Exhibit 10.4
 
 
COLLATERAL AGENT AGREEMENT
 
COLLATERAL AGENT AGREEMENT (this "Agreement") dated as of September 18 2009,
among Ingalls & Snyder LLC (the "Collateral Agent"), and the parties identified
on Schedule A hereto (each, individually, a "Lender" and collectively, the
"Lenders"), who hold or will acquire a Senior Secured Note issued or to be
issued by Advance Nanotech, Inc. ("Company"), a Delaware corporation, on, prior
or after the date of this Agreement as described in the Security Agreement
referred to in Section 1(a) below (the "Notes"). (Capitalized terms used but not
defined herein shall have the meanings therefor set forth in the Security
Agreement.)

WHEREAS, the Lenders have made, are making and will be making loans to Company
to be secured by certain collateral described in the Security Agreement
("Collateral"); and
 
WHEREAS, it is desirable to provide for the orderly administration of such
Collateral by requiring each Lender to appoint the Collateral Agent, and the
Collateral Agent has agreed to accept such appointment and to receive, hold and
deliver such collateral, all upon the terms and subject to the conditions
hereinafter set forth; and
 
WHEREAS, it is desirable to allocate the enforcement of certain rights of the
Lenders under the Notes for the orderly administration thereof.
 
NOW, THEREFORE, in consideration of the premises set forth herein and for other
good and valuable consideration, the parties hereto agree as follows:
 
1.          Collateral.
 
(a) Contemporaneously with the execution and delivery of this Agreement by the
Collateral Agent and the Lenders, (i) the Collateral Agent has or will have
entered into a Security Agreement (the "Security Agreement") regarding the grant
of a security interest by Owlstone Nanotech Inc, a Delaware corporation and
subsidiary of Company ("Owlstone"), in the "Collateral" described therein to the
Collateral Agent, for the benefit of the Lenders and (ii) Company is issuing the
Notes to the Lenders pursuant to one or more "Subscription Agreements" dated at
or about the date of this Agreement. Prior to the execution and delivery of this
Agreement by the Collateral Agent and the Lenders, Company issued Senior Secured
Notes dated as of April 9, 2009 and August 10, 2009, as amended (the
"Prior  Notes") to one or more Lenders pursuant to one or more Subscription
Agreements dated as of April 9, 2009, as amended (the "Prior Subscription
Agreements"). Collectively, the Security Agreement, the Notes, the Prior Notes,
the Subscription Agreements, the Prior Subscription Agreements and other
agreements referred to therein are referred to herein as "Borrower Documents".
 
(b) The Collateral Agent hereby acknowledges that any Collateral held by the
Collateral Agent is held for the benefit of the Lenders in accordance with this
Agreement and the Borrower Documents. No reference to the Borrower Documents or
any other instrument or document shall be deemed to incorporate any term or
provision thereof into this Agreement unless expressly so provided.
 
(c)           The Collateral Agent is to distribute in accordance with the
Borrower Documentsany proceeds received from the Collateral which are
distributable to the Lenders in proportion to their respective interests in the
Obligations as defined in the Security Agreement.
 
 
 
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2.          Appointment of the Collateral Agent.
 
The Lenders hereby appoint the Collateral Agent (and the Collateral Agent hereby
accepts such appointment) to take any action including, without limitation, the
registration of any Collateral in the name of the Collateral Agent or its
nominees prior to or during the continuance of an Event of Default (as defined
in the Borrower Documents), the exercise of voting rights upon the occurrence
and during the continuance of an Event of Default, the application of any cash
collateral received by the Collateral Agent to the payment of the Obligations,
the making of any demand under the Borrower Documents, the exercise of any
remedies given to the Collateral Agent pursuant to the Borrower Documents and
the exercise of any authority pursuant to the appointment of the Collateral
Agent as an attorney-in-fact pursuant to the Security Agreement that the
Collateral Agent deems necessary or proper for the administration of the
Collateral pursuant to the Security Agreement. Upon disposition of the
Collateral in accordance with the Borrower Documents, the Collateral Agent shall
promptly distribute any cash or Collateral in accordance with Section 10.4 of
the applicable Security Agreement. Company and Lenders must notify Collateral
Agent in writing of the issuance of the Notes to Lenders by Company. The
Collateral Agent will not be required to act hereunder in connection with the
Notes the issuance of which was not disclosed in writing to the Collateral Agent
nor will the Collateral Agent be required to act on behalf of any assignee of
the Notes without the written consent of Collateral Agent.
 
