Document:

Unassociated Document

    EXHIBIT
      10.11

     

    PRE-OPENING
      FUNDS AGREEMENT

     

    This
      Pre-Opening Funds Agreement
      (“Agreement”) is entered into as of the 12th
      day of
      July, 2007 by and among Grand River Commerce, Inc., a corporation organized
      under the laws of the State of Michigan (“Company”), and each of the undersigned
      individuals (each, an “Organizer”).

     

    RECITALS

     

    WHEREAS,
      the
      Organizers have the mutual intention and objective to organize a commercial
      bank
      (the “Proposed Bank”) and have established the Company to pay the Proposed
      Bank’s organizational expenses and to enter into agreements in furtherance of
      the organization of the Proposed Bank; and 

     

    WHEREAS,
      the
      Organizers desire to take such steps and actions as may be necessary in the
      furtherance of their mutual intentions and objectives, including, but not
      limited to, the filing of regulatory applications (the “Applications”) with the
      Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”), the Office
      of the Comptroller of the Currency (“OCC”) and/or any applicable state bank
      regulatory authority (“State Regulator”), as applicable (the “Regulators”); and

     

    WHEREAS,
      the
      Organizers further desire by this Agreement to provide for the solicitation
      of
      funds to cover the organizational (pre-incorporation and pre-opening) expenses
      of the Company and the Proposed Bank among the Organizers, to be expended for
      the purpose of paying expenses to be incurred in order to determine the
      feasibility of the Proposed Bank and to prepare the Applications and to organize
      the Proposed Bank; and

     

    NOW,
      THEREFORE,
      in
      consideration of the foregoing and the promises, covenants and conditions
      hereinafter set forth, and the contribution of money provided for herein, the
      Organizers hereto agree as follows:

     

    1. Payments
      of Funds for Pre-Opening Expenses.
      Each
      Organizer, by execution of a counterpart hereof, hereby agrees to contribute
      funds in the amount of $45,000 (“Pre-Opening Funds”) for the purpose of funding
      organizational expenses of the Company and the Proposed Bank. A payment of
      $15,000 shall be made by such Organizer concurrently with the execution of
      this
      Agreement, and two (2) additional payments of $15,000 each shall be made within
      five (5) business days after notice from the Co-Managers (as defined below)
      that
      the next payment is due. Pre-Opening Funds paid by check shall be made payable
      to “Grand River Commerce, Inc.” Unless otherwise agreed by a vote of two-thirds
      of the then-existing Organizers, the failure of an Organizer to contribute
      the
      amounts provided hereunder this Section shall constitute a voluntary withdrawal
      of the Organizer as set forth in Section 9 hereof; provided, however, the
      Co-Managers shall have the authority to enter into specific arrangements with
      various organizers to pay the $45,000 of Pre-Opening Funds at some point other
      than at execution hereof if the Co-Managers determine that such an arrangement
      is in the best interests of the Company. 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

     

    The
      Organizers anticipate the Co-Managers will present a budget for the pre-opening
      expenses of the Company and the Proposed Bank. It is currently anticipated
      that
      these expenses will be covered by the cash advances provided for in this Section
      1 and by a line of credit provided to the Company by a financial institution
      upon the receipt of preliminary regulatory approvals to organize the Proposed
      Bank. If required by the issuing financial institution in order to issue the
      pre-opening line of credit, each Organizer further agrees to provide a limited
      guarantee (not joint and several) with respect to any advances made under such
      line of credit; provided, however, that the exposure of each Organizer pursuant
      to such limited guarantee shall not be in excess of the multiple of such
      Organizer’s pro rata share of any advances made under such line of credit
      required by the issuing financial institution.

     

    Each
      Organizer/Director, by executing this Agreement, hereby authorizes the Company
      to enter into agreements with Jenkens & Gilchrist, P.C.

     

    2. Account,
      Co-Managers, and Terms Under Which Pre-Opening Funds Shall Be
      Held.
      All
      Pre-Opening Funds shall be deposited in a deposit account (the “Account”)
      established in the name of the Company at a federally-insured depository
      institution domiciled or authorized to do business in Michigan and selected
      by
      the Co-Managers (as defined below). No other funds shall be deposited in the
      Account. The Co-Managers or the Organizers (including the Co-Managers), acting
      by a vote of at least two-thirds of their number, may transfer the Account
      to
      another banking organization domiciled or authorized to do business in
      Michigan.

