Document:

Exhibit

EXHIBIT 10.77

AMERICAN POWER GROUP, INC. 

Employment Agreement

THIS EMPLOYMENT AGREEMENT (this “Agreement”), is effective as of the first day of employment or August 13, 2015 (the “Effective Date’), by and between American Power Group, Inc., an Iowa corporation (the “Company”) and Thomas K. Lockhart (the “Employee”).   

WHEREAS, the Company desires the employment of the Employee and the Employee desires to be so employed by the Company;

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which consideration is hereby acknowledged, the parties agree as follows:

1.    Employment

The Company hereby employs the Employee, and the Employee hereby accepts employment with the Company, upon the terms and conditions hereinafter set forth as Principal Advisor for the Company’s Trident NGL Services Division (the “NGL Services Division”)

2.    Duties 

The Employee shall perform business development, marketing and operations management tasks for the NGL Services Division and any other reasonable assignments the President of the Company (the “President”) may request. The Employee agrees to abide by the rules, regulations, instructions, personnel practices, and policies of the Company and any changes therein which may be adopted from time to time by the Board of Directors of the Company (the “Board”). 

3.    Term

Unless sooner terminated as provided in Section 7 and subject to Section 7, the term of the Employee’s employment under this Agreement will be three (3) years from the date first above written (such period, as it may be extended or reduced, is referred to in this Agreement as the “Employment Period”).  On the month and day of the Effective Date of each calendar year during the Employment Period the term of this Agreement and the Employment Period shall automatically be renewed for an additional one year term unless either party gives written notice to the other party ninety days prior to the renewal date of its intention that this Agreement is not to renew beyond the remaining term as provided for in this section. The failure of either party to provide such notice to the other party ninety days prior to the renewal date shall not affect either party’s rights to terminate this Agreement and the Employment Period as provided in Section 7.

4.    Extent of Services

During the term of his employment, the Employee shall devote his full time and best efforts to the performance of his duties under this Agreement.  Under no circumstances will the Employee knowingly take any action contrary to the best interests of the Company.

5.    Compensation

In consideration of his employment and the services rendered by the Employee under this Agreement, the Company shall pay the Employee compensation as follows:

5.1    Base Salary.  A base salary (“Base Salary”) of three thousand three hundred sixty six ($3,365.38) dollars per week (i.e., payable at an annualized rate of one hundred seventy five thousand ($175,000) dollars per year) during the Employment Period, payable in accordance with the Company’s ordinary payroll practices.  Any subsequent increase in Base Salary shall be at the sole discretion of the President with endorsement of the Board.

5.2       Incentive Compensation.  

(a)    Gain-Share Profitability Incentive Program.  When profitable, the President will present a fiscal year (i.e., October 1 through September 30) Gain-Share Profitability Incentive Program to the APG Board for consideration. Employee will be eligible to participate in any approved Gain-Share Profitability program in accordance with, and subject to, its terms and conditions.

(b)    Fiscal Year Performance Incentives Programs.  The adoption of any discretionary and/or fiscal year performance incentive plan compensation shall be at the sole discretion of the President with the endorsement of the Board’s Compensation Committee and presented on a case by case basis.   

5.3    Stock Option Grant.  Promptly after the execution of this Agreement and on the Effective Date, the Company will recommend to the Board of Directors of its parent company, American Power Group Corporation (“APG Corp”) that APG Corp shall grant to the Employee incentive stock options under APG Corp’s 2005 Stock Option Plan to purchase 200,000 shares of APG Corp’s common stock. The vesting of said options will be immediate as of the date of grant and have a 10 year term from the date of grant.  The exercise price of the options shall equal the 10 day average closing price of APG Corp’s common stock prior to the date of grant. The stock option will be governed by the terms of the Plan and by APG Corp’s customary form of stock option agreement.  

6.    Other Benefits

6.1    Additional Compensation and Benefits.  The Employee shall be entitled to receive the same health, disability and other benefits as are offered by the Company to all full-time employees from time to time, subject to any eligibility requirements, waiting periods or other conditions applicable to any such benefit plans or arrangements.

6.2    Expenses.  The Company will, upon substantiation thereof, reimburse Employee for all reasonable expenses of types authorized by the President of the Company in the ordinary course of business and incurred by the Employee in connection with the Company’s business affairs.  The Employee must regularly submit, for approval by the President of the Company, a statement of these expenses and will comply with such other accounting and reporting requirements as the Company may from time to time establish. 

6.3    Vacation.  The Employee shall, immediately upon signing this Agreement, be eligible to earn two weeks of paid vacation per calendar year and subsequent vacation periods subject to the Company’s standard vacation policies.

