Document:

EXHIBIT 10.20

J. nr. 306-13695-4

                              CONSULTANCY AGREEMENT

This Agreement (the "Agreement") made as of June 14th 2006 ("Effective Date")
entered into between:

Danfoss A/S, a Danish company

Nordborgvej     81     6430
Nordborg Denmark

("Danfoss")

and

Neah Power Systems, a US corporation 22122 20th
Ave SE

Suite 161

Bothell, WA 98021

USA

("Neah Power Systems")

(each referred to as a "Party" and together as the "Parties")

                                    PREAMBLE

Neah Power Systems and Danfoss wish to enter a written agreement regarding the
consultancy services to be provided by Danfoss and planned cooperation between
the Parties within the field of fluid control and disposable fluid cartridge
technology for portable fuel cells with a power capacity up to 500W.

This Agreement shall apply for any kind of consultancy or assistance provided to
Neah Power Systems by Danfoss and supersedes all prior agreements between the
Parties, whether, oral or written.

The Parties agree that this Agreement is a frame agreement setting out the main
rights and obligations of the Parties and that terms for individual services
shall be agreed and set out in details in statements of work (the "SOW's") to
this Agreement, which shall be agreed upon in writing by the parties and shall
be deemed incorporated into this Agreement and be attached as enclosures hereto.
The initial SOW is attached hereto as EXHIBIT A.

Any standard terms and conditions laid down by the Parties which disagree with
those contained in this Agreement shall not be binding upon the Parties, unless
otherwise agreed in writing.

1        THE SERVICES

1.1      Danfoss shall accomplish the tasks specified in each SOW (hereinafter
referred to as the "Services"). The Services must he accomplished within agreed
period of time, acad. the stipulated deadline for accomplishing each Service
must be kept.

<PAGE>

1.2      The Parties agree that the SOW's shall specify details as the
following:

            o  Specification of individual Services and objectives

            o  Budget and costs

            o  Time schedule and milestones

            o  Working place

            o  Report procedures

            o  Contact persons

         1.3      Any additions to or modifications of the Services shall be
         agreed in writing.

2        THE PARTIES' CONTRIBUTION

         2.1      The Parties agree to work together in good faith and do all
         that can be reasonably expected of them for the completion of the
         Services.

         2.2      Danfoss shall accomplish the Services as principal at its own
         account and risk. Danfoss shall for its own account make the persons
         and facilities available necessary and appropriate to accomplish the
         Services.

         2.3      Neah Power Systems shall neither make personnel, facilities
         nor premises available in order for Danfoss to accomplish the Services,
         unless otherwise specified in an SOW or agreed between the Parties.

3        WORKING PLACE AND HOURS OF DANFOSS

         3.1      Danfoss must only stay at such of Neah Power Systems' premises
         and/or such periods of time as agreed upon between the Parties.

4        NEAH POWER SYSTEMS' PAYMENT

         4.1      Neah Power Systems shall pay remuneration to Danfoss for
         accomplishment of the Services. The exact amount and times of payment
         shall be separately agreed upon in the SOW's. Unless otherwise agreed
         payments shall be made in Euro.

         4.2      Danfoss shall make out an invoice prior to each payment to be
         made by Neah Power Systems, such payment for undisputed invoices to be
         made within current month plus 30 days to an account designated by
         Danfoss.

         4.3      The remuneration for each Service: shall be as specified in
         the applicable SOW.

         4.4      Danfoss shall only be allowed to initiate activities, which
         cause extension of the stipulated remuneration, if such activities have
         been agreed by the Parties in writing.

         4.5      Neah Power Systems shall reimburse Danfoss for its reasonable
         documented expenses for transport, traveling, board and lodging in
         connection with accomplishment of the Services, subject to prior
         approval of Neah Power Systems, which shall not be unreasonably
         withheld.

5        PERIODICAL REPORTING AND DELIVERY

<PAGE>

5.1      During the accomplishment of the Services Danfoss shall forward to Neah
         Power Systems periodical reports describing the cause of the
         accomplishment of the Services, and provide the deliverables specified
         in each SOW. The reports must be of such form and ex-tent that Neah
         Power Systems is kept informed of all essential activities and as a
         minimum such reports shall be made immediately after conclusion of each
         Services. Further details about reporting may be agreed in the SOW's.

6        INTELLECTUAL PROPERTY RIGHTS

6.1      Definitions

                  6.1.1    "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. Danfoss shall make
                           reason-able disclosure to Neah of the Danfoss
                           Background IP prior to commencement of the Project.

                  6.1.2    "COMPONENTS" stall mean devices that are designed,
                           developed or manufactured using any Project W.

                  6.1.3    "FUEL CELL FIELD OF USE" shall mean use in connection
                           with fuel cells, which are a collection of components
                           whereby a fuel and an oxidizer are supplied to a
                           device that converts them into electricity. Fuel
                           cells differ from batteries in that the energy
                           conversion continues as long as fuel and, if
                           necessary, an oxidizing agent is fed to the fuel
                           cell. If components are contained in detachable
                           assemblies (such as a cartridge) that must be
                           attached and/or connected to other assemblies so as
                           to form a complete fuel cell system, they are
                           considered part of the fuel cell.

                  6.1.4    "INTELLECTUAL PROPERTY RIGHTS" shall mean all
                           copyrights, copyright applications, patents, patent
                           applications, trade secrets, trademarks, moral
                           rights, 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, Denmark,
                           or any other state, country or jurisdiction.

                  6.1.5    "JOINTLY DEVELOPED IP" shall mean all Project IP
                           which is developed jointly by Neah Power Systems and
                           Danfoss in connection with the activities
                           contemplated by this Agreement.

                  6.1.6    "NEAH POWER SYSTEMS PROJECT IP" shall mean all
                           Project IP which is developed by Neah Power Systems
                           in connection with the Project independently of
                           Danfoss.

                  6.1.7    "DANFOSS PROJECT IP" shall mean all Project IP which
                           is developed by Danfoss in connection with the
                           Project independently of Neah Power Systems.

                  6.1.8    "PROJECT" shall 1nean the joint development of
                           technology related to Components, pursuant to this
                           Agreement and commencing on the Effective Date.

                  6.1.9    "PROJECT IP" shall mean all inventions, discoveries,
                           works of author-ship, designs, ideas and technology
                           developed by either party, jointly or independently,
                           ii the course of performance of the Project, and
                           shall not include any Background IP.

6.2      INTELLECTUAL PROPERTY RIGHTS

         6.2.1    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.

<PAGE>

         6.2.2    OWNERSHIP OF INDEPENDENTLY DEVELOPED PROJECT IP. Subject only
                  to the express license granted in Section 6.2.6, all right,
                  title and interest (including Intellectual Property Rights) to
                  Danfoss Project IP shall be owned solely and exclusively by
                  Danfoss. Subject only to the express license granted in
                  Section 6.2.5, all right, title and interest (including
                  Intellectual Property Rights) to Neah Power Systems Project IP
                  shall be owned solely and exclusively by Neah Power Systems.

         6.2.3    OWNERSHIP OF JOINTLY DEVELOPED IP. Subject only to the express
                  licenses granted in Sections 6.2.5 and 6.2.6, 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 Power Systems hereby
                  assigns to Danfoss and Danfoss hereby assigns to Neah Power
                  Systems an equal, undivided, joint ownership interest in
                  Jointly Developed IP so that Neah Power Systems and Danfoss,
                  respectively, each has an equal, undivided, joint ownership
                  interest in the Jointly Developed W.

         6.2.4    USE OF JOINTLY DEVELOPED IP. Subject to the terms of Sections
                  6.2.5 and 6.2.6, each party shall have the right to use, make,
                  have made, sell, import and 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 W.
                  Neither party shall have a "duty to account" or share profits
                  from the Jointly Developed IP with the other party.

         6.2.5    EXCLUSIVE RIGHT TO COMMERCIALIZE IN THE FUEL CELL FIELD OF
                  USE. Notwithstanding the other terms of this Agreement, Neah
                  Power Systems shall have the exclusive right to use and
                  commercialize the Project IP in the Fuel Cell Field of Use,
                  except that Danfoss shall have the right to use and
                  commercialize the Project IP in connection with the supply of
                  Components by Danfoss to Neah Power Systems. Danfoss agrees
                  'that it shall not, direct 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
                  Power Systems. Danfoss hereby grants Neah Power Systems 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 Danfoss Project IP and the
                  Jointly Developed IP, solely in the Fuel Cell Field of Use.

