Document:

Exhibit  10.1 - Lease Amendment

                                                                     Exhibit 10.1    

                    
THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE AGREEMENT (the “Third Amendment”) is entered into as of the 20th day of December 2013, by and between Starboard Distribution Center, LLC, a Delaware limited liability company (“Landlord”), successor in interest to AMB Property, L.P., a Delaware limited partnership and Virco Mfg. Corporation, a Delaware corporation (“Tenant”).

W I T N E S S E T H:

WHEREAS, Landlord and Tenant are parties to a Standard Industrial/Commercial Single Lessee Lease - Net dated February 1, 2005 which includes an Addendum to American Industrial Real Estate Association Standard Industrial/Commercial Single Lessee Lease - Net and as amended by a First Amendment to Lease dated August 20, 2008 and a Second Amendment to Lease dated September 2, 2008, pursuant to which Landlord leased to Tenant certain premises consisting of approximately 559,000 square feet located at 2027 Harpers Way, Torrance, California 90501 (the “Premises”), such lease, as heretofore modified, being herein referred to as the “Lease”.

WHEREAS, Landlord and Tenant desire to modify the Lease on the terms and conditions set forth below.

A G R E E M E N T:

NOW THEREFORE, in consideration of the Premises and the mutual covenants hereinafter contained, the parties hereto agree as follows:

		
	1.
	The Lease Term is extended for sixty (60) months, such that the Lease shall terminate on February 29, 2020   (the “Third Extension Term”).  All of the terms and conditions of the Lease shall remain in full force and effect during such extension period except that the Monthly Base Rent shall be as follows:

	
				
	 
	Period
	 
	Monthly Base Rent

	March 1, 2015
	through
	March 31, 2015
	$0.00

	April 1, 2015
	through
	April 30, 2016
	$194,216.00

	May 1, 2016
	through
	February 28, 2017
	$318,909.30

	March 1, 2017
	through
	February 28, 2018
	$330,099.10

	March 1, 2018
	through
	February 28, 2019
	$341,288.90

	March 1, 2019
	through
	February 29, 2020
	$346,883.00

		
	2.
	Landlord, at Landlord’s sole cost and expense, shall complete the Third Amendment Improvements as set forth in Addendum 1 attached hereto and by reference incorporated herein. Except for the Third Amendment Improvements, Tenant accepts the Premises in its “as is” condition for the Third Extension Term with no warranties or representations.

		
	3.
	Landlord shall provide Tenant with One Renewal Option at Fair Market Value per the terms and conditions outlined in Addendum 2 attached to this Third Amendment and by reference incorporated herein.

		
	4.
	Notwithstanding anything to the contrary in the Lease, Landlord acknowledges Tenant intends to sublease all or part of the easterly 206,730 square foot portion of the Premises subject to the terms of the Lease.

		
	5.
	Except as otherwise expressly provided herein, all defined terms used in this Third Amendment shall have the same respective meanings as are provided for such defined terms in the Lease. Tenant shall accept the Premises in its “as is” condition and shall pay Operating Expenses as provided in the Lease during the Third Extension Term.

		
	6.
	The notice addresses for Landlord and Tenant during the Lease Term, as extended, shall be as follows:

Landlord:        Starboard Distribution Center, LLC

c/o Prologis
17777 Center Court Drive North, Suite 100
Cerritos, California 90703

 With a copy to:    Prologis
4545 Airport Way
Denver, Colorado 80239
Attention: General Counsel

Tenant:        Virco Mfg. Corporation
2027 Harpers Way
Torrance, California 90501
Attention: Robert Dose

		
	7.
	In order to comply with California law, within fifteen (15) days of Landlord’s written request, Tenant agrees to deliver to Landlord such information and/or documents as Landlord requires for Landlord to comply with California Public Resources Code Section 25402.10, or successor statute(s), and California Energy Commission adopted regulations set forth in California Code of Regulations, Title 20, Division 2, Chapter 4, Article 9, Sections 1680-1685, and successor and related California Code of Regulations, relating to commercial building energy ratings. Landlord makes the following statement based on Landlord’s actual knowledge in order to comply with California Civil Code Section 1938: The Building and Premises have not undergone an inspection by a Certified Access Specialist (CASp).

		
	8.
	Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than David Prior and Todd Taugner of The Klabin Company, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction.

		
	9.
	Insofar as the specific terms and provisions of this Third Amendment purport to amend or modify or are in conflict with the specific terms, provisions and exhibits of the Lease, the terms and provisions of this Third Amendment shall govern and control; in all other respects, the terms, provisions and exhibits of the Lease shall remain unmodified and in full force and effect.  

		
	10.
	Landlord and Tenant hereby agree that (i) this Third Amendment is incorporated into and made a part of the Lease, (ii) any and all references to the Lease hereinafter shall include this Third Amendment, and (iii) the Lease and all terms, conditions and provisions of the Lease are in full force and effect as of the date hereof, except as expressly modified and amended hereinabove.

		
	11.
	Any obligation or liability whatsoever of Prologis, a Maryland real estate investment trust, which may arise at any time under this Lease or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction, or undertaking contemplated hereby shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise.

IN WITNESS WHEREOF, the parties hereto have signed this Third Amendment as of the day and year first above written.

