Document:

PURCHASE
      AGREEMENT

    

    

    THIS
      PURCHASE AGREEMENT,
      dated
      as of March 27, 2007, is entered into by and among Neah Power
      Systems,
      Inc.,
      a
      Nevada corporation with headquarters located at 22122 20th
      Avenue
      SE, Suite 161, Bothell, Washington 98021 (the “Company”), and CAMOFI MASTER LDC
      and any additional purchasers whose signatures appear at the conclusion of
      this
      agreement (collectively, the “Purchaser”).

    

    W
      I T N E S S E T H:

    

    WHEREAS,
      the
      Company and the Purchaser are executing and delivering this Agreement in
      accordance with and in reliance upon the exemption from securities registration
      for offers and sales to accredited investors afforded, inter alia,
      by Rule
      506 under Regulation D (“Regulation D”) as promulgated by the United States
      Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
      as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act;
      and

    

    WHEREAS,
      the
      Purchaser wishes to purchase a 12% Secured Promissory Note of the Company (the
      “Note”), subject to and upon the terms and conditions of this Agreement and
      acceptance of this Agreement by the Company, on the terms and conditions
      referred to herein; and

    

    WHEREAS,
      the
      Company’s obligations to repay the Note will be secured by certain stock (the
“Pledged Shares”) of the Company pledged by Summit Trading Limited ( the
“Pledgors”) pursuant to separate Security Interest and Pledge Agreements (the
“Pledge Agreements”).

    

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

    

    1. AGREEMENT
      TO PURCHASE; PURCHASE PRICE.

    

    a. Purchase.

    

    (i) Subject
      to the terms and conditions of this Agreement and the other Transaction
      Agreements, the Purchaser hereby agrees to purchase the Note for the sum of
      $350,000 (the “Purchase Amount”). 

    

    (ii) The
      Note
      referred to herein shall be in the form of Annex
      I annexed
      hereto. The Note will be secured by a pledge of all of the Company’s assets
      pursuant to a Security Agreement in the form of Annex
      III
      and
      secured by the pledge of the Pledged Shares under the terms of the Pledge
      Agreements, which Pledge Agreements shall be substantially in the form of
Annex
      VI hereto,
      which the Company will acknowledge. 

    
      
         

      

      
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    (iii) In
      consideration for the Purchaser agreeing to Purchase the Note, the Company
      agrees to issue to the Purchaser the Warrant. Additional provisions relating
      to
      the Warrant are provided below.

    

    (iv) The
      purchase of the Note and the issuance of the Warrant to the Purchaser and the
      other transactions contemplated hereby are sometimes referred to herein and
      in
      the other Transaction Agreements as the purchase and sale of the Securities
      (as
      defined below), and are referred to collectively as the
“Transactions”.

    

    b. Certain
      Definitions. As
      used
      herein, each of the following terms has the meaning set forth below, unless
      the
      context otherwise requires:

     

    “Affiliate”
      means, with respect to a specific Person referred to in the relevant provision,
      another Person who or which controls or is controlled by or is under common
      control with such specified Person. 

    

    “Certificate”
      means the original ink-signed Note duly executed by the Company.

    

    “Closing
      Date” means the date of the closing of the Transactions, as provided
      herein.

    

    “Common
      Stock Equivalents” means
      any
      securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock.

     

    “Company
      Control Person” means each director, executive officer, promoter, and such other
      Persons as may be deemed in control of the Company pursuant to Rule 405 under
      the 1933 Act or Section 20 of the 1934 Act (as defined below).

    

    “Disclosure
      Annex” means Annex
      V to
      this
      Agreement; provided, however, that the Disclosure Annex shall be arranged in
      sections corresponding to the identified Sections of this Agreement, but the
      disclosure in any such section of the Disclosure Annex shall qualify other
      provisions in this Agreement to the extent that it would be readily apparent
      to
      an informed reader from a reading of such section of the Disclosure Annex that
      it is also relevant to other provisions of this Agreement.

    

    “Exchange
      Act” means the Securities Exchange Act of 1934, as amended.

     

    “Holder”
      means the Person holding the relevant Securities at the relevant
      time.

    

    “Last
      Audited Date” means December 31, 2006.

    
      
         

      

      
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    “Purchaser
      Control Person” means each director, executive officer, promoter, and such other
      Persons as may be deemed in control of the Purchaser pursuant to Rule 405 under
      the 1933 Act or Section 20 of the 1934 Act.

    

    “Liens”
      means a lien, charge, security interest, encumbrance, right of first refusal,
      preemptive right or other restriction.

    

    “Material
      Adverse Effect” means an event or combination of events, which individually or
      in the aggregate, would reasonably be expected to (w) adversely affect the
      legality, validity or enforceability of the Securities or any of the Transaction
      Agreements, (x) have or result in a material adverse effect on the results
      of
      operations, assets, prospects, or condition (financial or otherwise) of the
      Company and its subsidiaries, taken as a whole, (y) adversely impair the
      Company's ability to perform fully on a timely basis its obligations under
      any
      of the Transaction Agreements or the transactions contemplated thereby, or
      (z)
      materially and adversely affect the value of the rights granted to the Purchaser
      in the Transaction Agreements.

    

    “Person”
      means any living person or any entity, such as, but not necessarily limited
      to,
      a corporation, partnership or trust.

    

    “Principal
      Trading Market” means the Over the Counter Bulletin Board or such other market
      on which the Common Stock is principally traded at the relevant time, but shall
      not include the “pink sheets.”

    

    “Registrable
      Securities” means all of the following: (i) the Warrant Shares, and (ii) any
      shares of the Company’s common stock that are issued to the Purchaser in
      connection with any other agreements between the parties hereto, except to
      the
      extent such shares can then be sold by the Holder without volume or other
      restrictions or limits.

    

    “Registration
      Rights Provisions” means the piggy-back registration rights contemplated by the
      terms of this Agreement, if any, including, but not necessarily limited to,
      Section 4(g) hereof, and of the other Transaction Agreements.

    

    “Registration
      Statement” means an effective registration statement covering the Registrable
      Securities. 

    

    “Securities”
      means the Note, the Warrant, the shares underlying the Warrant, and any shares
      of common stock of the Company that may be issued to the Purchaser in connection
      with any other agreements between the parties.

    

    “Shares”
      means the shares of representing any or all of the Warrant Shares and, where
      relevant, the Pledged Shares. 

    

    “State
      of
      Incorporation” means Nevada.

    

    “Subsidiary”
      means any subsidiary of the Company as set forth on the Disclosure
      Annex.

     

    
      
        
           

        

        
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    “Trading
      Day” means any day during which the Principal Trading Market shall be open for
      business.

    

    “Transaction
      Fees” means legal and due diligence fees incurred by the Purchaser.

    

    “Transfer
      Agent” means, at any time, the transfer agent for the Company’s Common
      Stock.

    

    “Transaction
      Agreements” means this Purchase Agreement, the Note, the Security Agreement, the
      Subsidiary Guarantee, the Pledge Agreements, the Warrant and includes all
      ancillary documents referred to in those agreements.

    

    “VWAP”
      means, for any date, the price determined by the first of the following clauses
      that applies: (a) if the Common Stock is then listed or quoted on a Trading
      Market, the daily volume weighted average price of the Common Stock for such
      date (or the nearest preceding date) on the primary Trading Market on which
      the
      Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
      (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using
      the
      VAP function; (b) if the Common Stock is not then listed or quoted on the
      Trading Market and if prices for the Common Stock are then reported in the
“Pink
      Sheets” published by the Pink Sheets, LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the most recent bid price
      per
      share of the Common Stock so reported; or (c) in all other cases, the fair
      market value of a share of Common Stock as determined by a nationally
      recognized-independent appraiser selected in good faith by Holders holding
      a
      majority of the principal amount of Notes then outstanding.

    

    “Warrant
      Shares” means shares of Common Stock underlying the Warrant.

    

    c. Form
      of Payment; Delivery of Certificates. 

    

    (i) The
      Purchaser shall pay the Purchase Amount by delivering immediately available
      good
      funds in United States Dollars to the Company on the Closing Date. 

    

    (ii) On
      the
      Closing Date, the Company shall deliver the Certificate, duly executed on behalf
      of the Company to the Purchaser.

    

    (iii) By
      signing this Agreement, each of the Purchaser and the Company agrees to all
      of
      the terms and conditions of the Transaction Documents, all of the provisions
      of
      which are incorporated herein by this reference as if set forth in
      full.

    

    d. Method
      of Payment.
      Payment
      of the Purchase Amount shall be made by wire transfer of funds to:

     

    [WIRING
      INSTRUCTIONS]

    
      
         

      

      
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    2.
      PURCHASER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
      INVESTIGATION.

    

    The
      Purchaser represents and warrants to, and covenants and agrees with, the Company
      as follows:

    

    a. Without
      limiting Purchaser's right to sell the Securities pursuant to an effective
      registration statement or otherwise in compliance with the 1933 Act, the
      Purchaser is purchasing the Securities for its own account for investment only
      and not with a view towards the public sale or distribution thereof and not
      with
      a view to or for sale in connection with any distribution thereof.

    

    b. The
      Purchaser is (i) an “accredited investor” as that term is defined in Rule 501 of
      the General Rules and Regulations under the 1933 Act by reason of Rule
      501(a)(3), (ii) experienced in making investments of the kind described in
      this
      Agreement and the related documents, (iii) able, by reason of the business
      and
      financial experience of its officers (if an entity) and professional advisors
      (who are not affiliated with or compensated in any way by the Company or any
      of
      its Affiliates or selling agents), to protect its own interests in connection
      with the transactions described in this Agreement, and the related documents,
      and to evaluate the merits and risks of an investment in the Securities, and
      (iv) able to afford the entire loss of its investment in the
      Securities.

