PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 18th day of December,
2009 by and among Axion Power International, Inc., a Delaware corporation (the
“Company”), and the Investors set forth on the signature pages affixed hereto
(each an “Investor” and collectively the “Investors”).

Recitals

A.           The Company and each of the Investors are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by the provisions of Regulation D (“Regulation D”), as promulgated by
the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act
of 1933, as amended; and

B.           The Investors wish to purchase, severally and not jointly, from the
Company, and the Company wishes to sell and issue to the Investors, upon the
terms and conditions stated in this Agreement, an aggregate of 45,757,572 shares
of the Company’s Common Stock, par value $0.0001 per share (together with any
securities into which such shares may be reclassified, whether by merger,
charter amendment or otherwise, the “Common Stock”), at a purchase price of
$0.57 per share; and

C.           Contemporaneous with the sale of the Shares, the parties hereto
will execute and deliver a Registration Rights Agreement, in the form attached
hereto as Exhibit A (the “Registration Rights Agreement”), pursuant to which the
Company will agree to provide certain registration rights under the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder,
and applicable state securities laws.

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1.           Definitions.  In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Agreement, the following
terms shall have the meanings set forth below:

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

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“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

“Conversions” means, collectively, the Senior Preferred Stock Conversion and the
Series A Preferred Stock Conversion.

“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.

“Effectiveness Deadline” means the date on which the initial Registration
Statement is required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.

“Information Statement” has the meaning specified in Section 7.9.

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).

“Lock-Up Agreement” means the Lock-Up Agreement in the form attached hereto as
Exhibit B.

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

 
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“Material Contract” means any contract, instrument or other agreement to which
the Company or any Subsidiary is a party or by which it is bound which is
material to the business of the Company and its Subsidiaries, taken as a whole,
including those that have been filed or were required to have been filed as an
exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10) of
Regulation S-K.

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

“Purchase Price” means Twenty-Six Million Eighty-One Thousand Four Hundred
Ninety Dollars ($26,081,490).

“Quercus Agreements” means, collectively, the Lock-up Agreement and the
Securities Purchase Agreement Amendment.

“Quercus Warrants” means the warrants to acquire an aggregate of up to
10,000,000 shares of Common Stock issued to The Quercus Trust pursuant to the
Securities Purchase Agreement.

“Quercus Transactions” means the transactions contemplated by the Lock-up
Agreement and the Securities Purchase Agreement Amendment.

“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.

“Required Investors” means (i) each Investor who, together with its Affiliates,
has agreed to pay at least $2,000,000 of the aggregate Purchase Price for the
Shares to be sold pursuant to this Agreement, and (ii) the Investors agreeing to
acquire a majority of the Shares to be sold pursuant to this Agreement.

“SEC Filings” has the meaning set forth in Section 4.6.

“Securities Purchase Agreement” means the Securities Purchase Agreement, dated
as of January 14, 2008, by and between the Company and The Quercus Trust, as
amended by the Amendment to Warrants and Securities Purchase Agreement, dated as
of September 15, 2009.

“Securities Purchase Agreement Amendment” means Amendment No. 2 to the
Securities Purchase Agreement in the form attached hereto as Exhibit C; which,
among other things, amends and waives certain provisions of the Securities
Purchase Agreement and the Quercus Warrants.

“Senior Preferred Stock Conversion” means the conversion or exchange of all of
the issued and outstanding shares of the Company’s 8% Cumulative Convertible
Senior Preferred Stock (including all accrued and unpaid dividends thereon) into
an aggregate of not more than 1,390,944 shares of Common Stock.

 
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“Series A Preferred Stock” means the issued and outstanding shares of the
Company’s Series A Convertible Preferred Stock, stated value $10 per share.

“Series A Preferred Stock Conversion” means, collectively, (i) the amendment of
the Company’s Amended and Restated Certificate of Incorporation to amend the
Series A Preferred Stock Designations to provide that all of the issued and
outstanding shares of Series A Preferred Stock (including all accrued and unpaid
dividends thereon) shall be immediately convertible at the option of the Company
at a Conversion Price (as defined in the Series A Preferred Stock Designations)
of $1.07 or an aggregate of not more than 8,785,483 shares of Common Stock and
(ii) the conversion of all of the issued and outstanding shares of the Series A
Preferred Stock (including all accrued and unpaid dividends thereon) into an
aggregate of not more than 8,785,483 shares of Common Stock.

“Series A Preferred Stock Designations” means the Amended Certificate of Powers,
Designations, Preferences and Rights of the Series A Convertible Preferred Stock
Par Value $0.0001 Per Share of Axion Power International Inc., dated October 26,
2006.

“Shares” means the shares of Common Stock being purchased by the Investors
hereunder.

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

“Transaction Documents” means this Agreement, the Registration Rights Agreement
and the Quercus Agreements.

“1933 Act” means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.

“1934 Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.

2.           Purchase and Sale of the Shares.  Subject to the terms and
conditions of this Agreement, on the Closing Date, each of the Investors shall
severally, and not jointly, purchase, and the Company shall sell and issue to
the Investors, the Shares in the respective amounts set forth opposite the
Investors’ names on the signature pages attached hereto in exchange for the
portion of the Purchase Price set forth opposite the Investors’ names on the
signature pages attached hereto as specified in Section 3 below.