3.           Action by the Majority in Interest.
 
(a)            Certain Actions. Each of the Lenders covenants and agrees that
only a Majority in Interest shall have the right, but not the obligation, to
undertake the following actions (it being expressly understood that less than a
Majority in Interest hereby expressly waive the following rights that they may
otherwise have under the Borrower Documents):
 
(i)            Acceleration. If an Event of Default occurs, after the applicable
cure period, if any, a Majority in Interest may, on behalf of all the Lenders,
instruct the Collateral Agent to provide to Company notice to cure such default
and/or declare the unpaid principal amount of the Notes to be due and payable,
together with any and all accrued interest thereon and all costs payable
pursuant to such Notes;
 
(ii)            Enforcement. Upon the occurrence of any Event of Default after
the applicable cure period, if any, a Majority in Interest may instruct the
Collateral Agent to proceed to protect, exercise and enforce, on behalf of all
the Lenders, their rights and remedies under the Borrower Documents against
Company, and such other rights and remedies as are provided by law or equity;
and
 
(iii)            Waiver of Past Defaults. A Majority in Interest may instruct
the Collateral Agent to waive any Event of Default by written notice to Company,
and the other Lenders, but not waive damages accrued or accruing until the
effective date of such waiver.
 
(b)            Permitted Subordination and Release. A Majority in Interest may
instruct the Collateral Agent to agree to release in whole or in part or to
subordinate any Collateral to any claim or other actual or proposed security
interest and may enter into any agreement with Company to evidence such
subordination; provided, however, that subsequent to any such release or
subordination, the principal amount of the Notes held by each Lender shall
remain nari passu with the other principal amounts of the Notes held by each
other Lender.

 
 
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(c)            Further Actions. A Majority in Interest may instruct the
Collateral Agent to take any action that it may take under this Agreement by
instructing the Collateral Agent in writing to take such action on behalf of all
the Lenders.
 
(d)            Majority in Interest. For so long as any obligations remain
outstanding on the Note, "Majority in Interest" for the purposes of this
Agreement and the Borrower Documents shall mean Lenders who hold not less than
fifty-one percent (51%) of the then-outstanding principal amount of the Notes.
 
4.           Power of Attorney.
 
(a) To effectuate the terms and provisions hereof, the Lenders hereby appoint
the Collateral Agent as their attorney-in-fact (and the Collateral Agent hereby
accepts such appointment) for the purpose of carrying out the provisions of this
Agreement including, without limitation, taking any action on behalf of, or at
the instruction of, the Majority in Interest at the written direction of the
Majority in Interest and executing any consent authorized pursuant to this
Agreement and taking any action and executing any instrument that the Collateral
Agent may deem necessary or advisable (and lawful) to accomplish the purposes
hereof.
 
(b) All acts done under the foregoing authorization are hereby ratified and
approved and neither the Collateral Agent nor any designee nor agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment, for any mistake of fact or law except for acts of gross negligence or
willful misconduct.
 
(c)           This power of attorney, being coupled with an interest, is
irrevocable while this Agreement remains in effect
 
5.           Expenses of the Collateral Agent. The Lenders shall pay any and all
reasonable costs and expenses incurred by the Collateral Agent, including,
without limitation, reasonable costs and expenses relating to all waivers,
releases, discharges, satisfactions, modifications and amendments of this
Agreement, the administration and holding of the Collateral, insurance expenses,
and the enforcement, protection and adjudication of the parties' rights
hereunder by the Collateral Agent, including, without limitation, the reasonable
disbursements, expenses and fees of the attorneys the Collateral Agent may
retain, if any, each of the foregoing in proportion to their holdings of the
Notes.
 
