Document:

EXHIBIT 10.1

                        FORM OF INDEMNIFICATION AGREEMENT
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         This Agreement, made and entered into as of this 13th day of December,
2005 ("Agreement"), by and between Natural Health Trends Corp., a Delaware
corporation (the "Company"), and _______________ (the "Indemnitee").

         WHEREAS, highly competent persons are reluctant to serve corporations
as directors or officers or in other capacities unless they are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of corporations; and

         WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and

         WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and

         WHEREAS, Indemnitee is willing to serve and continue to serve for or on
behalf of the Company on the condition that Indemnitee be indemnified to the
fullest extent permitted by applicable law.

         NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:

                                    ARTICLE I

                                   Definitions

         For purposes of this Agreement the following terms shall have the
meanings indicated:

         1.01     "Board" shall mean the Board of Directors of the Company.

         1.02     A "Change in Control" shall be deemed to have occurred if (i)
any "person" (as that term is used in Sections 13 (d) and 14 (d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the Company's
then outstanding voting securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of the two year period constitute the
Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in

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office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board of Directors, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior to
such a merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the total voting power represented by the voting
securities of the Company or the surviving entity outstanding immediately after
the merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the company (in one transaction or a series of transactions) of
all or substantially all the Company's assets.

         1.03     "Corporate Status" describes the status of a person who is or
was a director, officer, employee, agent, trustee or fiduciary of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other Enterprise which such person is or was serving at the request or
on behalf of the Company.

         1.04     "Court" means the Court of Chancery of the State of Delaware,
the court in which the Proceeding, in respect of which indemnification is sought
by the Indemnitee, shall have been brought or is pending, or another court
having subject matter jurisdiction and personal jurisdiction over the parties.

         1.05     "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.

         1.06     "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the request of the Company as a director,
officer, employee, agent, trustee or fiduciary.

         1.07     "Expenses" shall include, without limitation, all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, facsimile transmission
charges, and all other disbursements or expenses of the types customarily
incurred in connection with prosecuting, defending, preparing to prosecute or
defend, investigating or being or preparing to be a witness in a Proceeding.

         1.08     "Good Faith" shall mean Indemnitee having acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company or, in the case of an Enterprise which is a
employee benefit plan, the best interests of the participants or beneficiaries
of said plan, as the case may be, and, with respect to any Proceeding which is
criminal in nature, having had no reasonable cause to believe Indemnitee's
conduct was unlawful.

         1.09     "Improper Personal Benefit" shall include, but not be limited
to, the personal gain in fact by reason of a person's Corporate Status of a
financial profit, monies or other advantage not also accruing to the benefit of
the Company or to the stockholders generally and which is unrelated to his or
her usual compensation including, but not limited to: (i) in exchange for the

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exercise of influence over the Company's affairs; (ii) as a result of the
diversion of corporate opportunity; or (iii) pursuant to the use or
communication of confidential or inside information for the purpose of
generating a profit from trading in the Company's securities. Notwithstanding
the foregoing, "Improper Personal Benefit" shall not include any benefit,
directly or indirectly, related to actions taken in order to evaluate,
discourage, resist, prevent or negotiate any transaction with or proposal from
any person or entity seeking control of, or a controlling interest in, the
Company.

         1.10     "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporate law and may include law firms
or members thereof that are regularly retained by the Company but not any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement unless such parties execute a written waiver of any such
conflict of interest.

         1.11     "Officer" means the chief executive officer, president, chief
operating officer, vice presidents, treasurer, assistant treasurer(s), chief
financial officer, chief accounting officer, general counsel, secretary,
assistant secretary and such other executive officers as are appointed by the
Board or by the board of directors of the Enterprise, as the case may be.

         1.12     "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation (including any internal corporate
investigation), administrative hearing or any other actual, threatened or
completed proceeding, whether civil, criminal, administrative or investigative,
formal or informal, and any appeal from any such Proceeding, other than one
initiated by Indemnitee. For purposes of the foregoing sentence, a "Proceeding"
shall not be deemed to have been initiated by Indemnitee where Indemnitee seeks,
pursuant to Article VIII of this Agreement, to enforce Indemnitee's rights under
this Agreement.

