experts. Should defects in the Units be identified during the warranty
period, Ener1 shall ensure the arrival of one or more of its experts within five
business days (including time required for travel) of receipt of a written
request from MGTES to cure such defect.  For the purposes of proper
performance of its obligations hereunder, Ener1 undertakes to ensure the
presence of a service engineer within the Russian Federation to provide warranty
maintenance of the Units throughout their warranty period.  The cost
of travel, as agreed upon by the Parties, to the Placement Locations and living
expenses of the service engineer while providing maintenance services for the
Units shall be borne by Ener1, subject to subsequent reimbursement by MGTES
based on supporting documents.

    

    7.4           Technical
Support. In addition to other obligations indicated in this Agreement,
Ener1 shall provide “round-the-clock” technical support for MGTES (by phone and
via e-mail), and, upon the occurrence of an emergency with respect to the Units
supplied, supply immediately the spare parts required for repairing the
same.  The purchase price for spare parts and services supplied
following expiration of the warranty period shall be mutually agreed to by the
Parties in good faith prior to or contemporaneously with any such emergency
repair.

    

    7.5           Spare
Parts. At MGTES’s request, Ener1 shall, as promptly as possible,
replenish MGTES’s spare parts reserve. The purchase price, procedure and
timeframe for replenishing the replacement part reserve shall be mutually agreed
to by the Parties prior to shipment of such parts to MGTES.

    

    7.6           Maintenance
and Support.  During installation, startup and launch of the
Units into operation, as well as during trial industrial operation of the Units,
Ener1, at MGTES’s request, shall provide the necessary maintenance and support,
including supervision during Unit installation, start-up, Unit testing,
supervision of the putting of Units into trial industrial operation, training of
operating and maintenance staff, technical support and field (in-place) testing
in the course of trial industrial operation of the Units, all as set forth in
the Specification.

    

    MGTES
shall operate and maintain the Units in compliance with the operating and
maintenance instructions furnished by Ener1. MGTES shall perform or arrange for
all necessary routine, and non-routine inspections, and maintenance and overhaul
of the Units under the supervision of Ener1. Ener1 shall carry out all work to
repair the Units and deliver spare parts for maintenance and overhaul during the
Warranty period.

    

    For
the purposes of proper performance of its obligations before MGTES, Ener1
undertakes to ensure the presence of a service engineer in the Russian
Federation to provide service and warranty maintenance of the Units supplied by
Ener1 throughout their warranty period after putting them into the industrial
operation. The cost of travel, as agreed upon by the Parties, to the Placement
Locations and living expenses of the service engineer while providing
maintenance services for the Units shall be borne by Ener1, subject to
subsequent reimbursement by MGTES based on supporting documents.

    

    7.7           Investigation
by Ener1.  Ener1 undertakes to arrange for prompt participation
of its representatives in investigating technological disruptions in the work of
the Units.

    

    7.8           Exchange
of Information.  Ener1 and MGTES shall endeavor to promptly
inform the other Party of any information that may be material to the
improvement of the Units.

    
      
         

      

      
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    8.             JOINT
ANALYSIS.

    

    8.1           Field
(On-Site) Testing. Following the installation and pilot launch of a Unit,
the Parties will conduct comprehensive field testing and analysis of the
obtained results (“Field
Testing”) of such Unit to, among other things, evaluate its performance
characteristics, assess utility and obtain design feedback.  Field
Testing will be performed in accordance with the Specification in a manner that
is mutually agreed to by the Parties. It is anticipated that Field Testing will
occur over a period of eighteen (18) months, and that the program will include
the installation and uses of necessary high-accuracy remote data monitoring and
recording systems to be supplied by Ener1. The cost of these systems is included
in the cost of the Units.

    

    8.2           Economic
Viability Analysis.  The Parties will jointly conduct an
economic viability analysis of all potential energy storage uses for lithium-ion
batteries and other Ener1 Technology. Among other things, the economic viability
analysis will seek to identify those applications suitable, among others, for
the Smart-Grid Technologies Program to create a prioritized list of potential
projects. Ener1 and MGTES shall jointly set up working groups comprised of their
personnel to conduct testing, selection and identification of priority applied
solutions in the energy storage area, and to design and develop a GES System for
the selected priority applied solutions. The ultimate goal is to jointly develop
a GES System to be used in power grids. The procedure and timeframe for the
economic viability analysis shall be on terms mutually agreed to by the Parties
in a separate agreement.

    

    8.3           Localization.  The
Parties will consider the availability of raw materials and qualified personnel
and evaluate market conditions to determine the feasibility of producing
lithium-ion batteries and use of related technology in the Russian Federation.
The procedure and timeframe for measures on arranging localization shall be on
terms mutually agreed to by the Parties in a separate agreement.

    

    8.4           Results
Confidential.  The result of the joint analysis indicated in
this Section
8 shall constitute confidential information and property of MGTES, provided
that information that constituted Confidential Information or
Intellectual Property of Ener1 at the time disclosed or provided by Ener1 in
connection with such analysis shall remain Confidential Information and/or
Intellectual Property of Ener1.  In the absence of preliminary written
consent from MGTES, Ener1 cannot transfer to third parties any information
obtained as a result of performing such joint analysis indicated in Section 8.

    

    8.5           Expenses.
Each party shall bear its own expenses incurred in connection with holding the
joint analysis indicated in this Section
8.

    

    9.             INSURANCE
AGAINST RISKS.

    

    9.1           General.
Ener1 undertakes to maintain, with a top-class insurance company, insurance
against general liability in delivery of the Units.  Ener1 shall bear
the costs of such insurance, provided
that MGTES shall promptly reimburse Ener1 for all such documented
costs.

    

    9.2           Proof
of Insurance. Ener1 shall present proof of such insurance to MGTES in the
form of an original of the insurance policy along with the documents transferred
under Acceptance Phase 1 indicated in the Specification.  Such
insurance shall cover any and all risks of accidental loss of or damage to the
Units until the risk of loss with respect to the Units passes to MGTES, which
shall be at the Supply Location of such Units.

    
      
         

      

      
        - 10
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    9.3              Insurance Type. The
Units must be insured
“for all risks” (terms of provision “А” of the
Institute of London Underwriters No 252
1/1/82) for the purposes of transportation from the manufacturer to the Supply
Location.  For purposes of this Section
9.3, insurance must cover
all events of wreckage, loss or damage to the entire cargo or part thereof
occurring for any reason of accidental nature, and also must cover costs of
general average and salvage, distributed or established in accordance with the
shipping contract and/or effective regulatory acts of the relevant state in whose territory the cargo was
located at the moment of its wreckage, loss, damage and with the established
business customs and caused by the necessity to avoid loss for any reason.
The beneficiary under such insurance policy shall be MGTES. Ener1 shall
obtain MGTES’s approval in advance pertaining to the form of such insurance
policy and the insurance company.

    

    9.4       
       Coverage
Limits. The insured sum
under the cargo insurance policy shall be established in the amount of the
Purchase Price of the Units.

    

    
      10.              
REPRESENTATIONS
AND WARRANTIES.

    

    

    10.1             Representations
by Ener1.  Ener1
represents and warrants that, as of the date hereof: (i) it is duly organized
and validly existing under the laws of the State of Florida, USA and has full
corporate power and
authority to enter into this Agreement; (ii) the Board of Directors of Ener1
approved this Agreement at a meeting held on October 1, 2010, and Ener1 has
taken all corporate actions necessary to authorize the execution and delivery of
this Agreement and the performance of its obligations
under this Agreement; and (iii) the performance of its obligations under this
Agreement does not conflict with, or constitute a default under, its charter
documents, any of its contractual obligation or any court order applicable to it.

    

    10.2             Representations
by MGTES.  MGTES
represents and warrants that, as of the date hereof:  (i) MGTES is
duly organized and validly existing under the laws of the Russian Federation and
has full corporate power and authority to enter into this Agreement; (ii) the Board of
Directors of MGTES shall consider and approve this Agreement at a meeting
scheduled to be held no later than on October 31, 2010;

    MGTES's
obligation to perform its obligations under this Agreement and Ener1's right to
claim MGTES's liability hereof is conditional upon receipt of the requisite
approval of the Board of Directors of MGTES as provided for herein and once such
approval has been obtained to approve this Agreement MGTES shall provide to
Ener1 written notice (that further will be accompanied by a notarized extract
from the Minutes of Board of Directors) evidencing that the Agreement has been
approved, and as of the date of
such decision, MGTES will have taken all corporate actions necessary to
authorize the execution and
delivery of this Agreement and the performance of its obligations under this
Agreement, provided further, however, that for each day after October 22, 2010
that this Agreement remains contingent upon approval as provided for herein, all
dates set forth in Exhibit 1B shall be
extended by 1 day; and (iii) the performance of its obligations under this
Agreement does not conflict with, or constitute a default under, its charter
documents, any of its contractual obligation or any court order
applicable to it.

    
      
         

      

      
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      11.              
INTELLECTUAL
PROPERTY RIGHTS.

    

    

    11.1             Ener1 Intellectual Property
Rights. Notwithstanding any
provision in this Agreement to the contrary, as between MGTES and Ener1, Ener1
shall retain exclusive ownership of all right, title and interest, throughout the world, in all
Intellectual Property (as defined below) relating to the Units (and any other
products supplied by Ener1 hereunder) or the manufacture and/or development of
the Units or such other products (the “Ener1 IP
Rights”), whether or not based on materials, information,
advice and the like received by Ener1 from MGTES or any other party, and whether
or not developed independently or collaboratively with MGTES or any other
party.  For the avoidance of doubt, as between MGTES and
Ener1, Ener1 exclusively owns and will own
all Intellectual Property relating to the lithium-ion battery technology and all
derivatives thereof incorporated into the Units or used in the manufacture
and/or development of the Units.  Nothing in this Agreement
shall be deemed to constitute a transfer
of Intellectual Property from Ener1 to MGTES, or to any other
party.  Ener1 and MGTES shall retain all rights in their respective
trademarks and trade names.  MGTES undertakes not to alter or remove
any of Ener1’s trademarks and shall not use any of
Ener1’s trademarks or trade names without
Ener1’s prior written
consent.

