exhibit10-1.htm


    Exhibit 10.1

     

    DOC-1497

     

    DEBT CONVERSION
AGREEMENT

     

         This Debt Conversion
Agreement (this
“Agreement”) is entered into as of May 12, 2010 (the “Signing Date”) by and
among Picometrix, LLC (formerly known as Picotronix, Inc. doing business as
Picometrix, Inc.), a Delaware limited liability company whose address is 2925
Boardwalk Drive, Ann Arbor, Michigan 48104 (the “Company”), Advanced Photonix,
Inc., a Delaware corporation, whose address is 2925 Boardwalk Drive, Ann Arbor,
Michigan 48104 (“API”), and the Michigan Economic Development Corporation, a
public body corporate, whose address is 300 North Washington Square, Lansing,
Michigan 48913 (the “MEDC”). The Company, API and the MEDC may be referred to
individually as “Party” or collectively as “Parties.” 

     

    Recitals

     

         WHEREAS, pursuant to that certain Loan
Agreement dated as of September 15, 2004 (the “2004 Loan Agreement”) by and
between the Company and the MEDC, the MEDC made available to the Company a line
of credit up to an aggregate principal amount of One Million Twenty Four
Thousand Five Hundred Twenty Six Dollars ($1,024,526) pursuant to a Promissory
Note (Line of Credit) dated as of September 15, 2004 (the “2004 Note”), as
amended. The 2004 Loan Agreement and 2004 Note are collectively referred to as
“2004 Loan Documents”;

     

         WHEREAS, the Company is wholly owned
by API, a publicly traded company;

     

         WHEREAS, upon the Closing Date, the MEDC
and the Company desire to execute and deliver to each other an Amendment Three
to the 2004 Loan Documents (“Amendment Three”), the Company desires to execute
and deliver to the MEDC the Third Amended and Restated Promissory Note made part
of Amendment Three (the “New Note”), and API desires to execute and deliver to
the MEDC an unconditional and irrevocable Guaranty of the payment and
performance obligations of the Company under this Agreement and the 2004 Loan
Documents, as amended, (the “Guaranty Agreement”);

     

         WHEREAS, in addition to the execution and
delivery of Amendment Three by the MEDC and the Company, the execution and
delivery of the New Note to the MEDC by the Company, and the execution and
delivery of the Guaranty Agreement by API to the MEDC, the MEDC and the Company,
agree to convert, upon the Closing Date, the accrued and unpaid interest owing
as of November 30, 2009 under the 2004 Note, in the amount of Three Hundred
Twenty Four Thousand Six Hundred Sixty Nine and 20/100 Dollars ($324,669.20)
(the “Interest Indebtedness”), into unregistered shares of Class A Common Stock
of API at the price per share of Fifty Four Cents ($.54) (the
“Conversion”);

     

         WHEREAS, as a result of the Conversion,
the Class A Common Stock of API shall be issued to the MEDC, and the MEDC shall
have the rights, privileges and preferences of a holder of Class A Common Stock
of API in accordance with the API’s Certificate of Incorporation, as amended, a
copy of which is attached as EXHIBIT A (“API’S Articles”);

     

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         WHEREAS, the MEDC will have certain
contractual rights and obligations with respect to its Class A Common Stock
identical to those that are applicable to the holders of Class A Common Stock of
API;

     

         WHEREAS, the Class A Common Stock of API
to be issued pursuant to this Agreement will not be registered under and have
not been registered under the Securities Act of 1933, as amended (the
“Securities Act”).

     

         NOW THEREFORE, in consideration of the
foregoing, and of the terms and conditions set forth in this Agreement, the
Parties agree as follows:

     

         1. Execution and
Delivery of Loan Documents. On the
Closing Date, the Parties
(as applicable) shall cooperate, and sign and deliver (a) Amendment Three,
substantially in the form attached hereto as Exhibit B, (b) the New Note,
substantially in the form attached to Amendment Three, and (c) the Guaranty
Agreement, substantially in the form attached hereto as Exhibit C and all other
documents reasonably necessary to effectuate the transactions contemplated
therein.

     

         2. Conversion of
Interest Indebtedness. On the
Closing Date, the Company
and API shall cause the Interest Indebtedness to be converted into Six Hundred
One Thousand Two Hundred Thirty Nine (601,239) validly issued, fully paid and
non-assessable unregistered Class A Common Stock of API (“Shares”). The Shares
represent the equivalent of the conversion of the Interest Indebtedness divided
by the price per share of Fifty Four Cents ($.54) of the Class A Common Stock of
API, rounded down to the nearest whole share. On the Closing Date, API shall
issue the Shares to the MEDC, and upon issuance of the Shares to the MEDC, the
Interest Indebtedness shall be deemed cancelled and extinguished in its
entirety.

     

         3. Closing;
Pre-closing Covenants. 

     

              (a) The closing of the transactions
contemplated hereby (the “Closing”) shall occur as soon as practicable, but no
later than ten (10) business days (unless otherwise agreed to in writing by the
Parties or terminated as provided under Section 8), after the date the MEDC has
received from API, written notification, and copies, of both of the: (a)
approval from NYSE Amex of the listing application submitted by API in
connection with the Conversion (the “Approval”) and (b) consent (the “Bank
Consent”) from The PrivateBank and Trust Company (the “Bank”) as required under
that certain Loan Agreement, dated September 25, 2008, between API and the
Bank.

     

              (b) The Company and API shall each within
ten (10) business days after the Signing Date (unless otherwise agreed in
writing by the Parties) take or cause to be taken such actions as may be
required to request the Approval and the Bank Consent, and provide copies of the
requests to the MEDC as soon as practical thereafter, but in no event later than
five (5) business days thereafter. The Company and API shall thereafter use
commercially reasonable efforts to cooperate to obtain the Approval and the Bank
Consent, and the MEDC shall use commercially reasonable efforts to cooperate
with the Company and API to provide additional information reasonably requested
by the Company or API in their pursuit to obtain the Approval and Bank Consent.
API shall promptly deliver to the MEDC copies of the Approval and the Bank
Consent upon its receipt thereof.

