Document:

Unassociated Document

    THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
      AND
      THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO EUGENE SCIENCE INC THAT SUCH REGISTRATION IS NOT
      REQUIRED.

    

    
      	 	
              Right
                to Purchase ________ shares of Common Stock of Eugene Science, Inc.
                (subject to adjustment as provided
                herein)

            

    

    

    COMMON
      STOCK PURCHASE WARRANT

     

    
      
        	No. 2007-__	
                Issue
                  Date: November 27, 2007

              

      

    

           

    EUGENE
      SCIENCE, INC.,
      a
      corporation organized under the laws of the State of Delaware (the “Company”),
      hereby certifies that, for value received, __________, or its successors or
      assigns (the “Holder”), is entitled, subject to the terms set forth below, to
      purchase from the Company at any time after the Issue Date until 5:00 p.m.,
      P.S.T. on the third anniversary of the Issue Date (the “Expiration Date”), up to
      _____________ (__________) fully paid and nonassessable shares (“Warrant
      Shares”) of the common stock of the Company (the “Common Stock”), at a per share
      purchase price of $0.25. The aforedescribed purchase price per share, as
      adjusted from time to time as herein provided, is referred to herein as the
      "Purchase Price." The number and character of such shares of Common Stock and
      the Purchase Price are subject to adjustment as provided herein. The Company
      may
      reduce the Purchase Price without the consent of the Holder. Capitalized terms
      not otherwise defined shall have the meaning set forth in the Note and Warrant
      Purchase Agreement by and between the Holder and the Company on or about this
      date.

     

    As
      used
      herein the following terms, unless the context otherwise requires, have the
      following respective meanings: 

     

    (a) The
      term
“Company” shall include Eugene Science, Inc. and any corporation which shall
      succeed to or assume the obligations of Eugene Science, Inc. hereunder.

     

    (b) The
      term
“Common Stock” includes (a) the Company's Common Stock and (b) any other
      securities into which or for which any of the securities described in
      (a) may be converted or exchanged pursuant to a plan of recapitalization,
      reorganization, merger, sale of assets or otherwise.

     

    (c) The
      term
“Other Securities” refers to any stock (other than Common Stock) and other
      securities of the Company or any other person (corporate or otherwise) which
      the
      holder of the Warrant at any time shall be entitled to receive, or shall have
      received, on the exercise of the Warrant, in lieu of or in addition to Common
      Stock, or which at any time shall be issuable or shall have been issued in
      exchange for or in replacement of Common Stock or Other Securities pursuant
      to
      Section 4 or otherwise. 

     

    1. Exercise
      of Warrant.

     

    1.1. Number
      of Shares Issuable upon Exercise.
      From
      and after the Issue Date through and including the Expiration Date the Holder
      hereof shall be entitled to receive, upon exercise of this Warrant in whole
      in
      accordance with the terms of subsection 1.2 or upon exercise of this
      Warrant in part in accordance with subsection 1.3, ________ shares of
      Common Stock of the Company, subject to adjustment pursuant to
      Section 4.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    1.2. Full
      Exercise.
      This
      Warrant may be exercised in full by the Holder hereof by delivery of an original
      or facsimile copy of the form of subscription attached as Exhibit A hereto
      (the
“Subscription Form") duly executed by such Holder and surrender of the original
      Warrant within seven (7) days of exercise, to the Company at its principal
      office or at the office of its Warrant Agent (as provided hereinafter),
      accompanied by payment, in cash, wire transfer or by certified or official
      bank
      check payable to the order of the Company, in the amount obtained by multiplying
      the number of shares of Common Stock exercisable under this Warrant by the
      Purchase Price then in effect or by cashless exercise in the manner set forth
      in
      Section 2. This Warrant may also be exercised in full on a "cashless exercise"
      basis in accordance with the provisions of Section 2.

     

    1.3. Partial
      Exercise.
      This
      Warrant may be exercised in part (but not for a fractional share) by surrender
      of this Warrant in the manner and at the place provided in subsection 1.2
      except that the amount payable by the Holder on such partial exercise shall
      be
      the amount obtained by multiplying (a) the number of whole shares of Common
      Stock designated by the Holder in the Subscription Form by (b) the Purchase
      Price then in effect. On any such partial exercise, the Company, at its expense,
      will forthwith issue and deliver to or upon the order of the Holder hereof
      a new
      Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
      payment by such Holder of any applicable transfer taxes) may request, the whole
      number of shares of Common Stock for which such Warrant may still be exercised.
      This Warrant may also be exercised in part on a "cashless exercise" basis in
      accordance with the provisions of Section 2.

     

    1.4. Fair
      Market Value.
      Fair
      Market Value of a share of Common Stock as of a particular date (the
      "Determination Date") shall mean: 

     

    (a) If
      the
      Company's Common Stock is traded on an exchange or is quoted on the National
      Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") Global
      Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the
      American Stock Exchange, LLC (“AMEX”), then the closing or last sale price,
      respectively, reported for the last business day immediately preceding the
      Determination Date;

     

    (b) If
      the
      Company's Common Stock is not traded on an exchange or on the NASDAQ Global
      Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or AMEX,
      but
      is traded in the over-the-counter market, then the average of the closing bid
      and ask prices reported for the last business day immediately preceding the
      Determination Date;

     

    (c) Except
      as
      provided in clause (d) below, if the Company's Common Stock is not publicly
      traded, then as the Holder and the Company agree, or in the absence of such
      an
      agreement, by arbitration in accordance with the rules then standing of the
      American Arbitration Association, before a single arbitrator to be chosen from
      a
      panel of persons qualified by education and training to pass on the matter
      to be
      decided; or

     

    (d) If
      the
      Determination Date is the date of a liquidation, dissolution or winding up,
      or
      any event deemed to be a liquidation, dissolution or winding up pursuant to
      the
      Company's charter, then all amounts to be payable per share to holders of the
      Common Stock pursuant to the charter in the event of such liquidation,
      dissolution or winding up, plus all other amounts to be payable per share in
      respect of the Common Stock in liquidation under the charter, assuming for
      the
      purposes of this clause (d) that all of the shares of Common Stock then
      issuable upon exercise of all of the Warrants are outstanding at the
      Determination Date.

     

    1.5. Company
      Acknowledgment.
      The
      Company will, at the time of the exercise of the Warrant, upon the request
      of
      the Holder hereof acknowledge in writing its continuing obligation to afford
      to
      such Holder any rights to which such Holder shall continue to be entitled after
      such exercise in accordance with the provisions of this Warrant. If the Holder
      shall fail to make any such request, such failure shall not affect the
      continuing obligation of the Company to afford to such Holder any such rights.
      