         6.2.6    EXCLUSIVE RIGHT; TO COMMERCIALIZE OUTSIDE THE FUEL CELL FIELD
                  OF USE. Notwithstanding the other terms of this Agreement,
                  Danfoss shall have the exclusive right to use and
                  commercialize the Project IP outside the Fuel Cell Field of
                  Use. Neah Power Systems agrees that it shall not, directly or
                  indirectly, use or commercialize, or license third parities to
                  use or commercialize, the Project IP outside the Fuel Cell
                  Field of Use. Neah Power Systems hereby grants Danfoss 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 Power Systems Project
                  IP and the Jointly Developed IP, solely outside the Fuel Cell
                  Field of Use.

         6.2.7    BACKGROUND IP. The licenses referred to in Sections 6.2.5 and
                  6.2.6 above shall not include any rights in any Background IP.
                  Danfoss agrees to negotiate the grant of a non-exclusive
                  license (without right to grant sublicenses; to Neah Power
                  Systems on commercially reasonable terms) to make or have made
                  Fuel Cell components under Danfoss Background IP as necessary
                  for Neah Power Systems to use and commercialize the Prefect IP
                  in the Fuel Cell Field of Use. The royalty for such
                  non-exclusive license shall not exceed (i) if manufactured by
                  Neah Power, three percent (3%) of the total cost of the
                  applicable Fuel Cell component, and (ii.) if manufactured by
                  Neah Power's subsupplier, three percent (3%) of the net
                  transfer price (excl. taxes and cost of transportation) from
                  such subsupplier. Neah Power Systems shall not enter into any
                  agreement with any third party to produce any Fuel Cell
                  component using Danfoss Background IP on terms more favorable
                  for the supplier than terms previously offered by Neah Power
                  Systems to Danfoss with respect to an offer lay Neah Power
                  Systems to engage Danfoss to pro-duce such component on Neah
                  Power System's behalf. Neah Power Systems agrees to negotiate
                  the grant of a non-exclusive license to

<PAGE>

                  Danfoss on commercially reasonable terms under Neah Power
                  Systems's Background IP as necessary for Danfoss to use and
                  commercialize the Project IP outside the Fuel Cell Field of
                  Use.

         6.2.8    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 1Mjarties 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.

         6.2.9    FILING OF PATENT APPLICATIONS.

                  6.2.9.1  The ownership of a patent with respect to an
                           invention included within Jointly Developed IP
                           ("Project Invention") in a particular country shall
                           be based on the payment of an equal share of the
                           prosecution and maintenance fees. Either party may
                           suggest the prosecution of a patent application for a
                           Project Invention in any country. The proposing party
                           shall describe the scope of the proposed patent
                           application and the countries in which it desires to
                           seek patent protection. The other party shall have
                           sixty (60) days to give notice of its desire to join
                           in the prosecution of the patent application in all
                           or some of the countries in the notice. If the
                           nonproposing party fails to give notice of its desire
                           to join in the prosecution within such sixty (60) day
                           period or declines to share the Tense of such patent
                           applications in a particular country, the proposing
                           party may prosecute the patent applications and all
                           own any patents based upon such applications. The
                           nonproposing party shall provide information to
                           prosecute such patent applications at the expense of
                           the proposing party.

                  6.2.9.2  If the nonproposing party chooses to join in
                           prosecuting the patent applications, the proposing
                           party shall choose the patent attorneys to prosecute
                           the patents in the countries in the nonproposing
                           party's notice and consult with the nonproposing
                           parlay regarding rile scope of the patent. The
                           proposing party shall be responsible for paying the
                           costs and expenses of prosecution and shall bill the
                           nonproposing party for half of the costs and expenses
                           for such prosecution, payable within sixty (60) days
                           of the receipt of such bill. If the nonproposing
                           party fails to pay such bills when due and within
                           thirty (30) days of a notice of nonpayment on such
                           date by the proposing party, the proposing party may
                           give notice to the nonproposing party of its
                           forfeiture of any rights in that application and the
                           nonproposing party shall assign all its right, title
                           and interest in the application to the pro-posing
                           part and the proposing party shall be the sole owner
                           of that applicant ion and the resulting patent. If
                           the proposing party desires to abandon the
                           application, it shall give the nonproposing party
                           sixty 50) days prior written notice of its intention
                           to abandon the application. If the nonproposing party
                           desires to continue the prosecution of the
                           application, it shall give notice of such intent in
                           the proposing party within such period. In such
                           event, the proposing party shall assign all its
                           right, title and interest in the application to the
                           nonproposing party, and the nonproposing part y,
                           shall be the sole owner of the application and the
                           resulting patent. The same procedures shall be
                           followed for the failure to pay maintenance fees or
                           to abandon an issued patent.

                           6.2.9.3  Each party shall be entitled to prosecute
                                    patent applications for its Independently
                                    Developed Project IP in any country party
                                    and shall be responsible for paying the
                                    costs and expenses of prosecution. The
                                    parties agree to inform each other of any
                                    such filings. If a party does not wish to
                                    protect patentable Independently Developed
                                    Project IP it shall offer the other party in
                                    writing to assume ownership of the
                                    respective IP. In the event that a party
                                    should wish to abandon Independently
                                    Developed Project IP for which patent
                                    protection has been sought or obtained, it
                                    shall give written notice to the other
                                    party, which shall be entitled to assume
                                    ownership hereof against payment of the
                                    first party's documented costs for patent
                                    protection. The other party shall have
                                    thirty (30) days to give notice of its
                                    desire to assume such owner-ship and ii such
                                    party fails to give notice within such
                                    thirsty (30) day period or declines to
                                    reimburse the expense of patent costs, the
                                    first party may abandon the relevant patent
                                    protection.

<PAGE>

7        NO RESTRICTION - WARRANTY

7.1      Danfoss agrees to inform Neah Power Systems without undue delay in the
         event that Danfoss during the term of this Agreement, directly or
         indirectly, takes on any work as a consultant, subcontractor or
         otherwise, within the Field.

7.2      The Parties warrant that they are free to perform the Services and
         obligations under this Agreement and that their performance under this
         Agreement will not violate or conflict with any non-competition
         restrictions, other restrictions or confidentiality undertakings agreed
         with any other third party.

8        TERMINATION

8.1      This Agreement shall commence on the Effective Date and shall terminate
         upon completion or termination of all SOW's.

8.2      This Agreement may be terminated by Neah Power Systems by giving 1
         month's prior written notice to Danfoss.

8.3      If a Party commits any material broach of this Agreement, the other
         Party shall have the right to terminate the same forthwith. If the
         breach is of such a nature that the breaching Party will be able to
         remedy the breach, the other Party shall give the breaching Party a
         written notice of the breach where after the breaching Party must
         remedy the breach within seven (7) days. In case of failure to remedy
         such breach the Agreement can be terminated forthwith by the other
         Party without further notice.

8.4      All provisions of this Agreement w Erich by their nature require
         performance following termination shall survive termination of this
         Agreement. Upon termination of this Agreement, the parties shall
         provide each other with reasonable documentation with respect to all
         Project IP.

9        LAW AND ARBITRATION

9.1      This Agreement shall be governed by the laws of Denmark without regard
         to its rules of conflicts of law. The UN Convention on Contracts for
         the International Sale of Goods shall not apply to this Agreement,

9.2      The Parties shall endeavor to settle de all disputes and conflicts
         arising out of or in connection with this Agreement amicably and in
         good faith. Should those attempts fail, all disputes between the
         Parties arising out of or in connection with this Agreement - including
         disputes concerning the validity this Agreement - shall be finally
         settled under the arbitration Rules of the International Chamber of
         Commerce, by three arbitrators to be appointed in accordance with said
         rules. The place of arbitration shall be Stockholm, Sweden. The
         language of arbitration shall be English. Notwithstanding the
         foregoing, in the event of a dispute with respect to the terms of any
         license granted pursuant to Sections 6.2.7, such dispute shall be
         resolved by a mutually agreeable expert in the applicable technical
         field. If the parties are unable to agree upon an expert, each party
         shall select an expert, and such experts shall select a third expert
         who shall resolve the dispute. The par-ties shall share equally the
         costs of resolving any such dispute.

9.3      The jurisdiction of ordinary courts shall be excluded except for the
         right of the Parties to seek for preliminary injunctions of similar
         relief.

10       CONFIDENTIALITY

10.1     The Nondisclosure Agreement between the parties dated shall apply with
         respect to all confidential information disclosed or generated pursuant
         to this Agreement.

11       MISCELLANEOUS

<PAGE>

11.1     The Parties shall perform all of their duties under this Agreement as
         independent contractors. Nothing in this Agreement shall be construed
         to constitute the Parties as principal and agent, partners, joint
         venturers, co-owners, or otherwise as participants in a joint
         undertaking.