     

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              (c) Written notifications and copies
required to be delivered by API to the MEDC under this Section 3 may be
delivered by facsimile or by e-mail to the MEDC, to the attention of Linda R.
Asciutto, fax: (517) 241- 5968, or asciuttol@michigan.org, or
to such other persons, fax numbers or e-mail addresses as may be
provided.

     

         4. Grant of Put
Option. In addition
to any other provisions in API’s Articles, API grants and conveys to the MEDC
the further right, to the extent permitted by Michigan Law, but not the
obligation, (the “Put Option”) to sell back to API the Shares received by the
MEDC pursuant to this Agreement (including without limitation, appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization of such stock) (collectively, the “MEDC Equity
Interest”) in accordance with the following:

     

              (a)
Definitions:

     

                   (i)
“Trigger Event” means any one or more of the following:

     

                        (1) when either the Company or API, or
both, relocate substantially all of their respective current Michigan employees
(exclusive of sales staff) or current Michigan operations outside of Michigan;
or

     

                        (2) with respect to the Company or API,
the occurrence of an event listed in MCL 125.2008c(4) for which grants or loans
shall not be used.

     

                   (ii) “Qualified Appraiser” means an
independent appraiser qualified in valuing equity interests in companies
selected by the MEDC and reasonably acceptable to API.

     

              (b) Exercise of Option. At any time during the one hundred twenty (120) calendar day period after
notice of a Trigger Event (the “Exercise Period”), the MEDC shall have the
option to exercise the Put Option by providing notice of this election to API
(the “Notice of Option Exercise”). The Exercise Period shall not commence until
API has provided written notice in reasonable detail of the facts and
circumstances of the Trigger Event to the MEDC. In addition, the Exercise Period
shall be extended indefinitely if API fails to provide information reasonably
necessary for the MEDC to exercise its Put Option. The closing date for the sale
of the MEDC Equity Interest to API shall be on a date mutually acceptable to the
MEDC and API but in no event later than sixty (60) calendar days after API’s
receipt of the Notice of Option Exercise (the “Put Closing Date”). In the event
that the Put Option is not exercised during the Exercise Period, the Put Option
shall immediately terminate and be of no further force and effect.

     

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              (c) Purchase Price. The purchase price for the MEDC Equity Interest (the “Option Price”)
shall be the Fair Market Value (as defined in this section) of the MEDC Equity
Interest on the Put Closing Date. The “Fair Market Value” of the MEDC Equity
Interest shall mean: (a) the average of the closing price of API’s Class A
Common Stock traded on the NYSE Amex or any other then applicable public trading
exchange during the seven (7) trading days immediately preceding the date of the
Trigger Event; or (b) if subparagraph (a) does not apply, the Fair Market Value
of the MEDC Equity Interest shall be as determined by a written appraisal of API
obtained by API within the twelve (12) month period up to and including the
Trigger Event from a qualified appraiser that the MEDC reasonably agrees
qualifies for purposes of such valuation, a copy of which appraisal API provides
to the MEDC; (c) if neither of subparagraphs (a) or (b) apply, the value of the
MEDC Equity Interest shall be as established in an “arms-length” transaction
between API and any unrelated third party in connection with the most recent
equity investment in API occurring within the six (6) month period up to and
including the Trigger Event; and (d) if none of subparagraphs (a), (b) or (c)
apply, the Fair Market Value of the MEDC Equity Interest shall be determined by
appraisal of API by a Qualified Appraiser, taking into account any and all
discounts and premiums appropriate in the judgment of the Qualified Appraiser.
Any fees or expenses incurred in connection with the appraisal under subsection
(d) shall be borne and paid by the MEDC.

     

              (d) API’s Deliverables. On the Put Closing Date and upon API’s receipt of the deliverables set
forth in Section 4(e), API shall: (a) deliver the Option Price (either by check
or wire transfer as selected by the MEDC); and (b) execute and deliver to the
MEDC such other documents and instruments as may be reasonably requested by the
MEDC and its legal counsel (“API Deliverables”).

     

              (e) MEDC’s Deliverables. On the Put Closing Date, the MEDC shall: (a) execute and deliver to API a
document, mutually agreeable to API and the MEDC, selling the MEDC Equity
Interest to API, free and clear of all liens, claims and encumbrances; (b)
deliver to API all original certificates evidencing the MEDC Equity Interest;
and (c) execute and deliver to API such other documents and instruments as may
be reasonably requested by API and its legal counsel.

     

              (f) Survival. This
Section 4 shall survive the Closing; provided however, that if the MEDC Equity
Interest is listed on a national securities exchange and can be sold without
restriction under Rule 144 and any other applicable rule or regulation as
promulgated under the Securities Act, as amended (“Securities Act’) this Section
4 shall have no further effect.

     

         5. Annual Progress
Reports. For so long
as MEDC holds stock of API, the Company and API shall on or before September 30 of each calendar year,
cause submission of an annual progress report in the manner set forth for other
reports due under the 2004 Loan Agreement, containing the following
information:

     

              (a) The entity that has received funding,
the amount received and the type of funding;

     

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              (b) The number of new patents,
copyrights, or trademarks applied for and issued by the Company and
API;

     

              (c) The number of new start-up businesses
created by the Company and API;

     

              (d) The number of new jobs created and
projected new job growth of the Company and API;

     

              (e) Amounts of other funds received or
leveraged so the Portfolio Manager can determine the amount the Company and API
has leveraged from other sources for the project;

     

              (f) Money or other revenues or property
returned by the Company and API to the investment fund;

     

              (g) The total number of new licensing
agreements by institution and the number of new licensing agreements entered
into by the Company and API with Michigan firms; and

     

              (h)
Products commercialized by the Company and API.