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7.    Termination

7.1    By the Company.  The Company may terminate the Employee’s employment with the Company (a) in accordance with the provisions of Section 3 of this Agreement, (b) at any time without notice for “cause”, as defined below, (c) at any time without cause immediately upon provision of written notice of termination, subject to Section 7.4 below and subject to the requirement that the Company pay to the Employee the amount set forth in Section 7.4 herein, (d) immediately upon the death of the Employee, or (e) upon provision of written notice of termination in the event of the Employee’s disability preventing him from rendering services to the Company consistent with his duties hereunder, intermittently or consecutively, for a period of six (6) months.

7.2    By the Employee.  The Employee may terminate his employment with the Company in accordance with the provisions of Section 3 or at any time upon ninety (90) days’ advance written notice.

7.3    Cause.  For the purposes of this Section 7, “cause” means:

		
	(a)
	engaging in any crime or offense involving money or other 

property of the Company, or

		
	(b)
	conviction of any felony, or pleading guilty or “no contest” to any felony, or

		
	(c)
	continuing or repeated failure or refusal to perform specific 

written directives of the President consistent with the Employee’s duties after notice that such failure will be deemed to constitute cause for termination and a reasonable opportunity to cure such failure or refusal, or

		
	(d)
	engaging in activities that detrimentally impact upon the Company’s image or goodwill of the company

		
	(e)
	excessive absenteeism, or

		
	(f)
	unless previously approved by the Directors, any breach of Section 4 or Section 8.3 of this Agreement. 

7.4    Amounts Payable Upon Termination.  Upon termination of the Employee’s employment with the Company in accordance with clause (a), (b), (d) (e) or (f) of Section 7.1, all compensation and benefits under this Agreement will cease, effective the date of termination, except as may be mandated by law with respect to health insurance or other benefits and as to accrued and unpaid vacation benefits.  Upon termination of the Employee’s employment with the Company in accordance with clause (c) of Section 7.1, all compensation under Sections 5.1, 5.2, and 5.3 shall cease, effective upon the date of termination, but the Employee shall receive, for twelve months from the date of Employee’s notice of termination given pursuant to Section 7.1(c) Base Salary at the same salary rate being paid on the date of termination. No stock options not vested upon the date of termination will vest thereafter.  Other than as specifically set forth herein, the Employee will not be entitled to receive any compensation or benefits after termination of his employment with the Company.  The date of termination shall be the COBRA or other benefit qualifying event.
    
7.5    Termination of Benefits.  Notwithstanding anything to the contrary in this Agreement, in the event that the Employee is determined in an arbitration conducted pursuant to Section 11.7 to have violated his obligations under Section 8 of this Agreement, or if the Employee shall be enjoined by a court from violating his obligations under Section 8.3 of this Agreement, then, in addition to any other remedies 

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which may be available to the Company at law or in equity, all of the Company’s obligations under Section 7.4 shall immediately cease, and all then unexercised stock options shall immediately be forfeited. 

8.    Non-Disclosure: Non-Competition
    
8.1    Proprietary Information.

(a)    The Employee agrees that all information and know-how, whether or not in writing, of a private, secret or confidential nature concerning the business or financial affairs of the Company or of its affiliates (collectively, “Proprietary Information”) is and will be the exclusive property of the Company or such affiliates, as the case may be.  By way of illustration, but not limitation, Proprietary Information includes contemplated or planned marketing, sales, advertising, or public relations plans, methods or techniques; inventions, products, projects, developments, compositions, plans, research data, financial data, manufacturing processes or techniques, trade secrets, personnel data, computer programs, designs, and client and supplier lists, whether or not copyrightable, trademarkable or licensable.  The Employee will not disclose any Proprietary Information to others outside the Company or use the Proprietary Information for any unauthorized purposes without written approval by an officer of the Company, either during or after his employment, unless and until such Proprietary Information has become public knowledge without the fault of the Employee.

(b)    The Employee agrees that all files, letters, memoranda, reports, records, data sketches, drawings, notebooks, notes, specifications, programs, computer program listings, or other written, photographic, electronic or other material containing Proprietary Information, whether created by the Employee or others, which comes into his custody or possession, is the exclusive property of the Company, to be used by the Employee only in the performance of his duties for the Company.

(c)    The Employee agrees that his obligation not to disclose or use information, know-how and records of the types set forth in Sections 8.3(a) and 8.3(b) above also extends to such types of information, know-how, records and tangible property of customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to the Employee in the course of the Company’s business.

8.2    Developments.

(a)    The Employee will make full and prompt disclosure to the Company of all inventions, improvements, ideas, concepts, approaches, discoveries, methods, developments, software, and works of authorship, whether or not copyrightable, trademarkable or licensable, which are created, made, conceived or reduced to practice by the Employee or under his direction or jointly with others in connection with his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as “Developments”).

(b)    Employee hereby assigns irrevocably and unconditionally, to the fullest extent permitted by law, all right, title and interest embodied in or associated with any and all Developments.

(c)    The Employee agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of patents, copyrights, and trademarks (both in the United States and foreign countries) relating to Developments.   Employee agrees to sign all papers, including, without limitation, copyright applications, trademark applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and 

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powers of attorney, which the Company, in its sole discretion, may deem necessary or desirable in order to protect its rights and interest in any Development.

8.3    Non-Competition.

(a)    During the Employment period and for a period of two years after Employee’s employment is terminated, for any reason or without reason, by the Company or the Employee, the Employee will not, without the Company’s prior written approval, directly or indirectly:

(i)    recruit, solicit or knowingly induce, or attempt to induce, any employee or consultant of the Company to terminate his or her employment or consulting relationship with, or otherwise cease his relationship with, the Company, or

(ii)    solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts of the Company.  For purposes of this Agreement, a prospective client, customer or account is any individual or entity whose business is solicited by the company, proposed to be solicited by the Company, or who approaches the Company, with respect to possibly becoming a client, customer or account during the Employment Period; or

(iii)    engage (whether for compensation or without compensation) as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, or in any other capacity whatsoever (otherwise than as the holder of not more than one percent (1%) of the total outstanding stock of a company), in any business activity which competes with any business then being conducted by the Company or any business proposed to be conducted by the Company at the time of the termination of the Employee’s employment with the Company.

(b)    If any restriction set forth in this Subsection 8.3 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to the extent only over the maximum period of time, range of activities or geographic areas to which it may be enforceable.

(c)    The restrictions contained in this Subsection 8.3 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for these purposes.  The Employee agrees that any breach of this Subsection 8.3 will cause the Company substantial and irrevocable damage and, therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company will have the right to equitable remedies, including, without limitation, specific performance and injunctive relief without bond.

8.4    Survival of Obligations.  The obligations of the Employee under this Section 8 shall survive the termination of this Agreement.
    

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9.    Notices

All notices under this Agreement must be in writing and must be delivered by hand or mailed by certified or registered mail, postage prepaid, return receipt requested, to the parties as follows:

If to the Company:        Lyle Jensen, President
American Power Group, Inc.
2503 Poplar Street - PO Box 187
Algona, IA  50511
(515) 395-1360                    
Email:  ljensen@americanpowergroupinc.com

with a copy (which shall
not constitute notice) to:    Carl Barnes, Esq.
Morse, Barnes-Brown & Pendleton, P.C.
City Point   - 230 Third Avenue - 4th Floor
Waltham, MA 02451
(781-622-5930)
Email:  cbarnes@mbbp.com

                        
		
	If to the Employee:
	To the address set forth below the signature of the Employee;

or to such other address as is specified in a notice complying with this Section 9.  Any such notice is deemed given on the date delivered by hand or three days after the date of mailing.

10.    Other Agreements

The Employee hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or any other party.  The Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company.

11.    Miscellaneous

11.1    Entire Agreement.  This Agreement constitutes the entire Agreement between the parties with regard to the subject matter hereof, superseding all prior understandings and agreements, whether written or oral.  

11.2    Modification.  This Agreement may not be amended or revised except by a writing signed by the parties.

11.3    Successors and Assigns.  This Agreement is binding upon and inures to the benefit of both parties and their respective successors and assigns, including any entity with which or into which the Company may be merged or which may succeed to its assets or business, although the obligations of the Employee are personal and may be performed only by him.

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11.4    Captions.  Captions have been inserted in this Agreement solely for convenience of reference, and in no way define, limit or affect the scope or substance of any provision of this Agreement.

11.5    Severability.  The provisions of this Agreement are severable, and the invalidity of any provision shall not affect the validity of any other provision.  In the event that any court of competent jurisdiction determines that any provision of this Agreement or the application thereof is unenforceable because of its duration or scope, the parties agree that the court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form is valid and enforceable to the full extent permitted by law.

11.6    Governing Law. This Agreement is to be construed under and governed by the laws of the State of Iowa, without regard to conflicts of laws principles.  

11.7    Dispute Resolution
    
(a)       Arbitration.   The parties agree that any and all disputes, claims or controversies arising out of or relating to this Agreement that are not resolved by mutual negotiation shall be submitted to final and binding arbitration before the AAA, or its successor, pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq.  Either party may commence the arbitration process called for in this Agreement by filing a written demand for arbitration with the AAA Commercial Arbitration Rules in effect at the time of filing of the demand for arbitration, in Polk County in Iowa.  The parties will cooperate under the AAA and with one another in selecting an arbitrator from the AAA’s panel of neutrals and in scheduling the arbitration proceedings.   The parties covenant that they will participate in the arbitration in good faith, and that they will share equally in its costs.  The provision of this section, and any award made pursuant to this section, may be enforced by any court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all reasonable costs, fees, and expenses, including attorney’s fees, to be paid by the party against whom enforcement is ordered. Notwithstanding the foregoing, however, the arbitrator(s) shall not have the power to award indirect, consequential, punitive or exemplary damages. 

		
	(b)
	Waiver of Right to Litigation in Court.  NOTICE:  BY 

INITIALING IN THE SPACE BELOW, YOU ARE AGREEING TO HAVE ALL DISPUTES, CLAIMS, OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION, AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THOSE MATTERS LITIGATED IN A COURT OR A JURY TRIAL.  BY INITIALING IN THE SPACE BELOW, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL EXCEPT TO THE EXTENT THAT THEY ARE SPECIFICALLY PROVIDED FOR UNDER THIS AGREEMENT.  IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER FEDERAL OR STATE LAW.  YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMISSION OF ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT TO NEUTRAL ARBITRATION IN ACCORDANCE WITH THIS AGREEMENT.

	
			
	__________________________
	 
	__________________________

	Company
	 
	Thomas K. Lockhart

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11.8    Withholding.  All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.  

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.

AMERICAN POWER GROUP, INC.
 

By: _________________________________                            
Lyle E. Jensen
President
    

EMPLOYEE
                    
                                                
Thomas K. Lockhart

Address:  ____________________
____________________
Phone:        ____________________            
                    

8Exhibit

Exhibit 10.78

Secured Financing Agreement

THIS SECURED FINANCING AGREEMENT (this “Agreement”) is made this 24th day of August, 2015, by and among WPU Leasing, LLC, a Delaware limited liability company (“WPU”), with an address at 650 Madison Avenue, 20th Floor, New York NY 10022, American Power Group, Inc., an Iowa corporation (the “Company”), with its principal place of business at 2503 Poplar Street, PO Box 187, Algona, IA 50511, and American Power Group Corporation, a Delaware corporation (“APG”), with its principal place of business at 7 Kimball Lane, Building A, Lynnfield, MA 01940.

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Financing.

(a)Purpose; Commitment.  The Company may from time to time purchase machinery, equipment and other personal property related to the wellhead gas processing units commonly referred to by the Company as “WPU #3” and “WPU #4” (“Equipment”). In connection with any such purchase, the Company shall deliver to WPU one or more schedules describing the Equipment purchased or to be purchased, and a reasonable, good faith estimate of the purchase price thereof, including costs of delivery and installation (the “Estimated Price”), such schedules to be in substantially the form attached hereto as Exhibit A (each, a “Capital Call Schedule”). Subject to and in accordance with the terms and conditions of this Agreement, WPU shall loan the Estimated Price set forth on each Capital Call Schedule (each such loan, an “Advance”), pursuant to the terms of a Secured Loan Agreement of even date herewith between WPU and the Company in the form attached hereto as Exhibit B (the “Loan Agreement”) and one or more secured promissory notes issued by the Company thereunder (each, a “Note”); provided, however, that (i) no Advance shall be for less than $100,000 and (ii) WPU’s aggregate commitment under this Agreement shall not exceed $3,250,000 (the “Commitment Amount”). 

(b)Advances. The Company is delivering the initial Capital Call Schedule to WPU concurrently with the execution and delivery of this Agreement. Subject to and in accordance with the terms and conditions of this Agreement, WPU shall fund the Estimated Price set forth on such Capital Call Schedule on or before August 24, 2015. The Company may deliver one or more additional Capital Call Schedules to WPU from time to time during the term of this Agreement up to and through March 31, 2016. WPU shall provide written notice to the Company within three Business Days after its receipt of any such additional Capital Call Schedule of its acceptance or rejection thereof (provided, however, that WPU shall not reject any additional Capital Call Schedule unless (i) any breach by the Company of this Agreement or the Loan Agreement shall have occurred, which breach shall not have been cured or waived by WPU, or (ii) an Event of Default (as defined in the Loan Agreement) shall have occurred and be continuing); and, subject to and in accordance with the terms and conditions of this Agreement, WPU shall fund the Estimated Price set forth on any such additional Capital Call Schedule within ten calendar days after its acceptance of such additional Capital Call Schedule. In no event, however, shall the cumulative sum of all Advances hereunder exceed the Commitment Amount. For purposes of this Section 1(b), “Business Day” means any day excluding any Saturday, Sunday or other day on which commercial banks in New York, New York are authorized to close.

(c)Wire Transfer Instructions.  All Advances hereunder shall, except as may be set forth in any Capital Call Schedule and as may be agreed by WPU, be delivered by wire transfer of immediately available funds to the following account of the Company (the “Segregated Account”):

Bank:             Iowa State Bank
5 East Call Street 
Algona, IA 50511
ABA Routing #:    073920939
		
	Account Name:
	American Power Group, Inc. WPU Leasing Acct. 

Account #:        [Intentionally Omitted]

(d)Loan Agreement.  Upon the provision of any Advance with respect to any Capital Call Schedule, such Capital Call Schedule shall be appended to and become an integral part of the Note issued in connection with such Advance.

