Document:

f8k041509ex4iii_advnano.htm

    Exhibit 4.3

     

    
      THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADVANCE
NANOTECH, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

       

      Issue Date:   ______     

       

      SENIOR SECURED
NOTE

      

      FOR VALUE RECEIVED, ADVANCE NANOTECH,
INC., a Delaware corporation (hereinafter called “Borrower” or the “Company”),
hereby promises to pay to the holders identified in Annex A (the
“Holders”), at the respective address set forth in Annex A hereto, or
order, without demand, the principal amount, as set forth opposite each Holder’s
respective name in Annex A hereto, up to
a maximum aggregate principal amount of $800,000 (the “Principal”), with accrued
and unpaid interest thereon, on June 30, 2009 (the “Maturity Date”), if not paid
sooner.

      

      This Note
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holders, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such Subscription
Agreement.  Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement.  The following terms shall apply to
this Note:

       

      ARTICLE
I

       

      GENERAL
PROVISIONS

      

      1.1           Payment Grace
Period.  The Borrower shall have a ten (10) business day grace
period to pay any monetary amounts due under this Note, after which grace period
and during the pendency of an Event of Default (as defined in Article III) a
default interest rate of three percent (3%) per month above the rate otherwise
applicable under this Note shall apply to the amounts owed
hereunder.

      

      1.2.            Interest
Rate.

      

      (a)           Interest
payable on this Note shall accrue at the rate specified on Annex A hereto,
beginning, with respect to the Principal advanced by any Holder, on the “Funding
Date” set forth opposite such Holder’s respective name in Annex A hereto.
Interest will be payable on the last business day of each month hereafter and on
the Maturity Date, accelerated or otherwise, when the principal and remaining
accrued but unpaid interest shall be due and payable, or sooner as described
below.

      

      (b)           Interest
will be payable in cash.

      

      1.3.           Payment in Full on Maturity
Date.  This Note shall be payable in full on the Maturity Date;
provided, however, that the Borrower retains the right to prepay amounts under
this Note without penalty.

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      1.4           Change of
Control.  Within three (3) business days after the consummation
of a Change of Control, the Company will repurchase all of the then-outstanding
interests in the Note at a purchase price in cash equal to not less than, (a) if
the Change of Control occurs on or before 90 days after the Issue Date, 125% of
the aggregate principal amount of this Note repurchased plus accrued and unpaid
interest to the date of repurchase, (b) if the Change of Control occurs after 90
days and on or before 180 days after the Issue Date, 112.5% of the aggregate
principal amount of this Note repurchased plus accrued and unpaid interest to
the date of repurchase or (c) if the Change of Control occurs after 180 days and
on or before 365 days after the Issue Date, 100% of the aggregate principal
amount of this Note repurchased plus accrued and unpaid interest to the date of
repurchase.  As used herein, “Change of Control” means the occurrence
of any of the following: (1) the direct or indirect sale, lease, transfer,
conveyance or other disposition, in one transaction or a series of related
transactions, of all or substantially all of the properties or assets of the
Company to any “person” (as that term is used in Section 13(d) of the 1934 Act);
(2) the adoption of a plan relating to the liquidation or dissolution of the
Company; or (3) the consummation of any transaction (including, without
limitation, any merger or consolidation), the result of which is that any
“person” (as defined above), becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the then-outstanding common stock of the
Company; provided, however, that a “person” shall not include any
Subscriber.  As used herein, “Beneficial Owner” has the meaning
assigned to such term in Rule 13d-3 and Rule 13d-5 under the 1934 Act, except
that in calculating the beneficial ownership of any particular “person” (as
defined above), such “person” will be deemed to have beneficial ownership of all
securities that such “person” has the right to acquire by conversion or exercise
of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time.

