Unassociated Document


    ANNEX
      I

    TO

    BRIDGE
      LOAN AGREEMENT

    <PROTOTYPE
      FOR EACH ISSUANCE>

    


    


    FORM
      OF NOTE

    


    THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
      FOR
      SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      OR
      AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
      REGISTRATION IS NOT REQUIRED.

     

    
      	No.  06-01-
              1	
              US
                $

            


    

     

    NEAH
      POWER SYSTEMS, INC. 

    


    6%
      SECURED PROMISSORY NOTE DUE May 26, 2007

    


    THIS
      NOTE
      is one of a duly authorized issue of up to $1,550,000 of NEAH
      POWER SYSTEMS, INC.,
      a
      corporation organized and existing under the laws of the State of Nevada (the
      "Company"), designated as its 6% Secured Promissory Note Series
      06-01.

    


    FOR
      VALUE
      RECEIVED, the Company promises to pay to ____________________, the registered
      holder hereof (the "Holder"), the principal sum of ______________ Thousand
      and
      00/100 Dollars (US $__________) on the Maturity Date (as defined below) and
      to
      pay interest on the principal sum outstanding from time to time in arrears
      at
      the rate of 6% per annum (computed on the basis of the actual number of days
      elapsed and a year of 365 days), accruing from December 27 , 2006, the date
      of
      initial issuance of this Note (the “Issue Date”), to the date of payment. Such
      interest shall be payable on the date which is the earlier of (i) the Maturity
      Date, or (ii) the date of any prepayment of principal permitted hereunder.
      Accrual of interest shall commence on the Issue Date and shall continue to
      accrue on a daily basis until payment in full of the principal sum has been
      made
      or duly provided for (whether before or after the Maturity Date).

     

    
      

    

    
      
        1Insert
          unique Note number for each issuance.

         

        
          
             

          

          
            1

            
              

            

          

          
             

          

        

         

      

    

    Anything
      herein to the contrary notwithstanding, on the Initial Stated Maturity Date
      (as
      defined below) the Company shall pay the interest on the principal on this
      Note
      in an amount equal to such principal (and such payment shall constitute the
      payment of all interest on this Note through the Initial Maturity Date hereof,
      but not beyond the Initial Stated Maturity Date.

    


    This
      Note
      is being issued pursuant to the terms of the Bridge Loan Agreement, dated as
      of
      December 27, 2006 (the “Loan Agreement”), to which the Company and the Holder
      (or the Holder’s predecessor in interest) are parties. Capitalized terms not
      otherwise defined herein shall have the meanings ascribed to them in the Loan
      Agreement.

    


    This
      Note
      is subject to the following additional provisions:

    


    1. (a) The
      term
“Maturity Date” means the earliest of (i) the Stated Maturity Date (as defined
      below), (ii) the New Transaction Threshold Date (as defined below), or (iii)
      the
      accelerated date as provided in Section 12 hereof.

    


    (b) The
      term
“Stated Maturity Date” means (i) May 26, 2007 (the “Initial Stated Maturity
      Date), unless (ii) the Company gives the Holder, and the Holder receives at
      least ten (10) business days prior to the Initial Stated Maturity Date, a
      Maturity Date Extension Notice (as defined below), in which event it means
      June
      26 , 2007 (the “Extended Stated Maturity Date”). The term “Maturity Date
      Extension Notice” means a written notice of the Company’s election to extend the
      Stated Maturity Date to the Extended Stated Maturity Date; provided, however,
      that such Maturity Date Extension Notice shall be effective if, and only if,
      all
      of the following conditions are true:

    


    (X)
      there
      is no Event of Default (as defined below; but without regard to the last clause
      of Section 12(g) hereof regarding the 30-day time period for dismissal of the
      relevant petition or the vacating of the relevant order) both on the date the
      Maturity Date Extension Notice is received by the Holder and on the Initial
      Stated Maturity Date, and

    


    (Y)
      simultaneously with the giving of such Maturity Date Extension Notice, the
      Company provides to the Holder evidence that all periodic filings with the
      SEC
      have been timely made, and that the Common Stock is listed for trading on the
      OTC Bulletin Board,

     

    (Z)
      no
      later than the business day after the giving of such notice, the Company pays
      to
      the Holder (by wire transfer in accordance with instructions provided by the
      Holder), interest through the Extended Stated Maturity Date, and the amount
      equal to 2% of the outstanding principal of this Note. 