     

    Pre-Opening
      Funds may be accepted from a proposed Organizer only by one of the Co-Managers.
      Following execution of this Agreement by an Organizer, any funds accepted by
      the
      Co-Managers from an Organizer shall not be returned to the Organizer except
      as
      provided herein.

     

    Unless
      and until changed by the vote of two-thirds of the Organizers, Jerry Sytsma
      and
      Robert Bilotti are hereby appointed to serve as Co-Managers of the Account
      (the
“Co-Managers”), and are authorized to receive, deposit and disburse all funds to
      be collected or paid pursuant to the terms of this Agreement and to take such
      other actions as may be contemplated by this Agreement.

     

    3. Terms
      Under Which Pre-Opening Funds Shall Be Disbursed.
      Disbursements from the Account may be made only upon the order and signature
      of
      either of the Co-Managers, and only for purpose of paying organizational
      expenses of the Company or the Proposed Bank, including but not limited to
      (i)
      marketing and banking consulting fees, (ii) economic study fees, (iii)
      pre-opening consulting fees to be paid to one or more proposed officers of
      the
      Proposed Bank, and others (all as approved by a majority of the Organizers),
      (iv) accounting and legal fees, (v) application fees and expenses, and (vi)
      rent, lease and/or option payments and security deposits; provided, however,
      that no disbursement in excess of $1,000 (except reimbursement of out-of-pocket
      expenses) shall be made to any Co-Manager unless and until such payment or
      payments have been approved in advance by at least a majority of the Organizers
      who are then parties to this Agreement or unless such payment is subject to
      another agreement with the Company.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

     

    4. Additional
      Organizers.
      Upon
      the approval of the Co-Managers, additional Organizers may be added from time
      to
      time, provided that such additional Organizers ratify and agree to be bound
      by
      and comply with the provisions, terms and conditions of this Agreement. Each
      additional Organizer shall execute a signature page to this Agreement (and
      such
      other instrument as counsel to the Company shall require) and shall immediately
      contribute funds in the same amount as has been contributed as of such date
      by
      each of the other Organizers.

     

    5. Records.
      The
      Co-Managers shall keep and maintain records containing:

     

    (a) With
      respect to each deposit to the Account:

     

    (i) date
      of
      deposit,

    (ii) amount
      deposited, and

    (iii) name
      of
      person from whom such money was accepted.

     

    (b) With
      respect to each withdrawal from the Account:

     

    (i) date
      of
      withdrawal,

    (ii) amount
      of
      money withdrawn,

    (iii) name
      of
      person or entity to whom such money was paid,

    (iv) description
      of purpose of such payment, and

    (v) any
      invoice or billing relating to such payment.

     

    (c) The
      Co-Managers or, upon opening, the Proposed Bank, shall preserve the records
      described above for a period of not less than four (4) years after such Account
      is closed.

     

    (d) The
      Co-Managers shall, upon request, make the records described above available
      for
      inspection and copying by (i) the Regulators, (ii) any proposed director,
      officer, or organizer of the Company or the Proposed Bank, (iii) any person
      from
      whom Pre-Opening Funds have been accepted, (iv) the Company, or (v) the Proposed
      Bank, if and when organized.

     

    6. Reports.
      On
      or
      before the 21st day of each calendar quarter, commencing with the calendar
      quarter after Pre-Opening Funds are first accepted and continuing until the
      Account is closed in accordance with this Agreement, the Co-Managers will
      provide to each person from whom Pre-Opening Funds have been accepted a report
      stating, with respect to the last calendar quarter:

     

    (a) Opening
      balance of the Account.

     

    (b) Total
      amount deposited in the Account during the calendar quarter.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

     

    (c) Itemized
      schedule of deposits showing, with respect to each deposit, date of deposit,
      amount of money deposited, name of person from whom such money was accepted
      and
      aggregate total amount.

     

    (d) Total
      amount disbursed from the Account during the calendar quarter.

