Document:

Exhibit 10.6

                             COLLABORATION AGREEMENT

         This COLLABORATION AGREEMENT (the "Agreement") is made and entered into
between: Neah Power Systems, Inc., with its principal place of business at 22118
20th Ave SE, Suite 142, Bothell, Washington 98021 ("Neah") and Novellus Systems,
Inc. with its principal place of business at 4000 North First Street, San Jose,
CA 95134 ("Novellus"), effective as of April 1, 2004 ("Effective Date").

                                    RECITALS

         Neah is in the business of developing silicon-based fuel cell
technology. Novellus is a provider of advanced deposition and surface
preparation systems for the semiconductor industry. Neah desires to collaborate
with Novellus to develop technology related to the application of catalyst and
conductive films to silicon to be used as a fuel cell electrode, and Novellus is
willing to enter into such collaboration on the terms set forth in this
Agreement.

         NOW, THEREFORE, for valuable consideration, receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:

                                  AGREEMENT

1.0      DEFINITIONS.

         1.1      "BACKGROUND IP" shall mean all inventions, discoveries, works
         of authorship, designs, ideas, and technology Developed prior to or
         outside the course of performance of the Project.

         1.2      "COMPONENTS" shall mean porous silicon (a) to which catalyst
         and conductive films have been applied, and (b) that are designed,
         developed or manufactured using any Project IP.

         1.3      "COMPONENT EQUIPMENT" shall mean equipment that (a) is
         designed, developed or manufactured using any Project IP, and (b) is
         specifically designed to manufacture Components.

         1.4      "COMPONENT EQUIPMENT PROCESSES" shall mean all unit processes
         performed by Component Equipment.

         1.5      "DEVELOPED" shall mean, (a) conceived, with respect to
         inventions and discoveries, (b) fixed in a tangible medium of
         expression, with respect to works of authorship, and (c) created with
         respect to other designs, ideas, and technology.

         1.6      "FUEL CELL FIELD OF USE" shall mean the design, development,
         manufacturing, sale and other distribution of Components used as fuel
         cell electrodes, but not the design, development, manufacturing, sale
         or other distribution of Component Equipment or the use or exploitation
         of Component Equipment Processes.

         1.7      "INTELLECTUAL PROPERTY RIGHTS" shall mean all copyrights,
         copyright applications, patents, patent applications, trade secrets,
         trademarks, moral rights,

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         author's rights, and all other intellectual and proprietary rights of
         any kind, as may now or hereafter come into existence, and all renewals
         and extensions thereof, regardless of whether such rights arise under
         the laws of the United States, or any other state, country or
         jurisdiction.

         1.8      "JOINTLY DEVELOPED IP" shall mean all Project IP which is
         Developed jointly by Neah and Novellus in connection with the
         activities contemplated by this Agreement.

         1.9      "NEAH PROJECT IP" shall mean all Project IP which is Developed
         by Neah in connection with the Project independently of Novellus.

         1.10     "NOVELLUS PROJECT IP" shall mean all Project IP which is
         Developed by Novellus in connection with the Project independently of
         Neah.

         1.11     "PROJECT" shall mean the joint development of technology
         related to Components, Component Equipment and Component Equipment
         Processes pursuant to this Agreement in accordance with the Project
         Plan, and commencing on the Effective Date.

         1.12     "PROJECT IP" shall mean all inventions, discoveries, works of
         authorship, designs, ideas, and technology Developed by either party,
         jointly or independently, in the course of performance of the Project,
         and shall not include any Background IP.

         1.13     "PROJECT PLAN" shall mean the detailed plan for the Project, a
         draft of which is set forth on EXHIBIT A and shall be finalized by
         mutual agreement of the parties prior to June 1, 2004, as may be
         amended by mutual written agreement of the parties from time to time.

2.0      THE PROJECT.

         2.1      COLLABORATION. The parties agree to collaborate to complete
         the Project in accordance with this Agreement and the Project Plan. The
         parties agree, prior to June 1, 2004, to mutually identify each party's
         obligations under the Project Plan.

         2.2      NOVELLUS PERSONNEL. During the term of the Project, Novellus
         shall provide Neah with the services of Novellus technical personnel,
         to be mutually agreed upon and listed in EXHIBIT B (the "Novellus
         Personnel"), on a full time or part time basis, to be mutually agreed
         upon and specified on EXHIBIT B. Novellus reserves the right to change
         the Novellus Personnel in its reasonable discretion, and shall consult
         with Neah prior to such change if such consultation is reasonably
         practicable.

                  2.2.1    Some of the Novellus Personnel, to be mutually agreed
                  upon and specified on EXHIBIT B, may relocate to Neah's
                  Seattle, Washington facility during the Project Term to
                  perform work on the Project. Neah shall reimburse Novellus in
                  a lump-sum amount to be mutually agreed upon in accordance
                  with Novellus' standard relocation policies and specified on
                  Exhibit B for the reasonable relocation costs for such
                  Novellus Personnel.

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                  2.2.2    Neah shall reimburse Novellus for (a) the gross
                  amount of all salaries and wages, benefit costs and other
                  compensation associated with the Novellus Personnel with
                  respect to the time period of their work on the Project, in an
                  amount to be mutually agreed upon and specified on EXHIBIT B,
                  and (b) for costs approved in advance by Neah, in accordance
                  with rates and procedures to be mutually agreed upon and
                  specified on EXHIBIT B. Novellus shall invoice Neah for such
                  costs on a monthly basis.

                  2.2.3    All Novellus Personnel shall at all times remain the
                  employees of Novellus. Neah shall have no responsibility for
                  withholding of taxes or other matters which are customarily
                  the responsibility of an employer. All Novellus Personnel
                  shall comply with reasonable workplace rules and procedures
                  established by Neah.

                  2.2.4    Neah shall indemnify, defend and hold harmless
                  Novellus and its officers, directors, employees, shareholders
                  and agents (each an "Indemnified Party"), from and against any
                  and all claims, demands, liabilities, costs, damages, expenses
                  (including attorneys' fees and expenses), and causes of action
                  of any nature whatsoever (collectively, "Losses") brought by
                  or on behalf of a member of the Novellus Personnel arising
                  from or in any way related to (a) workplace conditions at
                  Neah's Seattle, Washington facility, or (b) the actions or
                  omissions of any Neah employee or contractor, except for
                  Losses arising from or in any way related to the gross
                  negligence or willful misconduct of the Novellus Personnel.
                  Losses may include, but are not limited to, claims related to
                  personal injury or alleged emotional distress, damage to
                  personal property, or employment practices.

                  2.2.5 Neah shall provide a suitable and safe work environment
                  for the Novellus Personnel during the time period of their
                  work on the Project, and the Novellus Personnel shall not be
                  required to sign Neah's nondisclosure or invention assignment
                  agreement, or a waiver or release in connection with their
                  work on the Project. Novellus and each of the Novellus
                  Personnel shall have executed Novellus' standard proprietary
                  information and inventions agreement prior to the time period
                  of his or her work on the Project.

         2.3      NEAH PERSONNEL. During the term of the Project, Neah shall
         dedicate a sufficient number of technical personnel to diligently
         perform its obligations under the Project Plan. Neah shall provide the
         Novellus Personnel with access to qualified Neah technical personnel
         and shall otherwise provide reasonable technical support to the
         Novellus Personnel in connection with the Project.

         2.4      EXCLUSIVITY. During the Project term, neither Novellus nor
         Neah shall enter into any discussions or agreements with any third
         parties with respect to the application of catalyst and conductive
         films to silicon to be used as a fuel cell electrode. Except for the
         foregoing restriction, nothing herein shall be deemed to restrict, in
         any way, the freedom of either party to conduct any business or
         activity whatsoever without any accountability to the other party.

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         2.5      EQUIPMENT. Novellus shall loan Neah equipment to be reasonably
         determined by Novellus and described on EXHIBIT C, together with such
         other equipment as may be agreed upon in writing by the parties (the
         "Equipment") for use during the Project term, at no cost to Neah. The
         Equipment (a) shall be delivered to Neah's Seattle, Washington facility
         at Neah's cost, (b) shall not be moved or transferred from such
         facility without Novellus' prior written consent, and (c) shall be
         returned by Neah to Novellus upon termination of this Agreement at
         Neah's expense and in the same condition as received, normal wear
         excepted. While the Equipment is in Neah's possession, Neah shall be
         responsible for all necessary maintenance of the Equipment as specified
         by Novellus to Neah, shall bear all risk of loss or damage to the
         Equipment, and shall maintain physical damage insurance covering the
         Equipment on an "all risks" of physical loss or damage basis, for the
         full replacement cost (subject to reasonable deductible amounts). Such
         insurance policy will (i) be in form and content reasonably acceptable
         to Novellus, (ii) provide that such insurance will not be canceled or
         coverage changed unless thirty (30) days' prior written notice has been
         given to Novellus, and (iii) will name Novellus as an additional
         insured. Neah will deliver such policy or certificate thereof to
         Novellus on or before five (5) days prior to delivery of Equipment by
         Novellus to Neah.

         2.6      WARRANT. Upon execution of this Agreement, Neah shall grant
         Novellus a warrant to purchase one million shares of the common stock
         of Neah at an exercise price of twenty-five cents ($0.25) per share in
         accordance with the terms set forth on EXHIBIT D attached hereto. The
         Warrant shall vest upon completion of the milestones as provided in
         EXHIBIT D.

         2.7      INDEPENDENT RELATIONSHIP. The parties shall at all times act
         as independent contractors and nothing contained in this Agreement
         shall be deemed to constitute either party as the partner, agent, or
         legal representative of the other party, or to create any fiduciary
         relationship between them for any purpose whatsoever. Neither party
         hereto shall have any authority to act for or to assume any obligation
         or responsibility on behalf of the other party, except as may be
         expressly authorized in writing by the other party.

3.0      SUPPLY OF COMPONENTS AND COMPONENT EQUIPMENT. It is the intent of the
         parties that Neah and Novellus shall enter into an agreement pursuant
         to which Novellus shall manufacture Components, and Neah hereby grants
         Novellus a right of first negotiation with respect to the manufacture
         of Components.

         3.1      COMPONENTS: RIGHT OF FIRST NEGOTIATION. Prior to commencing
         negotiations with any third party with respect to the manufacture of
         Components, Neah shall notify Novellus and the parties shall enter into
         discussions, in good faith, with respect to terms pursuant to which
         Novellus shall have, for a period of five years (subject to renewal on
         mutually acceptable terms), (a) the exclusive right to manufacture
         Components for use by or sale to Neah, (b) the exclusive right to sell
         such Components to Neah, and (c) an exclusive license under all of
         Neah's Intellectual Property Rights necessary for such manufacture and
         sale. If the parties have been unable to enter into an agreement with
         respect to the manufacture of Components by Novellus within thirty (30)
         days following the date of the notice from Neah, the parties shall
         enter

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         into non-binding mediation as provided in Section 11.4.1 below in an
         attempt to agree upon the terms of such an agreement. If the parties
         continue to be unable to reach agreement within sixty (60) days
         following the commencement of the mediation, Neah may negotiate with
         third parties with respect to the manufacture of Components used as
         fuel cell electrodes, but shall not enter into an agreement with any
         such third party unless (i) each material term of such agreement is no
         more favorable to such third party than the term offered by Neah to
         Novellus during the negotiations pursuant to this Section 3.1, and (ii)
         the terms of such agreement (and any related or side agreements), taken
         as a whole, are no more favorable to such third party than the terms,
         taken as a whole, offered by Neah to Novellus during the negotiations
         pursuant to this Section 3.1. If the terms of a proposed agreement with
         a third party do not meet the conditions of (i) and (ii) above, then
         Neah must notify Novellus of the terms of the proposed agreement and
         must repeat the procedures set forth in this Section 3.1 with Novellus
         with respect to such terms. At Novellus' request, Neah shall provide a
         copy of all agreements with respect to the manufacture of Components
         used as fuel cell electrodes (and any related or side agreements) to an
         independent party selected by Novellus and under a duty not to disclose
         the terms of such agreements (or any related or side agreements) for
         the purposes of confirming to Novellus whether such agreements meet the
         conditions of (i) and (ii) above.

