SUBORDINATION AND INTERCREDITOR AGREEMENT

 

THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (as amended, restated,
supplemented or otherwise modified, this “Agreement”) is entered into as of this
May 8, 2013, by and among (i) each of the investors listed on the Schedule of
Buyers attached hereto designated as “Senior Creditors”, (ii) each of the
investors listed on the Schedule of Buyers attached hereto designated as
“Subordinated Creditors” (collectively, the “Subordinated Creditors”), and (iii)
Axion Power International, Inc., a Delaware corporation with offices located at
3601 Clover Lane, New Castle, Pennsylvania 16105 (the “Company”).

 

RECITALS

 

A.           The Senior Creditors, the Subordinated Creditors and the Company
have entered into that certain Securities Purchase Agreement of even date
herewith (as the same may be amended, supplemented or otherwise modified from
time to time as permitted hereunder, the “Purchase Agreement”), pursuant to
which, among other things, (i) the Senior Creditors have agreed, subject to the
terms and conditions set forth in the Purchase Agreement, to purchase Notes (as
defined therein) issued by the Company and (ii) the Subordinated Creditors have
agreed, subject to the terms and conditions set forth in the Subordinated Note
Purchase Agreement (as defined in the Purchase Agreement), to purchase
Subordinated Notes (as defined therein) issued by the Company. Capitalized terms
used but not defined herein shall have the meanings set forth in the Purchase
Agreement.

 

B.           As an inducement to and as one of the conditions precedent to the
agreement of the Senior Creditors to consummate the transactions contemplated by
the Purchase Agreement, the Senior Creditors have required the execution and
delivery of this Agreement by the Subordinated Creditors and the Company in
order to set forth the relative rights and priorities of the Senior Creditors
under the Securities Purchase Transaction Documents (as defined below) and the
Subordinated Creditors under the Subordinated Debt Transaction Documents (as
defined below).

 

NOW, THEREFORE, in order to induce the Senior Creditors to consummate the
transactions contemplated by the Purchase Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto hereby agree as follows:

 

1.           Definitions. The following terms shall have the following meanings
in this Agreement:

 

“Bankruptcy Code” shall mean Title 11 of the United States Code, as amended from
time to time and any successor statute and all rules and regulations promulgated
thereunder.

 

“Distribution” means, with respect to any indebtedness or obligation: (a) any
payment or distribution by any Person of cash, securities or other property, by
set-off or otherwise, on account of such indebtedness or obligation; (b) any
redemption, purchase or other acquisition of such indebtedness or obligation by
any Person; or (c) the granting of any lien or security interest to or for the
benefit of the holders of such indebtedness or obligation in or upon any
property of any Person.

 

 

 

 

“Enforcement Action” shall mean: (a) to take from or for the account of the
Company or any guarantor of the Subordinated Debt, by set-off or in any other
manner, the whole or any part of any moneys which may now or hereafter be owing
by the Company or any such guarantor with respect to the Subordinated Debt; (b)
to sue for payment of, or to initiate or participate with others in any suit,
action or proceeding against the Company or any such guarantor to (i) enforce
payment of or to collect the whole or any part of the Subordinated Debt or (ii)
commence judicial enforcement of any of the rights and remedies under the
Subordinated Debt Documents or applicable law with respect to the Subordinated
Debt; (c) to accelerate the Subordinated Debt; (d) to exercise any put option or
to cause the Company or any such guarantor to honor any redemption or mandatory
prepayment obligation under any Subordinated Debt Transaction Document; (e) to
notify account debtors or directly collect accounts receivable or other payment
rights of the Company or any such guarantor; or (f) take any action under the
provisions of any state or federal law, or under any contract or agreement, to
enforce, foreclose upon, take possession of or sell any property or assets of
the Company or any such guarantor.

 

“Paid in Full” of “Payment in Full” means that: (a) all Senior Debt has been
indefeasibly paid in full in cash or converted to shares of Common Stock
pursuant to the terms of the Notes (in each case, other than contingent
indemnification obligations for which no claim yet has been asserted in
writing); (b) all commitments to lend or purchase any Notes under the Securities
Purchase Transaction Documents have been terminated and no Person has any
further right to obtain loans or other extensions of credit under the Securities
Purchase Transaction Documents; and (c) any costs, expenses and contingent
indemnification obligations which are not yet due and payable but with respect
to which a claim is pending or may reasonably be expected to be asserted under
the Securities Purchase Transaction Documents have been paid in full in cash.

