Document:

<PAGE>

                    SEPARATION AGREEMENT AND GENERAL RELEASE

                  This SEPARATION AGREEMENT AND GENERAL RELEASE ("Agreement") is
made and entered into by and between Paul Ludwig ("Ludwig"), on the one hand,
and Advanced Photonix Inc. ("API") on the other.

                                    RECITALS:

                  A.       Ludwig has been employed by API since August 2002,
and the parties wish to terminate his employment with API effective as of August
31, 2006 (the "Separation Date").

                  B.       The parties desire amicably to resolve fully and
finally all issues and claims that Ludwig may have with API and others released
herein, including, but not limited to, any matters or claims arising out of or
related to Ludwig's employment with API, Ludwig's membership on API's Board of
Directors, or any other relationship with API or any other API Releasee, and the
termination of those relationships.

                  NOW, THEREFORE, in consideration of the premises and promises
contained in this Agreement, the parties agree as follows:

                  SECTION 1 -- NON-ADMISSION OF LIABILITY OR WRONGDOING.

                  The parties acknowledge that this Agreement reflects their
desire to terminate all aspects of their relationship (except as otherwise
provided in this Agreement) in an orderly and amicable fashion. The parties in
no way acknowledge any fault or liability to the other party or any other person
or entity, and this Agreement shall not be construed as an admission by either
party or any other person or entity of any fault or liability to any party or
any other person or entity.

                  SECTION 2 -- CESSATION OF EMPLOYMENT AND OTHER RELATIONSHIPS.

                  Ludwig hereby resigns, and API hereby accepts Ludwig's
resignation, as a director, officer and employee of API and of all subsidiaries
of API effective as of the opening of business on the Separation Date. API will
not contest any claim initiated by Ludwig for unemployment insurance benefits
and will characterize his departure from API as a separation from employment.

                  SECTION 3 -- BENEFITS TO LUDWIG.

                  Between the date hereof and the Separation Date, Ludwig will
continue to be employed by API on the same terms and conditions as he is
currently employed by API and in such capacity shall continue to receive
compensation at the same rate as he is currently paid and shall continue to be
eligible to participate in all benefit plans of API on the same terms as he now
participates therein. Following the Separation Date, API will,

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<PAGE>

as set forth below, pay Ludwig the following amounts, less required deductions
and withholdings, all of which will be reported on the appropriate tax forms as
determined by API:

                  (a)               $10,160.88 representing approximately 8
months of API subsidy for the group health insurance Ludwig was enrolled in as
of the date hereof. This payment will be mailed to Ludwig within 5 days after
the Separation Date.

                  (b)               $123,344 representing approximately 8
months of Ludwig's base salary, payable in eight substantially equal
installments of $15,418 each. The first $15,418 installment will be mailed to
Ludwig on or about October 3, 2006. An additional installment will be mailed to
Ludwig on or about the third day of each of the next 7 months with the last
installment to be mailed on or about May 2, 2007.

                  (c)               The full amount, if any, of any accrued but
unpaid vacation and any accrued and unpaid compensation owing to Ludwig as at
the Separation Date which will be payable to Ludwig not later than 5 days after
the Separation Date.

                  In addition, API will pay for Ludwig to receive, from and
after the date hereof, outplacement assistance services selected by API from Lee
Hecht Harrison, Right Associates, or another mutually agreeable company, at a
cost not to exceed $20,000.00.

                  Ludwig acknowledges that the benefits to be received by him
under the provisions of this Section 3 are in addition to any benefits to which
he would otherwise be entitled to receive in connection with his employment or
the termination thereof.

                  SECTION 4 -- RESPONSIBILITY FOR TAXES.

                  Ludwig agrees that he solely is responsible for all of his tax
obligations, including, but not limited to, all payment obligations, which may
arise as a consequence of this Agreement, and all payments made to Ludwig
hereunder shall be subject to tax withholding as required by law.

                  SECTION 5 -- COMPLETE RELEASE BY LUDWIG.

                  As a material inducement to API to enter into this Agreement,
Ludwig irrevocably and unconditionally releases and forever discharges API, all
of API's current and former parents, subsidiaries, related companies,
partnerships, joint ventures, or other affiliates, and, with respect to each of
them, their predecessors and successors; and, with respect to each and all of
the foregoing entities, all of their respective past, present, and future
employees, officers, directors, stockholders, owners, representatives, assigns,
attorneys, agents, insurers, employee benefit programs (and the trustees,
administrators, fiduciaries, and insurers of such programs), and any other
persons acting by, through, under or in concert with any of the persons or
entities listed in this subsection, and their

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<PAGE>

successors (collectively along with API, the "API Releasees"), from any and all
"Claims."

                  The term "Claims" includes all charges, claims, complaints,
liabilities, obligations, promises, agreements, controversies, damages, actions,
causes of action, suits, rights, demands, costs, losses, debts, and expenses
(including attorneys' fees and costs actually incurred) or similar rights of any
nature whatsoever, known or unknown, which Ludwig now has or claims to have, or
which Ludwig at any time heretofore had or claimed to have, or which Ludwig at
any time hereafter may have or claim to have against each or any of the API
Releasees, arising out of or related to any act, omission, event, fact or other
thing which existed or occurred (i) on or prior to the date Ludwig signs this
Agreement or (ii) in the event but only in the event that Ludwig accepts any
payment made to him pursuant to Section 3 hereof, on or prior to the Separation
Date. This includes but is not limited to a release of all rights and claims
Ludwig may have under:

a)    Anti-Discrimination Statutes, such as the Wisconsin Fair Employment Act
      (prohibiting discrimination in employment based on race, creed, color,
      national origin, ancestry, disability, sexual orientation, marital status,
      sex or age); the Age Discrimination in Employment Act (prohibiting age
      discrimination); Title VII of the Civil Rights Act of 1964 (prohibiting
      discrimination in employment based on race, color, national origin,
      religion, sex or pregnancy); the Civil Rights Act of 1991 (prohibiting
      discrimination); 42 U.S.C. Sec. 1982 (prohibiting discrimination);
      Executive Order 11246 (prohibiting race, color, religion, sex and national
      origin discrimination); Executive Order 11141 (prohibiting age
      discrimination); the Rehabilitation Act of 1973 (prohibiting handicap
      discrimination); the Equal Pay Act (prohibiting paying males and females
      different amounts for equal work); and the Americans With Disabilities Act
      (prohibiting discrimination based on disability).

b)    Federal and State Employment Statutes, such as the Fair Labor Standards
      Act (regulating wage and hour matters); the Employee Retirement Income
      Security Act of 1974 (protecting employee benefits); the National Labor
      Relations Act (protecting the right to engage in union activity); the
      Family and Medical Leave Act (providing for leaves of absence); the
      Michigan Family Rights Act (providing for leaves of absence); and the
      Michigan Labor Code (regulating wages, hours, and other terms and
      conditions of employment);

c)    Other Laws, such as federal or local laws, or regulations or common law
      prohibiting discrimination in employment or otherwise, enforcing express
      or implied contracts, requiring employers to deal fairly or in good faith,
      or restricting an employer's right to terminate employees. Ludwig also
      releases any and all other claims, known and unknown, which he may have
      for breach of contract, express or implied; breach of the covenant of good
      faith and fair dealing; and retaliation, defamation, conspiracy,

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<PAGE>

       infliction of emotional distress, invasion of privacy, misrepresentation,
       or any other tort; and

d)    Benefit Plans. Ludwig acknowledges that he will cease to be eligible to
      participate in any stock option, bonus, incentive compensation,
      commission, medical, dental, life insurance, retirement, and other
      compensation or benefit plans of API or any other party released herein as
      of his Separation Date. Ludwig releases all rights under any such plan,
      except he will retain any right he has to COBRA continuation coverage as
      to any API-provided medical, dental, or vision plan in which he
      participated as of his Separation Date. If Ludwig desires to elect COBRA
      continuation coverage, he must timely elect it and timely pay all required
      contributions. Ludwig also will retain all vested benefits under all API
      qualified retirement plans, and all rights associated with those benefits,
      as determined under the official terms of those plans. Ludwig acknowledges
      that he will cease vesting in any stock option or similar API plan as of
      his Separation Date and any rights he may have shall be determined under
      the official terms of such plan. It is provided, however, that assuming
      that this Agreement is not revoked by Ludwig pursuant to Section 22
      below, all currently outstanding stock option grants to Ludwig will
      become fully vested and exercisable in accordance with and subject to
      their terms.

                  SECTION 6 -- UNKNOWN CLAIMS BY LUDWIG.

                  Ludwig expressly acknowledges that this Agreement is intended
to include in its effect, without limitation, all Claims that he does not know
of or suspect to exist in his favor at the time he signs this Agreement (or, of
applicable as at the Separation Date), and that this Agreement contemplates the
release of all such Claims.

                  SECTION 7 -- NO FILINGS BY LUDWIG/COVENANT NOT TO SUE.

                  Ludwig represents and agrees that he has not filed or caused
to be filed, on his own behalf, directly or indirectly, any complaints, charges,
applications, claims or grievances against any of the API Releasees with any
local state or federal agency, court, self-regulatory organization, or any other
public, quasi-public or private agency, organization, or entity, and that he
will not do so at any time, based on any act, omission, event, fact, or other
thing as to which he has given a release hereunder. Ludwig further agrees that
if any such agency, court, organization, or other entity assumes jurisdiction of
any such complaint, charge, application, claim, or grievance against any of the
API Releasees, on behalf of or with respect to Ludwig, he will request such
agency, court, organization, or other entity to withdraw from and dismiss the
matter with prejudice. This Section, however, shall not prohibit Ludwig from
filing or prosecuting a charge with any administrative agency as long as Ludwig
does not seek any damages or any other relief or remedy for himself.

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<PAGE>

                  SECTION 8 -- COMPLETE RELEASE BY API.

                  As a material inducement to Ludwig to enter into this
Agreement, API irrevocably and unconditionally releases and forever discharges
Ludwig from any and all "API Claims."