                                   ARTICLE II

                                Term of Agreement

         2.01     This Agreement shall continue until and terminate upon the
later of: (i) ten (10) years after the date that Indemnitee shall have ceased to
serve in all capacities as a director, officer, employee, agent, trustee or
fiduciary of the Company or of any other Enterprise (the "Ten Year Period"); or
(ii) the final termination of all pending Proceedings instituted before the
expiration of the Ten Year Period in respect of which Indemnitee is granted
rights of indemnification or advancement of expenses hereunder and of any
proceeding commenced by Indemnitee within the Ten Year Period pursuant to
Article VIII of this Agreement relating thereto.

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                                   ARTICLE III

                  Services by Indemnitee, Notice of Proceedings

         3.01     Services. Indemnitee agrees to serve or continue to serve as a
director or Officer of the Company for so long as he or she is duly elected or
appointed. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law).

         3.02     Notice of Proceeding. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, but the omission so to notify the Company shall not relieve
the Company from its obligations hereunder.

                                   ARTICLE IV

                                 Indemnification

         4.01     In General. In connection with any Proceeding, the Company
shall indemnify, and advance Expenses, to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may hereafter from time
to time permit.

         4.02     Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 4.02 if, by reason of Indemnitee's Corporate Status, Indemnitee
is, or is threatened to be made, a party to or is otherwise involved in any
Proceeding, other than a Proceeding by or in the right of the Company.
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement, actually and reasonably incurred by Indemnitee
or on Indemnitee's behalf in connection with such Proceeding or any claim, issue
or matter therein, regardless of the outcome of such Proceeding, if Indemnitee
acted in Good Faith and such Indemnitee has not been adjudged during the course
of such Proceeding to have derived an Improper Personal Benefit from the
transaction or occurrence forming the basis of such Proceeding.

         4.03     Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4.03
if, by reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened
to be made, a party to or is otherwise involved in any Proceeding brought by or
in the right of the Company to procure a judgment in its favor. Indemnitee shall
be indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding if Indemnitee acted in Good Faith and
such Indemnitee has not been adjudged during the course of such Proceeding to
have derived an Improper Personal Benefit from the transaction or occurrence
forming the basis of such Proceeding. Notwithstanding the foregoing, no such
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the

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Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification shall nevertheless be made
by the Company in such event if and only to the extent that the Court which is
considering the matter shall so determine.

         4.04     Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any limitations in Sections 4.02 and 4.03 above or other
provision of this Agreement, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to or is otherwise involved in and is
successful, on the merits or otherwise, in any Proceeding, Indemnitee shall be
indemnified, to the maximum extent permitted by law, against all Expenses,
judgments, penalties, fines, and amounts paid in settlement, actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee, to the maximum extent permitted by law, against all Expenses,
judgments, penalties, fines, and amounts paid in settlement, actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with
each successfully resolved claim, issue or matter as determined by the Court
which adjudicates the Proceeding. For purposes of this Section 4.04 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.

         4.05     Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall
be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.

         4.06     Partial Indemnification. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of, but not the total amount of, the Expenses, judgments, fines, or
penalties actually and reasonably incurred in connection with the investigation,
defense, appeal or settlement of any Proceeding, the Company shall nevertheless
indemnify the Indemnitee for the portion of the Expenses, judgments, fines, or
penalties to which the Indemnitee is entitled.

         4.07     Contribution. If the indemnification provided in this
Agreement is unavailable by reason of a decision of a court of competent
jurisdiction, then in respect to any Proceeding in which the Company is jointly
liable with the Indemnitee (or would be if joined in such Proceeding), the
Company shall contribute to the amount of Expenses, judgments, fines and
penalties actually and reasonably incurred and paid or payable by Indemnitee in
such proportion as is appropriate to reflect (i) the relative benefits received
by the Company on the one hand and Indemnitee on the other hand from the
transaction or event from which such Proceeding arose, and (ii) the relative
fault of the Company on the one hand and Indemnitee on the other in connection
with the events which resulted in such Expenses, judgments, fines and penalties,
as well as any other relevant equitable considerations. The relative fault of
the Company on the one hand and Indemnitee on the other shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Expenses, judgments, fines and penalties. The Company agrees

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that it would not be just and equitable if contribution pursuant to this
subsection 4.07 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.