 

“Permitted Refinancing” shall mean any refinancing of the Senior Debt under the
Securities Purchase Transaction Documents, provided that the financing
documentation entered into by the Company in connection with such Permitted
Refinancing constitutes Permitted Refinancing Senior Debt Documents.

 

“Permitted Refinancing Senior Debt Documents” shall mean any financing
documentation which replaces the Securities Purchase Transaction Documents and
pursuant to which the Senior Debt under the Securities Purchase Transaction
Documents is refinanced, as such financing documentation may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms of this Agreement.

 

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“Permitted Subordinated Debt Payments” means (a) the capitalization of
paid-in-kind interest on the terms set forth in the Subordinated Notes and (b)
so long as no Senior Payment Default, Senior Covenant Default or Equity
Conditions Failure (as defined in the Notes) has occurred and is continuing, at
any time after the later of (x) the initial date at least $6 million in
aggregate principal amount of the Notes no longer remains outstanding and (y)
the initial date at least 50% of the aggregate principal amount of the Notes
initially issued to Capital Ventures International no longer remains
outstanding, any Optional Redemption (as defined in the Subordinated Notes).

 

“Person” means any natural person, corporation, general or limited partnership,
limited liability company, firm, trust, association, government, governmental
agency or other entity, whether acting in an individual, fiduciary or other
capacity.

 

“Proceeding” shall mean any voluntary or involuntary insolvency, bankruptcy,
receivership, custodianship, liquidation, dissolution, reorganization,
assignment for the benefit of creditors, appointment of a custodian, receiver,
trustee or other officer with similar powers or any other proceeding for the
liquidation, dissolution or other winding up of a Person.

 

“Securities Purchase Transaction Documents” shall mean the Purchase Agreement,
the Transaction Documents and all other agreements, documents and instruments
executed from time to time in connection therewith, as the same may be amended,
supplemented or otherwise modified from time to time subject to the terms of
this Agreement.

 

“Senior Covenant Default” shall mean any “Event of Default” (other than a Senior
Payment Default) under the Notes, or any condition or event that, after notice
or lapse of time or both, would constitute such an Event of Default (other than
a Senior Payment Default) if that condition or event were not cured or removed
within any applicable grace or cure period set forth therein.

 

“Senior Creditors” shall mean the holders of the Senior Debt from time to time
party to the Purchase Agreement.

 

“Senior Debt” shall mean all obligations, liabilities and indebtedness of every
nature of the Company or any guarantor from time to time owed to the Senior
Creditors under the Securities Purchase Transaction Documents, including,
without limitation, the principal amount of all debts, claims and indebtedness,
accrued and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and from time
to time hereafter owing, due or payable, whether before or after the filing of a
Proceeding under the Bankruptcy Code together with (a) any amendments,
modifications, renewals or extensions thereof to the extent in accordance with
the terms of this Agreement and (b) any interest accruing thereon after the
commencement of a Proceeding, without regard to whether or not such interest is
an allowed claim. Senior Debt shall be considered to be outstanding whenever any
commitment to loan or otherwise purchase Notes under the Securities Purchase
Transaction Documents is outstanding.

 

“Senior Default” shall mean any Senior Payment Default or Senior Covenant
Default.

 

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“Senior Default Notice” shall mean a written notice from the Senior Creditors
pursuant to which the Subordinated Creditors are notified of the occurrence of a
Senior Default, which notice incorporates a reasonably detailed description of
such Senior Default.

 

“Senior Payment Default” shall mean any “Event of Default” under the Notes
resulting from the failure of the Company to pay to any Senior Creditor, on a
timely basis, any principal, interest, fees or other obligations under the
Securities Purchase Transaction Documents, including, without limitation, any
default in payment of Senior Debt after acceleration thereof or the delivery of
any Redemption Notice (as defined in the Notes) with respect thereto.

 

“Subordinated Debt” shall mean all of the obligations of the Company or any
guarantor to each Subordinated Creditor evidenced by or incurred pursuant to the
Subordinated Debt Transaction Documents.

