First Amended and Restated Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation

FIRSTAMENDED AND RESTATED TRUST AGREEMENT
FORTHE BENEFIT OF THE SHAREHOLDERS
OFMEGA-C POWER CORPORATION
THISFIRST AMENDED AND RESTATED TRUST AGREEMENT FORTHE BENEFIT OF THE SHAREHOLDERS OFMEGA-C POWER CORPORATION is made,entered into and effective as of the 26th day of February 2005between:
SALLYA. FONNER, anindividual resident of the State of Florida who has an office in Dunedin Floridaand is acting in her capacity as trustee of the Trust for the Benefit of theShareholders of Mega-C Power Corporation (the “Trustee”)
AND
AXIONPOWER INTERNATIONAL, INC., aDelaware corporation formerly known as Tamboril Cigar Company, which has anoffice in Vaughn, Ontario, Canada and is acting in its capacity as grantor ofthe Trust for the Benefit of the Shareholders of Mega-C Power Corporation (the“Grantor”)
WITNESSESTHAT:
WHEREAS the“Trustfor the Benefit of the Shareholders of Mega-C PowerCorporation” wasestablished on December 31, 2003 pursuant to an agreement between Tamboril CigarCompany and Benjamin Rubin that constituted an essential element of a businesscombination between Tamboril Cigar Company and Axion Power Corporation;and
WHEREAS Sally A.Fonner assumed the rights, powers and responsibilities of trustee and acceptedan appointment as successor trustee on March 24, 2004; and
WHEREAS theGrantor and two of its affiliates instituted an involuntary bankruptcyreorganization of Mega-C Power Corporation on April 6, 2004 by filing aninvoluntary Chapter 11 petition against that company in the U.S. BankruptcyCourt for the District of Nevada; and
WHEREAS theTrustee devoted several months to a careful, detailed and diligent analysis ofMega-C’s corporate records, including its stock issuance and transfer records,and has concluded based on that review that those records are inadequate,inaccurate and unreliable; and
WHEREAS theTrustee sought the advice of counsel respecting the statutory requirements for aNevada corporation to validly issue shares and ultimately concluded that asubstantial number of shares allegedly issued by Mega-C were not issued intransactions that complied with the fundamental requirements of applicable law;and
WHEREAS theGrantor and the Trustee have concluded that certain terms, provisions,requirements and procedures in the Original Trust Agreement are unclear, couldconflict with comparable provisions of the Bankruptcy Act or could otherwiseimpede the efficient administration of Mega-C’s Chapter 11 Case;and
WHEREAS theOriginal Trust Agreement expressly provides that it may be amended at any timefor the purpose of modifying the terms, conditions and provisions thereof orincorporating additional terms, conditions and provisions that are notinconsistent with the intent of the parties and requested by the Grantor or theTrustee; and
WHEREAS theGrantor and the Trustee have agreed to amend and restate the Trust Agreement forthe purpose of clarifying the respective rights of Mega-C’s Creditors andshareholders, clarifying potential ambiguities, minimizing the potentialconflicts with the Bankruptcy Act and providing more formal and comprehensivemechanisms for the resolution of potential disputes;
NOWTHEREFORE inconsideration of the mutual obligations and agreements herein set forth, theparties agree to amend and restate the Original Trust Agreement in its entiretyas follows.