     

         6. Company and
API Representations and Warranties. As of the Signing Date and the Closing Date (unless
otherwise specified below), the Company and API, jointly and severally,
represent and warrant:

     

              (a) Organization. Each of the Company and API are duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and each are duly
qualified and in good standing under the laws of the State of Michigan. Each has
the organized power and authority to enter into and perform their respective
obligations under this Agreement. The Company and API each have their respective
principal offices and business operations and employees located within the State
of Michigan. The sole member of the Company is API.

     

              (b) Authority. The
execution, delivery and performance by the Company and API of this Agreement
will not violate any material provision of law or any provision of the Company’s
Certificate of Formation or operating agreement, or of API’s Articles or bylaws,
or result in the breach of or constitute a default or require any consent (other
than the Bank Consent) under, or result in the creation of any lien, charge,
restriction, claim or encumbrance upon, any property or assets of the Company or
API under any indenture or other agreement or instrument to which the Company or
API is a party, or constitute a violation of any law, rule, regulation, order,
judgment, or decree (including any federal and state securities laws and
regulations and the rules and regulations of the NYSE Amex) by which the Company
or API or either of its properties may be bound or affected. This Agreement is
valid, binding, and enforceable in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, moratorium, reorganization or other laws
or affecting the enforcement of creditors’ rights generally or by general
principles of equity. API’s Articles have not been altered or amended, and API
shall not alter or amend API’s Articles without the prior written approval of
the MEDC if such alteration or amendment adversely affects MEDC in a manner
different than the other holders of API’s Class A Common Stock.

     

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              (c) Consents. All
action on the part of the Company and API, their respective officers, directors,
and managers, members, and shareholders necessary for the authorization,
execution, delivery and performance of the Company and API under this Agreement
have been taken by the Company and API, respectively. None of API’s Class A
Common Stock is subject to any preemptive or similar rights held by other
holders of any equity interest in API. Subject to the Approval, API is not in
violation of the listing requirements of the NYSE Amex and has no knowledge of
any facts which would reasonably lead to delisting or suspension of its common
stock in the foreseeable future.

     

              (d) SEC Documents;
Financial Statements. During the two (2) years prior to the
Signing Date, API has filed, and for the period from and after the Signing Date
through the Closing Date, and for so long as the MEDC Equity Interest is not
free of restriction from transfer under Rule 144 and any other applicable rule
or regulation as promulgated under the Securities Act, API shall file, all
reports, schedules, forms, statements and other documents (“SEC Documents”)
required to be filed by it with the Securities and Exchange Commission (“SEC”)
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (“1934 Act”). All SEC Documents filed have complied, and all SEC
Documents to be filed as required hereunder shall comply, in all material
respects with the requirements of the 1934 Act, and the rules and regulations of
the SEC.

     

              (e) Full Disclosure. There are no undisclosed facts, which materially adversely affect or, to
the best of the Company’s or API’s knowledge, are likely to materially adversely
affect the properties, business, or condition (financial or otherwise) of the
Company or API or the ability of the Company or API to perform their respective
obligations under this Agreement.

     

              (f) Litigation or Other Proceedings. To the knowledge of the Company and API,
and their respective officers, directors, and managers, except as otherwise
publicly reported by API to the SEC under the 1934 Act, there are no suits or
proceedings pending or threatened against the Company or API, before any court,
governmental commission, board, bureau, or other administrative agency or
tribunal, which, if resolved against the Company or API, as applicable, would
have a material adverse effect on the financial condition or business of the
Company or API or impair the Company’s or API’s ability to perform their
respective obligations under this Agreement.

     

              (g) Compliance with Laws. To their respective knowledge, neither the Company or API are in
violation of any laws, ordinances, regulations, rules, orders, judgments,
decrees or other requirements imposed by any governmental authority to which
either are subject and neither has failed to obtain any licenses, permits or
other governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective business, profits, properties
or condition (financial or otherwise).

     

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              (h) Capitalization; Fully Paid Stock; Taxes.
The authorized
capital stock of API is set forth in API’s Articles. The issued and outstanding
shares of the stock, options (including granted and outstanding and remaining
reserved options) warrants, and other convertible securities of API (not
including the Shares to be issued to the MEDC under this Agreement) are set
forth in API’s latest public filing required by the SEC to include such
information. The securities to be issued with respect to the Shares and
delivered in connection with the Conversion shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable, and free of
restriction on transfer other than as provided by Rule 144 of the Securities
Act. API will pay, when due and payable, all federal and state stamp, original
issue or similar taxes, if any, which are payable in respect of the issuance of
the Shares or certificates.

     

         7. Limited
Transferability. MEDC
acknowledges that the Shares have not been registered under the Securities Act
and may be transferred only pursuant to an effective registration under the
Securities Act or an exemption from the registration requirements of the
Securities Act, and otherwise in compliance with applicable state securities
laws. The certificate evidencing the Shares shall bear an appropriate legend
with respect to any such restrictions on transfer.

     

              (a) As of the Signing Date and the
Closing Date, the MEDC represents and warrants:

     

                   (i) Organization.
The MEDC is a public body corporate formed under an Interlocal agreement
pursuant to the Urban Cooperation Act of 1967, as amended, primarily to promote
economic development in the State of Michigan. The MEDC has the power and
authority to enter into and perform its obligations under this
Agreement.