     

    (e) An
      itemized schedule of disbursements showing, with respect to each person to
      whom
      the amount disbursed, together with amounts previously disbursed to each person,
      is $500 or more: name of person, amount disbursed to the person, description
      of
      purpose of such disbursement, and the aggregate total amount disbursed to date
      to the person.

     

    (f) Closing
      balance of Account.

     

    7. Circumstances
      Under Which Pre-Opening Funds Shall Be Repaid. 

     

    (a) The
      Organizers understand and agree that the Pre-Opening Funds advanced by the
      Organizers shall be reimbursed to the Organizers if, and only if, the
      Proposed Bank becomes duly organized when the Proposed Bank is issued a charter
      to transact a commercial banking business by the OCC or the State Regulator,
      as
      applicable, the Proposed Bank receives approval from the FDIC of its application
      for deposit insurance and all subscription funds held in escrow for Proposed
      Bank stock have been released.

     

    (b) The
      Co-Managers shall cause the Company, after making all disbursements authorized
      under the terms of this Agreement, to pay any and all balances in the Account,
      on a pro rata basis, to the Organizers upon the occurrence of any of the
      following events: 

     

    (i) two-thirds
      of the Organizers determines to discontinue efforts to organize the Proposed
      Bank; or

     

    (ii) an
      application for authority to organize the Proposed Bank filed with the OCC
      or
      the State Regulator within such time is denied by the OCC or the State Regulator
      and a reapplication for authority to organize the Proposed Bank is not filed
      with the OCC or the State Regulator within 90 days after such
      denial.

     

    (c) Each
      Organizer acknowledges and agrees that the return of any Pre-Opening Funds
      following the removal of an Organizer shall be governed by the provisions of
      Section 10.

     

    (d) Each
      Organizer acknowledges and agrees that there is no assurance that any of the
      conditions described in this Section will be met and that if the conditions
      described above do not occur, such Organizer shall not be entitled to
      reimbursement of any of the Pre-Opening Funds, except as expressly provided
      herein. Such Organizer further waives any and all claims against any other
      Organizers hereto, the Company, the Proposed Bank and their respective officers,
      directors, shareholders, attorneys, agents and representatives for reimbursement
      of his or her share of Pre-Opening Funds as a result of the failure to occur
      of
      any of the conditions described above.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

     

    8. Application;
      Services.
      The
      Co-Managers are hereby authorized and directed to execute and deliver written
      agreements with attorneys, accountants, economists and banking/fundraising
      consultants, relating to the various applications to be filed with the
      Regulators in connection with the organization of the Proposed Bank, and for
      other services related to the organization of the Company or the Proposed Bank.
      The Co-Managers are hereby authorized and directed to pay, to the extent of
      funds made available by the Organizers as described herein, all amounts agreed
      to in said agreements for all such services rendered.

     

    9. Voluntary
      Withdrawal. An
      Organizer may withdraw as an organizer of the Company or the Proposed Bank
      by
      giving written notice to the Co-Managers. Notwithstanding the foregoing, the
      withdrawal of an Organizer shall not affect in any manner any obligation
      incurred by the Organizer pursuant to this Agreement or any other agreement
      entered into by the Organizer. Upon the withdrawal of an Organizer, the
      Organizer shall forfeit any and all options or warrants to which the Organizer
      would otherwise have been entitled upon the Proposed Bank’s opening for business
      by virtue of his status as an Organizer, a director or executive officer or
      as a
      result of any actions taken by him pursuant to this Agreement.

     

    10. Removal
      of Organizers.
      An
      Organizer may be removed with or without cause upon the vote of two-thirds
      of
      the then-active Organizers. 

     

    11. Indemnification
      of Co-Managers; Covenant Not to Sue.
      The
      Organizers hereto agree that the Company shall indemnify and hold the
      Co-Managers harmless from all liabilities, obligations, claims or costs
      (including attorneys, accountants, paralegal fees and expenses) incurred by
      them
      in their capacities as such or in the course of their performance of their
      duties as such, except liabilities or obligations arising from or out of willful
      misconduct or gross negligence. Such indemnification is limited in amount of
      the
      Company’s resources. In no case will an Organizer have to increase the amount
      advanced to the Company for this purpose. In no event shall any Organizer bring
      suit, initiate a mediation or arbitration or otherwise bring a cause of action
      or claim against any other Organizer except in the case of gross negligence,
      willful misconduct or failure to make the payments or guarantees required by
      Section 1 of this Agreement. 