    

    11.2             Covenants of MGTES.
MGTES will not directly or
indirectly: (i) challenge or contest the validity or enforceability of any of
the Ener1 IP Rights, or any
Ener1 trademarks or trade names; (ii) dispute the validity, enforceability or
Ener1’s exclusive ownership of any of the
Ener1 IP Rights, or any Ener1 trademarks or trade names, or initiate or
participate in any proceeding opposing the grant of any license, patent, trademark or other
intellectual property right, or challenging any patent or trademark application
in connection with any matter that is a part of the Ener1 IP Rights or any Ener1
trademarks or trade names; (iii) apply to register or otherwise obtain registration of any Ener1
IP Rights or any Ener1 trademarks or trade names; or (iv) assist any other party
to do any of the foregoing.

    

    11.3             Definition of “Intellectual
Property”. As used herein,
the term “Intellectual
Property” means any and all U.S. or foreign patents, patent
applications, copyrights and copyright registrations and applications,
inventions, invention disclosures, protected formulae, formulations, processes,
methods, trade secrets, computer software, computer programs and source codes, manufacturing research
and similar technical information, know-how, customer and supplier information,
assembly and test data drawings or royalty rights, with the exception of joint
analysis indicated in Section
8
hereof.

    

    
      12.              
CONFIDENTIALITY.

    

    

    12.1             General.  Each Party ( the
“Receiving
Party”) agrees (i) to hold the Confidential
Information (as defined below) of the other Party (the “Disclosing
Party”) in strict confidence and to take all
precautions to protect such Confidential Information (including, without limitation, all
precautions the Receiving Party employs with respect to its own Confidential
Information), (ii) not to disclose any Confidential Information or any
information derived therefrom to any third party; provided,
however, that the Receiving
Party may disclose Confidential Information to any of its officers, directors,
employees, associates, agents, attorneys, financial advisors or auditors
(collectively, “Representatives”) who need to know such information for
purposes of implementing
the terms of this Agreement, but only if such Representatives are advised of
this Agreement and agree to abide by its terms, and only if the Receiving
Party agrees it shall be liable for any breach by such Representatives of the
confidentiality obligations contained herein, and (iii) not to make any use whatsoever
at any time of such Confidential Information except to implement the terms of
this Agreement.  Without granting any right or license, the Disclosing
Party agrees that the foregoing clauses
(i), (ii) and (iii) shall not apply with respect to any
information that the Receiving Party conclusively documents (a) is, through no
improper action or inaction by the Receiving Party or any affiliate or
Representative of the Receiving Party, generally available to the public, (b) was
in its possession or known by it prior to receipt of such information from the
Disclosing Party, (c) was lawfully disclosed to it by a third party not under a
duty of confidentiality with respect to such information, provided the Receiving Party complies
with any restrictions imposed on it by such third party, or (d) was developed by
the Receiving Party without the use of any Confidential Information of the
Disclosing Party.

    
      
         

      

      
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    12.2             Disclosure under Legal
Process.  The Receiving Party may disclose Confidential
Information to the extent such disclosure is required by the order of any court
or regulatory authority; provided, however, that the
Receiving Party (i) shall use diligent efforts to limit such disclosure and (ii)
shall provide the Disclosing Party with prior written notice of such disclosure
for the purpose of taking other measures to prevent such
disclosure.

    

    12.3             Return of Confidential
Information.  The Receiving Party acknowledges and agrees that
all Confidential Information will remain the property of the Disclosing Party
and will be promptly returned or destroyed upon the Disclosing Party’s
request.  The Receiving Party will promptly inform the Disclosing
Party if it becomes aware of any misappropriation, misuse or improper disclosure
of any Confidential Information or any breach of this Agreement by the Receiving
Party or its Representatives.  Immediately upon (i) the termination of
this Agreement in accordance with the terms hereof, or (ii) a request made at
any time by the Disclosing Party, the Receiving Party will deliver to the
Disclosing Party all Confidential Information of the Disclosing Party in the
possession of the Receiving Party or its Representatives, including all
documents or media containing any such Confidential Information and any and all
copies or extracts thereof, whether prepared by the Receiving Party or the
Disclosing Party.

    

    12.4             Reverse
Engineering.  The Receiving Party
agrees not to copy, alter, modify, reverse engineer, or attempt to derive the
composition or underlying information, structure or ideas of any Confidential
Information and must not remove, overprint, deface or change any notice of
confidentiality, copyright, trademark, logo, legend or other notices of
ownership from any originals or copies of Confidential Information it receives
from the Disclosing Party.

    

    12.5             Duration.  The Parties’ obligations hereunder with respect to
any Confidential Information disclosed hereunder will survive for a period of
five years from the last
date on which any such Confidential Information was disclosed, provided
that the
Parties’ obligations hereunder with respect to
any Confidential Information that also constitutes Intellectual Property will
survive indefinitely.

    

    12.6             Definition of Confidential
Information.  As used herein, the term “Confidential Information”
means any technical or business information of a Disclosing Party or any of its
affiliates, regardless of whether such information is specifically designated as
confidential and regardless of whether such information is conveyed or
maintained in written, oral, graphic, physical, electronic, or other
form.  Confidential Information may include, without limitation,
unpublished patent applications, inventions, trade secrets, know-how, show-how,
processes, procedures, formulae, products, drawings, materials, apparatus,
methods, customer or supplier specifications or requirements, computer software
and other data, technical documentation or specifications, plans, records, test
results, permissions, licenses and approvals, telephone numbers, e-mail
addresses and names, techniques, business operations, financial information
(including pricing and costing),
customer and/or supplier information, distribution information, and other
records and information.

    

    
      13.              
LIABILITY OF THE
PARTIES.

    

    

    13.1      
      General.  Ener1
shall supply the Units in accordance with this Agreement.  If Ener1
becomes aware of a possible delay in the performance of any of its obligations
under this Agreement, it shall promptly notify MGTES in writing of the possible
delay, its expected duration and cause (causes) of the delay.  If
there is a delay in the performance by Ener1 of any of its obligations under
this Agreement, and such delay is not the result of MGTES’s fault, or any Force
Majeure, MGTES, at its discretion, may extend the deadline for the performance
by Ener1 of its obligations hereunder and/or impose any applicable liquidated
damages described in Section
13.2.

    
      
         

      

      
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    13.2       
     Liquidated Damages.
The following liquidated damages may apply for a breach by Ener1 of its
obligations under this Agreement with respect to each Unit:

    

    13.2.1          for
a delay in shipping such Unit from its Shipping Location caused by Ener1, in the
amount of < * > for
each calendar day of such delay, not to exceed < * > in total for each
Unit;

    

    13.2.2          for
exceeding the time allocated for assembling and putting into pilot operation in
the  applicable Placement Location, as referred to in Table 1 of
Exhibit 1B, and such delay is caused by Ener1 and is not due to violation of
instructions of chief engineers of Ener1 regarding performance of work by MGTES
or its contractors, in the amount of < * > for each calendar
day of such delay, not to exceed
< * > in total per each Unit (the aforementioned timeframe for
assembly and putting into pilot operation at the relevant operating location
shall be defined as the difference between the date of Unit delivery to the
applicable Placement Location and the date of putting such Unit into the pilot
operation, less the delay in obtaining permits from the bodies of the Federal
Service of the Russian Federation for Environmental, Technological and Nuclear
Oversight to put Units into pilot operation, as indicated in the Schedule of
Work, that
occurred through no fault of Ener1).

    

    13.2.3          for
a delay in transferring a set of documents regarding the 3rd stage
of submission of project documentation for such Unit, as indicated in clause 1
of Exhibit 1A, and such delay is caused by Ener1, in the amount of < * > for each calendar
day of such delay, not to exceed
< * > in total;

    

    13.2.4          for
such Unit’s failure, during a warranty test, to achieve the values of guaranteed
technical ratios indicated in the Specification (Exhibit 1D,clause 3.5 and 3.6),
in the amount of:

    

    
      (a)              
< * > for each
kilowatt-hour short of the Battery Capacity;

    

    

    (b)       
       < * > for each kilowatt
short of the Rated Power of the Battery accounting for losses on own
needs;

    

    
      (c)              
< * > for each 0.1 % short
of the system’s round trip efficiency ratio; and

    

    
      (d)              
< * > for each 0.1 % short
of the Unit Capacity Utilization Factor;

    

    

    Provided
that the aggregate amount of liquidated damages for which Ener1 is liable for
under this Section 13.2 with respect to a Unit shall not exceed 10% of the value
of such Unit agreed by the parties in the Specification.

    

    Should a
Unit fail to achieve guaranteed performance ratios for the items described in
clauses (a), (b) and (c) of this Section as required in the Specification, Ener1
may, during a period of time agreed with MGTES, modify such Unit and conduct
repeat warranty tests at its own expense. Should such Unit again fail to achieve
guaranteed performance ratios for the items described in clauses (a), (b) and
(c) of this Section as required in the Specification, MGTES may demand payment
of the penalties stipulated by Section 13.2.4.

    
      
         

      

      
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    In
addition, if the values of the guaranteed performance ratios for the items
described in described in Subsections (a), (b) and (c) of this Section obtained
in warranty tests fall short of their values as per the Specification by more
than < * >, such deviation may be viewed as a violation of the
requirements regarding quality of the Products, and MGTES shall be entitled to
send to Ener1 a “Notice on Rejection” of such Unit and in such event the parties
shall act in accordance with Section 6.9.