11.2     This Agreement may not be transferred or assigned by either Party
         without the prior writ-ten consent of the other Party, which consent
         shall not be unreasonably withheld. Not-withstanding the foregoing,
         consent of the other Party shall not be required for assignment or
         transfer made by Danfoss to a subsidiary affiliate within the Danfoss
         Group, or for assignment or transfer made by Neah Power Systems in
         connection with a merger, sale or other transaction involving
         substantially all of the assets of its business to which this Agreement
         relates.

11.3     This Agreement constitutes the entire understanding between the parties
         relating to the subject matter hereof, but does not modify any other
         agreement that may exist between the parties. No party has relied upon
         any representation or promise except as expressly set out in this
         Agreement.

11.4     This Agreement may not be modified or amended, including by customer,
         usage of trade, or course of dealing, except by an instrument in
         writing signed by duly authorized employees of both of the Parties
         hereto.

11.5     No omission or delay on the part of any Party in exercising any right,
         power or privilege under this Agreement shall operate as a waiver by it
         of any right to exercise it in the future or of any other of its rights
         under this Agreement. No waiver of any term, provision or condition of
         this Agreement shall be effective except to the extent to which it is
         made in writing and signed by the waiving Party.

11.6     If any provision of this Agreement shall be held illegal or
         unenforceable, that provision shall be limited or eliminated to the
         minimum extent necessary so that this Agreement shall otherwise remain
         in full force and effect and enforceable.

Place and date:

Bothell, WA                                                   Nordborg, Denmark

06/08/2006                                                    2006-06-13

For Neah Power Systems                                        For Danfoss:

/s/ Paul Abramowitz                                           /s/ Peter Gravesen
-------------------                                           ------------------

Paul Abramowitz                                               Peter Gravesen

<PAGE>

                                       EXHIBIT A

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                  Man-       Man-        Parts and      Traveling       Sum
                                                  power      power        tooling
-------------------------------------------------------------------------------------------------------------------
                                                  Hours        $             $              $            $
-------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>       <C>           <C>            <C>          <C>
PHASE 1
MAIN ACTIVITIES
o    Validation of platform materials
o    Validate bag material and joining
     technology
o    Validation of connection material (needle,
     O-ring, etc...)
o    Negotiate user requirement specification
     (URS)
TO BE  DELIVERED BY NEAH POWER
o    Final URS as attachment to contract
o    Sign-up  contract

TO BE DELIVERED BY DANFOSS
o    Sign-up contract
o    List of wetted materials
o    Basic test of seals                            90        17550         1000                        18550
-------------------------------------------------------------------------------------------------------------------
</TABLE>

The milestone of phase 1 is the agreement and assignment of the contract between
the two parties.  The  agreement of Danfoss  continuance  to Phase 2 is that the
above  stated  assignments  have been  completed  to the  extent of NEAH  Powers
approval.
TERMS OF PAYMENT:
Neah will pay at contract sign-up.

COMPLETION OF PHASE 1 IS HEREBY ACCEPTED BY NEAH POWER AND DANFOSS:

/s/ Paul Abramowitz          Nordberg 2006-06-13        /s/ Peter Gravesen
--------------------------------------------------------------------------------
Paul Abramowitz                                         Peter Gravesen
Date and place   Neah Power                             Date and place   DanfossEXHIBIT 10.21

                           LOAN AND SECURITY AGREEMENT

                            NEAH POWER SYSTEMS, INC.

                                       1
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                             PAGE

<S>     <C>                                                                                   <C>
1        ACCOUNTING AND OTHER TERMS ..........................................................  4
         --------------------------

2        LOAN AND TERMS OF  PAYMENT ..........................................................  4
         --------------------------
        2.1       Promise to Pay .............................................................  4
        2.2       Termination of Commitment to Lend ..........................................  5
        2.3       Interest Rate, Payments ....................................................  5
        2.4 - --  Fees .......................................................................  6

3        CONDITIONS OF  LOANS ................................................................  6
        3.1       Conditions Precedent to Initial Credit Extension ...........................  6
        3.2       Conditions Precedent to all Credit Extensions ..............................  6

4        CREATION OF SECURITY INTEREST .......................................................  6
         -----------------------------
        4.1       Grant of Security Interest .................................................  6
        4.2       Authorization to File ......................................................  6

5        REPRESENTATIONS AND WARRANTIES ......................................................  7
         ------------------------------
        5.1       Due Organization and Authorization .........................................  7
        5.2       Collateral .................................................................  7
        5.3       Litigation .................................................................  7
        5.4       No Material Adverse Change in Financial Statements .........................  7
        5.5       Solvency ...................................................................  7
        5.6       Regulatory Compliance ......................................................  8
        5.7       Investments in Subsidiaries ................................................  8
        5.8       Full Disclosure ............................................................  8

6        AFFIRMATIVE COVENANTS ...............................................................  8
         ---------------------
        6.1       Government Compliance ......................................................  8
        6.2       Financial Statements, Reports, Certificates ................................  8
        6.3       Inventory; Returns .........................................................  9
        6.4       Taxes ......................................................................  9
        6.5       Insurance ..................................................................  9
        6.6       Primary Accounts ........................................................... 10
        6.7       Further Assurances ......................................................... 10

7        NEGATIVE COVENANTS .................................................................. 10
         ------------------
        7.1       Dispositions ............................................................... 10
        7.2       Changes in Business, Ownership, Management or Locations of Collateral ...... 10
        7.3       Mergers or Acquisitions .................................................... 10
        7.4       Indebtedness ............................................................... 10
        7.5       Encumbrance ................................................................ 11
        7.6       Distributions; Investments ................................................. 11
        7.7       Transactions with Affiliates ............................................... 11
        7.8       Subordinated Debt .......................................................... 11
        7.9       Compliance ................................................................. 11

8        EVENTS OF DEFAULT ................................................................... 11
         -----------------
        8.1       Payment Default ............................................................ 11
        8.2       Covenant Default ........................................................... 11
        8.3       Material Adverse Change .................................................... 12
        8.4       Attachment ................................................................. 12
</TABLE>

                                       2
<PAGE>

<TABLE>
<S>     <C>                                                                                   <C>
        8.5       Insolvency                                                                   12
        8.6       Other Agreements                                                             12
        8.7       Judgments                                                                    12
        8.8       Misrepresentations                                                           13
9                 BANK'S RIGHTS AND REMEDIES                                                   13
        -----------------------------------------------------------------------------------------
        9.1       Rights and Remedies                                                          13
        9.2       Power of Attorney                                                            13
        9.3       Bank Expenses                                                                14
        9.4       Bank's Liability for Collateral                                              14
        9.5       Remedies Cumulative                                                          14
        9.6       Demand Waiver                                                                14
 10               NOTICES                                                                      14
        -----------------------------------------------------------------------------------------
 11               CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER                                   14
        -----------------------------------------------------------------------------------------
 12               GENERAL PROVISIONS                                                           15
        -----------------------------------------------------------------------------------------
        12.1      Successors and Assigns                                                       15
        12.2      Indemnification                                                              15
        12.3      Time of Essence                                                              15
        12.4      Severability of Provision                                                    15
        12.5      Amendments in Writing, Integration                                           15
        12.6      Counterparts                                                                 15
        12.7      Survival                                                                     15
        12.8      Confidentiality                                                              16
        12.9      Attorneys' Fees, Costs and Expenses                                          16

13       DEFINITIONS                                                                           16
         -----------
        13.1      Definitions                                                                  16
</TABLE>

                                       3
<PAGE>

         THIS  LOAN  AND  SECURITY  AGREEMENT  ("Agreement")  dated  as  of  the
Effective  Date,  between  SILICON VALLEY BANK  ("Bank"),  whose address is 3003
Tasman  Drive,  Santa  Clara,  California  95054 with a loan  production  Office
located  at 4700  Carillon  Point,  Kirkland,  Washington  98033 and NEAH  POWER
SYSTEMS,  INC.  ("Borrower"),  whose address is 22122 20th Avenue SE, Suite 161,
Bothell, Washington 98021 provides the terms on which Bank will lend to Borrower
and Borrower will repay Bank. The parties agree as follows:

1        ACCOUNTING AND OTHER TERMS

         Accounting  terms  not  defined  in this  Agreement  will be  construed
following GAAP. Calculations and determinations must be made following GAAP. The
term  "financial  statements"  includes  the  notes  and  schedules.  The  terms
"including"  and  "includes"   always  mean  "including  (or  includes)  without
limitation," in this or any Loan Document.