  6.            Reliance on Documents and Experts. The Collateral Agent shall be
entitled to rely upon any notice, consent, certificate, affidavit, statement,
paper, document, writing or communication (which may be by telegram, cable,
telex, telecopier, or telephone) reasonably believed by it to be genuine and to
have been signed, sent or made by the proper person or persons, and upon
opinions and advice of its own legal counsel, independent public accountants and
other experts selected by the Collateral Agent.
 
  7.            Duties of the Collateral Agent; Standard of Care.
 
(a)           The Collateral Agent's only duties are those expressly set forth
in this
 
Agreement, and the Collateral Agent hereby is authorized to perform those duties
in accordance with commercially reasonable practices. The Collateral Agent may
exercise or otherwise enforce any of its rights, powers, privileges, remedies
and interests under this Agreement and applicable law or perform any of its
duties under this Agreement by or through its officers, employees, attorneys, or
agents.
 
 
 
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(b) The Collateral Agent shall act in good faith and with that degree of care
that an ordinarily prudent person in a like position would use under similar
circumstances.
 
(c) Any funds held by the Collateral Agent hereunder need not be segregated from
other funds except to the extent required by law. The Collateral Agent shall be
under no liability for interest on any funds received by it hereunder.
 
8.            Resignation. The Collateral Agent may resign and be discharged of
its duties hereunder at any time by giving written notice of such resignation to
the other parties hereto, stating the date such resignation is to take effect.
Within seven (7) days of the giving of such notice, a successor collateral agent
shall be appointed by the Majority in Interest; provided, however, that if the
Lenders are unable so to agree upon a successor within such time period, and
notify the Collateral Agent during such period of the identity of the successor
collateral agent, the successor collateral agent may be a person designated by
the Collateral Agent, and any and all fees of such successor collateral agent
shall be the joint and several obligation of the Lenders. The Collateral Agent
shall continue to serve until the effective date of the resignation or until its
successor accepts the appointment and receives the Collateral held by the
Collateral Agent but shall not be obligated to take any action hereunder. The
Collateral Agent may deposit any Collateral with the Supreme Court of the State
of New York for New York County or any federal court within the County of New
York, State of New York State that accepts such Collateral.
 
9.           Exculpation. The Collateral Agent and its officers, employees,
attorneys and agents, shall not incur any liability whatsoever for the holding
or delivery of documents or the taking of any other action in accordance with
the terms and provisions of this Agreement, for any mistake or error in
judgment, for compliance with any applicable law or any attachment, order or
other directive of any court or other authority (irrespective of any conflicting
term or provision of this Agreement), or for any act or omission of any other
person engaged by the Collateral Agent in connection with this Agreement, unless
occasioned by the exculpated person's own gross negligence or willful
misconduct; and each party hereto hereby waives any and all claims and actions
whatsoever against the Collateral Agent and its officers, employees, attorneys
and agents, arising out of or related directly or indirectly to any or all of
the foregoing acts, omissions and circumstances, unless occasioned by the
exculpated person's own gross negligence or willful misconduct.
 
10.         Indemnification. The Lenders hereby agree to indemnify, reimburse
and hold harmless the Collateral Agent and its directors, officers, employees,
attorneys and agents, jointly and severally, from and against any and all
claims, liabilities, losses and reasonable expenses that may be imposed upon,
incurred by, or asserted against any of them, arising out of or related directly
or indirectly to this Agreement or the Collateral, except such as are occasioned
by the indemnified person's own gross negligence or willful misconduct.
 