 
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3.           Closing.  Unless other arrangements have been made with a
particular Investor, upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall deliver to Lowenstein Sandler PC, in trust, a certificate or
certificates, registered in such name or names as the Investors may designate,
representing the Shares, with instructions that such certificates are to be held
for release to the Investors only upon payment in full of the Purchase Price to
the Company by all the Investors.  Unless other arrangements have been made with
a particular Investor, upon such receipt by Lowenstein Sandler PC of the
certificates, each Investor shall promptly, but no more than one Business Day
thereafter, cause a wire transfer in same day funds to be sent to the account of
the Company as instructed in writing by the Company, in an amount representing
such Investor’s pro rata portion of the Purchase Price as set forth on the
signature pages to this Agreement.  On the date (the “Closing Date”) the Company
receives the Purchase Price, the certificates evidencing the Shares shall be
released to the Investors (the “Closing”).  The Closing of the purchase and sale
of the Shares shall take place at the offices of Lowenstein Sandler PC, 1251
Avenue of the Americas, 18th Floor, New York, New York 10020, or at such other
location and on such other date as the Company and the Investors shall mutually
agree.

4.           Representations and Warranties of the Company.  The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the “Disclosure Schedules”):

4. 1         Organization, Good Standing and Qualification.  Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and to own or lease its properties.  Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification or leasing necessary
unless the failure to so qualify has not had and could not reasonably be
expected to have a Material Adverse Effect.  The Company’s Subsidiaries are
listed on Schedule 4.1 hereto.

4.2         Authorization.  The Company has full power and authority and, except
for the mailing of the Information Statement as contemplated by Section 7.9, has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary to (i) authorize, execute and deliver the Transaction
Documents, (ii) authorize the performance of all obligations of the Company
hereunder or thereunder, (iii) authorize, issue and deliver the Shares, (iv)
effect the Conversions and (v) effect the Quercus Transactions.  The Transaction
Documents constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally and to general equitable principles.

 
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4.3          Capitalization.  Schedule 4.3 sets forth as of the date hereof (a)
the authorized capital stock of the Company; (b) the number of shares of capital
stock issued and outstanding; (c) the number of shares of capital stock issuable
pursuant to the Company’s stock plans; and (d) the number of shares of capital
stock issuable and reserved for issuance pursuant to securities (other than the
Shares) exercisable for, or convertible into or exchangeable for any shares of
capital stock of the Company.  All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in full
compliance with applicable state and federal securities law and any rights of
third parties.  Except as described on Schedule 4.3, all of the issued and
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights, were issued in full compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim.  Except as described on Schedule 4.3, no Person is entitled to
pre-emptive or similar statutory or contractual rights with respect to any
securities of the Company.  Except as described on Schedule 4.3, there are no
outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company or any of
its Subsidiaries is or may be obligated to issue any equity securities of any
kind and except as contemplated by this Agreement, neither the Company nor any
of its Subsidiaries is currently in negotiations for the issuance of any equity
securities of any kind.  Except as described on Schedule 4.3 and except for the
Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them.  Except as described on
Schedule 4.3 and except as provided in the Registration Rights Agreement, no
Person has the right to require the Company to register any securities of the
Company under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.

Except for the Conversions and the Quercus Transactions and except as described
on Schedule 4.3, the issuance and sale of the Shares hereunder will not obligate
the Company to issue shares of Common Stock or other securities to any other
Person (other than the Investors) and will not result in the adjustment of the
exercise, conversion, exchange or reset price of any outstanding security.

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.

4.4          Valid Issuance.  The Shares have been duly and validly authorized
and, when issued and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws.

 
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4.5          Consents.  The (i) execution, delivery and performance by the
Company of the Transaction Documents, (ii) offer, issuance and sale of the
Shares, (iii) Conversions and (iv) Quercus Transactions require no consent of,
action by or in respect of, or filing with, any Person, governmental body,
agency, or official other than (i) those that have been obtained and are in full
force and effect (ii) the mailing of the Information Statement as contemplated
by Section 7.9, (iii) filings that have been made pursuant to applicable state
securities laws and (iv) post-sale filings pursuant to applicable state and
federal securities laws which the Company undertakes to file within the
applicable time periods.  Subject to the accuracy of the representations and
warranties of each Investor set forth in Section 5 hereof, the Company has taken
all action necessary to exempt (i) the issuance and sale of the Shares, (ii) the
Conversions, (iii) the Quercus Transactions and (iv) the other transactions
contemplated by the Transaction Documents from the provisions of any stockholder
rights plan or other “poison pill” arrangement, any anti-takeover, business
combination or control share law or statute binding on the Company or to which
the Company or any of its assets and properties may be subject and any provision
of the Company’s Amended and Restated Certificate of Incorporation or Amended
By-laws that is or could reasonably be expected to become applicable to the
Investors as a result of the transactions contemplated hereby, including without
limitation, the issuance of the Shares and the ownership, disposition or voting
of the Shares by the Investors or the exercise of any right granted to the
Investors pursuant to this Agreement or the other Transaction Documents.

4.6          Delivery of SEC Filings; Business.  The Company has made available
to the Investors through the EDGAR system, true and complete copies of the
Company’s most recent Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 (as amended prior to the date hereof, the “10-K”), and all
other reports filed by the Company pursuant to the 1934 Act since the initial
filing of the 10-K and prior to the date hereof (each as it may have been
amended prior to the date hereof, collectively, the “SEC Filings”).  The SEC
Filings are the only filings required of the Company pursuant to the 1934 Act
for such period.  The Company and its Subsidiaries are engaged in all material
respects only in the business described in the SEC Filings and the SEC Filings
contain a complete and accurate description in all material respects of the
business of the Company and its Subsidiaries, taken as a whole.

