SETTLEMENT AGREEMENT
This
Settlement Agreement (“Agreement”), which is subject to the Bankruptcy Court
approvals hereinafter set forth, is made this _____ day of December, 2005,
by
and between: (a) Mega-C Power Corporation, a Nevada corporation (“Mega-C” or
“Debtor”) by Xxxxxxx X. Xxxxx (“Xxxxx”), the duly appointed and acting Chapter
11 Trustee (“Trustee”); (b) Mega-C’s subsidiary, Mega-C Corporation, an Ontario
corporation (“Mega-C Ontario”); (c) Axion Power International Inc., a Delaware
corporation, fka Tamboril Cigar Company (“Axion”); (d) Axion’s wholly owned
subsidiary, Axion Power Corporation, a Canadian federal corporation (“Axion
Ontario”); (e) Axion’s wholly owned subsidiary, C and T Co. Inc., an Ontario
corporation (“C & T”); (f) Xxxxxx Xxxxxxx, Xxx Xxxxxxxxxx, The Canadian
Consultants Bureau Inc., Xxxxx Xxxxx, Xxxxx Xxxxx, Xxx Xxxxxxxxx (“Granville”),
Xxx Xxxxxxx, HAP Investments, LLC, Xxxx Xxxxxxxx (collectively, the “Lenders”)
Xxxxx Xxxxxxxxx, Xxxx Xxxxxxxxx, Xxx Xxxxxx and Xxxx Xxxxxxx (collectively,
except for Xxxx Xxxxxxxx and HAP Investments, LLC, “Founders”), and Infinity
Group, LLC, Xxxxx Xxxx and Turitella Corporation (collectively with the
Founders, the “Investors”); (g) the trust created by the Trust Agreement For the
Benefit of Shareholders of Mega-C Power Corporation (“Shareholders Trust”); (h)
Xxxxx Xxxxxx (“Xxxxxx”) in both her capacity as Debtor’s sole officer and
director as of the Petition Date (as defined below) and as trustee of the
Shareholders Trust; and (i) Xxxx Xxxxxxxxx and Xxxxx Xxxxxxx (the “Scientists”);
and (j) Xxxxxx Xxxxxxxxx, Xxxxxx Xxxxxxxxx, C&T Co., Inc. in Trust, Oksana
Fylypenko, Xxxxxx Malitskiy, Xxxxxx Xxxxxxxxx, Xxxx Xxxxxxxxx, Xxxxxx Xxxxxxxxx,
Miraslav X. Xxxx, and Xxxxx Xxxxxxxxx (collectively, with the Scientists, the
“C&T Scientists”). Axion, Axion Ontario, C & T, Founders, Lenders,
Investors, C&T Scientists, Shareholders Trust and Xxxxxx are collectively
defined as the “Counterparties.” The Counterparties, Mega-C, Mega-C Ontario, and
the Trustee together are collectively defined as the “Parties.”
RECITALS
The
Shareholders Trust
Effective
as of December 31, 2003, Axion, as grantor, created an irrevocable trust, the
Shareholders Trust, by that certain document entitled Trust
Agreement For the Benefit of Shareholders of Mega-C Power
Corporation
(the
“Trust Agreement”) for the benefit of Mega-C creditors and equity security
interest holders, pursuant to which Xxxxxxxx Xxxxx was appointed the trustee.
The corpus of the Shareholders Trust was 117,239,736 shares of Axion common
stock (which as a result of a reverse stock split was reduced to 7,327,500
shares of Axion common stock (the “Initial Axion Stock”)). Pursuant to a
Succession
Agreement Pursuant to the Provisions of the Trust Agreement for the Benefit
of
the Shareholders of Mega-C Power Corporation,
Xxxxxxxx Xxxxx resigned as the trustee and Xxxxxx was appointed the Successor
Trustee effective March 26, 2004. As of February 26, 2005, Xxxxxx and Axion
entered into the First
Amended and Restated Trust Agreement for the Benefit of the Shareholders of
Mega-C Power Corporation
(“First
Amended Trust Agreement”), which, among other things, increased the shares of
Axion common stock held by the Shareholders Trust to 7,827,500 (together with
the Initial Axion Stock, the “Axion Stock”).
The
Technology and the Canadian Litigation
C
&
T
was the owner of a lead-acid-carbon energy storage device and for which C&T
was ultimately granted U.S. Patent No. 6,706,079 (method of formation and charge
of the negative polarizable carbon electrode in an electric double layer
capacitor); U.S. Patent No. 6,628,504 (electric double layer capacitor); and
U.S. Patent No. 6,466,429 (electric double layer capacitor), referred to herein
as the “Supercell Technology” or the “Technology”. The Scientists invented the
Technology. Pursuant to a Joint Venture Agreement dated December 23, 1999,
C&T and Xxxx Xxxxxx In Trust agreed to license a limited class of stationary
applications of the Technology to a corporation that they organized to hold
the
license. C&T and Xxxx Xxxxxx In Trust formed Mega C Technologies, Inc. for
this purpose.
By
letter
agreement dated September 11, 2001, Mega C Tech granted the Debtor an exclusive
license to commercialize Mega C Tech’s license, in consideration of payments and
contributions to Mega C Tech.
On
April
2, 2002, C&T, Mega C Tech and the Debtor entered into an Agreement of
Association, wherein C&T granted the Debtor a license to the Technology for
stationary applications subject to certain royalties. In a letter dated June
9,
2003, the Debtor asserted a declaration of default by Mega C Tech and demanded
arbitration. In a letter dated June 10, 2003, Mega C Tech asserted an intent
to
terminate the Agreement of Association with the Debtor. In a letter dated June
24, 2003, C&T asserted a notice of termination of the Joint Venture
Agreement to Xxxx Xxxxxx in Trust and Mega C Tech. The affects of these various
notices of default are a matter of dispute.
On
July
30, 2003, an action styled Xxxxx
Xxxxxx v. Mega-C Power Corporation, a Nevada corporation, Mega-C Power
Corporation, an Ontario corporation, Xxxx Xxxxx, Xxxx Usling, Xxx Xxxxxx, Xxxxxx
Xxxxx, Xxxxx Xxxxx, Xxx Xxxxxxxxxx, Xxxxxx Xxxxxx, Xxxx Xxxxxxx, and Xxxxxx
Xxxxxx,
was
filed in the Ontario Superior Court of Justice as court file no. 03-CV-253159
(referred to herein as “Xxxxx Xxxxxx v. Mega-C Litigation”).
On
September 11, 2003, an action styled Xxxx
Xxxxxx, In Trust v. Mega-C Power Corporation (a Nevada corporation) and C&T
Co. Incorporated,
was
filed in the Ontario Superior Court of Justice as court file no. 03-CV-255175
(referred to herein as “Xxxx Xxxxxx v. Mega-C Litigation”).
On
February 10, 2004, Xxxxx (Chip) Xxxxxx, Xxxx Xxxxxx, In Trust, Xxxxx Xxxxxx,
Elgin Investments, Inc., and Mega C Technologies, Inc. commenced an action
in
Ontario Superior Court of Justice as court file no. 04-CL-5317 against the
Debtor, Axion, Axion Ontario and others (referred to herein as “Xxxxxx v.
Tamboril Litigation” and, collectively with the Xxxxx Xxxxxx
v.
Mega-C Litigation and
Xxxx
Xxxxxx v. Mega-C Litigation, the “Canadian Litigation”).
Axion’s
Acquisition of the Technology
On
February 18, 2003, the Ontario Securities Commission sent the Debtor a letter
of
inquiry regarding the promotion and distribution of Mega C securities.
In
the
summer of 2003, the Lenders loaned the Debtor $390,000.00 in emergency funding
and sought to determine if the Debtor’s affairs could be restructured.
Thereafter, the Founders formed Axion Ontario, which entered into a Development
and License Agreement with C&T dated November 15, 2003. On December 31,
2003, Axion entered into a Reorganization Agreement with Axion Ontario, whereby
Axion acquired the majority of outstanding securities in Axion Ontario in a
reverse-takeover. On January 9, 2004, C&T, Axion Ontario and Axion entered
into a First Amendment to License and Development Agreement, which provided
that
Axion purchase all of C&T’s right, title and interest in the Technology.
The
Chapter 11 Reorganization Proceeding
On
April
6, 2004 (“Petition Date”), Axion Ontario, Axion and Granville filed an
involuntary petition for relief under Chapter 11, Title 11 of the United States
Code (“Code”) against Mega-C with the United States Bankruptcy Court for the
District of Nevada (“Court”), styled In
re:
Mega-C Power Corporation,
Case
Number BK-N-04-50962-GWZ (the “Case,” and the estate in such Case, the
“Estate”).
On
April
9, 2004, Mega-C, by and through its sole officer, Xxxxxx, and with the consent
of its then directors, consented to the entry of an order for relief in the
Case.
