ADVANCE NANOTECH, INC.

                           2005 EQUITY INCENTIVE PLAN

                       (Effective ________________, 2005)



<PAGE>

                                   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 in effect on
___________________, 2005.

                                    By:
                                          --------------------------------------
                                    Name:   Magnus Gittins
                                    Title:  Chief Executive Officer


Dated this ___ day of ____________, 2005.

<PAGE>

                             ADVANCE NANOTECH, INC.
                           2005 EQUITY INCENTIVE PLAN

1.    Purpose

      The purpose of this Plan (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  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.

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.


                                       1
<PAGE>

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.

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.


                                       2
<PAGE>

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.

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


                                       3
<PAGE>

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.

      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


                                       4
<PAGE>

                                     FORM OF

                             ADVANCE NANOTECH, INC.
                           EQUITY INCENTIVE AGREEMENT
                                  (Stock Grant)

      This EQUITY INCENTIVE  AGREEMENT (this  "Agreement")  hereby confirms that
_____________________  (the  "Participant")  is entitled to receive from ADVANCE
NANOTECH,  INC.,  a Colorado  corporation  ("ANI"),  shares of ANI Common  Stock
("Stock")  in the numbers and upon the dates set forth on Exhibit A hereto.  All
Share grants made pursuant to this Agreement shall be subject in all respects to
the terms and  provisions of the ADVANCE  NANOTECH,  INC. 2005 EQUITY  INCENTIVE
PLAN (the "Plan"),  which is incorporated  herein by reference.  All capitalized
terms not defined herein, have the meanings ascribed to such terms in the Plan.

      1. Signing Share Grants. This Equity Incentive Agreement shall entitle you
to receive Shares in the numbers and upon each of the "Grant Dates" set forth on
Exhibit A hereto  and the Plan  generally  sets  forth  your  rights to  receive
Shares.

      2. Bonus Grants.  You may receive  additional,  bonus grants consisting of
stock or stock options,  as set forth in your employment  agreement with ANI and
as determined by the  Committee.  All  additional  grants will be evidenced by a
separate agreement. Participant

      3. Restrictions on Transfer.

      (a) This Agreement may not be transferred in any manner  otherwise than by
will or the laws of descent and  distribution or by his or her legal guardian or
other legal  representative.  The terms of this Agreement  shall be binding upon
the  executors,   administrators,   heirs,   successors,   and  assigns  of  the
Participant.  If the  Participant  shall make any transfer or assignment of this
Agreement, such transfer or assignment shall be null and void.

      (b)  The  Shares  issued   pursuant   hereto  are  restricted   securities
transferable  only pursuant to (i) public  offerings  registered  under the 1933
Act, (ii) Rule 144 or Rule 144A of the  Securities  and Exchange  Commission (or
any  similar  rule or rules then in force) if such rule is  available  and (iii)
subject to the  conditions  specified in Section 4(c) below,  any other  legally
available means of transfer.

      (c) In  connection  with the transfer of any Shares (other than a transfer
described  in clauses (i) or (ii) of Section  4(b)  above),  the holder  thereof
shall deliver written notice to the Company  describing in reasonable detail the
transfer or proposed transfer, together with an opinion of counsel knowledgeable
in  securities  law  matters to the effect  that such  transfer of Shares may be
effected without registration of such Shares under the 1933 Act. In addition, if
the holder of the Shares  delivers to the Company an opinion of counsel  that no
subsequent  transfer of such Shares shall  require  registration  under the 1933
Act, the Company shall  promptly  upon such  contemplated  transfer  deliver new
certificates for such Shares, which do not bear the 1933 Act legend set forth in
Section  4(f).  Each  opinion of counsel  delivered  to the  Company  under this
Section 4 shall be in form and substance reasonably satisfactory to the Company.
If the Company is not required to deliver new  certificates  without such legend
for such Restricted Securities,  the Executive shall not transfer the same until
the prospective transferee has confirmed to the Company in writing its agreement
to be bound by the conditions contained in this Section 4.

