Document:

Execution
Version

      

      NEITHER
THIS NOTE NOR ANY SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR ANY SHARES OF
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THIS NOTE OR SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE UNDER SUCH ACT UNLESS SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID
EXEMPTION THEREFROM UNDER THE ACT.

      

      THE ISSUE
PRICE OF THIS NOTE IS $225,000.00 (THE "ISSUE
PRICE").  THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE IS
$37,500.00.  THE ISSUE DATE OF THIS NOTE IS FEBRUARY 12,
2009.

      

      NEAH
POWER SYSTEMS, INC.

      

      Original
Issue Discount Term Secured Convertible Promissory Note

      

      

      
        	
                $262,500.00

              	
                February
      12, 2009

              

      

      

      FOR VALUE
RECEIVED, the undersigned Neah
Power Systems, Inc., a Nevada corporation (referred to herein as "Borrower"
or the "Company"),
promises to pay to the order of Agile Opportunity Fund, LLC,
its successors or assigns (the "Lender"),
the principal sum of Two Hundred Sixty Two Thousand Five Hundred and 00/100
Dollars ($262,500.00) (the "Face
Amount") on August 12, 2009 (the "Maturity
Date"), together with interest on the Face Amount of this Note at a rate
equal to eighteen percent (18%) per annum calculated on the basis of a 360 day
year (the "Interest
Rate").  Interest to accrue hereunder through the Maturity Date
(assuming no Event of Default hereunder) shall be payable in advance on the date
hereof, the amount thereof being $23,625 (the “Prepaid
Interest”).  Notwithstanding any other provision hereof,
interest paid or becoming due hereunder and any other payments hereunder which
may constitute interest shall in no event exceed the maximum rate permitted by
applicable law.

      

      Interest
due hereunder is payable in lawful money of the United States of America to the
Lender at the address set forth in that certain Securities Purchase Agreement
between the Borrower, the Lender and the other investor thereunder, dated of
even date herewith (the "Securities
Purchase Agreement"), and pursuant to which this Note is
issued.  The terms and conditions of the Securities Purchase Agreement
and all other Loan Documents, including any other Note, are incorporated by
reference herein and made a part hereof.  All capitalized terms not
otherwise defined herein shall have the respective meanings as set forth in the
Securities Purchase Agreement.

      

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      

      Section
1.  Conversion.

      

      (a)           At
any time from the original issue date hereof through the date that this Note is
paid in full, Lender shall have the right, in its sole discretion, to convert
the then outstanding Face Amount of this Note less the then as yet unamortized
portion of the OID Amount (the “Convertible
Principal Balance”) plus accrued but unpaid interest under this Note, in
whole or in part, into shares (each, a “Conversion
Share”) of Common Stock at a conversion price equal to $0.10 per Conversion Share,
subject to adjustment as provided in Section 2 herein (the “Conversion
Price”).

      

      (b)           Lender
may convert this Note at the Conversion Price by the surrender of this Note
(properly endorsed) to the Company at the principal office of the Borrower,
together with the form of Notice of Conversion attached hereto as Annex A (a
“Notice of
Conversion”) duly completed, dated and executed, specifying therein the
principal amount of this Note and/or outstanding interest to be
converted.  The “Conversion Date” shall be the date that such Notice
of Conversion and this Note is duly provided to Borrower hereunder (or, at
Lender's option, the next interest payment date with respect to Lender's
conversion of any scheduled interest payment).  In the event that the
Lender shall specify a name or names other than that of the Lender to receive
any of the Conversion Shares issuable upon such exercise of the conversion
option, the Notice of Conversion also shall be accompanied by payment of all
transfer taxes payable upon the issuance of the Conversion Shares to such
specified person(s).

      

      (c)           On
the date of receipt by the Company of the duly completed, dated and executed
Notice of Conversion, this Note and applicable transfer taxes, if any, all in
accordance with Section 1(b) with respect to a conversion of any portion of this
Note, the Lender (and any person(s) receiving Conversion Shares in lieu of the
Lender) shall be deemed to have become the holder of record for all purposes of
the Conversion Shares to which such valid conversion relates.

      

      (d)           As
soon as practicable, but not in excess of five business days, after the valid
conversion of any portion of this Note, the Company, at the Company’s expense
(including the payment by Company of any applicable issuance and similar taxes,
but excluding the transfer taxes referred to in Section 1(b)), will cause to be
issued in the name of and delivered to the Lender (and/or such other person(s)
identified in the Notice of Conversion with respect to such conversion),
certificates evidencing the number of duly authorized, validly issued, fully
paid and non-assessable Conversion Shares to which the Lender (and/or such other
person(s) identified in such Notice of Conversion, shall be entitled to receive
upon the conversion), such certificates to be in such reasonable denominations
as Lender may request when delivering the Notice of Conversion.

      

      (e)           If
less than the entire Convertible Principal Balance of this Note is being
converted, the Company shall execute and deliver to the Lender a new replacement
Note (dated as of the date hereof) evidencing a face amount which is the
percentage of the original Face Amount equal to the portion of the Convertible
Principal Balance that has not been so converted.

      

      
        
           

        

        
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      Section
2.  Conversion Price
Adjustment.

      

      The
initial Conversion Price as stated above shall be subject to adjustment from
time to time and such Conversion Price as adjusted shall likewise be subject to
further adjustment, all as hereinafter set forth.

