Document:

EX-10.16

    LOAN
      AGREEMENT

    

    

    In
      this
      Loan Agreement (this “Agreement”), executed as of this 31st
      day of
      January, 2006, by and between Axion Battery Products, Inc., a
      Pennsylvania corporation and wholly owned subsidiary of Axion Power
      International, Inc. (“Borrower”), Axion Power International, Inc., a Delaware
      corporation (“Accommodation Party”) and Robert Averill, an individual
      (“Lender”), Borrower, Accommodation Party and Lender agree as
      follows:

    

    1. Loan.

    

    Borrower,
      Accommodation Party, and Lender agree to the following terms:

    

    (a)
      Lender will make a loan (the “Loan”) to Borrower in the principal amount of One
      Million Dollars ($1,000,000.00) for the purpose of purchasing certain equipment,
      inventory and other personal property (the “Property”) and Borrower’s operating
      expenses, payable in monthly installments of interest accruing at the rate
      of 10
percent
      per annum, with the principal due on the first banking day of February 2007.
      In
      the event Borrower does not consummate the purchase of the Property, Borrower
      shall release and return the Loan to Lender and shall not use the Loan for
      any
      other purpose; 

    

    (b)
      Accommodation Party agrees to issue warrants to purchase 50,000 shares of common
      stock of Accommodation Party at the rate of $6.00 per share, exercisable for
      36
      months from date of issuance, upon the execution of this Agreement and at the
      end of each three month period thereafter until the Loan is paid in full, on
      the
      same terms and conditions. Accommodation Party will take whatever steps are
      necessary to register the shares for immediate sale;

    

      (c)
        the
        Loan will not be used for operating expenses for Accommodation
        Party.

    

    

    

    2.
       Security
      for Debt.
      

    

    As
      security for the obligations of this Agreement, Lender has agreed to
      accept:

    

    (a)
       A
      first
      priority security interest in the Property owned by Borrower consisting of
      all
      equipment, inventory, furniture and fixtures, together with all substitutions,
      replacements, or accessions thereto and all proceeds and accessions of the
      above-described collateral (“Borrower’s collateral”); and 

    

    (b)
       A
      first
      priority security interest in tangible and intangible 

    personal
      property owned by Accommodation Party, including equipment, inventory,
      furniture, fixtures and intellectual property, together with all substitutions,
      replacements, developments or accessions thereto and all proceeds, and
      accessions of the above-described collateral (“Accommodation Party’s
      collateral”); and

    

    (c)
      A
      first priority security interest in tangible and intangible personal property
      of
      any subsidiary of Accommodation Party other than the Borrower

    .

    

    

    3. Borrower’s
      Loan Documents.
      

    

    Concurrently
      with this Agreement, Borrower shall deliver to Lender the following documents
      collectively referred to as the “Borrower’s Loan Documents”:

    

    (a)
       Promissory
      Note in the principal amount of $1,000,000.00, payable in monthly installments
      of interest accruing at the rate of 10 percent per annum, by wire transfer
      on
      the first banking day of each month beginning in February 2006 and for eleven
      consecutive months thereafter, with the principal due on the first banking
      day
      of February 2007 (“Borrower’s Promissory Note”);

     

    (b) Security
      Agreement, granting Lender a first priority security interest in the Borrower’s
      collateral;

    

     (c)
      UCC-1 Financing Statement
      for the Commonwealth of Pennsylvania, to be filed or recorded by Lender in
      accordance with state law for the purpose of perfecting Lender’s security
      interest in the Borrower’s collateral.

