LOAN AGREEMENT
In
this
Loan Agreement (this “Agreement”), executed as of this 31st
day of
January, 2006, by and between Axion Battery Products, Inc., a
Pennsylvania corporation and wholly owned subsidiary of Axion Power
International, Inc. (“Borrower”), Axion Power International, Inc., a Delaware
corporation (“Accommodation Party”) and Xxxxxx Xxxxxxx, an individual
(“Lender”), Borrower, Accommodation Party and Lender agree as
follows:
1. Loan.
Borrower,
Accommodation Party, and Lender agree to the following terms:
(a)
Lender will make a loan (the “Loan”) to Borrower in the principal amount of One
Million Dollars ($1,000,000.00) for the purpose of purchasing certain equipment,
inventory and other personal property (the “Property”) and Borrower’s operating
expenses, payable in monthly installments of interest accruing at the rate
of 10
percent
per annum, with the principal due on the first banking day of February 2007.
In
the event Borrower does not consummate the purchase of the Property, Borrower
shall release and return the Loan to Lender and shall not use the Loan for
any
other purpose;
(b)
Accommodation Party agrees to issue warrants to purchase 50,000 shares of common
stock of Accommodation Party at the rate of $6.00 per share, exercisable for
36
months from date of issuance, upon the execution of this Agreement and at the
end of each three month period thereafter until the Loan is paid in full, on
the
same terms and conditions. Accommodation Party will take whatever steps are
necessary to register the shares for immediate sale;
(c)
the
Loan will not be used for operating expenses for Accommodation
Party.
2.
Security
for Debt.
As
security for the obligations of this Agreement, Lender has agreed to
accept:
(a)
A
first
priority security interest in the Property owned by Borrower consisting of
all
equipment, inventory, furniture and fixtures, together with all substitutions,
replacements, or accessions thereto and all proceeds and accessions of the
above-described collateral (“Borrower’s collateral”); and
(b)
A
first
priority security interest in tangible and intangible
personal
property owned by Accommodation Party, including equipment, inventory,
furniture, fixtures and intellectual property, together with all substitutions,
replacements, developments or accessions thereto and all proceeds, and
accessions of the above-described collateral (“Accommodation Party’s
collateral”); and
(c)
A
first priority security interest in tangible and intangible personal property
of
any subsidiary of Accommodation Party other than the Borrower
.
3. Borrower’s
Loan Documents.
Concurrently
with this Agreement, Borrower shall deliver to Lender the following documents
collectively referred to as the “Borrower’s Loan Documents”:
(a)
Promissory
Note in the principal amount of $1,000,000.00, payable in monthly installments
of interest accruing at the rate of 10 percent per annum, by wire transfer
on
the first banking day of each month beginning in February 2006 and for eleven
consecutive months thereafter, with the principal due on the first banking
day
of February 2007 (“Borrower’s Promissory Note”);
(b) Security
Agreement, granting Lender a first priority security interest in the Borrower’s
collateral;
(c)
UCC-1 Financing Statement
for the Commonwealth of Pennsylvania, to be filed or recorded by Lender in
accordance with state law for the purpose of perfecting Lender’s security
interest in the Borrower’s collateral.
| 4. |
Accommodation
Party’s Loan Documents and Issuance of
Warrants.
|
Concurrently
with this Agreement, Accommodation Party shall deliver to Lender the following
documents collectively referred to as “Accommodation Party’s Loan
Documents”:
(a)
Security
Agreement, granting Lender a first priority security agreement on Accommodation
Party’s collateral;
(b)
UCC-1
Financing Statement for the State of New York, to be filed or recorded by Lender
in accordance with state law for the purpose of perfecting Lender’s security
interest in Accommodation Party’s collateral;
(c)
Documents necessary for Lender to file or record in the Province of Ontario,
Canada to perfect his security interest against Accommodation Party’s collateral
located in Ontario, Canada;
(d)
Common Stock Purchase Warrant in favor of Lender, for the issuance of 50,000
shares of common stock of Accommodation Party to be exercised at the rate of
$6.00 per share for a period of 36 months from the date of execution of this
Agreement; and
(e)
Such
additional Common Stock Purchase Warrants in favor of Lender, each of the
issuance of 50,000 shares of common stock of Accommodation Party to be exercised
at the rate of $6.00 per share for a period of 36 months from the date of
issuance, as are necessary to satisfy Accommodation Party’s obligation under ¶
1(b) of this Agreement.