      (d) Upon the request of the Executive,  the Company shall promptly  supply
to the Executive or its prospective  transferees  all information  regarding the
Company required to be delivered in connection with a transfer  pursuant to Rule
144 of the Securities and Exchange Commission.


                                       5
<PAGE>

      (e) If any Shares become  eligible for sale  pursuant to Rule 144(k),  the
Company shall, upon the request of the holder of such Shares,  remove the legend
set forth in Section 4(f) below from the certificates for such Shares.

      (f) Each certificate or instrument  representing Shares shall be imprinted
with a legend in substantially the following form:

      "THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE  NOT  BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE
      SECURITIES  LAWS,  AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
      OF AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE SECURITIES ACT OF
      1933, OR AN EXEMPTION FROM REGISTRATION THEREUNDER."

      4.   Capital   Adjustments.   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 Committee may determine  the  appropriate  adjustments  to be
made, if any, in the number and kind of shares covered by this Agreement. Notice
of any  such  adjustment  shall  be  given  by ANI to the  Participant  and such
adjustment shall be effective and binding for all purposes.  The Committee shall
also have authority to make  provisions for settlement in cash of any fractional
shares, in lieu of the issuance thereof, which became subject to purchase by the
Participant as a result of any such adjustment.

      5. Tax  Withholding.  As a condition to the issuance of Shares  hereunder,
the  Participant  authorizes  ANI to withhold from his or her  compensation,  to
collect from Participant, or to sell a number of Shares in publicly or privately
negotiated transactions,  in accordance with applicable law, in order to pay any
taxes  required to be withheld by ANI under  federal,  state,  or local law as a
result of the Share grant.

      6. No Violation of  Securities  Laws.  No Shares will be issued under this
Agreement,  and a cash payment in lieu thereof will be made,  if the issuance of
Shares  hereunder would constitute a violation of any applicable U.S. or foreign
federal or state securities or other law or valid regulation.

      7. Representations and Warranties. As a condition to his or her receipt of
Shares hereunder, the Participant represents and warrants to ANI:

      (a)  The  Shares  to be  acquired  by the  Participant  pursuant  to  this
Agreement will be acquired for the Participant's own account and not with a view
to, or intention of,  distribution  thereof in violation of the 1933 Act, or any
applicable  state  securities  laws,  and the Shares  will not be disposed of in
contravention of the 1933 Act or any applicable state securities laws.

      (b) The Participant is a Participant  officer or a management  employee of
the  Company,  sophisticated  in  financial  matters and is able to evaluate the
risks and benefits of the investment in the Shares.

      (c) The  Participant  has had an  opportunity to ask questions and receive
answers  concerning  the terms and conditions of this Agreement and the Plan and
has had full access to such other  information  concerning  the Company as he or
she has requested.

      (d) This Agreement  constitutes the legal, valid and binding obligation of
the  Participant,  enforceable in accordance with its terms,  and the execution,
delivery and performance of this Agreement by the Participant  does not and will
not  conflict  with,  violate or cause a breach of any  agreement,  contract  or
instrument to which the Participant is a party or any judgment,  order or decree
to which the Participant is subject.


                                       6
<PAGE>

      8. No Right to Continued  Association.  As an inducement to the Company to
issue the Shares to the  Participant,  as a condition  thereto,  the Participant
acknowledges  and  agrees  that  neither  the  issuance  of  the  Shares  to the
Participant nor any provision  contained herein shall entitle the Participant to
remain an  employee,  consultant,  advisor  or  director  of the  Company or its
subsidiaries,  or affect the right of the Company to terminate the Participant's
association with ANI at any time for any reason.

      9. Controlling Terms. In the event there is a discrepancy between the Plan
and this Agreement, the Plan's provisions shall be controlling.

      10. Receipt of Plan. The Participant acknowledges receipt of a copy of the
Plan,  a copy of which  is  annexed  hereto,  and  represents  that he or she is
familiar with the terms and provisions thereof.

