EXECUTION
VERSION
 
 NEAH
POWER SYSTEMS, INC.
 
 SECURITIES PURCHASE
AGREEMENT
  This
Securities Purchase Agreement (this “Agreement”)
is made as of February 12, 2009 by and between (i) Neah Power Systems, Inc., a
Nevada corporation (the “Company”),
and (ii) Agile Opportunity
Fund, LLC, a Delaware limited liability company (“Agile”),
and Capitoline Advisors
Inc., a New York corporation (“Capitoline”;
together with Agile, the “Investors”,
each an “Investor”).
 
 In
consideration of the mutual covenants and agreements set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
 
 1.           Purchase
and Sale of Securities.
  1.1           Sale and
Issuance of Notes.Subject to the
terms and conditions of this Agreement and in reliance on the representations
and warranties set forth or referred to herein, the Company hereby agrees to
sell and issue to the Investors, and the Investors hereby severally agree (and
not jointly) to purchase from the Company, (i) at the Initial Closing (as
hereinafter defined), Original Issue Discount Term Convertible Promissory Notes
in the aggregate face amount of $262,500.00 for an aggregate purchase price of
$225,000.00 (the “Initial
Notes Purchase Price”), such Promissory Notes to be in the form attached
hereto as Exhibit A,
each of the Investors purchasing the amount of Initial Notes set forth on Schedule
1.1 hereto (the "Initial
Notes") with a maturity date of August 12, 2009 (the “Maturity
Date”), and (ii) at each Investor’s sole, absolute and several
discretion, at the Subsequent Closing (as hereinafter defined), Original Issue
Discount Term Promissory Notes in the maximum aggregate face amounts of
$787,500.00 for a maximum aggregate purchase price of $675,000.00 (the “Additional
Notes Purchase Price”), each such Promissory Note to be substantially in
the form attached hereto as Exhibit B
and having the same Maturity Date as the Initial Notes, each of the Investors
severally purchasing up to the maximum amount of Additional Notes set forth on
Schedule
1.1 hereto, the exact amount so purchased by each Investor to be
determined by such Investor in its sole, absolute and several discretion (the
“Additional
Notes”; collectively with the Initial Notes, the “Notes”).
  1
 1.2           Initial
Closing.  The closing of
the purchase, sale and issuance of the Initial Notes shall take place at the
offices of Westerman Ball Ederer Miller & Sharfstein, LLP, legal counsel to
Agile (“WBEMS”),
170 Old Country Road, Fourth Floor, Mineola, New York 11501, simultaneous with
the execution hereof (the "Initial
Closing").  At the Initial Closing, (i) the Company will
deliver to each Investor its duly executed Initial Note to be delivered thereat
pursuant to Section
1.1(i) hereof against delivery by such Investor to the Company of its
Initial Notes Purchase Price by wire transfer of the amount thereof to the
Company’s account or by such other method agreed to between the Investors and
the Company, (ii) the Company shall execute a Security Agreement in favor of the
Investors granting to the Investors a first priority security interest in the
“Collateral” referred to therein in the form of Exhibit C
attached hereto (the “Security
Agreement”), (iii) the Company shall execute a Patent Security Agreement
in favor of the Investors granting to the Investors a first priority security
interest in the “Collateral” referred to therein in the form of Exhibit D
attached hereto (the “Patent
Security Agreement”), (iv) the Company shall cause to be delivered to the
Investors any other Securities to be delivered thereat pursuant to any other
Loan Documents, and (v) the Company shall pay to the Investors the amount of
interest payable on the Initial Notes pursuant to the terms of the Initial
Notes.
  1.3           Subsequent
Closing.  On such date as
may be agreed to between the Company and the Investors, but not later than
February 27, 2009, the closing of the purchase, sale and issuance of Additional
Notes shall take place at the offices of WBEMS (the “Subsequent
Closing”).  At the Subsequent Closing, (i) the Company shall
deliver to each Investor its duly executed Additional Note to be delivered
thereat pursuant to Section
1.1(ii) hereof against delivery by such Investor to the Company of the
Additional Notes Purchase Price therefor by wire transfer of the amount thereof
to the Company’s account or by such other method agreed to between the Investors
and the Company, (ii) the Company shall cause to be delivered to the Investors
any other Securities to be delivered thereat pursuant to any other Loan
Documents and (iii) the Company shall pay to the Investors the amount of
interest payable on the Additional Notes pursuant to the terms of the Additional
Notes.  For the purpose of clarification, the Subsequent Closing shall
take place at the sole, absolute and several discretion of each Investor, it
being specifically contemplated and acknowledged that should only one Investor
choose to proceed with the Subsequent Closing, such Investor and the Company may
do so without any obligation of the other Investor to do so.
  1.4           Monitoring
Fees.  On the thirtieth
(30th) day
after the Subsequent Closing  and on every thirtieth (30th) day
thereafter (each, a “Monitoring
Fee Date”) for a total of six (6) consecutive thirty (30) day periods and
Monitoring Fee Dates, a calculation shall be made of the aggregate dollar volume
of Common Stock traded on the Principal Trading Market during the thirty (30)
days preceding the applicable Monitoring Fee Date (the “Calculated
Monthly Dollar Volume Traded”).  If on any such Monitoring Fee
Date, the Calculated Monthly Dollar Volume Traded was less than $75,000.00, then
the Company shall immediately pay to the Investors a monitoring fee of $7,500.00
for such Monitoring Fee Date (as between the Investors, such monitoring fee to
be divided in proportion to the aggregate amount of Notes purchased by
them).
  1.5           Other
Fees and Expenses.
  (a)           At
the Initial Closing, the Company shall pay all fees due to third party agents
and expenses incurred by the Investors and Agile Investments, LLC in connection
with the transactions contemplated hereunder, including, without limitation, (i)
the legal fees and expenses of corporate counsel to the Investors incurred in
connection with the preparation of this Agreement and the consummation of the
transactions contemplated hereby, which amount of legal fees is agreed to be
$15,000 plus expenses of patent counsel and filing fees, (ii) $12,625 payable to
Agile Investments, LLC for due diligence, structuring and monitoring fees and
(iii) a finder’s fee of $11,250 payable to Cresta Capital Strategies,
LLC.
  (b)           At
the Subsequent Closing, the Company shall pay (i) the patent counsel and filing
fees not otherwise paid at the Initial Closing, (ii) a finder’s fee of $11,250
to Cresta Capital Strategies, LLC and (iii) an aggregate of $37,875 in due
diligence and structuring fees to Agile Investments, LLC and Capitoline (and as
between them in proportion to the amount of Additional Notes purchased by Agile
and Capitoline at the Subsequent Closing); such fees to be reduced
proportionately in the event that less than the maximum amount of Additional
Notes are so purchased.
  2
 1.6           Defined
Terms Used in this Agreement.  In addition to
the terms defined elsewhere in this Agreement, the following terms used in this
Agreement shall be construed to have the meanings set forth below.
  “Approvals”
means, collectively, all actions, approvals, consents, waivers, exemptions,
Orders, authorizations, registrations, declarations, filings and
recordings.
 
 “Business
or Condition” of the Company means the business, operations, assets,
properties, earnings, prospects or condition (financial or other) of the
Company.
 
 “Common
Stock” means the common stock of the Company, par value $0.001 per
share.
  “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
  “Free
Trading Stock” means shares of Common Stock that may be immediately
freely sold into the public markets for the Common Stock on the Principal
Trading Market free of any restrictions on transfer under the Securities Act and
which are otherwise freely transferable on the books and records of the
Company.
  “Governmental
Body” means any federal, state, municipal, local or other governmental
department, commission, board, bureau, agency, instrumentality, political
subdivision or taxing authority, of any country.
 
 “Intellectual
Property” any patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, copyrights,
manufacturing processes, formulae, trade secrets and know-how of a
Person.
 
 “Last
Audited Date” means December 31, 2007.
 
 “Loan
Documents” means, collectively, this Agreement, the Security Agreement,
the Patent Security Agreement, the Notes and all other documents, certificates
and instruments delivered in connection therewith.
 
 “Material
Adverse Change; Material Adverse Effect; Materially Adverse” in, on or
with respect to, the Company, shall mean a material adverse change in the
Company’s Business or Condition, a material adverse effect on the Company’s
Business or Condition or an event which is materially adverse to the Company's
Business or Condition.
 
 “Order”
means any order, writ, injunction, decree, judgment, award, determination,
direction or demand by a Governmental Body, arbitrator or court.
 
 3
 “Person”
means any individual, corporation, association, partnership, joint venture,
limited liability company, trust or estate, organization, business, government
or agency or political subdivision thereof, or any other entity.
 
 “Principal
Trading Market” means the OTC Bulletin Board or such other market on
which the Common Stock is principally traded at the relevant time.
 
 “Restricted
Stock” means shares of Common Stock that may not be immediately sold
except pursuant to an exemption from registration under the Securities
Act.
 
 “Sale of
the Company” means either (i) the sale, lease, transfer, conveyance
or other disposition, in one or a series of related transactions, of all or
substantially all of the assets of the Company or (ii) a transaction or
series of transactions (including, without limitation, by way of merger,
consolidation, or sale of equity) the result of which is that the holders of the
Company’s outstanding voting securities immediately prior to such transactions
are after giving effect to such transactions no longer, in the aggregate, the
“beneficial owners” (as such term is defined in Rule 13d-3 and
Rule 13D-5 promulgated under the Exchange Act), directly or indirectly
through one or more intermediaries, of more than 50% of the voting power of the
outstanding voting securities of the Company.
 