         3.2      TECHNICAL INFORMATION. In the event that, pursuant to Section
         3.1, Neah enters into an agreement with a third party with respect to
         the manufacture of Components used as fuel cell electrodes, Novellus
         shall, at Neah's expense, provide reasonable cooperation to Neah and
         such third party to provide Neah and such third party with technical
         information solely related to Project IP necessary to manufacture
         Components used as fuel cell electrodes, but not technical information
         related to Project IP that can be used to manufacture Component
         Equipment or to use or exploit Component Equipment Processes. For
         purposes of clarification, no license, express or implied, is granted
         by Novellus to Neah or such third party under any Intellectual Property
         Rights to Novellus Background IP or under Novellus' rights pursuant to
         Section 5.6.

         3.3      COMPONENT EQUIPMENT.

                  3.3.1    Novellus agrees not to sell Component Equipment if
                  Novellus knows (with no duty to investigate) that such sale
                  would constitute contributory infringement by Novellus of
                  Neah's rights under patents to the Project IP in the Fuel Cell
                  Field of Use ("Contributory Infringement"). If Novellus has
                  sold Component Equipment to a third party and Neah believes
                  that such sale would constitute Contributory Infringement, the
                  parties shall enter into non-binding mediation and binding
                  arbitration as provided in Section 11.4 below to determine
                  whether such sale constituted Contributory Infringement.

                  3.3.2    In the event Novellus provides notice to Neah that it
                  has decided not to use and commercialize the Project IP for
                  the design, development, manufacturing, sale and other
                  distribution of Component Equipment, Novellus shall negotiate
                  the grant of a royalty-free, non-exclusive license to Neah to
                  use and commercialize the Project IP for the design,
                  development, manufacturing, sale and other distribution of
                  Component Equipment, and the use or exploitation of Component
                  Equipment Processes.

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                  3.3.3    Neah and any third party designee who will
                  manufacture Components on Neah's behalf (each, a "Purchaser")
                  agree to purchase Component Equipment only from Novellus,
                  subject to the procedures set forth in this Section 3.3.3. A
                  third party designee shall not purchase Component Equipment
                  unless authorized to manufacture Components used as fuel cell
                  electrodes in accordance with the right of first negotiation
                  granted to Novellus in Section 3.1 above. In the event that a
                  Purchaser desires to purchase Component Equipment following
                  completion of the Project, Neah shall notify Novellus and the
                  parties shall negotiate the sale of Component Equipment to
                  such Purchaser. If the parties have been unable to enter into
                  an agreement with respect to such sale within thirty (30) days
                  following the date of the notice from Neah, the parties shall
                  enter into non-binding mediation as provided in Section 11.4.1
                  in an attempt to agree upon the terms of such an agreement. If
                  the parties continue to be unable to reach agreement within
                  sixty (60) days following the commencement of the mediation,
                  the parties shall enter into binding arbitration as provided
                  in Section 11.4.2 below to establish terms that would be
                  commercially reasonable for such sale. At such time, Novellus
                  shall, at its option, either (a) agree to sell such Component
                  Equipment to the Purchaser on the commercially reasonable
                  terms established through arbitration, in which case Purchaser
                  shall be obligated to purchase such Component Equipment on
                  such terms, or (b) grant a royalty-free, non-exclusive,
                  non-transferable, and non-sublicenseable license to the
                  Purchaser to use and commercialize the Project IP for the
                  design, development, manufacturing, sale and other
                  distribution of Component Equipment, and the use or
                  exploitation of Component Equipment Processes.

                  3.4      TECHNICAL INFORMATION. In the event that, pursuant to
                  Section 3.3.2 or 3.3.3, Novellus grants a license to use and
                  commercialize the Project IP for the design, development,
                  manufacturing, sale and other distribution of Component
                  Equipment, and the use or exploitation of Component Equipment
                  Processes, Novellus shall, at Neah's expense, provide
                  reasonable cooperation to Neah to provide Neah with technical
                  information solely related to Project IP necessary to
                  manufacture Component Equipment or to use or exploit Component
                  Equipment Processes. For purposes of clarification, no
                  license, express or implied, is granted by Novellus to Neah or
                  such third party under any Intellectual Property Rights to
                  Novellus Background IP.

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4.0      CONFIDENTIALITY.

         4.1      "PROJECT CONFIDENTIAL INFORMATION" shall mean any and all
         information and materials (whether in writing, or in oral, graphic,
         electronic or any other form) developed by either party, jointly or
         independently, in the course of performance of the Project, and that
         derives independent economic value, actual or potential, from not being
         generally known to the public or to other persons who can obtain
         economic value from its disclosure or use.

         4.2      OBLIGATIONS REGARDING PROJECT CONFIDENTIAL INFORMATION. Each
         party agrees that it shall protect the confidentiality of Project
         Confidential Information with at least the same degree of care as it
         uses to protect its own confidential information (but in no event less
         than reasonable care). Each party agrees not to use Project
         Confidential Information for any purpose other than (a) its performance
         of the Project, (b) as reasonably necessary to register, confirm or
         perfect the Project IP as mutually agreed upon by the parties pursuant
         to Section 5.8, (c) as reasonably necessary to exercise such party's
         rights to commercialize Project IP under Section 5.5 or 5.6,
         respectively, (d) as reasonably necessary to enforce such party's
         rights to Intellectual Property Rights in the Project IP in accordance
         with Section 5.12, and (e) as reasonably necessary to defend itself in
         accordance with Section 5.13. Each party shall not disclose Project
         Confidential Information to any person or entity other than (i) to its
         officers, employees and consultants that need access to such Project
         Confidential Information in order to effect the intent of this
         Agreement and who agree to be bound by the terms of this Section 4 or a
         similar written agreement, (ii) as reasonably necessary to register,
         confirm or perfect the Project IP as mutually agreed upon by the
         parties pursuant to Section 5.8, (iii) as reasonably necessary to
         exercise such party's rights to commercialize Project IP under Section
         5.5 or 5.6, respectively; provided that such disclosure is subject to
         confidentiality obligations similar to the terms of this Section 4,
         (iv) as reasonably necessary to enforce such party's rights to
         Intellectual Property Rights in the Project IP in accordance with
         Section 5.12, and (v) as reasonably necessary to defend itself in
         accordance with Section 5.13.

         4.3      "BACKGROUND CONFIDENTIAL INFORMATION" shall mean any and all
         information and materials (whether in writing, or in oral, graphic,
         electronic or any other form), other than Project Confidential
         Information, disclosed by one party to the other party that is marked
         as confidential or that from its nature should reasonably be considered
         to be confidential.

         4.4      OBLIGATIONS REGARDING BACKGROUND CONFIDENTIAL INFORMATION.
         Each party agrees that it shall protect the confidentiality of the
         other party's Background Confidential Information with at least the
         same degree of care as it uses to protect its own confidential
         information (but in no event less than reasonable care). Each party
         agrees not to use the other party's Background Confidential Information
         for any purpose other than its performance of the Project. Each party
         shall not disclose the other party's Background Confidential
         Information to any person or entity other than its officers, employees
         and consultants that need access to such Confidential Information in
         order to effect the intent of this Agreement and who agree to be bound
         by the terms of this Section 4 or a similar written agreement.

         4.5      UNAUTHORIZED USE OR DISCLOSURE. Each party shall immediately
         give notice to the other party of any unauthorized use or disclosure of
         Project Confidential Information or the other party's Background
         Confidential Information, and agrees to assist the other party to
         remedy such unauthorized use or disclosure.

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         4.6      SURVIVAL. The obligations set forth in this Section 4 shall
         survive for a period of five (5) years following the termination of
         this Agreement.

         4.7      EXCEPTIONS. Notwithstanding the foregoing, the parties agree
         that (a) all information and materials which are or become available to
         the general public other than through breach of this Agreement, and (b)
         a party's Background Confidential Information which (i) is rightfully
         in the recipient's possession prior to disclosure by such party, as
         evidenced by the recipient's contemporaneous written records, (ii) is
         disclosed to the recipient by a third party without breach of any
         confidentiality obligation, or (iii) is independently developed by the
         recipient without use of the other party's Background Confidential
         Information, as evidenced by the recipient's contemporaneous written
         records, shall not be subject to the restrictions set forth in this
         Section 4.

5.0      INTELLECTUAL PROPERTY RIGHTS

         5.1      OWNERSHIP OF BACKGROUND IP. All right, title and interest
         (including Intellectual Property Rights) to Background IP of a party
         shall remain the property of such party and no licenses or other rights
         with respect to such Background IP are granted to the other party. Upon
         Neah's request, Novellus shall use commercially reasonable efforts to
         identify and provide notice to Neah of all patents owned by Novellus
         (excluding patents to Project IP) that may be infringed upon by
         Background IP incorporated by Novellus into Components. Upon Novellus'
         request, Neah shall use commercially reasonable efforts to identify and
         provide notice to Novellus of all patents owned by Neah (excluding
         patents to Project IP) that may be infringed upon by Background IP
         incorporated by Neah into Component Equipment or Component Equipment
         Processes.

         5.2      OWNERSHIP OF INDEPENDENTLY DEVELOPED PROJECT IP. Subject only
         to the express license granted in Section 5.5, all right, title and
         interest (including Intellectual Property Rights) to Novellus Project
         IP shall be owned solely and exclusively by Novellus. Subject only to
         the express license granted in Section 5.6, all right, title and
         interest (including Intellectual Property Rights) to Neah Project IP
         shall be owned solely and exclusively by Neah.

         5.3      OWNERSHIP OF JOINTLY DEVELOPED IP. Subject only to the express
         licenses granted in Sections 5.5 and 5.6, all right, title and interest
         (including Intellectual Property Rights) to Jointly Developed IP shall
         be owned jointly by the parties. Each party shall have an equal,
         undivided, joint ownership interest in all right, title and interest
         (including Intellectual Property Rights) in and to such Jointly
         Developed IP immediately upon its creation. Neah hereby assigns to
         Novellus and Novellus hereby assigns to Neah an equal, undivided, joint
         ownership interest in Jointly Developed IP so that Neah and Novellus,
         respectively, each has an equal, undivided, joint ownership interest in
         the Jointly Developed IP.

         5.4      USE OF JOINTLY DEVELOPED IP. Subject to the terms of Sections
         5.5 and 5.6, each party shall have the right to use, make, have made,
         sell, import and

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         otherwise exploit the Jointly Developed IP, and hereby consents to any
         licenses granted by the other party to third parties to use, make, have
         made, sell, import and otherwise exploit the Jointly Developed IP.
         Neither party shall have a "duty to account" or share profits from the
         Jointly Developed IP with the other party.

         5.5      EXCLUSIVE RIGHT TO COMMERCIALIZE IN THE FUEL CELL FIELD OF
         USE. Notwithstanding the other terms of this Agreement, Neah shall have
         the exclusive right to use and commercialize the Project IP in the Fuel
         Cell Field of Use, except that Novellus shall have the right to use and
         commercialize the Project IP in connection with the supply of
         Components by Novellus to Neah. Novellus agrees that it shall not,
         directly or indirectly, use or commercialize, or license third parties
         to use or commercialize, the Project IP in the Fuel Cell Field of Use,
         except in connection with the supply of Components to Neah. Novellus
         hereby grants Neah an exclusive, perpetual, transferable,
         sublicensable, worldwide, irrevocable, royalty-free license to use,
         make, have made, sell, offer to sell and import goods and services
         under the Intellectual Property Rights to the Novellus Project IP and
         the Jointly Developed IP, solely in the Fuel Cell Field of Use.

         5.6      EXCLUSIVE RIGHT TO COMMERCIALIZE OUTSIDE THE FUEL CELL FIELD
         OF USE. Notwithstanding the other terms of this Agreement, Novellus
         shall have the exclusive right to use and commercialize the Project IP
         outside the Fuel Cell Field of Use. Neah agrees that it shall not,
         directly or indirectly, use or commercialize, or license third parties
         to use or commercialize, the Project IP outside the Fuel Cell Field of
         Use. Neah hereby grants Novellus an exclusive, perpetual, transferable,
         sublicensable, worldwide, irrevocable, royalty-free license to use,
         make, have made, sell, offer to sell and import goods and services
         under the Intellectual Property Rights to the Neah Project IP and the
         Jointly Developed IP, solely outside the Fuel Cell Field of Use.

         5.7      BACKGROUND IP. The licenses referred to in Sections 5.5 and
         5.6 above shall not include any rights in any Background IP. Novellus
         agrees to negotiate the grant of a non-exclusive license to Neah on
         commercially reasonable terms under Novellus' Background IP as
         necessary for Neah to use and commercialize the Project IP in the Fuel
         Cell Field of Use. Neah agrees to negotiate the grant of a
         non-exclusive license to Novellus on commercially reasonable terms
         under Neah's Background IP as necessary for Novellus to use and
         commercialize the Project IP other than for the design, development,
         manufacturing, sale or other distribution of Components used as fuel
         cell electrodes or Component Equipment.