    

    Deviations
in the values of guaranteed performance ratios for the items described in
Subsections (a), (b) and (c) of this Section obtained in warranty tests of less
than 5% of their values set forth in the Specification shall not grant MGTES the
right to reject such Unit in accordance with Section 6.9.

    

    The
utility ratio for the Unit shall be defined as indicated in Exhibit 1D,
Part 4.

    

    13.3             Payment of Liquidated
Damages.  All payments of liquidated damages hereunder shall be
due within 10 banking days after such written claim for damages has been
received by Ener1, and if Ener1 disputes such claim, the final resolution of
such dispute in accordance with the terms of this Agreement.

    

    13.4             Absolute Performance
Ratios. If the Units fail to meet the Absolute Performance Ratios
indicated in the Specification (Exhibit 1D), then such
failure shall be deemed to constitute non-compliance with the quality
requirements stipulated in this Agreement with regard to such Units, in which
case, the Parties shall act in accordance with the provisions in Section 6.7.

    

    13.5             Delay in Payment. If
MGTES, due to its own fault, is delinquent on any payment required under this
Agreement by more than five business days for a reason other than a Force
Majeure, Ener1 may charge MGTES liquidated damages at the rate of 0.1% on the
amount due for every calendar day of the delay until the same is paid in full,
provided that the
aggregate amount of the liquidated damages paid by MGTES under this Section 13.5 cannot exceed
10% of the amount of the delayed payment. The Parties have agreed that no other
penalties or liquidated damages shall apply for the failure by MGTES to make
payments on a timely basis hereunder.

    

    13.6             Continuing
Obligations. Payment of liquidated damages shall not relieve a Party from
performing its obligations under this Agreement.

    

    13.7             No Other
Compensation.  Except as contemplated by this Agreement,
neither Party shall demand compensation of any kind from the other Party and
each Party shall bear its own costs, risks and liabilities arising out of its
obligations and efforts under this Agreement.

    

    
      14.              
LIMITATION ON WARRANTIES AND
LIABILITIES.

    

    

    14.1             Limitation on
Warranties. No oral or
written representation or statement made by Ener1 or any of its Representatives,
including, but not limited to, any specifications, descriptions or statements
contained in any manual or guide provided to MGTES that is not restated in this
Agreement, is binding upon Ener1 as a warranty or promise of performance.  Ener1 does not make any
warranties or promises, express or implied, with respect to the merchantability,
fitness for use, condition, duration or suitability of the Units and are not
responsible for any patent or latent defects in any of the Units, or damages
resulting therefrom, except as expressly provided in this
Agreement.

    
      
         

      

      
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    14.2             LIMITATION
ON LIABILITY.
IN NO EVENT SHALL ENER1 BE LIABLE IN CONTRACT OR IN TORT, INCLUDING NEGLIGENCE
AND STRICT LIABILITY, FOR ANY DAMAGES
WHATSOEVER, INCLUDING SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES OF ANY KIND OR CHARACTER, INCLUDING, WITHOUT LIMITATION, LOSS OF USE OF
PRODUCTIVE FACILITIES OR EQUIPMENT, LOSS OF REVENUES OR PROFITS OR LOSS
UNDER
PURCHASES OR CONTRACTS
MADE IN RELIANCE ON THE PERFORMANCE OR NON-PERFORMANCE OF THIS AGREEMENT,
WHETHER SUFFERED BY A PARTY TO THIS AGREEMENT OR ANY THIRD PARTY, OR FOR ANY
LOSS OR DAMAGE ARISING OUT OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PARTY,
ITS EMPLOYEES OR AGENTS
OR ANY THIRD PARTY. IN ADDITION TO AND WITHOUT LIMITING THE FOREGOING,
THE MAXIMUM AGGREGATE AMOUNT OF LIABILITIES FOR WHICH ENER1 SHALL BE LIABLE
UNDER THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY (INCLUDING
ANY LIQUIDATED DAMAGES UNDER SECTION
13) SHALL
UNDER NO CIRCUMSTANCES EXCEED THE LESSER OF (I) USD 8,000,000 AND (II) 20% OF
THE TOTAL AMOUNT PAID BY MGTES TO ENER1 PURSUANT TO THIS AGREEMENT. 
THE
PROVISIONS OF THIS CLAUSE 14.2 APPLY TO THE EXTENT THAT IT DOES NOT CONTRADICT
OTHER PROVISIONS OF THIS AGREEMENT.

    

    
      15.              
AMENDMENT AND TERMINATION OF
THIS AGREEMENT.

    

    

    15.1             Amendments;
Waivers.

    

    15.1.1          Any
amendments, modifications and/or supplements to this Agreement shall be made
pursuant to a writing signed by a duly authorized representative of each Party,
and shall be an integral part of this Agreement as of the date of its signing.
All instances in this Agreement requiring “the mutual agreement of the Parties”
or other phrases of similar import shall be evidenced by a writing signed by
both Parties and shall be construed as an amendment to this
Agreement.

    

    15.1.2          No
waiver of any provision of this Agreement will be valid or effective unless in
writing and signed by the Party from whom such waiver is
sought.  A failure by
either Party to exercise any rights or remedies it may have hereunder shall not
operate as a waiver of such rights or remedies. A waiver by either Party of any
of the terms and conditions of this Agreement in any instance will not be deemed
or construed to be a waiver of such term or condition for the future, or of any
subsequent breach hereof.

    

    15.2             Termination. This Agreement may be terminated as
follows:

    

    15.2.1          by mutual agreement of the Parties in
writing at any time for any reason or no reason;

    

    15.2.2          by MGTES upon written notice to Ener1
if:

    

    (a)      
        Ener1 fails to deliver a Unit to the
Shipping Location for such Unit, or (ii) such Unit is not assembled and put into
pilot operation in the Placement Location within 180 calendar days of the date
on which such delivery or assembly and pilot launch was required to have
occurred under the Specification, provided that all of the
rights and obligations of the Parties with respect to the other Unit shall
survive such termination;

    

    (b)            
  MGTES has validly
delivered a Rejection Notice with respect to a Unit in accordance with
Section
6.9, provided that all of the
rights and obligations of the Parties with respect to the other Unit shall
survive such termination;

    
      
         

      

      
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    (c)        
      Ener1 has continually and breached its
obligations under this Agreement (other than a breach that is covered in
paragraphs (a)
or (b) above), and is not making a good faith
effort to cure such breaches after receiving not less than 30 days’ written
notice thereof from MGTES; or

    

    
      (d)              
bankruptcy proceedings are instituted
against Ener1.

    

    

    In the
event that MGTES elects to terminate the Agreement pursuant to this Section
15.2.2(a), then Ener1 shall pay liquidated damages with regard to the first 100
days of delay, and with regard to the next 80 days of delay MGTES shall be
entitled to receive only interest at the rate of 12% per annum on any amounts
previously paid by MGTES to Ener1 under this Agreement, and sums that are
subject to payment in accordance with Section 15.3.

    

    In
addition, in the event of termination of this Agreement pursuant to Section.
15.2.2(a), Ener1 shall return to MGTES all earlier sums paid to it pursuant to
this Agreement within 30 calendar days from the time that MGTES sends the
corresponding notification.

    

    
      
        15.2.3          by Ener1
upon written notice to MGTES if:

      

    

    
      

    

    (a)         
     MGTES fails to timely make its payment
obligations hereunder and such failure is not cured within 90 days after MGTES
receives written notice thereof from Ener1, provided that Ener1 may cease its
performance under this Agreement if MGTES fails to timely make its payment
obligations hereunder and such failure is not cured within 30 days from
when such payment was due to Ener1, and such cessation of performance by Ener1
shall not be considered to be a breach or default by Ener1 of its obligations
under this Agreement, and the applicable time periods set forth in this
Agreement shall be proportionally adjusted to account for MGTES's delay in
payment in excess of such 30 days; or

    

    
      
        (b)              
bankruptcy proceedings are instituted
against
MGTES.

      

    

    
      

    

    15.3             The provisions of Sections 11, 12, 13,
14, 15 and 16, and all payment and performance
obligations of the Parties that have accrued but remain unpaid or performance
obligations that have not been completed as of the date of termination (or
partial termination under Sections 15.2.2(a)
or 15.2.2(b)), shall survive the termination of this
Agreement until satisfied in full.

    

    15.4             This Agreement shall in all respects be
binding on both Parties hereto and may only be terminated on the grounds set
forth in this Section 15.

    

    15.5             The Party terminating the Agreement
shall be entitled to present to the other Party a claim for reasonable and
documented costs in connection with such termination.  If there is a
dispute between the Parties with respect to such claim, the Parties may pursue
such dispute as provided for in Section 16.5.

    

    
      16.              
MISCELLANEOUS.

    

    

    16.1             Relationship of the
Parties.  Nothing in this Agreement is intended or will be
deemed to constitute a partnership, joint venture, joint development, agency or
employer-employee relationship between the Parties.  Neither Party
shall have the right, power or authority to make any representation or any
binding agreement or arrangement on behalf of the other Party.

    
      
         

      

      
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    16.2             Force Majeure.
Neither Party will be liable for any breach or failure to perform under this
Agreement if such breach or failure to perform is due to an act beyond the
control of such Party (a “Force Majeure”), which
include by way of illustration, but not limitation, acts of God, fire, floods,
war, civil disobedience, strikes, lockouts, freight embargos, inclement weather,
or any other cause or condition beyond such Party’s control; provided, however, that the
Party which has been so affected will (i) promptly give written notice to the
other of the fact that it is unable to so perform and the cause(s) therefore;
and (ii) resume its performance under this Agreement immediately upon the
cessation of such cause(s) and give a notice of same to the other
Party.