 

“Subordinated Debt Default” shall mean a default in the payment of the
Subordinated Debt or in the performance of any term, covenant or condition
contained in the Subordinated Debt Transaction Documents (other than the Notes)
or any other occurrence permitting the Subordinated Creditors to accelerate the
payment of, put or cause the redemption of all or any portion of the
Subordinated Debt or any Subordinated Debt Transaction Document.

 

“Subordinated Debt Transaction Documents” shall mean the Subordinated Note
Purchase Agreement and all other agreements, documents and instruments executed
from time to time in connection therewith, as the same may be amended,
supplemented or otherwise modified from time to time subject to the terms of
this Agreement.

 

“Subordinated Debt Default Notice” shall mean a written notice from the
Subordinated Creditors or the Company to the Senior Creditors pursuant to which
the Senior Creditors are notified of the occurrence of a Subordinated Debt
Default, which notice incorporates a reasonably detailed description of such
Subordinated Debt Default.

   

2.           Subordination.

 

2.1           Subordination of Subordinated Debt to Senior Debt. The Company
covenants and agrees, and each Subordinated Creditor by its execution of the
Subordinated Debt Transaction Documents to which it is a party and the
acceptance of any Subordinated Notes (whether upon original issue or upon
transfer or assignment) likewise covenants and agrees, notwithstanding anything
to the contrary contained in any of the Subordinated Debt Transaction Documents,
that the payment of any and all of the Subordinated Debt shall be subordinate
and subject in right and time of payment, to the extent and in the manner
hereinafter set forth, to the prior Payment in Full of all Senior Debt. Each
holder of Senior Debt, whether now outstanding or hereafter created, incurred,
assumed or guaranteed, shall be deemed to have acquired Senior Debt in reliance
upon the provisions contained in this Agreement. Notwithstanding the foregoing,
nothing herein shall restrict the rights of the Company to issue, or a
Subordinated Creditor to accept, shares of Common Stock in satisfaction, in
whole or in part, of any obligation under any Subordinated Notes in accordance
with the terms thereof in effect as of the Closing Date.

 

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2.2          Liquidation, Dissolution, Bankruptcy. In the event of any
Proceeding involving the Company or any Subsidiary of the Company:

 

(a)          All Senior Debt shall first be Paid in Full before any
Distribution, whether in cash, securities or other property, shall be made to
the Subordinated Creditors on account of any Subordinated Debt.

 

(b)          Any Distribution, whether in cash, securities or other property
which would otherwise, but for the terms hereof, be payable or deliverable in
respect of the Subordinated Debt shall be paid or delivered directly to the
Senior Creditors (to be applied pro rata to the outstanding amount of Senior
Debt held by each Senior Creditor) until all Senior Debt is Paid in Full. Until
the Senior Debt is Paid in Full, (i) each Subordinated Creditor irrevocably
authorizes, empowers and directs any debtor, debtor in possession, receiver,
trustee, liquidator, custodian, conservator or other Person having authority, to
pay or otherwise deliver all such Distributions to the Senior Creditors, and
(ii) each Subordinated Creditor also irrevocably authorizes and empowers each
Senior Creditor, in the name of Subordinated Creditor, to demand, sue for,
collect and receive any and all such Distributions.

 

(c)           Each Subordinated Creditor agrees not to initiate, prosecute or
participate in any claim, action or other proceeding challenging the
enforceability, validity, perfection or priority of the Senior Debt or any liens
and security interests securing the Senior Debt.

 

(d)            Each Subordinated Creditor agrees that the Senior Creditors may
consent to the use of cash collateral or provide financing to the Company on
such terms and conditions and in such amounts as the Senior Creditors, in their
sole discretion, may decide. Each Subordinated Creditor agrees not to object to
any of the foregoing. Each Subordinated Creditor agrees that it will: (i) not
seek to provide financing to the Company in any Proceeding; (ii) support, and
not object to or oppose, any sale or other disposition of any property under
Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code
or applicable law if the Senior Creditors have consented to such sale or
disposition; and (iii) not propose, seek and/or support confirmation of any plan
to which the Senior Creditors have not consented in writing; each Subordinated
Creditor agrees to object to and vote to reject confirmation of any plan which
the Senior Creditors have objected to and/or rejected in writing. Each
Subordinated Creditor waives any claim it may now or hereafter have arising out
of the Senior Creditors’ election, in any Proceeding instituted under the
Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy
Code, and/or any borrowing or grant of a security interest under Section 364 of
the Bankruptcy Code by the Company, as debtor in possession.

