Document:

Settlement Agreement

 Exhibit 10.1 
  
 SETTLEMENT AGREEMENT 
  
 This Settlement Agreement (“Agreement”), which is subject to the Bankruptcy Court approvals hereinafter set forth, is made this
         day of December, 2005, by and between: (a) Mega-C Power Corporation, a Nevada corporation (“Mega-C” or “Debtor”) by William M. Noall (“Noall”), the duly
appointed and acting Chapter 11 Trustee (“Trustee”); (b) Mega-C’s subsidiary, Mega-C Corporation, an Ontario corporation (“Mega-C Ontario”); (c) Axion Power International Inc., a Delaware corporation, fka Tamboril
Cigar Company (“Axion”); (d) Axion’s wholly owned subsidiary, Axion Power Corporation, a Canadian federal corporation (“Axion Ontario”); (e) Axion’s wholly owned subsidiary, C and T Co. Inc., an Ontario
corporation (“C & T”); (f) Robert Averill, Joe Piccirilli, The Canadian Consultants Bureau Inc., James Smith, James Eagan, Tom Granville (“Granville”), Joe Souccar, HAP Investments, LLC, Paul Bancroft (collectively,
the “Lenders”) Glenn Patterson, Igor Filipenko, Ron Bibace and Kirk Tierney (collectively, except for Paul Bancroft and HAP Investments, LLC, “Founders”), and Infinity Group, LLC, James Keim and Turitella Corporation
(collectively with the Founders, the “Investors”); (g) the trust created by the Trust Agreement For the Benefit of Shareholders of Mega-C Power Corporation (“Shareholders Trust”); (h) Sally Fonner (“Fonner”)
in both her capacity as Debtor’s sole officer and director as of the Petition Date (as defined below) and as trustee of the Shareholders Trust; and (i) Yuri Volkovich and Pavel Shmatko (the “Scientists”); and (j) Albert
Shtemberg, Edward Shtemberg, C&T Co., Inc. in Trust, Oksana Fylypenko, Andriy Malitskiy, Valeri Shtemberg, Yuri Shtemberg, Victor Eshkenazi, Miraslav E. Royz, and Rimma Shtemberg (collectively, with the Scientists, the “C&T
Scientists”). Axion, Axion Ontario, C & T, Founders, Lenders, Investors, C&T Scientists, Shareholders Trust and Fonner are collectively defined as the “Counterparties.” The Counterparties, Mega-C, Mega-C Ontario, and the
Trustee together are collectively defined as the “Parties.” 
  
 RECITALS 
  
 The Shareholders Trust

  
 Effective as of December 31, 2003, Axion, as
grantor, created an irrevocable trust, the Shareholders Trust, by that certain document entitled Trust Agreement For the Benefit of Shareholders of Mega-C Power Corporation (the “Trust Agreement”) for the benefit of Mega-C creditors
and equity security interest holders, pursuant to which Benjamin Rubin was appointed the trustee. The corpus of the Shareholders Trust was 117,239,736 shares of Axion common stock (which as a result of a reverse stock split was reduced to 7,327,500
shares of Axion common stock (the “Initial Axion Stock”)). Pursuant to a Succession Agreement Pursuant to the Provisions of the Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation, Benjamin Rubin resigned
as the trustee and Fonner was appointed the Successor Trustee effective March 26, 2004. As of February 26, 2005, Fonner and Axion entered into the First Amended and Restated Trust Agreement for the Benefit of the Shareholders of Mega-C
Power Corporation (“First Amended Trust Agreement”), which, among other things, increased the shares of Axion common stock held by the Shareholders Trust to 7,827,500 (together with the Initial Axion Stock, the “Axion
Stock”). 
  

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 The Technology and the Canadian Litigation 
  
 C & T was the owner of a lead-acid-carbon energy storage device and for
which C&T was ultimately granted U.S. Patent No. 6,706,079 (method of formation and charge of the negative polarizable carbon electrode in an electric double layer capacitor); U.S. Patent No. 6,628,504 (electric double layer
capacitor); and U.S. Patent No. 6,466,429 (electric double layer capacitor), referred to herein as the “Supercell Technology” or the “Technology”. The Scientists invented the Technology. Pursuant to a Joint Venture Agreement
dated December 23, 1999, C&T and Chip Taylor In Trust agreed to license a limited class of stationary applications of the Technology to a corporation that they organized to hold the license. C&T and Chip Taylor In Trust formed Mega C
Technologies, Inc. for this purpose. 
  
 By letter agreement dated
September 11, 2001, Mega C Tech granted the Debtor an exclusive license to commercialize Mega C Tech’s license, in consideration of payments and contributions to Mega C Tech. 
  
 On April 2, 2002, C&T, Mega C Tech and the Debtor entered into an Agreement of Association, wherein C&T granted
the Debtor a license to the Technology for stationary applications subject to certain royalties. In a letter dated June 9, 2003, the Debtor asserted a declaration of default by Mega C Tech and demanded arbitration. In a letter dated
June 10, 2003, Mega C Tech asserted an intent to terminate the Agreement of Association with the Debtor. In a letter dated June 24, 2003, C&T asserted a notice of termination of the Joint Venture Agreement to Chip Taylor in Trust and
Mega C Tech. The affects of these various notices of default are a matter of dispute. 
  
 On July 30, 2003, an action styled Jared Taylor v. Mega-C Power Corporation, a Nevada corporation, Mega-C Power Corporation, an Ontario corporation, Rene Pardo, Gary Usling, Jim Estill, Nelson Thall, Brian
Hewat, Joe Piccirilli, Ronald Bibace, Kirk Tierney, and Marvin Winick, was filed in the Ontario Superior Court of Justice as court file no. 03-CV-253159 (referred to herein as “Jared Taylor v. Mega-C Litigation”). 
  
 On September 11, 2003, an action styled Chip Taylor, In Trust v.
Mega-C Power Corporation (a Nevada corporation) and C&T Co. Incorporated, was filed in the Ontario Superior Court of Justice as court file no. 03-CV-255175 (referred to herein as “Chip Taylor v. Mega-C Litigation”). 
  
 On February 10, 2004, Lewis (Chip) Taylor, Chip Taylor, In Trust, Jared
Taylor, Elgin Investments, Inc., and Mega C Technologies, Inc. commenced an action in Ontario Superior Court of Justice as court file no. 04-CL-5317 against the Debtor, Axion, Axion Ontario and others (referred to herein as “Taylor v. Tamboril
Litigation” and, collectively with the Jared Taylor v. Mega-C Litigation and Chip Taylor v. Mega-C Litigation, the “Canadian Litigation”). 
  

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 Axion’s Acquisition of the Technology 
  
 On February 18, 2003, the Ontario Securities Commission sent the Debtor
a letter of inquiry regarding the promotion and distribution of Mega C securities. 
  
 In the summer of 2003, the Lenders loaned the Debtor $390,000.00 in emergency funding and sought to determine if the Debtor’s affairs could be restructured. Thereafter, the Founders formed Axion Ontario, which
entered into a Development and License Agreement with C&T dated November 15, 2003. On December 31, 2003, Axion entered into a Reorganization Agreement with Axion Ontario, whereby Axion acquired the majority of outstanding securities in
Axion Ontario in a reverse-takeover. On January 9, 2004, C&T, Axion Ontario and Axion entered into a First Amendment to License and Development Agreement, which provided that Axion purchase all of C&T’s right, title and interest in
the Technology. 
  
 The Chapter 11 Reorganization Proceeding

  
 On April 6, 2004 (“Petition Date”),
Axion Ontario, Axion and Granville filed an involuntary petition for relief under Chapter 11, Title 11 of the United States Code (“Code”) against Mega-C with the United States Bankruptcy Court for the District of Nevada
(“Court”), styled In re: Mega-C Power Corporation, Case Number BK-N-04-50962-GWZ (the “Case,” and the estate in such Case, the “Estate”). 
  
 On April 9, 2004, Mega-C, by and through its sole officer, Fonner, and with the consent of its then directors,
consented to the entry of an order for relief in the Case. 
  
 Thereafter, on May 13, 2004, the Court entered an order granting Mega-C relief under Chapter 11 of the Code. 
  
 On June 1, 2004, Mega-C commenced an adversary proceeding, being Adversary No. 04-5144-GWZ, styled Mega-C Power Corporation, aka Net Capital
Ventures, Inc., v. Lewis “Chip” Taylor, et al. (the “Taylor Group Adversary”), which proceeding is pending before the Court. 
  
 On Schedule F of its schedules and statements filed on June 10, 2004 (“Schedule F”), the Debtor listed undisputed claims of the Lenders as
follows: Robert Averill, $50,000.00; Paul Bancroft, $15,000.00; Seymour Berger, $50,000.00 (whose claim is properly in the name of Canadian Consultants Bureau); James Eagan, $50,000.00; Tom Granville, $50,000.00; HAP Investments, $50,000.00; Joe
Piccirilli, $50,000.00; James Smith, $50,000.00; and Joe Souccar $25,000.00 (collectively, the “Lenders Scheduled Claims”). Between July, 2004, and December 21, 2004, the Founders, HAP Investments and Paul Bancroft filed the following
proofs of claim and proofs of interest, which are listed by the official claim number assigned by the Court: (1) Claim No. 428, filed by Robert Averill, in the amount of $1,050,000.00; (2) Claim No. 501, filed by Joseph
Piccirilli, in the amount of $415,000.20; (3) Claim Nos. 65 and 131 filed by The Canadian Consultants Bureau Inc., in the amounts of $27,000.00 and $50,000.00; (4) Claim No. 456, filed by James Smith, in the amount of $525,000.00;
(5) Claim No. 193, filed by James Eagan, in the amount of $350,000.00; (6) Claim Nos. 808 and 810, filed by Thomas Granville, in unspecified amount; (7) Claim No. 284, 285 and 297 filed by Joe Souccar, in the amount of
$25,000.00; $50,000.00 and $20,000.00; (8) Claim No. 389, filed by HAP Investments, LLC, in 

  

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the amount of $50,000.00; (9) Claim No. 430, filed by Glenn Patterson, in the amount of $550,000.00; (10) Claim No. 327, filed by Igor
Filipenko, in the amount of $239,428.00; and (11) Claim No. 61 in the amount of $15,000.00, Claim No. 62 in the amount of $150,000.00, and Claim No. 64 in the amount of $1.00 filed by Paul Bancroft; and (12) Claim
No. 48, filed by Ronald Bibace, in the amount of $227,500.00 (together, the “Founders Proofs of Claim/Interest”). While the Trustee has made an initial determination that these are allowable claims, a final determination has not been
made in this regard and the Trustee reserves all rights to object to the allowance of the Founders Proofs of Claim/Interest. 
  
 On December 20, 2004, Axion Ontario filed a Proof of Claim in the Case, Claim No. 816, asserting an unsecured claim in the amount of $5,175.35.
On the same day, Axion also filed a Proof of Claim in the Case, Claim No. 817, asserting an unsecured claim in the amount of $385,784.00. Axion and Axion Ontario have subsequently asserted unsecured, pre-petition claims in an amount greater
than Claim Nos. 816 and 817, although no amended proofs of claims have yet been filed by either Axion or Axion Ontario which Axion or Axion Ontario contend were not required by virtue of claims of Axion Ontario in the amount of $903,319.00 being
listed as undisputed on Schedule F. Axion and/or Axion Ontario also contend that they have certain administrative claims for monies loaned to the Debtor post-petition in accordance with the ordinary course of business and dealings between the
parties in the amount of approximately $464,000.00, including $100,000 contributed to the Estate after the Trustee was appointed for administrative expenses (“Axion/Axion Ontario Administrative Claim” and collectively with the scheduled
claims of Axion Ontario, Axion and Claims 816 and 817, the “Axion/Axion Ontario Proofs of Claim”). The Trustee does not agree with and reserves all rights to object to the Axion/Axion Ontario Proofs of Claim and does not stipulate or agree
that any such claims are allowable. With specific regard to the $100,000 referenced above, the Trustee objects to any assertion that this was an administrative loan or contribution to be repaid by the Estate. Axion and Axion Ontario are not
asserting that they have filed or have the right to file proofs of interest in the Estate. 
  
 Prior to December 21, 2004, the bar date to file proofs of claim or proofs of interest, C&T, and the C&T Scientists filed certain proofs of claim and/or proofs of interest in the Case, including, but not
limited to, C&T and C&T’s Scientists’ proofs of interest for 950,000.00 Mega-C common shares, which are enumerated in Schedule A attached hereto. (“C&T/Scientists Proofs of Claim/Interest”). 
  
 Mega-C continued to manage its property as debtor-in-possession pursuant to
Sections 1107(a) and 1108 of the Bankruptcy Code until March 2, 2005, at which time, the Court entered its Order Approving U.S. Trustee’s Appointment of Chapter 11 Trustee, wherein Noall was appointed as the Chapter 11 trustee for
Mega-C pursuant to Section 1104(a) of the Code. 
  
 On
April 14, 2005, in accordance with Section 1106(a)(4)(A) of the Code, the Trustee filed his Preliminary Report of William M. Noall, Chapter 11 Trustee (“First Report”), in which the Trustee, based on his preliminary
investigation, requested that the Court deny Mega-C’s request that 500,000 shares of Axion’s stock be transferred to the Shareholders Trust to fund Mega-C and deny the Unaffiliated Shareholders’ Motion for Order Enforcing Automatic
Stay or, in the Alternative, for a Ruling that the Stay does not Prevent an Application in Ontario to Remove the Trustee of the Axion Trust. Additionally, the First Report generally set forth the 

  

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Trustee’s investigatory efforts, his initial observations regarding the Technology, Axion’s ability to exploit the Technology, and his conclusion
that the corpus of the stock held in the Shareholders Trust is property of the Estate, which must be recovered either by negotiation or through the commencement of an adversary proceeding. 
  
 On July 15, 2005, again in accordance with Section 1106(a)(4)(A) of
the Code, the Trustee filed his Chapter 11 Trustee’s First Interim Status Report Pursuant to 11 U.S.C. § 1106(a)(4) (“Second Report”) wherein the Trustee reported to the Court that he believed causes of action existed in
favor of the Debtor and the Estate against Axion, Axion Ontario, C&T, Lenders and the Founders and further reported his intention to seek the disallowance in whole or in part of the Axion/Axion Ontario Proofs of Claim, the Lenders Scheduled
Claims and the Founders Proofs of Claim/Interest (collectively, the “Alleged Claims Against Axion”), as well as discussed the status of the pending Trust Adversary, defined herein, and the Taylor Group Adversary. The Trustee has not
announced any intentions with regard to the C&T/Scientists Proofs of Claim/Interest. 
  