      

      (a)           If
and whenever the Company issues or sells any additional securities for
consideration equivalent to a per share price of Common Stock (the “Base
Price”) less than the Conversion Price in effect immediately prior to
such issuance or sale, then immediately upon such issuance or sale the
Conversion Price shall be reduced to a new Conversion Price equal to the Base
Price; provided, however, that this
Section 2(a) shall not be applicable to the issuance of securities to pursuant
to the Securities Purchase Agreement.

      

      (b)           If
the Borrower, at any time while this Note is outstanding, (i) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a
larger number of shares, (iii) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Borrower, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.

      

      (c)           Whenever
the Conversion Price shall be adjusted as provided in this Section 2, the
Company shall reasonably promptly provide notice of such adjustment to the
Lender together with a written statement from an authorized officer of the
Company, showing in reasonable detail the facts requiring such adjustment and
the Conversion Price that shall be in effect after such
adjustment.  Notwithstanding the foregoing, no adjustment in the
Conversion Price shall be required unless such adjustment would require a change
of at least 1% in such Conversion Price; provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.

       

      (d)           In
case of any consolidation or merger of the Borrower with or into another entity
or the conveyance of all or substantially all of the assets of the Borrower to
another entity (collectively, an “Organic
Change”), this Note shall thereafter be convertible (to the extent such
conversion is permitted hereunder) into the number of shares of Common Stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Borrower deliverable upon conversion of this Note would have been
entitled had this Note been converted immediately prior to such Organic Change
and held until after the closing of such Organic Change; and, in any such case,
appropriate adjustment shall be made in the application of the provisions herein
set forth with respect to the rights and interest thereafter of Lender or any
subsequent holder of this Note, to the end that the provisions set forth herein
shall be thereafter applicable, as nearly as reasonably may be, in relation to
any shares of Common Stock or other property thereafter deliverable upon the
conversion of this Note.

      

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      Section
3.  Reservation of
Stock.  The Borrower covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of this Note as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Lender, not less than such number of shares of
the Common Stock as shall be issuable upon the conversion of the outstanding
Face Amount of this Note and accrued and unpaid interest
hereunder.  If at any time, the Company does not have available an
amount of authorized but unissued Common Stock or Common Stock held in treasury
necessary to satisfy any conversion of all amounts outstanding under this Note,
the Company shall call and hold a special meeting of its stockholders within 30
days of the occurrence of any shortfall in authorized shares for the purpose of
approving an increase in the number of shares of authorized Common Stock to an
amount sufficient to enable conversion all amounts outstanding under this Note,
subject in all respects to compliance with the requirements of Section 14 of the
Securities Exchange Act of 1934 to which the Borrower is subject.  The
Board of Directors of the Company shall recommend that stockholders vote in
favor of increasing the number of authorized shares of Common Stock at any such
meeting.  Each Member of the Board of Directors of the Company shall
also vote all of such Director’s voting securities of the Company in favor of
such increase in authorized shares.  The Borrower covenants that all
shares of Common Stock that may be issuable upon conversion of this Note shall,
upon issue, be duly and validly authorized, issued and fully paid and
nonassessable.  No consent of any other party and no consent, license,
approval or authorization of, or registration or declaration with, any
governmental authority, bureau or agency is required in connection with the
execution, delivery or performance by the Borrower, or the validity or
enforceability of this Note other than such as have been met or obtained. The
execution, delivery and performance of this Note and all other agreements and
instruments executed and delivered or to be executed and delivered pursuant
hereto or thereto or the securities issuable upon conversion of this will not
violate any provision of any existing law or regulation or any order or decree
of any court, regulatory body or administrative agency or the certificate of
incorporation or by-laws of the Borrower or any mortgage, indenture, contract or
other agreement to which the Borrower is a party or by which the Borrower or any
property or assets of the Borrower may be bound.

       

      Section
4.  No
Fractional Shares.  Upon a conversion hereunder, the Borrower
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, and in lieu of any fractional shares which would
otherwise be issuable, the Borrower shall issue the next highest whole number of
shares of Common Stock, as the case may be.

      

      Section
5.  Redemption.

      

      
        
           

        

        
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      (a)  Mandatory
Redemption.  If at any time while this Note shall be
outstanding, the Company shall consummate: (i) a “going-private” transaction
whereby the Common Stock shall thereafter cease to be registered under the
Exchange Act; or (ii) a Sale of the Company, then the Company shall deliver a
written notice to the Lender of the pending consummation of any transaction
described in clauses (i) or (ii) of this Section 5 (each, a "Liquidity
Event") fifteen (15) days prior thereto and shall redeem this Note in
full immediately following the closing of a Liquidity Event (the “Repayment
Date”) by paying the applicable Redemption Price.  As used
herein, "Redemption
Price" shall equal all accrued but unpaid interest outstanding under this
Note, plus one hundred percent (100%) of the then outstanding Face Amount of
this Note.  The Borrower shall deliver to the Lender the Redemption
Price on the Repayment Date in immediately available funds.  For the
purpose of clarification, (i) no portion of the Prepaid Interest shall be
refundable or otherwise returned to the Company in the event of any such
redemption and (ii) after delivery of a notice of a Liquidity Event as provided
for in this Section, the Lender shall continue to be entitled to effectuate
conversions as contemplated under this Note until such time as the redemption
under this Section is consummated.