4.7          Use of Proceeds.  The net proceeds of the sale of the Shares
hereunder shall be used by the Company for working capital and general corporate
purposes.

4.8          No Material Adverse Change.  Since December 31, 2008, except for
the Conversions and the Quercus Transactions and except as identified and
described in the SEC Filings or as described on Schedule 4.8, there has not
been:

(i)           any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2009, except for changes in the ordinary course
of business which have not had and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;

(ii)           any declaration or payment of any dividend, or any authorization
or payment of any distribution, on any of the capital stock of the Company, or
any redemption or repurchase of any securities of the Company;

(iii)          any material damage, destruction or loss, whether or not covered
by insurance to any assets or properties of the Company or its Subsidiaries;

 
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(iv)          any waiver, not in the ordinary course of business, by the Company
or any Subsidiary of a material right or of a material debt owed to it;

(v)           any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company or a Subsidiary, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company and its
Subsidiaries taken as a whole (as such business is presently conducted and as it
is proposed to be conducted);

(vi)          any change or amendment to the Company's Amended and Restated
Certificate of Incorporation or Amended By-laws, or material change to any
material contract or arrangement by which the Company or any Subsidiary is bound
or to which any of their respective assets or properties is subject;

(vii)         any material labor difficulties or labor union organizing
activities with respect to employees of the Company or any Subsidiary;

(viii)        any material transaction entered into by the Company or a
Subsidiary other than in the ordinary course of business;

(ix)           the loss of the services of any key employee, or material change
in the composition or duties of the senior management of the Company or any
Subsidiary;

(x)            the loss or threatened loss of any customer which has had or
could reasonably be expected to have a Material Adverse Effect; or

(xi)           any other event or condition of any character that has had or
could reasonably be expected to have a Material Adverse Effect.

4.9         SEC Filings.

(a)           At the time of filing thereof, the SEC Filings complied as to form
in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading.

(b)           Each registration statement and any amendment thereto filed by the
Company since January 1, 2006 pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

 
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4.10       No Conflict, Breach, Violation or Default.  The (i) execution,
delivery and performance of the Transaction Documents by the Company, (ii)
issuance and sale of the Shares, (iii) Conversions and (iv) Quercus Transactions
will not (i) conflict with or result in a breach or violation of (a) any of the
terms and provisions of, or constitute a default under the Company’s Amended and
Restated Certificate of Incorporation or the Company’s Amended By-laws, both as
in effect on the date hereof (true and complete copies of which have been made
available to the Investors through the EDGAR system), or (b) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective assets or properties, or (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any lien, encumbrance or other adverse claim
upon any of the properties or assets of the Company or any Subsidiary or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any Material Contract.

4.11       Tax Matters.  The Company and each Subsidiary has timely prepared and
filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it.  The charges, accruals and reserves on
the books of the Company in respect of taxes for all fiscal periods are adequate
in all material respects, and there are no material unpaid assessments against
the Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole.  All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due.  There are no tax liens or claims pending or, to the Company’s
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property.  Except as described on Schedule 4.11, there are
no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity.

4.12       Title to Properties.  Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

4.13       Certificates, Authorities and Permits.  The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

 
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                      4.14       Labor Matters.

                      (a)           Except as set forth on Schedule 4.14, the
Company is not a party to or bound by any collective bargaining agreements or
other agreements with labor organizations.  The Company has not violated in any
material respect any laws, regulations, orders or contract terms, affecting the
collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees’ health, safety, welfare, wages and hours.

                      (b)           (i) There are no labor disputes existing, or
to the Company's Knowledge, threatened, involving strikes, slow-downs, work
stoppages, job actions, disputes, lockouts or any other disruptions of or by the
Company's employees, (ii) there are no unfair labor practices or petitions for
election pending or, to the Company's Knowledge, threatened before the National
Labor Relations Board or any other federal, state or local labor commission
relating to the Company's employees, (iii) no demand for recognition or
certification heretofore made by any labor organization or group of employees is
pending with respect to the Company and (iv) to the Company's Knowledge, the
Company enjoys good labor and employee relations with its employees and labor
organizations.

                      (c)           The Company is, and at all times has been,
in compliance in all material respects with all applicable laws respecting
employment (including laws relating to classification of employees and
independent contractors) and employment practices, terms and conditions of
employment, wages and hours, and immigration and naturalization.  There are no
claims pending against the Company before the Equal Employment Opportunity
Commission or any other administrative body or in any court asserting any
violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination
Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other federal, state or local Law,
statute or ordinance barring discrimination in employment.

                      (d)           Except as disclosed in the SEC Filings or as
described on Schedule 4.14, the Company is not a party to, or bound by, any
employment or other contract or agreement that contains any severance,
termination pay or change of control liability or obligation, including, without
limitation, any “excess parachute payment,” as defined in Section 280G(b) of the
Internal Revenue Code.

                      (e)           Except as specified in Schedule 4.14, each
of the Company's employees is a Person who is either a United States citizen or
a permanent resident entitled to work in the United States.  To the Company's
Knowledge, the Company has no existing liability for the improper classification
by the Company of such employees as independent contractors or leased employees
prior to the Closing.