    

    c. All
      subsequent offers and sales of the Securities by the Purchaser shall be made
      pursuant to registration of the relevant Securities under the 1933 Act or
      pursuant to an exemption from registration.

    

    d. The
      Purchaser understands that the Securities are being offered and sold to it
      in
      reliance on specific exemptions from the registration requirements of the 1933
      Act and state securities laws and that the Company is relying upon the truth
      and
      accuracy of, and the Purchaser's compliance with, the representations,
      warranties, agreements, acknowledgments and understandings of the Purchaser
      set
      forth herein in order to determine the availability of such exemptions and
      the
      eligibility of the Purchaser to acquire the Securities.

    

    e. The
      Purchaser and its advisors, if any, have been furnished with or have been given
      access to all materials relating to the business, finances and operations of
      the
      Company and materials relating to the offer and sale of the Securities which
      have been requested by the Purchaser, including those set forth on in any annex
      attached hereto. The Purchaser and its advisors, if any, have been afforded
      the
      opportunity to ask questions of the Company and its management and have received
      complete and satisfactory answers to any such inquiries. Without limiting the
      generality of the foregoing, the Purchaser has also had the opportunity to
      obtain and to review all the Company's filings with the SEC (collectively,
      the
“Company's SEC Documents”).

    

    f. The
      Purchaser understands that its investment in the Securities involves a high
      degree of risk.

    
      
         

      

      
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    g. The
      Purchaser hereby represents that, in connection with its purchase of the
      Securities, it has not relied on any statement or representation by the Company
      or any of its officers, directors and employees or any of their respective
      attorneys or agents, except as specifically set forth herein. 

    

    h. The
      Purchaser understands that no United States federal or state agency or any
      other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities.

    

    i. This
      Agreement and the other Transaction Agreements to which the Purchaser is a
      party, and the transactions contemplated thereby, have been duly and validly
      authorized, executed and delivered on behalf of the Purchaser and are valid
      and
      binding agreements of the Purchaser enforceable in accordance with their
      respective terms, subject as to enforceability to general principles of equity
      and to bankruptcy, insolvency, moratorium and other similar laws affecting
      the
      enforcement of creditors' rights generally.

    

    3. COMPANY
      REPRESENTATIONS, ETC. The
      Company represents and warrants to the Purchaser as of the date hereof and
      as of
      the Closing Date that, except as otherwise provided in the Disclosure Annex
      or
      in the SEC Documents:

    

    a. Rights
      of Others Affecting the Transactions. There
      are
      no preemptive rights of any shareholder of the Company, as such, to acquire
      the
      Note, or any shares of the Company’s common stock that may be issued in
      connection with this Agreement or any other agreement entered into by the
      parties hereto, in the event such shares are issued. No party other than a
      Purchaser has a currently exercisable right of first refusal which would be
      applicable to any or all of the transactions contemplated by the Transaction
      Agreements.

    

    b. Status.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Incorporation and has the requisite corporate
      power to own its properties and to carry on its business as now being conducted.
      The Company is duly qualified as a foreign corporation to do business and is
      in
      good standing in each jurisdiction where the nature of the business conducted
      or
      property owned by it makes such qualification necessary, other than those
      jurisdictions in which the failure to so qualify would not have or result in
      a
      Material Adverse Effect. The Company has registered its stock and is obligated
      to file reports pursuant to Section 12 or Section 15(d) of the Securities and
      Exchange Act of 1934, as amended (the “1934 Act”). The Common Stock is, or
      immediately following the Closing Date will be, quoted on the Principal Trading
      Market. The Company has received no notice, either oral or written, with respect
      to the continued eligibility of the Common Stock for such quotation on the
      Principal Trading Market, and the Company has maintained all requirements on
      its
      part for the continuation of such quotation. 

    

    c. Authorized
      Shares. 

     

    (i) The
      authorized capital stock of the Company consists of 500,000,000 shares
      of
      Common Stock, $0.001 par value, 103,162,431 of which are outstanding as of
      the
      date hereof and 25,000,000 shares of Preferred Stock. $0.001 par value, none
      of
      which are outstanding as of the date hereof.

     

    
      
        
           

        

        
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    (ii) All
      issued and outstanding shares of Common Stock have been duly authorized and
      validly issued and are fully paid and non-assessable. The Company has sufficient
      authorized and unissued shares of Common Stock as may be necessary to affect
      the
      issuance of the Shares on the Closing Date. 

    

    (iii) As
      of the
      Closing Date, the Shares shall have been duly authorized by all necessary
      corporate action on the part of the Company, and, when issued on the Closing
      Date or pursuant to other relevant provisions of the Transaction Agreements,
      in
      each case in accordance with their respective terms, will be duly and validly
      issued, fully paid and non-assessable and will not subject the Holder thereof
      to
      personal liability by reason of being such Holder.

    

    d. Transaction
      Agreements and Stock.
      This
      Agreement and each of the other Transaction Agreements, and the transactions
      contemplated thereby, have been duly and validly authorized by the Company,
      this
      Agreement has been duly executed and delivered by the Company and this Agreement
      is, and the Note and each of the other Transaction Agreements, when executed
      and
      delivered by the Company, will be, valid and binding agreements of the Company
      enforceable in accordance with their respective terms, subject as to
      enforceability to general principles of equity and to bankruptcy, insolvency,
      moratorium, and other similar laws affecting the enforcement of creditors'
      rights generally.

    

    e. Non-contravention.
      The
      execution and delivery of this Agreement and each of the other Transaction
      Agreements by the Company, the issuance of the Securities, and the consummation
      by the Company of the other transactions contemplated by this Agreement, each
      of
      the Notes and the other Transaction Agreements do not and will not conflict
      with
      or result in a breach by the Company of any of the terms or provisions of,
      or
      constitute a default under (i) the certificate of incorporation or by-laws
      of
      the Company, each as currently in effect, (ii) any indenture, mortgage, deed
      of
      trust, or other material agreement or instrument to which the Company is a
      party
      or by which it or any of its properties or assets are bound, including any
      listing agreement for the Common Stock except as herein set forth, or (iii)
      to
      its knowledge, any existing applicable law, rule, or regulation or any
      applicable decree, judgment, or order of any court, United States federal or
      state regulatory body, administrative agency, or other governmental body having
      jurisdiction over the Company or any of its properties or assets, except such
      conflict, breach or default which would not have or result in a Material Adverse
      Effect.

    

    f. Approvals.
      No
      authorization, approval or consent of any court, governmental body, regulatory
      agency, self-regulatory organization, or stock exchange or market or the
      shareholders of the Company is required to be obtained by the Company for the
      issuance and sale of the Securities to the Purchaser as contemplated by this
      Agreement, except such authorizations, approvals and consents that have been
      obtained.

    

    g. Filings.
      None of
      the Company’s SEC Documents contained, at the time they were filed, any untrue
      statement of a material fact or omitted to state any material fact required
      to
      be stated therein or necessary to make the statements made therein in light
      of
      the circumstances under which they were made, not misleading. Since December
      31,
      2006, the Company has timely filed all requisite forms, reports and exhibits
      thereto, if any, required to be filed by the Company with the
      SEC.

    
      
         

      

      
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    h. Absence
      of Certain Changes.
      Since
      the Last Audited Date, there has been no material adverse change and no Material
      Adverse Effect, except as disclosed in the Company’s SEC Documents. Since the
      Last Audited Date, except as provided in the Company’s SEC Documents, the
      Company has not (i) incurred or become subject to any material liabilities
      (absolute or contingent) except liabilities incurred in the ordinary course
      of
      business consistent with past practices; (ii) discharged or satisfied any
      material lien or encumbrance or paid any material obligation or liability
      (absolute or contingent), other than current liabilities paid in the ordinary
      course of business consistent with past practices; (iii) declared or made any
      payment or distribution of cash or other property to shareholders with respect
      to its capital stock, or purchased or redeemed, or made any agreements to
      purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
      transferred any other tangible assets, or canceled any debts owed to the Company
      by any third party or claims of the Company against any third party, except
      in
      the ordinary course of business consistent with past practices; (v) waived
      any
      rights of material value, whether or not in the ordinary course of business,
      or
      suffered the loss of any material amount of existing business; (vi) made any
      increases in employee compensation, except in the ordinary course of business
      consistent with past practices; or (vii) experienced any material problems
      with
      labor or management in connection with the terms and conditions of their
      employment.

    

    i. Full
      Disclosure.
      To the
      best of the Company’s knowledge, there is no fact known to the Company (other
      than general economic conditions known to the public generally or as disclosed
      in the Company’s SEC Documents) that has not been disclosed in writing to the
      Purchaser that would reasonably be expected to have or result in a Material
      Adverse Effect.

    

    j. Absence
      of Litigation.
      There is
      no action, suit, proceeding, inquiry or investigation before or by any court,
      public board or body pending or, to the knowledge of the Company, threatened
      against or affecting the Company before or by any governmental authority or
      nongovernmental department, commission, board, bureau, agency or instrumentality
      or any other person, wherein an unfavorable decision, ruling or finding would
      have a Material Adverse Effect or which would adversely affect the validity
      or
      enforceability of, or the authority or ability of the Company to perform its
      obligations under, any of the Transaction Agreements. The Company is not aware
      of any valid basis for any such claim that (either individually or in the
      aggregate with all other such events and circumstances) could reasonably be
      expected to have a Material Adverse Effect. There are no outstanding or
      unsatisfied judgments, orders, decrees, writs, injunctions or stipulations
      to
      which the Company is a party or by which it or any of its properties is bound,
      that involve the transaction contemplated herein or that, alone or in the
      aggregate, could reasonably be expect to have a Material Adverse
      Effect.