      

      (b)  Voluntary
Prepayment.  At any time while
this Note shall be outstanding, the Company may deliver a written notice of
prepayment to the Lender of its intention to prepay the face amount of this Note
in full, or in part, fifteen (15) days prior thereto and shall then so prepay
such portion of the Note as indicated in the notice together with all accrued
but unpaid interest outstanding thereon; provided, however, that no
portion of the Prepaid Interest shall be refundable or otherwise returned to the
Company in the event of any such prepayment.  For the purpose of
clarification, after delivery of a notice of prepayment as provided for in this
Section, the Lender shall continue to be entitled to effectuate conversions as
contemplated under this Note until such time as the prepayment under this
Section is consummated.

       

      Section
6.  Transferability.  This
Note and any of the rights granted hereunder are freely transferable by the
Lender, in its sole discretion, subject to federal and state securities law
restrictions, if any.

      

      Section
7.  Event of
Default.

      

      (a)           An
"Event of
Default", wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):

      

      (i)           Any
default in the payment of the principal of, interest on or other charges in
respect of this Note or any other Note as and when the same shall become due and
payable (whether the Maturity Date or by acceleration or
otherwise);

      

      (ii)           The
Borrower or any subsidiary shall fail to observe or perform any other material
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Note or any Loan Document to which it is a
party;

      

      (iii)           The
Borrower or any subsidiary shall commence, or there shall be commenced against
the Borrower or any subsidiary, a proceeding under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor thereto, or the
Borrower or any subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Borrower or subsidiary or there is commenced
against the Borrower or subsidiary any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the Borrower or
subsidiary is adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Borrower or
subsidiary suffers any appointment of any custodian, private or court appointed
receiver or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the Borrower or
subsidiary makes a general assignment for the benefit of creditors; or the
Borrower or subsidiary shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Borrower or subsidiary shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Borrower or subsidiary for the purpose
of effecting any of the foregoing; or

      

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

                 (iv)           The
Borrower or any subsidiary shall default in any of its obligations under any
other note or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any leasing or factoring arrangement of the
Borrower, whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise become due and
payable.

      

      (b)           Following
an Event of Default, the Interest Rate shall increase to 36% per annum
immediately following such Event of Default; provided, that the
Interest Rate shall thereafter revert back to the prior Interest Rate upon all
Events of Default being cured. Upon
the occurrence of an Event of Default hereunder, the entire Face Amount of this
Note together with any accrued but unpaid interest shall automatically become
due and payable.  The failure of the Lender to exercise any of its
rights hereunder in any particular instance shall not constitute a waiver of the
same or of any other right in that or any subsequent instance with respect to
the Lender or any subsequent holder.  The Lender need not provide and
the Borrower hereby waives any presentment, demand, protest or other notice of
any kind, and the Lender may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law.

      

      Section
8.  Registration
Rights.  The Lender is entitled to certain registration rights
with respect to the Common Stock issuable upon conversion of this Note as set
forth in the Securities Purchase Agreement.

      

      Section
9.  Notices.  Any
and all notices, requests, documents or other communications or deliveries
required or permitted to be given or delivered hereunder shall be delivered in
accordance with the notice provisions of the Securities Purchase
Agreement.

      

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      Section
10.  Usury.  To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by the Lender in order to enforce any
right or remedy under any Loan Document.  Notwithstanding any
provision to the contrary contained in any Loan Document, it is expressly agreed
and provided that the total liability of the Company under the Loan Documents
for payments in the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the “Maximum Rate”), and, without
limiting the foregoing, in no event shall any rate of interest or default
interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Loan Documents
exceed such Maximum Rate.  It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Loan Documents is
increased or decreased by statute or any official governmental action subsequent
to the date hereof, the new maximum contract rate of interest allowed by law
will be the Maximum Rate applicable to the Loan Documents from the effective
date forward, unless such application is precluded by applicable
law.  If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to Lender with respect to indebtedness
evidenced by the Loan Documents, such excess shall be applied by Lender to the
unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at Lender’s election.

       

      Section
11.  Governing Law; Waiver of
Jury Trial.  This Note and the provisions hereof are to be
construed according to and are governed by the laws of the State of New York,
without regard to principles of conflicts of laws thereof.  Borrower
agrees that the New York State Supreme Court located in the County of New York,
State of New York shall have exclusive jurisdiction in connection with any
dispute concerning or arising out of this Note, the Loan Documents, or otherwise
relating to the parties relationship.  In any action, lawsuit or
proceeding brought to enforce or interpret the provisions of this Note, the Loan
Documents and/or arising out of or relating to any dispute between the parties,
the Lender shall be entitled to recover all of its costs and expenses relating
collection and enforcement of this Note (including without limitation,
reasonable attorney’s fees and disbursements) in addition to any other relief to
which the Lender may be entitled.

      

      THE
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF
OR IN ANY WAY RELATING TO THIS NOTE.

      

      Section 12.  Successors and
Assigns.  Subject to applicable securities laws, this Note and
the rights and obligations evidenced hereby shall inure to the benefit of and be
binding upon the successors of the Company and the successors and assigns of
Lender and be freely transferable and assignable by Lender without the consent
of the Company.

      

      Section 13.  Reimbursement of
Expenses.  The Company shall reimburse the Lender for any
reasonable legal fees and disbursements incurred by the Lender in enforcement of
or protection of any of its rights under this Note.