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ARTICLE1 – INTERPRETATION
Section1.1 Definitions In thisAmendment, unless there is something in the subject matter or contextinconsistent therewith, the following terms have the meanings ascribed tothem:
(a)  
“Amendment” means this First Amended and Restated Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation dated February 16, 2005.
(b)  
“Axion Shares” means (i) the 7,327,500 shares of the Grantor’s common stock that were held by the Trust on the date of this Amendment, and (ii) the 500,000 additional shares of the Grantor’s common stock that will be delivered to the Trust as provided for in this Amendment.
(c)  
“Applicable Laws” means any statute of the United States, Canada, the State of Nevada or the Province of Ontario, together with any rules and regulations made thereunder and the orders or rulings of any securities commission, regulatory authority, agency or court applicable to the affairs of Mega-C or the sale and disposition of the Axion Shares.
(d)  
“Bankruptcy Court” means the U.S. Bankruptcy Court for the District of Nevada, which shall if required be the principal forum for the resolution of issues relating to the due authorization, validity and fully paid and nonassessable status of Mega-C Shares; the identities, ownership interests and amount paid by Mega-C Shareholders in connection with the purchase of Mega-C Shares; and the rights of any person to claim the legal status of a Mega-C Shareholder.
(e)  
“Bankruptcy Trustee” means the independent trustee who has been or will be appointed by the Bankruptcy Court to manage Mega-C and its affairs during the Chapter 11 Case.
(f)  
“Beneficiary” means a Mega-C Shareholder who is specifically identified in a final order of either the Bankruptcy Court or the Nevada Court, but only to the extent that such final order specifies the identity, interest and consideration paid by the Beneficiary in connection with his acquisition of Mega-C Shares.
(g)  
“Chapter 11 Case” means the involuntary Chapter 11 reorganization of Mega-C Power Corporation (Case No. BK-N-04-50962) that is presently pending before the Bankruptcy Court.
(h)  
“Creditor” means any person who has loaned money or extended credit to Mega-C or to whom a debt is owed by Mega-C, provided that for purposes of this Amendment the term shall also include all holders of claims for administrative and operating expenses incurred by Mega-C after the commencement of the Chapter 11 Case and all persons other than the Trust who have loaned money or extended credit to Mega-C for the purpose of paying such administrative and operatingexpenses.
(i)  
“Florida Court” means the Circuit Court of Pinellas County, Florida, which shall be the sole forum for the resolution of disputes arising under the law of trusts and the interpretation of this Amendment.
(j)  
“Grantor” means Axion Power International, Inc., a Delaware corporation formerly known as Tamboril Cigar Company, and its directors, officers, affiliates, successors and assigns.
(k)  
“Mega-C” means Mega-C Power Corporation, a Nevadacorporation.
(l)  
“Mega-C Share” means a duly authorized, validly issued, fully paid and nonassessable share of the no par value common stock of Mega-C.
(m)  
“Mega-C Shareholder” means any person who holds a stock certificates issued by Mega-C and may be entitled to classification as a Beneficiary of the Trust if either the Bankruptcy Court or the Nevada Court determines that the shares represented by his certificates are duly authorized, validly issued, fully paid and nonassessable Mega-CShares.
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(n)  
“Nevada Court” means the District Court of the State in the county where Mega-C’s registered office in the State of Nevada is located, which is an appropriate forum for the resolution of any disputes that are not fully and finally adjudicated by the Bankruptcy Court and relate to the due authorization, validity and fully paid and non-assessable status of Mega-C Shares; the identities, ownership interests and amount paid by Mega-C Shareholders in connection with their purchase of Mega-C Shares; and the rights of any person to claim the legal status of a Mega-C Shareholder.
(o)  
“Original Trust Agreement” means the agreement dated December 31, 2003 between the Grantor and Benjamin Rubin styled “Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation,” as amended by an agreement dated March 24, 2004 between Benjamin Rubin, Sally A. Fonner and the Grantor and styled “Succession Agreement Pursuant to the Provisions of the Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation.”
(p)  
“Trust” means the Trust for the Benefit of the Shareholders of Mega-C Power Corporation, which was established on December 31, 2003 and shall hereafter be subject to the terms, conditions and provisions of this Amendment.
(q)  
“Trustee” means Sally A. Fonner, an individual resident of Dunedin, Florida and her successors or assigns under the terms of thisAmendment.
Section1.2 Article and Section Headings Articleand section headings are included for convenience only and are not a part ofthis Amendment.
Section1.3 Gender and Number Wordsimporting the singular shall include the plural and vice versa, and wordsimporting gender shall include the masculine, feminine and neutergenders.
Section1.4 Entire Agreement ThisAmendment constitutes the entire agreement among the parties respecting theoperation of the Trust and the disposition of any Axion Shares or other propertynow held or hereafter acquired by the Trust. This Amendment supersedes theOriginal Trust Agreement and all prior understandings, negotiations anddiscussions between any of the parties with respect to the subject matterhereof, whether oral or written.
ARTICLE2 – ESTABLISHMENT OF TRUST
Section2.1 Establishment of Trust TheGrantor established the Trust on December 31, 2003. In connection with theestablishment of the Trust, the Grantor delivered certificates for 117,239,736duly authorized, validly issued, fully paid and nonassessable shares of TamborilCigar Company common stock to the Trustee. While these shares constituted theentire Trust corpus, the Grantor reserved the right to augment the Trust corpusfrom time to time. As a result of a 1 share for 16 reverse stock split and aname change that were approved by the Grantor’s stockholders on June 4, 2004,the Trust is now the record holder of 7,327,500 duly authorized, validly issued,fully paid and nonassessable Axion Shares.
Section2.2 Appointment of Trustee TheTrustee was appointed on March 24, 2004, presently holds certificates for7,327,500 Axion Shares and has agreed to act as Trustee pursuant to the terms ofthis Amendment. The Trustee shall be obligated only for the performance of suchduties as are specifically set forth in this Amendment and may rely on and shallbe protected in acting or refraining from acting on any instrument believed byher to be genuine and to have been signed or presented by the proper party orparties, their officers, representatives or agents. The Trustee shall not beliable for any action taken or omitted by her in good faith and believed by herto be authorized hereby, nor for action taken or omitted by her in accordancewith the advice of her counsel.
Section2.3 Office; Administrative Situs Theoffice and administration situs of the Trust shall be the office of the Trusteein Dunedin Florida, or such other location as the Trustee and the Grantor mayjointly designate in writing.
Section2.4 Purpose of Trust Thepurpose of the Trust is to preserve the potential equitable interests of theMega-C Shareholders in a lead-acid-carbon battery technology that was licensedto Mega-C in 2001 and thereafter purchased
 
