October 16, 1996

Mr. James W. Ward
c/o Advanced Photonix, Inc.
1240 Avenida Acaso
Camarillo, California  93012


Dear James:

This  letter  sets  forth  the  terms  and  conditions  of  our  agreement  (the
"Agreement")   regarding  the  termination  of  your  employment  with  Advanced
Photonix,  Inc. (the  "Company").  This Agreement is made and entered into as of
October 16, 1996 (the  "Effective  Date").  You and the Company  hereby agree as
follows:

1. You will no longer be  Chairman  of the Board,  Chief  Executive  Officer and
President of the Company  effective as of October 16, 1996.  You and the Company
agree that you shall  remain a  transition  employee  of the  Company  until the
earlier to occur of (the "Separation  Date"):  (i) July 16, 1997; (ii) such time
as you secure  employment  outside the Company  which  provides  you with annual
compensation in an amount equal to or greater than your current base salary;  or
(iii) such time as you secure  employment  outside the Company which  presents a
conflict of interest with the Company.

a) You may submit, at any time prior to the Separation Date,  written request to
the Company for a determination  as to whether any particular  employment  would
present a conflict of interest with the Company. Such request shall be delivered
to the Chief Executive  Officer of the Company and shall set forth in reasonable
detail all relevant facts regarding such  employment,  including but not limited
to the name of the  employer,  the type of business  engaged in by such employer
and the specific duties to be performed by you for such employer.

b) Should the Company determine that such employment would present a conflict of
interest  with the  Company,  it shall inform you of such  determination  within
seven (7) business days of the date the Company  receives any request  submitted
in accordance with  subparagraph  (a) above, and shall set forth with reasonable
detail the basis for its determination.

c) Any failure by the Company to respond to a request  submitted  in  accordance
with  subparagraph  (a) above within  seven (7)  business  days of the date such
request is received shall be deemed to be, for the purposes of this Agreement, a
determination  by the Company that such employment  would not present a conflict
of interest with the Company.

2. During the period commencing as of the Effective Date hereof and ending as of
the Separation Date (the "Transition Period"), we will facilitate the transition
of your employment as follows:

a) During the Transition  Period,  you shall be responsible  for such transition
activities as may be reasonably assigned by the Company's President and/or Chief
Executive Officer ("CEO"). Any such activities shall be appropriately suited for
an individual of your education, employment history and business experience. You
shall not be required to perform any activities  that would  interfere with your
efforts to secure other  employment and you shall not be required to perform any
activities that would interfere with any other employment you secure.  You agree
that,  throughout  the Transition  Period,  you will continue to be bound by the
Company's  policies,  procedures  and  practices,  to the extent such  policies,
procedures and practices do not conflict with the provisions of this  Agreement.
You shall report to the CEO throughout the Transition Period.

<PAGE>


James W. Ward
October 16, 1996
Page 2

b) During  the  period  commencing  on  October  16,  1996 and  ending as of the
Separation Date, the Company will continue to pay you your base salary in effect
as of the Effective  Date,  such  payments to be paid on the  Company's  current
payroll dates and subject to  withholding  of any and all  applicable  state and
federal  taxes  and  any  and  all  applicable  payroll  withholding  taxes  and
obligations; provided that

     i)   After April 16, 1997,  the salary paid to you in accordance  with this
          subparagraph (b) shall be reduced by any and all  compensation  earned
          or received by you during the  Transition  Period from  sources  other
          than the  Company,  including  but not  limited  to any and all wages,
          salaries,  bonuses,  commissions and/or consulting fees, but excluding
          any  interest,  dividends,  investment  income and  income  from other
          non-employment  activities.  You agree to notify  the  Company of such
          compensation  within five (5) business  days of the earlier of (i) the
          receipt  of such  compensation,  or (ii) the date on which you  become
          entitled to receive such compensation.

     ii)  In the event the  Separation  Date occurs prior to April 16, 1997, the
          Company  shall pay you  severance  benefits  equal to (i) your monthly
          base  salary  multiplied  by (ii) the  number of months  (or  portions
          thereof)  remaining  between the  Separation  Date and April 16, 1997,
          such  benefits  to be paid  in  equal  payments  coincident  with  the
          Company's  current payroll dates and subject to withholding of any and
          all  applicable  state and  federal  taxes and any and all  applicable
          withholding taxes and obligations.

