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Exhibit 10.5
FORM OF SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement (together with the schedules and
exhibits
hereto, this "Agreement"), dated as of December 31, 2004, by and
between Advance
Nanotech, Inc., a Colorado corporation (the "Company"), and each
of the Persons
(as defined below) who has executed a signature page to this
Agreement (each a
"Purchaser," and together, the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company desires to issue and sell to the
Purchasers, and the
Purchasers desire to purchase from the Company, the Securities
(as such term is
defined below) as set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual
covenants and agreements hereinafter contained, and for other
good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged,
intending to be legally bound, the parties hereto hereby agree
as follows:
1. Offer and Sale of Securities.
1.1 The Offering. The Company is offering for sale in this
offering (the
"Offering") up to 7,000,000 shares (the "Maximum Offering") of
its common stock,
par value $0.001 per share (the "Common Stock"). Notwithstanding
the foregoing,
the Company, in its sole discretion, may increase the Maximum
Offering, at any
time during the Offering and without prior notice, by up to ten
percent (10%).
There is no minimum offering, and the Company may accept and
close upon
subscriptions from time to time in its sole discretion during
the offering
period referred to in this Agreement. In addition to the shares
of Common Stock
being offered hereby (the "Shares"), for every two Shares
acquired by a
Purchaser at an applicable Closing (as such term is hereinafter
defined)
pursuant to this Agreement, the Company shall deliver to such
Purchaser a
warrant (the "Warrant") to purchase one share of Common Stock.
The Warrants,
which shall not be transferable, shall initially be exercisable
at $3.00 per
share of Common Stock, subject to adjustment, and be exercisable
for a period of
three (3) years after issuance or until the date which is ten
(10) days after
the Company furnishes written notice to the Warrant holder that
the market price
of the Common Stock has been at least 400% of the then
applicable exercise price
of the Warrant for a period of at least thirty (30) days, and
the average
trading volume of the Common Stock has been at least 100,000
shares per day
during the preceding thirty (30) days. The shares of Common
Stock which may be
acquired upon exercise of a Warrant are sometimes hereinafter
referred to as the
"Warrant Shares"). The Shares and the Warrants are sometimes
hereinafter
referred to as the "Securities". The Purchasers of the
Securities shall have the
benefit of certain registration rights in respect of the Shares
and the Warrant
Shares on the terms and conditions of a Registration Rights
Agreement, in the
form of Exhibit A hereto (the "Registration Rights Agreement").
The Company is
offering the Securities only to individuals, entities or groups,
including,
without limitation, corporations, limited liability companies,
limited or
general partnerships, joint ventures, associations, joint stock
companies,
trusts, unincorporated organizations, or governments or any
agencies or
political subdivisions thereof (each, a "Person") who are
"accredited investors"
(as defined herein). The Company is making the Offering of the
Securities
directly through certain of its officers and its directors, but
may engage a
placement agent (the "Placement Agent") and other registered
broker-dealers
("Other Participating Agents") may also place Securities. If the
Company should
engage a Placement Agent or any Other Participating Agent, the
Company presently
intends to pay to the Placement Agent and to Other Participating
Agents, if any,
commissions equal to up to 10% of the gross sales price of the
Shares sold in
the offering by the applicable Placement Agent or Other
Participating Agent. In
addition, the Company presently intends to issue to any such
Placement Agent or
Other Participating Agent, if any, at the final Closing warrants
(the "Placement
Agent Warrants") granting to such person warrant coverage equal
to 10% on the
number of Shares (but not Warrant Shares) sold in the Offering
to investors
introduced by that person (without duplication of introduction).
The Placement
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Agent Warrants shall initially be exercisable at $2.00 per share
of Common
Stock, subject to adjustment, commencing one year after the date
of issuance and
continuing for five (5) years thereafter, and, unlike the
Warrants issued to
Purchasers, shall contain a cashless exercise provision. The
Placement Agent
Warrants shall be transferable by the Placement Agent or Other
Participating
Agent receiving the same to its officers, directors,
shareholders and employees,
as well as by such persons to their immediate family affiliates
in connection
with estate planning, provided that no such transfer or
disposition may be made
other than in compliance with applicable securities laws and
furnishing
satisfactory evidence of such compliance to the Company. The
Company will
indemnify the Placement Agent and any Other Participating
Agents, if any,
against certain liabilities. The Company will pay its own costs
of the Offering.
