Document:

EXHIBIT
10.4

    

    

    
      December
24, 2009

    

     

    FACSIMILE and
FEDEX

    

    General
Steel Holdings, Inc.

    Room
2315, Kuntai International Mansion Building,

    Yi No.
12, Chaoyangmenwai Ave.

    Chaoyang
District, Beijing, China 100020

     

    Gentlemen:

     

    Reference
is made to that certain (i) Warrant issued by General Steel Holdings, Inc. (the
"Company") to the
undersigned with an Issuance Date of December 13, 2007 (the "Existing Warrant") and (ii)
Securities Purchase Agreement, dated as of the date hereof, by and among the
Company and the purchasers identified on the signature pages thereto pursuant to
which the Company shall be issuing Common Stock and warrants for aggregate
consideration of $25 million (the "New
SPA").  Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to them in the Existing Warrant.

     

    In
consideration of the premises and the agreements herein and for other
consideration, the sufficiency of which is hereby acknowledged, the undersigned
and the Company each hereby agree as follows:

     

    1.           The
undersigned hereby agrees that notwithstanding that whether or not the
application of the antidilution provisions of Section 2(a)(iv) of the Existing
Warrant to the transactions contemplated by the New SPA would result in a lower
Exercise Price and a larger increase in the number of Warrant Shares,
immediately after giving effect to the consummation of the transactions
contemplated by the New SPA, the Exercise Price of the Existing Warrant shall be
adjusted to equal $5.00 and the number of Warrant Shares issuable upon exercise
of the Existing Warrant will be adjusted to equal the product of (i) the number
of Warrant Shares issuable upon exercise of the Existing Warrant immediately
prior to the execution of the New SPA and (ii) 3.3775.

     

    2.           The
undersigned hereby agrees that notwithstanding the provisions of the Existing
Warrant, the undersigned shall not exercise the Existing Warrant (including the
increase in the number of Warrant Shares contemplated in Section 1 above) during
the period beginning on the date hereof and ending on the four month anniversary
of the date hereof.

     

    3.           Other
than the adjustments to the Exercise Price and number of Warrant Shares set
forth above solely in connection with the transactions contemplated by the New
SPA and the agreement by the undersigned not to exercise the Warrants during the
period specified in clause 2 above, no terms of the Existing Warrant shall be
changed or modified by this letter agreement in any respect and all of the
remaining terms of the Existing Warrant shall be continue to apply.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    General
Steel Holdings, Inc.

    December
24, 2009

     

    4.      This
letter agreement may be executed in any number of counterparts, which together
shall constitute one and the same agreement.  In the event that any
provision of this letter agreement is found to be void or invalid, then such
provision shall be deemed to be severable from the remaining provisions of this
letter agreement, and it shall not affect the validity of the remaining
provisions, which provisions shall be given full effect as if the void or
invalid provision had not been included herein.  The terms and
provisions of this letter agreement shall inure to the benefit of and be binding
upon the heirs, successors and assigns of the parties.  This letter
agreement shall be governed by, and construed in accordance with, the laws of
the State of New York (without giving effect to the conflict of laws principles
thereof).  The courts of the State of New York shall have exclusive
jurisdiction to resolve any and all disputes that may arise under this letter
agreement.  Any amendments or modifications hereto must be executed in
writing by all parties. Each party hereto shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this letter agreement.

     

    Very truly yours,

     

    
      
        
          
            
              
                
                  
                    
                      	
                              [                                                                    
      ]

                            
	 
	
                              By: [                                                                      ]

                            
	 
      	 
      
	
                              By: 

                            	
                                

                            
	 
      	
                              Name:  

                            
	 
      	
                              Title:    

                            

                    

                  

                

              

            

          

        

      

    

     

    Acknowledged
and Agreed as of this 
24th day of December, 2009

     

    
      
        
          
            	
                    GENERAL
      STEEL HOLDINGS, INC.

                  
	 
      	 
      
	
                    By: 

                  	
                       

                  
	 
      	
                    Name:

                  
	 
      	
                    Title:PURCHASE
AGREEMENT

    

    THIS PURCHASE AGREEMENT (“Agreement”)
is made as of the 18th day of December, 2009 by and among Axion Power
International, Inc., a Delaware corporation (the “Company”), and the Investors
set forth on the signature pages affixed hereto (each an “Investor” and
collectively the “Investors”).

    

    Recitals

    

    A.           The
Company and each of the Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended; and

    

    B.           The
Investors wish to purchase, severally and not jointly, from the Company, and the
Company wishes to sell and issue to the Investors, upon the terms and conditions
stated in this Agreement, an aggregate of 45,757,572 shares of the Company’s
Common Stock, par value $0.0001 per share (together with any securities into
which such shares may be reclassified, whether by merger, charter amendment or
otherwise, the “Common Stock”), at a purchase price of $0.57 per share;
and

    

    C.           Contemporaneous
with the sale of the Shares, the parties hereto will execute and deliver a
Registration Rights Agreement, in the form attached hereto as Exhibit A (the
“Registration Rights Agreement”), pursuant to which the Company will agree to
provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and applicable
state securities laws.

    

    In consideration of the mutual promises
made herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

    

    1.           Definitions.  In
addition to those terms defined above and elsewhere in this Agreement, for the
purposes of this Agreement, the following terms shall have the meanings set
forth below:

    

    “Affiliate” means,
with respect to any Person, any other Person which directly or indirectly
through one or more intermediaries Controls, is controlled by, or is under
common control with, such Person.

    

    “Business Day” means a
day, other than a Saturday or Sunday, on which banks in New York City are open
for the general transaction of business.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

    

    “Company’s Knowledge”
means the actual knowledge of the executive officers (as defined in Rule 405
under the 1933 Act) of the Company, after due inquiry.

    

    “Confidential
Information” means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

    

    “Control” (including
the terms “controlling”, “controlled by” or “under common control with”) means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.

    

    “Conversions” means,
collectively, the Senior Preferred Stock Conversion and the Series A Preferred
Stock Conversion.

    

    “Effective Date” means
the date on which the initial Registration Statement is declared effective by
the SEC.

    

    “Effectiveness
Deadline” means the date on which the initial Registration Statement is
required to be declared effective by the SEC under the terms of the Registration
Rights Agreement.

    

    “Information
Statement” has the meaning specified in Section 7.9.

    

    “Intellectual
Property” means all of the following: (i) patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); (ii) trademarks, service marks, trade dress, trade names,
corporate names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations, applications and renewals for any of
the foregoing; and (v) proprietary computer software (including but not limited
to data, data bases and documentation).

    

    “Lock-Up Agreement”
means the Lock-Up Agreement in the form attached hereto as Exhibit
B.

    

    “Material Adverse
Effect” means a material adverse effect on (i) the assets, liabilities,
results of operations, condition (financial or otherwise), business, or
prospects of the Company and its Subsidiaries taken as a whole, or (ii) the
ability of the Company to perform its obligations under the Transaction
Documents.

    
      
         

      

      
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    “Material Contract”
means any contract, instrument or other agreement to which the Company or any
Subsidiary is a party or by which it is bound which is material to the business
of the Company and its Subsidiaries, taken as a whole, including those that have
been filed or were required to have been filed as an exhibit to the SEC Reports
pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K.