c) In the event the  Separation  Date occurs prior to May 10, 1997,  the Company
shall take all necessary  action to accelerate  the vesting of the stock options
granted to you prior to the  Effective  Date,  such that the number of shares of
the Company's common stock you are entitled to purchase pursuant to such options
as of the Termination Date equals the number of shares of common stock you would
have been entitled to purchase pursuant to such options as of May 10, 1997.

d) If you become unable to perform activities  pursuant to this Agreement due to
partial or total  disability or incapacity  resulting  from a mental or physical
illness,  injury or other cause,  the Company will  continue the payment of your
base  salary,  as such may be reduced by  subparagraph  (b) above,  through  the
Separation Date. If you die before the Separation  Date, all payments  hereunder
shall cease at the end of the  calendar  month in which your death  occurs or at
the Separation Date, whichever is earlier, and the Company shall have no further
obligations or liabilities  hereunder to your estate or legal  representative or
otherwise.

e)  Commencing  as of the  Effective  Date,  you shall  have no power,  right or
authority to execute  contracts on behalf of the Company or otherwise  represent
or purport to represent the Company in any manner  whatsoever to any third party
unless  expressly  authorized  to do so in  writing  by the CEO of the  Company;
provided,  however,  that no provision of this  Agreement  shall be construed as
limiting or expanding your rights, or authority to act, as a member of the Board
of Directors of the Company.

f) The Company will pay you,  within 20 business days of the Effective Date, the
128.45  hours of  accrued  and  unused  vacation  time you  earned  through  the
Effective Date,  subject to standard payroll  deductions and  withholdings.  You
shall not accrue,  nor shall you be entitled to, any paid  vacation  time during
the Transition Period.

g) To the extent permitted by the Company's  employee benefit plans, you will be
entitled to continue,  until the  Separation  Date,  your  participation  in all
employee benefit plans in which you are currently a participant.

h) During the  Transition  Period,  you agree that you will use your  reasonable
best  efforts  to  secure  employment  for which you are  suitably  trained  and
experienced.

<PAGE>
James W. Ward
October 16, 1996
Page 3


3. You will be entitled  to keep the  personal  computer  provided to you by the
Company,  provided that,  within five (5) business days of the Separation  Date,
you execute the Release  attached hereto as Exhibit A. You agree that, if you do
not execute the Release attached hereto as Exhibit A within five (5) days of the
Separation Date, you shall return the personal  computer  provided to you by the
Company within ten (10) business days of the Separation Date.

4. You  hereby  acknowledge  that,  except  as  expressly  provided  in (i) this
Agreement,  (ii) your Incentive  Stock Option dated January 15, 1995, as amended
May 1, 1995, and (iii) your  Non-Qualified  Stock Option dated January 15, 1995,
as amended May 1, 1995, all benefits and compensation to which you may otherwise
be entitled pursuant to any other agreement, written or oral, entered into prior
to this Agreement shall cease as of the Effective Date.

5. You hereby agree that you will not, until January 17, 1997, without the prior
written consent of the Company, exercise any of the stock options granted to you
prior to the Effective Date.

6. You hereby  represent  and warrant to the Company  that,  to the best of your
actual,   present  knowledge,   you  have  previously   disclosed  all  material
transactions  involving,  arising from or relating to your  employment  with the
Company as Chairman of the Board, Chief Executive Officer and President.

7.  You  acknowledge  and  agree  that  you  will  continue  to be  bound by the
provisions of Section 11 of your employment  Agreement dated January 15, 1995, a
copy of which is attached hereto as Exhibit B, which provisions are incorporated
herein by reference.

8. You agree not to disparage the Company or its officers, directors, employees,
stockholders,  accountants,  attorneys  or  agents  in any  manner  likely to be
harmful to it or the business or personal reputation of its officers, directors,
employees,  stockholders,  accountants,  attorneys or agents;  provided that you
shall  respond  accurately  and fully to any  question,  inquiry or request  for
information when required by legal process.  The Company agrees not to disparage
you in any manner likely to be harmful to your business or personal  reputation;
provided that the Company shall  respond  accurately  and fully to any question,
inquiry or request for information when required by legal process.