 On December 5, 2005, again in accordance with Section 1106(a)(4)(A) of the Code, the Trustee filed his Chapter 11 Trustee’s Third Interim Status Report Pursuant to 11 U.S.C. § 1106(a)(4)
(“Third Report”) wherein the Trustee reported to the Court that the Ontario Securities Commission had commenced an enforcement proceeding against certain parties in interest in the Case including the Debtor, Rene Pardo, Gary Usling, Lewis
Taylor, Sr., Lewis Taylor, Jr., Jared Taylor, Colin Taylor and 1248136 Ontario Limited (“OSC Action”). 
  
 The Post-Petition Adversary Proceedings Involving Mega-C,  
 Noall as
Trustee, Fonner, Axion, and Axion Ontario 
  
 1. Trust
Adversary. On June 7, 2005, the Trustee commenced an adversary proceeding against Fonner being Adversary No. 05-05042-GWZ, entitled William M. Noall, as Chapter 11 Trustee of Mega-C Power Corporation v. Sally Fonner, Trustee of
Trust For the Benefit of the Shareholders of Mega-C Power Corporation (“Trust Adversary”) seeking to recover 7,327,500 shares of Axion common stock (as previously defined, the “Initial Axion Stock”) in the Shareholders Trust
as property of the Estate pursuant to Section 541 of the Code, among other things. The Trust Adversary is pending hearing of the Trustee’s request for a permanent injunction. 
  
 On June 10, 2005, the Court entered a Modified Order for Temporary Restraining Order (“TRO”)
restraining Fonner or any person acting on her behalf or on the behalf of the owners or holders of the Initial Axion Stock, from participating in any vote or taking any action or failing to act at the shareholder meeting scheduled on June 10,
2005, or any subsequent shareholder meeting of Axion that negatively affects the ownership of the Initial Axion Stock or the percentage of ownership of the Initial Axion Stock, which TRO has been continued from time to time by stipulation of the
parties and order of the Court. 
  
 On August 5, 2005, the
Trustee filed his Plaintiff’s Motion for Summary Judgment (“Summary Judgment Motion”). Fonner filed her Opposition to Plaintiff’s Motion for Summary Judgment on September 12, 2005. The matter has been stayed by
agreement of the parties thereto pending approval of this Agreement. 
  

 5 

 On August 12, 2005, Axion filed a Motion to Intervene (“Motion To Intervene”),
which was denied without prejudice by the Bankruptcy Court with the entry of an Order Re Motion To Intervene entered on September 12, 2005. On September 12, 2005, Axion filed its Motion for Reconsideration of Order Denying
Motion to Intervene (“Motion for Reconsideration”) in Adversary No. 05-5042-GWZ, seeking reconsideration of the Court’s Order Re Motion to Intervene. The Motion for Reconsideration is pending argument and submission to the
Court. 
  
 2. Axion Adversary. On July 27, 2005, Axion
and Axion Ontario commenced an adversary proceeding against Noall, in his capacity as Trustee, and Fonner, in her capacity as trustee of the Shareholders Trust, entitled Axion Power International, Inc., et al. v. Noall, et al., Adversary
No. 05-05082-GWZ, before the Court (“Axion Adversary”), initially seeking a declaratory judgment providing that: (1) Mega-C’s license to commercialize the Technology was terminated in June of 2003 and that Mega-C does not
have any interest in the Technology as property of the Estate; (2) Axion and Axion Ontario “did not receive any interest of Mega-C in property wherein the transfer was made, voluntarily or involuntarily, with Mega-C’s actual intent to
hinder, delay or defraud any entity;” (3) Axion and Axion Ontario did not receive any of Mega-C’s interest in property for less than reasonably equivalent value; and (4) if the Court determines that Mega-C had any interest in the
Technology that legal interest will preclude the existence of a separate equitable interest in the Technology and Axion can terminate the Shareholders Trust and revest the trust corpus in Axion. 
  
 Before the entry of the Court’s order denying Axion’s Motion to
Intervene in the Trust Adversary, on September 9, 2005, Axion and Axion Ontario filed a First Amended Complaint for Declaratory Judgment, alleging five additional claims for relief that: (1) the corpus of the Shareholders Trust
is not property of the Estate and that neither legal nor equitable grounds exist for setting aside the Shareholders Trust; (2) if the Court sets aside the Shareholders Trust or enters any order requiring the corpus of the Shareholders Trust to
be held other than by the trustee of the Shareholders Trust in accordance with its terms, a resulting trust arises for the benefit of Axion as the settlor of the Shareholders Trust; (3) if the Court sets aside the Shareholders Trust or enters
any order requiring the corpus of the Shareholders Trust to be held other than by the trustee of the Shareholders Trust in accordance with its terms, then Fonner holds the assets of the Shareholders Trust for the benefit of Axion and that the Court
should enter an order compelling her to release those assets to Axion as the settlor of the Shareholders Trust; (4) neither Axion nor Axion Ontario received any interest of Mega-C in property that is subject to avoidance pursuant to 11 U.S.C.
§ 547(b); and (5) neither Axion nor Axion Ontario has committed any act in violation of the automatic stay in bankruptcy. 
  
 On September 12, 2005, Axion and Axion Ontario filed their Motion to Consolidate (“Motion to Consolidate,” and, together with the
Motion for Reconsideration, the “Axion Motions”) in Adversary No. 05-5082-GWZ, seeking to consolidate the Trust Adversary with the Axion Adversary. The Motion to Consolidate is pending argument and submission to the Court. 

 
 The Settlement Negotiations 
  
 Axion and Axion Ontario believe and have represented to the Trustee that the
Technology is a promising innovation that has significant potential value that can only be fully realized if the Technology is ultimately developed into one or more commercial products. 
  

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 The Trustee’s assertion of the Debtor’s claimed license of certain rights to the Technology, on
the one hand, and Axion and Axion Ontario’s purchase of and rights in and to the Technology, including the underlying patents and other related intellectual property, on the other hand, have given rise to sharply contested issues, claims and
defenses between the Estate, Axion, Axion Ontario and others (“Technology Disputes”). 
  
 The Trustee also asserts that the assets of the Shareholders Trust are property of the Estate and that Fonner is in breach of her fiduciary duty to the
Estate by resisting the demand of the Trustee to turnover the assets of the Shareholders Trust to the Estate. Fonner and the Shareholders Trust contend that the Estate has no viable claim to the assets of the Shareholders Trust and Fonner is not in
breach of her fiduciary duty to the Debtor, Estate or Shareholders Trust. Accordingly, there are sharply contested issues between the Trustee on the one hand, and Fonner and the Shareholders Trust on the other hand. 
  
 The Parties desire to and, subject to Court approval, have agreed to settle
all matters and controversies between them, including without limitation those that are the subject matter of the Trust Adversary, the Axion Adversary, the Axion Disputes, the Technology Disputes, the Alleged Claims Against Axion, and the
Estate’s rights or claims against the Counterparties in the Canadian Litigation, and the Parties have agreed, subject to Court approval, to resolve certain contemplated issues and controversies relating to the Axion/Axion Ontario Proofs of
Claim, C&T/Scientists Proofs of Claim/Interest, the Founders Proofs of Claim/Interest and the Lenders Scheduled Claims (collectively, the “Disputes”), on the terms and conditions set forth herein. 
  
 The Trustee, with the advice of his professionals, has considered the
practical, legal, financial, tax, competitive and temporal opportunities of and limitations on Mega-C and the Estate and its interests, and is cognizant of the risks to the Estate from the various conflicting claims, and has determined that, under
the terms set forth herein, and as first concluded in the First Report, (a) Axion is best situated to continue to raise capital, research and develop the Technology and ultimately bring the results to market if its efforts are successful and
(b) it is in the best interests of the Estate to: (i) enhance Axion’s ability to obtain capital by promptly resolving the Disputes; (ii) support Axion’s efforts to complete the development of the Technology and ultimately
bring any resulting products to market in a systematic and timely manner; and (iii) obtain Axion shares from the Shareholders Trust to satisfy allowed claims and equity security interests. 
  
 The Parties have negotiated at arms length and have reached this Agreement in
good faith. 
  
 In view of these beliefs, realities,
determinations, and other considerations, the Parties have entered into this Agreement. The Trustee will seek to have this Agreement approved by an order of the Court (“9019 Order”) pursuant to Federal Rule of Bankruptcy Procedure 9019
(“9019 Motion”) and then together with Axion, Axion Ontario and the Founders as co-proponents, to file a plan of reorganization (“Plan”), accompanying disclosure statement (“Disclosure Statement”) and Plan supplements
consistent with this Agreement. The Rule 9019 compromise and settlement shall resolve all disputes between the Trustee, Mega-C and Mega-C Ontario, on the one hand, and the Counterparties, on the other hand, which, except for those specific
provisions referenced below, are subject to and will be effective on confirmation of the 

  

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Plan, which Plan shall be binding upon all parties in interest to the Estate, including holders of all claims and equity security interests. 
  
 NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 
  
 AGREEMENT 
  
 1. Allocation of Axion Stock in Shareholders Trust. 
  
 (a) Plan Funding Shares. On the effective date (“Effective Date”) of the Plan, 5,700,000 shares of the Axion Stock
(“Plan Funding Shares”) shall be allocated as follows: 
  
 (i) Sufficient shares of the Plan Funding Shares to pay in full allowed administrative expenses (including 326 fees), Effective Date cash conditions of the Plan, and allowed priority and unsecured claims of the Estate
as well as to fund any disputed claims reserve (less the amount liquidated pursuant to paragraph 4(a) below) shall be delivered to the Liquidation Trustee of the Liquidation Trust (both terms as defined below) as Section 541 property of the
Estate; and 
  
 (ii) Subject to paragraph 1(c)
below, the Second Amended Shareholders Trust (as defined below) shall retain the balance of the Plan Funding Shares for the benefit and satisfaction of allowed equity security interests of the Estate. As provided below, the costs and expenses of the
Liquidation Trust and the Second Amended Shareholders Trust will be expenses of the Estate and the Liquidation Trust to be paid from the liquidation of Plan Funding Shares. 
  
 (b) Delivery of Stock to Axion. Of the remaining 2,127,500 shares in the Second Amended shareholders
Trust, the Second Amended Shareholders Trust shall distribute the balance of the shares of the Axion Stock to Axion (“Axion Settlement Shares”) (less the amount that must be liquidated to fulfill the requirements of paragraph 4(b) below)
on the Effective Date. Using its commercially reasonable best efforts, Axion will resolve the rights or claims of the Founders and Investors to those shares of Axion Stock, at the conclusion of which, Axion and the Founders and Investors agree to
cancel all shares not used to pay costs of the Shareholders Trust, but in any event no less than 1,500,000 shares. 
  
 (c) Tax Consequences. The Plan shall provide for the liquidation and distribution of the Axion Stock by the Liquidation Trust and
the Second Amended Shareholders Trust for the benefit of the creditors and equity security interest holders of the Estate 
  
 (d) Stock Registration. Upon the entry of the 9019 Order, Axion is obligated to register the Plan Funding Shares at Axion’s
sole cost and expense, if requested by the Trustee, or after the Effective Date, if requested by the Liquidation Trustee or SAT Trustee (defined below). “Axion has previously registered the Initial Axion Stock under the Securities Act of 1933
(SEC File No. 333 -115738) to facilitate the sale or distribution of those shares by the Shareholders Trust. As promptly as practicable after the date of this Settlement Agreement, 

  

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Axion shall, at its own cost and expense, take such measures as may be reasonably necessary to file a post-effective amendment to such registration statement
in order to facilitate and accommodate the sale or other disposition of 1,000,000 Plan Funding Shares and 627,500 Axion Settlement Shares. Thereafter Axion shall use its reasonable best efforts to obtain an order of effectiveness for the
post-effective amendment as promptly as practicable after the entry of the 9019 Order, and to maintain the effectiveness of the registration statement for such period of time as may be reasonably necessary under the circumstances. Axion shall also
be obligated to file such additional registration statements or post-effective amendments as may be necessary or desirable to facilitate or accommodate the sale or distribution of the 4,700,000 remaining Plan Funding Shares from time to time as
requested by the Shareholders Trust or the Liquidation Trustee or SAT Trustee. 
  
 2. Subordination and Withdrawal of Proofs of Claims and Proofs of Interests. On the Effective Date of the Plan: 
  
 (a) Subordination. Axion and Axion Ontario shall withdraw with prejudice all Axion/Axion Ontario Proofs of Claim, and the scheduled
claim of Axion Ontario, except that Claims 816 and 817 shall be allowed, in the total sum of $100.00 as non-priority, unsecured claims subordinated to all other creditors’ claims; and 
  
 (b) Withdrawal of Claims. C&T and the C&T
Scientists shall withdraw with prejudice all C&T/Scientists Proofs of Claim/Interest set forth in Schedule A attached hereto. 
  