    

    k. Absence
      of Events of Default.
      Except
      as set forth in Section 3(e) and 3(g) hereof, (i) neither the Company nor any
      of
      its subsidiaries is in default in the performance or observance of any material
      obligation, agreement, covenant or condition contained in any material
      indenture, mortgage, deed of trust or other material agreement to which it
      is a
      party or by which its property is bound, and (ii) no Event of Default (or its
      equivalent term), as defined in the respective agreement to which the Company
      or
      its subsidiary is a party, and no event which, with the giving of notice or
      the
      passage of time or both, would become an Event of Default (or its equivalent
      term) (as so defined in such agreement), has occurred and is continuing, which
      would have a Material Adverse Effect.

    
      
         

      

      
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    l. Absence
      of Certain Company Control Person Actions or Events.
      To the
      Company’s knowledge, none of the following has occurred during the past five (5)
      years with respect to a Company Control Person:

    

    (1)
      A
      petition under the federal bankruptcy laws or any state insolvency law was
      filed
      by or against, or a receiver, fiscal agent or similar officer was appointed
      by a
      court for the business or property of such Company Control Person, or any
      partnership in which he was a general partner at or within two years before
      the
      time of such filing, or any corporation or business association of which he
      was
      an executive officer at or within two years before the time of such
      filing;

    

    (2)
      Such
      Company Control Person was convicted in a criminal proceeding or is a named
      subject of a pending criminal proceeding (excluding traffic violations and
      other
      minor offenses);

    

    (3)
      Such
      Company Control Person was the subject of any order, judgment or decree, not
      subsequently reversed, suspended or vacated, of any court of competent
      jurisdiction, permanently or temporarily enjoining him from, or otherwise
      limiting, the following activities:

    

    (i)
      acting, as an investment advisor, underwriter, broker or dealer in securities,
      or as an affiliated person, director or employee of any investment company,
      bank, savings and loan association or insurance company, as a futures commission
      merchant, introducing broker, commodity trading advisor, commodity pool
      operator, floor broker, any other Person regulated by the Commodity Futures
      Trading Commission ("CFTC") or engaging in or continuing any conduct or practice
      in connection with such activity;

    

    (ii)
      engaging in any type of business practice; or

    

    (iii)
      engaging in any activity in connection with the purchase or sale of any security
      or commodity or in connection with any violation of federal or state securities
      laws or federal commodities laws;

    

    (4)
      Such
      Company Control Person was the subject of any order, judgment or decree, not
      subsequently reversed, suspended or vacated, of any federal or state authority
      barring, suspending or otherwise limiting for more than 60 days the right of
      such Company Control Person to engage in any activity described in paragraph
      (3)
      of this item, or to be associated with Persons engaged in any such activity;
      or

    
      
         

      

      
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      (5)
        Such
        Company Control Person was found by a court of competent jurisdiction in
        a civil
        action or by the CFTC or SEC to have violated any federal or state securities
        law, and the judgment in such civil action or finding by the CFTC or SEC
        has not
        been subsequently reversed, suspended, or vacated.

    

    m. No
      Undisclosed Liabilities or Events.
      To the
      best of the Company’s knowledge, the Company has no liabilities or obligations
      other than those disclosed in the Transaction Agreements or the Company's SEC
      Documents or those incurred in the ordinary course of the Company's business
      since the Last Audited Date, or which individually or in the aggregate, do
      not
      or would not have a Material Adverse Effect. No event or circumstances has
      occurred or exists with respect to the Company or its properties, business,
      operations, condition (financial or otherwise), or results of operations, which,
      under applicable law, rule or regulation, requires public disclosure or
      announcement prior to the date hereof by the Company but which has not been
      so
      publicly announced or disclosed. There are no proposals currently under
      consideration or currently anticipated to be under consideration by the Board
      of
      Directors or the executive officers of the Company which proposal would (x)
      change the articles or certificate of incorporation or other charter document
      or
      by-laws of the Company, each as currently in effect, with or without shareholder
      approval, which change would reduce or otherwise adversely affect the rights
      and
      powers of the shareholders of the Common Stock or (y) materially or
      substantially change the business, assets or capital of the Company, including
      its interests in subsidiaries.

    

    n. No
      Integrated Offering.
      Neither
      the Company nor any of its Affiliates nor any Person acting on its or their
      behalf has, directly or indirectly, at any time since March 1, 2006, made any
      offer or sales of any security or solicited any offers to buy any security
      under
      circumstances that would eliminate the availability of the exemption from
      registration under Regulation D in connection with the offer and sale of the
      Securities as contemplated hereby.

    

    o. Dilution.
      Any
      shares of the Company’s stock that may be issued in connection with this
      Agreement or any other agreement entered into by the parties hereto, in the
      event such shares are issued, may have a dilutive effect on the ownership
      interests of the other shareholders (and Persons having the right to become
      shareholders) of the Company. The Company's executive officers and directors
      have studied and fully understand the nature of the Securities being sold hereby
      and recognize that they have such a potential dilutive effect. The board of
      directors of the Company has concluded, in its good faith business judgment,
      that such issuance is in the best interests of the Company.

    

    p. Recognition
      of Pledge Agreements and Pledged Shares.
      The
      Company acknowledges that the execution and delivery of the Pledge Agreements,
      and the fulfillment o f the terms thereof, is a condition to the closing of
      the
      Transactions. The Company will recognize the terms of the Pledge Agreements
      and,
      as provided therein, the transfer of the Pledged Shares to the Purchasers and
      will take no position or give the Transfer Agent any instructions which would
      be
      inconsistent with the rights of the Purchasers to have the Pledged Shares
      transferred to the Purchasers in accordance with the terms of the Pledge
      Agreements.

    

      
        
           

        

        
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            10

          
            

          

        

        
           

        

      

    q. Fees
      to Brokers, Finders and Others.
      The
      Company has taken no action which would give rise to any claim by any Person
      for
      brokerage commission, finder's fees or similar payments by Purchaser relating
      to
      this Agreement or the transactions contemplated hereby. Purchaser shall have
      no
      obligation with respect to such fees or with respect to any claims made by
      or on
      behalf of other Persons for fees of a type contemplated in this paragraph that
      may be due in connection with the transactions contemplated hereby. The Company
      shall indemnify and hold harmless each of Purchaser, its employees, officers,
      directors, agents, and partners, and their respective Affiliates, from and
      against all claims, losses, damages, costs (including the costs of preparation
      and attorney's fees) and expenses suffered in respect of any such claimed or
      existing fees, as and when incurred.

    r. Confirmation.
      The
      Company confirms that all statements of the Company contained herein shall
      survive acceptance of this Agreement by the Purchaser. The Company agrees that,
      if any events occur or circumstances exist prior to the Closing Date or the
      release of the Purchase Amount to the Company which would make any of the
      Company’s representations, warranties, agreements or other information set forth
      herein materially untrue or materially inaccurate as of such date, the Company
      shall immediately notify the Purchaser (directly or through its counsel, if
      any)
      in writing prior to such date of such fact, specifying which representation,
      warranty or covenant is affected and the reasons therefor.

    

    s. Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Agreements
      and otherwise to carry out its obligations thereunder. The execution and
      delivery of each of the Transaction Agreements by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company and no further
      action is required by the Company in connection therewith other than in
      connection with the Required Approvals. Each Transaction Agreement has been
      (or
      upon delivery will have been) duly executed by the Company and, when delivered
      in accordance with the terms hereof, will constitute the valid and binding
      obligation of the Company enforceable against the Company in accordance with
      its
      terms except (i) as limited by applicable bankruptcy, insolvency,
      reorganization, moratorium and other laws of general application affecting
      enforcement of creditors’ rights generally and (ii) as limited by laws relating
      to the availability of specific performance, injunctive relief or other
      equitable remedies.

     

    t.
       SEC
      Reports; Financial Statements.
      Other
      than as previously disclosed to the Purchaser, the Company has filed all reports
      required to be filed by it under the Securities Act and the Exchange Act,
      including pursuant to Section 13(a) or 15(d) thereof, for the year preceding
      the
      date hereof (or such shorter period as the Company was required by law to file
      such material) (the foregoing materials, including the exhibits thereto, being
      collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any
      such SEC
      Reports prior to the expiration of any such extension. As of their respective
      dates, the SEC Reports complied in all material respects with the requirements
      of the Securities Act and the Exchange Act and the rules and regulations of
      the
      Commission promulgated thereunder, and none of the SEC Reports, when filed,
      contained any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the statements
      therein, in light of the circumstances under which they were made, not
      misleading. The financial statements of the Company comply in all material
      respects with applicable accounting requirements and the rules and regulations
      of the Commission with respect thereto as in effect at the time of filing.
      Such
      financial statements have been prepared in accordance with United States
      generally accepted accounting principles applied on a consistent basis during
      the periods involved (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects the
      financial position of the Company and its consolidated subsidiaries as of and
      for the dates thereof and the results of operations and cash flows for the
      periods then ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments.

    
      
         

      

      
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          11

        
          

        

      

      
         

      

    

    u. 
      Labor Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect.

     

    v. Compliance.
      Neither
      the Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that, with notice or lapse of
      time or both, would result in a default by the Company or any Subsidiary under),
      nor has the Company or any Subsidiary received notice of a claim that it is
      in
      default under or that it is in violation of, any indenture, loan or credit
      agreement or any other agreement or instrument to which it is a party or by
      which it or any of its properties is bound (whether or not such default or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its business
      except in each case as could not have a Material Adverse Effect.

     

    w. Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses, except where
      the
      failure to possess such permits could not have or reasonably be expected to
      result in a Material Adverse Effect (“Material
      Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

    x. Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to the business of the Company
      and
      the Subsidiaries and good and marketable title in all personal property owned
      by
      them that is material to the business of the Company and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens as do not materially
      affect the value of such property and do not materially interfere with the
      use
      made and proposed to be made of such property by the Company and the
      Subsidiaries and Liens for the payment of federal, state or other taxes, the
      payment of which is neither delinquent nor subject to penalties. Any real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases of which the Company
      and the Subsidiaries are in compliance.