(e)Consideration.  In consideration of WPU’s covenants and agreements under this Agreement, APG shall execute and deliver one or more stock purchase warrants in substantially the form attached hereto as Exhibit C (individually a “Warrant” and collectively the “Warrants”), in the name of WPU, or as directed by WPU, in the name(s) of its designee(s), which Warrants shall entitle such holders to purchase an aggregate of 3,250,000 shares (the “Warrant Shares”) of APG’s common stock, $.01 par value per share (“Common Stock”).

2.Conditions to Advances.  WPU’s obligations under this Agreement, including the obligation to make any Advance hereunder, are subject to the satisfaction or waiver by WPU of each of the following conditions:

(a)Accuracy of Representations and Warranties. The representations and warranties of the Company contained in this Agreement or in any closing certificate delivered to WPU pursuant hereto shall be true and correct at and as of the date of the Advance (the “Advance Date”) as though made at and as of the Advance Date, other than such representations and warranties as are specifically made as of another date.

(b)Compliance with Covenants. The Company shall have performed and complied in all respects with all covenants of this Agreement to be performed or complied with by it at or prior to the Advance Date.

(c)No Material Adverse Effect. Neither the Company nor APG shall have suffered any Material Adverse Effect (as defined below) since the date of this Agreement.

(d)No Breach or Default. There shall not have occurred any breach or default by the Company or APG under this Agreement or the Loan Agreement which has not been cured or waived by WPU.

(e)Consents. The Company and APG shall have obtained all consents and waivers required from third parties, if any, to the transactions contemplated by this Agreement.

(f)Supporting Documents. 

(i)The Company shall have executed and delivered the Loan Agreement to WPU;

(ii)APG shall have issued and delivered the Warrants to WPU or its designee(s); 

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(iii)The Company shall have caused the amendment of that certain Registration Rights Agreement dated as of June 2, 2015, among the Company and certain other parties to add WPU or its designee(s) as “Purchasers” thereunder;

(iv)APG shall have issued and delivered a guaranty of the Company’s obligations under the Loan Agreement in substantially the form attached hereto as Exhibit D (the “Guaranty”);

(v)The Company shall have delivered to WPU a true and correct copy of the master services agreement dated October 2, 2014 (the “EOG MSA”), between Trident Resources LLC (“Trident”) and EOG Resources, Inc. (“EOG”), the EOG MSA shall be in full force and effect, and Trident shall have assigned the EOG MSA to the Company, subject only to the approval of EOG, which approval the Company shall use commercially reasonable efforts to obtain promptly; and, with respect to any Capital Call Schedules submitted on or after October 30, 2015, the Company shall have obtained an effective assignment of the EOG MSA or shall have entered into a new master services agreement with EOG; 

(vi)The Company and APG shall have delivered to WPU a certificate, dated as of the applicable Advance Date and signed by the Company’s chief executive officer or chief financial officer, stating that each of the conditions set forth in Sections 2(a) through (e) above have been satisfied; 

(vii)The Company shall have delivered to WPU such other certificates and documents as WPU may reasonably request to carry out the intentions and purposes of this Agreement; and 

(viii)The Company shall have delivered to WPU a certificate issued as of a recent date by the Secretary of State of Iowa attesting to the legal existence of the Company in Iowa, and APG shall have delivered to WPU a certificate issued as of a recent date by the Secretary of State of Delaware attesting to the legal existence of APG in Delaware. 

3.Representations and Warranties of the Company.  The Company hereby makes the following representations and warranties to WPU:

(a)Organization and Qualification, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Iowa. The Company has full corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. The Company has filed a Certificate of Authority Foreign Corporation Application with the Secretary of State of the State of North Dakota. As of the date of this Agreement, the Company has not received notice of its authority to transact business in North Dakota. Except as set forth in the preceding sentence, the Company is duly qualified to do business and is in good standing in each jurisdiction where the failure to be so qualified would have a material adverse effect on its results of operations, assets, business or condition (financial or otherwise) (a “Material Adverse Effect”).

(b)Authority Relative to Agreement. The Company has the corporate power and authority to execute and deliver this Agreement, the Loan Agreement and each of the other agreements, documents and instruments to be executed and delivered pursuant to this Agreement (together, the “Company Documents”) and to consummate the transactions contemplated on its part hereby and thereby. This Agreement has been duly executed and delivered by the Company, and, assuming the 

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due authorization, execution and delivery of this Agreement by WPU, is its valid and binding agreement, enforceable against the Company, in accordance with its terms, except as such enforcement is subject to the effect of (i) any applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting creditors’ rights generally and (ii) general principles of equity, including concepts of reasonableness, good faith and fair dealing and other similar doctrines affecting the enforceability of agreements generally (regardless of whether considered in a proceeding in equity or at law). The Company Documents, when executed and delivered by the Company, shall be duly executed and delivered by the Company, and shall be valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, subject only to the exceptions set forth in the preceding sentence.