The Company will also pay a non-accountable expense fee to the
Placement Agent
equal to 3% of the gross sales price of the Shares (but not any
Warrant Shares)
sold in the Offering to investors introduced by the Placement
Agent (without
duplication of introduction), such 3% amount being sometimes
hereafter referred
to as the "Non-Accountable Expense Allowance. Notwithstanding
the foregoing, the
Non-Accountable Expense Allowance shall be reduced on a
dollar-for-dollar basis
by the fees and expenses of the Company's counsel for preparing
and furnishing
the opinion letter referred to in Section 3.4(d) of this
Agreement. All
subscription proceeds in the Offering will be paid at Closing to
the account or
accounts specified in or pursuant to Section 1.2 herein,
provided that the
Company will utilize an escrow agent (the "Escrow Agent") for
receipt of funds
if required under applicable law. All references in this
Agreement to the Escrow
Agent shall be deemed to be references to the Company in the
event that there is
no third party Escrow Agent.
1.2 Subscription. Subject to the terms and conditions
hereinafter set
forth in this Agreement, each Purchaser hereby offers to
purchase, at a price of
$2.00 per Share, the number of Shares (together with one
accompanying Warrant
for every 2 Shares) set forth beneath each such Purchaser's name
on the
signature pages of this Agreement, for an aggregate purchase
price (the
"Purchase Price") to be paid by such Purchaser in the amount set
forth on the
signature page beneath such Purchaser's name to such account as
the Company
shall indicate by written notice to the Purchaser.
1.3 Subscription Procedures. To submit this Subscription, each
Purchaser
must deliver (i) this Agreement, including, without limitation,
the related
Purchaser Questionnaire, both duly completed and executed and
(ii) an executed
Registration Rights Agreement to the following address, unless
otherwise advised
by the Company:
Advance Nanotech, Inc.
712 Fifth Avenue, 19th Floor
New York, NY, 10019
Attention: Magnus Gittins
with any questions to be raised with Magnus Gittins at (646) 723
8962.
The Company may accept or reject subscriptions, in whole or in
part, or
accept subscriptions for less than the $50,000 minimum
subscription, in its sole
discretion. The Company shall notify each Purchaser of the
portion, if any, of
such Purchaser's subscription which has been accepted, payment
instructions for
the Purchase Price, including wire transfer instructions and
instructions for
delivery of payment by checks, if applicable, and the date upon
which the
applicable Closing shall be held and payment must be made. At
each applicable
Closing, each Purchaser acquiring Securities at such Closing
shall deliver and
pay the applicable purchase price in full for the Securities
being purchased by
such Purchaser at such Closing, in the amount of $2.00 for each
Share for which
such Purchaser's subscription has been accepted, in U.S.
dollars, in immediately
available funds, in accordance with the payment instructions
contained in the
notification to such Purchaser by the Company.
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<PAGE>
2. Closing. Upon acceptance of subscriptions for Securities
offered
hereby, the Company shall hold one or more closings of the
purchase and sale of
such Securities (each one, a "Closing"; the final closing, the
"Final Closing").
Each Closing shall be held at such location as the Company may
determine. The
Final Closing will take place on the earlier to occur of (i)
December 31, 2004
or (ii) the sale of all of the Securities being offered hereby,
unless this date
is extended, without notice to investors, by the Company in its
sole discretion
for up to an additional 30 days (the "Termination Date"). The
date of each
Closing will be referred to as a "Closing Date" and the date of
the Final
Closing is referred to as the "Final Closing Date." At the
Closing with respect
to the subscription by each Purchaser, to the extent the same is
accepted by the
Company, the Company will register in the name of each such
Purchaser that
number of Securities being purchased by such Purchaser in
accordance with the
information on the applicable signature page of this
Agreement.