      

      ARTICLE
II

      

      [RESERVED]

      

      ARTICLE
III

       

      EVENT
OF DEFAULT

      

      The
occurrence of any of the following events of default (“Event of Default”) shall,
at the option of any Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:

      

      3.1           Failure to Pay Principal or
Interest.  The Borrower fails to pay any installment of
principal, interest or other sum due under this Note when due and such failure
continues for a period of ten (10) business days after the due
date.  The ten (10) day period described in this Section 3.1 is the
same ten (10) business day period described in Section 1.1 hereof.

      

      3.2           Breach of
Covenant.  The Borrower breaches any material covenant or other
material term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period of
fifteen (15) business days after written notice to the Borrower from any
Holder.  Notwithstanding the forgoing, this provision shall not apply
to delayed registration under the Subscription Agreement for which liquidated
damages shall be the sole remedy.

      

      3.3           Breach of Representations
and Warranties.  Any material representation or warranty of the
Borrower made herein or in the Subscription Agreement shall be false or
misleading in any material respect as of the date made and the Closing
Date.

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      
 

      3.4           Receiver or
Trustee.  The Borrower shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed without the consent of the
Borrower is not dismissed within sixty (60) days of appointment.

      

      3.5           Judgments.  Any
money judgment shall be entered or filed against Borrower or any of its property
or other assets for more than $250,000, and shall remain unpaid, unvacated,
unbonded or unstayed for a period of forty-five (45) days.

      

      3.6           Bankruptcy.  Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any substantially similar law, or the
issuance of any notice in relation to such event, for the relief of debtors
shall be instituted by or against the Borrower and if instituted against
Borrower are not dismissed within sixty (60) days of initiation.

      

      3.7   [Reserved].

      

      3.8           Non-Payment.   A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $250,000 for more than ninety (90) days after the
due date, unless the Borrower is contesting the validity of such obligation in
good faith.

      

      3.9           [Reserved].

      

      3.10         [Reserved].

      

      3.11         [Reserved].

      

      3.12           Cross
Default.  A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and any Holder are parties, or the occurrence of a material event of default
under any such other third party agreement which is not cured after any required
notice and/or cure period.

      

      ARTICLE
IV

      

      SECURITY
INTEREST

      

      4.           Security
Interest.   This Note is secured by a first priority
security interest granted to the Collateral Agent for the benefit of the Holders
pursuant to a Pledge and Security Agreement, as delivered by Borrower to the
Holders.  The Borrower shall not, and shall not permit Owlstone
Nanotech Inc. or any other subsidiary of the Borrower or affiliate of the
Borrower to, grant or suffer to exist any lien which secures indebtedness or
obligations of the Borrower or such subsidiary or affiliate and purports to rank
senior to or pari passu
with to the security interest relating to the debt evidenced by this
Note.

      

      ARTICLE
V

      

      MISCELLANEOUS

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      
 

      5.1           Failure or Indulgence Not
Waiver.  No failure or delay on the part of any Holder hereof
in the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.  All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

      

      5.2           Notices.    All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The
addresses for such communications shall be: (i) if to the Borrower to: Advance
Nanotech, Inc., 400 Rella Blvd., Suite 160, Montebello, New York 10901, Attn:
Thomas Finn, telecopier: 845-533-4225, and (ii) if to any Holder, to the name,
address and telecopy number set forth opposite such Holder’s name in Annex A
hereto.

      

      5.3           Amendment
Provision.  The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or
supplemented.  Each Holder by acceptance hereof confirms such Holder’s
agreement to the terms and conditions set forth herein.

      

      5.4           Assignability.  This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of each Holder and its successors and
assigns.

      

      5.5           Cost of
Collection.  If default is made in the payment of this Note,
Borrower shall pay the Holders hereof reasonable costs of collection, including
reasonable attorneys' fees.