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    1.6 Delivery
      of Stock Certificates, etc. on Exercise.
      The
      Company agrees that the shares of Common Stock purchased upon exercise of this
      Warrant shall be deemed to be issued to the Holder hereof as the record owner
      of
      such shares as of the close of business on the date on which this Warrant shall
      have been surrendered and payment made for such shares as aforesaid. As soon
      as
      practicable after the exercise of this Warrant in full or in part, and in any
      event within five (5) business days thereafter, the Company at its expense
      (including the payment by it of any applicable issue taxes) will cause to be
      issued in the name of and delivered to the Holder hereof, or as such Holder
      (upon payment by such Holder of any applicable transfer taxes) may direct in
      compliance with applicable securities laws, a certificate or certificates for
      the number of duly and validly issued, fully paid and nonassessable shares
      of
      Common Stock (or Other Securities) to which such Holder shall be entitled on
      such exercise, plus, in lieu of any fractional share to which such Holder would
      otherwise be entitled, cash equal to such fraction multiplied by the then Fair
      Market Value of one full share of Common Stock, together with any other stock
      or
      other securities and property (including cash, where applicable) to which such
      Holder is entitled upon such exercise pursuant to Section 1 or otherwise.

     

    2. Cashless
      Exercise.

     

    (a) If
      (i)
      the resale of the Warrant Shares has not been registered with the Securities
      and
      Exchange Commission within nine months of the Issue Date and (ii) the Fair
      Market Value of one share of Common Stock is greater than the Purchase Price
      (at
      the date of calculation as set forth below), in lieu of exercising this Warrant
      for cash, the holder may elect to receive Warrant Shares equal to the value
      (as
      determined below) of this Warrant (or the portion thereof being cancelled)
      by
      surrender of this Warrant at the principal office of the Company together with
      the properly endorsed Subscription Form in which event the Company shall issue
      to the holder a number of shares of Common Stock computed using the following
      formula:

     

    
      
        	 	
                 

              	
                
                  X=Y
                    (A-B)

                      A

                

              

      

    

     

    
      
        	         Where	
                X=

              	
                the
                  number of shares of Common Stock to be issued to the
                  holder

              

      

       

    

    
      	 	
              Y=

            	
              the
                number of shares of Common Stock purchasable under the Warrant or,
                if only
                a portion of the Warrant is being exercised, the portion of the Warrant
                being exercised (at the date of such
                calculation)

            

    

     

    
      	 	
              A=

            	
              the
                Fair Market Value of one share of the Company’s Common Stock (at the date
                of such calculation)

            

    

     

    
      	 	
              B=

            	
              Purchase
                Price (as adjusted to the date of such
                calculation)

            

    

     

    The
      cashless exercise provisions set forth in this Section 2 shall expire
      immediately upon the effectiveness of the Company’s registration of the Warrant
      Shares.

     

    3. Adjustment
      for Reorganization, Consolidation, Merger, etc.; Adjustment for Issuance of
      Additional Securities

     

    3.1. Reorganization,
      Consolidation, Merger, etc.
      In case
      at any time or from time to time, the Company shall (a) effect a
      reorganization, (b) consolidate with or merge into any other person or
      (c) transfer all or substantially all of its properties or assets to any
      other person under any plan or arrangement contemplating the dissolution of
      the
      Company, then, in each such case, as a condition to the consummation of such
      a
      transaction, proper and adequate provision shall be made by the Company whereby
      the Holder of this Warrant, on the exercise hereof as provided in
      Sections 1 or 2, at any time after the consummation of such reorganization,
      consolidation or merger or the effective date of such dissolution, as the case
      may be, shall receive, in lieu of the Common Stock (or Other Securities)
      issuable on such exercise prior to such consummation or such effective date,
      the
      stock and other securities and property (including cash) to which such Holder
      would have been entitled upon such consummation or in connection with such
      dissolution, as the case may be, if such Holder had so exercised this Warrant,
      immediately prior thereto, all subject to further adjustment thereafter as
      provided in Section 4.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    3.2. Dissolution.
      In the
      event of any dissolution of the Company following the transfer of all or
      substantially all of its properties or assets, the Company, prior to such
      dissolution, shall at its expense deliver or cause to be delivered the stock
      and
      other securities and property (including cash, where applicable) receivable
      by
      the Holder of the Warrants after the effective date of such dissolution pursuant
      to this Section 3 to a bank or trust company (a "Trustee") having its
      principal office in Orange County, California, as trustee for the Holder of
      the
      Warrants. 

     

    3.3. Continuation
      of Terms.
      Upon
      any reorganization, consolidation, merger or transfer (and any dissolution
      following any transfer) referred to in this Section 3, this Warrant shall
      continue in full force and effect and the terms hereof shall be applicable
      to
      the Other Securities and property receivable on the exercise of this Warrant
      after the consummation of such reorganization, consolidation or merger or the
      effective date of dissolution following any such transfer, as the case may
      be,
      and shall be binding upon the issuer of any Other Securities, including, in
      the
      case of any such transfer, the person acquiring all or substantially all of
      the
      properties or assets of the Company, whether or not such person shall have
      expressly assumed the terms of this Warrant as provided in Section 4. In
      the event this Warrant does not continue in full force and effect after the
      consummation of the transaction described in this Section 3, then only in
      such event will the Company's securities and property (including cash, where
      applicable) receivable by the Holder of the Warrants be delivered to the Trustee
      as contemplated by Section 3.2.

     

