Promissory Note Fifth Third Bank   Address: 1000 Town Center, Suite J300   City:
Southfield State: Michigan Zip: 48075     Obligor No. _________________ March 6,
2007 Obligation No. ___________________________

 

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FOR VALUE RECEIVED, the undersigned (the "Obligor") promises to pay to the order
of the bank named above ("Bank") the principal amount of TWO MILLION AND NO/100
Dollars ($2,000,000.00) and interest (computed on the basis of a 360-day year
for the actual number of days elapsed) on the unpaid principal balance at a rate
per annum of:

See Grid below for Rate (the "Grid Note Rate") from time to time in effect until
Maturity and 2% above the Grid Note Rate from time to time in effect after
Maturity.

The Grid Note Rate based upon Debt Service Coverage Ratio (as calculated in
accordance with the Section 7.1 of the Business Loan Agreement dated as of March
6, 2007, as now and hereafter amended, between the Obligor and the Bank (the
"Loan Agreement")):

Less than or equal to 1.25:1.00 at Index, Floating

Greater than 1.25:1.00  .25% below Index Rate, floating

The Grid Note Rate shall be adjusted, if necessary based on the Debt Service
Coverage Ratio, on the date which is 30 days after the end of each fiscal
quarter of the Borrower and 120 days after the end of each fiscal year of the
Borrower, and, subject to changes in the Index Rate described below, shall
remain in effect until the next change to be effected pursuant to this Note.

INDEX RATE: As used in this Note, "Index Rate means:

The rate of interest announced from time to time by Bank as its "prime" interest
rate. The Index Rate is a variable rate and each change in the Index Rate is
effective from and including the date the change in the "prime" interest rate is
announced as being effective.

The rate announced by Bank as its "prime" interest rate at any given time may
not necessarily be the lowest rate of interest available to commercial customers
of Bank at that time.

The principal and interest on this Note shall be paid as follows:

Principal shall be paid in full on March 6, 2008 or at Maturity (as defined in
paragraph 11 of Schedule A), if earlier. Accrued interest shall be paid on April
1, 2007 and on the first day of each month thereafter until the principal
balance shall be paid in full.

LATE PAYMENTS; FEES: If any payment is not paid when due (whether by
acceleration or otherwise) or within 10 days thereafter, each of the undersigned
agrees, jointly and severally, to pay to Bank a late payment fee as provided for
in any loan agreement or 5% of the payment amount, whichever is greater with a
minimum fee of $20.00. Bank may impose a non-sufficient funds fee for any check
that is presented for payment that is returned for any reason. This is in
addition to Bank's other rights and remedies for default in payment of an
installment of principal or interest when due.
 
 
 

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EXPENSES AND LOAN PROCESSING FEE: Obligor shall reimburse Bank for all
out-of-pocket expenses heretofore or hereafter incurred by Bank in connection
with making the loan evidenced by this Note and any renewals, extensions or
modifications of the loan and in connection with taking any security for the
loan, including, without limitation, filing and recording fees, attorneys' fees
and expenses, and costs of credit reports, surveys, appraisals, title work and
mortgagee's title insurance. Each out-of-pocket expense (if not reimbursed to
Bank on or before the date of this Note) shall be reimbursed to Bank at the time
of the first required interest payment under this Note after the expense is
incurred.

REVOLVING CREDIT: The principal of this Note may be borrowed, repaid and
reborrowed by any Obligor from time to time, subject to the provisions of any
written agreement among Bank and Obligor, as heretofore or hereafter amended,
extended or replaced. Bank's records shall be prima facie evidence of all loans
and repayments and of the indebtedness outstanding under this Note at any time.

THE ADDITIONAL PROVISIONS PRINTED ON SCHEDULE A ATTACHED TO THIS NOTE ARE PART
OF THIS NOTE AND ARE INCORPORATED IN THIS NOTE BY REFERENCE.
 
 

Accepted:     Obligor(s):           Fifth Third Bank    
Advanced Photonix, Inc., 
a Delaware corporation
                    By: /s/ Tanya R. Gietzen  
By:
/s/ Richard Kurtz  

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Its: Vice President    

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It: CEO        
Address:
 
2925 Boardwalk
Ann Arbor, MI 48104

 
 
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SCHEDULE A
ADDITIONAL PROVISION OF PROMISSORY NOTE

1. Prepayments. Obligor may prepay all or part of the principal of this Note at
any time, unless prepayment is prohibited, limited or conditioned in any Rider
to this Note or in any other agreement signed by Obligor.