     

                   (ii) Consent. All
consents and approvals necessary from any governmental authority as a condition
to the execution and delivery of this Agreement by the MEDC or the performance
of any of its obligations under this Agreement have been obtained by the
MEDC.

     

         8. Investment
Representations of MEDC. As of the Signing Date and the Closing Date (unless otherwise specified
below), MEDC represents and warrants to the Company that:

     

              (a) the Shares to be acquired by MEDC
will be acquired for investment for MEDC’s own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that MEDC has no present intention of selling, granting any participation
in, or otherwise distributing the same;

     

              (b) MEDC does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares acquired under this Agreement;

     

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              (c) MEDC has not been formed for the
specific purpose of acquiring the shares to be transferred pursuant to this
Agreement; 

     

              (d) MEDC is an “accredited investor”, as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act; and 

     

              (e) MEDC, as of the Closing Date, is the
sole owner of the indebtedness represented by the 2004 Note and that the 2004
Note is not subject to any lien, pledge or encumbrance of any kind.


     

         9.
TERMINATION. This Agreement may
be terminated at any time prior to the Closing:

     

              (a) by
mutual written consent of the Parties; 

     

              (b) by any or all of the Parties if the
Approval is not received from NYSE Amex and a copy thereof delivered to the MEDC
by the date which is ninety (90) calendar days after the Signing Date;


     

              (c) by any or all of the Parties if the
Bank Consent is not executed by the Bank and a copy thereof delivered to the
MEDC by the date which is ninety (90) calendar days after the Signing Date;


     

              (d) by API or the Company if there is a
material inaccuracy in any of the representations or warranties of the MEDC
under Sections 7 or 8 as of the Closing Date such that such representation or
warranty would not be accurate in all respects as of the Closing Date, MEDC or
API shall have delivered a written notice of such inaccuracy and at least ten
(10) business days shall have elapsed since the delivery of such notice without
such inaccuracy having been cured; 

     

              (e) by the MEDC for any one or more of
the following: (i) if there is a material inaccuracy in any of the
representations or warranties of API or the Company under Section 6 as of the
Closing Date such that such representation or warranty would not be accurate in
all respects as of the Closing Date, API or the Company (as applicable), or the
MEDC (as applicable) shall have delivered a written notice of such inaccuracy
and at least ten (10) business days shall have elapsed since the delivery of
such notice without such inaccuracy having been cured, (ii) the requirements set
forth in the first sentence of Section 3(b) have not been met; (iii) if under
the 2004 Loan Documents there is an Event of Default (as defined in the 2004
Loan Document), provided however, for purposes of this Section 9(e) only, Event
of Default shall not include the failure by the Company to pay an installment of
principal or interest under the 2004 Note prior to effectuation of the
transactions contemplated by this Agreement. 

     

         10. INDEMNIFICATION AND
HOLD HARMLESS. Except for the obligations,
representations and warranties of the MEDC contained in this Agreement, the
MEDC, the MEDC’s executive committee, or any of their respective directors,
participants, officers, agents and employees (collectively, the “Indemnified
Person(s)”) shall not be liable to the Company or API for any reason.


     

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         The Company and API, jointly and
severally, shall indemnify and hold the Indemnified Persons harmless against any
and all claims asserted by or on behalf of any individual person, firm or
entity, (other than an Indemnified Person), arising or resulting from, or in any
way connected with this Agreement, the 2004 Loan Documents, and any and all
related documents executed and delivered in connection therewith, or any act or
failure to act by the Company or API under this Agreement or the 2004 Loan
Documents, including all liabilities, costs and expenses, including reasonable
counsel fees, incurred in any action or proceeding brought by reason of any such
claim. In the event that any action or proceeding is brought against any
Indemnified Person by reason of any such claim, such action or proceeding shall
be defended by MEDC counsel, or by counsel chosen by the Company or API, as the
MEDC shall determine and indicate by notice to the Company within fifteen (15)
days of the MEDC’s receipt of notice of the filing of any such claim. In the
event such defense is by MEDC counsel, the Company and API, jointly and
severally, shall indemnify the MEDC for reasonable costs of its counsel
allocated to such defense and charged to the MEDC. The Company and API, jointly
and severally, shall also indemnify the Indemnified Persons from and against all
costs and expenses, including reasonable counsel fees, lawfully incurred in
enforcing any obligation of the Company or API under this Agreement and the 2004
Loan Documents.

     

         Neither the Company nor API shall have
any obligation to indemnify an Indemnified Person if a court with competent
jurisdiction finds that the liability in question was caused by the willful
misconduct or gross negligence of the Indemnified Person, unless the court finds
that despite the adjudication or liability, the Indemnified Person is fairly and
reasonably entitled to indemnity for the expenses the court considers proper.
The Parties agree to act cooperatively in the defense of any action brought
against any Indemnified Person, the Company or API, to the greatest extent
possible. 

     

         Any Indemnified Person making a claim
under this Section 10 shall give the Company and API notice thereof within
fifteen (15) days following the Indemnified Person’s receipt of the complaint or
other pleading giving rise to such claim, which notice shall specify the nature,
scope and amount of any such claim and be accompanied by such complaint or other
pleading giving rise to such claim. The failure of such Indemnified Person to
deliver such notice within such fifteen (15) day period shall, if materially
prejudicial to the Company’s and API’s ability to defend such action, relieve
the Company and API of its obligation of indemnity hereunder as to such claim.
In the event that the MEDC shall use its own counsel to defend against any claim
giving rise to the Company’s and API’s obligation of indemnity under this
Section 10, the Company and API, jointly and severally, shall nonetheless, at
their sole cost and expense, have the right to participate in such defense to
the extent practical. Neither the Company nor API shall have the right or
authority to settle any claim against the any Indemnified Person without the
prior written consent of the MEDC and any other applicable Indemnified Person.
The MEDC or other applicable Indemnified Person shall not be liable for the
settlement of any proceeding made without their respective prior written
consent. 

