SECURITY AGREEMENT

This Security Agreement is executed by Axion Power International, Inc., a
Delaware corporation, as Debtor, and Robert Averill, an individual, as Secured
Party.

I

CREATION OF SECURITY INTEREST

Debtor hereby grants to Secured Party a first priority security interest in the
collateral described in this Security Agreement pursuant to the Delaware Uniform
Commercial Code - Secured Transactions.

II

OBLIGATIONS SECURED

The security interest is granted to Secured Party to secure the following
obligations:

A. Payment of the indebtedness evidenced by a Promissory Note of this same date
executed by Axion Battery Products, Inc., a Pennsylvania corporation and wholly
owned subsidiary of Debtor, payable to the order of Secured Party, in the
principal amount of One Million Dollars ($1,000,000.00), bearing interest the
fixed rate of ten percent (10 %) per annum, together with any renewals,
extensions, modifications, or amendments of the Promissory Note (the "Note").

B. The expenses and costs incurred or paid by Secured Party in the maintenance
and preservation of the collateral and the enforcement of the rights of Secured
Party and the duties of Debtor as stated in this Security Agreement, including,
without limitation, attorneys' fees, court costs, foreclosure expenses, and
witness fees.

III

DESCRIPTION OF COLLATERAL

The collateral of this Security Agreement consists of the following:

1.   All of Debtor’s equipment, inventory, furniture, fixtures and intellectual
property.

2.   All substitutions, replacements, developments or accessions of the
above-described collateral.

IV

CLASSIFICATION OF COLLATERAL

Debtor acknowledges that at the time the security interest attaches, the
collateral consists of tangible and intangible personal property, including
intellectual property.

V

PERFECTION OF SECURITY INTEREST

To perfect the security interest granted to Secured Party by the terms of this
Security Agreement, Debtor agrees to the following:

A.   Debtor authorizes Secured Party to file financing statements in all states,
counties, and other jurisdictions as Secured Party may elect, without Debtor’s
signature as permitted by law.
 
B.   Debtor shall execute and deliver to Secured Party, in form and substance
satisfactory to Secured Party, such financing statements and such further
assurances as Secured Party may, from time to time, consider reasonably
necessary to create, perfect and preserve Secured Party's security interest
herein granted, and Secured Party may cause such statements and assurances to be
recorded and filed at such times and places as may be required or permitted by
law to so create, perfect and preserve such security interest.

Upon performance of all obligations of Debtor to Secured Party that are secured
by this Security Agreement, Secured Party agrees to surrender possession of the
original security instruments to Debtor and to execute such documents as may be
necessary to completely release Secured Party's security interest created
hereby.

VI

DEBTOR'S COVENANTS AND WARRANTIES

C.   Debtor is a corporation duly organized and existing under the laws of the
State of Delaware, is in good standing under the laws of the State of Delaware,
and the granting of the security interest and the performance of all other
obligations provided in this Agreement are within the Debtor's powers, have been
duly authorized, and are not in contravention of any law or the Debtor's
Articles of Organization, or any agreement or undertaking of which Debtor is a
party or by which it is bound.

D.   Debtor agrees that during the term of this Agreement, and as long as any
obligation that is subject to this Agreement remains outstanding, Debtor will
not grant a security interest in the collateral or any part thereof to any
person except as otherwise authorized in accordance with the provisions of
article VI below.

E.   During the term of this Security Agreement, Debtor shall keep the
collateral free and clear from any and all liens, encumbrances, and other
security interests, and will pay, prior to delinquency, all taxes, charges,
encumbrances, liens, and assessments against the collateral, and, should the
Debtor fail to do so, Secured Party may, but shall not be required, to pay or
discharge the same. Debtor shall give Secured Party ten (10) days notice in the
event of default of any of these obligations. Debtor shall reimburse Secured
Party for any such payments.

F.   Debtor shall maintain the collateral in good order and repair, reasonable
and ordinary wear and tear excepted.

G.   Debtor shall maintain insurance on the collateral that consists of
equipment in an amount not less than the replacement value of the equipment. The
insurance policy or policies shall name Secured Party as a loss payee. Debtor
shall provide Secured Party with a copy of the declaration page reflecting
Secured Party as Loss Payee.

