Exhibit 10.3
 
THIRD AMENDMENT TO SENIOR SECURED NOTES AND SUBSCRIPTION AGREEMENT
 
           This THIRD AMENDMENT TO SENIOR SECURED NOTES AND SUBSCRIPTION
AGREEMENT (this “Amendment”), dated as of September 18, 2009, is by and among
Advance Nanotech, Inc., a Delaware corporation (the “Company”), and the holder
of Notes listed on the signature page hereto (the “Holder”).
 
W I T N E S S E T H
 
           A.           Company and Holder have entered into a Senior Secured
Note dated as of September 18, 2009 (the “Note”) and a Subscription Agreement
dated as of April 9, 2009 (the “Subscription Agreement”), as each has been
amended by that certain First Amendment to Senior Secured Notes and Subscription
Agreement, dated as of June 15, 2009 (“First Amendment”), and that certain
Second Amendment to Senior Secured Notes and Subscription Agreement, dated as of
June 24, 2009 (“Second Amendment”) (as each of the same may hereafter be
amended, modified, extended and/or restated from time to time, collectively, the
“Senior Note Agreements”).
 
           B.           Company has requested that Holder modify the Senior Note
Agreements to extend the Maturity Date and provide that interest on the Note may
be payable in shares of common stock of Company’s subsidiary, Owlstone Nanotech
Inc., a Delaware corporation (“Owlstone”), and Holder has requested that
Owlstone grant a security interest in additional collateral for the benefit of
the Holder.
 
           C.           Company and Holder have agreed to amend the Senior Note
Agreements as set forth below and in connection with the execution and delivery
of this Amendment.
 
           NOW, THEREFORE, in consideration of the premises and the agreements,
conditions and covenants contained herein and other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
 
1.
Defined Terms.  All capitalized terms used but not defined herein shall have the
meanings set forth therefor in the Senior Agreements.

 
2.
Amendment.

 
 
a.
Paragraph 1 of the Note is hereby amended by substituting the following for the
Maturity Date of “August 31, 2009” appearing therein:  “October 15, 2009”;
provided, however, that if, prior to October 15, 2009, (A) the holders of all
outstanding Senior Secured Convertible Notes issued by Company during the
calendar years 2007 and 2008 (the “Prior Notes”) shall have executed and
delivered to Company a waiver (the “Waiver”) to (i) give up all rights with
respect to the price protection anti-dilution provisions in the Prior Notes and
the warrants issued with the Prior Notes and (ii) modify the mandatory
conversion provision of the Prior Notes to provide for mandatory conversion
thereof upon the conversion of the Senior Secured Note, or (B) the Company
closes on a capital investment of at least 1,000,000 dollars, then such Maturity
Date shall be amended to be “November 15, 2009”.

 
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b.
Option 1 and Option 2 of the Subscription Agreement are hereby amended by
substituting the following for the Maturity Date of “August 31, 2009” appearing
therein:  “October 15, 2009”; provided, however, that if, prior to October 15,
2009, (A) the holders of all Prior Notes shall have executed a Waiver, or
(B) the Company closes on a capital investment of at least 1,000,000 dollars,
then such Maturity Date shall be amended to be “November 15, 2009”.

 
 
c.
Section 1.2(b) of the Note is hereby amended and restated in its entirety as
follows:

 
                      (b)           All accrued interest will be payable in
shares of common stock, par value $0.001 per share, of Owlstone Nanotech, Inc.,
a Delaware corporation (“Owlstone Common Stock”).  The number of shares of
Owlstone Common Stock to be issued shall be determined by dividing the aggregate
accrued interest on the Note by $0.25.
 
 
d.
Section 4 of each Note is hereby amended and restated in its entirety as
follows:

 
           4.           Security Interest.   This Note is secured by a first
priority security interest granted to a collateral agent for the benefit of the
holders of Notes pursuant to (i) a Pledge and Security Agreement, dated as of
April 9, 2009, between the Company and the Collateral Agent and (ii) a Security
Agreement, dated as of September 18, 2009, between Owlstone and the Collateral
Agent.
 
3.
Amendments to New Subscription Documents.  On or about the date hereof, Holder
is entering into a new subscription agreement with Company (the “New
Subscription Agreement”) and Company is issuing a new note to Holder (the “New
Note”), each substantially similar to the Subscription Agreement and Note
previously executed and delivered.  Holder and Company hereby agree that the New
Subscription Agreement and New Note shall, upon their execution and delivery,
immediately be amended by the applicable provisions in the First Amendment,
Second Amendment and this Amendment, in seriatim, as though the New Subscription
Agreement and New Note were a “Subscription Agreement” and “Senior Secured Note”
referred to therein, respectively.

 
4.
Waiver of Defaults.  In consideration of the issuance of the warrants
contemplated by Section 4.c hereof, Holder hereby waives any and all Events of
Default that exist under the Senior Note Agreements excluding the Company’s
requirement to reduce the number of Board Members to five (5) people.

 
5.
Conditions Precedent.  The satisfaction of the following shall be conditions
precedent to the effectiveness of this Amendment:

 
 
a.
Amendment.  This Amendment shall have been duly executed by Holder and Company.

 
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b.
Security Agreement.  A Security Agreement shall have been duly executed by
Owlstone and a collateral agent for the benefit of Holder.

 
 
c.
Owlstone Warrants.  Owlstone shall have issued warrants to Holder equal to one
share of Owlstone Common Stock for each $1.00 of Note held by Holder, which
warrants shall have a per share exercise price of $0.25 and a term of five
years.

 
6.
No Other Changes. Except as explicitly amended by this Amendment, all of the
terms and conditions of the Senior Note Agreements shall remain in full force
and effect.

 
7.
Governing Law.  This Amendment shall be governed by, and construed in accordance
with, the laws of the State of New York.

 
8.
Counterparts; Multiple Originals.  This Amendment may be executed in any number
of counterparts, all of which together shall constitute an agreement binding on
each of the signatories hereto.  Each signed copy shall be an original, but all
of them together shall represent the same agreement.

 
9.
Headings.  The headings of this Amendment have been inserted only for
convenience to facilitate reference and are not intended to describe, interpret,
define or limit the scope, extent or intent of this Amendment or any provision
hereof.

 

 
[SIGNATURE PAGE FOLLOWS]

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           IN WITNESS WHEREOF, Company and Holder have signed this Amendment as
of the date first set forth above.
 

 
“COMPANY”
          ADVANCE NANOTECH INC, a Delaware corporation          
 
By:
/s/ Thomas P. Finn     Name:  Thomas P. Finn     Its: Chief Financial Officer  
                  “HOLDER”              {                 }                    
By:    /s/ Kevin McGrath     Name:    Kevin McGrath             Ingalls & Snyder
LLC             By:  /s/ Thomas O. Boucher     Name:   Thomas O. Boucher    
Its:   Manager  

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