      11.  Binding  Agreement.  The  Participant  hereby  accepts this Agreement
subject  to all the terms  and  provisions  of the Plan and  agrees to accept as
binding,  conclusive,  and  final  all  decisions  and  interpretations  of  the
Committee, upon any questions arising 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.


               [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]


                                       7
<PAGE>

      IN WITNESS WHEREOF,  ANI has caused this EQUITY INCENTIVE  AGREEMENT to be
duly executed by its duly authorized  officer and said  Participant has hereunto
signed this agreement on his or her own behalf,  thereby representing that he or
she has carefully read and understands this agreement and the Plan.

Dated:  _____________________, 2005.


PARTICIPANT                                ADVANCE NANOTECH, INC.



------------------------------------       -------------------------------------


Print Name:                                Print Name:
           -------------------------                  --------------------------
                                           Title:
                                                 -------------------------------


Address:                                   Address:

------------------------------------       600 Lexington Avenue, 29th Floor

------------------------------------       New York, NY 10022


                                       8
<PAGE>

                                    EXHIBIT A
                                   SHARE GRANT

As long as you remain an [employee, consultant, advisor, director] [NOTE: choose
correct term for each grant] of the Company,  you are entitled to receive grants
of Shares on a quarterly basis,  beginning on the last day of the first calendar
quarter following the date of this Agreement.

Number of Shares - Full  Quarters:  The  number of Shares  you are  entitled  to
receive for full quarters  worked  pursuant to this EQUITY  INCENTIVE  AGREEMENT
will fluctuate  based on the closing price of the Shares.  The precise number of
Shares you will be issued upon each Grant Date will be determined by multiplying
(X) the quotient  obtained by dividing  your base salary by 8, and (Y) the Issue
Price (as defined below). The number of Shares granted will be rounded up to the
nearest whole share.

Number of Shares - Partial  Quarters:  You will  receive a pro rata  portion  of
Shares for partial quarters work, determined by the percentage of days worked as
compared  to the  total  number  of days in the  quarter.  The  number of Shares
granted will be rounded up to the nearest whole share.

The "Issue  Price"  shall be 85% of the  average of the  closing  price of ANI's
publicly  traded Common Stock for the then current  quarter.  The Issue Price is
intended to discount the average closing price by 15%.

First Quarter Issue Price: With respect to the Shares to be issued at the end of
the first quarter of your  association with ANI, the Issue Price shall be 85% of
the lower of (X) the share price of ANI's  publicly  traded  Common Stock on the
day preceding the public  announcement of your  association with ANI and (Y) the
average of the closing  price of ANI's  publicly  traded  Common  Stock for such
quarter.

Grant  Dates:  Each  Grant  Date  shall  correspond  to March  30th,  June 30th,
September  30th or  December  31st,  as  appropriate.  You shall be  entitled to
receive  Shares  on the  last day of each  calendar  quarter  in  which  you are
employed.  (Time spent on leave of absence shall be considered as employment for
purposes of the Plan,  provided that if such period exceeds two (2) months,  the
Committee shall, in its sole discretion,  determine whether such additional time
away from work shall be considered as employment for purposes of the Plan.)

*Adjusted for partial quarter worked.  Price may be reduced to the closing share
price, if lower, on the day preceding public  announcement of your employment by
ANI).


                                       9
<PAGE>

                                     FORM OF

                             ADVANCE NANOTECH, INC.
                           EQUITY INCENTIVE AGREEMENT
                           (Fully Vested Option Grant)

      Advance Nanotech, Inc. (the "Company") has adopted a 2005 Equity Incentive
Plan (the "Plan") under which the Company can grant  options to purchase  shares
of the Company's Common Stock (the "Common Stock"). We are pleased to inform you
that our Board of  Directors  (the  "Board")  has decided to grant you an option
under the Plan (your "Option").