11.         Miscellaneous.
 
(a)            Rights and Remedies Not Waived. No act, omission or delay by the
Collateral Agent shall constitute a waiver of the Collateral Agent's rights and
remedies hereunder or otherwise. No single or partial waiver by the Collateral
Agent of any default hereunder or right or remedy that it may have shall operate
as a waiver of any other default, right or remedy or of the same default, right
or remedy on a future occasion.
 
(b)            Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to
conflicts of laws that would result in the application of the substantive laws
of another jurisdiction.
 
 
 
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(c)            Waiver of Jury Trial and Setoff; Consent to Jurisdiction: Etc.
 
(i) In any litigation in any court with respect to, in connection with, or
arising out of this Agreement or any instrument or document delivered pursuant
to this Agreement, or the validity, protection, interpretation, collection or
enforcement hereof or thereof; or any other claim or dispute howsoever arising,
between the Collateral Agent and the Lenders or any Lender, then each Lender, to
the fullest extent it may legally do so, (A) waives the right to interpose any
setoff, recoupment, counterclaim or cross-claim in connection with any such
litigation, irrespective of the nature of such setoff, recoupment, counterclaim
or cross-claim, unless such setoff, recoupment, counterclaim or cross-claim
could not, by reason of any applicable federal or state procedural laws, be
interposed, pleaded or alleged in any other action; and (B) WAIVES TRIAL BY JURY
IN CONNECTION WITH ANY SUCH LITIGATION AND ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH
LENDER AGREES THAT THIS SECTION 11(c) IS A SPECIFIC AND MATERIAL ASPECT OF THIS
AGREEMENT AND ACKNOWLEDGE THAT THE COLLATERAL AGENT WOULD NOT ENTER THIS
AGREEMENT IF THIS SECTION 11(c) WERE NOT PART OF THIS AGREEMENT.
 
(ii) Each Lender irrevocably consents to the exclusive jurisdiction of any State
or Federal Court located within the County of New York, State of New York, in
connection with any action or proceeding arising out of or relating to this
Agreement or any document or instrument delivered pursuant to this Agreement or
otherwise. In any such litigation, each Lender waives, to the fullest extent it
may effectively do so, personal service of any summons, complaint or other
process and agree that the service thereof may be made by certified or
registered mail directed to such Lender at its address for notice determined in
accordance with Section 11(e) hereof. Each Lender hereby waives, to the fullest
extent it may effectively do so, the defenses of forum non conveniens and
improper venue.
 
(d)            Admissibility of this Agreement. Each of the Lenders agrees that
any copy of this Agreement signed by it and transmitted by telecopier for
delivery to the Collateral Agent shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence.
 
(e)            Address for Notices. Any notice or other communication under the
provisions of this Agreement shall be given in writing and delivered in person,
by reputable overnight courier or delivery service, by facsimile machine
(receipt confirmed) with a copy sent by first class mail on the date of
transmissions, or by registered or certified mail, return receipt requested,
directed to such party's addresses set forth below (or to any new address of
which any party hereto shall have informed the others by the giving of notice in
the manner provided herein):
 
 
In the case of the Collateral Agent, to:
 
Ingalls & Snyder LLC.
61 Broadway
New York, Ny 10006
Attention: Tom Boucher
 
 
 
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In the case of the Lenders, to:
 
The respective address and telecopier number set forth on Schedule A hereto.
 
In the case of Company, to:
Owlstone Nanotech Inc.
400 Rella Blvd., Suite 160
Montebello, NY 10901
Attn: Thomas Finn, CFO
Fax: (845) 533-4225
 
(f)            Amendments and IVIodification: Additional Lender.No provision
hereof shall be modified, altered, waived or limited except by written
instrument expressly referring to this Agreement and to such provision, and
executed by the parties hereto. Any transferee of any principal amount of the
Notes who acquires an interest in the Notes after the date hereof will become a
party hereto by signing the signature page and sending an executed copy of this
Agreement to the Collateral Agent and receiving a signed acknowledgement from
the Collateral Agent.
 