2        LOAN AND TERMS OF PAYMENT

2.1      PROMISE TO PAY.

         Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

2.1.1    TERM LOAN.

         (a)      Bank  will  make a Term  Loan  available  to  Borrower  on the
Effective Date, based on the depreciative value of the existing Equipment.

         (b)      Borrower  will  pay 24 equal  installments  of  principal  and
interest (the "Term Loan Payment"). Each Term Loan Payment is payable on the 1st
of each month during the term of the loan.  Borrower's  final Term Loan Payment,
due on May 1, 2007 (the "Term Loan  Maturity  Date"),  includes all  outstanding
Term Loan principal and accrued interest.  In addition to and not a substitution
for the regular  monthly  payments  of  principal  and accrued  interest a final
payment is due on the Term Loan  Maturity  Date equal to the original  amount of
the Term Loan multiplied by 6%.

         (c)      Borrower  shall  have the option to prepay  all,  but not less
than all, of the Term Loan  advanced by Bank under this  Agreement  on or before
May 24,  2006,  PROVIDED  Borrower (i)  provides  written  notice to Bank of its
election  to  prepay  the Term  Loan at least  thirty  (30)  days  prior to such
prepayment,  and (ii) pays,  on the date of the  prepayment  (A) the unpaid Term
Loan (including principal and interest);  (B) all unpaid accrued interest to the
date of the prepayment;  (C) an amount equal to 1% of the Term Loan, and (D) all
other  sums,  if any,  that shall have  become due and  payable  hereunder  with
respect to this Agreement.

2.1.2 TERM LOAN II

         (a)      Bank will make a Term Loan II available  to  Borrower,  on the
Effective Date, to pay off the remaining  portion of the Commitment,  Commitment
Percentage and Final  Payments made  available by GATX Ventures,  Inc. under the
Equipment Loan and Security Agreement by and among GATX Ventures,  Inc., Silicon
Valley  Bank and Neah Power  Systems,  Inc.  dated as of October  24,  2002 (the
"Original  Agreement")  collectively  defined  as Term Loan II. The Term Loan II
shall be subject to the repayment  terms and  conditions as set forth below.  No
further Term Loan II Credit  Extensions shall be allowed.  The following defined
terms "Commitment",  "Commitment Percentage", and "Final Payments" as referenced
in this section shall have the meaning set forth in the Original Agreement.

         (b)      Borrower  will  pay 18 equal  installments  of  principal  and
interest (the "Term Lean II  Payment").  Each Term Loan II Payment is payable on
the 1st of each month during the term of

                                       4
<PAGE>

the loan.  Borrower's  final  Term Loan II  Payment,  due on October  31,  2006,
includes all outstanding Term Loan II principal and accrued interest.

         (c)      Borrower  shall  have the option to prepay  all,  but not less
than all, of the Term Loan II advanced by Bank under this Agreement on or before
May 24,  2006,  PROVIDED  Borrower (i)  provides  written  notice to Bank of its
election  to prepay  the Term Loan II at least  thirty  (30) days  prior to such
prepayment,  and (ii) pays,  on the date of the  prepayment  (A) the unpaid Term
Loan (including principal and interest);  (B) all unpaid accrued interest to the
date of the  prepayment;  (C) an amount equal to 1% of the Term Loan II, and (D)
all other sums,  if any, that shall have become due and payable  hereunder  with
respect to this Agreement.

2.1.3 TERM LOAN III.

         (a)      Bank will make a Term Loan III  available to Borrower,  on the
Effective Date, to pay off the remaining  portion of the Commitment,  Commitment
Percentage  and Final  Payments made  available by Silicon Valley Bank under the
Equipment Loan and Security Agreement by and among GATX Ventures,  Inc., Silicon
Valley  Bank and Neah Power  Systems,  Inc.  dated as of October  24,  2002 (the
"Original  Agreement")  collectively defined as Term Loan III. The Term Loan III
shall be subject to the repayment  terms and  conditions as set forth below.  No
further Term Loan III Credit Extensions shall be allowed.  The following defined
terms "Commitment",  "Commitment Percentage", and "Final Payments' as referenced
in this section shall have the meaning set forth in the Original Agreement.

         (b)      Borrower  will  pay 18 equal  installments  of  principal  and
interest (the "Term Loan III Payment"). Each Term Loan Ill Payment is payable on
the 1 of each month during the term of the loan.  Borrower's final Term Loan III
Payment,  due on October 31, 2006 (the "Term Loan Ill Maturity Date"),  includes
all outstanding Term Loan Ill principal and accrued interest.

         (c)      Borrower  shall  have the option to prepay  all,  but not less
than all,  of the Term Loan III  advanced  by Bank  under this  Agreement  on or
before May 24, 2006,  PROVIDED  Borrower (i) provides  written notice to Bank of
its election to prepay the Term Loan III at least thirty (30) days prior to such
prepayment,  and (ii) pays,  on the date of the  prepayment  (A) the unpaid Term
Loan III (including principal and interest);  (B) all unpaid accrued interest to
the date of the prepayment;  (C) an amount equal to 1% of the Term Loan III, and
(D) all other sums,  if any,  that shall have  become due and payable  hereunder
with respect to this Agreement.

         2.2      TERMINATION OF COMMITMENT TO LEND.

         Bank's  obligation to lend the  undisbursed  portion of the Obligations
will terminate if, in Bank's sole discretion,  there has been a material adverse
change in the  general  affairs,  management,  results of  operation,  condition
(financial  or otherwise)  or the prospect of repayment of the  Obligations,  or
there has been any material  adverse  deviation by Borrower from the most recent
business  plan of  Borrower  presented  to and  accepted  by Bank  prior  to the
execution of this Agreement.

         2.3      INTEREST RATE, PAYMENTS.

         (a)      Interest  Rate.  (i) The Term  Loan  accrues  interest  on the
outstanding  principal  balance at a per annum  fixed rate of 7.3918  percentage
points,  (ii) the Term Loan II  accrues  interest  at a per annum  fixed rate of
7.3918 percentage  points,  and (iii) the Term Loan 1111 accrues interest on the
outstanding  principal  balance at a per annum  fixed  rate of 7.3918.  After an
Event of  Default,  Obligations  accrue  interest  at 5  percent  above the rate
effective  immediately before the Event of Default.  The interest rate increases
or decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.

                                       5
<PAGE>

         (b)      Payments.  Bank may debit any of Borrower's  deposit  accounts
including Account Number  __________________ for principal and interest payments
owing or any amounts Borrower owes Bank. Bank will promptly notify Borrower when
it debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific Time are considered received at the opening of business
on the next  Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next  Business  Day and  additional  interest  shall
accrue.

2.4      FEES.

         Borrower will pay:

         (a)      Facility Fee. A fully earned,  non-refundable  Facility Fee of
$1,500 for the Term Loan II due on the Effective Date; and

         (b)      Bank  Expenses.   All  Bank  Expenses  (including   reasonable
attorneys' fees and reasonable  expenses) incurred through and after the date of
this Agreement, are payable when due.

3        CONDITIONS OF LOANS

3.1      CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.

         Bank's  obligation to make the initial  Credit  Extension is subject to
the condition  precedent that it receives the agreements,  documents and fees it
requires.

3.2      CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.

         Bank's obligations to make each Credit Extension, including the initial
Credit  Extension,  is  subject  to the  following:

         (a)      timely receipt of any Payment/Advance Form; and

         (b)      the  representations  and  warranties  in  Section  5 must  be
materially  true on the date of the  Payment/Advance  Form and on the  effective
date of each Credit  Extension  and no Event of Default may have occurred and be
continuing,  or result  from the Credit  Extension.  Each  Credit  Extension  is
Borrower's representation and warranty on that date that the representations and
warranties of Section 5 remain true.

4        CREATION OF SECURITY INTEREST

4.1      GRANT OF SECURITY INTEREST.

         Borrower  grants Bank a continuing  security  interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of  Borrower's  duties under the Loan  Documents.  Except for  Permitted
Liens, any security  interest will be a first priority  security interest in the
Collateral.  If this Agreement is terminated,  Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its  Obligations.
If Borrower shall at any time,  acquire a commercial tort claim,  Borrower shall
promptly  notify  Bank in a writing  signed  by  Borrower  of the brief  details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement,  with such writing to be
in form and substance satisfactory to Bank.

4.2      AUTHORIZATION TO FILE.

                                       6
<PAGE>

        Borrower authorizes Bank to file financing  statements without notice to
Borrower,  with all appropriate  jurisdictions,  as Bank deems  appropriate,  in
order to perfect or protect Bank's interest in the Collateral.

