SECURITY
      AGREEMENT

    


    


    THIS
      SECURITY AGREEMENT, dated as of March 6, 2007 (this "Agreement"), is made by
      Advanced Photonix, Inc.,
      a
      Delaware corporation (the "Borrower"), Silicon Sensors, Inc., a Delaware
      corporation ("SSI"), and Picometrix, LLC, a Delaware limited liability company
      ("PI")(collectively, with
      their respective successors and permitted assigns
      the
      "Debtors" and each a "Debtor" ),
      in
      favor of Fifth Third Bank (the "Bank").

     

    RECITALS

    


    A. The
      Borrower has entered into a Business Loan Agreement dated of even date herewith
      (as amended, supplemented, extended, restated or otherwise modified from time
      to
      time, including any agreement entered into in substitution therefor, the "Loan
      Agreement"), with the Bank pursuant to which the Bank may make Loans (as defined
      therein) to the Borrower. Each of SSI and PI have entered into a Guaranty dated
      of even date herewith pursuant to which they guaranteed all of the obligations
      and liabilities of the Borrower to the Bank. 

    


    B. Under
      the
      terms of the Loan Agreement, the Debtors are required to grant to the Bank,
      a
      first-priority security interest, subject only to security interests expressly
      permitted by the Loan Agreement, in and to the Collateral hereinafter described.
      

    


    Accordingly,
      the parties hereto agree as follows:

    


    ARTICLE
      1

    DEFINITIONS

    


    1.1
      Terms.
      The
      following terms herein used shall have the following meanings (such definitions
      to be equally applicable to the singular and plural forms thereof):

    


    "Bank"
      is
      defined in the recitals to this Agreement.

    


    "Borrower"
      is defined in the recitals to this Agreement.

    


    "Capital
      Stock" means (i) in the case of any corporation, all capital stock (whether
      common, preferred or any other type) and any securities exchangeable for or
      convertible into capital stock and any warrants, rights or other options to
      purchase or otherwise acquire capital stock or such securities or any other
      form
      of equity securities,
      (ii) in
      the case of an association or business entity, any and all shares, interests,
      participations, rights or other equivalents (however designated) of corporate
      stock, (iii) in the case of a partnership or limited liability company,
      partnership or membership interests (whether general or limited) and (iv) any
      other interest or participation that confers on a Person the right to receive
      a
      share of the profits and losses of, or distribution of assets of, the issuing
      Person.

    


    “Collateral”
      is defined in Section 2.1.

    


    "Debtor"
      and "Debtors" is defined in the preamble to this Agreement.

    


    "Event
      of
      Default" means any failure to pay when due (whether at stated maturity, by
      acceleration or otherwise) any Secured Liabilities or the occurrence of any
      Event of Default under and as defined in the Loan Agreement.


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


    "Loan
      Agreement " is defined in the recitals to this Agreement.

    


    "Lien"
      means any pledge, assignment, hypothecation, mortgage, security interest,
      deposit arrangement, option, conditional sale or title retaining contract,
      sale
      and leaseback transaction, financing statement filing, lessor's or lessee's
      interest under any lease, subordination of any claim or right, or any other
      type
      of lien, charge, encumbrance, preferential arrangement or other claim or
      right.

    


    "Loan
      Documents" means the Loan Agreement and all of the documents, agreements and
      instruments among the Debtors, any of their Subsidiaries, the Bank, or any
      of
      them, at any time evidencing or securing the repayment of, or otherwise
      pertaining to, the Secured Liabilities.

    


    "Permitted
      Liens" means Liens permitted by the Loan Agreement .

    


    "Receivables"
      means all accounts, payment intangibles, chattel paper and
      instruments.

    


    “Secured
      Liabilities” means all loans, advances or other financial accommodations,
      including any renewals or extensions thereof, from the Bank to Borrower or
      any
      Guarantor and any and all liabilities and obligations of any and every kind
      and
      nature heretofore, now or hereafter owing from Borrower or any Guarantor to
      the
      Bank or any affiliate of Fifth Third Bancorp (including, without limitation,
      Fifth Third Securities, Inc.), however incurred or evidenced, whether primary,
      secondary, contingent or otherwise, whether arising under the Loan Agreement,
      under any other security agreement(s), promissory note(s), guaranty(s),
      mortgage(s), lease(s), instrument(s), document(s), contract(s), letter(s) of
      credit or similar agreement(s) heretofore, now or hereafter executed by Borrower
      or any Guarantor and delivered to the Bank, or by oral agreement or by operation
      of law plus all interest, costs, expenses and reasonable attorney fees which
      may
      be made or incurred by the Bank in the disbursement, administration or
      collection of such liabilities and obligations and in the protection,
      maintenance and liquidation of the Collateral.

