PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT

PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT, dated as of __________, 200__, made by Advanced Photonix, Inc., a Delaware corporation (the “Grantor”), in favor of The PrivateBank and Trust Company, an Illinois banking corporation (the “Lender”).

WHEREAS, Grantor and Lender executed that certain Loan Agreement dated September ____, 2008 (as amended or modified from time to time, “Credit Agreement”);

WHEREAS, Grantor executed and delivered to Lender a certain promissory notes by Grantor payable to Lender each dated September ____, 2008 (as amended, modified, renewed or replaced, collectively, the “Notes”);

WHEREAS, the Grantor owns certain Trademarks and Trademark Licenses listed on Schedule I hereto;

WHEREAS, the Grantor owns certain Patents and Patent Licenses listed on Schedule II hereto;

WHEREAS, the Grantor owns certain Copyrights and Copyright Licenses listed on Schedule III hereto;

WHEREAS, pursuant to the Credit Agreement, Grantor agreed that, within ten (10) days after the payment in full of its existing indebtedness to the former shareholders of Picometrix, Grantor would grant to Lender a first priority security interest in all of its intellectual property collateral pursuant to this Agreement, a form of which was attached to the Credit Agreement;

NOW, THEREFORE, in consideration of the premises and to induce the Lender to extend credit to Grantor, the Grantor hereby agrees with the Lender, as follows:

(1)   Defined Terms . The following terms shall have the following meanings:

“ Agreement ”: this Patent, Trademark and Copyright Security Agreement, as the same may be amended, supplemented, waived or otherwise modified from time to time.

“ Code ”: the Uniform Commercial Code as from time to time in effect in the State of Michigan.

“ Collateral ”: as defined in Section 2 of this Agreement.

“ Copyright Licenses ”: all United States license agreements with any other person in connection with any of the Copyrights or such other person’s copyrights, whether the Grantor is a licensor or a licensee under any such license agreement, including, without limitation, the license agreements listed on Schedule III hereto and made a part hereof, subject, in each case, to the terms of such license agreements and the right to prepare for sale, sell and advertise for sale, all inventory now or hereafter covered by such licenses.

“ Copyrights ”: all United States copyrights and mask works, whether or not registered, and all applications for registration of all copyrights and mask works, including, but not limited to all copyrights and mask works, and all applications for registration of all copyrights and mask works identified in Schedule III hereto and made a part hereof, and including without limitation (1) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof; (2) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all Copyright Licenses entered into in connection therewith, and damages and payments for past or future infringements thereof); and (3) all rights corresponding thereto and all modifications, adaptations, translations, enhancements and derivative works, renewals thereof, and all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto (Copyrights and Copyright Licenses being, collectively, the “ Copyright Collateral ”).

“ Event of Default ”: shall have the meaning given to such term in the Credit Agreement.

“ General Intangibles ”: as defined in Section 9-102 of the Code, including, without limitation, all Patents, Trademarks and Copyrights now or hereafter owned by the Grantor to the extent such Patents, Trademarks and Copyrights would be included in General Intangibles under the Code.

“ Lien ”: any lien, security interest, pledge, encumbrance or other similar charge, whether voluntary or involuntary and however created.

“ Obligations ”: the collective reference to the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Notes and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Grantor whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Note, and all other obligations and liabilities of the Grantor to the Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, including, without limitation, obligations and liabilities which may arise under, out of, or in connection with, the Note, or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable fees and disbursements of counsel to the Lender).

“ Patent License ”: all United States license agreements with any other person in connection with any of the Patents or such other person’s patents, whether the Grantor is a licensor or a licensee under any such license agreement, including, without limitation, the license agreements listed on Schedule II hereto and made a part hereof, subject, in each case, to the terms of such license agreements and the right to prepare for sale, sell and advertise for sale, all inventory now or hereafter covered by such licenses.

“ Patents ”: all United States letters patents, patent applications and patentable inventions, including, without limitation, all patents and patent applications identified in Schedule II attached hereto and made a part hereof, and including without limitation (a) all inventions and improvements described and claimed therein, and patentable inventions, (b) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (c) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all licenses entered into in connection therewith, and damages and payments for past or future infringements thereof), and (d) all rights corresponding thereto in the United States and all reissues, divisions, continuations, continuations-in-part, substitutes, renewals, and extensions thereof, all improvements thereon, and all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto (Patents and Patent Licenses being, collectively, the “ Patent Collateral ”).