5        REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1      DUE ORGANIZATION AND AUTHORIZATION.

         Borrower and each  Subsidiary  is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its  ownership of
property requires that it be qualified,  except where the failure to do so could
not reasonably be expected to use a Material  Adverse  Change.  Borrower has not
changed its state of  formation or its  organizational  structure or type or any
organizational number (if any) assigned by its jurisdiction of formation.

         The execution, delivery and performance of the Loan Documents have been
duly authorized,  and do not conflict with Borrower's formation  documents,  nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the  default  could  reasonably  be  expected  to use a  Material
Adverse Change.

5.2      COLLATERAL.

         Borrower  has  good  title  to the  Collateral,  free of  Liens  except
Permitted  Liens or  Borrower  has  Rights  to each  asset  that is  Collateral.
Borrower has no other deposit account, other than the deposit accounts described
in the  Schedule.  The Accounts  are bona fide,  existing  obligations,  and the
service or property has been performed or delivered to the account debtor or its
agent for  immediate  shipment to and  unconditional  acceptance  by the account
debtor.  The Collateral is not in the possession of any third party bailee (such
as at a warehouse).  In the event that: Borrower, after the date hereof, intends
to store or otherwise  deliver the  Collateral  to such a trailer then  Borrower
will receive the prior written consent of Bank and such bailee must  acknowledge
in writing that the bailee is holding such  Collateral  for the benefit of Bank.
All Inventory is in all material respects of good and marketable  quality,  free
from material defects.

5.3      LITIGATION.

         Except as shown in the  Schedule,  there are no actions or  proceedings
pending or, to the knowledge of Borrower's  Responsible Officers,  threatened by
or against  Borrower or any Subsidiary in which a likely adverse  decision could
reasonably be expected to use a Material Adverse Change.

5.4      NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.

         All consolidated financial statements for Borrower, and any Subsidiary,
delivered  to  Bank  fairly   present  in  all  material   respects   Borrower's
consolidated   financial  condition  and  Borrower's   consolidated  results  of
operations.  There  has  not  been  any  material  deterioration  in  Borrower's
consolidated  financial  condition  since the date of the most recent  financial
statements submitted to Bank.

5.5      SOLVENCY.

         The fair salable value of Borrower's assets  (including  goodwill minus
disposition costs) exceeds the fair value of its liabilities (including, without
limitation,  contingent  liabilities  but  excluding any  redemption  privileges
associated with Borrower's Preferred Stock); the Borrower is

                                       7
<PAGE>

not  left  with  unreasonably  small  capital  after  the  transactions  in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.6      REGULATORY COMPLIANCE.

         Borrower is not an "investment company" or a company "controlled" by an
"investment  company" under the Investment  Company Act. Borrower is not engaged
as one of its important  activities in extending  credit for margin stock (under
Regulations  T and U of the Federal  Reserve Board of  Governors).  Borrower has
complied in all material  respects  with the Federal Fair Labor  Standards  Act.
Borrower has not violated any laws,  ordinances or rules, the violation of which
could  reasonably  be  expected  to cause a  Material  Adverse  Change.  None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge,  by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally.  Borrower and each  Subsidiary has timely filed all required
tax returns and paid,  or made  adequate  provision to pay, all material  taxes,
except those being  contested in good faith with adequate  reserves  under GAAP.
Borrower  and  each   Subsidiary  has  obtained  all  consents,   approvals  and
authorizations  of, made all declarations or filings with, and given all notices
to, all  government  authorities  that are necessary to continue its business as
currently  conducted,  except where the failure to do so could not reasonably be
expected to use a Material Adverse Change.

5.7      INVESTMENTS IN SUBSIDIARIES.

         Borrower does not own any stock,  partnership  interest or other equity
securities except for Permitted Investments.

5.8      FULL DISCLOSURE.

         No written  representation,  warranty or other statement of Borrower in
any certificate or written statement given to Bank (taken together with all such
written  certificates  and  written  statements  to Bank)  contains  any  untrue
statement of a material fact or omits to state a material fact necessary to make
the statements  contained in the  certificates or statements not misleading.  It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable  assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.

6        AFFIRMATIVE COVENANTS

         Borrower  will do all of the  following  for so  long  as  Bank  has an
obligation to lend, or there are outstanding Obligations:

6.1      GOVERNMENT COMPLIANCE.

         Borrower will maintain its and all  Subsidiaries'  legal  existence and
good standing in its  jurisdiction  of formation and maintain  qualification  in
each  jurisdiction  in which the  failure  to so  qualify  would  reasonably  be
expected to use a material adverse effect on Borrower's  business or operations.
Borrower will comply, and have each Subsidiary comply, with all laws, ordinances
and  regulations to which it is subject,  noncompliance  with which could have a
material adverse effect on Borrower's business or operations or would reasonably
be expected to cause a Material Adverse Change.

6.2      FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

         (a) Borrower  will deliver to Bank:  (i) as soon as  available,  but no
later  than 30 days  after  the  last  day of each  month,  a  company  prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations  during the period  certified by a Responsible  Officer and in a form
acceptable to Bank; (ii) as soon as available,  but no later than 150 days after
the last day of  Borrower's  fiscal year (no later than 180 days for  Borrower's
December  31,  2004  fiscal  year  end  only),  audited  consolidated  financial
statements  prepared  under  GAAP,   consistently  applied,   together  with  an
unqualified  opinion,  with exception of a going concern  qualification,  on the
financial  statements  from an  independent  certified  public  accounting  firm
reasonably  acceptable  to Bank;  (iii) a prompt  report  of any  legal  actions
pending or threatened  against  Borrower or any Subsidiary  that could result in
damages or costs to borrower  or any  Subsidiary  of $100,000 or more;  and (iv)
budgets, sales projections,  operating plans or other financial information Bank
reasonably requests.

                                       8
<PAGE>

         (b) Allow Bank to audit  Borrower's  Collateral at Borrower's  expense.
Such  audits  will be  conducted  only at such times as an Event of Default  has
occurred and is continuing.

         6.3      INVENTORY; RETURNS.

         Borrower will keep all Inventory in good and marketable condition, free
from material defects.  Returns and allowances  between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement.  Borrower must promptly notify Bank of all returns,  recoveries,
disputes and claims that involve more than $50,000.

         6.4      TAXES.

         Borrower will make, and use each Subsidiary to make,  timely payment of
all material federal,  state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.

         6.5      INSURANCE.

         Borrower  will keep its business and the  Collateral  insured for risks
and in amounts, as Bank may reasonably request.  Insurance policies will be in a
form,  with  companies,  and in amounts that are  satisfactory to Bank in Bank's
reasonable  discretion.  All property policies will have a lender's loss payable
endorsement  showing Bank as an additional loss payee and all liability policies
will show the Bank as an  additional  insured and provide  that the insurer must
give  Bank at least 20 days  notice  before  canceling  its  policy.  At  Bank's
request,  Borrower will deliver certified copies of policies and evidence of all
premium  payments.  Proceeds payable under any policy will, at Bank's option, be
payable  to Bank on  account  of the  Obligations.  Statutory  notice  regarding
insurance:

                                     WARNING

         Unless you  provide  us with  evidence  of the  insurance  coverage  as
required by our contract or loan  agreement,  we may purchase  insurance at your
expense to protect our interest.  This insurance may, but need not, also protect
your interest.  If the collateral becomes damaged,  the coverage we purchase may
not pay any claim you make or any claim made  against  you. You may later cancel
this coverage by providing  evidence that you have  obtained  property  coverage
elsewhere.

         You are responsible for the cost of any insurance  purchased by us. The
cost of this  insurance may be added to your  contract or loan  balance.  If the
cost is  added  to your  contract  or loan  balance,  the  interest  rate on the
underlying  contract or loan will apply to this added amount. The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.

         This  coverage we purchased may be  considerably  more  expensive  than
insurance  you can obtain on your own and may not satisfy any need for  property
damage coverage or ANY mandatory  liability  insurance  requirements  imposed by
applicable law.

6.6      PRIMARY ACCOUNTS.

         Borrower will maintain its primary operating accounts with Bank. 6.7

         FURTHER ASSURANCES.

         Borrower will execute any further  instruments  and take further action
as Bank reasonably  requests to perfect or continue Bank's security  interest in
the Collateral or to effect the purposes of this Agreement.

7        NEGATIVE COVENANTS

        For so  long  as  Bank  has an  obligation  to  lend  or  there  are any
outstanding  Obligations,  Borrower  shall not,  without  Bank's  prior  written
consent (which shall be a matter of its good faith business judgment), do any of
the following:

7.1      DISPOSITIONS.

                                       9
<PAGE>

         Convey,  sell,  lease,  transfer or otherwise  dispose of (collectively
'Transfer"),  Cr permit any of its Subsidiaries to Transfer,  all or any part of
its  business  or  Collateral,  EXCEPT for  Transfers  (i) of  Inventory  in the
ordinary  course  of  business;  (ii)  of  non-exclusive  licenses  and  similar
arrangements  for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete Equipment.