    


    “UCC”
means
      the Uniform Commercial Code as in effect from time to time in the State of
      Michigan; provided, that if, with respect to any UCC financing statement or
      by
      reason of any provisions of law, the perfection or the effect of perfection
      or
      non-perfection of the security interests granted to the Bank is governed by
      the
      Uniform Commercial Code as in effect in a jurisdiction of the United States
      other than Michigan, then “UCC” means the Uniform Commercial Code as in effect
      from time to time in such other jurisdiction for purposes of any UCC financing
      statement relating to such perfection or effect of perfection or
      non-perfection.

    


    1.2 Loan
      Agreement Definitions.
      Unless
      otherwise defined herein or the context otherwise requires, terms used in this
      Agreement, including its preamble and recitals, have the meanings provided
      in
      the Loan Agreement .

    


    1.3 UCC
      Definitions.
      Unless
      otherwise defined herein or in the Loan Agreement or the context otherwise
      requires, and whether or not capitalized, terms for which meanings are provided
      in Article 8 or Article 9 of the UCC are used in this Agreement, including
      its
      preamble and recitals, with such meanings. Without limiting the foregoing,
      accounts,
      chattel paper, commercial
      tort claims,
      certificated security, control, deposit accounts, documents, farm products,
      fixtures, electronic chattel paper, equipment, general intangibles, goods,
      instruments, inventory, investment property, letter-of-credit rights, negotiable
      instruments, payment intangibles, securities and software, whether or not
      capitalized, shall have the meanings ascribed thereto in the UCC. 

    



    
      
        SECURITY
          AGREEMENT

         

      

      
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    ARTICLE
      2

    GRANT
      OF SECURITY INTEREST

    


    2.1
      Grant
      of Security Interest.
      To
      secure the prompt and complete payment of all Secured Liabilities, for value
      received and pursuant to the Loan Agreement, each of the Debtors hereby grants,
      assigns and transfers to the Bank a first-priority security interest, subject
      only to Permitted Liens, in and to the following described assets whether now
      owned or existing or hereafter acquired or arising and wherever located (all
      of
      which is herein collectively called the "Collateral"): 

    


    (a) All
      of
      each Debtor's accounts, documents, instruments, general intangibles (including
      without limitation all tax refund claims, payment intangibles and software,
      but
      excluding any intellectual property owned, in-licensed or otherwise controlled
      by any Debtor), deposit accounts, letter-of-credit rights and chattel paper,
      further including, but without limitation, all supporting obligations and all
      monies and claims for money due or to become due to any Debtor, all security
      held or granted to any Debtor; 

    


    (b) All
      of
      each Debtor's investment property (including without limitation all Capital
      Stock and other securities, securities entitlements, securities accounts,
      commodity contracts and commodity accounts); 

    


    (c) All
      of
      each Debtor's equipment, inventory, farm products, fixtures and all other goods,
      whether used by any Debtor or any other person, or leased by any Debtor to
      any
      person and whether the interest of Debtors is as owner, lessor, lessee or
      otherwise; 

    


    (d) All
      of
      each Debtor's commercial tort claims (including without limitation as a
      plaintiff); and

     

    (e) All
      other
      present and future personal property of each Debtor (whether tangible or
      intangible), including but not limited to all products and proceeds, accessions,
      stock
      rights, stock dividends, liquidating dividends, new securities, payments,
      distributions and proceeds (including cash dividends and sale proceeds) of
      or
      relating to any of the property described in this Section 2.1, other property
      to
      which any Debtor may become entitled by reason of the ownership of any of the
      property described in this Section 2.1,
      all
      books, records, databases, information and other property relating to,
      evidencing, or embodying any
      of
      the property described in this Section 2.1, all payments under insurance
      (whether or not the Bank is named as a loss payee thereof) and any other amount
      payable with respect to any of the property described in this Section
      2.1.

    


    


    ARTICLE
      3 

    REPRESENTATIONS
      AND COVENANTS

    


    The
      Debtors further represent, warrant, covenant, and agree with the Bank as
      follows: 

    