    

    16.3             Entire Agreement.
This Agreement and its Exhibits constitute and contain the entire understanding
and agreement of the Parties respecting the subject matter hereof and cancel and
supersede any and all prior and contemporaneous negotiations, correspondence,
understandings and agreements between the Parties, whether oral or written,
regarding such subject matter, including, without limitation, the agreement to
carry out a joint project previously executed by the Parties in the city of
Sochi on September 17, 2010..

    

    16.4             Captions.  The captions to this
Agreement are for convenience only, and are to be of no force or effect in
construing or interpreting any of the provisions of this
Agreement.

    

    16.5             Arbitration; Governing
Law.

    

    16.5.1          The
Parties shall attempt to resolve any questions that may arise out of or in
connection with the present Agreement or the execution, breach or termination
thereof by means of negotiations.

    

    16.5.2          Any
dispute, controversy or claim which may arise out of or in connection with the
present Agreement, or the execution, breach, termination or invalidity thereof,
shall be settled by the International Commercial Arbitration Court at the
Chamber of Commerce and Industry of the Russian Federation in accordance with
its Rules.

    

    16.5.3          Within
30 (thirty) calendar days of submission of the dispute for arbitration, MGTES
and Ener1 shall each appoint one arbitrator. The two arbitrators thus appointed
shall agree on and select a candidate for the third arbitrator, which third
arbitrator shall act as the chairperson of the panel, within 30 (thirty)
calendar days of the respondent(s) appointing an arbitrator, it being further
agreed that two of the three arbitrators shall be foreign persons who are not
citizens of the Russian Federation or the USA. Should either Party fail to
appoint an arbitrator or should the two arbitrators fail to agree on appointing
the third arbitrator within a thirty-day period of time, an arbitrator shall be
appointed in accordance with the then effective rules of the International
Chamber of Commerce.

    

    16.5.4          The
location of arbitral proceedings shall be the city of Moscow,
Russia.

    

    
      16.5.5          The
language of arbitral proceedings shall be the English
language.

    

    

    16.5.6          The
governing law of this Agreement and all disputes arising under or pertaining to
this Agreement or the subject matter hereof shall be the substantive law of
England, without giving effect to any conflict of laws
provisions.

    
      
         

      

      
        - 18
-

        
          

        

      

      
         

      

    

    16.5.7          The prevailing Party in any such action
shall be entitled to recover its reasonable and documented costs in full from
the non-prevailing party, including any arbitration costs and any interest on
any judgement as determined by the arbitration panel. Any judgement with
respect to a failure to pay liquidated damages shall accrue interest at the rate
of 0.1% per day on such amount of unpaid penalties calculated from the day when
such penalty is subject to payment in accordance with Section. 13.3 until the
sum is paid in full provided that the aggregate interest cannot exceed 20% of
the amount of such penalty that is determined by the arbitrator to be subject to
payment.

    

    16.6             Notices and
Deliveries. Any notice,
demand or request required or permitted to be given by a Party to the other
Party pursuant to or concerning the terms of this Agreement or the resolution of
any dispute hereunder shall be in Russian, in writing and shall be deemed
delivered (i) when delivered personally, (ii) on the next business day after
timely delivery to a reputable overnight courier and (iii) on the business day
actually received if deposited in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), (iv) in the event of sending via
e-mail or by fax – on the date specified in the confirmation of receipt of such
notice, demand, or request, which shall not be unreasonable withheld by a
recipient, addressed as follows:

    

    If to
Ener1:

    

    Ener1, Inc.

    1540 Broadway, Suite
25C

    New York, NY 10036

    USA

    Attn:     Bruce Curtis,

    President Ener1, Inc.
GES

    Fax: +1  (212)
920-3510

    e-mail: bcurtis@ener1.com

    

    With a copy (which shall not constitute
notice) to:

    

    Ener1, Inc.

    1540 Broadway, Suite
25C

    New York, NY 10036

    USA

    Attn:     General Counsel

    Fax:  +1 (212)
920-3510

    

    If
to MGTES:

    

    JSC «Mobile GTES»,

    47 Volgogradsky Ave., Moscow, Russian
Federation

    Attn: О.V. Braghin, General
Director

    Fax:      + 7 (495) 937 42 61

    e-mail:  info@mobilegtes.ru

    

    The
Parties shall be entitled to appoint other representative for carrying out
correspondence hereunder by giving a prior written notice to the other
Party.

    16.7             Severability.  If any provision of this
Agreement is held to be prohibited by, invalid or unenforceable under applicable
law, such provision will be ineffective only to the extent of such prohibition,
unenforceability, or invalidity, without invalidating the remainder of this
Agreement. The Parties will make a good faith effort to replace the applicable
provision with one that is both valid and which the Parties agree is in
substance consistent with the original provision.  In the event the
Parties do not agree upon such a substitute provision, either Party shall have
the right to terminate this Agreement by providing sixty (60) days written
notice of termination to the other.

    
      
         

      

      
        - 19
-

        
          

        

      

      
         

      

    

    
      16.8             Compliance
with Laws.

    

    

    16.8.1          The Parties shall cooperate in good
faith to ensure that all requisite governmental approvals, licenses and permits
relating to the export of the Units are timely obtained.

    

    16.8.2          MGTES agrees to comply with all
applicable U.S. export control laws and regulations, specifically including, but
not limited to, the requirements of the Arms Export Control Act, the
International Traffic in Arms Regulation (ITAR), the Export Administration Act,
and the Export Administration Regulations and all requirements for obtaining
export licenses or agreements.

    

    16.8.3          MGTES shall immediately notify Ener1 if
MGTES is, or becomes, listed in any “Denied Parties List” or if MGTES’s export
privileges are otherwise denied, suspended or revoked in whole or in part by any
U.S. Government entity or agency, or by any entity or agency of MGTES’s own
country, if MGTES becomes aware of it.

    

    16.8.4          If Ener1 is prohibited by government
bodies of the USA, for any reason, from exporting or re-exporting a Unit or any
Ener1 Technology material to the performance of its obligations under this
Agreement, each of Ener1 and MGTES shall have the right to terminate this
Agreement without any liability to the other Party, provided that all funds paid
prior to termination of the Agreement pursuant to this Section16.8.4 shall be
repaid by Ener1 to MGTES within 30 calendar days following such termination of
this Agreement.

    

    16.8.5          The parties hereto, hereby affirm their
intent that all activities connected with the sale of the Units by Ener1 to
MGTES shall comply with the United States Foreign Corrupt Practices Act, 15
U.S.C. 78, (hereinafter "FCPA"), and any amendments thereto.

    

    16.8.6          Each Party shall be responsible for and
indemnify and hold other Party harmless against any and all losses, costs,
claims, causes of action, damages, liabilities and expenses, including
attorneys’ fees and costs, arising from any negligent act or omission of such
indemnifying Party, its officers, employees, agents, sellers, or subcontractors
at any tier, in the performance of its obligations under this Section
16.8.

    

    16.9             Counterparts.  This Agreement shall be
executed simultaneously in the Russian and English languages and each party
shall receive five originally signed copies. The text of this Agreement
in the Russian language shall prevail over the text of this Agreement in the
English language.

    

    16.10           Assignment.  Ener1
may not assign its rights and obligations hereunder absent prior written consent
by MGTES, which consent shall not be unreasonably withheld.  MGTES may
assign its rights and obligations hereunder to a third party that is a member of
the FSK UES Group. For the assignment to be deemed to have taken place an MGTES
notice addressed to Ener1 shall be sufficient. An assignment shall be deemed to
be effective as of the date on which Ener1 shall receive such written
notice.  Notwithstanding the foregoing, any assignment by MGTES shall
be conditional upon a guarantee issued by MGTES to Ener1 of such assignee's
obligations under this Agreement.

    
      
         

      

      
        - 20
-

        
          

        

      

      
         

      

    

    
      17.              
LIST OF
EXHIBITS.

    

    

    17.1             Each
of the following Exhibits, as may be amended, modified and supplemented by
mutual agreement by the Parties, constitutes an integral part of this
Agreement:

    

    
      17.1.1          Exhibit
1A «SCOPE OF WORK»

    

    

    
      17.1.2          Exhibit
1B «SCHEDULE OF WORK»

    

    

    
      17.1.3          Exhibit
1С «SCHEDULE
AND TERMS OF PAYMENTS»

    

    

    
      17.1.4          Exhibit
1D «TECHNICAL DESCRIPTION OF THE UNIT»

    

    
      
         

      

      
        - 21
-

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their
respective duly authorized officers as of the date first above
written.

    

    
      
        	
                Ener1,
      Inc. / Ener1, Inc.

              
	 
      	 
      
	
                By:

              	
                /s/ Bruce Curtis

              
	
                Name: Bruce
      Curtis

              
	 
      
	
                Title:
      President, Grid Energy Storage

              
	 
      
	
                Joint
      Stock Company “Mobile GTES”

              
	 
      	 
      
	
                By:

              	
                /s/ Oleg
      Valentinovich Bragin

              
	 
      	 
      
	
                Name:  Oleg
      Valentinovich Bragin

              
	 
      
	
                Title:  General
      Director

              

      

    

    
      
         

      

      
        - 22
-

        
          

        

      

      
         

      

    

    Exhibit
1A

    to Supply
Agreement

    Capitalized
terms used in this Exhibit 1A that are not defined in this Exhibit shall have
the meanings given to such terms in the Supply Agreement, dated as of October 6,
2010 (the “Agreement”),
entered into by Mobile Gas Turbine Electric Powerplants (“MGTES”) and Ener1, Inc. (“Ener1”), and if not defined
in the Agreement, then the meanings given to such terms in the other Exhibits to
the Agreement.