2.1 Escrow. In the event that the Company engages a Placement
Agent for
this Offering, which the Company may not choose to do, and the
Company is
required under applicable law to arrange for applicable funds to
be received
into an escrow account, then, and only in such case, pending
each Closing all
funds paid in respect of this Agreement with regard to such
Closing shall be
deposited in an escrow account (the "Escrow Account") maintained
by the Escrow
Agent in accordance with Rule 15c2-4 under the Exchange Act (as
defined herein).
The Escrow Account shall not be interest bearing. In such a
case, if the Company
accepts subscriptions for the Securities at or prior to the
Initial Closing Date
or the Final Closing Date, as the case may be, then all
subscription proceeds
received for subscriptions accepted by the Company prior to such
Closing Date
shall be paid over to the Company at each Closing, net of the
Placement Agent
fees, if any, and other offering expenses, which shall be paid
to the
appropriate parties at each such Closing. In any event, if the
Company shall not
have received and accepted each Purchaser's subscription, then
that subscription
shall be void and all funds paid hereunder by such Purchaser
with respect to
such unaccepted subscription, without deduction therefrom or
interest thereon,
shall be promptly returned to such Purchaser.
2.2. Return of Funds. Each Purchaser hereby authorizes and
directs both
the Company and the Escrow Agent, if any, jointly and severally,
to return or
direct the return of any funds from the Escrow Account, if any,
without
deduction therefrom or interest thereon, to the same account
from which the
funds were originally drawn, to the extent that such Purchaser's
subscription is
not accepted prior to the termination of the Offering.
3. Conditions to the Obligations of each Purchaser at
Closing.
The obligation of each Purchaser to purchase and pay for the
Shares
subscribed for by such Purchaser at the applicable Closing is
subject to the
satisfaction on or prior to the applicable Closing Date or the
Final Closing
Date, as the case may be, of the following conditions, each of
which may be
waived by the applicable Purchaser:
3.1 Representations and Warranties. The representations and
warranties of
the Company contained in this Agreement which are qualified as
to materiality
must be true and correct in all respects, and the
representations and warranties
of the Company contained in this Agreement which are not
qualified as to
materiality must be true and correct in all material respects,
in each case as
of the applicable Closing Date except to the extent that the
representations and
warranties relate to a different date in which case the
representations and
warranties must be true and correct as written or true and
correct in all
material respects, as the case may be, as of the different
date.
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3.2 Performance of Covenants. The Company shall have performed
or complied
with in all material respects all covenants and agreements
required to be
performed by it on or prior to the applicable Closing pursuant
to this
Agreement, including, without limitation, the delivery of
certificates
evidencing the Securities issued to the Purchasers at the
Closing.
3.3 No Injunctions; etc. No court or governmental injunction,
order or
decree prohibiting the purchase and sale of the Securities or
securities
underlying the Securities will be in effect. There will not be
in effect any
law, rule or regulation prohibiting or restricting the sale or
requiring any
consent or approval of any Person that has not been obtained to
issue and sell
the Securities or securities underlying the Securities to the
Purchasers.
3.4 Closing Documents. At each Closing, the Company shall have
delivered
to each applicable Purchaser the following:
(a) a certificate of the President of the Company certifying
that the
conditions in Sections 3.1 and 3.2 have been satisfied;
(b) A certificate of the Secretary of the Company, dated as of
that
Closing Date, certifying (i) the attached copies of the
Certificate of
Incorporation and By-laws of the Company, (ii) the resolutions
of the Board of
Directors of the Company (the "Board") authorizing the
execution, delivery and
performance of this Agreement and the issuance of the Securities
and the
securities underlying the Securities (including, but not limited
to, for
purposes of Section 203 of the Colorado General Corporation Law)
and (iii) the
incumbency of the officers duly authorized to execute this
Agreement and the
other documents contemplated by this Agreement;
(c) a certificate of the Secretary of State of the State of
Colorado,
dated as of a recent date (but no more than five business days)
prior to the
date of the applicable Closing, to the effect that the Company
is in good
standing in the State of Colorado and that all annual reports,
if any, have been
filed as required and that all taxes and fees have been paid in
connection
therewith;
(d) an opinion of Company counsel, substantially in the form of
Exhibit B
to this Agreement;
(e) a certificate or certificates evidencing the Securities
purchased by
such Purchaser; and
(f) a Registration Rights Agreement duly executed by the
Company.