(c)Non-Contravention. The execution and delivery of this Agreement by the Company do not, and the execution and delivery by the Company of the Company Documents and the consummation by the Company of the transactions contemplated hereby and thereby will not, (i) violate any provision of the Articles of Incorporation or By-Laws of the Company, (ii) violate, or result, with the giving of notice or the lapse of time or both, in a violation of, any provision of, or result in the acceleration of or entitle any party to accelerate any obligation under, or result in the creation or imposition of any material lien, charge, pledge, security interest or other encumbrance upon the property of the Company pursuant to any provision of, any mortgage or lien or material lease, agreement, license or instrument or any order, arbitration award, judgment or decree to which the Company is a party or by which any of its assets may be bound, or (iii) violate any law, ordinance or regulation to which the Company is subject.

(d)Compliance with Laws. Except as would not reasonably be expected to have a Material Adverse Effect, the Company is in compliance with all applicable federal, state, municipal, and local laws, statutes, ordinances and regulations (“Applicable Laws”). 

(e)Absence of Litigation.  There are no actions, suits or proceedings with pending or threatened against the Company, at law or in equity, or before or by any federal, state, municipal, foreign or other governmental department, commission, board, bureau, agency or instrumentality.

4.Representations and Warranties of APG.  APG hereby makes the following representations and warranties to WPU:

(a)Organization and Qualification, etc. APG is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. APG has full corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. APG is duly qualified to do business and is in good standing in each jurisdiction where the failure to be so qualified would have a Material Adverse Effect.

(b)Authority Relative to Agreement. APG has the corporate power and authority to execute and deliver this Agreement and the Warrants and to consummate the transactions contemplated on its part hereby and thereby. This Agreement has been duly executed and delivered by APG, and, assuming the due authorization, execution and delivery of this Agreement by WPU, is its valid and binding agreement, enforceable against APG, in accordance with its terms, except as such enforcement is subject to the effect of (i) any applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting creditors’ rights generally and (ii) general principles of equity, including concepts of reasonableness, good faith and fair dealing and other similar doctrines affecting the enforceability of agreements generally (regardless of whether considered in a proceeding in equity or at law). The Warrants, when executed and delivered by APG, shall be duly executed and delivered 

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by APG, and shall be valid and binding agreements of APG, enforceable against APG in accordance with their respective terms, subject only to the exceptions set forth in the preceding sentence.

(c)Non-Contravention. The execution and delivery of this Agreement by APG do not, and the execution and delivery by APG of the Warrants and the consummation by APG of the transactions contemplated hereby and thereby will not, (i) violate any provision of the Amended and Restated Certificate of Incorporation or By-Laws of APG, (ii) violate, or result, with the giving of notice or the lapse of time or both, in a violation of, any provision of, or result in the acceleration of or entitle any party to accelerate any obligation under, or result in the creation or imposition of any material lien, charge, pledge, security interest or other encumbrance upon the property of APG pursuant to any provision of, any mortgage or lien or material lease, agreement, license or instrument or any order, arbitration award, judgment or decree to which APG is a party or by which any of its assets may be bound, or (iii) violate any law, ordinance or regulation to which APG is subject.

(d)Compliance with Laws. Except as would not reasonably be expected to have a Material Adverse Effect, APG is in compliance with all Applicable Laws. 

(e)Absence of Litigation.  There are no actions, suits or proceedings with pending or threatened against APG, at law or in equity, or before or by any federal, state, municipal, foreign or other governmental department, commission, board, bureau, agency or instrumentality.

(f)SEC Reports; Financial Statements. APG has filed all reports, schedules, forms, statements and other documents required to be filed by APG under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date of this Agreement (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as disclosed in APG’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on May 21, 2015 (the “Corrective 8-K”), as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, except that APG may not have furnished to the Commission and posted on its corporate Web site every Interactive Data File required to be submitted and posted within the timeframes required by Rule 405 of Regulation S-T, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as identified in the Corrective 8-K, the financial statements of APG included in the SEC Reports complied in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as disclosed in the Corrective 8-K and as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of APG and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods indicated therein, subject, in the case of unaudited statements, to normal, year-end audit adjustments.

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(g)No Material Adverse Effect. Since the date of the latest financial statements included within the SEC Reports, except as otherwise disclosed in the SEC Reports, there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect.

(h)Warrant Shares. The Warrant Shares have been duly authorized and, when issued and paid for in accordance with the terms of the Warrants, will be duly and validly issued, fully paid and nonassessable, free and clear of all liens and encumbrances imposed by APG. APG has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable upon the exercise of the Warrants.

(i)Ownership of the Company. APG is the record and beneficial owner of all of the outstanding equity securities of the Company. 

5.Representations and Warranties of WPU.  WPU hereby makes the following representations and warranties to the Company:

(a)Organization and Qualification, etc. WPU is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. WPU has full limited liability company power and authority to own its properties and assets and to carry on its business as it is now being conducted. WPU is duly qualified to do business and is in good standing in each jurisdiction where the failure to be so qualified would have a Material Adverse Effect.