    

    
      	4.  	
              Accommodation
                Party’s Loan Documents and Issuance of
                Warrants.

            

    

    

    Concurrently
      with this Agreement, Accommodation Party shall deliver to Lender the following
      documents collectively referred to as “Accommodation Party’s Loan
      Documents”:

    

    (a)
       Security
      Agreement, granting Lender a first priority security agreement on Accommodation
      Party’s collateral; 

    

    (b)
      UCC-1
      Financing Statement for the State of New York, to be filed or recorded by Lender
      in accordance with state law for the purpose of perfecting Lender’s security
      interest in Accommodation Party’s collateral; 

    

    (c)
      Documents necessary for Lender to file or record in the Province of Ontario,
      Canada to perfect his security interest against Accommodation Party’s collateral
      located in Ontario, Canada; 

    

    (d)
      Common Stock Purchase Warrant in favor of Lender, for the issuance of 50,000
      shares of common stock of Accommodation Party to be exercised at the rate of
      $6.00 per share for a period of 36 months from the date of execution of this
      Agreement; and 

    

    (e)
      Such
      additional Common Stock Purchase Warrants in favor of Lender, each of the
      issuance of 50,000 shares of common stock of Accommodation Party to be exercised
      at the rate of $6.00 per share for a period of 36 months from the date of
      issuance, as are necessary to satisfy Accommodation Party’s obligation under ¶
1(b) of this Agreement.

    

    
      	5.  	
              Covenants
                of Borrower

            

    

    

    As
      a
      material inducement to Lender’s entering into this Agreement, Borrower
      represents and warrants to Lender as of the date of execution of this Agreement
      and continuing thereafter that:

    

    (a)
      Borrower is authorized to execute, deliver and perform its obligations under
      this Agreement and the Borrower’s Loan Documents, and such obligations shall be
      valid and binding obligations of Borrower;

    

    (b)
      Borrower’s execution, delivery, and performance under this Agreement and the
      Borrower’s Loan Documents, to the best of Borrower’s knowledge, does not: (i)
      require any consent or approval not otherwise obtained under any partnership
      agreement, operating agreement, articles of incorporation, bylaws or other
      document; (ii) violate any statute, law, regulation or ordinance or any order
      or
      ruling of any court or governmental entity; (iii) conflict with, or constitute
      a
      breach or default or permit the acceleration of obligations under any agreement,
      contract, lease, or other document by which Borrower is bound or regulated;
      or
      (iv) violate any material statute, law, regulation or ordinance, or any order
      of
      any court or governmental entity.

    

    (c)
      Borrower shall comply in all material respects with all applicable laws,
      statutes and governmental regulations and all applicable orders, rules, rulings,
      certificates, licenses, regulations and decrees (collectively, “Laws”) and shall
      pay all taxes, assessments, governmental charges, claims for labor, supplies,
      rent and any other obligations which, if unpaid, might become a lien, charge
      or
      encumbrance against the Property, except Laws contested in good faith and
      liabilities being contested in good faith. 

    

    (d)
      Borrower shall do or cause to be done all things necessary to preserve and
      keep
      in full force and effect its corporate existence; provided, however, that
      Borrower shall not be required to preserve any such existence if (i) the Board
      of Directors of the Borrower shall determine that the preservation thereof
      is no
      longer desirable in the conduct of the business of the Borrower; and (ii) the
      loss thereof is not disadvantageous in any material respect to the Lender.
      

    

    
      	6.  	
              Covenants
                of Accommodation Party

            

    

    

    As
      a
      material inducement to Lender’s entering into this Agreement, Accommodation
      Party represents and warrants to Lender as of the date of execution of this
      Agreement and continuing thereafter that:

    

    (a)
      Accommodation Party is authorized to execute, deliver and perform its
      obligations under this Agreement and the Accommodation Party’s Loan Documents,
      and such obligations shall be valid and binding obligations of Accommodation
      Party.

    

    (b)
      Accommodation Party’s execution, delivery, and performance under this Agreement
      and the Accommodation Party’s Loan Documents, to the best of Accommodation
      Party’s knowledge, does not: (i) require any consent or approval not otherwise
      obtained under any partnership agreement, operating agreement, articles of
      incorporation, bylaws or other document; (ii) violate any statute, law,
      regulation or ordinance or any order or ruling of any court or governmental
      entity; (iii) conflict with, or constitute a breach or default or permit the
      acceleration of obligations under any agreement, contract, lease, or other
      document by which Accommodation Party is bound or regulated; or (iv) violate
      any
      material statute, law, regulation or ordinance, or any order of any court or
      governmental entity.