      

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      Section 14.  Amendment.  This
Note may be modified or amended or the provisions hereof waived only with the
written consent of the Lender and the Company.

      

      Section 15.  Severability.  Wherever
possible, each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Note.

      

      [Remainder
of Page Intentionally Left Blank; Signature Page Follows]

       

       

       

       

      
 

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      IN
WITNESS WHEREOF, the Borrower has caused this Original Issue Discount Term
Secured Convertible Promissory Note to be duly executed by a duly authorized
officer as of the date first above indicated.

      

      
        
          
            
              	 
      	
                      NEAH
      POWER SYSTEMS, INC.

                    
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                      By:

                    	
                          
      

                    
	 
      	
                       

                    	
                      Name:
      Chris D’Couto

                    
	 
      	
                       

                    	
                      Title:
      CEO

                    

            

          

        

      

      

      

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      

      

      ANNEX
A

      

      NOTICE OF
CONVERSION

      To Be
Executed by the Lender

      in Order
to Convert Promissory Note

      

                 The
undersigned Lender hereby elects to convert $__________ principal (equal to
$______ Face Amount less, if Conversion Date is prior to Maturity Date, $____
unamortized OID Amount, capitalized terms used as defined in the Note) and
$_____ interest currently outstanding and owed under the Original Issue Discount
Term Secured Convertible Promissory Note issued to Agile Opportunity Fund, LLC at
a Conversion Price of $___ (the “Note”)
and to purchase ___________ shares of Common Stock of Neah Power Systems, Inc.
issuable upon conversion of such Note, and requests that certificates for such
securities shall be issued in the name of:

      

      

       

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    	     
      	 
	
                                                                            (please
      print or type name and address)

                                                                          	 
	 
      	 
      	 
      	 
	
                                                                               
      

                                                                          	 
	
                                                                            (please
      insert social security or other identifying number)

                                                                          	 
	 
      	 
      	 
      	 
	
                                                                            and
      be delivered as follows:

                                                                          	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                                                               
      

                                                                          	 
	
                                                                            please
      print or type name and address)

                                                                          	 
	 
      	 
      	 
      	 
	
                                                                                
      

                                                                          	 
	
                                                                            (please
      insert social security or other identifying number)

                                                                          	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                                                            Lender
      Name:

                                                                          	
                                                                               
      

                                                                          	 
	 
      	 
      	 
      	 
	
                                                                            By:

                                                                          	
                                                                                   
      

                                                                          	 
	 
      	
                                                                            Name:

                                                                          	 
      	 
	 
      	
                                                                            Title:

                                                                          	 
      	 
	 
      	 
      	 
      	 
	
                                                                            Conversion
      Date:

                                                                          	
                                                                               
      

                                                                          	 

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

      

      

      

       

      
        
           

        

        
          10Execution
Version

      

      SECURITY
AGREEMENT

      

      This Security Agreement (the “Security
Agreement”), dated as of February 12, 2009, is by and between (i) Neah Power Systems, Inc., a
Nevada corporation (the “Debtor”),
and (ii) Agile Opportunity
Fund, LLC, a Delaware limited liability company (“Agile”),
and Capitoline Advisors
Inc., a New York corporation (“Capitoline”;
together with Agile, the “Secured
Parties”, each a “Secured
Party”).

      

      Background

      

      
        	
                 
      

              	
                1.

              	
                The
      Secured Parties have purchased from the Debtor Original Issue Discount
      Term Secured Convertible Promissory Notes (the “Notes”)
      in the aggregate face amount of $262,500.00, pursuant to a Securities
      Purchase Agreement between the Debtor and the Secured Parties dated as of
      the date hereof (the “Securities
      Purchase Agreement”), and, subject to the terms of the Securities
      Purchase Agreement, may purchase additional Notes in the aggregate face
      amount of $787,500.00 at Subsequent Closings.  Capitalized terms
      used herein and not otherwise defined herein shall have the meanings
      specified in the Securities Purchase
Agreement.

              

      

      

      
        	
                 
      

              	
                2.

              	
                To
      induce the Secured Parties to purchase the Notes, the Debtor has agreed to
      provide the Secured Parties with a first priority security interest in the
      Collateral (as hereinafter
defined).

              

      

      

      N O W, T
H E R E F O R E,

      

      In consideration of the promises and
the mutual covenants and agreements herein set forth, and in order to induce the
Secured Parties to purchase the Notes, the Debtor hereby agrees with the Secured
Parties as follows:

      

      Section
1.          Grant of
Security Interest.  The Debtor hereby grants to the Secured
Parties, on the terms and conditions hereinafter set forth, a first priority
lien and security interest in the collateral hereinafter identified (the “Collateral”).

      

      Section
2.          Collateral.  The
Collateral is all tangible and intangible assets of the Debtor of whatever kind
and nature (including without limitation all intellectual property of whatever
kind or nature of the Debtor including patents, trademarks, tradenames,
copyrights and all other intellectual property and any applications or
registrations therefore, accounts, chattel paper, commercial tort claims,
documents, equipment, farm products, general intangibles, instruments,
inventory, investment property, and the stock of all of Debtor’s subsidiaries),
in each case whether now owned or hereafter acquired and wherever located, and
all proceeds thereof, together with all proceeds, products, replacements and
renewals thereof.