H.   Debtor represents that the tangible collateral subject to this Agreement is
presently located at 130 Pine View Drive, East Amherst, New York 14221 and, to
the extent it has any ownership interest therein, at 100 Caster Avenue, Vaughan,
Ontario, Canada L4L5Y9, and the Debtor shall inform Secured Party in writing at
least ten (10) days prior to any change of location of the collateral.

I.   Debtor shall execute any and all Financing Statements relating to the
perfection, amendment, release, or termination of the security interest created
hereby. The Debtor hereby authorizes and appoints Secured Party, in the case of
need, to sign on behalf of Debtor with full power of substitution as the
Debtor's attorney-in-fact.

VII

USE OF COLLATERAL

So long as the Debtor is not in default under the terms of this Security
Agreement, Debtor may use, consume, and dispose of the collateral in the
ordinary course of Debtor's business. This right includes, but is not limited
to, the use and consumption of collateral in the manufacture, preparation, and
delivery of goods, and the sale or encumbrance of the collateral in the ordinary
course of Debtor's business.

VIII

DEFAULT PROVISIONS

A.   Definition Of Default.The occurrence of any of the following shall
constitute a default by the Debtor under this Security Agreement:

1.  The failure by Debtor to pay or perform any obligations secured by the terms
of this Security Agreement, including the failure by Axion Battery Products,
Inc. to pay or perform under the Promissory Note executed by it in conjunction
with this Security Agreement.

2.  The failure of Debtor to perform any of Debtor's obligations under the terms
of this Security Agreement or the Loan Agreement executed concurrently herewith.

3.  A material breach of any covenant or representation made to Secured Party
herein.

4.  The filing of a petition by or against the Debtor under any state or federal
law relating to the relief of debtors, any assignment by Debtor for the benefit
of creditors, or the insolvency or cessation of business by Debtor.

5.  The sale, transfer, alienation, encumbrance, or other disposition of the
collateral, or of any part thereof or of any interest therein, whether
voluntarily or involuntarily, without the prior written consent of Secured
Party, except for sales or encumbrances of the equipment collateral as permitted
in accordance with the provisions of article VII above.

B.   Notice And Right To Cure.

1.   Notice. Secured Party must, before pursuing any remedy for an alleged
default by Debtor, give written notice of default to Debtor. Each notice of
default must specify the alleged event of default.

2.  Debtor's Right To Cure Defaults. Debtor shall have thirty (30) days in which
to cure a default after the delivery of the notice of default by Secured Party.
However, if a non-monetary default cannot reasonably be cured within thirty (30)
days, then Debtor is not to be considered in default if Debtor commences to cure
the default within the thirty (30) day period and diligently and in good faith
continues to cure the default thereafter. In the event of a monetary default
that is substantially cured within the thirty (30) day notice period, Secured
Party will provide reasonable time to complete the cure.

IX

SECURED PARTY'S RIGHTS AND REMEDIES

Upon the occurrence of default that remains uncured within the time limit set
forth in section VIII by Debtor, Secured Party may exercise the rights of
enforcement contained in the Uniform Commercial Code in force in Delaware at the
date of the default, including, but not limited to, the following:

A  Acceleration. Secured Party may, at Secured Party's option, declare
immediately due and payable the obligations of Debtor to Secured Party which are
secured hereby, and the same shall, upon notice to or demand on Debtor, become
immediately due and payable.

B  Right To Possession Of Collateral. The Secured Party shall have the right to
take possession of the collateral and the Debtor agrees to cooperate fully with
Secured Party in the exercise of Secured Party's right to take possession of the
collateral. This right includes, but is not limited to, Debtor's obligation to
assemble and deliver the collateral or some portion of the collateral or some
part or component of the collateral upon request of the Secured Party, to a
place designated by Secured Party where it shall be made available to the
Secured Party. Failure to cooperate shall constitute a breach of this Agreement
and the Debtor shall be liable for any and all expenses incident to such failure
or cooperation.