     

    y. Patents
      and Trademarks.
      The
      Company and the Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade names,
      copyrights, licenses and other similar rights necessary or material for use
      in
      connection with their respective businesses and which the failure to so have
      could have a Material Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a written notice that the
      Intellectual Property Rights used by the Company or any Subsidiary violates
      or
      infringes upon the rights of any Person. To the knowledge of the Company, all
      such Intellectual Property Rights are enforceable and there is no existing
      infringement by another Person of any of the Intellectual Property Rights of
      others.

    
      
         

      

      
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          12

        
          

        

      

      
         

      

    

    z. Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged, at least equal to the Purchase Amount. To the best of Company’s
      knowledge, such insurance contracts and policies are accurate and complete.
      Neither the Company nor any Subsidiary has any reason to believe that it will
      not be able to renew its existing insurance coverage as and when such coverage
      expires or to obtain similar coverage from similar insurers as may be necessary
      to continue its business without a significant increase in cost.

     

    aa. Transactions
      with Affiliates and Employees.
      Except
      as disclosed in the SEC Reports, none of the officers or directors of the
      Company and, to the knowledge of the Company, none of the employees of the
      Company is presently a party to any transaction with the Company or any
      Subsidiary (other than for services as employees, officers and directors),
      including any contract, agreement or other arrangement providing for the
      furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any officer,
      director or such employee or, to the knowledge of the Company, any entity in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner, in each case in excess of $50,000
      other than (i) for payment of salary or consulting fees for services rendered,
      (ii) reimbursement for expenses incurred on behalf of the Company and (iii)
      for
      other employee benefits, including stock option agreements under any stock
      option plan of the Company.

     

    bb. Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management's general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management's general
      or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and procedures
      to ensure that material information relating to the Company, including its
      Subsidiaries, is made known to the certifying officers by others within those
      entities, particularly during the period in which the Company's most recently
      filed periodic report under the Exchange Act, as the case may be, is being
      prepared. The Company's certifying officers have evaluated the effectiveness
      of
      the Company's controls and procedures as of the date prior to the filing date
      of
      the most recently filed periodic report under the Exchange Act (such date,
      the
“Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no significant
      changes in the Company's internal controls (as such term is defined in Item
      307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge,
      in other factors that could significantly affect the Company's internal
      controls.

    
      
         

      

      
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          13

        
          

        

      

      
         

      

    

    cc. Tax
      Status.
      Except
      for matters that would not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse Effect, the Company and each
      Subsidiary has filed all necessary federal, state and foreign income and
      franchise tax returns and has paid or accrued all taxes shown as due thereon,
      and the Company has no knowledge of a tax deficiency which has been asserted
      or
      threatened against the Company or any Subsidiary.

     

    dd. No
      Disagreements with Accountants and Lawyers.
      Except
      as otherwise disclosed in the Company’s SEC Documents, there are no
      disagreements of any kind presently existing, or reasonably anticipated by
      the
      Company to arise, between the accountants and lawyers formerly or presently
      employed by the Company and the Company is current with respect to any fees
      owed
      to its accountants and lawyers. By making this representation the Company does
      not, in any manner, waive the attorney/client privilege or the confidentiality
      of the communications between the Company and its lawyers.

     

    ee. Accountants.
      The
      Company’s accountants are Peterson & Sullivan, PLLC. To the Company’s
      knowledge, such accountants, who the Company expects will express their opinion
      with respect to the financial statements for the year ended December 31, 2006,
      are a registered public accounting firm as required by the Securities
      Act.

     

    4. CERTAIN
      COVENANTS AND ACKNOWLEDGMENTS.

    

    a. Transfer
      Restrictions.
      The
      Purchaser acknowledges that (1) the Securities have not been and are not being
      registered under the provisions of the 1933 Act and, except as provided in
      the
      Registration Rights Provisions or otherwise included in an effective
      registration statement, the Shares have not been and are not being registered
      under the 1933 Act, and may not be transferred unless (A) subsequently
      registered thereunder or (B) the Purchaser shall have delivered to the Company
      an opinion of counsel, reasonably satisfactory in form, scope and substance
      to
      the Company, to the effect that the Securities to be sold or transferred may
      be
      sold or transferred pursuant to an exemption from such registration; (2) any
      sale of the Securities made in reliance on Rule 144 promulgated under the 1933
      Act (“Rule 144") may be made only in accordance with the terms of said Rule and
      further, if said Rule is not applicable, any resale of such Securities under
      circumstances in which the seller, or the Person through whom the sale is made,
      may be deemed to be an underwriter, as that term is used in the 1933 Act, may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC thereunder; and (3) neither the Company nor any other
      Person is under any obligation to register the Securities (other than pursuant
      to the Registration Rights Provisions) under the 1933 Act or to comply with
      the
      terms and conditions of any exemption thereunder.

    

    b. Restrictive
      Legend.
      The
      Purchaser acknowledges and agrees that, until such time as the relevant Shares
      have been registered under the 1933 Act, as contemplated by the Registration
      Rights Provisions and sold in accordance with an effective Registration
      Statement or otherwise in accordance with another effective registration
      statement, the certificates and other instruments representing any of the
      Securities shall bear a restrictive legend in substantially the following form
      (and a stop-transfer order may be placed against transfer of any such
      Securities):

    
      
         

      

      
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          14

        
          

        

      

      
         

      

    

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

    

    c. Filings.
      The
      Company undertakes and agrees to make all necessary filings in connection with
      the sale of the Securities to the Purchaser under any United States laws and
      regulations applicable to the Company, or by any domestic securities exchange
      or
      trading market, and to provide a copy thereof to the Purchaser promptly after
      such filing.

    

    d. Reporting
      Status.
      So long
      as the Purchaser beneficially owns any of the Shares or has a security interest
      in the Pledged Shares, the Company shall file all reports required to be filed
      with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take all
      reasonable action under its control to ensure that adequate current public
      information with respect to the Company, as required in accordance with Rule
      144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its
      status as an issuer required to file reports under the 1934 Act even if the
      1934
      Act or the rules and regulations thereunder would permit such termination.
      The
      Company will take all reasonable action under its control to maintain the
      continued listing and quotation and trading of its Common Stock (including,
      without limitation, all Registrable Securities) on the Principal Trading Market
      or a listing on the NASDAQ/Small Cap or National Markets and, to the extent
      applicable to it, will comply in all material respects with the Company’s
      reporting, filing and other obligations under the by-laws or rules of the
      Principal Trading Market and/or the National Association of Securities Dealers,
      Inc., as the case may be, applicable to it for so long as the Purchaser
      beneficially owns any of the Shares or has a security interest in the Pledged
      Shares.

    

    e. Use
      of Proceeds.
      The
      Company will use the proceeds received hereunder shall be used for general
      corporate purposes.

    

    f. Warrant.
      The
      Company agrees to issue a warrant (the “Warrant”) to the Purchaser on the
      Closing Date. The terms relating to the Warrant are provided in Annex
      VII
      annexed
      hereto, the terms of which are incorporated herein by reference. All of the
      Warrant Shares shall have Registration Rights Provisions. 

    

    g. Piggy-Back
      Rights; Rule 144.
      

    

    (i) The
      Purchaser shall have piggy-back registration rights with respect to the
      Registrable Securities subject to the conditions set forth below. If the Company
      participates (whether voluntarily or by reason of an obligation to a third
      party) in the registration of any shares of the Company’s stock, the Company
      shall give written notice thereof to the Holder and the Holder shall have the
      right, exercisable within ten (10) Trading Days after receipt of such notice,
      to
      demand inclusion of all or a portion of the Holder’s Registrable Securities in
      such registration statement (a “Subsequent Registration Statement”), without any
      cutbacks. If
      the
      Holder exercises such election, the Registrable Securities so designated shall
      be included in the registration statement (without any holdbacks) at no cost
      or
      expense to the Holder (other than any commissions, if any, relating to the
      sale
      of Holder’s shares). Each Holder’s rights under this Section 4(h)(i) shall
      expire at such time as such Holder can sell all of such Holder’s remaining
      Registrable Securities under Rule 144 (as defined below) without volume or
      other
      restrictions or limit. Anything to the contrary notwithstanding, a registration
      statement covering the Registrable Securities shall be filed no later than
      June
      30, 2007.

    
      
         

      

      
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          15

        
          

        

      

      
         

      

    

    (ii) The
      parties acknowledge that the damages which may be incurred by the Holder if
      the
      Company does not fulfill its obligations under subparagraph (i) above, which
      will affect the Holder’s ability to sell the shares, may be difficult to
      ascertain. If either (A) the Company fails to give the Purchaser the notice
      referred to in the immediately preceding subparagraph (i) which results in
      any
      of the Holder’s shares not being included in the Subsequent Registration
      Statement or (B) after giving such notice, the Company fails to include all
      of
      the Holder’s shares (to the extent requested by the Holder) in the Subsequent
      Registration Statement or (C) the Company fails to file a registration statement
      covering the Registrable Securities on or before June 30, 2007, then the Company
      will make payment to the Purchaser, for each Computation Period (as defined
      below) an amount equal to 2% of the aggregate principal amount of the Note
      then
      outstanding (the “Periodic Amount”) provided however, that no event shall the
      aggregate liquidated damages exceed 18% of the principal amount. The term
“Computation Period” means each thirty (30) day period commencing on the
      effective date of the Subsequent Registration Statement and ending on the date
      on which there are one or more effective registration statements covering the
      Purchaser’s sale of all of the Holder’s shares. The Periodic Amount shall be due
      without further demand or notice from the Purchaser. The parties agree that
      the
      amounts payable pursuant to the foregoing provisions of this Section 4(g)
      represent a reasonable estimate on the part of the parties, as of the date
      of
      this Agreement, of the amount of such damages.