 

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(e)          Each Subordinated Creditor hereby irrevocably authorizes, empowers
and appoints each Senior Creditor as its agent and attorney-in-fact to (i)
execute, verify, deliver and file proofs of claim in respect of the Subordinated
Debt upon the failure of any Subordinated Creditor promptly to do so prior to
ten (10) Business Days before the expiration of the time to file any such proof
of claim, and (ii) vote such claim in any such Proceeding upon the failure of
any Subordinated Creditor to do so prior to five (5) Business Days before the
expiration of the time to vote any such claim; provided, however, that no Senior
Creditor shall have any obligation to execute, verify, deliver, file and/or vote
any such proof of claim. In the event that any Senior Creditor votes any claim
in accordance with the authority granted hereby, no Subordinated Creditor shall
be entitled to change or withdraw such vote.

 

(f)            The Senior Debt shall continue to be treated as Senior Debt and
the provisions of this Agreement shall continue to govern the relative rights
and priorities of the Senior Creditors and the Subordinated Creditors even if
all or part of the Senior Debt are subordinated, set aside, avoided, invalidated
or disallowed in connection with any such Proceeding, and this Agreement shall
be reinstated if at any time any payment of any of the Senior Debt is rescinded
or must otherwise be returned by any holder of Senior Debt or any representative
of such holder.

 

2.3Subordinated Debt Payment Restrictions.

 

(a)           Notwithstanding the terms of the Subordinated Debt Transaction
Documents, the Company hereby agrees that it may not make, directly or
indirectly, and each Subordinated Creditor hereby agrees that it will not
accept, any Distribution with respect to the Subordinated Debt until the Senior
Debt is Paid in Full other than, subject to the terms of Section 2.2 of this
Agreement, Permitted Subordinated Debt Payments; provided, however, that the
Company and each Subordinated Creditor further agree that no Permitted
Subordinated Debt Payment may be made by the Company, directly or indirectly, or
accepted by such Subordinated Creditor if, at the time of such payment, any
Senior Payment Default or Senior Covenant Default exists.

 

(b)           The Company may resume Permitted Subordinated Debt Payments (and
may make any Permitted Subordinated Debt Payments missed due to the application
of paragraph (a) of this Section 2.3) upon the earliest to occur of:

 

(i)          in the case of a Senior Payment Default or a Senior Covenant
Default, as applicable, upon a cure or waiver thereof; or

 

(ii)         all of the Senior Debt being Paid in Full.

 

(c)           No Senior Default shall be deemed to have been waived for purposes
of this Section 2.3 unless and until the Company shall have received a written
waiver from the Senior Creditors.

 

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(d)           Notwithstanding any provisions to the contrary, the failure of the
Company to make any payment with respect to the Subordinated Debt by reason of
the operation of Section 2.3 shall not be construed as preventing the occurrence
of a Subordinated Debt Default under the applicable Subordinated Debt Documents.

 

The provisions of this Section 2.3 shall not apply to any payment with respect
to which Section 2.2 would be applicable.

 

2.4         Subordinated Debt Standstill Provisions. Until the Senior Debt is
Paid in Full, no Subordinated Creditor shall, without the prior written consent
of the Required Holders (as defined below), take any Enforcement Action with
respect to the Subordinated Debt.

 

2.5          Incorrect Payments. If any Distribution on account of the
Subordinated Debt not permitted to be made by the Company or accepted by any
Subordinated Creditor under this Agreement is made and received by such
Subordinated Creditor, such Distribution shall not be commingled with any of the
assets of such Subordinated Creditor, shall be held in trust by such
Subordinated Creditor for the benefit of the Senior Creditors and shall be
promptly paid over to the Senior Creditors for application (pro rata against the
outstanding amount of Senior Debt held by each Senior Creditor) to the payment
of the Senior Debt then remaining unpaid, until all of the Senior Debt is Paid
in Full.