      Your  Option  shall be fully  vested as of the Date of Grant.  Your Option
will be governed by the Plan, the attached  Standard  Terms and Conditions  (the
"Terms") and the following specific  provisions (which are subject to adjustment
under the Plan and the Terms):

      The "Date of Grant" for your Option is:  ________________.

      The "Expiration Date" of your Option is:  ________________.

      The "Number of Shares" covered by your Option is:  _________.

      The "Exercise Price" per share for your Option is:  _________.

      Your Option is not  intended  to qualify as an  "incentive  stock  option"
under Section 422 of the Internal Revenue Code.

      Please  review  the Plan and the Terms  carefully,  as they  control  your
rights  under your  Option.  Then sign one copy of this  letter and return it to
Liza Mullins at the Company's New York office. If you have any questions, please
contact Liza Mullins at (212) 583-0080.

Dated:  _____________________, 2005.


PARTICIPANT                                ADVANCE NANOTECH, INC.



------------------------------------       -------------------------------------


Print Name:                                Print Name:
           -------------------------                  --------------------------
                                           Title:
                                                 -------------------------------


Address:                                   Address:

------------------------------------       600 Lexington Avenue, 29th Floor

------------------------------------       New York, NY 10022


                                       10
<PAGE>

                          STANDARD TERMS AND CONDITIONS

      These  Standard  Terms and  Conditions are intended to govern that Option.
All  capitalized  terms not  specifically  defined in these  Standard  Terms and
Conditions  have the meanings set forth in the Company's  2005 Equity  Incentive
Plan.

1.  Option.  You may exercise the Option to buy all or any part of any Number of
Shares of Common Stock that are then exercisable at the Exercise Price per share
until the Expiration Date.

2.  Manner of  Exercise.  This  Option may be  exercised  only (i)  during  your
lifetime, by you; (ii) to the extent permitted by the Committee,  by your spouse
if your spouse  obtained the Option pursuant to a qualified  domestic  relations
order as  defined  by the  Code or Title I of  ERISA,  or the  rules  thereunder
("Qualified  Domestic  Relations  Order");  and (iii) after your death,  by your
transferees  by will or the laws of descent or  distribution.  To exercise  this
Option,  you must  provide the Company  with (a) a written  notice of  exercise,
specifying  the  number of  shares  to be  purchased  and (b)  consideration  as
permitted  under the Plan,  valued at fair market value.  This Option may not be
exercised  for a fraction of a share and no partial  exercise of this Option may
be for less than (a) one hundred  (100) shares or (b) the total number of shares
then eligible for exercise, if less than one hundred (100) shares.

3.  Withholding  of Taxes.  Upon the exercise of this Option,  the Company shall
require the person  entitled to exercise it to pay the Company the amount of any
taxes that the Company is required to withhold with respect to the exercise.

4. Fair Market Value of Common Stock. The fair market value of a share of Common
Stock shall be  determined  for  purposes of sections 2 and 8 this  Agreement by
reference to the closing  price on the  principal  stock  exchange on which such
shares  are  then  listed  or,  if the  shares  are not then  listed  on a stock
exchange,  by reference to the closing  price (if approved for  quotation on the
NASDAQ  National  Market) or the mean  between the bid and asked price (if other
over-the-counter  issue) of a share as supplied by the National  Association  of
Securities Dealers, Inc. through NASDAQ (or its successor in function),  in each
case as reported by The Wall Street  Journal,  for the business day  immediately
preceding the date on which the option is  exercised,  or, in the absence of any
established  market  for the  Common  Stock,  the  Fair  Market  Value  shall be
determined in good faith by the Committee.

5. Termination of Service; Death or Permanent Disability.  Unless the applicable
stock option agreement provides otherwise,  each Option shall terminate upon the
first to occur of the events listed below:

      a.    The Expiration Date;

      b.    Upon  the  termination  of the  Participant's  employment  or  other
            association with the Company for "Cause;"

      c.    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,

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

      e.    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.


                                       11
<PAGE>

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

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.