      

      5.6           Governing
Law.  This Note shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws.  Any action brought by either party against the
other concerning the transactions contemplated by this Note shall be brought
only in the state courts of New York in the County of New York or in the federal
courts located in the State and County of New York.  Subject to the
foregoing, the parties to this Note hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon forum non
conveniens.    The Company and each Holder waive
trial by jury. The prevailing party shall be entitled to recover from the other
party its reasonable attorney's fees and costs.  In the event that any
provision of this Note or any other agreement delivered in connection herewith
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of any agreement.

       

       

      
        
          
          

        

        
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      5.7           Maximum
Payments.  Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the applicable Holder pursuant
to this Note and thus refunded to the Borrower.

      

      5.8.           Construction.   Each
party acknowledges that its legal counsel participated in the preparation of
this Note and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the
other.

      

      5.9           [Reserved]. 

      

      5.10           Remedies.   This
Note shall be deemed an unconditional obligation of Borrower for the payment of
money, without limitation to any other remedies available to any
Holder.

      

      5.11           Non-Business
Days.   Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the State of New York,
such payment may be due on the next succeeding business day and such next
succeeding day shall be included in the calculation of the amount of accrued
interest payable on such date.

      

      5.12           [Reserved].

      

      

      [THIS
SPACE INTENTIONALLY LEFT BLANK]

       

       

      
        
          
          

        

        
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      IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
9th day of April, 2009.

      

      ADVANCE
NANOTECH, INC.

      

      

      

      By:________________________________

      Name:
Thomas P. Finn

      Title:  Chief
Financial Officer

       

       

      
 

      
        
          
          

        

        
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        INVESTOR
DETAILS

      

      

      PRINCIPAL
AMOUNT OF NOTE = __________________ (the “Purchase
Price”)

      

      Choose One:

      Option 1:                                                                                 

      

      Option 2:                                                                                

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    	 
      	 
      	 
      
	
                                                            Signature

                                                          	 
      	
                                                            Signature
      (if purchasing jointly)

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Name
      Typed or Printed

                                                          	 
      	
                                                            Name
      Typed or Printed

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Entity
      Name

                                                          	 
      	
                                                            Entity
      Name

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Address

                                                          	 
      	
                                                            Address

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            City,
      State and Zip Code

                                                          	 
      	
                                                            City,
      State and Zip Code

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Telephone-Business

                                                          	 
      	
                                                            Telephone-Business

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Telephone-Residence

                                                          	 
      	
                                                            Telephone-Residence

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Facsimile-Business

                                                          	 
      	
                                                            Facsimile-Business

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Facsimile-Residence

                                                          	 
      	
                                                            Facsimile-Residence

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Tax
      ID # or Social Security #

                                                          	 
      	
                                                            Tax
      ID # or Social Security #

                                                          
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                                            Email
      Address

                                                          	 
      	 
      

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      Name in which Note should be
issued:    ________________________________

       

      Dated:    ________________,
2009

       

       

      
        
          
          

        

        
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      ANNEX
A

      

      HOLDERS

      

      
        	
                Name
      and Address

              	
                Principal

              	
                Funding
      Date

              	
                Initial

                Interest

                Rate
      or OID Per Monthf8k041509ex4iv_advnano.htm

    Exhibit 4.4

     

    
      THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADVANCE NANOTECH, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED.

      

      
        	 
      	
                Right
      to Purchase ________ shares of Common Stock of Advance Nanotech, Inc.
      (subject to adjustment as provided
herein)

              

      

      

      COMMON
STOCK PURCHASE WARRANT

      
        Issue Date:   ______    

      

       

      ADVANCE
NANOTECH, INC., a corporation organized under the laws of the State
of  Delaware (the “Company”), hereby certifies that, for value
received, __________________________, or its assigns (the “Holder”), is
entitled, subject to the terms set forth below, to purchase from the Company at
any time after the Issue Date until 5:00 p.m., E.S.T on April ___, 2012 (the
“Expiration Date”), up to __________ fully paid and nonassessable shares of
Common Stock at a per share purchase price of $0.30.  The afore
described purchase price per share, as adjusted from time to time as herein
provided, is referred to herein as the “Purchase Price.”  The number
and character of such shares of Common Stock and the Purchase Price are subject
to adjustment as provided herein.  The Company may reduce the Purchase
Price for all (but not less than all) of the Warrants, temporarily or
permanently.  Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in that certain Subscription Agreement (the
“Subscription Agreement”), dated as of _____, 2009, entered into by the Company
and the subscribers thereto.