                                    ARTICLE V

                             Advancement of Expenses

         5.01     Notwithstanding any provision to the contrary in Article VI,
the Company (acting through the President or Chief Financial Officer) shall
advance all reasonable Expenses which, by reason of Indemnitee's Corporate
Status, were incurred by or on behalf of Indemnitee in connection with any
Proceeding, within thirty (30) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances,
whether prior to or after final disposition of such Proceeding and regardless of
whether Indemnitee has actually paid such Expenses. Such statement or statements
shall reasonably evidence the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses. Any advance and undertakings
to repay pursuant to this Article V shall be unsecured and interest free.
Advancement of Expenses pursuant to this Article V shall not require approval of
the Board or the stockholders of the Company, or of any other person or body.
The President or, at the President's request, the Secretary of the Company shall
promptly advise the Board in writing of the request for advancement of Expenses,
of the amount and other details of the advance and of the undertaking to make
repayment pursuant to this Article V.

                                   ARTICLE VI

                   Procedures for Determination of Entitlement
                    to Indemnification and Defense of Claims

         6.01     Initial Request. To obtain indemnification under this
Agreement (other than advancement of Expenses pursuant to Article V), Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
as is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The President, or at the President's request, the
Secretary of the Company shall promptly advise the Board in writing that
Indemnitee has requested indemnification.

         6.02     Method of Determination. A determination (if required by
applicable law in the specific case) with respect to Indemnitee's entitlement to
indemnification shall be made: (i) by the Board by a majority vote of a quorum
consisting of Disinterested Directors; or (ii) in the event that a quorum of the
Board consisting of Disinterested Directors is not obtainable or, even if
obtainable, if such quorum of Disinterested Directors so directs, by Independent
Counsel, in a written opinion to the Board, a copy of which shall be delivered
to Indemnitee; or (iii) by a special litigation committee of the Board appointed
by the Board; or (iv) by the stockholders of the Company by vote of a majority

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of the holders of the Company's outstanding capital stock at the time entitled
to vote on the election or removal of directors, voting as a single class,
including the capital stock of Indemnitee.

         6.03     Selection, Payment, Discharge of Independent Counsel. In the
event the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 6.02 of this Agreement, the Independent
Counsel shall be selected, paid, and discharged in the following manner:

The Independent Counsel shall be selected by the Board, and the Company shall
give written notice to Indemnitee advising Indemnitee of the identity of the
Independent Counsel so selected.

Following the initial selection described in clause (a) of this Section 6.03,
Indemnitee may, within seven (7) days after such written notice of selection has
been given, deliver to the Company a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 1.09 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If such
written objection is made, the Independent Counsel so selected may not serve as
Independent Counsel unless and until a Court has determined that such objection
is without merit.

Either the Company or Indemnitee may petition a Court if the parties have been
unable to agree on the selection of Independent Counsel within twenty (20) days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 6.01 of this Agreement. Such petition may request a determination
whether an objection to the party's selection is without merit and/or seek the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate. A person so appointed shall act as
Independent Counsel under Section 6.03 of this Agreement.

The Company shall pay any and all reasonable fees of Independent Counsel and
expenses incurred by such Independent Counsel in connection with acting pursuant
to this Agreement, and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 6.03, regardless of the manner in
which such Independent Counsel was selected or appointed.

Upon the due commencement of any judicial proceeding or arbitration pursuant to
Section 8.02 of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).

         6.04     Cooperation. Indemnitee shall cooperate with the person,
persons or entity making the determination with respect to Indemnitee's
entitlement to indemnification under this Agreement, including providing to such
person, persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons

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or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

         6.05     Defense of Claim. With respect to any Proceeding to which
Indemnitee shall have requested indemnification in accordance with Section 6.01:

                  (a)      The Company will be entitled to participate in the
                           defense at its own expense.

