| VIA      HAND DELIVERY | Exhibit      10.5 |
|------------------------|-------------------|

|   | 1. | As      we discussed on January 27, 2010, the Company does not intend on renewing      your Employment Agreement dated November 1, 2007 (“Employment Agreement”).      This Letter Agreement provides you written notice of the Company’s intent      not to renew your Employment Agreement as required by Article I of the      Employment Agreement. |
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|   | 2. | As      we further discussed, it is not the intent of you or the Company to      terminate your Employment Agreement prior to the expiration of the current      term.  Rather, you and the Company have agreed on an arrangement      that allows you to seek other employment opportunities while continuing to      receive the benefits under the Employment Agreement and assisting the      Company with preparing for your departure, which terms are set forth in      this Letter Agreement.  This means that nothing in this Letter      Agreement should be considered a termination of your Employment Agreement      under Article IV or otherwise. |
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|   | 3. | To      this end, you and the Company have agreed that from February 3, 2010      through the end of the initial term of the Employment Agreement, you will      be on a paid leave of absence.  This leave of absence will      continue until the term of the Employment Agreement expires and your      employment ends on June 30, 2010 (“Separation  Date”). |
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|   | 4. | During      the leave of absence, the terms of your Employment Agreement, including      your current salary ($208,000 per year) and vacation accrual, will      continue in full force and effect, with the following modification to      Article II of the Employment Agreement.  You will not be      required to devote your entire working time and efforts to the business      affairs of the Company and instead, you will not be expected to report to      work during the leave of absence which we agreed will assist with your      efforts to seek other employment consistent with your post-employment      obligations to the Company under your Employment  Agreement. |
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|   | 5. | After      the Separation Date, the Company will provide you with payment for all      your earned and unused vacation.  In addition, the Company will      provide you with the right to participate, at your own expense, in the      Company’s group health insurance plan in accordance with the mandates of      the Consolidated Omnibus Budget Reconciliation Act, as amended      (“COBRA”). |
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|   | 6. | As      originally scheduled, all of your outstanding restricted stock shall vest      on March 31, 2010, pursuant to the terms of the March 11, 2009 Consent of      the Compensation Committee of ZBB Energy Corporation, and shall otherwise      be subject to the terms of the 2007 Equity Incentive Plan.  The      total shall be 17,333 shares net of the 25% claw  back. |
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| 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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|   | 7. | The      performance-based stock options granted on March 11, 2009 under your      Employee Nonstatutory Stock Option Agreement dated December 14, 2009 are      governed by the terms of the 2007 Equity Incentive Plan.  As of      your Separation Date, you will be vested in 18,200 of these stock      options.  Because your termination of employment is classified      as a “retirement” under the 2007 Equity Incentive Plan, you shall have one      year from your Separation Date or until June 30, 2011 to exercise all of      the above vested stock options. |
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|   | 8. | The      service-based stock options granted on June 6, 2008 under your Employee      Nonstatutory Stock Option Agreement dated December 11, 2009 are governed      by the terms of the 2002 Stock Option Plan.  As of your      Separation Date, you will be vested in 100,000 of these stock      options.  Because it is the intent of the Company to classify      your termination of employment as a “retirement,” in accordance with the      2002 Stock Option Plan, upon approval by the Board of Directors you shall      have one year from your Separation Date or until June 30, 2011 to exercise      all of the above vested stockoptions. |
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|   | 9. | The      Company and you will characterize your end of employment as a      retirement.  You and the Company agree that an announcement on      February 3, 2010 to employees  regarding your      departure will be as follows: |
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|  | 11. | In      consideration for the benefits provided to you in this Letter Agreement      which you acknowledge are greater then those to which you would otherwise      be entitled, you agree, on      behalf of yourself, your heirs, successors and assigns, to release the      Company, its parents, subsidiaries and affiliates and their respective      past and present officers, directors, stockholders, members, partners,      agents, insurers and employees (“Released Parties”), from any claims      arising on or before the date you sign this Letter      Agreement.  This includes, but is not limited to, giving up any      claims related in any way to your employment by the Company, the decision      to separate your employment, and separation of our employment      relationship.  This release of claims includes any claims,      whether they are presently known or unknown, or anticipated or      unanticipated by you.  Your signature below acknowledges that      you are not entitled to any other severance or benefits, vacation, bonus,      commission, wages or other payments of any kind, except those described in      this agreement.  Because you are age 40 or      older, your acceptance of this agreement also will release any and all      claims under the federal Age Discrimination in Employment      Act.  You should not construe this reference to age      discrimination claims as in any way limiting the general and comprehensive      nature of the release of claims provided under this Paragraph. You agree to waive and give up      any benefit conferred on you by any order or judgment issued in connection      with any proceeding filed against the Released Parties regarding any claim      released in this LetterAgreement. |
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|  | 12. | Likewise,      except for claims involving misconduct of the type specified in Wis. Stat. Sec.      180.0828(1), the Company forever waives and gives up any and all      claims it may have, whether known or unknown, against you, your heirs,      successors and assigns for any monetary relief for itself and any benefits      or remedies that are based on any act, or failure to act, that occurred      before the date you sign this Letter Agreement, to the fullest extent      permitted under applicable law. |
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|  | 13. | You      may acknowledge your acceptance of the terms of this Letter Agreement by      signing and returning a copy of this Letter Agreement to Helen Brown,      Human Resource Manager, N93W14475 Whittaker Ave, Menomonee Falls, WI,      53051, on or      before 5:00 p.m. Central Time on the 21st calendar day      following your receipt of this agreement. You will have seven (7)      calendar days after signing this agreement within which to revoke your      acceptance of it (“Revocation Period”).  Such revocation will      not be effective unless written notice of the revocation is, via mail,      overnight delivery or hand delivery, directed to and received by Helen      Brown, Human Resource Manager, N93W14475 Whittaker Ave, Menomonee Falls,      WI, 53051, on or before 5:00 p.m. Central Time on the 1st      business day following expiration of the Revocation      Period.  This Letter Agreement will not be binding or      enforceable unless you have signed and delivered this agreement as      provided for herein and have chosen not to exercise your revocation      rights, as described above.  If you fail to accept this Letter      Agreement or revoke your acceptance of this Letter Agreement, the terms of      this Letter Agreement will be void. |
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|  | 14. | By      signing below, you agree and acknowledge that you have read this Letter      Agreement and understand its contents.  You further agree and      acknowledge that you have been advised by the Company to consult with an      attorney prior to signing this agreement.  You understand that      this Letter Agreement includes a final general release, including a      release of all claims under the Age Discrimination in Employment      Act.  You further understand that this Letter Agreement      supersedes any prior agreements, practices, policies or discussions of any      kind concerning the matters detailed in this Letter    Agreement. |
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| Very      truly yours,                       |
|----------------------------------------------|
|                                         |
| ZBB      ENERGY CORPORATION                  |
|                                         |   |
| By:                                     | /s/      Eric C. Apfelbach |
| Eric      Apfelbach (Chief ExecutiveOfficer) |

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