(g)            Fee. Upon the occurrence of an Event of Default, the Lenders
collectively shall pay the Collateral Agent the sum of $10,000 on account, to
apply against an hourly fee of $350 to be paid to the Collateral Agent by the
Lenders for services rendered pursuant to this Agreement. All payments due to
the Collateral Agent under this Agreement including reimbursements must be paid
when billed. The Collateral Agent may refuse to act on behalf of or make a
distribution to any Lender who is not current in payments to the Collateral
Agent. Payments required pursuant to this Agreement shall be pari  passu to the
Lenders' interests in the Note. The Collateral Agent is hereby authorized to
deduct any sums due the Collateral Agent from Collateral in the Collateral
Agent's possession.
 
(h)            Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
 
(i)             Successors and Assigns. Whenever in this Agreement reference is
made to any party, such reference shall be deemed to include the successors,
assigns, heirs and legal representatives of such party. No party hereto may
transfer any rights under this Agreement, unless the transferee agrees to be
bound by, and comply with all of the terms and provisions of this Agreement, as
if an original signatory hereto on the date hereof.
 
(j)             Captions: Certain Definitions. The captions of the various
sections and paragraphs of this Agreement have been inserted only for the
purposes of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement. As used in this Agreement the term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
 
(k)            Severability. In the event that any term or provision of this
Agreement shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by an authority having
jurisdiction and venue, that determination shall not impair or otherwise affect
the validity, legality or enforceability (i) by or before that authority of the
remaining terms and provisions of this Agreement, which shall be enforced as if
the unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.
 
 
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(i)            Entire Agreement. This Agreement contains the entire agreement of
the parties and supersedes all other agreements and understandings, oral or
written, with respect to the matters contained herein.
 
(m)           Schedules. The Collateral Agent is authorized to annex hereto any
schedules referred to herein.
 
 
 
 
[ THIS SPACE INTENTIONALLY LEFT BLANK ]

 
 
 
 
 
 
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SIGNATURE PAGE TO COLLATERAL AGENT AGREEMENT
 
IN WITNESS WHEREOF, the parties hereto have caused this Collateral Agent
Agreement to be signed, by their respective duly authorized officers or
directly, as of the date first written above.
 
"LENDERS"
 
 
[COMPLETE NAME OF LENDER]
 
Ingalls & Snyder LLC
 
By: /s/ Thomas O. Boucher Jr.                             
 
Print Name of Signatory:   Thomas O. Boucher
Jr.                                                           
 
Print Title of
Signatory:     Manager                                                     
 
 
Acknowledged and Agreed:
   
"COLLATERAL AGENT"
INGALL & SNYDER LLC
 
By: /s/ Thomas O. Boucher Jr.                             
 
Print Name of Signatory:   Thomas O. Boucher
Jr.                                                           
 
Print Title of
Signatory:     Manager                                                    

 
 
 
 
 
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Acknowledged and Agreed:
 
"OWLSTONE"
OWLSTONE NANOTECH INC.
 
 
By: /s/ Thomas Finn                                    
 
Print Name of Signatory: Thomas Finn
 
Print Title of Signatory: Chief Financial Officer
 
 
This Collateral Agent Agreement may be signed by facsimile signature and
delivered by confirmed
facsimile transmission.
 
 
 
 
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SCHEDULE A TO COLLATERAL AGENT AGREEMENT
As of September 18, 2009
 
LENDER
PRINCIPAL AMOUNT OF NOTE TO BE ISSUED
INGALLS & SNYDER - CLOSED ON SEPTEMBER 18, 2009
$300,000.00
INGALLS & SNYDER - CLOSED ON AUGUST 10, 2009
$200,000.00
INGALLS & SNYDER - CLOSED ON JUNE 24, 2009
$200,000.00
INGALLS & SNYDER - CLOSED ON JUNE 18, 2009
$300,000.00
KEVIN MCGRATH - CLOSED ON APRIL 15, 2009
$150,000.00
KEVIN MCGRATH - CLOSED ON APRIL 15, 2009
$150,000.00
                                                               

 
 
 

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