         5.8      IDENTIFICATION OF PROJECT IP. The parties agree to meet at
         least quarterly during the term of the Project to identify and discuss
         Project IP. Upon the identification of any such Project IP, the parties
         will discuss the necessary protection for the parties' rights in such
         Project IP, including whether the parties should file for patent,
         copyright, mask work, or trademark protection, the countries in which
         such filings should be made, and whether such Project IP shall be
         treated as trade secrets.

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         5.9      PATENTS ON JOINTLY DEVELOPED IP.

                  5.9.1    JOINT PATENTS. Each patent (including divisions,
                           reissues, renewals, continuations and
                           continuations-in-part) issuing from patent
                           applications for Jointly Developed IP (each, a "Joint
                           Patent") shall be owned jointly by the parties in
                           accordance with Section 5.3. The Joint Patents shall
                           be subject to the licenses granted in Sections 5.5
                           and 5.6.

                  5.9.2    PROCESS FOR PROPOSING PROSECUTION. Either party may
                           suggest the prosecution of a patent application for
                           Jointly Developed IP or any portion thereof in any
                           country. The proposing party ("Proposing Party")
                           shall describe the scope of the proposed patent
                           application and the countries in which it desires to
                           seek patent protection.

                  5.9.3    PROCESS FOR JOINING PROSECUTION. The other party
                           ("Nonproposing Party") shall have sixty (60) days to
                           give notice of its desire to join in the prosecution
                           of such patent application in all or some of the
                           countries in the notice. The Nonproposing Party may
                           propose additional countries in which it desires to
                           seek patent protection, in which case it will be
                           deemed the Proposing Party with respect to such
                           additional countries for the purposes of this Section
                           5.9.

                  5.9.4    EFFECT OF NOT JOINING PROSECUTION. If the
                           Nonproposing Party fails to respond within such sixty
                           (60) day period, the Proposing Party shall
                           exclusively control the prosecution of such patent
                           application. If the Nonproposing Party declines to
                           join in the prosecution of the patent application in
                           a particular country or countries, the Proposing
                           Party shall exclusively control the prosecution of
                           such patent application only in such country or
                           countries. The Nonproposing Party shall provide, at
                           the expense of the Proposing Party, information
                           reasonably necessary for the Proposing Party to
                           prosecute such patent application. The Proposing
                           Party shall be responsible for paying one hundred
                           percent (100%) of the costs and expenses for such
                           prosecution, and one hundred percent (100%) of the
                           fees related to the maintenance of the resulting
                           Joint Patent. The Nonproposing Party shall reimburse
                           the Proposing Party for fifty percent (50%) of the
                           prosecution costs and expenses and maintenance fees
                           related to the resulting Joint Patent, solely to the
                           extent the Non-Proposing Party receives royalties
                           from the license of such Joint Patent or an amount as
                           mutually agreed upon by the parties which would
                           approximate a reasonable royalty for the sale of
                           products which would otherwise infringe such Joint
                           Patent.

                  5.9.5    EFFECT OF JOINING PROSECUTION. If the Nonproposing
                           Party chooses to join in the prosecution of the
                           patent application in a particular country or
                           countries, the parties shall mutually control the
                           prosecution of such patent application in such
                           country or countries, and shall mutually select a
                           patent attorney for such prosecution. Each party
                           shall be responsible for paying fifty

<PAGE>

                           percent (50%) of the prosecution costs and expenses
                           and maintenance fees related to the resulting Joint
                           Patent.

                  5.9.6    FAILURE TO PAY PROSECUTION COSTS AND EXPENSES, OR
                           MAINTENANCE FEES. If a party (the "Non-Paying Party")
                           fails to pay its share of the prosecution costs and
                           expenses or maintenance fees pursuant to Section
                           5.9.5 within thirty (30) days following receipt of a
                           notice of nonpayment from the other party (the
                           "Paying Party"), the Paying Party may give notice of
                           its intent to continue to prosecute the relevant
                           patent application or maintain the relevant Joint
                           Patent, and shall thereafter pay one hundred percent
                           (100%) of the costs and expenses for such
                           prosecution, and one hundred percent (100%) of the
                           fees related to the maintenance fees for such Joint
                           Patent. The Paying Party shall control the
                           prosecution of such patent application, and the
                           Non-Paying Party shall provide, at the expense of the
                           Paying Party, information reasonably necessary for
                           the Paying Party to prosecute such patent
                           application. The Non-Paying Party shall reimburse the
                           Paying Party for fifty percent (50%) of the
                           prosecution costs and expenses and maintenance fees
                           related to the Joint Patent, solely to the extent the
                           Non-Paying Party receives royalties from the license
                           of such Joint Patent or an amount as mutually agreed
                           upon by the parties which would approximate a
                           reasonable royalty for the sale of products which
                           would otherwise infringe such Joint Patent.

                  5.9.7    ABANDONMENT OF PATENT APPLICATION OR JOINT PATENT. If
                           a party (the "Abandoning Party") desires to abandon a
                           patent application for Jointly Developed IP or a
                           Joint Patent in a particular country or countries, it
                           shall give the other party (the "Non-Abandoning
                           Party") sixty (60) days prior written notice of its
                           intention to abandon such patent application or Joint
                           Patent. If the Non-Abandoning Party desires to
                           continue to prosecute such patent application or
                           maintain such Joint Patent, it shall give notice of
                           such intent to the Abandoning Party within such
                           period and shall thereafter pay one hundred percent
                           (100%) of the costs and expenses for such prosecution
                           and one hundred percent (100%) of the fees related to
                           the maintenance of such Joint patent. The
                           Non-Abandoning Party shall control the prosecution in
                           such country or countries, and the Abandoning Party
                           shall provide, at the expense of the Non-Abandoning
                           Party, information reasonably necessary for the
                           Non-Abandoning Party to prosecute such patent
                           application. The Abandoning Party shall reimburse the
                           Non-Abandoning Party for fifty percent (50%) of the
                           prosecution costs and expenses and maintenance fees
                           related to the Joint Patent, solely to the extent the
                           Abandoning Party receives royalties from the license
                           of such Joint Patent or an amount as mutually agreed
                           upon by the parties which would approximate a
                           reasonable royalty for the sale of products which
                           would otherwise infringe such Joint Patent.

<PAGE>

         5.10     PATENTS ON INDEPENDENTLY DEVELOPED PROJECT IP.

                  5.10.1   NON-JOINT PATENT. Each patent (including divisions,
                           reissues, renewals, continuations and
                           continuations-in-part) issuing from a patent
                           application for Neah Project IP or Novellus Project
                           IP (each, a "Non-Joint Patent") shall be owned solely
                           and exclusively by Neah or Novellus, respectively, in
                           accordance with Section 5.2. The Non-Joint Patents
                           shall be subject to the licenses granted in Sections
                           5.5 and 5.6.

                  5.10.2   PROCESS FOR PROPOSING PROSECUTION. In the event that
                           (a) Neah desires to prosecute a patent application
                           for Novellus Project IP which is licensed to it by
                           Novellus pursuant to Section 5.5, or (b) Novellus
                           desires to prosecute a patent application for Neah
                           Project IP which is licensed to it by Neah pursuant
                           to Section 5.6, such party (the "Requesting Party")
                           shall notify the other party (the "Responding
                           Party").

                  5.10.3   OPTION TO PROSECUTE. The Responding Party shall have
                           the sole right to initiate the prosecution of the
                           patent application within ninety days following
                           receipt of the notice from the Requesting Party. If
                           the Responding Party initiates the prosecution of the
                           patent application within such time, the Responding
                           Party shall exclusively control the prosecution of
                           such patent application and the Requesting Party
                           shall reimburse the Responding Party for one hundred
                           percent (100%) of the reasonable costs and expenses
                           for such prosecution.

                  5.10.4   FAILURE TO INITIATE PROSECUTION. If the Responding
                           Party fails to initiate the prosecution of the patent
                           application within ninety (90) days following receipt
                           of the notice from the Requesting Party, the
                           Requesting Party may prosecute, at its own expense,
                           the patent application, and shall exclusively control
                           such prosecution. In such event, the Responding Party
                           shall execute such documents and take such other
                           action in connection therewith as may be reasonably
                           requested by the Requesting Party, at the Requesting
                           Party's expense.

                  5.10.5   MAINTENANCE FEES. The Requesting Party shall be
                           responsible for paying one hundred percent (100%) of
                           the fees related to the maintenance of the Non-Joint
                           Patent.

         5.11     COOPERATION.

                  5.11.1   JOINTLY DEVELOPED IP. Each party shall provide to the
                           other party copies of all documentation and other
                           information in support of any patent application or
                           other agreed upon registration process for Jointly
                           Developed IP.

         5.12     INFRINGEMENT OF PROJECT IP.

                  5.12.1   NOTIFICATION OF INFRINGEMENT. If either party learns
                           of an infringement by a third party of Intellectual
                           Property Rights to the Project IP, such party shall
                           promptly notify the other party and

<PAGE>

                           shall provide the other party with available evidence
                           of such infringement.

                  5.12.2   ENFORCEMENT BY THE PARTIES. Neah shall have the
                           exclusive right, at its expense, but not the
                           obligation, to bring and maintain any action in its
                           own name alleging that a third party has infringed or
                           misappropriated Intellectual Property Rights to
                           Project IP in the Fuel Cell Field of Use. Novellus
                           shall have the exclusive right, at its expense, but
                           not the obligation, to bring and maintain any action
                           in its own name alleging that a third party has
                           infringed or misappropriated Intellectual Property
                           Rights to Project IP outside the Fuel Cell Field of
                           Use. In no event shall the non-enforcing party be
                           obligated to join as a party in any such action,
                           whether or not the non-enforcing party is deemed an
                           indispensable party thereto, and the enforcing party
                           shall not seek to join the non-enforcing party. There
                           shall be no accounting to the other party in the
                           event of a favorable judgment or award in such
                           action. Neither party may settle any such dispute
                           without the consent of the other party, unless such
                           settlement would not adversely affect the rights of
                           the other party.

         5.13     INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.

                  5.13.1   NOTIFICATION OF INFRINGEMENT. If either party learns
                           that the performance of the Project may infringe upon
                           the Intellectual Property Rights of a third party,
                           such party shall promptly notify the other party and
                           shall provide the other party with available evidence
                           of such potential infringement.

                  5.13.2   DEFENSE. In the event a third party brings an action
                           against either party alleging infringement of any
                           third party's Intellectual Property Rights arising
                           out of the commercial exploitation of Project IP, the
                           party against whom such action is brought (the
                           "Defending Party") shall defend such action at its
                           expense. In the event of such action, the parties
                           shall confer with each other, cooperate and provide
                           reasonable assistance to each other during the
                           defense of the action.

6.0      TERM AND TERMINATION.

         6.1      TERM. This Agreement shall commence on the Effective Date and,
         unless earlier terminated in accordance with Section 6.2 and 6.3, shall
         continue until the earlier of (i) the completion of the Project, or
         (ii) December 31, 2005. The term of this Agreement may be extended upon
         mutual agreement of the parties.

         6.2      TERMINATION FOR CAUSE. Either party may terminate this
         Agreement by written notice if the other party materially breaches this
         Agreement and does not cure such breach within thirty (30) days of
         receipt of notice of such breach. Either party may also terminate this
         Agreement by written notice to the other party in the event that the
         other party (a) becomes or is insolvent; (b) makes an assignment for
         the benefit of its creditors; (c) applies for or consents to the

<PAGE>

         appointment of a receiver, trustee or liquidator for substantially all
         of its assets, or such a receiver, trustee or liquidator is appointed
         for the other party; (d) files a voluntary petition or proceeding under
         any statute of any state or country relating to insolvency or the
         protection of the rights of creditors; or (e) has filed against it an
         involuntary petition or proceeding under any statute of any state or
         country relating to insolvency or the protection of the rights of
         creditors that has not been dismissed within sixty (60) days thereof.

         6.3      TERMINATION UPON ACQUISITION. Novellus may terminate this
         Agreement if Neah undergoes a change of control, including, without
         limitation, through the sale of all or substantially all of Neah's
         assets, the sale of fifty percent (50%) of the outstanding voting
         securities of Neah, or the reorganization, consolidation or merger of
         Neah where the holders of Neah's securities before the transaction
         beneficially own less than fifty percent (50%) of the outstanding
         voting securities of the surviving entity after the transaction,
         provided that the acquirer is (a) a competitor of Novellus, as
         reasonably determined by Novellus, or (b) a semiconductor equipment
         manufacturer.

         6.4      EFFECTS OF TERMINATION. Termination of this Agreement by
         either party shall not act as a waiver of any breach of this Agreement
         and shall not release either party from any liability for breach of
         such party's obligations under this Agreement. All other rights and
         obligations of the parties shall terminate as of the termination or
         expiration of this Agreement, except that each party's rights and
         obligations pursuant to Sections 2.2.4, 2.5(c), 2.7, 3, 4, 5, 6.4, 9,
         10, and 11 of this Agreement shall survive.

7.0      RELATIONSHIP MANAGER. Each party agrees to appoint, in writing, an
individual to coordinate activities under this Agreement and to act as the
primary point of contact for the other party (the "Relationship Manager"). The
Relationship Managers shall meet at least monthly to discuss the activities
conducted, and to be conducted, pursuant to this Agreement. The Relationship
Managers shall review the Project Plan at least once every ninety (90) days and
discuss amendments and updates thereto. Either party may change their designated
Relationship Manager upon written notice to the other. The initial Relationship
Managers are:

                       INITIAL RELATIONSHIP MANAGER FOR NEAH:

                       Name:      Arthur S. Homa
                       Address:   22118 20th Ave. SE
                                  Suite 142
                                  Bothell, WA 98021
                       Phone:     425-424-3324 Ext. 108
                       Fax:       425-483-8454
                       Email:     ahoma@neahpower.com

                       INITIAL RELATIONSHIP MANAGER FOR NOVELLUS:

                       (Name:     John Drewery
                       Address:   4000 North First Street
                                  San Jose, CA 95134
                       Phone:     408-545-3590
                       Fax:       408-953-4665
                       Email:     john.drewery@novellus.com

<PAGE>

8.0      NO OTHER CONSIDERATION. Neither party shall have any monetary or other
obligations to the other arising out of or related to this Agreement except as
expressly provided for herein. Each party further acknowledges and agrees that
any and all costs, expenses or liabilities incurred by a party arising out of or
related to this Agreement shall be the responsibility of the party incurring
such cost, expense or liability, and neither party shall be liable or obligated
to pay any cost, expense or liability paid or incurred by the other.

9.0      DISCLAIMER OF WARRANTIES. NEITHER PARTY MAKES ANY WARRANTIES (WHETHER
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) RELATING TO THIS AGREEMENT, THE
PROJECT, ITS BACKGROUND IP, OR ITS BACKGROUND CONFIDENTIAL INFORMATION,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT, OR ANY WARRANTY THAT MAY ARISE OUT
OF COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE IN TRADE.

10.0     LIMITATION OF LIABILITY. EXCEPT FOR THE OBLIGATIONS OF THE PARTIES
UNDER SECTION 4 ABOVE, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, OR FOR ANY
LOSS OF PROFITS, LOSS OF REVENUE, OR LOSS RESULTING FROM INTERRUPTION OF
BUSINESS, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PROJECT,
REGARDLESS OF THE FORM OF ACTION OR IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. EACH PARTY ACKNOWLEDGES THAT THE OTHER PARTY HAS
ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE LIMITATIONS OF LIABILITY SET
FORTH HEREIN, AND THAT THE SAME FORM AN ESSENTIAL BASIS OF THE BARGAIN BETWEEN
THE PARTIES, WITHOUT WHICH SUCH PARTY WOULD NOT HAVE ENTERED INTO THIS
AGREEMENT. EACH PARTY AGREES THAT THE LIMITATIONS OF LIABILITY SET FORTH HEREIN
WILL SURVIVE AND APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE.

11.0     GENERAL TERMS

         11.1 NON-SOLICITATION. During the term of this Agreement and for a
         period of one year following the termination of this Agreement, neither
         party will directly or indirectly solicit, hire or attempt to hire any
         of the other party's employees, or cause others to solicit, hire or
         attempt to hire any such employees; provided, however, this obligation
         shall not apply to or be breached by (a) advertising of open positions,
         or other forms of soliciting employees or contractors that are general
         in nature, or (b) responding to unsolicited inquiries about employment
         or contract opportunities from any individual or agent.

         11.2 ASSIGNMENT. Neither party shall assign, delegate or otherwise
         transfer this Agreement or any of the rights and obligations under this
         Agreement voluntarily, by operation of law, or otherwise, without the
         other party's prior written consent, not to be unreasonably withheld,
         provided, however, that either party may assign, delegate and otherwise
         transfer all of its rights and obligations under this Agreement to a
         successor in connection with a merger or sale of all or substantially
         all of the party's business to which this Agreement relates. An

<PAGE>

         assignment without the requisite consent, if required, shall be void
         and unenforceable. Subject to the foregoing, this Agreement will be
         binding and inure to the benefit of the parties and their respective
         successors and permitted assigns.

         11.3 GOVERNING LAW. This Agreement shall be governed by and construed
         in accordance with the laws of the State of California, without giving
         effect to its provisions governing conflicts of law.

         11.4 DISPUTES. All disputes arising under this Agreement shall be
         resolved by non-binding mediation and binding arbitration in accordance
         with the following terms.

                  11.4.1   Either party may commence an action by notifying the
                           other party and the American Arbitration Association
                           ("AAA"). Unless the parties agree upon a mediator
                           within thirty (30) days following such notification,
                           AAA will promptly designate a mediator who is
                           independent, impartial and has relevant industry
                           experience, and AAA's decision about the identity of
                           the mediator will be final and binding. The parties
                           agree to conduct at least eight (8) consecutive hours
                           of non-binding mediated negotiations within 30 days
                           after the notice is sent. Each party shall bear its
                           own expenses for the mediation and they shall each
                           share equally in the expenses and fees of the
                           mediator.

                  11.4.2   If the dispute is not resolved by negotiation or
                           mediation within thirty (30) days after the first
                           notice to AAA is sent, then, upon notice by either
                           party to the other and to AAA, the controversy or
                           dispute will be submitted for binding arbitration in
                           accordance with AAA's Commercial Arbitration Rules.
                           The arbitrator may be selected by mutual agreement of
                           the parties. If the parties cannot mutually agree
                           upon an arbitrator within thirty (30) days of notice
                           of the controversy or dispute, then each party shall
                           select an arbitrator, and such arbitrators shall
                           select a third arbitrator. The arbitration shall be
                           held at a mutually agreeable location in the city of
                           San Francisco, California, and the United States
                           Arbitration Act will govern the arbitration, 9 U.S.C.
                           Sections 1-16 (or by the same principles enunciated
                           by such Act in the event it may not be technically
                           applicable). The parties agree that they will abide
                           by and perform any judgment rendered by the
                           arbitrator(s). The judgment of the arbitrator(s) will
                           be final and binding on the parties. Each party shall
                           bear its own expenses for the arbitration and they
                           shall each share equally in the expenses and fees of
                           the arbitrator(s). Notwithstanding the foregoing,
                           neither party shall be precluded from seeking
                           injunctive relief from a court of competent
                           jurisdiction pending the resolution of any dispute in
                           accordance with this Section 11.4.

         11.5 ENTIRE AGREEMENT. This Agreement contains the entire agreement
         between the parties and supersedes all prior or contemporaneous
         agreements or representations, written or oral.

<PAGE>

         11.6 NOTICES. Any notice required or permitted under this Agreement
         shall be given in writing and shall be deemed effectively given (a)
         upon personal delivery to the party to be notified, (b) upon
         confirmation of receipt by fax by the party to be notified, or (c) one
         (1) business day after deposit with a reputable overnight courier,
         prepaid for overnight delivery and addressed to the party to be
         notified at the address indicated for such party in Section 7, or at
         such other address as such party may designate by five (5) days advance
         written notice to the other party given in the foregoing manner.

         11.7 FURTHER ASSURANCES. The parties shall perform all such further
         acts, provide such further documents or written assurances, and execute
         such further documents as are reasonably required or necessary to carry
         out the acts and transactions contemplated by this Agreement.

         11.8 COUNTERPARTS. This Agreement may be executed by facsimile and in
         counterparts, each of which shall be deemed an original and all of
         which together shall constitute one instrument.

         11.9 SEVERABILITY. If one or more provisions of this Agreement are held
         to be unenforceable under applicable law, such provision shall be
         excluded from this Agreement and the balance of the Agreement shall be
         interpreted as if such provision were so excluded and shall be
         enforceable in accordance with its terms.

         11.10 HEADINGS. The headings in this Agreement are for convenience
         only, and shall not affect the interpretation of this Agreement.

         11.11 BANKRUPTCY CODE. The licenses granted under this Agreement shall
         be treated as a license of rights to "intellectual property" (as
         defined in Section 101(35A) of Title II of the Unites States Code, as
         amended (the "BANKRUPTCY CODE")) for purposes of Section 365(n) of the
         Bankruptcy Code. The parties agree that the recipient of each license
         may elect to retain and may fully exercise all of its rights and
         elections under the Bankruptcy Code provided that such party abides by
         the terms of this Agreement, including without limitation the terms of
         all licenses granted by such recipient to the other party hereunder.

         11.12 AMENDMENT; WAIVER. No modification, amendment or waiver of any
         provision of this Agreement shall be effective except pursuant to a
         writing signed by a duly authorized representative of each party. The
         waiver by either party of a breach of or a default under any provision
         of this Agreement shall not be construed as a waiver of any subsequent
         breach of or default under the same or any other provision of this
         Agreement, nor shall any delay or omission on the part of either party
         to exercise or avail itself of any right or remedy that it has or may
         have hereunder operate as a waiver of any right or remedy.

<PAGE>

        IN WITNESS WHEREOF, THE parties hereto have executed this Agreement as
of the Effective Date.

NEAH POWER SYSTEMS, INC.                   NOVELLUS SYSTEMS, INC.

By: /s/ David Dorheim                      By: /s/ Kevin S. Royal

Name: David Dorheim                        Name: Kevin S. Royal

Title: President & CEO                     Title: Chief Financial Officer

Date: April 30, 2004                       Date: April 28, 2004

<PAGE>

LIST OF EXHIBITS

EXHIBIT A - PROJECT PLAN

EXHIBIT B - NOVELLUS PERSONNEL

EXHIBIT C - EQUIPMENT

EXHIBIT D - WARRANT

<PAGE>

                                                                       EXHIBIT A

<PAGE>

                NOVELLUS AND NEAH POWER TECHNOLOGY COLLABORATION
                                 APRIL 29, 2004
                              COMPANY CONFIDENTIAL

OVERALL DESCRIPTION OF COLLABORATION ACTIVITIES

Neah is in the business of developing silicon-based fuel cell technology.
Novellus is a provider of advanced deposition and surface preparation systems
for the semiconductor industry. Neah and Novellus will collaborate to develop
technology related to the application of catalyst and conductive films to porous
silicon structures to be used as fuel cell electrodes.

Neah has developed the ability to produce limited quantities of porous silicon
that can be used as a catalyst support structure in a fuel cell electrode. Neah
will provide porous silicon material to Novellus for use in the development of
techniques to deposit conductive films and catalysts in the porous structures.
Joint work in deposition techniques will occur when appropriate. Both Neah and
Novellus will analyze and characterize the conductive films and catalyst
particles that have been deposited on the porous structures. Neah will also
conduct various electrochemical tests on the electrodes that are produced by
Novellus, including tests in a fuel cell. Both parties will perform their work
in a timely fashion and will share results with each other in order to modify
future deposition techniques to produce improved electrode performance in fuel
cells.

Both parties desire a long-term relationship that results in ongoing
improvements in the performance of Neah's silicon-based fuel cells.

<PAGE>

                   PROPOSED "MILESTONES" FOR VESTING WARRANTS

CONDUCTIVITY STRUCTURES - 33.3%

  OBJECTIVES

     o    Agreement on a resistance model for the electrode structure -
          Neah/Novellus

     o    Develop long term reliability test system; e.g. perform repeated
          thermal cycling in presence of chemistry

     o    Production of targeted structures on Neah provided samples - Novellus

     o    Experimental verification of resistance values where possible -
          Neah/Novellus

     o    Experimental verification of impact on electrode performance - Neah

     o    Demonstrate wafer level capability of process.