3.5 Waivers and Consents. The Company will have obtained all
consents and
waivers necessary to execute and deliver this Agreement and all
related
documents and agreements and to issue and deliver the
Securities, and all
consents and waivers will be in full force and effect.
4. Conditions to the Obligations of the Company at Closing.
The obligation of the Company to issue and sell the Securities
to any
Purchaser is subject to the satisfaction on or prior to each
Closing Date of the
following conditions, each of which may be waived by the
Company:
4.1 Receipt of Purchase Price. The Company shall have received
payment in
full in immediately available funds in U.S. dollars of the
Purchase Price for
the Shares with respect to which the Company has accepted the
Subscription made
by such Purchaser by means of this Agreement.
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<PAGE>
4.2 Representations and Warranties. The representations and
warranties of
the Purchaser contained in this Agreement which are qualified as
to materiality
must be true and correct in all respects and the representations
and warranties
of the Purchaser contained in this Agreement which are not
qualified as to
materiality must be true and correct in all material respects,
in each case as
of the applicable Closing Date except to the extent that the
representations and
warranties relate to a different date in which case the
representations and
warranties must be true and correct as of the different
date..
4.3 Performance of Covenants. The Purchaser will have performed
or
complied with in all material respects all covenants and
agreements required to
be performed by the Purchaser on or prior to the Closing
pursuant to this
Agreement.
4.4 Purchaser Questionnaire. All of the information furnished by
such
Purchaser in the confidential purchaser questionnaire
accompanying this
Agreement (the "Purchaser Questionnaire") shall have been
accurate and complete
in all material respects.
4.5 No Injunctions. No court or governmental injunction, order
or decree
prohibiting the purchase or sale of the Securities or the
securities underlying
the Securities will be in effect.
4.6 Closing Documents. The Purchaser will have delivered to the
Company a
Registration Rights Agreement duly executed by the Purchasers
and such other
closing documents as the Company may reasonably request, if
any.
5. Representations and Warranties of each Purchaser.
Each Purchaser, in order to induce the Company to perform this
Agreement,
hereby represents and warrants, severally and not jointly, as
follows:
5.1 Due Authorization. Each Purchaser represents for such
Purchaser to the
Company that such Purchaser has full power and authority and has
taken all
action necessary to authorize such Purchaser to execute, deliver
and perform
such Purchaser's obligations under this Agreement. This
Agreement is the legal,
valid and binding obligation of such Purchaser in accordance
with its terms.
5.2 Accredited Investor. Each Purchaser represents that such
Purchaser is
an Accredited Investor as that term is defined in Regulation D
promulgated under
the Securities Act of 1933, as amended (the "Securities
Act").
5.3 No Investment Advice. The Company has not made any other
representations or warranties to such Purchaser other than as
set forth herein
or incorporated herein by reference with respect to the Company
or rendered any
investment advice.
5.4 Investment Experience. Each Purchaser represents that such
Purchaser
has not authorized any Person to act as such Purchaser's
Representative (as that
term is defined in Regulation D of the General Rules and
Regulations under the
Securities Act) in connection with this transaction. Such
Purchaser has such
knowledge and experience in financial, investment and business
matters that such
Purchaser is capable of evaluating the merits and risks of the
prospective
investment in the securities of the Company. Such Purchaser has
consulted with
such independent legal counsel or other advisers as such
Purchaser has deemed
appropriate to assist such Purchaser in evaluating the proposed
investment in
the Company.
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<PAGE>
5.5 Adequate Means. Each Purchaser represents as to such
Purchaser that
such Purchaser (i) has adequate means of providing for such
Purchaser's current
financial needs and possible contingencies; and (ii) can afford
(a) to hold
unregistered securities for an indefinite period of time as
required; and (b)
sustain a complete loss of the entire amount of the
subscription.
5.6 Access to Information. Each Purchaser represents that such
Purchaser
has been afforded the opportunity to ask questions of, and
receive answers from
the officers and/or directors of the Company acting on its
behalf concerning the
terms and conditions of this transaction and to obtain any
additional
information, to the extent that the Company possesses such
information or can
acquire it without unreasonable effort or expense, necessary to
verify the
accuracy of the information furnished; and has had such
opportunity to the
extent such Purchaser considers appropriate in order to permit
such Purchaser to
evaluate the merits and risks of an investment in the Company.