      

      As used
herein the following terms, unless the context otherwise requires, have the
following respective meanings:

       

      (a)           The
term “Company” shall include Advance Nanotech, Inc. and any corporation which
shall succeed or assume the obligations of Advance Nanotech, Inc.
hereunder.

       

      (b)           The
term “Common Stock” includes (a) the Company's Common Stock, $0.001 par value
per share, as authorized on the date of the Subscription Agreement, and (b) any
other securities into which or for which any of the securities described in (a)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise (including warrants to
purchase any of the securities described in (a)).

       

      (c)           The
term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holder of this Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of this Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 5 or otherwise.

       

      (d)           The
term “Warrant Shares” shall mean the Common Stock issuable upon exercise of this
Warrant.

       

      (e)           The
term “Excepted Issuances” shall mean:

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (i)           full
or partial consideration in connection with a merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of any corporation
or other entity,

       

      (ii)
           the Company’s
issuance of securities in connection with strategic license agreements and other
partnering arrangements so long as such issuances are not for the purpose of
raising capital apart from capital necessary to enter into the strategic license
agreement or other partnering arrangement,

       

      (iii)           the
Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock to employees, directors, and consultants, pursuant to
plans approved by the Company’s Board of Directors and agreements or
understandings with respect to the sale or issuance of any shares of Common
Stock or equity of the Company or subsidiaries or other equity interest in the
Company as follows:

       

      1.           Stock
option and employee stock grant plans established and to be established for
employees of the Company or one of its subsidiaries which permit the issuance of
up to a number of shares equal to 10% of the issued and outstanding shares of
the Company on a fully-diluted basis.

      

      2.              Any
rights under the Owlstone Convertible Notes referred to in the Exchange
Agreement among certain holders of shares of Owlstone Nanotech, Inc. and the
Company, as amended to date (the “Exchange Agreement”),

      

      (iv)           the
Company’s issuance of Common Stock as a result of the exercise of warrants or
conversion of notes (the “Convertible Notes”) which are granted or issued
pursuant to closings of the offering of convertible notes under those certain
subscription agreements dated prior to this date,

       

      (v)           the
Company’s issuance of securities at closings subsequent to December 19, 2007
with respect to the aforesaid offering,

       

      (vi)          an
underwritten public offering in connection with which not less than $10,000,000
of gross proceeds is received from such public offering,

       

      (vii)         capitalization
of up to $1,000,000 of existing debt obligations,

       

      (viii)        the
Company’s issuance of Common Stock as payment of interest under the aforesaid
Convertible Notes, and

       

      (ix)           the
Company’s issuance of common stock, warrants or options issued in transactions
contemplated by the Exchange Agreement.

       

       

      
        
          
          

        

        
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      1.           Exercise of
Warrant.

       

      1.1.           Number of Shares Issuable
upon Exercise.  From and after the Issue Date through and
including the Expiration Date, the Holder hereof shall be entitled to receive,
upon exercise of this Warrant in whole in accordance with the terms of
subsection 1.2 or upon exercise of this Warrant in part in accordance with
subsection 1.3, shares of Common Stock of the Company, subject to adjustment as
described herein.

       

      1.2.           Full
Exercise.  This Warrant may be exercised in full by the Holder
hereof by delivery of an original or facsimile copy of the form of subscription
attached as Exhibit A hereto (the “Subscription Form”) duly executed by such
Holder, with an executed copy thereof delivered on the same day to the Company
together with payment, in cash, by wire transfer or by certified or official
bank check payable to the order of the Company, in the amount obtained by
multiplying the number of shares of Common Stock for which this Warrant is then
exercisable by the Purchase Price then in effect.  The original
Warrant is not required to be surrendered to the Company until it has been fully
exercised.