    

    “Person” means an
individual, corporation, partnership, limited liability company, trust, business
trust, association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity
not specifically listed herein.

    

    “Purchase Price” means
Twenty-Six Million Eighty-One Thousand Four Hundred Ninety Dollars
($26,081,490).

    

    “Quercus Agreements”
means, collectively, the Lock-up Agreement and the Securities Purchase Agreement
Amendment.

    

    “Quercus Warrants”
means the warrants to acquire an aggregate of up to 10,000,000 shares of Common
Stock issued to The Quercus Trust pursuant to the Securities Purchase
Agreement.

    

    “Quercus Transactions”
means the transactions contemplated by the Lock-up Agreement and the Securities
Purchase Agreement Amendment.

    

    “Registration
Statement” has the meaning set forth in the Registration Rights
Agreement.

    

    “Required Investors”
means (i) each Investor who, together with its Affiliates, has agreed to pay at
least $2,000,000 of the aggregate Purchase Price for the Shares to be sold
pursuant to this Agreement, and (ii) the Investors agreeing to acquire a
majority of the Shares to be sold pursuant to this Agreement.

    

    “SEC Filings” has the
meaning set forth in Section 4.6.

    

    “Securities Purchase
Agreement” means the Securities Purchase Agreement, dated as of January
14, 2008, by and between the Company and The Quercus Trust, as amended by the
Amendment to Warrants and Securities Purchase Agreement, dated as of September
15, 2009.

    

    “Securities Purchase
Agreement Amendment” means Amendment No. 2 to the Securities Purchase
Agreement in the form attached hereto as Exhibit C; which,
among other things, amends and waives certain provisions of the Securities
Purchase Agreement and the Quercus Warrants.

    

    “Senior Preferred Stock
Conversion” means the conversion or exchange of all of the issued and
outstanding shares of the Company’s 8% Cumulative Convertible Senior Preferred
Stock (including all accrued and unpaid dividends thereon) into an aggregate of
not more than 1,390,944 shares of Common Stock.

    
      
         

      

      
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    “Series A Preferred
Stock” means the issued and outstanding shares of the Company’s Series A
Convertible Preferred Stock, stated value $10 per share.

    

    “Series A Preferred Stock
Conversion” means, collectively, (i) the amendment of the Company’s
Amended and Restated Certificate of Incorporation to amend the Series A
Preferred Stock Designations to provide that all of the issued and outstanding
shares of Series A Preferred Stock (including all accrued and unpaid dividends
thereon) shall be immediately convertible at the option of the Company at a
Conversion Price (as defined in the Series A Preferred Stock Designations) of
$1.07 or an aggregate of not more than 8,785,483 shares of Common Stock and (ii)
the conversion of all of the issued and outstanding shares of the Series A
Preferred Stock (including all accrued and unpaid dividends thereon) into an
aggregate of not more than 8,785,483 shares of Common Stock.

    

    “Series A Preferred Stock
Designations” means the Amended Certificate of Powers, Designations,
Preferences and Rights of the Series A Convertible Preferred Stock Par Value
$0.0001 Per Share of Axion Power International Inc., dated October 26,
2006.

    

    “Shares” means the
shares of Common Stock being purchased by the Investors hereunder.

    

    “Subsidiary” of any
Person means another Person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body (or, if there
are no such voting interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first Person.

    

    “Transaction
Documents” means this Agreement, the Registration Rights Agreement and
the Quercus Agreements.

    

    “1933 Act” means the
Securities Act of 1933, as amended, or any successor statute, and the rules and
regulations promulgated thereunder.

    

    “1934 Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the
rules and regulations promulgated thereunder.

    

    2.           Purchase and Sale of the
Shares.  Subject to the terms and conditions of this Agreement,
on the Closing Date, each of the Investors shall severally, and not jointly,
purchase, and the Company shall sell and issue to the Investors, the Shares in
the respective amounts set forth opposite the Investors’ names on the signature
pages attached hereto in exchange for the portion of the Purchase Price set
forth opposite the Investors’ names on the signature pages attached hereto as
specified in Section 3 below.

    
      
         

      

      
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    3.           Closing.  Unless
other arrangements have been made with a particular Investor, upon confirmation
that the other conditions to closing specified herein have been satisfied or
duly waived by the Investors, the Company shall deliver to Lowenstein Sandler
PC, in trust, a certificate or certificates, registered in such name or names as
the Investors may designate, representing the Shares, with instructions that
such certificates are to be held for release to the Investors only upon payment
in full of the Purchase Price to the Company by all the
Investors.  Unless other arrangements have been made with a particular
Investor, upon such receipt by Lowenstein Sandler PC of the certificates, each
Investor shall promptly, but no more than one Business Day thereafter, cause a
wire transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in an amount representing such Investor’s
pro rata portion of the Purchase Price as set forth on the signature pages to
this Agreement.  On the date (the “Closing Date”) the Company receives
the Purchase Price, the certificates evidencing the Shares shall be released to
the Investors (the “Closing”).  The Closing of the purchase and sale
of the Shares shall take place at the offices of Lowenstein Sandler PC, 1251
Avenue of the Americas, 18th Floor, New York, New York 10020, or at such other
location and on such other date as the Company and the Investors shall mutually
agree.

    

    4.           Representations and
Warranties of the Company.  The Company hereby represents and
warrants to the Investors that, except as set forth in the schedules delivered
herewith (collectively, the “Disclosure Schedules”):

    

    4.
1         Organization, Good Standing
and Qualification.  Each of the Company and its Subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to carry on its business as now conducted and to own or
lease its properties.  Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not had and could not reasonably be expected to have a
Material Adverse Effect.  The Company’s Subsidiaries are listed on
Schedule 4.1
hereto.

    

    4.2         Authorization.  The
Company has full power and authority and, except for the mailing of the
Information Statement as contemplated by Section 7.9, has taken all requisite
action on the part of the Company, its officers, directors and stockholders
necessary to (i) authorize, execute and deliver the Transaction Documents, (ii)
authorize the performance of all obligations of the Company hereunder or
thereunder, (iii) authorize, issue and deliver the Shares, (iv) effect the
Conversions and (v) effect the Quercus Transactions.  The Transaction
Documents constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally and to general equitable principles.