 

2.6          [Intentionally Omitted.].

 

2.7          Sale, Transfer or other Disposition of Subordinated Debt.

 

(a)           No Subordinated Creditor shall sell, assign, pledge, dispose of or
otherwise transfer all or any portion of the Subordinated Debt held by it or any
Subordinated Debt Transaction Document: (i) without giving prior written notice
of such action to the Senior Creditors; and (ii) unless, prior to the
consummation of any such action, the transferee thereof shall execute and
deliver to the Senior Creditors an agreement substantially identical to this
Agreement, providing for the continued subordination of the Subordinated Debt to
the Senior Debt as provided herein and for the continued effectiveness of all of
the rights of the Senior Creditors arising under this Agreement.

 

(b)           Notwithstanding the failure of any transferee to execute or
deliver an agreement substantially identical to this Agreement, the
subordination effected hereby shall survive any sale, assignment, pledge,
disposition or other transfer of all or any portion of the Subordinated Debt,
and the terms of this Agreement shall be binding upon the successors and assigns
of the Subordinated Creditors, as provided in Section 10 hereof.

 

2.8          Legends. Until the termination of this Agreement in accordance with
Section 16 hereof, each Subordinated Creditor will cause to be clearly,
conspicuously and prominently inserted on the face of the Subordinated Notes, as
well as any renewals or replacements thereof, the following legend:

 

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“This instrument and the rights and obligations evidenced hereby are subordinate
in the manner and to the extent set forth in that certain Subordination and
Intercreditor Agreement (the “Subordination Agreement”) dated as of May 8, 2013
by and among the holders of Notes (as such term is defined in the Subordination
Agreement) (collectively, the “Senior Creditors”) issued by the Company (as
defined below) pursuant to that certain Securities Purchase Agreement dated as
of May 7, 2013, by and among the Company and the Senior Creditors from time to
time party thereto (as the same may be amended, supplemented or otherwise
modified from time to time subject to the terms of the Subordination Agreement,
the “Securities Purchase Agreement”), the holders of Subordinated Notes (as such
term is defined in the Subordination Agreement) issued by the Company
(collectively, the “Subordinated Creditors”) issued pursuant to that certain
Securities Purchase Agreement dated as of May 7, 2013 among the Company and the
Subordinated Creditors from time to time party thereto (as the same may be
amended, supplemented or otherwise modified from time to time subject to the
terms of the Subordination Agreement, the “Subordinated Securities Purchase
Agreement”), and the Company to the indebtedness (including interest) owed by
the Company to the Senior Creditors under the Notes and to indebtedness
refinancing the indebtedness originally issued in connection therewith, subject
to the terms of the Subordination Agreement; and each holder of this instrument,
by its acceptance hereof, irrevocably agrees to be bound by the provisions of
the Subordination Agreement.”

 

3.          Modifications to Securities Purchase Transaction Documents;
Subordinated Debt Transaction Documents. The Securities Purchase Transaction
Documents may be amended, restated, supplemented or otherwise modified in
accordance with, and to the extent permitted by, the terms and provisions
contained in the Securities Purchase Transaction Documents. The Subordinated
Debt Transaction Documents may not be amended, restated, supplemented or
otherwise modified without the prior consent of the holders of a majority in
aggregate principal amount of the Notes then outstanding; provided, that such
majority must include each holder of at least $500,000 in aggregate principal
amount of Notes (the “Required Holders”) and, in any event, solely to the extent
permitted by, the other terms and provisions contained in the Subordinated Debt
Transaction Documents.

 

4.          Waiver of Certain Rights by Subordinated Creditor. Each Subordinated
Creditor hereby waives any rights it may have under applicable law to assert the
doctrine of marshaling or to otherwise require the Senior Creditors to marshal
any property of the Company or any guarantor of the Senior Debt for the benefit
of such Subordinated Creditor.

 

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5.           Representations and Warranties.