 “SEC”
means the Securities and Exchange Commission.
  “SEC
Documents” means all reports, documents and other filings made by the
Company with the SEC and available via SEC’s EDGAR online electronic document
retrieval system.
  “Securities”
means the Notes and all shares of Common Stock that are or may be issued to the
Investors under any of the Loan Documents.
  “Securities
Act” means the Securities Act of 1933, as amended.
  1.7           Beneficial
Ownership Limitations.
  (a)           Notwithstanding
anything to the contrary contained herein, at no time shall either Investor
together with any “affiliates” of the Investor (as defined in the Exchange Act)
“beneficially own” enough shares of Common Stock to be deemed an “affiliate” of
the Company within the meaning of the Exchange Act (a “Company
Affiliate”).  Accordingly, each Investor (and its affiliates)
will not convert any portion of the Notes issued to it in violation of the
foregoing.  In addition, to the extent any shares of Common Stock
issuable or deliverable to an Investor pursuant to any Loan Document would cause
the Investor to be deemed a Company Affiliate in violation of the foregoing
sentence, the Company shall not issue or cause to be delivered such shares of
Common Stock to the Investor and the Investor shall not request the issuance or
delivery thereof; provided, however, that the
Company shall reserve out of its authorized share capital, sufficient shares of
Common Stock to permit it to issue such shares but for the foregoing provisions
of this Section 1.7 (“Reserved
Shares”).
  4
 (b)           At
such time as an Investor determines that the issuance or delivery of Reserved
Shares to it can be made without violating the first sentence of Section 1.7(a)
hereof, then the Investor may request that the Company issue and deliver such
number of Reserved Shares as the Investor determines it can so receive without
being deemed a Company Affiliate and which it so requests (an “Issuance
Request”) and the Company shall comply with such Issuance Request as soon
as possible thereafter; provided, however, that
notwithstanding the foregoing provisions of this Section 1.7, should the
Investor in its sole discretion determine that it may be deemed a Company
Affiliate prior to the issuance or delivery of the Reserved Shares, the Issuance
Request shall specify that the Reserved Shares so requested not be issued or
delivered prior to 61 days after such Issuance Request is made (and the
provisions of Section 1.7(a) shall continue to apply until the actual issuance
or delivery thereof).
  (c)           To
the extent that the limitation contained in this Section 1.7 applies, the
determination of whether a Note is convertible (in relation to other securities
owned by the Investor) and of which portion of a Note is convertible or that
Reserved Shares are issuable or deliverable and how many such Reserved Shares
are issuable or deliverable shall be in the sole discretion of such
Investor.  To ensure compliance with this restriction, the Investor
will be deemed to represent to the Company each time it delivers a Notice of
Conversion under a Note or an Issuance Request that such Notice of Conversion or
Issuance Request has not violated the restrictions set forth in this Section 1.7
and the Company shall have no obligation to verify or confirm the accuracy of
such determination.  For purposes of this Section 1.7, in determining
the number of outstanding shares of Common Stock, an Investor may rely on the
number of outstanding shares of Common Stock as reflected in (x) the Company’s
most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of an Investor, the Company
shall within two business days confirm orally and in writing to an Investor the
number of shares of Common Stock then outstanding.  In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company by such Investor or its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
  2.           Representations
and Warranties of the Company.  The Company
hereby represents and warrants to the Investors that:
  2.1           Organization,
Good Standing and Qualification.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority to
carry on its business as presently conducted or proposed to be
conducted.  The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure so to qualify would
have a Material Adverse Effect.  The Company has registered its Common
Stock and is obligated to file reports pursuant to Section 12 or Section 15(d)
of the Exchange Act.  The Common Stock is quoted on the Principal
Trading Market.  The Company has received no notice, either oral or
written, with respect to the eligibility or the continued eligibility of the
Common Stock for such quotation on the Principal Trading Market, and the Company
has maintained all requirements on its part for the continuation of such
quotation.
  5
 2.2           Capitalization.  As of immediately
prior to the Closing, the authorized capital stock of the Company consists
solely of (i) 500,000,000 shares of Common Stock, of which 230,374,275 shares
are issued and outstanding, and (ii) 25,000,000 shares of Preferred Stock, par
value $.001 per share, of which 10,000,000 shares are authorized as shares of
Series A Preferred Stock, of which 23,532,600 shares are issued and outstanding
and are convertible into an aggregate of 627,614,442 shares of Common
Stock.  All of the outstanding shares of Common Stock have been duly
authorized, are fully paid and nonassessable.  Except as set forth on
Schedule
2.2, the Beneficial Ownership Table contained in the latest periodic
filing made by the Company with the SEC under the Exchange Act, is accurate and
complete as of the date hereof.  Except as set forth on such
Beneficial Ownership table, in the preceding sentences of this Section 2.2 or on
Schedule
2.2, there are no options, warrants, subscriptions, conversion rights or
securities exchange rights or other securities or other contractual rights
outstanding which require, or give any person the right to require the issuance,
delivery or sale (including the right of conversion or exchange) of any capital
stock of the Company whether or not such rights are presently
exercisable.
  2.3           Authorization.  All corporate
action on the part of the Company necessary for the authorization, execution and
delivery of this Agreement, and the authorization, issuance and delivery of the
Securities has been taken and each of the Loan Documents, when executed and
delivered by the Company and assuming due execution and delivery by the
Investors, shall constitute a valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally, and as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
  2.4           Valid
Issuance of Securities.  The Securities
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under applicable state and federal securities laws, except for Free
Trading Stock which shall be free of all restrictions on transfer under
securities laws.
  2.5           Consents
and Approvals.  No Approval by,
from or with and no other action in respect of, any Governmental Body or any
other Person (including any trustee or holder of any indebtedness, securities or
other obligations of the Company) is required (a) for or in connection with the
valid execution and/or delivery by the Company of or the performance by the
Company of its obligations under the Loan Documents or the consummation by the
Company of the transactions contemplated thereby, including the offer, issuance,
sale and delivery by the Company of the Securities, or (b) as a condition to the
legality, validity or enforceability as against the Company and the Subsidiaries
of the Loan Documents.
  2.6           Intellectual
Property.  The Company represents and warrants that it has full
right, title and interest in and to, or otherwise has the right to license its
Intellectual Property.  Schedule
2.6 identifies the Company’s material Intellectual Property. To the best
of the Company's knowledge, no claim is pending nor has the Company received
notice to the effect that its Intellectual Property infringes or will infringe
upon or conflict with the asserted rights of any other Person, and to the best
of the Company’s knowledge, there is no basis for any such claim (whether or not
pending or threatened).  Except as set forth on Schedule
2.6, there are no outstanding options, licenses, or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses, or agreements of any kind with respect to its Intellectual
Property.  The Company is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner of or licensor or other claimant to its Intellectual
Property.  No claim is pending or, to the Company's knowledge,
threatened to the effect that the Intellectual Property is invalid or
unenforceable by the Company, and there is no basis for any such claim (whether
or not pending or, to the Company's knowledge, threatened).
  6
 2.7           Subsidiaries.  The Company does
not own or control, directly or indirectly, any interest in any other company or
subsidiary and none of them is a participant in any joint venture, partnership
or similar arrangement.
  2.9           Disclosure.No representation
or warranty of the Company contained in this Agreement, any certificate or
document furnished or to be furnished to the Investors at the Initial or
Subsequent Closing or the Financial Statements contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statement contained herein or therein not misleading in light of the
circumstances under which they were made.
  2.10           Rights of
Others Affecting the Transactions.There are no
preemptive rights of any shareholder of the Company, as such, to acquire the
Notes or any shares of stock that may be issued to the Investors or its
designees in connection with any agreements between the parties
hereto.  No party other than an Investor has a currently exercisable
right of first refusal which would be applicable to any or all of the
transactions contemplated by the Loan Documents.
 
 2.11           Non-contravention.The execution and
delivery of this Agreement and each of the other Loan Documents by the Company,
the issuance of the Securities, and the consummation by the Company of the
transactions contemplated by this Agreement and each of the other Loan Documents
do not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i) the certificate of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, or (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, except such conflict, breach or default which would not have or
result in a Material Adverse Effect.
 
 2.12           Filings.  None of the
Company’s SEC Documents contained, at the time they were filed, any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements made therein in light of
the circumstances under which they were made, not misleading.  Except
for its Annual Report for the year ended September 30, 2008, since August 19,
2008, the Company has timely filed all requisite forms, reports and exhibits
thereto, if any, required to be filed by the Company with the SEC.
 
 7
 2.13           Absence
of Certain Changes.  Since the Last
Audited Date, there has been no material adverse change and no Material Adverse
Effect, except as disclosed in the Company’s SEC Documents. Since the Last
Audited Date, except as provided in the Company’s SEC Documents, the Company has
not (i) incurred or become subject to any material liabilities (absolute or
contingent) except liabilities incurred in the ordinary course of business
consistent with past practices; (ii) discharged or satisfied any material lien
or encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary course of
business consistent with past practices; (iii) declared or made any payment or
distribution of cash or other property to shareholders with respect to its
capital stock, or purchased or redeemed, or made any agreements to purchase or
redeem, any shares of its capital stock; (iv) sold, assigned or transferred any
other tangible assets, or canceled any debts owed to the Company by any third
party  or claims of the Company against any third party, except in the
ordinary course of business consistent with past practices; (v) waived any
rights of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of existing business; (vi) made any
increases in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
 
 2.14           Absence
of Litigation.  There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company, threatened
against or affecting the Company before or by any governmental authority or
nongovernmental department, commission, board, bureau, agency or instrumentality
or any other person, wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, any of the Loan Documents.  The Company is not
aware of any valid basis for any such claim that (either individually or in the
aggregate with all other such events and circumstances) could reasonably be
expected to have a Material Adverse Effect. There are no outstanding or
unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to
which the Company is a party or by which it or any of its properties is bound,
that involve the transaction contemplated herein or that, alone or in the
aggregate, could reasonably be expect to have a Material Adverse
Effect.
 
 2.15           Absence
of Events of Default.  The Company is
not in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material indenture, mortgage,
deed of trust or other material agreement to which it is a party or by which its
property is bound, and (ii) no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a Material Adverse
Effect.
 
 8
 2.16           No
Undisclosed Liabilities or Events.  To the best of
the Company’s knowledge, the Company has no liabilities or obligations other
than those disclosed in the Loan Documents or the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since the Last
Audited Date, or which individually or in the aggregate, do not or would not
have a Material Adverse Effect. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or
disclosed.  There are no proposals currently under consideration or
currently anticipated to be under consideration by the Board of Directors or the
executive officers of the Company which proposal would (x) change the articles
or certificate of incorporation or other charter document or by-laws of the
Company, each as currently in effect, with or without shareholder approval,
which change would reduce or otherwise adversely affect the rights and powers of
the shareholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.
 
 2.17           No
Integrated Offering.  Neither the
Company nor any of its Affiliates nor any Person acting on its or their behalf
has, directly or indirectly, at any time since February 12, 2008, made any offer
or sales of any security or solicited any offers to buy any security under
circumstances that would eliminate the availability of the exemption from
registration under Regulation D in connection with the offer and sale of the
Securities as contemplated hereby.
 
 2.18           Fees to
Brokers, Finders and Others.  Except as
specifically contemplated in this Agreement, the Company has taken no action
which would give rise to any claim by any Person for brokerage commission,
finder's fees or similar payments by the Investors relating to this Agreement or
the transactions contemplated hereby.  Investors shall have no
obligation with respect to any such fees or with respect to any claims made by
or on behalf of other Persons for fees of a type contemplated in this paragraph
that may be due in connection with the transactions contemplated
hereby.  The Company shall indemnify and hold harmless each Investor,
its employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses suffered in respect of
any such claimed or existing fees, as and when incurred.
 
 2.19           Full
Disclosure.  To the best of
the Company’s knowledge, there is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company’s SEC Documents) that has not been disclosed in writing to the Investors
that would reasonably be expected to have or result in a Material Adverse
Effect.
 
 2.20           Confirmation.  The Company
confirms that all statements of the Company contained herein shall survive
acceptance of this Agreement by the Investors.  The Company agrees
that, if any events occur or circumstances exist prior to the Subsequent Closing
Date which would make any of the Company’s representations, warranties,
agreements or other information set forth herein materially untrue or materially
inaccurate as of such date, the Company shall immediately notify the Investors
in writing prior to such date of such fact, specifying which representation,
warranty or covenant is affected and the reasons therefor.
 
 9
 A breach
of any of the representations and warranties in this section, shall be deemed a
material breach of this Agreement and shall constitute an Event of Default (as
defined in the Loan Documents) and the Investors shall be entitled to exercise
all remedies available to them under the Loan Documents.
 
 3.           Representations
and Warranties of the Investors.  Each of the
Investors hereby severally represents and warrants to the Company as to itself
that:
  3.1           Authorization.The Investor has
full power and authority to enter into this Agreement.  This
Agreement, when executed and delivered by the Investor, assuming due execution
and delivery by the other parties hereto, will constitute a valid and legally
binding obligation of the Investor, enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and any other laws of general application
affecting enforcement of creditors’ rights generally, and as limited by laws
relating to the availability of a specific performance, injunctive relief, or
other equitable remedies.
  
 3.2           Accredited
Investor.The Investor is
(i) an “accredited investor” as that term is defined in Rule 501 of the General
Rules and Regulations under the Securities Act, (ii) experienced in making
investments of the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of its officers
(if an entity) and professional advisors (who are not affiliated with or
compensated in any way by the Company or any of its Affiliates or selling
agents), to protect its own interests in connection with the transactions
described in this Agreement, and the related documents, and to evaluate the
merits and risks of an investment in the Securities, and (iv) able to afford the
entire loss of its investment in the Securities.
  3.3           Restricted
Securities.  The Investor
understands that the Notes and the Restricted Stock are “restricted securities”
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, the Investor must hold the Notes indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available.
  4.           Miscellaneous.
  4.1           Registration
Rights.  Each time the Company proposes to register any of its
securities under the Securities Act whether for its own account or for the
account of holders of its securities or both (except with respect to
registration statements on Forms S-4, S-8 or any successor or similar form or
“Rule 145” transactions), it shall include in the registration initiated by the
Company (i) all of the shares of Restricted Stock issued to the Investors under
any Loan Documents and (ii) all shares of Common Stock into which the Notes may
be convertible or have been converted (collectively, "Registrable
Stock").  If any particular registration to be effected
pursuant to this Section
4.1 shall be, in whole or in part, an underwritten public offering of
Common Stock for the account of the Company, the number of shares of Registrable
Stock to be included in such an underwriting on behalf of the Investor may be
reduced if, and to the extent that, the managing underwriter shall be of the
opinion (a written copy of which shall be delivered to the Investor) that the
inclusion of all of the shares of Registrable Stock requested to be included in
such underwriting by the Investor would materially and adversely affect the
marketing of the Common Stock to be sold by the Company under such registration
statement.  The Company shall comply with all legal requirements to
maintain “evergreen” any registration statement that includes any Registrable
Stock for so long as any Notes are outstanding or any Registrable Stock is
outstanding that has not yet been sold thereunder.
 