    SCOPE OF
WORK

    General

    The scope
of work shall be the delivery of the following components and
services:

    

    1             Development
and delivery of the Units for use:

    i.             to
St-Petersburg or Leningrad region < * >

    ii.             to
the Sochi substation < * >

    2             Field
tests of the Units, long-term monitoring and analysis

    3             Economic
Viability Analysis

    4             Manufacture
localization study

    5             Training
of MGTES personnel with respect to the operation and maintenance of the
Units

    Within
two weeks of the effectiveness of the Agreement, the Parties shall sign separate
agreements to determine working groups comprising Ener1 and MGTES specialists,
as well as  third-party organizations’ employees and specialists, for
the purpose of the following activities:

    a.            Research:
Economic Viability Analysis.  Selection and prioritization of applied
solutions in the field of energy storage under Section 8.2 of the
Agreement.

    b.           Engineering:
Updating and adding to the Specification as deemed reasonably necessary by the
Parties in accordance with Sections 1.3 of the Agreement; development of the
Units; performance of manufacture localization studies under Section 8.3 of the
Agreement to examine availability of raw materials and skilled human resources,
and assess the market conditions and establish whether lithium ion batteries and
associated hardware can be produced in the Russian Federation; development and
performance of a long-term testing program; and coordination of any actions
necessary to obtain requisite approvals for the Units from the Russian
Federation.

    1.            Development
and Delivery of the Units

    Unit Development
Process

    To make
sure that each Unit matches the specific application it is being designed for,
Ener1 and MGTES specialists shall, as part of the operations of joint working
group “A,” commence a phased process of document submission to the relevant
governmental authorities to clarify the characteristics of each Unit as
presented in Exhibit 1D, and to obtain approval for the same from such
authorities. Three phases are envisaged hereby for submission of design
documentation.

    1             First
stage of design documentation submission

    o             Selection
of long-lead components: battery cells, inverters, temperature control
components, electrical components, as well as SCADA and communications
hardware

    2             Second
stage of design documentation submission:

    o             Integration
of the SCADA system (control and communication) and the grid

    3             Third
and final stage of design documentation submission.

    Final
design of the power module and the battery module

    Delivery of the
Units

    Ener1
shall supply MGTES with the following two Units:

    ·             A
< * > Unit to be installed in St-Petersburg or Leningrad region
(hereinafter also referred to as “Unit 1” or “Placement Location 1,”
respectively)

    
      
         

      

      
        - 23
-

        
          

        

      

      
         

      

    

    ·             A
< * > Unit to be installed at the Sochi substation (hereinafter also
referred to as “Unit 2” or “Placement Location 2,” respectively)

    In
addition, Ener1 shall supply MGTES with a test module (that is, a battery module
having approximately < * > capacity) to be tested for the purpose of
gathering the requisite data for research and evaluation that MGTES reasonably
deems appropriate for purposes of the implementation and use of the Units in the
designated Placement Locations.  Delivery timeline and locations will
be further agreed to by the Parties.

    Parameters of the Units to
Be Delivered are Detailed in Exhibit 1D

    The Units
shall be installed in an ISO standard cargo container and shall be comprised of
a number of battery modules (that include DC battery installations) and power
modules (that include DC and AC electronics, controls, and grid
distributors).

    Each Unit
shall have the following specifications: < * > current at the power module
output. Equipment to connect such module to the grid, including a step-up
transformer, as well as the connection of such, shall be provided by
MGTES.

    Battery
Modules

    Each
battery module shall be fully enclosed, installed, and tested. It shall be
comprised of the following components:

    

    ·             Lithium
ion battery modules comprised of Ener1 A306 cells (part number 15-11052 in Ener1
catalogue)

    ·             Rack
system for battery installation

    ·             Temperature
control and HVAC system

    ·             Battery
management system (BMS)

    ·             DC
equipment for internal needs, buses, and relevant cabling

    ·             Fire
suppression and HVAC system

    ·             Lightning
systems and auxiliary power sources

    Power
Module

    Power
module shall also be fully enclosed, installed and tested. It shall include the
following components:

    

    ·             Power
electronics for charging/discharging the battery, including a two-way
inverter

    ·             SCADA
system (for remote control and data gathering)

    ·             DC
equipment for internal needs, buses, and relevant cabling

    ·             Fire
suppression

    ·             HVAC

    ·             Lighting
systems and auxiliary power sources

    Module
Interconnection

    Ener1
shall supply cables and wiring required for electrical interconnection and
communication between power modules and battery modules.

    Maintenance
Support

    Ener1
shall provide technical support for equipment installation and commissioning of
the Units, including:

    ·             Technical/engineering
support in the course of Units installation, pilot launch, and acceptance
tests

    ·             Training
of operators and service personnel (maintenance and repairs)

    Design
Documentation

    Ener1
shall provide the customary documentation that Ener1 deems reasonably necessary
for any Unit, including training materials for the operating personnel, training
materials for service personnel (maintenance and repairs), user manuals, and
instructions on operations, maintenance, and repairs (and, to the extent
practicable, translated in Russian).

    
      
         

      

      
        - 24
-

        
          

        

      

      
         

      

    

    2           Field
Tests, Long-Term Monitoring, and Review of the Units

    Following
the installation and pilot launch of each Unit, Ener1 and MGTES shall carry out
joint integrated field tests, perform long-term monitoring, gather data, and
analyze each engineering solution. Such tests shall continue for at least 18
months. The key objectives of such tests, monitoring, data gathering, and
analysis are as follows:

    ·           Verify
the Units’ operating performance with regard to each individual engineering
solution, including overall operational reliability and performance, as well as
performance at cell level, the entire Unit, and selected components
thereof.

    ·           Verify
the economic and operational advantages associated with running the Units
(factoring in costs savings, operation and maintenance).

    ·           Provide
Ener1 with information to improve the “next generation” of Units to be used at
the upcoming stages of the program.

    The
program includes installation of highly accurate monitoring systems to be
delivered by Ener1 for the purpose of remote data control and recording of
information. In addition, specific field tests will be developed and performed
to validate the Units’ operating performance and proper functioning in all modes
of operation.

    Reports
as to field tests, long-term monitoring, and analysis of each Unit shall be
prepared by Ener1 and submitted to MGTES at 3 months, 6 months, 12 months, and
18 months following the pilot launch of each Unit.

    3           Economic
Viability Analysis With MGTES’s support, Ener1 shall perform a comprehensive
study by way of Economic Viability Analysis (“EVA”) to cover all potential uses
of lithium ion batteries for energy storage purposes.

    The
purpose of such study is to identify and analyze potential uses for the Units
and select economically feasible applied solutions for their application within
the Unified National Power Grid of the Russian Federation. Any solutions that
meet the applicable requirements shall undergo a detailed review from the
cost-benefit perspective. Such data shall inform a final list of top priority
applied solutions and projects.

    4           Manufacture
Localization Study

    With
MGTES’s support, Ener1 shall study the potential for manufacture localization.
The purpose of such review is to identify existing Russian equipment components,
materials that might be used in the project, as well as any potential for system
integration of GES Units in Russia.

    Based on
the outcome of such study and MGTES order volumes, Ener1 shall decide whether to
use local equipment and labor in any future GES Units.

    
      
         

      

      
        - 25
-

        
          

        

      

      
         

      

    

    Exhibit
1B

    to Supply
Agreement

    Capitalized
terms used in this Exhibit 1B that are not defined in this Exhibit shall have
the meanings given to such terms in the Supply Agreement, dated as of October 6,
2010 (the “Agreement”),
entered into by Mobile Gas Turbine Electric Powerplants (“MGTES”) and Ener1, Inc. (“Ener1”), and if not defined
in the Agreement, then the meanings given to such terms in the other Exhibits to
the Agreement.

    SCHEDULE
OF WORK

    1.           Schedule
of Work

    The
Units’ shipping location shall be a USA seaport (“Shipping
Location”).

    The
Units’ delivery location shall be the temporary storage location of the seaport
of St. Petersburg, Russia (“Delivery Location”) or any other port selected by
MGTES and reasonably acceptable to Ener1.

    The
specific requirements of Ener1 and MGTES with respect to the Placement
Locations’ readiness for the Units’ installation and startup shall be further
agreed by the Parties.

    

    Table
1

    
      
        	
                No.

              	 
      	
                Work Item

              	 
      	
                Completion Date *

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	
                  

              	
                <
      * >

              	
                  

              	
                <
      * >

              

      

    

     

    
      
        
        

      

      
        - 26
-

        
          

        

      

      
        
        

      

    

     

    *           The
timeline shown in the “Completion Date” column are estimates made as of the date
of the Agreement, and are subject to change due to project delays and unforeseen
circumstances, including delays in obtaining requisite board approvals of the
Parties.  Both Parties shall use good faith to meet the target dates
set forth under the Completion Date column, provided that neither Party shall be
liable for any delays unless such delays are the result of such Party’s gross
negligence or willful misconduct.

