Execution
Version
 
 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.
 
 1
 
 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.
 
 2
 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.
 
 3
 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.
 
 4
 (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.
 
 (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
 
 5
 (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.
 
 6
 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.
  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.
 
 7
 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.
 
 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.
 
 [Remainder
of Page Intentionally Left Blank; Signature Page Follows]
     
 8
 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
 
 
  9
 
 
 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:
 
 
 
  10