                  The term "API Claims" includes all charges, claims,
complaints, liabilities, obligations, promises, agreements, controversies,
damages, actions, causes of action, suits, rights, demands, costs, losses,
debts, and expenses (including attorneys' fees and costs actually incurred) or
similar rights of any nature whatsoever, known or unknown, which API now has or
claims to have, or which API at any time heretofore had or claimed to have, or
which API at any time hereafter may have or claim to have against Ludwig,
arising out of or related to any act, omission, event, fact or other thing which
existed or occurred (i) on or prior to the date API signed this Agreement, or
(ii) in the event but only in the event that Ludwig accepts any payment under
Section 3 hereof, on or prior to the Separation Date.

                  SECTION 9 -- UNKNOWN CLAIMS BY API.

                  API expressly acknowledges that this Agreement is intended to
include in its effect, without limitation, all API Claims as to which it has
given a release hereunder, and that this Agreement contemplates the release of
all such API Claims.

                  SECTION 10 -- CONFIDENTIAL INFORMATION.

                  (a)               Ludwig represents and agrees that in the
course of employment with API, he acquired confidential information and trade
secrets concerning API's and the other API Releasees' operations, future plans,
customer lists or other information, their methods of doing business, financial
information, ideas, processes and formulae, trade secrets, and other privileged,
confidential, and proprietary information ("Confidential Information"). In
addition, Ludwig specifically agrees that Confidential Information includes all
information or data, in writing or otherwise, or learned by Ludwig orally, by
observation or other sensory detection, relating to any product, product design,
service, research, development, formula, process, method of distribution or
delivery, know-how, contract term, customer pricing, supplier list or price,
business strategy, compensation, plan or practice, operating records, software,
technology, sales data, information or other records, lists or documents used by
API or API Releasees in operating their businesses or otherwise.

                  (b)               Ludwig represents and agrees that disclosure
of any Confidential Information would be extremely damaging to API or other API
Releasees if disclosed to a competitor or made available to any other person or
corporation. Ludwig represents and agrees that such Confidential Information has
been divulged to Ludwig in confidence and represents and agrees that he will
keep such Confidential Information secret and

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<PAGE>

confidential and not disclose it before it becomes publicly available through no
fault of his own.

                  (c)               Ludwig agrees that he will not, for a period
of two (2) years after his separation from API (the "Restricted Period"),
directly or indirectly solicit, induce, encourage or attempt to influence any
client, customer, salesperson or supplier of API to cease to do business with
API. Ludwig further agrees that he shall not utilize for any such purposes any
names and addresses of customers or clients of API or any data on or relating to
past, present or prospective (at the time of his separation from API) customers
or clients of API.

                  (d)               Ludwig further agrees that during the
Restricted Period he will not, directly or indirectly, solicit for employment or
other business relationship any person who is, or within the preceding 12 months
was, an API or other API Releasee officer, manager, employee, or consultant.

                  (c)               In view of the nature of Ludwig's employment
and the Confidential Information that Ludwig has received during the course of
his employment, Ludwig likewise agrees that API and the other API Releasees
would be harmed irreparably by any violation, or threatened violation, of this
Section 10 and that, therefore, API and the other API Releasees shall be
entitled to an injunction prohibiting Ludwig from any violation or threatened
violation of this Agreement. The undertakings set forth in this Section 10 shall
survive the termination of other arrangements contained in this Agreement.

                  SECTION 11 -- CONFIDENTIALITY AND NONDISPARAGEMENT BY LUDWIG.

                  (a)               Ludwig represents and agrees that he has
kept and will keep any information concerning the circumstances or allegations
giving rise to Ludwig's Claims (if any) released herein to any person or entity
other than his tax advisor and attorneys ("Ludwig Confidants"), and that he only
will disclose such information to the Ludwig Confidants if such persons or
entities are informed of and agree to be bound by this confidentiality
provision. By way of illustration, Ludwig shall not disclose any information
concerning the circumstances or allegations giving rise to his Claims released
herein to anyone including, but not limited to, any representative of any print,
radio, or television media, to any past, present, or prospective employee or
customer of, or applicant for employment with, API or any of the other API
Releasees, to any counsel for any current or former employee or customer of API
or any of the other API Releasees, or to the public at large. This subsection
does not prohibit disclosures to the extent necessary legally to enforce this
Agreement or to the extent prohibited by law, nor does it prohibit disclosures
to the extent otherwise legally required (but only if Ludwig notifies API of a
such an obligation or request within 48 hours after he learns of it and allows
API to take all steps it deems to be appropriate to prevent or limit the
required disclosure).

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<PAGE>

                  (b)               Ludwig further agrees not to criticize,
denigrate, or disparage API or any other API Releasee.

                  (c)               In the event Ludwig is subpoenaed by a court
or other legal tribunal to testify or provide documents regarding his employment
with API, others' employment with API, API practices or procedures, or any other
subject matter involving, relating, or referring to API or any API Releasee, he
shall give notice to API within 48 hours by sending a copy of all such subpoenas
to the person at the address listed in Section 21 (or to such other person as
API may designate to Ludwig in writing) by priority overnight U.S. Postal
Service mail or UPS priority overnight delivery. To the extent permitted by law,
Ludwig agrees that he will take no action, direct or indirect, to encourage or
suggest the issuance of such subpoenas.

                  SECTION 12 -- FURTHER CONSEQUENCES OF LUDWIG'S VIOLATION OF
PROMISES.

                  Ludwig further agrees that API and the other API Releasees
would be irreparably harmed by any actual or threatened violation of Sections 10
or 11, and that to the extent not prohibited by law, API and the other API
Releasees shall be entitled to an injunction prohibiting Ludwig from committing
any such violation. Ludwig hereby consents to subject himself to personal
jurisdiction in the State of Michigan.

                  SECTION 13 -- OWNERSHIP CLAIMS BY LUDWIG.

                  Ludwig represents and agrees that he has not assigned or
transferred, or purported to assign or transfer, to any person or entity, any
Claims or any portion thereof, or interest therein.

                  SECTION 14 -- CONSULTATION WITH COUNSEL; FULL AND INDEPENDENT
KNOWLEDGE, UNDERSTANDING, AND CAPACITY.

                  Ludwig is advised to consult with an attorney of his choice
before signing this Agreement. Ludwig acknowledges and agrees that he has been
so advised; that Ludwig has fully discussed all aspects of this Agreement with
his counsel, to the full extent Ludwig so desired; that Ludwig has read
carefully and fully understands all of the provisions of this Agreement; that
Ludwig has taken as much time as he needs for full consideration of this
Agreement; that Ludwig is voluntarily entering into this Agreement; and that
Ludwig has the capacity to enter into this Agreement.

                  SECTION 15 -- NO REPRESENTATIONS.

                  Ludwig represents that in signing this Agreement, he does not
rely on nor has he relied on any representation or statement not specifically
set forth in this Agreement by any of the API Releasees or by any of the API
Releasees' agents,

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<PAGE>

representatives, or attorneys with regard to the subject matter, basis, or
effect of this Agreement or otherwise.

                  SECTION 17 -- API PROPERTY AND CONFIDENTIAL MATERIAL.

Ludwig represents and agrees that within 5 days of the Separation Date, he will
turn over to API all originals and copies of all information, files, memoranda,
records, other documents, software, badges, keys, credit cards and any other
physical or personal property which are or were API or API Releasee property,
which Ludwig has in his possession, custody, or control. Within the
aforementioned 5 day period, Ludwig shall bring the home desktop computer
provided to him by API back to API for API's inspection and removal of all API
Confidential Information, and within 2 days thereafter such computer will be
returned to Ludwig. Existing Obligations Continue.

                  Ludwig agrees to remain bound by any API or API Releasee
agreement or policy relating to confidential information, invention,
nonsolicitation, noncompetition, or similar matters to which he is now subject.

                  SECTION 17 -- GOVERNING LAW.

                  Except to the extent preempted by federal law, this Agreement
shall in all respects be interpreted, enforced and governed under the laws of
the State of Michigan without regard to its conflict of laws provisions.

                  SECTION 18 -- SUCCESSORS.

                  This Agreement shall be binding upon Ludwig and his heirs,
administrators, representatives, executors, successors, and assigns, and shall
inure to the benefit of the API Releasees and to their respective heirs,
administrators, representatives, executors, successors, and assigns.

                  SECTION 19 -- ARBITRATION.

                  (a)               Agreement to Arbitrate: Any dispute between
the parties hereto, including, without limitation, any of the provisions of this
Agreement or any dispute about the formation, validity, interpretation, or
effect of alleged violations of this Agreement (except alleged violations of
Sections 10 or 11, which may be enjoined as well at API's option as set forth in
Section 12) (an "Arbitrable Dispute") must be submitted to final and binding
arbitration in Ann Arbor before an experienced employment arbitrator licensed to
practice law in Michigan. The parties agree to subject themselves to personal
jurisdiction in the city of Ann Arbor and Washtenaw County for such arbitration
and in any jurisdiction necessary for the enforcement of any arbitration award.
Except as provided in this Agreement the arbitration shall be in accordance with
the then-current JAMS/Endispute Arbitration Rules And Procedures for Employment
Disputes governing arbitrations administered by the Judicial Arbitration and
Mediation

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<PAGE>

Service ("JAMS"). The arbitrator shall be selected as follows. JAMS shall give
each party a list of 11 arbitrators drawn from its panel of employment dispute
arbitrators. Each party may strike all names on the list it deems unacceptable.
If only one common name remains on the lists of both parties, that individual
shall be designated as the Arbitrator. If more than one common name remains on
the lists of both parties, the parties shall strike names alternately from the
list of common names until only one remains. The party who did not initiate the
claim shall strike first. If no common name exists on the lists of both parties,
JAMS shall furnish an additional list and the process shall be repeated. If no
arbitrator has been selected after two lists have been distributed, then the
parties shall strike alternately from a third list, with the party initiating
the claim striking first, until only one name remains. That person shall be
designated as the arbitrator. Anytime a party is permitted under this Agreement
to make an arbitrator strike, such party must make the strike and communicate it
to the other party and JAMS within ten (10) calendar days of the date of the
transmittal communication relaying the arbitrators remaining for selection. In
the event a party does not make a timely strike, the other party may select the
arbitrator from the names remaining.