    
      
         

      

      
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    4.3          Capitalization.  Schedule 4.3 sets
forth as of the date hereof (a) the authorized capital stock of the Company; (b)
the number of shares of capital stock issued and outstanding; (c) the number of
shares of capital stock issuable pursuant to the Company’s stock plans; and (d)
the number of shares of capital stock issuable and reserved for issuance
pursuant to securities (other than the Shares) exercisable for, or convertible
into or exchangeable for any shares of capital stock of the
Company.  All of the issued and outstanding shares of the Company’s
capital stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of pre-emptive rights and were issued in full compliance
with applicable state and federal securities law and any rights of third
parties.  Except as described on Schedule 4.3, all of
the issued and outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in full compliance with applicable state and
federal securities law and any rights of third parties and are owned by the
Company, beneficially and of record, subject to no lien, encumbrance or other
adverse claim.  Except as described on Schedule 4.3, no
Person is entitled to pre-emptive or similar statutory or contractual rights
with respect to any securities of the Company.  Except as described on
Schedule 4.3,
there are no outstanding warrants, options, convertible securities or other
rights, agreements or arrangements of any character under which the Company or
any of its Subsidiaries is or may be obligated to issue any equity securities of
any kind and except as contemplated by this Agreement, neither the Company nor
any of its Subsidiaries is currently in negotiations for the issuance of any
equity securities of any kind.  Except as described on Schedule 4.3 and
except for the Registration Rights Agreement, there are no voting agreements,
buy-sell agreements, option or right of first purchase agreements or other
agreements of any kind among the Company and any of the securityholders of the
Company relating to the securities of the Company held by
them.  Except as described on Schedule 4.3 and
except as provided in the Registration Rights Agreement, no Person has the right
to require the Company to register any securities of the Company under the 1933
Act, whether on a demand basis or in connection with the registration of
securities of the Company for its own account or for the account of any other
Person.

    

    Except for the Conversions and the
Quercus Transactions and except as described on Schedule 4.3, the
issuance and sale of the Shares hereunder will not obligate the Company to issue
shares of Common Stock or other securities to any other Person (other than the
Investors) and will not result in the adjustment of the exercise, conversion,
exchange or reset price of any outstanding security.

    

    Except as described on Schedule 4.3, the
Company does not have outstanding stockholder purchase rights or “poison pill”
or any similar arrangement in effect giving any Person the right to purchase any
equity interest in the Company upon the occurrence of certain
events.

    

    4.4          Valid
Issuance.  The Shares have been duly and validly authorized
and, when issued and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws.

    
      
         

      

      
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    4.5          Consents.  The (i) execution, delivery and performance by the
Company of the Transaction Documents, (ii) offer, issuance and sale of the
Shares, (iii) Conversions and (iv) Quercus Transactions require no consent of,
action by or in respect of, or filing with, any Person, governmental body,
agency, or official other than (i) those that have been obtained and are in full
force and effect (ii) the mailing of the Information Statement as contemplated
by Section 7.9, (iii) filings that have been made pursuant to applicable state
securities laws and (iv) post-sale filings pursuant to applicable state and
federal securities laws which the Company undertakes to file within the
applicable time periods.  Subject to the accuracy of the
representations and warranties of each Investor set forth in Section 5 hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Shares, (ii) the Conversions, (iii) the Quercus Transactions and (iv) the
other transactions contemplated by the Transaction Documents from the provisions
of any stockholder rights plan or other “poison pill” arrangement, any
anti-takeover, business combination or control share law or statute binding on
the Company or to which the Company or any of its assets and properties may be
subject and any provision of the Company’s Amended and Restated Certificate of
Incorporation or Amended By-laws that is or could reasonably be expected to
become applicable to the Investors as a result of the transactions contemplated
hereby, including without limitation, the issuance of the Shares and the
ownership, disposition or voting of the Shares by the Investors or the exercise
of any right granted to the Investors pursuant to this Agreement or the other
Transaction Documents.

    

    4.6          Delivery of SEC Filings;
Business.  The Company has made available to the Investors
through the EDGAR system, true and complete copies of the Company’s most recent
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (as
amended prior to the date hereof, the “10-K”), and all other reports filed by
the Company pursuant to the 1934 Act since the initial filing of the 10-K and
prior to the date hereof (each as it may have been amended prior to the date
hereof, collectively, the “SEC Filings”).  The SEC Filings are the
only filings required of the Company pursuant to the 1934 Act for such
period.  The Company and its Subsidiaries are engaged in all material
respects only in the business described in the SEC Filings and the SEC Filings
contain a complete and accurate description in all material respects of the
business of the Company and its Subsidiaries, taken as a whole.

    

    4.7          Use of
Proceeds.  The net proceeds of the sale of the Shares hereunder
shall be used by the Company for working capital and general corporate
purposes.

    

    4.8          No Material Adverse
Change.  Since December 31, 2008, except for the Conversions
and the Quercus Transactions and except as identified and described in the SEC
Filings or as described on Schedule 4.8, there
has not been:

    

    (i)           any
change in the consolidated assets, liabilities, financial condition or operating
results of the Company from that reflected in the financial statements included
in the Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2009, except for changes in the ordinary course of business which have not
had and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;

    

    (ii)           any
declaration or payment of any dividend, or any authorization or payment of any
distribution, on any of the capital stock of the Company, or any redemption or
repurchase of any securities of the Company;

    

    (iii)          any
material damage, destruction or loss, whether or not covered by insurance to any
assets or properties of the Company or its Subsidiaries;

    
      
         

      

      
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    (iv)          any
waiver, not in the ordinary course of business, by the Company or any Subsidiary
of a material right or of a material debt owed to it;

    

    (v)           any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or a Subsidiary, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company and its Subsidiaries
taken as a whole (as such business is presently conducted and as it is proposed
to be conducted);

    

    (vi)          any
change or amendment to the Company's Amended and Restated Certificate of
Incorporation or Amended By-laws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;

    

    (vii)         any
material labor difficulties or labor union organizing activities with respect to
employees of the Company or any Subsidiary;

    

    (viii)        any
material transaction entered into by the Company or a Subsidiary other than in
the ordinary course of business;

    

    (ix)           the
loss of the services of any key employee, or material change in the composition
or duties of the senior management of the Company or any
Subsidiary;

    

    (x)           
the loss or threatened loss of any customer which has had or could reasonably be
expected to have a Material Adverse Effect; or

    

    (xi)           any
other event or condition of any character that has had or could reasonably be
expected to have a Material Adverse Effect.

    

    4.9         SEC
Filings.

    

    (a)           At
the time of filing thereof, the SEC Filings complied as to form in all material
respects with the requirements of the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.

    

    (b)           Each
registration statement and any amendment thereto filed by the Company since
January 1, 2006 pursuant to the 1933 Act and the rules and regulations
thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein not misleading; and each prospectus filed pursuant to Rule 424(b)
under the 1933 Act, as of its issue date and as of the closing of any sale of
securities pursuant thereto did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

    
      
         

      

      
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    4.10       No Conflict, Breach,
Violation or Default.  The (i) execution, delivery and
performance of the Transaction Documents by the Company, (ii) issuance and sale
of the Shares, (iii) Conversions and (iv) Quercus Transactions will not (i)
conflict with or result in a breach or violation of (a) any of the terms and
provisions of, or constitute a default under the Company’s Amended and Restated
Certificate of Incorporation or the Company’s Amended By-laws, both as in effect
on the date hereof (true and complete copies of which have been made available
to the Investors through the EDGAR system), or (b) any statute, rule, regulation
or order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company, any Subsidiary or any of their respective
assets or properties, or (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
result in the creation of any lien, encumbrance or other adverse claim upon any
of the properties or assets of the Company or any Subsidiary or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any Material Contract.