    


    (c) The
      term
“New Transaction Threshold Date” means the date, after the Issue Date, on which
      the Company consummates a financing transaction (including, but not limited
      to,
      any other bridge loan transactions; each, a “Bridge Financing”) in which the
      Company receives, on a cumulative basis after taking into account the gross
      proceeds from all prior financing transactions (including, but not limited
      to,
      any Bridge Financings), if any, after the Issue Date, gross proceeds of at
      least
      Five Hundred Thousand Dollars ($500,000.00), whether or not such transaction
      is
      effected in connection with the current or future issuance of securities. All
      such gross proceeds are determined before deduction of any fees or other
      expenses or disbursements of any kind in connection with the relevant New
      Transaction.

     

    
      
         

      

      
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    2. (a) This
      Note
      may be prepaid in whole or in part at any time prior to the Maturity Date,
      without penalty. Any payment shall be applied as provided in Section
      3.

    


    (b) TIME
      IS OF THE ESSENCE WITH RESPECT TO ANY PAYMENT DUE HEREUNDER.
      The
      Company shall be in default hereunder if any payment is not made in a timely
      manner, without any right to cure unless such right to cure is granted by the
      Holder in each instance; provided, however, that the grant of such right is
      in
      the sole discretion of the Holder and may be withheld for any reason or for
      no
      reason whatsoever.

    


    3. Any
      payment made on account of the Note shall be applied in the following order
      of
      priority: (i) first, to any amounts due hereunder other than principal and
      accrued interest, (ii) then, to accrued interest through and including the
      date
      of payment, and (iii) then, to principal of this Note. 

    


    4. All
      payments contemplated hereby to be made “in cash” shall be made in immediately
      available good funds of United States of America currency by wire transfer
      to an
      account designated in writing by the Holder to the Company (which account may
      be
      changed by notice similarly given). For purposes of this Note, the phrase “date
      of payment” means the date good funds are received in the account designated by
      the notice which is then currently effective.

    


    5. (a) Subject
      to the terms of the Loan Agreement, no provision of this Note shall alter or
      impair the obligation of the Company, which is absolute and unconditional,
      to
      pay the principal of, and interest on, this Note at the time, place, and rate,
      and in the coin or currency, as herein prescribed. This Note is a direct
      obligation of the Company.

    


    (b) Payment
      of this Note is secured pursuant to the terms of (i) a Guaranty, and (ii) the
      Security Interest Agreement, dated as of December 27, 2006, executed by the
      Subsidiary], as debtor, in favor of the Holder, as secured party, the terms
      of
      which are incorporated herein by reference. 

    


    (c) Any
      payments received by the Holder with respect to this Note or on account of
      any
      rights taken with respect to the Security Interest , the Subsidiary’s Guarantee
      (as defined below), the Subsidiary’s Security Interest Agreement, the Pledgor’s
      Guarantee (as defined below) or the Pledge Agreement shall be applied in the
      following order of priority: (i) first, to any amounts due to the Holder under
      any of the Transaction Agreements other than interest and principal on the
      Note,
      (ii) then, to accrued but unpaid interest on the Note, and (iii) then, to
      principal on the Note.

     

    
      
         

      

      
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    6. (a) (i) Each
      Pledgor (as defined below) is personally guarantying to the Holder the timely
      and full fulfillment of all of the obligations of the Company under this Note
      on
      the terms provided above and in (and as limited by) such Pledgor’s Pledgor
      Guarantee, each of which has been executed by the Pledgor in favor of, and
      delivered to, the Holder.

