NEAH
      POWER SYSTEMS, INC.

    22122
      20th Ave SE

    Suite
      161

    Bothell,
      Washington 98021

    


    November
      28, 2007            

     

    CAMHZN
      Master LDC

    350
      Madison Avenue

    New
      York,
      New York 10017

    


    Gentlemen:

    


    Simultaneously
      with the execution and delivery of this letter, the undersigned, Neah Power
      Systems, Inc. (the “Company”), is executing and delivering to you, or causing to
      be executed and delivered to you, the following:

    


    1. 
Secured
      Promissory Note (the “Note”) in the principal amount of
      $500,000.00;

    


    2. 
Warrant
      for 250,000 shares of the Company’s common stock;

    


    3. 
Purchase
      Agreement between the Company and you; and

    


    4. 
Security
      Interest Pledge Agreement between the Company and you; 

    


    The
      documents identified in items 1 through 4 above, along with this Letter, are
      referred to herein as the “Transaction Documents”).

    


    As
      additional consideration for your agreement to execute and deliver the
      Transaction Documents, the Company agrees to issue (the “Repayment Issuance”) to
      you and/or your designee (i) $150,000 worth of shares of common stock of the
      Company (the “Common Stock”) for which a resale registration statement will be
      filed and declared effective no later than January 31, 2008, and $75,000 worth
      of restricted Common Stock (“Block I”), and (ii) in the event the loan is not
      repaid in full within 90 days of the Closing Date, an additional (a) $175,000
      worth of Common Stock that will be registered as provided above, and (b)
      $100,000 worth of restricted Common Stock to be valued at the lower of (x)
      the
      closing price of the Common Stock on the day immediately prior to the Closing
      Date and (y) the closing price of the Common Stock on the 90th
      day
      after the Closing Date (“Block II”).  The following chart sets forth the
      schedule for issuing the Block I and Block II shares:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    


    CAMHZN
      Master LDC

    November
      28, 2007

    Page
      2 of
      4

    


    


    
      	 	 	
              Upon Execution of this 

              Agreement (Block I)

            	 	
              Repayment on or after 90 

              days but before 180 days 

              after issuance (Block II)

            
	
              Number
                of Shares to be Issued

            	 	
              $150,000
                worth of registered and $75,000 worth of restricted

            	 	
              $175,000
                worth of registered and $100,000 worth of
                restricted

            


    

    


    Certificates
      representing Block I shares are attached hereto. Certificates representing
      Block
      II shares shall be issued immediately and delivered to your counsel who shall
      hold said certificates for your benefit and release them to you as they become
      due, without further notice to the Company. In the event that repayment is
      completed prior to 90 days, all certificates held by your counsel in connection
      with Block II shall be returned to us immediately.

    


    In
      order
      to secure our obligation to provide you with $150,000 worth of registered
      securities no later than January 31, 2007, you are hereby authorized to withhold
      $150,000 (the “Holdback”) from the loan proceeds as security for delivery of the
      free-trading shares. The Holdback shall be released to us in the event that
      a
      registration statement covering the securities in question is declared effective
      prior to January 31, 2008. If the foregoing condition has not been met, then
      for
      each thirty (30) day period following January 31, 2008 that the registration
      statement has not been declared effective, ten thousand dollars ($10,000) (the
      “Penalty Payment”) of the Holdback shall be released to you without further
      notice to us. Penalty Payments shall continue until such time as the
      registration statement is declared effective. Any remaining Holdback will be
      released to us upon effectiveness of the registration statement. We acknowledge
      that the Holdback is considered part of the principle amount of the loan and
      that in the event we forfeit any portion of the Holdback due to a Penalty
      Payment, we shall have no claim for a credit or offset for the full principle
      amount of the loan.

    


    We
      acknowledge that our failure to file registration statements within the time
      periods set forth above shall constitute an Event of Default (as that term
      is
      defined in the Transaction Documents) and that you shall be entitled to
      foreclose on any collateral that has been pledged to secure the loan, including,
      but not limited to, securities pledged by the Company.

    


    All
      such
      shares (referred to herein as the “Shares”) shall be duly authorized, fully paid
      and nonassessable, free and clear of any liens and in proper certificated form
      in the name of CAMHZN Master LDC, or other holder (s) or endorsed for transfer
      to you, with a medallion signature guarantee.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    CAMHZN
      Master LDC

    November
      28, 2007

    Page
      3 of
      4

    


    The
      Company acknowledges that the Shares are additional consideration for your
      execution, delivery and performance of the Transaction Documents and are not
      deemed to be interest.

    


    This
      Letter shall be governed by the laws of the State of New York without regard
      to
      the principles of conflict of laws. THE COMPANY WAIVES ITS RIGHT TO CLAIM A
      TRIAL BY JURY IN ANY ACTION ARISING OUT OF THIS LETTER.

    


    The
      Company acknowledges and agrees that its actual or threatened breach of this
      letter would result in irreparable damage to you and that money damages would
      not provide and adequate remedy to you. Accordingly, the Company agrees that
      in
      the event of any such breach you shall have, in addition to any and all remedies
      of law, the right to have the provisions of this Letter specifically enforced
      and to obtain injunctive and other equitable relief to enforce the provisions
      of
      this Letter.

    


    This
      confirms that you and the Company intend to contract in strict compliance with
      applicable usury laws from time-to-time in effect. Accordingly, you and the
      Company stipulate and agree that none of the terms and provisions contained
      in
      the Transaction Documents shall ever be construed to create a contract to pay,
      for the use or forbearance of money, interest in excess of the maximum amount
      of
      interest permitted to be charged by applicable law from time-to-time in effect.
      Neither the Company nor any guarantor shall be liable for interest in excess
      of
      the maximum amount permitted under applicable law. Any sums collected by you
      and
      determined to be in excess of that which is permitted under applicable law
      shall
      be applied to principal owing by the Company or any guarantor. The Company
      agrees that in determining whether or not, interest has been paid in excess
      of
      any lawful rate, you may, in light of the risk and consideration evidenced
      by
      the Transaction Documents, to the greatest extent permitted under applicable
      law, characterize any non-principal payment under the Transaction Documents
      as
      an expense, fee or premium rather than as interest.

    


    This
      Letter may be amended or modified only by a written instrument signed by you
      and
      the Company. Your failure at any time to require the performance of any
      provision of this Letter shall in no manner affect your right at a later time
      to
      enforce any provision.

    


    The
      Company irrevocably (A) consents that any legal action or proceeding arising
      from or relating to this Letter shall be commenced exclusively in the Supreme
      Court of the State of New York, County of New York, or the United States
      District Court for the Southern District of New York, (B) submits to the
      jurisdiction of any such Court in any such action or proceeding, (C) waives
      any
      claim or defense in any such action or proceeding based on any alleged lack
      of
      jurisdiction, improper venue or forum non-conveniens, and (D) consents to
      service of process by mail at its address set forth below, or such other address
      as shall provide to you in writing. Service of process may be effected by notice
      sent by certified mail, return receipt requested, to the Company at its address
      set forth below.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


    CAMHZN
      Master LDC

    November
      28, 2007

    Page
      4 of
      4

    


    This
      Letter shall be binding upon the Company, and its legal representatives,
      successors and permitted assigns. In no event may the Company assign any rights
      or obligations under this Letter without your prior written consent and any
      purported assignment or that such consent shall be null and void.

     

    

      
        	
                Very
                  truly yours,

              
	 
	
                NEAH
                  POWER SYSTEMS, INC.

              
	 
	
                By:

              	 
	 
	
                Name:

              	 
	
                Title: