SECURITY
      INTEREST AND PLEDGE AGREEMENT

     

    SECURITY
      INTEREST AND PLEDGE AGREEMENT (“Pledge Agreement”) dated as of November 28,
      2007, by and between CAMHZN Master LDC (“Secured Party”), Neah Power Systems,
      Inc., a Nevada corporation having its principal executive offices at 22122
      20th
      Avenue
      SE, Suite 161, Bothell, Washington 98021 (the “Company” or the “Debtor” or
“Pledgors”).

     

    RECITALS

     

      A. Reference
      is made to (i) that certain Purchase Agreement of even date herewith (the
“Purchase Agreement”) to which the Company and the Secured Party are parties,
      and (ii) the Transaction Agreements (as that term is defined in the Purchase
      Agreement), including, without limitation, the Note. Capitalized terms not
      otherwise defined herein shall have the meanings ascribed to them in the
      relevant Transaction Agreements.

     

      B. Pursuant
      to the Transaction Agreements, the Debtor has certain obligations to the Secured
      Party (all such obligations, the “Obligations”), including, but not limited to,
      (i) obligations to pay principal and interest of the Note, which was issued
      in
      the original aggregate principal amount of $500,000.00, on the Maturity Date,
      and (ii) pay certain fees to the Secured Party (the “Fee Obligations”). The note
      and Fee Obligations are secured by the pledge of certain stock of the Company.
      The Fee Obligations and the obligations of the Company and of the Pledgors,
      if
      any, under the note are referred to collectively as the “Note
      Obligations.”

    


    C. To
      secure
      the Note Obligations, the Pledgors have agreed to pledge certain shares of
      Common Stock of the Company held by the Pledgors to the Secured Party as
      security for the performance of the Note Obligations.

    


    D. The
      Pledgors are shareholders of the Debtor and have determined that it is in the
      Pledgors’ best interests, including to the benefit of the other interests of the
      Pledgors in the Company, to provide the pledge referred to herein.

    


    E. The
      Secured Party is willing to enter into the Purchase Agreement and the other
      Transaction Agreements only upon receiving the Pledgors’ pledge of certain stock
      of the Company, as set forth in this Pledge Agreement.

    


    NOW,
      THEREFORE, in consideration of the premises, the mutual covenants and conditions
      contained herein, and for other good and valuable consideration, the receipt
      and
      sufficiency of which are hereby acknowledged, the parties hereto hereby agree
      as
      follows:

    


    1. Grant
      of Security Interest.

    


    (a) To
      secure
      the Note Obligations of Debtor, the Pledgors hereby pledge to the Secured Party
      all of the shares of Common Stock (the “Pledged Shares”) set forth on the
      attached Schedule 2 of this Agreement. Unless otherwise set forth on Schedule
      2
      of this Agreement, the Pledgors are the beneficial and record owner of the
      Pledged Shares set forth opposite the Pledgor’s name on such Schedule. Such
      Pledged Shares, together with any substitutes therefor, or proceeds thereof,
      are
      hereinafter referred to collectively as the “Collateral”. In the event that the
      Pledged Shares are restricted securities, they will be replaced by free-trading
      securities no later than January 31, 2007.

     

    
      
        
        

      

      
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    (b) The
      Company represents and warrants to the Secured Party that the Pledged Shares
      are
      duly authorized, validly issued, fully paid and non-assessable and that it
      will
      not permit the transfer of the Pledged Shares except in accordance with this
      Pledge Agreement while the same is in effect.

    


    (c) (i) The
      Company has given written notice to the Transfer Agent regarding the creation
      of
      the security interest of the Secured Party in the Collateral. The Company has
      instructed the Transfer Agent (A) to record on its books the existence of such
      security interest with respect to the Pledged Shares, (B) to transfer Pledged
      Shares in accordance with the instructions of the Secured Party without further
      action of the Company, and (C) except upon such instructions of the Secured
      Party or until written notice is given by the Secured Party that such security
      interest has been released to the Pledgor in whole or in part, to not allow
      a
      transfer of the shares representing any part of the Collateral or to replace
      the
      certificates representing the Collateral; and

    


     (ii) The
      Pledgors hereby consent to the provisions of the preceding subparagraph (i)
      and
      authorizes the Company to provide such notice and instructions to the Transfer
      Agent.