 10
 4.2           Use of
Proceeds.The parties agree
that the net proceeds from the issuance of the Notes will be used as set forth
on Schedule
4.2.
 
 4.3           Certain
Agreements and Covenants.The Company
hereby covenants with the Investors that (i) an agreement with a market
awareness firm to perform investor and public relations services for the Company
shall be entered into by the Company on or prior to February 27, 2009 and shall
remain in full force and effect until the Notes have been repaid in full, (ii)
that the Company’s cancelled Agreement and Plan of Merger with SolCool One, LLC
dated November 26, 2008 will be re-entered into by the Initial Closing Date and
closed subsequent thereto as soon as reasonably possible, (iii) that all other
items listed as “Conditions to Closing” pursuant to that certain Term Sheet
among the parties hereto and dated January 26, 2009 have been or will be
delivered to the Investors on or prior to the Subsequent Closing Date and (iv)
that the Company shall, if requested by any Investor, deliver to the Investors a
legal opinion of Company counsel, such counsel and opinion as are acceptable to
the Investors, on or prior to the Subsequent Closing, which opinion shall be
with respect to such matters as such Investor may request.
  4.4           Agent.
  (a) Authorization of
Action.  Each Investor hereby appoints and authorizes Agile
Opportunity Fund, LLC  (the “Agent”) to be its agent in its name and
on its behalf and to exercise such rights or powers granted to the Agent or the
Investors (i) under the Loan Documents to the extent specifically provided
therein and on the terms thereof, together with such rights, powers and
discretions as are reasonably incidental thereto.  As to any matters
not expressly provided for by the Loan Documents, the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Investors, and any action
so taken or not so taken by the Agent shall be binding upon all the Investors;
provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
liability in such capacity, which could result in the Agent incurring any costs
and expenses or which is contrary to this Agreement or applicable
law.
  (b) Indemnification.  Each
Investor hereby agrees to indemnify and hold harmless the Agent from and against
any and all liabilities, obligations, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent (in its capacity
as agent for the Investors) in any way relating to or arising out of the Loan
Documents or any action taken or admitted by the Agent under or in respect of
the Loan Documents; provided that no Investor shall be liable for any portion of
such liabilities, obligations, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent’s gross negligence or
willful misconduct.  Without limiting the generality of the foregoing,
each Investor agrees to reimburse the Agent promptly upon demand on a pro rata
basis in accordance with the then outstanding indebtedness, liabilities and
obligations owing to such Investor by the Company in respect of any
out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preservation of any rights of the Agent or the Investors
under, the enforcement of, or legal advice in respect of the rights or
responsibilities under, the Loan Documents, to the extent that the Agent is not
reimbursed for such expenses by the Company.
  11
 (c) Successor
Agent.  The Agent may, as hereinafter provided, resign at any
time by giving not less than 30 days’ written notice thereof to the Investors
and the Company. Upon any such resignation, the Investors shall have the right
to appoint a successor Agent (the “Successor
Agent”).  Upon the acceptance of any appointment as Agent
hereunder by a Successor Agent, such Successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall thereupon be discharged from its
further duties and obligations as Agent under the Loan Documents. After any
retiring Agent’s resignation hereunder as Agent, the provisions of this Section
shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under the Loan Documents.   Absent
such a resignation by the Agent, the Agent’s appointment shall continue until
revoked in writing by Investors holding 75% of the outstanding principal amount
of the Notes, at which time such Investors shall appoint a new
Agent.
  (d) Taking and Enforcement of
Remedies.  Each of the Investors hereby acknowledges that, to
the extent permitted by applicable law, the remedies provided under the Loan
Documents to the Investors are for the benefit of the Investors collectively and
acting together and not severally and further acknowledges that its rights under
the Loan Documents are to be exercised not severally, but collectively by the
Agent upon the decision of the Investors; accordingly, notwithstanding any of
the provisions contained in any of the Loan Documents, each of the Investors
hereby covenants and agrees that it shall not be entitled to take any action
with respect to the Loan Documents, including, without limitation, any
acceleration of the indebtedness, liabilities or obligations of the Company, but
that any such action shall be taken only by the Agent with the consent of the
Investors, provided that, notwithstanding the foregoing:
  (i)           in
the absence of instructions from the Investors, the Agent may without notice to
or consent of the Investors take such action on behalf of the Investors as it
deems appropriate or desirable in the interest of the Investors;
  (ii)           the
commencement of litigation before any court shall be made in the name of each
Investor individually unless the laws of the jurisdiction of such court permit
such litigation to be commenced in the name of the Agent on behalf of the
Investors (whether pursuant to a specific power of attorney in favor of the
Agent or otherwise) and the Agent agrees to commence such litigation in its
name; provided,
however, that
no litigation shall be commenced in the name of any Investor without the prior
written consent of such Investor; and
  12
 (iii)         
each of the Investors hereby further covenants and agrees that upon any such
written consent being given by the Investors, they shall co-operate fully with
the Agent to the extent requested by the Agent in the collective realization,
including, without limitation, the appointment of a receiver and manager to act
for their collective benefit; and each Investor covenants and agrees to do all
acts and things to make, execute and deliver all agreements and other
instruments, including, without limitation, any instruments necessary to effect
any registrations, so as to fully carry out the intent and purpose of this
Section; and each of the Investors hereby covenants and agrees that it has not
heretofore and shall not seek, take, accept or receive any security for any of
the obligations and liabilities of the Company under the Loan Documents or under
any other document, instrument, writing or agreement ancillary thereto other
than such security as is provided hereunder and shall not enter into any
agreement with the Company relating in any manner whatsoever to the transactions
contemplated hereunder, unless all of the Investors shall at the same time
obtain the benefit of any such security or agreement, as the case may
be.
  Notwithstanding
any other provision contained in the Loan Documents, no Investor shall be
required to be joined as a party to any litigation commenced against the Company
by the Agent under the Loan Documents (unless otherwise required by any court of
competent jurisdiction) if it elects not to be so joined in which event any such
litigation shall not include claims in respect of the rights of such Investor
against the Company under the Loan Documents until such time as such Investor
does elect to be so joined; provided that if at the time of such subsequent
election it is not possible or practicable for such Investor to be so joined,
then such Investor may commence proceedings in its own name in respect of its
rights against the Company.
  4.4           Successors
and Assigns.  This Agreement
may not be assigned by the Company without the prior written consent of the
Investors.  The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted
assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.  This Agreement may be assigned by each of
the Investors without the prior consent of the Company.
  4.5           Governing
Law.  This Agreement
and all acts and transactions pursuant hereto and the rights and obligations of
the parties hereto shall be governed, construed and interpreted in accordance
with the laws of the State of New York, without giving effect to principles of
conflicts of law.  Each of the parties hereto submits to the personal
jurisdiction of and each agrees that all proceedings relating hereto shall be
brought in federal or state courts located within New York County in the State
of New York.
  13
 4.6           Counterparts.  This Agreement
may be executed in any number of counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument.
  4.7           Titles
and Subtitles.  The titles and
subtitles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
  4.8           Notices.  Any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier or
sent by fax (upon customary confirmation of receipt), or 48 hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party’s address as set
forth on the signature page hereto, or as subsequently modified by written
notice, and if to any of the Investors, with a copy to Westerman Ball Ederer
Miller and Sharfstein, LLP, 170 Old Country Road, Suite 400, Mineola, New
York 11501, Attn: Alan C. Ederer, Esq., and if to the Company, with a copy to
Seyfarth Shaw LLP, 975 F Street, N.W., Washington, D.C. 20004, Attn: Ernest M.
Stern, Esq.
  4.9           Confidentiality.  This Agreement
and each of the Loan Documents is confidential, and none of their provisions or
terms shall be disclosed to anyone who is not an Investor or an officer or
director of the Company or their agents, advisers, investors or legal counsel,
unless required by law.  Further, prior to any time that the Company
discloses the existence of this Agreement, any of the Loan Documents or any of
their contents as may be required by law, including pursuant to securities laws,
Agile shall be provided an advance copy of the proposed disclosure and an
opportunity to comment thereon and the Company shall use its best efforts to
incorporate Agile’s comments thereon, if any, in such disclosure.
  4.10         Reimbursement
of Expenses.  The Company shall
reimburse the Investors for any reasonable legal fees and disbursements incurred
by the Investors in enforcement of or protection of any of its rights under this
Agreement, any of the Notes or any other Loan Document.
 
 4.11         Entire
Agreement.  This Agreement
constitutes the entire agreement between the parties hereto pertaining to the
subject matter hereof, and any and all other written or oral agreements relating
to the subject matter hereof existing between the parties hereto are expressly
canceled unless specifically incorporated herein.  This Agreement may
be modified or amended only with the written consent of all of the parties
hereto.
  [Remainder of Page
Intentionally Left Blank; Signature Page Follows]
  14
 
 IN
WITNESS WHEREOF, the parties have duly executed this Securities Purchase
Agreement as of the date first written above.
  NEAH
      POWER SYSTEMS, INC.By:Name:
      Chris D’CoutoTitle:
      CEOAddress:22122
      20th Avenue SE, Suite 142Bothell,
      WA 98021AGILE
      OPPORTUNITY FUND, LLCBy:
      AGILE INVESTMENTS, LLC, Managing MemberBy:Name:
      David I. PropisTitle:
      Managing MemberAddress:1175
      Walt Whitman Road, Suite 100AMelville,
      NY 11747CAPITOLINE
      ADVISORS INC.By:Name:Title:Address:570
      Lexington Ave., 22nd FloorNew
      York, NY
10022
 
 
 15
 SCHEDULE
1.1
 
 NOTES PURCHASED AT INITIAL
CLOSING;
 MAXIMUM NOTES TO BE
PURCHASED AT SUBSEQUENT CLOSING
 
 
 Investor
              Initial Closing
              Subsequent ClosingPurchase Price
              Face Amount of Notes
              Purchase Price
              Face Amount of NotesAgile
      Opportunity Fund, LLC
              $225,000
              $262,500
              $225,000
              $262,500Capitoline
      Advisors Inc.
              $0
              $0
              $450,000
              $525,000TOTAL
              $225,000
              $262,500
              $675,000
              $787,500
     
 16
 SCHEDULE
2.2
 
 CAPITALIZATION
EXCEPTIONS
 
  
   17
 
   18
  19
 SCHEDULE
2.6
 
 INTELLECTUAL
PROPERTY
 
  
   20
 
  21
 SCHEDULE
4.2
 
 USE OF
PROCEEDS
 
 The net
proceeds to the Company from the issuance and sale of the Notes will be
used  as follows: (i) $50,000 of net proceeds from the Initial Closing
and $100,000 of net proceeds from the Subsequent Closing shall be used for the
purchase of SolCool One, LLC (“SolCool”) pursuant to
the Company’s Agreement and Plan of Merger with SolCool and/or to provide
general working capital to SolCool and (ii) the remaining net proceeds from the
Initial Closing and Subsequent Closing will be used by the Company for the
purchase of inventory and for general working capital purposes.
 
    
 22
 EXHIBIT
A
 
 FORM OF INITIAL
NOTE
 
 NEITHER
THIS NOTE NOR ANY SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR ANY SHARES OF
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THIS NOTE OR SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE UNDER SUCH ACT UNLESS SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID
EXEMPTION THEREFROM UNDER THE ACT.
 
 THE ISSUE
PRICE OF THIS NOTE IS $225,000.00 (THE "ISSUE
PRICE").  THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE IS
$37,500.00.  THE ISSUE DATE OF THIS NOTE IS FEBRUARY 12,
2009.
 
 NEAH
POWER SYSTEMS, INC.
 
