Document:

EX-10.18

    SECURITY
      AGREEMENT

    

    

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

    

    I

    

    CREATION
      OF SECURITY INTEREST

    

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

    

    II

    

    OBLIGATIONS
      SECURED

    

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

    

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

    

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

    

    III

    

    DESCRIPTION
      OF COLLATERAL

    

    The
      collateral of this Security Agreement consists of the following:

    

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

    

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

    

    IV

    

    CLASSIFICATION
      OF COLLATERAL

    

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

    

    V

    

    PERFECTION
      OF SECURITY INTEREST

    

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

    

    A.   Debtor
      authorizes Secured Party to file financing statements in all states, counties,
      and other jurisdictions as Secured Party may elect, without Debtor’s signature
      as permitted by law. 

     

    B.   Debtor
      shall execute and deliver to Secured Party, in form and substance satisfactory
      to Secured Party, such financing statements and such further assurances as
      Secured Party may, from time to time, consider reasonably necessary to create,
      perfect and preserve Secured Party's security interest herein granted, and
      Secured Party may cause such statements and assurances to be recorded and filed
      at such times and places as may be required or permitted by law to so create,
      perfect and preserve such security interest. 

    

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

    

    VI

    

    DEBTOR'S
      COVENANTS AND WARRANTIES

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    VII

    

    USE
      OF
      COLLATERAL

    

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

    

    

    

    

    

    VIII

    

    DEFAULT
      PROVISIONS

    

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

    

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

    

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

    

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

    

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

    

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

    

    B.   Notice
      And Right To Cure.

    

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

    

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

    

    

    

    

    IX

    

    SECURED
      PARTY'S RIGHTS AND REMEDIES

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    X

    

    MISCELLANEOUS

    

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

    

    To
      Secured Party:  Robert
      Averill

    377
      Cupsaw Drive

    Ringwood,
      New Jersey 07456

    Facsimile:
      973-962-6138

    Email:
      averillbob@yahoo.com

    

    To
      Debtor:   Axion
      Power International, Inc.

    Thomas
      G.
      Granville

    100
      Caster Avenue

    Vaughan,
      Ontario, Canada L4L 5Y9

    Facsimile:
      905-264-2385

    Email:
      tomg@gelevator.com

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    Dated
      this 31st
      day of
      January, 2006.

    

    DEBTOR

    

    AXION
      POWER INTERNATIONAL, INC., a Delaware corporation

    

    

    By_________________________________

      ,
      President

     

    SECURED
      PARTY

    

    ROBERT
      AVERILL 

    

    

    By__________________________________EX-10.19

    PROMISSORY
      NOTE

    

    

    
      
        	 $1,000,000.00 	
                 January
 ,
                  2006

              

      

    

    

    For
      value
      received, Axion Battery Products, Inc., a Pennsylvania corporation ("Maker"),
      promises to pay to the order of Robert Averill, an individual ("Payee"), as
      designated herein or at such other place as the legal holder shall designate
      in
      writing, the principal sum of One Million Dollars ($1,000,000.00), together
      with
      interest at the rate of ten percent (10 %) per annum on the principal balance
      from the date hereof. 

    

    Principal
      and interest are payable as follows:

    

    1. Twelve
      (12) equal monthly installments of interest on the principal balance of
      $1,000,000.00 in the amount of Eight Thousand Three Hundred Thirty Three and
      34/100ths Dollars ($8,333.34), commencing on the first banking day of February
      2006 by wire transfer to an account designated by Payee and continuing on the
      first banking day of each and every subsequent eleven calendar months. The
      first
      monthly payment will include prorated interest for the month of January 2006
      that has accrued from the date of this Promissory Note. 

    

    2. The
      entire unpaid balance of principal and accrued interest shall be due and payable
      on or before the first banking day of February 2007. 

    

    3. Interest
      and all or any portion of the unpaid principal balance may be prepaid at any
      time without penalty, provided, however, that any payment must be in an amount
      not less than $200,000. All payments shall first be applied to accrued interest
      with the balance of each payment to be applied against the unpaid principal
      balance. 

    

    This
      Promissory Note is secured by a Security Agreement of this same date executed
      by
      Maker, as Debtor, and Payee, as Secured Party.

     

    If
      a
      default occurs under the terms of this Promissory Note, the Maker agrees to
      pay
      all costs, including reasonable attorneys' fees, incurred in the collection
      of
      any unpaid amounts. The Maker waives presentment for payment, demand, notice,
      protest, notice of protest, diligence, and non-payment of this Promissory Note,
      and all defenses on the ground of any extension of time for payment that may
      be
      given by the holder to them.

    

    

    AXION
      BATTERY PRODUCTS, INC., a Pennsylvania corporation

     

    

    By_________________________________

    President

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