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Item
1.01
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Entry
into a Material Definitive Agreement
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Financing
On
May 3, 2018, American Power Group Corporation (“APGC”) and its wholly owned subsidiary American Power Group, Inc.
(“APGI”) entered into a Binding Letter of Intent (“LOI”) with Dual Fuel, LLC, an Arizona limited liability
company, (“DF”) and Advanced Green Innovations, LLC (“AGI”) whereby DF agreed to purchase, subject to
certain conditions, 400,000,000 shares of APGC’s common stock at a purchase price of $.005 per share (the “Transaction”).
DF will make an initial investment of five hundred thousand dollars ($500,000) for the purchase of one hundred million (100,000,000)
shares of APGC’s common stock and commit to purchase three (3) additional separate blocks of one hundred million (100,000,000)
shares within eighteen (18) months from closing of the Transaction. AGI has agreed to guaranty all payments due by DF with respect
to the additional 300,000,000 shares to be purchased.
The
obligations of the parties to consummate the Transaction are subject to the following conditions:
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1.
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The
negotiation and execution of mutually satisfactory definitive agreements using their reasonable best efforts to negotiate
in good faith the agreements in a timely manner.
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2.
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Removal
of $4,200,000 of long term debt not deemed to be related to the ongoing business of providing dual fuel solutions.
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3.
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Execution
of a Patent and Technology Purchase Agreement with M&R Development, Inc. (“M&R”) and Clean Power Technology
LLC (“CPT”) relating to APGI’s dual fuel products and the simultaneous termination of APGI’s existing
dual fuel licensing agreement with M&R.
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4.
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The
right to appoint 3 of 5 directors to the Board of Directors of APGC upon closing of the Transaction for a period of thirty-six
(36) months.
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5.
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The
maturity date of APGC’s $3 million of Contingent Convertible Debt’s would be extended for 36 months. The holders
would have the option at their choice to convert into shares of APGC’s common stock at market price at $.25 anytime
with the balance automatically converting at the end of thirty-six (36) months into common shares at $.25 per share if not
converted earlier.
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6.
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DF
will pay APGC (i) $200,000 upon the execution of the LOI; (ii) $100,000 upon the closing of the Transaction; and (iii) $200,000
subsequent to the closing of the Transaction (in $50,000 tranches over a four month period). The remaining $1.5 million will
be paid as determined over the subsequent months with approximately $1 million allocated for future technology development
efforts.
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7.
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All
warrants and stock options to purchase shares of APGC’s common stock, to the extent allowed by law would be terminated.
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8.
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All
outstanding shares of APGC’s Convertible Preferred Stock would be converted into shares of APGC’s common stock
and all accrued but unpaid dividends forgiven.
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In
the event APGC terminates the LOI for any reason within thirty (30) calendar days of the date of the LOI or elects not to enter
into and execute definitive agreements within forty-five (45) calendar days of the date of the LOI, then APGC has agreed that
its rights under the Patent and Technology Purchase Agreement are assigned to DF in consideration for the funds advanced by DF
to APGC pursuant to the terms and conditions of the LOI.
Patent
and Technology Purchase Agreement
On
May 4, 2018, APGI entered into a Patent and Technology Purchase Agreement (the “Purchase Agreement”) with M&R
and its affiliate, Clean Power Technology, LLC (collectively, the “M&R Group”) for the purchase of certain patent
rights and dual fuel technology (the “DF Technology”) owned by the M&R Group.
Upon
execution of the Purchase Agreement, the Exclusive Patent License Agreement dated June 17, 2009, as amended between M&R and
APGI, was terminated and of no further force and effect.
APGI
will pay over a period of 5 years from date of execution of the Purchase Agreement, $6,030,000 for the DF Technology consisting
of (i) $5,000,000 to be paid in cash (“Cash Payment”); and (i) $1,030,000, which is the agreed upon balance of that
certain Amended and Restated December 1, 2009 Promissory Note between M&R and APGI, which will be deemed fully paid upon certain
events.
APGI
paid the M&R Group, $100,000 upon the execution of the Purchase Agreement with the balance to be paid on a per unit sold basis
as follows:
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(a)
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$1,000
per vehicular kit sold by APGI and $3,000 per off-road kit sold by APGI during the first two (2) years following the effective
date of the Purchase Agreement.
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(b)
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If
the cumulative payments to the M&R Group at the end of year 2 following the effective date of the Purchase Agreement are
less than $625,000, then APGI would pay $2,000 per vehicular kit sold by APGI and $6,000 per off-road kit sold by the APGI
during the third year following the effective date of the Purchase Agreement.
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(c)
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If
the cumulative payments to the M&R Group at the end of year 2 following the effective date of the Purchase Agreement are
equal to or greater than $625,000 and less than $1,250,000, then APGI would pay $1,500 per vehicular kit sold by APGI and
$4,500 per off-road kit sold by APGI during the third year following the effective date of the Purchase Agreement.
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(d)
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If
the cumulative payments to the M&R Group at the end of year 3 following the effective date of the Purchase Agreement are
less than $2,750,000 then APGI would pay three thousand $3,000 per vehicular kit sold by APGI and $9,000 per off-road kit
sold by APGI during the fourth year following the effective date of the Purchase Agreement.
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(e)
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Upon
the fourth anniversary of the effective date of the Purchase Agreement, any unpaid Cash Payment balance would be paid in four
equal quarterly installments during the fifth year following the effective date of the Purchase Agreement.
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(f)
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If
certain agreed upon technology developments do not perform per specifications as designed and described by the M&R Group,
there will be a $500,000 reduction in the Cash Payment.
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APGI
can prepay the Cash Payment at any time during the term of the Purchase Agreement with a prepayment discount of 10% in the first
year following the effective date of the Purchase Agreement and 5% in the second year following the effective date of the Purchase
Agreement and 0% thereafter.
APGI
would assume full financial responsibility for up to one million sixty thousand dollars ($1,060,000) for coordinating and completing
certain agreed upon technical development efforts deemed necessary to complete the next generation dual fuel technology as well
as certain additional state approvals.