TENANT:                        LANDLORD:

	
		
	VIRCO MFG CORPORATION
a Delaware corporation
	STARBOARD DISTRIBUTION CENTER, LLC
a Delaware limited liability company

By:Authorized Person

	By:__/s/ Robert E. Dose__________________________
Name:___Robert E. Dose__________________________ 
Title:__VP Finance______________________________ 
	____/s/  Douglas P. McGregor______________________
Douglas P. McGregor, Senior Vice President of Prologis, Inc., a Maryland corporation

                            

ADDENDUM 1

CONSTRUCTION
(TURNKEY)

ATTACHED TO AND A PART OF THE THIRD AMENDMENT TO LEASE
DATED December 20, 2013, BETWEEN

Starboard Distribution Center, LLC
and
Virco Mfg. Corporation

(a)    At Tenant’s option and notice to commence given in writing to Landlord, Landlord agrees to furnish or perform at Landlord's sole cost and expense those items of construction and those improvements (the "Third Amendment Improvements") specified below:

		
	•
	Demolish the “grinding room” which is located along the outside wall of the western end of north wall.

		
	•
	Create dock high loading, with pit type load levelers, along the wall which will be subject to mutual agreement on final plans and timing.

(b)    If Tenant shall desire any changes beyond what is described above, Tenant shall so advise Landlord in writing and Landlord shall determine whether such changes can be made in a reasonable and feasible manner.  Any and all costs of reviewing any requested changes, and any and all costs of making any changes to the Third Amendment Improvements which Tenant may request and which Landlord may agree to shall be at Tenant's sole cost and expense and shall be paid to Landlord upon demand and before execution of the change order.

(c)    Landlord shall proceed with and complete the construction of the Third Amendment Improvements.  As soon as such improvements have been Substantially Completed, Landlord shall notify Tenant in writing of the date that the Third Amendment Improvements were Substantially Completed.  The Third Amendment Improvements shall be deemed substantially completed ("Substantially Completed") when, in the opinion of the construction manager (whether an employee or agent of Landlord or a third party construction manager) ("Construction Manager"), the Third Amendment Improvements are substantially completed except for punch list items which do not prevent in any material way the use of the Third Amendment Improvements for the purposes for which they were intended.  In the event Tenant, its employees, agents, or contractors cause construction of such improvements to be delayed, the date of Substantial Completion shall be deemed to be the date that, in the opinion of the Construction Manager, Substantial Completion would have occurred if such delays had not taken place.  Without limiting the foregoing, Tenant shall be solely responsible for delays caused by Tenant's request for any changes in the plans, Tenant's request for long lead items or Tenant's interference with the construction of the Third Amendment Improvements, and such delays shall not cause a deferral of the Commencement Date beyond what it otherwise would have been.  After the date the Third Amendment Improvements are Substantially Complete Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Third Amendment Improvements.  In the event of any dispute as to the Third Amendment Improvements the certificate of the Construction Manager shall be conclusive absent manifest error.

(d)    Subject to applicable ordinances and building codes governing Tenant's right to occupy or perform in the Premises, Tenant shall be allowed to install its tenant improvements, machinery, equipment, fixtures, or other property on the Premises during the final stages of completion of construction provided that Tenant does not thereby interfere with the completion of construction or cause any labor dispute as a result of such installations, and provided further that Tenant does hereby agree to indemnify, defend, and hold Landlord harmless from any loss or damage to such property, and all liability, loss, or damage arising from any injury to the Project or the property of Landlord, its contractors, subcontractors, or materialmen, and any death or personal injury to any person or persons arising out of such installations, unless any such loss, damage, liability, death, or personal injury was caused by Landlord's negligence.  Delay in completing the Third Amendment Improvements shall not serve to extend the term of this Lease or to make Landlord liable for any damages arising therefrom.

ADDENDUM 2

ONE RENEWAL OPTION AT MARKET

ATTACHED TO AND A PART OF THE THIRD AMENDMENT TO LEASE 
DATED December 20, 2013, BETWEEN
    
Starboard Distribution Center, LLC
and
Virco Mfg. Corporation

(a)    Provided that as of the time of the giving of the Extension Notice and the Commencement Date of the Extension Term, (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies approximately 325,000 square feet of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists or would exist but for the passage of time or the giving of notice, or both; then Tenant shall have the right to extend the Lease Term  for the entire Premises for an additional term of five (5) years (such additional term is hereinafter called the "Extension Term") commencing on the day following the expiration of the Lease Term (hereinafter referred to as the "Commencement Date of the Extension Term").  Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the term of the Lease Term at least ten (10) months, but not more than twelve (12) months, prior to the scheduled expiration date of the Lease Term.  

(b)    The Base Rent payable by Tenant to Landlord during the Extension Term shall be the greater of (i) the Base Rent applicable to the last year of the initial Lease Term and (ii) the then prevailing market rate for comparable space in the Project and comparable buildings in the vicinity of the Project, taking into account the size of the Lease, the length of the renewal term, market escalations and the credit of Tenant.  The Base Rent shall not be reduced by reason of any costs or expenses saved by Landlord by reason of Landlord's not having to find a new tenant for such premises (including, without limitation, brokerage commissions, costs of improvements, rent concessions or lost rental income during any vacancy period).  In the event Landlord and Tenant fail to reach an agreement on such rental rate and execute the Amendment (defined below) at least ten (10) months prior to the expiration of the Lease, then Tenant's exercise of the renewal option shall be deemed withdrawn and the Lease shall terminate on its original expiration date.

