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Exhibit 10.1
January 7, 2010
Mr. Eric C. Apfelbach
5804 Ivanhoe Circle
Madison, WI  53711

Dear Eric:

On behalf of the Board of Directors of ZBB Energy Corporation (“ZBB”), I am
delighted to invite you to join our company as its President and Chief Executive
Officer, and as a member of our Board of Directors.  This letter agreement sets
forth the terms your employment.

1.
Position:

 
Ÿ
You will serve as ZBB’s President and Chief Executive Officer and report to
ZBB’s Board of Directors.  Your services to ZBB will be performed in Menomonee
Falls, Wisconsin.  You acknowledge, however, that you may be required to travel
extensively in connection with the performance of your duties hereunder.

 
Ÿ
During your employment by ZBB, you may accept a position on the board of
directors of any company that does not directly compete with the business of
ZBB, provided such position is approved in advance by ZBB’s Board of
Directors.  It is understood that you are currently a member of the board of
directors of the for-profit companies and a member of the board of directors or
advisory board for the non-profit and other industry or economic associations
previously disclosed to ZBB, which memberships shall not be prohibited by the
terms hereof, provided that such memberships will not interfere in any way with
the fulfillment of your duties as President and Chief Executive Officer and as a
director of ZBB.

 
Ÿ
Nothing contained in this letter will be construed as conferring upon you any
right to remain employed by ZBB or any of its subsidiaries or affiliates or
affect the right of ZBB or any of its subsidiaries or its affiliates to
terminate your employment at any time for any reason or no reason, subject to
the obligations of ZBB as set forth herein.

2.
Salary:

 
Ÿ
You will be entitled to an annual salary of $250,000, payable in accordance with
ZBB’s normal salaried payroll practices; provided, however, that for calendar
year 2010, $62,500 of your annual salary shall be paid on the date of your
appointment and the balance of $187,500 shall be paid ratably over the remainder
of the year in accordance with ZBB’s normal payroll practices.  The Board of
Directors will review, at least annually, your overall compensation with a view
to increasing it if, in the sole judgment of the Board of Directors, the
performance of ZBB or your services merit such an increase.

 
Ÿ
ZBB shall be entitled to withhold from amounts to be paid to you hereunder any
federal, state, or local withholding or other taxes or charges which it is
required to withhold under applicable law.

N93 W14475 Whittaker Way
 
PO Box 2047
Menomonee Falls WI  53051
 
Kardinya WA 6163
Tel:  (262) 253 9800 Fax:  (262) 253 9822
 
240 Barrington Street
Email:  hbrown@zbbenergy.com
 
Bibra Lake WA 6163
   
Tel:  (08) 9494 2055 Fax:  (08) 9494 2066
 
  
Email:  info@zbbenergy.com

www.zbbenergy.com

 

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3.
Options:

 
Ÿ
Effective as of the date of your appointment, you will receive two option
awards.

 
Ÿ
You will be granted an option to purchase 400,000 shares with an exercise price
equal to the closing price of ZBB’s common stock on the NYSE Amex on the date of
your appointment.

 
o
Vesting will be over 3 years with the first 1/3 vesting one year from the start
of your employment and the remaining 2/3 vesting in 24 equal monthly
installments as of the end of each calendar month beginning on January 31, 2011
and ending on December 31, 2012.

 
o
This option will immediately vest upon a “Change of Control” of ZBB.  The
definition of “Change of Control” is attached as an exhibit to this letter.

 
o
The option will not be exercisable as to any portion thereof after the fifth
anniversary of the date on which such portion vests.

 
o
The option will have such other terms and conditions specified in the form of
option agreement previously provided to you.

 
Ÿ
You will also be granted an option to purchase 100,000 shares with the same
exercise price specified above.

 
o
The option will vest in two equal installments upon the Compensation Committee’s
confirmation that certain performance targets are met, which confirmation will
occur as soon as practicable after June 30, 2010 and December 31, 2010.

 
o
The option will not be exercisable as to any portion thereof after the fifth
anniversary of the date on which such portion vests.

 
o
The option will have such other terms and conditions specified in the form of
option agreement previously provided to you.

4.
Commuting and Other Expenses:

 
Ÿ
We will reimburse your commuting expenses to and from ZBB’s corporate offices in
the following manner:

 
o
IRS mileage reimbursement for miles that exceed 60 miles round trip to and from
your home to ZBB’s corporate offices.

 
o
This reimbursement will not exceed $10,000 per year.

 
o
The previous CEO returned a lease vehicle to ZBB which, if you deem appropriate,
may be used in lieu of the mileage reimbursement above.