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by theGrantor, while insulating the Grantor from the potential litigation risksassociated with the prior business of Mega-C and the alleged unlawful activitiesof certain directors, officers and stockholders of Mega-C.
ARTICLE3 – TERM OF TRUST
Section3.1 Term TheTrust was established by the Grantor on December 31, 2003 and shall continue toexist as a separate legal entity until all Axion Shares held by the Trust havebeen:
(a)  
Sold by the Trustee in accordance with this Amendment;
(b)  
Distributed to Mega-C Shareholders in accordance with this Amendment;
(c)  
Deposited into the registry of a court in accordance with this Amendment; or
(d)  
Surrendered to the Grantor in accordance with this Amendment.
When allof the Axion Shares have been sold, distributed, deposited into the registry ofa court, or surrendered to the Grantor in accordance with this Amendment, theTrust shall terminate forthwith.
ARTICLE4 -TRUST CORPUS AND IDENTIFICATION OF BENEFICIARIES
Section4.1 Initial Contribution of Axion Shares The7,327,500 Axion Shares held by the Trust represented the Grantor’s best estimateof the number of Axion Shares that would be required to create a corpusconsisting of one Axion Share for every two duly authorized, validly issued,fully paid and nonassessable Mega-C Shares outstanding.
Section4.2 Augmentation of Trust Corpus Within 30days after the execution of this Amendment, the Grantor shall delivercertificates for 500,000 additional Axion Shares and $100,000 in cash to theTrustee for the purpose of augmenting the Trust corpus and offsetting theadministrative and operating costs, including legal fees, that have been andwill be incurred by the Trust, Mega-C and the Bankruptcy Trustee in connectionwith the Chapter 11 Case and the Trustee compensation provisions of thisAmendment. The Grantor is not required to further augment the Trust corpus atany time or to contribute additional Axion Shares, money or property to theTrust for any purpose.
Section4.3 Priority for Creditor Claims Theinterests of the Beneficiaries shall in all events be subordinate to and subjectto reduction for (1) all administrative and operating costs incurred by theTrust, including legal fees; (2) all administrative and operating costs incurredby Mega-C or the Bankruptcy Trustee after the commencement of the Chapter 11Case, including legal fees, regardless of whether the associated claims areallowed by the Bankruptcy Court in connection with the Chapter 11 Case; and (3)all other allowed claims of Mega-C’s Creditors who are entitled to priority overshareholders under applicable law. Subject to Bankruptcy Court supervision, theTrustee is authorized and directed to sell Axion Shares from time to time and touse the sale proceeds to pay the administrative and operating costs of theTrust, the administrative and operating costs of Mega-C and allowed Creditors’claims before any residual Axion Shares are allocated among, distributed to orsold for the benefit of Beneficiaries.
Section4.4 Trustee to Request Shareholders List SinceMega-C’s records are unreliable, a number of stock issuance transactions do notappear to have been conducted in compliance with Nevada law and there areconflicting claims with respect to the ownership of other shares, the Grantorand Trustee hereby agree that all decisions respecting (1) the number of sharesoutstanding, (2) the identities of the owners of those shares; and (3) thenumber of shares held by each shareholder should properly be made by theBankruptcy Court as an integral element of the Chapter 11 Case. Therefore theTrustee shall, at the earliest practicable date, ask the Bankruptcy Trustee toprepare a list of all owners of duly authorized, validly issued, fully paid andnonassessable Mega-C Shares that includes.
(a)  
The identity of each person who has established to the satisfaction of the Bankruptcy Trustee that he is the sole lawful owner of duly authorized, validly issued, fully paid and nonassessable Mega-C Shares;
(b)  
The number of Mega-C Shares owned by each person identified in the shareholders list; and
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(c)  
The average price per share paid by each person identified in the shareholders list.
Tofacilitate the efficient administration of the Chapter 11 Case, the BankruptcyTrustee may elect to prepare one or more partial shareholder lists that identifyMega-C Shareholders who have submitted claims that are not subject to furtherinvestigation or dispute resolution procedures, provided that no Mega-Cshareholder may be identified in such a partial shareholder list until all ofhis ownership claims with respect to Mega-C Shares have been resolved to thesatisfaction of the Bankruptcy Trustee.
Section4.5 Trustee to Petition for Shareholder Certification Each timethe Bankruptcy Trustee prepares either a complete or partial list of persons whoshould properly be classified as the sole lawful owners of duly authorized,validly issued, fully paid and nonassessable Mega-C Shares, the Trustee shallpetition the Bankruptcy Court for an order certifying the shareholder listprepared by the Bankruptcy Trustee. If the Bankruptcy Court grants a final orderthat certifies the identities, ownership interests and amounts paid by theMega-C Shareholders identified in any list prepared by the Bankruptcy Trustee,that order shall constitute a final judicial determination that the personsidentified in the list are entitled to claim Beneficiary status under theTrust.
Section4.6 Failure to Obtain Bankruptcy Court Certification If theChapter 11 Case is dismissed, the Bankruptcy Trustee fails or refuses to preparethe requested shareholder lists, or the Bankruptcy Court fails or refuses togrant an order certifying the shareholder lists prepared by the BankruptcyTrustee, the Trustee is authorized and directed to prepare a preliminaryshareholder list based on information contained in the proofs of claim submittedin connection with the Chapter 11 Case. In connection therewith, the Trustee isauthorized to confer with the Bankruptcy Trustee and to request any and alladditional information and documentation she deems reasonably necessary to makeher preliminary decisions. Upon completion of the preliminary shareholders list,the Trustee shall seek a declaratory judgment from the Nevada Court thatspecifies the identities, ownership interests and consideration paid by theMega-C Shareholders. If the Nevada Court grants a final order that certifies theidentities, ownership interests and amounts paid by the Mega-C Shareholdersidentified in the shareholders list prepared by the Trustee, that order shallconstitute a final judicial determination that the persons identified in thelist are entitled to claim Beneficiary status under the Trust.
Section4.7 Surrender of Axion Shares by Trustee If thefinal court approved shareholders lists required by Section 4.5 or Section 4.6show that fewer than 14,655,000 Mega-C Shares are duly authorized, validlyissued, fully paid, non-assessable and outstanding, the Trustee shall divide thetotal number of shares specified on the court approved shareholders lists by twoand then add 500,000 to determine the number of Axion Shares that willconstitute the entire corpus of the Trust. If the number of Axion Sharesdelivered to the Trust exceeds the number so calculated, the Trustee shallpromptly return any additional Axion Shares to the Grantor for cancellation,together with an appropriate certificate that waives all rights of the Trust andall Beneficiaries with respect to the surrendered Axion Shares.
Section4.8 Limitation of Beneficial Ownership Rights A personwho claims to be a Mega-C shareholder shall not have any interest in either theTrust or the Axion Shares until the Bankruptcy Court or the District Court hasissued an order pursuant to Section 4.5 or 4.6 that specifically identifies himas a Mega-C shareholder; any excess Axion Shares have been surrendered to theGrantor for cancellation pursuant to Section 4.7; and all administrative costsand claims of Mega-C’s Creditors have been paid or otherwise provided for. Whenall of the conditions specified in Sections 4.1 through 4.7 have been satisfied,the Trustee shall calculate the relative ownership interests of theBeneficiaries in Mega-C and use those ownership percentages to calculate thenumber of Axion Shares that are properly allocable to each Beneficiary under theTrust.
Section4.9 Request for Interim Distribution When therequirements of Sections 4.5 or 4.6 are satisfied, the Trustee may petition theBankruptcy Court for an interim order authorizing partial distributions of AxionShares to persons who will be classified as Category-I Beneficiaries under thisAmendment, provided that no interim distributions shall be made in the absenceof a finding by the Bankruptcy Court that the Axion Shares to be retained by theTrust after the interim distribution constitute adequate security for Creditorsclaims and the unresolved claims of other potential Mega-Cshareholders.
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ARTICLE5 – CONDITIONS PRECEDENT TO DISTRIBUTION OR SALE
Section5.1 Conditions Precedent to Distribution or Sale TheGrantor hereby waives the benefit of the conditions precedent specified inSection 5.1 of the Original Trust Agreement.
Section5.2 Prior Registration of Certain Shares TheGrantor has previously received an order of effectiveness with respect to aregistration statement under the Securities Act of 1933 for the 7,327,500 AxionShares held by the Trust on the date of this Amendment. The Grantor shall useall reasonable efforts to maintain the effectiveness of the referencedregistration statement for a period of at least 24 months from the date of thisAmendment so as to permit the unrestricted sale or distribution of Axion Sharesin the manner contemplated by the Original Trust Agreement and this Amendment.If the Grantor is required to file a post-effective amendment to theregistration statement at any time, it shall promptly notify the Trustee of thefiling of such post-effective amendment and during the period between the filingdate and the receipt of an order of effectiveness with respect to thepost-effective amendment, the Trustee shall not conduct any sales, transfers orother distributions of the Axion Shares.
Section5.3 Demand Registration Right If thecalculations required in Article 4 do not result in the surrender of at least500,000 Axion Shares to the Grantor for cancellation, then the Trustee shallhave the right to demand that the Grantor file an additional registrationstatement for any and all Axion Shares that are retained by the Trust but notcurrently registered under the Securities Act of 1933. In connection with anydemand registration pursuant to this Section 5.3, the Grantor shall use allreasonable efforts to cause the registration statement to become effective aspromptly as practicable; and use all reasonable efforts to maintain theeffectiveness of the registration statement for a period of not less than 24months from the date of this Amendment so as to permit the unrestricted sale ordistribution of Axion Shares in the manner contemplated by thisAmendment.
ARTICLE6 – COMMUNICATIONS AND DISCLOSURE
TheGrantor and the Trustee hereby acknowledge that the filing of the Chapter 11Case, the mailing of disclosure information to Mega-C’s Creditors andshareholders in connection with the Chapter 11 Case, the proof of claimprocedures implemented in connection with the Chapter 11 Case and the timetablesestablished by the Bankruptcy Court in connection with the Chapter 11 Case havesupplanted and taken priority over the provisions Sections 6.1 through 6.6 ofthe Original Trust Agreement. They further acknowledge that the requirements ofSection 4.4 and Section 4.5 of this Amendment relating to a final judicialdetermination of the identities, interests and consideration paid byBeneficiaries will supplant and take priority over the provisions Section 6.7 ofthe Original Trust Agreement. Accordingly, Article 6 of the Original TrustAgreement is hereby deleted in its entirety.
ARTICLE7 – CLASSIFICATION OF BENEFICIARIES
Section7.1 Classification of Beneficiaries Prior toany distribution, sale or other disposition of Axion Shares to or for thebenefit of Beneficiaries, and based solely on the final shareholders listrequired by Sections 4.4 or 4.5, the Trustee shall classify each Beneficiaryinto one of the following categories:
(a)  
A Mega-C Shareholder who purchased Mega-C shares for an average price of more than $1 per share that was paid in money, property or services actually performed and reasonably valued, shall be classified as a Category-I Beneficiary;
(b)  
A Mega-C Shareholder who did not purchase Mega-C shares for value, or who purchased Mega-C shares for an average price of less than $1 per share shall be classified as a Category-II Beneficiary;and
(c)  
A Mega-C Shareholder who has allegedly violated any applicable laws relating to the offer, sale or trading of securities shall be classified as a Category-III Beneficiary unless:
(i)  
There has been an unambiguous judicial or administrative determination that the conduct attributed to him did not occur or was not a violation of applicable law; or
 