    

    (c)
      Accommodation Party shall do or cause to be done all things necessary to
      preserve and keep in full force and effect its corporate existence; provided,
      however, that Accommodation Party shall not be required to preserve any such
      existence if (i) the Board of Directors of Accommodation Party shall determine
      that the preservation thereof is no longer desirable in the conduct of the
      business of the Accommodation Party; and (ii) the loss thereof is not
      disadvantageous in any material respect to the Lender. 

    

    (d)
      Neither Accommodation Party nor any of its subsidiaries shall enter into a
      transaction between Accommodation Party and any of its subsidiaries and a
      director or officer of Accommodation Party, or any shareholder of Accommodation
      Party who holds five percent or more of the issued and outstanding shares of
      the
      Accommodation Party’s common stock unless the Board of Directors in good faith
      determines that the terms of such transaction are fair to the Accommodation
      Party or such subsidiary.

    

    (e)
      Accommodation Party shall indemnify and hold Lender harmless for any damages,
      costs and legal fees incurred in any legal, equitable or other proceeding
      brought by a third party against Lender in connection with entering into this
      Agreement, the Borrower’s Loan Documents or the Accommodation Party’s Loan
      Documents. 

    

    
      	7.  	
              Events
                of Default.

            

    

    

    The
      term
“Event of Default” means any one of the following events:

    

    (a)
      Borrower’s failure to pay when due any sums payable under the Promissory Note on
      or prior to the day it becomes due that remains uncured after 30 days receipt
      of
      written notice;

    

    (b)
      Borrower’s material breach of any other covenant contained in the Promissory
      Note that remains uncured after 30 days receipt of written notice; 

    

    (c)
      Borrower’s material breach of any covenant made in this Agreement that remains
      uncured after 30 days receipt of written notice;

    

    (d)
      Borrower’s material breach of any covenant made in its Security Agreement that
      remains uncured after 30 days receipt of written notice; 

    

    (e)
      Accommodation Party’s material breach of any covenant contained in this
      Agreement that remains uncured for 30 days;

    

    (f)
      Accommodation Party’s material breach of any covenant contained in its Security
      Agreement that remains uncured for 30 days.

    

    8.
       Remedies
      

    

    In
      the
      Event of a Default, Lender shall provide written notice to Borrower and
      Accommodation Party. If Borrower or Accommodation Party fails to cure any Event
      of Default within the time period set forth in paragraph 7, Lender may
      immediately exercise its rights and remedies under state law pursuant to
      Borrower’s Loan Documents and pursuant to Accommodation Party’s Loan Documents,
      including the right to execute his security interest in any of the property
      that
      secures the Loan. 

    

    9. Miscellaneous

    

    (a)
      All
      notices under this Agreement, the Borrower’s Loan Documents and the
      Accommodation Party’s Loan Documents shall be in writing and shall be delivered
      to the appropriate party at the address set forth below (subject to change
      from
      time to time by written notice to all other parties to this Agreement). All
      communications shall be deemed served upon delivery of, or if mailed, upon
      the
      first to occur of receipt or the expiration of three (3) days after the deposit
      in the 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
      Lender:   Robert
      Averill

    377
      Cupsaw Drive

    Ringwood,
      New Jersey 07456

    Facsimile:
      973-962-6138

    Email:
      averillbob@yahoo.com

    

    To
      Borrower:   William
      E. Kelleher, Jr.

    Cohen
      & Grigsby, P.C.

    11
      Stanwix Street, 15th Floor

    Pittsburgh,
      Pennsylvania 15222-1319

    Telephone:
      412-297-4703

    Direct
      Facsimile: 412-209-1997

    Email:
      Wkelleher@cohenlaw.com
      and
tomg@gelevator.com

    

    To
      Accommodation Party: 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
      is
      of the essence of this Agreement. 