    

    4.11       Tax
Matters.  The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it.  The charges, accruals and
reserves on the books of the Company in respect of taxes for all fiscal periods
are adequate in all material respects, and there are no material unpaid
assessments against the Company or any Subsidiary nor, to the Company’s
Knowledge, any basis for the assessment of any additional taxes, penalties or
interest for any fiscal period or audits by any federal, state or local taxing
authority except for any assessment which is not material to the Company and its
Subsidiaries, taken as a whole.  All taxes and other assessments and
levies that the Company or any Subsidiary is required to withhold or to collect
for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due.  There are no tax liens
or claims pending or, to the Company’s Knowledge, threatened against the Company
or any Subsidiary or any of their respective assets or
property.  Except as described on Schedule 4.11, there
are no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity.

    

    4.12       Title to
Properties.  Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

    

    4.13       Certificates, Authorities
and Permits.  The Company and each Subsidiary possess adequate
certificates, authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by it, and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or such Subsidiary, could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate.

    
      
         

      

      
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                          4.14       Labor Matters.

    

                          (a)           Except as set forth on Schedule 4.14, the Company is not a party to or bound by any
collective bargaining agreements or other agreements with labor
organizations.  The Company has not violated in any material respect
any laws, regulations, orders or contract terms, affecting the collective
bargaining rights of employees, labor organizations or any laws, regulations or
orders affecting employment discrimination, equal opportunity employment, or
employees’ health, safety, welfare, wages and hours.

    

                          (b)           (i) There are no labor disputes existing, or to the
Company's Knowledge, threatened, involving strikes, slow-downs, work stoppages,
job actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) no demand for recognition or certification
heretofore made by any labor organization or group of employees is pending with
respect to the Company and (iv) to the Company's Knowledge, the Company enjoys
good labor and employee relations with its employees and labor
organizations.

    

                          (c)           The Company is, and at all times has been, in compliance
in all material respects with all applicable laws respecting employment
(including laws relating to classification of employees and independent
contractors) and employment practices, terms and conditions of employment, wages
and hours, and immigration and naturalization.  There are no claims
pending against the Company before the Equal Employment Opportunity Commission
or any other administrative body or in any court asserting any violation of
Title VII of the Civil Rights Act of 1964, the Age Discrimination Act of 1967,
42 U.S.C. §§ 1981 or 1983 or any other federal, state or local Law, statute or
ordinance barring discrimination in employment.

    

                          (d)           Except as disclosed in the SEC Filings or as described
on Schedule
4.14, the Company is not a party to, or
bound by, any employment or other contract or agreement that contains any
severance, termination pay or change of control liability or obligation,
including, without limitation, any “excess parachute payment,” as defined in
Section 280G(b) of the Internal Revenue Code.

    

                          (e)           Except as specified in Schedule 4.14, each of the Company's employees is a Person who is
either a United States citizen or a permanent resident entitled to work in the
United States.  To the Company's Knowledge, the Company has no
existing liability for the improper classification by the Company of such
employees as independent contractors or leased employees prior to the
Closing.

    
      
         

      

      
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    4.15         Intellectual
Property.

    

    (a)           All
Intellectual Property of the Company and its Subsidiaries is currently in
compliance in all material respects with all legal requirements (including
timely filings, proofs and payments of fees) and, to the Company’s Knowledge, is
valid and enforceable.  No Intellectual Property of the Company or its
Subsidiaries which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted has been or is now involved in any cancellation,
dispute or litigation, and, to the Company’s Knowledge, no such action is
threatened.  No patent of the Company or its Subsidiaries has been or
is now involved in any interference, reissue, re-examination or opposition
proceeding.

    

    (b)           All
of the licenses and sublicenses and consent, royalty or other agreements
concerning Intellectual Property which are necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted to which the Company or any
Subsidiary is a party or by which any of their assets are bound (other than
 generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, “License Agreements”) are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company’s Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.

    

    (c)           To
the Company’s Knowledge, the Company and its Subsidiaries own or have the valid
right to use all of the Intellectual Property that is necessary for the conduct
of the Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted and for the
ownership, maintenance and operation of the Company’s and its Subsidiaries’
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual Property and Confidential
Information, other than licenses entered into in the ordinary course of the
Company’s and its Subsidiaries’ businesses.  To the Company’s
Knowledge, the Company and its Subsidiaries have a valid and enforceable right
to use all third party Intellectual Property and Confidential Information used
or held for use in the respective businesses of the Company and its
Subsidiaries.

    

    (d)           To
the Company’s Knowledge, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted does not infringe or otherwise impair or
conflict with (collectively, “Infringe”) any Intellectual Property rights of any
third party or any confidentiality obligation owed to a third party, and, to the
Company’s Knowledge, the Intellectual Property and Confidential Information of
the Company and its Subsidiaries which are necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted are not being Infringed by
any third party.  There is no litigation or order pending or
outstanding or, to the Company’s Knowledge, threatened or imminent, that seeks
to limit or challenge or that concerns the ownership, use, validity or
enforceability of any Intellectual Property or Confidential Information of the
Company and its Subsidiaries and the Company’s and its Subsidiaries’ use of any
Intellectual Property or Confidential Information owned by a third party, and,
to the Company’s Knowledge, there is no valid basis for the
same.

    
      
         

      

      
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    (e)           The
consummation of the transactions contemplated hereby and by the other
Transaction Documents will not result in the alteration, loss, impairment of or
restriction on the Company’s or any of its Subsidiaries’ ownership or right to
use any of the Intellectual Property or Confidential Information which is
necessary for the conduct of the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted.

    

    (f)           The
Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information.  Each employee, consultant and contractor
who has had access to Confidential Information which is necessary for the
conduct of the Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company’s standard forms thereof.  Except under confidentiality
obligations, there has been no material disclosure of any of the Company’s or
its Subsidiaries’ Confidential Information to any third party.

    

    4.16         Environmental
Matters.  Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”); owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws; is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.

    

    4.17         Litigation.  Except
as described in the SEC Filings or as described on Schedule 4.17, there
are no pending actions, suits or proceedings against or affecting the Company,
its Subsidiaries or any of its or their properties; and to the Company’s
Knowledge, no such actions, suits or proceedings are threatened or
contemplated.  Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty.  There has not been, and to the
Company’s Knowledge, there is not pending or contemplated, any investigation by
the SEC involving the Company or any current or former director or officer of
the Company.  The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the 1933 Act or the 1934 Act.

    
      
         

      

      
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    4.18         Financial
Statements.  The financial statements included in each SEC
Filing comply in all material respects with applicable accounting requirements
and the rules and regulations of the SEC with respect thereto as in effect at
the time of filing (or to the extent corrected by a subsequent restatement) and
present fairly, in all material respects, the consolidated financial position of
the Company as of the dates shown and its consolidated results of operations and
cash flows for the periods shown, and such financial statements have been
prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis (“GAAP”) (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial
statements, as permitted by Form 10-Q under the 1934 Act).  Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
contingent or otherwise, except those incurred in the ordinary course of
business, consistent (as to amount and nature) with past practices since the
date of such financial statements, none of which, individually or in the
aggregate, have had or could reasonably be expected to have a Material Adverse
Effect.