    3.1 Ownership
      of Collateral; Security Interest Priority.  At
      the time any Collateral becomes subject to a security interest of the Bank
      hereunder, unless the Bank shall otherwise consent, the Debtors shall be deemed
      to have represented and warranted that (a) a Debtor is the lawful owner of
      such
      Collateral or has the power to transfer the Collateral and have the right and
      authority to subject the same to the security interest of the Bank; and (b)
      other than Permitted Liens, none of the Collateral is subject to any Lien other
      than that in favor of the Bank and there is no effective financing statement
      or
      other filing covering any of the Collateral on file in any public office, other
      than in favor of the Bank. Upon filing of financing statements in the
      appropriate jurisdictions, this Agreement creates in favor of the Bank a valid
      first-priority perfected security interest, subject only to Permitted Liens,
      in
      the Collateral in which a security interest may be perfected by the filing
      of a
      financing statement, enforceable against each Debtor and all third parties
      and
      securing the payment of the Secured Liabilities. The Debtors authorize the
      Bank
      to file financing statements describing the Collateral as determined by the
      Bank
      and if requested will execute and deliver to the Bank all documents and take
      such other actions as may from time to time be requested by the Bank in order
      to
      maintain a first perfected security interest in, and if applicable, possession
      and control of, the Collateral. The Debtors further ratify and consent to the
      filing of any financing statement by the Bank which may have been filed prior
      to
      the date hereof. The Debtors will keep the Collateral free at all times from
      any
      and all Liens other than Permitted Liens. The Debtors will not, without the
      prior written consent of the Bank, sell, lease, license, transfer, assign or
      otherwise dispose, or permit or suffer to be sold, leased, licensed,
      transferred, assigned or otherwise disposed, any of the Collateral, except
      for,
      prior to an Event of Default only (notwithstanding any other agreement), any
      assets permitted to be sold, leased, licensed, transferred, assigned or
      otherwise disposed under the Loan Agreement. The Bank or its attorneys may
      at
      any and all reasonable times inspect the Collateral and for such purpose upon
      reasonable notice to the Debtors may enter upon any and all premises where
      the
      Collateral is or might be kept or located, subject to any limitations, if any,
      in the Loan Agreement. 


    
      
        SECURITY
          AGREEMENT

         

      

      
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    3.2 Names;
      Locations.
      Each
      Debtor represents and warrants that Schedule 2 sets forth the following for
      each
      Debtor: (a) the jurisdiction in which each Debtor is located for purposes of
      Sections 9-301 and 9-307 of the UCC; (b) the address of each Debtor's chief
      executive office; (c) each location a secured party would have filed a UCC
      financing statement to perfect a security interest in equipment, inventory
      and
      general intangibles owned by each Debtor in the past five years; (d) each trade
      name or other name (other than its name set forth on the signature page hereto)
      used by each Debtor; and (e) each Debtor’s federal taxpayer identification
      number (and, during the four months preceding the date hereof, such Debtor
      has
      not had any other federal taxpayer identification number) and state
      organizational number. During the past four months preceding the date hereof,
      no
      Debtor has been known by any legal name different from the one set forth on
      the
      signature page hereto, nor has such Debtor been the subject of any merger or
      other corporate reorganization during the past five years. The name set forth
      on
      the signature page is the true and correct name of such Debtor. No
      Debtor
      will change its name or place of incorporation or organization or federal
      taxpayer identification number except upon 30 days’ prior written notice to the
      Bank.

    


    3.3 Insurance.  The
      Debtors shall keep the tangible Collateral insured at all times against loss
      by
      theft, fire and other casualties. Said insurance shall be issued by a company
      rated A or better by Best and shall be in amounts sufficient to protect the
      Bank
      against any and all loss or damage to the Collateral. The policy or policies
      which evidence said insurance shall be delivered to the Bank upon request,
      shall
      contain a lender loss payable clause in favor of the Bank, shall name the Bank
      as an additional insured, as its interest may appear, shall not permit
      amendment, cancellation or termination without giving the Bank at least 30
      days
      prior written notice thereof, and shall otherwise be in form and substance
      satisfactory to the Bank. Reimbursement under any liability insurance maintained
      by the Debtors pursuant to this Section 3.3 may be paid directly to the person
      who shall have incurred liability covered by such insurance. In the case of
      any
      loss to tangible Collateral, the proceeds shall be paid and used as follows:
      

     

    (a) if
      there
      is any Event of Default (whether before or after any event which caused any
      reimbursement under any insurance) has occurred and is continuing, such
      reimbursement shall be paid to the Bank for application to the Secured
      Liabilities.

    


    (b) if
      no
      Event of Default (whether before or after any event which caused any
      reimbursement under any insurance) has occurred and is continuing and such
      reimbursement is less than $250,000, the Debtors may use the proceeds of such
      insurance solely to repair or replace the property damaged, provided that if
      such repair or replacement cannot be accomplished within 180 days after such
      reimbursement amount is received or if the reimbursement amount is greater
      than
      $250,000, the proceeds of such insurance shall be paid to the Bank for
      application to the Secured Liabilities; and, provided, further, if the amount
      of
      such reimbursement is greater than $100,000, upon the request of the Bank,
      such
      insurance proceeds that are allowed to be used to repair or replace hereunder
      may be held by the Bank in a cash collateral account, and disbursed by the
      Bank
      as and when needed to pay for such allowed replacements and repairs (or applied
      to the Secured Obligations if Event of Default occurs).