 Original
Issue Discount Term Secured Convertible Promissory Note
 
 
 $262,500.00
              February
      12, 2009
 
 FOR VALUE
RECEIVED, the undersigned Neah
Power Systems, Inc., a Nevada corporation (referred to herein as "Borrower"
or the "Company"),
promises to pay to the order of Agile Opportunity Fund, LLC,its successors or assigns (the "Lender"),
the principal sum of Two Hundred Sixty Two Thousand Five Hundred and 00/100
Dollars ($262,500.00) (the "Face
Amount") on August 12, 2009 (the "Maturity
Date"), together with interest on the Face Amount of this Note at a rate
equal to eighteen percent (18%) per annum calculated on the basis of a 360 day
year (the "Interest
Rate").  Interest to accrue hereunder through the Maturity Date
(assuming no Event of Default hereunder) shall be payable in advance on the date
hereof, the amount thereof being $23,625 (the “Prepaid
Interest”).  Notwithstanding any other provision hereof,
interest paid or becoming due hereunder and any other payments hereunder which
may constitute interest shall in no event exceed the maximum rate permitted by
applicable law.
 
 Interest
due hereunder is payable in lawful money of the United States of America to the
Lender at the address set forth in that certain Securities Purchase Agreement
between the Borrower, the Lender and the other investor thereunder, dated of
even date herewith (the "Securities
Purchase Agreement"), and pursuant to which this Note is
issued.  The terms and conditions of the Securities Purchase Agreement
and all other Loan Documents, including any other Note, are incorporated by
reference herein and made a part hereof.  All capitalized terms not
otherwise defined herein shall have the respective meanings as set forth in the
Securities Purchase Agreement.
 
 23
 Section
1.  Conversion.
 
 (a)           At
any time from the original issue date hereof through the date that this Note is
paid in full, Lender shall have the right, in its sole discretion, to convert
the then outstanding Face Amount of this Note less the then as yet unamortized
portion of the OID Amount (the “Convertible
Principal Balance”) plus accrued but unpaid interest under this Note, in
whole or in part, into shares (each, a “Conversion
Share”) of Common Stock at a conversion price equal to $0.10 per Conversion Share,
subject to adjustment as provided in Section 2 herein (the “Conversion
Price”).
 
 (b)           Lender
may convert this Note at the Conversion Price by the surrender of this Note
(properly endorsed) to the Company at the principal office of the Borrower,
together with the form of Notice of Conversion attached hereto as Annex A (a
“Notice of
Conversion”) duly completed, dated and executed, specifying therein the
principal amount of this Note and/or outstanding interest to be
converted.  The “Conversion Date” shall be the date that such Notice
of Conversion and this Note is duly provided to Borrower hereunder (or, at
Lender's option, the next interest payment date with respect to Lender's
conversion of any scheduled interest payment).  In the event that the
Lender shall specify a name or names other than that of the Lender to receive
any of the Conversion Shares issuable upon such exercise of the conversion
option, the Notice of Conversion also shall be accompanied by payment of all
transfer taxes payable upon the issuance of the Conversion Shares to such
specified person(s).
 
 (c)           On
the date of receipt by the Company of the duly completed, dated and executed
Notice of Conversion, this Note and applicable transfer taxes, if any, all in
accordance with Section 1(b) with respect to a conversion of any portion of this
Note, the Lender (and any person(s) receiving Conversion Shares in lieu of the
Lender) shall be deemed to have become the holder of record for all purposes of
the Conversion Shares to which such valid conversion relates.
 
 (d)           As
soon as practicable, but not in excess of five business days, after the valid
conversion of any portion of this Note, the Company, at the Company’s expense
(including the payment by Company of any applicable issuance and similar taxes,
but excluding the transfer taxes referred to in Section 1(b)), will cause to be
issued in the name of and delivered to the Lender (and/or such other person(s)
identified in the Notice of Conversion with respect to such conversion),
certificates evidencing the number of duly authorized, validly issued, fully
paid and non-assessable Conversion Shares to which the Lender (and/or such other
person(s) identified in such Notice of Conversion, shall be entitled to receive
upon the conversion), such certificates to be in such reasonable denominations
as Lender may request when delivering the Notice of Conversion.
 
 (e)           If
less than the entire Convertible Principal Balance of this Note is being
converted, the Company shall execute and deliver to the Lender a new replacement
Note (dated as of the date hereof) evidencing a face amount which is the
percentage of the original Face Amount equal to the portion of the Convertible
Principal Balance that has not been so converted.
 
 24
 Section
2.  Conversion Price
Adjustment.
 
 The
initial Conversion Price as stated above shall be subject to adjustment from
time to time and such Conversion Price as adjusted shall likewise be subject to
further adjustment, all as hereinafter set forth.
 
 (a)           If
and whenever the Company issues or sells any additional securities for
consideration equivalent to a per share price of Common Stock (the “Base
Price”) less than the Conversion Price in effect immediately prior to
such issuance or sale, then immediately upon such issuance or sale the
Conversion Price shall be reduced to a new Conversion Price equal to the Base
Price; provided, however, that this
Section 2(a) shall not be applicable to the issuance of securities to pursuant
to the Securities Purchase Agreement.
 
 (b)           If
the Borrower, at any time while this Note is outstanding, (i) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a
larger number of shares, (iii) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Borrower, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
 
 (c)           Whenever
the Conversion Price shall be adjusted as provided in this Section 2, the
Company shall reasonably promptly provide notice of such adjustment to the
Lender together with a written statement from an authorized officer of the
Company, showing in reasonable detail the facts requiring such adjustment and
the Conversion Price that shall be in effect after such
adjustment.  Notwithstanding the foregoing, no adjustment in the
Conversion Price shall be required unless such adjustment would require a change
of at least 1% in such Conversion Price; provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.
 
 (d)           In
case of any consolidation or merger of the Borrower with or into another entity
or the conveyance of all or substantially all of the assets of the Borrower to
another entity (collectively, an “Organic
Change”), this Note shall thereafter be convertible (to the extent such
conversion is permitted hereunder) into the number of shares of Common Stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Borrower deliverable upon conversion of this Note would have been
entitled had this Note been converted immediately prior to such Organic Change
and held until after the closing of such Organic Change; and, in any such case,
appropriate adjustment shall be made in the application of the provisions herein
set forth with respect to the rights and interest thereafter of Lender or any
subsequent holder of this Note, to the end that the provisions set forth herein
shall be thereafter applicable, as nearly as reasonably may be, in relation to
any shares of Common Stock or other property thereafter deliverable upon the
conversion of this Note.
 
 25
 Section
3.  Reservation of
Stock.  The Borrower covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of this Note as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Lender, not less than such number of shares of
the Common Stock as shall be issuable upon the conversion of the outstanding
Face Amount of this Note and accrued and unpaid interest
hereunder.  If at any time, the Company does not have available an
amount of authorized but unissued Common Stock or Common Stock held in treasury
necessary to satisfy any conversion of all amounts outstanding under this Note,
the Company shall call and hold a special meeting of its stockholders within 30
days of the occurrence of any shortfall in authorized shares for the purpose of
approving an increase in the number of shares of authorized Common Stock to an
amount sufficient to enable conversion all amounts outstanding under this Note,
subject in all respects to compliance with the requirements of Section 14 of the
Securities Exchange Act of 1934 to which the Borrower is subject.  The
Board of Directors of the Company shall recommend that stockholders vote in
favor of increasing the number of authorized shares of Common Stock at any such
meeting.  Each Member of the Board of Directors of the Company shall
also vote all of such Director’s voting securities of the Company in favor of
such increase in authorized shares.  The Borrower covenants that all
shares of Common Stock that may be issuable upon conversion of this Note shall,
upon issue, be duly and validly authorized, issued and fully paid and
nonassessable.  No consent of any other party and no consent, license,
approval or authorization of, or registration or declaration with, any
governmental authority, bureau or agency is required in connection with the
execution, delivery or performance by the Borrower, or the validity or
enforceability of this Note other than such as have been met or obtained. The
execution, delivery and performance of this Note and all other agreements and
instruments executed and delivered or to be executed and delivered pursuant
hereto or thereto or the securities issuable upon conversion of this will not
violate any provision of any existing law or regulation or any order or decree
of any court, regulatory body or administrative agency or the certificate of
incorporation or by-laws of the Borrower or any mortgage, indenture, contract or
other agreement to which the Borrower is a party or by which the Borrower or any
property or assets of the Borrower may be bound.
  Section
4.  No
Fractional Shares.  Upon a conversion hereunder, the Borrower
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, and in lieu of any fractional shares which would
otherwise be issuable, the Borrower shall issue the next highest whole number of
shares of Common Stock, as the case may be.
 
 Section
5.  Redemption.
 
 (a)  Mandatory
Redemption.  If at any time while this Note shall be
outstanding, the Company shall consummate: (i) a “going-private” transaction
whereby the Common Stock shall thereafter cease to be registered under the
Exchange Act; or (ii) a Sale of the Company, then the Company shall deliver a
written notice to the Lender of the pending consummation of any transaction
described in clauses (i) or (ii) of this Section 5 (each, a "Liquidity
Event") fifteen (15) days prior thereto and shall redeem this Note in
full immediately following the closing of a Liquidity Event (the “Repayment
Date”) by paying the applicable Redemption Price.  As used
herein, "Redemption
Price" shall equal all accrued but unpaid interest outstanding under this
Note, plus one hundred percent (100%) of the then outstanding Face Amount of
this Note.  The Borrower shall deliver to the Lender the Redemption
Price on the Repayment Date in immediately available funds.  For the
purpose of clarification, (i) no portion of the Prepaid Interest shall be
refundable or otherwise returned to the Company in the event of any such
redemption and (ii) after delivery of a notice of a Liquidity Event as provided
for in this Section, the Lender shall continue to be entitled to effectuate
conversions as contemplated under this Note until such time as the redemption
under this Section is consummated.
 
 26
 (b) Voluntary
Prepayment.  At any time while
this Note shall be outstanding, the Company may deliver a written notice of
prepayment to the Lender of its intention to prepay the face amount of this Note
in full, or in part, fifteen (15) days prior thereto and shall then so prepay
such portion of the Note as indicated in the notice together with all accrued
but unpaid interest outstanding thereon; provided, however, that no
portion of the Prepaid Interest shall be refundable or otherwise returned to the
Company in the event of any such prepayment.  For the purpose of
clarification, after delivery of a notice of prepayment as provided for in this
Section, the Lender shall continue to be entitled to effectuate conversions as
contemplated under this Note until such time as the prepayment under this
Section is consummated.
 
 Section
6.  Transferability.  This
Note and any of the rights granted hereunder are freely transferable by the
Lender, in its sole discretion, subject to federal and state securities law
restrictions, if any.
 
 Section
7.  Event of
Default.
 
 (a)           An
"Event of
Default", wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
 
 (i)           Any
default in the payment of the principal of, interest on or other charges in
respect of this Note or any other Note as and when the same shall become due and
payable (whether the Maturity Date or by acceleration or
otherwise);
 
 (ii)           The
Borrower or any subsidiary shall fail to observe or perform any other material
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Note or any Loan Document to which it is a
party;
 
 (iii)           The
Borrower or any subsidiary shall commence, or there shall be commenced against
the Borrower or any subsidiary, a proceeding under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor thereto, or the
Borrower or any subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Borrower or subsidiary or there is commenced
against the Borrower or subsidiary any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the Borrower or
subsidiary is adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Borrower or
subsidiary suffers any appointment of any custodian, private or court appointed
receiver or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the Borrower or
subsidiary makes a general assignment for the benefit of creditors; or the
Borrower or subsidiary shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Borrower or subsidiary shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Borrower or subsidiary for the purpose
of effecting any of the foregoing; or
 
 27
 (iv)           The
Borrower or any subsidiary shall default in any of its obligations under any
other note or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any leasing or factoring arrangement of the
Borrower, whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise become due and
payable.
 
 (b)           Following
an Event of Default, the Interest Rate shall increase to 36% per annum
immediately following such Event of Default; provided, that the
Interest Rate shall thereafter revert back to the prior Interest Rate upon all
Events of Default being cured.  Upon the occurrence of an Event of
Default hereunder, the entire Face Amount of this Note together with any accrued
but unpaid interest shall automatically become due and payable.  The
failure of the Lender to exercise any of its rights hereunder in any particular
instance shall not constitute a waiver of the same or of any other right in that
or any subsequent instance with respect to the Lender or any subsequent
holder.  The Lender need not provide and the Borrower hereby waives
any presentment, demand, protest or other notice of any kind, and the Lender may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law.
 
