Document:

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                                           MEMORANDUM NO. ______________________

                                           NAME OF OFFEREE _____________________

                                       ZBB

                               ENERGY CORPORATION

          A MAXIMUM OF US$2,500,000 OF BRIDGE NOTES DUE ON THE EARLIER
            OF APRIL 15, 2007 OR UPON COMPLETION OF A MINIMUM EQUITY
                             FINANCING OF $6 MILLION

                                SUBSCRIPTION AND
                       INVESTMENT REPRESENTATION AGREEMENT

<PAGE>

              SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT

         US$2,500,000 OF 15% CONVERTIBLE BRIDGE NOTES DUE APRIL 15, 2007
 (OR UPON COMPLETION OF A MINIMUM EQUITY FINANCING OF $6 MILLION) (THE "NOTES")

      (Except as otherwise noted, all references to "dollars" or "$" are in
                             United States dollars).

          The undersigned, ___________________________________________ (the
"undersigned" or the "Investor"), hereby subscribes for the purchase of Notes
(the "Notes") of ZBB Energy Corporation, a Wisconsin corporation (the
"Company"), in the aggregate principal amount of $___________. The undersigned
herewith submits the undersigned's check or effects a wire transfer of
immediately available funds in the amount of $_________ in full payment for such
Notes (the "Subscription Price"). In exchange for such payment of the
Subscription Price, the undersigned shall receive from the Company $________
principal amount of Notes.

          Principal and interest on the Notes will be due and payable upon the
earlier to occur of (i) April 15, 2007 and (ii) the closing by the Company of an
initial public offering of the Company's common stock, par value $0.01 per share
(the "Common Stock") or other equity financing yielding minimum proceeds of Six
Million Dollars ($6,000,000) (the "Equity Offering"). All amounts of principal
and interest remaining due under the Notes as of the closing of the Equity
Offering shall be, at the option of each holder thereof, (i) payable in cash
from the proceeds of the Equity Offering, together with two-year warrants to
purchase shares of the Common Stock at a price equal to 120% of the price per
share in the Equity Offering or (ii) convertible into shares of the Common Stock
at a price per share equal to 50% of the price per share paid by investors in
the Equity Offering.

          The undersigned understands that (i) the Company is offering up to
$2,500,000 in note principal, (ii) there is no minimum amount of note principal
that must be sold to complete the offering, (iii) the offering is being made on
best efforts basis by both the Company and Empire Financial Group, Inc.
("Empire"), as placement agent, and (iv) upon completion of this offering,
Empire shall serve as investment banker to the Company in connection with other
contemplated equity financings.

          The undersigned hereby agrees to send payment of the $_________
Subscription Price either:

          a.   by mailing a check, payable to "ZBB Energy Corporation" to ZBB
               Energy Corporation, N93 W14475 Whittaker Way, Menomonee Falls,
               Wisconsin 53051, attn: Robert Parry, Chief Executive Officer, or

          b.   wiring payment of the Subscription Price to the account set forth
               below

               Name of Bank:      M&I Marshall &Ilsley Bank
               Address of Bank:   3470 Gateway Road, Brookfield, WI 53008
               Account Name:      ZBB Energy Corporation
               Account No:        00184 06531
               ABA No:            075000051
               Reference:         ZBB Energy Corporation Convertible Notes.

In either case, the undersigned agrees to execute this Subscription and
Investment Representation Agreement and the Registration Rights Agreement
attached hereto and mail same to ZBB Energy Corporation, N93 W14475 Whittaker
Way, Menomonee Falls, Wisconsin 53051, attn: Robert Parry, Chief Executive
Officer.

Consummation of the sale of the Securities to the undersigned and to all other
Investors in connection with the offering of a maximum of $2,500,000 of Notes
shall be completed on or before 6 October, 2006 (the "Closing Date"), unless
such Closing Date shall be extended by mutual agreement of the Company and
Empire.

<PAGE>

     1. CERTAIN REPRESENTATIONS OF THE SUBSCRIBER

          In connection with, and in consideration of, the sale of the
Securities to the undersigned, the undersigned hereby represents and warrants to
the Company and its officers, directors, employees, agents and shareholders that
the undersigned:

          (a) Has received and is familiar with (i) a copy of the Company's
prospectus dated December 23, 2004 in connection with the Company's offering of
12,000,000 shares of Common Stock at A$0.50 per share and the listing of such
shares for trading on the Australian Stock Exchange, (ii) copies of all
announcements made by the Company to the ASX since the date of its listing,
(iii) the Company's 2005 and 2006 annual reports, and (iv) such other
information as the undersigned has received from the Company upon requested
(collectively, the "Company Materials").

          (b) Has had an opportunity to review and ask questions of an officer
of the Company, concerning the Company Materials and desires no further
information respecting such Company Materials.

          (c) Realizes that the Company has incurred losses since its inception
and must raise additional funds to support its operations and to develop,
manufacture and sell its energy storage products and technologies essential to
its longer-term viability.

          (d) Realizes and accepts the personal financial risk attendant to the
fact that that purchase of the Securities represents a speculative investment
involving a high degree of risk, and should not be purchased by any persons not
prepared to lose their entire investment.