     

         Performance of the activities
contemplated under this Agreement is within the sole control of the Company, API
and their respective directors, officers, employees, agents and contractors, and
an Indemnified Person shall have no liability in tort or otherwise for any loss or damage caused by or related to
the actions, products and processes of the Company or API, or their respective
directors, officers, employees, agents or contractors.

     

    9 

     

    

    
    


         This Section 10 shall survive the
termination of this Agreement and the 2004 Loan Documents. 

     

         11. NOTICES. Unless otherwise specified in this
Agreement, all notices and other communications required pursuant to this
Agreement shall be deemed given if in writing and personally delivered on the
third succeeding business day after being mailed by registered or certified
mail, return receipt requested, addressed to the address for each party set
forth in the introductory paragraph of this Agreement, or to such other address
as such party shall request pursuant to a written notice given in accordance
with the terms of this Section. 

     

         12. ASSIGNMENT. The MEDC may assign its rights under
this Agreement at any time. Neither API nor the Company may assign this
Agreement without the prior written consent of the MEDC. This Agreement shall
bind the permitted successors and assigns of the Parties.

     

         13. SEVERABILITY. All of the
clauses of this Agreement are distinct and severable and, if any clause shall be
deemed illegal, void or unenforceable, it shall not affect the validity,
legality or enforceability of any other clause or provision of this Agreement.


     

         14. GOVERNING LAW. Michigan law shall govern the
construction and enforceability of this Agreement. 

     

         15. JURISDICTION. In
connection with any dispute between the Parties under this Agreement, the
Parties hereby irrevocably submit to jurisdiction and venue of the Michigan
Court of Claims for claims brought against MEDC and to the circuit courts of the
State of Michigan located in Ingham County for claims brought by the MEDC
against the Company or API. Each Party hereby waives and agrees not to assert,
by way of motion as a defense or otherwise in any such action any claim (a) that
it is not subject to the jurisdiction of such court, (b) that the action is
brought in an inconvenient forum, (c) that the venue of the suit, action or
other proceeding is improper or (d) that this Agreement or the subject matter of
this Agreement may not be enforced in or by such court. 

     

         16. COUNTERPARTS; FACSIMILE/.PDF SIGNATURES. This
Agreement may be executed in counterparts and delivered by facsimile or by .pdf,
and in such circumstances, shall be considered one document and an original for
all purposes. 

     

    The Parties have
caused this Agreement to be executed as of the date first written
above. 

     

    
      	COMPANY
ACCEPTANCE:	        	Picometrix, LLC
	 	
            	
            
	Dated:	  May 19, 2010	 	
            	  	 
	  	
            	By: Robin F.
  Risser


    


    10 

     

    

    
    


    
      	  	        	Its: CFO
	
            	
            	 
	API ACCEPTANCE:	
            	Advanced Photonix,
Inc.
	 	 	 
	Dated:	 May 19, 2010	 	
            	 	 

	  	
            	By: Robin F. Risser	 
	  	
            	Its: CFO
	
            	
            	 
	MEDC ACCEPTANCE:	
            	Michigan Economic
    Development
	   	
            	Corporation
	Dated:	 May 18, 2010	 	
            	
            	 
	  	
            	D. Gregory Main
	  	
            	President and Chief Executive
      Officer


    


    11 

     

    

    
    


    EXHIBIT A 

     

    CERTIFICATE OF INCORPORATION OF
API 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    B-1 

     

    

    
    


    EXHIBIT B 

     

    FORM OF AMENDMENT THREE


     

    DOC-1608
Amend
3 

     

    Amendment
Three
between the 
Michigan Economic Development Corporation
and
Picometrix, LLC


     

    This
Amendment Three (the “Amendment”), dated effective MONTH
XX, 2010 (the “Effective Date”), is between the Michigan Economic Development
Corporation whose address is 300 North Washington Square, Lansing, Michigan
48913 (the “MEDC”) and Picometrix, LLC (formerly known as Picotronix, Inc. doing
business as Picometrix, Inc.) whose address is 2925 Boardwalk Drive, Ann Arbor,
Michigan 48104 (the “Company”). The MEDC and the Company may be referred to
individually as “Party” or collectively as “Parties.” 

     

    RECITALS 

     

         WHEREAS, pursuant to that certain Loan
Agreement dated as of September 15, 2004 (the “2004 Loan Agreement”) by and
between the Company and the Michigan Economic Development Corporation, a
Michigan public body corporate, the MEDC made available to the Company a line of
credit up to an aggregate principal amount of One Million Twenty Four Thousand
Five Hundred Twenty Six Dollars ($1,024,526) pursuant to a Promissory Note (Line
of Credit) dated as of September 15, 2004, as amended, (the “2004 Note”). The
2004 LoanAgreement and the 2004 Note are collectively referred to as the “2004
Loan Documents”; 

     

         WHEREAS, the Company is wholly owned by
Advanced Photonix, Inc. (“API”), a publicly traded company; 

     

         WHEREAS, the Company, API and the MEDC
have executed and delivered to one another a Debt Conversion Agreement dated
MONTH XX, 2010 (the “Debt Conversion Agreement”) to, among other things, convert
certain accrued and unpaid interest owing under the 2004 Note into Class A
Common Stock of Guarantor subject to the terms and conditions set forth therein;


     

         WHEREAS, coincident with execution of
this Agreement, API is executing and delivering to the MEDC an unconditional and
irrevocable Guaranty of the payment and performance obligations of the Company
under this Agreement, the Debt Conversion Agreement and the 2004 Loan Documents,
as amended (the “Guaranty Agreement”); 

     

         NOW THEREFORE, in consideration of the
forgoing, the terms and conditions set forth in this Amendment and pursuant to
Section 9.10 of the 2004 Loan Agreement, the Parties agree to hereby amend the
2004 Loan Agreement as follows: 

     

    B-2 

     

    

    
    


         1. Exhibit D is deleted in its
entirety and replaced with the attached Revised Exhibit D. 

     

    The following document is incorporated by
reference as binding obligations, terms and conditions of the 2004 Loan
Agreement. 