 
Ÿ
Expenses for other company travel will be reimbursed in accord with ZBB’s travel
policy.

5.
Benefits:

 
Ÿ
During the term of your employment by ZBB, ZBB will provide you with, and you
will be eligible for, all benefits of employment generally made available to the
senior executives of ZBB (collectively, the “Benefit Plans”), subject to and on
a basis consistent with the terms, conditions and overall administration of such
Benefit Plans. You will be considered for participation in Benefit Plans which
by the terms thereof are discretionary in nature (such as stock option plans) on
the same basis as other executive personnel of ZBB of similar
rank.  Notwithstanding the foregoing, you may elect either to participate in
ZBB’s health Benefit Plan or obtain other health insurance.  If you elect to
obtain other health insurance, ZBB will pay the monthly premiums for such
insurance up to an amount equal to $900 per month paid either directly by ZBB to
the insurance provider, or reimbursed to you on a monthly basis as soon as
practicable following your submission to ZBB of proof of payment of each monthly
premium payment.  You will be solely responsible for the payment of monthly
premiums in excess of this amount.  ZBB’s payment of such premiums shall
constitute an “accident or health plan” for the purposes of Section 106 of the
Internal Revenue Code of 1986, as amended.

 
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Ÿ
On a pre-tax basis, ZBB will provide a policy or reimburse you for the payment
of premiums for a long-term disability insurance policy from an insurance
carrier mutually acceptable to ZBB and you, provided that the annual premiums
for such policy are not in excess of $7,000 per year.  To the extent ZBB
reimburses you for the payment of premiums, such premiums will be paid either
directly by ZBB to the insurance provider, or reimbursed to you as soon as
practicable following your submission to ZBB of proof of payment of each premium
payment.  You will be solely responsible for the payment of annual premiums in
excess of this amount.  ZBB’s payment of such premiums shall constitute an
“accident or health plan” for the purposes of Section 106 of the Internal
Revenue Code of 1986, as amended.

 
Ÿ
We also offer you four weeks of vacation per calendar year.

6.
Benefits Upon Termination:

 
Ÿ
Without giving effect to the timing of the payment of your base salary for 2010
as set forth in Section 2, above, you will be entitled to a severance payment in
an amount equal to six months of your annual base salary as then in effect paid
in accordance with ZBB’s normal salaried payroll practices as then in effect in
the event (a) ZBB terminates your employment for any reason other than “Cause”
or “Disability”, (b) you terminate your employment with ZBB for “Good Reason”,
or (c) you die.  In the event your employment with ZBB is terminated due to
“Disability,” you will be entitled to a severance payment in an amount equal to
your base salary as then in effect from the date of termination through the date
on which benefits under the long-term disability policy begin, but in no event
longer than 90 days, paid in accordance with ZBB’s normal salaried payroll
practices as then in effect.  The definitions of “Cause”, “Disability” and “Good
Reason” are attached as an exhibit to this letter.  In each case, this severance
benefit will be contingent on your execution of a release in a form acceptable
to ZBB which is not withdrawn or otherwise revoked within the applicable
statutory and/or regulatory time periods or otherwise.  You will also be
entitled to all accrued and unpaid benefits under any Benefit Plans in which you
participate through the date of termination.

 
Ÿ
If you terminate your employment with ZBB for “Good Reason”, and if you elect to
continue your health insurance coverage under the Consolidated Omnibus Budget
Reconciliation Act (“COBRA”) following such termination, then ZBB shall pay your
monthly premium under COBRA until the earlier of:  (i) the last day of the six
month period following such termination or (ii) the date on which you are
offered or obtain health insurance coverage in connection with new employment or
self-employment.  If you are not eligible for COBRA coverage because you have
waived health insurance coverage, then, suject to the dollar limits above, ZBB
shall pay your monthly premium for long-term disability conversion coverage
until the earlier of:  (i) the last day of the six month period following such
termination or (ii) the date on which you are offered or obtain long-term
disability insurance coverage in connection with new employment or
self-employment.