          (e) Realizes that the Company has recently completed a private
placement of $1,000,000 of convertible notes and warrants to purchase shares of
Common Stock on terms and conditions that are the same as the terms of the Notes
and Warrants offered hereby.

          (f) Realizes that, in connection with a contemplated additional equity
financing of up to $15 million that the Company will seek to consummate within
the next six months, the Company presently intends to effect a one-for-eight
reverse split of its outstanding Common Stock following (i) completion of this
offering of Securities, and (ii) the listing of its shares of Common Stock for
trading on the American Stock Exchange, NASD OTC-Bulletin Board or other United
States securities exchange, and that, as a result of such Reverse Split, the
aggregate number of shares that may be purchased on conversion of the Notes and
included in the Securities shall be 12.5% of the number of shares of Common
Stock issued and issuable to the undersigned on the closing date of this
investment.

          (g) Can bear the economic risk of an investment in the Securities for
an indefinite period of time, can afford to sustain a complete loss of such
investment, has no need for liquidity in connection with an investment in the
Securities, and can afford to hold the Securities indefinitely.

          (h) Realizes that there will be no market for the Securities, and that
there are significant restrictions on the transferability of such Securities.

          (i) Realizes that the Securities have not been registered for sale
under the Securities Act of 1933, as amended (the "Act"), or applicable state
securities laws (the "State Laws"), and they may be sold only pursuant to
registration under the Act and State Law, or an opinion of counsel that such
registration is not required.

          (j) Is experienced and knowledgeable in financial and business
matters, capable of evaluating the merits and risks of investing in the
Securities and does not need or desire the assistance of a knowledgeable
representative to aid in the evaluation of such risks (or, in the alternative,
has a knowledgeable representative whom such investor intends to use in
connection with a decision as to whether to purchase the Securities).

          (k) Realizes that (a) there are substantial restrictions on the
transfer of the Securities; (b) there is not currently a public market for the
Securities, and it is unlikely that in the future there will exist a public
market for the Notes, and accordingly, for the above and other reasons, the
undersigned may not be able to liquidate an investment in such securities for an
indefinite period.

<PAGE>

     2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with Investor, as follows:

          (a) The Company Materials as of their respective dates do not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

          (b) The Company is authorized to issue 150,000,000 shares of its
Common Stock. As of the date hereof, an aggregate of 89,134,002 shares of Common
Stock are issued and outstanding, a maximum of 8,000,000 shares are issuable
upon conversion of an existing $1,000,000 convertible note due and 16,597,866
additional shares of Common Stock are reserved for issuance upon exercise of
outstanding stock options and warrants.

          (c) All of the outstanding shares of capital stock of the Company and
the Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable.

          (d) The Company has the requisite corporate power and authority to
enter into and execute, deliver and perform its obligations under this
Agreement, the Notes and the Warrant (collectively, the "Transaction
Documents"), including, without limitation to incur the Indebtedness evidenced
by the Notes and to permit the conversion of such Notes into Common Stock of the
Company. Each of the Transaction Documents has been duly and validly authorized
by the Company and, when executed and delivered by the Company, will constitute
a valid and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms except as the enforcement thereof may be
limited by (A) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally or (B) general principles of equity and
the discretion of the court before which any proceeding therefore may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity) (collectively, the "Enforceability Exceptions").

          (e) The Securities have been duly authorized and, when issued upon
payment thereof in accordance with this Agreement, will have been validly
issued, fully paid and non-assessable. The Conversion Shares have been duly
authorized by the Board of Directors and will be validly reserved for issuance,
and when issued upon conversion of the Notes in accordance with the terms of the
Notes, will have been validly issued, fully paid and non-assessable. The
stockholders of the Company have no preemptive or similar rights with respect to
the Common Stock. Upon conversion of the Notes, the delivery of the Conversion
Shares to Investor, duly endorsed or accompanied by duly executed stock powers,
will transfer to Investor good and indefeasible title to such shares, free and
clear of all liens, proxies, encumbrances and claims of every kind and Company
will forever warrant and defend (with counsel acceptable to Investor) such
title, and indemnify Investor for all adverse claims, demands, or liability with
respect to the validity of such title or transfer thereof, against any claimants
thereto.

          (f) The Conversion Price, Floor Price and Conversion Shares issuable
upon conversion of the Note issued to the undersigned under this Agreement, and
all other terms and conditions of the Note are (i) as described in this
Agreement and the Note, and (ii) identical in all material respects to the
conversion price, terms and conditions of conversion and other provisions of the
Securities issued to other Investors in the Securities.

          (g) The execution, delivery and performance by the Company of the
Transaction Documents and the consummation by the Company of the transactions
contemplated thereby and the fulfillment of the terms thereof will not violate,
conflict with or constitute or result in a breach of or a default under (i) the
articles of incorporation or bylaws of any of the Company or the Subsidiaries
(or similar organizational document) or (ii) any statute, judgment, decree,
order, rule or regulation of any court or governmental agency or other body
applicable to the Company or the Subsidiaries or any of their respective
properties or assets.