 
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4.15         Intellectual Property.

(a)           All Intellectual Property of the Company and its Subsidiaries is
currently in compliance in all material respects with all legal requirements
(including timely filings, proofs and payments of fees) and, to the Company’s
Knowledge, is valid and enforceable.  No Intellectual Property of the Company or
its Subsidiaries which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted has been or is now involved in any cancellation,
dispute or litigation, and, to the Company’s Knowledge, no such action is
threatened.  No patent of the Company or its Subsidiaries has been or is now
involved in any interference, reissue, re-examination or opposition proceeding.

(b)           All of the licenses and sublicenses and consent, royalty or other
agreements concerning Intellectual Property which are necessary for the conduct
of the Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than  generally commercially available, non-custom, off-the-shelf
software application programs having a retail acquisition price of less than
$10,000 per license) (collectively, “License Agreements”) are valid and binding
obligations of the Company or its Subsidiaries that are parties thereto and, to
the Company’s Knowledge, the other parties thereto, enforceable in accordance
with their terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.

(c)           To the Company’s Knowledge, the Company and its Subsidiaries own
or have the valid right to use all of the Intellectual Property that is
necessary for the conduct of the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted and for the ownership, maintenance and operation of the Company’s and
its Subsidiaries’ properties and assets, free and clear of all liens,
encumbrances, adverse claims or obligations to license all such owned
Intellectual Property and Confidential Information, other than licenses entered
into in the ordinary course of the Company’s and its Subsidiaries’
businesses.  To the Company’s Knowledge, the Company and its Subsidiaries have a
valid and enforceable right to use all third party Intellectual Property and
Confidential Information used or held for use in the respective businesses of
the Company and its Subsidiaries.

(d)           To the Company’s Knowledge, the conduct of the Company’s and its
Subsidiaries’ businesses as currently conducted does not infringe or otherwise
impair or conflict with (collectively, “Infringe”) any Intellectual Property
rights of any third party or any confidentiality obligation owed to a third
party, and, to the Company’s Knowledge, the Intellectual Property and
Confidential Information of the Company and its Subsidiaries which are necessary
for the conduct of Company’s and each of its Subsidiaries’ respective businesses
as currently conducted or as currently proposed to be conducted are not being
Infringed by any third party.  There is no litigation or order pending or
outstanding or, to the Company’s Knowledge, threatened or imminent, that seeks
to limit or challenge or that concerns the ownership, use, validity or
enforceability of any Intellectual Property or Confidential Information of the
Company and its Subsidiaries and the Company’s and its Subsidiaries’ use of any
Intellectual Property or Confidential Information owned by a third party, and,
to the Company’s Knowledge, there is no valid basis for the same.

 
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(e)           The consummation of the transactions contemplated hereby and by
the other Transaction Documents will not result in the alteration, loss,
impairment of or restriction on the Company’s or any of its Subsidiaries’
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of the Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted.

(f)           The Company and its Subsidiaries have taken reasonable steps to
protect the Company’s and its Subsidiaries’ rights in their Intellectual
Property and Confidential Information.  Each employee, consultant and contractor
who has had access to Confidential Information which is necessary for the
conduct of the Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company’s standard forms thereof.  Except under confidentiality obligations,
there has been no material disclosure of any of the Company’s or its
Subsidiaries’ Confidential Information to any third party.

4.16         Environmental Matters.  Neither the Company nor any Subsidiary is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”); owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws; is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.

4.17         Litigation.  Except as described in the SEC Filings or as described
on Schedule 4.17, there are no pending actions, suits or proceedings against or
affecting the Company, its Subsidiaries or any of its or their properties; and
to the Company’s Knowledge, no such actions, suits or proceedings are threatened
or contemplated.  Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty.  There has not been, and to the Company’s Knowledge,
there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company.  The SEC
has not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the 1933 Act
or the 1934 Act.

 
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4.18         Financial Statements.  The financial statements included in each
SEC Filing comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing (or to the extent corrected by a subsequent
restatement) and present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act).  Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.

4.19         Insurance Coverage.  The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.

4.20         OTCBB Compliance.  The Common Stock is registered pursuant to
Section 12(g) of the 1934 Act and is quoted on The OTC Bulletin Board quotation
service (the “OTCBB”), and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the 1934 Act or removal from quotation of the Common Stock from the OTCBB,
nor has the Company received any notification that the SEC, the OTCBB or the
Financial Industry Regulatory Authority, Inc. is contemplating terminating such
registration or quotation.

4.21         Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in Schedule 4.21.

4.22         No Directed Selling Efforts or General Solicitation.  Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Shares.

4.23         No Integrated Offering.  Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the Shares
under the 1933 Act.

 
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4.24         Private Placement.  The offer and sale of the Shares to the
Investors as contemplated hereby is exempt from the registration requirements of
the 1933 Act.

4.25         Questionable Payments.  Neither the Company nor any of its
Subsidiaries nor, to the Company’s Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.

4.26         Transactions with Affiliates.  Except as disclosed in the SEC
Filings or as disclosed on Schedule 4.26, none of the officers or directors of
the Company and, to the Company’s Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company’s Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

4.27         Internal Controls.  The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company.  The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company’s most recently filed periodic report under the 1934 Act, as the case
may be, is being prepared.  The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the "Evaluation Date").  The Company presented in its most recently
filed periodic report under the 1934 Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation Date,
there have been no significant changes in the Company's internal controls (as
such term is defined in Item 308 of Regulation S-K) or, to the Company's
Knowledge, in other factors that could significantly affect the Company's
internal controls.  The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
GAAP and the applicable requirements of the 1934 Act.