 Section
8.  Registration
Rights.  The Lender is entitled to certain registration rights
with respect to the Common Stock issuable upon conversion of this Note as set
forth in the Securities Purchase Agreement.
 
 Section
9.  Notices.  Any
and all notices, requests, documents or other communications or deliveries
required or permitted to be given or delivered hereunder shall be delivered in
accordance with the notice provisions of the Securities Purchase
Agreement.
 
 Section
10.  Usury.  To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by the Lender in order to enforce any
right or remedy under any Loan Document.  Notwithstanding any
provision to the contrary contained in any Loan Document, it is expressly agreed
and provided that the total liability of the Company under the Loan Documents
for payments in the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the “Maximum Rate”), and, without
limiting the foregoing, in no event shall any rate of interest or default
interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Loan Documents
exceed such Maximum Rate.  It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Loan Documents is
increased or decreased by statute or any official governmental action subsequent
to the date hereof, the new maximum contract rate of interest allowed by law
will be the Maximum Rate applicable to the Loan Documents from the effective
date forward, unless such application is precluded by applicable
law.  If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to Lender with respect to indebtedness
evidenced by the Loan Documents, such excess shall be applied by Lender to the
unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at Lender’s election.
  28
 Section
11.  Governing Law; Waiver of
Jury Trial.  This Note and the provisions hereof are to be
construed according to and are governed by the laws of the State of New York,
without regard to principles of conflicts of laws thereof.  Borrower
agrees that the New York State Supreme Court located in the County of New York,
State of New York shall have exclusive jurisdiction in connection with any
dispute concerning or arising out of this Note, the Loan Documents, or otherwise
relating to the parties relationship.  In any action, lawsuit or
proceeding brought to enforce or interpret the provisions of this Note, the Loan
Documents and/or arising out of or relating to any dispute between the parties,
the Lender shall be entitled to recover all of its costs and expenses relating
collection and enforcement of this Note (including without limitation,
reasonable attorney’s fees and disbursements) in addition to any other relief to
which the Lender may be entitled.
 
 THE
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF
OR IN ANY WAY RELATING TO THIS NOTE.
 
 Section 12.  Successors and
Assigns.  Subject to applicable securities laws, this Note and
the rights and obligations evidenced hereby shall inure to the benefit of and be
binding upon the successors of the Company and the successors and assigns of
Lender and be freely transferable and assignable by Lender without the consent
of the Company.
 
 Section 13.  Reimbursement of
Expenses.  The Company shall reimburse the Lender for any
reasonable legal fees and disbursements incurred by the Lender in enforcement of
or protection of any of its rights under this Note.
 
 Section 14.  Amendment.  This
Note may be modified or amended or the provisions hereof waived only with the
written consent of the Lender and the Company.
 
 29
 Section 15.  Severability.  Wherever
possible, each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Note.
 
 IN
WITNESS WHEREOF, the Borrower has caused this Original Issue Discount Term
Secured Convertible Promissory Note to be duly executed by a duly authorized
officer as of the date first above indicated.
 
 NEAH
      POWER SYSTEMS, INC.By:Name:
                        Chris
      D’CoutoTitle:
                        CEO
 
  30
  ANNEX
A
 
 NOTICE OF
CONVERSION
 To Be
Executed by the Lender
 in Order
to Convert Promissory Note
 
 The
undersigned Lender hereby elects to convert $__________ principal (equal to
$______ Face Amount less, if Conversion Date is prior to Maturity Date, $____
unamortized OID Amount, capitalized terms used as defined in the Note) and
$_____ interest currently outstanding and owed under the Original Issue Discount
Term Secured Convertible Promissory Note issued to Agile Opportunity Fund, LLC at
a Conversion Price of $___ (the “Note”)
and to purchase ___________ shares of Common Stock of Neah Power Systems, Inc.
issuable upon conversion of such Note, and requests that certificates for such
securities shall be issued in the name of:
 
 
 (please
      print or type name and address)(please
      insert social security or other identifying number)and
      be delivered as follows:please
      print or type name and address)(please
      insert social security or other identifying number)Lender
      Name:By:Name:Title:Conversion
      Date:
 
 
 
 
 31
 
 EXHIBIT
B
 
 FORM OF ADDITIONAL
NOTES
 
 NEITHER
THIS NOTE NOR ANY SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR ANY SHARES OF
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THIS NOTE OR SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE UNDER SUCH ACT UNLESS SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID
EXEMPTION THEREFROM UNDER THE ACT.
 
 THE ISSUE
PRICE OF THIS NOTE IS $[225,000.00 / 450,000.00] (THE "ISSUE
PRICE").  THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE IS
$[37,500.00 / 75,000.00].  THE ISSUE DATE OF THIS NOTE IS FEBRUARY 27,
2009.
 
 NEAH
POWER SYSTEMS, INC.
 
 Original
Issue Discount Term Secured Convertible Promissory Note
 
 $[262,500.00
      / 525,000.00]
              February
      27, 2009
 
 FOR VALUE
RECEIVED, the undersigned Neah
Power Systems, Inc., a Nevada corporation (referred to herein as "Borrower"
or the "Company"),
promises to pay to the order of [Agile Opportunity Fund, LLC /
Capitoline Advisors, Inc.],its successors or assigns (the "Lender"),
the principal sum of [Two Hundred Sixty Two Thousand Five Hundred and 00/100
Dollars ($262,500.00) / Five Hundred Twenty Five Thousand and 00/100 Dollars
($525,000.00)] (the "Face
Amount") on August 12, 2009 (the "Maturity
Date"), together with interest on the Face Amount of this Note at a rate
equal to eighteen percent (18%) per annum calculated on the basis of a 360 day
year (the "Interest
Rate").  Interest to accrue hereunder through the Maturity Date
(assuming no Event of Default hereunder) shall be payable in advance on the date
hereof, the amount thereof being $______ (the “Prepaid
Interest”).  Notwithstanding any other provision hereof,
interest paid or becoming due hereunder and any other payments hereunder which
may constitute interest shall in no event exceed the maximum rate permitted by
applicable law.
 
 Interest
due hereunder is payable in lawful money of the United States of America to the
Lender at the address set forth in that certain Securities Purchase Agreement
between the Borrower, the Lender and the other investor thereunder, dated of
even date herewith (the "Securities
Purchase Agreement"), and pursuant to which this Note is
issued.  The terms and conditions of the Securities Purchase Agreement
and all other Loan Documents, including any other Note, are incorporated by
reference herein and made a part hereof.  All capitalized terms not
otherwise defined herein shall have the respective meanings as set forth in the
Securities Purchase Agreement.
 
 32
 Section
1.  Conversion.
 
 (a)           At
any time from the original issue date hereof through the date that this Note is
paid in full, Lender shall have the right, in its sole discretion, to convert
the then outstanding Face Amount of this Note less the then as yet unamortized
portion of the OID Amount (the “Convertible
Principal Balance”) plus accrued but unpaid interest under this Note, in
whole or in part, into shares (each, a “Conversion
Share”) of Common Stock at a conversion price equal to $0.10 per Conversion Share,
subject to adjustment as provided in Section 2 herein (the “Conversion
Price”).
 
 (b)           Lender
may convert this Note at the Conversion Price by the surrender of this Note
(properly endorsed) to the Company at the principal office of the Borrower,
together with the form of Notice of Conversion attached hereto as Annex A (a
“Notice of
Conversion”) duly completed, dated and executed, specifying therein the
principal amount of this Note and/or outstanding interest to be
converted.  The “Conversion Date” shall be the date that such Notice
of Conversion and this Note is duly provided to Borrower hereunder (or, at
Lender's option, the next interest payment date with respect to Lender's
conversion of any scheduled interest payment).  In the event that the
Lender shall specify a name or names other than that of the Lender to receive
any of the Conversion Shares issuable upon such exercise of the conversion
option, the Notice of Conversion also shall be accompanied by payment of all
transfer taxes payable upon the issuance of the Conversion Shares to such
specified person(s).
 
 (c)           On
the date of receipt by the Company of the duly completed, dated and executed
Notice of Conversion, this Note and applicable transfer taxes, if any, all in
accordance with Section 1(b) with respect to a conversion of any portion of this
Note, the Lender (and any person(s) receiving Conversion Shares in lieu of the
Lender) shall be deemed to have become the holder of record for all purposes of
the Conversion Shares to which such valid conversion relates.
 
 (d)           As
soon as practicable, but not in excess of five business days, after the valid
conversion of any portion of this Note, the Company, at the Company’s expense
(including the payment by Company of any applicable issuance and similar taxes,
but excluding the transfer taxes referred to in Section 1(b)), will cause to be
issued in the name of and delivered to the Lender (and/or such other person(s)
identified in the Notice of Conversion with respect to such conversion),
certificates evidencing the number of duly authorized, validly issued, fully
paid and non-assessable Conversion Shares to which the Lender (and/or such other
person(s) identified in such Notice of Conversion, shall be entitled to receive
upon the conversion), such certificates to be in such reasonable denominations
as Lender may request when delivering the Notice of Conversion.
 
 33
 (e)           If
less than the entire Convertible Principal Balance of this Note is being
converted, the Company shall execute and deliver to the Lender a new replacement
Note (dated as of the date hereof) evidencing a face amount which is the
percentage of the original Face Amount equal to the portion of the Convertible
Principal Balance that has not been so converted.
 
 Section
2.  Conversion Price
Adjustment.
 
 The
initial Conversion Price as stated above shall be subject to adjustment from
time to time and such Conversion Price as adjusted shall likewise be subject to
further adjustment, all as hereinafter set forth.
 
 (a)           If
and whenever the Company issues or sells any additional securities for
consideration equivalent to a per share price of Common Stock (the “Base
Price”) less than the Conversion Price in effect immediately prior to
such issuance or sale, then immediately upon such issuance or sale the
Conversion Price shall be reduced to a new Conversion Price equal to the Base
Price; provided, however, that this
Section 2(a) shall not be applicable to the issuance of securities to pursuant
to the Securities Purchase Agreement.
 
 (b)           If
the Borrower, at any time while this Note is outstanding, (i) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a
larger number of shares, (iii) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Borrower, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
 
 (c)           Whenever
the Conversion Price shall be adjusted as provided in this Section 2, the
Company shall reasonably promptly provide notice of such adjustment to the
Lender together with a written statement from an authorized officer of the
Company, showing in reasonable detail the facts requiring such adjustment and
the Conversion Price that shall be in effect after such
adjustment.  Notwithstanding the foregoing, no adjustment in the
Conversion Price shall be required unless such adjustment would require a change
of at least 1% in such Conversion Price; provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.
 
 (d)           In
case of any consolidation or merger of the Borrower with or into another entity
or the conveyance of all or substantially all of the assets of the Borrower to
another entity (collectively, an “Organic
Change”), this Note shall thereafter be convertible (to the extent such
conversion is permitted hereunder) into the number of shares of Common Stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Borrower deliverable upon conversion of this Note would have been
entitled had this Note been converted immediately prior to such Organic Change
and held until after the closing of such Organic Change; and, in any such case,
appropriate adjustment shall be made in the application of the provisions herein
set forth with respect to the rights and interest thereafter of Lender or any
subsequent holder of this Note, to the end that the provisions set forth herein
shall be thereafter applicable, as nearly as reasonably may be, in relation to
any shares of Common Stock or other property thereafter deliverable upon the
conversion of this Note.
 