     

    Revised Exhibit
D: Third Amended and Restated Promissory Note 

     

    Except as
specifically provided above, the Parties agree that all terms and conditions of
the 2004 Loan Documents shall remain unchanged and in effect. 

     

    (THE REMAINDER OF THIS PAGE IS
INTENTIONALLY LEFT BLANK)


     

    B-3 

     

    

    
    


    The signatories
below warrant that they are empowered to enter into this Amendment.

     

    
      	COMPANY ACCEPTANCE:	        	Picometrix, LLC
	
            	 	
            	
            
	Dated:	 	 	 	 	 
	  	
            	By:
	  	
            	Its:
	
            	
            	 
	MEDC ACCEPTANCE:	
            	Michigan Economic Development
      Corporation
	
            	 	
            	
            
	Dated:	 	 	
            	  	 
	  	
            	D. Gregory Main
	  	 	President and Chief Executive
      Officer


    


    B-4 

     

    

    
    


    REVISED EXHIBIT D
FORM OF
NOTE 

     

    THIRD AMENDED AND RESTATED PROMISSORY
NOTE
(Line of Credit) 

     

    
      	Up
      to $1,024,526	Dated: MONTH XX,
2010


    


    THIS THIRD AMENDED AND RESTATED
PROMISSORY NOTE REPLACES AND AMENDS AND RESTATES IN ITS ENTIRETY THAT CERTAIN
PROMISSORY NOTE (LINE OF CREDIT) EXECUTED BY BORROWER AND DELIVERED TO LENDER IN
THE ORIGINAL PRINCIPAL AMOUNT OF UP TO ONE MILLION TWENTY FOUR THOUSAND FIVE
HUNDRED TWENTY SIX AND 00/100 DOLLARS ($1,024,526.00) DATED SEPTEMBER 15, 2004,
AS AMENDED AND RESTATED ON MARCH 17, 2005 AND SEPTEMBER 23, 2008 (THE “PRIOR
NOTES”). BY ACCEPTANCE OF THIS THIRD AMENDED AND RESTATED PROMISSORY NOTE,
LENDER ACKNOWLEDGES AND AGREES THAT THE PRIOR NOTES SHALL CEASE TO EVIDENCE ANY
OBLIGATION OF BORROWER TO LENDER. 

     

    FOR VALUE RECEIVED, Picometrix, LLC (formerly known as Picotronix, Inc.
doing business as Picometrix, Inc.) (the “Borrower”) promises to pay to the
order of the Michigan Economic Development Corporation, a Michigan public body
corporate (the “Lender”), at 300 North Washington Square, Lansing, Michigan or
at such other place as Lender may designate in writing, the principal sum of One
Million Twenty Four Thousand Five Hundred Twenty Six Dollars ($1,024,526) or
such lesser sum as shall have been advanced by Lender to Borrower under this
Note and as contemplated by that certain Convertible Loan Agreement between
Borrower and Lender, dated as of September 15, 2004, as amended (the “Loan
Agreement”), plus interest as hereinafter provided, all in lawful money of the
United States of America, in accordance with the terms hereof. Capitalized terms
used herein and not otherwise defined shall have the meanings assigned to them
in the Loan Agreement. 

     

    All disbursements made under this third
amended and restated promissory note (the “Note”) shall be charged to a loan
account in Borrower’s name on Lender’s books, and Lender shall debit to such
account the amount of each advance made to, and credit to such account the
amount of each repayment made by Borrower. From time to time and upon Borrower’s
request, Lender shall furnish Borrower a statement of Borrower’s loan account,
which statement shall be deemed to be correct, accepted by, and binding upon
Borrower, unless Lender receives a written statement of exceptions from Borrower
within ten (10) calendar days after such statement has been furnished.


     

    The outstanding principal balance of this
Note in the amount of One Million Twenty Four Thousand Five Hundred Twenty Six
($1,024,526) (the “Principal”) shall bear interest at a per annum rate of four
percent (4.0%) beginning December 1, 2009. Interest shall be computed on the
basis of the actual number of days elapsed. 

     

    Commencing on October 1, 2010, and
continuing on the first business day of each calendar month thereafter for the
following Fifty (50) calendar months, Borrower shall pay Lender the Principal and accrued
interest on any unpaid portion thereof in equal installments until paid in full.


     

    B-4

     

    

    
    


    In the event that any payment under this
Note is not received by Lender within ten (10) days of the date when due, a late
charge of Five (5%) percent of the amount of such shall be due and payable.
Borrower agrees that the late charge is a reasonable estimate of the
administrative costs which Lender will incur in processing the delinquency.
Lender’s acceptance of a late payment and/or of the late payment charge will not
waive any default under this Note. 

     

    The Borrower shall have the right to
prepay accrued interest and principal in whole or in part at any time without
payment of any prepayment fee or penalty. Prepayments are to be applied first to
accrued interest and then to principal. 

     

    Upon the occurrence of either a “Trigger
Event” (as defined in the Debt Conversion Agreement) or an “Event of Default”
(as defined in the Loan Agreement), the entire principal balance of this Note,
together with all accrued and unpaid interest, shall become immediately due and
payable at the election of Lender without notice, demand or presentment. All
costs and expenses of collection, including, without limitation, reasonable
attorneys fees and expenses, shall be added to and become part of the total
indebtedness evidenced by this Note. 