 
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4.28         Disclosures.  Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information, other than the terms of the transactions contemplated hereby.  The
written materials delivered to the Investors in connection with the transactions
contemplated by the Transaction Documents do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.

4.29         Investment Company.  The Company is not required to be registered
as, and is not an Affiliate of, and immediately following the Closing will not
be required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

5.           Representations and Warranties of the Investors.  Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:

5.1           Organization and Existence.  Such Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to invest in the Shares pursuant to this Agreement, or is an
accredited investor as defined in Rule 501(a) of Regulation D, as amended, under
the 1933 Act and had the requisite authority to invest in the Shares pursuant to
this Agreement.

5.2           Authorization.  The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and each will constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.

5.3           Purchase Entirely for Own Account.  The Shares to be received by
such Investor hereunder will be acquired (i) for such Investor’s own account,
not as nominee or agent, or (ii) for one or more accounts or entities over which
the Investor has investment discretion, and, in each case, not with a view to
the resale or distribution of any part thereof in violation of the 1933 Act, and
such Investor, whether on its own behalf or on behalf of such accounts or
entities, has no present intention of selling, granting any participation in, or
otherwise distributing the same in violation of the 1933 Act without prejudice,
however, to the right of such Investor or such accounts or entities at all times
to sell or otherwise dispose of all or any part of such Shares in compliance
with applicable federal and state securities laws.  Nothing contained herein
shall be deemed a representation or warranty by such Investor, on its own behalf
or on behalf of such accounts or entities, to hold the Shares for any period of
time.  Such Investor is not, and is not acting on behalf of, a broker-dealer
registered with the SEC under the 1934 Act or an entity engaged in a business
that would require it to be so registered.

 
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5.4           Investment Experience.  Such Investor acknowledges that it can
bear the economic risk and complete loss of its investment in the Shares and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.

5.5           Disclosure of Information.  Such Investor has had an opportunity
to receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Shares.  Such
Investor acknowledges receipt of copies of the SEC Filings.  Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, limit or otherwise affect such Investor’s right to rely on the
Company’s representations and warranties contained in this Agreement.

5.6           Restricted Securities.  Such Investor understands that the Shares
are characterized as “restricted securities” under the U.S. federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.

5.7           Legends.  It is understood that, except as provided below,
certificates evidencing the Shares may bear the following or any similar legend:

(a)           “The securities represented hereby may not be transferred unless
(i) such securities have been registered for sale pursuant to the Securities Act
of 1933, as amended, (ii) such securities may be sold without restriction
pursuant to Rule 144, or (iii) the Company has received an opinion of counsel
reasonably satisfactory to it that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under applicable
state securities laws.”

(b)           If required by the authorities of any state in connection with the
issuance of sale of the Shares, the legend required by such state authority.

5.8           Accredited Investor.  Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

5.9           No General Solicitation.  Such Investor did not learn of the
investment in the Shares as a result of any general solicitation or general
advertising.

 
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5.10         Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.

5.11         Prohibited Transactions.  Since the earlier of (a) such time as
such Investor was first contacted by the Company or any other Person acting on
behalf of the Company regarding the transactions contemplated hereby or (b)
thirty (30) days prior to the date hereof, neither such Investor nor any
Affiliate of such Investor which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to such Investor’s
investments or trading or information concerning such Investor’s investments,
including in respect of the Shares, or (z) is subject to such Investor’s review
or input concerning such Affiliate’s investments or trading (collectively,
“Trading Affiliates”) has, directly or indirectly, effected or agreed to effect
any short sale, whether or not against the box, established any “put equivalent
position” (as defined in Rule 16a-1(h) under the 1934 Act) with respect to the
Common Stock, granted any other right (including, without limitation, any put or
call option) with respect to the Common Stock or with respect to any security
that includes, relates to or derived any significant part of its value from the
Common Stock or otherwise sought to hedge its position in the Shares (each, a
“Prohibited Transaction”).  Prior to the earliest to occur of (i) the
termination of this Agreement, (ii) the Effective Date or (iii) the
Effectiveness Deadline, such Investor shall not, and shall cause its Trading
Affiliates not to, engage, directly or indirectly, in a Prohibited
Transaction.  Such Investor acknowledges that the representations, warranties
and covenants contained in this Section 5.11 are being made for the benefit of
the Investors as well as the Company and that each of the other Investors shall
have an independent right to assert any claims against such Investor arising out
of any breach or violation of the provisions of this Section 5.11.

6.  Conditions to Closing.

6.1           Conditions to the Investors’ Obligations. The obligation of each
Investor to purchase the Shares at the Closing is subject to the fulfillment to
such Investor’s satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived by such Investor (as to itself only):

(a)           The representations and warranties made by the Company in Section
4 hereof qualified as to materiality shall be true and correct at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in Section 4 hereof
not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date.  The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.

 
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(b)           The Company shall have obtained any and all consents, permits,
approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Shares and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.

(c)           The Company shall have obtained the irrevocable written consent of
the holders of the Senior Preferred Stock, the Series A Preferred Stock and the
Common Stock in accordance with applicable law, the Company’s Amended and
Restated Articles of Incorporation and Amended Bylaws necessary to authorize and
approve the Conversions.