       

      1.3.           Partial
Exercise.  This Warrant may be exercised in part (but not for a
fractional share) by surrender of this Warrant in the manner and at the places
provided in subsection 1.2 except that the amount payable by the Holder on such
partial exercise shall be the amount obtained by multiplying (a) the number of
whole shares of Common Stock designated by the Holder in the Subscription Form
by (b) the Purchase Price then in effect.  On any such partial
exercise provided the Holder has surrendered the original Warrant, the Company,
at its expense, will forthwith issue and deliver to or upon the order of
the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof
or as such Holder (upon payment by such Holder of any applicable transfer taxes)
may request, the whole number of shares of Common Stock for which
such Warrant may still be exercised.

       

      1.5.           Company
Acknowledgment. The Company will, at the time of the exercise of this
Warrant, upon the request of the Holder hereof acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such Holder any such rights.

       

      1.6.           Trustee for Warrant
Holders. In the event that a bank or trust company shall have been
appointed as trustee for the Holder of this Warrant pursuant to Subsection 3.2,
such bank or trust company shall have all the powers and duties of a warrant
agent (as hereinafter described) and shall accept, in its own name for the
account of the Company or such successor person as may be entitled thereto, all
amounts otherwise payable to the Company or such successor, as the case may be,
on exercise of this Warrant pursuant to this Section 1.

       

      1.7           Delivery of Stock Certificates, etc.
on Exercise. The Company agrees that the shares of Common Stock purchased
upon exercise of this Warrant shall be deemed to be issued to the Holder hereof
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such shares
as aforesaid. As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within four (4) business days thereafter (“Warrant
Share Delivery Date”), the Company at its expense (including the payment by it
of any applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct in compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and non-assessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
one full share of Common Stock, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise. In the event
that the Company fails for any reason to effect delivery of the Warrant Shares
by the Warrant Share Delivery Date, the Holder may revoke all or part of
the relevant Warrant exercise by delivery of a written notice to such effect to
the Company provided that in the
case of such a notice the notice shall be delivered by registered mail or by
recognized overnight courier service, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the exercise
of the relevant portion of this Warrant.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      1.8           Limitation on
Exercise.  Notwithstanding the provisions of this Warrant or
the Subscription Agreement, in no event (except (i) as specifically provided in
this Warrant as an exception to this provision, (ii) while there is outstanding
a tender offer for any or all of the shares of the Common Stock, or (iii) at the
Holder’s option, on at least sixty-five (65) days advance written notice from
the Holder) shall the Holder be entitled to exercise this Warrant, or shall the
Company have the obligation to issue shares upon such exercise of all or any
portion of this Warrant to the extent that, after such exercise the sum of (1)
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unexercised portion of this Warrant or other
rights to purchase Common Stock or through the ownership of the unconverted
portion of convertible securities), and (2) the number of shares of Common Stock
issuable upon the exercise of this Warrant with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such exercise).  For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, except as otherwise provided in clause (1) of such
sentence.  The Holder, by its acceptance of this Warrant, further
agrees that if the Holder transfers or assigns this Warrant to a party who or
which would not be considered such an affiliate, such assignment shall be made
subject to the transferee’s or assignee’s specific agreement to be bound by the
provisions of this Section 1.8 as if such transferee or assignee were the
original Holder hereof.

       

      2.           Law Governing This
Warrant.  This Warrant shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws.  Any action brought by either party against the
other concerning the transactions contemplated by this Warrant shall be brought
only in the state courts of New York in the County of New York or in the federal
courts located in the State and County of New York.  Subject to the
foregoing, the parties to this Warrant hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon forum non
conveniens.    The Company and Holder waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs.  In the event that any provision
of this Warrant or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of any agreement.

