Document:

December
15, 2009

      

      To the
Investors party to the Purchase Agreement

      with
Axion Power International, Inc.

      c/o
Special Situations Fund III QP, L.P.

      527
Madison Avenue, Suite 2600

      New York,
NY 10022

       

      Ladies
and Gentlemen:

       

      David
Gelbaum and Monica Chavez Gelbaum (collectively, the “Gelbaums”) are the
co-trustees of The Quercus Trust (the “Trust”). As of the date hereof, the
Gelbaums and the Trust are the sole beneficial owners as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), of an aggregate of 18,571,430 shares of the Common Stock, par value
$0.0001 per share (the “Common Stock”), of Axion Power International, Inc. (the
“Company”), consisting of 8,571,430 shares of Common Stock held of record by the
Trust (the “Trust Shares”) and warrants held of record by the Trust (the “Trust
Warrants”) to acquire an aggregate of 10,000,000 shares of Common Stock (the
“Trust Warrant Shares” and, collectively with the Trust Shares, and the Trust
Warrants, the “Trust Securities”).

       

      As of the
date hereof, The undersigned understands that you (collectively, the
“Investors”), propose to enter into a Purchase Agreement (the “Purchase
Agreement”) with the Company, providing for the purchase and sale of an
aggregate of · shares (the
“Shares”) of Common Stock, in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D, as promulgated by the
U.S. Securities and Exchange Commission (the SEC”) under the Securities Act of
1933, as amended (the “Act”). Capitalized terms used herein have the respective
meanings ascribed thereto in the Purchase Agreement unless otherwise defined
herein.

       

      In order
to induce the Investors to enter into the Purchase Agreement and to purchase the
Shares as provided therein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Gelbaums and the
Trust, on their own behalf and on behalf of their Affiliates, hereby jointly and
severally agree as follows:

       

      1.    
      The Gelbaums and the Trust own the Trust Shares
and the Trust Warrants and, upon any exercise of the Trust Warrants, will own
the Trust Warrant Shares, free and clear of all the following (collectively
called “Claims”) of any nature whatsoever: security interests, liens, pledges,
claims (pending or threatened), charges, escrows, encumbrances, lock-up
arrangements, options, rights of first offer or refusal, community property
rights, mortgages, indentures, security agreements or other agreements,
arrangements, contracts, commitments, understandings or obligations, whether
written or oral and whether or not relating in any way to credit or the
borrowing of money. There are no agreements, understanding or arrangements (i)
granting any Claim with respect to the Trust Securities to any person or entity,
(ii) restricting the right of the Gelbaums or the Trust to sell the Trust
Securities, (iii) restricting any other of their rights with respect to the
Trust Securities, or (iv) limiting or restricting the rights of the holder of
any of the Trust Securities. Except for the Trust Securities, neither the Trust,
nor the Gelbaums nor any of their respective Affiliates beneficially own any
capital stock of the Company or have the right to acquire beneficial ownership
of any capital stock of the Company, except upon the exercise of the Trust
Warrants in accordance with their terms.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      2.           During
the period (the “Lock-Up Period”) beginning on the date hereof and ending on the
earlier to occur of (i) the first anniversary of the Closing Date or (ii) a
“Change of Control” (as defined below), neither the Trust nor the Gelbaums will,
and shall cause their respective Affiliates not to, except as provided herein,
offer, sell, contract to sell, pledge, grant any option to purchase, make any
short sale or otherwise dispose (collectively, a “Transfer”) of any Trust
Securities, or any shares of Common Stock of the Company, any options or
warrants to purchase any shares of Common Stock of the Company, or any
securities convertible into, exchangeable for or that represent the right to
receive shares of Common Stock of the Company, hereinafter acquired, by any of
them or with respect to which any of them has beneficial ownership within the
rules and regulations of the SEC (the “Additional Trust
Securities”).

       

      As used
herein, “Change of Control” means, at any time (i) any Person or any Persons
acting together that would constitute a “group” for purposes of Section 13(d)
under the Exchange Act (other than the Trust, the Gelbaums or their respective
Affiliates) shall acquire beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) in a single transaction or a series of related
transactions, of more than 50% of the aggregate voting power of the Company; or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to
such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or
the successor entity of such transaction; or (iii) the Company sells or
transfers its assets, as an entirety or substantially as an entirety, to another
Person.