 3. Stay and Dismissal of Litigations. In anticipation of the Plan process and to conserve Estate assets, the Parties agree as follows: 

 
 (a) Stay of Litigation. In anticipation of the
execution of this Agreement and pending the filing of the 9019 Motion and the entry of the 9019 Order, by stipulations and orders entered by the Court on October 25, 2005, the Parties agreed to take off calendar certain matters in the Case
(including the Application For Order Approving The Terms of the Revised Fee Agreement, Thereby Amending: (1) The Terms of Gordon & Silver, Ltd.’s Employment as Attorneys for the Trustee; and (2) the Terms of Mesirow
Financial Consulting, LLC’s Employment as Financial Advisors to the Trustee, in the Trust Adversary (including the Summary Judgment Motion and the Axion Motions) and the Axion Adversary, and the time that the Trustee and Fonner have to
answer or otherwise plead in the Axion Adversary has been extended for 45 days. The Trustee has additionally agreed not to pursue any or all of the causes of action referenced in the Second Report (“Stay”) during the same period of time;

  
 (b) Continuation of Stay. In the event
this Agreement is approved pursuant to the 9019 Order by the date set forth below, the Stay shall remain in place pending the entry of an order of confirmation of the Plan (“Confirmation Order”) and Effective Date of the Plan by the date
set forth below; 
  
 (c) Termination of
Stay. On the earliest to occur of the following: (1) the date the 9019 Motion is disapproved; (2) January 10, 2006, if the 9019 Order has not been entered by the Court; (3) January 17, 2006, if the Disclosure Statement
and Plan have not been filed with the Court; (4) March 31, 2006, if the order confirming the Plan (“Confirmation Order”) has not 

  

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been entered by the Court; and (5) April 14, 2006, if the Effective Date has not occurred, unless otherwise agreed by the Parties in writing, the
Stay shall be deemed immediately terminated and the Parties may proceed with all matters subject to the Stay, subject to reasonable re-calendaring of dates tolled by the Stay and the Court’s calendar. The Parties agree to cooperate with respect
to requesting and granting reasonable extensions of these benchmarks; 
  
 (d) Dismissal of Litigation. On the Effective Date, the Trust Adversary and Axion Adversary shall each be dismissed with prejudice and each party shall pay its own attorneys fees and costs except as otherwise
allocated in this Agreement. The Trustee and, upon the Effective Date, the Liquidation Trustee and the SAT Trustee shall use reasonable best efforts to obtain dismissal of the Canadian Litigation that states claims against the Debtor or the Estate
or that states claims that belong to the Debtor or the Estate, including derivative or other claims that are property of the Estate; and 
  
 (e) Continuation of TRO. The Parties agree that the TRO shall remain in place and until such time as the Trust Adversary is
dismissed or adjudicated or the Court dissolves the TRO, and from the date of this Agreement until the termination of the Stay as provided for above in this paragraph 3(c), the TRO prohibits Fonner from personally, by proxy, or otherwise
participating in the formation of a quorum or vote at any Axion shareholder meeting absent the consent of the Trustee or further order of the Court. 
  
 4. Terms of Agreement Effective Upon Entry of 9019 Order. Upon entry of the 9019 Order approving this Agreement: 
  
 (a) Liquidation of Axion Stock. Until the Effective
Date, Fonner, in consultation with the Trustee and Axion, shall commence liquidation of up to 1,000,000 shares of Plan Funding Shares held by the Shareholders Trust (which are part of the Plan Funding Shares referred to in paragraph 1(a)(i) above)
for purposes of immediately funding the fees and costs of administration (including interim professional fee awards approved by the Court) of the Estate and to fund the anticipated cash required to confirm the Plan, the Effective Date conditions of
the Plan and the balance of classified and unsecured claims. The Shareholders Trust is responsible for all of the indirect costs of such sales and for one half (1/2) of the first $150,000 of any direct costs (such as third-party brokerage fees
and commissions (if any)). The other one half (1/2) of the first $150,000 of direct costs will be paid from the proceeds of the liquidation of the 1,000,000 shares of Plan /funding Shares. Any direct costs above the first $150,000 will be
solely the responsibility of the Shareholders Trust. 
  
 (i) Sales Revenues. Fonner expects, but does not represent or warrant, that the sales of the 1,000,000 shares of Plan Funding Shares will generate not less than $3,000,000.00. 
  
 (ii) Accounting. Fonner shall provide an accounting
of the disposition of all sales of Plan Funding Shares until the Effective Date in a format satisfactory to the Trustee and Axion. This accounting shall include, but not necessarily be limited to, the date and number of shares sold, the gross
consideration paid in exchange of such shares and the nature thereof, whether such shares are being sold as part of another transaction, and the itemized fees and expenses associated with such sales. 
  

 10 

 (iii) Best Efforts. Fonner will use her commercially reasonable best efforts to
liquidate the shares referred to in this subparagraph on or prior to the anticipated Effective Date, with the overall objective being to maximize the proceeds from such sales for the benefit of the Estate and the remaining Parties shall cooperate in
this regard. 
  
 (iv) Escrow Account. The
net proceeds of all sales of Plan Funding Shares shall be placed in an account held jointly by Fonner as trustee of the Shareholders Trust and the Trustee at an institution approved by the Office of the United States Trustee and used to pay
professional fees and costs provided for by Sections 330 and 331 of the Code incurred through the Confirmation Hearing of the Plan and allowed by Court order, regardless of whether the Court order is entered prior to or after the Confirmation
Hearing (“Interim Awards”). 
  
 (v)
Property of the Estate. That portion of the 1,000,000 shares liquidated by Fonner to pay Interim Awards shall be deemed to be property of the Estate as of the entry of the 9019 Order and is not contingent upon or subject to entry of the
Confirmation Order. On the Effective Date of the Plan, the balance of any remaining funds in said account together with such additional portion of the 1,000,000 shares and remaining Plan Funding Shares as required to fund payment of all allowed
classified and unsecured claim and disputed claims reserves shall be delivered to the Liquidation Trustee as property of the Estate. 
  
 (b) Shareholders Trust Costs. Up to the Effective Date, Fonner may liquidate or dispose of up to 627,500 of the Axion Settlement
Shares held by the Shareholders Trust as are reasonably necessary to fund the fees and costs of the Shareholders Trust up to the Effective Date. These sales and payment of such fees and costs are not contingent upon or subject to entry of the
Confirmation Order. All costs and expenses of the Second Amended Shareholders Trust after the Effective Date will be borne and paid by the Liquidation Trust: 
  

(i) Accounting. Fonner shall provide an accounting of the disposition of all Axion Settlement Shares until the Effective Date in
a format satisfactory to Axion and the Trustee. This accounting shall include, but not necessarily be limited to, the date and number of shares sold, the gross consideration paid in exchange of such shares and the nature thereof, whether such shares
are being sold as part of another transaction, and the itemized fees and expenses associated with such sales; and 
  
 (ii) Non-Interference. Fonner will use her commercially reasonable best efforts to liquidate the Axion Settlement Shares until the
Effective Date referred to in this subparagraph in a manner that does not interfere with her obligations in paragraph 4(a) above. Accordingly, Fonner in estimating the number of Axion shares to be sold under paragraph 4(a) and (b), shall sell the
Plan Funding Shares and Axion Settlement Shares pro rata with a commensurate division of the net proceeds. 
  
 5. Plan Proponents. The Trustee, Axion, Axion Ontario and the Founders shall jointly prepare and propose the Plan and Disclosure Statement to be
filed in the Case after entry of the 9019 Order as more specifically set forth below. If the Founders, individually or as a 

  

 11 

 
group, elect not to be co-proponents, the remaining terms of this Agreement will remain in full force and effect, with the exception that the exculpatory
provision to be contained in the Plan will be limited to the Plan co-proponents. Amendments to the Plan in accordance with Section 1127 of the Code will be subject to the sole approval of the Trustee and Axion alone, and the co-proponents of
the Plan agree to use their commercially reasonable best efforts to obtain Plan confirmation. 
  
 6. Plan Provisions. In general, the co-proponents agree to file a Plan that contains, among other provisions, the following: 
  
 (a) Liquidation Trust. On the Effective Date, a liquidation trust (“Liquidation Trust”)
shall be formed as provided for in the Liquidation Trust Agreement (“Liquidation Trust Agreement”) to be attached to the Plan (the structure of which will be subject to modification to minimize tax consequences); 
  
 (b) Second Amended Shareholders Trust. On the
Effective Date, the Shareholders Trust shall be amended and restated as provided for in a Second Amended and Restated Trust Agreement For the Benefit of Shareholders of Mega-C Power Corporation (“Second Amended Trust Agreement”) to be
attached to the Plan (the structure of which will be subject to modification to minimize tax consequences); 
  
 (c) Selection of Liquidation Trustee. The Liquidation Trust trustee (“Liquidation Trustee”) shall be selected by the Plan
co-proponents prior to the commencement of the Disclosure Statement hearing to be confirmed by the Court at the Confirmation Hearing; 
  
 (d) Selection of SAT Trustee. The Second Amended Shareholders Trustee (“SAT Trustee”) shall be selected as soon as
practicable after the Effective Date by the five member governing board of the Second Amended Shareholders Trust. No later than ten (10) days prior to the Confirmation Hearing, equity security holders may nominate themselves or any other equity
security holder to serve on the governing board by notifying the co-proponents in writing. The co-proponents shall come to a consensus regarding the five individuals to be recommended to the Court to form the governing board and the Court shall at
so confirm the five individuals at the Confirmation Hearing. 
  
 (e) Liquidation Trustee and SAT Trustee Powers. Each of the Liquidation Trustee and SAT Trustee shall have the powers and rights as provided for in the Liquidation Trust Agreement and the Second Amended Trust
Agreement; 
  
 (f) Additional Powers. The
SAT Trustee and Liquidation Trustee shall: (i) proportionally have the right to vote the shares of Plan Funding Shares held by it, whether or not held in a disputed claim or equity security interests reserve, in an amount equal to the lesser of
the number of shares of Axion stock held by the each of the Liquidation Trustee and the SAT Trustee or number of shares of Axion stock held by the Founders and their spouses and dependents on the record date for determining the identity of
stockholders entitled to vote at any meeting of the stockholders; and (ii) have the right and power to request that Axion file such amendments to the registration statement for the Plan Funding Shares as may be necessary or desirable under the
circumstances. The Liquidation Trustee shall have the right, power and 

  

 12 

 
authority to pursue all litigation on behalf of either the Liquidation Trust or Second Amended Shareholders Trust. 
  
 (g) Distribution of Plan Funding Shares. On the
Effective Date the balance of the cash resulting from the liquidation of Plan Funding Shares as provided for in paragraph 4(a) above, together with such additional Plan Funding Shares as deemed necessary to pay in full all allowed administrative and
unclassified claims of the Estate, Effective Date cash conditions, allowed priority and unsecured claims and the disputed claims reserve shall be deemed property of the Estate and administered and distributed by the Liquidation Trust as provided for
in the Plan. The balance of the Plan Funding Shares shall be retained by the Second Amended Shareholder Trust to be distributed to allowed equity security interests as provided for in the Plan; 
  
 (h) Determination of Liquidation Trust Shares. In the
event the net liquidation proceeds of the shares of the Plan Funding Shares to be liquidated by Fonner prior to the Effective Date is inadequate to pay unclassified claims allowed prior to the Effective Date, unclassified claims (including 326 Fees)
not yet allowed, allowed priority and unsecured claims to be paid on the Distribution Date and any disputed claims reserve, the Liquidation Trustee may immediately commence the orderly liquidation of sufficient Plan Funding Shares to satisfy such
claims and reserves. Sufficient shares of Plan Funding Shares for this purpose shall be determined based upon the average closing bid price of Axion stock for the thirty (30) trading days immediately prior to the Effective Date; 
  
 (i) Pour-over. Any cash or Plan Funding Shares
delivered to the Liquidation Trustee which remains after payment in full of all allowed unclassified claims of the Estate, Effective Date cash conditions and allowed priority and unsecured claims of the Estate, shall be delivered to the Restated
Shareholder Trust for distribution to allowed equity security interests; 
  
 (j) Unimpairment. The Plan shall provide for the unimpairment of all creditors and holders of equity security interests by; 
  
 (aa) Payment in full by the Liquidation Trust of all allowed unclassified claims, including administrative
claims, professional fees and costs and 326 Fees not paid prior to the Effective Date on the 10th business day
following the Effective Date (“Distribution Date”) or as soon as allowed thereafter; 
  
 (bb) Payment by the Liquidation Trust (by way of cash or Axion stock or a combination thereof) of allowed priority and unsecured claims in
full with interest at the Federal Judgment Rate on the Distribution Date or as soon as allowed thereafter; and 
  
 (ccc) All remaining property being distributed by the Second Amended Shareholders Trust to holders of allowed equity security interests on
the Distribution Date; 
  
 (ddd) Reserves.
Both the Liquidation Trustee and the SAT Trustee shall reserve sufficient shares of the Plan Funding Shares to satisfy the disputed claims and equity security interest reserve requirements as provided for in the Plan. Sufficient shares of Plan
Funding 

  

 13 

 
Shares for this purpose shall be determined based upon the average closing bid price of Axion stock for the thirty (30) trading days immediately prior
to the Effective Date; 
  
 (k) Right of First
Refusal. Axion shall have a right of first refusal on any proposed disposition of Plan Funding Shares by both the Liquidation Trustee and SAT Trustee that is neither an open market resale at prevailing prices or effected in connection with an
underwritten transaction involving a sale to the general public. Provided however, both the SAT Trustee and Liquidation Trustee shall consult with Axion from time to time regarding any anticipated disposition of Plan Funding Shares so as not
to necessarily negatively affect the value of Axion shares in the public market, and at least thirty (30) days before a disposition of more than 750,000 shares of Axion stock, notify Axion in writing (the “Notice”) either the SAT
Trustee’s or Liquidation Trustee’s intention to dispose of more than 750,000 shares of Axion stock in one transaction (or in multiple transactions if either the Liquidation Trustee or SAT Trustee knows or reasonably believes that the sales
are to or for the benefit of a single entity or multiple affiliated entities). The date of the Notice shall be the “Notice Date”. After the Notice Date, Axion may inform the Liquidation Trustee or the SAT Trustee that Axion shall exercise
its right to acquire all or a portion of the shares which are the subject of the Notice only as follows: 
  

	 	(x)	If the amount of shares referred to in the Notice is more than 750,000 but less than 1,000,000, Axion shall have the right to advise the appropriate trustee in writing within five
(5) days of the Notice Date of its commitment to buy all of said shares, and Axion shall conclude for cash the share purchase transaction within ten (10) days of the Notice Date; 

  

	 	(y)	If the amount of shares referred to in the Notice is between 1,000,000 and 2,000,000, Axion shall have the right to advise the appropriate trustee in writing within ten
(10) days of the Notice Date of its commitment to buy all of said shares, and Axion shall conclude for cash the share purchase transaction within fifteen (15) days of the Notice Date; 

  

	 	(z)	If the amount of shares referred to in the Notice is more than 2,000,000, Axion shall have the right to advise the appropriate trustee in writing within twenty (20) days of the
Notice Date of its commitment to buy all of said shares, and Axion shall conclude for cash the share purchase transaction within twenty-five (25) days of the Notice Date. 