    

    (iii) With
      a
      view to making available to the Holder the benefits of Rule 144 promulgated
      under the 1933 Act or any other similar rule or regulation of the SEC that
      may
      at any time permit Holder to sell securities of the Company to the public
      without registration (collectively, “Rule 144”), the Company agrees
      to:

    

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

    

    (b) file
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the 1933 Act and the 1934 Act; and

    

    (c) furnish
      to the Holder so long as such party owns Registrable Securities, promptly upon
      request, (i) a written statement by the Company that it has complied with the
      reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) if
      not
      available on the SEC’s EDGAR system, a copy of the most recent annual or
      quarterly report of the Company and such other reports and documents so filed
      by
      the Company and (iii) such other information as may be reasonably requested
      to
      permit the Holder to sell such securities pursuant to Rule 144 without
      registration; and

    
      
         

      

      
        Page
          16

        
          

        

      

      
         

      

    

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

    

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

    

    (ii)
      an
      opinion of counsel acceptable to the Company that, based on the Rule 144
      Certificate, Securities Being Sold may be sold pursuant to the provisions of
      Rule 144, even in the absence of an effective registration statement,

    

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

    

    (iv) Notwithstanding
      the foregoing, if at any time or from time to time after the date of
      effectiveness of the registration statement, the Company notifies the Holder
      in
      writing of the existence of a Potential Material Event (as defined below),
      the
      Holder shall not offer or sell any Registrable Securities, or engage in any
      other transaction involving or relating to the Registrable Securities, from
      the
      time of the giving of notice with respect to a Potential Material Event until
      the Holder receives written notice from the Company that such Potential Material
      Event either has been disclosed to the public or no longer constitutes a
      Potential Material Event; provided, however,
      that the
      Company may not so suspend such right other than during a Permitted Suspension
      Period. The term “Potential Material Event” means any of the following: (i) the
      possession by the Company of material information not ripe for disclosure in
      a
      registration statement, which shall be evidenced by determinations in good
      faith
      by the Board of Directors of the Company that disclosure of such information
      in
      the registration statement would be detrimental to the business and affairs
      of
      the Company; or (ii) any material engagement or activity by the Company which
      would, in the good faith determination of the Board of Directors of the Company,
      be adversely affected by disclosure in a registration statement at such time,
      which determination shall be accompanied by a good faith determination by the
      Board of Directors of the Company that the registration statement would be
      materially misleading absent the inclusion of such information.

    
      
         

      

      
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          17

        
          

        

      

      
         

      

    

    h. Publicity,
      Filings, Releases, Etc.
      Each of
      the parties agrees that it will not disseminate any information relating to
      the
      Transaction Agreements or the transactions contemplated thereby, including
      issuing any press releases, holding any press conferences or other forums,
      or
      filing any reports (collectively, “Publicity”), without giving the other party
      reasonable advance notice and an opportunity to comment on the contents thereof.
      Neither party will include in any such Publicity any statement or statements
      or
      other material to which the other party reasonably objects, unless in the
      reasonable opinion of counsel to the party proposing such statement, such
      statement is legally required to be included. In furtherance of the foregoing,
      the Company will provide to the Purchaser drafts of the applicable text of
      the
      first filing of a Current Report on Form 8-K or a Quarterly or Annual Report
      on
      Form 10-Q or 10-K intended to be made with the SEC which refers to the
      Transaction Agreements or the transactions contemplated thereby as soon as
      practicable (but at least two (2) Trading Days before such filing will be made)
      will not include in such filing any statement or statements or other material
      to
      which the other party reasonably objects, unless in the reasonable opinion
      of
      counsel to the party proposing such statement, such statement is legally
      required to be included. Notwithstanding the foregoing, each of the parties
      hereby consents to the inclusion of the text of the Transaction Agreements
      in
      filings made with the SEC as well as any descriptive text accompanying or part
      of such filing which is accurate and reasonably determined by the Company’s
      counsel to be legally required. Notwithstanding, but subject to, the foregoing
      provisions of this Section 4(i), the Company will, after the Closing Date,
      promptly file a Current Report on Form 8-K or, if appropriate, a quarterly
      or
      annual report on the appropriate form, referring to the transactions
      contemplated by the Transaction Agreements.

    

    5. TRANSFER
      AGENT INSTRUCTIONS.

    

    a. The
      Company warrants that, with respect to the Securities, other than the stop
      transfer instructions to give effect to Section 4(a) hereof, it will give its
      transfer agent no instructions inconsistent with instructions to issue Common
      Stock to the Holder as contemplated in the Transaction Agreements. Except as
      so
      provided, the Shares shall otherwise be freely transferable on the books and
      records of the Company as and to the extent provided in this Agreement and
      the
      other Transaction Agreements. Nothing in this Section shall affect in any way
      the Purchaser's obligations and agreement to comply with all applicable
      securities laws upon resale of the Securities. If the Purchaser provides the
      Company with an opinion of counsel reasonably satisfactory to the Company that
      registration of a resale by the Purchaser of any of the Securities in accordance
      with clause (1)(B) of Section 4(a) of this Agreement is not required under
      the
      1933 Act, the Company shall (except as provided in clause (2) of Section 4(a)
      of
      this Agreement) permit the transfer or reissue of the Shares represented by
      one
      or more certificates for Common Stock without legend (or where applicable,
      by
      electronic registration) in such name and in such denominations as specified
      by
      the Purchaser.

    

    

    b. The
      Company will authorize the Transfer Agent to give information relating to the
      Company directly to the Holder or the Holder’s representatives upon the request
      of the Holder or any such representative, to the extent such information relates
      to (i) the status of shares of Common Stock issued or claimed to be issued
      to
      the Holder in connection with a Notice of Exercise or transfer of Pledged Shares
      to the Holder, or (ii) the aggregate number of outstanding shares of Common
      Stock of all shareholders (as a group, and not individually) as of a current
      or
      other specified date. At the request of the Holder, the Company will provide
      the
      Holder with a copy of the authorization so given to the Transfer
      Agent.

    
      
         

      

      
        Page
          18

        
          

        

      

      
         

      

    

    6. CLOSING
      DATE.

    

    a.
       The
      Closing Date shall occur on the date which is the first Trading Day after each
      of the conditions contemplated by Sections 7 and 8 hereof shall have either
      been
      satisfied or been waived by the party in whose favor such conditions
      run.

    

    b. The
      closing of the Transactions shall occur on the Closing Date at the offices
      of
      the Purchaser and shall take place no later than 3:00 P.M., New York time,
      on
      such day or such other time as is mutually agreed upon by the Company and the
      Purchaser.

    

    7. CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL.

    

    The
      Purchaser understands that the Company's obligation to sell the Note, or any
      shares being issued in connection with this Agreement or any other agreement
      entered into by the parties hereto, in the event such shares are issued to
      the
      Purchaser pursuant to this Agreement on the Closing Date is conditioned
      upon:

    

    a. The
      execution and delivery of this Agreement by the Purchaser;

    

    b. Delivery
      by the Purchaser to the Company of good funds as payment in full of an amount
      equal to the Purchase Amount in accordance with this Agreement;

    

    c. The
      accuracy on such Closing Date of the representations and warranties of the
      Purchaser contained in this Agreement, each as if made on such date, and the
      performance by the Purchaser on or before such date of all covenants and
      agreements of the Purchaser required to be performed on or before such date;
      and

    

    d. There
      shall not be in effect any law, rule or regulation prohibiting or restricting
      the transactions contemplated hereby, or requiring any consent or approval
      which
      shall not have been obtained.

    

    8. CONDITIONS
      TO THE PURCHASER'S OBLIGATION TO PURCHASE.

    

    The
      Company understands that the Purchaser's obligation to purchase the Note and
      the
      Issued Shares on the Closing Date is conditioned upon:

    

    a. The
      execution and delivery of this Agreement and the other Transaction Agreements
      by
      the Company;

    

      
        
           

        

        
          Page
            19

          
            

          

        

        
           

        

      

    

    

    b. Delivery
      by the Company to the Purchaser of the Certificates in accordance with this
      Agreement or any other agreements between the parties;

    c. The
      execution and delivery of the Pledge Agreements by the Pledgors; 

    

    e. The
      execution and delivery of the Warrant;

     

    f. The
      reimbursement of the Transaction Fees.

    

    g. Delivery
      by the Company up-to-date audited financials.

    

    h. The
      accuracy in all material respects on the Closing Date of the representations
      and
      warranties of the Company contained in this Agreement, each as if made on such
      date, and the performance by the Company on or before such date of all covenants
      and agreements of the Company required to be performed on or before such date;
      

    

    k. The
      Company’s financial statements and public filings must be
      up-to-date.

    

    l. There
      shall not be in effect any law, rule or regulation prohibiting or restricting
      the transactions contemplated hereby, or requiring any consent or approval
      which
      shall not have been obtained; and

    

    m. From
      and
      after the date hereof to and including the Closing Date, each of the following
      conditions will remain in effect: (i) the trading of the Common Stock shall
      not
      have been suspended by the SEC or on the Principal Trading Market; (ii) trading
      in securities generally on the Principal Trading Market shall not have been
      suspended or limited; (iii) no minimum prices shall been established for
      securities traded on the Principal Trading Market; and (iv) there shall not
      have
      been any material adverse change in any financial market.