    


    2. Obligations
      Secured.
      During
      the term hereof, the Collateral shall secure the following:

    


    (a) The
      performance by the Company of the Note Obligations; and

    


    (b) The
      payment of all fees and the delivery of all stock other than principal and
      interest under the Note.

    


    (c) The
      performance by the Pledgors of their obligations, covenants, and agreements
      under this Agreement.

    


    The
      obligations, covenants and agreements described in clauses (a), (b) and (c)
      are
      the “Obligations.”

    


    3. Perfection
      of Security Interests.
      Upon
      execution of this Pledge Agreement by the Debtor and the Pledgors, 

    


       (a) the
      Pledgors shall deliver and transfer possession of the stock certificates
      identified opposite the Pledgor’s name on Schedule 2 of this Agreement (the
“Pledged Certificates”), together with stock transfer powers duly executed in
      blank by the registered owner of the shares represented by such Certificates,
      with appropriate Medallion signature guaranty (“Stock Powers”), to the Secured
      Party. 

     

    
      
         

      

      
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       (b) The
      Collateral will be held by the Secured Party or the Brokerage Firm, to perfect
      the security interest of the Secured Party, until the earlier of

    


    (i)
      the
      payment in full of all amounts due under the Note, or

    


    (ii)
      foreclosure of Secured Party's security interests as provided
      herein.

    


    (c) the
      Debtor and the Pledgors hereby appoint the Secured Party, as attorney-in-fact
      with powers of substitution, to execute all documents and perform all acts
      in
      order to perfect and maintain a valid security interest for Secured Party in
      the
      Collateral.

     

      4. Reserved.

     

      5. Pledgors’
      Warranty.
      The
      Pledgors represent and warrant hereby to the Secured Party as follows with
      respect to the Pledged Shares set forth opposite the Pledgor’s name on Schedule
      2 to this Agreement: 

    


    A. With
      respect to title to the Transferred Shares

    


    (i) that
      upon
      transfer by the Pledgor of the Pledgor’s Certificates and Stock Powers to
      Secured Party pursuant to this Agreement at such time, if any, as contemplated
      hereby upon the occurrence of an Event of Default, the purchaser of the Pledged
      Shares or the Secured Party, as contemplated herein, as the case may be, will
      have good title (both record and beneficial) to the relevant Pledged
      Shares;

    


    (ii) that
      there are no restrictions upon transfer and pledge of the Pledged Shares
      pursuant to the provisions of this Agreement except the restrictions, to the
      extent applicable, imposed by Rule 144 under the Securities Act of
      1933;

    


    (iii) that
      the
      Pledged Shares are free and clear of any encumbrances of every nature
      whatsoever, the Pledgor is the sole owner of the Pledged Shares, and such shares
      are duly authorized, validly issued, fully paid and non-assessable;

    


    (iv) that
      the
      Pledgor has owned the Pledged Shares since the date specified on Schedule 2
      to
      this Agreement and that such shares were fully paid for as of such specified
      date; and

    


    (v) that
      the
      Pledgor agrees not to grant or create, any security interest, claim, lien,
      pledge or other encumbrance with respect to the Pledgor’s Pledged Shares or
      attempt to sell, transfer or otherwise dispose of any of such shares until
      the
      Obligations have been paid in full or this Agreement has
      terminated.