  
 With each Notice, the SAT Trustee or Liquidation Trustee shall provide Axion
with that trustee’s best estimate of the minimum and maximum consideration that the trustee anticipates receiving from the proposed disposition. As the condition to the exercise by Axion of its right of first refusal, Axion agrees to pay the
minimum consideration that the appropriate trustee estimates receiving from the proposed disposition. If Axion does not timely exercise its right to purchase shares described in a particular Notice as provided herein, then it shall have no further
rights to acquire the shares that are the subject of the Notice, provided however, that the appropriate trustee conclude the proposed disposition for no less than the minimum consideration within 30 days of the last day Axion had to exercise the
right of first refusal or else the Plan Funding Shares the subject of the Notice will be subject to a new right of first refusal as provided for herein. If Axion exercises its right to purchase the shares described in a particular Notice but 

  

 14 

 
fails to conclude the transaction within the time provided herein, the sole remedy of the appropriate trustee shall be the right to seek damages from Axion
for the difference between the exercise price and the proceeds ultimately received by the SAT Trustee or Liquidation Trustee from the sale of said Axion shares. 
  
 (l) Transfer of Assets to Axion. In consideration of the terms, covenants and releases provided for
herein, upon the Effective Date, any and all rights, title and interests of the Estate, Debtor and Mega-C Ontario in: (i) the Technology, including the Supercell technologies, or any other residual interests in any residual license to the
Technologies and any separately developed intellectual property related to the Technology, including any and all rights, interests and licenses arising under the Agreement of Association; (ii) physical assets in Axion’s, C & T’s
or Axion Ontario’s control or possession; and (iii) shares of Mega-C Technologies, Inc. will be transferred to Axion; 
  
 (m) Taylor Group Adversary. On the Effective Date the Taylor Group Adversary shall be assigned to the Liquidation Trust. Within
thirty (30) days of the Effective Date, the Liquidation Trustee shall determine if the Litigation Trust will pursue the Taylor Group Adversary, and if the Liquidation Trustee determines not to, the Taylor Group Adversary will be assigned to
Axion; 
  
 (n) Transfer of Remaining Assets
and Assumption of Liabilities and Duties of Debtor. On the Effective Date, Debtor’s remaining assets, including: (i) claims and causes of action, (ii) cash in the escrow account referred to in paragraph 4(a) above; and
(iii) the remaining shares of Plan Funding Shares in the Shareholders Trust referred to in paragraph 1(a)(i) above, will be transferred and assigned to the Liquidation Trust, and the Liquidation Trust shall assume and be responsible for any and
all remaining liabilities and causes of action by or against the Debtor and the Estate to be satisfied as provided for in the Plan and be responsible for all costs and expenses associated therewith and complete on behalf of the Debtor all remaining
corporate compliance obligations and duties of the Debtor; 
  
 (o) Determination of 326 Fees Related to Plan Funding Shares. In the event the Plan is confirmed, the Trustee’s fees pursuant to Section 326(a) of the Code applicable to the Plan Funding Shares shall
be calculated (a) on the net revenue generated from the liquidation of Plan Funding Shares prior to the Effective Date together with (b) the net value per share of the Plan Funding Shares both delivered to the Liquidation Trust and
remaining in the Second Amended Shareholders Trust on the Effective Date based upon the average closing bid price of Axion stock for the thirty (30) trading days immediately prior to the Effective Date discounting such average price by 15
percent (the “Share Value”). If sufficient Plan Funding Shares have not been sold to satisfy this amount by the Distribution Date, the Trustee consents to waive the requirement of 11 U.S.C. § 1129(a)(9)(A) to allow a reasonable
additional time for liquidation after the Effective Date not to exceed one hundred and eighty (180) days. If sufficient Plan Funding Shares have not been sold to satisfy the administrative claim of Gordon & Silver by the Effective
Date, Gordon & Silver also consent to waive the requirements of 11 U.S.C. § 1129(a)(9)(A) to allow a reasonable additional time for liquidation after the Effective Date not to exceed ninety (90) days. If the Share Value on the
Effective Date is greater than $3.50 per share, such appreciation in excess of $3.50 per share shall be paid by in-kind distribution of Plan Funding Shares on the Distribution Date. 
  

 15 

 (p) Releases. The Plan will provide for releases on and through the Effective Date
(i) by and between the Trustee, on the one hand, and Fonner on the other hand; and between the Trustee, on the one hand, and the remaining Counterparties on the other hand; and between Fonner and the remaining Counterparties (collectively,
“Released Parties”), including, without limitation, the Disputes, any and all claims or causes of action, known or unknown, whether asserted or unasserted, and including all derivative claims held by the Trustee, Debtor and the Estate
against any party to this Agreement and (ii) from the holders of claims and equity security interests, that to the fullest extent permissible under applicable law, as such law may be extended or interpreted subsequent to the Effective Date;
each such person that has held, holds or may hold a claim or equity security interest, in consideration for the obligations of the Liquidation Trust and Second Amended Shareholders Trust and other contracts, instruments, releases, agreements or
documents to be delivered in connection with the Plan, shall have conclusively, absolutely, unconditionally, irrevocably and forever, released and discharged the co-proponents of the Plan and Fonner from any claim or cause of action existing as of
the Effective Date arising from, based on or relating to, in whole or in part, the subject matter of, or the transaction or event giving rise to, the Disputes, Shareholders Trust, the Axion Adversary, the Trust Adversary and the Case and in the act,
omission, occurrence or event in any matter relating to such subject matter, transaction or obligation. Notwithstanding, the releases, which are intended to be as broad as possible, do not release the Estate for the allowed subordinated claim of
Axion against the Debtor as provided in paragraph 2(a); the allowed proofs of claim and interest of the Lenders and the Founders as provided in paragraph 10; and any claims of the Scientists or the C&T Scientists not enumerated on Schedule A and
that are otherwise allowed. Released Parties shall include each Released Party’s officers, directors, attorneys, agents and employees; 
  
 (q) Exculpation. The Plan will provide generally on and through the Effective Date that the co-proponents, their officers,
directors, attorneys, agents and employees since the Petition Date, Fonner and professionals employed by them pursuant to an order of the Court under Sections 327 or 1103 of the Bankruptcy Code, shall not incur any liability to the Debtor or any
other creditors, equity security holders and other parties in interest in the Case for any act or omission in connection with or arising out of the Case, including, without limitation, prosecuting confirmation of the Plan, confirmation of the Plan,
and the administration of the Estate, the Plan or the property to be distributed under the Plan, except for gross negligence or willful misconduct, and in all respects, such person will be entitled to rely on the advice of counsel with respect to
their duties and responsibilities with respect to the Case and the Plan; and 
  
 (r) Liquidation Trust. After distribution of the cash and Plan Funding Shares delivered to the Liquidation Trust, the Liquidation Trust shall be dissolved and its affairs terminated as provided for in the
Liquidation Trust Agreement. 
  
 7. Commencement of Insolvency
Proceedings in Respect of Mega-C Ontario. The Trustee in his reasonable discretion and after consultation with the Counterparties and other parties-in-interest (in the Trustee’s discretion), and after the Effective Date, the SAT Trustee,
may commence insolvency proceedings on behalf of Mega-C Ontario. 
  
 8. Timing Considerations. The Plan and Disclosure Statement will be filed within seven (7) days of entry of the 9019 Order but in no event later than January 17, 2006, the Plan shall be confirmed no later than
March 31, 2006, and the Effective Date shall be no later than 

  

 16 

 
April 14, 2006. Subject to the Court’s order, the Plan supplements, including the Liquidation Trust Agreement and the Second Amended Shareholders
Trust Agreement, will be filed no later than five (5) days prior to the commencement of the hearing to approve the Disclosure Statement. 
  
 9. Objection to Claims and Equity Security Interests. Prior to confirmation of the Plan, any of the Parties may object to claims or proofs of
interest, provided, however, that the Parties agree to consult and coordinate with one another, in good faith for purposes of reducing the amount of administrative expenses associated with claims proceedings and other litigation. Immediately
following the approval of this Agreement, the Trustee will object to the allowance of claims and equity security interests that the co-proponents agree may affect the feasibility of the Plan. The Trustee will take all steps necessary to cause such
claims and equity security interests to be estimated in order to establish the feasibility of the Plan. 
  
 10. Allowance and Withdrawal of Claims. The Lenders Scheduled Claims evidenced by those certain Series A Convertible Unsecured Notes and the
Lenders Claims in the total amount of $390,000.00, shall be allowed unsecured claims for distribution under the Plan as follows: (1) Joe Piccirilli, in the amount of $50,000.00; (2) HAP Investments, LLC, in the amount of $50,000.00;
(3) Joe Souccar, in the amount of $25,000.00; (4) James Smith, in the amount of $50,000.00; (5) The Canadian Consultants Bureau Inc., in the amount of $50,000.00; (6) Robert Averill, in the amount of $50,000.00; (7) James
Eagan, in the amount of $50,000.00; (8) Thomas Granville, in the amount of $50,000.00; and (9) Paul Bancroft in the amount of $15,000.00. With the exception of the proof of claim filed by Igor Filipenko, which is withdrawn as set for
herein, all remaining claims enumerated within the Lenders Proofs of Claim/Interest and the Founders Proofs of Claim/Interest shall be deemed proofs of equity security interests and shall be allowed proofs of interests under the Plan, provided
however, that if any other proof of claim for fraud in connection with the sale of a security is allowed in the Estate as an unsecured claim to be paid through the Liquidation Trust, these remaining claims enumerated within the Lenders Proofs of
Claim/Interest and Founders Proofs of Claim/Interest as they relate to a sale of a security shall be similarly allowed and treated. 
  
 11. Authorization to Sell Shares to Raise Needed Capital. Axion depends on proceeds from sales of its securities to finance its business operations
and intends to pursue financing as opportunities arise. To alleviate the Trustee’s concerns that sales of Axion securities (including convertible equity and debt securities) might unreasonably prejudice the Estate or impair the value of the
Estate’s claimed interests in the shares of Axion stock held in the Shareholders Trust, Axion will not, until the earlier to occur of (i) the Court’s disapproval of the 9019 Motion and this Agreement, (ii) the failure of the
Court to enter the 9019 Order on or before January 10, 2006, (iii) the Effective Date, or (iv) April 14, 2006, without the consent of the Trustee or further order of the Court: 
  
 a. Sale of Stock. Sell more than 5,000,000 shares of
Axion common stock (including convertible equity or debt securities), provided however, warrants issued as part of this common stock sale transaction and that satisfy the terms of paragraph 11(b) below, will not count against this 5,000,000 shares
of Axion common stock; and 
  

 17 

 b. Issuance of Warrants. Issue any warrants or other rights to purchase Axion
shares that are exercisable at less than $4.00, unless the average closing bid price as reported by the OTCBB for the ten (10) trading days immediately preceding the date of the related private placement documents is less than $4.00, in
which case 100% of that ten (10) day average closing bid price may be used as the warrant exercise price. 
  
 Nothing herein shall (i) impair Axion’s ability to negotiate an agreement with Fonner respecting the disposition of the Axion stock specified in paragraph 1(b) above; (ii) impair Axion’s ability to
perform its existing obligations with respect to previously issued convertible securities, warrants and options; (iii) impair Axion’s ability to issue securities in exchange for tangible or intangible property that is, in the judgment of
its board, necessary for Axion’s business and reasonably valued under the totality of the circumstances. 
  
 12. Covenants and Representations. 
  
 (a) Enforceability. This Agreement has been duly executed and delivered on behalf of the Parties and constitutes a legal, valid and
binding obligation of the Parties enforceable against them in accordance with its terms and the terms of the 9019 Order and the Confirmation Order, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights generally and that the obligation of the Trustee is subject to Court approval, and (b) equitable principles which may limit the availability of certain equitable
remedies (such as specific performance). 
  
 (b)
Due Organization, Standing and Authority. Axion, Axion Ontario and C & T are corporations duly organized, validly existing and in good standing under the laws of the jurisdiction of their formation. The Counterparties have all necessary
power and authority to execute, deliver and perform their obligations under this Agreement as contemplated by its formation agreements, by-laws, or other charter, organizational or governing documents (collectively, the “Governing
Documents”). 
  
 (c) Authorization and
Validity of Agreement. The execution, delivery and performance of this Agreement (a) are within the Counterparties’ powers, (b) have been duly authorized by all necessary action on their behalf and all necessary consents or
approvals have been obtained and are in full force and effect, and (c) do not violate any of the terms and conditions of (i) their Governing Documents, (ii) any applicable law, or (iii) any contracts to which they are a party
(except with respect to (c)(i) and (ii) for such violations that would not be reasonably expected to have a material adverse affect on the Counterparties’ abilities to consummate the transactions contemplated by this Agreement).

  
 13. Binding Effect. In the event the Court does not
approve this Agreement or the Disclosure Statement, does not confirm the Plan, or the Plan is not consummated, this Agreement shall be deemed null and void, and none of the Parties shall have any obligations to any other party arising out of this
Agreement except as provided for in this paragraph and paragraph 14. This Agreement shall be binding on the Parties as of the date set forth in the introductory paragraph of this Agreement, subject to paragraph 14 below; provided,
however, that Sections 3(c) and (e) and Sections 15(a), (b, (c) (d), (e), (f), (j) and (o) are intended to survive the expiration or termination of this Agreement. 
  

 18 

 14. Binding Effect In Event of Initial Court Approval. In addition to Section 13 above, in
the event the Court approves this Agreement per the 9019 Order but does not subsequently approve the Disclosure Statement, the Plan is not confirmed or the Effective Date does not occur, the obligations in paragraphs 4(a) and 4(b) and the
termination provisions of paragraph 11 hereof are also intended to survive the expiration or termination of this Agreement. 
  
 15. Miscellaneous Provisions. 
  
 (a) Covenants. The Trustee shall use commercially reasonable best efforts to obtain Bankruptcy Court approval of this Agreement,
approval of the Disclosure Statement and confirmation of the Plan. The Counterparties shall use commercially reasonable best efforts to cooperate with and support the Trustee’s efforts to obtain Court approval in all respects of this Agreement,
and shall use commercially reasonable best efforts to cooperate with and support the efforts of the Trustee, Axion, Axion Ontario and the Founders to obtain approval of the Disclosure Statement and confirmation of the Plan. The Parties shall not
take any actions inconsistent with these covenants.  
  
