Document:

Unassociated Document

    BUSINESS
      LOAN AGREEMENT

    

    

    The
      undersigned ADVANCED
      PHOTONIX, INC., a
      Delaware corporation, located at 2925 Boardwalk, Ann Arbor, MI 48104, (the
      "Borrower") has requested from FIFTH
      THIRD BANK,
      1000
      Town Center, Suite 1300, Southfield, Michigan (the “Bank”) and Bank agrees to
      make as of this 6th day of March, 2007, the loan(s) described below (the
“Loans”) under the terms and conditions set forth in this Business Loan
      Agreement (“Agreement”).

    

    

    SECTION
      I. LOANS 

    

    A. Revolving
      Line of Credit to the Borrower in aggregate principal amount up to TWO MILLION
      DOLLARS ($2,000,000) expiring March 6, 2008, upon the terms and conditions
      herein set forth.

    

    

    ACCORDINGLY,
      the parties agree as follows:

    

    SECTION
      II. PURPOSE

    

    The
      proceeds of the above Loan(s) are to be used for business purposes only and
      specifically to refinance existing indebtedness and for working capital.

    

    

    SECTION
      III. REPRESENTATIONS AND WARRANTIES

    

    Borrower
      represents and warrants to Bank as follows:

    

    3.1 Borrower
      is a corporation duly organized, validly existing and in good standing under
      the
      laws of the State of Delaware (the “State”) and is duly qualified to do
      business, and is in good standing, in all additional jurisdictions where such
      qualification is necessary under applicable law, except where the failure to
      be
      so qualified would not have a Material Adverse Effect.

    

    
      	
              3.2

            	
              The
                Officers of the Borrower signing this Agreement are duly authorized
                to
                execute and deliver the Loan Documents on behalf of the Borrower;
                the
                execution, delivery, and performance of the Loan
                Documents have been duly authorized by appropriate action of the
                Borrower
                and will not violate any law, rule, judgment, order, agreement, or
                instrument to which Borrower is a party or by which it is bound;
                and the
                Loan Documents have been duly executed and delivered by, and are
                the valid
                and binding obligations of Borrower
                enforceable in accordance with their
                terms.

            

    

    

    
      	
              3.3

            	
              All
                financial information provided to Bank has been prepared and will
                continue
                to be prepared in accordance with GAAP and fully and fairly presents
                the
                financial condition of Borrower and there has been no material change
                in
                Borrower’s business, property, or condition since the date of the
                Borrower’s latest financial
                statement.

            

    

    

    
      	
              3.4

            	
              Borrower
                owns and has good title to all of its property, and there are no
                liens or
                encumbrances on any of the Borrower’s property, other than the security
                interest granted to the Bank hereby and except as are identified
                and
                listed in Schedules 3.4 and 7.2 to this
                Agreement.

            

    

    

    
      	
              3.5

            	
              There
                are no suits or proceedings pending in any court, government agency,
                or
                arbitration panels or to Borrower’s knowledge, threatened against
                Borrower, which may result in any Material Adverse
                Effect.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      	
              3.6

            	
              All
                of Borrower’s real and personal property, and all operations and
                activities thereon, are in compliance with Environmental Laws; and
                to
                Borrower’s knowledge, none of Borrower’s real or personal property is (a)
                contaminated by, or the site of, the disposal or release of any Hazardous
                Substance; (b) the source of any contamination of any groundwater
                or
                surface water; or (c) the source of any air emissions in excess of
                any
                legal limit now or hereafter in
                effect.

            

    

    

    
      	
              3.7

            	
              The
                Borrower will use the proceeds of the Loans for its business purposes
                only. No portion thereof will be used (a) for the purpose of "buying"
                or
                "carrying" any "margin stock" within the respective meanings of each
                of
                the quoted terms under Federal Reserve Board Regulation U as now
                and from
                time to time hereafter in effect. 

            

    

    

    
      	
              3.8

            	
              The
                Borrower and its Subsidiaries are in compliance with all laws, regulations
                and orders of any governmental authority applicable to it or its
                property
                and all indentures, agreements and other instruments binding upon
                it or
                its property, except where the failure to do so, individually or
                in the
                aggregate, could not reasonably be expected to result in a Material
                Adverse Effect. No Default or Event of Default has occurred and is
                continuing.

            

    

    

    
      	
              3.9

            	
              Borrower
                is Solvent and upon consummation of the transaction contemplated
                herein
                will be Solvent. “Solvent” means that: (a) the total amount of the
                Borrower’s assets is in excess of the total amount of its liabilities
                (including contingent liabilities), at a fair valuation; (b) Borrower
                does
                not have unreasonably small capital for the business and transactions
                in
                which Borrower is engaged or is about to engage; and (c) Borrower
                does not
                intend to or believe it will incur obligations beyond its ability
                to pay
                as they become due.

            

    

    

    

    
      	
              SECTION
                IV.