    

    9. INDEMNIFICATION
      AND REIMBURSEMENT.

    

    a.
       (i)
      The
      Company agrees to indemnify and hold harmless the Purchaser and its officers,
      directors, employees, and agents, and each Purchaser Control Person from and
      against any losses, claims, damages, liabilities or expenses incurred
      (collectively, “Damages”), joint or several, and any action in respect thereof
      to which the Purchaser, its partners, Affiliates, officers, directors,
      employees, and duly authorized agents, and any such Purchaser Control Person
      becomes subject to, resulting from, arising out of or relating to any
      misrepresentation, breach of warranty or nonfulfillment of or failure to perform
      any covenant or agreement on the part of Company contained in this Agreement,
      as
      such Damages are incurred, except to the extent such Damages result primarily
      from Purchaser's failure to perform any covenant or agreement contained in
      this
      Agreement or the Purchaser's or its officer’s, director’s, employee’s, agent’s
      or Purchaser Control Person’s gross negligence, recklessness or bad faith in
      performing its obligations under this Agreement.

    
      
         

      

      
        Page
          20

        
          

        

      

      
         

      

    

    (ii) The
      Company hereby agrees that, if the Purchaser, other than by reason of its gross
      negligence, illegal or willful misconduct (in each case, as determined by a
      non-appealable judgment to such effect), (x) becomes involved in any capacity
      in
      any action, proceeding or investigation brought by any shareholder of the
      Company, in connection with or as a result of the consummation of the
      transactions contemplated by this Agreement or the other Transaction Agreements,
      or if the Purchaser is impleaded in any such action, proceeding or investigation
      by any Person, or (y) becomes involved in any capacity in any action, proceeding
      or investigation brought by the SEC, any self-regulatory organization or other
      body having jurisdiction, against or involving the Company or in connection
      with
      or as a result of the consummation of the transactions contemplated by this
      Agreement or the other Transaction Agreements, or (z) is impleaded in any such
      action, proceeding or investigation by any Person, then in any such case, the
      Company shall indemnify, defend and hold harmless the Purchaser from and against
      and in respect of all losses, claims, liabilities, damages or expenses resulting
      from, imposed upon or incurred by the Purchaser, directly or indirectly, and
      reimburse such Purchaser for its reasonable legal and other expenses (including
      the cost of any investigation and preparation) incurred in connection therewith,
      as such expenses are incurred. The indemnification and reimbursement obligations
      of the Company under this paragraph shall be in addition to any liability which
      the Company may otherwise have, shall extend upon the same terms and conditions
      to any Affiliates of the Purchaser who are actually named in such action,
      proceeding or investigation, and partners, directors, agents, employees and
      Purchaser Control Persons (if any), as the case may be, of the Purchaser and
      any
      such Affiliate, and shall be binding upon and inure to the benefit of any
      successors, assigns, heirs and personal representatives of the Company, the
      Purchaser, any such Affiliate and any such Person. The Company also agrees
      that
      neither the Purchaser nor any such Affiliate, partner, director, agent, employee
      or Purchaser Control Person shall have any liability to the Company or any
      Person asserting claims on behalf of or in right of the Company in connection
      with or as a result of the consummation of this Agreement or the other
      Transaction Agreements, except as may be expressly and specifically provided
      in
      or contemplated by this Agreement.

    

    b. All
      claims for indemnification by any Indemnified Party (as defined below) under
      this Section shall be asserted and resolved as follows:

    

    (i) 
      In the
      event any claim or demand in respect of which any Person claiming
      indemnification under any provision of this Section (an “Indemnified Party”)
      might seek indemnity under paragraph (a) of this Section is asserted against
      or
      sought to be collected from such Indemnified Party by a Person other than a
      party hereto or an Affiliate thereof (a “Third Party Claim”), the Indemnified
      Party shall deliver a written notification, enclosing a copy of all papers
      served, if any, and specifying the nature of and basis for such Third Party
      Claim and for the Indemnified Party's claim for indemnification that is being
      asserted under any provision of this Section against any Person (the
“Indemnifying Party”), together with the amount or, if not then reasonably
      ascertainable, the estimated amount, determined in good faith, of such Third
      Party Claim (a “Claim Notice”) with reasonable promptness to the Indemnifying
      Party. If the Indemnified Party fails to provide the Claim Notice with
      reasonable promptness after the Indemnified Party receives notice of such Third
      Party Claim, the Indemnifying Party shall not be obligated to indemnify the
      Indemnified Party with respect to such Third Party Claim to the extent that
      the
      Indemnifying Party's ability to defend has been prejudiced by such failure
      of
      the Indemnified Party. The Indemnifying Party shall notify the Indemnified
      Party
      as soon as practicable within the period ending thirty (30) calendar days
      following receipt by the Indemnifying Party of either a Claim Notice or an
      Indemnity Notice (as defined below) (the “Dispute Period”) whether the
      Indemnifying Party disputes its liability or the amount of its liability to
      the
      Indemnified Party under this Section and whether the Indemnifying Party desires,
      at its sole cost and expense, to defend the Indemnified Party against such
      Third
      Party Claim. The following provisions shall also apply.

    
      
         

      

      
        Page
          21

        
          

        

      

      
         

      

    

    (x)
      If
      the Indemnifying Party notifies the Indemnified Party within the Dispute Period
      that the Indemnifying Party desires to defend the Indemnified Party with respect
      to the Third Party Claim pursuant to this paragraph (b) of this Section, then
      the Indemnifying Party shall have the right to defend, with counsel reasonably
      satisfactory to the Indemnified Party, at the sole cost and expense of the
      Indemnifying Party, such Third Party Claim by all appropriate proceedings,
      which
      proceedings shall be vigorously and diligently prosecuted by the Indemnifying
      Party to a final conclusion or will be settled at the discretion of the
      Indemnifying Party (but only with the consent of the Indemnified Party in the
      case of any settlement that provides for any relief other than the payment
      of
      monetary damages or that provides for the payment of monetary damages as to
      which the Indemnified Party shall not be indemnified in full pursuant to
      paragraph (a) of this Section). The Indemnifying Party shall have full control
      of such defense and proceedings, including any compromise or settlement thereof;
      provided, however, that the Indemnified Party may, at the sole cost and expense
      of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
      of the notice referred to in the first sentence of this subparagraph (x), file
      any motion, answer or other pleadings or take any other action that the
      Indemnified Party reasonably believes to be necessary or appropriate protect
      its
      interests; and provided further, that if requested by the Indemnifying Party,
      the Indemnified Party will, at the sole cost and expense of the Indemnifying
      Party, provide reasonable cooperation to the Indemnifying Party in contesting
      any Third Party Claim that the Indemnifying Party elects to contest. The
      Indemnified Party may participate in, but not control, any defense or settlement
      of any Third Party Claim controlled by the Indemnifying Party pursuant to this
      subparagraph (x), and except as provided in the preceding sentence, the
      Indemnified Party shall bear its own costs and expenses with respect to such
      participation. Notwithstanding the foregoing, the Indemnified Party may take
      over the control of the defense or settlement of a Third Party Claim at any
      time
      if it irrevocably waives its right to indemnity under paragraph (a) of this
      Section with respect to such Third Party Claim. 

    

    (y)
      If
      the Indemnifying Party fails to notify the Indemnified Party within the Dispute
      Period that the Indemnifying Party desires to defend the Third Party Claim
      pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives
      such notice but fails to prosecute vigorously and diligently or settle the
      Third
      Party Claim, or if the Indemnifying Party fails to give any notice whatsoever
      within the Dispute Period, then the Indemnified Party shall have the right
      to
      defend, at the sole cost and expense of the Indemnifying Party, the Third Party
      Claim by all appropriate proceedings, which proceedings shall be prosecuted
      by
      the Indemnified Party in a reasonable manner and in good faith or will be
      settled at the discretion of the Indemnified Party (with the consent of the
      Indemnifying Party, which consent will not be unreasonably withheld). The
      Indemnified Party will have full control of such defense and proceedings,
      including any compromise or settlement thereof; provided, however, that if
      requested by the Indemnified Party, the Indemnifying Party will, at the sole
      cost and expense of the Indemnifying Party, provide reasonable cooperation
      to
      the Indemnified Party and its counsel in contesting any Third Party Claim which
      the Indemnified Party is contesting. Notwithstanding the foregoing provisions
      of
      this subparagraph (y), if the Indemnifying Party has notified the Indemnified
      Party within the Dispute Period that the Indemnifying Party disputes its
      liability or the amount of its liability hereunder to the Indemnified Party
      with
      respect to such Third Party Claim and if such dispute is resolved in favor
      of
      the Indemnifying Party in the manner provided in subparagraph(z) below, the
      Indemnifying Party will not be required to bear the costs and expenses of the
      Indemnified Party's defense pursuant to this subparagraph (y) or of the
      Indemnifying Party's participation therein at the Indemnified Party's request,
      and the Indemnified Party shall reimburse the Indemnifying Party in full for
      all
      reasonable costs and expenses incurred by the Indemnifying Party in connection
      with such litigation. The Indemnifying Party may participate in, but not
      control, any defense or settlement controlled by the Indemnified Party pursuant
      to this subparagraph (y), and the Indemnifying Party shall bear its own costs
      and expenses with respect to such participation. 

    
      
         

      

      
        Page
          22

        
          

        

      

      
         

      

    

    (z)
      If
      the Indemnifying Party notifies the Indemnified Party that it does not dispute
      its liability or the amount of its liability to the Indemnified Party with
      respect to the Third Party Claim under paragraph (a) of this Section or fails
      to
      notify the Indemnified Party within the Dispute Period whether the Indemnifying
      Party disputes its liability or the amount of its liability to the Indemnified
      Party with respect to such Third Party Claim, the amount of Damages specified
      in
      the Claim Notice shall be conclusively deemed a liability of the Indemnifying
      Party under paragraph (a) of this Section and the Indemnifying Party shall
      pay
      the amount of such Damages to the Indemnified Party on demand. If the
      Indemnifying Party has timely disputed its liability or the amount of its
      liability with respect to such claim, the Indemnifying Party and the Indemnified
      Party shall proceed in good faith to negotiate a resolution of such dispute;
      provided, however, that if the dispute is not resolved within thirty (30) days
      after the Claim Notice, the Indemnifying Party shall be entitled to institute
      such legal action as it deems appropriate. 