<PAGE>

     3. COVENANTS AND AGREEMENTS OF THE COMPANY.

          (a) Promptly following the Closing Date (and in no event later than
sixty (60) days thereafter), the Company shall cause to be filed with the United
States Securities and Exchange Commission ("SEC") either (i) a Form SB-2
registration statement pursuant to which the Company will offer to sell up to
$15.0 million of its Common Stock pursuant to an initial public offering in the
United States (the "IPO"), or (ii) a Form 10 registration statement in order to
register the publicly traded shares of Company Common Stock under The Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In addition, the Company
shall cause to be filed with the National Association of Securities Dealers,
Inc. ("NASD"), a Form 15c-211 to cause the Company Common stock to be listed for
trading on a "U.S. National Securities Exchange" defined below.

          (b) The Company shall use its best efforts to cause the Form SB-2
registration statement or the Form 10 registration statement, as applicable
(each a "Registration Statement"), to be declared effective by the SEC and to
have shares of Company Common Stock approved for trading on any one of the
American Stock Exchange, the Nasdaq Stock Market or the NASD OTC-Bulletin Board
(a "U.S. National Securities Exchange"), as soon as practicable thereafter;
PROVIDED, HOWEVER, the Company shall consummate either the IPO or the listing of
shares of its Common Stock on a U.S. National Securities Exchange by not later
than April 15, 2007 (the "Outside U.S. Listing Date").

          (c) Following consummation of the Sale of the Securities, the Company
will seek to raise between $6,000,000 and $15,000,000 from the sale of shares of
Common Stock either (i) through the IPO, or (ii) in connection with a private
placement of equity securities immediately following the listing of the Common
Stock on a U.S. National Securities Exchange; in either case, through Empire
and/or other investment bankers or registered broker/dealers acceptable to the
Company and Empire (the "Additional Financing"). The Company shall use its best
efforts (without being legally obligated) to consummate such Additional
Financing as soon as reasonably practicable.

          (e) Simultaneous with the closing of the Additional Financing, and
based upon an initial Additional Financing at an assumed minimum price per share
of Common Stock of $2.00 per share, the Company shall consummate a reverse split
of its outstanding common stock (the "Reverse Stock Split").

BY HIS OR ITS EXECUTION OF THIS AGREEMENT, THE UNDERSIGNED INVESTOR ACKNOWLEDGES
AND AGREES THAT THE COVENANTS AND AGREEMENTS OF THE COMPANY SET FORTH IN THIS
SECTION 3 REPRESENT ONLY THE COMPANY'S COMMITMENT TO USE ITS REASONABLE BEST
EFFORTS TO CONSUMMATE THE U.S. NATIONAL SECURITIES EXCHANGE LISTING AND THE
ADDITIONAL FINANCING CONTEMPLATED HEREBY. THERE CAN BE NO ASSURANCE THAT SUCH
U.S NATIONAL SECURITIES EXCHANGE LISTING OR ADDITIONAL FINANCING SHALL BE
CONSUMMATED PRIOR TO THE MATURITY DATE OF THE NOTES OR UPON THE TERMS AND
CONDITIONS OUTLINED ABOVE, IF AT ALL. THE COMPANY SHALL HAVE NO LIABILITY TO THE
INVESTOR OR ANY OTHER HOLDERS OF THE NOTES IN THE EVENT IT IS UNABLE,
NOTWITHSTANDING ITS REASONABLE BEST EFFORTS, TO CONSUMMATE SUCH U.S. NATIONAL
SECURITIES EXCHANGE LISTING OR ADDITIONAL FINANCING.

     4. INVESTMENT INTENT

          The undersigned has been advised that the Securities have not been
registered under the Act or relevant State Laws but are being offered, and will
be offered, and sold pursuant to exemptions from the Act and State Laws, and
that the Company's reliance upon such exemption is predicated in part on the
undersigned's representations contained herein. The undersigned represents and
warrants that the Securities are being purchased for the undersigned's own
account and for long term investment and without the intention of reselling or
redistributing the Securities; that the undersigned has made no agreement with
others regarding any of the Securities; and that the undersigned's financial
condition is such that it is not likely that it will be necessary for the
undersigned to dispose of any of the Securities in the foreseeable future. The
undersigned is aware that (1) there is presently no public market for the
Securities, and in the view of the Securities and Exchange Commission a purchase
of securities with an intent to resell by reason of any

<PAGE>

foreseeable specific contingency or anticipated change in market values, or any
change in the liquidation or settlement of any loan obtained for the acquisition
of any of the Securities and for which the Securities were or may be pledged as
security would represent an intent inconsistent with the investment
representations set forth above, and (2) the transferability of the Securities
is restricted and (a) requires the written consent of the Company, and (b) will
be further restricted by a legend placed on the certificate(s) representing the
Securities containing substantially the following language:

               THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
               REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 OR APPLICABLE
               STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
               OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE
               IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH
               LAWS COVERING SUCH SECURITIES, OR THE COMPANY RECEIVES AN OPINION
               OF COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE,
               TRANSFER, ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION FOR
               VALUE IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
               REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

          The undersigned further represents and agrees that if contrary to the
undersigned's foregoing intentions, the undersigned should later desire to
dispose of or transfer any of the Securities in any manner, the undersigned
shall not do so without first obtaining (1) an opinion of counsel satisfactory
to the Company that such proposed disposition or transfer may be made lawfully
without the registration of such Securities pursuant to the Act and applicable
State Laws, or (2) registration of such Securities (it being expressly
understood that the Company shall not have any obligation to register such
Securities except as explicitly provided by written agreement).