    

    4.19         Insurance
Coverage.  The Company and each Subsidiary maintains in full
force and effect insurance coverage that is customary for comparably situated
companies for the business being conducted and properties owned or leased by the
Company and each Subsidiary, and the Company reasonably believes such insurance
coverage to be adequate against all liabilities, claims and risks against which
it is customary for comparably situated companies to insure.

    

    4.20         OTCBB
Compliance.  The Common Stock is registered pursuant to Section
12(g) of the 1934 Act and is quoted on The OTC Bulletin Board quotation service
(the “OTCBB”), and the Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
1934 Act or removal from quotation of the Common Stock from the OTCBB, nor has
the Company received any notification that the SEC, the OTCBB or the Financial
Industry Regulatory Authority, Inc. is contemplating terminating such
registration or quotation.

    

    4.21         Brokers and
Finders.  No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company, other than as
described in Schedule
4.21.

    

    4.22         No Directed Selling Efforts
or General Solicitation.  Neither the Company nor any Person
acting on its behalf has conducted any general solicitation or general
advertising (as those terms are used in Regulation D) in connection with the
offer or sale of any of the Shares.

    

    4.23         No Integrated
Offering.  Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) for the exemption from registration for the transactions
contemplated hereby or would require registration of the Shares under the 1933
Act.

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    

    4.24         Private
Placement.  The offer and sale of the Shares to the Investors
as contemplated hereby is exempt from the registration requirements of the 1933
Act.

    

    4.25         Questionable
Payments.  Neither
the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of
their respective current or former stockholders, directors, officers, employees,
agents or other Persons acting on behalf of the Company or any Subsidiary, has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary; or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.

    

    4.26         Transactions with
Affiliates.  Except as disclosed in the SEC Filings or as
disclosed on Schedule
4.26, none of the officers or directors of the Company and, to the
Company’s Knowledge, none of the employees of the Company is presently a party
to any transaction with the Company or any Subsidiary (other than as holders of
stock options and/or warrants, and for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

    

    4.27         Internal
Controls.  The Company is in
material compliance with the provisions of the Sarbanes-Oxley Act of 2002
currently applicable to the Company.  The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including the Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed
periodic report under the 1934 Act, as the case may be, is being
prepared.  The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the "Evaluation Date").  The Company presented in its most
recently filed periodic report under the 1934 Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation
Date.  Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item 308
of Regulation S-K) or, to the Company's Knowledge, in other factors that could
significantly affect the Company's internal controls.  The Company
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP and the applicable
requirements of the 1934 Act.

    
      
         

      

      
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    4.28         Disclosures.  Neither
the Company nor any Person acting on its behalf has provided the Investors or
their agents or counsel with any information that constitutes or might
constitute material, non-public information, other than the terms of the
transactions contemplated hereby.  The written materials delivered to
the Investors in connection with the transactions contemplated by the
Transaction Documents do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.

    

    4.29         Investment
Company.  The Company is not required to be registered as, and
is not an Affiliate of, and immediately following the Closing will not be
required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

    

    5.           Representations and
Warranties of the Investors.  Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company
that:

    

    5.1           Organization and
Existence.  Such Investor is a validly existing corporation,
limited partnership or limited liability company and has all requisite
corporate, partnership or limited liability company power and authority to
invest in the Shares pursuant to this Agreement, or is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act and had
the requisite authority to invest in the Shares pursuant to this
Agreement.

    

    5.2           Authorization.  The
execution, delivery and performance by such Investor of the Transaction
Documents to which such Investor is a party have been duly authorized and each
will constitute the valid and legally binding obligation of such Investor,
enforceable against such Investor in accordance with their respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors’ rights generally.

    

    5.3           Purchase Entirely for Own
Account.  The Shares to be received by such Investor hereunder
will be acquired (i) for such Investor’s own account, not as nominee or agent,
or (ii) for one or more accounts or entities over which the Investor has
investment discretion, and, in each case, not with a view to the resale or
distribution of any part thereof in violation of the 1933 Act, and such
Investor, whether on its own behalf or on behalf of such accounts or entities,
has no present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act
without prejudice, however, to the right of such Investor or such accounts or
entities at all times to sell or otherwise dispose of all or any part of such
Shares in compliance with applicable federal and state securities
laws.  Nothing contained herein shall be deemed a
representation or warranty by such Investor, on its own behalf or on behalf of
such accounts or entities, to hold the Shares for any period of
time.  Such Investor is not, and is not acting on behalf of, a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered.

    
      
         

      

      
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    5.4           Investment
Experience.  Such Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Shares and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated
hereby.

    

    5.5           Disclosure of
Information.  Such Investor has had an opportunity to receive
all information related to the Company requested by it and to ask questions of
and receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Shares.  Such Investor
acknowledges receipt of copies of the SEC Filings.  Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, limit or otherwise affect such Investor’s right to rely on the
Company’s representations and warranties contained in this
Agreement.

    

    5.6           Restricted
Securities.  Such Investor understands that the Shares are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.

    

    5.7           Legends.  It
is understood that, except as provided below, certificates evidencing the Shares
may bear the following or any similar legend:

    

    (a)           “The
securities represented hereby may not be transferred unless (i) such securities
have been registered for sale pursuant to the Securities Act of 1933, as
amended, (ii) such securities may be sold without restriction pursuant to Rule
144, or (iii) the Company has received an opinion of counsel reasonably
satisfactory to it that such transfer may lawfully be made without registration
under the Securities Act of 1933 or qualification under applicable state
securities laws.”

    

    (b)           If
required by the authorities of any state in connection with the issuance of sale
of the Shares, the legend required by such state authority.

    

    5.8           Accredited
Investor.  Such Investor is an accredited investor as defined
in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

    

    5.9           No General
Solicitation.  Such Investor did not learn of the investment in
the Shares as a result of any general solicitation or general
advertising.

    
      
         

      

      
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    5.10         Brokers and
Finders.  No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of such Investor.

    

    5.11         Prohibited
Transactions.  Since the earlier of (a) such time as such
Investor was first contacted by the Company or any other Person acting on behalf
of the Company regarding the transactions contemplated hereby or (b) thirty (30)
days prior to the date hereof, neither such Investor nor any Affiliate of such
Investor which (x) had knowledge of the transactions contemplated hereby, (y)
has or shares discretion relating to such Investor’s investments or trading or
information concerning such Investor’s investments, including in respect of the
Shares, or (z) is subject to such Investor’s review or input concerning such
Affiliate’s investments or trading (collectively, “Trading Affiliates”) has,
directly or indirectly, effected or agreed to effect any short sale, whether or
not against the box, established any “put equivalent position” (as defined in
Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Shares (each, a “Prohibited
Transaction”).  Prior to the earliest to occur of (i) the termination
of this Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline,
such Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction.  Such Investor
acknowledges that the representations, warranties and covenants contained in
this Section 5.11 are being made for the benefit of the Investors as well as the
Company and that each of the other Investors shall have an independent right to
assert any claims against such Investor arising out of any breach or violation
of the provisions of this Section 5.11.

