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FORM OF SECURITIES PURCHASE AGREEMENT

Stock Purchase Agreement

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Advance Nanotech, Inc

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Title: FORM OF SECURITIES PURCHASE AGREEMENT
Governing Law: New York     Date: 1/26/2005

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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

<PAGE>

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.

-2-

<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.

-3-

<PAGE>

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.

-4-

<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.

-5-

<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:

-6-

<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,

-7-

<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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