(d)           The Company shall have executed and delivered the Registration
Rights Agreement.

(e)           The Company shall have provided to the Investors written evidence
reasonably satisfactory to the Required Investors that the Senior Preferred
Stock Conversion has occurred.

(f)           The Company shall deliver to the Investors fully executed
counterparts of each of the Quercus Agreements.

(g)           The Company shall have delivered to the transfer agent for the
Common Stock stop transfer orders in form and substance satisfactory to the
Requisite Investor to effectuate the provisions of the Lock-Up Agreement.

(h)           The Quercus Agreements shall be in full force and effect and the
Company and the other parties thereto shall have performed all obligations to be
performed by them thereunder on or prior to the Closing.

(i)           No judgment, writ, order, injunction, award or decree of or by any
court, or judge, justice or magistrate, including any bankruptcy court or judge,
or any order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of Conversions or the transactions
contemplated hereby or in the other Transaction Documents.

(j)           The Company shall have delivered a Certificate, executed on behalf
of the Company by its Chief Executive Officer or its Chief Financial Officer,
dated as of the Closing Date, certifying to the fulfillment of the conditions
specified in subsections (a), (b), (c), (h), (i) and (m) of this Section 6.1.

(k)           The Company shall have delivered a Certificate, executed on behalf
of the Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
Conversions, the Quercus Transactions and the transactions contemplated by this
Agreement and the other Transaction Documents and the issuance of the Shares,
certifying the current versions of the Amended and Restated Certificate of
Incorporation and Amended By-laws of the Company and certifying as to the
signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.

 
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(l)            The Investors shall have received an opinion from Jolie Kahn,
Esq., the Company's counsel, dated as of the Closing Date, in form and substance
reasonably acceptable to the Investors and addressing such legal matters as the
Investors may reasonably request.

(m)          No stop order or suspension of trading shall have been imposed by
the SEC or any other governmental or regulatory body with respect to public
trading in the Common Stock.

6.2           Conditions to Obligations of the Company. The Company's obligation
to sell and issue the Shares at the Closing is subject to the fulfillment to the
satisfaction of the Company on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company:

(a)           The representations and warranties made by the Investors in
Section 5 hereof, other than the representations and warranties contained in
Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment
Representations”), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date.  The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date.  The Investors
shall have performed in all material respects all obligations and covenants
herein required to be performed by them on or prior to the Closing Date.

(b)           The Investors shall have executed and delivered the Registration
Rights Agreement.

(c)           The Investors shall have delivered the Purchase Price to the
Company.

6.3           Termination of Obligations to Effect Closing; Effects.

(a)           The obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect the Closing shall terminate as follows:

(i)           Upon the mutual written consent of the Company and the Investors;

(ii)           By the Company if any of the conditions set forth in Section 6.2
shall have become incapable of fulfillment, and shall not have been waived by
the Company;

 
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(iii)           By an Investor (with respect to itself only) if any of the
conditions set forth in Section 6.1 shall have become incapable of fulfillment,
and shall not have been waived by the Investor; or

(iv)           By either the Company or any Investor (with respect to itself
only) if the Closing has not occurred on or prior to December 24, 2009;

provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

(b)           In the event of termination by the Company or any Investor of its
obligations to effect the Closing pursuant to this Section 6.3, written notice
thereof shall forthwith be given to the other Investors by the Company and the
other Investors shall have the right to terminate their obligations to effect
the Closing upon written notice to the Company and the other Investors.  Nothing
in this Section 6.3 shall be deemed to release any party from any liability for
any breach by such party of the terms and provisions of this Agreement or the
other Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement
or the other Transaction Documents.

7.           Covenants and Agreements of the Company.

7.1           Reports.  The Company will furnish to the Investors and/or their
assignees such information relating to the Company and its Subsidiaries as from
time to time may reasonably be requested by the Investors and/or their
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.

7.2           No Conflicting Agreements.  The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the Company’s obligations to the Investors under
the Transaction Documents.

7.3           Insurance.  The Company shall not materially reduce the insurance
coverages described in Section 4.19.

7.4           Compliance with Laws.  The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.

 
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7.5           Listing of Underlying Shares and Related Matters.  If the Company
applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it shall include in such application the
Shares and will take such other action as is necessary to cause such Common
Stock to be so listed.  The Company will use commercially reasonable efforts to
continue the listing and trading of its Common Stock on such exchange or market
and, in accordance, therewith, will use commercially reasonable efforts to
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of exchange or market, as applicable.