 (b) Notices. All notices, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given: (i) when personally delivered; (ii) upon actual receipt (as
established by confirmation of receipt or otherwise) during normal business hours, otherwise on the first Business Day thereafter, if transmitted by facsimile or telecopier with confirmation of receipt; (iii) when mailed by certified mail,
return receipt requested, postage prepaid; or (iv) when sent by overnight courier; in each case, to the following addresses, or to such other addresses as a Party may from time to time specify by notice to the other Party given pursuant hereto.

  
 If to the Trustee, to: 
  
 William M. Noall, Esq. 
 Gordon & Silver, Ltd. 
 3960 Howard Hughes Parkway 
 Suite 900 
 Las Vegas, NV 89109 
 Tel- (702) 796-5555 
 Fax- (702) 369-2666 
  
 With a copy to: 
  
 Gordon & Silver Ltd. 
 3960 Howard Hughes Pkwy., Suite 900 
 Las Vegas, NV 89109 
 Attn: Gerald Gordon, Esq. 
 Tel- (702) 796-5555 
 Fax- (702) 369-2666 
  

 19 

 If to Axion, Axion Ontario, C&T, the Scientists, the C&T Scientists, the Lenders and the Founders, to:

  
 Tom Granville 
 Axion Power International, Inc. 
 100 Caster Avenue 
 Woodbridge, Ontario L46 5Y9 
 Canada 
 Tel- (905) 264-1991 
 Fax- (905) 264-2385 
  
 With a copy to: 
  
 Cecilia L. Rosenauer, Esq. 
 510 West Plumb Lane, #A 
 Reno, NV 89509 
 Tel- (775) 324-1011 
 Fax- (775) 324-6616 
  
 If to the
Shareholders Trust or Fonner: 
  
 Sally A. Fonner, Trustee 
 Trust for the Benefit of the Shareholders of 
 Mega-C Power Corporation

 914 Curlew Rd., #403 
 Dunedin, FL 34698 
 Tel- (727) 239-7314 
 Fax- (727) 734-4617 
  
 With a copy to: 
  
 Alan R. Smith, Esq. 
 505 Ridge Street

 Reno, NV 89501 
 Tel- (775) 786-4579 
 Fax- (775) 786-3066 
  
 And 
  
 Mark Dolan, Esq. 
 412 E. Madison St., Suite 1000 
 Tampa, FL 33602 
 Tel- (813) 223-3224 
 Fax- (813) 204-9598 
  
 (c) Intended Beneficiaries. To the extent that this
Agreement inures to the benefit of persons not signatories hereto, they shall be deemed to be intended beneficiaries and this Agreement is made in and for their respective benefits and uses. 
  
 (d) Covenant Not to Take Action in Breach of
Representations and Warranties. Each Party agrees not to take any actions from and including the date of execution 

  

 20 

 
of this Agreement that will result, whether directly or indirectly, in the breach of such Party’s representations, warranties, agreements, covenants or
obligations contained in this Agreement. 
  
 (e)
Governing Law/Jurisdiction. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER WILL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEVADA, WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAWS THAT WOULD REQUIRE THE APPLICATION OF LAWS OF ANOTHER JURISDICTION. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE BANKRUPTCY COURT SHALL HAVE THE EXCLUSIVE JURISDICTION OVER THIS AGREEMENT AND THAT ANY CLAIMS ARISING OUT OF OR RELATED
IN ANY MANNER TO THIS AGREEMENT SHALL BE PROPERLY BROUGHT ONLY BEFORE THE COURT. IF AND TO THE EXTENT THAT THE CASE IS CLOSED OR DISMISSED, THE COURTS OF THE STATE OF NEVADA AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA SHALL HAVE
EXCLUSIVE JURISDICTION OVER THIS AGREEMENT AND ANY SUCH CLAIMS. 
  
 (f) Entire Agreement. This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties
between the Parties other than those set forth or referred to herein. 
  
 (g) Severability. In case any provision of this Agreement shall be determined to be invalid, illegal or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected and
unimpaired thereby, and shall remain in full force and effect, to the fullest extent permitted by applicable law. 
  
 (h) Survival of Representations. All representations, warranties, agreements, covenants and obligations herein are material, shall
be deemed to have been relied upon by the other Party, and shall survive the Effective Date of the Plan. 
  
 (i) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their
respective successors and assigns. 
  
 (j) No
Admission of Liability. This Agreement is not an admission of any liability but is a compromise of disputed claims. Neither the giving nor the receipt of any consideration hereunder nor anything contained in this Agreement shall be interpreted
or construed to be an admission on the part of, nor to the prejudice of any Party. The Recitals set forth above though summary in nature, and, to the extent necessary or appropriate, shall be considered in construing, interpreting and enforcing the
terms and conditions of this Agreement, provided, however, that nothing in this Agreement shall be deemed an admission or concession with respect to any allegations or claims made against a party hereto or against any other person or entity who is
intended to benefit or be bound by this Agreement. All communications (whether oral or in writing) between and/or among the Parties, their counsel and/or their respective representatives relating to, concerning or in connection with this Agreement,
or the matters covered hereby and thereby, shall be governed and protected in accordance with the Federal Rule of Evidence 408 to the fullest extent permitted by law. 
  

 21 

 (k) No Assignment of Claims. Axion, Axion Ontario, C&T and the C&T
Scientists represent and warrant that each is the only Person who, to its knowledge, has any interest in the Claims or Interests released or subordinated hereby and that none of such Claims, nor any part thereof, have been assigned, granted or
transferred in any way to any Person and that during the term of this Agreement, no Claim or Interest will be assigned, granted or transferred in any way to any Person without the knowledge and consent of the Trustee. 
  
 (l) Interpretation. The Parties at arm’s-length
have jointly drafted this Agreement and each Party has had ample opportunity to consult with independent legal counsel. No provision or ambiguity in this Agreement shall be resolved against any Party solely by virtue of its participation in the
drafting of this Agreement. 
  
 (m) Attorneys
Fees. Except as otherwise specifically set forth in this Agreement, each Party shall be responsible for the payment of (a) its own costs and expenses (including reasonable attorneys’ fees), and (b) all of its costs and expenses
(including reasonable attorneys’ fees) in connection with the matters referred to in this Agreement. 
  
 (n) Captions. The captions of this Agreement are for convenience only and are not a part of this Agreement and do not in any way
limit or amplify the terms and provisions of this Agreement and shall have no effect on its interpretation. 
  
 (o) Counterparts. This Agreement may be executed in counterparts, by either an original signature or signature transmitted by
facsimile transmission or other similar process and each copy so executed shall be deemed to be an original and all copies so executed shall constitute one and the same agreement. 
  
 IN WITNESS WHEREOF, the Parties have signed this Agreement in multiple counterparts. 
  

									
	MEGA-C POWER CORPORATION, a
Nevada corporation, Chapter 11 Debtor	 	 	 	AXION POWER INTERNATIONAL, INC.,
a Delaware Corporation
					
	By:	 	 	 	 	 	By:	 	 
	 	 	William M. Noall, Chapter 11 Trustee	 	 	 	 Name:
	 	 
	 	 	 	 	 	 	 Title:
	 	 
			
	AXION POWER CORPORATION,
an Ontario corporation	 	 	 	C AND T CO. INC.,
an Ontario corporation
					
	By:	 	 	 	 	 	By:	 	 
	 Name:
	 	 	 	 	 	 Name:
	 	 
	 Title:
	 	 	 	 	 	 Title:
	 	 
			
	 	 	 	 	 HAP Investments, LLC,

				
	 	 	 	 	By:	 	 
	Sally Fonner	 	 	 	 Name:
	 	 
	 	 	 	 	 Title:
	 	 

  

 22 

									
	Trust for the Benefit of Shareholders of Mega-C
Power Corporation	 	 	 	 
				
	By	 	 	 	 	 	 
	Sally Fonner, Trustee	 	 	 	Joe Piccirilli
			
	 	 	 	 	THE CANADIAN CONSULTANTS
BUREAU INC.
				
	 	 	 	 	By:	 	 
	Robert Averill	 	 	 	 Name:
	 	 
	 	 	 	 	 Title:
	 	 
			
	 	 	 	 	 
	James Smith	 	 	 	Tom Granville
			
	 	 	 	 	 
	James Eagan	 	 	 	Kirk Tierney
			
	 	 	 	 	 
	Joe Souccar	 	 	 	Igor Filipenko
			
	 	 	 	 	 
	Glenn Patterson	 	 	 	 	 	 
			
	 	 	 	 	 
	Ron Bibace	 	 	 	Andriy Malitskiy
			
	 	 	 	 	 
	Yuri Volkovich	 	 	 	Pavel Shmatko

  

 23 

									
			
	 	 	 	 	 
	Albert Shtemberg	 	 	 	Edward Shtemberg
			
	 	 	 	 	 
	Oksana Fylypenko	 	 	 	Rimma Shtemberg
			
	 	 	 	 	 
	Valeri Shtemberg	 	 	 	Yuri Shtemberg
			
	 	 	 	 	 
	Victor Eshkenazi	 	 	 	Miraslav E. Royz
			
	 	 	 	 	 INFINITY GROUP, LLC

				
	 	 	 	 	 By:
	 	 
	James Keim	 	 	 	 	 	 
			
	 TURITELLA CORPORATION
	 	 	 	 C&T Co. Inc. In Trust

					
	 By:
	 	 	 	 	 	By:	 	 
				
	 	 	 	 	 	 	 
	Paul Brancroft	 	 	 	 	 	 

  

 24 

  
 SCHEDULE “A”

  

					
	Ref. #

	  	 Name

	  	Amount of Shares Claimed

	322	  	 Albert Shtemberg
	  	17,460
	323	  	 Edward Shtemberg
	  	17,460
	324	  	 C and T Co. Inc. in Trust
	  	11,290
	325	  	 Pavel Shmatko
	  	54,000
	326	  	 Oksana Fylypenko
	  	163,424
	327	  	 Igor Filipenko
	  	239,428
	328	  	 Andriy Malitskiy
	  	216,938
	329	  	 Valeri Shtemberg
	  	60,000
	330	  	 Yuri Shtemberg
	  	12,000
	331	  	 Iouri Volfkovitch
	  	54,000
	333	  	 Victor Eshkenazi
	  	10,000
	334	  	 Miraslav E. Royz
	  	34,000
	367	  	 Rimma Shtemberg
	  	60,000
	 	  	 TOTAL
	  	950,000

  

 25Exhibit 10.1

SUBLEASE AGREEMENT

          THIS
SUBLEASE AGREEMENT (this
“Sublease”), dated November 29, 2005 for reference purposes
only, is entered into by and between AVIGEN, INC.,
a Delaware corporation (“Sublandlord”), and
ADVANCED CELL TECHNOLOGY,
INC. a Delaware corporation
(“Subtenant”).

R E C I T A L S

          A.          Sublandlord leases certain premises consisting of approximately 45,348 square feet in a building, located at 1201 Harbor Bay Parkway, Alameda, California, pursuant to that certain Lease Agreement dated February 29, 2000, between ARE-1201 Harbor Bay, LLC, a Delaware limited liability company, as landlord (the “Master Landlord”) and Sublandlord, as tenant (as amended or otherwise modified from time to time, the “Master Lease”), a copy of which is attached as Exhibit A, as more particularly described therein (the “Premises”).  Capitalized terms used but not defined herein have the same meanings given in the Master Lease.

          B.          Sublandlord desires to sublease to Subtenant, and Subtenant desires to sublease from Sublandlord a portion of the Premises consisting of approximately 15,250 square feet, and more particularly shown on the layout attached at Exhibit B hereto (“Sublease Premises”) upon the terms and conditions provided for herein.

          NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, Sublandlord and Subtenant covenant and agree as follows:

A G R E E M E N T

          1.          SUBLEASE PREMISES.   On and subject to the terms and conditions below, Sublandlord hereby leases to Subtenant, and Subtenant hereby leases from Sublandlord, the Sublease Premises.  

          2.          TERM.    The term of this Sublease (the “Term”) shall commence on December 1, 2005 (the “Commencement Date”), provided Sublandlord has theretofore obtained the consent of Master Landlord, and shall expire May 31, 2008, unless sooner terminated pursuant to any provision hereof.

          3.          POSSESSION.   If for any reason Sublandlord cannot deliver possession of the Sublease Premises to Subtenant on the Commencement Date, Sublandlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Sublease or the obligations of Subtenant hereunder or extend the term hereof, provided that no rent shall be due hereunder until possession of the Sublease Premises has been delivered to Subtenant.

          4.          RENT.

                       (a)          Rent.  Commencing on the Commencement Date and continuing throughout the term of this Sublease, Subtenant shall pay monthly rent consisting of Base Rent and Additional Rent (as defined below) (collectively, “Rent”) to Sublandlord in the following amounts:

                                      (i)          Base Rent.  Subtenant shall pay to Sublandlord monthly base rent (“Base Rent”) as follows:

	
  
Period
  	
   
 	
  
Amount
  	
   
 
	
  

  	
   
 	
  

  	
   
 
	
  
From the Rent Commencement Date through   December 31, 2006
  	
   
 	
  
$
  	
  
26,687.50
  	
   
 
	
  
January 1, 2007 – December 31,   2007
  	
   
 	
  
$
  	
  
28,021.88
  	
   
 
	
  January 1, 2008 – May 31, 2008
  	
   
 	
  
$
  	
  
29,422.97
  	
   
 

                                      (ii)         Additional Rent.  In addition to Base Rent, Subtenant shall also pay to Sublandlord monthly, Subtenant’s Proportionate Share of Operating Costs (as that term is defined in Paragraph 5 of the Master Lease) and all other costs payable by Sublandlord under the Master Lease (“Additional Rent”).  Additional Rent shall be payable to Sublandlord as and when payments are due from Sublandlord pursuant to the Master Lease, but at least five (5) business days prior to the date Sublandlord must pay such amounts to Master Landlord.  For purposes hereof, “Subtenant’s Proportionate Share” means thirty-three percent
(33%).