                  (b)      Except as otherwise provided below, the Company
                           jointly with any other indemnifying party will be
                           entitled to assume the defense with counsel
                           reasonably satisfactory to Indemnitee. After notice
                           from the Company to the Indemnitee of its election to
                           assume the defense of a suit, the Company will not be
                           liable to the Indemnitee under this Agreement for any
                           legal or other expenses subsequently incurred by the
                           Indemnitee in connection with the defense of the
                           Proceeding other than reasonable costs of
                           investigation or as otherwise provided below. The
                           Indemnitee shall have the right to employ his own
                           counsel in such Proceeding but the fees and expenses
                           of such counsel incurred after notice from the
                           Company of its assumption of the defense shall be at
                           the expense of the Indemnitee unless: (i) the
                           employment of counsel by the Indemnitee has been
                           authorized by the Company; (ii) the Indemnitee shall
                           have concluded reasonably that there may be a
                           conflict of interest between the Company and the
                           Indemnitee in the conduct of the defense of such
                           action and such conclusion is confirmed in writing by
                           the Company's outside legal counsel regularly
                           employed by it in connection with corporate matters;
                           or (iii) the Company shall not in fact have employed
                           counsel to assume the defense of such Proceeding, in
                           each of which cases the fees and expenses of counsel
                           shall be at the expense of the Company. The Company
                           shall be entitled to participate in, but shall not be
                           entitled to assume the defense of any Proceeding
                           brought by or in the right of the Company or as to
                           which the Indemnitee shall have made the conclusion
                           provided for in (ii) above and such conclusion shall
                           have been so confirmed by the Company's said outside
                           counsel.

                  (c)      Notwithstanding any provision of this Agreement to
                           the contrary, the Company shall not be liable to
                           indemnify the Indemnitee under this Article for any
                           amounts paid in settlement of any Proceeding or claim
                           effected without its written consent. The Company
                           shall not settle any Proceeding or claim in any
                           manner which would impose any penalty, limitation or
                           disqualification of the Indemnitee for any purpose
                           without the Indemnitee's written consent. Neither the
                           Company nor the Indemnitee will unreasonably withhold
                           their consent to any proposed settlement.

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         6.06     Payment. If it is determined that Indemnitee is entitled to
indemnification not covered by defense of the claim afforded under Section 6.05
above, payment to Indemnitee shall be made within ten (10) days after such
determination.

                                   ARTICLE VII

                 Presumptions and Effect of Certain Proceedings

         7.01     Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6.01 of this Agreement, and the Company shall have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.

         7.02     Effect of Other Proceedings. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in Good Faith.

         7.03     Reliance as Safe Harbor. For purposes of any determination of
Good Faith, Indemnitee shall be deemed to have acted in Good Faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the Officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. The provisions of this Section 7.03 shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.

         7.04     Actions of Others. The knowledge and/or actions, or failure to
act, of any director, Officer, employee, agent, trustee or fiduciary of the
Enterprise shall not be imputed to Indemnitee for purposes of determining the
right to indemnification under this Agreement.

                                  ARTICLE VIII

                             Remedies of Indemnitee

         8.01     Application. This Article VIII shall apply in the event of a
Dispute. For purposes of this Article, "Dispute", shall mean any of the
following events:

                  (a)      a determination is made pursuant to Article VI of
                           this Agreement that Indemnitee is not entitled to
                           indemnification under this Agreement;

                  (b)      an advancement of Expenses is not timely made
                           pursuant to Article V of this Agreement;

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                  (c)      the determination of entitlement to be made pursuant
                           to Section 6.02 of this Agreement has not been made
                           within sixty (60) days after receipt by the Company
                           of the request for indemnification;

                  (d)      the payment of indemnification is not made pursuant
                           to Section 4.05 of this Agreement within ten (10)
                           days after receipt by the Company of a written
                           request therefor; or

                  (e)      a notice of election by the Company to assume defense
                           of a claim as provided for in Section 6.05 or payment
                           of indemnification, as the case may be, is not given
                           or made within ten (10) days after a determination
                           has been made that Indemnitee is entitled to
                           indemnification or such determination is deemed to
                           have been made pursuant to Article VI of this
                           Agreement.

         8.02     Adjudication. In the event of a Dispute, Indemnitee shall be
entitled to an adjudication in an appropriate Court of Indemnitee's entitlement
to such indemnification or advancement of Expenses. Alternatively, Indemnitee,
at Indemnitee's option, may seek an award in arbitration to be conducted by a
single arbitrator in Dallas, Texas pursuant to the rules of the American
Arbitration Association. Indemnitee shall commence such proceeding seeking an
adjudication or an award in arbitration within one hundred eighty (180) days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 8.02. The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.