    C.   Right To Dispose Of Collateral. The Secured Party shall have the right
to dispose of the collateral by public or private proceeding and by way of one
or more contracts. Such sale or other disposition of the collateral may be made
as a unit or in parcels and at such time and on such terms as Secured Party may
determine, provided only that the disposition effected is commercially
reasonable.

Disposition of the collateral may be from the premises of the Debtor and Debtor
agrees to cooperate fully in facilitating such a disposition, which may include,
on request, the obligation to assemble the collateral in some designated
location of the Debtor where the collateral shall be made available to
prospective buyers. Disposition of the collateral may be from any other
commercially reasonable location, including the principal place of business of
Secured Party.

    D.   Notice Of Sale. Debtor and Secured Party agree that notice of
disposition of the collateral shall be commercially reasonable if such notice is
received by the Debtor by facsimile or hand delivery, as well as sent by regular
and certified mail, return receipt requested, at least ten (10) days prior to
the date of the public sale or the date after which a private sale or other
disposition may be effected.

    E.   Proceeds Of Sale. The proceeds of any sale or disposition of the
collateral shall be applied in the manner provided by law and shall include any
and all expenses provided in this Agreement. Debtor agrees that Secured Party
shall be entitled to recover reasonable attorneys' fees and costs incurred by
the Secured Party in exercising its rights and remedies under this Agreement.
Upon payment of Secured Party’s principle, interests and expenses as allowed by
this agreement and by law, Secured Party will return possession of all
collateral to Debtor and agrees to execute such documents as may be necessary to
completely release Secured Party's security interest created hereby.

    F.   Deficiency. In the event the proceeds of collection, sale or
disposition of the collateral are not sufficient to discharge Debtor's
obligation secured hereby, Debtor shall be liable for the deficiency.

X

MISCELLANEOUS

A. Notices. Except as otherwise expressly provided in this Security Agreement or
by law, all notices must be in writing and shall be considered given upon
delivery of, or if mailed, upon the first to occur of actual receipt or the
expiration of three (3) days after the deposit in United States Postal Service
mail, first class, postage prepaid and addressed at the address specified.
Notices must given by email and any other method of delivery, such as facsimile,
regular mail, overnight or personal delivery, to the parties at the addresses
listed below:

To Secured Party:  Robert Averill
377 Cupsaw Drive
Ringwood, New Jersey 07456
Facsimile: 973-962-6138
Email: averillbob@yahoo.com

To Debtor:   Axion Power International, Inc.
Thomas G. Granville
100 Caster Avenue
Vaughan, Ontario, Canada L4L 5Y9
Facsimile: 905-264-2385
Email: tomg@gelevator.com

Any change in the address of any party shall be given by the party having such
change to the other parties in the manner provided above. Thereafter, all
notices shall be given in accordance with the notice of change of address.
Notices given before actual receipt of the notice of change of address shall not
be invalidated by change of address.

B. Time Of The Essence. Time is of the essence of this Security Agreement.

C. Waiver. The waiver by either party of the time for performing any act shall
not constitute a waiver of the time for performing any other act or of an
identical act required to be performed at a later time. The exercise of any
remedy provided for in this Security Agreement shall not constitute a waiver of
any other remedy provided by law.

D. Severability. The unenforceability, invalidity, or illegality of any
provision of this Security Agreement shall not render any other provision
unenforceable, invalid, or illegal.

E. Choice Of Law. This Security Agreement shall be governed by and interpreted
under the laws of the State of Delaware in force from time to time.

F. Gender And Number. As used in this Security Agreement, the masculine,
feminine, or neuter gender, and the singular or plural number, shall each be
considered to include the others whenever the context so indicates.

G. Binding Effect. This Security Agreement shall inure to the benefit of, and be
binding upon, the heirs, assigns, transferees, personal representatives, and
successors in interest of the parties hereto.

H. Captions. The captions in this Security Agreement shall have no effect on its
interpretation.

I. Counterparts and Fax Signatures. This Agreement may be signed in counterpart
and all signatures shall constitute the entire Agreement. Signature by facsimile
shall be deemed original.

Dated this 31st day of January, 2006.

DEBTOR

AXION POWER INTERNATIONAL, INC., a Delaware corporation

By_________________________________
  , President
 
SECURED PARTY

ROBERT AVERILL

By__________________________________