(b)Authority Relative to Agreement. WPU has the limited liability company power and authority to execute and deliver this Agreement, the Loan Agreement and each of the other agreements, documents and instruments to be executed and delivered pursuant to this Agreement (together, the “WPU Documents”) and to consummate the transactions contemplated on its part hereby and thereby. This Agreement has been duly executed and delivered by WPU, and, assuming the due authorization, execution and delivery of this Agreement by the Company, is its valid and binding agreement, enforceable against WPU, in accordance with its terms, except as such enforcement is subject to the effect of (i) any applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting creditors’ rights generally and (ii) general principles of equity, including concepts of reasonableness, good faith and fair dealing and other similar doctrines affecting the enforceability of agreements generally (regardless of whether considered in a proceeding in equity or at law). The WPU Documents, when executed and delivered by WPU, shall be duly executed and delivered by WPU, and shall be valid and binding agreements of WPU, enforceable against WPU in accordance with their respective terms, subject only to the exceptions set forth in the preceding sentence.

(c)Non-Contravention. The execution and delivery of this Agreement by WPU do not, and the execution and delivery by WPU of the WPU Documents and the consummation by WPU of the transactions contemplated hereby and thereby will not, (i) violate any provision of WPU’s Certificate of Formation or Operating Agreement, (ii) violate, or result, with the giving of notice or the lapse of time or both, in a violation of, any provision of, or result in the acceleration of or entitle any party to accelerate any obligation under, or result in the creation or imposition of any material lien, charge, pledge, security interest or other encumbrance upon the property of WPU pursuant to any provision of, any mortgage or lien or material lease, agreement, license or instrument or any order, arbitration award, judgment or decree to which WPU is a party or by which any of its assets may be bound, or (iii) violate any law, ordinance or regulation to which WPU is subject.

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(d)Compliance with Laws. Except as would not reasonably be expected to have a Material Adverse Effect, WPU is in compliance with all Applicable Laws. 

(e)Absence of Litigation.  There are no actions, suits or proceedings with pending or threatened against APG, at law or in equity, or before or by any federal, state, municipal, foreign or other governmental department, commission, board, bureau, agency or instrumentality.

(f)Understandings or Arrangements.  WPU understands that the Warrants and the Warrant Shares (together, the “Securities”) are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law. WPU (or any designee, as the case may be) is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting the rights of WPU (or its designees) to sell the Securities in compliance with applicable federal and state securities laws). WPU (or any designee, as the case may be) is acquiring the Securities hereunder in the ordinary course of its business.

(g)Accredited Investor Status. At the time WPU was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises the Warrant, it will be an “accredited investor” as defined in Rule 501(a) under the Securities Act. 

(h)Experience. WPU, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. WPU is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(i)Speculative Investment. WPU understands and recognizes that the acquisition of the Securities is highly speculative and involves a high degree of risk and that only investors who can afford the loss of their entire investment should consider investing in the Company. WPU has reviewed the risk factors in the SEC Reports.

(j)Principal Place of Business. WPU’s address in the introduction hereto is WPU’s principal business address.

(k)No Reliance on Other Statements. No statements, promises, warranties or representations have been made to WPU concerning the Securities, the Company or APG, their respective businesses or prospects, or other matters, by the Company, by APG, by their respective representatives, or by any other persons or entities, except as set forth in this Agreement, the Loan Agreement, the Warrants and the SEC Reports. WPU has not relied on any representation, written or oral, not contained in this Agreement, the Loan Agreement, the Warrants or the SEC Reports in deciding to acquire the Securities. 

6.Additional Covenants and Agreements.

(a)Compliance with Laws. During the term of this Agreement, the Company and APG shall conduct their respective businesses in substantial compliance with all Applicable Laws.

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(b)Use of Proceeds. 

(i)    The Company shall use any Advance made under this Agreement as described in the applicable Capital Call Schedule. If and to the extent that the Company is not required to use 100% of any Advance to purchase the Equipment described in the respective Capital Call Schedule, (i) the Company shall provide prompt written notice of the actual purchase price of such Equipment, (ii) the balance of such Advance not used to purchase such Equipment shall remain in the Segregated Account and shall not be commingled with any other funds of the Company, and (iii) such balance shall thereafter be used only for such purposes related to Equipment purchases as may be approved by WPU, such approval not to be unreasonably withheld, conditioned or delayed. The parties agree, however, that the entire amount of any Advance will be subject to amortization under the terms of the Loan Agreement from the applicable Advance Date.

(ii)     The Company shall provide WPU, on or about the last Business Day of each month, with (A) an account statement for the Segregated Account covering the preceding month and (B) a reasonably detailed statement showing the uses, during the preceding month, of funds provided to the Company as part of any previous Advance.
 