 

5.1            Representations and Warranties of Each Subordinated Creditor.
Each Subordinated Creditor hereby represents and warrants to the Senior
Creditors that as of the date hereof: (a) if such Subordinated Creditor is a
corporation, limited liability company, limited partnership or partnership, as
applicable, it is duly formed and validly existing under the laws of the state
of its organization or formation; (b) such Subordinated Creditor has the power
and authority and, in the case of any Subordinated Creditor that is a natural
person, the legal capacity, to enter into, execute, deliver and carry out the
terms of this Agreement, all of which have been duly authorized by all proper
and necessary action; (c) the execution of this Agreement by such Subordinated
Creditor will not violate or conflict with the organizational documents of such
Subordinated Creditor, (if other than a natural person) any material agreement
binding upon such Subordinated Creditor or any law, regulation or order or
require any consent or approval which has not been obtained; (d) this Agreement
is the legal, valid and binding obligation of such Subordinated Creditor,
enforceable against such Subordinated Creditor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors’ rights generally and by equitable principles; (e) such
Subordinated Creditor is the sole owner, beneficially and of record, of the
Subordinated Debt Transaction Documents and the Subordinated Debt; and (f) the
Subordinated Debt is, and at all times prior to the termination of this
Agreement shall remain, an unsecured obligation of the Company.

 

5.2            Representations and Warranties of Each Senior Creditor. Each
Senior Creditor hereby represents and warrants to the Subordinated Creditors
that as of the date hereof: (a) such Senior Creditor is a corporation, limited
liability company, limited partnership or partnership, as applicable, duly
formed and validly existing under the laws of the state of its organization or
formation; (b) such Senior Creditor has the power and authority to enter into,
execute, deliver and carry out the terms of this Agreement, all of which have
been duly authorized by all proper and necessary action; (c) the execution of
this Agreement by such Senior Creditor will not violate or conflict with the
organizational documents of such Senior Creditor, any material agreement binding
upon such Senior Creditor or any law, regulation or order or require any consent
or approval which has not been obtained; and (d) this Agreement is the legal,
valid and binding obligation of such Senior Creditor, enforceable against such
Senior Creditor in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors’ rights generally or by
equitable principles.

 

6.           Subrogation. Until all Senior Debt is Paid in Full, each
Subordinated Creditor shall be subrogated to the rights of the Senior Creditors
to receive Distributions with respect to the Senior Debt until the Subordinated
Debt is paid in full. Each Subordinated Creditor agrees that in the event that
all or any part of a payment made with respect to the Senior Debt is recovered
from the holders of the Senior Debt in a Proceeding or otherwise, any
Distribution received by such Subordinated Creditor with respect to the
Subordinated Debt at any time after the date of the payment that is so
recovered, whether pursuant to the right of subrogation provided for in this
Agreement or otherwise, shall be deemed to have been received by such
Subordinated Creditor in trust as property of the holders of the Senior Debt,
and such Subordinated Creditor shall forthwith deliver the same to the Senior
Creditors for application to the Senior Debt until the Senior Debt is Paid in
Full. A Distribution made pursuant to this Agreement to the Senior Creditors
which otherwise would have been made to the Subordinated Creditors is not, as
between the Company and the Subordinated Creditors, a payment by the Company to
or on account of the Senior Debt.

 

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7.           Modification. Any modification or waiver of any provision of this
Agreement, or any consent to any departure by any party from the terms hereof,
shall not be effective in any event unless the same is in writing and signed by
the Senior Creditors and the Subordinated Creditors, and then such modification,
waiver or consent shall be effective only in the specific instance and for the
specific purpose given. Any notice to or demand on any party hereto in any event
not specifically required hereunder shall not entitle the party receiving such
notice or demand to any other or further notice or demand in the same, similar
or other circumstances unless specifically required hereunder.

 

8.           Further Assurances. Each party to this Agreement promptly shall
execute and deliver such further instruments and agreements and do such further
acts and things as may be reasonably requested in writing by any other party
hereto that may be necessary or desirable in order to effect fully the purposes
of this Agreement.