            	
               CONDITIONS
                PRECEDENT TO EACH LOAN 

            

    

    

    
      	 	
              The
                Bank shall not lend hereunder on the occasion for any Loan
                unless:

            

    

    

    
      	
              4.1

            	
              Prior
                to or simultaneously with the first Loan hereunder each of the following
                documents shall have been delivered to Bank and each of the following
                matters completed, each in form and substance reasonably satisfactory
                to
                the Bank:

            

    

    

    a. the
      Note
      duly executed by the Borrower;

    

    b. certified
      copies of such company documents of Borrower and each Guarantor as are requested
      by the Bank, including without limitation such Person's articles of
      incorporation or organization, bylaws or operating agreements and other charter
      or organizational documents, and such documents evidencing necessary company
      action, with respect to the Loan Documents and certifying to the incumbency
      of,
      and attesting to the genuineness of the signatures of, those officers authorized
      to act on behalf of Borrower or Guarantor, as the Bank may reasonably request;
      

    

    c. each
      of
      the Collateral Documents duly executed by the parties thereto, and all related
      financing statements, instruments, documents and agreements reasonably requested
      by the Bank, together with the satisfaction of all conditions and the delivery
      of all other documents specified in Section VIII hereof;

    

    d. the
      Borrower shall have all expenses currently due pursuant to Section 12.1 hereof;
      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    e. evidence
      that the casualty, liability and other insurance required pursuant to Section
      6.7 hereof or the Collateral Documents is in full force and effect;

    

    f. the
      Bank
      shall have received a payoff letter from Santa Barbara Bank & Trust in form
      and substance reasonably satisfactory to the Bank, together with UCC-3
      termination statements and other instruments, documents or agreements necessary
      or appropriate to terminate any Liens in favor of such lender securing prior
      Indebtedness which is to be paid off on the Closing Date as the Bank may
      reasonably request, duly executed and in form and substance reasonably
      satisfactory to the Bank;

    

    g. a
      duly
      completed Borrowing Base certificate setting forth the Borrowing Base as of
      December 31, 2006; 

    

    h. all
      such
      other agreements, documents and certificates reasonably requested by the
      Bank.

    

    
      	
              4.2

            	
              The
                representations and warranties contained in Section III hereof shall
                be
                true and accurate on the date of each Loan hereunder with the same effect
                as if made on and as of such date and immediately following each
                such
                Loan. 

            

    

    

    
      	
              4.3

            	
              No
                Default or Event of Default shall have occurred and be continuing
                or will
                exist upon the disbursement of each such Loan.

            

    

    

    The
      Borrowers shall be deemed to have made a representation and warranty to the
      Bank
      at the time of the making of each Loan to the effects set forth in Section
      4.2
      and 4.3 of this Section IV. 

    

    

    SECTION
      V. REVOLVING LINE OF CREDIT

    

    
      	
              5.1

            	
              Subject
                to the conditions precedent set forth in Section IV, Bank shall extend
                to
                Borrower loans (“Revolving Credit Loans”) in amounts that shall not exceed
                an aggregate amount equal to the lesser of: TWO MILLION AND 00/100
                ($2,000,000.00) (the "Revolving Credit Commitment") or the sum of
                (referred to as the "Borrowing
                Base"):

            

    

    

    a. 80%
      of
      Borrower's and each Guarantor's Net Current Accounts Receivable under
90
      days at
      that time with 25% tainting less inter-company, customer deposits and foreign
      receivables, other than Eligible Foreign Receivables which shall be included
      in
      the Borrowing Base, plus

    

    b. 40%
      of
      Borrower's and each Guarantor's Eligible Inventory constituting finished goods
      or raw material at that time, not to exceed $1,500,000. 

    

    
      	
              5.2

            	
              All
                Revolving Credit Loans shall be evidenced by and payable with interest
                in
                accordance with the terms of the promissory note that Borrower shall
                execute and deliver to Bank.

            

    

    

    
      	
              5.3

            	
              If
                the aggregate principal amount of the Revolving Credit Loans outstanding
                should ever exceed the Revolving Credit Commitment or Borrowing Base,
                Borrower shall immediately repay the amount required to eliminate
                the
                excess.

            

    

    

    
      	
              5.4

            	
              Each
                Revolving Credit Loan shall be in the amount of One Thousand Dollars
                and
                00/100 ($1,000.00), or whole multiple thereof, and made at the request
                of
                Borrower.

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
      	
              5.5

            	
              Borrower
                shall have the right to prepay all Revolving Credit Loans, in whole
                or in
                part, without penalty. Amounts prepaid may, subject to the other
                provisions of this Section V, be re-borrowed by
                Borrower.

            

    

    

    
      	
              5.6

            	
              Unless
                terminated sooner or extended by Bank in writing, the obligation
                of Bank
                to make or to renew Revolving Credit Loans shall expire on the Expiry
                Date. Upon expiration of the Bank’s obligation to make or renew the
                Revolving Credit Loans, the aggregate unpaid principal balance, together
                with all accrued interest shall be payable in full on the expiration
                date.
                