    3.4 Subsequent
      Equity Sales.
      Other
      than Excluded Securities, if the Company or any Subsidiary thereof, as
      applicable, at any time while Warrants are outstanding, shall offer, sell,
      grant
      any option to purchase or offer, sell or grant any right to reprice its
      securities, or otherwise dispose of or issue (or announce any offer, sale,
      grant
      or any option to purchase or other disposition) any Common Stock or warrants,
      options or convertible debt (“Common Stock Equivalents”) entitling any Person to
      acquire shares of Common Stock, at an effective price per share less than the
      then Purchase
      Price
      (“Dilutive Issuance”), the Purchase
      Price
      shall be adjusted downward, but never upward, by multiplying the Purchase
      Price by
      a fraction, the numerator of which is the number of shares of Common Stock
      outstanding immediately prior to the Dilutive Issuance plus the number of shares
      of Common Stock which the offering price for such Dilutive Issuance would
      purchase at the then
      Purchase
      Price,
      and the denominator of which shall be the sum of the number of shares of Common
      Stock outstanding immediately prior to the Dilutive Issuance plus the number
      of
      shares of Common Stock so issued or issuable in connection with the Dilutive
      Issuance. Such adjustment shall be made whenever such Common Stock or Common
      Stock Equivalents are issued. The Company shall notify the Holder in writing,
      no
      later than the business day following the issuance of any Common Stock or Common
      Stock Equivalents subject to this section, indicating therein the applicable
      issuance price, or of applicable reset price, exchange price, conversion price
      and other pricing terms. In the event the Purchase Price is decreased due to
      a
      Dilutive Issuance, the number of shares of Common Stock issuable on exercise
      of
      the Warrants will be determined by multiplying the number of shares of Common
      Stock issuable on exercise of the Warrants immediately prior to the Dilutive
      Issuance by a fraction the numerator of which will be the Purchase Price
      immediately prior to the Dilutive Issuance and the denominator of which will
      be
      the Purchase Price adjusted by the Dilutive Issuance. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Excluded
      Securities” shall mean (i) securities issued in connection with the Note and the
      Warrant; (ii) securities issued upon conversion of any securities outstanding
      as
      of the date of this Warrant; (iii) securities issued pursuant to the acquisition
      of another business or business segment of any such entity by the Company by
      merger, purchase of substantially all the assets or other reorganization whereby
      the Company will own more than fifty percent (50%) of the voting power of such
      business entity or business segment of any such entity; (iv) securities issued
      to employees, consultants, officers, directors or advisors of the Company
      pursuant to any stock option, stock purchase or stock bonus plan, agreement
      or
      arrangement approved by the Board of Directors of the Company; (v) securities
      issued in connection with obtaining lease financing, whether issued to a non
      affiliated lender, lessor, guarantor or other person and approved by the Board
      of Directors of the Company; (vi) securities issued to leasing companies,
      landlords and other providers of goods and services to the Company and approved
      by the Board of Directors; (vii) securities issued in connection with strategic
      transactions involving the Company and other entities, including (A) joint
      ventures, manufacturing, marketing or distribution arrangements or (B)
      technology license, transfer or development arrangements; provided that such
      strategic transactions and the issuance of shares therein, have been approved
      by
      the Board of Directors of the Company; and (viii) any right, option or warrant
      to acquire any security convertible into the securities pursuant to subsections
      (i) through (vii) above.

     

    4. Extraordinary
      Events Regarding Common Stock.
      In the
      event that the Company shall (a) issue additional shares of the Common Stock
      as
      a dividend or other distribution on outstanding Common Stock, (b) subdivide
      its
      outstanding shares of Common Stock, or (c) combine its outstanding shares of
      the
      Common Stock into a smaller number of shares of the Common Stock, then, in
      each
      such event, the Purchase Price shall, simultaneously with the happening of
      such
      event, be adjusted by multiplying the then Purchase Price by a fraction, the
      numerator of which shall be the number of shares of Common Stock outstanding
      immediately prior to such event and the denominator of which shall be the number
      of shares of Common Stock outstanding immediately after such event, and the
      product so obtained shall thereafter be the Purchase Price then in effect.
      The
      Purchase Price, as so adjusted, shall be readjusted in the same manner upon
      the
      happening of any successive event or events described herein in this Section
      4.
      The number of shares of Common Stock that the Holder of this Warrant shall
      thereafter, on the exercise hereof as provided in Section 1 or 2, be entitled
      to
      receive shall be adjusted to a number determined by multiplying the number
      of
      shares of Common Stock that would otherwise (but for the provisions of this
      Section 4) be issuable on such exercise by a fraction of which (a) the numerator
      is the Purchase Price in effect immediately prior to such event (but for the
      provisions of this Section 4), and (b) the denominator is the Purchase Price
      in
      effect on the date of such event. 

     

    5. Certificate
      as to Adjustments.
      In each
      case of any adjustment or readjustment in the shares of Common Stock (or Other
      Securities) issuable on the exercise of the Warrants, the Company at its expense
      will promptly cause its Chief Financial Officer or other appropriate designee
      to
      compute such adjustment or readjustment in accordance with the terms of the
      Warrant and prepare a certificate setting forth such adjustment or readjustment
      and showing in detail the facts upon which such adjustment or readjustment
      is
      based, including a statement of (a) the consideration received or
      receivable by the Company for any additional shares of Common Stock (or Other
      Securities) issued or sold or deemed to have been issued or sold, (b) the
      number of shares of Common Stock (or Other Securities) outstanding or deemed
      to
      be outstanding, and (c) the Purchase Price and the number of shares of
      Common Stock to be received upon exercise of this Warrant, in effect immediately
      prior to such adjustment or readjustment and as adjusted or readjusted as
      provided in this Warrant. The Company will forthwith mail a copy of each such
      certificate to the Holder of the Warrant and any Warrant Agent of the Company
      (appointed pursuant to Section 11 hereof).

     

    6. Reservation
      of Stock, etc. Issuable on Exercise of Warrant; Financial
      Statements.
      The
      Company will at all times reserve and keep available, solely for issuance and
      delivery on the exercise of the Warrants, all shares of Common Stock (or Other
      Securities) from time to time issuable on the exercise of the Warrant. This
      Warrant entitles the Holder hereof to receive copies of all financial and other
      information distributed or required to be distributed to the holders of the
      Company's Common Stock. 

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    7. Assignment;
      Exchange of Warrant.
      Subject
      to compliance with applicable securities laws, this Warrant, and the rights
      evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”). On
      the surrender for exchange of this Warrant, with the Transferor's endorsement
      in
      the form of Exhibit B attached hereto (the “Transferor Endorsement
      Form”) and
      together with an opinion of counsel reasonably satisfactory to the Company
      that
      the transfer of this Warrant will be in compliance with applicable securities
      laws, the Company at its expense, but with payment by the Transferor of any
      applicable transfer taxes, will issue and deliver to or on the order of the
      Transferor thereof a new Warrant or Warrants of like tenor, in the name of
      the
      Transferor and/or the transferee(s) specified in such Transferor Endorsement
      Form (each a “Transferee”), calling in the aggregate on the face or faces
      thereof for the number of shares of Common Stock called for on the face or
      faces
      of the Warrant so surrendered by the Transferor. No such transfers shall result
      in a public distribution of the Warrant.

     

    8. Replacement
      of Warrant.
      On
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of this Warrant and, in the case of any such loss,
      theft or destruction of this Warrant, on delivery of an indemnity agreement
      or
      security reasonably satisfactory in form and amount to the Company or, in the
      case of any such mutilation, on surrender and cancellation of this Warrant,
      the
      Company at its expense, twice only, will execute and deliver, in lieu thereof,
      a
      new Warrant of like tenor.