 
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(ii)
He enters into a written agreement with the Trustee that specifically provides that a portion of the Mega-C Shares held by him shall be treated as having been surrendered in favor of the Category I and Category II Beneficiaries.
When aCategory-III Beneficiary has satisfied the requirements of either of theforegoing sub-paragraphs, he shall promptly be reclassified as a Category-IIBeneficiary with respect to all duly authorized, validly issued, fully paid andnonassessable Mega-C Shares owned by him. Category-III Beneficiaries shall notunder any circumstances be reclassified as Category IBeneficiaries.
Section7.2 Officers and Directors of GrantorNotwithstanding the general classification structure set forth in Section 7.1,for the purpose of avoiding potential transaction reporting and “short-swingprofit” issues under the Securities Exchange Act of 1934, any officer, directoror holder of more than 10% of the issued and outstanding stock of the Grantorwho is also a Beneficiary shall be presumptively classified as a Category-IBeneficiary.
Section7.3 Small Beneficiaries Tofacilitate the effective administration of the Trust, the Trustee may adopt andimplement reasonable procedures that will permit the reclassification ofCategory-II Beneficiaries as Category-I Beneficiaries; but only if theprocedures so adopted are limited to persons who own 2,500 or fewer Mega-CShares; and in connection with each reclassification the Trustee receives suchwritten representations, warranties and other assurances as the Trustee may inher reasonable discretion deem appropriate under the circumstances.
Section7.4 Review of Classification Decisions AnyBeneficiary that disagrees with the Trustee’s decision to classify him as aCategory-II or Category-III Beneficiary shall be entitled to request a review ofthe Trustee’s classification decision by a review panel of not less than three(3) disinterested persons who have been selected by Trustee. Any Beneficiary whorequests a review of the Trustee’s decision, however, shall be required to pay areasonable fee to compensate the panel members for their services in connectionwith the requested review. In connection with any such review, the review panelshall have the power to consider any additional evidence or countervailingarguments that a Beneficiary cares to submit. The review panel shall issue awritten decision with respect to each review within 60 days of the date of theoriginal request. All decisions of the review panel shall be final and bindingon the Beneficiary, the Trust and the Trustee.
ARTICLE8 – DISTRIBUTIONS TO BENEFICIARIES
Section8.1 In-kind Distributions to Category-I Beneficiaries Unlessotherwise prohibited by applicable law, all distributions to Category-1Beneficiaries shall be in-kind distributions of Axion Shares; provided that ifthe calculations required by this Amendment would result in the issuance of afractional Axion Share to any Category-I Beneficiary, then that Beneficiaryshall instead be entitled to receive a cash payment equal to the fair marketvalue of any fractional share. In connection with each in-kind distribution ofAxion Shares, the Trustee shall deliver a stock certificate for Axion Sharesthat has been registered in the name of the Category-I Beneficiary, togetherwith a copy of the prospectus included in the registration statements specifiedin Section 5.2 or 5.3. When a Category-1 Beneficiary has received certificatesfor all of the Axion Shares he is entitled to receive under the terms of thisAmendment together with payment for any fractional shares, all further rightsand privileges of such Category-I Beneficiary shall terminateforthwith.
Section8.2 Resale of Axion Shares for Category-II Beneficiaries TheTrustee shall not distribute Axion Shares to the Category-II Beneficiaries.Instead all Axion Shares that the Trustee holds for the benefit of Category-IIBeneficiaries shall be deposited into one or more segregated brokerage accountsestablished by the for the sole benefit of the Trust and the Beneficiaries. Inconnection with the deposit of Axion Shares in such accounts, the Trustee shalldevelop a reasonable plan for the complete liquidation of all deposited AxionShares within a period of not more than twenty-four (24) months. Category-IIBeneficiaries shall have no right to vote, consent to or otherwise approve ordisapprove the Trustee’s plan to liquidate the Axion Shares held for the benefitof the Category-II Beneficiaries and their sole interest in any accountsestablished by the Trustee shall be the right to receive their proportionalshare of any proceeds received from the sale of the Axion Shares.
Section8.3 Restrictions on Trustee’s Resale Transactions Allresale transactions effected by the Trustee for the benefit of the Category-IIBeneficiaries shall be based on written instructions from the Trustee, providedthat the
 