    

    6.  Conditions to
Closing.

    

    6.1           Conditions to the Investors’
Obligations. The obligation of each Investor to purchase the Shares at
the Closing is subject to the fulfillment to such Investor’s satisfaction, on or
prior to the Closing Date, of the following conditions, any of which may be
waived by such Investor (as to itself only):

    

    (a)           The
representations and warranties made by the Company in Section 4 hereof qualified
as to materiality shall be true and correct at all times prior to and on the
Closing Date, except to the extent any such representation or warranty expressly
speaks as of an earlier date, in which case such representation or warranty
shall be true and correct as of such earlier date, and, the representations and
warranties made by the Company in Section 4 hereof not qualified as to
materiality shall be true and correct in all material respects at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct in all material respects as
of such earlier date.  The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.

    
      
         

      

      
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    (b)           The
Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Shares and the consummation of the other transactions
contemplated by the Transaction Documents, all of which shall be in full force
and effect.

    

    (c)           The
Company shall have obtained the irrevocable written consent of the holders of
the Senior Preferred Stock, the Series A Preferred Stock and the Common Stock in
accordance with applicable law, the Company’s Amended and Restated Articles of
Incorporation and Amended Bylaws necessary to authorize and approve the
Conversions.

    

    (d)           The
Company shall have executed and delivered the Registration Rights
Agreement.

    

    (e)           The
Company shall have provided to the Investors written evidence reasonably
satisfactory to the Required Investors that the Senior Preferred Stock
Conversion has occurred.

    

    (f)           The
Company shall deliver to the Investors fully executed counterparts of each of
the Quercus Agreements.

    

    (g)           The
Company shall have delivered to the transfer agent for the Common Stock stop
transfer orders in form and substance satisfactory to the Requisite Investor to
effectuate the provisions of the Lock-Up Agreement.

    

    (h)           The
Quercus Agreements shall be in full force and effect and the Company and the
other parties thereto shall have performed all obligations to be performed by
them thereunder on or prior to the Closing.

    

    (i)           No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, enjoining
or preventing the consummation of Conversions or the transactions contemplated
hereby or in the other Transaction Documents.

    

    (j)           The
Company shall have delivered a Certificate, executed on behalf of the Company by
its Chief Executive Officer or its Chief Financial Officer, dated as of the
Closing Date, certifying to the fulfillment of the conditions specified in
subsections (a), (b), (c), (h), (i) and (m) of this Section 6.1.

    

    (k)           The
Company shall have delivered a Certificate, executed on behalf of the Company by
its Secretary, dated as of the Closing Date, certifying the resolutions adopted
by the Board of Directors of the Company approving the Conversions, the Quercus
Transactions and the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Shares, certifying the current
versions of the Amended and Restated Certificate of Incorporation and Amended
By-laws of the Company and certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company.

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

    

    (l)           
The Investors shall have received an opinion from Jolie Kahn, Esq., the
Company's counsel, dated as of the Closing Date, in form and substance
reasonably acceptable to the Investors and addressing such legal matters as the
Investors may reasonably request.

    

    (m)          No
stop order or suspension of trading shall have been imposed by the SEC or any
other governmental or regulatory body with respect to public trading in the
Common Stock.

    

    6.2           Conditions to Obligations of
the Company. The Company's obligation to sell and issue the Shares at the
Closing is subject to the fulfillment to the satisfaction of the Company on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:

    

    (a)           The
representations and warranties made by the Investors in Section 5 hereof, other
than the representations and warranties contained in Sections 5.3, 5.4, 5.5,
5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.  The Investment Representations
shall be true and correct in all respects when made, and shall be true and
correct in all respects on the Closing Date with the same force and effect as if
they had been made on and as of said date.  The Investors shall have
performed in all material respects all obligations and covenants herein required
to be performed by them on or prior to the Closing Date.

    

    (b)           The
Investors shall have executed and delivered the Registration Rights
Agreement.

    

    (c)           The
Investors shall have delivered the Purchase Price to the Company.

    

    6.3           Termination of Obligations
to Effect Closing; Effects.

    

    (a)           The
obligations of the Company, on the one hand, and the Investors, on the other
hand, to effect the Closing shall terminate as follows:

    

    (i)           Upon
the mutual written consent of the Company and the Investors;

    

    (ii)           By
the Company if any of the conditions set forth in Section 6.2 shall have become
incapable of fulfillment, and shall not have been waived by the
Company;

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

    

    (iii)           By
an Investor (with respect to itself only) if any of the conditions set forth in
Section 6.1 shall have become incapable of fulfillment, and shall not have been
waived by the Investor; or

    

    (iv)           By
either the Company or any Investor (with respect to itself only) if the Closing
has not occurred on or prior to December 24, 2009;

    

    provided,
however, that, except in the case of clause (i) above, the party seeking to
terminate its obligation to effect the Closing shall not then be in breach of
any of its representations, warranties, covenants or agreements contained in
this Agreement or the other Transaction Documents if such breach has resulted in
the circumstances giving rise to such party’s seeking to terminate its
obligation to effect the Closing.

    

    (b)           In
the event of termination by the Company or any Investor of its obligations to
effect the Closing pursuant to this Section 6.3, written notice thereof shall
forthwith be given to the other Investors by the Company and the other Investors
shall have the right to terminate their obligations to effect the Closing upon
written notice to the Company and the other Investors.  Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.

    

    7.           Covenants and Agreements of
the Company.

    

    7.1           Reports.  The
Company will furnish to the Investors and/or their assignees such information
relating to the Company and its Subsidiaries as from time to time may reasonably
be requested by the Investors and/or their assignees; provided, however, that
the Company shall not disclose material nonpublic information to the Investors,
or to advisors to or representatives of the Investors, unless prior to
disclosure of such information the Company identifies such information as being
material nonpublic information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such material
nonpublic information for review and any Investor wishing to obtain such
information enters into an appropriate confidentiality agreement with the
Company with respect thereto.

    

    7.2           No Conflicting
Agreements.  The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.

    

    7.3           Insurance.  The
Company shall not materially reduce the insurance coverages described in Section
4.19.

    

    7.4           Compliance with
Laws.  The Company will comply in all material respects with
all applicable laws, rules, regulations, orders and decrees of all governmental
authorities.

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

     

    7.5           Listing of Underlying Shares
and Related Matters.  If the Company applies to have its Common
Stock or other securities traded on any other principal stock exchange or
market, it shall include in such application the Shares and will take such other
action as is necessary to cause such Common Stock to be so
listed.  The Company will use commercially reasonable efforts to
continue the listing and trading of its Common Stock on such exchange or market
and, in accordance, therewith, will use commercially reasonable efforts to
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of exchange or market, as
applicable.