    Table
2

    
      
        	
                Stage

              	 
      	
                Stage Description

              	 
      	
                Acceptance

                Location

              	 
      	
                Reporting Documents

              
	
                1

              	 
      	
                Factory
      tests of the Unit under Article 3.02, Part 3, Exhibit  D to the
      Specification; acceptance in terms of quantity (to see whether the
      Products constitute a full complement)

                 

              	 
      	
                Factory
      premises of Ener1

                 

              	 
      	
                Test
      reports; Certificate of successful completion of factory tests;
      Certificate showing that the Units constitute a full complement, Insurance
      policy for each Unit

              
	
                2

              	 
      	
                Unit’s
      shipment from the Shipping Location under Article 4.1 of the
      Agreement

                 

              	 
      	
                Delivery
      Location

                 

              	 
      	
                Clean
      marine bill of lading

                 

              
	
                3

              	 
      	
                Unit’s
      delivery to the Delivery Location as per the terms and conditions of
      Section 4 of the Agreement

                 

              	 
      	
                Delivery
      Location

              	 
      	
                Documents
      under Article 5.3 of the Agreement; Report on external examination of the
      Unit’s transportation package

              
	
                4

              	 
      	
                Pilot
      launch of the Unit (Conditional Acceptance)

                 

              	 
      	
                Placement
      Location

              	 
      	
                The
      Unit’s pilot launch certificate

              
	
                5

              	
                  

              	
                Final
      acceptance of the Unit

              	
                  

              	
                Placement
      Location

                 

              	
                  

              	
                The
      Unit’s final acceptance
certificate

              

      

    

    
      
         

      

      
        - 27
-

        
          

        

      

      
         

      

    

    Exhibit
1C

    to Supply
Agreement

    Capitalized
terms used in this Exhibit 1C that are not defined in this Exhibit shall have
the meanings given to such terms in the Supply Agreement, dated as of October 6,
2010 (the “Agreement”),
entered into by Mobile Gas Turbine Electric Powerplants (“MGTES”) and Ener1, Inc. (“Ener1”), and if not defined
in the Agreement, then the meanings given to such terms in the other Exhibits to
the Agreement.

    SCHEDULE
AND TERMS OF PAYMENT

    1.           The
purchase price for the two Units comprising the Products consists of the
following:

    1.1             Forty
Million U.S. Dollars ($40,000,000.00);

    1.2             Ener1’s
documented costs of clearing the Units through customs in the Russian
Federation, including customs brokerage fees and payment of all requisite
customs payments and duties on the terms and conditions specified in the
Agreement.

    2.           All
payments shall be made within fifteen (15) banking days of MGTES receiving
documents as to the relevant Payment Milestone, other than the initial down
payment, which shall be made within fifteen (15) banking days of the Effective
Date of the Agreement, provided Ener1 has furnished an unconditional and
irrevocable bank guarantee for proper performance of its obligations under the
Agreement in accordance with Section 3.3 of the
Agreement.

    3.                 Under
the Agreement, Ener1’s products shall be paid for in several stages shown below
(“Payment Milestones”):

    Table
3

    
      
        	
                No.

              	 
      	
                Payment Milestone

              	 
      	
                Amount, US
dollars

              	 
      	
                Payment against Document

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
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      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
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      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
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      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
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      * >

              	 
      	
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      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
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      * >

              	 
      	
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      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              	 
      	
                <
      * >

              
	 
      	
                  

              	
                Total:

              	
                  

              	
                $40 000 000,00

              	
                  

              	 
      

      

    

    
      
         

      

      
        - 28
-

        
          

        

      

      
         

      

    

    *The
Parties acknowledge and agree that all items requiring mutual agreement of the
Parties under the column titled “Payment against Document” shall be deemed to
impose on each Party a duty to negotiate in good faith and the use of a
“commercially reasonable” standard when determining whether the set of
conditions to be satisfied for a Payment Milestone has been
satisfied.

    4.                 Ener1’s
Products shall be paid for in USD cash funds to an account specified by Ener1 in
writing.

    5.                 The
date when cash funds leave MGTES bank account shall be deemed to constitute the
payment date under the Agreement.

    
      
         

      

      
        - 29
-

        
          

        

      

      
         

      

    

    Exhibit
1D

    to Supply
Agreement

    Capitalized
terms used in this Exhibit 1D that are not defined in this Exhibit shall have
the meanings given to such terms in the Supply Agreement, dated as of October 6,
2010 (the “Agreement”),
entered into by Mobile Gas Turbine Electric Powerplants (“MGTES”) and Ener1, Inc. (“Ener1”), and if not defined
in the Agreement, then the meanings given to such terms in the other Exhibits to
the Agreement.

    TECHNICAL
DESCRIPTION OF THE UNIT

    PART 1 -
GENERAL

    1.1             SCOPE

    A.           Capitalized
terms used in this Exhibit 1D that are not defined in this Exhibit 1D shall have
the meanings given to such terms in the Supply Agreement entered into by Mobile
Gas Turbine Electric Powerplants and Ener1, Inc.  This Technical
Description applies to the Unit based on a lithium-ion battery intended to
connect to an external power grid. This Technical Description does not cover
transformers, control or switchgear, and other electric equipment at the point
where each Unit is connected to an external power grid (hereinafter, the Point
of Common Coupling (PCC)).

    B.

    < *
>

    

    1.2             GENERAL
UNIT DESCRIPTION

    

    < *
>

    

    B.             The
Unit Control System, described herein, and SCADA shall be supplied by
Ener1.

    C.             The
Unit shall be housed in ISO containers for shipment by land, sea, railway or
air. One container (or multiple containers) shall house the battery equipment.
The other container (or multiple containers) shall house the Power Conversion
System (PCS). The containers shall be designed to protect the components from
temperature extremes and moisture.  The Unit’s equipment shall be
assembled in the enclosures by Ener1 including all interconnecting wiring,
supports, and ancillary equipment as described below:

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    1.3
QUALITY AND SAFETY ASSURANCE, AND GUARANTEES

    A.           Each
Unit and its associated enclosures shall be factory inspected and tested to
verify the design, construction, and operation of the enclosure and its
installed equipment and materials.  A test program shall be
coordinated with MGTES in advance. Test reports shall be provided to
MGTES.

    B.           The
Unit and its enclosures shall be designed and/or tested to meet the standards
below or their local equivalent:

    
      
         

      

      
        - 30
-

        
          

        

      

      
         

      

    

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    C.           Ener1
shall establish a warranty period for equipment and materials for each Unit,
which shall be calculated as of and commence on the date the Parties sign the
acceptance report relating to such Unit and shall last 18 months with respect to
guarantees on energy, power, efficiency and uptime, and materials and
workmanship, and shall last an additional 24 months with respect to materials
and workmanship only.

    1.3             TECHNICAL
DOCUMENT SUBMITTALS

    A.           Ener1
will submit to MGTES technical material as described below, in both the English
and Russian languages, in hard copy and on an electronic medium in 4 (four)
copies:

    1.             Outline
and installation drawings showing all exterior dimensions, cable access points,
and clearances. The drawings shall show sizes (including door opening sizes),
weights, centers of gravity, lifting points, anchoring points, relationships
between individual shipping units, the location and designation of all field
wiring termination areas, foundation requirements, and the maximum number and
permissible size range of power conductors that can be accommodated for each
power termination.

    2.           Requirements
and instruction for transportation, mothballing (de-mothballing), as well as
lifting and rigging requirements.  Center of gravity and lifting
points shall be marked on all containers and shipping splits.

    3.           Installation
planning requirements, field assembly instructions, and mounting details for all
equipment and shipping splits.

    4.             Descriptions
and technical parameters of Unit operation (including limitations on Unit
operation as applicable to local electrotechnical, fire-fighting, and
environmental requirements, norms and rules), including:

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    
      
         

      

      
        - 31
-

        
          

        

      

      
         

      

    

    5.           Point-to-point
interconnect drawings (connection diagrams) showing all termination points and
terminal designations for all field wiring between equipment or shipping
splits.

    6.           Operating
and servicing instructions, including maintenance procedures and requirements,
including frequency and scope of maintenance.

    7.           Recommended
spare parts list for the warranty period, and also for maintenance and repairs.
A set of spare parts for the warranty period, special tools, accessories and
instruments shall be supplied with the Unit.

    8.           Test
reports.

    9.           On-site
quality control and start-up procedures

    10.         Training
materials

    11.         Material
Safety Data Sheets

    12.         Equipment
certificates.

    13.         Identifying,
information and warning plates and signs (in Russian)

    1.5         TERMS
AND DEFINITIONS

    -             ALT                   Accelerated
Life Test

    -             BMS                  Battery
Management System

    -             HALT                Highly
Accelerated Life Test

    -             HVAC                Heating,
Ventilation and Air Conditioning

    -             MTBF                Mean
Time Between Failures

    -             PCC                    Point
of Common Coupling

    -             PCS                    Power
Conversion System

    -             PLC                    Programmable
Logic Controller

    -             SOC                    State
of Charge

    -             THD                   Total
Harmonic Distortion

    

    PART 2 –
PRODUCTS

    2.1         UNIT
DESIGN

    A.          DESCRIPTION

    1.           Each
Unit shall be based on electrochemical battery technology.

    

    < *
>

    

    2.             The
Unit shall be housed in ISO containers for shipment by land, sea, railway or
air. One container (or multiple containers) shall house the battery equipment.
The containers shall house the battery strings, DC-AC inverters, HVAC, BMS,
SCADA, and Unit controls, including a control terminal.

     

    B.             UNIT’S
ENCLOSURES

     

    1.             The
basic design ratings shall be defined below.  These ratings may be
exceeded if necessary and subject to coordination with MGTES to meet other
requirements of this Technical Description.

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

     

    < *
>

    
      
         

      

      
        - 32
-

        
          

        

      

      
         

      

    

    

    2.             The
enclosure shall have a design life of 20+ years without maintenance. It shall be
constructed of materials which are inherently resistant to corrosion or
deterioration or suitably finished to protect them.

    3.             Ener1
shall supply all ancillary equipment such as lighting (normal and emergency),
heating, ventilating, cooling, fire suppression, and electrical power
distribution for the enclosure ancillary equipment.

    4.             The
enclosure shall be designed to meet the seismic requirements and codes
applicable at the installation site including Seismic Design Category
TBD.