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Trusteeshall have the power, in her sole discretion, to modify or amend herinstructions from time to time in light of prevailing market conditions. TheTrustee is expressly authorized, in the exercise of her reasonable judgment, tosell Axion Shares in underwritten transactions; in market transactions; inprivately negotiated transactions; through the writing of options; in block saletransactions; through broker-dealers, which may act as agents or principals;directly to one or more purchasers; through agents; or in any combination of theabove or by any other legally available means, provided that all transactionseffected by the Trustee shall be made with due regard for market conditions andthe interests of the Category-II Beneficiaries as a group.
Section8.4 Trustee’s Fees for Resale of Axion Shares Inconnection with the services provided by the Trustee in connection with theresale of Axion Shares for the benefit of the Category-II Beneficiaries, theTrustee shall be entitled to receive an administrative fee equal to 2% of thenet sales proceeds (after brokerage commissions and other direct expenses) tocompensate the Trustee for the work involved in planning and effecting resaletransactions, collecting and accounting for sale proceeds, allocating the saleproceeds among the Category-II Beneficiaries and distributing the sale proceedsto the persons entitled thereto. All such fees shall be separately stated on theTrustee’s periodic distribution reports to the Category-II Beneficiaries andwithheld from the amounts that would otherwise be payable to the Category-IIBeneficiaries.
Section8.5 Cash Distributions to Category II Beneficiaries From timeto time, but not less often than once per calendar quarter, the Trustee shalldistribute all cash proceeds derived from the sale of Axion Shares to theCategory-II Beneficiaries who are entitled thereto. All distributions to theCategory-II Beneficiaries shall be made in proportion to their respectiveinterests in the Axion Shares then on deposit in the Trustee’s brokerageaccounts. When all of the Axion Shares held for the benefit of the Category-IIBeneficiaries have been sold and the Trustee has distributed the sales proceedsin accordance with this Amendment, all rights and privileges of the Category-IIBeneficiaries shall terminate forthwith.
Section8.6 No Distributions to Category-III Beneficiaries TheTrustee shall not distribute Axion Shares or make cash distributions from thesale of Axion Shares to any Category-III Beneficiary. Instead all Axion Sharesthat are held in Trust for the benefit of Category-III Beneficiary shall beretained by the Trustee pending the execution of an agreement of the typespecified in Section 7.1(c)(ii) of this Amendment. The following specialprovisions shall apply to all Axion Shares that are held for the benefit ofCategory-III Beneficiaries who have not entered into a Section 7.1(c)(ii)agreement before the commencement of sales on behalf of the Category-IIBeneficiaries:
(a)  
If the Trustee holds Axion Shares for the benefit of a Category-III Beneficiary who enters into a Section 7.1(c)(ii) agreement after the commencement of sales on behalf of the Category-II Beneficiaries but prior to the expiration of 12 months from the commencement of such sales, the Trustee shall forthwith deposit all remaining Axion Shares held for the benefit of the Category-III Beneficiary in the Trustee’s brokerage account and thereafter treat the Category-III Beneficiary as a Category-II Beneficiary.
(b)  
No Category-III Beneficiary shall derive an economic benefit from his failure or refusal to enter into a Section 7.1(c)(ii) agreement before the commencement of sales on behalf of the Category-II Beneficiaries. In the event that the average price received by the Trustee with respect to sales of Axion Shares on behalf of a Category-III Beneficiary exceeds the average price received by the Trustee with respect to all sales of Axion Shares on behalf of Category-II Beneficiaries, then any excess proceeds shall forthwith be donated to the American Red Cross in the name of the Category-III Beneficiary.
(c)  
If the Trustee holds Axion Shares for the benefit of a Category-III Beneficiary who fails or refuses to enter into a Section 7.1(c)(ii) agreement within 12 months after the commencement of sales on behalf of the Category-II Beneficiaries, the Trustee shall forthwith contribute all Axion Shares held for the benefit of that Category-III Beneficiary to the American Red Cross in the name of the Category-III Beneficiary.
ARTICLE9 – POWERS OF THE TRUSTEE
Section9.1 Trustee’s General Powers TheTrustee shall have the all of the rights and powers generally accorded totrustees under the laws of the State of Florida, provided that without limitingthe generality of the foregoing the Trustee shall have the expresspower:
 