It is understood
that all documents, records and books pertaining to this
investment have been
made available for inspection, and that the books and records of
the Company
will be available upon reasonable notice for inspection by
investors during
reasonable business hours at its principal place of business.
The foregoing
shall in no way be deemed to limit the ability of each Purchaser
to rely on the
representations and warranties set forth herein or incorporated
herein by
reference.
5.7 No Endorsement. Each Purchaser further acknowledges that the
offer and
sale of the Securities or the securities underlying the
Securities has not been
passed upon or the merits thereof endorsed or approved by any
state or federal
authorities.
5.8 Non-Registered Securities. Each Purchaser acknowledges that
neither
the offer and sale of the Securities or the securities
underlying the Securities
have not been registered under the Securities Act or any state
securities laws
and the Securities and any underlying securities may be resold
only if
registered pursuant to the provisions thereunder or if an
exemption from
registration is available and if otherwise permitted by law and
contract. Each
Purchaser understands that the offer and sale of the Securities
and the
securities underlying the Securities is intended to be exempt
from registration
under the Securities Act, based, in part, upon the
representations, warranties
and agreements of such Purchaser contained in this
Agreement.
5.9 No Resale. Each Purchaser represents that the Securities
being
subscribed for, and the securities underlying the subscription,
are being
acquired solely for the account of such Purchaser for such
Purchaser's
investment and not with a view to, or for resale in connection
with, any
distribution in any jurisdiction where such sale or distribution
would be
precluded. By such representation, such Purchaser means that,
other than as
disclosed on both the signature page of this Agreement and in
the Purchaser
Questionnaire, no other Person has a beneficial interest in the
Securities or
the securities underlying the subscription, and that no other
Person has
furnished or will furnish directly or indirectly, any part of or
guarantee the
payment of any part of the consideration to be paid by such
Purchaser to the
Company in connection therewith. Such Purchaser does not intend
to dispose of
all or any part of the Securities or the securities underlying
the subscription
except in compliance with the provisions of the Securities Act
and applicable
state securities laws, and understands that the Securities and
the securities
underlying the subscription are being offered pursuant to a
specific exemption
under the provisions of the Securities Act, which exemption(s)
depends, among
other things, upon the compliance with the provisions of the
Securities Act.
5.10 Legend. Each Purchaser hereby acknowledges and agrees that
the
Company may insert the following or similar legend on the face
of the
certificates evidencing the Securities purchased by such
Purchaser and the
underlying securities, if any, as the case may be, if the
Company deems the same
to be necessary or appropriate:
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<PAGE>
"These securities have not been registered under the Securities
Act of
1933, as amended (the "Securities Act"), or any state securities
laws and
may not be sold or otherwise transferred or disposed of except
pursuant to
an effective registration statement under the Securities Act and
any
applicable state securities laws, or an opinion of counsel
satisfactory to
counsel to the issuer that an exemption from registration under
the
Securities Act and any applicable state securities laws is
available."
In addition, the Company may insert a legend to the effect that
the Warrants are
non-transferable.
5.11 Broker's or Finder's Commissions. Other than the Placement
Agent (as
placement agent on behalf of the Company) or any Other
Participating Agent, if
any, no finder, broker, agent, financial person or other
intermediary has acted
on behalf of any Purchaser in connection with the sale of the
Securities by the
Company or the consummation of this Agreement or any of the
transactions
contemplated hereby.
Each Purchaser certifies that each of the foregoing
representations and
warranties by such Purchaser set forth in this Section 5 are
true as of the date
hereof and shall survive such date.
6. Representations and Warranties of the Company.
The Company represents and warrants to the Purchasers that:
6.1 Organization, Good Standing and Qualification. The Company
is a
corporation duly organized, validly existing and in good
standing under the laws
of the State of Colorado. The Company and each subsidiary of the
Company has
full corporate power and authority to own and hold its
properties and to conduct
its business. The Company and each subsidiary of the Company is
duly licensed or
qualified to do business, and in good standing, in each
jurisdiction in which
the nature of its business requires licensing, qualification or
good standing,
except for any failure to be so licensed or qualified or in good
standing that
would not have a material adverse effect on the Company or any
such subsidiary,
taken as a consolidated whole, or its results of operations,
assets or financial
condition, taken as a consolidated whole, or on its ability to
perform its
obligations under this Agreement or to issue the Securities (a
"Material Adverse
Effect").
