THIS SECURITY AGREEMENT (the “ Agreement ”) is made as of this 23 day of June, 2009, by API Nanotronics Corp. (“
Debtor ”) and the subsidiaries party hereto (the Debtor and such subsidiaries, including any subsidiaries becoming parties
hereto pursuant to Section 3(k), collectively, the “ Pledging Parties ”) for the benefit of Icarus Investment Corporation , as
Collateral Agent (“ Collateral Agent ”).
R E C I T A L S :
WHEREAS, several persons (the “ Lenders ” and each a “ Lender ”) have agreed to make a loan (the “ Loan ”) to Debtor
in an aggregate principal amount of $5,100,000; and
WHEREAS, the Loan is evidenced by several Secured Convertible Promissory Notes in an aggregate principal amount of
$5,100,000 (the “ Notes ”) of even date herewith from Debtor to the Lenders; and
WHEREAS, Collateral Agent requires, and the Pledging Parties are willing to grant, as security for the Loan, a security
interest in all their right, title and interest in and to the “ Collateral ” (as such term is defined in Paragraph 17(b) hereof), to
secure the payment and performance by Debtor of the Liabilities (as defined below in Section 2), subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, to secure the payment and performance of the Liabilities, each of the Pledged Parties hereby agrees
with Collateral Agent as follows:
1. Grant; Collateral . Each Pledging Party hereby assigns and pledges to Collateral Agent, as agent for the Lenders, for
collateral purposes, and grants to Collateral Agent a security interest in, all its right, title and interest in and to the Collateral (as
defined in Section 17 hereof), subject to and in accordance with the terms and conditions set forth in this Agreement and the
Notes. Capitalized terms used, but not defined herein, shall have the meanings ascribed to them in the Notes.
2. Liabilities . This Agreement, and the security interest herein granted to Collateral Agent, is given to secure all the
following (the same