 
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(a)  
To hold the Axion Shares so long as she deemsproper;
(b)  
To sell Axion Shares for the purpose of paying the ordinary and necessary administrative and operating expenses of the Trust, including fees owed to the Trustee, staff salaries, office and administrative overhead, travel expenses, legal fees and expenses, accounting and auditing fees, brokerage fees and all other normal business expenses reasonably and necessarily incurred in connection with the administration and operation of the Trust;
(c)  
To sell Axion Shares for the purpose of paying the ordinary and necessary administrative and operating expenses incurred by Mega-C during the pendancy of the Chapter 11 Case, including fees owed to the Bankruptcy Trustee, staff salaries, office and administrative overhead, travel expenses, legal fees and expenses, accounting and auditing fees, brokerage fees and all other normal business expenses reasonably and necessarily incurred in connection with the administration and operation of Mega-C;
(d)  
To borrow money in such reasonable amounts as may be necessary, desirable or convenient to facilitate the efficient administration of the Trust pursuant to the provisions of this Amendment and in connection therewith to draw, make, execute and issue promissory notes and other instruments and evidences of indebtedness; to secure the payment of the sums so borrowed; and to mortgage, pledge, transfer or assign in trust all or any part of the Axion Shares in support of suchborrowings.
(e)  
To make distributions of the Axion Shares to Category-I Beneficiaries;
(f)  
To sell Axion Shares for the benefit of Category-II Beneficiaries at such times, in such manner and with due regard for prevailing market conditions as in her discretion and judgment may be deemed for the best interest of the Category-II Beneficiaries as a group;
(g)  
To distribute all cash proceeds from the sale of Axion Shares to the Category-II Beneficiaries in proportion to their respective interests in the Trust;
(h)  
To compromise, settle, arbitrate, or defend any claim or demand in favor of or against the Trust; and
(i)  
To act through an agent or attorney-in-fact, by and under power of attorney duly executed by the Trustee, in carrying out any of the authorized powers and duties.
TheTrustee may freely exercise any of the powers granted by this Amendment in anymatters concerning the Trust, after forming a judgment based upon all thecircumstances of any particular situation as to the wisest and best course topursue in the interest of the Trust and the Beneficiaries, without the necessityof obtaining the consent or permission of the Grantor, any Beneficiary, anyother interested person, or the consent or approval of any court. The powersgranted to the Trustee may be exercised in whole or in part, from time to time,and shall be deemed to be supplementary to and not in derogation of the generalpowers of trustees under Florida law, and shall include all powers necessary tocarry them into effect.
Section9.2 Trustee’s Power to Vote Axion Shares TheTrustee shall not exercise or authorize the Trust to exercise any rights it mayhave to authorize or otherwise consent to the taking of any corporate action byAxion without a meeting of Axion’s stockholders. In connection with everycorporate action that permits or requires Axion’s stockholders to vote orotherwise grant their consent, the Trustee shall cause the Trust to vote allshares held it proportionally with the votes cast by the other Axionstockholders.
Section9.3 Limitations on Trustee’s PowersNotwithstanding any provision of this Amendment to the contrary, no powersenumerated or accorded to trustees generally pursuant to applicable law shall beconstrued to enable the Grantor, or the Trustee or either of them, or any otherperson, to sell, purchase, exchange, or otherwise deal with or dispose of all orany parts of the corpus of the Trust for less than an adequate consideration inmoney or monies worth, or to enable the Grantor to borrow all or any part of thecorpus of the Trust, directly or indirectly.
 