    



    
      
        SECURITY
          AGREEMENT

         

      

      
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    The
      Debtors hereby appoint the Bank or any employee or agent of the Bank as Debtors'
      attorney-in-fact, which appointment is coupled with an interest and irrevocable,
      and, if such insurance claims or proceeds are required to be paid to the Bank,
      authorize the Bank or any employee or agent of the Bank, on behalf of the
      Debtors, to adjust and compromise any loss under said insurance and to endorse
      any check or draft payable to the Debtors in connection with returned or
      unearned premiums on said insurance or the proceeds of said insurance, and
      any
      amount so collected may be applied toward satisfaction of the Secured
      Liabilities, provided, however, that the Bank shall not be required hereunder
      so
      to act.

    


    3.4 Taxes,
      Etc.  The
      Debtors will pay promptly, and within the time that they can be paid without
      interest or penalty, any taxes, assessments and similar imposts and charges,
      not
      being contested in good faith, which are now or hereafter may become a Lien
      upon
      any of the Collateral. If the Debtors fail to pay any such taxes, assessments
      or
      other imposts or charges in accordance with this Section, the Bank shall have
      the option to do so and the Debtors agree to repay forthwith all amounts so
      expended by the Bank with interest at the prime-based rate set forth in the
      Loan
      Agreement . 

    


    3.5 Maintenance
      of Collateral.  The
      Debtors will cause the tangible Collateral material to the conduct of its
      business to be maintained and preserved in the same condition, repair and
      working order as when new, ordinary wear and tear excepted, and in accordance
      with any manufacturer's manual, and shall forthwith, or, in the case of any
      loss
      or damage to any of the tangible Collateral as quickly as practicable after
      the
      occurrence thereof, make or cause to be made all repairs, replacements, and
      other improvements which are necessary or desirable to such end. The Debtors
      shall promptly furnish to the Bank a statement respecting any material loss
      or
      damage to any of the tangible Collateral. The Debtors shall preserve and
      maintain all rights of the Debtors and the Bank in all material intangible
      Collateral, and will not subordinate, supplement
      or otherwise modify any claim or right of the Debtors with respect to any
      Collateral, or permit, consent or suffer to occur any of the foregoing, if
      the
      effect thereof is to impair, or is in any manner adverse to, the rights or
      interests of the Bank without the prior written consent of the
      Bank.

    


    3.6
       Tangible
      Property Location.
      Each
      Debtor agrees that it will maintain exclusive possession of its equipment and
      inventory, other than (a) inventory in transit in the ordinary course of
      business and (b) inventory and equipment which is in the possession or control
      of a warehouseman, bailee or other Person that has been notified of the security
      interest hereunder, consented to such security interest, waived any Lien it
      may
      have on such inventory and equipment and signed an agreement satisfactory to
      the
      Bank. Additionally,
      each Debtor will use commercially reasonable efforts
      to cause each lessor of real property to any Debtor to execute and deliver
      to
      the Bank an estoppel, waiver and consent agreement in form and substance
      acceptable to the Bank. All fixtures of any Debtor are located on the legal
      descriptions listed on Schedule 3.

    


    3.7
      Chattel
      Paper, Instruments, Investment Property,
      Letters of Credit and
      Negotiable Documents.
      Schedule 4 lists all chattel paper (whether tangible or electronic),
      instruments, investment property (including without limitation all certificated
      securities and other Capital Stock),
      letters
      of credit issued for the benefit of any Debtor
      and
      negotiable documents owned or held by any Debtor as of the date hereof. Each
      Debtor has delivered to the Bank possession of all originals of all negotiable
      documents, certificated securities, instruments and tangible chattel paper
      owned
      or held by such Debtor as of the date hereof, and will promptly deliver to
      the
      Bank possession of all originals of all negotiable documents, certificated
      securities, instruments and tangible chattel paper acquired or held by such
      Debtor after the date hereof, in each case duly endorsed in blank and/or
      accompanied by such transfer powers in form satisfactory to, and as required
      by,
      the Bank. The
      Debtors will cause each issuer of a letter of credit issued for the benefit
      of
      any Debtor at any time to consent to the assignment of proceeds of the letter
      of
      credit or otherwise give the Bank control of the related letter-of-credit right.
      With respect to any investment property (other than certificated securities)
      of
      any Debtor, such Debtor shall cause a control agreement satisfactory to the
      Bank
      relating to such investment property to be executed and delivered in favor
      of
      the Bank or otherwise take such actions to give the Bank control thereof. With
      respect to any electronic chattel paper of any Debtor, such Debtor shall cause
      take all actions required under Section 9-105 of the UCC to give the Bank
      control thereof. 

    



    
      
        SECURITY
          AGREEMENT

         

      

      
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    3.8 Deposit
      Accounts.
      Schedule 5 lists all deposit accounts of each Debtor. 

    


    3.9 Commercial
      Tort Claims.
      All
      commercial tort claims of any Debtor are listed on Schedule 6 attached hereto.
      Each Debtor shall promptly notify the Bank in writing if such Debtor reasonably
      believes it may be entitled to recover a commercial tort claim at any time
      and
      such Debtor shall take all such action requested by the Bank to grant to the
      Bank and perfect a security interest in such commercial tort claim.