     5. RESIDENCE

          The undersigned represents and warrants that the undersigned is a bona
fide resident of the State of _________________________ and that the Securities
are being accepted by the undersigned in the undersigned's name solely for the
undersigned's own beneficial interest and not as nominee for, on behalf of, for
the beneficial interest of, or with the intention to transfer to, any other
person, trust or organization except as specifically set forth in this
Agreement).

               PARAGRAPH 6 BELOW IS REQUIRED IN CONNECTION WITH EXEMPTIONS FROM
               THE ACT AND STATE LAWS BEING RELIED ON BY THE COMPANY WITH
               RESPECT TO OFFER AND SALE OF THE SHARES. ALL OF SUCH INFORMATION
               WILL BE KEPT CONFIDENTIAL AND WILL BE REVIEWED ONLY BY THE
               COMPANY, THE AGENT, AND THEIR COUNSEL. THE UNDERSIGNED AGREES TO
               FURNISH ANY ADDITIONAL INFORMATION WHICH THE COMPANY OR ITS
               COUNSEL DEEMS NECESSARY IN ORDER TO VERIFY THE RESPONSES SET
               FORTH ABOVE.

     6. ACCREDITED STATUS

          The undersigned represents and warrants as follows (check if
applicable):

          a.   Accredited Investor: Individual

               (1)_______ The undersigned is an individual with a net worth, or
               a joint net worth together with his or her spouse, in excess of
               $1,000,000. (In calculating net worth, you may include equity in
               personal property and real estate, including your principal
               residence, cash, short term investments, stock and securities.
               Equity in personal property and real estate should be based on
               the fair market value of such property minus debt secured by such
               property.)

               (2)________ The undersigned is an individual who had an
               individual income in excess of $200,000 in each of the prior two
               years and reasonably expects an income in excess of $200,000 in
               the current year; or

               (3)________ The undersigned is an individual who had with his/her
               spouse joint income in excess of $300,000 in each of the prior
               two years and reasonably expects an income in

<PAGE>

               excess of $300,000 in the current year.

               (4)________ The undersigned is a director or executive officer of
               the Company.

          b.   Accredited Investor: Entity

               (1)________ The undersigned is an entity all of whose equity
               owners meet one of the tests set forth in a through d above.

               (2)________ The undersigned is an entity and is an "Accredited
               Investor" as defined in Rule 501(a) of Regulation D under the
               Act. This representation is based on the following (check one or
               more, as applicable):

                    (a)______ The undersigned (or in the case of a trust, the
                    undersigned trustee) is a bank or savings and loan
                    association as defined in Sections 3(a)(2) and 3(a)(5)(A) of
                    the Act, acting either in its individual or fiduciary
                    capacity.

                    (b)______ The undersigned is an insurance company as defined
                    in Section 2(13) of the Act.

                    (c)_______ The undersigned is an investment company
                    registered under the Investment Company Act of 1940 or a
                    business development company as defined in Section 2(a)(48)
                    of that Act.

                    (d)________ The undersigned is a Small Business Investment
                    Company licensed by the U.S. Small Business Administration
                    under Section 301(c) or (d) of the Small Business Investment
                    Act of 1958.

                    (e)________ The undersigned is an employee benefit plan
                    within the meaning of Title I of the Employee Retirement
                    Income Security Act of 1974 and either (check one of more,
                    as applicable):

                         (i)________ the investment decision is made by a plan
                         fiduciary, as defined in Section 3(21) of such Act,
                         which is either a bank, savings and loan association,
                         insurance company, or registered investment advisor; or

                         (ii)________ the employee benefit plan has total assets
                         in excess of $5,000,000; or

                         (iii)________ the plan is a self-directed plan with
                         investment decisions made solely by persons who are
                         "Accredited Investors" as defined under the 1933 Act.

                    (f)________ The undersigned is a private business
                    development company as defined in Section 202(a)(22) of the
                    Investment Advisors Act of 1940.

                    (g)________ The undersigned has total assets in excess of
                    $5,000,000, was not formed for the specific purpose of
                    acquiring shares of the Company and is one or more of the
                    following (check one or more, as appropriate):

                         (i)________an organization described in Section
                         501(c)(3) of the Internal Revenue Code; or

                         (ii)________ a corporation; or

                         (iii)________ a Massachusetts or similar business,
                         trust; or

                         (iv)________ a partnership.

<PAGE>

                    (h)_________ The undersigned is a trust with total assets
                    exceeding $5,000,000, which was not formed for the specific
                    purpose of acquiring shares of the Company and whose
                    purchase is directed by a person who has such knowledge and
                    experience in financial and business matters that he/she is
                    capable of evaluating the merits and risks of the investment
                    in the Securities. IF ONLY THIS RESPONSE IS CHECKED, PLEASE
                    CONTACT THE COMPANY TO RECEIVE AND COMPLETE AN INFORMATION
                    STATEMENT BEFORE THIS SUBSCRIPTION CAN BE CONSIDERED BY THE
                    COMPANY.