  DELIVERABLES

     o    X% (tbd) ohmic loss (X will be an achievable number based on modeling)

               o    Modeling plus sheet resistances for verification)

     o    Roadmap to $Y COO per wafer

     o    Demonstrate techniques over 4" wafer

                                                                  April 29, 2004
                                       2                    Company Confidential
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                           DESIGN         PRIORITY       MARCH 2004        2ND HALF          2ND HALF        MEASUREMENT
                          ELEMENTS          (A=           RESULTS          2004 GOAL         2005 GOAL        TECHNIQUE
                                          HIGHEST)
---------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                <C>             <C>               <C>              <C>         <C>
                          Material           A               Ru                Ru                Ru
 SIDEWALL              Compatibility                                      Masked metal      Masked metal    Reliability
 CONDUCTOR                                                                                                  testing to be
                                                                                                            agreed upon.  Will
                                                                                                            include extended
                                                                                                            exposure to fuel
                                                                                                            cell chemistry
                                                                                                            before and after
                                                                                                            repetitive
                                                                                                            stressing.
---------------------------------------------------------------------------------------------------------------------------------
                       Film thickness        A          100 nm (Ru)       TBD based on          TBD         SEM
                       down the pore                                        modeling
---------------------------------------------------------------------------------------------------------------------------------
                      Film Adherence,        C         Excellent (Ru)         TBD               TBD         Investigate
                         pore wall                                                                          micro-scratch
                                                                                                            test.
                                                                                                            Perform before
                                                                                                            and after repetitive
                                                                                                            stressing.
---------------------------------------------------------------------------------------------------------------------------------
  FRONT                   Material           A         100 micron Ru          Gold              Gold
ELECTRODE              compatibility                                      Masked metal      Masked metal

---------------------------------------------------------------------------------------------------------------------------------
                      Sheet resistance       A                          TBD by modeling   TBD by modeling   4 point probe
---------------------------------------------------------------------------------------------------------------------------------
                        Reliability          B              Good            >3 years          >3 years      Accelerated
                                                                                                            reliability test
                                                                                                            TBD.
---------------------------------------------------------------------------------------------------------------------------------
                          Overhang           B                            <10% of pore      <10% of pore    SEM
                       (reduction in                                        opening           opening
                      pore radius due
                        to electrode
                           layer)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------
                                 COMMENTS

-------------------------------------------------------------
                    Compatibility with chemical systems
 SIDEWALL           will be checked with literature and
 CONDUCTOR          chemical analysis results.

-------------------------------------------------------------

-------------------------------------------------------------

-------------------------------------------------------------
  FRONT             Decision on solution to be based on
ELECTRODE           cost and reliability considerations.
                    In view of the need to expose metal
                    and make contact at edges, inert
                    metal may be needed.
-------------------------------------------------------------

-------------------------------------------------------------
                    No degradation or delamination
                    following reliability test.

-------------------------------------------------------------
                    Importance of this issue depends on
                    technique used to deposit catalyst layer

-------------------------------------------------------------

                                                                  April 29, 2004
                                       3                    Company Confidential
<PAGE>

CATALYST STRUCTURES

PHASE I - 33.3%

OBJECTIVES

     o    Control/optimization of existing electrodeposition methods. -
          Neah/Novellus

               o    See targets document for specific attributes and measuring
                    techniques.

     o    Identification, development and validation of alternative methods that
          may provide more control and/or higher performance under same metrics
          as above.

DELIVERABLES

     o    Repeatability

               o    Activity SD < 30% of mean

o        Performance

               o    (mean +2*SD) same for new process as old process

                         |_|  No reduction in best performance

                         |_|  Increase in number of high binned parts

PHASE II - 33.3%

OBJECTIVES

     o    Identification, development and validation of processes for advanced
          catalyst structures.

               o    Anticipated to be the production of high surface area
                    support structures on which catalyst particles are
                    deposited. Critical metrics are same as Phase I plus
                    catalyst loading metrics.

DELIVERABLES

     o    Successful feasibility exit for supported catalyst concept

     o    Activity corresponding to goals for stage (100mw/cm2)

               o    Demonstrated for electrodes, not the integrated fuel cell

     o    Roadmap to performance 2X (stage 2)

                                                                  April 29, 2004
                                       4                    Company Confidential
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                           DESIGN         PRIORITY       MARCH 2004        2ND HALF          2ND HALF        MEASUREMENT
                          ELEMENTS          (A=           RESULTS          2004 GOAL         2005 GOAL        TECHNIQUE
                                          HIGHEST)
---------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                <C>             <C>               <C>              <C>         <C>
CATALYSTS PROPERTIES  Electrochemical        B              .65            .8 to .9 V        .8 to .9 V     OCV, Exchange
                          Activity                                                                          current density

---------------------------------------------------------------------------------------------------------------------------------
                          Catalyst           B              Poor           Continuous           TBD         SEM, EDX
                        Distribution                  reproducibility    coverage down
                       and Uniformity                                      pore wall.
---------------------------------------------------------------------------------------------------------------------------------
                       Catalyst Layer        B              TBD         Consistent with   Consistent with    SEM
                         Thickness                                      loading targets   loading targets
                                                                             below             below
---------------------------------------------------------------------------------------------------------------------------------
                          Catalyst           A              TBD           Atomic Pt:Ru      Atomic Pt:Ru    SEM, EDX, XPS
                        Composition                                         (3+-x):1           3+-y:1

---------------------------------------------------------------------------------------------------------------------------------
                       Real Catalyst         B         4000cm2/cm2 Si         7500             10,000       CO, H2 desorption
                        Surface Area                                                                        (CV)
---------------------------------------------------------------------------------------------------------------------------------
                          Catalyst           B              TBD               TBD               TBD         Micro scratch,
                         Adherence                                                                          SEM, AFM
                                                                                                            before/after
                                                                                                            reliability cycling

---------------------------------------------------------------------------------------------------------------------------------
                          Catalyst                        2 mW/mg           20 mw/mg         200 mW/mg      Weight and
                        Utilization                                                                         catalytic activity
                                                                                                            measurements

---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

---------------------------------------------------------------
                                      COMMENTS

---------------------------------------------------------------
CATALYSTS PROPERTIES  Intent is to minimize losses that are a
                      function of fundamental catalytic
                      and Tafel slope kinetics as well as
                      provide a reproducible process for
                      catalyst deposition that can
                      ultimately occur at a wafer level.
---------------------------------------------------------------
                      Uniform means the same structure exists
                      at all targeted locations in the
                      electrode structure.
---------------------------------------------------------------

---------------------------------------------------------------
                      Ru may be as hydroxide  X and Y TBD
                      based on sensitivity of catalytic
                      activity to composition.  No halogens.
---------------------------------------------------------------

---------------------------------------------------------------
                      Catalyst must stay attached during
                      operating conditions.

---------------------------------------------------------------
                      This is a cost issue.  Migration to
                      supported catalyst is at least one
                      anticipated concept.

---------------------------------------------------------------

                                                                  April 29, 2004
                                       5                    Company Confidential
<PAGE>

                                                                       EXHIBIT D

<PAGE>

THE SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED STATES
FEDERAL  OR STATE  SECURITIES  LAWS AND MAY NOT BE  OFFERED  FOR  SALE,  SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY,  WITHOUT  REGISTRATION OF
SUCH SECURITIES  UNDER ALL APPLICABLE  UNITED STATES FEDERAL OR STATE SECURITIES
LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM,  SUCH COMPLIANCE,  AT
THE OPTION OF THE  COMPANY,  TO BE  EVIDENCED  BY AN  OPINION  OF  SHAREHOLDER'S
COUNSEL,  IN  FORM  ACCEPTABLE  TO  THE  COMPANY,  THAT  NO  VIOLATION  OF  SUCH
REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.

                       WARRANT TO PURCHASE COMMON STOCK OF
                            NEAH POWER SYSTEMS, INC.

Warrant No. COMMON STOCK-04         Bothell, Washington
                   Date of Issuance: April 29, 2004  Number of Shares: 1,000,000
                                                         (subject to adjustment)

         THIS CERTIFIES THAT, for value received, NOVELLUS SYSTEMS, INC., or its
permitted registered assigns (the "HOLDER"),  IS entitled,  subject to the terms
and conditions of this Warrant,  at any time or from time to time after the date
hereof (the "EFFECTIVE  DATE"),  and before 5:00 p.m.  Pacific Time on April 29,
2009 (the  "EXPIRATION  DATE"),  to purchase  from NEAH POWER  SYSTEMS,  INC., a
Washington  corporation  (the  "COMPANY"),  ONE  MILLION  (1,000,000)  shares of
Warrant  Stock of the  Company  at a price  per  share of $0.25  (the  "EXERCISE
PRICE"). Both the number of shares of Warrant Stock purchasable upon exercise of
this Warrant and the  Exercise  Price are subject to  adjustment  and vesting as
provided herein.  This Warrant is issued pursuant to that certain  Collaboration
Agreement,  dated as of the date hereof (the  "AGREEMENT"),  between the Company
and the Holder.  Unless defined otherwise  herein,  capitalized terms shall have
the meaning set forth in the Agreement.

1.       CERTAIN DEFINITIONS.  As used in this Warrant the following terms shall
have the following respective meanings:

"FAIR MARKET  VALUE" of a share of Warrant  Stock as of a particular  date shall
mean:

         (a)      If traded on a  national  securities  exchange  or the  NASDAQ
         National  Market,  the Fair  Market  Value  shall be  deemed  to be the
         average of the closing  prices of the shares of the Common Stock of the
         Company on such  exchange  or market  over the 5 business  days  ending
         immediately prior to the applicable date of valuation;

         (b)      If actively  traded  over-the-counter,  the Fair Market  Value
         shall be deemed to be the  average of the  closing  bid prices over the
         30-day  period  ending  immediately  prior  to the  applicable  date of
         valuation; and

         (c)      If there is no active  public  market,  the Fair Market  Value
         shall be the value  thereof,  as  agreed  upon by the  Company  and the
         Holder; PROVIDED, HOWEVER, that if

<PAGE>

         the Company and the Holder cannot agree on such value, such value shall
         be determined by an independent  valuation firm  experienced in valuing
         businesses  such as the Company  and jointly  selected in good faith by
         the Company and the Holder.  Fees and  expenses of the  valuation  firm
         shall be paid for by the Company.

         "HSR ACT" shall mean the Hart-Scott-Rodino  Antitrust  Improvements Act
         of 1976, as amended.

         "IPO" shall mean the first firm commitment underwritten public offering
         of the  Company's  Common Stock  pursuant to an effective  registration
         statement filed with the SEC under the Securities Act.

         "REGISTERED HOLDER" shall mean any Holder in whose name this Warrant is
         registered upon the books and records maintained by the Company.

         "SEC"  shall  mean  the  U.S.   Securities  and  Exchange   Commission.
         "Securities Act" shall mean the Securities Act of 1933, as amended.

         "WARRANT"  shall  include  this  Warrant and any warrant  delivered  in
         substitution or exchange for this warrant as provided herein.

         "WARRANT  STOCK"  shall mean the Common  Stock of the  Company  and any
         other  securities  at any time  receivable or issuable upon exercise of
         this Warrant.

2.       EXERCISE OF WARRANT.

         2.1.  PAYMENT.  Subject to compliance  with the terms and conditions of
this Warrant and applicable  securities laws, this Warrant may be exercised,  in
whole or in part at any time or from time to time,  on or before the  Expiration
Date by the delivery (including,  without limitation,  delivery by facsimile) of
the form of Notice of  Exercise  attached  hereto as  EXHIBIT 1 (the  "NOTICE OF
EXERCISE"), duly executed by the Holder, at the principal office of the Company,
and as soon as practicable after such date, surrendering

         (a)      this Warrant at the principal office of the Company, and

         (b)      payment,  (i) in cash (by check) or by wire transfer,  (ii) by
         cancellation  by the  Holder  of  indebtedness  of the  Company  to the
         Holder;  or (iii) by a combination  of (i) and (ii), of an amount equal
         to the product  obtained by multiplying the number of shares of Warrant
         Stock being purchased upon such exercise by the then effective Exercise
         Price (the "EXERCISE AMOUNT"),  except that if Holder is subject to HSR
         Act Restrictions (as defined in Section 2.5 below), the Exercise Amount
         shall  be paid to the  Company  within  five (5)  business  days of the
         termination of all HSR Act Restrictions.