                  (b)               Costs of Arbitration: Each party shall pay
the fees of their respective attorneys, the expenses of their witnesses and any
other expenses connected with the arbitration, but all other costs of this
arbitration, including the fees of the arbitrator, cost of any record or
transcript of the arbitration, administrative fees and other fees and costs,
shall be paid in equal shared by Ludwig and API. The party losing the
arbitration shall reimburse the party who prevailed for all expenses the
prevailing party paid pursuant to the preceding sentence and for all reasonable
attorneys' fees (as determined by the Arbitrator) incurred by the prevailing
party in connection with the arbitration proceeding.

                  (c)               Exclusive Remedy: Arbitration in this manner
shall be the exclusive remedy for any Arbitrable Dispute. The arbitrator's
decision or award shall be fully enforceable and subject to an entry of judgment
by a court of competent jurisdiction. Should Ludwig or API attempt to resolve an
Arbitrable Dispute by any method other than arbitration pursuant to this
Paragraph, the responding party shall be entitled to recover from the initiating
party all damages, expenses and attorneys' fees incurred as a result and the
responding party shall be entitled to the return of any payments that party made
under this Agreement.

                  SECTION 20 -- FURTHER NECESSARY ACTIONS.

                  Ludwig agrees, without further consideration, to execute or
cause to be executed, and to deliver to API, any other documents and to take any
other action as may be necessary to more effectively consummate the subject
matter of this Agreement, including but not limited to appropriate resignations
from his positions with API.

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<PAGE>

                  SECTION 21 -- REVIEW PERIOD.

                  Ludwig acknowledges that he has been given twenty-one (21)
days, which he acknowledges is a reasonable period of time in which to consider
whether to sign this Agreement and to consult with an attorney.

                  SECTION 22 -- RIGHT TO REVOKE ACCEPTANCE OF AGREEMENT.

                  Ludwig acknowledges that he has been advised that he may
revoke his acceptance of this Agreement for a period of seven (7) calendar days
following the day he executes this Agreement. Ludwig further understands that
this Agreement is not effective until the revocation period has expired and that
any revocation, to be effective, must be in writing, and either (a) postmarked
within seven (7) days of the date he executes this Agreement and addressed or
hand delivered to, in a personal and confidential envelope, Mr. Richard Kurtz at
the address of API set out below. Notification by facsimile transmission fax
number (734) 864-5653 prior to that time will be deemed to be sufficient. Ludwig
understands that if revocation is made by mail, mailing by certified mail,
return receipt requested, is recommended to show proof of mailing.

                  SECTION 23-- NOTICE.

                  Any notice to be given hereunder shall be given in writing and
delivered personally or sent by first class mail, postage prepaid, to the
addresses set forth below, or to such other address as either party may
designate by written notice to the other.

Ludwig:           Paul Ludwig
                                5790 Verde View
                                Fitchburg, WI 53711

                  API:          Mr. Richard D. Kurtz
                                Advanced Photonix, Inc.
                                2925 Boardwalk
                                Ann Arbor, MI 48104

                  With a copy to:

                                       10                Initialed:
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                                                                     ---------
<PAGE>

                                Landey Strongin, Esq.
                                Dornbush Mensch Mandelstam & Schaeffer, LLP
                                747 Third Avenue
                                New York, New York 10017
                                Fax (212) 753-7673

                  SECTION 24-- PROPER CONSTRUCTION.

                  (a)               The language of all parts of this Agreement
shall in all cases be construed as a whole according to its fair meaning, and
not strictly for or against any of the parties.

                  (b)               As used in this Agreement, the term "or"
shall be deemed to include the term "and/or," and the singular or plural shall
be deemed to include the other whenever the context so indicates or requires.

                  (c)               The paragraph headings used in this
Agreement are intended solely for convenience of reference and shall not in any
manner amplify, limit, modify or otherwise be used in the interpretation of any
of the provisions hereof.

                  SECTION 25-- SEVERABILITY.

                  Should any of the provisions of this Agreement be declared or
be determined by any court to be illegal, invalid, void, or unenforceable, the
validity of the remaining parts, terms or provisions shall not be affected
thereby and said provision shall be deemed not to be a part of this Agreement.

                  SECTION 26-- COUNTERPARTS.

                  This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, with the same effect
as if all parties had signed the same document. All such counterparts shall be
deemed an original, shall be construed together and shall constitute one and the
same instrument.

                  SECTION 27-- ENTIRE AGREEMENT.

                  This Agreement sets forth the entire agreement between the
parties hereto, and, excepting only those various Non-Qualified Stock Option
Agreements between Ludwig and API, fully supersedes any and all prior agreements
or understandings between the parties hereto pertaining to the subject matter
hereof. This Agreement may only be modified by a written document signed by all
parties hereto evidencing a specific intent to modify this Agreement.

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<PAGE>

         PLEASE READ CAREFULLY. THIS SEPARATION AGREEMENT AND GENERAL
RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

         Executed at ____________, Michigan, this 6th day of June,2006.

                         /s/ Paul Ludwig
                         ------------------------------------------------------
                         Paul Ludwig

         Executed at ____________, Michigan, this 2nd day of June 2006.

                          /s/ Richard D. Kurtz
                          -----------------------------------------------------
                          Richard D. Kurtz
                          Advanced Photonix Inc.

                                       12                Initialed:
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<PAGE>
                                 EXHIBIT INDEX

<TABLE>
Exhibit
Number          Exhibit
--------        -------
<S>             <C>
10.1            Separation Agreement and General Release dated as of June 6,
                2006 between the Company and Paul Ludwig

99.1            Advanced Photonix, Inc.'s press release dated June 6, 2006.
</TABLE>EX-4.1

 

Exhibit 4.1

CAPITAL PLAN

of the

Federal Home Loan Bank of Pittsburgh

	 	 	 
	

	 	As Approved by the Executive Committee on
	 

	 	April 26, 2002

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	I. Purpose
	 	 	3	 
	A. General
	 	 	3	 
	 
	 	 	 	 
	II. Stock Investment
	 	 	3	 
	A. General
	 	 	3	 
	B. Minimum Amount
	 	 	3	 
	C. Adjustments to Minimum Amount
	 	 	7	 
	 
	 	 	 	 
	III. Transition Rule
	 	 	7	 
	A. Manner of conversion
	 	 	7	 
	B. Right to opt out of Capital Plan
	 	 	8	 
	C. Effects of Opting Out of the Conversion
	 	 	8	 
	D. Failure of a Member to affirm election to convert
	 	 	8	 
	E. Timetable for transition and full capital compliance
	 	 	8	 
	 
	 	 	 	 
	IV. Par Value, Rights, Terms, and Preferences of Capital Stock
	 	 	8	 
	A. Par Value
	 	 	8	 
	B. Ownership
	 	 	8	 
	C. Limitations
	 	 	9	 
	D. Dividends
	 	 	9	 
	E. Redemption
	 	 	9	 
	F. Cancellation of Redemption
	 	 	9	 
	G. Limited Transferability
	 	 	9	 
	H. Termination of Membership
	 	 	9	 
	I. Voting rights
	 	 	11	 
	J. Rights in Bank Merger
	 	 	11	 
	K. Rights in Bank Liquidation
	 	 	11	 
	 
	 	 	 	 
	V. Bank Review of Plan
	 	 	11	 
	A. Review by Independent CPA
	 	 	11	 
	B. Review by NRSRO
	 	 	11	 
	C. Good faith effort determination
	 	 	12	 
	D. Approval by FHFB
	 	 	12	 
	E. Process for Amending this Plan
	 	 	12	 
	 
	 	 	 	 
	VI. Definitions
	 	 	12	 
	 
	 	 	 	 
	Exhibit A — General instructions for maximum borrowing capacity (MBC) calculation
	 	 	 	 
	Exhibit B.  — Line description for MBC calculation — banks
	 	 	 	 
	Exhibit C — Line descriptions for MBC calculation — thrifts
	 	 	 	 
	Exhibit D — Line descriptions for MBC calculation — credit unions
	 	 	 	 
	Exhibit E — Line descriptions for MBC calculation — insurance companies
	 	 	 	 
	 
	 	 	 	 
	Schedule A
	 	 	 	 

Page 2 of 16

 

	I.  	Purpose

	 	A.  	General. This Capital Plan is being implemented to comply with the provisions
of the Bank Act and Capital Regulation.

	 	1.  	Effective Date. The Capital Plan will become
effective on the Recalculation/Conversion Date, which shall be the date stated in a Notice
to Members. Unless directed otherwise by the Finance Board, the
Recalculation/Conversion Date shall not be greater than 18 months after
the Finance Board approves the Capital Plan nor less than sixty (60) days
after the date of the Notice to Members.
	 
	 	2.  	Capitalized Terms. All capitalized terms used
but not defined elsewhere in the Capital Plan shall have the meaning
ascribed to such terms in Section VI.

	II.  	Stock Investment

	 	A.  	General. Adequate capitalization is required to: (a) provide for the safe and
sound operation of the Bank; (b) permit prudent leveraging into products and
services of benefit to Members and Housing Associates; (c) provide appropriate
risk-adjusted Member dividend returns; (d) protect creditors of the Bank and the
Bank System against loss; (e) generate earnings sufficient to meet the Bank’s
various community support and public purpose obligations; and (f) comply with
prevailing Minimum Regulatory Capital Requirements. Towards these objectives, this
Capital Plan requires Members to make certain Minimum Member Stock Investments in
the Bank.
	 
	 	B.  	Minimum Amount

	 	1.  	General. The need for capital is in great
part a function of the volumes of and risks inherent in the products and
services provided by the Bank to its Members, including the potential for
Members to borrow from the Bank.
Therefore, the Capital Stock of the Bank should be contributed in general
proportion to the distribution of such products and services
to its Members, including their potential borrowing activities. Each
Member must purchase and maintain a minimum investment in the Capital
Stock of the Bank in an amount determined in accordance with the
requirements of this Capital Plan.
	 