 34
 Section
3.  Reservation of
Stock.  The Borrower covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of this Note as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Lender, not less than such number of shares of
the Common Stock as shall be issuable upon the conversion of the outstanding
Face Amount of this Note and accrued and unpaid interest
hereunder.  If at any time, the Company does not have available an
amount of authorized but unissued Common Stock or Common Stock held in treasury
necessary to satisfy any conversion of all amounts outstanding under this Note,
the Company shall call and hold a special meeting of its stockholders within 30
days of the occurrence of any shortfall in authorized shares for the purpose of
approving an increase in the number of shares of authorized Common Stock to an
amount sufficient to enable conversion all amounts outstanding under this Note,
subject in all respects to compliance with the requirements of Section 14 of the
Securities Exchange Act of 1934 to which the Borrower is subject.  The
Board of Directors of the Company shall recommend that stockholders vote in
favor of increasing the number of authorized shares of Common Stock at any such
meeting.  Each Member of the Board of Directors of the Company shall
also vote all of such Director’s voting securities of the Company in favor of
such increase in authorized shares.  The Borrower covenants that all
shares of Common Stock that may be issuable upon conversion of this Note shall,
upon issue, be duly and validly authorized, issued and fully paid and
nonassessable.  No consent of any other party and no consent, license,
approval or authorization of, or registration or declaration with, any
governmental authority, bureau or agency is required in connection with the
execution, delivery or performance by the Borrower, or the validity or
enforceability of this Note other than such as have been met or obtained. The
execution, delivery and performance of this Note and all other agreements and
instruments executed and delivered or to be executed and delivered pursuant
hereto or thereto or the securities issuable upon conversion of this will not
violate any provision of any existing law or regulation or any order or decree
of any court, regulatory body or administrative agency or the certificate of
incorporation or by-laws of the Borrower or any mortgage, indenture, contract or
other agreement to which the Borrower is a party or by which the Borrower or any
property or assets of the Borrower may be bound.
 
 Section
4.  No
Fractional Shares.  Upon a conversion hereunder, the Borrower
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, and in lieu of any fractional shares which would
otherwise be issuable, the Borrower shall issue the next highest whole number of
shares of Common Stock, as the case may be.
 
 Section
5.  Redemption.
 
 (a)  Mandatory
Redemption.  If at any time while this Note shall be
outstanding, the Company shall consummate: (i) a “going-private” transaction
whereby the Common Stock shall thereafter cease to be registered under the
Exchange Act; or (ii) a Sale of the Company, then the Company shall deliver a
written notice to the Lender of the pending consummation of any transaction
described in clauses (i) or (ii) of this Section 5 (each, a "Liquidity
Event") fifteen (15) days prior thereto and shall redeem this Note in
full immediately following the closing of a Liquidity Event (the “Repayment
Date”) by paying the applicable Redemption Price.  As used
herein, "Redemption
Price" shall equal all accrued but unpaid interest outstanding under this
Note, plus one hundred percent (100%) of the then outstanding Face Amount of
this Note.  The Borrower shall deliver to the Lender the Redemption
Price on the Repayment Date in immediately available funds.  For the
purpose of clarification, (i) no portion of the Prepaid Interest shall be
refundable or otherwise returned to the Company in the event of any such
redemption and (ii) after delivery of a notice of a Liquidity Event as provided
for in this Section, the Lender shall continue to be entitled to effectuate
conversions as contemplated under this Note until such time as the redemption
under this Section is consummated.
 
 35
 (b) Voluntary
Prepayment.  At any time while
this Note shall be outstanding, the Company may deliver a written notice of
prepayment to the Lender of its intention to prepay the face amount of this Note
in full, or in part, fifteen (15) days prior thereto and shall then so prepay
such portion of the Note as indicated in the notice together with all accrued
but unpaid interest outstanding thereon; provided, however, that no
portion of the Prepaid Interest shall be refundable or otherwise returned to the
Company in the event of any such prepayment.  For the purpose of
clarification, after delivery of a notice of prepayment as provided for in this
Section, the Lender shall continue to be entitled to effectuate conversions as
contemplated under this Note until such time as the prepayment under this
Section is consummated.
 
 Section
6.  Transferability.  This
Note and any of the rights granted hereunder are freely transferable by the
Lender, in its sole discretion, subject to federal and state securities law
restrictions, if any.
 
 Section
7.  Event of
Default.
 
 (a)           An
"Event of
Default", wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
 
 (i)           Any
default in the payment of the principal of, interest on or other charges in
respect of this Note or any other Note as and when the same shall become due and
payable (whether the Maturity Date or by acceleration or
otherwise);
 
 (ii)           The
Borrower or any subsidiary shall fail to observe or perform any other material
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Note or any Loan Document to which it is a
party;
 
 (iii)           The
Borrower or any subsidiary shall commence, or there shall be commenced against
the Borrower or any subsidiary, a proceeding under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor thereto, or the
Borrower or any subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Borrower or subsidiary or there is commenced
against the Borrower or subsidiary any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the Borrower or
subsidiary is adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Borrower or
subsidiary suffers any appointment of any custodian, private or court appointed
receiver or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the Borrower or
subsidiary makes a general assignment for the benefit of creditors; or the
Borrower or subsidiary shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Borrower or subsidiary shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Borrower or subsidiary for the purpose
of effecting any of the foregoing; or
 
 36
 (iv)         The
Borrower or any subsidiary shall default in any of its obligations under any
other note or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any leasing or factoring arrangement of the
Borrower, whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise become due and
payable.
 
 (b)           Following
an Event of Default, the Interest Rate shall increase to 36% per annum
immediately following such Event of Default; provided, that the
Interest Rate shall thereafter revert back to the prior Interest Rate upon all
Events of Default being cured.  Upon the occurrence of an Event of
Default hereunder, the entire Face Amount of this Note together with any accrued
but unpaid interest shall automatically become due and payable.  The
failure of the Lender to exercise any of its rights hereunder in any particular
instance shall not constitute a waiver of the same or of any other right in that
or any subsequent instance with respect to the Lender or any subsequent
holder.  The Lender need not provide and the Borrower hereby waives
any presentment, demand, protest or other notice of any kind, and the Lender may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law.
 
 Section
8.  Registration
Rights.  The Lender is entitled to certain registration rights
with respect to the Common Stock issuable upon conversion of this Note as set
forth in the Securities Purchase Agreement.
 
 Section
9.  Notices.  Any
and all notices, requests, documents or other communications or deliveries
required or permitted to be given or delivered hereunder shall be delivered in
accordance with the notice provisions of the Securities Purchase
Agreement.
 
 Section
10.  Usury.  To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by the Lender in order to enforce any
right or remedy under any Loan Document.  Notwithstanding any
provision to the contrary contained in any Loan Document, it is expressly agreed
and provided that the total liability of the Company under the Loan Documents
for payments in the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the “Maximum Rate”), and, without
limiting the foregoing, in no event shall any rate of interest or default
interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Loan Documents
exceed such Maximum Rate.  It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Loan Documents is
increased or decreased by statute or any official governmental action subsequent
to the date hereof, the new maximum contract rate of interest allowed by law
will be the Maximum Rate applicable to the Loan Documents from the effective
date forward, unless such application is precluded by applicable
law.  If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to Lender with respect to indebtedness
evidenced by the Loan Documents, such excess shall be applied by Lender to the
unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at Lender’s election.
  37
 Section
11.  Governing Law; Waiver of
Jury Trial.  This Note and the provisions hereof are to be
construed according to and are governed by the laws of the State of New York,
without regard to principles of conflicts of laws thereof.  Borrower
agrees that the New York State Supreme Court located in the County of New York,
State of New York shall have exclusive jurisdiction in connection with any
dispute concerning or arising out of this Note, the Loan Documents, or otherwise
relating to the parties relationship.  In any action, lawsuit or
proceeding brought to enforce or interpret the provisions of this Note, the Loan
Documents and/or arising out of or relating to any dispute between the parties,
the Lender shall be entitled to recover all of its costs and expenses relating
collection and enforcement of this Note (including without limitation,
reasonable attorney’s fees and disbursements) in addition to any other relief to
which the Lender may be entitled.
 
 THE
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF
OR IN ANY WAY RELATING TO THIS NOTE.
 
 Section 12.  Successors and
Assigns.  Subject to applicable securities laws, this Note and
the rights and obligations evidenced hereby shall inure to the benefit of and be
binding upon the successors of the Company and the successors and assigns of
Lender and be freely transferable and assignable by Lender without the consent
of the Company.
 
 Section 13.  Reimbursement of
Expenses.  The Company shall reimburse the Lender for any
reasonable legal fees and disbursements incurred by the Lender in enforcement of
or protection of any of its rights under this Note.
 
 Section 14.  Amendment.  This
Note may be modified or amended or the provisions hereof waived only with the
written consent of the Lender and the Company.
 
 38
 Section 15.  Severability.  Wherever
possible, each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Note.
 
 IN
WITNESS WHEREOF, the Borrower has caused this Original Issue Discount Term
Secured Convertible Promissory Note to be duly executed by a duly authorized
officer as of the date first above indicated.
 
 NEAH
      POWER SYSTEMS, INC.By:Name:
                        Chris
      D’CoutoTitle:
                        CEO
 
 
  39
 
 
 ANNEX
A
 
 NOTICE OF
CONVERSION
 To Be
Executed by the Lender
 in Order
to Convert Promissory Note
 
 The
undersigned Lender hereby elects to convert $__________ principal (equal to
$______ Face Amount less, if Conversion Date is prior to Maturity Date, $____
unamortized OID Amount, capitalized terms used as defined in the Note) and
$_____ interest currently outstanding and owed under the Original Issue Discount
Term Secured Convertible Promissory Note issued to [Agile Opportunity Fund, LLC /
Capitoline Advisors, Inc.]at a Conversion Price of $___
(the “Note”)
and to purchase ___________ shares of Common Stock of Neah Power Systems, Inc.
issuable upon conversion of such Note, and requests that certificates for such
securities shall be issued in the name of:
 
 
 (please
      print or type name and address)(please
      insert social security or other identifying number)and
      be delivered as follows:please
      print or type name and address)(please
      insert social security or other identifying number)Lender
      Name:By:Name:Title:Conversion
      Date:
 
 
 
 40
 
 
 EXHIBIT
C
 
 FORM OF SECURITY
AGREEMENT
 
 This Security Agreement (the “Security
Agreement”), dated as of February 12, 2009, is by and between (i) Neah Power Systems, Inc., a
Nevada corporation (the “Debtor”),
and (ii) Agile Opportunity
Fund, LLC, a Delaware limited liability company (“Agile”),
and Capitoline Advisors
Inc., a New York corporation (“Capitoline”;
together with Agile, the “Secured
Parties”, each a “Secured
Party”).
 
 1.1           Background
  1.
              The
      Secured Parties have purchased from the Debtor Original Issue Discount
      Term Secured Convertible Promissory Notes (the “Notes”)
      in the aggregate face amount of $262,500.00, pursuant to a Securities
      Purchase Agreement between the Debtor and the Secured Parties dated as of
      the date hereof (the “Securities
      Purchase Agreement”), and, subject to the terms of the Securities
      Purchase Agreement, may purchase additional Notes in the aggregate face
      amount of $787,500.00 at Subsequent Closings.  Capitalized terms
      used herein and not otherwise defined herein shall have the meanings
      specified in the Securities Purchase
Agreement.
 
 2.
              To
      induce the Secured Parties to purchase the Notes, the Debtor has agreed to
      provide the Secured Parties with a first priority security interest in the
      Collateral (as hereinafter
defined).
 
 N O W, T
H E R E F O R E,
 
 In consideration of the promises and
the mutual covenants and agreements herein set forth, and in order to induce the
Secured Parties to purchase the Notes, the Debtor hereby agrees with the Secured
Parties as follows:
 
 Section
1.             Grant of
Security Interest.  The Debtor hereby grants to the Secured
Parties, on the terms and conditions hereinafter set forth, a first priority
lien and security interest in the collateral hereinafter identified (the “Collateral”).
 
 Section
2.             Collateral.  The
Collateral is all tangible and intangible assets of the Debtor of whatever kind
and nature (including without limitation all intellectual property of whatever
kind or nature of the Debtor including patents, trademarks, tradenames,
copyrights and all other intellectual property and any applications or
registrations therefore, accounts, chattel paper, commercial tort claims,
documents, equipment, farm products, general intangibles, instruments,
inventory, investment property, and the stock of all of Debtor’s subsidiaries),
in each case whether now owned or hereafter acquired and wherever located, and
all proceeds thereof, together with all proceeds, products, replacements and
renewals thereof.
 