     7. MANNER IN WHICH TITLE TO THE NOTES AND WARRANTS IS TO BE HELD

          Please check one:

                            ______Individual

                            ______Joint Tenant with Right of Survivorship

                            ______Partnership

                            ______Tenants in Common

                            ______Corporation

                            ______Other (Specify_____________________)

     8. MISCELLANEOUS

          (a) The undersigned agrees that the undersigned understands the
meaning and legal consequences of the agreements, representations, and
warranties contained herein; agrees that such agreements, representations and
warranties shall survive and remain in full force and effect after the execution
of the Securities; and further agrees to indemnify and hold harmless the
Company, each current and future officer, director, employee, agent and
shareholder from and against any and all loss, damage or liability due to, or
arising out of, a breach of any agreement, representation or warranty of the
undersigned contained herein.

          (b) This Agreement shall inure to the benefit of and be binding upon
Investor and the Company and their respective successors and legal
representatives. Neither the Company nor any Investor may assign this Agreement
or any rights or obligation hereunder without the prior written consent of the
other party.

          (c) This Agreement, together with Transaction Documents, constitutes
the entire agreement among the parties hereto and supersedes all prior
agreements, understandings and arrangements, oral or written, among the parties
hereto with respect to the subject matter hereof and thereof.

          (d) If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby.

          (e) THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS
AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PROVISIONS
RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY IRREVOCABLY
AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS
LOCATED IN THE CITY OF NEW YORK, NEW YORK AND HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.

          (f) This 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.

          (g) Facsimile signatures shall be construed and considered original
signatures for purposes of enforcement of the terms of this agreement.

[SIGNATURE PAGE FOLLOWS - THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

INDIVIDUAL SUBSCRIBERS:

-------------------------------------
Signature

-------------------------------------
Name (Typed or Printed)

-------------------------------------
Street Address

-------------------------------------
City, State and Zip Code

-------------------------------------
Home Telephone Number

-------------------------------------
Social Security Number

Tax Identification Number (for corporations or other entities)

          ZBB Energy Corporation, hereby acknowledges receipt from
__________________________________ of such subscriber's check in the amount of
$______________________, and accepts this subscription of _________ Securities
as of August__ 2006.

                                                          ZBB ENERGY CORPORATION

                                        ----------------------------------------
                                                                       Signature

                                        ----------------------------------------
                                                         Name (Typed or Printed)

                                        ----------------------------------------
                                                                           Title<PAGE>

                     1998 OUTSIDE DIRECTOR STOCK OPTION PLAN

                                       OF

                             ZBB ENERGY CORPORATION

                                    ARTICLE 1

                      Establishment and Purpose of the Plan

     1.1 Establishment of Plan. ZBB Energy Corporation (the "Corporation")
hereby establishes the 1998 Outside Director Stock Option Plan of ZBB Energy
Corporation (the "Plan"). The effective date of this Plan shall be July 3, 1998.

     1.2 Purpose of Plan. The purpose of the Plan is to promote the growth and
development of the Corporation by providing the non-employee members of the
Board of Directors of the Corporation (the "Outside Directors") with an
opportunity to purchase shares of the Corporation's common stock (the "Common
Stock") in gratitude for their past service to the Corporation and to serve as
an incentive for them to advance the interests of the Corporation through future
services.

                                   ARTICLE 11

                                Legal Compliance

     It is the intent of the Corporation that all options granted under this
Plan (the "Options") shall be non-qualified stock options. It is the further
intent of the Corporation that the Plan conform in all respects with the
requirements of Rule 16b-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3"). To the extent that
any aspect of the Plan or its administration shall at any time be viewed as
inconsistent with the requirements of Rule 16b-3, as the same shall be amended
from time to time, such aspect shall be deemed to be modified, deleted or
otherwise changed as necessary to ensure continued compliance with such
provisions.

                                   ARTICLE III

                                 Administration

     This Plan shall be administered by the Board of Directors of the
Corporation (the "Board"); provided, however, that this Plan shall be
administered in accordance with the provisions hereinafter set forth.

<PAGE>

                                   ARTICLE IV

                            Stock Subject to the Plan

     4.1 Aggregate Shares. The aggregate number of shares of Common Stock which
may be issued upon the exercise of Options granted at any time under this Plan
shall be four hundred thousand (400,000) shares.

     4.2 Availability. The shares of Common Stock to be issued or delivered upon
the exercise of Options shall be made available, at the discretion of the Board,
either from authorized but unissued shares or shares issued and reacquired by
the Corporation.

     4.2 Nonacquired Shares. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not acquired thereunder shall again be
available for Options to be granted under this Plan.

                                    ARTICLE V

                            Eligibility of Recipients

     Participation under this Plan will be limited to persons who are Outside
Directors (the "Participants"). Options shall be awarded to the Participants
under Article VI, below. Each Participant shall be notified in writing of his
designation as a Participant and, in connection therewith, each Participant
shall be required to execute an acknowledgment in the form attached hereto as
Exhibit A.