	 	2.  	Minimum Member Stock Investment. Each Member
is required to maintain a Minimum Member Stock Investment, both as a
condition to becoming and remaining a Member and as a condition to
obtaining Loans from the Bank, access to the Bank’s credit products
through its Unused Borrowing Capacity, and to support Acquired Member
Assets with the Bank. The total amount of the required minimum investment
of all Members shall be sufficient to ensure that the Bank stays in
compliance with the Minimum Regulatory Capital Requirements under the
Capital Regulation. The Board of Directors will monitor and, as necessary,
adjust

Page 3 of 16

 

	 	   	the minimum investment to provide for Capital Stock purchases and
maintenance by all Members sufficient to allow the Bank to remain in
compliance with its Minimum Regulatory Capital Requirements.

	 	a)  	Member Loan Stock Purchase Requirement. Each Member is required to purchase
and hold Capital Stock in an amount equal to the Bank’s Member Loan Stock Purchase
Percentage multiplied by all the Loans extended from the Bank to that Member. The Member
Loan Stock Purchase Requirement will be calculated at the time each Loan is Transacted.
The Member Loan Stock Purchase Percentage is set forth on Schedule A. From time to time,
upon approval by the Board of Directors, the Member Loan Stock Purchase Percentage may be
adjusted to as high as six percent (6.0%) or to as low as four and one half percent
(4.5%).
Changes outside this range would constitute an amendment to this Capital Plan that would
require Finance Board approval. An adjustment in the Member Loan Stock Purchase Percentage
may be applied in either of the following manners:

	 	(1)  	A change in the Member Loan Stock Purchase Percentage may be applied
prospectively, affecting only Loans Transacted subsequent to the change in the
Member Loan Stock Purchase Percentage, or
	 
	 	(2)  	A change in the Member Loan Stock Purchase Percentage may be applied
retrospectively, in which case the new Member Loan Stock Purchase Percentage would
be applied both to the Member Loans outstanding at the time of such change and to
any Loans Transacted subsequent to such change. If a change in Member Loan Stock
Purchase Requirement is made retrospectively, the Board of Directors may choose to
either:

	 	(i)  	apply the new Member Loan Stock Purchase Percentage to all Member
Loans outstanding at the time of such change, or
	 
	 	(ii)  	apply the new Member Loan Stock Purchase Percentage
only to Member Loans which do not include a Principal Prepayment Fee.

	 	b)  	Unused Borrowing Capacity Stock Purchase Requirement. Each Member is required
to purchase and hold Capital Stock in an amount equal to the Bank’s Unused Borrowing
Capacity Percentage multiplied by the principal amount of
Unused Borrowing Capacity of that Member. The amount of Unused Borrowing Capacity shall be
calculated no later than April 10
th of each year and at the time each Loan is
Transacted. The Unused Borrowing Capacity Percentage is set forth on Schedule A. From time
to time, upon approval by the Board of Directors, the Unused Borrowing Capacity Percentage
may be adjusted to as high as one and one-half percent (1.5%) or to as low as zero percent
(0%).

Page 4 of 16

 

	 	   	Changes outside this range would constitute an amendment to this Capital Plan, which
would require Finance Board approval. An adjustment in the Unused Borrowing Capacity
Percentage will be applied to the principal amount of Unused Borrowing Capacity for all
future calculations. From time-to-time, in the discretion of the Board, the amount any one
Member would have to purchase under the Unused Borrowing Capacity Stock Purchase
Requirement may be subject to a cap of no less than $10 million.
	 
	 	c)  	Acquired Member Asset Purchase Requirement. Each Member is required to
purchase and hold Capital Stock in an amount equal to the Bank’s Acquired Member Asset
Purchase Percentage multiplied by the amount of Acquired Member Assets delivered by that
Member and held by the Bank at the time the transaction occurs (in the Bank’s discretion,
it may recalculate the member’s Acquired Member Asset Purchase Requirement from
time-to-time to capture any reductions in the amount of Acquired Member Assets then being
held by the Bank). The Acquired Member Asset Purchase Percentage is set forth on Schedule
A. From time to time, upon approval by the Board of Directors, the Acquired Member Asset
Purchase Percentage may be adjusted to as high as four percent (4.0%) or to as low as zero
percent (0.0%). Changes outside this range would constitute an amendment to this Capital
Plan that would require Finance Board approval. Adjustments made to the Bank’s Acquired
Member Assets Purchase Percentage, if any, shall be applied in accordance with the
following:

	 	(1)  	Any increase in Acquired Member Asset Purchase
Percentage shall be applied only on a prospective basis, i.e., affecting only
master commitments entered into between a Member and the Bank subsequent to such
increase in the Acquired Member Asset Purchase Percentage.

	 	(a)  	Any Acquired Member Assets delivered to the Bank under a master
commitment made prior to an increase in Acquired Member Asset Purchase
Percentage shall be subject to the lower Acquired Member Asset Purchase
Percentage, if any, that had been in effect at the time that master
commitment was originally accepted by the Bank.

	 	(2)  	Any decrease in Acquired Member Asset Purchase Percentage may, in the sole
discretion of the Bank, be applied either retrospectively, affecting all Acquired
Member Assets previously delivered and held by the Bank or to be delivered under
existing master commitments, or prospectively, affecting only master commitments
entered into subsequent to such decrease in the Acquired Member Asset Purchase
Percentage.

Page 5 of 16

 

	 	3.  	Excess Stock Investment. A Member may hold Excess Stock to the extent it has
the legal authority under applicable statutes and regulations, subject to the following:

	 	a)  	Repurchase. With Notice to Members of at least one (1)
Business Day, the Bank, in its sole discretion, may elect to Repurchase Excess
Stock shares at any time. The Bank will Repurchase Excess Stock from all Members
on a pro rata basis (provided, however, in the event a Member has given Written
Notice of its intent to redeem Excess Stock the Bank may, in its sole discretion,
Repurchase the Excess Stock of that Member as set forth below).
The effect of Repurchasing Capital Stock by the Bank is to retire such shares. The
one (1) Business Day Notice to Members does not apply to the repurchase of Capital
Stock on the Recalculation/Conversion Date.
	 
	 	b)  	Redemption. A Member may, at its discretion, request a
Redemption of Capital Stock by providing Written Notice. A
Member may request a Redemption of some or all of its Capital Stock in accordance
with the Redemption terms of this Capital Plan. The 5-year Redemption period
commences upon the receipt of the Written Notice that specifies the number of
shares to be redeemed. Following Written Notice of a Member’s intent to redeem
shares, but prior to actual Redemption, the Bank may, in its sole discretion, elect
to Repurchase those Excess Stock shares for which it has already received a
Redemption request. In the event that multiple Redemption requests are pending, the
Bank may, in its sole discretion, elect to Repurchase Excess Stock on a prorated
basis or according to the order in which the Redemption requests were received by
the Bank, or according to another allocation method as necessary to maintain
ongoing compliance with the Bank’s Capital Regulations. The effect of Redeeming
Excess Stock shares by the Bank is to retire such shares. A request by a Member
(whose Membership has not been terminated) to redeem Capital Stock shall
automatically be cancelled if the Bank is prevented from redeeming the Member’s
Capital Stock because such redemption would cause the Member to fail to meet its
Minimum Member Stock Investment. The effective date of the automatic cancellation
shall be five (5) business days after the expiration of the applicable redemption
notice period.
	 
	 	c)  	Limitation on Repurchase and Redemption. The Repurchase and
Redemption of Capital Stock will be subject to the applicable restrictions set
forth in 12 C.F.R. sections 931.7 and 931.8. A
Member’s right to the Repurchase or Redemption of its Excess Stock may be impaired
by these regulatory requirements if the Bank has used the Member’s Excess Stock to
provide the necessary capital support for its investments and other assets.

Page 6 of 16

 

	 	C.  	Adjustments to Minimum Amount

	 	1.  	Member Acceptance. Each Member is required to
comply with any changes adopted in the Bank’s Capital Plan, including any
adjustments made by the Board of Directors that may lead to an increase in
a Member’s Minimum Member Stock Investment. In order to effectuate the
sale of additional Capital Stock required due to such changes in terms,
the Bank is authorized to issue Capital Stock in the name of a Member and
to withdraw appropriate payment from the Member’s Demand Deposit Account.
	 
	 	2.  	Prior Notice. The Bank shall provide at least
fifteen (15) days Notice to Members prior to implementing any adjustment
to the Member Loan Stock Purchase Percentage, Unused Borrowing Capacity
Percentage, or Acquired Member Asset Purchase Percentage if doing so
affects the total Minimum Member Stock Investment of the Member. The Bank
shall implement the adjustments on the date stated in the Notice to
Members.

	III.  	Transition Rule

	 	A.  	Manner of conversion. The following steps shall be taken to implement the
Bank’s Capital Plan:

	 	1.  	Stock Conversion. On the
Recalculation/Conversion Date, each currently outstanding share of Bank
stock shall be converted into one share of Capital Stock.
	 
	 	2.  	Recalculation of Minimum Member Stock Purchase
Requirement. On the Recalculation/Conversion Date, immediately
following the conversion of currently outstanding Bank stock into Capital
Stock, each Member’s Minimum Member Stock Investment will be recalculated
by the Bank.
	 
	 	3.  	Identify each Member’s excess/deficient stock
positions. On the Recalculation/Conversion Date, after recalculating
each Member’s
Minimum Member Stock Investment, each Member’s Recalculated Stock
Excess/(Shortfall) shall be determined by the Bank.
	 
	 	4.  	Adjust each Member’s stock holdings. Each
Member’s holdings of Capital Stock will be adjusted on the
Recalculation/Conversion Date as follows:

	 	a)  	Recalculated Stock Excess.
If a Member has a Recalculated Stock Excess position, the Bank
will Repurchase at par a sufficient number of shares of Capital
Stock to eliminate the Member’s Excess Stock position (subject to
the Bank remaining in compliance with its Minimum Regulatory
Capital Requirement).
Proceeds from the share Repurchase will be credited to the
Member’s Demand Deposit Account with the Bank.