       

      3.           Except
as expressly provided herein, the foregoing restrictions are expressly agreed to
preclude the Gelbaums and the Trust from engaging in any hedging or other
transaction which is designed to or which reasonably could be expected to lead
to or result in a Transfer of the Trust Securities or the Additional Trust
Securities during the Lock-Up Period even if the Trust Securities or the
Additional Trust Securities would be disposed of by someone other than the
Gelbaums or the Trust. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put or call option) with respect to any
of the Trust Securities or Additional Trust Securities or with respect to any
security that includes, relates to, or derives any significant part of its value
from the Common stock of the Company.

       

      4.           The
Gelbaums and the Trust hereby consent to the entry of stop transfer instructions
with the Company’s transfer agent and registrar prohibiting the Transfer of the
Trust Securities and the Additional Trust Securities except in compliance with
this Lock-up Agreement.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      5.      
    Notwithstanding the foregoing, subject to the
requirements of applicable law and any policies or procedures regarding the sale
of stock by insiders of the Company, nothing herein shall prohibit the Gelbaums
or the Trust from exercising any of the Trust Warrants in accordance with their
terms.

       

      6.        
  The Gelbaums and the Trust understand and acknowledge that (i) the
Company and the Investors are relying upon this Lock-Up Agreement in connection
with the entry into and consummation of the transactions contemplated by, the
Purchase Agreement, and that this Lock-Up Agreement may be enforced directly by
the Company or any of the Investors, (ii) this Lock-Up Agreement is irrevocable
and shall be binding upon their respective heirs, legal representatives,
successors and assigns, (iii) any breach or threatened breach of the terms of
this Lock-Up Agreement would cause irreparable harm to the Company and the
Investors for which an adequate remedy is not available at law and that,
therefore, in additional to any other rights that they have at law or in equity,
the Company and each Investor shall be entitled to injunctive relief and to an
order of specific performance in the event of any such breach or threatened
breach and shall not be required to post any bond or other security in
connection therewith, (iv) this Lock-Up Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument and (v) this Lock-Up Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New York.

      

      
        
          
            
              
                	 
      	
                        Very
      truly yours,

                      
	 
      	 
      
	 
      	
                        The
      Quercus Trust

                      
	 
      	 
      
	 
      	
                        By:  

                      	
                          

                      
	 
      	 
      	
                        David
      Gelbaum, Co-Trustee

                      
	 
      	 
      
	 
      	
                          

                      
	 
      	
                        David
      Gelbaum, Individually

                      
	 
      	 
      
	 
      	
                        /s/
      Moncia Chavez Gelbaum   

                      
	 
      	
                        Moncia
      Chavez Gelbaum,
Individually

                      

              

            

          

        

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      5. 
         Notwithstanding the
foregoing, subject to the requirements of applicable law and any policies or
procedures regarding the sale of stock by insiders of the Company, nothing
herein shall prohibit the Gelbaums or the Trust from exercising any of the Trust
Warrants in accordance with their terms.

       

      6.   
       The Gelbaums and the Trust understand
and acknowledge that (i) the Company and the Investors are relying upon this
Lock-Up Agreement in connection with the entry into and consummation of the
transactions contemplated by, the Purchase Agreement, and that this Lock-Up
Agreement may be enforced directly by the Company or any of the Investors, (ii)
this Lock-Up Agreement is irrevocable and shall be binding upon their respective
heirs, legal representatives, successors and assigns, (iii) any breach or
threatened breach of the terms of this Lock-Up Agreement would cause
irreparable harm to the Company and the Investors for which an adequate remedy
is not available at law and that, therefore, in additional to any other rights
that they have at law or in equity, the Company and each Investor shall be
entitled to injunctive relief and to an order of specific performance in the
event of any such breach or threatened breach and shall not be required to post
any bond or other security in connection therewith, (iv) this Lock-Up Agreement
may be executed in counterparts, each of which shall be deemed an original and
all of which shall together constitute one and the same instrument and (v) this
Lock-Up Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.