    

    7.6           Termination of
Covenants.  The provisions of Sections 7.1 through 7.4 shall
terminate and be of no further force and effect on the date on which the
Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

    

    7.7           Removal of
Legends.  In connection with any sale or disposition of the
Shares by an Investor pursuant to Rule 144 or pursuant to any other exemption
under the 1933 Act such that the purchaser acquires freely tradable shares and
upon compliance by the Investor with the requirements of this Agreement, the
Company shall cause the transfer agent for the Common Stock (the “Transfer
Agent”) to issue replacement certificates representing the Shares sold or
disposed of without restrictive legends.  Upon the earlier of (i)
registration for resale pursuant to the Registration Rights Agreement or (ii)
the Shares becoming freely tradable by a non-affiliate pursuant to Rule 144 the
Company shall (A) deliver to the Transfer Agent irrevocable instructions that
the Transfer Agent shall reissue a certificate representing shares of Common
Stock without legends upon receipt by such Transfer Agent of the legended
certificates for such shares, together with either (1) a customary
representation by the Investor that Rule 144 applies to the shares of Common
Stock represented thereby or (2) a statement by the Investor that such Investor
has sold the shares of Common Stock represented thereby in accordance with the
Plan of Distribution contained in the Registration Statement, and (B) cause its
counsel to deliver to the Transfer Agent one or more blanket opinions to the
effect that the removal of such legends in such circumstances may be effected
under the 1933 Act.  From and after the earlier of such dates, upon an
Investor’s written request, the Company shall promptly cause certificates
evidencing the Investor’s Shares to be replaced with certificates which do not
bear such restrictive legends.  When the Company is required to cause
an unlegended certificate to replace a previously issued legended certificate,
if: (1) the unlegended certificate is not delivered to an Investor within three
(3) Business Days of submission by that Investor of a legended certificate and
supporting documentation to the Transfer Agent as provided above and (2) prior
to the time such unlegended certificate is received by the Investor, the
Investor, or any third party on behalf of such Investor or for the Investor’s
account, purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Investor of shares represented
by such certificate (a “Buy-In”), then the Company shall pay in cash to the
Investor (for costs incurred either directly by such Investor or on behalf of a
third party) the amount by which the total purchase price paid for Common Stock
as a result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Investor as a result of the sale to which such Buy-In
relates.  The Investor shall provide the Company written notice
indicating the amounts payable to the Investor in respect of the
Buy-In.

     

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

    7.8           Subsequent Equity
Sales.

    

    (a)           From
the date hereof until ninety (90) days after the Closing Date, without the
consent of the Required Investors, neither the Company nor any Subsidiary shall
issue shares of Common Stock or Common Stock Equivalents. Notwithstanding the
foregoing, the provisions of this Section 7.8(a) shall not apply to (i) the
issuance of Common Stock or Common Stock Equivalents upon the conversion or
exercise of any securities of the Company or a Subsidiary outstanding on the
date hereof, provided that the terms of such security are not amended after the
date hereof to decrease the exercise price or increase the Common Stock or
Common Stock Equivalents receivable upon the exercise, conversion or exchange
thereof, (ii) the issuance to C&T Group of warrants to purchase not more
than 1,600,000 shares of Common Stock at an exercise price of not less than
$2.00 per share (the “C&T Warrants”) and the issuance of Common Stock upon
the exercise of the C&T Warrants, (iii) the issuance to Robert Averill of
warrants to purchase not more than 18,421 shares of Common Stock at an exercise
price of not less than $2.00 per share (the “Averill Warrants”) and the issuance
of Common Stock upon the exercise of the Averill Warrants, (iv) the issuance of
Common Stock or Common Stock Equivalents in a financing which is intended to
qualify for matching funding by the United States Department of Energy (the
“DOE”) pursuant to any match funding program maintained by the DOE, and (v) the
issuance of any Common Stock or Common Stock Equivalents pursuant to any Company
equity incentive plan approved by the Company’s stockholders and in place as of
the date hereof.

    

    (b)           From
the date hereof until the earlier of (i) three years from the Closing Date or
(ii) such time as no Investor holds any of the Shares, the Company shall be
prohibited from effecting or entering into an agreement to effect any “Variable
Rate Transaction”.  The term “Variable Rate Transaction” shall mean a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or (B)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined
price.  For the avoidance of doubt, the issuance of a security which
is subject to customary anti-dilution protections, including where the
conversion, exercise or exchange price is subject to adjustment as a result of
stock splits, reverse stock splits and other similar recapitalization or
reclassification events, shall not be deemed to be a “Variable Rate
Transaction.”

    

    (c)           The
Company shall not, and shall use its commercially reasonable efforts to ensure
that no Affiliate of the Company shall, sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the 1933 Act) that will be integrated with the offer or sale of the Shares
in a manner that would require the registration under the 1933 Act of the sale
of the Shares to the Investors, or that will be integrated with the offer or
sale of the Shares for purposes of the rules and regulations of any trading
market such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.

     

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

    7.9           Series A Preferred Stock
Conversion; Information Statement.  The Company shall use its
best efforts to consummate the Series A Preferred Stock Conversion as promptly
as practicable after the Closing.  Without limiting the generality of
the foregoing, promptly following the Closing the Company shall prepare and file
with the SEC an information statement describing the Series A Preferred Stock
Conversion, disclosing that the requisite stockholders of the Company have
irrevocably consented to the Series A Preferred Stock Conversion in accordance
with applicable law, the Company’s Amended and Restated Articles of
Incorporation and Amended Bylaws and otherwise meeting the requirements of
Section 14(c) of the 1934 Act and the rules promulgated thereunder (the
“Information Statement”) and, after receiving and promptly responding to any
comments of the SEC thereon, shall promptly mail such Information Statement to
the stockholders of the Company.  The Company will comply with Section
14(c) of the 1934 Act and the rules promulgated thereunder connection with the
preparation and mailing of the Information Statement, and the Information
Statement shall not, as of the date that the Information Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders or at
the effective date of the Series A Preferred Stock Conversion, contain any
statement which, at the time and in the light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or which
omits to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the same subject matter which has become
false or misleading.  If the Company should discover at any time prior
to the Series A Preferred Stock Conversion, any event relating to the Company or
any of its Subsidiaries or any of their respective affiliates, officers or
directors that is required to be set forth in a supplement or amendment to the
Information Statement, in addition to the Company's obligations under the 1934
Act, the Company will promptly inform the Investors thereof.

    

    7.10          Equal Treatment of
Investors.  No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents.  For clarification
purposes, this provision constitutes a separate right granted to each Investor
by the Company and negotiated separately by each Investor, and is intended for
the Company to treat the Investors as a class and shall not in any way be
construed as the Investors acting in concert or as a group with respect to the
purchase, disposition or voting of Shares or otherwise.

    

    8.           Survival and
Indemnification.

    

    8.1            Survival.  The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transactions contemplated by this
Agreement.

     

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    8.2     Indemnification.  The
Company agrees to indemnify and hold harmless each Investor and its Affiliates
and their respective directors, officers, trustees, members, managers, employees
and agents, and their respective successors and assigns, from and against any
and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “Losses”) to which such Person may become subject as a result of
any breach of representation, warranty, covenant or agreement made by or to be
performed on the part of the Company under the Transaction Documents, and will
reimburse any such Person for all such amounts as they are incurred by such
Person.

    

    8.3     Conduct of Indemnification
Proceedings.  Any
person entitled to indemnification hereunder shall (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person unless (a)
the indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and provided, further, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations hereunder, except to the
extent that such failure to give notice shall materially adversely affect the
indemnifying party in the defense of any such claim or litigation.  It
is understood that the indemnifying party shall not, in connection with any
proceeding in the same jurisdiction, be liable for fees or expenses of more than
one separate firm of attorneys at any time for all such indemnified
parties.  No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.