            

    

    

    

    SECTION
      VI. AFFIRMATIVE COVENANTS

    

    From
      the
      date hereof and until all Loans provided for under this Agreement are fully
      paid
      and Bank has no further obligation to extend Loans hereunder Borrower
      shall:

    

    
      	6.1	
              Borrower
                to furnish to Bank, in a form reasonably acceptable to
                Bank,

            

    

    

    A. Internally
      prepared consolidated financial statements for the Borrower and its Subsidiaries
      quarterly, within 45 days after each quarter.

    

    B. Audited
      consolidated financial statements for the Borrower and its Subsidiaries,
      annually within 120 days after each fiscal year, without qualifications
      acceptable to the Bank.

    

    C. Together
      with the financials statements delivered pursuant to Sections 6.1(A) and (B),
      a
      covenant compliance certificate signed by an officer of the Borrower (A) setting
      forth a computation (which computation shall accompany such certificate and
      shall be in reasonable detail) showing compliance with Section 7.1 hereof is
      in
      conformity with the terms of this Agreement, and (B) stating that as of the
      date
      of the certificate no Default has occurred and is continuing, or if any Default
      has occurred and is continuing, specifying the nature and period of existence
      thereof.

    

    
      	
              6.2

            	
              Within
                20 days after the end of each month, a Borrowing Base certificate
                prepared
                for the Borrower and the Guarantors as of the close of business on
                the
                last day of such month, together with supporting schedules, in form
                and
                detail reasonably satisfactory to the Bank, setting forth such information
                as the Bank may reasonably request with respect to the aging, value,
                location, and other information relating to the computation of the
                Borrowing Base for the Borrower and the Guarantors and the eligibility
                of
                any property or assets included in such computation, certified as
                true and
                correct by an authorized officer of the
                Borrower.

            

    

    

    
      	
              6.3

            	
              Furnish
                to the Bank, in form acceptable to the Bank, A/R agings, A/P agings,
                and
                Inventory, monthly, within 20 days after the end of each month.
                

            

    

    

    
      	
              6.4
                

            	
              Within
                15 days prior to the beginning of each fiscal year of the Borrower,
                a
                projection and forecast for such fiscal year in form and substance
                satisfactory to the Bank. Promptly furnish to Bank such information
                and
                reports concerning the Borrower's business, property, and financial
                condition as Bank shall request, and permit Bank to inspect Borrower’s
                books, property and records during normal business
                hours.

            

    

    

    
      	6.5	
              Promptly
                notify Bank in writing of any litigation, governmental proceeding,
                Default, Event of Default or any other occurrence, which may have
                a
                Material Adverse Effect.

            

    

    

    
      	6.6	
              Maintain
                its existence in good standing in the State of Delaware and its
                qualifications in good standing in every other jurisdiction in which
                the
                failure to be so qualified or authorized to do business would have
                a
                Material
                Adverse Effect; continue to conduct and operate its business substantially
                as presently conducted and operated; and comply with all governmental
                laws, rules, regulations and orders applicable to it, the failure
                to
                comply with which would have a Material Adverse
                Effect.

            

    

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    
      	6.7	
              Maintain
                insurance, including, but not limited to, fire and extended coverage
                insurance, workers’ compensation insurance, and casualty and liability
                insurance with responsible insurance companies on such of its properties
                and against such risks and in such amounts as is customarily maintained
                by
                similar businesses; furnish to Bank upon its request the details
                with
                respect to that insurance and satisfactory evidence of that insurance
                coverage. Each insurance policy shall be so written or endorsed as
                to make
                losses, if any, payable to Borrower and Bank as their respective
                interest
                may appear, and shall include a mortgage clause or endorsement in
                favor of
                Bank in form and substance satisfactory to Bank, subject to any rights
                of
                Borrower’s landlord to such
                proceeds.

            

    

    

    
      	6.8	
              Promptly
                pay all taxes, levies, and assessments due to all local, State and
                Federal
                taxing authorities.

            

    

    

    
      	6.9	
              Comply
                in all material respect with the requirements of ERISA, including,
                without
                limitation, all provisions regarding minimum funding requirements
                and
                requirements as to plan termination insurance; within 30 days after
                it is
                filed, furnish to Bank a copy of each annual report and annual return,
                as
                well as all schedules and attachments required to be filed with the
                Department of Labor or the Internal Revenue Service pursuant to ERISA
                in
                connection with each of its Plans for each Plan year; notify Bank
                immediately of any fact, including, but not limited to any “reportable
                event” (as defined in Title IV of ERISA) arising in connection with any
                of
                its Plans, that might be grounds for termination thereof by the Pension
                Benefit Guaranty Corporation (PBGC) or for the appointment by the
                appropriate United States District Court of a trustee to administer
                the
                Plan, together with a statement, if requested by Bank, as to the
                reason
                therefor and the action, if any, proposed to be taken with respect
                thereto; and furnish to Bank, upon its request, any additional information
                concerning any of its Plans that Bank may reasonably
                request.