    


    (ii) The
      term
“Pledgor” means the
      Company, Summit
      Trading Limited and Paul Abramowitz, a shareholder of the Company, who is an
      Affiliate of the Company as of the Issue Date.

    


    (iii) The
      obligations of the Company under this Note and of each Pledgor under the
      relevant Pledgor Guarantee are secured under the terms of the Pledge Agreement,
      to which the Holder, the Agent named therein and the relevant Pledgor are
      parties (each such agreement, a “Pledge Agreement”), the terms of which are
      incorporated herein by reference, of which such Pledgor is the record and
      beneficial owner. If the Holder forecloses on any of the Pledged Shares, the
      obligations of the Company will be reduced only to the extent of the proceeds
      actually realized from such foreclosure, in the priority specified in Section
      5
      hereof.

    


    7. Except
      as
      provided in Sections 5 and 6 above or in a separate instrument signed by the
      party to be charged therewith, no recourse shall be had for the payment of
      the
      principal of, or the interest on, this Note, or for any claim based hereon,
      or
      otherwise in respect hereof, against any incorporator, shareholder, officer
      or
      director, as such, past, present or future, of the Company or any successor
      corporation, whether by virtue of any constitution, statute or rule of law,
      or
      by the enforcement of any assessment or penalty or otherwise, all such liability
      being, by the acceptance hereof and as part of the consideration for the issue
      hereof, expressly waived and released.

    


    8. The
      Holder of the Note, by acceptance hereof, agrees that this Note is being
      acquired for investment and that such Holder will not offer, sell or otherwise
      dispose of this Note except under circumstances which will not result in a
      violation of the Securities Act of 1933, as amended, or any applicable state
      Blue Sky or foreign laws or similar laws relating to the sale of
      securities.

    


    9. Any
      notice given by any party to the other with respect to this Note shall be given
      in the manner contemplated by the Loan Agreement in the section entitled
“Notices.”

     

    10. This
      Note
      shall be governed by and construed in accordance with the laws of the State
      of
      New York. Each of the parties consents to the exclusive jurisdiction of the
      federal courts whose districts encompass any part of the County of New York
      or
      the state courts of the State of New York sitting in the County of New York
      in
      connection with any dispute arising under this Agreement and hereby waives,
      to
      the maximum extent permitted by law, any objection, including any objection
      based on forum
      non coveniens,
      to the
      bringing of any such proceeding in such jurisdictions. To the extent determined
      by such court, the Company shall reimburse the Holder for any reasonable legal
      fees and disbursements incurred by the Holder in enforcement of or protection
      of
      any of its rights under any of this Note. 

     

    
      
         

      

      
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    11. JURY
      TRIAL WAIVER. The
      Company and the Holder hereby waive a trial by jury in any action, proceeding
      or
      counterclaim brought by either of the Parties hereto against the other in
      respect of any matter arising out of or in connection with this Note.


    


    12. The
      following shall constitute an "Event of Default":

    


    
      	 	
              a.

            	
              The
                Company shall default in the payment of any amount due on this Note,
                time
                being of the essence; or

            


    

    


    
      	 	
              b.

            	
              Any
                of the representations or warranties made by the Company herein,
                in the
                Loan Agreement or in any of the other Transaction Agreements shall
                be
                false or misleading in any material respect at the time made;
                or

            


    

    


    
      	 	
              c.

            	
              The
                Company shall default in any covenant herein, in the Loan Agreement
                or in
                any of the other Transaction Agreements;
                or

            


    

    


    
      	 	
              d.