(c)    The determination of Base Rent does not reduce the Tenant's obligation to pay or reimburse Landlord for Operating Expenses and other reimbursable items as set forth in the Lease, and Tenant shall reimburse and pay Landlord as set forth in the Lease with respect to such Operating Expenses and other items with respect to the Premises during the Extension Term without regard to any cap on such expenses set forth in the Lease.

(d)    Except for the Base Rent as determined above, Tenant's occupancy of the Premises during the Extension Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term; provided, however, Tenant shall have no further right to any allowances, credits or abatements or any options to expand, contract, renew or extend the Lease. 

(e)    If Tenant does not give the Extension Notice within the period set forth in paragraph (a) above, Tenant's right to extend the Lease Term shall automatically terminate.  Time is of the essence as to the giving of the Extension Notice.  

(f)    Landlord shall have no obligation to refurbish or otherwise improve the Premises for the Extension Term.  The Premises shall be tendered on the Commencement Date of the Extension Term in "as-is" condition.  

(g)    If the Lease is extended for the Extension Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto (the "Amendment").

(h)    If Tenant exercises its right to extend the term of the Lease for the Extension Term pursuant to this Addendum, the term  "Lease Term" as used in the Lease, shall be construed to include, when practicable, the Extension Term except as provided in (d) above.Exhibit 10.26 BusineessLoanAgreement dated December 19, 2013

BUSINESS LOAN AGREEMENT
	
								
	Principal
	Loan Date
	Maturity
	Loan No
	Call / Coll
	Account
	Officer
	Initials

	$2,500,000
	12-19-2013
	04-01-2015
	 
	 
	 
	JMW
	 

	References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations

	
				
	Borrower:
	American Power Group, Inc.
	Lender:
	Iowa State Bank

	 
	2503 East Poplar
	 
	Main Office

	 
	Algona, IA  50511
	 
	5 E Call St

	 
	 
	 
	Algona, IA  50511

THIS BUSINESS LOAN AGREEMENT dated December 19, 2013, is made and executed between American Power Group, Inc. (“Borrower”) and Iowa State Bank (“Lender”) on the following terms and conditions.  Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement.  Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in the Agreement; (B) the granting, renewing, or extending of any loan by Lender at all times shall e subject to Lender’s sole judgment and discretion; and (c) all such loans shall be and remain subject to the terms and conditions of this agreement.
TERM:  The Agreement shall be effective as of December 19, 2013, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorney’s fees, and other fees and charges, or until April 1, 2015.
ADVANCE AUTHORITY.  The following person or persons are authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender’s address shown above, written notice of revocation of such authority:  Upon request by the borrower and with the approval of the lender.  Such advances are not to be made for capital purchases.
CONDITIONS PRECEDENT  TO EACH ADVANCE.  Lender's obligation to  make the  initial  Advance and each subsequent Advance under this Agreement shall be subject  to  the fulfillment to  Lender's satisfaction of  all of  the  conditions set forth  in this  Agreement and in the  Related Documents.  