Thereafter,
on May 13, 2004, the Court entered an order granting Mega-C relief under Chapter
11 of the Code.
On
June
1, 2004, Mega-C commenced an adversary proceeding, being Adversary No.
04-5144-GWZ, styled Mega-C
Power Corporation, aka Net Capital Ventures, Inc., x. Xxxxx “Chip” Xxxxxx, et
al.
(the
“Xxxxxx Group Adversary”), which proceeding is pending before the
Court.
On
Schedule F of its schedules and statements filed on June 10, 2004 (“Schedule
F”), the Debtor listed undisputed claims of the Lenders as follows: Xxxxxx
Xxxxxxx, $50,000.00; Xxxx Xxxxxxxx, $15,000.00; Xxxxxxx Xxxxxx, $50,000.00
(whose claim is properly in the name of Canadian Consultants Bureau); Xxxxx
Xxxxx, $50,000.00; Xxx Xxxxxxxxx, $50,000.00; HAP Investments, $50,000.00;
Xxx
Xxxxxxxxxx, $50,000.00; Xxxxx Xxxxx, $50,000.00; and Xxx Xxxxxxx $25,000.00
(collectively, the “Lenders Scheduled Claims”). Between July, 2004, and December
21, 2004, the Founders, HAP Investments and Xxxx Xxxxxxxx filed the following
proofs of claim and proofs of interest, which are listed by the official claim
number assigned by the Court: (1) Claim No. 428, filed by Xxxxxx Xxxxxxx, in
the
amount of $1,050,000.00; (2) Claim No. 501, filed by Xxxxxx Xxxxxxxxxx, in
the
amount of $415,000.20; (3) Claim Nos. 65 and 131 filed by The Canadian
Consultants Bureau Inc., in the amounts of $27,000.00 and $50,000.00; (4) Claim
No. 456, filed by Xxxxx Xxxxx, in the amount of $525,000.00; (5) Claim No.
193,
filed by Xxxxx Xxxxx, in the amount of $350,000.00; (6) Claim Nos. 808 and
810,
filed by Xxxxxx Xxxxxxxxx, in unspecified amount; (7) Claim No. 284, 285 and
297
filed by Xxx Xxxxxxx, in the amount of $25,000.00; $50,000.00 and $20,000.00;
(8) Claim No. 389, filed by HAP Investments, LLC, in the amount of $50,000.00;
(9) Claim No. 430, filed by Xxxxx Xxxxxxxxx, in the amount of $550,000.00;
(10)
Claim No. 327, filed by Xxxx Xxxxxxxxx, in the amount of $239,428.00; and (11)
Claim No. 61 in the amount of $15,000.00, Claim No. 62 in the amount of
$150,000.00, and Claim No. 64 in the amount of $1.00 filed by Xxxx Xxxxxxxx;
and
(12) Claim No. 48, filed by Xxxxxx Xxxxxx, in the amount of $227,500.00
(together, the “Founders Proofs of Claim/Interest”). While the Trustee has made
an initial determination that these are allowable claims, a final determination
has not been made in this regard and the Trustee reserves all rights to object
to the allowance of the Founders Proofs of Claim/Interest.
On
December 20, 2004, Axion Ontario filed a Proof of Claim in the Case, Claim
No.
816, asserting an unsecured claim in the amount of $5,175.35. On the same day,
Axion also filed a Proof of Claim in the Case, Claim No. 817, asserting an
unsecured claim in the amount of $385,784.00. Axion and Axion Ontario have
subsequently asserted unsecured, pre-petition claims in an amount greater than
Claim Nos. 816 and 817, although no amended proofs of claims have yet been
filed
by either Axion or Axion Ontario which Axion or Axion Ontario contend were
not
required by virtue of claims of Axion Ontario in the amount of $903,319.00
being
listed as undisputed on Schedule F. Axion and/or Axion Ontario also contend
that
they have certain administrative claims for monies loaned to the Debtor
post-petition in accordance with the ordinary course of business and dealings
between the parties in the amount of approximately $464,000.00, including
$100,000 contributed to the Estate after the Trustee was appointed for
administrative expenses (“Axion/Axion Ontario Administrative Claim” and
collectively with the scheduled claims of Axion Ontario, Axion and Claims 816
and 817, the “Axion/Axion Ontario Proofs of Claim”). The Trustee does not agree
with and reserves all rights to object to the Axion/Axion Ontario Proofs of
Claim and does not stipulate or agree that any such claims are allowable. With
specific regard to the $100,000 referenced above, the Trustee objects to any
assertion that this was an administrative loan or contribution to be repaid
by
the Estate. Axion and Axion Ontario are not asserting that they have filed
or
have the right to file proofs of interest in the Estate.
Prior
to
December 21, 2004, the bar date to file proofs of claim or proofs of interest,
C&T, and the C&T Scientists filed certain proofs of claim and/or proofs
of interest in the Case, including, but not limited to, C&T and C&T’s
Scientists’ proofs of interest for 950,000.00 Mega-C common shares, which are
enumerated in Schedule A attached hereto. (“C&T/Scientists Proofs of
Claim/Interest”).
Mega-C
continued to manage its property as debtor-in-possession pursuant to Sections
1107(a) and 1108 of the Bankruptcy Code until March 2, 2005, at which time,
the
Court entered its Order
Approving U.S. Trustee’s Appointment of Chapter 11 Trustee,
wherein
Xxxxx was appointed as the Chapter 11 trustee for Mega-C pursuant to Section
1104(a) of the Code.
On
April
14, 2005, in accordance with Section 1106(a)(4)(A) of the Code, the Trustee
filed his Preliminary
Report of Xxxxxxx X. Xxxxx, Chapter 11 Trustee
(“First
Report”), in which the Trustee, based on his preliminary investigation,
requested that the Court deny Mega-C’s request that 500,000 shares of Axion’s
stock be transferred to the Shareholders Trust to fund Mega-C and deny the
Unaffiliated Shareholders’ Motion
for Order Enforcing Automatic Stay or, in the Alternative, for a Ruling that
the
Stay does not Prevent an Application in Ontario to Remove the Trustee of the
Axion Trust.
Additionally, the First Report generally set forth the Trustee’s investigatory
efforts, his initial observations regarding the Technology, Axion’s ability to
exploit the Technology, and his conclusion that the corpus of the stock held
in
the Shareholders Trust is property of the Estate, which must be recovered either
by negotiation or through the commencement of an adversary
proceeding.
On
July
15, 2005, again in accordance with Section 1106(a)(4)(A) of the Code, the
Trustee filed his Chapter
11 Trustee’s First Interim Status Report Pursuant to 11 U.S.C. §
1106(a)(4)
(“Second
Report”) wherein the Trustee reported to the Court that he believed causes of
action existed in favor of the Debtor and the Estate against Axion, Axion
Ontario, C&T, Lenders and the Founders and further reported his intention to
seek the disallowance in whole or in part of the Axion/Axion Ontario Proofs
of
Claim, the Lenders Scheduled Claims and the Founders Proofs of Claim/Interest
(collectively, the “Alleged Claims Against Axion”), as well as discussed the
status of the pending Trust Adversary, defined herein, and the Xxxxxx Group
Adversary. The Trustee has not announced any intentions with regard to the
C&T/Scientists Proofs of Claim/Interest.
On
December 5, 2005, again in accordance with Section 1106(a)(4)(A) of the Code,
the Trustee filed his Chapter
11 Trustee’s Third Interim Status Report Pursuant to 11 U.S.C. §
1106(a)(4)
(“Third
Report”) wherein the Trustee reported to the Court that the Ontario Securities
Commission had commenced an enforcement proceeding against certain parties
in
interest in the Case including the Debtor, Xxxx Xxxxx, Xxxx Usling, Xxxxx
Xxxxxx, Xx., Xxxxx Xxxxxx, Xx., Xxxxx Xxxxxx, Xxxxx Xxxxxx and 1248136 Ontario
Limited (“OSC Action”).
The
Post-Petition Adversary Proceedings Involving Mega-C,
Xxxxx
as Trustee, Xxxxxx, Axion, and Axion Ontario
1.
Trust
Adversary.
On June
7, 2005, the Trustee commenced an adversary proceeding against Xxxxxx being
Adversary No. 05-05042-GWZ, entitled Xxxxxxx
X. Xxxxx, as Chapter 11 Trustee of Mega-C Power Corporation v. Xxxxx Xxxxxx,
Trustee of Trust For the Benefit of the Shareholders of Mega-C Power
Corporation
(“Trust
Adversary”) seeking to recover 7,327,500 shares of Axion common stock (as
previously defined, the “Initial Axion Stock”) in the Shareholders Trust as
property of the Estate pursuant to Section 541 of the Code, among other things.
The Trust Adversary is pending hearing of the Trustee’s request for a permanent
injunction.
On
June
10, 2005, the Court entered a
Modified Order for Temporary Restraining Order
(“TRO”)
restraining Xxxxxx or any person acting on her behalf or on the behalf of the
owners or holders of the Initial Axion Stock, from participating in any vote
or
taking any action or failing to act at the shareholder meeting scheduled on
June
10, 2005, or any subsequent shareholder meeting of Axion that negatively affects
the ownership of the Initial Axion Stock or the percentage of ownership of
the
Initial Axion Stock, which TRO has been continued from time to time by
stipulation of the parties and order of the Court.
On
August
5, 2005, the Trustee filed his Plaintiff’s
Motion for Summary Judgment (“Summary
Judgment Motion”). Xxxxxx filed her Opposition
to Plaintiff’s Motion for Summary Judgment
on
September 12, 2005. The matter has been stayed by agreement of the parties
thereto pending approval of this Agreement.
On
August
12, 2005, Axion filed a Motion
to Intervene (“Motion To Intervene”), which
was
denied without prejudice by the Bankruptcy Court with the entry of
an
Order
Re Motion To Intervene
entered
on September 12, 2005. On September 12, 2005, Axion filed its Motion
for Reconsideration of Order Denying Motion to Intervene
(“Motion
for Reconsideration”) in Adversary No. 05-5042-GWZ, seeking reconsideration of
the Court’s Order Re Motion to Intervene. The Motion for Reconsideration is
pending argument and submission to the Court.
2.
Axion
Adversary.
On July
27, 2005, Axion and Axion Ontario commenced an adversary proceeding against
Xxxxx, in his capacity as Trustee, and Xxxxxx, in her capacity as trustee of
the
Shareholders Trust, entitled Axion
Power International, Inc., et al. x. Xxxxx, et al.,
Adversary No. 05-05082-GWZ, before the Court (“Axion Adversary”), initially
seeking a declaratory judgment providing that: (1) Mega-C’s license to
commercialize the Technology was terminated in June of 2003 and that Mega-C
does
not have any interest in the Technology as property of the Estate; (2) Axion
and
Axion Ontario “did not receive any interest of Mega-C in property wherein the
transfer was made, voluntarily or involuntarily, with Mega-C’s actual intent to
hinder, delay or defraud any entity;” (3) Axion and Axion Ontario did not
receive any of Mega-C’s interest in property for less than reasonably equivalent
value; and (4) if the Court determines that Mega-C had any interest in the
Technology that legal interest will preclude the existence of a separate
equitable interest in the Technology and Axion can terminate the Shareholders
Trust and revest the trust corpus in Axion.
Before
the entry of the Court’s order denying Axion’s Motion
to Intervene
in the
Trust Adversary, on September 9, 2005, Axion and Axion Ontario filed a
First
Amended Complaint for Declaratory Judgment,
alleging five additional claims for relief that: (1) the corpus of the
Shareholders Trust is not property of the Estate and that neither legal nor
equitable grounds exist for setting aside the Shareholders Trust; (2) if the
Court sets aside the Shareholders Trust or enters any order requiring the corpus
of the Shareholders Trust to be held other than by the trustee of the
Shareholders Trust in accordance with its terms, a resulting trust arises for
the benefit of Axion as the settlor of the Shareholders Trust; (3) if the Court
sets aside the Shareholders Trust or enters any order requiring the corpus
of
the Shareholders Trust to be held other than by the trustee of the Shareholders
Trust in accordance with its terms, then Xxxxxx holds the assets of the
Shareholders Trust for the benefit of Axion and that the Court should enter
an
order compelling her to release those assets to Axion as the settlor of the
Shareholders Trust; (4) neither Axion nor Axion Ontario received any interest
of
Mega-C in property that is subject to avoidance pursuant to 11 U.S.C. § 547(b);
and (5) neither Axion nor Axion Ontario has committed any act in violation
of
the automatic stay in bankruptcy.
On
September 12, 2005, Axion and Axion Ontario filed their Motion
to Consolidate
(“Motion
to Consolidate,” and, together with the Motion for Reconsideration, the “Axion
Motions”) in Adversary No. 05-5082-GWZ, seeking to consolidate the Trust
Adversary with the Axion Adversary. The Motion to Consolidate is pending
argument and submission to the Court.
The
Settlement Negotiations
Axion
and
Axion Ontario believe and have represented to the Trustee that the Technology
is
a promising innovation that has significant potential value that can only be
fully realized if the Technology is ultimately developed into one or more
commercial products.
The
Trustee’s assertion of the Debtor’s claimed license of certain rights to the
Technology, on the one hand, and Axion and Axion Ontario’s purchase of and
rights in and to the Technology, including the underlying patents and other
related intellectual property, on the other hand, have given rise to sharply
contested issues, claims and defenses between the Estate, Axion, Axion Ontario
and others (“Technology Disputes”).
The
Trustee also asserts that the assets of the Shareholders Trust are property
of
the Estate and that Xxxxxx is in breach of her fiduciary duty to the Estate
by
resisting the demand of the Trustee to turnover the assets of the Shareholders
Trust to the Estate. Xxxxxx and the Shareholders Trust contend that the Estate
has no viable claim to the assets of the Shareholders Trust and Xxxxxx is not
in
breach of her fiduciary duty to the Debtor, Estate or Shareholders Trust.
Accordingly, there are sharply contested issues between the Trustee on the
one
hand, and Xxxxxx and the Shareholders Trust on the other hand.
The
Parties desire to and, subject to Court approval, have agreed to settle all
matters and controversies between them, including without limitation those
that
are the subject matter of the Trust Adversary, the Axion Adversary, the Axion
Disputes, the Technology Disputes, the Alleged Claims Against Axion, and the
Estate’s rights or claims against the Counterparties in the Canadian Litigation,
and the Parties have agreed, subject to Court approval, to resolve certain
contemplated issues and controversies relating to the Axion/Axion Ontario Proofs
of Claim, C&T/Scientists Proofs of Claim/Interest, the Founders Proofs of
Claim/Interest and the Lenders Scheduled Claims (collectively, the “Disputes”),
on the terms and conditions set forth herein.
The
Trustee, with the advice of his professionals, has considered the practical,
legal, financial, tax, competitive and temporal opportunities of and limitations
on Mega-C and the Estate and its interests, and is cognizant of the risks to
the
Estate from the various conflicting claims, and has determined that, under
the
terms set forth herein, and as first concluded in the First Report, (a) Axion
is
best situated to continue to raise capital, research and develop the Technology
and ultimately bring the results to market if its efforts are successful and
(b)
it is in the best interests of the Estate to: (i) enhance Axion’s ability to
obtain capital by promptly resolving the Disputes; (ii) support Axion’s efforts
to complete the development of the Technology and ultimately bring any resulting
products to market in a systematic and timely manner; and (iii) obtain Axion
shares from the Shareholders Trust to satisfy allowed claims and equity security
interests.
The
Parties have negotiated at arms length and have reached this Agreement in good
faith.
In
view
of these beliefs, realities, determinations, and other considerations, the
Parties have entered into this Agreement. The Trustee will seek to have this
Agreement approved by an order of the Court (“9019 Order”) pursuant to Federal
Rule of Bankruptcy Procedure 9019 (“9019 Motion”) and then together with Axion,
Axion Ontario and the Founders as co-proponents, to file a plan of
reorganization (“Plan”), accompanying disclosure statement (“Disclosure
Statement”) and Plan supplements consistent with this Agreement. The Rule 9019
compromise and settlement shall resolve all disputes between the Trustee, Mega-C
and Mega-C Ontario, on the one hand, and the Counterparties, on the other hand,
which, except for those specific provisions referenced below, are subject to
and
will be effective on confirmation of the Plan, which Plan shall be binding
upon
all parties in interest to the Estate, including holders of all claims and
equity security interests.
NOW,
THEREFORE, in consideration of the premises and mutual covenants set forth
herein, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
AGREEMENT
1. Allocation
of Axion Stock in Shareholders Trust.
(a) Plan
Funding Shares.
On the
effective date (“Effective Date”) of the Plan, 5,700,000 shares of the Axion
Stock (“Plan Funding Shares”) shall be allocated as follows:
(i).
Sufficient
shares of the Plan Funding Shares to pay in full allowed administrative expenses
(including 326 fees), Effective Date cash conditions of the Plan, and allowed
priority and unsecured claims of the Estate as well as to fund any disputed
claims reserve (less the amount liquidated pursuant to paragraph 4(a) below)
shall be delivered to the Liquidation Trustee of the Liquidation Trust (both
terms as defined below) as Section 541 property of the Estate; and
(ii)
Subject
to paragraph 1(c) below, the Second Amended Shareholders Trust (as defined
below) shall retain the balance of the Plan Funding Shares for the benefit
and
satisfaction of allowed equity security interests of the Estate. As provided
below, the costs and expenses of the Liquidation Trust and the Second Amended
Shareholders Trust will be expenses of the Estate and the Liquidation Trust
to
be paid from the liquidation of Plan Funding Shares.
(b) Delivery
of Stock to Axion.
Of the
remaining 2,127,500 shares in the Second Amended shareholders Trust, the Second
Amended Shareholders Trust shall distribute the balance of the shares of the
Axion Stock to Axion (“Axion Settlement Shares”) (less the amount that must be
liquidated to fulfill the requirements of paragraph 4(b) below) on the Effective
Date. Using its commercially reasonable best efforts, Axion will resolve the
rights or claims of the Founders and Investors to those shares of Axion Stock,
at the conclusion of which, Axion and the Founders and Investors agree to cancel
all shares not used to pay costs of the Shareholders Trust, but in any event
no
less than 1,500,000 shares.
(c) Tax
Consequences.
The
Plan shall provide for the liquidation and distribution of the Axion Stock
by
the Liquidation Trust and the Second Amended Shareholders Trust for the benefit
of the creditors and equity security interest holders of the Estate
(d) Stock
Registration.
Upon
the entry of the 9019 Order, Axion is obligated to register the Plan Funding
Shares at Axion’s sole cost and expense, if requested by the Trustee, or after
the Effective Date, if requested by the Liquidation Trustee or SAT Trustee
(defined below). “Axion has previously registered the Initial Axion Stock under
the Securities Act of 1933 (SEC File No. 333 -115738) to facilitate the sale
or
distribution of those shares by the Shareholders Trust. As promptly as
practicable after the date of this Settlement Agreement, Axion shall, at its
own
cost and expense, take such measures as may be reasonably necessary to file
a
post-effective amendment to such registration statement in order to facilitate
and accommodate the sale or other disposition of 1,000,000 Plan Funding Shares
and 627,500 Axion Settlement Shares. Thereafter Axion shall use its reasonable
best efforts to obtain an order of effectiveness for the post-effective
amendment as promptly as practicable after the entry of the 9019 Order, and
to
maintain the effectiveness of the registration statement for such period of
time
as may be reasonably necessary under the circumstances. Axion shall also be
obligated to file such additional registration statements or post-effective
amendments as may be necessary or desirable to facilitate or accommodate the
sale or distribution of the 4,700,000 remaining Plan Funding Shares from time
to
time as requested by the Shareholders Trust or the Liquidation Trustee or SAT
Trustee.
2. Subordination
and Withdrawal of Proofs of Claims and Proofs of Interests.
On the
Effective Date of the Plan:
(a) Subordination.
Axion
and Axion Ontario shall withdraw with prejudice all Axion/Axion Ontario Proofs
of Claim, and the scheduled claim of Axion Ontario, except that Claims 816
and
817 shall be allowed, in the total sum of $100.00 as non-priority, unsecured
claims subordinated to all other creditors’ claims; and
(b) Withdrawal
of Claims.
C&T
and the C&T Scientists shall withdraw with prejudice all C&T/Scientists
Proofs of Claim/Interest set forth in Schedule A attached hereto.
3. Stay
and Dismissal of Litigations.
In
anticipation of the Plan process and to conserve Estate assets, the Parties
agree as follows:
(a) Stay
of Litigation.
In
anticipation of the execution of this Agreement and pending the filing of the
9019 Motion and the entry of the 9019 Order, by stipulations and orders entered
by the Court on October 25, 2005, the Parties agreed to take off calendar
certain matters in the Case (including the Application
For Order Approving The Terms of the Revised Fee Agreement, Thereby Amending:
(1) The Terms of Xxxxxx & Silver, Ltd.’s Employment as Attorneys for the
Trustee; and (2) the Terms of Mesirow Financial Consulting, LLC’s Employment as
Financial Advisors to the Trustee,
in the
Trust Adversary (including the Summary Judgment Motion and the Axion Motions)
and the Axion Adversary, and the time that the Trustee and Xxxxxx have to answer
or otherwise plead in the Axion Adversary has been extended for 45 days. The
Trustee has additionally agreed not to pursue any or all of the causes of action
referenced in the Second Report (“Stay”) during the same period of
time;
(b) Continuation
of Stay.
In the
event this Agreement is approved pursuant to the 9019 Order by the date set
forth below, the Stay shall remain in place pending the entry of an order of
confirmation of the Plan (“Confirmation Order”) and Effective Date of the Plan
by the date set forth below;
(c) Termination
of Stay.
On the
earliest to occur of the following: (1) the date the 9019 Motion is disapproved;
(2) January 10, 2006, if the 9019 Order has not been entered by the Court;
(3)
January 17, 2006, if the Disclosure Statement and Plan have not been filed
with
the Court; (4) March 31, 2006, if the order confirming the Plan (“Confirmation
Order”) has not been entered by the Court; and (5) April 14, 2006, if the
Effective Date has not occurred, unless otherwise agreed by the Parties in
writing, the Stay shall be deemed immediately terminated and the Parties may
proceed with all matters subject to the Stay, subject to reasonable
re-calendaring of dates tolled by the Stay and the Court’s calendar. The Parties
agree to cooperate with respect to requesting and granting reasonable extensions
of these benchmarks;
(d) Dismissal
of Litigation.
On the
Effective Date, the Trust Adversary and Axion Adversary shall each be dismissed
with prejudice and each party shall pay its own attorneys fees and costs except
as otherwise allocated in this Agreement. The Trustee and, upon the Effective
Date, the Liquidation Trustee and the SAT Trustee shall use reasonable best
efforts to obtain dismissal of the Canadian Litigation that states claims
against the Debtor or the Estate or that states claims that belong to the Debtor
or the Estate, including derivative or other claims that are property of the
Estate; and
(e) Continuation
of TRO.
The
Parties agree that the TRO shall remain in place and until such time as the
Trust Adversary is dismissed or adjudicated or the Court dissolves the TRO,
and
from the date of this Agreement until the termination of the Stay as provided
for above in this paragraph 3(c), the TRO prohibits Xxxxxx from personally,
by
proxy, or otherwise participating in the formation of a quorum or vote at any
Axion shareholder meeting absent the consent of the Trustee or further order
of
the Court.
4. Terms
of Agreement Effective Upon Entry of 9019 Order.
Upon
entry of the 9019 Order approving this Agreement:
(a) Liquidation
of Axion Stock.
Until
the Effective Date, Xxxxxx, in consultation with the Trustee and Axion, shall
commence liquidation of up to 1,000,000 shares of Plan Funding Shares held
by
the Shareholders Trust (which are part of the Plan Funding Shares referred
to in
paragraph 1(a)(i) above) for purposes of immediately funding the fees and costs
of administration (including interim professional fee awards approved by the
Court) of the Estate and to fund the anticipated cash required to confirm the
Plan, the Effective Date conditions of the Plan and the balance of classified
and unsecured claims. The Shareholders Trust is responsible for all of the
indirect costs of such sales and for one half (1/2) of the first $150,000 of
any
direct costs (such as third-party brokerage fees and commissions (if any)).
The
other one half (1/2) of the first $150,000 of direct costs will be paid from
the
proceeds of the liquidation of the 1,000,000 shares of Plan /funding Shares.
Any
direct costs above the first $150,000 will be solely the responsibility of
the
Shareholders Trust.
(i) Sales
Revenues.
Xxxxxx
expects, but does not represent or warrant, that the sales of the 1,000,000
shares of Plan Funding Shares will generate not less than
$3,000,000.00.
(ii) Accounting.
Xxxxxx
shall provide an accounting of the disposition of all sales of Plan Funding
Shares until the Effective Date in a format satisfactory to the Trustee and
Axion. This accounting shall include, but not necessarily be limited to, the
date and number of shares sold, the gross consideration paid in exchange of
such
shares and the nature thereof, whether such shares are being sold as part of
another transaction, and the itemized fees and expenses associated with such
sales.
(iii) Best
Efforts.
Xxxxxx
will use her commercially reasonable best efforts to liquidate the shares
referred to in this subparagraph on or prior to the anticipated Effective Date,
with the overall objective being to maximize the proceeds from such sales for
the benefit of the Estate and the remaining Parties shall cooperate in this
regard.
(iv) Escrow
Account.
The net
proceeds of all sales of Plan Funding Shares shall be placed in an account
held
jointly by Xxxxxx as trustee of the Shareholders Trust and the Trustee at an
institution approved by the Office of the United States Trustee and used to
pay
professional fees and costs provided for by Sections 330 and 331 of the Code
incurred through the Confirmation Hearing of the Plan and allowed by Court
order, regardless of whether the Court order is entered prior to or after the
Confirmation Hearing (“Interim Awards”).
(v) Property
of the Estate.
