ADVANCE
      NANOTECH, INC.

     

    2005
      EQUITY INCENTIVE PLAN

     

    (Effective
      ________________, 2005)

    as
      amended and restated March 23, 2006

    


    Advance
      Nanotech, Inc. hereby adopts this 2005 Equity Incentive Plan, as amended and
      restated as of March 23, 2006, as set forth herein.

    


    


    


     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    CERTIFICATE

     

    I,
      Magnus
      Gittins, the Chief Executive Officer of Advance Nanotech, Inc. do hereby certify
      that the attached is a true and correct copy of the Advance Nanotech, Inc.
      2005 Equity Incentive Plan, as amended and restated on March 23,
      2006.

    
      	 	 	 
	 	 
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name: Magnus
              Gittins
	 	Title: Chief
              Executive Officer


    

     

    Dated
      this ___ day of ____________, 2006.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ADVANCE
      NANOTECH, INC.

    2005
      EQUITY INCENTIVE PLAN

    (as
      amended and restated on March 23, 2006)

    


    1.    Purpose

    


    The
      purpose of this Plan (as amended and restated, the “Plan”)
      is to
      provide a means of rewarding certain individuals and of inducing key employees,
      advisors, consultants and directors (“Participants”)
      to
      remain with ADVANCE NANOTECH, INC. (“ANI”)
      and to
      encourage such individuals to continue to promote the best interests of ANI
      by
      offering them a greater stake in its success and a closer identity with it
      through increased equity participation, and to enable ANI to compete effectively
      for the services of directors and new key personnel who may be needed to help
      carry on ANI’s expanding operations and to insure its continued development.


    


    2.    Eligibility

    


    Grants
      will be made under this Plan only to Participants who are employees, advisors,
      consultants or directors of the Company or its subsidiaries as of the “Grant
      Date.” "Grant Date" means the date a Participant is granted Securities (as
      defined below) under this Plan. 

    


    3.    Effective
      Date; Termination of Old Plans

    


    This
      Plan, as amended and restated, shall become effective upon its adoption by
      the
      Board of Directors of ANI (the “Board”).
      The
      Company’s previously adopted 2005 Stock Option Plan shall terminate effective
      upon Board approval of this Plan, and no further grants of awards shall be
      made
      under that plan after the date of such approval. Concurrently with the
      termination of that plan, the rights of holders of options previously granted
      and outstanding under that plan will terminate and be of no further force.
      All
      participants under that plan shall become Participants under this Plan and
      shall
      be granted rights pursuant hereto.

    


    4.    Stock
      Pool

    


    The
      Board
      is hereby authorized to issue, or reserve for issuance, up to, but not to
      exceed, a maximum of 3,000,000 shares
      of
      ANI common stock (the “Stock”).
      Such
      stock may be unissued shares or previously issued shares reacquired or to be
      reacquired by ANI. Stock received by Participants hereunder will be deemed
      taxable income to the Participants, even though the grants will be a non-cash
      event. To facilitate the payment of the taxes owed for Participant grants,
      Participants may instruct the Company to withhold from any grant that number
      of
      shares with an aggregate Fair Market Value on the date of holdback equal to
      the
      aggregate tax payment due as a result of the Stock grant to Participant (such
      election, a “Net
      Grant”).
      For
      the purposes of satisfying the exemption requirements under Section 16(b),
      the
      Board specifically adopts the foregoing Net Grant election provision. If a
      Participant does not elect to receive a Net Grant of Stock, then participant
      shall advance to the Company cash in the amount equal to the tax payment due
      upon grant of the Stock, in the form of:

    


    (a) cash
      (which may be raised by Participant through the sale of shares Company Common
      Stock only if those shares (i) have been owned by the Participant for more
      than six (6) months on the date of sale);

    


    (b) check;

    


    
      
         

      

      
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    (c) a
      reduction in the amount of any Company liability to the Participant, including
      any liability attributable to the Participant's participation in any
      Company-sponsored deferred compensation program or arrangement;

    


    (d) any
      combination of the foregoing methods of payment; or

    


    (e) such
      other consideration and method of payment for the issuance of Shares to the
      extent permitted by applicable laws. 