Loan Documents.  Borrower shall  provide  to  Lender the  following documents for  the  Loan:   (1)   the  Note;    (2)   together  with  all such
Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.
Borrower's Authorization.  Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties.  The representations and warranties set forth  in this  Agreement, in the  Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default.   There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of Borrower's state of incorporation. Borrower is duly authorized to transact  business in all other states  in which  Borrower is doing  business, having  obtained all necessary filings,  governmental licenses  and  approvals for  each state  in  which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states  in which the  failure  to  so qualify  would  have a material  adverse effect  on  its  business or financial  condition.   Borrower has the full power and authority to own  its  properties and to transact  the business in which  it  is presently engaged or presently proposes to engage.   Borrower maintains an office at 2503  East Poplar, Algona,  IA   5051 1.   Unless Borrower has designated otherwise in writing, the principal office is the office  at which  Borrower keeps its books and records including its records concerning the Collateral.  Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name.  Borrower shall do all things necessary to preserve and to  keep in full force  and effect  its existence, rights and privileges, and shall comply  with  all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court  applicable to Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower.  Excluding the name of Borrower, the following is a complete list of all assumed business names under which  Borrower does business: None.
Authorization.    Borrower's execution, delivery,   and  performance of  this  Agreement and  all  the  Related  Documents have  been  duly authorized by all necessary action  by Borrower and do not  conflict  with,  result  in a violation  of,  or constitute a default  under   (1)   any provision of   (a)  Borrower's articles of  incorporation or organization, or bylaws,  or   (b)   any agreement or other instrument binding upon Borrower or  (2)  any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.
Financial Information.   Each of  Borrower's financial  statements supplied to  Lender truly  and completely disclosed Borrower's financial condition as of the date of the statement, and there  has been no material  adverse change in Borrower's financial  condition subsequent to the date of the most recent financial  statement supplied to Lender.   Borrower has no material contingent obligations except  as disclosed in such financial statements.
Legal Effect.    This Agreement constitutes, and any instrument or agreement Borrower is required  to  give  under this  Agreement when delivered will  constitute legal, valid, and binding obligations of  Borrower enforceable against Borrower in accordance with  their respective terms.
Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial  statements or in writing  to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns  and has good title  to all of Borrower's properties free and clear of all Security  Interests, and has not executed any security  documents or financing statements relating to such properties. All of Borrower's properties are titled  in Borrower's legal name, and Borrower has not 
used or filed a financing statement under any other name for at least the last five  (5) years.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing,  Borrower represents and warrants that:   (1)  During the period of Borrower's ownership of the Collateral ,there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of  any Hazardous Substance by any person on, under, about  or from  any of the  Collateral.  (2)   Borrower has no knowledge of,  or reason to believe that there  has been   (a)  any breach or violation  of any Environmental Laws;  (b)  any use, generation, manufacture, storage,  treatment, disposal, release or  threatened release of  any  Hazardous Substance on,  under,  about  or  from  the Collateral by any prior owners or occupants of any of the Collateral; or  (c)  any actual or threatened litigation  or claims of any kind by any person relating to such matters.    (3)   Neither Borrower nor any tenant,  contractor, agent or other authorized user of any of the  Collateral shall  use,  generate, manufacture, store,  treat,  dispose  of  or  release  any  Hazardous Substance on,  under,  about  or from  any of  the Collateral; and  any  such  activity   shall  be  conducted in  compliance with   all  applicable federal,  state,  and  local  laws,  regulations, and ordinances, including without  limitation all Environmental Laws.  Borrower authorizes Lender and its agents to  enter upon the Collateral to make  such  inspections and  tests  as  Lender  may deem  appropriate to  determine compliance of  the  Collateral with  this  section  of  the Agreement.  Any  inspections or tests  made by  Lender shall  be at  Borrower's expense and for  Lender's purposes only  and shall not  be construed to create  any  responsibility or liability  on  the  part  of  Lender to  Borrower or to  any other  person.   The representations and warranties contained herein are based  on  Borrower's due  diligence in  investigating the  Collateral for  hazardous waste  and  Hazardous Substances.  Borrower hereby    (1)    releases and waives  any future  claims  against  Lender for  indemnity or  contribution in  the  event Borrower becomes liable for cleanup or other costs under any such laws,  and  (2)  agrees to indemnify, defend, and hold harmless Lender against  any and all claims,  losses, liabilities, damages, penalties, and expenses which  Lender may directly  or

1

BUSINESS LOAN AGREEMENT
(Continued)

indirectly sustain  or suffer resulting from  a breach of  this  section  of  the  Agreement or as a consequence of  any use, generation, manufacture, storage,  disposal, release or threatened release of  a hazardous waste  or  substance on the  Collateral.  The provisions of this  section  of  the  Agreement, including the  obligation to  indemnify and  defend, shall  survive  the  payment of  the  Indebtedness and  the  termination, expiration or satisfaction of  this  Agreement and shall  not  be affected by  Lender's acquisition of  any interest  in  any  of  the  Collateral, whether by foreclosure or otherwise.
Litigation and Claims.  No litigation, claim,  investigation, administrative proceeding or similar  action  (including those  for  unpaid taxes) against  Borrower is pending or threatened, and no other  event  has occurred which  may materially adversely affect  Borrower's financial condition or properties, other  than  litigation, claims,  or other  events,  if  any, that  have been disclosed to  and acknowledged by Lender in writing.
Taxes.   To the best of  Borrower's knowledge, all of  Borrower's tax  returns  and reports  that  are or were  required to  be filed,  have been filed, and all taxes,  assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which  adequate reserves have been provided.

Lien  Priority.    Unless  otherwise previously disclosed to   Lender  in  writing,   Borrower has  not  entered into  or  granted any  Security Agreements, or permitted the  filing  or attachment of  any Security Interests on or  affecting any  of  the  Collateral directly  or indirectly securing repayment of Borrower's Loan and Note, that would  be prior or that may in any way  be superior to Lender's Security Interests and rights in and to such Collateral.
Binding Effect.    This Agreement, the  Note,  all Security Agreements (if  any),  and all  Related Documents are binding  upon the  signers thereof, as well  as upon their  successors, representatives and assigns, and  are legally  enforceable in accordance with  their  respective terms.

AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will: 
Notices of Claims and Litigation.  Promptly inform Lender in writing of   (1)   all material adverse changes in Borrower’s financial condition ,and  (2)   all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.
Financial Statements.  Furnish Lender with the following:
Annual  Statements.  As  soon as available, but  in no event  later than  thirty  (30)  days after  the end of  each  fiscal year,  Borrower's balance sheet and income statement for the year ended, prepared by Borrower.

Interim Statements. As soon as available ,but in no event later than thirty  (30) days after the end of each month,  Borrower's balance sheet and profit  and loss statement for the period ended, prepared by Borrower.