            

    

    

    

    
      	6.10	
              Notify
                Bank in writing within 10 days after receipt whenever Borrower receives
                notice of the commencement of (a) formal proceedings or any investigation
                by a federal or state environmental agency against Borrower regarding
                Borrower’s compliance with Environmental Laws, or (b) any other judicial
                or administrative proceeding or litigation commenced by or against
                Borrower. 

            

    

    

    
      	6.11	
              Maintain
                its principal banking depository relationship with Bank, in which
                substantially all of Borrower's and Guarantor's funds are deposited,
                as
                long as any indebtedness to Bank is outstanding, and Borrower shall
                grant
                Bank the first and last opportunity to provide any corporate banking
                services to Borrower. Furthermore, the Borrower's and Guarantors'
                depository accounts with Bank shall always have an aggregate minimum
                balance of not less than
                $1,500,000.

            

    

    

    

    SECTION
      VII. NEGATIVE COVENANTS

    

    From
      the
      date hereof or until all Loans provided for under this Agreement are fully
      paid
      and Bank has no further obligations to extend Loans to Borrower, Borrower agrees
      that it shall not:

    

    
      	7.1	
              Permit
                the Debt Service Coverage Ratio at the end of any fiscal quarter,
                calculated for the four fiscal quarters then ending, to be less than
                1.0
                to 1.0, commencing with the fiscal quarter ending December 31,
                2007.

            

    

    

    
      	7.2	
              It
                will not, and will not permit any of its Subsidiaries to, create,
                incur or
                suffer to exist any Lien on any of the assets, whether now owned
                or
                hereafter acquired, of the Borrower or any of its Subsidiaries except
                the
                following (which shall be "Permitted
                Liens"):

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    a. Liens
      provided for in the Collateral Documents, and other Liens in favor of the Bank
      to secure the Notes and any other Obligations; 

    

    b. Liens
      for
      taxes which are not delinquent, or are being contested in good faith and for
      which adequate reserves are maintained; and

    

    c. Liens
      (other than any Lien imposed by ERISA) created and maintained in the ordinary
      course of business which are not material in the aggregate, and which could
      not
      reasonably be expected to have a Material Adverse Effect on the business or
      operations of the Borrower and its Subsidiaries and which constitute (i) pledges
      or deposits under worker's compensation laws, unemployment insurance laws or
      similar legislation, (ii) good faith deposits in connection with bids, tenders,
      contracts or leases to which the Borrower or any Subsidiary is a party for
      a
      purpose other than borrowing money or obtaining credit, including rent security
      deposits, or (iii) Liens imposed by law, such as those of carriers, warehousemen
      and mechanics, if payment of the obligation secured thereby is not yet
      due;

    

    d. Each
      Lien
      described in Schedule 7.2 hereto may be suffered to exist upon the same terms
      as
      those existing on the date hereof, together with any extension or renewal
      thereof, but no increase in the principal amount secured thereby shall be
      permitted.

    
      
        	7.3	
                It
                  will not, and will not permit any of its Subsidiaries to, (a) merge
                  or
                  consolidate with any other Person, pursuant to which such Subsidiary
                  is
                  not the surviving entity, or (b) make any change in the nature
                  of its
                  business. It will not, and will not permit any of its Subsidiaries
                  to
                  acquire any Person without prior written notice to Bank, provided
                  that
                  immediately before and after giving effect to such acquisition,
                  no Event
                  of Default shall exist or shall have occurred and be continuing
                  and the
                  representations and warranties contained in Section 3 and in the
                  other
                  Loan Documents shall be true and correct on and as of the date
                  thereof
                  (both before and after giving effect to such acquisition) as if
                  made on
                  the date of such acquisition.

              

      

    

    

    
      	7.4	
              It
                will not, and will not permit any of its Subsidiaries to, incur or
                suffer
                to exist Indebtedness other than (a) ordinary trade accounts payable
                in
                the ordinary course of business which are not more than 60 days past
                due
                other than trade accounts payable subject to a good faith dispute,
                (b)
                Indebtedness to the Bank, (c) other Obligations owing to the Bank,
                and (d)
                Indebtedness described on Schedule 7.4 may be suffered to exist on
                terms
                not less favorable than those existing on the date hereof.
                