 

9.           Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, if
delivered personally; (ii) when sent, if sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); (iii) when sent, if sent by e-mail (provided
that such sent e-mail is kept on file (whether electronically or otherwise) by
the sending party and the sending party does not receive an automatically
generated message from the recipient’s e-mail server that such e-mail could not
be delivered to such recipient) and (iv) if sent by overnight courier service,
one (1) Business Day after deposit with an overnight courier service with next
day delivery specified, in each case, properly addressed to the party to receive
the same. The addresses, facsimile numbers and e-mail addresses for such
communications shall be:

 

  If to the Company:           3601 Clover Lane     New Castle, Pennsylvania
16105     Telephone:  (724)654-9300     Facsimile:  (724) 654-1781    
Attention:  Chief Executive Officer and Chief Financial Officer         With a
copy (for informational purposes only) to:         Jolie Kahn, Esq.     2
Liberty Place, Suite 3401     Philadelphia, PA 19103    
Telephone:  (215)375-6646     Facsimile:  866-705-3071

 

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  If to the Transfer Agent:           Continental Stock Transfer & Trust Company
    17 Battery Place     8th Floor     New York, NY 10004     Telephone:  (212)
845-3217     Facsimile:  (212) 616-7616     Attention:  Michael G. Mullings

 

If to a Senior Creditor or a Subordinated Creditor, to its address, facsimile
number or e-mail address set forth on the Schedule of Buyers, with copies to
such Senior Creditor’s or Subordinated Creditor’s representatives as set forth
on the Schedule of Buyers,

 

  with a copy (for informational purposes only) to:           Greenberg Traurig,
LLP     MetLife Building     200 Park Avenue     New York, NY 10166    
Telephone:  (212) 801-9200     Facsimile:  (212) 805-9222    
Attention:  Michael A. Adelstein, Esq.

 

or to such other address, facsimile number or e-mail address and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change, provided that Greenberg Traurig, LLP shall only be provided copies
of notices sent to the lead Senior Creditor. Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender’s facsimile machine
containing the time, date and recipient facsimile number or (C) provided by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iv) above, respectively. A copy of the e-mail
transmission containing the time, date and recipient e-mail address shall be
rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.

 

10.        Successors and Assigns. This Agreement shall inure to the benefit of,
and shall be binding upon, the respective successors and permitted assigns of
the Senior Creditors, the Subordinated Creditors and the Company, in each case
to the extent permitted under this Agreement, the Subordinated Debt Transaction
Documents and the Securities Purchase Transaction Documents. Notwithstanding any
such assignment or transfer, or any subsequent assignment or transfer, the
Senior Debt shall, subject to the terms hereof, be and remain Senior Debt for
purposes of this Agreement, and every permitted assignee or transferee of any of
the Senior Debt or of any interest therein shall, to the extent of the interest
of such permitted assignee or transferee in the Senior Debt, be entitled to rely
upon and be the third party beneficiary of the subordination provided under this
Agreement and shall be entitled to enforce the terms and provisions hereof to
the same extent as if such assignee or transferee were initially a party hereto.

 

-11-

 

 

11.        Relative Rights. This Agreement shall define the relative rights of
the Senior Creditors and the Subordinated Creditors. Nothing in this Agreement
shall: (a) impair, as among the Company and the Senior Creditors and as between
the Company and the Subordinated Creditors, the obligation of the Company with
respect to the payment of the Senior Debt and the Subordinated Debt in
accordance with their respective terms; or (b) affect the relative rights of the
Senior Creditors or the Subordinated Creditors with respect to any other
creditors of the Company.

 

12.        Conflict. In the event of any conflict between any term, covenant or
condition of this Agreement and any term, covenant or condition of any of the
Subordinated Debt Transaction Documents and/or the Securities Purchase
Transaction Documents, the provisions of this Agreement shall control and
govern.

 

13.         Headings. The paragraph headings used in this Agreement are for
convenience only and shall not affect the interpretation of any of the
provisions hereof.

 

14.        Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of an executed
signature page of this Agreement by facsimile transmission or in a pdf or
similar electronic file shall be effective as delivery of a manually executed
counterpart hereof.

 

15.        Severability. In the event that any provision of this Agreement is
deemed to be invalid, illegal or unenforceable by reason of the operation of any
law or by reason of the interpretation placed thereon by any court or
governmental authority, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and the affected provision shall be modified to the minimum
extent permitted by law so as most fully to achieve the intention of this
Agreement.

 

16.        Continuation of Subordination; Termination of Agreement. This
Agreement shall remain in full force and effect until the Senior Debt is Paid in
Full after which this Agreement shall terminate without further action on the
part of the parties hereto.