                                   ARTICLE VI

                                 Grant of Option

     As of the date hereof, the Plan has three (3) Participants. Accordingly,
Options are granted to the Participants as follows:

     Participant              Title         Number of Options Granted
     -----------              -----         -------------------------
1. Thomas G. Folliard   Member of Board              120,000

2. Richard A. Payne     Member of Board              120,000

3. Michael J. Palmer    Chairman of Board            160,000

     Notwithstanding the foregoing, if the Board appoints additional Outside
Directors to serve on the Board and such Outside Directors become Participants
hereunder, all Options granted pursuant to this Article VI which have not vested
pursuant to the provisions of Article X hereof at the time such additional
Outside Directors become Participants shall be reallocated so that each
Participant (other than the Chairman of the Board) shall be granted that number
of

                                        2

<PAGE>

Options equal to the product of (a) the number of unvested Options times (b) a
fraction, the numerator of which is equal to 0.9 and the denominator of which is
equal to the total number of Participants. The Chairman of the Board shall be
granted that number of Options equal to the difference between the total number
of unvested Options and the number of Options granted to the other Participants.
A reallocation of unvested Options pursuant to this Article VI shall take place
at any time the number of Participants is increased or whenever the Participant
occupying the office of Chairman of the Board changes.

                                   ARTICLE VII

                         Purchase Price of Option Shares

     The exercise price per share of Common Stock for each Option granted
hereunder shall be $0.75.

                                  ARTICLE VIII

                             Payment of Option Price

     8.1 Notice of Exercise. A Participant electing to exercise an Option then
exercisable shall give written notice to the Corporation of such election and of
the number of shares of Common Stock such Participant has elected to purchase.
An Option may be exercised at any time or times after the date such Option has
vested in accordance with the terms of Article X hereof. An Option may be
exercised with respect to all, or any portion of the shares of Common Stock
subject to such Option. Written notice by a Participant of the exercise of an
Option shall be irrevocable and shall bind such Participant to purchase, and
require the Corporation to sell the shares for the consideration and in the
manner specified in this Plan.

     8.2 Payment of Option Price. The exercise price of an Option shall be paid
in full to the Corporation at the time of the exercise in cash or other
immediately available funds or, by the offset of any undisputed, liquidated,
non-contingent obligations then owed by the Corporation to the Participant, or
subject to the approval of the Board, in whole or in part by any other lawful
consideration.

     8.3 No Delivery Until Payment in Full. The Corporation shall have no
obligation to deliver shares of Common Stock pursuant to the exercise of any
Option, in whole or in part, until payment in full of the purchase price
therefor is received by the Corporation.

                                   ARTICLE IX

                                 Term of Option

     9.1 Expiration of Option. No Option shall be exercisable after it expires.
Each Option shall expire upon the earlier of:

                                        3

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          (a) the five (5) year anniversary of the date the Option vests
     pursuant to Article X hereof; or

          (b) the date stipulated in Paragraphs 9.2 or 9.3 in the case of a
     Participant whose membership of the Board ceases.

     9.2 Termination of Board Membership. In the case of a Participant whose
membership on the Board is terminated by reason of death, Disability, or by the
Board or the shareholders without Cause (all as hereinafter defined), or
voluntarily by the Participant at the request of the Board or voluntarily after
the Participant has attained age sixty-five (65) or such earlier age as may be
approved by the Board, each Option shall expire as provided in Paragraph 9.1(a).
For purposes hereof, the terms "Disability" and "Cause" shall be defined as
follows:

          (a) The term "Disability" shall be determined pursuant to the
     Corporation's disability insurance plan, or if no such insurance plan is in
     effect, "Disability" shall be defined as the inability of the Participant
     to perform his normal duties as a member of the Board for a period of one
     hundred eight (180) consecutive days by reason of physical or mental
     illness or incapacity, or for periods of physical or mental illness or
     incapacity aggregating two hundred ten (210) days in any consecutive twelve
     (12) month period. A physical or mental disability shall be deemed to
     include the written direction by a physician that the Participant shall,
     for medical reasons, terminate or substantially reduce his services as a
     member of the Board. If there is any dispute as to whether the termination
     of the Participant's membership on the Board was due to his physical or
     mental illness or incapacity, such question shall be submitted to a
     licensed physician for the purpose of make such determination. An
     examination of the Participant shall be made within thirty (30) days after
     written notice by the Corporation or the Participant. The Participant shall
     submit to such examination and provide such information that such physician
     may request. The determination of such physician as to the question of the
     Participant's physical or mental condition shall be binding and conclusive
     on all parties concerned for purposes of this Agreement. A Disability shall
     be deemed to be continuing unless the Participant performs his regular
     duties as a member of the Board for a continuous period of three (3)
     months. For the purposes hereof, the date of Disability shall be the
     earlier of either (i) the date the Corporation and the Participant agree
     that the Participant is disabled or (ii) the expiration of the 180 or 210
     day period, as applicable.

          (b) The term "Cause" shall be defined as the Participant's termination
     as a member of the Board upon the commission of any of the following:

               (i) The continued failure of the Participant to substantially
          perform his duties as a member of the Board (other than by reason of
          illness or Disability) after a demand for performance is delivered to
          the Participant that specifically identifies the manner in which the
          Corporation believes the Participant has failed to perform his duties,
          and the Participant fails to resume substantial performance of his
          duties within thirty (30) days of receiving such demand.

                                        4

<PAGE>

               (ii) Use of alcohol or drugs by the Participant in such a manner
          as to interfere with the performance of the Participant's duties for
          the Corporation.