| 5. |
Covenants
of Borrower
|
As
a
material inducement to Lender’s entering into this Agreement, Borrower
represents and warrants to Lender as of the date of execution of this Agreement
and continuing thereafter that:
(a)
Borrower is authorized to execute, deliver and perform its obligations under
this Agreement and the Borrower’s Loan Documents, and such obligations shall be
valid and binding obligations of Borrower;
(b)
Borrower’s execution, delivery, and performance under this Agreement and the
Borrower’s Loan Documents, to the best of Borrower’s knowledge, does not: (i)
require any consent or approval not otherwise obtained under any partnership
agreement, operating agreement, articles of incorporation, bylaws or other
document; (ii) violate any statute, law, regulation or ordinance or any order
or
ruling of any court or governmental entity; (iii) conflict with, or constitute
a
breach or default or permit the acceleration of obligations under any agreement,
contract, lease, or other document by which Borrower is bound or regulated;
or
(iv) violate any material statute, law, regulation or ordinance, or any order
of
any court or governmental entity.
(c)
Borrower shall comply in all material respects with all applicable laws,
statutes and governmental regulations and all applicable orders, rules, rulings,
certificates, licenses, regulations and decrees (collectively, “Laws”) and shall
pay all taxes, assessments, governmental charges, claims for labor, supplies,
rent and any other obligations which, if unpaid, might become a lien, charge
or
encumbrance against the Property, except Laws contested in good faith and
liabilities being contested in good faith.
(d)
Borrower shall do or cause to be done all things necessary to preserve and
keep
in full force and effect its corporate existence; provided, however, that
Borrower shall not be required to preserve any such existence if (i) the Board
of Directors of the Borrower shall determine that the preservation thereof
is no
longer desirable in the conduct of the business of the Borrower; and (ii) the
loss thereof is not disadvantageous in any material respect to the Lender.
| 6. |
Covenants
of Accommodation Party
|
As
a
material inducement to Lender’s entering into this Agreement, Accommodation
Party represents and warrants to Lender as of the date of execution of this
Agreement and continuing thereafter that:
(a)
Accommodation Party is authorized to execute, deliver and perform its
obligations under this Agreement and the Accommodation Party’s Loan Documents,
and such obligations shall be valid and binding obligations of Accommodation
Party.
(b)
Accommodation Party’s execution, delivery, and performance under this Agreement
and the Accommodation Party’s Loan Documents, to the best of Accommodation
Party’s knowledge, does not: (i) require any consent or approval not otherwise
obtained under any partnership agreement, operating agreement, articles of
incorporation, bylaws or other document; (ii) violate any statute, law,
regulation or ordinance or any order or ruling of any court or governmental
entity; (iii) conflict with, or constitute a breach or default or permit the
acceleration of obligations under any agreement, contract, lease, or other
document by which Accommodation Party is bound or regulated; or (iv) violate
any
material statute, law, regulation or ordinance, or any order of any court or
governmental entity.
(c)
Accommodation Party shall do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence; provided,
however, that Accommodation Party shall not be required to preserve any such
existence if (i) the Board of Directors of Accommodation Party shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Accommodation Party; and (ii) the loss thereof is not
disadvantageous in any material respect to the Lender.
(d)
Neither Accommodation Party nor any of its subsidiaries shall enter into a
transaction between Accommodation Party and any of its subsidiaries and a
director or officer of Accommodation Party, or any shareholder of Accommodation
Party who holds five percent or more of the issued and outstanding shares of
the
Accommodation Party’s common stock unless the Board of Directors in good faith
determines that the terms of such transaction are fair to the Accommodation
Party or such subsidiary.
(e)
Accommodation Party shall indemnify and hold Lender harmless for any damages,
costs and legal fees incurred in any legal, equitable or other proceeding
brought by a third party against Lender in connection with entering into this
Agreement, the Borrower’s Loan Documents or the Accommodation Party’s Loan
Documents.
| 7. |
Events
of Default.
|
The
term
“Event of Default” means any one of the following events:
(a)
Borrower’s failure to pay when due any sums payable under the Promissory Note on
or prior to the day it becomes due that remains uncured after 30 days receipt
of
written notice;
(b)
Borrower’s material breach of any other covenant contained in the Promissory
Note that remains uncured after 30 days receipt of written notice;
(c)
Borrower’s material breach of any covenant made in this Agreement that remains
uncured after 30 days receipt of written notice;
(d)
Borrower’s material breach of any covenant made in its Security Agreement that
remains uncured after 30 days receipt of written notice;
(e)
Accommodation Party’s material breach of any covenant contained in this
Agreement that remains uncured for 30 days;
(f)
Accommodation Party’s material breach of any covenant contained in its Security
Agreement that remains uncured for 30 days.