“ Trademark License ”: all United States license agreements with any other person in connection with any of the Trademarks or such other person’s names or trademarks, whether the Grantor is a licensor or a licensee under any such license agreement, including, without limitation, the license agreements listed on Schedule I hereto and made a part hereof, subject, in each case, to the terms of such license agreements, and the right to prepare for sale, sell and advertise for sale, all inventory now or hereafter covered by such licenses.

“ Trademarks ”: all trademarks, service marks, trade names, trade dress or other indicia of trade origin, trademark and service mark registrations, and applications for trademark or service mark registrations (except for “intent to use” applications for trademark or service mark registrations filed pursuant to Section 1(b) of the Lanham Act, unless and until an Amendment to Allege Use or a Statement of Use under Sections 1(c) and 1(d) of said Act has been filed), and any renewals thereof, including, without limitation, each registration and application identified in Schedule I attached hereto and made a part hereof, and including without limitation (a) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (b) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all licenses entered into in connection therewith, and damages and payments for past or future infringements thereof) and (c) all rights corresponding thereto in the United States and all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto, together in each case with the goodwill of the business connected with the use of, and symbolized by, each such trademark, service mark, trade name, trade dress or other indicia of trade origin (Trademarks and Trademark Licenses being, collectively, the “ Trademark Collateral ”).

(b)The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section and paragraph references are to this Agreement unless otherwise specified.

(c)   The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(2)   Grant of Security Interest . As collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Grantor hereby assigns, pledges and grants to the Lender a security interest in all of the following property now owned or at any time hereafter acquired by the Grantor or in which the Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “ Collateral ”):

Notwithstanding anything herein to the contrary, “Collateral” shall not include any General Intangible that is the subject of a written agreement, document or instrument which specifically prohibits assignment thereof or grant of a security interest therein but only to the extent of such prohibition, or, if such agreement, document or instrument conditions assignment thereof or grant of a security interest therein upon consent of a third party, only to the extent that Grantor, after using commercially reasonable efforts, has not obtained such consent.

(3)   Grantor Remains Liable; Limitations on Lender’s Obligations . Anything herein to the contrary notwithstanding, (a) the Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Lender of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) the Lender shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Lender be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

(4)   Representations and Warranties . The Grantor represents and warrants as follows:

(a)   Title; No Other Liens . Except for the Liens granted to the Lender, the Grantor is (or, in the case of after-acquired Collateral, will be) the sole, legal and beneficial owner of the entire right, title and interest in and to the Trademarks set forth on Schedule I hereto, the Patents set forth on Schedule II hereto and the Copyrights set forth on Schedule III hereto free and clear of any and all liens. No security agreement, financing statement or other public notice similar in effect with respect to all or any part of the Collateral is on file or of record in any public office (including, without limitation, the United States Patent and Trademark Office and the United States Copyright Office) except such as may have been filed in favor of the Lender pursuant to this Agreement.

(b)   Perfected First Priority Liens . (i) This Agreement is effective to create, as collateral security for the Obligations, valid and enforceable Liens on the Collateral in favor of the Lender.

(ii)   Upon filing of the financing statements delivered to the Lender (and the recording of this Agreement in the United States Patent and Trademark Office and the United States Copyright Office), the Liens created pursuant to this Agreement will constitute valid and perfected Liens on the Collateral in favor of the Lender, which Liens will be prior to all other Liens on the Collateral, and which Liens are enforceable as such against all creditors of and purchasers (except to the extent that the recording of an assignment or other transfer of title to the Lender in the United States Patent and Trademark Office and the United States Copyright Office may be necessary for such enforceability) from the Grantor, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether considered in a proceeding in equity or at law).