       

      3.           Adjustment for
Reorganization, Consolidation, Merger, Etc.

       

      3.1.           Reorganization,
Consolidation, Merger, etc.  In case at any time or from time
to time, the Company shall (a) effect a reorganization, (b) consolidate with or
merge into any other person or (c) to the extent not covered by Section 3.5,
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition to the consummation of such a
transaction, proper and adequate provision shall be made by the Company whereby
the Holder of this Warrant, on the exercise hereof as provided in Section 1, at
any time after the consummation of such reorganization, consolidation or merger
or the effective date of such dissolution, as the case may be, shall receive, in
lieu of the Common Stock (or Other Securities) issuable on such exercise prior
to such consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be, if
such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in this Section
3.

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      3.2.           Dissolution.  In
the event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the Holder of this Warrant after the effective date of such dissolution pursuant
to this Section 3 to a bank or trust company (a “Trustee”) having its principal
office in New York, NY, as trustee for the Holder of this Warrant.

       

      3.3.           Continuation of
Terms.  Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the Other Securities and property receivable on
the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4.  In the event this Warrant does not continue in
full force and effect after the consummation of the transaction described in
this Section 3, then only in such event will the Company's securities and
property (including cash, where applicable) receivable by the Holder of this
Warrant be delivered to the Trustee as contemplated by Section 3.2.

       

      3.4           Share
Issuance.  Until the Expiration Date, if the Company shall
issue any Common Stock, except for the Excepted Issuances, prior to the complete
exercise of this Warrant for a consideration less than the Purchase Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Purchase Price shall be reduced to such other lower
price for then outstanding Warrants.  For purposes of this adjustment,
the issuance of any security or debt instrument of the Company carrying the
right to convert such security or debt instrument into Common Stock or of
any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Purchase Price upon the issuance of the above-described
security, debt instrument, warrant, right, or option if such issuance is at a
price lower than the Purchase Price in effect upon such issuance and again at
any time upon any subsequent issuances of shares of Common Stock upon exercise
of such conversion or purchase rights if such issuance is at a price lower than
the Purchase Price in effect upon such issuance.  The reduction of the
Purchase Price described in this Section 3.4 is subject to the provisions of,
and in addition to the other rights of the Holder described in, the Subscription
Agreement.  The number of shares of Common Stock that the Holder of
this Warrant shall thereafter, on the exercise hereof, be entitled to receive
shall be adjusted to a number determined by multiplying the number of shares of
Common Stock that would otherwise (but for the provisions of this Section 3.4)
be issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 3.4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.

       

                 3.5           Adjustment for Spin
Off.  If, for any reason, prior to the exercise of this Warrant
in full, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or substantially all of its assets in a
transaction (other than Advance Display Technologies plc) (the “Spin Off”) in
which the Company does not receive compensation for such business, operations or
assets, but causes securities of another entity (the “Spin Off Securities”) to
be issued to securityholders of the Company, then:

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (a)  the
Company shall cause (i) to be reserved Spin Off Securities equal to the number
thereof which would have been issued to the Holder had all of the Holder’s
unexercised Warrants outstanding on the record date (the “Record Date”) for
determining the amount and number of Spin Off Securities to be issued to
security holders of the Company (the “Outstanding Warrants”) been exercised as
of the close of business on the Trading Day immediately before the Record Date
(the “Reserved Spin Off Shares”), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the Reserved
Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a
fraction, of which (I) the numerator is the number of the Outstanding Warrants
then being exercised, and (II) the denominator is the number of Outstanding
Warrants; and

       