         8.03     De Novo Review. In the event that a determination shall have
been made pursuant to Article VI of this Agreement that Indemnitee is not
entitled to indemnification, any judicial proceeding or arbitration commenced
pursuant to this Article VIII shall be conducted in all respects as a de novo
trial or arbitration on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination. In any such proceeding or arbitration, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.

         8.04     Company Bound. If a determination shall have been made or
deemed to have been made pursuant to Article VI of this Agreement that
Indemnitee is entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration absent: (i) a
misstatement by Indemnitee of a material fact, or any omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification; or (ii) a prohibition of such
indemnification under applicable law.

         8.05     Procedures Valid. The Company shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Article VIII that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such Court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.

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         8.06     Expenses of Adjudication. In the event that Indemnitee,
pursuant to this Article VIII, seeks a judicial adjudication of or an award in
arbitration to enforce Indemnitee's rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all expenses
(of the types described in the definition of Expenses in Section 1.06 of this
Agreement) actually and reasonably incurred by Indemnitee in such adjudication
or arbitration, but only if Indemnitee prevails therein. If it shall be
determined in such adjudication or arbitration that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of Expenses
sought, the expenses incurred by Indemnitee in connection with such adjudication
or arbitration shall be appropriately prorated as determined by the court or
arbitrator which determines the adjudication or arbitration.

         8.07     Change in Control. The parties agree and acknowledge that
their respective rights and obligations set forth in this Agreement shall
survive any Change in Control of the Company. The Company further agrees that if
there is a Change in Control of the Company (other than a Change in Control
which has been approved by a majority of the Company's Board of Directors who
were directors immediately prior to the Change in Control), then with respect to
all matters thereafter arising concerning the rights of Indemnitee to indemnity
payments and Expense advances under this Agreement or any other agreement, the
Company's Certificate of Incorporation, or the Company's Bylaws in effect
relating to claims for indemnifiable events, the Company shall seek legal advice
only from independent counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld), and who has not otherwise
performed services for the Company or Indemnitee within the last five years
(other than in connection with such matters) ("Special Independent Counsel").
The Special Independent Counsel, among other things, shall render its written
opinion to the Company and Indemnitee as to whether and to what extent the
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Special Independent Counsel
referred to above and may fully indemnify the Special Independent Counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement.

                                   ARTICLE IX

                     Non-Exclusivity, Insurance, Subrogation

         9.01     Non-Exclusivity. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation of the Company as amended
and/or restated, the By-Laws of the Company as amended and/or restated, any
agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration, rescission or replacement of this Agreement or any
provision hereof shall be effective as to Indemnitee with respect to any action
taken or omitted by such Indemnitee in Indemnitee's Corporate Status prior to
such amendment, alteration, rescission or replacement.

         9.02     Insurance. The Company may maintain an insurance policy or
policies against liability arising out of this Agreement or otherwise.

                                       11
<PAGE>

         9.03     Subrogation. In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.

         9.04     No Duplicative Payment. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement, Certificate of
Incorporation of the Company as amended and/or restated, By-Laws of the Company
as amended and/or restated or otherwise.

                                    ARTICLE X

                               General Provisions

         10.01    Successors and Assigns. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's legal representatives, heirs, executors and
administrators.

         10.02    Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:

                  (a)      The validity, legality and enforceability of the
                           remaining provisions of this Agreement (including
                           without limitation, each portion of any Section of
                           this Agreement containing any such provision held to
                           be invalid, illegal or unenforceable, that is not
                           itself invalid, illegal or unenforceable) shall not
                           in any way be affected or impaired thereby; and

                  (b)      To the fullest extent possible, the provisions of
                           this Agreement (including, without limitation, each
                           portion of any Section of this Agreement containing
                           any such provision held to be invalid, illegal or
                           unenforceable, that is not itself invalid, illegal or
                           unenforceable) shall be construed so as to give
                           effect to the intent manifested by the provision held
                           invalid, illegal or unenforceable.

         10.03    No Adequate Remedy. The parties declare that it is impossible
to measure in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the provisions
hereof, such party against whom such action or proceeding is brought hereby
waives the claim or defense that the other party has an adequate remedy at law,
and such party shall not urge in any such action or proceeding the claim or
defense that the other party has an adequate remedy at law.

         10.04    Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.

                                       12
<PAGE>

         10.05    Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.