Tax Returns. As soon as available ,but in no event later than thirty  (30) days after the applicable filing date for the tax reporting period ended, Borrower's Federal and other governmental tax returns, prepared by a certified public accountant satisfactory to Lender.
Additional Requirements. See Commitment letter dated December17, 2013.
All  financial reports  required to  be provided under this  Agreement shall be prepared in accordance with  GAAP,  applied on a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time. 
Additional Requirements. See Commitment letter dated December17, 2013, for financial covenants. 
Insurance. Maintain fire and other risk insurance, public liability  insurance, and such other insurance as Lender may require with  respect to Borrower's properties and operations, in form,  amounts, coverage’s and with  insurance companies acceptable to Lender. Borrower, upon request of Lender ,will deliver to Lender from time to  time the policies or certificates of insurance in form  satisfactory to  Lender, including stipulations that coverage’s  will not be cancelled or diminished without at least ten (10) days prior written  notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor  of Lender will not be impaired in any way  by any act, omission or default  of  Borrower or any other  person.  In connection with  all policies  covering assets  in which  Lender holds  or is offered  a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements  as Lender may require.
Insurance Reports.  Furnish to  Lender, upon request of  Lender, reports  on each existing insurance policy  showing such  information as Lender may reasonably request, including without  limitation the following:  (1)   the  name of the insurer;  (2)   the risks insured;  (3)   the amount of the policy;   (4)  the properties insured; (5)  the then current property values on the basis of which  insurance has been obtained, and the manner of determining those values; and  (6)  the expiration date of the policy.   In addition, upon request of Lender (however not more often  than  annually), Borrower will  have an independent appraiser satisfactory to  Lender determine, as applicable, the actual  cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
Other Agreements.  Comply with  all terms and conditions of all other  agreements, whether now  or hereafter existing, between Borrower and any other party and notify  Lender immediately in writing  of any default in connection with  any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.

Taxes, Charges and Liens.  Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits,  prior to the date on which  penalties would  attach,  and all lawful  claims that,  if unpaid, might  become a lien or charge upon any of  Borrower's properties, income, or profits.    Provided however, Borrower will  not be required to pay and discharge any such assessment ,tax, charge, levy, lien or claim so long as  (1)  the legality of the same shall be contested in good faith  by appropriate proceedings, and  (2)   Borrower shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance. Perform and comply, in a timely manner, with  all terms,  conditions, and provisions set forth  in this Agreement, in the Related Documents, and in all other  instruments and  agreements between Borrower and  Lender.  Borrower shall notify Lender
immediately in writing of any default in connection with  any agreement.
Operations.  Maintain executive and management personnel with   substantially the same qualifications and experience as  the  present executive and management personnel; provide written  notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.
Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings’ as may be requested by Lender or any governmental authority relative to any substance, or any waste  or by-product of any substance defined as toxic  or a hazardous substance under applicable federal, state,  or local  law,  rule,  regulation, order or directive, at  or affecting any property or any facility  owned,  leased or used by Borrower.
Compliance with Governmental Requirements.  Comply with   all  laws,  ordinances, and  regulations, now  or  hereafter in  effect,   of  all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without  limitation, the Americans With  Disabilities Act.   Borrower may contest  in good faith  any such law,  ordinance, or regulation and withhold compliance during  any proceeding, including appropriate appeals, so long as Borrower has notified  Lender in writing  prior  to  doing  so and so long as,  in Lender's sole opinion, Lender's interests in the  Collateral are not jeopardized.  Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect  Lender's interest.
Inspection.  Permit employees or  agents of  Lender at  any reasonable time to  inspect  any and all  Collateral for the  Loan or Loans and Borrower's other  properties and to  examine or audit  Borrower's books,  accounts, and records and to  make copies  and memoranda of Borrower's books,  accounts, and records.  If  Borrower now  or at any time  hereafter maintains any records (including without  limitation computer generated records and  computer software programs for  the  generation of  such  records) in the  possession of  a third  party, Borrower, upon request of  Lender, shall  notify  such  party  to  permit  Lender free access  to  such  records at  all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.
Environmental Compliance and Reports. Borrower shall comply in all respects with  any and all Environmental  Laws; not cause or permit to exist,  as a result  of  an intentional or unintentional action  or omission on  Borrower's part  or on the  part  of  any third  party,  on property owned  and/or occupied by Borrower, any environmental activity where  damage may result to the environment, unless such environmental activity  is pursuant to  and in compliance with  the conditions of  a permit  issued by the  appropriate federal, state  or local governmental authorities; shall

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BUSINESS LOAN AGREEMENT
(Continued)