      

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      Section
3.          Representations
and Warranties; Covenants.  The Debtor hereby warrants and
covenants as follows:

      

      
        	
                 
      

              	
                (a)

              	
                The
      Debtor has title to the Collateral free from any lien, security interest,
      encumbrance or claim.

              

      

      

      
        	
                 
      

              	
                (b)

              	
                The
      Debtor will maintain the Collateral so as to preserve its value subject to
      wear and tear in the ordinary
course.

              

      

      

      
        	
                 
      

              	
                (c)

              	
                The
      Debtor is a corporation duly organized, validly existing and in good
      standing under the laws of the State of
Nevada.

              

      

      

      
        	
                 
      

              	
                (d)

              	
                The
      Debtor will pay when due all existing or future charges, liens, or
      encumbrances on the Collateral, and will pay when due all taxes and
      assessments now or hereafter imposed or affecting it unless such taxes or
      assessments are diligently contested by the Debtor in good faith and
      reasonable reserves are established
therefor.

              

      

      

      
        	
                 
      

              	
                (e)

              	
                All
      information with respect to the Notes and the Collateral and account
      debtors set forth in any schedule, certificate or other writing at any
      time heretofore or hereafter furnished by the Debtor to the Secured
      Parties, and all other written information heretofore or hereafter
      furnished by the Debtor to the Secured Parties, is or will be true and
      correct in all material respects, as of the date
  furnished.

              

      

      

      
        	
                 
      

              	
                (f)

              	
                As
      soon as practicable following the date of execution of this Security
      Agreement and in any event within 5 business days of such date, the
      Secured Parties will prepare, execute and file with the Secretary of State
      in the State of Nevada, a UCC-1 Financing Statement covering the
      Collateral, naming the Secured Parties as Secured Parties
      thereunder.

              

      

      

      
        	
                 
      

              	
                (g)

              	
                The
      Debtor will keep its records concerning the Collateral at its address
      shown in Section 18 below.  Such records will be of such
      character as to enable the Secured Parties or their representatives to
      determine at any time the status thereof, and the Debtor will not, unless
      the Secured Parties shall otherwise consent in writing, maintain any such
      record at any other address.

              

      

      

      
        	
                 
      

              	
                (h)

              	
                The
      Debtor will furnish the Secured Parties information on a quarterly basis
      concerning the Debtor, the Notes and the Collateral as the Secured Parties
      may at any time reasonably request.

              

      

      

      
        	
                 
      

              	
                (i)

              	
                The
      Debtor will permit the Secured Parties and its representatives at any
      reasonable time on five (5) day prior written notice to inspect any and
      all of the Collateral, and to inspect, audit and make copies of and
      extracts from all records and all other papers in possession of the Debtor
      pertaining to the Notes and the Collateral and will, on request of the
      Secured Parties, deliver to the Secured Parties all such records and
      papers for the purpose of enabling the Secured Parties to inspect, audit
      and copy same.  Any of the Debtor’s records delivered to the
      Secured Parties shall be returned to the Debtor as soon as the Secured
      Parties shall have completed its inspection, audit and/or copying
      thereof.

              

      

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      
 

      
        	
                 
      

              	
                (j)

              	
                The
      Debtor will, at such times as the Secured Parties may request, deliver to
      the Secured Parties a schedule identifying the Collateral subject to the
      security interest of this Security Agreement, and such additional
      schedules, certificates, and reports respecting all or any of the
      Collateral at the time subject to the security interest of this Security
      Agreement, and the items or amounts received by the Debtor in full or
      partial payment or otherwise as proceeds received in connection with any
      Collateral.  Any such schedule, certificate or report shall be
      executed by a duly authorized officer of the Debtor on behalf of the
      Debtor and shall be in such form and detail as the Secured Parties may
      specify. The Debtor shall immediately notify the Secured Parties of the
      occurrence of any event causing loss or depreciation in the value of the
      Collateral, and the amount of such loss or
  depreciation.

              

      

      

      
        
          	
                	
                  (k)

                	
                  If
      and when so requested by the Secured Parties, the Debtor will stamp on the
      records of
      the Debtor concerning the Collateral a notation, in a form satisfactory to
      the Secured Parties, of the security interest of the Secured Parties under
      this Security Agreement.

                

        

      

      

      Section
4.      Disposition
of Collateral in Ordinary Course.  Debtor shall not sell,
transfer, assign, convey, license, grant any right to use or otherwise dispose
of any Collateral  except in the ordinary course of business, without
the prior written consent of the Secured Parties.

      

      Section
5.      Secured
Parties May Perform.  Upon the occurrence and continuation of
an “Event of
Default” under the Notes, at the option of the Secured Parties, the
Secured Parties may discharge taxes, liens or security interests, or other
encumbrances at any time hereafter levied or placed on the Collateral; may pay
for insurance required to be maintained on the Collateral pursuant to Section 3;
and may pay for the maintenance and preservation of the
Collateral.  The Debtor agrees to reimburse the Secured Parties on
demand for any payment made, or any expense incurred, by the Secured Parties
pursuant to the foregoing authorization.  Until the occurrence and
continuation of an Event of Default, the Debtor may have possession of the
Collateral and use it in any lawful manner not inconsistent with this the
Security Agreement.