 41
 Section
3.             Representations
and Warranties; Covenants.  The Debtor hereby warrants and
covenants as follows:
 
 (a)
              The
      Debtor has title to the Collateral free from any lien, security interest,
      encumbrance or claim.
 
 (b)
              The
      Debtor will maintain the Collateral so as to preserve its value subject to
      wear and tear in the ordinary
course.
 
 (c)
              The
      Debtor is a corporation duly organized, validly existing and in good
      standing under the laws of the State of
Nevada.
 
 (d)
              The
      Debtor will pay when due all existing or future charges, liens, or
      encumbrances on the Collateral, and will pay when due all taxes and
      assessments now or hereafter imposed or affecting it unless such taxes or
      assessments are diligently contested by the Debtor in good faith and
      reasonable reserves are established
therefor.
 
 (e)
              All
      information with respect to the Notes and the Collateral and account
      debtors set forth in any schedule, certificate or other writing at any
      time heretofore or hereafter furnished by the Debtor to the Secured
      Parties, and all other written information heretofore or hereafter
      furnished by the Debtor to the Secured Parties, is or will be true and
      correct in all material respects, as of the date
  furnished.
 
 (f)
              As
      soon as practicable following the date of execution of this Security
      Agreement and in any event within 5 business days of such date, the
      Secured Parties will prepare, execute and file with the Secretary of State
      in the State of Nevada, a UCC-1 Financing Statement covering the
      Collateral, naming the Secured Parties as Secured Parties
      thereunder.
 
 (g)
              The
      Debtor will keep its records concerning the Collateral at its address
      shown in Section 18 below.  Such records will be of such
      character as to enable the Secured Parties or their representatives to
      determine at any time the status thereof, and the Debtor will not, unless
      the Secured Parties shall otherwise consent in writing, maintain any such
      record at any other address.
 
 (h)
              The
      Debtor will furnish the Secured Parties information on a quarterly basis
      concerning the Debtor, the Notes and the Collateral as the Secured Parties
      may at any time reasonably request.
 
 (i)
              The
      Debtor will permit the Secured Parties and its representatives at any
      reasonable time on five (5) day prior written notice to inspect any and
      all of the Collateral, and to inspect, audit and make copies of and
      extracts from all records and all other papers in possession of the Debtor
      pertaining to the Notes and the Collateral and will, on request of the
      Secured Parties, deliver to the Secured Parties all such records and
      papers for the purpose of enabling the Secured Parties to inspect, audit
      and copy same.  Any of the Debtor’s records delivered to the
      Secured Parties shall be returned to the Debtor as soon as the Secured
      Parties shall have completed its inspection, audit and/or copying
      thereof.
  42
 
 (j)
              The
      Debtor will, at such times as the Secured Parties may request, deliver to
      the Secured Parties a schedule identifying the Collateral subject to the
      security interest of this Security Agreement, and such additional
      schedules, certificates, and reports respecting all or any of the
      Collateral at the time subject to the security interest of this Security
      Agreement, and the items or amounts received by the Debtor in full or
      partial payment or otherwise as proceeds received in connection with any
      Collateral.  Any such schedule, certificate or report shall be
      executed by a duly authorized officer of the Debtor on behalf of the
      Debtor and shall be in such form and detail as the Secured Parties may
      specify. The Debtor shall immediately notify the Secured Parties of the
      occurrence of any event causing loss or depreciation in the value of the
      Collateral, and the amount of such loss or
  depreciation.
  (k)
              If
      and when so requested by the Secured Parties, the Debtor will stamp on the
      records of
      the Debtor concerning the Collateral a notation, in a form satisfactory to
      the Secured Parties, of the security interest of the Secured Parties under
      this Security Agreement.
 
 Section
4.         Disposition
of Collateral in Ordinary Course.  Debtor shall not sell,
transfer, assign, convey, license, grant any right to use or otherwise dispose
of any Collateral  except in the ordinary course of business, without
the prior written consent of the Secured Parties.
 
 Section
5.         Secured
Parties May Perform.  Upon the occurrence and continuation of
an “Event of
Default” under the Notes, at the option of the Secured Parties, the
Secured Parties may discharge taxes, liens or security interests, or other
encumbrances at any time hereafter levied or placed on the Collateral; may pay
for insurance required to be maintained on the Collateral pursuant to Section 3;
and may pay for the maintenance and preservation of the
Collateral.  The Debtor agrees to reimburse the Secured Parties on
demand for any payment made, or any expense incurred, by the Secured Parties
pursuant to the foregoing authorization.  Until the occurrence and
continuation of an Event of Default, the Debtor may have possession of the
Collateral and use it in any lawful manner not inconsistent with this the
Security Agreement.
 
 Section
6.         Obligations
Secured; Certain Remedies.  This Security Agreement secures the
payment and performance of all obligations of the Debtor to the Secured Parties
under the Notes, whether now existing or hereafter arising and whether for
principal, interest, costs, fees or otherwise (collectively, the “Obligations”).  Upon
the occurrence and continuation of an Event of Default under the Notes, the
Secured Parties may declare all obligations secured hereby immediately due and
payable and may exercise the remedies of a secured party under the Uniform
Commercial Code.  Without limiting the foregoing, the Secured Parties
may require the Debtor to assemble the Collateral and make it available to the
Secured Parties at a place to be designated by the Secured Parties which is
reasonably convenient to both parties or to execute appropriate documents of
assignment, transfer and conveyance, in each case, in order to permit the
Secured Parties to take possession of and title to the
Collateral.  Unless the Collateral is perishable or threatens to
decline rapidly in value or is of a type customarily sold on a recognized
market, the Secured Parties will give the Debtor reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made.  The
requirements of reasonable notice shall be met if such notice is mailed to the
Debtor via registered or certified mail, postage prepaid, at least fifteen (15)
days before the time of sale or disposition.  Expenses of retaking,
holding, preparing for sale, selling or the like, shall include the Secured
Parties’ reasonable attorneys’ fees and legal expenses.
 
 43
 Section
7.         Debtor
Remains Liable.  Anything herein to the contrary
notwithstanding:
 
 (a)
              Notwithstanding
      the exercise of any remedy available to the Secured Parties hereunder or
      at law in connection with an Event of Default, the Debtor shall remain
      liable to repay the balance remaining unpaid and outstanding under the
      Notes after the value or proceeds received by the Secured Parties in
      connection with such remedy is subtracted.  The Secured Parties
      shall promptly deliver and pay over to the Debtor any portion of the value
      or proceeds received in connection with such remedy that remains after the
      unpaid and outstanding portion of the Notes is paid in
    full.
 
  (b)
              The
      Debtor shall remain liable under the contracts and agreements included in
      the Collateral to the extent set forth therein, and shall perform all of
      its duties and obligations under such contracts and agreements to the same
      extent as if this Security Agreement had not been
  executed.
 
 (c)
              The
      exercise by the Secured Parties of any of its rights hereunder shall not
      release the Debtor from any of its duties or obligations under any such
      contracts or agreements included in the
  Collateral.
 
 (d)
              The
      Secured Parties shall not have any obligation or liability under any such
      contracts or agreements included in the Collateral by reason of this
      Security Agreement, nor shall the Secured Parties be obligated to perform
      any of the obligations or duties of the Debtor thereunder or to take any
      action to collect or enforce any claim for payment assigned
      hereunder.
 
 Section
8.        Security
Interest Absolute.  All rights of the Secured Parties and the
security interests granted to the Secured Parties hereunder shall be absolute
and unconditional, to the maximum extent permitted by law, irrespective
of:
 
 (a)
              Any
      lack of validity or enforceability of the Notes or any other document or
      instrument relating thereto;
  44
 
 (b)
              Any
      change in the time, manner or place of payment of, or in any other term
      of, all or any part of the Obligations or any other amendment to or waiver
      of or any consent to any departure from the Notes or any other document or
      instrument relating thereto;
 
 (c)
              Any
      exchange, release or non-perfection of any collateral (including the
      Collateral), or any release of or amendment to or waiver of or consent to
      or departure from any guaranty, for all or any of the Obligations;
      or
 
 (d)
              Any
      other circumstance which might otherwise constitute a defense available
      to, or a discharge of, the Debtor, a guarantor or a third party grantor of
      a security interest.
 
 Section
9.        Additional
Assurances.  At the request of the Secured Parties, the Debtor
will join in executing or will execute, as appropriate, all necessary financing
statements in a form satisfactory to the Secured Parties, and the Debtor will
pay the cost of filing such statements, including all statutory
fees.  The Debtor will further execute all other instruments deemed
necessary by the Secured Parties and pay the cost of filing such
instruments.  The Debtor warrants that no financing statement covering
Collateral or any part or proceeds thereof is presently on file in any public
office.  The Debtor covenants that it will not grant any other
security interest in the Collateral without first obtaining the written consent
of the Secured Parties.
 
 Section
      10.
              Representations,
      Warranties and Covenants Concerning Debtor’s Legal Status.
 
 (a)           The
Debtor has previously executed and delivered to the Secured Parties a Perfection
Certificate in the form of Schedule I
hereto.  The Debtor represents and warrants to the Secured Parties as
follows:
 
 (i)
              Debtor’s
      exact legal name is as indicated on the Perfection Certificate and on the
      signature page hereof;
 
 (ii)
              Debtor
      is an organization of the type, and is organized in the jurisdiction, set
      forth in the Perfection
Certificate;
 
 (iii)
              the
      Perfection Certificate accurately sets forth Debtor’s organizational
      identification number or accurately states that Debtor has
      none;
 
 (iv)
              the
      Perfection Certificate accurately sets forth Debtor’s place of business
      or, if more than one, its chief executive office as well as Debtor’s
      mailing address, if different; and
 
 (v)
              all
      other information set forth on the Perfection Certificate is accurate and
      complete.
  45
 
 (b)
              The
      Debtor covenants with the Secured Parties as
  follows:
 
 (i)
              without
      providing 15 days prior written notice to the Secured Parties, Debtor will
      not change its name, its place of business, or, if more than one, its
      chief executive offices or its mailing address or organizational
      identification number, if it has
one
 
 (ii)
              if
      Debtor does not have an organizational identification number and later
      obtains one, Debtor shall forthwith notify the Secured Parties of such
      organizational identification number;
and
 
 (iii)
              Debtor
      will not change its type of organization, jurisdiction of organization or
      other legal structure, without thirty (30) days prior written notice to
      the Secured Parties and following any such notice will cooperate with the
      Secured Parties to execute and deliver any documents or instruments
      requested by the Secured Parties in order to maintain the Secured Parties'
      perfected security interests
hereunder.
 
 Section
11.      Expenses.  The
Debtor will upon demand pay to the Secured Parties the amount of any and all
reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which the Secured Parties may incur in
connection with (i) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral upon the
occurrence and continuation of an Event of Default, (ii) the exercise or
enforcement of any of the rights of the Secured Parties hereunder, or (iii) the
failure by the Debtor to perform or observe any of the provisions
hereof.
 
 Section
12.      Notices
of Loss or Depreciation.  The Debtor will immediately notify
the Secured Parties of any claim, suit or proceeding against any Collateral or
any event causing loss or depreciation in the value of Collateral, including the
amount of such loss or depreciation
 
 Section
13.       No
Waivers.  No waiver by the Secured Parties of any default shall
operate as a waiver of any other default or of the same default on any
subsequent occasion.
 
 Section
14.      Successor
and Assigns.  The Secured Parties shall have the right to
assign this Security Agreement and its rights hereunder without the consent of
the Debtor.  All rights of the Secured Parties shall inure to the
benefit of the successors and assigns of the Secured Parties.  All
obligations of the Debtor shall be binding upon the Debtor’s successors and
assigns.
 
 Section
15.      No Grant
of Security Interest on Assets.  The Debtor covenants that it
shall not grant a security interest in any of its assets, tangible or
intangible, except for the security interest granted in the Collateral to the
Secured Parties hereunder.
 
 Section
16.       Governing
Law; Jurisdiction.  This Security Agreement shall be governed
by the laws of the State of New York, without giving effect to such
jurisdiction’s principles of conflict of laws, except to the extent that the
validity or the perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York.  Each of the parties
hereto submits to the personal jurisdiction of and each agrees that all
proceedings relating hereto shall be brought in federal or state courts located
within New York County in the State of New York.
 