6. No  Assignment or Transfer.  This Option and all other rights and  privileges
granted hereby shall not be transferred,  either  voluntarily or by operation of
law except (i) by will or the laws of descent and  distribution or (ii) pursuant
to a  Qualified  Domestic  Relations  Order  to  the  extent  permitted  by  the
Committee.  If there is any other  attempt to transfer  this Option or any other
right or privilege  granted  hereby,  this Option and all rights and  privileges
granted hereby shall immediately become null and void and be of no further force
or effect.

7. Adjustments.

      Changes in  Capitalization.  If the outstanding  shares of Common Stock of
the Company (or any other class of shares or securities  which shall have become
issuable  upon the  exercise  of this  Option  pursuant  to this  sentence)  are
increased or decreased  or changed into or exchanged  for a different  number or
kind  of  shares  or   securities   of  the  Company   through   reorganization,
recapitalization,  reclassification,  stock dividend, stock split, reverse stock
split or other similar transaction,  an appropriate and proportionate adjustment
shall be made in the Number of Shares,  without change in the aggregate purchase
price  applicable  to  the  unexercised  portion  of  this  Option,  but  with a
corresponding  adjustment  in the  price  for each  share  or other  unit of any
security covered by this Option.

      Dissolution  or  Liquidation.  Any  Option,  to the extent not  previously
exercised,   will  terminate  immediately  prior  to  the  consummation  of  any
dissolution or liquidation of the Company. The Committee may, in the exercise of
its sole discretion in such  instances,  declare that any Option shall terminate
as of a date fixed by the Committee and give each optionee the right to exercise
his or her Option as to all or any part of the Optioned Stock,  including Shares
as to which the Option would not otherwise be exercisable.

      Merger,  Stock Sale or Asset Sale. In the event of a merger of the Company
with or into another entity where (i) the shareholders of the Company before the
transaction  do not own at  least  50% of the  voting  equity  of the  surviving
entity, (ii) as a result of which the Company is not the surviving entity, (iii)
the  sale to  another  entity  of more  than  eighty  percent  (80%) of the then
outstanding  stock of the Company,  or (iv) the sale of substantially all of the
assets of the Company, the Committee shall provide in writing in connection with
such  transaction  for the  satisfaction  of this  Option  by one or more of the
following  alternatives:  (i)  shorten  the  period  during  which  Options  are
exercisable  (provided  they remain  exercisable  for at least 30 days after the
date the notice is given);  (ii)  accelerate  any  vesting  schedule to which an
Option is subject; (iii) arrange to have the surviving or successor entity grant
replacement  options  with  appropriate  adjustments  in the  number and kind of
securities  and option  prices;  or (iv) cancel any Option  upon  payment to the
optionee of cash equal to the excess of the Fair  Market  Value of the number of
Shares as to which the Option is then  exercisable (at the effective time of the
merger, reorganization, sale of other event including to the extent the exercise
has been  accelerated as  contemplated  in clause (ii) above) over the aggregate
exercise price with respect to such Shares.

      Adjustments  under this Section 8 will be made by the  Committee,  and its
determination  as to  what  adjustments  to  make  will be  final,  binding  and
conclusive.  No fractional  shares of stock shall be issued under this Option on
any such adjustment.


                                       12
<PAGE>

8.  Participation  in Other  Company  Plans.  The grant of this  Option will not
affect any right you might otherwise have to participate in and receive benefits
under the then current provisions of any pension,  insurance,  or profit sharing
program of the Company or of any subsidiary of the Company.

9. Not an  Employment  or  Service  Contract.  Nothing  in this  Option is to be
construed  as an  agreement,  express or  implied,  by the Company or any of its
subsidiaries  to employ you or contract for your services,  nor will it restrict
the Company's or such  subsidiary's  right to discharge you or cease contracting
for your  services  or to  modify,  extend or  otherwise  affect  in any  manner
whatsoever, the terms of any employment agreement or contract for services which
may exist between you and the Company or any of its subsidiaries.