    


    3.10 Other
      Collateral.
      None of
      the Collateral is covered by any certificate of title, consists of aircraft,
      aircraft engines, ships or railcars or is otherwise of a type for which security
      interests or liens may be perfected by filing under any federal statute (except
      for certain Intellectual Property) other than as set forth on Schedule 8. Each
      Debtor agrees to promptly notify the Bank in writing if it acquires any
      Collateral covered by a certificate of title, any aircraft, aircraft engine,
      ship or railcar or any other asset of a type for which security interests or
      liens may be perfected by filing under any federal statute. The Debtors will
      take all further action and execute such other documents, if any, required
      by
      the Bank to grant the Bank a security interest all such Collateral.

    


    3.11 Special
      Rights Regarding Receivables.
      The
      Bank or any of its agents may, at any time and from time to time in its sole
      discretion following an Event of Default, verify, directly with each person
      (collectively, the "Obligors") which owes any Receivables to any Debtor, the
      Receivables in any reasonable manner. The Bank or any of its agents may, at
      any
      time from time to time after and during the continuance of an Event of Default,
      notify the Obligors of the security interest of the Bank in the Collateral
      and/or direct such Obligors that all payments in connection with such
      obligations and the Collateral be made directly to the Bank in the Bank's name.
      If the Bank or any of its agents shall collect such obligations directly from
      the Obligors, the Bank or any of its agents shall have the right to resolve
      any
      disputes relating to returned goods directly with the Obligors in such manner
      and on such terms as the Bank or any of its agents shall deem appropriate.
      The
      Debtors direct and authorize any and all of its present and future Obligors
      to
      comply with requests for information from the Bank, the Bank's designees and
      agents and/or auditors issued pursuant to this Section, relating to any and
      all
      business transactions between the Debtors and the Obligors. The Debtors further
      direct and authorize all of its Obligors upon receiving a notice or request
      sent
      by the Bank or the Bank's agents or designees pursuant to this Section to pay
      directly to the Bank any and all sums of money or proceeds now or hereafter
      owing by the Obligors to the Debtors, and any such payment shall act as a
      discharge of any debt of such Obligor to the Debtors in the same manner as
      if
      such payment had been made directly to the Debtors. The Debtors agree to take
      any and all action as the Bank may reasonably request to assist the Bank in
      exercising the rights described in this Section.

     


    
      
        SECURITY
          AGREEMENT

         

      

      
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    ARTICLE
      4 

    REMEDIES

    


    4.1
      General
      Remedies.
      Upon
      the occurrence of any Event of Default, the Bank shall have and may exercise
      any
      one or more of the rights and remedies provided to it under this Agreement
      or
      any of the other Loan Documents or provided by law, including but not limited
      to
      all of the rights and remedies of a secured party under the UCC, and the Debtors
      hereby agree to assemble the Collateral and make it available to the Bank at
      a
      place to be designated by the Bank which is reasonably convenient to both
      parties, authorize the Bank to take possession of the Collateral with or without
      demand and in accordance with applicable law and to sell and dispose of the
      same
      at public or private sale and to apply the proceeds of such sale to the costs
      and expenses thereof (including reasonable attorneys' fees and disbursements,
      incurred by the Bank) and then to the payment and satisfaction of the Secured
      Liabilities. Any requirement of reasonable notice shall be met if the Bank
      sends
      such notice to the Debtors, by registered or certified mail, at least 10 days
      prior to the date of sale, disposition or other event giving rise to a required
      notice. The Bank may be the purchaser at any such sale. The Debtors expressly
      authorize such sale or sales of the Collateral in advance of and to the
      exclusion of any sale or sales of or other realization upon any other collateral
      securing the Secured Liabilities. The Bank shall have no obligation to preserve
      rights against prior parties, and the Bank shall have no obligation to clean-up
      or otherwise prepare the Collateral for sale. The Debtors hereby waive as to
      the
      Bank any right of subrogation or marshaling of such Collateral and any other
      collateral for the Secured Liabilities. To this end, the Debtors hereby
      expressly agree that any such collateral or other security of the Debtors or
      any
      other party which the Bank may hold, or which may come to the Bank or its,
      may
      be dealt with in all respects and particulars as though this Agreement were
      not
      in existence. The parties hereto further agree that public sale of the
      Collateral by auction conducted in any county in which any Collateral is located
      or in which the Bank or the Debtors does business after advertisement of the
      time and place thereof shall, among other manners of public and private sale,
      be
      deemed to be a commercially reasonable disposition of the Collateral. The
      Debtors shall be liable for any deficiency remaining after disposition of the
      Collateral. The Bank may comply with any applicable state or federal law
      requirements in connection with a disposition of the Collateral and compliance
      will not be considered to adversely affect the commercial reasonableness of
      any
      sale of the Collateral. The Bank may specifically disclaim any warranties of
      title or the like. If the Bank sells any of the Collateral upon credit, the
      Debtors will be credited only with payments actually made by the purchaser,
      received by the Bank and applied to the indebtedness of such purchaser. In
      the
      event any such purchaser fails to pay for the Collateral, the Bank may resell
      the collateral and the Debtors shall be credited with the proceeds of
      sale.