 46
 Section
17.       Counterparts.  This
Security Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together shall constitute one and
the same instrument.
 
 Section
18.           Remedies
Cumulative.  The rights and remedies herein are cumulative, and
not exclusive of other rights and remedies which may be granted or provided by
law.
 
 Section
19.           Notices.  Any
demand upon or notice to the Debtor hereunder shall be effective when delivered
by hand or when properly deposited in the mails postage prepaid, or sent by
electronic facsimile transmission, receipt acknowledged, or delivered to an
overnight courier, in each case addressed to the Debtor at the address shown
below or as it appears on the books and records of the Secured
Parties.  Demands or notices addressed to any other address at which
the Secured Parties customarily communicates with the Debtor also shall be
effective.  Any notice by the Debtor to the Secured Parties shall be
given as aforesaid, addressed to the Secured Parties at the address shown below
or such other address as the Secured Parties may advise the Debtor in
writing:
 
 If
      to the Secured Parties:
                Agile
      Opportunity Fund, LLC1175
      Walt Whitman Road, Suite 100AMelville,
      NY 11747Attn:
      David PropisWith
      a copy to:
                Westerman
      Ball Ederer Miller & Sharfstein, LLP170
      Old Country RoadMineola,
      NY 11501Attn:
      Alan C. Ederer, Esq.If
      to the Debtor:
                Neah
      Power Systems, Inc.22122
      20th Avenue SE, Suite 142Bothell,
      WA 98021Attn:
      Chris D’CoutoWith
      a copy to:
                Seyfarth
      Shaw LLP975
      F Street, N.W.Washington,
      D.C. 20004Attn:
      Ernest M. Stern, Esq.
 
 Section
20.           Entire
Agreement.  This Security Agreement and the documents and
instruments referred to herein embody the entire agreement entered into between
the parties relating to the subject matter hereof, and may not be amended,
waived, or discharged except by an instrument in writing executed by the Secured
Parties.
 
 47
 Section
21.         Termination.  This
Security Agreement shall terminate upon the repayment in full of the Notes or
conversion in full thereof upon which the Secured Parties shall cooperate in the
filing of the necessary or appropriate documents and instruments to release the
security interest created hereby and will execute and deliver any and all
documents and/or instruments reasonably requested by Debtor in connection
therewith.
 
  IN
WITNESS WHEREOF, the parties hereto, by their duly authorized agents, have
executed this Security Agreement as of the date set forth above.
  
 NEAH
      POWER SYSTEMS, INC.By:Name:
                                            Chris
      D’CoutoTitle:
                                            CEOAGILE
      OPPORTUNITY FUND, LLCBy:
      AGILE INVESTMENTS, LLC, Managing MemberBy:Name:
      David I. PropisTitle:
      Managing MemberCAPITOLINE
      ADVISORS INC.By:Name:Title:
 
 
 
 48
 
 SCHEDULE
I to Security Agreement
 
 PERFECTION
CERTIFICATE
 
 The
undersigned, the Chief Executive Officer of Neah Power Systems, Inc., a
Nevada corporation (the "Company"),
hereby certifies, with reference to a certain Security Agreement, dated as of
February 12, 2009 (terms defined in such Security Agreement having the same
meanings herein as specified therein), between the Company and the Secured
Parties named therein (the "Secured
Parties"), to the Secured Parties as follows:
 
 1.           Name.                      The
exact legal name of the Company as that name appears on its Certificate of
Incorporation is as follows:  Neah Power Systems, Inc.
 
 2.           Other
Identifying Factors.
 
 (a) The following is the mailing
address of the Company:
 
 Address
                  County
                  State22122
      20th Avenue SE, Suite 142Bothell,
      WA 98021
                  
                  Washington
 
 
 (b)           If
different from its mailing address, the Company’s place of business or, if more
than one, its chief executive office is located at the following
address:
 
 Address
                  County
                  State
 
 (c)           The
following is the type of organization of the
Company:  Corporation
 
 (d)           The
following is the jurisdiction of the Company’s organization: Nevada
 
 (e)           The
following is the Company's state issued organizational identification
number:  ___________________
 
 3.           Other
Names, Etc.
 
 The following is a list of all other
names (including trade names or similar appellations) used by the Company, or
any other business or organization to which the Company became the successor by
merger, consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, now or at any time during the past five
years:
 
 
 
 49
 
 
 4.           Other
Current Locations.
 
 (a)           The
following are all other locations in the United States of America in which the
Company maintain any books or records relating to any of the Collateral
consisting of accounts, instruments, chattel paper, general intangibles or
mobile goods:
 
 Address
                  County
                  State
 
 
 
 (b)           The
following are all other places of business of the Company in the United States
of America:
 
 Address
                  County
                  State
 
 
 
 (c)           The
following are all other locations in the United States of America where any of
the Collateral consisting of inventory or equipment is located:
 
 Address
                  County
                  State
 
 
 
 
 (d)           The
following are the names and addresses of all persons or entities other than the
Company, such as lessees, consignees, warehousemen or purchasers of chattel
paper, which have possession or are intended to have possession of any of the
Collateral consisting of instruments, chattel paper, inventory or
equipment:
 
 Name
                  Mailing Address
                  County
                  State
 
 
 
 
 IN
WITNESS WHEREOF, I have hereunto signed this Perfection Certificate on February
12, 2009.
 
 
 
 Name:
                    Chris
      D’CoutoTitle:
                    CEO
 
 
 
 50
 EXHIBIT
D
 
 FORM OF PATENT SECURITY
AGREEMENT
 
 (Patents,
Patent Applications and Patent Licenses)
 
 This Patent Security Agreement (the
“Patent
Security Agreement”), dated as of February 12, 2009, is by and between
(i) Neah Power Systems,
Inc., a Nevada corporation (the “Debtor”),
and (ii) Agile Opportunity
Fund, LLC, a Delaware limited liability company (“Agile”),
and Capitoline Advisors
Inc., a New York corporation (“Capitoline”;
together with Agile, the “Secured
Parties”, each a “Secured
Party”).
 
 1.2   Background
  
 3.
              The
      Secured Parties have purchased from the Debtor Original Issue Discount
      Term Secured Convertible Promissory Notes (the “Notes”)
      in the aggregate face amount of $262,500.00 pursuant to a Securities
      Purchase Agreement between the Debtor and the Secured Parties dated as of
      the date hereof (the “Securities
      Purchase Agreement”), and, subject to the terms of the Securities
      Purchase Agreement, may purchase additional Notes in the aggregate face
      amount of $787,500.00 at the Subsequent Closing.  Capitalized
      terms used herein and not otherwise defined herein shall have the meanings
      specified in the Securities Purchase
Agreement.
 
 4.
              To
      induce the Secured Parties to purchase the Notes and pursuant to (i) a
      Security Agreement dated of even date herewith (as amended or supplemented
      from time to time in accordance with the terms thereof, the “Security
      Agreement”) between the Debtor and the Secured Parties (the Secured
      Parties in the capacity of secured parties under the Security Agreement,
      together with their successors in such capacity, are referred to as the
      “Grantees”)
      and (ii) certain other collateral documents (including this Patent
      Security Agreement), the Debtor has granted for the benefit of such
      Grantees a continuing security interest in personal property of the
      Debtor, including all right, title and interest of the Debtor in, to and
      under the Patent Collateral (as defined below), to secure the Debtor’s
      secured obligations under the Security
  Agreement.
 
 N O W, T
H E R E F O R E,
  For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Debtor grants
to the Grantees, to secure the Debtor’s secured obligations under the Security
Agreement, a continuing security interest in all of the Debtor’s right, title
and interest in, to and under the following (all of the following items or types
of property being herein collectively referred to as the “Patent
Collateral”), whether now owned or existing or hereafter acquired or
arising:
  51
  (i)
              each
      patent owned and patent application (including all reissues, divisions,
      continuations, continuation-in-part, extensions and reexaminations
      thereof) registered or applied for in the United States and all other
      nations throughout the world by the Debtor, including, without limitation,
      each patent and patent application referred to in Schedule I hereto (each,
      a “Patent”);
  (ii)
              each
      patent license to which the Debtor is a party, including, without
      limitation, each patent license identified in Schedule II hereto (each, a
      “Patent
      License”); and
  (iii)
              all
      proceeds of and revenues from the foregoing, including, without
      limitation, all proceeds of and revenues from any claim by the Debtor
      against third parties for past, present or future infringement of any
      Patent owned by the Debtor and all rights and benefits of the Debtor under
      any Patent License.
  The
Debtor irrevocably constitutes and appoints the Grantees and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full power and authority in the name of the Debtor or in
any Grantee’s name, from time to time, in any Grantee’s discretion, so long as
any Event of Default (as defined in the Notes) shall have occurred and be
continuing, to take with respect to the Patent Collateral any and all
appropriate action which the Debtor might take with respect to the Patent
Collateral and to execute any and all documents and instruments which may be
necessary or desirable to carry out the terms of this Patent Security Agreement
and to accomplish the purposes hereof.
  Except in the ordinary course of
business or to the extent expressly permitted in the Security Agreement or the
Notes, the Debtor agrees not to sell, license, exchange, assign or otherwise
transfer or dispose of, or grant any rights with respect to, or mortgage or
otherwise encumber, any of the Patent Collateral.
 
 The foregoing security interest is
granted in conjunction with the security interests granted by the Debtor to the
Grantees pursuant to the Security Agreement.  The Debtor acknowledges
and affirms that the rights and remedies of the Grantees with respect to the
security interest in the Patent Collateral granted hereby are more fully set
forth in the Security Agreement, the terms and provisions of which are
incorporated by reference herein as if fully set forth herein.
 
 Each
Grantee hereby agrees that the security interest granted to each Grantee hereby
secures the Obligations (as identified in the Security Agreement) and that the
claim of each such Grantee in the Patent Collateral shall rankpari passu with respect to
that of each other Grantee, and that any payment or distribution made to the
Grantees upon or with respect to their respective security interests in the
Patent Collateral shall be made pro rata in accordance with the then outstanding
principal amounts of the Notes purchased by each such Grantee.
 
 This security interest shall terminate
upon the repayment in full of the Notes or conversion thereof upon which the
Grantees shall cooperate in the filing of the necessary or appropriate documents
and instruments to release the security interest created hereby and will execute
and deliver any and all documents and/or instruments reasonably requested by
Debtor in connection therewith.
  52
 
 IN WITNESS WHEREOF, the Debtor has
caused this Patent Security Agreement to be duly executed by its officer
thereunto duly authorized as of the  12th  day of February,
2009.
  
 NEAH
      POWER SYSTEMS, INC.By:Name:
                        Chris
      D’CoutoTitle:
                        CEO
 
 
 ACKNOWELDGED:
 
 SECURED
PARTIES:
 
 
 AGILE
OPPORTUNITY FUND, LLC
 By: AGILE
INVESTMENTS, LLC, Managing Member
 
 
 By:Name:
      David I. PropisTitle:
      Managing Member
 
 
 CAPITOLINE
ADVISORS INC.
 
 
 By:Name:Title:
 
 
  53
 
 
 STATE
      OF
              ))
      ss.:COUNTY
      OF
              )
 
 
 I, _________________________, a Notary
Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY, that
Chris D’Couto,
CEO of Neah Power
Systems, Inc. (the “Company”), personally known to
me to be the same person whose name is subscribed to the foregoing instrument
appeared before me this day in person and acknowledged that he signed, executed
and delivered the said instrument as her/his own free and voluntary act and as
the free and voluntary act of said Company, for the uses and purposes therein
set forth being duly authorized so to do.
 
 GIVEN under my hand and Notarial Seal
this 12th day of February, 2009.
 
 
 
 [Seal]
 
 
 
 ________________________________
 Signature
of notary public
 My
commission expires ____________
   54
 Schedule
I
 to
Patent Security Agreement
 
 PATENTS AND PATENT
APPLICATIONS
 
 
 Patents  Issued:
 
 
 
 
 
 
 
 
 
 Patent
Applications:
 
 
 
 
 
 
 
  55
 
  
 Schedule
II
 To
Patent Security Agreement
 
 PATENT
LICENSES
 
 
 
 
 56