     

    C.             BATTERY

     

    

    < *
>

    

    < *
>

    

    Ener1
shall define end-of-life capacity as the recommended percentage of initial
capacity.

    

    < *
>

    

    < *
>

     

    D.             INVERTER
DESIGN

    < *
>  The following section shall describe the necessary requirements
for a single inverter. This description shall also be valid for each inverter
contained within the enclosure.

    < *
>  The DC-AC inverters shall use reliable technology.

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    E.           INVERTER
MODULE CONSTRUCTION

    

    < *
>

    
      
         

      

      
        - 33
-

        
          

        

      

      
         

      

    

     

    2.           All
materials used shall be new, of current manufacture, high quality, free from
defects and shall not have been in previous use except as required for factory
testing.

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    F.           OPERATION
REQUIREMENTS

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    G.             ELECTROTECHNICAL
REQUIREMENTS (See Technical Specifications, Part 4)

    H.           ENVIRONMENTAL
REQUIREMENTS

    

    < *
>

    

    < *
>

    

    I.           CONTROLS,
INSTRUMENTATION, AND ENERGY ACCOUNTING

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

     

    1. UNIT
CONTROLS

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    
      
         

      

      
        - 34
-

        
          

        

      

      
         

      

    

    Note: all
controls, instrumentation, and the alarm panel shall be marked and have symbols
Russian.

    2.             BMS
(BATTERY MANAGEMENT SYSTEM)

    < *
>

    

    < *
>

    

    < *
>

    

    3.           INVERTER
CONTROLS

    

    < *
>

    

    < *
>

    

    4.           SCADA
SYSTEM (Supervisory Control and Data Acquisition System)

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    5.             Energy
accounting system

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    

    < *
>

    
      
         

      

      
        - 35
-

        
          

        

      

      
         

      

    

    PART 3 –
REQUIREMENTS REGARDING FACTORY TESTS, UNIT INSTALLATION, START-UP, COMMISSIONING
AND ACCEPTANCE TESTING

    

    3.1           OBJECTIVE

    A.             To
provide factory and on-site quality control, testing, start-up and to support
commissioning services as specified herein.

    3.2           FACTORY
TESTS OF THE UNIT

    A.           Ener1
shall successfully perform its standard factory tests plus any other factory
tests that may be specified and mutually agreed to by Ener1 and MGTES. A factory
test report shall be available upon request. MGTES shall be afforded an
opportunity to have its experts present at the factory tests. Evaluation tests
may be conducted during factory tests, for which Ener1 shall, at its own
expense, retain an independent specialized entity.

    B.           At
a minimum, the tests shall demonstrate the following:

    < *
>

     

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    

    < *
>

    

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    

    < *
>

    

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    
      
         

      

      
        - 36
-

        
          

        

      

      
         

      

    

    3.3           UNIT
INSTALLATION

    A.             The
requisite installation operations shall be carried out by MGTES personnel under
management and supervision of Ener1 engineering supervisors.

    A.             The
following general and visual inspections shall be performed on site by Ener1
engineering supervisors at the time the equipment is installed. An Ener1
engineering supervisor shall prepare and submit report documentation to MGTES
for each of the following items:

    

    1.      Visually
inspect the exterior and interior of all Unit systems for signs of damage,
cleanliness, and foreign objects.

    2.      Install
and assemble all battery modules and other items within the
container.  If each Unit includes multiple containers, install
interconnecting wiring, raceways, ducts, and piping.

    

    3.      Verify
control, monitoring, and power wiring terminations for correct routing, support,
termination, and tightness.

    4.      Verify
sizing and connection of field installed power and ground
conductors.

    5.      Verify
that the installation conforms to factory drawings, requirements, and
procedures.

    6.      Verify
control logic revision level and verify correct software set
points.

    3.4           UNIT
START-UP

    A.             Ener1’s
engineering supervisors shall perform required start-up procedures, involving
MGTES personnel.  At a minimum, the following tests shall be
performed.

    

    1.             Verify
all indicators, control operators, and power switches.

    2.             Verify
all manual and automatic control functions and sequences of the Unit under
normal and abnormal conditions.

    3.             Verify
all AC and DC bus voltage and current metering devices and
circuits.

    4.             Verify
Unit remote control system.

    5.             Verify
proper operation of HVAC system and controls.

    6.             Verify
all protective functions and alarms, including ground loop.

    7.             Verify
operation of systems for data logging, event recording, and data
communications.

    8.             Verify
energy accounting system.

    
      
         

      

      
        - 37
-

        
          

        

      

      
         

      

    

    3.5             COMMISSIONING
AND ACCEPTANCE TESTING

    A.           Ener1
shall provide on-site support to perform commissioning and acceptance testing,
including the presence of an engineering supervisor at each site, and shall
conduct acceptance testing, including tests to confirm the warranted targets
(performance tests).

    B.           At
a minimum, commissioning and acceptance testing shall demonstrate the
following:

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

     

    < *
>

    < *
>

    < *
>

    < *
>

    

    < *
>

    

    4.           Normal
and abnormal operating sequence and protective functions.

    5.           Performance
of any and all other tests that could not be conducted at the manufacturer’s
premises to a sufficient extent.

    6.           Preparation
of a Report on the results of such tests, including a report showing that any
warranted targets have been confirmed.

    7.           Pilot
operations shall continue for eighteen (18) months. Ener1 shall provide
technical support throughout the pilot operation period and the warranty period,
including on site availability throughout the above period, of a skilled
engineering supervisor capable of communicating in Russian, who shall be
accessible 24 hours a day via a cell phone. Such engineering supervisor shall
arrive at any site within 5 day of being summoned by MGTES on his cell
phone.

    3.6             COMPLETION
OF THE UNIT’S PILOT OPERATION

    A.              Ener1
shall provide on-site support, including availability of a skilled engineering
supervisor at each site, during tests on completion of eighteen (18) months of
pilot operation, including tests intended to confirm the achievement of
warranted targets (performance tests). In order to run such tests intended to
confirm the achievement of warranted targets, Ener1 shall retain an independent
specialized organization at its expense. When analyzing results of the
performance tests, an aging ratio of equipment – 0.95 – shall be taken into
account.

    
      
         

      

      
        - 38
-

        
          

        

      

      
         

      

    

    B.              At
a minimum, the tests shall provide for the following:

    

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    < *
>

    

     

    < *
>

     

    < *
>

    < *
>

    < *
>

    < *
>

     

    < *
>

    

    4.              Normal
and abnormal operating sequence and protective functions.

    5.              Preparation
of a Report on the results of such tests, including a report showing that any
warranted targets have been confirmed.

    6.              Preparation
of a Pilot Operation Report.

    
      
         

      

      
        - 39
-

        
          

        

      

      
         

      

    

    

    PART 4 –
TECHNICAL SPECIFICATIONS OF THE UNIT

    

    
      	
              PARAMETER

            	 
      	
              PARAMETER VALUE

            	 
      	
              WARRANTED /

              ABSOLUTE

              TARGET /

            
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	
              <
      * >

            
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	
              <
      * >

            
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	
              <
      * >

            
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	
              <
      * >

            
	 
      	 
      	 
      	 
      	 
      
	
              <
      * >

            	 
      	
              <
      * >

            	 
      	 
      

    

    
      
         

      

      
        - 40
-

        
          

        

      

      
         

      

    

    

    
      
        
          	
                  PARAMETER

                	 
      	
                  PARAMETER VALUE

                	 
      	
                  WARRANTED /

                  ABSOLUTE

                  TARGET /

                
	 	 	 	 	 
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	
                  <
      * >

                
	 
      	 
      	 
      	 
      	 
      
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  <
      * >

                	 
      	
                  <
      * >

                	 
      	
                  <
      * >

                

        

      

    

    
      
         

      

      
        - 41
-Unassociated Document

    CONVERTIBLE
PROMISSORY NOTE

    $1,650,000
PLUS INTEREST DUE & PAYABLE

    DOCUMENT
A-12012010

    

    THIS NOTE
AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR APPLICABLE
EXEMPTION OR SAFE HARBOR PROVISION.

    

    FOR VALUE
RECEIVED, on the Effective Date, as defined below on the signature page, MusclePharm Corp. as Obligor
(“Borrower,” or “Obligor”), hereby promises to pay to the Lender (“Lender” or “
Holder”), as defined below on the signature page, the Principal Sum, as defined
below, along with the Interest Rate, as defined below, according to the terms
herein.

    

    
      	
              The
      “Lender” shall be:

            	 
      	
              JMJ
      Financial / Its Principal, or Its Assignees.

               

            
	
              The
      “Principal Sum” shall be:

            	 
      	
              $1,650,000
      (one million six hundred fifty thousand US Dollars) Subject to the
      following: accrued, unpaid interest shall be added to the Principal
      Sum.

               

            
	
              The
      “Consideration” shall be:

               

            	 
      	
              $1,400,000
      (one million four hundred thousand US dollars) in the form of cash payment
      by wire or check as set forth in the attached Funding Schedule and
      corresponding Registration Rights Agreement.

               

            
	
              The
      “Interest Rate” shall be:

            	 
      	
              8%
      one-time interest charge on the Principal Sum.   No
      interest or principal payments are required until the Maturity Date, but
      both principal and interest may be included in conversion prior to
      maturity date.

               

            
	
               

              The
      “Conversion Price” shall be the following price:

            	 
      	
              As
      applied to the Conversion Formula set forth in 2.2, 70% (seventy percent)
      of the lowest trade price in the 30 trading days previous to the
      conversion; as applies to MusclePharm Corp. voting common
      stock.