     

    12. Unauthorized
      Acts.
      Notwithstanding anything contained herein to the contrary, no party hereto
      shall
      be authorized in any manner or form to perform any act or to render any
      communication or information with regard to the organization of the Company
      or
      the Proposed Bank that is contrary to applicable federal and applicable state
      law, including the rules, regulations and policies of the Federal Reserve,
      OCC,
      State Regulator and/or FDIC. In addition, each Organizer acknowledges the
      following:

     

    (a) that
      the
      Proposed Bank is not being organized for the sole purpose of immediately selling
      to or merging or consolidating with any other financial
      institution;

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

     

    (b) that
      such
      Organizer may not indicate, either orally or in writing, that he or she is
      an
      officer or director of the Proposed Bank or that the Proposed Bank is in
      existence prior to receiving the consent of the Regulators, if required at
      such
      time;

     

    (c) that
      the
      Proposed Bank, upon organization, will not refinance, either directly or
      indirectly, any loan, advance, or credit extension made to any prospective
      shareholder by any existing financial institution or other lender, if such
      loan,
      advance, or credit extension was originally made to the prospective shareholder
      to obtain funds to purchase stock in the Proposed Bank;

     

    (d) that
      all
      subscription funds for capital stock will be held in escrow subject to the
      order
      of the applicable Regulators and that these funds will be released only after
      all conditions precedent to the commencement of operations at the Proposed
      Bank
      have been satisfied; 

     

    (e) that
      such
      Organizer shall make an equity investment (pursuant to the terms and conditions
      of the Offering) in the common stock of the Proposed Bank in an amount at least
      equal to the minimum amount expected of Organizers by the Regulators in order
      to
      issue the charter; 

     

    (f) that
      no
      representations have been made by the Co-Managers, any of the Organizers, any
      of
      the other signatories hereto or attorneys, accountants or any other service
      providers to the Company or the Proposed Bank guaranteeing or representing
      that:
      (a) a charter for the Proposed Bank will be issued and approved by the
      Regulators; (b) approval of the Proposed Bank by the Regulators will occur
      on or
      before any specified date or approximate date, or that such approval will be
      received at all; (c) such Organizer will be approved by the Regulators as an
      organizing director of the Proposed Bank; (d) the Proposed Bank will be able
      to
      successfully sell any amount of its initial capital stock; (e) such Organizer
      will be approved by the Regulators to purchase any specific number of shares
      of
      the capital stock of the Proposed Bank; (f) the Regulators will approve any
      specific stock options or other benefit for such Organizer(s); (g) the Proposed
      Bank will be located in any specific location or city; or (h) the Proposed
      Bank
      will open for business on or before any specific date or approximate date;
      and

     

    (g) that
      the
      Organizers will respect and honor the confidential nature of all personal
      information of each individual Organizer, and that the Organizers will not
      request copies of or access to review any such confidential information of
      another Organizer which information is delivered to any consultant in connection
      with preparing or reviewing necessary documentation for the Proposed Bank.
      

     

    13. Borrowings/Guarantees. The
      parties understand and agree that it may be necessary for the Company to borrow
      funds or otherwise secure lines of credit for the purpose of obtaining funds
      to
      pay pre-incorporation and pre-opening expenses of the Proposed Bank and that
      lenders may require such financing arrangements to be evidenced by one or more
      notes co-signed or guaranteed by each of the undersigned on a joint or several
      or other basis. An agreement to borrow funds under the provisions of this
      Section 13 requires the unanimous written approval of all the Organizers who
      undertake any such guarantee. All funds obtained pursuant to this Section 13
      shall be maintained and disbursed by the Co-Managers
      in conformity with the duties set forth in this Agreement.
      To the
      extent that an Organizer is not willing to execute any guarantee required
      pursuant to this Section 13, then such Organizer, in order to continue to
      participate in this project, must find another Organizer who is willing to
      provide the amount of guarantee, in whole or in part, on behalf of such
      Organizer that is declining to execute the guarantee.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

     

    14. Termination.
      The
      Agreement shall terminate upon the occurrence of any of the following
      events:

     

    (a) by
      mutual
      written consent of two-thirds of the Organizers who are bound by the terms
      hereof; or

     

    (b) following
      an event described in Section 7(a) or 7(b) upon the reimbursement of funds
      due
      to Organizers or upon a determination by the Co-Managers that no reimbursement
      shall be due.