    

    (ii) In
      the
      event any Indemnified Party should have a claim under paragraph (a) of this
      Section against the Indemnifying Party that does not involve a Third Party
      Claim, the Indemnified Party shall deliver a written notification of a claim
      for
      indemnity under paragraph (a) of this Section specifying the nature of and
      basis
      for such claim, together with the amount or, if not then reasonably
      ascertainable, the estimated amount, determined in good faith, of such claim
      (an
      "Indemnity Notice") with reasonable promptness to the Indemnifying Party. The
      failure by any Indemnified Party to give the Indemnity Notice shall not impair
      such party's rights hereunder except to the extent that the Indemnifying Party
      demonstrates that it has been irreparably prejudiced thereby. If the
      Indemnifying Party notifies the Indemnified Party that it does not dispute
      the
      claim or the amount of the claim described in such Indemnity Notice or fails
      to
      notify the Indemnified Party within the Dispute Period whether the Indemnifying
      Party disputes the claim or the amount of the claim described in such Indemnity
      Notice, the amount of Damages specified in the Indemnity Notice will be
      conclusively deemed a liability of the Indemnifying Party under paragraph (a)
      of
      this Section and the Indemnifying Party shall pay the amount of such Damages
      to
      the Indemnified Party on demand. If the Indemnifying Party has timely disputed
      its liability or the amount of its liability with respect to such claim, the
      Indemnifying Party and the Indemnified Party shall proceed in good faith to
      negotiate a resolution of such dispute; provided, however, that it the dispute
      is not resolved within thirty (30) days after the Claim Notice, the Indemnifying
      Party shall be entitled to institute such legal action as it deems
      appropriate.

    
      
         

      

      
        Page
          23

        
          

        

      

      
         

      

    

    c. The
      indemnity agreements contained herein shall be in addition to (i) any cause
      of
      action or similar rights of the indemnified party against the indemnifying
      party
      or others, and (ii) any liabilities the indemnifying party may be subject
      to.

    

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

    

    11. GOVERNING
      LAW: MISCELLANEOUS.

    

    a. (i)
      This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New York for contracts to be wholly performed in such state and
      without giving effect to the principles thereof regarding the conflict of laws.
      Each of the parties consents to the exclusive jurisdiction of the federal courts
      whose districts encompass any part of the County of New York or the state courts
      of the State of New York sitting in the County of New York in connection with
      any dispute arising under this Agreement or any of the other Transaction
      Agreements and hereby waives, to the maximum extent permitted by law, any
      objection, including any objection based on
      forum non conveniens,
      to the
      bringing of any such proceeding in such jurisdictions or to any claim that
      such
      venue of the suit, action or proceeding is improper. To the extent determined
      by
      such court, the Company shall reimburse the Purchaser for any reasonable legal
      fees and disbursements incurred by the Purchaser in enforcement of or protection
      of any of its rights under any of the Transaction Agreements. Nothing in this
      Section shall affect or limit any right to serve process in any other manner
      permitted by law.

    

    (ii)
      The
      Company and the Purchaser acknowledge and agree that irreparable damage would
      occur in the event that any of the provisions of this Agreement or the other
      Transaction Agreements were not performed in accordance with their specific
      terms or were otherwise breached. It is accordingly agreed that the parties
      shall be entitled to an injunction or injunctions to prevent or cure breaches
      of
      the provisions of this Agreement and the other Transaction Agreements and to
      enforce specifically the terms and provisions hereof and thereof, this being
      in
      addition to any other remedy to which any of them may be entitled by law or
      equity.

    

    b. Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.

    
      
         

      

      
        Page
          24

        
          

        

      

      
         

      

    

    c. This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      assigns of each of the parties hereto.

    

    d. All
      pronouns and any variations thereof refer to the masculine, feminine or neuter,
      singular or plural, as the context may require.

    

    e. A
      facsimile transmission of this signed Agreement shall be legal and binding
      on
      all parties hereto. 

    

    f. This
      Agreement may be signed in one or more counterparts, each of which shall be
      deemed an original. 

    

    g. The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement. 

    

    h. If
      any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement or the validity or
      enforceability of this Agreement in any other jurisdiction. 

    

    i. This
      Agreement may be amended only by an instrument in writing signed by the party
      to
      be charged with enforcement thereof. 

    

    j. This
      Agreement supersedes all prior agreements and understandings among the parties
      hereto with respect to the subject matter hereof.

    

    12. Agent

     

    (a)
      Authorization
      of Action.
      Each
      Purchaser hereby appoints and authorizes CAMOFI Master LDC (the “Agent”) to be
      its agent in its name and on its behalf and to exercise such rights or powers
      granted to the Agent or the Purchasers (i) under the Transaction Documents
      to
      the extent specifically provided therein and on the terms thereof, together
      with
      such rights, powers and discretions as are reasonably incidental thereto. As
      to
      any matters not expressly provided for by the Transaction Documents, the Agent
      shall not be required to exercise any discretion or take any action, but shall
      be required to act or to refrain from acting (and shall be fully protected
      in so
      acting or refraining from acting) upon the instructions of the Purchasers,
      and
      any action so taken or not so taken by the Agent shall be binding upon all
      Purchasers; provided, however, that the Agent shall not be required to take
      any
      action which exposes the Agent to liability in such capacity, which could result
      in the Agent incurring any costs and expenses or which is contrary to this
      Agreement or applicable law.

     

    (b)
      Indemnification.
      Each
      Purchaser hereby agrees to indemnify and hold harmless the Agent from and
      against any and all liabilities, obligations, damages, penalties, actions,
      judgments, suits, costs, expenses or disbursements of any kind or nature
      whatsoever which may be imposed on, incurred by, or asserted against the Agent
      (in its capacity as agent for the Purchasers) in any way relating to or arising
      out of the Transaction Documents or any action taken or admitted by the Agent
      under or in respect of the Transaction Documents; provided that no Purchaser
      shall be liable for any portion of such liabilities, obligations, damages,
      penalties, actions, judgments, suits, costs, expenses or disbursements resulting
      from the Agent’s gross negligence or willful misconduct. Without limiting the
      generality of the foregoing, each Purchaser agrees to reimburse the Agent
      promptly upon demand on a pro rata basis in accordance with the then outstanding
      indebtedness, liabilities and obligations owing to such Purchaser by the Company
      in respect of any out-of-pocket expenses (including counsel fees) incurred
      by
      the Agent in connection with the preservation of any rights of the Agent or
      the
      Purchasers under, the enforcement of, or legal advice in respect of the rights
      or responsibilities under, the Transaction Documents, to the extent that the
      Agent is not reimbursed for such expenses by the Company or its
      Subsidiaries.

    
      
         

      

      
        Page
          25

        
          

        

      

      
         

      

    

    (c)
      Successor
      Agent.
      The
      Agent may, as hereinafter provided, resign at any time by giving not less than
      30 days’ written notice thereof to the Purchasers and the Company. Upon any such
      resignation, the Purchasers shall have the right to appoint a successor Agent
      (the “Successor Agent”), which shall be a Purchaser and which shall be
      acceptable to the Company, acting reasonably. Upon the acceptance of any
      appointment as Agent hereunder by a Successor Agent, such Successor Agent shall
      thereupon succeed to and become vested with all the rights, powers, privileges
      and duties of the retiring Agent and the retiring Agent shall thereupon be
      discharged from its further duties and obligations as Agent under the
      Transaction Documents. After any retiring Agent’s resignation hereunder as
      Agent, the provisions of this Section 5.19 shall continue to inure to its
      benefit as to any actions taken or omitted to be taken by it while it was Agent
      under the Transaction Documents. Absent such a resignation by the Agent, the
      Agent’s appointment shall continue until revoked in writing by Purchasers
      holding 75% of the outstanding principal amount of the Notes, at which time
      such
      Purchasers shall appoint a new Agent.

     

    (d)
      Taking
      and Enforcement of Remedies.

     

    (1) Each
      of
      the Purchasers hereby acknowledges that, to the extent permitted by applicable
      law, the remedies provided under the Transaction Documents to the Purchasers
      are
      for the benefit of the Purchasers collectively and acting together and not
      severally and further acknowledges that its rights under the Transaction
      Documents are to be exercised not severally, but collectively by the Agent
      upon
      the decision of the Purchasers; accordingly, notwithstanding any of the
      provisions contained in any of the Transaction Documents, each of the Purchasers
      hereby covenants and agrees that it shall not be entitled to take any action
      with respect to the Transaction Documents, including, without limitation, any
      acceleration of the indebtedness, liabilities or obligations of the Company
      or
      any of its Subsidiaries, but that any such action shall be taken only by the
      Agent with the prior written agreement of the Purchasers, provided that,
      notwithstanding the foregoing:

     

    (2) in
      the
      absence of instructions from the Purchasers and where in the sole opinion of
      the
      Agent the exigencies of the situation warrant such action, the Agent may without
      notice to or consent of the Purchasers take such action on behalf of the
      Purchasers as it deems appropriate or desirable in the interest of the
      Purchasers; and

     

    (3) the
      commencement of litigation before any court shall be made in the name of each
      Purchaser individually unless the laws of the jurisdiction of such court permit
      such litigation to be commenced in the name of the Agent on behalf of the
      Purchasers (whether pursuant to a specific power of attorney in favor of the
      Agent or otherwise) and the Agent agrees to commence such litigation in its
      name; provided, however, that no litigation shall be commenced in the name
      of
      any Purchaser without the prior written consent of such
      Purchaser;

    
      
         

      

      
        Page
          26

        
          

        

      

      
         

      

    

    (4) each
      of
      the Purchasers hereby further covenants and agrees that upon any such written
      consent being given by the Purchasers, they shall co-operate fully with the
      Agent to the extent requested by the Agent in the collective realization,
      including, without limitation, the appointment of a receiver and manager to
      act
      for their collective benefit; and each Purchaser covenants and agrees to do
      all
      acts and things to make, execute and deliver all agreements and other
      instruments, including, without limitation, any instruments necessary to effect
      any registrations, so as to fully carry out the intent and purpose of this
      Section 5.19; and each of the Purchasers hereby covenants and agrees that it
      has
      not heretofore and shall not seek, take, accept or receive any security for
      any
      of the obligations and liabilities of the Company under the Transaction
      Documents or under any other document, instrument, writing or agreement
      ancillary thereto other than such security as is provided hereunder and shall
      not enter into any agreement with the Company or any of its Subsidiaries
      relating in any manner whatsoever to the transactions contemplated hereunder,
      unless all of the Purchasers shall at the same time obtain the benefit of any
      such security or agreement, as the case may be.