That
portion of the 1,000,000 shares liquidated by Xxxxxx to pay Interim Awards
shall
be deemed to be property of the Estate as of the entry of the 9019 Order and
is
not contingent upon or subject to entry of the Confirmation Order. On the
Effective Date of the Plan, the balance of any remaining funds in said account
together with such additional portion of the 1,000,000 shares and remaining
Plan
Funding Shares as required to fund payment of all allowed classified and
unsecured claim and disputed claims reserves shall be delivered to the
Liquidation Trustee as property of the Estate.
(b) Shareholders
Trust Costs.
Up to
the Effective Date, Xxxxxx may liquidate or dispose of up to 627,500 of the
Axion Settlement Shares held by the Shareholders Trust as are reasonably
necessary to fund the fees and costs of the Shareholders Trust up to the
Effective Date. These sales and payment of such fees and costs are not
contingent upon or subject to entry of the Confirmation Order. All costs and
expenses of the Second Amended Shareholders Trust after the Effective Date
will
be borne and paid by the Liquidation Trust:
(i) Accounting.
Xxxxxx
shall provide an accounting of the disposition of all Axion Settlement Shares
until the Effective Date in a format satisfactory to Axion and the Trustee.
This
accounting shall include, but not necessarily be limited to, the date and number
of shares sold, the gross consideration paid in exchange of such shares and
the
nature thereof, whether such shares are being sold as part of another
transaction, and the itemized fees and expenses associated with such sales;
and
(ii) Non-Interference.
Xxxxxx
will use her commercially reasonable best efforts to liquidate the Axion
Settlement Shares until the Effective Date referred to in this subparagraph
in a
manner that does not interfere with her obligations in paragraph 4(a) above.
Accordingly, Xxxxxx in estimating the number of Axion shares to be sold under
paragraph 4(a) and (b), shall sell the Plan Funding Shares and Axion Settlement
Shares pro
rata with
a
commensurate division of the net proceeds.
5. Plan
Proponents.
The
Trustee, Axion, Axion Ontario and the Founders shall jointly prepare and propose
the Plan and Disclosure Statement to be filed in the Case after entry of the
9019 Order as more specifically set forth below. If the Founders, individually
or as a group, elect not to be co-proponents, the remaining terms of this
Agreement will remain in full force and effect, with the exception that the
exculpatory provision to be contained in the Plan will be limited to the Plan
co-proponents. Amendments to the Plan in accordance with Section 1127 of the
Code will be subject to the sole approval of the Trustee and Axion alone, and
the co-proponents of the Plan agree to use their commercially reasonable best
efforts to obtain Plan confirmation.
6. Plan
Provisions.
In
general, the co-proponents agree to file a Plan that contains, among other
provisions, the following:
(a) Liquidation
Trust.
On the
Effective Date, a liquidation trust (“Liquidation Trust”) shall be formed as
provided for in the Liquidation Trust Agreement (“Liquidation Trust Agreement”)
to be attached to the Plan (the structure of which will be subject to
modification to minimize tax consequences);
(b) Second
Amended Shareholders Trust.
On the
Effective Date, the Shareholders Trust shall be amended and restated as provided
for in a Second Amended and Restated Trust Agreement For the Benefit of
Shareholders of Mega-C Power Corporation (“Second Amended Trust Agreement”) to
be attached to the Plan (the structure of which will be subject to modification
to minimize tax consequences);
(c) Selection
of Liquidation Trustee.
The
Liquidation Trust trustee (“Liquidation Trustee”) shall be selected by the Plan
co-proponents prior to the commencement of the Disclosure Statement hearing
to
be confirmed by the Court at the Confirmation Hearing;
(d) Selection
of SAT Trustee. The Second Amended Shareholders Trustee (“SAT Trustee”) shall be
selected as soon as practicable after the Effective Date by the five member
governing board of the Second Amended Shareholders Trust. No later than ten
(10)
days prior to the Confirmation Hearing, equity security holders may nominate
themselves or any other equity security holder to serve on the governing board
by notifying the co-proponents in writing. The co-proponents shall come to
a
consensus regarding the five individuals to be recommended to the Court to
form
the governing board and the Court shall at so confirm the five individuals
at
the Confirmation Hearing.
(e) Liquidation
Trustee and SAT Trustee Powers.
Each of
the Liquidation Trustee and SAT Trustee shall have the powers and rights as
provided for in the Liquidation Trust Agreement and the Second Amended Trust
Agreement;
(f) Additional
Powers.The
SAT
Trustee and Liquidation Trustee shall: (i) proportionally have the right to
vote
the shares of Plan Funding Shares held by it,
whether
or not held in a disputed claim or equity security interests reserve, in an
amount equal to the lesser
of
the number of shares of Axion stock held by the each of the Liquidation Trustee
and the SAT Trustee or number
of shares of Axion stock held by the Founders and their spouses and dependents
on
the
record date for determining the identity of stockholders entitled to vote at
any
meeting of the stockholders; and (ii) have the right and power to request that
Axion file such amendments to the registration statement for the Plan Funding
Shares as may be necessary or desirable under the circumstances.
The
Liquidation Trustee shall have the right, power and authority to pursue all
litigation on behalf of either the Liquidation Trust or Second Amended
Shareholders Trust.
(g) Distribution
of Plan Funding Shares.
On the
Effective Date the balance of the cash resulting from the liquidation of Plan
Funding Shares as provided for in paragraph 4(a) above, together with such
additional Plan Funding Shares as deemed necessary to pay in full all allowed
administrative and unclassified claims of the Estate, Effective Date cash
conditions, allowed priority and unsecured claims and the disputed claims
reserve shall be deemed property of the Estate and administered and distributed
by the Liquidation Trust as provided for in the Plan. The balance of the Plan
Funding Shares shall be retained by the Second Amended Shareholder Trust to
be
distributed to allowed equity security interests as provided for in the
Plan;
(h) Determination
of Liquidation Trust Shares.
In the
event the net liquidation proceeds of the shares of the Plan Funding Shares
to
be liquidated by Xxxxxx prior to the Effective Date is inadequate to pay
unclassified claims allowed prior to the Effective Date, unclassified claims
(including 326 Fees) not yet allowed, allowed priority and unsecured claims
to
be paid on the Distribution Date and any disputed claims reserve, the
Liquidation Trustee may immediately commence the orderly liquidation of
sufficient Plan Funding Shares to satisfy such claims and reserves. Sufficient
shares of Plan Funding Shares for this purpose shall be determined based upon
the average closing bid price of Axion stock for the thirty (30) trading days
immediately prior to the Effective Date;
(i) Pour-over.
Any
cash or Plan Funding Shares delivered to the Liquidation Trustee which remains
after payment in full of all allowed unclassified claims of the Estate,
Effective Date cash conditions and allowed priority and unsecured claims of
the
Estate, shall be delivered to the Restated Shareholder Trust for distribution
to
allowed equity security interests;
(j) Unimpairment.
The
Plan shall provide for the unimpairment of all creditors and holders of equity
security interests by;
(aa) Payment
in full by the Liquidation Trust of all allowed unclassified claims, including
administrative claims, professional fees and costs and 326 Fees not paid prior
to the Effective Date on the 10th
business
day following the Effective Date (“Distribution Date”) or as soon as allowed
thereafter;
(bb) Payment
by the Liquidation Trust (by way of cash or Axion stock or a combination
thereof) of allowed priority and unsecured claims in full with interest at
the
Federal Judgment Rate on the Distribution Date or as soon as allowed thereafter;
and
(ccc) All
remaining property being distributed by the Second Amended Shareholders Trust
to
holders of allowed equity security interests on the Distribution Date;
(ddd) Reserves.
Both the
Liquidation Trustee and the SAT Trustee shall reserve sufficient shares of
the
Plan Funding Shares to satisfy the disputed claims and equity security interest
reserve requirements as provided for in the Plan. Sufficient shares of Plan
Funding Shares for this purpose shall be determined based upon the average
closing bid price of Axion stock for the thirty (30) trading days immediately
prior to the Effective Date;
(k) Right
of First Refusal.
Axion
shall have a right of first refusal on any proposed disposition of Plan Funding
Shares by both the Liquidation Trustee and SAT Trustee that is neither an open
market resale at prevailing prices or effected in connection with an
underwritten transaction involving a sale to the general public. Provided
however,
both
the SAT Trustee and Liquidation Trustee shall consult with Axion from time
to
time regarding any anticipated disposition of Plan Funding Shares so as not
to
necessarily negatively affect the value of Axion shares in the public market,
and at least thirty (30) days before a disposition of more than 750,000 shares
of Axion stock, notify Axion in writing (the “Notice”) either the SAT Trustee’s
or Liquidation Trustee’s intention to dispose of more than 750,000 shares of
Axion stock in one transaction (or in multiple transactions if either the
Liquidation Trustee or SAT Trustee knows or reasonably believes that the sales
are to or for the benefit of a single entity or multiple affiliated entities).