      

      Section
6.      Obligations
Secured; Certain Remedies.  This Security Agreement secures the
payment and performance of all obligations of the Debtor to the Secured Parties
under the Notes, whether now existing or hereafter arising and whether for
principal, interest, costs, fees or otherwise (collectively, the “Obligations”).  Upon
the occurrence and continuation of an Event of Default under the Notes, the
Secured Parties may declare all obligations secured hereby immediately due and
payable and may exercise the remedies of a secured party under the Uniform
Commercial Code.  Without limiting the foregoing, the Secured Parties
may require the Debtor to assemble the Collateral and make it available to the
Secured Parties at a place to be designated by the Secured Parties which is
reasonably convenient to both parties or to execute appropriate documents of
assignment, transfer and conveyance, in each case, in order to permit the
Secured Parties to take possession of and title to the
Collateral.  Unless the Collateral is perishable or threatens to
decline rapidly in value or is of a type customarily sold on a recognized
market, the Secured Parties will give the Debtor reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made.  The
requirements of reasonable notice shall be met if such notice is mailed to the
Debtor via registered or certified mail, postage prepaid, at least fifteen (15)
days before the time of sale or disposition.  Expenses of retaking,
holding, preparing for sale, selling or the like, shall include the Secured
Parties’ reasonable attorneys’ fees and legal expenses.

      

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      Section
7.      Debtor
Remains Liable.  Anything herein to the contrary
notwithstanding:

      

      
        	
                 
      

              	
                (a)

              	
                Notwithstanding
      the exercise of any remedy available to the Secured Parties hereunder or
      at law in connection with an Event of Default, the Debtor shall remain
      liable to repay the balance remaining unpaid and outstanding under the
      Notes after the value or proceeds received by the Secured Parties in
      connection with such remedy is subtracted.  The Secured Parties
      shall promptly deliver and pay over to the Debtor any portion of the value
      or proceeds received in connection with such remedy that remains after the
      unpaid and outstanding portion of the Notes is paid in
    full.

              

      

      

      
        	
                 
      

              	
                (b)

              	
                The
      Debtor shall remain liable under the contracts and agreements included in
      the Collateral to the extent set forth therein, and shall perform all of
      its duties and obligations under such contracts and agreements to the same
      extent as if this Security Agreement had not been
  executed.

              

      

      

      
        	
                 
      

              	
                (c)

              	
                The
      exercise by the Secured Parties of any of its rights hereunder shall not
      release the Debtor from any of its duties or obligations under any such
      contracts or agreements included in the
  Collateral.

              

      

      

      
        	
                 
      

              	
                (d)

              	
                The
      Secured Parties shall not have any obligation or liability under any such
      contracts or agreements included in the Collateral by reason of this
      Security Agreement, nor shall the Secured Parties be obligated to perform
      any of the obligations or duties of the Debtor thereunder or to take any
      action to collect or enforce any claim for payment assigned
      hereunder.

              

      

      

      Section
8.      Security
Interest Absolute.  All rights of the Secured Parties and the
security interests granted to the Secured Parties hereunder shall be absolute
and unconditional, to the maximum extent permitted by law, irrespective
of:

      

      
        	
                 
      

              	
                (a)

              	
                Any
      lack of validity or enforceability of the Notes or any other document or
      instrument relating thereto;

              

      

      

      
        	
                 
      

              	
                (b)

              	
                Any
      change in the time, manner or place of payment of, or in any other term
      of, all or any part of the Obligations or any other amendment to or waiver
      of or any consent to any departure from the Notes or any other document or
      instrument relating thereto;

              

      

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      
 

      
        	
                 
      

              	
                (c)

              	
                Any
      exchange, release or non-perfection of any collateral (including the
      Collateral), or any release of or amendment to or waiver of or consent to
      or departure from any guaranty, for all or any of the Obligations;
      or

              

      

      

      
        	
                 
      

              	
                (d)

              	
                Any
      other circumstance which might otherwise constitute a defense available
      to, or a discharge of, the Debtor, a guarantor or a third party grantor of
      a security interest.

              

      

      

      Section
9.        Additional
Assurances.  At the request of the Secured Parties, the Debtor
will join in executing or will execute, as appropriate, all necessary financing
statements in a form satisfactory to the Secured Parties, and the Debtor will
pay the cost of filing such statements, including all statutory
fees.  The Debtor will further execute all other instruments deemed
necessary by the Secured Parties and pay the cost of filing such
instruments.  The Debtor warrants that no financing statement covering
Collateral or any part or proceeds thereof is presently on file in any public
office.  The Debtor covenants that it will not grant any other
security interest in the Collateral without first obtaining the written consent
of the Secured Parties.

      

      
        Section
10.     Representations,
Warranties and Covenants Concerning Debtor’s Legal Status.

      

      

      (a)           The
Debtor has previously executed and delivered to the Secured Parties a Perfection
Certificate in the form of Schedule I
hereto.  The Debtor represents and warrants to the Secured Parties as
follows:

      

      
        	
                 
      

              	
                (i)

              	
                Debtor’s
      exact legal name is as indicated on the Perfection Certificate and on the
      signature page hereof;

              

      

      

      
        	
                 
      

              	
                (ii)

              	
                Debtor
      is an organization of the type, and is organized in the jurisdiction, set
      forth in the Perfection
Certificate;

              

      

      

      
        	
                 
      

              	
                (iii)

              	
                the
      Perfection Certificate accurately sets forth Debtor’s organizational
      identification number or accurately states that Debtor has
      none;

              

      

      

      
        	
                 
      

              	
                (iv)

              	
                the
      Perfection Certificate accurately sets forth Debtor’s place of business
      or, if more than one, its chief executive office as well as Debtor’s
      mailing address, if different; and

              

      

      

      
        	
                 
      

              	
                (v)

              	
                all
      other information set forth on the Perfection Certificate is accurate and
      complete.