6.2 Capitalization. As of the date hereof, the authorized
capital stock of
the Company consists of 100,000,000 shares of Common Stock, par
value $0.001 per
share. Except as set forth in this Section 6.2, as of the date
hereof, (i)
21,973,446 shares of Common Stock were issued and outstanding,
(ii) there are no
outstanding options and no shares of Common Stock were reserved
for issuance
upon exercise of options, (iii) the Company has reserved
3,000,000 shares of
Common Stock for issuance upon exercise of options which may be
issued pursuant
to an option plan covering the Company's officers, directors,
employees and
consultants, but no options have been granted to date under such
plan, (iv) no
shares of Common Stock were reserved for issuance upon the
exercise of
outstanding warrants other than 6,666,666 warrants (the "Jano
Warrants"),
exercisable at $2.00 per share, issued to Jano Holdings Ltd.,
and (v) the
Company is offering up to 7,000,000 shares of its Common Stock,
and up to
3,500,000 Warrants to purchase Warrant Shares, subject to an
additional 10%
overallotment in the Company's sole discretion. All the
outstanding shares of
Common Stock have been duly authorized and validly issued and
are fully paid and
nonassessable and free of preemptive rights created by or
through the Company,
and have been issued in compliance with all federal and state
securities laws,
and were not issued in violation of any preemptive rights or
similar rights to
subscribe for or purchase securities. Except as set forth in
this Section 6.2,
as of the date hereof there are no other options, warrants or
other rights,
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<PAGE>
convertible debt, agreements, arrangements or commitments of any
character
obligating the Company to issue or sell any shares of capital
stock of or other
equity interests in the Company. The Company has not adopted a
stockholders
rights plan, poison pill or similar arrangement. As used in this
Agreement, the
term "Commission Documents shall mean all reports, schedules,
forms, statements
and other documents filed by the Company with the United States
Securities and
Exchange Commission (the "Commission" or the "SEC") pursuant to
the reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange
Act"), including all exhibits included therein and financial
statements and
schedules thereto and documents or instruments incorporated by
reference
therein.
6.3 Corporate Power, Authorization; Enforceability. The Company
has full
corporate power and authority to execute, deliver and perform
this Agreement,
the Warrants, and the Registration Rights Agreement
(collectively, the
"Transaction Documents") and to consummate the transactions
contemplated hereby
and thereby. All action on the part of the Company, its
directors or
stockholders necessary for (i) the authorization, execution,
delivery and
performance of the Transaction Documents by the Company, (ii)
the authorization,
sale, issuance and delivery of the Common Stock and Warrants
contemplated hereby
(iii) the reservation of shares of Common Stock for issuance
upon exercise of
the Warrants and (iv) the performance of the Company's
obligations hereunder and
thereunder has been taken. The Securities to be purchased on
each the Closing
Date and the underlying Warrant Shares have been duly authorized
and, when
issued in accordance with this Agreement or the Warrants, as the
case may be,
will be validly issued, fully paid and nonassessable and will be
free and clear
of any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance,
lien (statutory or other) or preference, priority, right or
other security
interest or preferential arrangement of any kind or nature
whatsoever
(collectively, "Liens") imposed by or through the Company other
than
restrictions imposed by this Agreement, the Warrants, and the
Registration
Rights Agreement, as the case may be, and applicable securities
laws. No
preemptive or other rights to subscribe for or purchase equity
securities of the
Company exists with respect to the issuance and sale of the
Securities or the
Warrant Shares. The Transaction Documents have been duly
executed and delivered
by the Company, and constitute the legal, valid and binding
obligations of the
Company, enforceable against the Company in accordance with
their terms, except
as enforceability may be limited by applicable bankruptcy,
insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws
affecting the enforcement of creditors' rights generally and by
general
principles of equity relating to enforceability (regardless of
whether
considered in a proceeding at law or in equity).
6.4 No Con
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