     

    15. General
      Corporate Matters. 

     

    (a) Initial
      Board of Directors. It
      is
      anticipated that the number of directors of the Company shall be increased
      prior
      to filing the Applications and that the vacancies shall be filled by Organizers.
      The board of directors reserves the right, however, to fill any vacancies
      created by an increase in the number of directors with persons who are not
      Organizers if the board determines that the addition of such person(s) to the
      board of directors of the Company would enhance the ability of the Proposed
      Bank
      to receive regulatory approval or to operate following receipt of regulatory
      approval. The board of directors of the Company shall also be empowered to
      identify the individuals to serve as the proposed board of directors of the
      Proposed Bank. It is expected that each Organizer shall serve as a director,
      advisory director or a member of an organizers’ advisory committee of the
      Proposed Bank unless the board of directors of the Company determines that
      such
      service would impair the ability of the Proposed Bank to receive all required
      regulatory approvals. 

     

    (b) Organizer
      Warrants.
      The
      Organizers will receive warrants to purchase shares of stock at the initial
      offering price. These warrants would be issued when the Proposed Bank opens
      for
      business and, to the extent permitted by the Regulators, would be exercisable
      upon issuance and would expire ten years following the date that the Proposed
      Bank opens for business. It is anticipated that each Organizer would receive
      one
      warrant for every $10.00 dollars advanced to the Company by the Organizer or
      guaranteed (on a pro rata portion of the indebtedness basis without any
      consideration of any portion of the guaranty above 100%) by the Organizer for
      the benefit of the Company or the Proposed Bank; provided such Organizer
      purchases a number of shares equal to the warrants to be received. Each
      Organizer acknowledges and understands that they must purchase at least the
      number of shares of stock of the Company or the Proposed Bank as they will
      receive warrants. 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

     

    The
      board
      of directors of the Company shall be empowered to determine the amount of
      warrants to be issued within the prescribed range, and may amend the range
      upon
      a determination that such range would impair the ability of the Proposed Bank
      to
      receive all required regulatory approvals or is otherwise not in the best
      interests of the Proposed Bank. This grant of warrants is contingent upon the
      approval of the applicable Regulators and may be reduced as necessary to such
      level as may be required to obtain such regulatory approval. 

     

    (c) Shareholder
      Warrants.
      The
      initial shareholders of the Proposed Bank will receive warrants to purchase
      shares of stock at an exercise price of $12.50 per share. These warrants would
      be issued when the Proposed Bank opens for business and, to the extent permitted
      by the Regulators, would be exercisable upon issuance and would expire three
      years following the date that the Proposed Bank opens for business. It is
      anticipated that each initial shareholder would receive a minimum of one warrant
      for every five shares purchased in the initial offering of stock.
      Notwithstanding the foregoing, the board of directors of the Company shall
      be
      empowered to vary the amount and terms of the initial shareholder warrants
      upon
      a determination that such terms would impair the ability of the Proposed Bank
      to
      receive all required regulatory approvals or is otherwise not in the best
      interests of the Proposed Bank.

     

    (d) Stock
      Options.
      The
      board of directors believes that it is in the best interests of the Proposed
      Bank to promote shareholder value by aligning the financial interests of
      executive officers and employees providing services to the Proposed Bank with
      long-term shareholder value. Accordingly, it is anticipated that a certain
      number of shares of stock will be reserved for issuance under a stock incentive
      plan, which would provide, among other things, for the issuance of employee
      stock options to management and future management. It is anticipated that
      between 10% and 15% of the shares of stock issued in the initial public offering
      would be reserved for issuance of these stock-based incentives. However, the
      board of directors of the Proposed Bank reserves the right to revise this amount
      as it determines necessary to attract and retain qualified employees to fill
      positions of substantial responsibility, either current or
      prospective.