9. The Company  hereby  represents  and warrants to you that, to the best of the
Company's  actual,  present  knowledge,  the Company does not have any claims or
causes of action  against you arising from or relating to your  employment  with
the Company or any agreements,  acts or conduct at any time prior to the date of
this  Agreement.  As used  herein,  the phrase "the  Company's  actual,  present
knowledge"  means  the  actual  present  knowledge  of  Robert  Allison,   Harry
Melkonian, Patrick Holmes and Robert King.

10. You hereby release, acquit, and forever discharge the Company, its officers,
directors,  agents, servants,  employees,  shareholders,  partners,  successors,
assigns, affiliates, insurers, attorneys, customers, and clients of and from any
and all liabilities,  demands,  causes of action,  costs,  expenses,  attorneys'
fees,  damages,  and obligations of every kind and nature, at law, in equity, or
otherwise,  known  and  unknown,   suspected  and  unsuspected,   disclosed  and
undisclosed, arising out of or in any way related to agreements, acts or conduct
at any time prior to the date of this Agreement,  including, without limitation:
all such claims and  demands  directly  or  indirectly  arising out of or in any
connected  with  the  Company's  employment  of  you,  the  termination  of that
employment,  and the Company's  performances  of its  obligations as your former
employer;  claims or demands  related to salary,  bonuses,  commissions,  stock,
stock options, vacation pay, fringe benefits, expense reimbursements or any form
of compensation;  claims pursuant to any federal, state or local law or cause of
action  including,  but not limited to, the federal Civil Rights Act of 1964, as
amended;  the  Americans  With  Disabilities  Act;  fraud;  wrongful  discharge;
discrimination;  defamation;  emotional  distress,  and  breach  of the  implied
covenant of good faith and fair dealing;  provided,  however, that the foregoing
release   shall  not   include  a  release   of  any  rights  you  may  have  to
indemnification  by the Company  with respect to claims  brought  against you by
third parties in connection with your performance within the course and scope of
your  employment  with the Company  and/or your  performance  as a member of the
Board of Directors of the Company.
<PAGE>
James W. Ward 
October 16, 1996
Page 4

You further  acknowledge  that you are  knowingly  and  voluntarily  waiving and
releasing any rights you may have under the Age Discrimination in Employment Act
of 1967 ("ADEA").  You also  acknowledge  that the  consideration  given for the
waiver and release in the preceding paragraphs hereof is in addition to anything
of value to which you were  already  entitled.  If you are more than  forty (40)
years of age or older  when this  release  is signed,  you  hereby  provide  the
further  acknowledgment that you are advised by this writing, as required by the
Older Workers  Benefit  Protection Act, that: (a) your waiver and release do not
apply to any rights or claims  that may arise after the  effective  date of this
release; (b) you should consult with an attorney prior to executing this release
(although  you may  voluntarily  choose not to do so); (c) you may have at least
twenty-one  (21) days to consider this  Agreement  (although you may by your own
choice execute this release earlier);  (d) you have seven (7) days following the
execution of this release to revoke this release;  and (e) this Agreement  shall
not be effective  until the date upon which the  revocation  period has expired,
therefore  making the Effective Date the eighth day after this release is signed
by you.

11. You acknowledge  that you have read and  understand,  and that your attorney
has explained to you,  Section 1542 of the Civil Code of the State of California
which reads as follows:

             A general release does not extend to claims which the creditor does
               not  know  or  suspect  to  exist  in his  favor  at the  time of
               executing the release, which if known by him must have materially
               affected  his  settlement  with  the  debtor.

You hereby  expressly  waive and  relinquish  all rights and benefits under this
section and any law or legal  principle  of similar  effect in any  jurisdiction
with respect to the release granted in this Agreement.

12. The parties hereto each hereby agree and acknowledge that they will keep the
terms, amount and existence of this Agreement completely confidential,  and that
neither party will hereafter  disclose any such information to anyone other than
the  party's  accountants  and legal  representatives  and,  in your case,  your
immediate  family,  future  employers and/or  investors,  which persons shall be
informed of and bound by this confidentiality  clause,  unless otherwise legally
required to do so.