            

    

    

    
      	7.5	
              It
                will not make, pay, declare or authorize any dividend, payment or
                other
                distribution in respect of any of its capital stock or any dividend,
                payment or other distribution in connection with the redemption,
                purchase,
                retirement or other acquisition, directly or indirectly, of any of
                its
                shares of capital stock. Notwithstanding
                the foregoing, (i) any Subsidiary may pay dividends or make other
                distributions to the Borrower or to another Subsidiary; and (ii)
                the
                Borrower may make, pay, declare or authorize any dividend, payment
                or
                other distribution in respect of any class of its capital stock or
                any
                dividend, payment or distribution in connection with the redemption,
                purchase, retirement or other acquisition, directly or indirectly,
                of any
                shares of its capital stock, provided that immediately before and
                after
                giving effect to such dividend, payment or other distribution, no
                Event of
                Default shall exist or shall have occurred and be continuing and
                the
                representations and warranties contained in Section 3 and in the
                other
                Loan Documents shall be true and correct on and as of the date thereof
                (both before and after giving effect to such dividend, payment or
                other
                distribution) as if made on the date of such dividend, payment or
                other
                distribution. 

            

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    
      	7.6	
              It
                will not, and will not permit any of its Subsidiaries to, sell, lease,
                transfer or otherwise dispose of any of its assets, property or business
                to any Person, whether in one or a series of transactions, except
                sales of
                inventory or equipment in the ordinary course of business, and except
                that
                sales or disposals of equipment having a book value of less than
                $100,000
                per asset shall be permitted. 

            

    

    

    
      	7.7	
              It
                will not, and will not permit any of its Subsidiaries to, purchase
                or
                otherwise acquire any investment in, or make any loan or advance
                to,
                except (i) the endorsement, in the ordinary course of collection,
                of
                instruments payable to its order, (ii) existing loans described on
                Schedule 7.7, and (iii) loans or advances by the Borrower or any
                Guarantor
                to the Borrower or any other Guarantor.

            

    

    

    

    SECTION
      VIII. COLLATERAL 

    

    As
      security for amounts due from Borrower to Bank under this Agreement and all
      other Obligations, Borrower shall grant or cause to be granted to Bank, the
      following interests and agreements which are incorporated by reference into
      this
      Agreement:

    

    
      	8.1	
              Security
                Agreement(s); granting to Bank a valid first security interest in
                all of
                Borrower’s and each Guarantor's presently owned or hereafter
                acquired:

            

    

    

    a. Accounts
      Receivable, Contract Rights, Chattel Paper and General Intangibles 

    

    b. Inventory

    

    c. Equipment
      and Fixtures 

    

    d. All
      other
      collateral described in the Security Agreement

     

    

    
      	
              8.2
                

            	
              Guaranty(s)
                of Payment guarantying to Bank prompt payment of the Loans and all
                other
                Obligations: 

            

    

     

     

    
      	Guarantor Name	Limitations, if any 	 
	Silicon Sensors, Inc. 	UNLIMITED 	 
	Picometrix, LLC	UNLIMITED 	 

    

     

    SECTION
      IX. EVENTS OF DEFAULT

    

    The
      following shall be events of default hereunder:

    

    
      	
              9.1

            	
              If
                Borrower shall default in the payment of the principal or interest
                of any
                Loan provided for under this Agreement or if Borrower shall default
                in the
                payment of principal or interest of any other Indebtedness now or
                hereafter owed to the Bank, when due and payable, whether by acceleration
                or otherwise.

            

    

    

    
      	
              9.2

            	
              If
                Borrower or any Guarantor shall fail to perform any of its other
                obligations or comply with any of the terms, conditions, and covenants
                contained in this Agreement, or any Loan
                Documents
                given to Bank by Borrower or any Guarantor or any third party to
                secure
                any indebtedness now or hereafter owing by Borrower to
                Bank.

            

    

    

    
      	9.3	
              If
                Borrower or any Guarantor shall default in the payment of any Indebtedness
                owing to any other firm, person, or corporation.
                

            

    

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    
      	
              9.4

            	
              If
                any default shall occur under any document, agreement or instrument
                executed and delivered in connection with the obligations owing by
                Borrower or any Guarantor to (i) Robin Risser or Steven L. Williamson
                pursuant to the Agreement and Plan of Merger dated as of March 8,
                2005, as
                amended, or any promissory notes issued pursuant thereto, and (ii)
                the
                "Buyers" as defined in a Securities Purchase Agreement dated as of
                October
                11, 2004, as amended (the "Securities Purchase Agreement") pursuant
                to the
                Securities Purchase Agreement. 

            

    

    

    
      	9.5	
              If
                any warranty or representation made herein, or in any other Loan
                Document,
                or any statement or representation made in any certificate, report,
                or
                other document delivered pursuant hereto, shall be false or inaccurate
                in
                any material respect when made.

            

    

    

    
      	9.6	
              If
                Borrower or any Guarantor shall (a) apply for or consent to the
                appointment of, or the taking of possession by, a receiver, custodian,
                trustee or liquidator of itself or of all or a substantial part of
                its
                property; (b) be unable to pay its debts as they become due; (c)
                make a
                general assignment for the benefit of its creditors; (d) commence
                a
                voluntary case under the federal Bankruptcy Code; (e) file a petition
                to
                take advantage of any other law providing for the relief of debtors;
                (f)
                be named as debtor in any of the federal Bankruptcy Code; or (g)
                take any
                action for the purpose of effecting any of the
                foregoing.