    

    (c)
      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
      Agreement shall not constitute a waiver of any other remedy provided by
      law.

    

    (d) The
      unenforceability, invalidity, or illegality of any provision of this Agreement
      shall not render any other provision unenforceable, invalid, or
      illegal.

    

    (e) This
      Agreement shall be governed by and interpreted under the laws of the
      Commonwealth of Pennsylvania in force from time to time. 

    

    (f) As
      used
      in this 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) This
      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) The
      captions in this Agreement shall have no effect on its interpretation.

    

    (i)
      In
      the event of any dispute regarding this Agreement, Borrower agrees to pay
      Lender’s attorneys’ fees and costs actually incurred.

    

    (j)
      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.

    

    BORROWER

    

    AXION
      POWER PRODUCTS, INC., a Pennsylvania corporation

    

    

    

    By_________________________________

      ,
      President

    

    

    LENDER

    

    ROBERT
      AVERILL

    

    

    By__________________________________

     

    ACCOMMODATION
      PARTY

    

    AXION
      POWER INTERNATIONAL, INC., a Delaware corporation

    

    

    By_________________________________

      ,
      PreEX-10.17

    SECURITY
      AGREEMENT

    

    

    This
      Security Agreement is executed by Axion Battery Products, Inc., a Pennsylvania
      corporation and wholly owned subsidiary of Axion Power International, Inc.,
      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 Pennsylvania
      Uniform Commercial Code as in effect in Pennsylvania, 13 PA CONS. STAT. ANN.
§
1101, et seq.
      (the
      "UCC")

    

    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
      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
      equipment, inventory, furniture and fixtures of the Debtor, together with all
      substitutions or replacements thereto.

    

    2.   All
      proceeds and accessions of the above-described collateral.

     

     

    IV

    

    PURCHASE
      MONEY

    

    Debtor
      acknowledges that a portion of the proceeds of the obligations secured hereby
      have been used to enable Debtor to acquire rights in, or the use of, the
      collateral presently owned by Debtor. 

    

    V

    

    CLASSIFICATION
      OF COLLATERAL

    

    Debtor
      acknowledges that at the time the security interest attaches, the collateral
      consists of equipment, inventory and other personal 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 Commonwealth
      of
      Pennsylvania, that it is in good standing under the laws of the Commonwealth
      of
      Pennsylvania, and that 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 VII
      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 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
      warrants that the collateral subject to this Agreement is presently located
      at
      3601 Wilmington Road, New Castle, Pennsylvania 16105, 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 to pay or perform under the Promissory
      Note executed 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
      is to have thirty (30) days in which to cure a default after the receipt 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
      default by Debtor that remains uncured within the time limits set forth in
      section VIII by Debtor, Secured Party may exercise the rights of enforcement
      contained in the UCC 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 regular and certified mail, return receipt requested,
      at least ten (10) days prior to the date of the public sale or 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 addressed 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
      the
      Secured Party:  Robert
      Averill

    377
      Cupsaw Drive

    Ringwood,
      New Jersey 07456

    Facsimile:973-962-6138

    Email:
      averillbob@yahoo.com 

    

    To
      the
      Debtor:  William
      E. Kelleher, Jr.

    Cohen
      & Grigsby, P.C.

    11
      Stanwix Street, 15th Floor

    Pittsburgh,
      Pennsylvania 15222-1319

    Telephone:
      412-297-4703

    Direct
      Facsimile: 412-209-1997

    Email:
      :
Wkelleher@cohenlaw.com
      and
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
      Commonwealth of Pennsylvania 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
      BATTERY PRODUCTS, INC., a Pennsylvania corporation

    

    

    By_________________________________

      ,
      President

    

    SECURED
      PARTY

    

    ROBERT
      AVERILL

    

    

    By__________________________________

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