      (b) the
Purchase Price on the Outstanding Warrants shall be adjusted immediately after
consummation of the Spin Off by multiplying the Purchase Price by a fraction
(if, but only if, such fraction is less than 1.0), the numerator of which is the
average per share Market Price of the Common Stock for the five (5) Trading Days
immediately following the fifth Trading Day after the Record Date, and the
denominator of which is the average per share Market Price of the Common Stock
for the five (5) Trading Days immediately preceding the Record Date; and such
adjusted Purchase Price shall be deemed to be the Purchase Price with respect to
the Outstanding Warrants after the Record Date.  As used herein,
“Market Price” means (i) the last closing  bid price of the Common
Stock on whichever national securities exchange or trading market (including,
without  limitation,  the Nasdaq and the OTC
Bulletin  Board) is the principal trading market where the Common
Stock is listed by the Company for trading (the “Principal Market”), as reported
by Bloomberg, or (ii) if the Principal Market should operate on an
extended  hours basis and does not designate the closing bid price,
then the last bid price of the Common Stock prior to the commencement of
extended trading hours on the applicable date, but in no event later than
4:30:00 p.m., New York local time, as reported by Bloomberg, or (iii) if no last
bid price is reported for the Common Stock by Bloomberg, the average of the bid
prices, on the one hand, and the ask prices, on the other hand, of all
market  makers for such security as reported in the
“pink  sheets” by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.).  The  applicable trading market for such
calculation, whether it is the Principal Market or the “pink sheets”, is
hereafter referred to as the “Trading Market”.  The Company shall make
all determinations pursuant to this paragraph in good faith. In the absence of
any available public quotations for the Common Stock, the Board of Directors of
the Company shall determine in good faith the fair value of the Common Stock,
which determination shall be set forth in a certificate by the Secretary of the
Company. As used herein, “Trading Day” means a day on which the principal
Trading Market with respect to the Common Stock is open for the transaction of
business.

       

      4.           Extraordinary Events
Regarding Common Stock.  In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding shares
of Common Stock, or (c) combine its outstanding shares of the Common Stock into
a smaller number of shares of the Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The number
of shares of Common Stock that the Holder of this Warrant shall thereafter, on
the exercise hereof, be entitled to receive shall be adjusted to a number
determined by multiplying the number of shares of Common Stock that would
otherwise (but for the provisions of this Section 4 be issuable on such exercise
by a fraction of which (a) the numerator is the Purchase Price that would
otherwise (but for the provisions of this Section 4) be in effect, and (b) the
denominator is the Purchase Price in effect on the date of such
exercise.

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      5.           Certificate as to
Adjustments.  In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of
this Warrant, the Company at its expense will promptly cause its Chief Financial
Officer or other appropriate designee to compute such adjustment or readjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
or readjusted as provided in this Warrant. The Company will forthwith mail a
copy of each such certificate to the Holder of this Warrant and any Warrant
Agent of the Company (appointed pursuant to Section 11 hereof).

       

      6.           Reservation of Stock, etc.
Issuable on Exercise of Warrant; Financial
Statements.   The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of this
Warrant, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of this Warrant.  This Warrant entitles the
Holder hereof to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Company's Common
Stock.

       

      7.           Assignment; Exchange of
Warrant.  Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any
registered holder hereof (a “Transferor”); provided, however, that by acceptance
of this Warrant, Holder agrees that it may not and will not assign any portion
of this Warrant to any competitor of the Company that is engaged in the business
of commercializing technology in the industry sectors of displays, homeland
security and defense. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
“Transferor Endorsement Form”) and together with an opinion of counsel
reasonably satisfactory to the Company that the transfer of this Warrant will be
in compliance with applicable securities laws, the Company will issue and
deliver to or on the order of the Transferor thereof a new Warrant or Warrants
of like tenor, in the name of the Transferor and/or the transferee(s) specified
in such Transferor Endorsement Form, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of this Warrant so surrendered by the Transferor.

       

      8.           Replacement of
Warrant.  On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such loss, theft or destruction of this Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense, twice only, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.