     

    9. Warrant
      Agent.
      The
      Company may, by written notice to the Holder of the Warrant, appoint an agent
      (a
“Warrant Agent”) for the purpose of issuing Common Stock (or Other Securities)
      on the exercise of this Warrant pursuant to Section 1, exchanging this
      Warrant pursuant to Section 7, and replacing this Warrant pursuant to
      Section 8, or any of the foregoing, and thereafter any such issuance,
      exchange or replacement, as the case may be, shall be made at such office by
      such Warrant Agent. 

     

    10. Transfer
      on the Company's Books.
      Until
      this Warrant is transferred on the books of the Company, the Company may treat
      the registered holder hereof as the absolute owner hereof for all purposes,
      notwithstanding any notice to the contrary. 

     

    11. Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be in writing and, unless otherwise
      specified herein, shall be (i) personally served, (ii) deposited in the mail,
      registered or certified, return receipt requested, postage prepaid, (iii)
      delivered by reputable air courier service with charges prepaid, or (iv)
      transmitted by hand delivery, telegram, or facsimile, addressed as set forth
      below or to such other address as such party shall have specified most recently
      by written notice. Any notice or other communication required or permitted
      to be
      given hereunder shall be deemed effective (a) upon hand delivery or delivery
      by
      facsimile, with accurate confirmation generated by the transmitting facsimile
      machine, at the address or number designated below (if delivered on a business
      day during normal business hours where such notice is to be received), or the
      first business day following such delivery (if delivered other than on a
      business day during normal business hours where such notice is to be received)
      or (b) on the second business day following the date of mailing by express
      courier service, fully prepaid, addressed to such address, or upon actual
      receipt of such mailing, whichever shall first occur. The addresses for such
      communications shall be the addresses set forth in the Purchase
      Agreement.

     

    12. Miscellaneous.
      This
      Warrant and any term hereof may be changed, waived, discharged or terminated
      only by an instrument in writing signed by the party against which enforcement
      of such change, waiver, discharge or termination is sought. This Warrant shall
      be construed and enforced in accordance with and governed by the laws of
      California. Any dispute relating to this Warrant shall be adjudicated only
      in
      County of Orange in the State of California. The headings in this Warrant are
      for purposes of reference only, and shall not limit or otherwise affect any
      of
      the terms hereof. The invalidity or unenforceability of any provision hereof
      shall in no way affect the validity or enforceability of any other provision.
      

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company has executed this Warrant as of the date first
      written above. 

     

    
      	 	 	 
	 	EUGENE
              SCIENCE,
              INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	 
	 	 
	Witness:	 
	 	 
	 	 
	
              

            	 

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    Exhibit A

    

    FORM
      OF
      SUBSCRIPTION

    (to
      be
      signed only on exercise of Warrant)

    

    TO:
      EUGENE SCIENCE INC 

    The
      undersigned, pursuant to the provisions set forth in the attached Warrant
      (No.____), hereby irrevocably elects to purchase (check applicable
      box):

    

    ___ ________
      shares of the Common Stock covered by such Warrant; or

     

    ___ the
      maximum number of shares of Common Stock covered by such Warrant pursuant to
      the
      cashless exercise procedure set forth in Section 2.

    

    The
      undersigned herewith makes payment of the full purchase price for such shares
      at
      the price per share provided for in such Warrant, which is $___________. Such
      payment takes the form of (check applicable box or boxes):

    

    ___ $__________
      in lawful money of the United States; and/or

     

    ___ the
      cancellation of such portion of the attached Warrant as is exercisable for
      a
      total of _______ shares of Common Stock (using a Fair Market Value of $_______
      per share for purposes of this calculation); and/or

    

    ___ the
      cancellation of such number of shares of Common Stock as is necessary, in
      accordance with the formula set forth in Section 2, to exercise this
      Warrant with respect to the maximum number of shares of Common Stock purchasable
      pursuant to the cashless exercise procedure set forth in
      Section 2.

    
      
        

          The
            undersigned requests that the certificates for such shares be issued
            in the name
            of, and delivered to _________________
            whose address is 

              

          
            
              

            

                 .
              

            

          

           

        

      

    

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the "Securities Act"), or pursuant to an exemption from registration
      under the Securities Act.

    

    
      	
              Dated:___________________

            	
                                              

              (Signature
                must conform to name of holder as specified on the face of the
                Warrant)

               

              
                                                

              

              
                                                

              

              (Address)

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit B

     

     

    FORM
      OF
      TRANSFEROR ENDORSEMENT

    (To
      be
      signed only on transfer of Warrant)

     

    For
      value
      received, the undersigned hereby sells, assigns, and transfers unto the
      person(s) named below under the heading "Transferees" the right represented
      by
      the within Warrant to purchase the percentage and number of shares of Common
      Stock of EUGENE SCIENCE, INC. to which the within Warrant relates specified
      under the headings "Percentage Transferred" and "Number Transferred,"
      respectively, opposite the name(s) of such person(s) and appoints each such
      person Attorney to transfer its respective right on the books of EUGENE SCIENCE,
      INC. with full power of substitution in the premises.

     

    

    
      	
              Transferees

            	
              Percentage
                Transferred

            	
              Number
                Transferred

            
	 	 	 
	 	 	 
	 	 	 

    

    

    

    
      	
              Dated:
                ______________, ___________

               

               

               

              Signed
                in the presence of:

               

                                        

              (Name)

               

               

              ACCEPTED
                AND AGREED:

              [TRANSFEREE]

               

               

                                        

              (Name)

            	
                                                  

              (Signature
                must conform to name of holder as specified on the 

              face
                of the warrant)

               

               

               

              
                                                    

              

              
                                                    

              

                   (address)

               

              
                                                    

                
                                                      

                

              

              
                     (address)

              

            

    

     

    
      
        
        

      

      
        10FORM
      OF NOTE

    

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

    

    US
      $500,000.00 

     

    
      
        

      

    

     

    12%
      SECURED PROMISSORY NOTE DUE JUNE 28, 2008

    

    FOR
      VALUE
      RECEIVED, Neah Power Systems, Inc., a corporation organized and existing under
      the laws of the State of Nevada (the “Company”), promises to pay to CAMHZN
      MASTER LDC,
      the
      registered holder hereof (the “Holder”), the principal sum of Five Hundred
      Thousand and 00/100 Dollars (US $500,000.00) on
      the
      Maturity Date (as defined below) and to pay interest on the principal sum
      outstanding from time to time in arrears at the rate of 12% per annum (computed
      on the basis of the actual number of days elapsed and a year of 360 days and
      compounded monthly), accruing from November 28, 2007, the date of initial
      issuance of this Note (the “Issue Date”), to the date of payment. Such interest
      shall be payable on the date which is the earlier of (i) the Maturity Date,
      or
      (ii) the date of any prepayment of principal permitted hereunder; except that
      interest for month in advance shall be paid on the Issue Date. Accrual of
      interest shall commence on the Issue Date and shall continue to accrue on a
      daily basis until payment in full of the principal sum has been made or duly
      provided for (whether before or after the Maturity Date). 