    


    5.    Equity
      Grants

    


    The
      Board
      hereby authorizes the grant of options to purchase Stock (each an “Option”),
      as
      well as the grant of shares of Stock (the “Shares,”
and,
      together with the Options, the “Securities”)
      under
      this Plan. 

    


    6.    Number
      of Options; Number of Shares; Terms and Conditions of
      Grant

    


    Participants
      shall be entitled to receive that number of Shares or Options, at the prices
      and
      upon such dates as determined by the Committee and set forth in each
      Participant's Equity Incentive Agreement. Securities granted hereunder shall
      be
      subject to the terms and conditions set forth in the Equity Incentive Agreement
      between ANI and each Participant. 

    


    7.    Expiration
      of Options

    


    (a) Expiration
      Date.
      Unless
      the applicable stock
      option
      agreement provides otherwise, each Option shall terminate upon the first to
      occur of the events listed below: 

    


    1.  The
      date
      for termination of Option set forth in the Option Agreement;

    


    2.  Upon
      the
      termination of the Participant’s employment or other association with the
      Company for “Cause;”

    


    3.  The
      expiration of three months from the date of the Participant’s employment or
      other association with the Company for a reason other than “Cause” or the
      Participant’s death, Disability or Retirement, 

    


    4.  The
      expiration of twelve months from the date of the Participant’s Termination of
      Employment by reason of Disability, or 

    


    5.  The
      expiration of twelve months from the date of the Participant’s death, if such
      death occurs while the Participant is in the employ or service of the Company
      or
      an Affiliate. 

    


    "Disability"
      means
      total and permanent disability as defined in Section 22(e)(3) of the Internal
      Revenue Code of 1986.

    


    (b) Committee
      Discretion.
      The
      Committee shall provide, in the terms of each individual Option, when such
      Option expires and becomes unexercisable. After the Option is granted, the
      Committee, in its sole discretion may extend the maximum term of such Option
      or
      accelerate the exercisability of the Option. 

    


    
      
         

      

      
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    8.    Exercise
      of Options - Payment.
      The
      Committee shall determine the acceptable form of consideration for exercising
      an
      Option, including the method of payment. Such consideration may consist entirely
      of:

    


    (a) cash;

    


    (b) check;

    


    (c) promissory
      note;

    


    (d) other
      Shares which (i) in the case of Shares acquired upon exercise of an Option,
      have been owned by the Participant for more than six (6) months on the date
      of
      surrender, and (ii) have a Fair Market Value on the date of surrender equal
      to the aggregate exercise price of the Shares as to which said Option shall
      be
      exercised;

    


    (e) consideration
      received by the Company from a licensed broker under a cashless exercise program
      implemented by the Company to facilitate “same day” exercises and sales of
      Options;

    


    (f) a
      reduction in the amount of any Company liability to the Participant, including
      any liability attributable to the Participant's participation in any
      Company-sponsored deferred compensation program or arrangement;

    


    (g) any
      combination of the foregoing methods of payment; or

    


    (h) such
      other consideration and method of payment for the issuance of Shares to the
      extent permitted by applicable laws. 

    


    9.    Restrictions
      on Stock; Conditions to Exercise

    


    (a)
       If
      the
      Grant Date is at a time when ANI’s Stock is not registered under the Securities
      Exchange Act of 1934, as amended (the “1934
      Act”)
      or the
      Securities Act of 1933, as amended (the “1933
      Act”),
      and
      the delivery of the Securities to the Participant pursuant to this Plan would
      cause ANI to become subject to a requirement to register ANI Stock under the
      1934 Act and/or the 1933 Act, the Company may, in lieu of delivery of the
      Securities, pay to the Participant an amount in cash equal to the fair market
      value of such Securities in lieu of issuing such Securities.

    


    (b)
       As
      a
      condition to the grant of Securities hereunder, Participant (i) may be required
      to make representations, warranties and agreements with respect to the
      Securities as ANI may determine; (ii) understands and agrees that he or she
      will
      not offer, resell, transfer or otherwise dispose of the Securities other than
      pursuant to an available exemption from registration under the 1933 Act, as
      amended, and the regulations promulgated thereunder or pursuant to an effective
      registration statement, if any; and (iii) shall agree to be subject to any
      other
      restrictions as ANI may deem necessary to comply with all applicable laws.
      Participant further understands and agrees that ANI is under no obligation
      to
      file any registration statement with the Securities and Exchange Commission
      in
      order to permit transfers of the Securities.