7.6           Termination of Covenants.  The provisions of Sections 7.1 through
7.4 shall terminate and be of no further force and effect on the date on which
the Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

7.7           Removal of Legends.  In connection with any sale or disposition of
the Shares by an Investor pursuant to Rule 144 or pursuant to any other
exemption under the 1933 Act such that the purchaser acquires freely tradable
shares and upon compliance by the Investor with the requirements of this
Agreement, the Company shall cause the transfer agent for the Common Stock (the
“Transfer Agent”) to issue replacement certificates representing the Shares sold
or disposed of without restrictive legends.  Upon the earlier of (i)
registration for resale pursuant to the Registration Rights Agreement or (ii)
the Shares becoming freely tradable by a non-affiliate pursuant to Rule 144 the
Company shall (A) deliver to the Transfer Agent irrevocable instructions that
the Transfer Agent shall reissue a certificate representing shares of Common
Stock without legends upon receipt by such Transfer Agent of the legended
certificates for such shares, together with either (1) a customary
representation by the Investor that Rule 144 applies to the shares of Common
Stock represented thereby or (2) a statement by the Investor that such Investor
has sold the shares of Common Stock represented thereby in accordance with the
Plan of Distribution contained in the Registration Statement, and (B) cause its
counsel to deliver to the Transfer Agent one or more blanket opinions to the
effect that the removal of such legends in such circumstances may be effected
under the 1933 Act.  From and after the earlier of such dates, upon an
Investor’s written request, the Company shall promptly cause certificates
evidencing the Investor’s Shares to be replaced with certificates which do not
bear such restrictive legends.  When the Company is required to cause an
unlegended certificate to replace a previously issued legended certificate, if:
(1) the unlegended certificate is not delivered to an Investor within three (3)
Business Days of submission by that Investor of a legended certificate and
supporting documentation to the Transfer Agent as provided above and (2) prior
to the time such unlegended certificate is received by the Investor, the
Investor, or any third party on behalf of such Investor or for the Investor’s
account, purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Investor of shares represented
by such certificate (a “Buy-In”), then the Company shall pay in cash to the
Investor (for costs incurred either directly by such Investor or on behalf of a
third party) the amount by which the total purchase price paid for Common Stock
as a result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Investor as a result of the sale to which such Buy-In
relates.  The Investor shall provide the Company written notice indicating the
amounts payable to the Investor in respect of the Buy-In.
 
 
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7.8           Subsequent Equity Sales.

(a)           From the date hereof until ninety (90) days after the Closing
Date, without the consent of the Required Investors, neither the Company nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents.
Notwithstanding the foregoing, the provisions of this Section 7.8(a) shall not
apply to (i) the issuance of Common Stock or Common Stock Equivalents upon the
conversion or exercise of any securities of the Company or a Subsidiary
outstanding on the date hereof, provided that the terms of such security are not
amended after the date hereof to decrease the exercise price or increase the
Common Stock or Common Stock Equivalents receivable upon the exercise,
conversion or exchange thereof, (ii) the issuance to C&T Group of warrants to
purchase not more than 1,600,000 shares of Common Stock at an exercise price of
not less than $2.00 per share (the “C&T Warrants”) and the issuance of Common
Stock upon the exercise of the C&T Warrants, (iii) the issuance to Robert
Averill of warrants to purchase not more than 18,421 shares of Common Stock at
an exercise price of not less than $2.00 per share (the “Averill Warrants”) and
the issuance of Common Stock upon the exercise of the Averill Warrants, (iv) the
issuance of Common Stock or Common Stock Equivalents in a financing which is
intended to qualify for matching funding by the United States Department of
Energy (the “DOE”) pursuant to any match funding program maintained by the DOE,
and (v) the issuance of any Common Stock or Common Stock Equivalents pursuant to
any Company equity incentive plan approved by the Company’s stockholders and in
place as of the date hereof.

(b)           From the date hereof until the earlier of (i) three years from the
Closing Date or (ii) such time as no Investor holds any of the Shares, the
Company shall be prohibited from effecting or entering into an agreement to
effect any “Variable Rate Transaction”.  The term “Variable Rate Transaction”
shall mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or (B)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined
price.  For the avoidance of doubt, the issuance of a security which is subject
to customary anti-dilution protections, including where the conversion, exercise
or exchange price is subject to adjustment as a result of stock splits, reverse
stock splits and other similar recapitalization or reclassification events,
shall not be deemed to be a “Variable Rate Transaction.”

(c)           The Company shall not, and shall use its commercially reasonable
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the 1933 Act) that will be integrated with the offer or
sale of the Shares in a manner that would require the registration under the
1933 Act of the sale of the Shares to the Investors, or that will be integrated
with the offer or sale of the Shares for purposes of the rules and regulations
of any trading market such that it would require shareholder approval prior to
the closing of such other transaction unless shareholder approval is obtained
before the closing of such subsequent transaction.
 
 
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7.9           Series A Preferred Stock Conversion; Information Statement.  The
Company shall use its best efforts to consummate the Series A Preferred Stock
Conversion as promptly as practicable after the Closing.  Without limiting the
generality of the foregoing, promptly following the Closing the Company shall
prepare and file with the SEC an information statement describing the Series A
Preferred Stock Conversion, disclosing that the requisite stockholders of the
Company have irrevocably consented to the Series A Preferred Stock Conversion in
accordance with applicable law, the Company’s Amended and Restated Articles of
Incorporation and Amended Bylaws and otherwise meeting the requirements of
Section 14(c) of the 1934 Act and the rules promulgated thereunder (the
“Information Statement”) and, after receiving and promptly responding to any
comments of the SEC thereon, shall promptly mail such Information Statement to
the stockholders of the Company.  The Company will comply with Section 14(c) of
the 1934 Act and the rules promulgated thereunder connection with the
preparation and mailing of the Information Statement, and the Information
Statement shall not, as of the date that the Information Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders or at
the effective date of the Series A Preferred Stock Conversion, contain any
statement which, at the time and in the light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or which
omits to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the same subject matter which has become
false or misleading.  If the Company should discover at any time prior to the
Series A Preferred Stock Conversion, any event relating to the Company or any of
its Subsidiaries or any of their respective affiliates, officers or directors
that is required to be set forth in a supplement or amendment to the Information
Statement, in addition to the Company's obligations under the 1934 Act, the
Company will promptly inform the Investors thereof.