10. No Rights as a Stockholder Until Issuance of Stock Certificate.  Neither you
nor any other person  legally  entitled to exercise this Option will be entitled
to any of the rights or privileges of a stockholder  of the Company with respect
to any shares  issuable  upon any  exercise  of this  Option  unless and until a
certificate  or  certificates  representing  the shares shall have been actually
issued and delivered.

11. Controlling Terms. In the event there is a discrepancy  between the Plan and
this Agreement,  the Plan's  provisions  shall be  controlling.  The Participant
acknowledges  receipt of a copy of the Plan, a copy of which is annexed  hereto,
and represents that he or she is familiar with the terms and provisions thereof.

12.  Governing  Law. The  interpretation,  performance  and  enforcement of this
Agreement 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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                                       13
<PAGE>

                        ADVANCE NANOTECH, INC.
                      EQUITY INCENTIVE AGREEMENT
                        (Director Option Grant)

      Advance Nanotech, Inc. (the "Company") has adopted a 2005 Equity Incentive
Plan (the "Plan") under which the Company can grant  options to purchase  shares
of the Company's Common Stock (the "Common Stock"). We are pleased to inform you
that our Board of  Directors  (the  "Board")  has decided to grant you an option
under the Plan (your "Option").

      Your Option will be governed by the Plan, the attached  Standard Terms and
Conditions  (the  "Terms")  and the  following  specific  provisions  (which are
subject to adjustment under the Plan and the Terms):

      The "Date of Grant" for your Option is:  ________________.

      The "Commencement Date" of your Option is: ________________.

      The "Expiration Date" of your Option is:  ________________.

      The "Number of Shares" covered by your Option is: .

      The "Exercise Price" per share for your Option is: .

      Your Option is not  intended  to qualify as an  "incentive  stock  option"
under Section 422 of the Internal Revenue Code.

      Vesting:  As long as you  remain a  Director  of the  Company,  50% of the
Number of Shares  (rounded to the nearest  whole  share) shall vest on the first
anniversary  of the  Commencement  Date.  The  remainder of the Number of Shares
(rounded to the nearest whole share) shall vest on the second anniversary of the
Commencement Date, or, if your association with the Company terminates after the
first anniversary but prior to the second  anniversary of the Commencement Date,
you shall  vest into a pro rata  portion  thereof  based upon the number of full
months you were a Director of the Company. Of course, you can never exercise the
Option for more than the Number of Shares or after the Expiration  Date (in each
case as adjusted under the Terms and the Plan).


                                       14
<PAGE>

      Please  review  the Plan and the Terms  carefully,  as they  control  your
rights  under your  Option.  Then sign one copy of this  letter and return it to
Liza Mullins at the Company's New York office. If you have any questions, please
contact Liza Mullins at (212) 583-0080.

Dated:  _____________________, 2005.

ADVANCE NANOTECH, INC.



------------------------------------

Print Name:
           -------------------------

Title:
      ------------------------------

Address:


600 Lexington Avenue, 29th Floor

New York, NY 10022



PARTICIPANT



------------------------------------

Print Name:
           -------------------------

Address:



------------------------------------

------------------------------------


                                       15
<PAGE>

                     STANDARD TERMS AND CONDITIONS

      These Standard  Terms and Conditions are attached to the Equity  Incentive
Agreement (the "Agreement")  with respect to your Option.  All capitalized terms
not  specifically  defined  in these  Standard  Terms  and  Conditions  have the
meanings set forth in the Company's 2005 Equity Incentive Plan.

1.  Option.  You may exercise the Option to buy all or any part of any Number of
Shares of Common Stock that are then exercisable at the Exercise Price per share
until the Expiration Date.