2. Security. This Note and all obligations of Obligor hereunder are secured by
any and all security agreements, guaranties, mortgages, assignments and all
other agreements and instruments heretofore or hereafter given by Obligor or any
third party to Bank ("Security Documents"). As additional security for the
payment of Obligor's obligations under this Note, Obligor grant(s) to Bank a
security interest in all tangible and intangible property of Obligor now or
hereafter in the possession of Bank, including, without limitation, all deposit
accounts. Obligor grants the foregoing security interests to Bank for itself and
as agent for all affiliates of Fifth Third Bancorp for all obligations of
Obligor to such affiliates.

3. Acceleration (Non-Demand Note). Upon the occurrence of any Event of Default
(as defined in the Loan Agreement), all or any part of the indebtedness
evidenced hereby and all or any part of all other indebtedness and obligations
then owing by Obligor to Bank shall, at the option of Bank or any affiliate of
Fifth Third Bancorp, become immediately due and payable without notice or
demand. All or any part of the indebtedness evidenced hereby also may become, or
may be declared to be, immediately due and payable under the terms and
conditions contained in any loan agreement, Security Document or other agreement
heretofore or hereafter entered into between Obligor and Bank or any affiliate
of Fifth Third Bancorp.

4. Bankruptcy. If a voluntary or involuntary case in bankruptcy, receivership or
insolvency shall at any time be begun by or against Obligor or any Guarantor or
any of Obligor's or any Guarantor's partners (if Obligor or Guarantor is a
partnership), or if any attachment, garnishment, execution, levy or similar
process shall at any time be placed upon any deposit account at any time
maintained with Bank by Obligor or any Guarantor, then the indebtedness
evidenced by this Note and all other indebtedness and obligations then owing by
Obligor to Bank shall automatically become immediately due and payable.

5. Place and Application of Payments. Each payment upon this Note shall be made
at any of Bank's offices or such other place as the holder hereof may direct in
writing. Any payment upon this Note shall be applied first to any accrued and
unpaid interest, then to the unpaid principal balance, then to any expenses or
loan processing fee then due and payable to Bank and then to any unpaid late
charges, except that after Maturity of this Note, Bank may apply any payment or
collection to any such amounts owing under this Note in such manner as Bank
shall determine in its sole discretion. If Obligor at any time owes Bank any
indebtedness or obligation in addition to the indebtedness evidenced by this
Note, and if any indebtedness owed by Obligor to Bank is then in default,
Obligor shall not have, and hereby waives, any right to direct or designate the
particular indebtedness or obligation upon which any payment made by, or
collected from, Obligor or from any Guarantor or other security shall be
applied. The manner of application of any such payment, as between or amount of
such indebtedness and obligations, shall be determined by Bank in its sole
discretion.

6. Minimum Interest Rate. Notwithstanding any other provision of this Note, Bank
shall never be entitled to charge, take or receive as interest on this Note any
amount in excess of simple interest calculated at the lesser of (a) a rate of
thirty-five percent (35%) per year or (b) the highest rate to which Obligor may
lawfully agree in writing ("Maximum Rate"). If Bank ever receives interest in
excess of the Maximum Rate, the excess shall be considered a partial prepayment
of the principal of the Note or, if the principal has been paid in full, shall
be refunded to Obligor.

 
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7. Setoff. At any time after the occurrence and during the continuance of an
Event of Default (as defined in the Loan Agreement), Bank shall have the right
to set off any indebtedness that Bank then owes to Obligor (including any
deposit account) against any indebtedness evidenced by this Note that is then
due and payable.

8. Remedies. Bank shall have all rights and remedies provided by law and by
agreement of Obligor. Any requirement of reasonable notice with respect to any
sale or other disposition of collateral shall be met if Banks sends the notice
at least five (5) days before the date of sale or other disposition. Obligor
agrees to pay any and all expenses, including reasonable attorneys' fees and
legal expenses, paid or incurred by Bank in protection and enforcing the right
of and obligations to Bank under any provisions of this Note or any Security
Document.