    

    This
      Note
      is being issued pursuant to the terms of the Purchase Agreement, dated as of
      November 28, 2007 (the “Purchase Agreement”), to which the Company and the
      Holder (or the Holder’s predecessor in interest) are parties. Capitalized terms
      not otherwise defined herein shall have the meanings ascribed to them in the
      Purchase Agreement.

    

    This
      Note
      is subject to the following additional provisions:

    

    1. The
      term
“Maturity Date” means the earlier of (x) June 28, 2008 or (y) the date on which
      the Company consummates an equity financing or funding transaction in excess
      of
      $2,000,000 (a “Qualified Financing”), whether or not such transaction is
      effected in connection with current or future issuance of securities.

    

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

     

    
      
        
        

      

      
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          1

        
          

        

      

      
        
        

      

    

    

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

    

    (iii) If,
      at
      the end of any Trading Day, the value of the Pledged Shares (using the closing
      price of the stock on such day) is less than 500% of the aggregate principal
      amount outstanding on the Note, then the Company shall within two Trading Days
      either (i) pay to the Purchaser an amount sufficient to reduce the outstanding
      principal amount on the Note or (ii) provide the Purchaser a first priority
      perfected security interest in additional collateral (which may include
      additional shares of common stock of the Company or other collateral acceptable
      to Purchaser in its sole discretion) such that the value of the Pledged Shares
      (plus the value of any additional collateral delivered to the Purchaser) is
      at
      least 500% of the aggregate principal amount outstanding on the
      Note.

    

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

    

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

    

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

    

    6. The
      obligations of the Company under this Note are secured by certain stock of
      the
      Company. The stock is pledged to the Holder under the terms of the Pledge
      Agreements, to which the Holder and the Pledgors are parties. If the Holder
      forecloses on any of the Pledged Shares, the obligations of the Company will
      be
      reduced only to the extent of the proceeds actually realized from such
      foreclosure, in the priority specified in Section 3 hereof.

     

    
      
        
        

      

      
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          2

        
          

        

      

      
        
        

      

    

     

    7. Conversion.

     

    a) Voluntary
      Conversion.
      At any
      time after the Original Issue Date until this Note is no longer outstanding,
      this Note shall be convertible into shares of Common Stock at the option of
      the
      Holder, in whole or in part at any time and from time to time (subject to the
      limitations on conversion set forth in Section 7(d) hereof). The Holder
      shall effect conversions by delivering to the Company the form of Notice of
      Conversion attached hereto (a “Notice of Conversion”), specifying therein the
      principal amount of Notes to be converted and the date on which such conversion
      is to be effected (a “Conversion Date”). If no Conversion Date is specified in a
      Notice of Conversion, the Conversion Date shall be the date that such Notice
      of
      Conversion is provided hereunder. To effect conversions hereunder, the Holder
      shall not be required to physically surrender Notes to the Company unless the
      entire principal amount of this Note plus all accrued and unpaid interest
      thereon has been so converted. Conversions hereunder shall have the effect
      of
      lowering the outstanding principal amount of this Note in an amount equal to
      the
      applicable conversion. The Holder and the Company shall maintain records showing
      the principal amount converted and the date of such conversions. The Company
      shall deliver any objection to any Notice of Conversion within 3 Business Days
      of receipt of such notice. In the event of any dispute or discrepancy, the
      records of the Holder shall be controlling and determinative in the absence
      of
      manifest error. The Holder and any assignee, by acceptance of this Note,
      acknowledge and agree that, by reason of the provisions of this paragraph,
      following conversion of a portion of this Note, the unpaid and unconverted
      principal amount of this Note may be less than the amount stated on the face
      hereof. However, at the Company’s request, the Holder shall surrender the Note
      to the Company within five (5) Trading Days following such request so that
      a new
      Note reflecting the correct principal amount may be issued to
      Holder.

     

    b) Conversion
      Price.
      Subject
      to adjustment as provided for in Section 8, the
      initial conversion price in effect on any Conversion Date shall be
      $3.00.

    

    c) Reserved.
      

    

    d) Conversion
      Limitations;
      Holder’s
      Restriction on Conversion.
      The
      Company shall not effect any conversion of this Note, and the Holder shall
      not
      have the right to convert any portion of this Note, pursuant to Section 7(a)
      or
      otherwise, to the extent that after giving effect to such conversion, the Holder
      (together with the Holder’s affiliates), as set forth on the applicable Notice
      of Conversion, would beneficially own in excess of 4.99% of the number of shares
      of the Common Stock outstanding immediately after giving effect to such
      conversion.  For purposes of the foregoing sentence, the number of shares
      of Common Stock beneficially owned by the Holder and its affiliates shall
      include the number of shares of Common Stock issuable upon conversion of this
      Note with respect to which the determination of such sentence is being made,
      but
      shall exclude the number of shares of Common Stock which would be issuable
      upon
      (A) conversion of the remaining, nonconverted portion of this Note beneficially
      owned by the Holder or any of its affiliates and (B) exercise or conversion
      of
      the unexercised or nonconverted portion of any other securities of the Company
      (including, without limitation, any other Notes or the Warrants) subject to
      a
      limitation on conversion or exercise analogous to the limitation contained
      herein beneficially owned by the Holder or any of its affiliates.  Except
      as set forth in the preceding sentence, for purposes of this Section 7(d),
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      Exchange Act. To the extent that the limitation contained in this section
      applies, the determination of whether this Note is convertible (in relation
      to
      other securities owned by the Holder) and of which a portion of this Note is
      convertible shall be in the sole discretion of such Holder. To ensure compliance
      with this restriction, the Holder will be deemed to represent to the Company
      each time it delivers a Notice of Conversion that such Notice of Conversion
      has
      not violated the restrictions set forth in this paragraph and the Company shall
      have no obligation to verify or confirm the accuracy of such determination.
      For
      purposes of this Section 7(d), in determining the number of outstanding shares
      of Common Stock, the Holder may rely on the number of outstanding shares of
      Common Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form
      10-KSB (or such related form), 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 the Holder, the Company
      shall within two Trading Days confirm orally and in writing to the Holder 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, including this Note,
      by
      the Holder or its affiliates since the date as of which such number of
      outstanding shares of Common Stock was reported. The provisions of this Section
      7(d) may be waived by the Holder upon, at the election of the Holder, not less
      than 61 days’ prior notice to the Company, and the provisions of this Section
      7(d) shall continue to apply until such 61st day (or such later date, as
      determined by the Holder, as may be specified in such notice of
      waiver).