         10.06    Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if: (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed; (ii) sent by prepaid
commercial overnight courier on the next business day after the date on which it
is so delivered to such courier; (iii) mailed by certified or registered mail
with postage prepaid, on the third business day after the date on which it is so
mailed; or (iv) by facsimile, on the day it is sent with receipt acknowledging
delivery:

         If to Indemnitee, to:              As shown with Indemnitee's Signature
                                            below.

         If to the Company, to:             Natural Health Trends Corp.
                                            2050 Diplomat Drive
                                            Dallas, TX  75234

or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.

         10.07    Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       13
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.

                                       NATURAL HEALTH TRENDS CORP.

                                       By:______________________________________
                                          Name:
                                          Title:

                                       INDEMNITEE:

                                       _________________________________________

                                       Address and Fax Number of Indemnitee:

                                       14Settlement Agreement

    
      

    

    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”).

     

    

     

    

     

    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”).

     

    

     

    

     

    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 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 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. 

     

    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.

     

    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 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, 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 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. 

     

    (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 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 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 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 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.

     

    (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 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

     

    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.

     

    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

            
	
              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
      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.

     

    (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 

               

              By:___________
                /s/_________________

              William
                M. Noall, Chapter 11 Trustee

            	
              AXION
                POWER INTERNATIONAL, INC.,

              a
                Delaware Corporation

               

              By:
                _________/s/______________________

              Name:
                Thomas Granville

              Title:
                Chief Executive Officer

            

    

    

    
      	
              AXION
                POWER CORPORATION,

              an
                Ontario corporation

               

              By:
                _________/s/______________________

              Name:
                Thomas Granville

              Title:
                Chief Executive Officer

            	
              C
                AND T CO. INC., 

              an
                Ontario corporation

               

              By:
                _________/s/______________________

              Name:
                Igor Filipenkp

              Title:
                President

            
	
               

               

              /s/   

              Sally
                Fonner

            	
               

              HAP
                Investments, LLC, 

               

              By:
                _________/s/______________________

              Name:
                Glenn Patterson

              Title:
                President

            

    

    
      
        24

        100475-001/Final
          Settlement 

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              Trust
                for the Benefit of Shareholders of Mega-C Power Corporation

               

              By______________/s/________________

              Sally
                Fonner, Trustee

               

               

            	
               

               

               

               

              Joe
                Piccirilli

            
	
               

               

               

              /s/   

              Robert
                Averill

            	
              THE
                CANADIAN CONSULTANTS BUREAU INC.

               

              By:
                ______/s/_________________________

              Name:
                Robert Appel

              Title:
                President

            
	
               

               

               

               

              James
                Smith

            	
               

               

               

              /s/   

              Tom
                Granville

            
	
               

               

               

               

              James
                Eagan

            	
               

               

               

              /s/   

              Kirk
                Tierney

            
	
               

               

               

               

              Joe
                Souccar

            	
               

               

               

              /s/   

              Igor
                Filipenko 

            
	
               

               

               

              /s/   

              Glenn
                Patterson 

            	 

    

    
      
        24

        100475-001/Final
          Settlement 

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
               

               

               

              Ron
                Bibace

            	
               

               

              ______________________________

              Andriy
                Malitskiy

            
	
               

               

              _____________________________

              Yuri
                Volkovich

            	
               

               

              ______________________________

              Pavel
                Shmatko

            
	
               

               

              _____________________________

              Albert
                Shtemberg

            	
               

               

              ______________________________

              Edward
                Shtemberg

            
	
               

               

              _____________________________

              Oksana
                Fylypenko

            	
               

               

              ______________________________

              Rimma
                Shtemberg

            
	
               

               

              ______________________________

              Valeri
                Shtemberg

            	
               

               

              ______________________________

              Yuri
                Shtemberg

            
	
               

               

              ______________________________

              Victor
                Eshkenazi

            	
               

               

              ______________________________

              Miraslav
                E. Royz

            
	
               

               

              ______________________________

              James
                Keim

               

            	
              INFINITY
                GROUP, LLC

               

               

              By:
                ______________________________

               

            
	
              TURITELLA
                CORPORATION

               

               

              By:
                ______________________________

               

            	
              C&T
                Co. Inc. In Trust

               

               

              By:______________________________

            
	
               

               

              _______________________________

              Paul
                Brancroft

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