Page 7 of 16

 

	 	b)  	Recalculated Stock Shortfall. If a Member has a Recalculated Stock
Shortfall, the Bank will issue at par a sufficient number of shares of Capital
Stock to eliminate the Member’s Recalculated Stock Shortfall
position. Proceeds for the share issuance will be debited from the Member’s Demand
Deposit Account with the Bank.

	 	B.  	Right to opt out of Capital Plan. Each Member retains the right to opt-out of the
conversion as contained herein by providing the Finance Board with written notice of its
intent to withdraw its Membership from the Bank prior to the
Recalculation/Conversion Date. The written notice of its intent to withdraw must be filed
with the Finance Board prior to the Opt-Out Date, which Opt-Out Date will be set forth in
the Notice to Members setting forth the Recalculation/Conversion Date. The Opt-Out Date
shall be 30 days prior to the Recalculation/Conversion Date.
	 
	 	C.  	Effects of Opting Out of the Conversion. The Membership of a Member that opts-out of
the conversion according to this Plan shall terminate at the earlier of: (1) six months
from the date that the written notice of withdrawal was filed with
the Finance Board; or (2) the effective date of this Capital Plan. On the date the
Membership is terminated, all outstanding indebtedness of the Member to the Bank shall
become immediately due and payable. The Bank shall cancel each currently outstanding
share of Bank stock on the date the Membership terminates provided that the Bank, after
such cancellation, shall remain in full compliance with the Minimum Regulatory Capital
Requirement. Any Member that provides the Finance Board with written notice of its intent
to withdraw after the Opt-Out Date but before the effective date of the Capital Plan
shall have its existing stock converted into Capital Stock on the
Recalculation/Conversion Date and the written notice shall commence the applicable five
(5) year waiting period to redeem the Capital Stock.
	 
	 	D.  	Failure of a Member to affirm election to convert. The failure to provide the written
notice as set forth in Section III. B above shall be deemed by the Bank as acceptance of
the terms of conversion and of the terms of this Capital Plan.
	 
	 	E.  	Timetable for transition and full capital compliance. Immediately following the
Recalculation/Conversion Date, it is anticipated that the Bank will be in full compliance
with the Capital Regulation.

	IV.  	Par Value, Rights, Terms, and Preferences of Capital Stock

	 	A.  	Par Value. The par value of Capital Stock shall be $100. The Capital Stock
shall be issued, redeemed and repurchased at par value.
	 
	 	B.  	Ownership. The retained earnings, surplus, undivided profits and
equity reserves, if any, of the Bank are owned by the holders of Capital Stock
proportionate to their ownership of all outstanding shares of Capital Stock. The
holders of Capital Stock shall have no right to receive any portion of these
items, however, except through the declaration of a dividend or capital
distribution approved by the Board of Directors or through liquidation of the
Bank.

Page 8 of 16

 

	 	C.  	Limitations.The Bank may only issue Capital Stock in accordance with this Capital Plan
and the Capital Regulations. The Bank may only issue Capital Stock to Members and only
Members may hold Capital Stock.
	 
	 	D.  	Dividends. Dividends are to be declared and paid on Capital Stock from time to time
as determined by the Bank’s Board of Directors, and are non-cumulative with respect to
payment obligation and are not to exceed the sum of current net earnings plus net earnings
previously retained by the Bank. The Board of Directors may declare and pay dividends on
Capital Stock provided the Bank’s capital position is not below its Minimum Regulatory
Capital Requirement nor will it be below its Minimum Regulatory Capital Requirement
subsequent to the payment of the dividend.
	 
	 	E.  	Redemption.Capital Stock shares are redeemable for cash at par value following five
(5) years prior Written Notice, however, a Member may not have pending at any one time
more than one Redemption request for the same share of Capital Stock.
	 
	 	F.  	Cancellation of Redemption . In the event a Member, having previously notified the
Bank in writing of its intent to redeem some or all of its Capital Stock, wishes to cancel
its Redemption request before the completion of the five (5) year notification period, it
may elect to do so by providing Written Notice to the Bank of its intent to cancel its
Redemption request. The Bank will impose a Redemption Cancellation Fee on the Member that
either voluntarily or involuntarily cancels its Redemption request; provided, however, the
Bank may waive the fee for a bona fide business purpose consistent with section 7(j) of
the Bank Act. The Redemption Cancellation Fee is the fee in effect at the time the Member
provides Written Notice of cancellation. The Member has ten (10) business days from the
date the Bank sends the Notice to Member of the amount of the Cancellation Fee to provide
Written Notice of its intent to revoke the cancellation and to proceed with the Redemption
of the Capital Stock it previously sought to redeem according to the original Redemption
timetable, thereby avoiding the Redemption Cancellation Fee. The Redemption Cancellation
Fee is calculated by taking the percentage set forth on Schedule A and multiplying it
against the par value of the Capital Stock subject to the notice of Redemption. The
Redemption Cancellation Fee percentage may be adjusted at the discretion of the Board of
Directors to as high as five percent (5%) and to as low as zero percent (0%).
	 
	 	G.  	Limited Transferability. A Member may only transfer any Excess Stock of the Bank it
holds to another Member of the Bank or to an institution that has been approved for
Membership in the Bank and that has satisfied all conditions for becoming a Member, other
than the purchase of the minimum amount of Capital Stock that it is required to hold as a
condition of Membership. Any such Capital Stock transfers shall be at par value and shall
be effective upon being recorded on the appropriate books and records of the Bank. Capital
Stock may only be traded between the Bank and its Members.
	 
	 	H.  	Termination of Membership.The following terms pertain to the termination of a
Member’s Membership in the Bank.

Page 9 of 16

 

	 	1.  	Voluntary Withdrawal.

	 	a)  	A Member may withdraw from Membership by providing the Bank Written
Notice of its intent to withdraw. A Member may cancel its notice of withdrawal at
any time prior to its effective date by providing the Bank Written Notice of such
cancellation.
The Bank will impose a fee on a Member that cancels a notice of withdrawal;
provided, however, the Bank may waive the fee for a bona fide business purpose
consistent with section 7(j) of the Bank Act. The Withdrawal Cancellation Fee is
the fee in effect at the time the Member provides Written Notice of cancellation.
The Member has ten (10) business days from the date the Bank sends the Notice to
Member of the amount of the Membership Withdrawal Cancellation Fee to provide
Written Notice of its intent to revoke the cancellation, thereby avoiding the
Membership Withdrawal Cancellation Fee. The Membership Withdrawal Cancellation Fee
is calculated by taking the percentage set forth on Schedule A and multiplying it
against the par value of the Capital Stock held by the Member. The Membership
Withdrawal Cancellation Fee percentage may be adjusted at the discretion of the
Board of Directors to as high as five percent (5%) and to as low as zero percent
(0%).
	 
	 	b)  	The Membership of a Member that has submitted a Written Notice of
withdrawal shall terminate as of the date on which the last of the applicable
Capital Stock Redemption periods ends for the Capital Stock comprising the
Member’s Membership Stock Purchase Requirement, as of the date the Written Notice
of withdrawal is submitted, unless the Member has cancelled its notice of
withdrawal prior to that date.
	 
	 	c)  	The receipt by the Bank of Written Notice of withdrawal shall
commence the 5-year Redemption period for the Capital Stock held by the Member
that is not already subject to a pending request for Redemption. In the case of a
Member whose Membership has been terminated as a result of a merger or other
consolidation into a non-member or a member of another Home Loan Bank, the
Redemption period for any Capital Stock that is not already subject to a pending
request for Redemption shall be deemed to commence on the date on which the
charter of the former Member is cancelled.
	 
	 	d)  	No Member may withdraw from Membership unless, on the date the
Membership is terminated, there is in effect a certification from the Finance
Board that the withdrawal of a Member will not cause the Bank System to fail to
satisfy its Refcorp Obligations.

	 	2.  	Involuntary Terminations. The Board of Directors of the Bank has the right
to terminate the Membership of any Member that: 1) fails to comply with any requirement of
the Bank Act, Finance Board Regulations, or the Capital Plan; 2) becomes insolvent or
otherwise subject to the appointment

Page 10 of 16

 

	 	   	of a conservator, receiver or other legal custodian under federal or state
law; or 3) would jeopardize the safety and soundness of the Bank if it were to
remain a Member.

	 	a)  	The 5-year Redemption period for all the Capital Stock owned by the Member and not
already subject to a pending request for Redemption shall commence on the date the Bank
terminates the Member’s Membership.

	 	3.  	Liquidation of Capital Stock. If an institution ceases to be a Member of the
Bank for any reason, the Bank shall require the institution to continue to hold the
Capital Stock necessary to support the Loans outstanding and/or Acquired Member Assets
under the terms of the Capital Plan in effect at that time. Upon the repayment of
outstanding indebtedness to the Bank, including any Principal Prepayment Fees and
settlement of the Member’s risk sharing obligations under any Acquired Member Asset
program, the Capital Stock that was necessary to support the Loan and/or Acquired Member
Asset program shall become Excess Stock subject to Repurchase by the Bank in its
discretion.
	 
	 	4.  	Liquidation of Indebtedness. The Bank will liquidate the indebtedness of any
institution that ceases to be a Member in an orderly manner according to a schedule
established by the Bank in its sole discretion. The Bank may require the immediate
repayment of all indebtedness, in which case the Member shall be subject to any applicable
Principal Prepayment Fees. In the alternative, and in the Bank’s sole discretion, the Bank
may allow the institution to continue to hold on to any indebtedness for any length of
period up to and including maturity.

	 	I.  	Voting rights. The voting rights associated with Capital Stock are defined herein.
The voting rights associated with the election of directors are governed by Part 915 of
the Rules and Regulations of the Finance Board. There shall be no voting preferences for
any share of Capital Stock.
	 