    


    10.    Changes
      in Stock, Adjustments, Etc.

    


    In
      the
      event of any reorganization, recapitalization, stock split, stock dividend,
      combination of shares, merger, consolidation, rights offering or any other
      change in the corporate structure or shares of ANI the Board may appropriately
      adjust the aggregate number and kind of shares available under this
      Plan.

    


    
      
         

      

      
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    11.    Administration
      and Amendment of the Plan

    


    (a) The
      Plan
      will be administered by a “Committee”
      consisting of two or more directors who are not employees of the Company, as
      appointed from time to time to serve by the Board. The Committee shall have
      the
      responsibility of construing and interpreting the Plan and of establishing
      and
      amending such rules and regulations, as it deems necessary or desirable for
      the
      proper administration of the Plan. Any decision or action taken or to be taken
      by the Committee, arising out of or in connection with the construction,
      administration, interpretation and effect of the Plan and of its rules and
      regulations, shall, to the extent permitted by law, be within its absolute
      discretion (except as otherwise specifically provided herein) and shall be
      conclusive and binding upon all Participants and any person claiming under
      or
      through any Participant.

    


    (b)
       The
      Committee shall have plenary authority, subject to the provisions of the Plan,
      to grant Securities and to determine to whom such Securities shall be granted
      and the number of shares subject thereto, the terms of each such Security grant
      hereunder, the waiver or acceleration of any terms, including the authority
      to
      accelerate the grant of all or any portion of any Securities.

    


    (c)
       Any
      member of the Board who is an employee of ANI shall be without vote on (i)
      any
      proposed amendment to the Plan, or (ii) any other matter which might affect
      such
      member’s individual interest under the Plan; nor shall such member’s presence be
      counted in determining whether a quorum is present at any meeting at which
      a
      vote involving the Plan or individual rights thereunder is taken.
      Notwithstanding the foregoing, and unless otherwise determined by the Board,
      if
      the Chief Executive Officer is a member of the Committee the Board shall grant
      Securities to the Chief Executive Officer and determine the type and number
      of
      Securities the Chief Executive Officer is to receive; provided however, that
      the
      Chief Executive Officer shall otherwise be entitled to vote on any proposed
      amendment to the Plan, or any other matter which might affect his or her
      individual interest under the Plan. 

    


    (d)
       ANI
      shall
      effect the grant of Securities under this Plan by the delivery of an Equity
      Incentive Agreement executed by ANI and the Participant, which shall incorporate
      the terms of this Plan by reference and contain such other conditions, and
      in
      such form, as may be approved by the Committee, but in no event inconsistent
      with terms and conditions set forth specifically elsewhere in this Plan.


    


    (e)
       Nothing
      contained in this Plan, nor in any Security
      granted
      under this Plan, shall confer upon any Participant any right with respect to
      continuance of employment by ANI or limit in any way the right of ANI to
      terminate the Participant’s association with ANI at any time.

    


    (f) The
      adoption of the Plan of shall not be construed as creating any limitations
      upon
      the right and authority of the Board to adopt such other incentive compensation
      arrangements (which arrangements may be applicable either generally to a class
      or classes of individuals or specifically to a particular individual or
      individuals) as the Board in its discretion determines desirable, including,
      without limitation, the granting of stock options or stock
      appreciation rights other than under the Plan. 

    


    12.    Governing
      Law

     

    The
      interpretation, performance and enforcement of this Plan shall be governed
      by
      the internal substantive laws of the State of New York, without regard to the
      conflict of laws provisions of that or any other State. The Option can only
      be
      amended in a writing executed by a duly authorized Officer of the
      Company.

    


    
      
         

      

      
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    IN
      WITNESS WHEREOF, ANI has caused this 2005 EQUITY INCENTIVE PLAN to be duly
      executed by its duly authorized officer.

     

    
      	 	 	 
	Dated:
              ____________, 2005 	ADVANCE
              NANOTECH,
              INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	President



    
      
         

      

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