     

    
      
        
        

      

      
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    B. With
      respect to certain other matters:

    


    (i) that
      the
      Pledgor has made necessary inquiries of the Company and believes that the
      Company fully intends to fulfill and has the capability of fulfilling the
      Obligations to be performed by the Company in accordance with the terms of
      the
      Transaction Agreements;

    


    (ii) that
      the
      Pledgor is not acting, and has not agreed to act, in any plan to sell or dispose
      of the Pledged Shares in a manner intended to circumvent the registration
      requirements of the Securities Act of 1933, as amended, or any applicable state
      law;

    


    (iii) that
      Pledgor has been advised by counsel of the elements of a bona-fide pledge for
      purposes of Rule 144(d)(3)(iv) under the Securities Act of 1933, as amended,
      including the relevant SEC interpretations and affirms the pledge of shares
      by
      the Pledgor pursuant to this Pledge Agreement will constitute a bona-fide pledge
      of such shares for purposes of such Rule; and

    


    (iv) that
      this
      Pledge Agreement constitutes a legal, valid and binding obligation of the
      Pledgor enforceable in accordance with its terms (except as the enforcement
      thereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
      reorganization, moratorium, and similar laws, now or hereafter in
      effect).

    


    (v) that
      the
      Pledgor’s address is as provided under the Pledgor’s signature on the signature
      page hereof.

    


    6. Reports
      under Securities Act and Exchange Act.
      With a
      view to making available to Secured Party the benefits of Rule 144 promulgated
      under the Securities Act or any other similar rule or regulation of the SEC
      that
      may at any time permit Secured Party to sell securities of the Company to the
      public without Registration (“Rule 144”), the Company agrees to:

    


    (i) make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144;

    


    (ii) file
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the Securities Act and the Exchange Act; and

    


    (iii) until
      the
      date when the Secured Party may sell all Registrable Securities under Rule
      144
      without volume or other restrictions or limits (the “Unrestricted Sale Date”),
      furnish to the Secured Party so long as the Secured Party owns or has a security
      interest in the Pledged Shares (a “Holder”), promptly upon request, (i) a
      written statement by the Company that it has complied with the reporting
      requirements of Rule 144, the Securities Act and the Exchange Act, (ii) if
      not
      available on the SEC’s EDGAR system, a copy of the most recent annual or
      quarterly report of the Company and such other reports and documents so filed
      by
      the Company and (iii) such other information as may be reasonably requested
      to
      permit the Secured Party to sell such securities pursuant to Rule 144 without
      registration; and

     

    
      
        
        

      

      
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    (d) at
      the
      request of any Holder, give its Transfer Agent instructions (supported by an
      opinion of the Company’s counsel, if required or requested by the Transfer
      Agent) to the effect that, upon the Transfer Agent’s receipt from such Holder
      of

    


    (i)
      a
      certificate (a “Rule 144 Certificate”) certifying (A) that the Holder’s holding
      period (as determined in accordance with the provisions of Rule 144) for the
      Pledged Shares which the Holder proposes to sell (the “Securities Being Sold”)
      is not less than (1) year and (B) as to such other matters as may be appropriate
      in accordance with Rule 144 under the Securities Act, and 

    


    (ii)
      an
      opinion of counsel acceptable to the Company (for which purposes it is agreed
      that Law Offices of Isaac M. Zucker, PLLC shall be deemed acceptable if not
      given by the Company’s counsel) that, based on the Rule 144 Certificate,
      Securities Being Sold may be sold pursuant to the provisions of Rule 144, even
      in the absence of an effective Registration Statement, 

    


    the
      Transfer Agent is to effect the transfer of the Securities Being Sold and issue
      to the buyer(s) or transferee(s) thereof one or more stock certificates
      representing the transferred Securities Being Sold without any restrictive
      legend and without recording any restrictions on the transferability of such
      shares on the Transfer Agent’s books and records (except to the extent any such
      legend or restriction results from facts other than the identity of the Holder,
      as the seller or transferor thereof, or the status, including any relevant
      legends or restrictions, of the shares of the Securities Being Sold while held
      by the Holder). If the Transfer Agent reasonably requires any additional
      documentation at the time of the transfer, the Company shall deliver or cause
      to
      be delivered all such reasonable additional documentation as may be necessary
      to
      effectuate the issuance of an unlegended certificate.