The date of the Notice shall be the “Notice Date”. After the Notice Date, Axion
may inform the Liquidation Trustee or the SAT Trustee that Axion shall exercise
its right to acquire all or a portion of the shares which are the subject of
the
Notice only as follows:
(x) If
the
amount of shares referred to in the Notice is more than 750,000 but less than
1,000,000, Axion shall have the right to advise the appropriate trustee in
writing within five (5) days of the Notice Date of its commitment to buy all
of
said shares, and Axion shall conclude for cash the share purchase transaction
within ten (10) days of the Notice Date;
| (y) |
If
the amount of shares referred to in the Notice is between 1,000,000
and
2,000,000, Axion shall have the right to advise the appropriate trustee
in
writing within ten (10) days of the Notice Date of its commitment
to buy
all of said shares, and Axion shall conclude for cash the share purchase
transaction within fifteen (15) days of the Notice
Date;
|
| (z) |
If
the amount of shares referred to in the Notice is more than 2,000,000,
Axion shall have the right to advise the appropriate trustee in writing
within twenty (20) days of the Notice Date of its commitment to buy
all of
said shares, and Axion shall conclude for cash the share purchase
transaction within twenty-five (25) days of the Notice
Date.
|
With
each
Notice, the SAT Trustee or Liquidation Trustee shall provide Axion with that
trustee’s best estimate of the minimum and maximum consideration that the
trustee anticipates receiving from the proposed disposition. As the condition
to
the exercise by Axion of its right of first refusal, Axion agrees to pay the
minimum consideration that the appropriate trustee estimates receiving from
the
proposed disposition. If Axion does not timely exercise its right to purchase
shares described in a particular Notice as provided herein, then it shall have
no further rights to acquire the shares that are the subject of the Notice,
provided however, that the appropriate trustee conclude the proposed disposition
for no less than the minimum consideration within 30 days of the last day Axion
had to exercise the right of first refusal or else the Plan Funding Shares
the
subject of the Notice will be subject to a new right of first refusal as
provided for herein. If Axion exercises its right to purchase the shares
described in a particular Notice but fails to conclude the transaction within
the time provided herein, the sole remedy of the appropriate trustee shall
be
the right to seek damages from Axion for the difference between the exercise
price and the proceeds ultimately received by the SAT Trustee or Liquidation
Trustee from the sale of said Axion shares.
(l) Transfer
of Assets to Axion.
In
consideration of the terms, covenants and releases provided for herein, upon
the
Effective Date, any and all rights, title and interests of the Estate, Debtor
and Mega-C Ontario in: (i) the Technology, including the Supercell technologies,
or any other residual interests in any residual license to the Technologies
and
any separately developed intellectual property related to the Technology,
including any and all rights, interests and licenses arising under the Agreement
of Association; (ii) physical assets in Axion’s, C & T’s or Axion Ontario’s
control or possession; and (iii) shares of Mega-C Technologies, Inc. will be
transferred to Axion;
(m) Xxxxxx
Group Adversary.
On the
Effective Date the Xxxxxx Group Adversary shall be assigned to the Liquidation
Trust. Within thirty (30) days of the Effective Date, the Liquidation Trustee
shall determine if the Litigation Trust will pursue the Xxxxxx Group Adversary,
and if the Liquidation Trustee determines not to, the Xxxxxx Group Adversary
will be assigned to Axion;
(n) Transfer
of Remaining Assets and Assumption of Liabilities and Duties of
Debtor.
On the
Effective Date, Debtor’s remaining assets, including: (i) claims and causes of
action, (ii) cash in the escrow account referred to in paragraph 4(a) above;
and
(iii) the remaining shares of Plan Funding Shares in the Shareholders Trust
referred to in paragraph 1(a)(i) above, will be transferred and assigned to
the
Liquidation Trust, and the Liquidation Trust shall assume and be responsible
for
any and all remaining liabilities and causes of action by or against the Debtor
and the Estate to be satisfied as provided for in the Plan and be responsible
for all costs and expenses associated therewith and complete on behalf of the
Debtor all remaining corporate compliance obligations and duties of the
Debtor;
(o) Determination
of 326 Fees Related to Plan Funding Shares.
In the
event the Plan is confirmed, the Trustee’s fees pursuant to Section 326(a) of
the Code applicable to the Plan Funding Shares shall be calculated (a) on the
net revenue generated from the liquidation of Plan Funding Shares prior to
the
Effective Date together with (b) the net value per share of the Plan Funding
Shares both delivered to the Liquidation Trust and remaining in the Second
Amended Shareholders Trust on the Effective Date based upon the average closing
bid price of Axion stock for the thirty (30) trading days immediately prior
to
the Effective Date discounting such average price by 15 percent (the “Share
Value”). If sufficient Plan Funding Shares have not been sold to satisfy this
amount by the Distribution Date, the Trustee consents to waive the requirement
of 11 U.S.C. § 1129(a)(9)(A) to allow a reasonable additional time for
liquidation after the Effective Date not to exceed one hundred and eighty (180)
days. If sufficient Plan Funding Shares have not been sold to satisfy the
administrative claim of Xxxxxx & Silver by the Effective Date, Xxxxxx &
Silver also consent to waive the requirements of 11 U.S.C. § 1129(a)(9)(A) to
allow a reasonable additional time for liquidation after the Effective Date
not
to exceed ninety (90) days. If the Share Value on the Effective Date is greater
than $3.50 per share, such appreciation in excess of $3.50 per share shall
be
paid by in-kind distribution of Plan Funding Shares on the Distribution
Date.
(p) Releases.
The
Plan will provide for releases on and through the Effective Date (i) by and
between the Trustee, on the one hand, and Xxxxxx on the other hand; and between
the Trustee, on the one hand, and the remaining Counterparties on the other
hand; and between Xxxxxx and the remaining Counterparties (collectively,
“Released Parties”), including, without limitation, the Disputes, any and all
claims or causes of action, known or unknown, whether asserted or unasserted,
and including all derivative claims held by the Trustee, Debtor and the Estate
against any party to this Agreement and (ii) from the holders of claims and
equity security interests, that to the fullest extent permissible under
applicable law, as such law may be extended or interpreted subsequent to the
Effective Date; each such person that has held, holds or may hold a claim or
equity security interest, in consideration for the obligations of the
Liquidation Trust and Second Amended Shareholders Trust and other contracts,
instruments, releases, agreements or documents to be delivered in connection
with the Plan, shall have conclusively, absolutely, unconditionally, irrevocably
and forever, released and discharged the co-proponents of the Plan and Xxxxxx
from any claim or cause of action existing as of the Effective Date arising
from, based on or relating to, in whole or in part, the subject matter of,
or
the transaction or event giving rise to, the Disputes, Shareholders Trust,
the
Axion Adversary, the Trust Adversary and the Case and in the act, omission,
occurrence or event in any matter relating to such subject matter, transaction
or obligation. Notwithstanding, the releases, which are intended to be as broad
as possible, do not release the Estate for the allowed subordinated claim of
Axion against the Debtor as provided in paragraph 2(a); the allowed proofs
of
claim and interest of the Lenders and the Founders as provided in paragraph
10;
and any claims of the Scientists or the C&T Scientists not enumerated on
Schedule A and that are otherwise allowed. Released Parties shall include each
Released Party’s officers, directors, attorneys, agents and
employees;
(q) Exculpation.
The
Plan will provide generally on and through the Effective Date that the
co-proponents, their officers, directors, attorneys, agents and employees since
the Petition Date, Xxxxxx and professionals employed by them pursuant to an
order of the Court under Sections 327 or 1103 of the Bankruptcy Code, shall
not
incur any liability to the Debtor or any other creditors, equity security
holders and other parties in interest in the Case for any act or omission in
connection with or arising out of the Case, including, without limitation,
prosecuting confirmation of the Plan, confirmation of the Plan, and the
administration of the Estate, the Plan or the property to be distributed under
the Plan, except for gross negligence or willful misconduct, and in all
respects, such person will be entitled to rely on the advice of counsel with
respect to their duties and responsibilities with respect to the Case and the
Plan; and
(r) Liquidation
Trust.
After
distribution of the cash and Plan Funding Shares delivered to the Liquidation
Trust, the Liquidation Trust shall be dissolved and its affairs terminated
as
provided for in the Liquidation Trust Agreement.
7. Commencement
of Insolvency Proceedings in Respect of Mega-C Ontario.
The
Trustee in his reasonable discretion and after consultation with the
Counterparties and other parties-in-interest (in the Trustee’s discretion), and
after the Effective Date, the SAT Trustee, may commence insolvency proceedings
on behalf of Mega-C Ontario.
8. Timing
Considerations.