       

      9.           RESERVED.

       

      10.         RESERVED.

       

      11.         Warrant Agent and Transfer
Agent.

       

      (a)           The
Company may, by written notice to the Holder of this Warrant, appoint an agent
(a “Warrant Agent”) for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such Warrant
Agent.

       

      (b)           The
Company covenants and agrees that, so long as any portion of this Warrant
remains unexercised, the Company will, upon reasonable request from the Holder,
direct the Company’s transfer agent to provide information to the Holder
relating to (i) the number of shares of Common Stock reserved for issuance upon
exercise of the Warrants, or (ii) the aggregate number of outstanding shares of
Common Stock of all stockholders of the Company as of a current or other
specified date.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

       

      12.           Transfer on the Company's
Books.  Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary.

       

      13.           Notices.   All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The
addresses for such communications shall be:  if to the Company,
to:  Advance Nanotech, Inc, 400 Rella Blvd., Suite 160, Montebello, NY
10901, Attn: Thomas Finn, telecopier: (845) 533-4225, and (ii) if to the Holder,
to the address and telecopier number listed on the first paragraph of this
Warrant, with a copy by telecopier only to: Axiom Capital Management, Inc., 780
Third Avenue, 43rd Floor,
New York, NY 10017, Attention: Mark Martino, President.

       

      

      [SIGNATURE
PAGE FOLLOWS]

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

       

      IN
WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.

       

      
        	 
      	
                ADVANCE
      NANOTECH, INC.

                 

                 

                 

                By:    ______________________________       

                Name: Thomas Finn

                Title: Chief Financial
      Officer

              

      

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      Exhibit
A

      

      FORM OF
SUBSCRIPTION

      (to be
signed only on exercise of Warrant)

      TO:  ADVANCE
NANOTECH, INC.

      The
undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase:

      

      ___________
shares of the Common Stock covered by such Warrant.

      

      The
undersigned herewith makes payment of the full purchase price for such shares at
the price per share provided for in such Warrant, which is
$___________.  Such payment takes the form of  $__________
in lawful money of the United States.

      

      The
undersigned requests that the certificates for such shares be issued in the name
of, and delivered to _____________________________ whose address is

       

        
          

        

      

       

        
          

        

      

       

      The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable upon exercise of the within Warrant shall be made
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the “Securities Act”), or pursuant to an exemption from registration
under the Securities Act.

      

      
        	
                Dated:___________________

              	
                ________________________________________

                (Signature
      must conform to name of holder as specified on the face of this
      Warrant)

                 

                 

                 

                (Address)
      _____________________________________

                _____________________________________________

              

      

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
B

      

      

      FORM OF
TRANSFEROR ENDORSEMENT

      (To be
signed only on transfer of Warrant)

       

       

      For value received, the undersigned
hereby sells, assigns, and transfers unto the person(s) named below under the
heading “Transferees” the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of ADVANCE NANOTECH, INC. to
which the within Warrant relates specified under the headings “Percentage
Transferred” and “Number Transferred,” respectively, opposite the name(s) of
such person(s) and appoints each such person Attorney to transfer its respective
right on the books of ADVANCE NANOTECH, INC. with full power of substitution in
the premises.

       

      

      
        
          
            	
                    Transferees

                  	
                    Percentage Transferred

                  	
                    Number Transferred

                  
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

          

        

      

      

      

      
        	
                Dated:  ______________,
      ___________

                 

                 

                _____________________________

                Signed
      in the presence of:

                 

                _____________________________

                    (Name)

                 

                 

                ACCEPTED
      AND AGREED:

                [TRANSFEREE]

                 

                 

                _____________________________

                    (Name)

                 

              	
                ____________________________________________________________

                (Signature
      must conform to name of holder as specified on the face of this
      Warrant)

                 

                 

                 

                 

                ____________________________________________________________

                ____________________________________________________________

                    (address)

                 

                 

                ____________________________________________________________

                ____________________________________________________________

                    (address)

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