 
Ÿ
If you terminate your employment with ZBB other than for “Good Reason” or ZBB
terminates your employment for “Cause”, you will be entitled to the payment of
any accrued but unpaid base salary through the date of termination, plus all
accrued and unpaid benefits under any Benefit Plans in which you participate
through the date of termination.  In either case, you will not be entitled to
any severance payment and you will not be entitled to the payment of the
premiums specified above.

 
Ÿ
As a condition to your appointment, you will be required to enter into a
restrictive covenant agreement.  If you breach the provisions of the restrictive
covenant agreement, then you shall forfeit any unpaid severance payments and
COBRA and long-term disability conversion coverage premiums as of the time of
ZBB’s determination of the breach, and you shall repay to ZBB any severance
payments and COBRA and long-term disability conversion coverage premiums you
have received as of the time of ZBB’s determination of the breach as soon as
practicable after ZBB provides a written demand for payment to you.

 
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Ÿ
As a condition to your appointment, you will be required to provide a
resignation from the Board of Directors in the form previously provided to you.

 
Ÿ
You hereby represent and warrant that you are not bound by any employment or
confidentiality agreement or other obligation or commitment, whether contractual
or otherwise, that would be inconsistent, or place you in a position of
conflict, with your position as President and CEO of ZBB or this letter
agreement.

 
Ÿ
As a condition to your appointment, you will also be required to submit to a
formal background check and a drug test and the results must be satisfactory to
ZBB's Board of Directors.

7.
Timing; Miscellaneous Provisions:

 
Ÿ
The date of your appointment as President and Chief Executive Officer of ZBB
will be January 7, 2010.

 
Ÿ
This letter agreement shall be binding upon any successor (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of ZBB’s business and/or assets.  For all
purposes under this Agreement, the term “ZBB” shall include any successor to
ZBB’s business and/or assets which becomes bound by this letter agreement.

 
Ÿ
This letter agreement and all of your rights hereunder shall inure to the
benefit of, and be enforceable by, your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

 
Ÿ
Notices and all other communications contemplated by this letter agreement shall
be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by overnight courier or U.S. registered or certified
mail, return receipt requested and postage prepaid.  In the case of notices to
you, notices shall be addressed to you at the home address which you most
recently communicated to ZBB in writing.  In the case of notices to ZBB, notices
shall be addressed to its corporate headquarters, and all notices shall be
directed to the attention of its Secretary.

 
Ÿ
No provision of this letter agreement shall be modified, waived or discharged
unless the modification, waiver or discharge is agreed to in writing and signed
by you and by an authorized officer of ZBB (other than you).  No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this letter agreement by the other party shall be considered a waiver of any
other condition or provision or of the same condition or provision at another
time.

 
Ÿ
No other agreements, representations or understandings (whether oral or written
and whether express or implied) which are not expressly set forth or referenced
in this letter agreement have been made or entered into by either party with
respect to the subject matter hereof.  This letter agreement and the other
agreements, representations and understandings expressly set forth or referenced
herein contain the entire understanding of the parties with respect to the
subject matter hereof.

 
Ÿ
Any termination of this letter agreement shall not release either ZBB or you
from our respective obligations to the date of termination nor from the
provisions of this letter agreement which, by necessary or reasonable
implication, are intended to apply after termination of this letter agreement.

 
Ÿ
The validity, interpretation, construction and performance of this letter
agreement shall be governed by the laws of the State of Wisconsin (other than
provisions governing the choice of law).

 
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Ÿ
The invalidity or unenforceability of any provision or provisions of this letter
agreement shall not affect the validity or enforceability of any other provision
hereof, which shall remain in full force and effect.

 
Ÿ
This letter agreement and all your rights and obligations hereunder are personal
to you and may not be transferred or assigned by you at any time.  ZBB may
assign its rights under this letter agreement to any entity that assumes ZBB’s
obligations hereunder in connection with any sale or transfer of all or a
substantial portion of ZBB’s assets to such entity.

 
Ÿ
This letter agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

We feel that this offer is exceptionally attractive and reflects the confidence
we have in your ability to guide the growth of ZBB and to achieve a significant
enhancement of shareholder value.  We very much look forward to having you join
us as our President and Chief Executive Officer.  If you agree to the terms of
this letter agreement, please execute the letter agreement below.

 
With warm regards,
     
ZBB ENERGY CORPORATION
     
/S/Paul Koeppe
 
Interim Chief Executive Officer
 
Chairman, Search Committee

Agreed and accepted as of January 7, 2010.

   
/S/ Eric C. Apfelbach

 
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