2.  Manner of  Exercise.  This  Option may be  exercised  only (i)  during  your
lifetime, by you; (ii) to the extent permitted by the Committee,  by your spouse
if your spouse  obtained the Option pursuant to a qualified  domestic  relations
order as  defined  by the  Code or Title I of  ERISA,  or the  rules  thereunder
("Qualified  Domestic  Relations  Order");  and (iii) after your death,  by your
transferees  by will or the laws of descent or  distribution.  To exercise  this
Option,  you must  provide the Company  with (a) a written  notice of  exercise,
specifying  the  number of  shares  to be  purchased  and (b)  consideration  as
permitted  under the Plan,  valued at fair market value.  This Option may not be
exercised  for a fraction of a share and no partial  exercise of this Option may
be for less than (a) one hundred  (100) shares or (b) the total number of shares
then eligible for exercise, if less than one hundred (100) shares.

3.  Withholding  of Taxes.  Upon the exercise of this Option,  the Company shall
require the person  entitled to exercise it to pay the Company the amount of any
taxes that the Company is required to withhold with respect to the exercise.

4. Fair Market Value of Common Stock. The fair market value of a share of Common
Stock shall be  determined  for  purposes of sections 2 and 8 this  Agreement by
reference to the closing  price on the  principal  stock  exchange on which such
shares  are  then  listed  or,  if the  shares  are not then  listed  on a stock
exchange,  by reference to the closing  price (if approved for  quotation on the
NASDAQ  National  Market) or the mean  between the bid and asked price (if other
over-the-counter  issue) of a share as supplied by the National  Association  of
Securities Dealers, Inc. through NASDAQ (or its successor in function),  in each
case as reported by The Wall Street  Journal,  for the business day  immediately
preceding the date on which the option is  exercised,  or, in the absence of any
established  market  for the  Common  Stock,  the  Fair  Market  Value  shall be
determined in good faith by the Committee.

5. Termination of Service; Death or Permanent Disability.  Unless the applicable
stock option agreement provides otherwise,  each Option shall terminate upon the
first to occur of the events listed below:

      a.    The Expiration Date;

      b.    Upon  the  termination  of the  Participant's  employment  or  other
            association with the Company for "Cause;"

      c.    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,

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

      e.    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.


                                       16
<PAGE>

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

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.

6. Shares to be Issued in Compliance with Applicable Laws and Exchange Rules. By
accepting  the Option,  you  represent  and agree,  for  yourself and any person
entitled to exercise this Option,  that none of the shares purchased on exercise
of the Option will be acquired with a view to any sale, transfer or distribution
in violation of the Securities Act of 1933, as amended (the  "Securities  Act"),
and the rules and regulations promulgated thereunder, any applicable state "blue
sky" laws or any  applicable  foreign  laws. If required by the Committee at the
time the Option is exercised,  the person  entitled to exercise the Option shall
furnish evidence satisfactory to the Company to such effect (including a written
representation  and an  indemnification  of the  Company  in  the  event  of any
violation of any Applicable Laws). The Company does not have to issue any shares
on the  exercise of this Option if there has not been full  compliance  with all
applicable  requirements  of the  Securities  Act  (whether by  registration  or
satisfaction of exemption  conditions),  all applicable listing  requirements of
any  national  securities  exchange  on which  shares of the same class are then
listed and any other  requirements  of law or of any  regulatory  bodies  having
jurisdiction over such issuance.

7. No  Assignment or Transfer.  This Option and all other rights and  privileges
granted hereby shall not be transferred,  either  voluntarily or by operation of
law except (i) by will or the laws of descent and  distribution or (ii) pursuant
to a  Qualified  Domestic  Relations  Order  to  the  extent  permitted  by  the
Committee.  If there is any other  attempt to transfer  this Option or any other
right or privilege  granted  hereby,  this Option and all rights and  privileges
granted hereby shall immediately become null and void and be of no further force
or effect.