13. Any  controversy,  dispute or claim arising out of, in connection with or in
relation  to the  interpretation  or  performance  of this  Agreement  shall  be
resolved  through  binding and  nonappealable  arbitration  administered  by the
Judicial Arbitration and Medication Services, Inc. ("JAMS") in San Diego County,
California.  Any such arbitration  shall be conducted before a single arbitrator
to be appointed by the parties from JAMS'  roster.  If the parties fail to agree
as to the identity of the single  arbitrator,  JAMS shall have the right to make
such appointment. Discovery prior to the arbitration hearing shall be limited to
the exchange of witness lists and copies of  documentary  evidence and documents
relating to or arising  out of the issues to be  arbitrated.  The  nonprevailing
party shall pay the prevailing party's costs and expenses (including  attorneys'
fees) of any such arbitration.  Other than as specified herein,  the arbitration
shall be governed by the standard rules governing JAMS arbitrations.

14. The parties  acknowledge that the drafting and negotiation of this Agreement
has been  participated in by each of the parties and their respective  attorneys
and, for purposes of  interpreting  this  Agreement,  it shall be deemed to have
been jointly drafted by the parties. The parties expressly warrant and represent
that they have been given the  opportunity  to  consult  with an  attorney  with
respect to the terms of this Agreement.

15. The parties hereto hereby  acknowledge that this is a compromise  settlement
of various  matters,  and that the promised  payments in  consideration  of this
Agreement  shall  not  be  construed  to be an  admission  of any  liability  or
obligation by either party to the other party or to any other person whomsoever.

16. This Agreement shall bind the heirs,  personal  representatives,  successors
and assigns of each party,  and inure to the benefit of each party,  its agents,
directors, officers, employees, servants, successors and assigns.

17. If a court of competent  jurisdiction  determines that any term or provision
of this  Agreement is invalid or  unenforceable,  in whole or in part,  then the
remaining terms and provisions hereof shall be unimpaired.  Such court will have
the  authority  to  modify or  replace  the  invalid  or  unenforceable  term or
provision with a valid and  enforceable  term or provision that most  accurately
represents  the parties'  intentions  with respect to the invalid or enforceable
term or provision.

<PAGE>
James W. Ward
October 16, 1996
Page 5

18.  This  Agreement  shall be  deemed to have  been  entered  into and shall be
construed and enforced in accordance with the laws of the State of California as
such laws are applied to contracts  among  California  residents  made and to be
performed entirely within California.

19. This  Agreement may be executed in two or more  counterparts,  each of which
shall be deemed an original,  but all of which together shall constitute one and
the same instrument.

20. This Agreement  constitutes the complete,  final and exclusive embodiment of
the entire  Agreement  between  you and the  Company  with regard to the subject
matter  hereof.   It  is  entered  into  without  reliance  on  any  promise  or
representation, written or oral, other than those expressly contained herein. It
may not be  modified  except  in a  writing  signed  by you and duly  authorized
officer of the Company.  Each part has carefully read this  Agreement,  has been
afforded the opportunity to be advised of its meaning and consequences by his or
its respective attorneys, and signed the same of his or its free will.

Please  confirm  your  assent  to the  foregoing  terms  and  conditions  of our
Agreement by signing both of the  enclosed  copies of this letter and  returning
one of those signed copies to me.

Sincerely,

ADVANCED PHOTONIX, INC.



/s/ Robert G. Allison
Chief Executive Officer



Having read and reviewed the  foregoing,  I hereby agree to and accept the terms
and conditions as stated above.