    


    7. Voting
      Rights.
      Unless
      and until the Secured Party has exercised its rights under this Pledge Agreement
      to foreclose its security interest in the Collateral, the Pledgor shall have
      the
      right to exercise any voting rights evidenced by, or relating to, the
      Collateral.

    


    8. Warrants
      and Options.
      In the
      event that, during the term of this Pledge Agreement, subscription, warrants,
      dividends, or any other rights or option shall be issued in connection with
      the
      Collateral, such warrants, dividends, rights and options shall be immediately
      delivered to Secured Party to be held under the terms hereof in the same manner
      as the Collateral.

    


    9. Preservation
      of the Value of the Collateral and Reimbursement of Secured
      Party.
      Pledgor
      shall pay all taxes, charges, and assessments against the Collateral and do
      all
      acts necessary to preserve and maintain the value thereof. On failure of Pledgor
      so to do, Secured Party may make such payments on account thereof as (in Secured
      Party's discretion) is deemed desirable, and Pledgor shall reimburse Secured
      Party immediately on demand for any and all such payments expended by Secured
      Party in enforcing, collecting, and exercising its remedies
      hereunder.

     

    
      
        
        

      

      
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    10. Default
      and Remedies.
      

    


    (a) For
      purposes of this Agreement, “Event of Default” shall mean any one or more of the
      following events:

    


    (i) any
      default in the performance by the Company or any Pledgor of any of the Note
      Obligations, after the expiration, without cure, of the cure period (but only
      if
      any such cure period is specifically provided in the Transaction Agreements
      and
      without any regard to any cure period if no such cure period is provided; it
      being specifically acknowledged by the Company and the Pledgor that all payment
      obligations are time of the essence obligations, with no cure periods provided),
      or 

    


    (ii) a
      breach
      by the Company or Pledgor of any of the its respective representations,
      warranties, covenants or agreements in this Pledge Agreement, subject to
      applicable cure periods.

    


    (b) During
      the term of this Pledge Agreement, the Secured Party shall have the following
      rights after any Event of Default and for so long as the Obligations are not
      satisfied in full:

    


    (i)
      the
      rights and remedies provided by the Uniform Commercial Code as adopted by the
      State of New York (as said law may at any time be amended), except that the
      Secured Party waives any right to a deficiency pursuant to Section 9-608 thereof
      or otherwise;

    


    (ii)
      the
      right to receive and retain all dividends, payments and other distributions
      of
      any kind upon any or all of the Pledged Shares as additional Collateral;
      and

    


    (iii)
      the
      right to sell, at a public or private sale, the Collateral or any part thereof
      for cash, upon credit or for future delivery, and at such price or prices in
      accordance with the Uniform Commercial Code (as such law may be amended from
      time to time); it being understood that one or more of the Secured Party may,
      but shall not be required to, take such actions jointly. Upon any such sale,
      Secured Party shall have the right to deliver, assign and transfer to the
      purchaser thereof the Collateral so sold. Secured Party shall give the Pledgor
      not less than ten (10) days written notice of its intention to make any such
      sale. Any such sale shall be held at such time or times during ordinary business
      hours and at such place or places as Secured Party may fix in the notice of
      such
      sale. Secured Party may adjourn or cancel any sale or cause the same to be
      adjourned from time to time by announcement at the time and place fixed for
      the
      sale, and such sale may be made at any time or place to which the same may
      be so
      adjourned. In case of any sale of all or any part of the Collateral upon terms
      calling for payments in the future, any Collateral so sold may be retained
      by
      Secured Party until the selling price is paid by the purchaser thereof, but
      Secured Party shall incur no liability in the case of the failure of such
      purchaser to take up and pay for the Collateral so sold and, in the case of
      such
      failure, such Collateral may again be sold upon like notice. Secured Party,
      however, instead of exercising the power of sale herein conferred upon it,
      may
      proceed by a suit or suits at law or in equity to foreclose the security
      interest and sell the Collateral, or any portion thereof, under a judgment
      or
      decree of a court or courts of competent jurisdiction, the Pledgors having
      been
      given due notice of all such action. Secured Party shall incur no liability
      as a
      result of a sale of the Collateral or any part thereof.