furnish  to Lender promptly and in any event within  thirty  (30) days after  receipt thereof  a copy of any notice,  summons, lien,  citation, directive, letter  or  other  communication from  any  governmental agency  or  instrumentality concerning any  intentional or unintentional action  or omission on Borrower's part in connection with  any environmental activity whether or not there  is damage to the environment and/or other natural resources.
Additional Assurances.   Make,  execute  and deliver  to  Lender such  promissory notes,  mortgages, deeds  of  trust,  security  agreements, assignments, financing  statements, instruments, documents and other  agreements as Lender or its  attorneys  may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
LENDER'SEXPENDITURES. If  any  action  or  proceeding is commenced that  would  materially affect  Lender's  interest  in the  Collateral or if Borrower  fails  to  comply  with   any provision  of this  Agreement or any Related Documents, including  but  not  limited  to  Borrower's failure  to discharge or pay when due any amounts  Borrower  is required to discharge or pay under this  Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that  Lender deems appropriate, including  but not limited to discharging or paying all taxes,  liens, security  interests,  encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs tor insuring,  maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest  at the rate charged under the Note from the date incurred or paid by Lender to  the date of repayment by Borrower. All such expenses will become a part  of  the  Indebtedness and,  at  Lender's  option,  will    (A)   be payable on  demand;    (B)   be added to  the  balance of  the  Note  and be apportioned among and be payable with  any installment payments to become due during either  (1)  the term of any applicable insurance policy; or  (2)  the remaining term of the Note; or  (C)  be treated as a balloon payment which  will be due and payable at the Note's  maturity.
CESSATION OF ADVANCES. If Lender has made any commitment to  make any Loan to Borrower, whether  under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if:   (A)  Borrower  or any Guarantor is in default  under the terms  of this Agreement or any of the Related Documents or any other  agreement that  Borrower or any Guarantor has with Lender;   (B)  Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition  in bankruptcy or similar proceedings, or is  adjudged a bankrupt;   (C)   there  occurs  a material  adverse change  in  Borrower's financial  condition, in the  financial  condition  of  any Guarantor, or in the value of any Collateral securing any Loan; or   (D)   any Guarantor seeks, claims or otherwise attempts  to  limit,  modify  or revoke such Guarantor's guaranty of the Loan or any other loan with  Lender; or  (E)  Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.
RIGHTOF SETOFF. To the extent permitted by applicable law,  Lender reserves a right of setoff  in all Borrower's accounts with  Lender (whether checking, savings, or some other account).   This includes all accounts  Borrower holds jointly  with  someone else and all accounts  Borrower may open in the future.   However, this does not include any IRA or Keogh accounts, or any trust  accounts  for which  setoff  would  be prohibited by law.   Borrower authorizes Lender, to the extent permitted by applicable law,  to charge or setoff  all sums owing on the debt against any and all such accounts.

DEFAULT. Each of the following  shall constitute an Event of Default under this Agreement: 

Payment Default.  Borrower fails to make any payment when due under the Loan.
Other Defaults.   Borrower  fails to comply with  or to perform  any other term,  obligation, covenant or condition  contained in this  Agreement or in any of the  Related Documents or to  comply  with  or to  perform  any term,  obligation, covenant  or condition  contained in any other agreement between Lender and Borrower.
Default in Favor of Third  Parties.   Borrower  or any Grantor defaults  under any loan, extension of credit,  security  agreement, purchase or sales agreement, or any other  agreement, in favor  of  any other  creditor  or person that  may  materially affect  any of  Borrower's or any Grantor's  property  or Borrower's or any Grantor's  ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
False Statements.  Any warranty,  representation or statement made or furnished  to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver  for  any  part  of  Borrower's  property,   any  assignment for  the  benefit   of  creditors,   any  type  of  creditor   workout,   or  the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect  (including failure of any collateral document to create a valid and perfected security  interest or lien) at any time and for any reason.
Creditor  or Forfeiture Proceedings.  Commencement of  foreclosure or forfeiture   proceedings, whether  by judicial  proceeding, self-help, repossession or any other method,  by any creditor  of  Borrower  or by any governmental agency against any collateral  securing the  Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender.   However, this  Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity  or reasonableness of the claim which  is the basis of the creditor  or forfeiture  proceeding and if Borrower gives Lender written  notice of the creditor  or forfeiture  proceeding and deposits with  Lender monies or a surety  bond for  the creditor  or forfeiture  proceeding, in an amount  determined by  Lender, in its  sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting   Guarantor.   Any  of  the  preceding events  occurs  with   respect  to  any  Guarantor of  any of  the  Indebtedness or  any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
Change in Ownership .Any change in ownership of twenty-five percent (25%) or more of the common stock of borrower.
Adverse  Change.   A  material  adverse  change occurs  in  Borrower's financial  condition, or  Lender believes  the  prospect  of  payment  or performance of the Loan is impaired.
Insecurity.  Lender in good faith believes itself insecure.