      

      
        
          
            
              
                	 
      	
                        Very
      truly yours,

                      
	 
      	 
      
	 
      	
                        The
      Quercus Trust

                      
	 
      	 
      
	 
      	
                        By:  

                      	
                        /s/
      David Gelbaum  

                      
	 
      	 
      	
                        David
      Gelbaum, Co-Trustee

                      
	 
      	 
      	 
      
	 
      	
                        By:  

                      	
                          

                      
	 
      	 
      	
                        Monica
      Chavez Gelbaum,

                        Co-Trustee

                      
	 
      	 
      
	 
      	
                        /s/
      David Gelbaum  

                      
	 
      	
                        David
      Gelbaum, Individually

                      
	 
      	 
      
	 
      	 
      
	 
      	
                        Moncia
      Chavez Gelbaum,
IndividuallyUnassociated Document

    NEITHER
THE ISSUANCE AND SALE OF THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (I) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (II) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.  NOTWITHSTANDING
THE FOREGOING, THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE.  ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE.
 THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO THIS NOTE.

    

    DEERFIELD
RESOURCES, LTD.

    9%
CONVERTIBLE PROMISSORY NOTE

    

    
      	 
      	 
      
	
              Issuance
      Date:  _______ __, 2009

            	
              Principal
      Amount: U.S. $__________

            

    

    

    FOR VALUE
RECEIVED, Deerfield
Resources, Ltd., a Nevada corporation (the "Company"), hereby promises to
pay to _____________________________ or
registered assigns ("Holder") the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the "Principal") when due, whether
upon the Maturity Date (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest at the
rate of 9.00% per annum  ("Interest") from the date set
out above as the Issuance Date (the "Issuance Date") until the same
becomes due and payable on the Maturity Date.

    

    1.    PAYMENTS OF PRINCIPAL;
MATURITY.  Payment of principal and interest due on this Note is
payable no later than __________ __, 2011 (the “Maturity Date”); provided, however,
that each of the parties hereto may mutually agree to extend the term of this
Note beyond the Maturity Date.

    

    2.    PREPAYMENT.  The
Company and the Holder understand and agree that the principal amount of the
Note and any interest accrued thereon be prepaid by the Company at any time
without penalty.

    

    3.    CONVERSION OF NOTE.
 This Note shall be convertible into shares of the Company’s common stock
(the "Shares"), on the
terms and conditions set forth in this Section 3.

    

    (a)           Conversion Right.
 Subject to the provisions of Section 3(c)(i) hereof and pursuant to terms
to be mutually agreed upon by the Company and the Holder in writing at a later
date, the Holder shall be entitled to convert any portion of the outstanding and
unpaid principal and interest balance due on the Note in accordance with Section
3 of this Note into Shares at a conversion price to be mutually determined by
the Company and the Holder (the “Conversion
Price”).   The Company shall not issue any fractions of a
Share upon any conversion.  If the issuance would result in the issuance of
a fraction of a Share, the Company shall round such fraction of a Share up to
the nearest whole Share.  The Company shall pay any and all taxes that may
be payable with respect to the issuance and delivery of Shares upon conversion
of any conversion amount.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    (b)           Mechanics of
Conversion.

    

    (i)          Notice of
Conversion. To convert
this Note, the Holder hereof shall deliver written notice thereof, substantially
in the form of Exhibit A to
this Note, with appropriate insertions (the “Conversion Notice”),
to the Company at its address as set forth herein.  The date upon
which the conversion shall be effective (the “Conversion Date”)
shall be deemed to be the date set forth in the Conversion
Notice.  Except as otherwise provided herein, the Company shall not
have the right to object to the conversion or the calculation of the applicable
conversion price, absent manifest error.  Any conversion of any
portion of the Note to Shares shall be deemed to be a pre-payment of principal,
without any penalty, and shall be credited against any future payments of
principal in the order that such payments become due and payable

    

    (ii)          Disputes.  In the event of a dispute as to the number of Shares
issuable to the Holder in connection with a conversion of this Note, the Company
shall issue to the Holder the number of Shares not in dispute and resolve such
dispute using good faith efforts with the Holder.