     

    
      
        
        

      

      
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    (iv)
      in
      addition to its rights and remedies under this agreement, the Note and all
      Transaction Agreements, the Company shall have full recourse against any real,
      personal, tangible or intangible assets of Pledgors, and may pursue any legal
      or
      equitable remedies that are available to it.

    


    11. Waiver.
      Each of
      the Debtor and the Pledgors waives any right that it may have to require Secured
      Party to proceed against any other person, or proceed against or exhaust any
      other security, or pursue any other remedy Secured Party may have.

     

    12. Term
      of Agreement.
      This
      Pledge Agreement shall continue in full force and effect until the earlier
      of
      the payment in full of the Note. If the Note is paid in full, the security
      interests in the relevant Collateral shall be deemed released, and any portion
      of the Collateral not transferred to or sold by any one or more Secured Party
      shall be returned to the Pedgors. Upon termination of this Pledge Agreement,
      the
      relevant Collateral shall be returned within five (5) Trading Days to Debtor
      or
      to the Pledgor, as contemplated above.

    


    13. Reserved.

    


    14. General
      Provisions:

    


    14.1 Binding
      Agreement; No Modification of Transaction Agreements.
      This
      Pledge Agreement shall be binding upon and shall inure to the benefit of the
      successors and assigns of the respective parties hereto. Except to the extent
      specifically provided herein, nothing in this Pledge Agreement shall limit
      or
      modify any provision of any of the Transaction Agreements

    


    14.2 Captions.
      The
      headings used in this Pledge Agreement are inserted for reference purposes
      only
      and shall not be deemed to define, limit, extend, describe, or affect in any
      way
      the meaning, scope or interpretation of any of the terms or provisions of this
      Pledge Agreement or the intent hereof.

    


    14.3 Counterparts.
      This
      Pledge Agreement may be signed in any number of counterparts with the same
      effect as if the signatures upon any counterpart were upon the same instrument.
      All signed counterparts shall be deemed to be one original. A facsimile
      transmission of this signed Pledge Agreement shall be legal and binding on
      all
      parties hereto.

    


    14.4 Further
      Assurances.
      The
      parties hereto agree that, from time to time upon the written request of any
      party hereto, they will execute and deliver such further documents and do such
      other acts and things as such party may reasonably request in order fully to
      effect the purposes of this Pledge Agreement. The Transfer Agent Instructions
      annexed hereto are deemed an integral part of this Pledge
      Agreement.

     

    
      
        
        

      

      
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    14.5 Waiver
      of Breach.
      Any
      waiver by either party of any breach of any kind or character whatsoever by
      the
      other, whether such be direct or implied, shall not be construed as a continuing
      waiver of or consent to any subsequent breach of this Pledge
      Agreement.

    


    14.6 Cumulative
      Remedies.
      The
      rights and remedies of the parties hereto shall be construed cumulatively,
      and
      none of such rights and remedies shall be exclusive of, or in lieu or limitation
      of any other right, remedy, or priority allowed by applicable law.

    


    14.7 Amendment.
      This
      Pledge Agreement may be modified only in a written document that refers to
      this
      Pledge Agreement and is executed by Secured Party, the Pledgor and the
      Debtor.

    


    14.8 Interpretation.
      This
      Pledge Agreement shall be interpreted, construed, and enforced according to
      the
      substantive laws of the State of New York.