8.
Remedies
In
the
Event of a Default, Lender shall provide written notice to Borrower and
Accommodation Party. If Borrower or Accommodation Party fails to cure any Event
of Default within the time period set forth in paragraph 7, Lender may
immediately exercise its rights and remedies under state law pursuant to
Borrower’s Loan Documents and pursuant to Accommodation Party’s Loan Documents,
including the right to execute his security interest in any of the property
that
secures the Loan.
9. Miscellaneous
(a)
All
notices under this Agreement, the Borrower’s Loan Documents and the
Accommodation Party’s Loan Documents shall be in writing and shall be delivered
to the appropriate party at the address set forth below (subject to change
from
time to time by written notice to all other parties to this Agreement). All
communications shall be deemed served upon delivery of, or if mailed, upon
the
first to occur of receipt or the expiration of three (3) days after the deposit
in the United States Postal Service mail, first class, postage prepaid and
addressed at the address specified. Notices must given by email and any other
method of delivery, such as facsimile, regular mail, overnight or personal
delivery, to the parties at the addresses listed below:
To
Lender: Xxxxxx
Xxxxxxx
000
Xxxxxx Xxxxx
Xxxxxxxx,
Xxx Xxxxxx 00000
Facsimile:
000-000-0000
Email:
xxxxxxxxxx@xxxxx.xxx
To
Borrower: Xxxxxxx
X. Xxxxxxxx, Xx.
Xxxxx
& Xxxxxxx, P.C.
00
Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxx,
Xxxxxxxxxxxx 00000-0000
Telephone:
000-000-0000
Direct
Facsimile: 000-000-0000
Email:
Xxxxxxxxx@xxxxxxxx.xxx
and
xxxx@xxxxxxxxx.xxx
To
Accommodation Party: Axion
Power International, Inc.
Xxxxxx
X.
Xxxxxxxxx
000
Xxxxxx Xxxxxx
Xxxxxxx,
Xxxxxxx, Xxxxxx X0X 0X0
Facsimile:
000-000-0000
Email:
xxxx@xxxxxxxxx.xxx
Any
change in the address of any party shall be given by the party having such
change to the other parties in the manner provided above. Thereafter, all
notices shall be given in accordance with the notice of change of address.
Notices given before actual receipt of the notice of change of address shall
not
be invalidated by change of address.
(b) Time
is
of the essence of this Agreement.
(c)
The
waiver by either party of the time for performing any act shall not constitute
a
waiver of the time for performing any other act or of an identical act required
to be performed at a later time. The exercise of any remedy provided for in
this
Agreement shall not constitute a waiver of any other remedy provided by
law.
(d) The
unenforceability, invalidity, or illegality of any provision of this Agreement
shall not render any other provision unenforceable, invalid, or
illegal.
(e) This
Agreement shall be governed by and interpreted under the laws of the
Commonwealth of Pennsylvania in force from time to time.
(f) As
used
in this Agreement, the masculine, feminine, or neuter gender, and the singular
or plural number, shall each be considered to include the others whenever the
context so indicates.
(g) This
Agreement shall inure to the benefit of, and be binding upon, the heirs,
assigns, transferees, personal representatives, and successors in interest
of
the parties hereto.
(h) The
captions in this Agreement shall have no effect on its interpretation.
(i)
In
the event of any dispute regarding this Agreement, Borrower agrees to pay
Lender’s attorneys’ fees and costs actually incurred.
(j)
This
Agreement may be signed in counterpart and all signatures shall constitute
the
entire Agreement. Signature by facsimile shall be deemed original.
Dated
this 31st
day of
January, 2006.
BORROWER
AXION
POWER PRODUCTS, INC., a Pennsylvania corporation
By_________________________________
,
President
LENDER
XXXXXX
XXXXXXX
By__________________________________
ACCOMMODATION
PARTY
AXION
POWER INTERNATIONAL, INC., a Delaware corporation
By_________________________________
,
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