         2.2. NET ISSUE  EXERCISE.  In lieu of the payment  methods set forth in
Section 2.1(b) above,  if the Fair Market Value of one share of Warrant Stock is
greater than the Exercise  Price (at the date of  calculation  set forth below),
the  Holder  may elect to  exchange  all or some of the  Warrant  for  shares of
Warrant Stock equal to the value of the Warrant being exchanged on the

<PAGE>

date of exchange.  If the Holder  elects to exchange this Warrant as provided in
this Section 2.2,  the Holder  shall  tender to the  Company,  at the  principal
office of the Company, the Warrant for the amount being exchanged,  along with a
properly endorsed Notice of Exercise,  and the Company shall issue to the Holder
the number of shares of the Warrant Stock computed using the following formula:

            X=Y (A-B)
              -------
                  A

Where:            X = the number of shares of Warrant Stock to be issued to the
                  Holder.

                  Y = the number of shares of Warrant Stock purchasable under
                  the amount of the Warrant being exchanged (as adjusted to the
                  date of such calculation).

                  A = the Fair Market Value of one share of the Warrant Stock.

                  B = Exercise Price (as adjusted to the date of such
                  calculation).

All references  herein to an "exercise" of the Warrant shall include an exchange
pursuant to this Section 2.2. Upon receipt of a written  notice of the Company's
intention to raise capital by selling shares of Common Stock in an IPO (the "IPO
NOTICE"), which notice shall be delivered to the Holder at least forty-five (45)
but  not  more  than  ninety  (90)  days  before  the  anticipated  date  of the
effectiveness of the registration  statement associated with the IPO, the Holder
shall promptly  notify the Company whether the Holder will exercise this Warrant
pursuant to this Section 2.2 prior to consummation  of the IPO.  Notwithstanding
whether an IPO Notice has been delivered to the Holder or any other provision of
this Warrant to the  contrary,  if the Holder  decides to exercise  this Warrant
while a  registration  statement is on file with the SEC in connection  with the
IPO, this Warrant shall be deemed  exercised on the  consummation of the IPO and
the Fair Market  Value will be the price at which one share of Common  Stock was
sold to the  public in the IPO.  If the  Holder has  elected  to  exercise  this
Warrant  pursuant to this Section 2.2 while a registration  statement is on file
with the SEC in connection with an IPO and the IPO is not consummated,  then the
Holder's  exercise  of this  Warrant  shall not be  effective  unless the Holder
confirms in writing the  Holder's  intention  to go forward with the exercise of
this Warrant.

         2.3. STOCK  CERTIFICATES;  FRACTIONAL SHARES. As soon as practicable on
or after the date of exercise of this Warrant under Section 2.1 or 2.2 above, as
applicable,  the  Company  shall  issue and  deliver  to the  person or  persons
entitled to receive the same a  certificate  or  certificates  for the number of
whole shares of Warrant Stock issuable upon such exercise, together with cash in
lieu of any  fraction  of a share equal to such  fraction  of the  current  Fair
Market  Value of one whole share of Warrant  Stock as of the date of exercise of
this Warrant. No fractional shares or scrip representing fractional shares shall
be issued upon an exercise of this Warrant.

         2.4. HSR ACT. The Company  hereby  acknowledges  that  exercise of this
Warrant by the Holder may subject  the  Company  and/or the Holder to the filing
requirements of the HSR Act and that the Holder may be prevented from exercising
this Warrant until the expiration or early  termination  of all waiting  periods
imposed by the HSR Act ("HSR ACT RESTRICTIONS").  If on or before the Expiration
Date,  the Holder has sent the Notice of  Exercise to Company and the Holder has
not been able to complete the exercise of this Warrant  prior to the  Expiration
Date

<PAGE>

because of HSR Act  Restrictions,  the Holder  shall be entitled to complete the
process of exercising this Warrant in accordance  with the procedures  contained
herein  notwithstanding the fact that completion of the exercise of this Warrant
would take place after the Expiration Date or the completion of the IPO.

         2.5.     PARTIAL EXERCISE;  EFFECTIVE DATE OF EXERCISE.  In case of any
partial  exercise of this  Warrant,  the Company  shall cancel this Warrant upon
surrender  hereof and shall  execute and deliver a new Warrant of like tenor and
date for the balance of the shares of Warrant Stock purchasable hereunder.  This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided  above.  However,
if Holder is subject to HSR Act filing requirements this Warrant shall be deemed
to have  been  exercised  on the  date  immediately  following  the  date of the
expiration  of all HSR Act  Restrictions.  The person  entitled  to receive  the
shares of Warrant Stock  issuable upon exercise of this Warrant shall be treated
for all  purposes as the holder of record of such shares of Warrant  Stock as of
the close of  business on the date the Holder is deemed to have  exercised  this
Warrant.

         2.6.     VESTING. The purchase rights represented by this Warrant shall
vest as follows:

                  (a)      333,333 shares of Warrant Stock (as adjusted pursuant
                  to  Section  4 hereof)  shall  vest  fully and be  immediately
                  exercisable  by the Holder upon the  completion of each of the
                  three milestones  identified in the Project Plan as defined in
                  the Technology  Collaboration  Agreement dated effective as of
                  April 1, 2004.  The remaining one share (as adjusted  pursuant
                  to Section 4) shall vest upon  completion  of the first of the
                  three milestones.

                  (b)      Notwithstanding  anything to the  contrary  set forth
                  herein,  upon (i) the  reorganization  or merger  (or  similar
                  transaction or series of  transactions) of the Company with or
                  into any  other  corporation  or  corporations  in  which  the
                  holders of the Company's  outstanding voting stock immediately
                  before such  transaction or series of related  transactions do
                  not,  immediately  after such transaction or series of related
                  transactions,  retain  stock  representing  a majority  of the
                  voting  power  of the  surviving  corporation  (or its  parent
                  corporation  if the surviving  corporation  is wholly owned by
                  the  parent  corporation)  of such  transaction  of  series of
                  related  transactions;  or (ii) a sale,  transfer or exclusive
                  license  of all or  substantially  all  of the  assets  of the
                  Company, the purchase rights represented by this Warrant shall
                  immediately  and fully  accelerate  and all  shares of Warrant
                  Stock  issuable  under  this  Warrant  shall vest fully and be
                  immediately exercisable by the Holder.

3.       VALID  ISSUANCE;  TAXES.  All shares of Warrant  Stock  issued upon the
exercise of this Warrant shall be validly issued, fully paid and non-assessable,
and the Company shall pay all taxes and other  governmental  charges that may be
imposed in respect of the issue or delivery thereof.

4.       ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of shares
of Warrant Stock  issuable upon exercise of this Warrant (or any shares of stock
or other

<PAGE>

securities or property receivable or issuable upon exercise of this Warrant) and
the Exercise  Price are subject to adjustment  upon  occurrence of the following
events:

         4.1. ADJUSTMENT FOR STOCK SPLITS, STOCK SUBDIVISIONS OR COMBINATIONS OF
SHARES.  If the Company at any time while this Warrant,  or any portion  hereof,
remains  outstanding and unexpired shall split,  subdivide or combine the shares
of Warrant Stock, as to which purchase  rights under this Warrant exist,  into a
different  number  of  securities  of the same  class,  the  number of shares of
Warrant Stock  issuable  upon exercise of this Warrant shall be  proportionately
increased and the Exercise Price for such  securities  shall be  proportionately
decreased in the case of a split or  subdivision,  and  likewise,  the number of
shares  of  Warrant  Stock  issuable  upon  exercise  of this  Warrant  shall be
proportionately  decreased and the Exercise Price  proportionately  increased in
the case of a combination.

         4.2.  ADJUSTMENT  FOR  DIVIDENDS  OR  DISTRIBUTIONS  OF  STOCK OR OTHER
SECURITIES OR PROPERTY.  In case the Company shall make or issue, or shall fix a
record date for the  determination of eligible  holders  entitled to receive,  a
dividend or other  distribution  with respect to the Common Stock (or any shares
of stock or other  securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained  earnings),  then, in each such case, the
Holder on exercise of this Warrant at any time after the consummation, effective
date or record date of such dividend or other  distribution,  shall receive,  in
addition  to the  shares of Common  Stock (or such  other  stock or  securities)
issuable  on such  exercise  prior to such  date,  and  without  the  payment of
additional  consideration  therefor,  the securities or such other assets of the
Company to which such  Holder  would have been  entitled  upon such date if such
Holder had exercised this Warrant on the date hereof and had thereafter,  during
the period  from the date  hereof to and  including  the date of such  exercise,
retained  such  shares  and/or all other  additional  stock  available  by it as
aforesaid during such period giving effect to all adjustments called for by this
Section 4.

         4.3.   RECLASSIFICATION.   If  the  Company,   by  reclassification  of
securities or otherwise, shall change any of the securities as to which purchase
rights  under  this  Warrant  exist  into  the  same or a  different  number  of
securities  of any  other  class  or  classes,  this  Warrant  shall  thereafter
represent  the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the  securities  that
were subject to the purchase rights under this Warrant immediately prior to such
reclassification  or other  change and the  Exercise  Price  therefore  shall be
appropriately  adjusted,  all subject to further  adjustment as provided in this
Section 4. No  adjustment  shall be made  pursuant to this  Section 4.3 upon any
conversion  or  redemption  of the Common  Stock which is the subject of Section
4.5.

         4.4. ADJUSTMENT FOR CAPITAL REORGANIZATION, MERGER OR CONSOLIDATION. If
at any time while this  Warrant,  or any  portion  hereof,  is  outstanding  and
unexpired  there  shall  be (a) a  reorganization  (other  than  a  combination,
reclassification,  exchange or subdivision  of shares as otherwise  provided for
herein),  (b) a merger or  consolidation  of the  Company  with or into  another
corporation  in which the  Company  is not the  surviving  entity,  or a reverse
triangular merger, or similar transaction, in which the Company is the surviving
entity but the shares of the  Company's  capital stock  outstanding  immediately
prior to the merger are converted  into other  property,  whether in the form of
securities,  cash, or  otherwise,  and as a result of which the ownership of the
Company shall change by fifty percent (50%) or more, or (c) a sale or transfer

<PAGE>

of all or substantially  all of the Company's assets to any other person,  then,
as a part of  such  reorganization,  merger,  consolidation,  sale  or  transfer
(collectively, A "TRANSACTION"), this Warrant shall cease to represent the right
to receive Warrant Shares and shall automatically represent the right to receive
upon the exercise of this Warrant,  during the period  specified herein and upon
payment of the Exercise  Price then in effect,  the number of shares of stock or
other securities or property  offered to the Company's  holders of Warrant Stock
in  connection  with such  Transaction  that a holder of shares of Warrant Stock
would have been entitled to receive in such Transaction if this Warrant had been
exercised  in full  immediately  before  such  Transaction,  subject  to further
adjustment  as  provided in this  Section 4. The  foregoing  provisions  of this
Section 4.4 shall similarly apply to successive reorganizations, consolidations,
mergers,  sales, and transfers to the extent that this Warrant is assigned to or
assumed by any successor  corporation or entity,  whether by operation of law or
otherwise,  and to the stock or securities of any other  corporation that are at
the  time  receivable  upon  the  exercise  of this  Warrant.  If the  per-share
consideration  payable  to the holder  hereof  for  shares of  Warrant  Stock in
connection with any such  Transaction is in a form other than cash or marketable
securities,  then the value of such  consideration  shall be  determined in good
faith by the Company's Board of Directors. In all events, appropriate adjustment
(as determined in good faith by the Company's Board of Directors)  shall be made
in the  application of the provisions of this Warrant with respect to the rights
and  interests  of the  Holder  after  the  Transaction,  to the  end  that  the
provisions  of this Warrant  shall be  applicable  after that event,  as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.