(c)   Consents . No consent of any party (other than such Grantor) to any Patent License, Trademark License, or Copyright License constituting Collateral is required, or purports to be required, to be obtained by or on behalf of such Grantor in connection with the execution, delivery and performance of this Agreement that has not been obtained. Each Patent License, Trademark License, and Copyright License constituting Collateral is in full force and effect and constitutes a valid and legally enforceable obligation of the Grantor and (to the knowledge of the Grantor) each other party thereto except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). No consent or authorization of, filing with or other act by or in respect of any governmental authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Patent Licenses, Trademark Licenses, or Copyright Licenses by any party thereto other than those which have been duly obtained, made or performed and are in full force and effect. Neither the Grantor nor (to the knowledge of the Grantor) any other party to any Patent License, Trademark License, or Copyright License constituting Collateral is in default in the performance or observance of any of the terms thereof, except for such defaults as would not reasonably be expected, in the aggregate, to have a material adverse effect on the value of the Collateral. The right, title and interest of the Grantor in, to and under each Patent License, Trademark License, and Copyright License constituting Collateral are not subject to any defense, offset, counterclaim or claim.

(d)   Schedules I, II and III are Complete; All Filings Have Been Made . Set forth in Schedules I, II and III is a complete and accurate list of the Trademarks, Patents and Copyrights owned by the Grantor of the date hereof. The Grantor has made all necessary filings and recordations to protect and maintain its interest in the Trademarks, Patents and Copyrights set forth in Schedules I, II and III, including, without limitation, all necessary filings and recordings, and payments of all maintenance fees, in the United States Patent and Trademark Office and the United States Copyright Office to the extent such Trademarks, Patents and Copyrights are material to the Grantor’s business. Set forth in Schedules I, II and III is a complete and accurate list of all of the material Patent Licenses, Trademark Licenses, and Copyright Licenses owned by the Grantor as of the date hereof.

(e)   The Trademarks and Trademark Licenses are Subsisting and Not Adjudged Invalid . As of the date hereof, each trademark registration and trademark application of the Grantor set forth in Schedule I is subsisting as of the date hereof and has not been adjudged invalid, unregisterable or unenforceable, in whole or in part, and, to the best of the Grantor’s knowledge, is valid, registerable and enforceable. As of the date hereof, each of the Trademark Licenses set forth in Schedule I is validly subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and, to the best of the Grantor’s knowledge, is valid and enforceable. As of the date hereof, the Grantor has notified the Lender in writing of all uses of any item of Trademark Collateral of which the Grantor is aware which could reasonably be expected to lead to such item becoming invalid or unenforceable, including unauthorized uses by third parties and uses which were not supported by the goodwill of the business connected with such Collateral.

(f)   The Patent and Patent Licenses are Subsisting and Not Adjudged Invalid . As of the date hereof, each Patent and patent application of the Grantor set forth in Schedule II is subsisting and has not been adjudged invalid, unpatentable or unenforceable, in whole or in part, and, to the best of the Grantor’s knowledge, is valid, patentable and enforceable. As of the date hereof, each of the Patent Licenses set forth in Schedule II is validly subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and, to the best of the Grantor’s knowledge, is valid and enforceable. As of the date hereof, the Grantor has notified the Lender in writing of all uses of any item of Patent Collateral material to the Grantor’s business of which the Grantor is aware which could reasonably be expected to lead to such item becoming invalid or unenforceable.

(g)   The Copyrights and Copyright Licenses are Subsisting and Not Adjudged Invalid . As of the date hereof, each Copyright registration and Copyright application of the Grantor set forth in Schedule III is subsisting and has not been adjudged invalid, unregisterable or unenforceable, in whole or in part, and, to the best of the Grantor’s knowledge, is valid, registerable and enforceable. As of the date hereof, each of the Copyright Licenses set forth in Schedule III is validly subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and, to the best of the Grantor’s knowledge, is valid and enforceable. As of the date hereof, the Grantor has notified the Lender in writing of all uses of any item of Copyright Collateral material to the Grantor’s business of which the Grantor is aware which could reasonably be expected to lead to such item becoming invalid or unenforceable, including unauthorized uses by third parties and uses which were not supported by the goodwill of the business connected with such Collateral.

(h)   No Previous Assignments or Releases . As of the date hereof, the Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or encumbrance of any of the Collateral, except with respect to non-exclusive licenses granted in the ordinary course of business or as permitted by this Agreement or the Loan Documents. As of the date hereof, the Grantor has not granted any license, shop right, release, covenant not to sue, or non-assertion assurance to any person with respect to any part of the Collateral.

(i)   Proper Statutory Notice . The Grantor has marked its products with the trademark registration symbol, copyright notices, the numbers of all appropriate patents, the common law trademark symbol or the designation “patent pending,” as the case