EFFECTOF AN  EVENTOF DEFAULT. If any Event of  Default shall occur,  except  where  otherwise provided in this  Agreement or the  Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further  Loan Advances or disbursements),and, at Lender's option,  all Indebtedness immediately will become due and payable, all without  notice of any kind to Borrower, except that  in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional.   In addition,  Lender shall have all the rights and remedies provided  in the Related Documents or available at law,  in equity,  or otherwise.  Except as may be prohibited by applicable law,  all of  Lender's rights  and remedies shall be cumulative and may be exercised singularly  or concurrently.  Election by  Lender to  pursue any remedy shall not exclude  pursuit  of any other remedy,  and an election  to  make expenditures or to take  action  to  perform  an obligation of  Borrower  or of  any Grantor shall not affect  Lender's right to declare a default  and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of this Agreement.
Amendments.  This Agreement, together  with  any Related Documents, constitutes the entire  understanding and agreement of the  parties as to the matters  set forth  in this Agreement.  No alteration  of or amendment to this Agreement shall be effective  unless given in writing and signed by the party or parties sought to be charged or bound by the alteration  or amendment.
Attorneys'  Fees; Expenses. Borrower  agrees to pay upon demand all of  Lender's  costs  and expenses, including  Lender's attorneys' fees and Lender's legal expenses, incurred in connection with  the enforcement of this Agreement.  Lender may hire or pay someone else to help enforce  this  Agreement, and  Borrower  shall  pay the  costs  and expenses of  such  enforcement.   Costs  and expenses include  Lender's attorneys'  fees  and  legal  expenses whether   or  not  there  is  a  lawsuit,   including  attorneys'  fees  and  legal  expenses for  bankruptcy proceedings (including efforts  to modify  or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services.   Borrower also shall pay all court  costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret  or define the provisions of this Agreement.
Consent  to  Loan  Participation.   Borrower  agrees and  consents  to  Lender's  sale  or  transfer,   whether   now  or  later,  of  one  or  more participation interests  in the Loan to one or more purchasers, whether  related or unrelated to  Lender.   Lender may provide,  without  any limitation  whatsoever, to  anyone    or more  purchasers, or potential  purchasers, any  information or knowledge Lender may  have  about Borrower or about any other matter  relating to the Loan, and Borrower hereby waives  any rights to privacy Borrower may have with  respect to such matters.   Borrower  additionally waives  any and all notices of sale of participation interests,  as well as all notices of any repurchase of  such  participation interests.    Borrower  also agrees that  the  purchasers of  any such  participation interests  will  be considered as the absolute  owners  of  such  interests  in the  Loan and will  have  all the  rights  granted  under  the  participation agreement or  agreements governing the sale of such participation interests.   Borrower further  waives all rights of offset  or counterclaim that it may have now or later 

3

BUSINESS LOAN AGREEMENT
(Continued)

against Lender or  against any purchaser of such a participation interest  and unconditionally agrees that either Lender or  such purchaser may enforce  Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest  in the  Loan.  Borrower further   agrees that  the  purchaser of  any  such  participation interests  may  enforce  its  interests  irrespective of  any  personal  claims  or defenses that  Borrower may have against Lender.
Governing Law.  This Agreement will  be governed by federal law applicable to Lender and. to the extent not preempted by federal law. The laws  of the State of Iowa without  regard to  its conflicts  of law  provisions.  This Agreement has been accepted by Lender in the State  of Iowa.
No Waiver by Lender.   Lender shall not be deemed to have waived  any rights  under this Agreement unless such waiver  is given in writing and signed by Lender.   No delay or omission on the  part of  Lender in exercising any right  shall operate as a waiver  of  such right  or any other  right.   A waiver  by Lender of a provision of this  Agreement shall not prejudice or constitute a waiver  of Lender's right otherwise to demand strict  compliance with  that  provision or any other  provision of  this  Agreement.  No prior  waiver  by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver  of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions.  Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld  in the sole discretion of Lender.
Notices.   Any  notice  required to  be given under this  Agreement shall be given in writing,  and shall be effective when  actually  delivered, when  actually  received by telefacsimile  (unless otherwise required by law),  when deposited with  a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first  class, certified  or registered mail postage prepaid, directed to the addresses shown  near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice  to the  other  parties,  specifying that  the  purpose of  the  notice  is to  change the  party's  address.  For notice  purposes, Borrower agrees to keep Lender informed at all times of Borrower's current  address. Unless otherwise provided or required by law,  if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
Severability.  If a court  of competent jurisdiction finds  any provision of this  Agreement to  be illegal,  invalid,  or unenforceable as to  any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance.  If feasible, the offending provision shall be considered modified so that  it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Subsidiaries and Affiliates of  Borrower.  To the  extent  the  context  of  any provisions of this  Agreement makes  it  appropriate, including without  limitation any representation, warranty or covenant, the word"  Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates.  Notwithstanding the  foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or  other financial accommodation to any of Borrower's subsidiaries or affiliates.
Successors and  Assigns.     All  covenants and  agreements by  or  on  behalf  of  Borrower contained in  this  Agreement or  any  Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns.  Borrower shall  not,  however, have  the  right  to  assign  Borrower's rights  under this  Agreement or any  interest  therein,  without   the  prior  written consent of Lender.
Survival of Representations and Warranties.  Borrower understands and agrees that  in extending Loan Advances, Lender is relying  on all representations, warranties, and covenants made by  Borrower in this  Agreement or in any certificate or other  instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further  agrees that regardless of any investigation made by Lender, all such  representations, warranties and covenants will  survive  the  extension of  Loan Advances and delivery  to  Lender of  the Related Documents ,shall be continuing in nature, shall be deemed made  and re-dated by Borrower at the time each Loan Advance is made, and shall remain in full  force  and effect  until such time  as Borrower's Indebtedness shall be paid in full,  or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence.  Time is of the essence in the performance of this Agreement.
Waive Jury.   All parties to this Agreement hereby waive the right to any jury trial in any action,  proceeding, or counterclaim brought by any party against any other party.