               (iii) Willful conduct by the Participant which is demonstrably
          and materially injurious to the Corporation, monetarily or otherwise.

               (iv) Conviction of the Participant of a felony or misdemeanor
          which, in the reasonable judgment of the Board, is likely to have a
          material adverse effect upon the business or reputation of the
          Participant or the Corporation, or which substantially impairs the
          Participant's ability to perform his duties for the Corporation.

               (v) Breach by the Participant of any agreement with the
          Corporation concerning noncompetition or the confidentiality of trade
          secrets or proprietary or other information.

     9.3 Other Termination. In the case of a Participant where membership on the
Board is terminated for any reason other than as set forth in Paragraph 9.2,
above, each Option which has not vested in accordance with the provisions of
Article X hereof shall be immediately forfeited.

     9.4 Reallocation. Any Options forfeited pursuant to the provisions of this
Article IX shall be reallocated to the remaining Participants pursuant to the
formula contained in Article VI hereof.

                                    ARTICLE X

                                     Vesting

     10.1 Limitation. Except as specifically provided in Paragraph 9.2, each
Option granted under this Plan may be exercised only while a Participant is a
member of the Board.

     10.2 Vesting. Each Option granted shall not be considered earned, vested or
exercisable as of the date of such grant. Unless otherwise vested earlier or
terminated pursuant to the provisions of the Plan, on January 2, 1999, and on
the ensuing four (4) anniversaries of such date, twenty percent (20%) of the
shares of Common Stock awarded pursuant to an Option shall become vested.

     10.3 Earlier Vesting. Notwithstanding the provisions of Paragraph 10.2.,
shares subject to an Option granted hereunder shall vest as follows:

          10.3.1 Private Placement. Twenty percent (20%) of the shares subject
     to an Option granted hereunder will be deemed fully vested upon the
     Corporation successfully entering into a private placement of its Common
     Stock to an Unrelated Purchaser (defined below) in one transaction or a
     series of transactions, which private placement results in proceeds to the
     Corporation of not less than Five Million Dollars ($5,000,000).

                                        5

<PAGE>

          10.3.2 Sale of the Corporation. Twenty percent (20%) of the shares
     subject to an Option granted hereunder will be deemed fully vested upon the
     Sale of the Corporation to an Unrelated Purchaser (as hereinafter defined).
     "Sale of the Corporation" shall mean (i) a real to an Unrelated Purchases
     or Purchasers of more than fifty percent (50%) of all the outstanding
     shares of the Corporation's voting capital stock in a single transaction or
     in a series of related transactions, or (ii) a sale to an Unrelated
     Purchaser or Purchasers of substantially all of the assets of the
     Corporation in a single transaction or a series of related transactions.
     For purposes hereof, an "Unrelated Purchaser" shall be defined as any
     individual or entity other than, a shareholder of the spouse or issue of a
     shareholders of the Corporation, a corporation or other business enterprise
     in which the Corporation owns at least a majority of the outstanding shares
     entitled to vote for the Board of Directors, or in the case of a
     partnership or other unincorporated business, at least a majority of the
     capital interest in such enterprise or the right to receive at least a
     majority of the profits of such enterprise, or any corporation or other
     business enterprise which controls or is controlled by an entity which is
     under common control with any person or entity described in the preceding
     clauses.

          10.3.3. Termination of Board Membership. Twenty percent (20%) of the
     shares subject to an Option granted hereunder will be deemed fully vested
     if the Participant's membership on the Board is terminated by reason of
     death, Disability, by the Board or the shareholders without Cause or
     voluntarily by the Participant at the request of the Board or voluntarily
     after the Participant has attained age sixty-five (65).

                                   ARTICLE XI

                         Adjustments - Change in Shares

     In the event that the outstanding shares of Common Stock of the Corporation
are hereafter increased or decreased, or changed into or exchanged for a
different number or kind of shares or other securities of the Corporation or of
another corporation, by reason of a recapitalization, reclassification, merger,
or consolidation in which the Corporation is the surviving parent corporation,
stock split, reverse stock split, combination of shares, or dividend or other
distribution payable in capital stock, appropriate adjustment shall be made by
the Board in the number and kind of shares for which Options may be granted
under the Plan. In addition, the Board shall make appropriate adjustment in the
number and kind of shares as to which outstanding and unexercised Options shall
be exercisable, to the end that the proportionate interest of the holder of the
Option shall, to the extent practicable, be maintained as before the occurrence
of such event. Such adjustment in outstanding Options shall be made without
change in the total price applicable to the unexercised portion of the Option
but with a corresponding adjustment to the exercise price per share.

                                   ARTICLE XII

                           Transferability of Options

                                        6

<PAGE>

     An Option granted under the Plan may not be transferred except by will or
by laws of descent and distribution and, except as specifically set forth
herein, may be exercised during the lifetime of a Participant only by him or by
his guardian or legal representative. The Option and any rights and privileges
pertaining thereto shall not, except as described above, be transferred,
assigned, pledged or hypothecated by him in any way whether by operation of law
or otherwise and shall not be subject to execution, attachment or similar
process. Notwithstanding the foregoing, a Participant may, during his lifetime,
transfer an Option to a member or members of a group consisting of his issue or
a trust consisting of his issue created for the primary benefit of himself or
his issue (a "Permitted Transferee"), provided, however, that all provisions of
this Plan, including those relating to forfeiture, expiration and vesting of
options shall continue to apply to such Permitted Transferee and provided
further that any such Permitted Transferee shall agree to be bound by the terms
of this Plan by executing an acknowledgment substantially in the form of Exhibit
A hereto.