 
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Section9.4 Trustee’s Authority and Third Parties Noperson purchasing any of Axion Shares, or in any manner dealing with the Trustor the Trustee, shall be required to inquire into the authority of the Trusteeto enter into any transaction, or to account for the application of any moneypaid to the Trustee.
Section9.5 Accounting by the Trustee TheTrustee shall, within 45 days after the end of each calendar quarter (beginningwith the first quarter during which the Trustee sells Axion Shares for anypurpose) render an unaudited quarterly accounting to the Beneficiaries. Inaddition to the unaudited quarterly accounting, the Trustee shall within 90 daysafter the end of each fiscal year (beginning with the first quarter during whichthe Trustee sells Axion Shares for any purpose) render an audited annual reportto the Beneficiaries, and the opinion of the independent auditor included insuch report shall be final, binding, and conclusive upon allBeneficiaries.
Section9.6 Resignation of Trustee TheTrustee may resign at any time by giving the Grantor at least ten (10) dayswritten notice of its resignation, and upon the effective date of suchresignation, the Axion Shares then deposited in the Trust shall be delivered toa successor Trustee who has been selected and appointed in accordance withSection 9.7, whereupon all the Trustee’s obligations hereunder shall cease andterminate. The Trustee’s sole responsibility until such termination shall be tomaintain the Axion Shares in safe custody and to deliver the same to a successorTrustee who has been selected and appointed in accordance with Section9.7.
Section9.7 Appointment of Successor Trustee TheTrustee shall have the power, in consultation with the Grantor’s board ofdirectors, to appoint a successor Trustee. If the Trustee shall resign withouthaving appointed a successor Trustee, the Grantor’s board of directors shallhave the power appoint a successor trustee selected by the Grantor’s board ofdirectors in the exercise of its reasonable discretion.
Section9.8 Bond and Exculpation of Trustee TheTrustee shall not be required to give any bond or other security. The Trusteeshall not be liable for any mistake or error of judgment in the administrationof the Trust, except for grossnegligence, bad faith or willful misconduct. So longas she exercises her powers in good faith and performs her duties as providedherein, the Trustee shall have no liability for loss arising from any cause,including, but not limited to: (a) any act, failure or neglect of anyemployees,agents or correspondentsselected by the Trustee; (b) any diminution in the value of Axion Shares, (c)any delay, error, omission or default connected with the sale or distribution ofAxion Shares; (d) any delay, error, omission or default connected with theremittance of funds; (e) any delay, error, omission or default of any mail,telegraph, cable or wireless agency or operator; or (f) any acts or edicts ofany government or governmental agency or other group or entity exercisinggovernmental powers.
Section9.9 Indemnification of Trustee TheTrust shallindemnify the Trustee and her employees,agents and affiliates (each of whom is referred to as “Indemnified Party”) fromand against any and all losses, claims, damages and liabilities (including alllegal or other expenses reasonably incurred by any Indemnified Party inconnection with the preparation for or defense of any threatened or pendingclaim, action or proceeding, whether or not resulting in any liability)(“Damages”), to which an Indemnified Party, in connection with thenegotiation and execution of this Amendment, the performance of the duties ofthe Trustee as specified herein or the exercise or failure to exercise any orall the powers of the Trustee as specified herein, maybecome subject under any applicable law or otherwise; provided, thattheTrust will notbe liable to an Indemnified Party to the extent that any Damages are found in afinal non-appealable judgment of a court of competent jurisdiction to haveresulted from the gross negligence, bad faith or willful misconduct of theIndemnified Party. In connection with the preparation for or defense of anythreatened or pending claim, action or proceeding for which indemnification isprovided under the terms of this Amendment, the Indemnified Party shall have theright to retain counsel at the Trust’s expense to represent the IndemnifiedParty. The Trustee is expressly authorized to sell Axion Shares for the purposeof defending any such claim or action and all costs thereof shall be accountedfor in the same manner as other normal operating expenses of theTrust.
Section9.10 Choice of Law and Jurisdiction for Corporate Matters Allissues respecting the due authorization, validity and fully paid andnonassessable status of Mega-C Shares, or the rights of any person to claim thelegal status of a Mega-C Shareholder, shall be controlled, construed andenforced in accordance with the laws of the State of Nevada. The sole judicialforum for the resolution of actions to determine corporate law issues shall bethe Bankruptcy Court; provided that if the Bankruptcy Court abstains fromexercising jurisdiction with respect to any such matter, then the issue shall besubmitted to and decided by the Nevada Court.
 