    
      
        
        

      

      
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          3

        
          

        

      

      
        
        

      

    

     

    e) Mechanics
      of Conversion

     

    i. Conversion
      Shares Issuable Upon Conversion of Principal Amount.
      The
      number of shares of Common Stock issuable upon a conversion hereunder shall
      be
      determined by the quotient obtained by dividing (x) the outstanding principal
      amount of this Note to be converted by (y) the Conversion Price.

    

    ii. Delivery
      of Certificate Upon Conversion.
      Not
      later than three Trading Days after any Conversion Date, the Company will
      deliver to the Holder (A) a certificate or certificates representing the
      Conversion Shares which shall be free of restrictive legends and trading
      restrictions (other than those required by the Purchase Agreement) representing
      the number of shares of Common Stock being acquired upon the conversion of
      Notes
      (including, if so timely elected by the Company, shares of Common Stock
      representing the payment of accrued interest) and (B) a bank check in the amount
      of accrued and unpaid interest (if the Company is required to pay accrued
      interest in cash). The Company shall, if available and if allowed under
      applicable securities laws, use its best efforts to deliver any certificate
      or
      certificates required to be delivered by the Company under this Section
      electronically through the Depository Trust Corporation or another established
      clearing corporation performing similar functions. 

    

    iii. Failure
      to Deliver Certificates.
      If in
      the case of any Notice of Conversion such certificate or certificates are not
      delivered to or as directed by the applicable Holder by the third Trading Day
      after a Conversion Date, the Holder shall be entitled by written notice to
      the
      Company at any time on or before its receipt of such certificate or certificates
      thereafter, to rescind such conversion, in which event the Company shall
      immediately return the certificates representing the principal amount of Notes
      tendered for conversion. 

     

    
      
        
        

      

      
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          4

        
          

        

      

      
        
        

      

    

    

    iv. Obligation
      Absolute; Partial Liquidated Damages. If
      the
      Company fails for any reason to deliver to the Holder such certificate or
      certificates pursuant to Section 7(d)(ii) by the third Trading Day after the
      Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
      damages and not as a penalty, for each $1,000 of principal amount being
      converted, $10 per Trading Day (increasing to $20 per Trading Day after 5
      Trading Days after such damages begin
      to
      accrue) for each Trading Day after such third Trading Day until such
      certificates are delivered. The Company’s obligations to issue and deliver the
      Conversion Shares upon conversion of this Note in accordance with the terms
      hereof are absolute and unconditional, irrespective of any action or inaction
      by
      the Holder to enforce the same, any waiver or consent with respect to any
      provision hereof, the recovery of any judgment against any Person or any action
      to enforce the same, or any setoff, counterclaim, recoupment, limitation or
      termination, or any breach or alleged breach by the Holder or any other Person
      of any obligation to the Company or any violation or alleged violation of law
      by
      the Holder or any other person, and irrespective of any other circumstance
      which
      might otherwise limit such obligation of the Company to the Holder in connection
      with the issuance of such Conversion Shares; provided,
      however,
      such
      delivery shall not operate as a waiver by the Company of any such action the
      Company may have against the Holder. In the event a Holder of this Note shall
      elect to convert any or all of the outstanding principal amount hereof, the
      Company may not refuse conversion based on any claim that the Holder or any
      one
      associated or affiliated with the Holder of has been engaged in any violation
      of
      law, agreement or for any other reason, unless, an injunction from a court,
      on
      notice, restraining and or enjoining conversion of all or part of this Note
      shall have been sought and obtained and the Company posts a surety bond for
      the
      benefit of the Holder in the amount of 150% of the principal amount of this
      Note
      outstanding, which is subject to the injunction, which bond shall remain in
      effect until the completion of arbitration/litigation of the dispute and the
      proceeds of which shall be payable to such Holder to the extent it obtains
      judgment. In the absence of an injunction precluding the same, the Company
      shall
      issue Conversion Shares or, if applicable, cash, upon a properly noticed
      conversion. Nothing herein shall limit a Holder’s right to pursue actual damages
      or declare an Event of Default pursuant to Section 9 herein for the Company’s
      failure to deliver Conversion Shares within the period specified herein and
      such
      Holder shall have the right to pursue all remedies available to it at law or
      in
      equity including, without limitation, a decree of specific performance and/or
      injunctive relief. The exercise of any such rights shall not prohibit the
      Holders from seeking to enforce damages pursuant to any other Section hereof
      or
      under applicable law.

     

    v. Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Conversion.
      In
      addition to any other rights available to the Holder, if the Company fails
      for
      any reason to deliver to the Holder such certificate or certificates pursuant
      to
      Section 7(d)(ii) by the third Trading Day after the Conversion Date, and if
      after such third Trading Day the Holder is required by its brokerage firm to
      purchase (in an open market transaction or otherwise) Common Stock to deliver
      in
      satisfaction of a sale by such Holder of the Conversion Shares which the Holder
      anticipated receiving upon such conversion (a “Buy-In”), then the Company shall
      (A) pay in cash to the Holder (in addition to any remedies available to or
      elected by the Holder) the amount by which (x) the Holder's total purchase
      price
      (including brokerage commissions, if any) for the Common Stock so purchased
      exceeds (y) the product of (1) the aggregate number of shares of Common Stock
      that such Holder anticipated receiving from the conversion at issue multiplied
      by (2) the actual sale price of the Common Stock at the time of the sale
      (including brokerage commissions, if any) giving rise to such purchase
      obligation and (B) at the option of the Holder, either reissue Notes in
      principal amount equal to the principal amount of the attempted conversion
      or
      deliver to the Holder the number of shares of Common Stock that would have
      been
      issued had the Company timely complied with its delivery requirements under
      Section 7(e)(ii). For example, if the Holder purchases Common Stock having
      a
      total purchase price of $11,000 to cover a Buy-In in connection with an
      attempted conversion of Notes with respect to which the actual sale price of
      the
      Conversion Shares at the time of the sale (including brokerage commissions,
      if
      any) giving rise to such purchase obligation was a total of $10,000 under clause
      (A) of the immediately preceding sentence, the Company shall be required to
      pay
      the Holder $1,000. The Holder shall provide the Company written notice
      indicating the amounts payable to the Holder in respect of the Buy-In.
      Notwithstanding anything contained herein to the contrary, if a Holder requires
      the Company to make payment in respect of a Buy-In for the failure to timely
      deliver certificates hereunder and the Company timely pays in full such payment,
      the Company shall not be required to pay such Holder liquidated damages under
      Section 7(d)(iv) in respect of the certificates resulting in such
      Buy-In.

