COLLATERAL AGENT AGREEMENT

COLLATERAL AGENT AGREEMENT (this "Agreement") dated as of September 18   2009, among Ingalls & Snyder LLC (the "Collateral Agent"), and the parties identified on Schedule A hereto (each, individually, a "Lender" and collectively, the "Lenders"), who hold or will acquire a Senior Secured Note issued or to be issued by Advance Nanotech, Inc. ("Company"), a Delaware corporation, on, prior or after the date of this Agreement as described in the Security Agreement referred to in Section 1(a) below (the "Notes"). (Capitalized terms used but not defined herein shall have the meanings therefor set forth in the Security Agreement.)

WHEREAS, the Lenders have made, are making and will be making loans to Company to be secured by certain collateral described in the Security Agreement ("Collateral"); and

WHEREAS, it is desirable to provide for the orderly administration of such Collateral by requiring each Lender to appoint the Collateral Agent, and the Collateral Agent has agreed to accept such appointment and to receive, hold and deliver such collateral, all upon the terms and subject to the conditions hereinafter set forth; and

WHEREAS, it is desirable to allocate the enforcement of certain rights of the Lenders under the Notes for the orderly administration thereof.

NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the parties hereto agree as follows:

(a)   Contemporaneously with the execution and delivery of this Agreement by the Collateral Agent and the Lenders, (i) the Collateral Agent has or will have entered into a Security Agreement (the "Security Agreement") regarding the grant of a security interest by Owlstone Nanotech Inc, a Delaware corporation and subsidiary of Company ("Owlstone"), in the "Collateral" described therein to the Collateral Agent, for the benefit of the Lenders and (ii) Company is issuing the Notes to the Lenders pursuant to one or more "Subscription Agreements" dated at or about the date of this Agreement. Prior to the execution and delivery of this Agreement by the Collateral Agent and the Lenders, Company issued Senior Secured Notes dated as of April 9, 2009 and August 10, 2009, as amended (the "Prior  Notes") to one or more Lenders pursuant to one or more Subscription Agreements dated as of April 9, 2009, as amended (the "Prior Subscription Agreements"). Collectively, the Security Agreement, the Notes, the Prior Notes, the Subscription Agreements, the Prior Subscription Agreements and other agreements referred to therein are referred to herein as "Borrower Documents".

(b)   The Collateral Agent hereby acknowledges that any Collateral held by the Collateral Agent is held for the benefit of the Lenders in accordance with this Agreement and the Borrower Documents. No reference to the Borrower Documents or any other instrument or document shall be deemed to incorporate any term or provision thereof into this Agreement unless expressly so provided.

(c)           The Collateral Agent is to distribute in accordance with the Borrower Documentsany proceeds received from the Collateral which are distributable to the Lenders in proportion to their respective interests in the Obligations as defined in the Security Agreement.

The Lenders hereby appoint the Collateral Agent (and the Collateral Agent hereby accepts such appointment) to take any action including, without limitation, the registration of any Collateral in the name of the Collateral Agent or its nominees prior to or during the continuance of an Event of Default (as defined in the Borrower Documents), the exercise of voting rights upon the occurrence and during the continuance of an Event of Default, the application of any cash collateral received by the Collateral Agent to the payment of the Obligations, the making of any demand under the Borrower Documents, the exercise of any remedies given to the Collateral Agent pursuant to the Borrower Documents and the exercise of any authority pursuant to the appointment of the Collateral Agent as an attorney-in-fact pursuant to the Security Agreement that the Collateral Agent deems necessary or proper for the administration of the Collateral pursuant to the Security Agreement. Upon disposition of the Collateral in accordance with the Borrower Documents, the Collateral Agent shall promptly distribute any cash or Collateral in accordance with Section 10.4 of the applicable Security Agreement. Company and Lenders must notify Collateral Agent in writing of the issuance of the Notes to Lenders by Company. The Collateral Agent will not be required to act hereunder in connection with the Notes the issuance of which was not disclosed in writing to the Collateral Agent nor will the Collateral Agent be required to act on behalf of any assignee of the Notes without the written consent of Collateral Agent.

(a)             Certain Actions. Each of the Lenders covenants and agrees that only a Majority in Interest shall have the right, but not the obligation, to undertake the following actions (it being expressly understood that less than a Majority in Interest hereby expressly waive the following rights that they may otherwise have under the Borrower Documents):

(i)               Acceleration. If an Event of Default occurs, after the applicable cure period, if any, a Majority in Interest may, on behalf of all the Lenders, instruct the Collateral Agent to provide to Company notice to cure such default and/or declare the unpaid principal amount of the Notes to be due and payable, together with any and all accrued interest thereon and all costs payable pursuant to such Notes;

(ii)               Enforcement.