	 	J.  	Rights in Bank Merger. In the event the Bank merges with or consolidates into another
Home Loan Bank, the Member will be entitled to the rights and benefits set forth in the
agreement of merger approved by the Board of Directors of each Home Loan Bank and the
Finance Board.
	 
	 	K.  	Rights in Bank Liquidation. In the event the Bank is liquidated, the Member will be entitled to
the rights and benefits granted to it by the Finance Board and/or Congress.

	V.  	Bank Review of Plan

	 	A.  	Review by Independent CPA
	 
	 	   	Attached.
	 
	 	B.  	Review by NRSRO
	 
	 	   	Attached.

Page 11 of 16

 

	 	C.  	Good faith effort determination
	 
	 	   	Pro forma financial projections attached.
	 
	 	D.  	Approval by FHFB
	 
	 	   	To be attached upon receipt
	 
	 	E.  	Process for Amending this Plan

	 	1.  	General. In order to safeguard the ability to serve its
Members and protect their capital investment, accommodate changes in the Bank’s
product or business mix, and maintain compliance with Capital Regulations, from
time to time this Plan may be amended. Capital Plan amendments may be made as
follows:

	 	a)  	Board of Directors. Upon a simple majority
vote of all of the individual members of the Board of Directors, not just
a simple majority vote of a quorum, a request to amend this Capital Plan
may be submitted to the Finance Board. The effective date(s) for any
proposed change(s) to the terms of this Capital Plan shall be contained in
any amendment request as submitted to the Finance Board.
	 
	 	b)  	Shareholder Notification. The Bank will
provide Notice to
Members of any request submitted to the Finance Board to amend this
Capital Plan at least thirty (30) days prior to the effective date of any
such requested amendment.
	 
	 	c)  	Finance Board. To become effective, any
amendment to this Capital Plan must be approved by the Finance Board.

	VI.  	Definitions
	 
	   	Certain terms used within this Capital Plan are defined as follows:

	 	   	Acquired Member Asset means the outstanding principal balance of assets purchased or
funded by the Bank from a Member or Housing Associate pursuant to Part 955 of the Rules
and Regulations of the Finance Board.
	 
	 	   	Acquired Member Asset Purchase Percentage means the percentage set by the Board of
Directors from time to time that determines how much Capital Stock a Member must
purchase in relationship to the outstanding principal balance of Acquired Member Assets
delivered by a Member and held the Bank.
	 
	 	   	Acquired Member Asset Purchase Requirement means the Activity Based Stock Purchase
Requirement based upon Acquired Member Assets as specified in this Plan.

Page 12 of 16

 

	 	   	Activity-Based Member Stock Purchase Requirement means a stock purchase
requirement under which a Member must acquire a specific amount of Capital Stock as a
function of the volume of a particular product or service provided to that Member by
the Bank.
	 
	 	   	Bank means the Federal Home Loan Bank of Pittsburgh.
	 
	 	   	Bank Act means the Federal Home Loan Bank Act, as amended, 12 U.S.C. 1421 through 1449.
	 
	 	   	Board of Directors means the Board of Directors of the Bank.
	 
	 	   	Business Day means any day on which the Bank is open to conduct business.
	 
	 	   	Charge Against Capital means a required reduction in the value of paid-in capital.
	 
	 	   	Capital Plan means the plan adopted by the Board of Directors and approved by the
Finance Board pursuant to the Capital Regulation.
	 
	 	   	Capital Regulation means Subchapter E of Chapter IX of Title 12 of the Code of Federal
Regulations.
	 
	 	   	Capital Stock means “Class B Stock” as defined by the Bank Act and Capital
Regulation.
	 
	 	   	Capital Sufficiency Assets mean the book value of the Bank’s total assets less the book
value of both the Bank’s outstanding Loans and its Short Term Investments maturing in one
year or less.
	 
	 	   	Excess Stock means that amount of Capital Stock held by a Member in excess of its Minimum
Member Stock Investment as required by this Capital Plan.
	 
	 	   	Finance Board means the Federal Housing Finance Board.
	 
	 	   	Finance Board Regulations mean Chapter IX of Title 12 of the Code of Federal
Regulations, as may be amended from time to time.
	 
	 	   	GAAP means Generally Accepted Accounting Principles as applied in the United States of
America.
	 
	 	   	Housing Associate means an entity that has been approved as nonmember mortgagee
pursuant to part B of Part 950 of the Code of Federal Regulations.
	 
	 	   	Loan means the outstanding principal balance of an advance, as defined in Section
950.1 of the Advances Regulations.
	 
	 	   	Market Risk Model means the internal market risk model or the internal cash flow model
used to calculate the market risk component of the Banks’ risk-based capital requirement
approved by the Finance Board.
	 
	 	   	Member means an institution that has been approved for Membership in Bank and that has
satisfied its Minimum Member Stock Investment requirement.

Page 13 of 16

 

	 	   	Member Demand Deposit Account means one or more demand deposit accounts maintain
with the Bank and which are subject to the terms and conditions of the
Bank’s Demand Deposit Account Agreement.
	 
	 	   	Member Loan Stock Purchase Percentage means the percentage set by the Board of Directors
from time to time that determines how much Capital Stock a Member must purchase in
relationship to its outstanding Loans from the Bank.
	 
	 	   	Member Loan Stock Purchase Requirement means the Activity-Based Stock Purchase
Requirement based upon Loans as specified in this Plan.
	 
	 	   	Membership Stock Purchase Requirement means a stock purchase requirement under which a
Member must acquire a specific amount of Capital Stock as a condition of Membership.
	 
	 	   	Membership means all of the rights, privileges and obligations associated with being a
Member of the Bank.
	 
	 	   	Membership Withdrawal Cancellation Fee means the fee the Bank may impose upon a Member
who having given notice of its intent to withdraw from Membership, subsequently revokes
that withdrawal notice.
	 
	 	   	Minimum Member Stock Investment means the minimum amount of Capital Stock that a Member
is required to purchase and hold in order to be a Member and in order to obtain Loans
from the Bank and to engage in other business activities with the Bank in accordance with
this Plan. The Minimum Member Stock Investment shall be the sum of (a) the Member’s
Member Loan Stock Purchase Requirement, plus (b) the Member’s Unused Borrowing Capacity
Stock Purchase Requirement, plus (c) the Acquired Members Asset Purchase Requirement;
provided, however, that the minimum investment of each Member in the Capital Stock of the
Bank shall be no less than Ten Thousand Dollars ($10,000).
	 
	 	   	Minimum Regulatory Capital Requirement means the minimum regulatory capital requirement
established for the Bank in either the Capital Regulation or by order of the Finance
Board.
	 
	 	   	Notice to Members means any written notice from the Bank to the Members regarding any
element of the Capital Plan, and also includes any electronic writing related to the
Capital Plan, including electronic mail and posting on the Bank’s public or private
web site.
	 
	 	   	Opt-Out Date means the date by which a Member wishing not to have its current stock
converted into Capital Stock shall provide the Finance Board with written notice of its
intent to withdraw from Membership.
	 
	 	   	Plan means the Capital Plan.
	 
	 	   	Principal Prepayment Fee means the fee charged by the Bank under the
Advances, Collateral Pledge and Security Agreement when a Member pays off a Loan before
maturity.

Page 14 of 16

 

	 	   	Recalculation/Conversion Date means the date upon which current stock shares are
converted into Capital Stock shares and each Member’s Minimum Member Stock Investment
is initially calculated.
	 
	 	   	Recalculated Stock Excess/Shortfall means the difference between a Member’s Minimum
Member Stock Investment as determined on the Recalculation/Conversion Date and that
Member’s stock holding immediately prior to the implementation of this Capital Plan,
where an “excess” refers to a Minimum Member Stock Investment which is less than the
Member’s Capital Stock holdings and a “shortfall” refers to a Minimum Member Stock
Investment which is greater than the Member’s Capital Stock holdings.
	 
	 	   	Redemption Cancellation Fee means the fee the Bank may impose upon a Member who, having
given Written Notice of its intent to redeem Capital Stock shares, subsequently revokes
that Redemption request.
	 
	 	   	Redemption means the acquisition by the Bank of outstanding Capital Stock from a Member at
par value following the expiration of the statutory Redemption request period.
	 
	 	   	Refcorp Obligations means the obligations under 12 U.S.C. 1441b(f)(2)(C) to
contribute interest payments owed on obligations issued by the Resolution Funding
Corporation.
	 
	 	   	Repurchase means the acquisition by the Bank of Excess Stock of a Member either on
the Bank’s own initiative or prior to the expiration of the statutory Redemption
request period.
	 
	 	   	Risk Assessment Procedures and Controls means the risk assessment procedures and
controls to be used to manage the Bank’s credit, market, and operation risks approved by
the Finance Board.
	 
	 	   	Short Term Investments mean cash and marketable investments with a stated maturity of one
year or less that, as of the calculation date, are instruments in which the Bank may
invest in full compliance with all Finance Board regulations, plus scheduled payments of
principal and interest over the next year on all assets that are fully compliant with
Finance Board regulations on the date of calculation. Such investments do not include
Loans, Acquired Member Assets, or assets with a maturity longer than one year even if
there is an optional or firm commitment to sell such assets within one year.
	 
	 	   	Transacted means the origination, repayment or renewal of a Loan.
	 
	 	   	Unused Borrowing Capacity for a Member equals maximum borrowing capacity
as calculated per Exhibit B for banks, Exhibit C for thrifts, Exhibit D for Credit
Unions and Exhibit E for Insurance Companies, less outstanding Member Loans, the
aggregate maximum amount that may be lent under outstanding letters of credit, and the
netted market value of intermediary derivative transactions.

Page 15 of 16

 

	 	   	Unused Borrowing Capacity Percentage means the percentage set by the Board of
Directors from time to time that determines how much Capital Stock a Member must purchase
in relation to its Unused Borrowing Capacity.
	 
	 	   	Unused Borrowing Capacity Stock Purchase Requirement serves as the Membership
Stock Purchase Requirement based upon a Member’s Unused Borrowing Capacity as
specified in this Plan.
	 