7.2      CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR LOCATIONS OF COLLATERAL.

         Engage in or permit any of its  Subsidiaries  to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto or have a material change in its ownership or management of greater than
25% (other than by the sale of Borrower's equity securities in a public offering
or to venture  capital  investors  so long as  Borrower  identifies  the venture
capital  investors prior to the closing of the  investment).  Borrower will not,
without at least 30 days prior  written  notice,  relocate  its chief  executive
office,  change its state of formation (including  reincorporation),  change its
organizational-number or name or add any new offices business locations (such as
warehouses) in which Borrower maintains or stores over $5,000 in Collateral.

7.3      MERGERS OR ACQUISITIONS.

         Merge or consolidate,  or permit any -of-its  -Subsidiaries to merge or
consolidate;   with  any  other  Person,  or  acquire,  or  permit  any  of  its
Subsidiaries  to  acquire,  all or  substantially  all of the  capital  stock or
property of another  Person,  except  where (i) no Event of Default has occurred
and is  continuing  or would  result  from such  action  during the term of this
Agreement and (ii) such transaction  would not result in a decrease of more than
25% of Tangible Net Worth. A Subsidiary  may merge or  consolidate  into another
Subsidiary or into Borrower.

7.4      INDEBTEDNESS.

         Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

7.5      ENCUMBRANCE.

         Create, incur, or allow any Lien on any of itsCollateral,  or assign or
convey any right to  receive  income,  including  the sale of any  Accounts,  or
permit any of its  Subsidiaries to do so, except for Permitted  Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.

7.6      DISTRIBUTIONS; INVESTMENTS.

         Directly  or  indirectly  acquire  or  own  any  Person,  or  make  any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any  distribution or payment or
redeem, retire or purchase any capital stock.

7.7      TRANSACTIONS WITH AFFILIATES.

         Directly  or  indirectly  enter  into or permit  to exist any  material
transaction with any Affiliate of Borrower except for  transactions  that are in
the ordinary course of Borrower's business,  upon fair and reasonable terms that
are no less  favorable  to Borrower  than would be  obtained in an arm's  length
transaction with a non-affiliated Person.

7.8      SUBORDINATED DEBT.

         Make or permit any payment on any Subordinated  Debt,  except under the
terms of the Subordinated  Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.

7.9      COMPLIANCE.

         Become  an  "investment   company"  or  a  company   controlled  by  an
"investment  company," under the Investment  Company Act of 1940 or undertake as
one of its  important  activities  extending  credit to purchase or carry margin
stock,  or use the proceeds of any Credit  Extension for that  purpose;  fail to
meet the minimum  funding  requirements of ERISA,  permit a Reportable  Event or
Prohibited

                                       10
<PAGE>

Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor  Standards  Act or violate any other law or  regulation,  if the violation
could  reasonably  be expected to have a material  adverse  effect on Borrower's
business  or  operations  or would  reasonably  be  expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.

8        EVENTS OF DEFAULT

         Any one of the following is an Event of Default:

8.1      PAYMENT DEFAULT.

         If  Borrower  fails to pay any of the  Obligations  within 5 days after
their due date, however, during such period no Credit Extensions will be made;

8.2      COVENANT DEFAULT.

         (a)      If Borrower fails to perform any obligation  under Section 6.2
or violates any of the covenants contained in Section 7 of this Agreement, or

         (b)      If Borrower fails or neglects to perform, keep, or observe any
other material term, provision,  condition,  covenant, or agreement contained in
this Agreement,  in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision,  condition,  covenant or agreement  that can be cured,  has failed to
cure such  default  within  fifteen  (15) days  after  the  occurrence  thereof;
provided,  however, that if the default cannot by its nature be cured within the
fifteen (15) day period or cannot after  diligent  attempts by Borrower be cured
within  such  fifteen  (15) day period,  and such  default is likely to be cured
within a reasonable  time,  then Borrower  shall have an  additional  reasonable
period  (which shall not in any case exceed thirty (30) days) to attempt to cure
such default,  and within such  reasonable time period the failure to have cured
such default  shall not be deemed an Event of Default  (provided  that no Credit
Extensions will be made during such cure period);

8.3      MATERIAL ADVERSE CHANGE.

         If  there  (i)  occurs  a  material  adverse  change  in the  business,
operations,  or  financial  condition  of the  Borrower,  or (ii) is a  material
impairment  of the prospect of repayment of any portion of the  Obligations;  or
(iii) is a  material  impairment  of the value or  priority  of Bank's  security
interests in the Collateral (the foregoing being defined as a "Material  Adverse
Change").  In determining  whether an Event of Default has occurred under clause
(i)  or  clause  (ii)  of  this  Section,   Bank's  primary,  though  not  sole,
consideration  will  be  whether  Borrower  has or  will  have  sufficient  cash
resources to repay the  Obligations  on schedule.  Bank  recognizes  that,  as a
pre-profit  company,  Borrower's  cash  resources  will  decline  over  time and
Borrower will periodically  require additional  infusions of equity capital. The
clear  intention of  Borrower's  investors  to continue to fund  Borrower in the
amounts and timeframe necessary in Bank's good faith business judgment to enable
Borrower to satisfy the  Obligations  as they become due and payable is the most
significant criterion in making ay such assessment.

8.4      ATTACHMENT.

         If any  material  portion of  Borrower's  assets is  attached,  seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure  or  levy  is not  removed  in 10  days,  or if  Borrower  is  enjoined,
restrained,  or prevented by court order from  conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's  assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's  assets by any  government  agency and not paid within 10 days
after Borrower receives notice.  These are not Events of Default if stayed or if
a bond is posted pending  contest by Borrower (but no Credit  Extensions will be
made during the cure period);

8.5      INSOLVENCY.

         If  Borrower  becomes  insolvent  or if Borrower  begins an  Insolvency
Proceeding  or an  Insolvency  Proceeding  is  begun  against  Borrower  and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

                                       11
<PAGE>

8.6      OTHER AGREEMENTS.

         If there is a default in any  agreement  between  Borrower  and a third
party  that  gives the third  parry the  right to  accelerate  any  Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;

8.7      JUDGMENTS.

         If a  money  judgment(s)  in the  aggregate  of at  least  $100,000  is
rendered  against  Borrower and is unsatisfied  and unstayed for 10 days (but no
Credit Extensions will be made before the judgment is stayed or satisfied); or

8.8      MISREPRESENTATIONS.

         If  Borrower  or any Person  acting  for  Borrower  makes any  material
misrepresentation  or  material  misstatement  now or later in any  warranty  or
representation  in this  Agreement  or in any  writing  delivered  to Bank or to
induce Bank to enter this Agreement or any Loan Document.

9        BANK'S RIGHTS AND REMEDIES

9.1      RIGHTS AND REMEDIES.

         When an Event of Default occurs and continues Bank may,  without notice
or  demand,  do  any  or  all of the  following:

         (a)      Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);

         (b)      Stop  advancing  money  or  extending  credit  for  Borrower's
benefit under this Agreement or under any other agreement  between  Borrower and
Bank;

         (c)      Settle or adjust  disputes  and claims  directly  with account
debtors for amounts,  on terms and in any order that Bank  considers  advisable;
notify any Person owing Borrower money of Bank's security  interest in the funds
and verify the amount of the  Account.  Borrower  must  collect all  payments in
trust for Bank and, if  requested by Bank,  immediately  deliver the payments to
Bank in the form received from the account debtor,  with proper endorsements for
deposit;

         (d)      Make any payments  and do any acts it  considers  necessary or
reasonable  to protect its security  interest in the  Collateral.  Borrower will
assemble  the  Collateral  if  Bank  requires  and  make  it  available  as Bank
designates.  Bank may enter premises  where the Collateral is located,  take and
maintain possession of any part of the Collateral,  and pay, purchase,  contest,
or  compromise  any Lien which  appears to be prior or superior to its  security
interest and pay all expenses incurred.  Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;

         (e)      Bank may place a "hold" on any  account  maintained  with Bank
and deliver a notice of  exclusive  control,  any  entitlement  order,  or other
directions  or  instructions  pursuant  to  any  control  agreement  or  similar
agreements providing control of any Collateral;

         (f)      Apply to the  Obligations  any (i)  balances  and  deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;

         (g)      Ship,  reclaim,  recover,  store,  finish,  maintain,  repair,
prepare for sale, advertise for sale, and sell the Collateral; and

         (h)      Dispose of the Collateral according to the code.