            

    

    

    
      	9.7	
              If
                the Collateral and its value or the Bank’s rights with respect thereto are
                materially impaired in any way, or if any guaranty becomes unenforceable
                or the guarantor denies liability under a guaranty executed pursuant
                to
                this Agreement.

            

    

    

    

    SECTION
      X. REMEDIES

    

    The
      following are remedies of default:

    

    
      	10.1	
              Upon
                occurrence of any Event of Default, the Loan(s) and all indebtedness
                to
                Bank may, at the option of the Bank, and without demand or notice
                be
                declared to be immediately due and
                payable.

            

    

    

    
      	10.2	
              Upon
                the occurrence of any Event of Default, Bank
                shall have the right to apply any or all of any Borrower’s bank accounts
                or any other property held by Bank, against any indebtedness of Borrowers
                to Bank.

            

    

    

    
      	10.3	
              No
                delay or failure of Bank to exercise, and no delay in exercising,
                any
                right shall operate as a waiver thereof or as a waiver of any other
                right.

            

    

    

    
      	10.4	
              The
                remedies provided for in this Agreement are cumulative and not exclusive,
                and Bank may exercise any remedies available to it at law or in equity
                as
                provided in any Loan Documents or other agreement among any Borrower
                and
                Bank.

            

    

    

    

    SECTION
      XI. DEFINITIONS

    

    
      	 	 	
              “Agreement”
                means this Loan Agreement.

            

    

    

    
      	 	 	
              "Closing
                Date"
                means March 6, 2007.

            

    

    

    
      	 	 	
              “Collateral
                Documents”
                means all security agreements, mortgages, assignments, guaranty
                agreements, and any other agreements or documents required by Bank
                under
                the terms of this Agreement or any other loan agreement evidencing
                any
                obligations owing by Borrower or any Guarantor to
                Bank.

            

    

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    
      	 	 	
              “Contamination”
                means, when used with reference to any real or personal property,
                that a
                hazardous substance is present on or in the property in any amount
                or
                level.

            

    

    

    
      	 	 	
              “Debt
                Service Coverage Ratio”
                shall mean, for any period, the ratio of (a) the sum of (i) EBITDA
                for
                such period, plus any non-cash expenses for stock options or warrants
                exercised during such period, plus (iii) any expenses associated
                with the
                convertible note discounts during such period, plus (iv) with respect
                to
                any calculation of this ratio during fiscal year 2007, any expenses
                related to the moving costs of the wafer consolidation, not to exceed
                $500,000, to (b) the sum of (i) all principal payments paid during
                such
                period on any Indebtedness plus (ii) all interest paid or payable
                during
                such period on any Indebtedness and any other interest expense during
                such
                period, all calculated on a consolidated basis for the Borrower and
                its
                Subsidiaries in accordance with generally accepted accounting principles.
                

            

    

    

    
      	 	 	
              “Default”
                means any Event of Default or any event or condition which might
                become an
                Event of Default with notice or lapse of time or
                both.

            

    

    
      	 	 	 

    

    
      	 	 	
              “EBITDA”
                shall mean, for any period, the sum of (a) net income plus (b) all
                amounts
                deducted in determining such net income on account of (i) interest
                paid or
                payable during such period, (ii) taxes based on or measured by income,
                and
                (iii) depreciation and amortization expense, all calculated on a
                combined
                basis for the Borrower and its Subsidiaries in accordance with generally
                accepted accounting principles.

            

    

    

    
      	 	 	
              “Eligible
                Foreign Receivable”
                means any Net Current Accounts Receivable that is payable by a person
                located outside of the United States so long as (i) such receivable
                is not
                more than 60
                days
                old from the earlier of invoice date or date of shipment and (ii)
                the
                account debtor is acceptable to the Bank in its sole discretion and
                the
                Bank acknowledges that, as of the Closing Date, the account debtor
                set
                forth on Schedule 11.1 is an acceptable foreign account
                debtor.

            

    

    

    
      	 	 	
              “Eligible
                Inventory”
                means inventory owned by the Borrower or any Guarantor at such location(s)
                as Bank shall approve in writing, and in which Bank holds a valid,
                perfected security interest having priority over all other liens
                and is
                valued at the lower of cost or
                market.

            

    

    

    
      	 	 	
              “Environmental
                Laws”
                means all
                applicable laws, ordinances, rules, regulations, and orders that
                regulate
                or are intended to protect public health or the environment, or that
                establish liability for the investigation, removal, or cleanup of,
                or
                damage caused by any Contamination including, without limitation,
                any law,
                ordinance, rule, regulations. or order that regulates, or prescribes
                requirements for, air quality, water quality, or the disposition,
                transportation, or management of waste materials or toxic
                substances.