     

    (5) Notwithstanding
      any other provision contained in the Transaction Documents, no Purchaser shall
      be required to be joined as a party to any litigation commenced against the
      Company or any of its Subsidiaries by the Agent under the Transaction Documents
      (unless otherwise required by any court of competent jurisdiction) if it elects
      not to be so joined in which event any such litigation shall not include claims
      in respect of the rights of such Purchaser against the Company or any of its
      Subsidiaries under the Transaction Documents until such time as such Purchaser
      does elect to be so joined; provided that if at the time of such subsequent
      election it is not possible or practicable for such Purchaser to be so joined,
      then such Purchaser may commence proceedings in its own name in respect of
      its
      rights against the Company or any of its Subsidiaries.

    

    13. NOTICES.
      Any
      notice required or permitted hereunder shall be given in writing (unless
      otherwise specified herein) and shall be deemed effectively given on the
      earliest of 

    

    (a)
      the
      date delivered, if delivered by personal delivery as against written receipt
      therefor or by confirmed facsimile transmission,

    

    (b)
      the
      fifth Trading Day after deposit, postage prepaid, in the United States Postal
      Service by registered or certified mail, or 

    

    (c)
      the
      third Trading Day after mailing by domestic or international express courier,
      with delivery costs and fees prepaid, 

    

    in
      each
      case, addressed to each of the other parties thereunto entitled at the following
      addresses (or at such other addresses as such party may designate by ten (10)
      days’ advance written notice similarly given to each of the other parties
      hereto):

    
      
         

      

      
        Page
          27

        
          

        

      

      
         

      

    

    

    
      	COMPANY:	At the address set forth
              at the
              head of this Agreement
	 	
              Attn:
                Paul Abramowitz

              Telephone
                No.: 425.424.3324

              Telecopier
                No.: 425.483.8454

            	 
	 	 	 
	PURCHASER:	CAMOFI MASTER LDC	 
	 	
              c/o
                Centrecourt Asset Management LLC

              350
                Madison Avenue, 8th
                Floor

              New
                York, NY 10017

              Attention:
                Keith D. Wellner, Esq.

            	 

    

      

    14. SURVIVAL
      OF REPRESENTATIONS AND WARRANTIES.
      The
      Company’s and the Purchaser’s representations and warranties herein shall
      survive the execution and delivery of this Agreement and the delivery of the
      Certificates and the payment of the Purchase Amount, and shall inure to the
      benefit of the Purchaser and the Company and their respective successors and
      assigns.

    

    IN
      WITNESS WHEREOF,
      this
      Agreement has been duly executed by the Purchaser and the Company as of the
      date
      set first above written.

    

    

    
      	 	 	 
	 	CAMOFI
              MASTER LDC
	 
 	 
 	 
 
	 	By:  	 
	 	Name:  	
              

            
	 	Title:	 

    

    

     

    By:
      _________________________________

    (Signature
      of Authorized Person)

    

    _____________________________________

    Printed
      Name and Title

    
      
         

      

      
        Page
          28

        
          

        

      

      
         

      

    

    

    
      	ANNEX I	 	FORM OF NOTE
	 	 	 
	ANNEX II	 	INTENTIONALLY LEFT BLANK
	 	 	 
	ANNEX III	 	INTENTIONALLY LEFT BLANK
	 	 	 
	ANNEX IV	 	INTENTIONALLY LEFT BLANK
	 	 	 
	ANNEX V	 	COMPANY DISCLOSURE MATERIALS
	 	 	 
	ANNEX VI	 	PLEDGE AGREEMENTS
	 	 	 
	ANNEX VII	 	WARRANT
	 	 	 
	ANNEX VIII	 	INTENTIONALLY LEFT
              BLANK

    

      

    
      
         

      

      
        Page
          29FORM
      OF NOTE

    

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

    

    US
      $350,000 

    

    ________________________________________
      

    

    12%
      SECURED PROMISSORY NOTE DUE SEPTEMBER 27, 2007

    

    FOR
      VALUE
      RECEIVED, Neah Power Systems, Inc., a corporation organized and existing under
      the laws of the State of Nevada (the “Company”), promises to pay to CAMOFI
      MASTER LDC,
      the
      registered holder hereof (the “Holder”), the principal sum of Three Hundred and
      Fifty Thousand and 00/100 Dollars (US $350,000) on
      the
      Maturity Date (as defined below) and to pay interest on the principal sum
      outstanding from time to time in arrears at the rate of 12% per annum (computed
      on the basis of the actual number of days elapsed and a year of 360 days and
      compounded monthly), accruing from March 27, 2007, the date of initial issuance
      of this Note (the “Issue Date”), to the date of payment. Such interest shall be
      payable on the date which is the earlier of (i) the Maturity Date, or (ii)
      the
      date of any prepayment of principal permitted hereunder; except that interest
      for month in advance shall be paid on the Issue Date. Accrual of interest shall
      commence on the Issue Date and shall continue to accrue on a daily basis until
      payment in full of the principal sum has been made or duly provided for (whether
      before or after the Maturity Date). 

    

    This
      Note
      is being issued pursuant to the terms of the Purchase Agreement, dated as of
      March 27, 2007 (the “Purchase Agreement”), to which the Company and the Holder
      (or the Holder’s predecessor in interest) are parties. Capitalized terms not
      otherwise defined herein shall have the meanings ascribed to them in the
      Purchase Agreement.

    

    This
      Note
      is subject to the following additional provisions:

    

    1. The
      term
“Maturity Date” means the earlier of (x) September 27, 2007 or (y) the date on
      which the Company consummates an equity financing or funding transaction in
      excess of $2,000,000 (a “Qualified Financing”), whether or not such transaction
      is effected in connection with the current or future issuance of securities.
      

    

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

    
      
         

      

      
        Page
          1

        
          

        

      

      
         

      

    

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

    

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

    

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

    

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

    

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

    

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

    

    7.  Conversion.

     

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

    
      
         

      

      
        Page
          2

        
          

        

      

      
         

      

    

    b) Conversion
      Price.
      Subject
      to adjustment as provided for in Section 8, the
      initial conversion price in effect on any Conversion Date shall be
      $0.954.

    

    c) Reserved.
      

    

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

    
      
         

      

      
        Page
          3

        
          

        

      

      
         

      

    

    e) Mechanics
      of Conversion

     

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

    

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

     

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

     

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

    
      
         

      

      
        Page
          4

        
          

        

      

      
         

      

    

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

     

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

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

    

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

    

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

     

    
      
         

      

      
        Page
          5

        
          

        

      

      
         

      

    

     

    8. Certain
      Adjustments.

     

    a) Stock
      Dividends and Stock Splits.
      If the
      Company, at any time while the Notes are outstanding: (A) shall pay a stock
      dividend or otherwise make a distribution or distributions on shares of its
      Common Stock or any other equity or equity equivalent securities payable in
      shares of Common Stock (which, for avoidance of doubt, shall not include any
      shares of Common Stock issued by the Company pursuant to this Note, including
      as
      interest thereon), (B) subdivide outstanding shares of Common Stock into a
      larger number of shares, (C) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (D)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Company, then the Conversion Price shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      treasury shares, if any) outstanding before such event and of which the
      denominator shall be the number of shares of Common Stock outstanding after
      such
      event. Any adjustment made pursuant to this Section shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution and shall become effective immediately
      after the effective date in the case of a subdivision, combination or
      re-classification.

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

     

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

    

    d) Notice
      to Holders.

    

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

     

    
      
         

      

      
        Page
          6

        
          

        

      

      
         

      

    

     

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

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

    
      
         

      

      
        Page
          7

        
          

        

      

      
         

      

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      	 	
              a.

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

            

    

    

    
      	 	
              b.

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

            

    

    

    
      	 	
              c.

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

            

    

     

    
      
         

      

      
        Page
          8

        
          

        

      

      
         

      

    

     

    
      	 	
              d.

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

            

    

    

    
      	 	
              e.

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

            

    

    
      	 	
              f.

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

            

    

    

    
      	 	
              g.

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

            

    

    

    
      	 	
              h.

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

            

    

    
      	 	
              i.

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

            

    

     

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

    

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

     

    
      
         

      

      
        Page
          9

        
          

        

      

      
         

      

    

    

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

    IN
      WITNESS WHEREOF, the Company has caused this instrument to be duly executed
      by
      an officer thereunto duly authorized this 27th
      day of
      March, 2007.

     

    
      	 	 	 
	 	NEAH
              POWER
              SYSTEMS, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	Name:   	
              
 
	 	Title: 	 

    
      
         

      

      
        Page
          10

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