         (i)      9.2      POWER OF ATTORNEY.

         Effective only when an Event of Default occurs and continues,  Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security;  (ii) sign  Borrower's name
on any invoice or bill of lading for any Account or drafts against

                                       12
<PAGE>

account  debtors,  (iii) make,  settle,  and adjust all claims under  Borrower's
insurance  policies;  (iv)  settle and  adjust  disputes  and  claims  about the
Accounts directly with account debtors, for amounts and on terms Bank determines
reasonable;  and (v)  transfer the  Collateral  into the name of Bank or a third
party as the Code  permits.  Bank may  exercise  the power of  attorney  to sign
Borrower's name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred.
Bank's appointment as Borrower's  attorney in fact, and all of Bank's rights and
powers,  coupled with an interest,  are irrevocable  until all Obligations  have
been  fully  repaid  and  performed  and Bank's  obligation  to  provide  Credit
Extensions terminates.

9.3      BANK EXPENSES.

         If Borrower  fails to pay any amount or furnish any  required  proof of
payment  1o third  persons,  Bank may make all or part of the  payment or obtain
insurance  policies  required  in Section  6.5,  and take any  action  under the
policies  Bank deems  prudent.  Any amounts  paid by Bank are Bank  Expenses and
immediately  due and payable;  bearing  interest at the then applicable rate and
secured by the  Collateral.  No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.4      BANK'S LIABILITY FOR COLLATERAL.

         If Bank complies with reasonable banking practices and Section 9-207 of
the Code, it is not liable for: (a) the safekeeping of the  Collateral;  (b) any
loss or  damage  to the  Collateral;  (c) any  diminution  in the  value  of the
Collateral; or (d) any act or default of any carrier,  warehouseman,  bailee, or
other person. Except as provided above, Borrower bears, all risk of loss, damage
or destruction of the Collateral.

9.5      REMEDIES CUMULATIVE.

         Bank's rights and remedies under this  Agreement,  the Loan  Documents,
and all other  agreements  are  cumulative.  Bank has all  rights  and  remedies
provided under the Code, by law, or in equity.  Bank's  exercise of one right or
remedy is not an  election,  and Bank's  waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver,  election, or acquiescence.  No
waiver is effective  unless  signed by Bank and then is only  effective  for the
specific instance and purpose for which it was given.

9.6      DEMAND WAIVER.

         Borrower  waives  demand,  notice of  default  or  dishonor,  notice of
payment and nonpayment,  notice of any default, nonpayment at maturity, release,
compromise,   settlement,   extension,   or  renewal  of  accounts,   documents,
instruments,  chattel paper,  and  guarantees  held by Bank on which Borrower is
liable.

10       NOTICES

         All notices or demands by any party about this  Agreement  or any other
related  agreement must be in writing and be personally  delivered or sent by an
overnight delivery service,  by certified mail, postage prepaid,  return receipt
requested,  or by  telefacsimile  to the addresses set forth at the beginning of
this Agreement.  A party may change its notice address by giving the other parry
written notice.

11       CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

         Washington law governs the Loan Documents  without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in King County, Washington.

BORROWER  AND BANK EACH WAIVE  THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF  ACTION  ARISING  OUT  OF  ANY  OF THE  LOAN  DOCUMENTS  OR ANY  CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES

                                       13
<PAGE>

TO ENTER INTO THIS  AGREEMENT.  EACH PARTY HAS  REVIEWED  THIS  WAIVER  WITH ITS
COUNSEL.

12       GENERAL PROVISIONS

12.1     SUCCESSORS AND ASSIGNS.

         This  Agreement  binds and is for the  benefit  of the  successors  and
permitted  assigns of each party.  Borrower may not assign this Agreement or any
rights under it without  Bank's prior  written  consent  which may be granted or
withheld  in Bank's  discretion.  Bank has the right,  without the consent of or
notice to Borrower, to sell, transfer,  negotiate, or grant participation in all
or any part of, or any  interest  in,  Bank's  obligations,  rights and benefits
under this Agreement.

12.2     INDEMNIFICATION.

         Borrower  will  indemnify,  defend  and  hold  harmless  Bank  and  its
officers,  employees, and agents against: (a) all obligations,  demands, claims,
and liabilities  asserted by any other party in connection with the transactions
contemplated  by the  Loan  Documents;  and (b)  all  losses  or  Bank  Expenses
incurred,  or paid by Bank from,  following,  or  consequential  to transactions
between Bank and Borrower  (including  reasonable  attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.3     TIME OF ESSENCE.

Time is of the essence for the performance of all obligations in this Agreement.

12.4     SEVERABILITY OF PROVISION.

         Each  provision  of  this  Agreement  is  severable  from  every  other
provision in determining the enforceability of any provision.

12.5     AMENDMENTS IN WRITING, INTEGRATION.

         All  amendments  to this  Agreement  must be in  writing  and signed by
Borrower and Bank.  This Agreement  represents the entire  agreement  about this
subject  matter,  and supersedes  prior  negotiations  or agreements.  All prior
agreements,  understandings,   representations,   warranties,  and  negotiations
between the parties about the subject matter of this  Agreement  merge into this
Agreement  and the  Loan  Documents.  UNDER  WASHINGTON  AND  OREGON  LAW,  MOST
AGREEMENTS,  PROMISES  AND  COMMITMENTS  MADE BY THE BANK AFTER  OCTOBER 3, 1989
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL,  FAMILY
OR HOUSEHOLD  PURPOSES OR SECURED SOLELY BY THE BORROWER'S  RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.

12.6     COUNTERPARTS.

         This  Agreement  may be executed in any number of  counterparts  and by
different  parties on separate  counterparts,  each of which,  when executed and
delivered, are an original, and all taken together, constitute one Agreement.

12.7     SURVIVAL.

         All covenants,  representations  and warranties  made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.

                                       14
<PAGE>

12.8     CONFIDENTIALITY.

         In handling any confidential  information,  Bank will exercise the same
degree  of care  that it  exercises  for its own  proprietary  information,  but
disclosure of information  may be made (i) to Bank's  subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans  (provided,  however,  Bank shall use
commercially  reasonable  efforts in obtaining  such  prospective  transferee or
purchasers agreement of the terms of this provision),  (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers  appropriate  exercising remedies
under this Agreement. Confidential information does not include information that
either:  (a) is in the public domain or in Bank's  possession  when disclosed to
Bank, or becomes part of the public  domain after  disclosure to Bank; or (b) is
disclosed to Bank by a third  party,  if Bank does not know that the third party
is prohibited from disclosing the information.

12.9     ATTORNEYS' FEES, COSTS AND EXPENSES.

         In any action or  proceeding  between  Borrower and Bank arising out of
the Loan  Documents,  the  prevailing  party will be  entitled  to  recover  its
reasonable  attorneys' fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled.

13       DEFINITIONS

13.1     DEFINITIONS.

         In this Agreement:

         "ACCOUNTS"  are all  existing  and  later  arising  accounts,  contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods  (including  licensing  software and other  technology) or provision of
services, all credit insurance,  guaranties,  other security and all merchandise
returned or reclaimed by Borrower and  Borrower's  Books  relating to any of the
foregoing,  as such definition may be amended from time to time according to the
Code.

         "AFFILIATE"  of a Person is a Person that owns or controls  directly or
indirectly the Person,  any Person that controls or is controlled by or is under
common  control  with the Person,  and each of that  Person's  senior  executive
officers,  directors,  and  partners  and,  for any  Person  that  is a  limited
liability company, that Person's managers and members.

         "BANK  EXPENSES" are all audit fees and expenses and  reasonable  costs
and expenses (including  reasonable attorneys' fees and expenses) for preparing,
negotiating,   administering,   defending  and  enforcing  the  Loan   Documents
(including appeals or insolvency Proceedings).

         "BORROWER'S  BOOKS"  are all  Borrower's  books and  records  including
ledgers,  records regarding  Borrower's  assets or liabilities,  the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

         "BUSINESS  DAY" is any day that is not a  Saturday,  Sunday or a day on
which the Bank is closed.

         "CODE"  is the  Washington  Uniform  Commercial  Code,  as  applicable.
"COLLATERAL" is the property described on EXHIBIT A.