     

    Upon the occurrence of a Trigger Event
(as defined in the Debt Conversion Agreement), Lender may at its sole option and
discretion declare the entire Indebtedness, plus a premium equal to seven
percent (7%) of the then-outstanding principal balance of this Note, immediately
due and payable. Lender shall give Borrower written notice of this declaration
of acceleration by sending a statement to Borrower stating the declaration and
setting out the amount owed as of the date of the notice. Interest shall
continue to accrue at the rate set out herein until Borrower pays the
Indebtedness and such premium, in full. 

     

    Acceptance by Lender of any payment in an
amount less than the amount then due shall be deemed an acceptance on account
only, and Borrower’s failure to pay the entire amount then due shall be and
continue to be a default. Upon the occurrence of any Trigger Event or Event of
Default under the Loan Agreement, neither the failure of Lender promptly to
exercise its right to declare the outstanding principal and accrued unpaid
interest and any applicable premium under this Note to be immediately due and
payable, nor the failure of Lender to demand strict performance of any other
obligation of Borrower, shall constitute a waiver of any such rights, nor a
waiver of such rights in connection with any future default on the part of the
Borrower or any other person who may be liable under this Note. 

     

    Notwithstanding anything herein to the
contrary, in no event shall Borrower be required to pay a rate of interest in
excess of the Maximum Rate. The term “Maximum Rate” shall mean the maximum
non-usurious rate of interest that Lender is allowed to contract for, charge,
take, reserve or receive under the applicable laws of any applicable state or of
the United States of America (whichever from time to time permits the highest
rate for the use, forbearance or detention of money) after taking into account,
to the extent required by applicable law, any and all relevant payments or
charges hereunder, or under any other document or instrument executed and
delivered in connection therewith and the indebtedness evidenced
hereby.

    
       

      B-5

    

     

    

    
    



    In the event
Lender ever receives, as interest, any amount in excess of the Maximum Rate,
such amount as would be excessive interest shall be deemed a partial prepayment
of principal, and, if the principal hereof is paid in full, any remaining excess
shall be returned to Borrower. In determining whether or not the interest paid
or payable, under any specified contingency, exceeds the Maximum Rate, Borrower
and Lender shall, to the maximum extent permitted by law, (a) characterize any
non-principal payment as an expense, fee, or premium rather than as interest;
(b) exclude voluntary prepayments and the effects thereof; and (c) amortize,
prorate, allocate and spread the total amount of interest through the entire
contemplated term of such indebtedness until payment is made in full of the
principal (including the period of any extension or renewal thereof) so that the
interest on account of such indebtedness shall not exceed the Maximum
Rate.

     

    This Note shall
be binding upon Borrower and its successors and assigns, and the benefits hereof
shall inure to Lender and its successors and assigns. This Note has been
executed in the State of Michigan, and all rights and obligations hereunder
shall be governed by the laws of the State of Michigan.

     

    
      	
            	BORROWER: PICOMETRIX,
      LLC
	
            	   
	
            	   
	
            	By  	 
	
            	 	By:
	
            	 	Its:


    


    B-6

     

    

    
    



    EXHIBIT C

     

    FORM OF GUARANTY AGREEMENT

     

    GUARANTY

     

    This
Guaranty Agreement (the “Guaranty Agreement”), dated as of MONTH XX, 20XX (the “Effective
Date”), is made by Advanced Photonix, Inc., a Delaware corporation, whose
address is 2925 Boardwalk Drive, Ann Arbor, Michigan 48104 (the “Guarantor”) in
favor of the Michigan Economic Development Corporation, a Michigan public body
corporate, whose address is 300 North Washington Square, Lansing, Michigan 48913
(the “MEDC”). Guarantor and the MEDC may be referred to individually as “Party”
or collectively as “Parties.”

     

    RECITALS

     

        WHEREAS, pursuant to
that certain Loan Agreement dated as of September 15, 2004 (the “2004 Loan
Agreement”) by and between Picometrix, LLC, a Michigan limited liability company
(formerly known as Picotronix, Inc. doing business as Picometrix, Inc.) (the
“Debtor”) and the Michigan Economic Development Corporation, a Michigan public
body corporate, the MEDC made available to the Debtor a line of credit up to an
aggregate principal amount of One Million Twenty Four Thousand Five Hundred
Twenty Six Dollars ($1,024,526) pursuant to a Promissory Note (Line of Credit)
dated as of September 15, 2004 (the “2004 Note”), as amended. The 2004 Loan
Agreement and 2004 Note, including the Amendment (defined below), and the Debt
Conversion Agreement, and as each may be further amended from time to time, are
collectively referred to as “2004 Loan Documents”;

     

        WHEREAS, the Debtor
is wholly owned by Guarantor, a publicly traded company;

     

        WHEREAS, the Debtor,
Guarantor and the MEDC have executed and delivered to one another a Debt
Conversion Agreement dated MONTH XX, 20XX (the “Debt Conversion Agreement”) to,
among other things, convert certain accrued and unpaid interest owing under the
2004 Note into Class A Common Stock of Guarantor subject to the terms and
conditions set forth therein;

     

        WHEREAS, coincident
with the execution of this Guaranty Agreement, the MEDC and Debtor are executing
and delivering to each other an Amendment One to the 2004 Loan Documents to
among other things, restate the 2004 Note (the “Amendment”);

     

        WHEREAS, in
connection with the Debt Conversion Agreement and Amendment, the MEDC has
required, and the Guarantor has agreed to enter into and deliver to the MEDC,
this Guaranty Agreement with respect to the 2004 Loan Documents.