     

    16. Miscellaneous.

     

    (a) Notices.
      Any
      notice required by this Agreement shall be given by telephone and confirmed
      by
      facsimile, express or certified mail to the parties at the addresses heretofore
      furnished by each party hereto or such other address as a party may later
      specify. With respect to notice confirmed by facsimile, notice shall be deemed
      duly given when facsimile confirmation is received. With respect to notice
      confirmed by express or certified mail, notice shall be deemed duly given upon
      the earlier of actual receipt of such confirmation by mail or three (3) business
      days after deposit in the United States mail, postage prepaid.

     

    (b) Complete
      Agreement.
      This
      Agreement contains the entire understanding of the parties and supersedes all
      existing agreements and all other oral, written or other communications between
      the parties concerning its subject matter. There are no agreements, arrangements
      or undertakings, oral or written, between or among the parties hereto relating
      to the subject matter of this Agreement that are not fully expressed
      herein.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

     

    (c) Governing
      Law.
      This
      Agreement shall be governed by the laws of Michigan without regard to principles
      of conflicts of laws. Any dispute or controversy arising under, out of or in
      connection with this Agreement, shall be determined and settled by arbitration
      in Michigan in accordance with the rules of the American Arbitration
      Association. Any decision rendered thereby shall be non-appealable, final and
      binding on the parties and judgment may be entered thereon.

     

    (d) Assignment.
      This
      Agreement is personal to the parties hereto and may not be assigned, except
      with
      respect to the Company to a successor corporate entity, including the Proposed
      Bank, once established.

     

    (e) Amendment.
      This
      Agreement may be amended only by a writing signed by two-thirds of the
      Organizers; provided however, that any action under this Agreement requiring
      the
      approval or consent of more than two-thirds may be amended only by a writing
      signed by at least the same number of Organizers as would be required to take
      such action under the Agreement.

     

    (f) Waiver.
      Failure
      to insist upon strict compliance with any of the terms, covenants or conditions
      hereof shall not be deemed a waiver of such term, covenant, or condition. A
      waiver of any provision of this Agreement must be made in writing, designated
      as
      a waiver, and signed by the party against who its enforcement is sought or
      in
      the case of the Organizers as a group, by two-thirds of the Organizers. Any
      waiver or relinquishment of such right or power at any one or more times shall
      not be deemed a waiver or relinquishment of such right or power at any other
      time or times.

     

    (g) Illegality,
      Severability.
      If any
      provisions of this Agreement (or any portion thereof) shall be held to be
      invalid, illegal or unenforceable, the validity, legality or enforceability
      of
      the remainder of this Agreement shall not in any way be affected or impaired
      thereby. 

     

    (h) Counterparts.
      This
      Agreement may be executed in any number of counterparts and each of such
      counterparts shall be deemed an original, and all such counterparts shall
      together constitute but one and the same instrument. 

     

    (i) Headings.
      The
      headings of sections in this Agreement are for convenience of reference only
      and
      are not intended to qualify the meaning of any of the language in this
      Agreement.

     

    (j) Relationship
      of the Organizers.
      This
      Agreement shall not be deemed to create a partnership or joint venture among
      the
      Organizers or among the Company and the Organizers. Except with respect to
      the
      authorized acts of the Co-Managers, as expressly described in this Agreement,
      no
      Organizer shall be authorized or have the right to bind or obligate any other
      Organizer to any debt, obligation or liability with any third party without
      the
      prior written consent of all of the other Organizers.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

     

    [Remainder
      of Page Intentionally Left Blank]

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      undersigned parties have executed this Agreement and agree to be bound by the
      terms hereof.

     

    
      	 	
              GRAND
                RIVER COMMERCE, INC.

            
	 	 	 
	 	
              By:
                

            	
              /s/
                Robert P. Bilotti

            
	 	 	 
	 	
              Name:
                

            	
               Robert
                P. Bilotti

            
	 	 	 
	 	
              Title:
                

            	
              President

            
	 	 	 
	 	 	 

    

    

    
      	 	  

	 	
              ORGANIZERS

            
	 	
              /s/
                Robert P. Bilotti 

            
	 	
              /s/
                Richard J. Blauw, Jr.