         "CONTINGENT  OBLIGATION"  is, for any  Person,  any direct or  indirect
liability,  contingent or not, of that Person for (i) any  indebtedness,  lease,
dividend,  letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed,  endorsed,  co-made,  discounted or sold with
recourse by that  Person,  or for which that  Person is  directly or  indirectly
liable;  (ii) any  obligations  for undrawn letters of credit for the account of
that  Person;  and (iii) all  obligations  from any interest  rate,  currency or
commodity  swap  agreement,  interest  rate cap or  collar  agreement,  or other
agreement or arrangement  designated to protect a Person against  fluctuation in
interest rates,  currency  exchange rates or commodity  prices;  but "Contingent
Obligation"  does not include  endorsements  in the ordinary course of business.
The amount of a Contingent  Obligation is the stated or determined amount of the
primary  obligation  for  which  the  Contingent  Obligation  is made or, if not
determinable, the maximum

                                       15
<PAGE>

reasonably  anticipated liability for it determined by the Person in good faith;
but the amount may not exceed the maximum of the obligations under the guarantee
or other support arrangement.

        "CREDIT  EXTENSION"  is each Term Loan,  Term Loan II, Term Loan III, or
any other extension of credit by Bank for Borrower's benefit.

        "EFFECTIVE DATE" is the date Bank executes this Agreement.

        "EQUIPMENT"  is all  present  and future  machinery,  equipment,  tenant
improvements,  furniture,  fixtures,  vehicles,  tools, parts and attachments in
which Borrower has any interest.

         "ERISA" is the Employment  Retirement  Income Security Act of 1974, and
its regulations.

         "GAAP" is generally accepted accounting principles.

         "INDEBTEDNESS"  is (a)  indebtedness for borrowed money or the deferred
price of property or services,  such as reimbursement  and other obligations for
surety bonds and letters of credit, (b) obligations  evidenced by notes,  bonds,
debentures  or  similar  instruments,  (c)  capital  lease  obligations  and (d)
Contingent Obligations.

        "INSOLVENCY  PROCEEDING"  are proceedings by or against any Person under
the United States  Bankruptcy  Code, or any other  bankruptcy or insolvency law,
including  assignments  for the benefit of creditors,  compositions,  extensions
generally  with  its   creditors,   or   proceedings   seeking   reorganization,
arrangement, or other relief.

        "INVENTORY"  is present and future  inventory in which  Borrower has any
interest,  including merchandise,  raw materials,  parts, supplies,  packing and
shipping  materials,  work in process and finished products intended for sale or
lease  or to be  furnished  under a  contract  of  service,  of  every  kind and
description  now or later  owned by or in the custody or  possession,  actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including  insurance  proceeds)  from  the  sale or  disposition  of any of the
foregoing and any documents of title.

        "INVESTMENT"   is  any   beneficial   ownership  of  (including   stock,
partnership  interest or other securities) any Person,  or any loan,  advance or
capital contribution to any Person.

        "LIEN" is a mortgage,  lien,  deed of trust,  charge,  pledge,  security
interest -or other encumbrance.

        "LOAN DOCUMENTS" are, collectively,  this Agreement,  any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement  between  Borrower  and/or for the benefit of Bank in connection  with
this Agreement, all as amended, extended or restated.

         "MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

         "OBLIGATIONS" are debts,  principal,  interest, Bank Expenses and other
amounts  Borrower owes Bank now or later,  including cash  management  services,
letters of credit and foreign exchange contracts,  if any and including interest
accruing  after  Insolvency  Proceedings  begin  and  debts,   liabilities,   or
obligations of Borrower assigned to Bank.

         "ORIGINAL AGREEMENT" is defined in Section 2.1.3.

         "PERMITTED INDEBTEDNESS" is:

         (a)      Borrower's  indebtedness  to Bank under this  Agreement or any
other Loan Document;

         (b)      Indebtedness  existing on the Effective  Date and shown on the
Schedule;

         (c)      Subordinated Debt;

         (d)      Indebtedness  to  trade  creditors  incurred  in the  ordinary
course of business; and

                                       16
<PAGE>

         (e)      Indebtedness secured by Permitted Liens.

         "PERMITTED INVESTMENTS" are:

         (a)      Investments   shown  on  the  Schedule  and  existing  on  the
Effective Date; and

         (b)      (i) marketable direct  obligations  issued or  unconditionally
guaranteed  by the United  States or its agency or any State  maturing  within 1
year from its  acquisition,  (ii) commercial  paper maturing no more than 1 year
after its creation and having the highest  rating from either  Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.

         "PERMITTED LIENS" ARE:

         (a)      Liens existing on the Effective Date and shown on the Schedule
or arising under this Agreement or other Loan Documents;

         (b)      Liens for taxes, fees, assessments or other government charges
or levies,  either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;

         (c)      Purchase  money  Liens (i) on  Equipment  acquired  or held by
Borrower or its  Subsidiaries  incurred for  financing  the  acquisition  of the
Equipment,  or (ii) existing on equipment when acquired, if the Lien is confined
to the property and improvements and the proceeds of the equipment;

         (d)      Licenses  or  sublicenses  granted in the  ordinary  course of
Borrower's business and any interest or title of a licensor or under any license
or sublicense,  if the licenses and sublicenses  permit granting Bank a security
interest;

         (e)      Leases  or  subleases   granted  in  the  ordinary  course  of
Borrower's business,  including in connection with Borrower's leased premises or
leased property;

         (f)      Liens incurred in the extension, renewal or refinancing of the
indebtedness  secured by Liens  described in (a) through (c), BUT any extension,
renewal or  replacement  Lien must be limited to the property  encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.

         "PERSON" is any individual, sole proprietorship,  partnership,  limited
liability company,  joint venture,  company association,  trust,  unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or !government agency.

         "PRIME RATE" is Bank's most recently announced "prime rate," even if it
is nut Bank's lowest rate.

         "RESPONSIBLE  OFFICER"  is each of the  Chief  Executive  Officer,  the
President, the Chief Financial Officer and the Controller of Borrower.

         "RIGHTS", as applied to the Collateral, means the Borrower's rights and
interests in, and powers with respect to, that Collateral whatever the nature of
those rights, interests and powers and, in any event, including Borrower's power
to transfer rights in such Collateral to Balk.

         "SCHEDULE" is any attached schedule of exceptions.

         "SUBORDINATED  DEBT"  is debt  incurred  by  Borrower  subordinated  to
Borrower's  indebtedness  owed to Bank  and  which  is  reflected  in a  written
agreement  in a manner  and form  acceptable  to Bank  and  approved  by Bank in
writing.

         "SUBSIDIARY"  is for any Person,  or any other business entity of which
more  than 50% of the  voting  stock  or other  equity  -interests  is  owned-or
controlled;  directly or indirectly,  by the Person or one or more Affiliates of
the Person.

         "TANGIBLE NET WORTH" is, on any date, the consolidated  total assets of
Borrower  and its  Subsidiaries  MINUS,  (i)  any  amounts  attributable  to (a)
goodwill,  (b) intangible  items such as

                                       17
<PAGE>

unamortized  debt  discount and expense,  patents,  trade and service  marks and
names, copyrights and research and development expenses- except prepaid-expenses
and-(c) reserves not already deducted from assets, and (ii) Total Liabilities.

         "TERM LOAN" is a loan of up to $150,000.

         "TERM LOAN MATURITY DATE" is May 1, 2007.

         "TERM LOAN PAYMENT" is defined in Section 2.1.1.

         "TERM LOAN II" is a loan of up to $186,000.

         "TERM LOAN II PAYMENT" is defined in Section 2.1.2.

         "TERM LOAN III" is a loan of up to $50,000.

         "TERM LOAN ILL MATURITY DATE" is October 31, 2006.

         "TERM LOAN III PAYMENT" is defined in Section 2.1.3.

         "TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness,  and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

   (remainder of page left intentionally blank - signatures on following page)

                                       18
<PAGE>

BORROWER:

NEAH POWER SYSTEMS, INC.

By:             /s/ Steve Tallman
                -----------------
Print Name:     Steve Tallman
Print Title:    Chief Financial Officer

BANK:

SILICON VALLEY BANK

By:             /s/ Annette Sager
                -----------------
Print Name:     Annette Sager
Print Title:    Vice President

Effective Date: May 24, 2005

                                       19
<PAGE>

                                    EXHIBIT A

The Collateral consists of all of Borrower's right, title and interest in and to
the following:

Each item of equipment,  or personal  property financed with the Term Loan, Term
Loan II and Term Loan III pursuant to that certain Loan and Security  Agreement,
dated as of the Effective Crate, as defined therein (the "Loan  Agreement"),  by
and between  Borrower  and Bank,  including,  without  limitation,  the property
described in Annex A hereto,  whether now owned or hereafter acquired,  together
with all substitutions, renewals or replacements of and additions, improvements,
and  accessions  to any and all of the  foregoing,  and all proceeds from sales,
renewals, releases or other dispositions thereof.

                                       20

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