    

    4.    EVENT OF
DEFAULT.  Failure by the Company to make payment pursuant to
Section 1 hereof shall constitute an event of default (“Event of
Default”).  In an Event of Default, the Holder shall be entitled to
all legal remedies available to it to pursue collections, and the Company shall
bear all reasonable costs of collection, including but not limited to necessary
attorneys’ fees.

    

    5.    NO
WAIVER.  No failure or delay by the Holder in exercising any
right, power or privilege under this Note shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege.  The rights and remedies herein provided shall be
cumulative and not exclusively of any rights or remedies provided by applicable
law.  No course of dealing between the Company and the Holder shall
operate as a waiver of any rights by the Holder.

    

    6.    NOTICES;
PAYMENTS.

    

    (a)           Notices.
 Whenever notice is required to be given under this Note, unless otherwise
provided herein, such notice shall be given in accordance with the Securities
Purchase Agreement.  Unless a specific notice is otherwise required
under this Note, the Company shall provide the Holder with prompt written notice
of all actions taken pursuant to this Note, including in reasonable detail a
description of such action and the reason therefore.

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

       

    

    (b)           Payments.
 Except as otherwise provided in this Note, whenever any payment of cash is
to be made by the Company to the Holder, such payment shall be made in lawful
money of the United States of America by a check drawn on the account of the
Company and sent via overnight courier service to the Holder at such address as
previously provided to the Company in writing (which address shall be set forth
in the Securities Purchase Agreement); provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the
Holder's wire transfer instructions.  Whenever any amount expressed to be
due by the terms of this Note is due on any day which is not a Business Day, the
same shall instead be due on the next succeeding day which is a Business
Day.

    

    7.    TRANSFER.  The
Holder acknowledges and agrees that this Note may only be offered, sold,
assigned or transferred by the Holder if consented to in writing by the
Company.

    

    8.    CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by the
Company and the Holder and shall not be construed against any person as the
drafter hereof.

    The
headings of this Note are for convenience of reference and shall not form part
of, or affect the interpretation of, this Note.

    

    9.    SEVERABILITY.  In
the event that one or more of the provisions of this Note shall for any reasons
be held invalid, illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Note, but this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.

    

    10.    GOVERNING LAW.  This
Note and the rights and obligations of the Company and the Holder shall be
governed by and construed in accordance with the laws of the State of New
York.

    

    [SIGNATURE
PAGE FOLLOWS]

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

    

    
      
        	 	      
                DEERFIELD
      RESOURCES, LTD.

              	 
	 	 	 	 
	
                 

              	
                By:

              	/s/ 	 
	 	Name:	James
      W. Morgon	 
	 	Title:	Chief
      Executive Officer	 
	 	 	 	 

      

    

    
 

    
      
         

      

      
        4

        
          

        

      

      
         

      

       

    

    EXHIBIT
A

     

    NOTICE OF
CONVERSION

     

    (To
be executed by the Holder in order to convert the Note)

     

    
      	
              TO:

            	 
      

    

    

    The
undersigned hereby irrevocably elects to convert $ of the principal amount of
the above Note into Shares of Common Stock of Deerfield Resources, Ltd.,
according to the conditions stated therein, as of the Conversion Date written
below.

     

    
      	
              Conversion
      Date:

            	 	 
      
	
              Applicable
      Conversion Price:

            	 	 
      
	
              Signature:

            	 	 
      
	
              Name:

            	 	 
      
	
              Address:

            	 	 
      
	
              Amount
      to be converted:

            	 	
              $                                                                                     

            
	
              Amount
      of Note unconverted:

            	 	
              $                                                                                     

            
	
              Conversion
      Price per Unit:

            	 	
              $                                                                                     

            
	
              Number
      of shares of Common 

              Stock
      and Warrants to be issued 

              including
      as payment of 

              interest,
      if applicable:

            	 	 
      
	
              Please
      issue the shares of 

              Common
      Stock and Warrants 

              in
      the following name and to the 

              following
      address:

            	 	 
      
	
              Issue
      to the following account of the Holder:

            	 	 
      
	
              Authorized
      Signature:

            	 	 
      
	
              Name:

            	 	 
      
	
              Title:

            	 	 
      
	
              Phone
      Number:

            	 	 
      
	
              Broker
      DTC Participant Code:

            	 	 
      
	
              Account
      Number:

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