                                  ARTICLE XIII

                                Withholding Taxes

     Pursuant to applicable federal and state laws, the Corporation may be
required to collect withholding taxes upon the exercise of an Option granted
under the Plan. The Corporation may require, as a condition to the exercise of
an Option, that the Participant concurrently pay to the Corporation (either in
cash or, at the request of the Participant, but in the discretion of the Board
and subject to such rules and regulations as the Board may adopt from time to
time, in shares of the Corporation's Common Stock) the entire amount or a
portion of any taxes which the Corporation is required to withhold, in such
amount as the Board or the Corporation in its discretion may determine.

                                   ARTICLE XIV

                                 Administration

     14.1 The Board. The Board shall have the authority to establish, adopt or
revise such rules and regulations as it deems necessary or appropriate for
administration of the Plan, provided that such rules and regulations are not
inconsistent with the provisions or original intent of the Plan.

     14.2 Amendment or Discontinuance. The Board may, at any time, without the
approval of the stockholders of the Corporation, alter, amend, modify, suspend
or discontinue the Plan, but may not, without the consent of the Participant or
holder, make any alteration which would adversely affect an Option previously
granted under the Plan.

     14.3 Determinations of the Board. All determinations of the Board,
irrespective of their character or nature, but not limited to, all questions of
construction and interpretation of the Plan, shall be final, finding and
conclusive upon all parties.

                                        7

<PAGE>

     14.4 Advice of Counsel. The Corporation and the Board may each consult with
legal counsel with respect to their obligations and duties hereunder or with
respect to any action or proceeding or any other question of law and shall not
be liable for any action taken or omitted by it in good faith pursuant to the
advice of such counsel.

     14.5 Books and Records. The Secretary of the Corporation shall be
responsible for maintaining the books and records for the Plan. Such books and
records shall only be open for examination by a Participant or his duly
designated beneficiary.

     14.6 No Personal Liability. Neither the Board, any member thereof, the
Corporation or any other person who is acting on behalf of the Board, any member
thereof, or the Corporation shall be liable for any act or failure to act
hereunder except for gross negligence or fraud.

                                   ARTICLE XV

                 Certain Rights and Obligations of Participants

     Copies of Plan. Each Participant shall be entitled to receive a copy of the
Plan upon his designation as a Participant.

                                   ARTICLE XVI

                                 Indemnification

     Each person who is a member of the Board shall be indemnified and held
harmless by the Corporation against and for any loss, cost, liability or expense
that may be imposed upon him or reasonable incurred by him in connection with or
resulting from any claim, action, suit or proceeding to which he may be a party
or in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Corporation's approval, or paid by him in
satisfaction of any judgment in any such action, suit or proceeding against him,
provided that he shall give the Corporation an opportunity, at its own expense,
to handle and defend the same before he undertakes to handled and defend it on
his own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such person shall be entitled under
the Corporation's Articles of Incorporation or By-laws or as a matter of law or
otherwise or any power that the Corporation may have to indemnify him and hold
him harmless.

                                  ARTICLE XVII

                                  Miscellaneous

     17.1 Expenses. All expenses of administering the Plan shall be paid by the
Corporation, except as expressly provided herein to the contrary.

                                        8

<PAGE>

     17.2 Governing Law. The Plan shall be construed, administered and governed
in all respects under and by the applicable laws of the State of Wisconsin.

     17.3 Use of Words. Wherever the context so requires, words in the masculine
gender include the feminine and words in the feminine include the masculine, and
the definition of any terms in the singular may include the plural and the
plural may include the singular.

     17.4 Binding Effect. In consideration of the benefits conferred hereunder,
each Participant shall be conclusively presumed to have agreed to be bound by
all of the terms and conditions of the Plan as presently constituted and as it
may be amended from time to time.

     17.5 Independence of Plan. It is intended that the Plan be construed and
administered independent of any or all other employee benefit plans, fringe
benefit programs or compensation arrangements of the Corporation. Accordingly,
except as otherwise determined by the Board, neither the Plan nor any of the
benefits payable hereunder shall be construed, administered or considered so as
to have any effect on any existing or future pension, profit sharing, incentive
compensation or other employee benefit program or plan of the Corporation and no
such program or plan of the Corporation shall be construed or administered to
have any effect on the Plan.

                                        9

<PAGE>

                                    EXHIBIT A

                          ACKNOWLEDGMENT OF PARTICIPANT

     The undersigned hereby acknowledges receipt of notice that he has been
selected as a Participant in the 1998 Outside Director Stock Option Plan of ZBB
Energy Corporation. In connection therewith, the undersigned acknowledges that
he has received and reviewed a copy of the Plan, and he agrees to be bound by
the terms and conditions thereof.

     IN WITNESS WHEREOF, the undersigned has executed this Acknowledgment as of
the _____ Day of ___________, 1998.

                                        ----------------------------------------

                                       10

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