            

    

    

    
      	 	 	
              “ERISA”
                means the
                Employment Retirement Income Security Act of 1974, as now and hereafter
                amended, together with all regulations issued pursuant
                thereto.

            

    

    

    
      	 	 	
              “Event
                of Default”
                means any of the events of conditions described in Section
                IX.

            

    

    

    
      	 	 	
              “GAAP” means
                generally accepted accounting principles, consistently
                applied.

            

    

    
      	 	 	
              "Guarantor"
                means each person identified in Section 8.2 as a
                "Guarantor".

            

    

    

    
      	 	 	
              “Hazardous
                Substance”
                means any product or waste that is now or hereafter regulated by
                or
                subject to any environmental laws and any other pollutant, contaminant,
                or
                waste, including, without limitation, asbestos and polychlorinated
                biphenyls.

            

    

    

    
      	 	 	
              “Indebtedness”
                of
                any Person shall mean, as of any date as of which the amount thereof
                is to
                be determined, (a) all obligations of such Person for borrowed money,
                (b)
                all obligations which are secured by any Lien existing on property
                owned
                by such Person whether or not the obligation secured thereby shall
                have
                been assumed by such Person, (c) all obligations as lessee under
                any
                capital lease, (d) the unpaid purchase price for goods, property
                or
                services acquired by such Person, and all obligations of such Person
                to
                purchase goods, property or services where payment therefor is required
                regardless of whether or not delivery of such goods or property or
                the
                performance of such services is ever made or tendered, (e) all obligations
                of such Person to advance funds to, or to purchase property or services
                from, any other Person in order to maintain the financial condition
                of
                such other Person, (f) all reimbursement obligations on letters of
                credit
                issued for the account of such Person, (g) all liabilities of such
                Person
                for any unfunded vested liabilities under any Plan maintained by
                or on
                behalf of such Person for its employees, (h) all obligations of such
                Person in respect of any interest rate or currency swap, rate cap,
                or
                other similar transaction (valued in an amount equal to the highest
                termination payment, if any, that would be payable by such Person
                upon
                termination for any reason on the date of determination), and (i)
                all
                contingent liabilities.

            

    

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    “Lien”
      shall
      mean any pledge, assignment, hypothecation, mortgage, security interest, deposit
      arrangement, option, conditional sale or title retaining contract, sale and
      leaseback transaction, consignment, sale on approval or sale or return
      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 this Agreement, each Note, each Collateral Document, and any
                other
                agreements or documents required to be executed now or hereafter
                under the
                terms of this Agreement or any other agreement between Borrower or
                any
                Guarantor and Bank.

            

    

    

    
      	 	 	
              “Material
                Adverse Effect” means
                any material adverse effect whatsoever upon (a) the validity,
                performance, or enforcement of any Loan Documents, (b) the properties,
                contracts, business operations, prospects, profits, or condition
                (financial or otherwise) of Borrower or any Guarantor, or (c) the
                ability
                of any Borrower or any Guarantor to fulfill their respective obligations
                under the Loan Documents.

            

    

    

    
      	 	
              “Net
                Current Accounts Receivable”
                means an account receivable of Borrower or any Guarantor (i) that
                is not
                more than 90
                days
                old from the earlier of invoice date or date of shipment; (ii) that
                arises
                out of the sale of inventory in the ordinary course of its business;
                (iii)
                that is not subject to any defense or setoff; (iv) as to which Bank
                has
                not notified Borrower is in good faith judgment of Bank, uncollectible,
                in
                whole or in part, within a reasonable period of time: (v) and in
                which
                Bank holds a valid and perfected security interest, having priority
                over
                all other liens and encumbrances
                whatever.

            

    

    

    
      	 	
              “Note”
                means any Revolving Credit Note and any other form of promissory
                note
                executed and delivered by Borrowers under the terms of this Agreement,
                together with any renewals, extensions, or modifications
                thereof.

            

    

    

    
      	 	
              "Obligations"
                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
                this 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.

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    “Person”
      or
“person”
      shall
      mean any entity, whether an individual, trustee, corporation, partnership,
      joint
      stock company, trust, unincorporated organization, business association or
      firm,
      joint venture, a government or any agency or instrumentality or political
      subdivision thereof, or otherwise. 

    

    
      	 	 	
              “Plan”
                means an employee pension benefit plan or other plan with respect
                to which
                Borrower or any Affiliate is an “employer” or "party in interest”, as
                those terms are defined in ERISA.

            

    

    

    

    SECTION
      XII. MISCELLANEOUS

    

    
      	12.1	
              Borrower
                shall pay all out-of-pocket expenses incurred by Bank, including,
                but not
                limited to, reasonable attorney fees, insurance premiums, cost of
                lien
                perfection, and any reasonable expenses of Bank in connection with
                the
                preparation of the Loan Documents, the enforcement of the Bank’s rights
                and remedies under the Loan Documents and any other agreement between
                Borrower and Bank.