	 	   	Written Notice means a letter or other business writing, signed by an officer of the
Member, sent by certified mail, return receipt requested, to the Bank’s Corporate
Secretary at the Bank’s home office, currently 601 Grant Street, Pittsburgh, Pennsylvania,
15219.

Page 16 of 16

 

SCHEDULE A

In Effect As Of
April 3, 2006

	 	 	 	 	 
	Member Loan Stock Purchase Percentage
	 	 	4.65	%
	 
	 	 	 	 
	Unused Borrowing Capacity Stock Purchase Percentage
	 	 	.65	%
	 
	 	 	 	 
	Acquired Member Asset Stock Purchase Percentage
	 	 	0	%
	 
	 	 	 	 
	Cap on Unused Borrowing Capacity Stock Purchase Requirement
	 	$	N/A	 
	 
	 	 	 	 
	Redemption Cancellation Fee
	 	 	2	%
	 
	 	 	 	 
	Membership Withdrawal Cancellation Fee
	 	 	2	%
	 
	 	 	 	 
	MBC Percentage
	 	 	30	%
	 
	 	 	 	 

 

 

EXHIBIT A

general instructions for maximum borrowing capacity (MBC) calculation:

	I)  	The Bank will calculate MBC on a quarterly basis using regulatory data approximately
60 days after each quarter end (see schedules for regulatory line items used).
	 
	   	The MBC used in determining annual Unused Borrowing Capacity Stock Purchase Requirement
will be based on year-end December 31 regulatory data.
	 
	II)  	MBC is based on the lower of total weighted (haircuted) qualifying collateral value
or the level of residential housing finance assets (RHFA).
	 
	   	To determine total weighted qualifying collateral value, specific asset balances (market
and/or book value) within each qualifying collateral category are derived from regulatory
data. Those balances are weighted by applicable haircut percentages, and are then
aggregated to arrive at total collateral value, netting out assets pledged to other
creditors or other borrowings secured by qualifying collateral.
	 
	   	NOTE: The weighted value for other real estate-related collateral is limited by policy not
to exceed a certain percentage of the final calculated MBC (“MBC Percentage”).
The current MBC Percentage is set forth on Schedule A.
	 
	   	The RHFA level is determined by adding balances that represent all residential mortgage
loan and mortgage-related securities assets.
	 
	   	example:
	 
	   	total weighted qualifying collateral method:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	collateral category	 	balance	 	 	haircut	 	 	value	 
	1. treasury & agency securities
	 	$	15,000	 	 	 	95%	 	 	 $	14,250	 
	2. agency mortgage backed securities
	 	$	25,000	 	 	 	90%	 	 	 $	22,500	 
	3. non-agency mortgage backed securities
	 	$	10,000	 	 	 	87%	 	 	 $	8,700	 
	4. single-family residential mortgages (net of past dues)
	 	$	50,000	 	 	 	80%	 	 	 $	40,000	 
	5. multi-family residential mortgages (net of past dues)
	 	$	7,000	 	 	 	65%	 	 	 $	4,550	 
	6. other real estate-related (value limited by MBC Percentage)
	 	$	12,500	 	 	 	50%	 	 	 $	6,250	 
	7. minus securities pledged to other creditors or other
	 	 	 	 	 	 	 	 	 	-$	6,500	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	borrowings secured by qualifying collateral
	 	 	total collateral value	 	 	 	 $	89,750	 
	 
	 	 	 	 	 	 	 	 	 	 	 

	note:    	 for Mortgage Partnership Finance (MPF) participants, the maximum credit enhancement amount is deducted from the total collateral value.

     RHFA method:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	collateral category	 	balance	 	 	haircut	 	 	value	 
	1. all residential mortgage loans
	 	$	65,750	 	 	 	n/a	 	 	$	65,750	 
	2. all mortgage-related securities
	 	$	35,000	 	 	 	n/a	 	 	$	35,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	total RHFA value	 	 	 	$	100,750	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	calculated MBC (lesser of total collateral or RHFA value):
	 	 	 	$	89,750	 

	III)  	The Bank may further refine a member’s MBC due to the following:

	 	1.  	collateral eligibility factors determined from on-site collateral
audits.
	 
	 	2.  	documented pledging activity not found in regulatory data.
	 
	 	3.  	adjustments for affiliate collateral pledging.

 

 

EXHIBIT B

Line descriptions for MBC calculation — banks

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	For
banks
 	 	 	(data
from fed. depository inst. corp. call report)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	qualifying collateral assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	current	 	 	 	current	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	blanket	 	 	 	specific	 	 	 	range for	 	 
	 	 	 	 	line	 	 	 	schedule/	 	 	 	collateral	 	 	 	collateral	 	 	 	collateral	 	 
	 	category	 	 	description	 	 	 	line number	 	 	 	weighting	 	 	 	weighting	 	 	 	weighting	 	 
	 	treasury and agency securities
	 	 	ustreshfv	 	 	RC-B-0213	 	 	 	95	%	 	 	 	90	%	 	 	 	85% - 98	%	 
	 	 
	 	 	ustresafv	 	 	RC-B-1287	 	 	 	95	%	 	 	 	90	%	 	 	 	85% - 98	%	 
	 	 
	 	 	issbyaghfv	 	 	RC-B-1295	 	 	 	95	%	 	 	 	90	%	 	 	 	85% - 98	%	 
	 	 
	 	 	issbyagafv	 	 	RC-B-1298	 	 	 	95	%	 	 	 	90	%	 	 	 	85% - 98	%	 
	 	 
	 	 	issbyushfv	 	 	RC-B-1290	 	 	 	95	%	 	 	 	90	%	 	 	 	85% - 98	%	 
	 	 
	 	 	issbyusafv	 	 	RC-B-1293	 	 	 	95	%	 	 	 	90	%	 	 	 	85% - 98	%	 
	 	govt. and agcy. mortgage
	 	 	passisshfv	 	 	RC-B-1705	 	 	 	90	%	 	 	 	85	%	 	 	 	80% - 93	%	 
	 	backed securities
	 	 	passissafv	 	 	RC-B-1707	 	 	 	90	%	 	 	 	85	%	 	 	 	80% - 93	%	 
	 	 
	 	 	passgtyhfv	 	 	RC-B-1699	 	 	 	90	%	 	 	 	85	%	 	 	 	80% - 93	%	 
	 	 
	 	 	passgtafv	 	 	RC-B-1702	 	 	 	90	%	 	 	 	85	%	 	 	 	80% - 93	%	 
	 	 
	 	 	cmoisshfv	 	 	RC-B-1715	 	 	 	90	%	 	 	 	85	%	 	 	 	80% - 93	%	 
	 	 
	 	 	cmoissafv	 	 	RC-B-1717	 	 	 	90	%	 	 	 	85	%	 	 	 	80% - 93	%	 
	 	non-agency mortgage
	 	 	passpvthfv	 	 	RC-B-1710	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	backed securities
	 	 	passpvtafv	 	 	RC-B-1713	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	 
	 	 	cmocolhfv	 	 	RC-B-1719	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	 
	 	 	cmocolafv	 	 	RC-B-1732	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	 
	 	 	cmopvthfv	 	 	RC-B-1734	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	 
	 	 	cmopvtafv	 	 	RC-B-1736	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	1-4 fam. mtgs. - 1st lien
	 	 	refamfstln	 	 	RC-C-5367	 	 	 	80	%	 	 	 	75	%	 	 	 	65% - 85	%	 
	 	(less troubled assets)
	 	 	(CL1ST30-89)	 	 	(RCNC236)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(CL1ST90MOR)	 	 	(RCNC237)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(CL1STNACC)	 	 	(RCNC229)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	multi-family mtgs.
	 	 	remltagg	 	 	RC-C-1460	 	 	 	65	%	 	 	 	60	%	 	 	 	35% - 70	%	 
	 	(less troubled assets)
	 	 	(resmul30-89)	 	 	(RC-N-5436 or 3499)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(mltrs90mor)	 	 	(RC-N-5437 or 3500)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(mltrsnonac)	 	 	(RC-N-5438 or 3501)
	 	 	 	 	 	 	 	 	 	 	 
	 	other real estate
	 	 	recons - RE secured construction loans	 	 	RC-C-1415	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	related & community
	 	 	refarm - RE secured farmland loans	 	 	RC-C-1420	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	financial inst. collateral
	 	 	relineofcr - SF revolving, open-end loans	 	 	RC-C-1797	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	(less troubled assets)
	 	 	refamjrln - SF junior lien mortgage loans	 	 	RC-C-5368	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	 
	 	 	renonfarm - nonfarm, nonresidential	 	 	RC-C-1480	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	 
	 	 	farm - loans for agricultural production *	 	 	RC-C-1590	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	 
	 	 	cilnsus - commercial, industrial loans *	 	 	RC-C- 1763	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	NOTE: total limited to
	 	 	(cnld30-89)	 	 	(RC-N- 5424 or 2759)
	 	 	 	 	 	 	 	 	 	 	 
	 	30% of total MBC
	 	 	(const90mor)	 	 	(RC-N- 5425 or 2769)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(constnonac)	 	 	(RC-N- 5426 or 3492)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(frml30-89)	 	 	(RC-N- 5427 or 3493)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(farm90mor)	 	 	(RC-N- 5428 or 3494)
	 	 	 	 	 	 	 	 	 	 	 