    

    9.           Miscellaneous.

    

    9.1           Successors and
Assigns.  This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Investors, as
applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Shares in a transaction complying with
applicable securities laws without the prior written consent of the Company or
the other Investors.  The provisions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and
assigns of the parties.  Without limiting the generality of the
foregoing, in the event that the Company is a party to a merger, consolidation,
share exchange or similar business combination transaction in which the Common
Stock is converted into the equity securities of another Person, from and after
the effective time of such transaction, such Person shall, by virtue of such
transaction, be deemed to have assumed the obligations of the Company hereunder,
the term “Company” shall be deemed to refer to such Person and the term “Shares”
shall be deemed to refer to the securities received by the Investors in
connection with such transaction.  Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

    

    
      
         

      

      
        -24-

        
          

        

      

      
         

      

    

    9.2           Counterparts;
Faxes.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement
may also be executed via facsimile, which shall be deemed an
original.

    

    9.3           Titles and
Subtitles.  The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

    

    9.4           Notices.  Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed
given upon such delivery, (ii) if given by telex or telecopier, then such notice
shall be deemed given upon receipt of confirmation of complete transmittal,
(iii) if given by mail, then such notice shall be deemed given upon the earlier
of (A) receipt of such notice by the recipient or (B) three days after such
notice is deposited in first class mail, postage prepaid, and (iv) if given by
an internationally recognized overnight air courier, then such notice shall be
deemed given one Business Day after delivery to such carrier.  All
notices shall be addressed to the party to be notified at the address as
follows, or at such other address as such party may designate by ten days’
advance written notice to the other party:

    

    If to the Company:

    

    Axion
Power International, Inc.

    3601
Clover Lane

    New
Castle, Pennsylvania 16105

    Attention:
Thomas G. Granville

    Fax:  (724)
654-3300

    

    With a copy to:

    

    Jolie
Kahn, Esq.

    61
Broadway, Suite 2820

    New York,
New York 10006

    Fax:  (212)
422-4910

     

    
      
         

      

      
        -25-

        
          

        

      

      
         

      

    

    If to the Investors:

    

    to the
addresses set forth on the signature pages hereto.

    

    9.5           Expenses.  The
parties hereto shall pay their own costs and expenses in connection herewith,
except that at the Closing the Company shall pay the reasonable fees and
expenses of Lowenstein Sandler PC not to exceed $30,000; it being understood
that Lowenstein Sandler PC has only rendered legal advice to the Special
Situations Funds participating in this transaction and not to the Company or any
other Investor in connection with the transactions contemplated hereby, and that
each of the Company and each Investor has relied for such matters on the advice
of its own respective counsel.  Such expenses shall be paid upon
demand.  The Company shall reimburse the Investors upon demand for all
reasonable out-of-pocket expenses incurred by the Investors, including without
limitation reimbursement of attorneys’ fees and disbursements, in connection
with any amendment, modification or waiver of this Agreement or the other
Transaction Documents.  In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the other Transaction Documents, the party
or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys’ fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.

    

    9.6           Amendments and
Waivers.  Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Required Investors.  Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Shares purchased under this Agreement at the time
outstanding, each future holder of all such Shares, and the
Company.

    

    9.7           Publicity.  Except
as set forth below, no public release or announcement concerning the
transactions contemplated hereby shall be issued by the Company or the Investors
without the prior consent of the Company (in the case of a release or
announcement by the Investors) or the Investors (in the case of a release or
announcement by the Company) (which consents shall not be unreasonably
withheld), except as such release or announcement may be required by law or the
applicable rules or regulations of any securities exchange or securities market,
in which case the Company or the Investors, as the case may be, shall allow the
Investors or the Company, as applicable, to the extent reasonably practicable in
the circumstances, reasonable time to comment on such release or announcement in
advance of such issuance.  By 8:30 a.m. (New York City time) on the
trading day immediately following the Closing Date, the Company shall issue a
press release disclosing the consummation of the transactions contemplated by
this Agreement.  No later than the fourth trading day following the
Closing Date, the Company will file a Current Report on Form 8-K attaching the
press release described in the foregoing sentence as well as copies of the
Transaction Documents.  In addition, the Company will make such other
filings and notices in the manner and time required by the SEC.

     

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

    9.8           Severability.  Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.  To the
extent permitted by applicable law, the parties hereby waive any provision of
law which renders any provision hereof prohibited or unenforceable in any
respect.

    

    9.9           Entire
Agreement.  This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.

    

    9.10           Further
Assurances.  The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

    

    9.11           Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial.  This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
New York without regard to the choice of law principles thereof.  Each
of the parties hereto irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby.  Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement.  Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such
court.  Each party hereto irrevocably waives any objection to the
laying of venue of any such suit, action or proceeding brought in such courts
and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.

     

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

    9.12          Independent Nature of
Investors' Obligations and Rights.  The obligations of each Investor under any
Transaction Document are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of
the obligations of any other Investor under any Transaction
Document.  The decision of each Investor to purchase Shares pursuant
to the Transaction Documents has been made by such Investor independently of any
other Investor.  Nothing contained herein or in any Transaction
Document, and no action taken by any Investor pursuant thereto, shall be deemed
to constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  Each Investor
acknowledges that no other Investor has acted as agent for such Investor in
connection with making its investment hereunder and that no Investor will be
acting as agent of such Investor in connection with monitoring its investment in
the Shares or enforcing its rights under the Transaction
Documents.  Each Investor shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose.  The Company acknowledges that each of
the Investors has been provided with the same Transaction Documents for the
purpose of closing a transaction with multiple Investors and not because it was
required or requested to do so by any Investor.

     

    [signature
page follows]

    
      
         

      

      
        -28-

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the parties have
executed this Agreement or caused their duly authorized officers to execute this
Agreement as of the date first above written.

    

    
      
        	
                The
      Company:

              	
                AXION
      POWER INTERNATIONAL, INC.

              
	 
      	 
      
	 
      	
                By:

              	_____________________________
	 
      	
                Name:  Thomas
      G. Granville

              
	 
      	
                Title:   
      Chief Executive Officer

              

      

    

     

    
      
         

      

      
        -29-

        
          

        

      

      
         

      

    

    

    
      
        	
                The
      Investors:

              	
                [NAME
      OF INVESTOR]

              
	 
      	 
      
	 
      	
                By:_______________________

              
	 
      	
                Name:

              
	 
      	
                Title:

              
	 
      	 
      
	
                Aggregate
      Purchase Price:  $

              	 
      
	
                Number
      of Shares:

              	 
      
	 
      	 
      
	
                Address
      for Notice:

              	 
      
	 
      	
                _______________________

              
	 
      	
                _______________________

              
	 
      	
                _______________________

              
	 
      	 
      
	 
      	
                with
      a copy to:

              
	 
      	 
      
	 
      	
                _______________________

              
	 
      	
                _______________________

              
	 
      	
                _______________________

              
	 
      	
                Attn:  __________________

              
	 
      	
                Telephone:   ____________

              
	 
      	
                Facsimile:    ____________

              
	 
      	 
      

      

    

     

    
      
         

      

      
        -30-

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