    

    
      
        
        

      

      
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          5

        
          

        

      

      
        
        

      

    

     

    vi. Reservation
      of Shares Issuable Upon Conversion.
      The
      Company 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 the Notes and payment of interest on the Note,
      each
      as herein provided, free from preemptive rights or any other actual contingent
      purchase rights of persons other than the Holders, not less than such number
      of
      shares of the Common Stock as shall (subject to any additional requirements
      of
      the Company as to reservation of such shares set forth in the Purchase
      Agreement) be issuable (taking into account the adjustments and restrictions
      of
      Section 8) upon the conversion of the outstanding principal amount of the Notes
      and payment of interest hereunder. The Company covenants that all shares of
      Common Stock that shall be so issuable shall, upon issue, be duly and validly
      authorized, issued and fully paid, nonassessable and, if the Registration
      Statement is then effective under the Securities Act, registered for public
      sale
      in accordance with such Registration Statement.

    

    vii. Fractional
      Shares.
      Upon a
      conversion hereunder the Company shall not be required to issue stock
      certificates representing fractions of shares of the Common Stock, but may
      if
      otherwise permitted, make a cash payment in respect of any final fraction of
      a
      share based on the VWAP at such time. If the Company elects not, or is unable,
      to make such a cash payment, the Holder shall be entitled to receive, in lieu
      of
      the final fraction of a share, one whole share of Common Stock.

    

    viii.  Transfer
      Taxes.
      The
      issuance of certificates for shares of the Common Stock on conversion of the
      Notes shall be made without charge to the Holders thereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificate, provided that the Company shall not be required to pay
      any
      tax that may be payable in respect of any transfer involved in the issuance
      and
      delivery of any such certificate upon conversion in a name other than that
      of
      the Holder of such Notes so converted and the Company shall not be required
      to
      issue or deliver such certificates unless or until the person or persons
      requesting the issuance thereof shall have paid to the Company the amount of
      such tax or shall have established to the satisfaction of the Company that
      such
      tax has been paid.

    

    ix.  Withholding
      of Taxes. 
        All payments by the Company under the Note shall be made in full without
      set-off or counterclaim and free and clear of any deduction or withholding
      for
      or on account of any taxes unless the Company is required by applicable law
      to
      make any deduction or withholding from any payment due under the Note for or
      on
      account of any taxes.  In this event, the Company shall promptly notify the
      Purchaser, pay such additional amounts as are necessary to ensure that the
      Purchaser receives the amount which it would have received if there had been
      no
      such deduction or withholding, promptly pay the tax deducted to the appropriate
      tax authority before any fine or penalty becomes payable and indemnify the
      Purchaser in respect of any such taxes.  As soon as practical, but no later
      than 30 days after any such deduction or withholding, the Company shall forward
      to the Purchaser official tax receipts and any other documents or evidence
      reasonably required by the Purchaser that such taxes have been remitted to
      the
      appropriate taxation authority.

     

    
      
         

        
        

      

      
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    8. Certain
      Adjustments.

     

    a) Stock
      Dividends and Stock Splits.
      If the
      Company, at any time while the Notes are outstanding: (A) 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 (which, for avoidance of doubt, shall not include any
      shares of Common Stock issued by the Company pursuant to this Note, including
      as
      interest thereon), (B) subdivide outstanding shares of Common Stock into a
      larger number of shares, (C) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (D)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Company, 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 outstanding after
      such
      event. Any adjustment made pursuant to this Section 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
      re-classification.

     

    b) Pro
      Rata Distributions.
      If the
      Company, at any time while Notes are outstanding, shall distribute to all
      holders of Common Stock (and not to Holders) evidences of its indebtedness
      or
      assets or rights or warrants to subscribe for or purchase any security, then
      in
      each such case the Conversion Price shall be determined by multiplying such
      Conversion Price in effect immediately prior to the record date fixed for
      determination of stockholders entitled to receive such distribution by a
      fraction of which the denominator shall be the VWAP determined as of the record
      date mentioned above, and of which the numerator shall be such VWAP on such
      record date less the then fair market value at such record date of the portion
      of such assets or evidence of indebtedness so distributed applicable to one
      outstanding share of the Common Stock as determined by the Board of Directors
      in
      good faith. In either case the adjustments shall be described in a statement
      provided to the Holders of the portion of assets or evidences of indebtedness
      so
      distributed or such subscription rights applicable to one share of Common Stock.
      Such adjustment shall be made whenever any such distribution is made and shall
      become effective immediately after the record date mentioned above.

     

    c) Calculations.
      All
      calculations under this Section 8 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. The number of shares of Common
      Stock outstanding at any given time shall not includes shares of Common Stock
      owned or held by or for the account of the Company, and the description of
      any
      such shares of Common Stock shall be considered on issue or sale of Common
      Stock. For purposes of this Section 8, the number of shares of Common Stock
      deemed to be issued and outstanding as of a given date shall be the sum of
      the
      number of shares of Common Stock (excluding treasury shares, if any) issued
      and
      outstanding.

    
      
        
        

      

      
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    d) Notice
      to Holders.

    

    i. Adjustment
      to Conversion Price.
      Whenever the Conversion Price is adjusted pursuant to any of this Section 8,
      the
      Company shall promptly mail to each Holder a notice setting forth the Conversion
      Price after such adjustment and setting forth a brief statement of the facts
      requiring such adjustment. 

     

    ii. Notice
      to Allow Conversion by Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution) on the Common
      Stock; (B) the Company shall declare a special nonrecurring cash dividend on
      or
      a redemption of the Common Stock; (C) the Company shall authorize the granting
      to all holders of the Common Stock rights or warrants to subscribe for or
      purchase any shares of capital stock of any class or of any rights; (D) the
      approval of any stockholders of the Company shall be required in connection
      with
      any reclassification of the Common Stock, any consolidation or merger to which
      the Company is a party, any sale or transfer of all or substantially all of
      the
      assets of the Company, of any compulsory share exchange whereby the Common
      Stock
      is converted into other securities, cash or property; (E) the
      Company shall authorize the voluntary or involuntary dissolution, liquidation
      or
      winding up of the affairs of the Company; then, in each case, the Company shall
      cause to be filed at each office or agency maintained for the purpose of
      conversion of the Notes, and shall cause to be mailed
      to
      the Holders at their last addresses as they shall appear upon the stock
      books of
      the
      Company, at least 20 calendar days prior to the applicable record or effective
      date hereinafter specified, a notice stating (x)
      the
      date on which a record is to be taken for the purpose of such dividend,
      distribution, redemption, rights or warrants, or if a record is not to be taken,
      the date as of which the holders of the Common Stock of record to be entitled
      to
      such dividend, distributions, redemption, rights or warrants are to be
      determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of the Common Stock
      of record shall be entitled to exchange their shares of the Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange; provided,
      that
      the failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. Holders are entitled to convert Notes during the 20-day period
      commencing the date of such notice to the effective date of the event triggering
      such notice. 

