Axion Announces Bankruptcy Court Approves Litigation Settlement.

WOODBRIDGE, Ontario, Canada -- Axion Power International, Inc. (OTCBB:AXPW) announced today that following a hearing on January 5, 2006, the U.S. Bankruptcy Court for the District of Nevada has approved the settlement agreement between Axion, William M. Noall, Chapter 11 Trustee for the Estate of Mega-C Power Corporation, Sally A. Fonner, Trustee of the Trust for the Benefit of the Shareholders of Mega-C Power Corporation and others. In the findings of fact accompanying the order dated February 1, 2006, the Bankruptcy Court stated, among other things, that:

--Under all the circumstances in the record, Axion is best situated to continue to raise capital research and develop the (e3 Supercell technology) and ultimately bring the results to market if its efforts are successful; and

--It is in the best interests of (Mega-C's Chapter 11 estate) to (i) enhance Axion's ability to obtain capital by resolving the (pending and threatened litigation); (ii) support Axion's efforts to complete the development of the (e3 Supercell technology) and ultimately bring any resulting products to market in a systematic and timely manner; and (iii) obtain the benefit of 5,700,000 Axion shares ... in the (Mega-C Trust), the proceeds of sale of up to 1,000,000 shares of which become property of (Mega-C's Chapter 11 estate) as provided for in the Settlement Agreement and the balance of which will be used to effectuate (Mega-C's plan of reorganization).

A complete copy of the agreement is included in our Current Report on Form 8-K dated December 13, 2005.

The entry of the Bankruptcy Court's order will be followed by a jointly proposed disclosure statement and plan of reorganization for Mega-C. Along with the Chapter 11 trustee and others, Axion will be a co-proponent of the plan. Axion anticipates that the plan will provide for the payment in full of Mega-C's creditors with the remaining stock being distributed to allowed shareholders of Mega-C.

After giving pro forma effect to pending stock sales and the conversion rights of preferred stockholders, Axion has 19,517,421 common shares outstanding. The settlement agreement provides that upon confirmation and effectiveness of Mega-C's plan of reorganization, 1,500,000 shares will be surrendered for cancellation. This represents a 7.7% decrease in the number of outstanding shares and a corresponding increase in value of each share.

Thomas Granville, Axion's chief executive officer, said "This is a major event for Axion and all our stockholders. I look forward to leading Axion as we prepare for planned real-world demonstrations of our e3 Supercell technology.

John Petersen, Axion's chairman and general counsel, added, "We intend to vigorously pursue confirmation of the proposed plan, which would allow us to achieve our long-standing goal of disbursing the Axion stock remaining in the Mega-C Trust to Mega-C's allowed shareholders."

About Axion Power International, Inc.

Axion is developing and intends to design, manufacture and sell advanced batteries based on its patented e3 Supercell technology. Axion replaces the negative electrodes in lead-acid batteries with electrode assemblies made from microporous carbon that is bonded to a corrosion resistant current collector. The result is a battery-supercapacitor hybrid that uses at least 70% less lead than a lead-acid battery and offers several performance advantages, including longer cycle life; higher power capacity higher recharge rates; and no required maintenance.

Axion has been testing prototype e3 Supercell batteries since April 2004. The test protocol requires a complete charge-discharge cycle every 7 hours to a 90% depth of discharge. During testing, laboratory prototypes have withstood 1,600 cycles without failure. In comparison, lead-acid batteries designed for deep discharge applications can only survive 300 to 500 cycles under these conditions.

Axion is preparing to begin production of e3 Supercell for demonstration projects with:

--Distributors of wind and solar power generating equipment;

--Manufacturers of uninterruptible power supplies; and

--Manufacturers of DC power systems for communications networks.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995:

Certain statements in this Press Release are "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. These statements include, without limitation, statements concerning the impact of the settlement agreement on our future business prospects and our ability to successfully complete the commercialization of the e3 Supercell. These forward-looking statements are based on our current expectations and beliefs and are subject to a number of risk factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such risks and uncertainties include the risk that the settlement agreement will not produce the results we intend and all of the risks inherent in commercializing a new product (including technology risks, market risks, financial risks and implementation risks, as well as other risks and uncertainties affecting the Company, included in filings with the Securities and Exchange Commission, all of which are available at www.sec.gov. We disclaim any intention or obligation to revise any forward-looking statements, including, without limitation, financial estimates, whether as a result of new information, future events, or otherwise.