	 	* community financial
	 	 	(farmnonac)	 	 	(RC-N- 5429 or 3495)
	 	 	 	 	 	 	 	 	 	 	 
	 	inst. eligible only
	 	 	(revoe30-89)	 	 	(RC-N- 5398)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(revrs90mor)	 	 	(RC-N- 5399)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(revrsnonac)	 	 	(RC-N- 5400)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(snfrn30-89)	 	 	(RC-N- 5439 or 3502)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(nonrs90mor)	 	 	(RC-N- 5440 or 3503)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(nonrsnonac)	 	 	(RC-N- 5441 or 3504)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(agpf30-89) *	 	 	(RC-N- 1230 or 1594)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(pdfrm90mor) *	 	 	(RC-N- 1231 or 1597)
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(farmnonacc) *	 	 	(RC-N- 1232 or 1583)	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(cmlpd30-89) *	 	 	(RC-N- 1606)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(pdci90more) *	 	 	(RC-N- 1607)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(cinonaccrl) *	 	 	(RC-N- 1608)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	(less pledged securities)
	 	 	(secpledge)	 	 	(RC-B-0416)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	     note:
for Mortgage Partnership Finance (MPF) participants, the maximum
credit enhancement amount is deducted from the

             total collateral value.	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	RESIDENTIAL HOUSING FINANCE ASSETS (no haircuts)	 	 	 	 	 	 
	 	 
	 	 	line	 	 	schedule/	 
	 	category
	 	 	description	 	 	line number	 
	 	revolving 1-4 mtgs.
	 	 	relineofcr	 	 	RC-C-1797	 
	 	1-4 fam. mtgs. - 1st lien
	 	 	refamfstln	 	 	RC-C-5367	 
	 	1-4 fam. mtgs. - junior lien
	 	 	refamjrln	 	 	RC-C-5368	 
	 	multi-family mtgs.
	 	 	remltagg	 	 	RC-C-1460	 
	 	govt. and agcy. mortgage
	 	 	passisshfv	 	 	RC-B-1705	 
	 	backed securities
	 	 	passissafv	 	 	RC-B-1707	 
	 	 
	 	 	passgtyhfv	 	 	RC-B-1699	 
	 	 
	 	 	passgtafv	 	 	RC-B-1702	 
	 	 
	 	 	cmoisshfv	 	 	RC-B-1715	 
	 	 
	 	 	cmoissafv	 	 	RC-B-1717	 
	 	non-agency mortgage
	 	 	passpvthfv	 	 	RC-B-1710	 
	 	backed securities
	 	 	passpvtafv	 	 	RC-B-1713	 
	 	 
	 	 	cmocolhfv	 	 	RC-B-1719	 
	 	 
	 	 	cmocolafv	 	 	RC-B-1732	 
	 	 
	 	 	cmopvthfv	 	 	RC-B-1734	 
	 	 
	 	 	cmopvtafv	 	 	RC-B-1736	 
	 

NOTE: The MBC is based on the lower of the qualifying collateral
assets or residential housing finance assets.

 

 

EXHIBIT C

Line Descriptions for MBC Calculation

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	FOR THRIFTS	 	 	(from OTS Thrift Financial Report)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	QUALIFYING COLLATERAL ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	range for	 	 
	 	 	 	 	LINE	 	 	 	CURRENT BLANKET	 	 	 	CURRENT SPECIFIC	 	 	 	collateral	 	 
	 	CATEGORY	 	 	NUMBER(S)	 	 	 	COLLATERAL WEIGHTING	 	 	 	COLLATERAL WEIGHTING	 	 	 	weighting	 	 
	 	US Government and
	 	 	 	SC130	 	 	 	 	95	%	 	 	 	90	%	 	 	 	85% - 98	%	 
	 	Agency Securities
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	US Govt. Agcy. MBS
	 	 	 	SC210	 	 	 	 	90	%	 	 	 	85	%	 	 	 	80% - 93	%	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Non-Agency and
	 	 	 	SC215	 	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	Other MBS
	 	 	 	SC217	 	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	 
	 	 	 	SC219	 	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	 
	 	 	 	SC222	 	 	 	 	87	%	 	 	 	82	%	 	 	 	72% - 92	%	 
	 	1-4 Fam. Mtgs.
	 	 	 	SC254	 	 	 	 	80	%	 	 	 	75	%	 	 	 	65% - 85	%	 
	 	(less troubled assets)
	 	 	(pd123+pd223+pd323)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Multi-Family Mtgs.
	 	 	 	SC256	 	 	 	 	65	%	 	 	 	60	%	 	 	 	35% - 70	%	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	(less troubled assets)
	 	 	(pd125+pd225+pd325)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Other Real Estate-
	 	 	SC251 - revolving open end 1-4 mtg. loans	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Related & Community Financial
	 	 	SC255 - junior lien 1-4 mtg. loans	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	Institution Collateral
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	SC230 - SF construction loans	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	(less troubled assets)
	 	 	SC235 - MF construction loans	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	 
	 	 	SC240 - nonresidential constr. loans	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	NOTE: total limited to
	 	 	SC260 - mortgages on nonres. property	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	30% of Total MBC
	 	 	SC265 - mortgages on land	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	 
	 	 	SC 300 - commercial, non-mtg., secured *	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	* Community Financial
	 	 	SC303 - commercial, unsecured *	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	Institution eligible only
	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	SC306 - commercial, financing leases *	 	 	 	50	%	 	 	 	45	%	 	 	 	35% - 70	%	 
	 	 
	 	 	(PD 115/215/315)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(PD 121/221/321)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(PD 124/224/324)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(PD 135/235/335)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(PD 138/238/338)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(PD 140/240/340) *	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	(less Other Borrowings
	 	 	(SC72)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	assumed collateralized)
	 	 	exclude FHLB advances	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	Note: For Mortgage Partnership Finance (MPF) participants, the maximum credit enhancement amount is deducted from the total collateral value.	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	RESIDENTIAL HOUSING FINANCE ASSETS (No Haircuts)	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	LINE	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	CATEGORY
	 	 	NUMBER	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Tot. Net Mortgage Loans
	 	 	 	SC26	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	(less non-residential
	 	 	(SC240+SC265+SC260)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	property and land)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	US Govt. Agcy. MBS
	 	 	 	SC210	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Non-Agency and
	 	 	 	SC215	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Other MBS
	 	 	 	SC217	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	SC219	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	SC222	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 

     NOTE: The MBC is based on the lower of the Qualifying Collateral Assets or Residential Housing Finance Assets.

 

EXHIBIT D

Line descriptions for
MBC calculation - credit unions

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	For credit unions	 	 	(data from National Credit Union Administration reports)	 
	 	 
	 	 
	qualifying collateral assets	 
	 	 
	 	 	 	 	 	 	 	 	current	 	 	current	 	 	 	 
	 	 	 	 	 	 	 	 	blanket	 	 	specific	 	 	range for	 
	 	 	 	 	 	 	 	 	collateral	 	 	collateral	 	 	collateral	 
	category	 	 	acct. codes	 	 	weighting	 	 	weighting	 	 	weighting	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	treasury
and

	 	 	 	741C	 	 	 	 	95	%	 	 	 	90	%	 	 	85% — 98%	 
	agency securities

	 	 	 	742C	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	govt. and agcy. mortgage

	 	 	 	732	 	 	 	 	90	%	 	 	 	85	%	 	 	80% — 93%	 
	backed securities

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	non-agency mortgage

	 	 	 	733	 	 	 	 	87	%	 	 	 	82	%	 	 	72% — 92%	 
	backed securities

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	1-4 fam. mtgs. - 1st lien

	 	 	 	 	 	 	 	 	80	%	 	 	 	75	%	 	 	65% — 85%	 
	fixed rate

	 	 	 	704	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	adjustable rate

	 	 	 	705	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	other real estate related

	 	 	 	 	 	 	 	 	50	%	 	 	 	45	%	 	 	35% — 70%	 
	collateral

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	revolving mortgage loans

	 	 	 	708	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	non first lien fixed rate loans

	 	 	 	706	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	non first lien adj. rate loans

	 	 	 	707	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	NOTE: total limited to 30% of
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	total MBC
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	less other collateralized

	 	 	 	860C	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	borrowings

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

		
	note: 	for Mortgage Partnership Finance (MPF)
participants, the maximum credit enhancement
amount is deducted from the total collateral value.

  RESIDENTIAL HOUSING FINANCE ASSETS (no haircuts)

	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 
	category	 	 	acct. codes	 	 	 	 
	 	 	 	 	 	 	 	 
	mortgage loans
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 
	first lien fixed rate

	 	 	 	704	 	 	 	 	 
	first lien adjustable rate

	 	 	 	705	 	 	 	 	 
	revolving mortgage loans

	 	 	 	708	 	 	 	 	 
	non first lien fixed rate loans

	 	 	 	706	 	 	 	 	 
	non first lien adj. rate loans

	 	 	 	707	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	govt. and agcy. mortgage backed securities

	 	 	 	732	 	 	 	 	 
	 	 	 	 	 	 	 	 
	non-agency mortgage backed securities

	 	 	 	733	 	 	 	 	 
	 	 	 	 	 	 	 	 

		
	NOTE: 	The MBC is based on the lower of the qualifying collateral
assets or Residential Housing Finance Assets.

 

 

EXHIBIT E

Line
descriptions for MBC calculation - insurance co.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	For insurance companies	 	 	(data from audited financials and/or delivered collateral records)	 
	 	 	 	 	 
	 	 
	qualifying collateral assets	 
	 	 
	 	 	 	current	 	 	current	 	 	 	 
	 	 	 	blanket	 	 	specific	 	 	range for	 
	 	 	 	collateral	 	 	collateral	 	 	collateral	 
	category	 	 	weighting	 	 	weighting	 	 	weighting	 
	 	 	 	 	 	 	 	 	 	 	 
	treasury and agency securities

	 	 	 	95	%	 	 	 	90	%	 	 	85% — 98%	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	govt. and agcy. mortgage backed securities

	 	 	 	90	%	 	 	 	85	%	 	 	80% — 93%	 
	 	 	 	 	 	 	 	 	 	 	 
	non-agency mortgage backed securities

	 	 	 	87	%	 	 	 	82	%	 	 	72% — 92%	 
	 	 	 	 	 	 	 	 	 	 	 

RESIDENTIAL HOUSING FINANCE ASSETS (no haircuts)

	 	 	 	 	 
	 	 
	category 	 	 	 	 
	 	 	 	 	 
	govt. and agcy. mortgage backed securities

	 	 	 	 
	 	 	 	 	 
	non-agency mortgage backed securities
	 	 	 	 
	 	 	 	 	 

		
	NOTE: 	The MBC is based on the lower of the qualifying collateral assets or
Residential Housing Finance Assets.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}]]