     

    iii. Fundamental
      Transaction. If, at any time while this Note is outstanding, (A) the Company
      effects any merger or consolidation of the Company with or into another Person,
      (B) the Company effects any sale of all or substantially all of its assets
      in
      one or a series of related transactions, (C) any tender offer or exchange offer
      (whether by the Company or another Person) is completed pursuant to which
      holders of Common Stock are permitted to tender or exchange their shares for
      other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (in any such case, a “Fundamental Transaction”),
      then upon any subsequent conversion of this Note, the Holder shall have the
      right to receive, for each Conversion Share that would have been issuable upon
      such conversion absent such Fundamental Transaction, the same kind and amount
      of
      securities, cash or property as it would have been entitled to receive upon
      the
      occurrence of such Fundamental Transaction if it had been, immediately prior
      to
      such Fundamental Transaction, the holder of one share of Common Stock (the
      “Alternate Consideration”). For purposes of any such conversion, the
      determination of the Conversion Price shall be appropriately adjusted to apply
      to such Alternate Consideration based on the amount of Alternate Consideration
      issuable in respect of one share of Common Stock in such Fundamental
      Transaction, and the Company shall apportion the Conversion Price among the
      Alternate Consideration in a reasonable manner reflecting the relative value
      of
      any different components of the Alternate Consideration. If holders of Common
      Stock are given any choice as to the securities, cash or property to be received
      in a Fundamental Transaction, then the Holder shall be given the same choice
      as
      to the Alternate Consideration it receives upon any conversion of this Note
      following such Fundamental Transaction. To the extent necessary to effectuate
      the foregoing provisions, any successor to the Company or surviving entity
      in
      such Fundamental Transaction shall issue to the Holder a new note consistent
      with the foregoing provisions and evidencing the Holder’s right to convert such
      note into Alternate Consideration. The terms of any agreement pursuant to which
      a Fundamental Transaction is effected shall include terms requiring any such
      successor or surviving entity to comply with the provisions of this paragraph
      (c) and insuring that this Note (or any such replacement security) will be
      similarly adjusted upon any subsequent transaction analogous to a Fundamental
      Transaction.

    
      
        
        

      

      
        Page
          8

        
          

        

      

      
        
        

      

    

     

    Exempt
      Issuance.
      Notwithstanding
      the foregoing, no adjustment will be made under this Section 8 in respect of
      an
      Exempt Issuance.

    

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

    

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

    

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

    

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

    
      
        
        

      

      
        Page
          9

        
          

        

      

      
        
        

      

    

     

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

    

    
      	 	
              a.

            	
              The
                Company shall default in the payment of any amount due on this Note,
                time
                being of the essence, whether by maturity, pursuant to Section 2
                or
                otherwise; or

            

    

    

    
      	 	
              b.

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

            

    

    

    
      	 	
              c.

            	
              The
                Company shall (1) make an assignment for the benefit of creditors
                or
                commence proceedings for its dissolution; or (2) apply for or consent
                to
                the appointment of a trustee, liquidator or receiver for its or for
                a
                substantial part of its property or business;
                or

            

    

    

    
      	 	
              d.

            	
              A
                trustee, liquidator or receiver shall be appointed for the Company
                or for
                a substantial part of its property or business without its consent;
                or

            

    

    

    
      	 	
              e.

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

            

    

    

    
      	 	
              f.

            	
              Any
                Pledgor shall default on any of its obligations under the Pledge
                Agreements; or

            

    

    

    
      	 	
              g.

            	
              The
                Company shall enter
                into, create, incur, assume or suffer to exist any indebtedness for
                borrowed money or liens of any kind, on or with respect to any of
                its
                property or assets now owned or hereafter acquired or any interest
                therein
                or any income or profits therefrom that is senior to or pari passu
                with,
                in any respect, the Company’s obligations under this Note, other than as
                provided in the Disclosure Annex to the Purchase Agreement;
                or

            

    

    

    
      	 	
              h.

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

            

    

    

    
      	 	
              i.

            	
              Failure
                by the Company to deliver any Shares required to be delivered pursuant
                to
                the Transaction Documents or any other agreements between the
                parties.

            

    

     

    If
      an
      Event of Default shall have occurred, then, or at any time thereafter, and
      in
      each and every such case, unless such Event of Default shall have been waived
      in
      writing by the Holder (which waiver shall not be deemed to be a waiver of any
      subsequent default) at the option of the Holder and in the Holder's sole
      discretion, the Holder may consider this Note immediately due and payable (and
      the Maturity Date shall be accelerated accordingly), without presentment,
      demand, protest or notice of any kinds, all of which are hereby expressly
      waived, anything herein or in any note or other instruments contained to the
      contrary notwithstanding,
      and
      interest shall accrue on the total amount due (the “Default Amount”) on the date
      of the Event of Default (the “Default Date”) at the rate of 110% per annum or
      the maximum rate allowed by law, whichever is lower, from the Default Date
      until
      the date payment is made, and the Holder may immediately enforce any and all
      of
      the Holder's rights
      and remedies provided herein or any other rights or remedies afforded by law.
      

    
      
        
        

      

      
        Page
          10

        
          

        

      

      
        
        

      

    

    

    14. In
      the
      event of a Qualified Financing, the Company shall offer to repurchase from
      the
      Holder, any restricted stock given to the Holder in connection with the
      transactions contemplated under the Purchase Agreement.  The purchase price
      for such restricted stock shall be 70% of the VWAP for the 20 Trading Days
      prior
      to the consummation of the Qualified Financing.

    

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

    

    IN
      WITNESS WHEREOF, the Company has caused this instrument to be duly executed
      by
      an officer thereunto duly authorized this 28th
      day of
      November, 2007.

     

    
      	 	
              NEAH
                POWER SYSTEMS, INC.

            
	 	 
	 	
              By:

            	 
	 	
              Name:

            
	 	
              Title:

            

    

    

    
      
        
        

      

      
        Page
          11

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