 
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Section9.11 Choice of Law and Jurisdiction for Trust Matters Allissues respecting the interpretation of this Amendment and the powers, dutiesrights and responsibilities of the Trust, the Grantor, the Trustee and theBeneficiaries shall be controlled, construed and enforced in accordance with thelaws of the State of Florida, without giving effect to conflict of lawsprinciples thereof. The sole judicial forum for the resolution of actions todetermine issues arising under the law of trusts shall be the FloridaCourt.
Section9.12 Adverse Claims If anadverse claim or demand is presented to the Trustee, the Trustee may refuse tocomply with the claim or demand during the continuance of the disputeoccasioning the claim or demand, and may refrain from delivering Axion Shares toany person. In such an event, the Trustee may also elect to file aninterpleader, declaratory judgment action or other legal action, seeking adetermination of the rights of the parties, in either the Nevada Court or theFlorida Court as appropriate in the circumstances, and deliver the disputedAxion Shares to the registry of such court. By doing so, the Trustee shall notbecome liable to the Grantor or any Beneficiary, and the indemnity providedabove shall apply. No person other than the Grantor, a Beneficiary, or asuccessor in interest to the Grantor or a Beneficiary shall have any right orcause of action under this Amendment.
Section9.13 Resolution of Disputes Among the Parties If acontroversy arises between the Grantor, the Trustee or any Mega-C Shareholderwith respect to this Amendment or a Mega-C Shareholder’s right to receive AxionShares or the cash proceeds from the sale of Axion Shares, Trustee shall havethe right at her option, to take such actions as she may deem appropriate,including without limitation, referring the controversy to the Bankruptcy Courtfor resolution, submitting the controversy to binding arbitration in PinellasCounty, Florida for resolution under the rules of the American ArbitrationAssociation or filing of any other legal action. In connection with any suchlegal proceedings, the party against whom the award is rendered shall pay allcosts and expenses of the legal proceeding, unless the award shall specificallyallocate costs in a different manner because it is not entirely in favor ofeither party. Notwithstanding any other provision of this agreement, the Trusteeshall not be required to make any distributions to any Beneficiary who hascommenced, or threatened to commence a legal proceeding against the Grantor, theTrust, the Trustee or any other Beneficiary and may withhold all distributionsto such parties pending the final resolution of the dispute and the settlementof all expense awards.
ARTICLE10 – AMENDMENTS
Subjectto the consent of the Trustee which will not be unreasonably withheld, thisAmendment may be amended at any time and from time to time for the purpose ofmodifying the terms, conditions and provisions of this Amendment orincorporating additional terms, conditions and provisions that are notinconsistent with the intent of the parties and requested by the Grantor, theTrustee, the Ontario Securities Commission or the United States Securities andExchange Commission. Notwithstanding the generality of the foregoing, noamendment of this Amendment shall be made to the extent that compliancetherewith would, in any manner, reduce, diminish or qualify the rights,privileges and preferences of the Category-I or Category-II Mega-C Shareholdersor the Trustee.
ARTICLE11 – TRUSTEE’S COMPENSATION
Duringthe period between the date of this Amendment and the completion of theshareholder classification process described in Article 7, the Trustee shallreceive a fixed salary of $20,000 per month. Thereafter, the Trustee’s solecompensation for services rendered will be the variable administrative fee setforth in Section 8.4. In addition to the specified compensation, the Trusteeshall be reimbursed on a monthly basis for all ordinary, reasonable andnecessary expenses of the Trust, including legal fees and a reasonable allowancefor the use of the Trustee’s office. All payments to the Trustee will be treatedas an operating expense of the Trust and paid from the available assets of theTrust, including proceeds from the sale of Axion Shares.
ARTICLE12 – IRREVOCABILITY
The Trustshall be irrevocable, and the Grantor expressly waives all rights and powers,whether alone or in conjunction with others, and regardless of when or from whatsource it may have acquired such rights or powers, to revoke, or terminate theTrust. By execution of this instrument the Grantor relinquishes absolutely andforever all of
 
 
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its rightand power to control the distribution, sale or other disposition of the AxionShares, and all its right and power, whether alone or in conjunction withothers, to designate the persons who shall be entitled to share in any futuredistributions from the Trust.
INWITNESS WHEREOF theGrantor and the Trustee have executed this First Amended and Restated TrustAgreement for the Benefit of the Shareholders of Mega-C Power Corporation on theday and year above first written.
GRANTOR- – AXION POWER INTERNATIONAL, INC
/s/Charles Mazzacato                          /s/Peter Roston 
Charles Mazzacato, Chief Executive Officer
Peter Roston, Chief Financial Officer
TRUSTEE- – SALLY A. FONNER
/s/Sally A. Fonner 
 
 
 
 
 
 
 
 
 
 
 
 
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