8. Adjustments.

      Changes in  Capitalization.  If the outstanding  shares of Common Stock of
the Company (or any other class of shares or securities  which shall have become
issuable  upon the  exercise  of this  Option  pursuant  to this  sentence)  are
increased or decreased  or changed into or exchanged  for a different  number or
kind  of  shares  or   securities   of  the  Company   through   reorganization,
recapitalization,  reclassification,  stock dividend, stock split, reverse stock
split or other similar transaction,  an appropriate and proportionate adjustment
shall be made in the Number of Shares,  without change in the aggregate purchase
price  applicable  to  the  unexercised  portion  of  this  Option,  but  with a
corresponding  adjustment  in the  price  for each  share  or other  unit of any
security covered by this Option.

      Dissolution  or  Liquidation.  Any  Option,  to the extent not  previously
exercised,   will  terminate  immediately  prior  to  the  consummation  of  any
dissolution or liquidation of the Company. The Committee may, in the exercise of
its sole discretion in such  instances,  declare that any Option shall terminate
as of a date fixed by the Committee and give each optionee the right to exercise
his or her Option as to all or any part of the Optioned Stock,  including Shares
as to which the Option would not otherwise be exercisable.

      Merger,  Stock Sale or Asset Sale. In the event of a merger of the Company
with or into another entity where (i) the shareholders of the Company before the
transaction  do not own at  least  50% of the  voting  equity  of the  surviving
entity, (ii) as a result of which the Company is not the surviving entity, (iii)
the  sale to  another  entity  of more  than  eighty  percent  (80%) of the then
outstanding  stock of the Company,  or (iv) the sale of substantially all of the
assets of the Company, the Committee shall provide in writing in connection with
such  transaction  for the  satisfaction  of this  Option  by one or more of the
following  alternatives:  (i)  shorten  the  period  during  which  Options  are


                                       17
<PAGE>

exercisable  (provided  they remain  exercisable  for at least 30 days after the
date the notice is given);  (ii)  accelerate  any  vesting  schedule to which an
Option is subject; (iii) arrange to have the surviving or successor entity grant
replacement  options  with  appropriate  adjustments  in the  number and kind of
securities  and option  prices;  or (iv) cancel any Option  upon  payment to the
optionee of cash equal to the excess of the Fair  Market  Value of the number of
Shares as to which the Option is then  exercisable (at the effective time of the
merger, reorganization, sale of other event including to the extent the exercise
has been  accelerated as  contemplated  in clause (ii) above) over the aggregate
exercise price with respect to such Shares.

      Adjustments  under this Section 8 will be made by the  Committee,  and its
determination  as to  what  adjustments  to  make  will be  final,  binding  and
conclusive.  No fractional  shares of stock shall be issued under this Option on
any such adjustment.

9.  Participation  in Other  Company  Plans.  The grant of this  Option will not
affect any right you might otherwise have to participate in and receive benefits
under the then current provisions of any pension,  insurance,  or profit sharing
program of the Company or of any subsidiary of the Company.

10. Not an  Employment  or  Service  Contract.  Nothing in this  Option is to be
construed  as an  agreement,  express or  implied,  by the Company or any of its
subsidiaries  to employ you or contract for your services,  nor will it restrict
the Company's or such  subsidiary's  right to discharge you or cease contracting
for your  services  or to  modify,  extend or  otherwise  affect  in any  manner
whatsoever, the terms of any employment agreement or contract for services which
may exist between you and the Company or any of its subsidiaries.

11. No Rights as a Stockholder Until Issuance of Stock Certificate.  Neither you
nor any other person  legally  entitled to exercise this Option will be entitled
to any of the rights or privileges of a stockholder  of the Company with respect
to any shares  issuable  upon any  exercise  of this  Option  unless and until a
certificate  or  certificates  representing  the shares shall have been actually
issued and delivered.

12. Controlling Terms. In the event there is a discrepancy  between the Plan and
this Agreement,  the Plan's  provisions  shall be  controlling.  The Participant
acknowledges  receipt of a copy of the Plan, a copy of which is annexed  hereto,
and represents that he or she is familiar with the terms and provisions thereof.

13.  Governing  Law. The  interpretation,  performance  and  enforcement of this
Agreement 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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                                       18