            

    

    

    
      	12.2	
              This
                Agreement and the rights and obligations of the parties hereunder
                shall be
                governed and interpreted in accordance with the laws of the State
                of
                Michigan.

            

    

    

    
      	12.3	
              Any
                and all notices or other communications required or permitted under
                this
                Agreement shall be in writing, and addressed to Borrower and the
                Guarantors at: 2925 Boardwalk, Ann Arbor, MI
                48104.

            

    

    

    
      	
              12.4

            	
              This
                Agreement shall be binding upon and shall inure to the benefit of
                Borrower
                and Bank and their respective successors an
                assigns.

            

    

    

    
      	
              12.5

            	
              Waiver
                of Jury Trial.
                The Bank and the Borrower knowingly and voluntarily waive any right
                either
                of them have to a trial by jury in any proceeding (whether sounding
                in
                contract or tort) which is in any way connected with this or any
                related
                agreement, or the relationship established under them. This provision
                may
                only be modified in a written instrument executed by the Bank and
                the
                Borrower.

            

    

    

    
      	
              12.6

            	
              USA
                Patriot Act Notification.
                The following notification is provided to Borrower
                pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
                Section
                5318:

            

    

    

    IMPORTANT
      INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government
      fight the funding of terrorism and money laundering activities, Federal law
      requires all financial institutions to obtain, verify, and record information
      that identifies each person or entity that opens an account, including any
      deposit account, treasury management account, loan, other extension of credit,
      or other financial services product. What this means for Borrower:
      When
Borrower
      opens
      an
      account, if Borrower
      is an
      individual Bank will ask for Borrower's
      name,
      taxpayer identification number, residential address, date of birth, and other
      information that will allow Bank to identify Borrower,
      and if
Borrower
      is not
      an individual Bank will ask for Borrower's
      name,
      taxpayer identification number, business address, and other information that
      will allow Bank to identify Borrower.
      Bank
      may also ask, if Borrower
      is an
      individual to see Borrower's
      driver’s
      license or other identifying documents, and if Borrower
      is not
      an individual to see Borrower's
      legal
      organizational documents or other identifying documents.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the day and
      year
      first above written. 

     

    
      	 	 	 
	 	ADVANCED
              PHOTONIX, INC.,
	 	a Delaware
              Corporation 
	 
 	 
 	 
 
	 	By:  	/s/ Richard
              Kurtz
	 	
              
 Its:
              CEO

      	 	 	 
	 	FIFTH
              THIRD BANK
	 	 
 	 
 
	 	By:  	/s/ Tonya
              R.
              Gietzen
	 	
              
Its:
Vice
              President
	 	TitlePromissory Note	Fifth Third Bank
              
	 	Address: 1000 Town Center,
              Suite
              J300
	 	City: Southfield State: Michigan
              Zip:
              48075
	 	 
	Obligor No. _________________
              March
              6, 2007	Obligation No.
              ___________________________

    

    
       

      
        

      
 

     

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

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

    

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

     

     

    
      	Accepted:	 	 	Obligor(s): 
	 	 	 	 	 
	Fifth
              Third Bank	 	 	
              Advanced
                Photonix, Inc.,  

              a
                Delaware corporation

            
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/ Tanya
              R.
              Gietzen	 	
              By:
                

            	/s/ Richard
              Kurtz
	 	
              
Its:
              Vice President	 	 	
              
It:
              CEO
	 	 	 	 	
              Address:

               

              2925
                Boardwalk

              Ann
                Arbor, MI 48104

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    SCHEDULE
      A

    ADDITIONAL
      PROVISION OF PROMISSORY NOTE

    

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

       

    

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

    

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

    

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

    

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

    

    Obligor
      waives demand for payment, presentment, notice of dishonor and protest of this
      Note and consents to any extension or postponement of time of its payment to
      any
      substitution, exchange or release of all or any part of any security given
      to
      secure this Note, to the addition of any hereto, and to the release, discharge,
      waiver, modification, or suspension of any rights and remedies against any
      person who may be liable for the indebtedness evidenced by this Note. Obligor,
      including but not limited to all co-makers and accommodation makers of this
      Note, hereby waives all suretyship defenses including but not limited to all
      defenses based upon impairment of collateral and all suretyship defenses
      described in Section 3-605 of the Uniform Commercial Code (the "UCC"). Such
      waiver is entered to the full extent permitted by Section 3-605(i) of the UCC.
      

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    11. General.
      If
      Obligor is more than one person, firm or corporation, (a) each of them is
      primarily liable on this Note, (b) receipt of value by any one of them
      constitutes receipt of value by both or all of them, (c) their liability on
      this
      Note is joint and several, and (d) the term "Obligor" means each of them and
      all
      of them. In this Note, "Maturity"
      means such time as the entire remaining unpaid principal balance shall be or
      shall become due and payable for any reason, including acceleration under
      paragraph 3 or paragraph 4 hereof. 

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
         

      

      
        5

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