                                      (iii)       Direct Costs.  Subtenant shall further pay to Sublandlord as Additional Rent an amount estimated by Sublandlord to be the monthly amount of any costs and expenses applicable to the Sublease Premises which are paid directly by Sublandlord other than as set forth in Section 4(a)(ii) above (“Direct Costs”), including, but not limited to, Subtenant’s Telephone Costs plus Subtenant’s Proportionate Share of utilities, personal property and other insurance, personal property taxes and real property taxes that relate to the entire Premises.  At any time, Sublandlord or Subtenant may cause, at Subtenant’s expense, any utilities to be separately metered or

charged directly to Subtenant by the provider.  Notwithstanding the foregoing, in no event shall Subtenant’s Direct Costs exceed Forty Eight Thousand and No/100 Dollars ($48,000.00) per month.  Direct Costs shall also include the Equipment Payments, as provided in Section 11(b) below.

                                      (iv)       Subtenant’s Right to Review Direct Costs.

                                                  (1)          Sublandlord’s Direct Cost Statement.  No less often than annually, Sublandlord shall provide Subtenant with a consolidated statement setting forth the total amount of the estimated payments made by Subtenant in the previous year and the actual costs allocated to Subtenant pursuant to this Sublease.  Sublandlord shall deliver such consolidated statement to Subtenant within the later of ninety (90) days after the end the previous fiscal year and thirty days after Sublandlord receives a similar statement from Master Landlord pursuant to the Master Lease.  If
 the total estimated payments made for the year are insufficient to meet the costs allocated to Subtenant, then Subtenant shall pay to Sublandlord such deficit within thirty (30) days after receipt by Subtenant of notice thereof.  If Subtenant is due a refund for the period, then Sublandlord shall pay such refund to Subtenant within thirty (30) days after determination thereof.  The provisions of
this Section 4(a)(iv) shall survive the termination of the Sublease.

                                                  (2)          Subtenant’s Right to Audit Direct Costs.  Not more often than once each calendar year, Subtenant, upon thirty (30) days advance written notice thereof to Sublandlord, at Subtenant’s sole cost and expense, may retain an independent certified public accountant reasonably acceptable to Sublandlord, to review and audit Sublandlord’s books and records with regard to the Direct Costs for the Sublease Premises.  If Sublandlord and Subtenant determine that Subtenant overpaid its share of any Direct Costs, Sublandlord shall refund to Subtenant the amount of
 such overpayment within thirty (30) days.  If Sublandlord and Subtenant determine that Subtenant underpaid its share of Direct Costs, Subtenant shall pay to Sublandlord the amount of such deficiency within thirty (30) days.  If Sublandlord and Subtenant determine that Subtenant overpaid its share of Direct Costs by more than five percent (5%) (after the annual reconciliation has occurred as
provided in Section 4(a)(iv)(A) above), Sublandlord shall reimburse Subtenant for the reasonable actual costs of Subtenant’s audit.

                                      (v)          Exclusions.  Notwithstanding the foregoing, in the event any amounts payable by Sublandlord to Master Landlord are (A) due to Subtenant’s breach of any provision of the Master Lease, (B) due to Subtenant’s negligence or willful misconduct, or (C) are for the sole benefit of Subtenant, then such amounts shall not be prorated between Sublandlord and Subtenant and shall be the sole responsibility of Subtenant.

                       (b)          Payment of Rent.  If the Commencement Date does not fall on the first day of a calendar month, Rent for the first month shall be prorated on a daily basis based upon a calendar month.  Rent shall be payable to Sublandlord in lawful money of the United States, in advance, without prior notice, demand, or offset, on or before the first day of each calendar month during the term hereof.  All Rent shall be paid to Sublandlord at the address specified for notices to Sublandlord in Section 15 below.

                      (c)          Late Charges.  Subtenant recognizes that late payment of any Rent will result in administrative expenses to Sublandlord, the extent of which additional expenses are extremely difficult and economically impractical to ascertain.  Subtenant therefore agrees that if any Rent shall remain unpaid five (5) days after such amounts are due, the amount of such Rent shall be increased by a late charge to be paid to Sublandlord by Subtenant in an amount equal to six percent (6%) of the amount of the delinquent Rent.  

                      (d)          First Month’s Rent.  Upon execution of this Sublease, Subtenant shall deliver to Sublandlord the sum of Twenty-Six Thousand Six Hundred Eighty Seven and 50/100 Dollars ($26,687.50), representing the first month’s Base Rent.

                       (e)          Abatement.  In the event of any casualty or condemnation affecting the Sublease Premises, Rent payable by Subtenant shall be abated hereunder, but only to the extent that Rent under the Master Lease is abated, and Subtenant waives any right to terminate this Sublease in connection with such casualty or condemnation except to the extent the Master Lease is also terminated as to the Premises or any portion thereof.

          5.          SECURITY DEPOSIT.  Upon execution of this Sublease, Subtenant shall deposit with Sublandlord the sum of Twenty-Six Thousand Six Hundred Eighty Seven and 50/100 Dollars ($26,687.50) as a security deposit (“Security Deposit”).  Subtenant hereby grants to Sublandlord a security interest in the Security Deposit, including, but not limited to, replenishments thereof.  If Subtenant fails to pay Rent or other charges when due under this Sublease, or fails to perform any of its other obligations hereunder, Sublandlord may use or apply all or any portion of the Security Deposit for the payment of any Rent or other amount then due hereunder and unpaid, for the payment of any other sum for which Sublandlord may become obligated by reason of Subtenant’s default or breach, or for any
loss or damage sustained by Sublandlord as a result of Subtenant’s default or breach.  If Sublandlord so uses any portion of the Security Deposit, Subtenant shall restore the Security Deposit to the full amount originally deposited within ten (10) days after Sublandlord’s written demand.  Sublandlord shall not be required to keep the Security Deposit separate from its general accounts, and shall have no obligation or liability for payment of interest on the Security Deposit.  The Security Deposit, or so much thereof as had not theretofore been applied by Sublandlord, shall be returned to Subtenant within thirty (30) days of the expiration or earlier termination of this Sublease, provided Subtenant has vacated the Sublease Premises in the condition required under the terms of this Sublease.  Subtenant hereby waives any restrictions on the uses to which the Security Deposit may be put that are contained in California Civil Code Section 1950.7 or any successor
statute.

          6.          [Intentionally deleted] 

          7.          ASSIGNMENT AND SUBLETTING.  Subtenant may not assign, sublet, transfer, pledge, hypothecate or otherwise encumber the Sublease Premises, in whole or in part, or permit the use or occupancy of the Sublease Premises by anyone other than Subtenant, unless Subtenant has obtained Sublandlord’s consent thereto (which shall not be unreasonably withheld) and the consent of Master Landlord.  Regardless of Sublandlord’s consent, no subletting or assignment shall release Subtenant of its obligations hereunder.  Any rent or other consideration payable to Subtenant pursuant to any sublease or assignment permitted by this paragraph which is in excess of the Rent payable to Sublandlord pursuant hereto (“Sublease Bonus Rent”) shall be divided equally between Sublandlord and
Subtenant, after payment to Master Landlord of any amount required to be paid under the Master Lease. 

          8.          TELEPHONE.  Sublandlord shall provide phone service access, including use of existing phones and telephone numbers, to Subtenant and use of the Sublandlord’s phone system.  Subtenant shall pay to Sublandlord as part of the Direct Costs an amount estimated by Sublandlord to be the monthly amount of any costs and expenses applicable to Subtenant’s use of the phone system which are paid directly by Sublandlord (“Telephone Costs”), including, but not limited to, local and long-distance call charges as well as third-party access fees, taxes and charges for moves, adds, and changes. 

          9.          CONDITION OF SUBLEASE PREMISES.

                       (a)          As-Is.  Except as expressly set forth herein, Subtenant agrees that (i) Sublandlord has made no representations or warranties of any kind or nature whatsoever respecting the Sublease Premises, their condition or suitability for Subtenant’s use; and

(ii) Subtenant agrees to accept the Sublease Premises “as is, where is,” with all faults, without any obligation on the part of Sublandlord to modify, improve or otherwise prepare the Sublease Premises for Subtenant’s occupancy.  Notwithstanding the foregoing, to Sublandlord’s knowledge, the Building Systems (as defined in the Master Lease) serving the Sublease Premises, and the equipment serving the general manufacturing procedures room (the “GMP Room”), which consists of the dedicated HVAC air handlers and exhaust fans, an autoclave, the Clean Dry Air (CDA) System, the purified water system, and a steam generator, are operational; provided, however, Sublandlord makes no representation or warranty regarding any certification of the GMP Room, the Building Systems or any other portion of the Sublease Premises, or any future operation of such equipment and systems, and Subtenant acknowledges that any certification,
replacement of air filters, clean up and routine service and maintenance of the GMP Room shall be performed by Subtenant, at Subtenant’s sole cost and expense.

                       (b)          Sublandlord’s Work.  Prior to the Commencement Date, Sublandlord shall install a door connecting the GMP Lab space and the Office space as shown on Exhibit B attached hereto.  In addition, the high speed internet and T1 access cable currently serving the office spaces within the Sublease Premises shall remain in place and may be used by Subtenant.

                       (c)          No Investigation by Sublandlord.  Sublandlord has not made an independent investigation of the Premises or determination with respect to the physical and environmental condition of the Premises including, without limitation, the existence of any underground tanks, pumps, piping, toxic or hazardous substances on the Premises.  No investigation has been made by Sublandlord to ensure compliance with the “Americans With Disabilities Act” (“ADA”).  ADA may require a variety of changes to the Sublease Premises, including potential removal of barriers to access by disabled persons and provision of auxiliary aids and services for hearing, vision or speech impaired persons.  Subtenant shall rely solely on its own
investigations and/or that of a licensed professional specializing in the areas referenced in this Section 9.

                       (d)          Decommissioning.  Notwithstanding the foregoing, Subtenant understands and acknowledges that the Sublease Premises have been used for the Permitted Use set forth in the Master Lease and that various Hazardous Materials have been used in accordance with the provisions of Section 30 of the Master Lease.  Subtenant has been informed and hereby agrees that Sublandlord may commence the decommissioning process for the Sublease Premises as it relates to radioactive materials, in accordance with all Environmental Requirements.  Subtenant shall cooperate with Sublandlord in connection with such decommissioning and permit Sublandlord to have reasonable access to the Sublease Premises for such purposes.  Subtenant shall not cause or permit any
radioactive or other Hazardous Materials in the Sublease Premises that would interfere with or delay Sublandlord’s efforts with respect to such decommissioning. 

          10.          USE.  Subtenant may use the Sublease Premises only for the purposes as allowed in the Master Lease, and for no other purpose.  Subtenant shall promptly comply with all applicable statutes, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the term of this Sublease governing, affecting and regulating the Sublease Premises, including, but not limited to, the use thereof.  Sublandlord may promulgate reasonable rules and regulations with respect to the Sublease Premises and Subtenant agrees to comply with such reasonable rules and regulations following receipt of written notice of the same.  Subtenant

shall not use or permit the use of the Sublease Premises in a manner that will create waste or a nuisance, interfere with or disturb other tenants in the Building or violate the provisions of the Master Lease.  Subtenant shall not hold news briefings or conduct media tours at the Sublease Premises without the advanced written consent of Sublandlord.  Subtenant acknowledges and agrees that the operation and use of the Sublease Premises may require that Subtenant apply for and receive licenses and/or permits from various federal, state and local governments, and Subtenant covenants and agrees to apply for and receive such licenses and/or permits as are required.  Subtenant shall provide to Sublandlord copies of any such licenses and/or permits to the extent applicable to the Sublease Premises.  Subtenant acknowledges, agrees and covenants that its occupancy, operation and use of such Sublease Premises and/or its use and handling of animals shall
be in accordance with:  (a) all applicable state and federal regulations; (b) all licenses and permits that either Subtenant or Sublandlord has received or receives in the future respecting such Sublease Premises; and (c) all policies and procedures Sublandlord has reasonably promulgated respecting such Sublease Premises.  In the event of any disagreement concerning the interpretation of such licenses, permits, policies and/or procedures, the determination of the employee of Sublandlord charged with ensuring compliance with such licenses, permits, policies and/or procedures shall be controlling.

          11.          FURNITURE AND EQUIPMENT.  

                        (a)          During the term of this Sublease, Subtenant shall have the right to use the modular work stations, furniture and equipment identified on Exhibit C hereto (“Furniture and Equipment”).  Subtenant shall accept such Furniture and Equipment in its “as-is” condition without any representation or warranty by Sublandlord.  Subtenant’s insurance as required under this Sublease shall include an all risk property insurance policy for the Furniture and Equipment for its full replacement value, and Subtenant shall maintain the Furniture and Equipment in good condition during the term hereof.  At the expiration or earlier termination of this Sublease, Subtenant shall, at Sublandlord’s option
(i) return the Furniture and
Equipment to Sublandlord in the same condition received, ordinary wear and tear excepted, or (ii) remove the Furniture and Equipment from the Sublease Premises, in which case Sublandlord shall transfer title thereto to Subtenant.

                        (b)          Subtenant shall purchase furniture, office equipment and laboratory equipment identified on Exhibit D hereto (“Purchased Furniture, Equipment and Supplies”) at a total cost of Two Hundred Nineteen Thousand Nine Hundred Forty and No/100 Dollars ($219,940.00).  Subtenant shall pay Seven Thousand Three Hundred Thirty One and 36/100 Dollars ($7,331.36) per month (each an “Equipment Payment”) to Sublandlord until full payment for the Purchased Furniture, Equipment and Supplies is made to Sublandlord.  Subtenant shall accept such Furniture, Equipment and Supplies in its “as-is” condition without any representation or warranty by Sublandlord.  Subtenant’s insurance as required under this Sublease
shall include an all risk property insurance policy for the Furniture and Equipment for its full replacement value, and Subtenant shall maintain the Furniture and Equipment in good condition during the term hereof.  Sublandlord shall transfer title to the Furniture and Equipment to Subtenant upon receipt of the full amount of the Furniture and Equipment Cost.  If at the expiration or earlier termination of this Sublease, Subtenant has not paid to Sublandlord the entire amount of the Furniture and Equipment Cost, Subtenant shall at Sublandlord’s option (i) return the Furniture and Equipment to Sublandlord in the same condition received, ordinary wear and tear excepted, or (ii) remove the Furniture and Equipment from the Sublease Premises, in which case Sublandlord shall transfer title thereto to Subtenant. 