(c)Certain Notices. The Company shall provide prompt written notice to WPU upon the receipt of evidence of its authority to transact business in North Dakota (or upon notice of rejection of the application therefor), together with such evidence thereof as WPU may reasonably request. The Company shall provide prompt written notice to WPU upon any amendment, modification or termination of the EOG MSA, together with a true and correct copy of such amendment, modification or termination. 

(d)Public Announcements; Confidentiality. None of the parties shall make any public announcement concerning this Agreement or the transactions contemplated hereby without the other parties’ prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed; provided, however, that, although APG shall use commercially reasonable efforts to furnish WPU with a draft of the Current Report on Form 8-K to be filed with the Commission within four business days after the execution of this Agreement, nothing in this Section 6(d) shall prohibit APG from filing such Current Report with the Commission in a timely manner, irrespective of whether WPU shall have approved such Current Report. Each party agrees that the terms and conditions of this Agreement are confidential and that, except as contemplated by the preceding sentence or as otherwise required by law or legal authority or as may be necessary to enforce this Agreement or to comply with its terms, it will not disclose the terms and conditions of this Agreement (or any information received by such party pursuant to this Agreement) to any third parties; provided, however, that such party may disclose such information to its attorneys, accountants and advisors if such persons are instructed not to disclose such information to any third party.

7.Governing Law and Jurisdiction.  This Agreement has been delivered and accepted and will be deemed to be made in the State where WPU’s office indicated above is located. THIS AGREEMENT AND ALL AGREEMENTS, INSTRUMENTS AND DOCUMENTS HERETOFORE, NOW OR HEREAFTER EXECUTED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE WPU’S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. 

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The Company and APG hereby irrevocably consent to the exclusive jurisdiction of any state or federal court in the county or judicial district where WPU’s office indicated above is located; provided that nothing contained in this Agreement will prevent any party hereto from bringing any action, enforcing any award or judgment or exercising any rights against any other party hereto individually, against any security or against any of such party’s property within any other county, state or other foreign or domestic jurisdiction. The parties agree that the venue provided above is the most convenient forum for all parties. The parties waive any objection to venue and any objection based on a more convenient forum in any action instituted under this Agreement. 

8.Notices. All notices, demands, requests, consents, approvals and other communications required or permitted hereunder (“Notices”) must be in writing and will be effective upon receipt. Notices may be given in any manner to which the parties may separately agree, including electronic mail. Without limiting the foregoing, first-class mail, facsimile transmission and commercial courier service are hereby agreed to as acceptable methods for giving Notices. Regardless of the manner in which provided, Notices may be sent to a party’s address as set forth above or to such other address as any party may give to the other for such purpose in accordance with this section.

9.Miscellaneous.

(a)     Whenever the context of this Agreement requires, the neuter gender includes the masculine and feminine, and the singular number includes the plural. 

(b)    References to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 

(c)     Time is of the essence in the performance of this Agreement end each and all of its provisions.

(d)     If any provision of this Agreement is held invalid or unenforceable, the remaining provisions will not be affected thereby, and to this end, the provisions of this Agreement are declared severable.

(e)     The Company will reimburse WPU for WPU’s expenses (including the reasonable fees and expenses of WPU’s outside counsel) in connection with the negotiation and execution of this Agreement, the Loan Agreement and the Warrants, and for any amendments or modifications hereto or thereto. 

(f)     This Agreement, the Loan Agreement, the Warrants, the Capital Call Schedule(s) and the Note(s) constitute the entire agreement among WPU, the Company and APG with respect to the subject matter of this Agreement and supersede all other prior agreements and understandings whether oral or written among the parties with respect to the subject matter hereof. This Agreement may not be changed, waived, amended or terminated except by a written agreement signed by both WPU and the Company. No express or implied waiver by any party of any breach or default hereunder shall in any way be, or be construed to be, a waiver of any future and/or subsequent breach or default whether similar in kind or otherwise but shall be effective only in the specific instance and for the purpose for which given. 

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10.    Counterparts. This Agreement may be signed in any number of counterpart copies and by the parties hereto on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf transmission shall be effective as delivery of a manually executed counterpart. 

11.     WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HEREBY WAIVES ANY RIGHT TO DEMAND A JURY TRIAL WITH RESPECT TO ANY ACTION OR PROCEEDING INSTITUTED BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION RELATED HERETO. EACH OF THE PARTIES ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

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IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Secured Financing Agreement as of the day and year first above written.

AMERICAN POWER GROUP, INC.        WPU LEASING, LLC

By: /s/ Charles E. Coppa                By: /s/ Raymond L. M. Wong

Name: Charles E. Coppa                Name: Raymond L.M. Wong

Title: Treasurer                    Title: Manager

        

AMERICAN POWER GROUP CORPORATION

By: /s/ Charles E. Coppa        

Name: Charles E. Coppa

Title: Chief Financial Officer

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