         4.5.  REDEMPTION OR TERMINATION  OF WARRANT  STOCK.  In case all or any
portion of the authorized and outstanding shares of Warrant Stock of the Company
are redeemed or  converted or  reclassified  into other  securities  or property
pursuant to the Company's Articles of Incorporation or otherwise, or the Warrant
Stock otherwise ceases to exist, then, in such case, the Holder of this Warrant,
upon exercise hereof at any time after the date on which the Warrant Stock is so
redeemed  or ceases to exist  (the  "WARRANT  STOCK  TERMINATION  DATE"),  shall
receive,  subject to the terms of this Warrant,  in lieu of the number of shares
of Warrant Stock that would have been  issuable  upon such exercise  immediately
prior to the Warrant Stock  Termination  Date,  the  securities or property that
would have been  received  if this  Warrant had been  exercised  in full and the
Warrant Stock received thereupon had been simultaneously  converted  immediately
prior to the Warrant Stock Termination  Date, all subject to further  adjustment
as  provided  in  this  Warrant.  Additionally,  the  Exercise  Price  shall  be
immediately  adjusted  to  equal  the  quotient  obtained  by  dividing  (x) the
aggregate  Exercise  Price of the maximum  number of shares of Warrant Stock for
which this  Warrant  was  exercisable  immediately  prior to the  Warrant  Stock
Termination Date by (y) the number of shares of Warrant Stock of the Company for
which  this  Warrant  is  exercisable   immediately   after  the  Warrant  Stock
Termination Date, all subject to further adjustment as provided herein.

5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the Exercise
Price, or number or type of shares  issuable upon exercise of this Warrant,  the
Chief  Financial  Officer  or  Controller  of the  Company  shall  compute  such
adjustment  in  accordance  with  the  terms  of  this  Warrant  and  prepare  a
certificate  setting forth such  adjustment and showing in detail the facts upon
which such adjustment is based,  including a statement of the adjusted  Exercise
Price.  The Company shall  promptly send (by facsimile and by either first class
mail, postage prepaid or overnight  delivery) a copy of each such certificate to
the Holder.

<PAGE>

6.       LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to
the Company of the ownership of and the loss,  theft,  destruction or mutilation
of this Warrant,  and of indemnity  reasonably  satisfactory  to it, and (in the
case of mutilation) upon surrender and cancellation of this Warrant, the Company
will  execute  and  deliver in lieu  thereof a new  Warrant of like tenor as the
lost, stolen, destroyed or mutilated Warrant.

7.       RESERVATION OF WARRANT STOCK.  The Company hereby covenants that at all
times there shall be reserved for issuance  and delivery  upon  exercise of this
Warrant such number of shares of Warrant  Stock or other shares of capital stock
of the Company as are from time to time  issuable  upon exercise of this Warrant
and, from time to time,  will take all steps  necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Warrant Stock issuable
upon exercise of this  Warrant.  All such shares shall be duly  authorized,  and
when  issued  upon  such  exercise,  shall be  validly  issued,  fully  paid and
non-assessable,  free and clear of all liens,  security  interests,  charges and
other  encumbrances or restrictions on sale and free and clear of all preemptive
rights,  except  encumbrances  or  restrictions  arising  under federal or state
securities laws. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Warrant Stock upon
the exercise of this Warrant.

8.       TRANSFER  AND  EXCHANGE.  Subject to the terms and  conditions  of this
Warrant and compliance with all applicable securities laws, this Warrant and all
rights hereunder may be transferred to any Registered Holder, parent, subsidiary
or  affiliate  of the Holder,  in whole or in part,  on the books of the Company
maintained for such purpose at the principal  office of the Company  referred to
above,  by the  Registered  Holder  hereof  in  person,  or by  duly  authorized
attorney,  upon surrender of this Warrant properly  endorsed and upon payment of
any  necessary  transfer  tax or other  governmental  charge  imposed  upon such
transfer.  Upon any  permitted  partial  transfer,  the  Company  will issue and
deliver to the  Registered  Holder a new Warrant or Warrants with respect to the
shares  of  Warrant  Stock not so  transferred.  Each  taker and  holder of this
Warrant,  by taking or holding  the same,  consents  and  agrees  that when this
Warrant  shall have been so endorsed,  the person in  possession of this Warrant
may be treated by the Company,  and all other persons dealing with this Warrant,
as the  absolute  owner  hereof for any  purpose  and as the person  entitled to
exercise   the  rights   represented   hereby,   any  notice  to  the   contrary
notwithstanding; PROVIDED, HOWEVER that until a transfer of this Warrant is duly
registered  on the books of the  Company,  the Company may treat the  Registered
Holder hereof as the owner for all purposes.

9.       RESTRICTIONS  ON TRANSFER.  The Holder,  by acceptance  hereof,  agrees
that,  absent an effective  registration  statement filed with the SEC under the
Securities Act,  covering the disposition or sale of this Warrant or the Warrant
Stock issued or issuable upon exercise hereof, and registration or qualification
under applicable  state  securities  laws, such Holder will not sell,  transfer,
pledge,  or hypothecate  any or all such Warrants or Warrant Stock,  as the case
may be,  unless  either (i) the Company has  received an opinion of counsel,  in
form and substance  reasonably  satisfactory to the Company,  to the effect that
such  registration is not required in connection  with such  disposition or (ii)
the sale of such securities is made pursuant to Rule 144,  promulgated under the
Securities Act.

<PAGE>

10.      COMPLIANCE  WITH  SECURITIES  LAWS. By acceptance of this Warrant,  the
Holder  hereby  represents,  warrants  and  covenants  that any  shares of stock
purchased  upon  exercise of this Warrant or acquired  upon  conversion  thereof
shall be  acquired  for  investment  only and not with a view to, or for sale in
connection  with,  any  distribution  thereof(.),  that the  Holder has had such
opportunity as the Holder has deemed adequate to obtain from  representatives of
the Company  such  information  as is necessary to permit the Holder to evaluate
the merits and risks of its  investment in the Company;  that the Holder is able
to bear the  economic  risk of  holding  such  shares  of  Warrant  Stock for an
indefinite period; that the Holder understands that shares of Warrant Stock will
not be registered under the Securities Act (unless  otherwise  required pursuant
to exercise by the Holder of the registration rights, if any, previously granted
to the Holder) and will be  "restricted  securities"  within the meaning of Rule
144   promulgated   under  the  Securities  Act  and  that  the  exemption  from
registration under Rule 144 will not be available for at least one year from the
date of exercise of this  Warrant,  subject to any special  treatment by the SEC
for exercise of this Warrant  pursuant to Section 2.2, and even then will not be
available unless a public market then exists for the stock, adequate information
concerning  the Company is then  available  to the  public,  and other terms and
conditions  of Rule 144 are  complied  with;  and that  all  stock  certificates
representing  shares  of  Warrant  Stock  may  have  affixed  thereto  a  legend
substantially in the following form:

THE SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN REGISTERED
UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY
NOT BE OFFERED FOR SALE,  SOLD OR OTHERWISE  TRANSFERRED  OR
ASSIGNED  FOR VALUE,  DIRECTLY  OR  INDIRECTLY,  NOR MAY THE
SECURITIES BE TRANSFERRED  ON THE BOOKS OF THE  CORPORATION,
WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE
UNITED STATES FEDERAL OR STATE SECURITIES LAWS OR COMPLIANCE
WITH AN APPLICABLE EXEMPTION THEREFROM,  SUCH COMPLIANCE, AT
THE OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION
OF  SHAREHOLDER'S   COUNSEL,   IN  FORM  ACCEPTABLE  TO  THE
CORPORATION,   THAT  NO  VIOLATION   OF  SUCH   REGISTRATION
PROVISIONS  WOULD  RESULT  FROM  ANY  PROPOSED  TRANSFER  OR
ASSIGNMENT.

11.      NO  RIGHTS OR  LIABILITIES  AS  SHAREHOLDERS.  This  Warrant  shall not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company.

12.      TITLES AND HEADINGS. The titles,  captions and headings of this Warrant
are included for ease of reference only and will be disregarded in  interpreting
or construing this Warrant. Unless otherwise specifically stated, all references
herein to "sections" and "exhibits"  will mean "sections" and "exhibits" to this
Warrant.

13.      LAW  GOVERNING.  This Warrant  shall be governed in all respects by the
laws of the State of  Washington,  without  regard to  principles of conflict of
laws.

<PAGE>

14.      NOTICE.

         14.1.  MERGER OR SALE.  If the  Company  proposes to sell,  convey,  or
otherwise  dispose of all or  substantially  all of its  property or business or
merge into or consolidate with any other corporation  (other than a wholly-owned
subsidiary corporation),  including an exclusive license of all or substantially
all of the  intellectual  property  assets of the  Company,  or effect any other
transaction or series of related  transactions  in which more than fifty percent
(50%)  of  the  voting  power  of the  Company  is  disposed  of  (other  than a
transaction or series of related transactions  approved by the holders of Common
Stock and the holders of each series of Preferred Stock, voting separately), but
excluding (i) a consolidation with a wholly owned subsidiary of the Company,  or
(ii) a merger  effected  solely for the purpose of changing  the domicile of the
Company,  then the Company shall give the  Registered  Holder  written notice of
such  impending   transaction  not  later  than  ten  (10)  days  prior  to  the
shareholders' meeting called to approve such transaction, or ten (10) days prior
to the closing of such transaction,  whichever is earlier, and shall also notify
the Registered Holder in writing of the final approval of such transaction.  The
first of such notices shall  describe the material  terms and  conditions of the
impending  transaction,  and the Company shall  thereafter  give the  Registered
Holder prompt notice of any material changes.  The transaction shall in no event
take  place  sooner  than ten (10) days  after the  Company  has given the first
notice  provided  for herein or sooner  than ten (10) days after the Company has
given notice of any material  changes  provided for herein;  PROVIDED,  HOWEVER,
that such periods may be shortened  upon the written  consent of the  Registered
Holder.

         14.2.  DIVIDEND,  RECLASSIFICATION  OR  DISSOLUTION.  In case:  (a) the
Company  shall take a record of the holders of its Common  Stock (or other stock
or securities at the time receivable upon the exercise of this Warrant), for the
purpose of entitling them to receive any dividend or other distribution;  (b) of
any  reclassification  of  the  capital  stock  of  the  Company;  or (c) of any
voluntary  dissolution,  liquidation or winding-up of the Company;  then, and in
each such case,  the Company  will mail or cause to be mailed to the  Registered
Holder a notice  specifying,  as the case may be, (i) the date on which a record
is to be taken for the  purpose of such  dividend or  distribution,  or (ii) the
date and the time,  if any is to be fixed,  as of which the holders of record of
Warrant  Stock shall be entitled to exchange  their shares of Warrant  Stock for
securities or other property  deliverable upon such event.  Such notice shall be
delivered at least ten (10) days prior to the date therein specified.

         14.3.  MANNER OF  NOTICE.  Any notice  required  or  permitted  by this
Warrant shall be in writing and shall be deemed  sufficient upon delivery,  when
delivered  personally  or by  overnight  courier or sent by  telegram or fax, or
ninety-six  (96) hours after being  deposited in the U.S.  mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's  address or fax number as set forth on the signature  page below
or as subsequently modified by written notice.

15.      SEVERABILITY. If any section, provision or clause of this Warrant shall
be found or be held to be illegal,  invalid or  unenforceable,  the remainder of
this Warrant shall be valid and enforceable and the parties shall use good faith
to negotiate a  substitute,  valid and  enforceable  provision  that most nearly
effects the parties' intent in entering into this Warrant.

<PAGE>

16.      COUNTERPARTS.   This   Warrant   may  be  executed  in  any  number  of
counterparts,  each of which  shall be an  original,  but all of which  together
shall constitute one instrument.

17.      NO INCONSISTENT  AGREEMENTS.  The Company will not on or after the date
of this Warrant enter into any agreement with respect to its securities which is
inconsistent  with the rights granted to the Holder of this Warrant or otherwise
conflicts with the provisions hereof. The rights granted to the Holder hereunder
do not in any way conflict with and are not inconsistent with the rights granted
to holders of the Company's securities under any other agreements, except rights
that have been waived.

18.      SATURDAYS,  SUNDAYS AND  HOLIDAYS.  If the  Expiration  Date falls on a
Saturday,  Sunday or legal holiday,  the Expiration Date shall  automatically be
extended until 5:00 p.m. the next business day.

                        [SPACE LEFT INTENTIONALLY BLANK.]

<PAGE>

IN WITNESS  WHEREOF,  the parties  hereto have  executed  this Warrant as of the
Effective Date.

                            NEAH POWER SYSTEMS, INC.

                            By:          /s/ David Dorheim
                                         -----------------
                            Name:        David Dorheim
                            Title:       President and CEO

                            Address:     22122 20th Ave SE, Suite 161, Bothell,
                                         WA 98021

                            Fax:         (425) 483-8454
                            Date:        _______________

           SIGNATURE PAGE TO NOVELLUS WARRANT TO PURCHASE COMMON STOCK
                           OF NEAH POWER SYSTEMS, INC.