            
	 	
              /s/
                Cheryl M. Blouw

            
	 	
              /s/
                James P. Bush 

            
	 	
              /s/
                William A. Condon 

            
	 	
              /s/
                Frederick T. Croft 

            
	 	
              /s/
                Dr. David L. DeVisser 

            
	 	
              /s/
                Jeffrey A. Elders 

            
	 	
              /s/
                Donald R. Fritz 

            
	 	
              /s/
                Dr. Phillip Hartgerink 

            
	 	
              /s/
                Dr. Todd D. Hartgerink 

            
	 	
              /s/
                Randall L. Hartgerink 

            
	 	
              /s/
                Preston J. Hopkins, Jr.

            
	 	
              /s/
                David K. Hovingh 

            
	 	
              /s/
                Dr. Paul Huizinga 

            
	 	
              /s/
                Jodi Medina 

            
	 	
              /s/
                Michael G. Nauta 

            
	 	
              /s/
                Roger L. Roode 

            
	 	
              /s/
                Timothy J. Steenland 

            
	 	
              /s/
                Jerry A. Sytsma 

            
	 	
              /s/
                Doug H. VanNoord 

            
	 	
              /s/
                James A. Veldink

            
	 	
              /s/
                Kimble L. Wagner 

            

    

    

     

    
      
        
        

      

      
        11PROMISSORY
      NOTE

    

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

    

    US
      $500,000.00 

    ________________________________________

    

    10%
      CONVERTIBLE SECURED PROMISSORY NOTE DUE JANUARY 1, 2009

    

    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 EPD
      Investment
      Co.,
      LLC,
      a
      California limited liability company, its assignee or designee, the registered
      holder hereof (the “Holder”),
      the
      principal sum of $500,000.00 on
      the
      Maturity Date (as defined below) and to pay interest on the principal sum
      outstanding from time to time in arrears at the rate of 10% per annum (computed
      on the basis of the actual number of days elapsed and a year of 360 days and
      compounded monthly), accruing from November 13, 2007, the date of issuance
      and
      delivery of this Note (the “Issue
      Date”),
      to
      the date of payment. Such interest shall be payable on the date which is the
      earlier of (i) the Maturity Date, or (ii) the date of any prepayment of
      principal permitted hereunder; except that interest for month in advance shall
      be paid on the Issue Date. Accrual of interest shall commence on the Issue
      Date
      and shall continue to accrue on a daily basis until payment in full of the
      principal sum has been made or duly provided for (whether before or after the
      Maturity Date). 

    

    This
      Note
      is being issued pursuant to the terms of the Purchase Agreement, dated as of
      November 9, 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) January 1, 2009 or (y) the date hereafter on which the
      Company consummates an aggregate of one or more debt or equity financings or
      funding transactions with total gross proceeds of $5,000,000 or more (a
“Qualified
      Financing”),
      whether or not such transactions are effected in connection with current or
      future issuance of securities. 

    

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (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 at the VWAP for the 20 Trading
      Days immediately preceding the date on which they are pledged, 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
      Agreement, to which the Holder and the Company, as Pledgor, 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 net cash proceeds actually realized
      from such foreclosure and sales of such shares, 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.

     

    
      
         

      

      
        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 $0.29 per
      share of common stock.

    

    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).

     

    
      
         

      

      
        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.

     

    
      
         

      

      
        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.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

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

    

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

    

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

    

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

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    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.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

    d)  Notice
      to Holders.

    

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

     

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

     

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

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

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

    

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

    

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

    

    11. This
      Note
      shall be governed by and construed in accordance with the laws of the State
      of
      Nevada. To the extent determined by the 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

            

    

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    
      	 	
              d.

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

            

    

    

    
      	 	
              e.

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

            

    

    

    
      	 	
              f.

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

            

    

    

    
      	 	
              g.

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

            

      	 	
               

              h. 

            	
               

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

            

      	 	
               

              i. 

            	
               

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

            

      	 	 	 

    

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

    

    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.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    

    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 13th
      day of
      November, 2007.

    

    

          NEAH
      POWER SYSTEMS, INC.

    

    

    By:_______________________________________

    Name:
      

    Title:
      

     

     

    
      
         

      

      11

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00132-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00132-of-00352.parquet"}]]