The
Plan and Disclosure Statement will be filed within seven (7) days of entry
of
the 9019 Order but in no event later than January 17, 2006, the Plan shall
be
confirmed no later than March 31, 2006, and the Effective Date shall be no
later
than April 14, 2006. Subject to the Court’s order, the Plan supplements,
including the Liquidation Trust Agreement and the Second Amended Shareholders
Trust Agreement, will be filed no later than five (5) days prior to the
commencement of the hearing to approve the Disclosure Statement.
9. Objection
to Claims and Equity Security Interests.
Prior
to confirmation of the Plan, any of the Parties may object to claims or proofs
of interest, provided, however, that the Parties agree to consult and coordinate
with one another, in good faith for purposes of reducing the amount of
administrative expenses associated with claims proceedings and other litigation.
Immediately following the approval of this Agreement, the Trustee will object
to
the allowance of claims and equity security interests that the co-proponents
agree may affect the feasibility of the Plan. The Trustee will take all steps
necessary to cause such claims and equity security interests to be estimated
in
order to establish the feasibility of the Plan.
10. Allowance
and Withdrawal of Claims.
The
Lenders Scheduled Claims evidenced by those certain Series A Convertible
Unsecured Notes and the Lenders Claims in the total amount of $390,000.00,
shall
be allowed unsecured claims for distribution under the Plan as follows: (1)
Xxx
Xxxxxxxxxx, in the amount of $50,000.00; (2) HAP Investments, LLC, in the amount
of $50,000.00; (3) Xxx Xxxxxxx, in the amount of $25,000.00; (4) Xxxxx Xxxxx,
in
the amount of $50,000.00; (5) The Canadian Consultants Bureau Inc., in the
amount of $50,000.00; (6) Xxxxxx Xxxxxxx, in the amount of $50,000.00; (7)
Xxxxx
Xxxxx, in the amount of $50,000.00; (8) Xxxxxx Xxxxxxxxx, in the amount of
$50,000.00; and (9) Xxxx Xxxxxxxx in the amount of $15,000.00. With the
exception of the proof of claim filed by Xxxx Xxxxxxxxx, which is withdrawn
as
set for herein, all remaining claims enumerated within the Lenders Proofs of
Claim/Interest and the Founders Proofs of Claim/Interest shall be deemed proofs
of equity security interests and shall be allowed proofs of interests under
the
Plan, provided
however,
that if
any other proof of claim for fraud in connection with the sale of a security
is
allowed in the Estate as an unsecured claim to be paid through the Liquidation
Trust, these remaining claims enumerated within the Lenders Proofs of
Claim/Interest and Founders Proofs of Claim/Interest as they relate to a sale
of
a security shall be similarly allowed and treated.
11. Authorization
to Sell Shares to Raise Needed Capital.
Axion
depends on proceeds from sales of its securities to finance its business
operations and intends to pursue financing as opportunities arise. To alleviate
the Trustee’s concerns that sales of Axion securities (including convertible
equity and debt securities) might unreasonably prejudice the Estate or impair
the value of the Estate’s claimed interests in the shares of Axion stock held in
the Shareholders Trust, Axion
will not, until the earlier to occur of
(i) the
Court’s disapproval of the 9019 Motion and this Agreement, (ii) the failure of
the Court to enter the 9019 Order on or before January 10, 2006, (iii) the
Effective Date, or (iv) April 14, 2006, without the consent of the Trustee
or
further order of the Court:
a. Sale
of Stock.
Sell
more
than 5,000,000 shares of Axion common stock (including convertible equity or
debt securities), provided however, warrants issued as part of this common
stock
sale transaction and that satisfy the terms of paragraph 11(b) below, will
not
count against this 5,000,000 shares of Axion common stock; and
b. Issuance
of Warrants.
Issue
any
warrants or other rights to purchase Axion shares that are exercisable at less
than $4.00, unless the average closing bid price as reported by the OTCBB for
the ten (10) trading days immediately preceding the date of the related private
placement documents is less than $4.00, in which case 100% of that ten (10)
day average closing bid price may be used as the warrant exercise
price.
Nothing
herein shall (i) impair Axion's ability to negotiate an agreement with Xxxxxx
respecting the disposition of the Axion stock specified in paragraph 1(b) above;
(ii) impair Axion's ability to perform its existing obligations with respect
to
previously issued convertible securities, warrants and options; (iii) impair
Axion's ability to issue securities in exchange for tangible or intangible
property that is, in the judgment of its board, necessary for Axion's business
and reasonably valued under the totality of the circumstances.
12. Covenants
and Representations.
(a) Enforceability.
This
Agreement has been duly executed and delivered on behalf of the Parties and
constitutes a legal, valid and binding obligation of the Parties enforceable
against them in accordance with its terms and the terms of the 9019 Order and
the Confirmation Order, except that such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors’ rights generally and that the obligation of the Trustee is
subject to Court approval, and (b) equitable principles which may limit the
availability of certain equitable remedies (such as specific
performance).
(b) Due
Organization, Standing and Authority.
Axion,
Axion Ontario and C & T are corporations duly organized, validly existing
and in good standing under the laws of the jurisdiction of their formation.
The
Counterparties have all necessary power and authority to execute, deliver and
perform their obligations under this Agreement as contemplated by its formation
agreements, by-laws, or other charter, organizational or governing documents
(collectively, the “Governing Documents”).
(c) Authorization
and Validity of Agreement.
The
execution, delivery and performance of this Agreement (a) are within the
Counterparties’ powers, (b) have been duly authorized by all necessary action on
their behalf and all necessary consents or approvals have been obtained and
are
in full force and effect, and (c) do not violate any of the terms and conditions
of (i) their Governing Documents, (ii) any applicable law, or (iii) any
contracts to which they are a party (except with respect to (c)(i) and (ii)
for
such violations that would not be reasonably expected to have a material adverse
affect on the Counterparties’ abilities to consummate the transactions
contemplated by this Agreement).
13. Binding
Effect.
In the
event the Court does not approve this Agreement or the Disclosure Statement,
does not confirm the Plan, or the Plan is not consummated, this Agreement shall
be deemed null and void, and none of the Parties shall have any obligations
to
any other party arising out of this Agreement except as provided for in this
paragraph and paragraph 14. This Agreement shall be binding on the Parties
as of
the date set forth in the introductory paragraph of this Agreement, subject
to
paragraph 14 below; provided,
however,
that
Sections 3(c) and (e) and Xxxxxxxx 00(x), (x, (x) (x), (x), (x), (x) and (o)
are
intended to survive the expiration or termination of this
Agreement.
14. Binding
Effect In Event of Initial Court Approval.
In
addition to Section 13 above, in the event the Court approves this Agreement
per
the 9019 Order but does not subsequently approve the Disclosure Statement,
the
Plan is not confirmed or the Effective Date does not occur, the obligations
in
paragraphs 4(a) and 4(b) and the termination provisions of paragraph 11 hereof
are also intended to survive the expiration or termination of this
Agreement.
15. Miscellaneous
Provisions.
(a) Covenants.
The
Trustee shall use commercially reasonable best efforts to obtain Bankruptcy
Court approval of this Agreement, approval of the Disclosure Statement and
confirmation of the Plan. The Counterparties shall use commercially reasonable
best efforts to cooperate with and support the Trustee’s efforts to obtain Court
approval in all respects of this Agreement, and shall use commercially
reasonable best efforts to cooperate with and support the efforts of the
Trustee, Axion, Axion Ontario and the Founders to obtain approval of the
Disclosure Statement and confirmation of the Plan. The Parties shall not take
any actions inconsistent with these covenants.
(b) Notices.
All
notices, demands and other communications hereunder shall be in writing and
shall be deemed to have been duly given: (i) when personally delivered; (ii)
upon actual receipt (as established by confirmation of receipt or otherwise)
during normal business hours, otherwise on the first Business Day thereafter,
if
transmitted by facsimile or telecopier with confirmation of receipt; (iii)
when
mailed by certified mail, return receipt requested, postage prepaid; or (iv)
when sent by overnight courier; in each case, to the following addresses, or
to
such other addresses as a Party may from time to time specify by notice to
the
other Party given pursuant hereto.
|
If
to the Trustee, to:
|
|
Xxxxxxx
X. Xxxxx, Esq.
Xxxxxx
& Silver, Ltd.
0000
Xxxxxx Xxxxxx Xxxxxxx
Xxxxx
000
Xxx
Xxxxx, XX 00000
Tel-
(000) 000-0000
Fax-
(000) 000-0000
|
|
With
a copy to:
|
|
Xxxxxx
& Silver Ltd.
0000
Xxxxxx Xxxxxx Xxxx., Xxxxx 000
Xxx
Xxxxx, XX 00000
Attn:
Xxxxxx Xxxxxx, Esq.