<PAGE>

EXHIBIT 12
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)

NEAH POWER SYSTEMS, INC.                       WARRANT NO. COMMON STOCK-04

         The undersigned hereby irrevocably elects to exercise the right of
purchase represented by this Warrant Certificate for, and to purchase
thereunder, the securities of Neah Power Systems, Inc. as provided for therein,
and (check the applicable box):

|_|      Tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the amount of
$________________ for such securities.

|_|      Elects the Net Issue Exercise option pursuant to Section 2.2 of the
Warrant, and accordingly requests delivery of a net of of such securities,
according to the following calculation:

         X = Y (A-B)       (_____) = [(____)-(____)]
             -------       -------------------------
         A                          (       )

Where:   X = the number of shares of Common Stock to be issued to Holder.
         Y = the number of shares of Common Stock purchasable under the amount
         of the Warrant being exchanged (as adjusted to the date of such
         calculation).
         A = the Fair Market Value of one share of the Company's Common Stock.
         B = Exercise Price (as adjusted to the date of such calculation).

         Please issue a certificate or  certificates  for such securities in the
name of,  and pay any cash for any  fractional  share  to  (please  print  name,
address and social security number):

Name:  ________________________________

Address:  ______________________________

Signature: ______________________________

         Note: The above signature  should  correspond  exactly with the name on
         the first page of this Warrant Certificate or with the name of the
assignee
appearing in the assignment form below.

         If said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.

<PAGE>

EXHIBIT 2
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)

NEAH POWER SYSTEMS, INC.                             WARRANT NO. _________

For value received, the undersigned hereby sells, assigns and transfers unto
_________________ the within Warrant Certificate, together with all right, title
and interest therein and does hereby irrevocably constitute and appoint
_______________________ attorney, to transfer said Warrant Certificate on the
books of the within-named Company with respect to the number of Warrants set
forth below, with full power of substitution in the premises:

 -------------------------------------------------------------------------------
 Name(s) of Assignee(s)          Address                # of Warrants
 -------------------------------------------------------------------------------

 -------------------------------------------------------------------------------

 -------------------------------------------------------------------------------

 -------------------------------------------------------------------------------

 -------------------------------------------------------------------------------

 -------------------------------------------------------------------------------

         And if said number of Warrants shall not be all the Warrants
represented by the Warrant Certificate, a new Warrant Certificate is to be
issued in the name of said undersigned for the balance remaining of the Warrants
registered by said Warrant Certificate.

         Dated:   ___________________________

         Signature: _________________________

         Notice: The signature to the foregoing Assignment must correspond to
the name as written upon the face of this security in every particular, without
alteration or any change whatsoever; signatures) must be guaranteed by an
eligible guarantor institution (banks, stock brokers, savings and loan
associations and credit unions with membership in an approved signature
guarantee medallion program) pursuant to Securities and Exchange Commission Rule
17Ad-15.EXHIBIT 4.1

         THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
         HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
         EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
         AGREEMENT DATED AS OF OCTOBER 4, 2006, NEITHER THIS WARRANT NOR ANY OF
         SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
         EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR,
         AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR
         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
         NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
         REGULATION S UNDER SUCH ACT.

                                                               Right to
                                                               Purchase
                                                               [________]
                                                               Shares of Common
                                                               Stock, par value
                                                               $.00005 per share

                             STOCK PURCHASE WARRANT

         THIS CERTIFIES THAT, for value received, [_______________] or its
registered assigns, is entitled to purchase from MIDNIGHT HOLDINGS GROUP, INC.,
a Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Paragraph 2 hereof, [____________] fully paid and
nonassessable shares of the Company's Common Stock, par value $.00005 per share
(the "Common Stock"), at an exercise price per share equal to $.04 (the
"Exercise Price"). The term "Warrant Shares," as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof. The
term "Warrants" means this Warrant and the other warrants issued pursuant to
that certain Securities Purchase Agreement, dated October 4, 2006, by and among
the Company and the Buyers listed on the execution page thereof (the "Securities
Purchase Agreement").

         This Warrant is subject to the following terms, provisions, and
conditions:

         1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the

<PAGE>

Company of the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if the resale of the Warrant Shares by the holder is not then
registered pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), delivery to the Company of a
written notice of an election to effect a "Cashless Exercise" (as defined in
Section 11(c) below) for the Warrant Shares specified in the Exercise Agreement.
The Warrant Shares so purchased shall be deemed to be issued to the holder
hereof or such holder's designee, as the record owner of such shares, as of the
close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment shall
have been made for such shares as set forth above. Certificates for the Warrant
Shares so purchased, representing the aggregate number of shares specified in
the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding five (5) business days, after this Warrant shall
have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised. In addition to all other available remedies at law or in equity, if
the Company fails to deliver certificates for the Warrant Shares within five (5)
business days after this Warrant is exercised, then the Company shall pay to the
holder in cash a penalty (the "Penalty") equal to 2% of the number of Warrant
Shares that the holder is entitled to multiplied by the Market Price (as
hereinafter defined) for each day that the Company fails to deliver certificates
for the Warrant Shares. For example, if the holder is entitled to 100,000
Warrant Shares and the Market Price is $2.00, then the Company shall pay to the
holder $4,000 for each day that the Company fails to deliver certificates for
the Warrant Shares. The Penalty shall be paid to the holder by the fifth day of
the month following the month in which it has accrued.

                  Notwithstanding anything in this Warrant to the contrary, in
no event shall the holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Notes (as defined in the Securities
Purchase Agreement)) subject to a limitation on conversion or exercise analogous
to the limitation contained herein) and (ii) the number of shares of Common
Stock issuable upon exercise of the Warrants (or portions thereof) with respect
to which the determination described herein is being made, would result in
beneficial ownership by the holder and its affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (i) of the preceding
sentence. Notwithstanding anything to the contrary contained herein, the
limitation on exercise of this Warrant set forth herein may not be amended
without (i) the written consent of the holder hereof and the Company and (ii)
the approval of a majority of shareholders of the Company.

         2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the

                                      -2-
<PAGE>

Securities Purchase Agreement and before 6:00 p.m., New York, New York time on
the fifth (5th) anniversary of the date of issuance (the "Exercise Period").

         3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:

                  (A) SHARES TO BE FULLY PAID. Subject to the completion of the
Charter Amendment Actions (as such term is defined in the Securities Purchase
Agreement), all Warrant Shares will, upon issuance in accordance with the terms
of this Warrant, be validly issued, fully paid, and nonassessable and free from
all taxes, liens, and charges with respect to the issue thereof.

                  (B) RESERVATION OF SHARES. Subject to the completion of the
Charter Amendment Actions, during the Exercise Period, the Company shall at all
times have authorized, and reserved for the purpose of issuance upon exercise of
this Warrant, a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.

                  (C) LISTING. The Company shall use it best efforts to secure
the listing of the shares of Common Stock issuable upon exercise of the Warrant
upon each national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.

                  (D) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.

                  (E) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.

         4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.

                                      -3-
<PAGE>

         In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.

         (A) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF
COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof,
if and whenever on or after the date of issuance of this Warrant, the Company
issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price on the date of issuance (a "Dilutive Issuance"), then immediately
upon the Dilutive Issuance, the Exercise Price will be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior to the
Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal
to the sum of (x) the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.

         (B) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:

             (I) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.

             (II) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which

                                      -4-
<PAGE>

Common Stock is issuable upon such conversion or exchange is less than the
Market Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.

             (III) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.

             (IV) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.

             (V) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration

                                      -5-
<PAGE>

therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined in good faith
by the Board of Directors of the Company.

             (VI) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan, stock option plan or restricted stock plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose; or (iii) upon the exercise
of the Warrants.

         (C) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.

         (D) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.

         (E) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of the
Company with, or merger of the Company into any other corporation, or in case of
any sale or conveyance of all or substantially all of the assets of the Company
other than in connection with a plan of complete liquidation of the Company,
then as a condition of such consolidation, merger or sale or conveyance,
adequate provision will be made whereby the holder of this Warrant will have the
right to acquire and receive upon exercise of this Warrant in lieu of the shares
of Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of

                                      -6-
<PAGE>

this Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the holder may be entitled to acquire.

         (F) DISTRIBUTION OF ASSETS. In case the Company shall declare or make
any distribution of its assets (including cash) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise, then,
after the date of record for determining shareholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such distribution.

         (G) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the Chief Financial Officer of the Company.

         (H) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the Exercise
Price shall be made in an amount of less than 1% of the Exercise Price in effect
at the time such adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.

         (I) NO FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

         (J) OTHER NOTICES. In case at any time:

             (I) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;

             (II) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

             (III) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or

             (IV) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;

                                      -7-
<PAGE>

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.

         (K) CERTAIN EVENTS. If any event occurs of the type contemplated by the
adjustment provisions of this Paragraph 4 but not expressly provided for by such
provisions, the Company will give notice of such event as provided in Paragraph
4(g) hereof, and the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of the holder shall
be neither enhanced nor diminished by such event.

         (L) CERTAIN DEFINITIONS.

             (I) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.

             (II) "MARKET PRICE," as of any date, (i) means the average of the
last reported sale prices for the shares of Common Stock on the OTCBB for the
five (5) Trading Days immediately preceding such date as reported by Bloomberg,
or (ii) if the OTCBB is not the principal trading market for the shares of
Common Stock, the average of the last reported sale prices on the principal
trading market for the Common Stock during the same period as reported by
Bloomberg, or (iii) if market value cannot be calculated as of such date on any
of the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the Company
or, at the option of a majority-in-interest of the holders of the outstanding
Warrants by (b) an independent investment bank of nationally recognized standing
in the valuation of businesses similar to the business of the corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.

             (III) "COMMON STOCK," for purposes of this Paragraph 4, includes
the Common Stock, par value $.00005 per share, and any additional class of stock
of the Company

                                      -8-
<PAGE>

having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, par value $.00005 per share, in respect of which this Warrant
is exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(e)
hereof, the stock or other securities or property provided for in such
Paragraph.

         5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

         6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

         7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.

             (A) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated September 29, 2006, by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").

             (B) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.

             (C) REPLACEMENT OF WARRANT. Upon 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, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

                                      -9-
<PAGE>

             (D) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.

             (E) REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.

             (F) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.

         8. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.

         9. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 22600 Hall Road, Suite
205; Clinton Township, MI 48036, Attention: Chief Executive Officer, or at such
other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt

                                      -10-
<PAGE>

thereof by the person entitled to receive such notice at the address of such
person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.

         10. GOVERNING LAW. THIS WARRANT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS WARRANT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

         11. MISCELLANEOUS.

             (A) AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.

             (B) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.

             (C) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock. For

                                      -11-
<PAGE>

example, if the holder is exercising 100,000 Warrants with a per Warrant
exercise price of $0.75 per share through a cashless exercise when the Common
Stock's current Market Price per share is $2.00 per share, then upon such
Cashless Exercise the holder will receive 62,500 shares of Common Stock.

             (D) REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Warrant will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Warrant, that the
holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Warrant and
to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -12-
<PAGE>

             IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.

                                            MIDNIGHT HOLDINGS GROUP, INC.

                                            By:
                                               --------------------------
                                              Nicholas Cocco
                                              Chief Executive Officer

Dated as of September 29, 2006

<PAGE>

                           FORM OF EXERCISE AGREEMENT

                                                        Dated: ________ __, 200_

To:      ______________________

         The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:

                                           Name:
                                                --------------------------------

                                           Signature:
                                           Address:
                                                   -----------------------------

                                                   -----------------------------

                                           Note:  The above signature should
                                                  correspond exactly with the
                                                  name on the face of the within
                                                  Warrant, if applicable.

and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.

<PAGE>

                               FORM OF ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:

NAME OF ASSIGNEE                    ADDRESS                       NO OF SHARES
----------------                    -------                       ------------

, and hereby irrevocably constitutes and appoints ___________________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.

Dated:   ________ __, 200_

                                     ------------------------------
In the presence of:
                                 Name:
                                      ------------------------------

                                 Signature:
                                           ------------------------------
                                 Title of Signing Officer or Agent (if any):

                                          ------------------------------
                                 Address:
                                          ------------------------------

                                          ------------------------------

                                          Note:   The above signature should
                                                  correspond exactly with
                                                  the name on the face of the
                                                  within Warrant, if applicable.

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