              

      

      

      
        	
                 
      

              	
                (b)

              	
                The
      Debtor covenants with the Secured Parties as
  follows:

              

      

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      
 

      
        	
                 
      

              	
                (i)

              	
                without
      providing 15 days prior written notice to the Secured Parties, Debtor will
      not change its name, its place of business, or, if more than one, its
      chief executive offices or its mailing address or organizational
      identification number, if it has
one

              

      

      

      
        	
                 
      

              	
                (ii)

              	
                if
      Debtor does not have an organizational identification number and later
      obtains one, Debtor shall forthwith notify the Secured Parties of such
      organizational identification number;
and

              

      

      

      
        	
                 
      

              	
                (iii)

              	
                Debtor
      will not change its type of organization, jurisdiction of organization or
      other legal structure, without thirty (30) days prior written notice to
      the Secured Parties and following any such notice will cooperate with the
      Secured Parties to execute and deliver any documents or instruments
      requested by the Secured Parties in order to maintain the Secured Parties'
      perfected security interests
hereunder.

              

      

      

      Section
11.    Expenses.  The
Debtor will upon demand pay to the Secured Parties the amount of any and all
reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which the Secured Parties may incur in
connection with (i) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral upon the
occurrence and continuation of an Event of Default, (ii) the exercise or
enforcement of any of the rights of the Secured Parties hereunder, or (iii) the
failure by the Debtor to perform or observe any of the provisions
hereof.

      

      Section
12.    Notices
of Loss or Depreciation.  The Debtor will immediately notify
the Secured Parties of any claim, suit or proceeding against any Collateral or
any event causing loss or depreciation in the value of Collateral, including the
amount of such loss or depreciation

      

      Section
13.    No
Waivers.  No waiver by the Secured Parties of any default shall
operate as a waiver of any other default or of the same default on any
subsequent occasion.

      

      Section
14.    Successor
and Assigns.  The Secured Parties shall have the right to
assign this Security Agreement and its rights hereunder without the consent of
the Debtor.  All rights of the Secured Parties shall inure to the
benefit of the successors and assigns of the Secured Parties.  All
obligations of the Debtor shall be binding upon the Debtor’s successors and
assigns.

      

      Section
15.    No Grant
of Security Interest on Assets.  The Debtor covenants that it
shall not grant a security interest in any of its assets, tangible or
intangible, except for the security interest granted in the Collateral to the
Secured Parties hereunder.

      

      Section
16.    Governing
Law; Jurisdiction.  This Security Agreement shall be governed
by the laws of the State of New York, without giving effect to such
jurisdiction’s principles of conflict of laws, except to the extent that the
validity or the perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York.  Each of the parties
hereto submits to the personal jurisdiction of and each agrees that all
proceedings relating hereto shall be brought in federal or state courts located
within New York County in the State of New York.

      

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      Section
17.    Counterparts.  This
Security Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together shall constitute one and
the same instrument.

      

      Section
18.    Remedies
Cumulative.  The rights and remedies herein are cumulative, and
not exclusive of other rights and remedies which may be granted or provided by
law.

      

      Section
19.    Notices.  Any
demand upon or notice to the Debtor hereunder shall be effective when delivered
by hand or when properly deposited in the mails postage prepaid, or sent by
electronic facsimile transmission, receipt acknowledged, or delivered to an
overnight courier, in each case addressed to the Debtor at the address shown
below or as it appears on the books and records of the Secured
Parties.  Demands or notices addressed to any other address at which
the Secured Parties customarily communicates with the Debtor also shall be
effective.  Any notice by the Debtor to the Secured Parties shall be
given as aforesaid, addressed to the Secured Parties at the address shown below
or such other address as the Secured Parties may advise the Debtor in
writing:

      

      
        
          	
                  If
      to the Secured Parties:

                	
                  Agile
      Opportunity Fund, LLC

                
	 
      	
                  1175
      Walt Whitman Road, Suite 100A

                
	 
      	
                  Melville,
      NY 11747

                
	 
      	
                  Attn:
      David Propis

                
	 
      	 
      
	
                  With
      a copy to:

                	
                  Westerman
      Ball Ederer Miller & Sharfstein, LLP

                
	 
      	
                  170
      Old Country Road

                
	 
      	
                  Mineola,
      NY 11501

                
	 
      	
                  Attn:
      Alan C. Ederer, Esq.

                
	 
      	 
      
	
                  If
      to the Debtor:

                	
                  Neah
      Power Systems, Inc.

                
	
                	      
                  22122
      20th Avenue SE, Suite 142

                
	 
      	
                  Bothell,
      WA 98021

                
	 
      	
                  Attn:
      Chris D’Couto

                
	 
      	 
      
	
                  With
      a copy to:

                	
                  Seyfarth
      Shaw LLP

                
	 
      	
                  975
      F Street, N.W.

                
	 
      	
                  Washington,
      D.C. 20004

                
	 
      	
                  Attn:
      Ernest M. Stern, Esq.