     

    B-1

     

    

    
    



        NOW THEREFORE, in
consideration of the foregoing, the Guarantor hereby agrees with and for the
benefit of MEDC as follows:

     

        1. Promise to Pay and
Perform. The Guarantor
hereby irrevocably and unconditionally guarantees timely payment and performance
of all of the obligation of Debtor under the 2004 Loan Documents, now existing
or later arising, including without limitation, payment of all costs, expenses,
fees, interest and other amounts due under the 2004 Loan Documents.

     

        2. Nature of
Guaranty. This Guaranty is a
guaranty of payment and performance, and not of collection. The MEDC may insist
the Guarantor pay and perform immediately and the MEDC is not required to first
or ever attempt to collect or require performance from Debtor. The obligations
of the Guarantor are unconditional and absolute, regardless of the
unenforceability of any provisions of this Guaranty Agreement, or the existence
of any defense, setoff or counterclaim which the Debtor may assert. Any payment
is due on demand.

     

        3. Rights of
Subrogation. The Guarantor
shall not enforce any rights of subrogation, contribution or indemnification
that it has or may have against the Debtor until all obligations of the Debtor
under the 2004 Loan Documents are irrevocably paid and performed in full.
Guarantor further agrees that if any payments to the MEDC under the 2004 Loan
Documents are invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy act or code, state, federal or local law, common law or equitable
doctrine, this Guaranty Agreement and the MEDC’s interests in any of the 2004
Loan Documents remain in full force and effect (or are reinstated as the case
may be) until payment in full of those amounts, which are due on
demand.

     

        4. Representations of
Guarantor. As of the
Effective Date, the Guarantor represents and warrants:

     

           a)
Organization. Guarantor is duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, is duly qualified and in good standing
under the laws of the State of Michigan, and has the organized power and
authority to enter into this Guaranty Agreement.

     

           b) Corporate
Authority. The
execution, delivery and performance of by the Guarantor of this Guaranty
Agreement will not: (i) violate any provision of law or any provision of the
Guarantor’s Certificate of Incorporation; (ii) violate any material provision of
the Guarantor’s bylaws; or (iii) result in the breach of or constitute a
default, or require any consent other than the consent of the PrivateBank and
Trust Company (a copy of which consent has been provided to the MEDC) or result
in the creation of any lien, charge, restriction, claim or encumbrance upon any
property or assets of the Guarantor, under any indenture or other agreement or
instrument to which the Guarantor is a party or by which the Guarantor or its
property may be bound or affected, and this Guaranty Agreement is valid,
binding, and enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, moratorium, reorganization or other laws or
principals of equity affecting the enforcement of creditors’ rights generally or
by general principals of equity.

     

    B-2

     

    

    
    



           c)
Consents. All
corporate action on the part of the Guarantor, its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of the Guarantor under this Guaranty Agreement has been obtained by
the Guarantor.

     

        5. Notices.
All notices and other
communications required pursuant to this Guaranty Agreement shall be deemed given
if in writing and personally delivered on the third succeeding business day
after being mailed by registered or certified mail, return receipt requested,
addressed to the address for each Party set forth in the introductory paragraph
of this Guaranty Agreement, or to such other address as such Party shall request
pursuant to a written notice given in accordance with the terms of this
Section.

     

        6. Assignment.
The MEDC may assign its rights
under this Guaranty Agreement at any time. This Guaranty Agreement may not be
assigned by Guarantor without the prior written consent of the MEDC. This
Guaranty Agreement shall bind the permitted successors and assigns of the
Parties.

     

        7.
Severability. All of the
clauses of this Guaranty Agreement are distinct and severable and, if any clause
shall be deemed illegal, void or unenforceable, it shall not affect the
validity, legality or enforceability of any other clause or provision of this
Guaranty Agreement.

     

        8. Governing
Law. Michigan law shall
govern the construction and enforceability of this Guaranty
Agreement.

     

        9.
Jurisdiction. In connection
with any dispute between the Parties under this Guaranty Agreement, the Guarantor hereby
irrevocably submits to jurisdiction and venue of the Michigan Court of Claims
for claims brought against MEDC and to the circuit courts of the State of
Michigan located in Ingham County for claims brought against the Guarantor.
Guarantor hereby waives and agrees not to assert, by way of motion as a defense
or otherwise in any such action any claim (a) that is not subject to the
jurisdiction of such court, (b) that the action is brought in an inconvenient
forum, (c) that the venue of the suit, action or other proceeding is improper or
(d) that this Guaranty Agreement or the subject matter of this Guaranty
Agreement may not be enforced in or by such court.

     

        10. Counterparts;
Facsimile/.pdf Signatures. This Guaranty Agreement may be executed and delivered by facsimile or by
..pdf, and in such circumstances, shall be considered one document and an
original for all purposes.

     

        11.
Miscellaneous. Nothing in
this Guaranty Agreement shall waive or restrict any right of MEDC granted in any
other document or by law. No delay on the part of MEDC in the exercise of any
right or remedy shall operate as a waiver under this Guaranty Agreement. No
single or partial release by MEDC or any right or remedy shall preclude any
other future exercise of that right or remedy or the exercise of any other right
or remedy under this Guaranty Agreement. No waiver or indulgence by MEDC of any
default shall be effective unless in writing and signed by the MEDC, nor shall a
waiver on one occasion be construed as a bar to or waiver of that right on any
future occasion.

     

    B-3

     

    

    
    



    (THE REMAINDER OF
THIS PAGE INTENTIONALLY LEFT BLANK)

     

     

     

     

     

     

     

     

     

    B-4

     

    

    
    



    Guarantor has
caused this Guaranty Agreement to be executed effective as of the Effective
Date.

     

     

    
      	GUARANTOR:	
            	Advanced Photonix, Inc.
	 	
            	
            
	 	
            	
            
	Dated:  	 	       	
            
	
            	
            	By:
	 	 	Its:


    


    B-5