DEBT CONVERSIONAGREEMENT

 

 

 

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

 

 

    WHEREAS, pursuant to that certain Loan Agreement dated as of September 15, 2005 (the “2005 Loan Agreement”) by and between the Company and the MEDC, the MEDC made available to the Company a line of credit up to an aggregate principal amount of One Million Two Hundred Thousand Dollars ($1,200,000) pursuant to a Promissory Note (Line of Credit) dated as of September 15, 2005 (the “2005 Note”), as amended. The 2005 Loan Agreement and 2005 Note are collectively referred to as “2005 Loan Documents”;

 

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

 

    WHEREAS, the MEDC provides administrative services for the MSF;

 

    WHEREAS, by Resolution of the MSF Board, dated October 28 2009, the MSF Board approved the request of the MEDC to assign all of the MEDC’s rights, duties, and obligations under the 2005 Loan Documents to the MSF;

 

    WHEREAS, any assignment by the MEDC of the rights, duties, and obligations under the 2005 Loan Documents also require the written consent of the Company;

 

    WHEREAS, the MEDC, the MSF and the Company, upon the Closing Date (as defined below), desire to sign and deliver all documents necessary to effectuate the assignment of all of MEDC’s rights, duties and obligations under the 2005 Loan Documents to the MSF;

 

    WHEREAS, upon the Closing Date, the MSF and the Company desire to execute and deliver to each other an Amendment One to the 2005 Loan Documents (“Amendment One”), the Company desires to execute and deliver to the MSF the Second Amended and Restated Promissory Note made part of Amendment One (“New Note”), and API desires to execute and deliver to the MSF an unconditional and irrevocable Guaranty of the payment and performance obligations of the Company under this Agreement and the 2005 Loan Documents, as amended (“Guaranty Agreement”);

 

 

    WHEREAS, in addition to the execution and delivery of Amendment One by the MSF and the Company, the execution and delivery of the New Note to the MSF by the Company, and the execution and delivery of the Guaranty Agreement by API to the MSF, the MSF and the Company, agree to convert, upon the Closing Date, the accrued and unpaid interest owing as of October 31, 2009 under the 2005 Note, in the amount of Two Hundred Thirty Seven Thousand Six Hundred Sixty Seven and 39/100 Dollars ($237,667.39) (the “Interest Indebtedness”), into unregistered shares of Class A Common Stock of API at the price per share of Fifty Four Cents ($.54) (the “Conversion”);

 

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

 

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

 

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

 

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

 

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

 

    2. Conversion of Interest Indebtedness. On the Closing Date, the Company and API shall cause the Interest Indebtedness to be converted into Four Hundred Forty Thousand One Hundred Twenty Four (440,124) validly issued, fully paid and non-assessable unregistered Class A Common Stock of API (“Shares”). The Shares represent the equivalent of the conversion of the Interest Indebtedness divided by the price per share of Fifty Four Cents ($.54) of the Class A Common Stock of API, rounded down to the nearest whole share. On the Closing Date, API shall issue the Shares to the MSF, and upon issuance of the Shares to the MSF, the Interest Indebtedness shall be deemed cancelled and extinguished in its entirety.

 

 

    3. Closing; Pre-closing Covenants.

 

       (a) The closing of the transactions contemplated hereby (the “Closing”) shall occur as soon as practicable, but no later than ten (10) business days (unless otherwise agreed to in writing by the Parties or terminated as provided under Section 9), after the date the MEDC has received from API, written notification, and copies, of both of the: (a) approval from NYSE Amex of the listing application submitted by API in connection with the Conversion (the “Approval”) and (b) consent (the “Bank Consent”) from The PrivateBank and Trust Company (the “Bank”) as required under that certain Loan Agreement, dated September 25, 2008, between API and the Bank.

 

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

 

        (c) Written notifications and copies required to be delivered by API to the MEDC under this Section 3 may be delivered by facsimile or by e-mail to the MSF, to the attention of Michael Pohnl, Fund Manager, fax: (517) 241-5968 or  ***@*** with a copy to the MEDC, to the attention of Linda R. Asciutto, fax: (517) 241- 5968, or ***@***, or to such other persons, fax numbers or e-mail addresses as may be provided.

 

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

 

       (a) Definitions:

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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