DEFINITIONS. The following capitalized words  and terms  shall have the following meanings when used in this Agreement.  Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful  money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context  may require.  Words and terms  not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words  and terms  not otherwise defined in this Agreement shall have the meanings assigned to them  in accordance with generally accepted accounting principles as in effect on the date of this Agreement:
Advance.  The word  "Advance" means a disbursement of Loan funds  made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms  and conditions of this Agreement.
Agreement. The word  "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together  with  all exhibits  and schedules attached to this Business Loan Agreement from time to time.
Borrower.  The word  "Borrower" means American Power  Group, Inc. and includes  all co-signers and co-makers signing  the Note and all their successors and assigns.
Collateral. The word  "Collateral" means all property  and assets granted as collateral security  for a Loan, whether  real or personal property, whether  granted  directly  or indirectly, whether  granted  now  or  in the  future,  and  whether  granted  in  the  form  of  a security  interest, mortgage, collateral mortgage, deed of trust,  assignment, pledge, crop pledge, chattel  mortgage, collateral chattel  mortgage, chattel  trust, factor's  lien, equipment trust, conditional sale, trust  receipt, lien, charge, lien or title  retention contract, lease or consignment intended as a security device, or any other security  or lien interest whatsoever, whether  created by law,  contract, or otherwise.
Environmental Laws.   The words  "Environmental Laws"  mean any and  all state,  federal  and local  statutes, regulations and ordinances relating  to  the  protection of  human health  or the  environment, including without   limitation the  Comprehensive Environmental Response, Compensation, and Liability  Act  of  1980,  as amended, 42  U.S.C.  Section  9601,  et  seq.  ("CERCLA"), the  Superfund Amendments and Reauthorization Act of  1986,  Pub. L. No. 99-499  ("SARA"), the Hazardous Materials Transportation Act,  49 U.S.C. Section 1801,  et seq., the  Resource Conservation and  Recovery Act,  42  U.S.C.  Section  6901,   et  seq.,  or  other  applicable state  or  federal  laws,  rules,  or regulations adopted pursuant thereto.
Event of Default.   The words  "Event of Default"  mean any of the events of default set forth  in this Agreement in the default section  of this Agreement.
GAAP.  The word  "GAAP"  means generally accepted accounting principles.
Grantor.   The word  "Grantor" means each and all of the  persons or entities  granting  a Security  Interest  in any Collateral for the  Loan, including without  limitation all Borrowers granting such a Security  Interest.
Guarantor. The word “Guarantor" means any guarantor, surety, or accommodation party of any or the entire Loan.
Guaranty. The word “Guaranty" means the guaranty from  Guarantor to Lender, including without  limitation a guaranty of all or part of the Note.
Hazardous Substances.  The words"   Hazardous Substances" mean materials that,  because of  their  quantity, concentration or physical, chemical or  infectious characteristics, may  cause  or  pose  a  present  or  potential hazard to  human  health  or  the  environment when improperly used,  treated,   stored,  disposed of,  generated, manufactured, transported or  otherwise handled.   The  words   "Hazardous Substances" are used in their  very broadest sense and include without  limitation any and all hazardous or toxic  substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without  limitation, petroleum and petroleum by-products or any fraction  thereof  and asbestos.
Indebtedness. The word  "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together  with  all other indebtedness and costs and expenses for which  Borrower is responsible under this Agreement or under any of the Related Documents.
Lender.  The word  "Lender" means Iowa State Bank, its successors and assigns.

4

BUSINESS LOAN AGREEMENT
(Continued)

Loan.   The  word  "Loan"  means any and  all loans  and  financial  accommodations from  Lender to  Borrower whether  now  or  hereafter existing,  and however evidenced, including without  limitation those  loans and financial  accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.
Note.  The word"  Note" means the Note dated December19, 2013  and executed by American Power Group, Inc. in the principal amount of $2,500,000.00,  together  with  all renewals of, extensions of,  modifications of, refinancing  of, consolidations of, and substitutions for the note or credit agreement.
Related Documents.  The words   "Related Documents" mean  all promissory notes,  credit  agreements, loan agreements, environmental agreements, guaranties, security  agreements ,mortgages, deeds of trust,  security  deeds, collateral mortgages, and all other  instruments, agreements and documents, whether  now or hereafter existing,  executed in connection with  the Loan.
Security  Agreement.   The  words   "Security   Agreement"  mean  and  include  without   limitation   any  agreements, promises, covenants, arrangements, understandings or other agreements, whether  created by law, contract,  or otherwise, evidencing, governing, representing, or creating a Security Interest.
Security  Interest.    The  words  "Security  Interest"  mean, without   limitation, any and all types  of  collateral  security,  present  and future, whether  in the  form  of  a lien,  charge, encumbrance, mortgage, deed of  trust,  security  deed,  assignment, pledge,  crop  pledge,  chattel mortgage, collateral  chattel  mortgage, chattel  trust,   factor's   lien,  equipment trust,   conditional sale,  trust  receipt,  lien or title  retention contract,  lease or consignment intended  as a security  device,  or any other security  or lien interest  whatsoever whether  created by law, contract,  or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISION SOF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS.  THIS BUSINESS LOAN AGREEMENT IS DATED DECEMBER 19, 2013.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS BUSINESS LOAN AGREEMENT AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

BORROWER:

AMERICAN POWER GROUP, INC.

By: /s/ Charles E. Coppa
Charles E. Coppa, CFO of American Power Group, Inc.

LENDER:

IOWA STATE BANK

By:  /s/ Jason Wartick
 Jason Wartick, Vice President    

5

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