                

        

      

      

      Section
20.    Entire
Agreement.  This Security Agreement and the documents and
instruments referred to herein embody the entire agreement entered into between
the parties relating to the subject matter hereof, and may not be amended,
waived, or discharged except by an instrument in writing executed by the Secured
Parties.

      

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

        Section
21.      Termination.  This
Security Agreement shall terminate upon the repayment in full of the Notes or
conversion in full thereof upon which the Secured Parties shall cooperate in the
filing of the necessary or appropriate documents and instruments to release the
security interest created hereby and will execute and deliver any and all
documents and/or instruments reasonably requested by Debtor in connection
therewith.

      

      [Remainder of Page
Intentionally Left Blank; Signature Page Follows]

       

       

       

       

      
 

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      IN
WITNESS WHEREOF, the parties hereto, by their duly authorized agents, have
executed this Security Agreement as of the date set forth above.

      

      
        
          
            
              
                
                  
                    
                      
                        	
                                 

                              	 
      	 
      
	 
      	
                                NEAH
      POWER SYSTEMS, INC.

                              
	 
      	 
      	 
      
	 
      	
                                By:

                              	
                                    
      

                              
	 
      	 
      	
                                Name:
      Chris D’Couto

                              
	 
      	 
      	
                                Title:
      CEO

                              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                                AGILE
      OPPORTUNITY FUND, LLC

                              
	 
      	
                                By:
      AGILE INVESTMENTS, LLC, Managing Member

                              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                                By:

                              	
                                   
      

                              
	 
      	 
      	
                                Name:
      David I. Propis

                              
	 
      	 
      	
                                Title:
      Managing Member

                              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                                CAPITOLINE
      ADVISORS INC.

                              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                                By:

                              	
                                  
      

                              
	 
      	 
      	
                                Name:

                              
	 
      	 
      	
                                Title:

                              

                      

                    

                  

                

              

            

          

        

      

      

      

      

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      

      SCHEDULE
I

      

      PERFECTION
CERTIFICATE

      

      The
undersigned, the Chief Executive Officer of Neah Power Systems, Inc., a
Nevada corporation (the "Company"),
hereby certifies, with reference to a certain Security Agreement, dated as of
February 12, 2009 (terms defined in such Security Agreement having the same
meanings herein as specified therein), between the Company and the Secured
Parties named therein (the "Secured
Parties"), to the Secured Parties as follows:

      

      1.           Name.                      The
exact legal name of the Company as that name appears on its Certificate of
Incorporation is as follows:  Neah Power Systems, Inc.

      

      2.           Other
Identifying Factors.

      

      (a) The following is the mailing
address of the Company:

      

      
        
          
            	
                    Address

                  	
                    County

                  	
                    State

                  
	 
      	 
      	 
      
	
                    22122
      20th Avenue SE, Suite 142

                  	 
      	 
      
	
                    Bothell,
      WA 98021

                  	
                     

                  	
                    Washington

                  

          

        

      

      

      

      (b)           If
different from its mailing address, the Company’s place of business or, if more
than one, its chief executive office is located at the following
address:

      

      
        
          	
                  Address

                	
                  County

                	
                  State

                

        

      

      

      

      (c)           The
following is the type of organization of the
Company:  Corporation

      

      (d)           The
following is the jurisdiction of the Company’s organization: Nevada

      

      (e)           The
following is the Company's state issued organizational identification
number:  ___________________

      

      3.           Other
Names, Etc.

      

      The following is a list of all other
names (including trade names or similar appellations) used by the Company, or
any other business or organization to which the Company became the successor by
merger, consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, now or at any time during the past five
years:

      

      

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      

      

      

      4.           Other
Current Locations.

      

      (a)           The
following are all other locations in the United States of America in which the
Company maintain any books or records relating to any of the Collateral
consisting of accounts, instruments, chattel paper, general intangibles or
mobile goods:

      

      
        
          	
                  Address

                	
                  County

                	
                  State

                
	 
      	 
      	 
      

        

      

      

      

      (b)           The
following are all other places of business of the Company in the United States
of America:

      

      
        
          	
                  Address

                	
                  County

                	
                  State

                

        

      

      

      

      

      

      (c)           The
following are all other locations in the United States of America where any of
the Collateral consisting of inventory or equipment is located:

      

      
        
          	
                  Address

                	
                  County

                	
                  State

                

        

      

      

      

      

      

      (d)           The
following are the names and addresses of all persons or entities other than the
Company, such as lessees, consignees, warehousemen or purchasers of chattel
paper, which have possession or are intended to have possession of any of the
Collateral consisting of instruments, chattel paper, inventory or
equipment:

      

      
        
          	
                  Name

                	
                  Mailing
      Address

                	
                  County

                	
                  State

                

        

      

      

      

      

      

      IN
WITNESS WHEREOF, I have hereunto signed this Perfection Certificate on February
12, 2009.

      

      

      

      
        
          
            
              	 
      	
                         
      

                    
	 
      	
                      Name:

                    	
                      Chris
      D’Couto

                    
	 
      	
                      Title:

                    	
                      CEO

                    

            

          

        

      

      

      

      

      

      

      

      

      

      
        
           

        

        
          11

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