          12.          INCORPORATION OF MASTER LEASE.

                        (a)          All of the terms and provisions of the Master Lease, except as expressly modified in this Sublease or as provided in subsection (b), are incorporated into and made a part of this Sublease, and the rights and obligations of the parties under the Master Lease are hereby imposed upon the parties hereto with respect to the Sublease Premises, the Sublandlord being substituted for the Landlord in the Master Lease, the Subtenant being substituted for the Tenant in the Master Lease provided, however, that the term “Landlord” in the following Paragraphs of the Master Lease (i) shall mean Master Landlord, not Sublandlord:  the second sentence of the second paragraph of 7 (Use), 10 (Parking), 11 (Utilities and Services), 13 (Landlord’s
Repairs), the first paragraph of 17 (Insurance), 22 (Assignment and Subletting) and 36 (Limitation on Landlord’s Liability); and (ii) shall mean both Master Landlord and Sublandlord:  7 (Use) except as provided above, 9 (Taxes), 12 (Alterations), 14 (Tenant’s Repairs), 15 (Mechanic’s Liens), 16 (Indemnification), 17 (Insurance) excluding the first paragraph, 20 (Events of Default), 21 (Landlord’s Remedies), 23 (Estoppel Certificate), 26 (Rules and Regulations), 27 (Subordination), 29 (Waiver of Jury Trial), 30 (Environmental Requirements), 31 (Tenant’s Remedies/Limitations of Liability) with respect to the first two paragraphs only, 32 (Inspection and Access), 33 (Security), 34 (Force Majeure), and 38 (Signs; Exterior Appearance).  It is further understood that where reference is made in the Master Lease to the “Premises,” the same shall mean the Sublease Premises as defined herein; where reference is made to the “Commencement
Date,” the same shall mean the Commencement Date as defined herein; and where reference is made to the “Lease,” the same shall mean this Sublease.  The parties specifically agree that any provisions relating to any construction obligations of “Landlord” under the Master Lease with respect to construction that occurred or was to have occurred prior to the Commencement Date hereof, are hereby deleted.  Sublandlord shall not be liable to Subtenant for any failure by Master Landlord to perform its obligations under the Master Lease, nor shall such failure by Master Landlord excuse performance by Subtenant of its obligations hereunder; provided, however, that Sublandlord shall use its commercially reasonable efforts to cause Master Landlord to perform its obligations under the Master Lease.  Anything in the Master Lease to the contrary notwithstanding, the liability of Sublandlord for its obligations under this Sublease is limited solely to Sublandlord’s
interest in the Master Lease, and no personal liability shall at any time be asserted or enforceable against any other assets of Sublandlord or against Sublandlord’s stockholders, directors, officers or partners on account of any of Sublandlord’s obligations or actions under this Sublease.

                        (b)          The following Paragraphs of the Master Lease are not incorporated herein:  1  (Lease of Premises), 2 (Delivery; Acceptance; Commencement Date), 3 (Rent), 4 (Base Rent Adjustments), 5 (Operating Expenses), 6 (Deposits), 8 (Holding Over), 18 (Restoration), 19 (Condemnation), 24 (Quiet Enjoyment), 35 (Brokers), and 39 (Right to Extend), and Exhibits A (Description of the Premises), D (Acknowledgement of Commencement Date) and F (Tenant’s Personal Property).

                        (c)          Subtenant hereby assumes and agrees to perform for Sublandlord’s benefit, during the term of this Sublease, all of Sublandlord’s obligations with respect to the Premises under the Master Lease, except as otherwise provided herein.  Subtenant shall not commit or permit to be committed any act or omission which violates any term or condition of the Master Lease.  Notwithstanding anything to the contrary contained herein, this Sublease shall be subject and subordinate to all of the terms of the Master Lease and Master Landlord shall have all rights in respect of the Master Lease and the Premises as set forth therein.

          13.          INSURANCE.  Subtenant shall be responsible for compliance with the insurance provisions of the Master Lease.  Such insurance shall insure the performance by Subtenant of its indemnification obligations hereunder and shall name Master Landlord and Sublandlord as additional insureds.  All insurance required under this Sublease shall contain an endorsement requiring thirty (30) days’ written notice from the insurance company to Subtenant and Sublandlord before cancellation or change in the coverage, insureds or amount of any policy.  Subtenant shall provide Sublandlord with certificates of insurance evidencing such coverage prior to the commencement of this Sublease.

          14.          DEFAULT.  In addition to defaults contained in Paragraph 20 of the Master Lease, failure of Subtenant to make any payment of Rent when due hereunder shall constitute an event of default hereunder.  If Subtenant’s default causes Sublandlord to default under the Master Lease, Subtenant shall defend, indemnify and hold Sublandlord harmless from all damages, costs (including reasonable attorneys’ fees), liability, expenses or claims relating to such default.

          15.          NOTICES.  The addresses specified in the Master Lease for receipt of notices to each of the parties are deleted and replaced with the following:

	
   
 	
  
To Sublandlord at:
  	
  
Avigen, Inc.
  
	
   
 	
   
 	
  
1301 Harbor Bay Parkway
  
	
   
 	
   
 	
  
Alameda, California 94502
  
	
   
 	
   
 	
  
Attention:  Corporate Counsel
  
	
   
 	
   
 	
   
 
	
   
 	
  To Subtenant at:
  	
  
Advanced Cell Technology, Inc.
  
	
   
 	
   
 	
  
11100 Santa Monica Boulevard, Suite 850
  
	
   
 	
   
 	
  
Los Angeles, CA  90025
  
	
   
 	
   
 	
  
Attention:  James G. Stewart, CFO
  
	
   
 	
   
 	
   
 
	
   
 	
  
After Commencement Date:
  	
  
At the Sublease Premises
  

          16.          SUBLANDLORD’S OBLIGATIONS.

                        (a)          To the extent that the provision of any services or the performance of any maintenance or any other act respecting the Sublease Premises, the Premises or Building is the responsibility of Master Landlord (collectively, “Master Landlord Obligations”), upon Subtenant’s request, Sublandlord shall make reasonable efforts to cause Master Landlord to perform such Master Landlord Obligations; provided, however, that in no event shall Sublandlord be liable to Subtenant for any liability, loss or damage whatsoever in the event that Master Landlord should fail to perform the same, nor shall Subtenant be entitled to withhold the payment of Rent or 

terminate this Sublease.  It is expressly understood that the services and repairs which are incorporated herein by reference, including, but not limited to, the maintenance of all of the structural elements, exterior, parking and other Common Areas of the Project will in fact be furnished by Master Landlord and not by Sublandlord.  In addition, Sublandlord shall not be liable for any maintenance, restoration (following casualty or destruction) or repairs in or to the Building or the Sublease Premises, other than its obligation hereunder to use reasonable efforts to cause Master Landlord to perform its obligations under the Master Lease.

                        (b)          Except as otherwise provided herein, Sublandlord shall have no other obligations to Subtenant with respect to the Sublease Premises or the performance of the Master Landlord Obligations; provided, however, in the event of a termination for any reason of the Master Lease, Sublandlord shall use commercially reasonable efforts to negotiate with Master Landlord to accept all of the terms and conditions of this Sublease, at no cost to Sublandlord.

          17.          EARLY TERMINATION OF SUBLEASE.  If the Master Lease should terminate prior to the expiration of this Sublease, Sublandlord shall have no liability to Subtenant on account of such termination.  To the extent that the Master Lease grants Sublandlord any discretionary right to terminate the Master Lease, whether due to casualty, condemnation, or otherwise, Sublandlord shall be entitled to exercise or not exercise such right in its complete and absolute discretion.  

          18.          CONSENT OF MASTER LANDLORD AND SUBLANDLORD.  If Subtenant desires to take any action which requires the consent or approval of Sublandlord pursuant to the terms of this Sublease, prior to taking such action, including, without limitation, making any alterations, then, notwithstanding anything to the contrary herein, (a) Sublandlord shall have the same rights of approval or disapproval as Master Landlord has under the Master Lease, and (b) Subtenant shall not take any such action until it obtains the consent of Sublandlord and Master Landlord, as may be required under this Sublease or the Master Lease.  This Sublease shall not be effective unless and until any required written consent of the Master Landlord shall have been obtained.

          19.          INDEMNITY.  Subtenant shall indemnify, defend, protect, and hold Sublandlord and Master Landlord harmless from and against all actions, claims, demands, costs liabilities, losses, reasonable attorneys’ fees, damages, penalties, and expenses (collectively, “Claims”) which may be brought or made against Sublandlord or which Sublandlord may pay or incur to the extent caused by (i) a breach of this Sublease by Subtenant, (ii) any violation of law by Subtenant or its employees, agents, contractors or invitees (collectively, “Agents”) relating to the use or occupancy of the Sublease Premises, (iii) any act or omission by Subtenant or its Agents resulting in contamination of any part or all of the Premises by Hazardous Materials, or (iv) the negligence or willful

misconduct of Subtenant or its Agents.

          20.          BROKERS.  Each party hereto represents and warrants that it has dealt with no broker in connection with this Sublease and the transactions contemplated herein.  Each party shall indemnify, protect, defend and hold the other party harmless from all costs and expenses (including reasonable attorneys’ fees) arising from or relating to a breach of the foregoing representation and warranty.

          21.          SURRENDER OF SUBLEASE PREMISES.  Subtenant shall comply with the restoration obligations of Sublandlord as set forth in Section 6(b) of the Master Lease as well as the surrender obligations set forth in Section 12 of the Master Lease, except as otherwise agreed in writing by Master Landlord and Sublandlord.  In addition, Subtenant shall remove any alterations, additions and improvements made by Subtenant (whether or not made with Sublandlord’s consent), prior to the termination of the Sublease and restore the Sublease Premises to its prior condition, ordinary wear and tear excepted, repairing all damage caused by or related to any such removal, all at Subtenant’s expense.  Subtenant shall have no right to hold over.  

          22.          NO THIRD PARTY RIGHTS.  The benefit of the provisions of this Sublease is expressly limited to Sublandlord and Subtenant and their respective permitted successors and assigns.  Under no circumstances will any third party be construed to have any rights as a third party beneficiary with respect to any of said provisions.

          23.          QUIET ENJOYMENT.  Subtenant shall peacefully have, hold and enjoy the Sublease Premises, subject to the terms and conditions of this Sublease and subject to the Master Lease, provided that Subtenant pays all rent and performs all of Subtenant’s covenants and agreements contained herein.

          24.          COUNTERPARTS; ENTIRE AGREEMENT; AMENDMENT.  This Sublease may be signed in two or more counterparts, each of which shall be deemed an original and all of which shall constitute one agreement.  This Sublease represents the entire agreement of Sublandlord and Subtenant with respect to the subject matter hereof.  This Sublease may not be amended except by a written instrument executed by both parties hereto.  

          25.          DAMAGE AND DESTRUCTION.

                         (a)          Termination of Master Lease.  If the Sublease Premises is damaged or destroyed and Master Landlord or Sublandlord exercises any option either may have to terminate the Master Lease, if any, this Sublease shall terminate as of the date of the casualty.  If the Master Lease imposes any repair or restoration obligation on Sublandlord, Subtenant shall be responsible for all such obligations as they relate to the Sublease Premises.  In the event that after a damage or destruction of the Sublease Premises, where the time estimated to restore the Sublease Premises exceeds 270 days, Subtenant and Sublandlord shall each have the right to terminate this Sublease on written notice to given to the other party within thirty (30) days
after determination of the amount of time to restore the Sublease Premises, which termination shall be effective as of the date of the casualty.

                         (b)          Continuation of Sublease.  If the Master Lease or this Sublease is not terminated following any damage or destruction as provided in subsection (a), this Sublease shall remain in full force and effect, and Rent shall be abated in accordance with Section 4 of this Sublease.

          26.          EMINENT DOMAIN.  If all or any part of the Sublease Premises is condemned by eminent domain, inversely condemned or sold in lieu of condemnation, for any public or a quasi-public use or purpose, this Sublease may be terminated as of the date of title vesting in such proceeding by Sublandlord, without first obtaining the consent of Subtenant.  If the Master Lease imposes any repair or restoration obligation on Sublandlord, Subtenant shall be responsible for all such obligations as they relate to the Sublease Premises.

          27.          RELOCATION OF SUBLEASE PREMISES.  Sublandlord shall have the right from time to time during the Term to relocate the office portion of the Sublease Premises to another location within the Premises retained by Sublandlord, provided that Sublandlord shall pay reasonable costs (to the extent such costs are submitted in writing to Sublandlord and approved in writing by Sublandlord prior to such move) of moving Subtenant’s personal property to the replacement space.  Sublandlord shall deliver to Subtenant written notice of Sublandlord’s election to relocate the offices, specifying the new location at least thirty (30) days prior to the date the relocation is to be effective.  Any such relocation shall be performed during a weekend.

          28.          SUBTENANT’S RIGHT OF FIRST REFUSAL.  Provided Subtenant is not then in default of any of its obligations under this Sublease beyond any applicable cure periods, and that Subtenant shall not have previously been in default of any of its obligations under this Sublease beyond applicable cure periods, Subtenant shall have, and Sublandlord hereby grants to Subtenant, an ongoing right of first refusal (the “Right of First Refusal”) to sublease the Office and Lab area as delineated in attached Exhibit B (the “First Refusal Space”).  The Right of First Refusal is personal to Subtenant and may not be exercised by any sublessee or assignee, or by any other successor or assign, of Subtenant.  In the
event that Sublandlord elects to sublease some or all of the First Refusal Space, Sublandlord shall give written notice (“Offer Notice”) of such intent to Subtenant.  If Subtenant desires to exercise the Right of First Refusal, Subtenant shall deliver written notice (“Interest Notice”) to Sublandlord within ten (10) business after receipt of Sublandlord’s Offer Notice.  Thereafter, Sublandlord and Subtenant shall endeavor in good faith to reach agreement on the terms of the sublease for the applicable portion of the First Refusal Space.  If within thirty (30) days after Sublandlord’s receipt of the Interest Notice Sublandlord and Subtenant are unable to execute a definitive sublease agreement, or Subtenant shall fail to deliver the Interest Notice within the required ten (10) day period, the Right of First Refusal shall lapse and Sublandlord shall thereafter have the right to lease such First Refusal Space to any party or parties on terms
deemed acceptable to Sublandlord in its sole and absolute discretion.  