9. Environmental Compliance. Obligor represents and warrants to, and agrees
with, Bank that, to Obligor's knowledge: (a) none of Obligor's real or personal
property is, and Obligor will not permit it to become, contaminated by any
substance that is now or hereafter regulated by or subject to any present or
future law or regulation that establishes liability for the removal or clean-up
of, or damage caused by, any environmental contamination; (b) Obligor's
operations, activities, and real and personal properties are, and Obligor shall
cause them to continue to be, in compliance with each such law and regulation;
(c) if the indebtedness evidenced by this Note is not paid at Maturity, then at
any time thereafter Bank may, but shall not be obligated to, conduct or obtain
an environmental investigation or audit of any or all of Obligor's properties,
and Obligor shall reimburse Bank for all costs and expenses incurred by Bank in
connection with any such investigation or audit; and (d) Obligor shall indemnify
and, at Bank's option, defend Bank with respect to all claims, damages, losses,
liabilities and expenses (including attorneys' fees) asserted against or
incurred by Bank by reason of any failure to comply with, or any inaccuracy in,
any of the agreements, representations and warranties contained in this
paragraph.

10. Waivers. No delay by Bank in the exercise of any right or remedy shall
operate as a waiver thereof. No single or partial exercise by Bank of any right
or remedy shall preclude any other or future exercise thereof or the exercise of
any other right or remedy. No waiver by Bank of any default or of any provisions
hereof shall be effective unless in writing and signed by Bank. No waiver of any
right or remedy on one occasion shall be waiver of that right or remedy on any
future occasion. The modification or waiver of any of Obligor's obligations or
Bank's rights under this Note must be contained in a writing signed by Bank.
Bank may perform Obligor's obligations without causing a waiver of those
obligations or rights. Obligor's obligations under this Note shall not be
affected if Bank amends, compromises, exchanges, fails to exercise, impairs or
releases and of the following obligations under this Note and the documents
referred to herein: (i) any of the obligations belonging to any co-obligor,
endorser or guarantor, (ii) any of its rights against any co-obligor, guarantor
or endorser, or (iii) any interest in the collateral securing the obligations.

Obligor waives demand for payment, presentment, notice of dishonor and protest
of this Note and consents to any extension or postponement of time of its
payment to any substitution, exchange or release of all or any part of any
security given to secure this Note, to the addition of any hereto, and to the
release, discharge, waiver, modification, or suspension of any rights and
remedies against any person who may be liable for the indebtedness evidenced by
this Note. Obligor, including but not limited to all co-makers and accommodation
makers of this Note, hereby waives all suretyship defenses including but not
limited to all defenses based upon impairment of collateral and all suretyship
defenses described in Section 3-605 of the Uniform Commercial Code (the "UCC").
Such waiver is entered to the full extent permitted by Section 3-605(i) of the
UCC.
 
 
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11. General. If Obligor is more than one person, firm or corporation, (a) each
of them is primarily liable on this Note, (b) receipt of value by any one of
them constitutes receipt of value by both or all of them, (c) their liability on
this Note is joint and several, and (d) the term "Obligor" means each of them
and all of them. In this Note, "Maturity" means such time as the entire
remaining unpaid principal balance shall be or shall become due and payable for
any reason, including acceleration under paragraph 3 or paragraph 4 hereof.

12. Applicable Law and Jurisdiction. This Note shall be governed by and
interpreted according to the laws of the State of Michigan without giving effect
to principles of conflict of laws. Obligor irrevocably agrees and consents that
any action against Obligor for collection or enforcement of this Note may be
brought in any state or federal court that has subject matter jurisdiction and
is located in, or whose district includes, any county in which Bank has an
office and that any such court shall have personal jurisdiction over Obligor for
purposes of the action.

13. JURY WAIVER. OBLIGOR, AND ANY ENDORSER OR GUARANTOR HEREOF, WAIVE THE RIGHT
TO A TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

14. Entire Agreement. Obligor acknowledges and confirms that this Note and the
documents referred to herein constitute the entire agreement between Obligor and
Bank, and that there are no conditions or understandings between the parties
that are not expressed therein.

15. Severability. The declaration of invalidity or unenforceability of any
provision of this Note or the documents referred to herein shall not affect the
validity or enforceability of the remaining provisions of any of the foregoing.

16. Assignment. Obligor agrees not to assign any of Obligor's rights, remedies
or obligations described in this Note without the prior written consent of Bank,
which consent may be withheld in Bank's sole discretion. Obligor agrees that
Bank may assign some or all of its rights and remedies described in this Note
without notice to, or prior consent from, the Obligor.

17. Financial Statements. Obligor shall maintain a standard and modern system
for accounting in conformance with generally accepted accounting principles and
will furnish to Bank all financial statements as described in Section VI of the
Loan Agreement.

 
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