     

    4.2 Additional
      Remedies; Irrevocable Proxy.
      (a)
      Upon the occurrence and during the continuance of any Event of Default, the
      Bank
      shall have also the right to vote all investment property on all questions
      after
      giving notice to the applicable Debtor of its election to exercise such rights.
      In the absence of any such Event of Default, the applicable Debtor shall have
      the right to vote all investment property on all questions, provided
      that
      voting by the applicable Debtor of all investment property shall be in
      conformity with performance of the obligations of the applicable Debtor under
      the Loan Documents. 

    


    (b) Whenever
      an Event of Default has occurred and is continuing, the Bank may transfer into
      its name, or into the name of its nominee or nominees, any or all of the
      investment property and, as provided above, may vote any or all of the
      investment property (whether or not so transferred) and may otherwise act with
      respect thereto as though it were the outright owner thereof, the Debtors hereby
      irrevocably constituting and appointing the Bank as the proxy and
      attorney-in-fact of the Debtors, with full power of substitution, to do so.
      The
      Bank
      agrees that unless an Event of Default shall have occurred and be continuing,
      such Debtor shall have the exclusive voting power with respect to any securities
      constituting Collateral, provided that no vote shall be cast, or consent,
      waiver, or ratification given, or action taken by such Debtor that would violate
      any provision of the Loan Agreement or any other Loan Document.

    



    
      
        SECURITY
          AGREEMENT

         

      

      
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    (c) Whenever
      an Event of Default has occurred and is continuing,
      all
      proceeds, stock
      rights, stock dividends, liquidating dividends, new securities, payments,
      distributions and proceeds (including cash dividends and sale proceeds) and
      other property to which any Debtor may become entitled by reason of the
      ownership of any investment property and other Collateral shall be delivered
      (properly endorsed where required hereby or requested by the Bank) to the Bank.
      

    


    (d) The
      Debtors agree that the proxy granted in this Section 5.2 is irrevocable and
      coupled with an interest and is and shall be both valid and irrevocable so
      long
      as the investment property is subject to this Agreement. The Debtors further
      acknowledge that the term of said proxy may exceed three years from the date
      hereof.

    


    4.3 Special
      Remedies Concerning Certain Collateral.

    


    (a) Upon
      the
      occurrence of any Event of Default, the Debtors shall, if requested to do so
      in
      writing, and to the extent so requested promptly collect and enforce payment
      of
      all amounts due the Debtors on account of, in payment of, or in connection
      with,
      any of the Collateral, hold all payments in the form received by the Debtors
      as
      trustee for the Bank, without commingling with any funds belonging to the
      Debtors, and forthwith deliver all such payments to the Bank with endorsement
      to
      the Bank's order of any checks or similar instruments. 

    


    (b) Upon
      the
      occurrence of any Event of Default, the Debtors shall, if requested to do so,
      and to the extent so requested, notify all Obligors and other persons with
      obligations to the Debtors on account of or in connection with any of the
      Collateral of the security interest of the Bank in the Collateral and direct
      such account debtors and other persons that all payments in connection with
      such
      obligations and the Collateral be made directly to the Bank. The Bank itself
      may, upon the occurrence of an Event of Default, so notify and direct any such
      account debtor or other person that such payments are to be made directly to
      the
      Bank. 

    


    (c) Upon
      the
      occurrence of an Event of Default, for purposes of assisting the Bank in
      exercising its rights and remedies provided to it under this Agreement, the
      Debtors (i) hereby irrevocably constitute and appoint the Bank its true and
      lawful attorney, for and in each Debtor's name, place and stead, to collect,
      demand, receive, sue for, compromise, and give good and sufficient releases
      for,
      any monies due or to become due on account of, in payment of, or in connection
      with the Collateral, (ii) hereby irrevocably authorize the Bank to endorse
      the
      name of the Debtors, upon any checks, drafts, or similar items which are
      received in payment of, or in connection with, any of the Collateral, and to
      do
      all things necessary in order to reduce the same to money, (iii) with respect
      to
      any Collateral, hereby irrevocably assent to all extensions or postponements
      of
      the time of payment thereof or any other indulgence in connection therewith,
      to
      each substitution, exchange or release of Collateral, to the addition or release
      of any party primarily or secondarily liable, to the acceptance of partial
      payments thereon and the settlement, compromise or adjustment (including
      adjustment of insurance payments) thereof, all in such manner and at such time
      or times as the Bank shall deem advisable and (iv) hereby irrevocably authorize
      the Bank to notify the post office authorities to change the address for
      delivery of the Debtors' mail to an address designated by the Bank, and the
      Bank
      may receive, open and dispose of all mail addressed to the Debtors.
      Notwithstanding any other provisions of this Agreement, it is expressly
      understood and agreed that the Bank shall have no duty, and shall not be
      obligated in any manner, to make any demand or to make any inquiry as to the
      nature or sufficiency of any payments received by it or to present or file
      any
      claim or take any other action to collect or enforce the payment of any amounts
      due or to become due on account of or in connection with any of the
      Collateral.

    



    
      
        SECURITY
          AGREEMENT

         

      

      
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    ARTICLE
      5

    MISCELLANEOUS

    


    5.1 Remedies
      Cumulative.  No
      right or remedy conferred
      upon or
      reserved to the Bank under any Loan Document is intended to be exclusive of
      any
      other right or remedy, and every right and remedy shall be cumulative in
      addition to every other right or remedy given hereunder or now or hereafter
      existing under any applicable law. Every right and remedy of the Bank under
      any
      Loan Document or under applicable law may be exercised from time to time and
      as
      often as may be deemed expedient by the Bank. To the extent that it lawfully
      may, each Debtor agrees that it will not at any time insist upon, plead, or
      in
      any manner whatever claim or take any benefit or advantage of any applicable
      present or future stay, extension or moratorium law, which may affect observance
      or performance of any provisions of any Loan Document; nor will it claim, take
      or insist upon any benefit or advantage of any present or future law providing
      for the valuation or appraisal of any security for its obligations under any
      Loan Document prior to any sale or sales thereof which may be made under or
      by
      virtue of any instrument governing the same; nor will the Debtors, after any
      such sale or sales, claim or exercise any right, under any applicable law to
      redeem any portion of such security so sold. 

    


    5.2 Conduct
      No Waiver.  No
      waiver of default shall be effective unless in writing executed by the Bank
      and
      waiver of any default or forbearance on the part of the Bank in enforcing any
      of
      its rights under this Agreement shall not operate as a waiver of any other
      default or of the same default on a future occasion or of such right.


    


    5.3 Governing
      Law; Consent to Jurisdiction.  This
      Security Agreement is a contract made under, and shall be governed by and
      construed in accordance with, the law of the State of Michigan applicable to
      contracts made and to be performed entirely within such State and without giving
      effect to choice of law principles of such State. The Debtors agree that any
      legal action or proceeding with respect to this Agreement or the transactions
      contemplated hereby may be brought in any court of the State of Michigan, or
      in
      any court of the United States of America sitting in Michigan, and the Debtors
      hereby submit to and accept generally and unconditionally the jurisdiction
      of
      those courts with respect to their person and property, and irrevocably appoint
      its president, at each Debtor's address set forth in the Loan Agreement, as
      their agent for service of process and irrevocably consent to the service of
      process in connection with any such action or proceeding by personal delivery
      to
      such agent or to the Debtors or by the mailing thereof by registered or
      certified mail, postage prepaid to the Debtors at their address set forth in
      the
      Loan Agreement. Nothing in this paragraph shall affect the right of the Bank
      to
      serve process in any other manner permitted by law or limit the right of the
      Bank to bring any such action or proceeding against the Debtors or their
      property in the courts of any other jurisdiction. The Debtors hereby irrevocably
      waive any objection to the laying of venue of any such suit or proceeding in
      the
      above described courts. The headings of the various subdivisions hereof are
      for
      convenience of reference only and shall in no way modify any of the terms or
      provisions hereof. 

    


    5.4 Notices.
      All
      notices, demands, requests, consents and other communications hereunder shall
      be
      delivered in the manner described in the Loan Agreement .

    


    5.5 Rights
      Not Construed as Duties.  The
      Bank neither assumes nor shall it have any duty of performance or other
      responsibility under any contracts in which the Bank has or obtains a security
      interest hereunder. If the Debtors fail to perform any agreement contained
      herein, the Bank may but is in no way obligated to itself perform, or cause
      performance of, such agreement, and the reasonable expenses of the Bank incurred
      in connection therewith shall be payable by the Debtors under Section 6.8.
      The
      powers conferred on the Bank hereunder are solely to protect its interests
      in
      the Collateral and shall not impose any duty upon it to exercise any such
      powers. Except for the safe custody of any Collateral in its possession and
      accounting for monies actually received by it hereunder, the Bank shall have
      no
      duty as to any Collateral or as to the taking of any necessary steps to preserve
      rights against prior parties or any other rights pertaining to any Collateral.
      