 

-12-

 

 

17.        Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Nothing contained herein shall
be deemed or operate to preclude any Senior Creditor or any Subordinated
Creditor from bringing suit or taking other legal action against the Company in
any other jurisdiction to collect on the Company’s obligations to such Senior
Creditor or Subordinated Creditor or to enforce a judgment or other court ruling
in favor of such Senior Creditor or Subordinated Creditor. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

[Signatures Immediately Follow]

 

-13-

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  COMPANY:       Axion Power International, Inc.         By: /s/ Thomas
Granville     Name: Thomas Granville     Title: CEO

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SENIOR CREDITOR:       CAPITAL VENTURES INTERNATIONAL       By: /s/ Martin
Kobinger     Name:Martin Kobinger     Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SENIOR CREDITOR:       EMPERY ASSET MASTER, LTD   By: Empery Asset Management,
LP, its authorized agent   By: Empery AM GP, LLC       By: /s/Ryan M. Lane  
Name: Ryan M. Lane   Title: Managing Member

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

  

: SENIOR CREDITOR       HARTZ CAPITAL INVESTMENTS, LLC   By: Empery Asset
Management, LP, its authorized agent   By: Empery AM GP, LLC       By: /s/ Ryan
M. Lane   Name: Ryan M. Lane   Title: Managing Member

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SENIOR CREDITOR:       HUDSON BAY MASTER FUND LTD.       By: /s/ George
Antonopoulos   Name: George Antonopoulos   Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SENIOR CREDITOR:       PARSOON SPECIAL SITUATION, LTD       By: /s/ Daniel H.
Kochav   Name: Daniel H. Kochav   Title: Director

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SUBORDINATED CREDITOR:       Robert Averill       By:   /s/ Robert Averill    
Name: Robert Averill     Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SUBORDINATED CREDITOR:       James Smith       By /s/ James Smith     Name:
James Smith     Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SUBORDINATED CREDITOR:       D. Walker Wainwright       By: /s/ D. Walker
Wainwright     Name: D. Walker Wainwright     Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SUBORDINATED CREDITOR:       Thomas Granville       By: /s/ Thomas Granville  
  Name: Thomas Granville     Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SUBORDINATED CREDITOR:       Charles Trego       By: /s/ Charles Trego    
Name: Charles Trego     Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SUBORDINATED CREDITOR:       Phillip Baker       By: /s/ Phillip Baker    
Name: Phillip Baker     Title:

 

 Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

  SUBORDINATED CREDITOR:       Vani Dantam       By: /s/ Vani Dantam     Name:
Vani Dantam     Title:

 

Signature Page to Subordination and Intercreditor Agreement

 

 

 

 

SCHEDULE OF BUYERS

 

Senior Creditors   Name:     Address and Facsimile Number: Capital Ventures
International     c/o Heights Capital Management     101 California Street,
Suite 3250     San Francisco, CA 94111     Attention: Martin Kobinger,    
Investment Manager     Facsimile: 415-403-6525         Empery Asset Master, Ltd
    Attn: Empery Asset Management, LP     1 Rockefeller Plaza, Suite 1205    
New York, NY 10020     Attn: Martin Hoe and Ryan Lane     Facsimile:
212-608-3307         Hartz Capital Investments, LLC     Attn: Empery Asset
Management, LP     1 Rockefeller Plaza, Suite 1205     New York, NY 10020    
Attn: Martin Hoe and Ryan Lane     Facsimile: 212-608-3307         Hudson Bay
Master Fund Ltd.     777 Third Avenue, 30th Floor     New York, NY 10017    
Attention: Yoav Roth     George Antonopolous     Facsimile: 646-214-7946        
Parsoon Special Situation, Ltd     c/o Tenor Capital Management     1180 Avenue
of Americas, Suite 1940     New York, NY 10036     Facsimile: (212) 918-5301    
Attn: Waqas Khatri, Ravi Patel            

 

 

 

 

 

Subordinated Creditors  

Name:   Address and Facsimile Number:       Robert Averill           James Smith
          D. Walker Wainwright           Thomas Granville           Charles
Trego           Phillip Baker           Vani Dantam