               

            
	
              The
      “Maturity Date” is the date upon which the Principal Sum of this Note, as
      well as any unpaid interest shall be due and payable, and that date shall
      be:

               

            	 
      	
              December
      1, 2013

            
	
              Registration
      Rights shall be:

               

            	 
      	
              Registration
      of the common shares underlying this note is mandatory, as set forth in
      the corresponding Registration Rights Agreement.

               

            
	
              The
      “Prepayment Terms” shall be:

            	 
      	
              Prepayment
      is not permitted.

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    ARTICLE
1 PAYMENT-RELATED PROVISIONS

    

    
      
      

    

    1.1
Interest Rate. Subject to the Holder’s right to convert, interest payable on
this Note will accrue interest at the Interest Rate and shall be applied to the
Principal Sum.

    

    1.2
Payable on Demand.  This Note is payable on demand in an amount not to
exceed the cash amount paid in as set forth in the attached Funding
Schedule.

    

    ARTICLE
2 CONVERSION RIGHTS

    

    The Holder will have the right to
convert the Principal Sum and accrued interest under this Note into Shares of
the Borrower’s Common Stock as set forth below.

    

    2.1 Conversion Rights and Cashless
Exercise. Subject to the terms set forth in Section 2.7, the Holder will have
the right at its election from and after the Effective Date, and then at any
time, to convert all or part of the outstanding and unpaid Principal Sum and
accrued interest into shares of fully paid and nonassessable shares of common
stock of MusclePharm Corp. (as such stock exists on the date of issuance of this
Note, or any shares of capital stock of MusclePharm Corp. into which such stock
is hereafter changed or reclassified, the “Common Stock”) as per the Conversion
Formula set forth in Section 2.2. Any such conversion shall be cashless, and
shall not require further payment from Holder.  Unless otherwise
agreed in writing by both the Borrower and the Holder, at no time will the
Holder convert any amount of the Note into common stock that would result in the
Holder owning more than 4.99% of the common stock outstanding of MusclePharm
Corp.   Shares from any such conversion will be delivered to
Holder by 2:30pm EST within 2 (two) business days of conversion notice delivery
(see 3.1) by “DWAC/FAST” electronic transfer (see “Share Delivery”
attachment).

    

    2.2.
Conversion Formula. The number of shares issued through conversion is the
conversion amount divided by the conversion price.

    

    
      
        	
                #
      Shares =

              	
                Conversion Amount

              
	 
      	
                Conversion
      Price

              

      

    

    

    2.3. This
section 2.3 intentionally left blank.

    

    2.4. This
section 2.4 intentionally left blank.

    

    2.5
Reservation of Shares. As of the issuance date of this Note and for the
remaining period during which the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. The Borrower agrees that its
issuance of this Note constitutes full authority to its officers, agents and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2.6.
Delivery of Conversion Shares.  Shares from any such conversion will
be delivered to Holder by 2:30pm EST within 2 (two) business days of conversion
notice delivery (see 3.1) by “DWAC/FAST” electronic transfer (see “Share
Delivery” attachment).  If those shares are not delivered in
accordance with this timeframe stated in this Section 2.6, at any time for any
reason prior to offering those shares for sale in a private transaction or in
the public market through its broker, Holder may rescind that particular
conversion to have the conversion amount returned to the note balance with the
conversion shares returned to the Borrower. The Company will
make its best efforts to deliver shares to Holder same day / next
day.

    

    2.7. This
section 2.7 intentionally left blank.

    

    ARTICLE
3 MISCELLANEOUS

    

    3.1. Notices. Any notice required or
permitted hereunder must be in writing and either personally served, sent by
facsimile or email transmission, or sent by overnight
courier.  Notices will be deemed effectively delivered at the time of
transmission if by facsimile or email, and if by overnight courier the business
day after such notice is deposited with the courier service for
delivery.

    

    3.2. Amendment Provision. The term
“Note” and all reference thereto, as used throughout this instrument, means this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.

    

    3.3. Assignability. This Note will be
binding upon the Borrower and its successors and permitted assigns, and will
inure to the benefit of the Holder and its successors and permitted assigns, and
may be assigned by the Holder.

    

    3.4.
Governing Law. This Note will be governed by, and construed and enforced in
accordance, with the laws of the State of Florida, without regard to the
conflict of laws principles thereof.  Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Florida or in the federal
courts located in Miami-Dade County, in the State of Florida.  Both
parties and the individuals signing this Agreement agree to submit to the
jurisdiction of such courts.

    

    3.5. Maximum Payments. Nothing
contained herein may be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum permitted by applicable law.
In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in excess of
such maximum will be credited against amounts owed by the Borrower to the Holder
and thus refunded to the Borrower.

    

    3.6.
Attorney Fees. In the event any attorney is employed by either party to this
Note with regard to any legal or equitable action, arbitration or other
proceeding brought by such party for the enforcement of this Note or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Note, the prevailing party in such proceeding will be
entitled to recover from the other party reasonable attorneys’ fees and other
costs and expenses incurred, in addition to any other relief to which the
prevailing party may be entitled.

    

    3.7. No
Public Announcement. Except as required by securities law, no public
announcement may be made regarding this Note, payments, or conversions without
written permission by both Borrower and Holder.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    3.8.
Opinion of Counsel. In the event that an opinion of counsel is needed for any
matter related to this Note, Holder has the right to have any such opinion
provided by its counsel.  Holder also has the right to have any such
opinion provided by Borrower’s counsel.

    

    3.9.
Director’s Resolution.  Once effective, Borrower will execute and
deliver to Holder a copy of a Board of Director’s resolution resolving that this
note is validly issued, paid, and effective.

     

    
      
        
          
            	
                    BORROWER[S]:

                  
	 
      
	 
      
	
                    Brad
      Pyatt

                  
	
                    CEO

                  
	
                    MusclePharm
      Corp.

                  
	 
      
	
                    LENDER/HOLDER:

                  
	 
      
	 
      
	
                    JMJ
      Financial / Its
Principal

                  

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    FUNDING
SCHEDULE

    

    
      	
               
      

            	
              §

            	
              $200,000
      paid to borrower within 5 business days of execution and closing of this
      agreement.

            

    

    

    
      	
               
      

            	
              §

            	
              $200,000
      paid to Borrower within 10 business days of notice of effective
      registration statement, and that registration statement must be effective
      no later than 120 days from the execution of this
    agreement.

            

    

    

    
      	
               
      

            	
              §

            	
              $250,000
      paid to Borrower within 45 business days of notice of effective
      registration statement, and that registration statement must be effective
      no later than 120 days from the execution of this
    agreement.

            

    

    

    
      	
               
      

            	
              §

            	
              $250,000
      paid to Borrower within 90 business days of notice of effective
      registration statement, and that registration statement must be effective
      no later than 120 days from the execution of this
    agreement.

            

    

    

    
      	
               
      

            	
              §

            	
              $250,000
      paid to Borrower within 135 business days of notice of effective
      registration statement, and that registration statement must be effective
      no later than 125 days from the execution of this
    agreement.

            

    

    

    
      	
               
      

            	
              §

            	
              $250,000
      paid to Borrower within 180 business days of notice of effective
      registration statement, and that registration statement must be effective
      no later than 125 days from the execution of this
    agreement.

            

    

    

    Conditions to Funding Each
Payment:

    

    
      	
               
      

            	
              §

            	
              At
      the time of each payment interval, the share price of Borrower’s common
      stock must be equal to or greater than $0.20 per
  share.

            

    

    

    
      	
               
      

            	
              §

            	
              At
      the time of each payment interval, the total dollar trading volume of
      Borrower’s common stock for the previous 23 trading days must be equal to
      or greater than $800,000 (eight hundred thousand).  The total
      dollar volume will be calculated by removing the three highest dollar
      volume days and summing the dollar volume for the remaining 20 trading
      days.

            

    

    

    
      	
               
      

            	
              §

            	
              At
      the time of each payment interval, there shall not exist an event of
      default as described within any of the agreements between Borrower and
      Holder.

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    SAMPLE

    

    NOTICE OF
CONVERSION

    

    (To be
executed by the Holder in order to convert the Note)

    

    The
undersigned hereby elects to convert a portion of the Note issued by MusclePharm
Corp. into Shares of Common Stock of MusclePharm Corp. according to the
conditions set forth in such Note, as of the date written below.

    

    Date of
Conversion:_______________________________________________________

    

    Conversion
Amount:_______________________________________________________

    

    Conversion
Price:________________________________________________________

    

    Shares To
Be Delivered:___________________________________________________

    

    Signature:_____________________________________________________________

    

    Print
Name:____________________________________________________________

    

    Address:_____________________________________________________________

    

    ____________________________________________________________________

    

     ____________________________________________________________________

    

    Shares from any such conversion will
be delivered to Holder by 2:30pm EST within 2 (two) business days of conversion
notice by “DWAC/FAST” electronic transfer in accordance with Section 2.6.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    SHARE
DELIVERY ATTACHMENT

    

    EXAMPLE

    

    2.6.
Delivery of Conversion Shares.  Shares from any such conversion will
be delivered to Holder by 2:30pm EST within 2 (two) business days of conversion
notice delivery (see 3.1) by “DWAC/FAST” electronic transfer (see “Share
Delivery” attachment).  If those shares are not delivered in
accordance with this timeframe stated in this Section 2.6, at any time for any
reason prior to offering those shares for sale in a private transaction or in
the public market through its broker, Holder may rescind that particular
conversion to have the conversion amount returned to the note balance with the
conversion shares returned to the Borrower. The Company will
make its best efforts to deliver shares to Holder same day / next
day.

    

    Example:

    

    Holder
delivers conversion notice to Borrower at 5:15pm eastern time on Monday January
1st.

    

    Borrower’s
transfer agent must deliver shares to Holder’s broker via “DWAC/FAST” electronic
transfer by no later than 2:30pm eastern time on Wednesday January
3rd.

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