            	
              There
                shall be either (i) a material breach by the Grantor Subsidiary of
                the
                terms of the Grantor Subsidiary’s Guarantee or of the Grantor Subsidiary’s
                Certificate or (ii) an Event of Default under the Security Interest
                Agreement to which the Grantor Subsidiary is a party;
                or

            


    

    


    
      	 	
              e.

            	
              Bankruptcy,
                reorganization, insolvency or liquidation proceedings or other proceedings
                for relief under any bankruptcy law or any law for the relief of
                debtors
                shall be instituted, applied for or consented to by the Company;
                or

            


    

    


    
      	 	
              f.

            	
              Any
                governmental agency or any court of competent jurisdiction at the
                instance
                of any governmental agency shall assume custody or control of the
                whole or
                any substantial portion of the properties or assets of the Company;
                or

            


    

     

    
      	 	
              g.

            	
              Bankruptcy,
                reorganization, insolvency or liquidation proceedings or other proceedings
                for relief under any bankruptcy law or any law for the relief of
                debtors
                shall be instituted against the Company without its consent or a
                trustee,
                liquidator or receiver shall be appointed for the Company or for
                a
                substantial part of its property or business without its consent,
                and the
                petition in such proceeding is not dismissed, or such appointment
                is not
                vacated, within thirty (30) days after such filing or such appointment;
                

            


    

    


    If
      an
      Event of Default shall have occurred, then, or at any time thereafter, and
      in
      each and every such case, unless such Event of Default shall have been waived
      in
      writing by the Holder (which waiver shall not be deemed to be a waiver of any
      subsequent default) at the option of the Holder and in the Holder's sole
      discretion, the Holder may consider this Note immediately due and payable (and
      the Maturity Date shall be accelerated accordingly), without presentment,
      demand, protest or notice of any kinds, all of which are hereby expressly
      waived, anything herein or in any note or other instruments contained to the
      contrary notwithstanding, and interest shall accrue on the total amount due
      (the
“Default Amount”) on the date of the Event of Default (the “Default Date”) at
      the rate of 18% per annum or the maximum rate allowed by law, whichever is
      lower, from the Default Date until the date payment is made, and the Holder
      may
      immediately enforce any and all of the Holder's rights and remedies provided
      herein or any other rights or remedies afforded by law. 

     

    
      
         

      

      
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    13. In
      the
      event for any reason, any payment by or act of the Company or the Holder shall
      result in payment of interest which would exceed the limit authorized by or
      be
      in violation of the law of the jurisdiction applicable to this Note, then
ipso
      facto
      the
      obligation of the Company to pay interest or perform such act or requirement
      shall be reduced to the limit authorized under such law, so that in no event
      shall the Company be obligated to pay any such interest, perform any such act
      or
      be bound by any requirement which would result in the payment of interest in
      excess of the limit so authorized. In the event any payment by or act of the
      Company shall result in the extraction of a rate of interest in excess of a
      sum
      which is lawfully collectible as interest, then such amount (to the extent
      of
      such excess not returned to the Company) shall, without further agreement or
      notice between or by the Company or the Holder, be deemed applied to the payment
      of principal, if any, hereunder immediately upon receipt of such excess funds
      by
      the Holder, with the same force and effect as though the Company had
      specifically designated such sums to be so applied to principal and the Holder
      had agreed to accept such sums as an interest-free prepayment of this Note.
      If
      any part of such excess remains after the principal has been paid in full,
      whether by the provisions of the preceding sentences of this Section or
      otherwise, such excess shall be deemed to be an interest-free loan from the
      Company to the Holder, which loan shall be payable immediately upon demand
      by
      the Company. The provisions of this Section shall control every other provision
      of this Note.

    


    IN
      WITNESS WHEREOF, the Company has caused this instrument to be duly executed
      by
      an officer thereunto duly authorized this 27th day of December,
      2006.

     

     

    NEAH
      POWER SYSTEMS, INC.

    


    By:_______________________________________

    


    __________________________________________

    (Print
      Name)

    _________________________________________ 

    (Title)