7.10          Equal Treatment of Investors.  No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents.  For
clarification purposes, this provision constitutes a separate right granted to
each Investor by the Company and negotiated separately by each Investor, and is
intended for the Company to treat the Investors as a class and shall not in any
way be construed as the Investors acting in concert or as a group with respect
to the purchase, disposition or voting of Shares or otherwise.

8.           Survival and Indemnification.

8.1            Survival.  The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.
 
 
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8.2     Indemnification.  The Company agrees to indemnify and hold harmless each
Investor and its Affiliates and their respective directors, officers, trustees,
members, managers, employees and agents, and their respective successors and
assigns, from and against any and all losses, claims, damages, liabilities and
expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.

8.3     Conduct of Indemnification Proceedings.  Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation.  It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys at any time for all such indemnified parties.  No indemnifying party
will, except with the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation.

9.           Miscellaneous.

9.1           Successors and Assigns.  This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Shares in a transaction complying with
applicable securities laws without the prior written consent of the Company or
the other Investors.  The provisions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties.  Without limiting the generality of the foregoing, in the event
that the Company is a party to a merger, consolidation, share exchange or
similar business combination transaction in which the Common Stock is converted
into the equity securities of another Person, from and after the effective time
of such transaction, such Person shall, by virtue of such transaction, be deemed
to have assumed the obligations of the Company hereunder, the term “Company”
shall be deemed to refer to such Person and the term “Shares” shall be deemed to
refer to the securities received by the Investors in connection with such
transaction.  Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.

 
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9.2           Counterparts; Faxes.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement may also
be executed via facsimile, which shall be deemed an original.

9.3           Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

9.4           Notices.  Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier.  All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days’ advance written notice to the other party:

If to the Company:

Axion Power International, Inc.
3601 Clover Lane
New Castle, Pennsylvania 16105
Attention: Thomas G. Granville
Fax:  (724) 654-3300

With a copy to:

Jolie Kahn, Esq.
61 Broadway, Suite 2820
New York, New York 10006
Fax:  (212) 422-4910
 
 
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If to the Investors:

to the addresses set forth on the signature pages hereto.

9.5           Expenses.  The parties hereto shall pay their own costs and
expenses in connection herewith, except that at the Closing the Company shall
pay the reasonable fees and expenses of Lowenstein Sandler PC not to exceed
$30,000; it being understood that Lowenstein Sandler PC has only rendered legal
advice to the Special Situations Funds participating in this transaction and not
to the Company or any other Investor in connection with the transactions
contemplated hereby, and that each of the Company and each Investor has relied
for such matters on the advice of its own respective counsel.  Such expenses
shall be paid upon demand.  The Company shall reimburse the Investors upon
demand for all reasonable out-of-pocket expenses incurred by the Investors,
including without limitation reimbursement of attorneys’ fees and disbursements,
in connection with any amendment, modification or waiver of this Agreement or
the other Transaction Documents.  In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the other Transaction Documents, the party
or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys’ fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.

9.6           Amendments and Waivers.  Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Required Investors.  Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Shares purchased under this Agreement at the time
outstanding, each future holder of all such Shares, and the Company.

9.7           Publicity.  Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance.  By 8:30 a.m. (New York
City time) on the trading day immediately following the Closing Date, the
Company shall issue a press release disclosing the consummation of the
transactions contemplated by this Agreement.  No later than the fourth trading
day following the Closing Date, the Company will file a Current Report on Form
8-K attaching the press release described in the foregoing sentence as well as
copies of the Transaction Documents.  In addition, the Company will make such
other filings and notices in the manner and time required by the SEC.
 
 
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9.8           Severability.  Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.  To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.

9.9           Entire Agreement.  This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.

9.10           Further Assurances.  The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

9.11           Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial.  This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York without regard to the choice of law
principles thereof.  Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated
hereby.  Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement.  Each
of the parties hereto irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such
court.  Each party hereto irrevocably waives any objection to the laying of
venue of any such suit, action or proceeding brought in such courts and
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum. EACH OF THE PARTIES
HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.
 
 
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9.12          Independent Nature of Investors' Obligations and Rights.  The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document.  The decision of each Investor to
purchase Shares pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor.  Nothing contained herein or in
any Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents.  Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Shares or enforcing its rights under the Transaction
Documents.  Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose.  The Company acknowledges that each of the
Investors has been provided with the same Transaction Documents for the purpose
of closing a transaction with multiple Investors and not because it was required
or requested to do so by any Investor.
 
[signature page follows]

 
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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

The Company:
AXION POWER INTERNATIONAL, INC.
     
By:
_____________________________  
Name:  Thomas G. Granville
 
Title:    Chief Executive Officer

 
 
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The Investors:
[NAME OF INVESTOR]
     
By:_______________________
 
Name:
 
Title:
   
Aggregate Purchase Price:  $
 
Number of Shares:
     
Address for Notice:
   
_______________________
 
_______________________
 
_______________________
     
with a copy to:
     
_______________________
 
_______________________
 
_______________________
 
Attn:  __________________
 
Telephone:   ____________
 
Facsimile:    ____________
   

 
 
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