          29.          OPTION TO RENEW.  Provided Subtenant is not then in default under this Sublease, if Sublandlord exercises the five (5) year option to renew the Master Lease set forth in Section 39 of the Master Lease (the “Master Option to Renew”), Subtenant shall have the option to extend the Term of this Sublease (“Option”) for an additional five (5) year period on the terms and conditions set forth herein, except that rent during such extension term shall be equal to the prorated share of the Base Rent payable by Sublandlord under the terms of the Master Lease.  The Option shall be personal to Subtenant and may not be assigned or transferred.  If Sublandlord does not exercise the Master Option to Renew, Sublandlord shall use commercially reasonable efforts to assist Subtenant with the
negotiation of a new lease between Subtenant and Master Landlord, at no cost to Sublandlord.

          IN WITNESS WHEREOF, the parties have executed this Sublease as of the date first written above.

	
  
SUBLANDLORD:     
  	
  
AVIGEN, INC.,
  
	
   
 	
  
a Delaware corporation
  
	
   
 	
   
 	
   
 
	
   
 	
   
 	
   
 
	
   
 	
  
By:    
  	
  
/s/ Thomas J. Paulson
  
	
   
 	
   
 	
  

  
	
   
 	
  
Name:
  	
  
Thomas J. Paulson
  
	
   
 	
  Title:
  	
  
Vice President and CFO
  
	
   
 	
   
 	
   
 
	
   
 	
   
 	
   
 
	
  
SUBTENANT:     
  	
  
ADVANCED CELL TECHNOLOGY, INC.
  
	
   
 	
  
a Delaware corporation
  
	
   
 	
   
 	
   
 
	
   
 	
   
 	
   
 
	
   
 	
  
By:    
  	
  
/s/ James G. Stewart
  
	
   
 	
   
 	
  

  
	
   
 	
  
Name:
  	
  
James G. Stewart
  
	
   
 	
  Title:
  	
  
CFO
  

EXHIBIT A

MASTER LEASE

A copy of the document that comprises Exhibit A will be provided supplementally to the Commission upon request

EXHIBIT B

SUBLEASE PREMISES

[Graphic depicting a floor plan for suite 120 of the building located at 1201 Harbor Bay Parkway, Alameda, Ca.]

EXHIBIT C

FURNITURE AND EQUIPMENT

          7 desks

          9 cubicles (approx. 8x8)

          2 small conference tables

          9 tall bookshelves

          16 desk chairs

          10 guest/other chairs

          2 break room tables

          10 wood break room chairs

          1 mail station 

          2 rectangular tables

          1 storage cabinet

          4 file cabinets

EXHIBIT D

PURCHASED FURNITURE, EQUIPMENT AND SUPPLIES

	
  
LAB   AND OFFICE EQUIPMENT
  	
   
 	
  
$
  	
  
190,398
  	
   
 
	
  CONSUMABLES
  	
   
 	
   
 	
  
11,846
  	
   
 
	
  
SUBTOTAL
  	
   
 	
   
 	
  
202,244
  	
   
 
	
  
SALES TAXES   (8.75%)
  	
   
 	
   
 	
  
17,696
  	
   
 
	
  
TOTAL PURCHASED
  	
   
 	
  
$
  	
  
219,940
  	
   
 

CONSENT TO SUBLEASE

          This Consent to Sublease (this “Consent”) is made as of November 29, 2005, by ARE1201 HARBOR BAY, LLC, a Delaware limited liability company (“Landlord”), AVIGEN, INC., a Delaware corporation (“Tenant”), and ADVANCED CELL TECHNOLOGY, INC., a Delaware corporation (“Sublessee”), with reference to the following Recitals. 

R E C I T A L S

          A. Landlord and Tenant are parties to certain Lease Agreement dated February 29, 2000 (the “Lease”), pursuant to which Tenant leases certain premises at the property located at 1201 Harbor Bay Parkway, Alameda, California (the “Premises”), and more particularly described in the Lease.  

          B. Tenant desires to sublease to Sublessee a portion of the Premises (the “Subleased Premises”) more particularly described in and pursuant to the provisions of that certain Sublease dated November 29, 2005 (the “Sublease”), a copy of which is attached hereto as Exhibit A. 

          C. Tenant desires to obtain Landlord’s consent to the Sublease. 

          NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord hereby consents tothe sublease of the Subleased Premises to Sublessee, such consent being subject to and upon the following terms and conditions to which Tenant and Sublessee hereby agree: 

	
   
 	
  
1.
  	
  
All initially capitalized terms not   otherwise defined in this Consent shall have the meanings set forth in the   Lease unless the context clearly indicates otherwise.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  2.
  	
  
This Consent shall not be effective and   the Sublease shall not be valid nor shall Sublessee take possession of the   Subleased Premises unless and until Landlord shall have received: (a) a fully   executed counterpart of the Sublease, (b) a fully executed counterpart of   this Consent, and (c) an insurance certificate from Sublessee, as insured,   evidencing no less that the insurance requirements set forth in the   Lease.  Tenant and Sublessee each   represent and warrant to Landlord that the copy of the Sublease attached   hereto as Exhibit A is true, correct and complete.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  
3.
  	
  
Landlord’s consent set forth herein is   subject to the following additional conditions:
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
a.
  	
  
Landlord shall have received and approved   any drawings for any proposed alterations, additions or improvements to be   made in connection with Sublessee’s occupancy of the Subleased Premises; and
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  b.
  	
  
Landlord shall have received and approved   the list of Hazardous Materials to be used in the Subleased Premises and all   information requested by Landlord relating to Sublessee’s proposed use of the   Subleased Premises.
  

	
   
 	
  
4.
  	
  
Landlord neither approves nor disapproves   the terms, conditions and agreements contained in the Sublease, all of which   shall be subordinate and at all times subject to: (a) all of the covenants,   agreements, terms, provisions and conditions contained in the Lease, (b)   superior ground leases, mortgages, deeds of trust, or any other hypothecation   or security now existing or hereafter placed upon the real property of which   the Premises are a part and to any and all advances secured thereby and to   all renewals, modifications, consolidations, replacements and extensions   thereof, and (c) all matters of record affecting the Premises and all laws,   ordinances and regulations now or hereafter affecting the Premises.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  5.
  	
  
Nothing contained herein or in the   Sublease shall be construed to:
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
a.
  	
  
modify, waive, impair, or affect any of   the terms, covenants or conditions contained in the Lease (including Tenant’s   obligation to obtain any required consents for any other or future   sublettings), or to waive any breach thereof, or any rights or remedies of   Landlord under the Lease against any person, firm, association or corporation   liable for the performance thereof, or to enlarge or increase Landlord’s obligations   or liabilities under the Lease (including, without limitation, any liability   to Sublessee for any portion of the security deposit held by Tenant under the   Sublease), and all terms, covenants and conditions of the Lease are hereby   declared by each of Landlord and Tenant to be in full force and effect.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
b.
  	
  
require Landlord to accept any payments   from Sublessee on behalf of Tenant, except as expressly provided in Section 8   hereof.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	

  Tenant shall remain liable and responsible   for the due keeping, performance and observance of all the terms, covenants   and conditions set forth in the Lease on the part of the Tenant to be kept,   performed and observed and for the payment of the annual rent, additional   rent and all other sums now and hereafter becoming payable thereunder for all   of the Premises, including, without limitation, the Subleased Premises.

	
   
 	
   
 	
   
 	
   
 
	
   
 	
  
6.
  	
  
Notwithstanding anything in the Sublease   to the contrary:
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
a.
  	
  
Sublessee does hereby expressly assume and   agree to be bound by and to perform and comply with, for the benefit of   Landlord, each and every obligation of Tenant under the Lease to the extent   applicable to the Subleased Premises.    Landlord and Sublessee each hereby release the other, and waive their   respective rights of recovery against the other for direct or consequential   loss or damage arising out of or incident to the perils covered by property   insurance carried by such party to the extent of such insurance and waive any   right of subrogation which might otherwise exist in or accrue to any person   on account thereof.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  b.
  	
  
Tenant and Sublessee agree to each of the   terms and conditions of this Consent, and upon any conflict between the terms   of the Sublease and this Consent, the terms of this Consent shall control.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
c.
  	
  
The Sublease shall be deemed and agreed to   be a sublease only and not an assignment and there shall be no further   subletting or assignment of all or any portion of the Premises demised under   the Lease (including the Subleased Premises demised by the Sublease) except   in accordance with the terms and conditions of the Lease.
  

	
   
 	
   
 	
  
d.
  	
  
If Landlord terminates the Lease as a   result of a default by Tenant thereunder or the Lease terminates for any   other reason, the Sublease shall automatically terminate concurrently   therewith; provided, however, if Landlord elects, in its sole and absolute   discretion and without obligation, exercisable by giving written notice to   Sublessee within 7 days of such termination (a “Reinstatement Notice”), to reinstate the Sublease and   Sublessee shall attorn to Landlord, in which case the Sublease shall become   and be deemed to be a direct lease between Landlord and Sublessee.  If Landlord exercises the option provided   under this section, Landlord shall undertake the obligations of Tenant under   the Sublease from the time of the Reinstatement Notice through the expiration   or earlier termination of the Sublease, but Landlord shall not (a) be liable   for more than 1 month’s rent or any security deposit paid by Sublessee (except

  to the extent actually delivered to Landlord), (b) be liable for any prior   act or omission of Tenant under the Lease prior to the Reinstatement Notice   or for any other defaults of Tenant under the Sublease prior to the   Reinstatement Notice, (c) be subject to any defenses or offsets previously   accrued which Sublessee may have against Tenant for any period prior to the   Reinstatement Notice, or (d) be bound by any changes or modifications made to   the Sublease without the prior written consent of Landlord.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  e.
  	
  
Tenant and Sublessee acknowledge and agree   that if Tenant or Landlord elects to terminate the Lease pursuant to the   terms thereof, or if Landlord and Tenant voluntarily elect to terminate the   Lease, Landlord shall have no responsibility, liability or obligation to   Sublessee, and the Sublease shall terminate unless reinstated in Landlord’s   sole and absolute discretion as expressly provided in Section 6(d) above.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
f.
  	
  
Tenant agrees to reimburse all of   Landlord’s costs and expenses in connection with this Consent.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  
7.
  	
  
Any act or omission of Sublessee or anyone   claiming under or through Sublessee that violates any of the provisions of   the Lease shall be deemed a violation of the Lease by Tenant.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  8.
  	
  
Upon a default by Tenant under the Lease,   Landlord may proceed directly against Tenant, any guarantors or anyone else   liable under the Lease or the Sublease without first exhausting Landlord’s   remedies against any other person or entity liable thereon to Landlord. If   Landlord gives Sublessee notice that Tenant is in default under the Lease   (after any notice shall have been given to Tenant and any cure period shall   have lapsed, as provided under the Lease), Sublessee shall thereafter make   directly to Landlord all payments otherwise due Tenant, which payments will   be received by Landlord without any liability to Landlord except to credit   such payments against amounts due under the Lease. The mention in this   Consent of any particular remedy shall not preclude Landlord from any other   remedy in law or in equity.
  

	
   
 	
  
9.
  	
  
Tenant shall pay any broker commissions or   fees that may be payable as a result of the Sublease and Tenant hereby   indemnifies and agrees to hold Landlord harmless from and against any loss or   liability arising therefrom or from any other commissions or fees payable in   connection with the Sublease which result from the actions of Tenant.   Sublessee hereby indemnifies and agrees to hold Landlord harmless from and   against any loss or liability arising from any commissions or fees payable in   connection with the Sublease which result from the actions of Sublessee.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  10.
  	
  
Tenant and Sublessee agree that the   Sublease will not be modified or amended in any way without the prior written   consent of Landlord, which consent shall not be unreasonably withheld or   delayed. Tenant and Sublessee hereby agree that it shall be reasonable for   Landlord to withhold its consent to any modification or amendment of the   Sublease which would change the permitted use of the Subleased Premises or   which would affect Landlord’s status as a real estate investment trust.  Any modification or amendment of the   Sublease without Landlord’s prior written consent shall be void and of no   force or effect.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  
11.
  	
  
This Consent may not be changed orally,   but only by an agreement in writing signed by Landlord and the party against   whom enforcement of any change is sought.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  
12.
  	
  
This Consent may be executed in any number   of counterparts, each of which shall be deemed an original, but all of which   when taken together shall constitute but one and the same instrument.
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
  13.
  	
  
This Consent and the legal relations   between the parties hereto shall be governed by and construed and enforced in   accordance with the internal laws of the State in which the Property is   located, without regard to its principles of conflicts of law.
  

[ Signatures on next page ]

          IN WITNESS WHEREOF, Landlord, Tenant and Sublessee have caused their duly authorized representatives to execute this Consent as of the date first above written. 

	
  
LANDLORD:
  	
   
 	
  
ARE-1201 HARBOR BAY, LLC
  
	
   
 	
   
 	
  
a Delaware limited liability company
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  By:
  	
  
ARE-QRS CORP.,
  
	
   
 	
   
 	
   
 	
  
a Maryland corporation, general partner
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
By:
  	
  
/s/ Jennifer Pappas
  
	
   
 	
   
 	
   
 	
  

  
	
   
 	
   
 	
  
Name:
  	
  
Jennifer Pappas
  
	
   
 	
   
 	
  
Title:
  	
  
Vice President and Assistant Secretary
  
	 	 	 	 
	
   
 	
   
 	
   
 	
   
 
	
  TENANT:
  	
   
 	
  
AVIGEN, INC.,
  
	
   
 	
   
 	
  
a Delaware corporation
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
By:
  	
  
/s/ Kenneth G. Chahine
  
	
   
 	
   
 	
   
 	
  

  
	
   
 	
   
 	
  
Name:
  	
  
Kenneth G. Chahine
  
	
   
 	
   
 	
  Title:
  	
  
President and CEO
  
	 	 	 	 
	
   
 	
   
 	
   
 	
   
 
	
  
SUBLESSEE:
  	
   
 	
  
ADVANCED CELL   TECHNOLOGY, INC.
  
	
   
 	
   
 	
  
a Delaware corporation
  
	
   
 	
   
 	
   
 	
   
 
	
   
 	
   
 	
  
By:
  	
  
/s/ James G. Stewart
  
	
   
 	
   
 	
   
 	
  

  
	
   
 	
   
 	
  Name:
  	
  James G. Stewart
  
	
   
 	
   
 	
  Title:
  	
  CFO

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