    


    14.9 Governing
      Law.
      This
      Pledge Agreement shall be governed by and construed in accordance with the
      laws
      of the State of New York. Each of the parties consents to the jurisdiction
      of
      the federal courts whose districts encompass any part of the County of New
      York
      or the state courts of the State of New York sitting in the County of New York
      in connection with any dispute arising under this Pledge Agreement and hereby
      waives, to the maximum extent permitted by law, any objection, including any
      objection based on forum
      non coveniens,
      to the
      bringing of any such proceeding in such jurisdictions.

    


    14.10 WAIVER
      OF JURY TRIAL.
      The
      parties to this Pledge Agreement hereby waive a trial by jury in any action,
      proceeding or counterclaim brought by any of them against any other in respect
      of any matter arising out or in connection with this Pledge
      Agreement.

    


    14.11  Notice.
      Any
      notice or other communication required or permitted to be given hereunder shall
      be effective upon receipt. Such notices may be sent (i) in the United States
      mail, postage prepaid and certified, (ii) by express courier with receipt,
      (iii)
      by facsimile transmission, with a copy subsequently delivered as in (i) or
      (ii)
      above. Any such notice shall be addressed or transmitted as
      follows:

    


    If
      to
      Company/Pledgor, to:

    


    Neah
      Power Systems, Inc. 

    22122
      20th Avenue SE, Suite 161

    Bothell,
      Washington 98021

    Tel.:
      425-424-3324

    Fax:
      425-483-8454 

    


    
      
        
        

      

      
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    With
      a
      copy to:

    


    Dreir
      Stein & Kahan LLP

    1620
      26th
      Street,
      6th
      Floor,
      North Tower

    Santa
      Monica, CA 90404

    Attention:
      John C. Kirkland, Esq.

    Tel:     
      424-202-6050

    Fax:    
      424-202-6250

    


    


    If
      to the
      Secured Party, to:

    


    CAMHZN
      Master LDC

    c/o
      Centrecourt Asset Management LLC 

    350
      Madison Avenue, 8th
      Floor

    New
      York,
      NY 10017

    Tel:     
      646-758-6750

    Fax:    
      646-758-6751

    


    With
      a
      copy to:

    


    Law
      Offices of Isaac M. Zucker, PLLC

    600
      Old
      Country Road, Suite 321

    Garden
      City, New York 11530

    Attn:
      Isaac M. Zucker, Esq.

    Tel:     
      516-385-6699

    Fax:    
      516-385-6719

    


    Any
      party
      may change its address by notice similarly given to the other parties (except
      that a Secured Party need not give notice to other Secured Party).

    


    14.12 Acknowledgement
      by Debtor and Pledgors.
      In the
      event that any provision of the Transaction Agreements, the Guarantee or this
      Pledge Agreement as applied to any party or circumstances shall be adjudged
      by a
      court to be invalid or unenforceable, each of the Debtor or the Pledgor, as
      the
      case may be, acknowledges and agrees that this Pledge Agreement shall remain
      valid and enforceable in all respects against the Debtor and the
      Pledgor.

    


    


    


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    IN
      WITNESS WHEREOF, the Parties have executed this Agreement as of the day, month
      and year first above written.

    


    
      	
              CAMHZN
                MASTER LDC

            
	 	 
	
              By:

            	 

	
              Name:

            
	
              Title:

            
	 	 
	
              NEAH
                POWER SYSTEMS, INC.:

            
	 	 
	 	 
	
              By:

            	 

	
              Name:

            
	
              Title:

            


    

     

    
      
        
        

      

      
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    SCHEDULE
      2

     

    The
      following shares are pledged hereunder as the Pledged Shares, each certificate
      in the name of:

     

    
      	
              Holder's Name

            	 	
              Certificate

              No.

            	 	
              No. of Shares

            	 	
              Original Date of

              Acquisition

            
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	
              Total

            	 	 	 	 


    

    


    
      
        
        

      

      
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