/s/ James W. Ward

<PAGE>

                                   EXHIBIT A


RELEASE

In consideration for the provision by the Company of a personal computer, as set
forth under paragraph 3 of the foregoing  letter, a benefit to which you are not
otherwise  entitled,  you hereby release and forever discharge the Company,  its
officers,  directors, agents, attorneys,  employees,  stockholders,  successors,
assigns and affiliates,  of and from any and all claims,  liabilities,  demands,
causes of action,  costs,  expenses,  attorneys' fees, damages,  indemnities and
obligations of every kind and nature,  in law, equity,  or otherwise,  known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or
in any way related to agreement,  events, acts or conduct through the Separation
Date,  including,  but not limited  to: all such  claims or demands  directly or
indirectly  arising out of my employment or the  termination  of my  employment,
claims or demands related to salary, bonuses, commissions, stock, stock options,
or any other ownership interests in the Company,  vacation pay, fringe benefits,
expense reimbursements,  severance pay, sabbatical benefits or any other form of
compensation;  claims  pursuant to any  federal,  state or local law or cause of
action  including,  but not limited to, the federal civil Rights Act of 1964, as
amended; the California Fair Employment and Housing Act, as amended; the federal
Americans  with  Disabilities  Act of 1990;  the federal Age  Discrimination  in
Employment  Act of 1967,  as amended;  other  discrimination  claims;  tort law;
contract law; wrongful discharge;  emotional distress; and breach of the implied
covenant of good faith and fair dealing;  provided,  however, that the foregoing
release   shall  not   include  a  release   of  any  rights  you  may  have  to
indemnification  by the Company  with respect to claims  brought  against you by
third parties in connection with your performance within the course and scope of
your  employment  with the Company  and/or your  performance  as a member of the
Board of Directors of the Company.

You further  acknowledge  that you are  knowingly  and  voluntarily  waiving and
releasing any rights you may have under the Age Discrimination in Employment Act
of 1967 ("ADEA").  You also  acknowledge  that the  consideration  given for the
waiver and release in the preceding paragraphs hereof is in addition to anything
of value to which you were  already  entitled.  If you are more than  forty (40)
years of age or older  when this  release  is signed,  you  hereby  provide  the
further  acknowledgment that you are advised by this writing, as required by the
Older Workers  Benefit  Protection Act, that: (a) your waiver and release do not
apply to any rights or claims  that may arise after the  effective  date of this
release; (b) you should consult with an attorney prior to executing this release
(although  you may  voluntarily  choose not to do so); (c) you may have at least
twenty-one  (21) days to consider this  Agreement  (although you may by your own
choice execute this release earlier);  (d) you have seven (7) days following the
execution of this release to revoke this release; and (e) this release shall not
be  effective  until the date upon  which the  revocation  period  has  expired,
therefore  making the  effective  date of this release the eighth day after this
release is signed by you.

You acknowledge that you have read and understand section 1542 of the Civil Code
of the State of California which reads as follows:

A general  release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of  executing  the  release,  which if
known by him must have materially affected his settlement with the debtor.

You hereby  expressly  waive and  relinquish  all rights and benefits under that
section and any similar law of any jurisdiction  with respect to the release you
are granting in this Release.



Date:___________________
NOT SIGNED AS OF 6/23/97
-----------------------
JAMES W. WARD

<PAGE>
                                   EXHIBIT B
                              EMPLOYMENT AGREEMENT

See Item 14(a)(3) Exhibit No. 10.8 of this Form 10-K.

<PAGE>

February 10th, 1997


Mr. James W. Ward
28 Beaconsfield
Dove Canyon, CA  92679


Dear Jim,


This letter serves to amend your  separation  agreement with Advanced  Photonix,
Inc. as follows:

Whereas,  Mr.  Ward has been asked by the Board of  Directors  to take an active
role in the  further  validation  and  development  of the Large Area  Avalanche
Photodiode and Large Area Array Photodiode and;

Whereas,  Mr. Ward has agreed to provide the effort  necessary to assist in this
process and;

Whereas,  the Company recognizes that such activity will deter Mr. Ward from his
continuing job search and;

Whereas,  the Company  would like to provide  fair  compensation  to Mr. Ward in
exchange for the efforts required to support the validation process;

Now,  Therefore,  it is  hereby  agreed by and  between  the  parties  hereto as
follows:

     1. The  Transition  Period shall be extended from April 16th,  1997 to June
     16th, 1997.

     2. The Separation  Date shall be extended from July 16th, 1997 to September
     16th, 1997.

Pursuant  to this  amendment, the Company  will change thearticles as described
under items 1, 2, and 4 to match the dates as set forth within this  amendment.
You  acknowledge that all other  elements of your agreement in their original
form remain in force.

Please sign below your acceptance of this amendment.


Sincerely,

/s/  Robert G. Allison
Director


Accepted by:

/s/  James W. Ward      Date Accepted:  2-11-97