Tel-
(000) 000-0000
Fax-
(000) 000-0000
|
|
If
to Axion, Axion Ontario, C&T, the Scientists, the C&T Scientists,
the Lenders and the Founders, to:
|
|
Xxx
Xxxxxxxxx
000
Xxxxxx Xxxxxx
Xxxxxxxxxx,
Xxxxxxx X00 0X0
Xxxxxx
Tel-
(000) 000-0000
Fax-
(000) 000-0000
|
|
With
a copy to:
|
|
Xxxxxxx
X. Xxxxxxxxx, Esq.
000
Xxxx Xxxxx Xxxx, #X
Xxxx,
XX 00000
Tel-
(000) 000-0000
Fax-
(000) 000-0000
|
|
If
to the Shareholders Trust or Xxxxxx:
|
|
Xxxxx
X. Xxxxxx, Trustee
Trust
for the Benefit of the Shareholders of
Mega-C
Power Corporation
000
Xxxxxx Xx., #000
Xxxxxxx,
XX 00000
Tel-
(000) 000-0000
Fax-
(000) 000-0000
|
|
With
a copy to:
|
|
Xxxx
X. Xxxxx, Esq.
000
Xxxxx Xxxxxx
Xxxx,
XX 00000
Tel-
(000) 000-0000
Fax-
(000) 000-0000
|
|
And
|
|
Xxxx
Xxxxx, Esq.
000
X. Xxxxxxx Xx., Xxxxx 0000
Xxxxx,
XX 00000
Tel-
(000) 000-0000
Fax-
(000) 000-0000
|
(c) Intended
Beneficiaries.
To the
extent that this Agreement inures to the benefit of persons not signatories
hereto, they shall be deemed to be intended beneficiaries and this Agreement
is
made in and for their respective benefits and uses.
(d) Covenant
Not to Take Action in Breach of Representations and Warranties.
Each
Party agrees not to take any actions from and including the date of execution
of
this Agreement that will result, whether directly or indirectly, in the breach
of such Party’s representations, warranties, agreements, covenants or
obligations contained in this Agreement.
(e) Governing
Law/Jurisdiction.
THIS
AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER WILL BE GOVERNED
BY
AND CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAW OF THE STATE
OF
NEVADA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD
REQUIRE THE APPLICATION OF LAWS OF ANOTHER JURISDICTION. THE PARTIES ACKNOWLEDGE
AND AGREE THAT THE BANKRUPTCY COURT SHALL HAVE THE EXCLUSIVE JURISDICTION OVER
THIS AGREEMENT AND THAT ANY CLAIMS ARISING OUT OF OR RELATED IN ANY MANNER
TO
THIS AGREEMENT SHALL BE PROPERLY BROUGHT ONLY BEFORE THE COURT. IF AND TO THE
EXTENT THAT THE CASE IS CLOSED OR DISMISSED, THE COURTS OF THE STATE OF NEVADA
AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA SHALL HAVE
EXCLUSIVE JURISDICTION OVER THIS AGREEMENT AND ANY SUCH CLAIMS.
(f) Entire
Agreement.
This
Agreement contains the entire agreement between the Parties with respect to
the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the Parties other than those set forth
or
referred to herein.
(g) Severability.
In case
any provision of this Agreement shall be determined to be invalid, illegal
or
unenforceable for any reason, the remaining provisions of this Agreement shall
be unaffected and unimpaired thereby, and shall remain in full force and effect,
to the fullest extent permitted by applicable law.
(h) Survival
of Representations.
All
representations, warranties, agreements, covenants and obligations herein are
material, shall be deemed to have been relied upon by the other Party, and
shall
survive the Effective Date of the Plan.
(i) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective successors and assigns.
(j) No
Admission of Liability.
This
Agreement is not an admission of any liability but is a compromise of disputed
claims. Neither the giving nor the receipt of any consideration hereunder nor
anything contained in this Agreement shall be interpreted or construed to be
an
admission on the part of, nor to the prejudice of any Party. The Recitals set
forth above though summary in nature, and, to the extent necessary or
appropriate, shall be considered in construing, interpreting and enforcing
the
terms and conditions of this Agreement, provided, however, that nothing in
this
Agreement shall be deemed an admission or concession with respect to any
allegations or claims made against a party hereto or against any other person
or
entity who is intended to benefit or be bound by this Agreement. All
communications (whether oral or in writing) between and/or among the Parties,
their counsel and/or their respective representatives relating to, concerning
or
in connection with this Agreement, or the matters covered hereby and thereby,
shall be governed and protected in accordance with the Federal Rule of Evidence
408 to the fullest extent permitted by law.
(k) No
Assignment of Claims.
Axion,
Axion Ontario, C&T and the C&T Scientists represent and warrant that
each is the only Person who, to its knowledge, has any interest in the Claims
or
Interests released or subordinated hereby and that none of such Claims, nor
any
part thereof, have been assigned, granted or transferred in any way to any
Person and that during the term of this Agreement, no Claim or Interest will
be
assigned, granted or transferred in any way to any Person without the knowledge
and consent of the Trustee.
(l) Interpretation.
The
Parties at arm’s-length have jointly drafted this Agreement and each Party has
had ample opportunity to consult with independent legal counsel. No provision
or
ambiguity in this Agreement shall be resolved against any Party solely by virtue
of its participation in the drafting of this Agreement.
(m) Attorneys
Fees.
Except
as otherwise specifically set forth in this Agreement, each Party shall be
responsible for the payment of (a) its own costs and expenses (including
reasonable attorneys’ fees), and (b) all of its costs and expenses (including
reasonable attorneys’ fees) in connection with the matters referred to in this
Agreement.
(n) Captions.
The
captions of this Agreement are for convenience only and are not a part of this
Agreement and do not in any way limit or amplify the terms and provisions of
this Agreement and shall have no effect on its interpretation.
(o) Counterparts.
This
Agreement may be executed in counterparts, by either an original signature
or
signature transmitted by facsimile transmission or other similar process and
each copy so executed shall be deemed to be an original and all copies so
executed shall constitute one and the same agreement.
IN
WITNESS WHEREOF, the Parties have signed this Agreement in multiple
counterparts.
|
MEGA-C
POWER CORPORATION, a Nevada corporation, Chapter 11 Debtor
By:___________
/s/_________________
Xxxxxxx
X. Xxxxx, Chapter 11 Trustee
|
a
Delaware Corporation
By:
_________/s/______________________
Name:
Xxxxxx Xxxxxxxxx
Title:
Chief Executive Officer
|
|
AXION
POWER CORPORATION,
an
Ontario corporation
By:
_________/s/______________________
Name:
Xxxxxx Xxxxxxxxx
Title:
Chief Executive Officer
|
C
AND T CO. INC.,
an
Ontario corporation
By:
_________/s/______________________
Name:
Igor Filipenkp
Title:
President
|
|
/s/
Xxxxx
Xxxxxx
|
HAP
Investments, LLC,
By:
_________/s/______________________
Name:
Xxxxx Xxxxxxxxx
Title:
President
|
|
Trust
for the Benefit of Shareholders of Mega-C Power Corporation
By______________/s/________________
Xxxxx
Xxxxxx, Trustee
|
Xxx
Xxxxxxxxxx
|
|
/s/
Xxxxxx
Xxxxxxx
|
THE
CANADIAN CONSULTANTS BUREAU INC.
By:
______/s/_________________________
Name:
Xxxxxx Xxxxx
Title:
President
|
|
Xxxxx
Xxxxx
|
/s/
Xxx
Xxxxxxxxx
|
|
Xxxxx
Xxxxx
|
/s/
Xxxx
Xxxxxxx
|
|
Xxx
Xxxxxxx
|
/s/
Xxxx
Xxxxxxxxx
|
|
/s/
Xxxxx
Xxxxxxxxx
|
|
Xxx
Xxxxxx
|
______________________________
Xxxxxx
Malitskiy
|
|
_____________________________
Xxxx
Xxxxxxxxx
|
______________________________
Xxxxx
Xxxxxxx
|
|
_____________________________
Xxxxxx
Xxxxxxxxx
|
______________________________
Xxxxxx
Xxxxxxxxx
|
|
_____________________________
Oksana
Fylypenko
|
______________________________
Xxxxx
Xxxxxxxxx
|
|
______________________________
Xxxxxx
Xxxxxxxxx
|
______________________________
Xxxx
Xxxxxxxxx
|
|
______________________________
Xxxxxx
Xxxxxxxxx
|
______________________________
Miraslav
X. Xxxx
|
|
______________________________
Xxxxx
Xxxx
|
INFINITY
GROUP, LLC
By:
______________________________
|
|
TURITELLA
CORPORATION
By:
______________________________
|
C&T
Co. Inc. In Trust
By:______________________________
|
|
_______________________________
Xxxx
Brancroft
|