    



    
      
        SECURITY
          AGREEMENT

         

      

      
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    5.6 Amendments.  None
      of the terms and provisions of this Agreement may be modified or amended in
      any
      way except by an instrument in writing executed by each of the parties hereto.
      

    


    5.7 Severability.  If
      any one or more provisions of this Agreement should be invalid, illegal or
      unenforceable in any respect, the validity, legality and enforceability of
      the
      remaining provisions contained herein shall not in any way be affected, impaired
      or prejudiced thereby. 

    


    5.8
       Expenses.  (a) The
      Debtors will, upon demand, pay to the Bank an amount of any and all reasonable
      expenses, including the reasonable fees and disbursements of its counsel and
      of
      any experts and agents, which the Bank may incur in connection with (i) the
      administration of this Agreement, (ii) the custody, preservation, use or
      operation of, or the sale of, collection from or other realization upon, any
      of
      the Collateral, (iii) the exercise or enforcement of any of the rights of the
      Bank hereunder or under the other Loan Documents, or (iv) the failure of the
      Debtors to perform or observe any of the provisions hereof. 

    


    (b)
      The
      Debtors agree to hold harmless and indemnify the Bank from and against any
      and
      all claims, losses and liabilities growing out of or resulting from this
      Agreement (including, without limitation, enforcement of this Agreement), except
      claims, losses or liabilities resulting from the Bank's gross negligence, breach
      of this Agreement, or willful misconduct. 

     

    5.9 Successors
      and Assigns; Termination.  This
      Security Agreement shall create a continuing, absolute, unconditional and
      irrevocable security interest in the Collateral and shall be binding upon the
      Debtors, their successors and assigns (including all persons who become bound
      as
      a Debtor to this Agreement), and inure, together with the rights and remedies
      of
      the Bank hereunder, to the benefit of the Bank and its successors, transferees
      and assigns. Upon the irrevocable payment in full in immediately available
      funds
      of all of the Secured Liabilities and the termination of all commitments to
      lend
      and letters of credit outstanding under the Loan Documents, the security
      interest granted hereunder shall terminate and all rights to the Collateral
      shall revert to the Debtors. Upon a termination of the security interest granted
      hereunder, Debtors shall be authorized to file termination statements, including
      without limitation UCC-3 termination statements with respect to any and all
      filings securing Bank’s interest hereunder.

    


    5.10 Evidence
      of Secured Liabilities.
      The
      Bank's books and records showing the Secured Liabilities shall be admissible
      in
      any action or proceeding, shall be binding upon each Debtor for the purpose
      of
      establishing the Secured Liabilities due from the Borrower and shall constitute
      prima facie proof, absent manifest error, of the Secured Liabilities of the
      Borrower to the Bank. 

    



    
      
        SECURITY
          AGREEMENT

         

      

      
        -10-

        
          

        

      

      
         

      

    


    6.11 Waiver
      of Jury Trial.  The
      Bank, in accepting this Agreement, and the Debtors, after consulting or having
      had the opportunity to consult with counsel, knowingly, voluntarily and
      intentionally waive any right any of them may have to a trial by jury in any
      litigation based upon or arising out of this Agreement or any related instrument
      or agreement or any of the transactions contemplated by this Agreement or any
      course of conduct, dealing, statements (whether oral or written) or actions
      of
      any of them. Neither the Bank nor the Debtors shall seek to consolidate, by
      counterclaim or otherwise, any such action in which a jury trial has been waived
      with any other action in which a jury trial cannot be or has not been waived.
      These provisions shall not be deemed to have been modified in any respect or
      relinquished by either the Bank or the Debtors except by a written instrument
      executed by all of them. 

    


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      remainder of this page is left blank intentionally.]


    
      
        SECURITY
          AGREEMENT

         

      

      
        -11-

        
          

        

      

      
         

      

    


    IN
      WITNESS WHEREOF, the Debtors have caused this Agreement to be duly executed
      as
      of the day and year first set forth above. 

    


    
      	 	
              ADVANCED
                PHOTONIX, INC.

            
	 	 
	 	 
	 	
              By:   
                /s/ Richard Kurtz

            
	 	 
	 	
              Title: CEO

            
	 	 
	 	 
	 	
              SILICON
                SENSORS, INC.

            
	 	 
	 	 
	 	
              
                By:   
                  /s/ Richard Kurtz

              

            
	 	 
	 	
              Title:
                CEO

            
	 	 
	 	 
	 	
              PICOMETRIX,
                LLC

            
	 	 
	 	 
	 	
              
                By:   
                  /s/ Richard Kurtz

              

            
	 	 
	 	
              Title:
                President

            
	 	 


    

    


    Accepted
      and Agreed:

    


    


    FIFTH
      THIRD BANK, as Bank 

    


    


    By:   
      /s/Tonya
      R. Gietzen

    


    Title:
      Vice President

    


    
      
        SECURITY
          AGREEMENT

         

      

      
        -12-