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

Exhibit 10.3
 
REGISTRATION RIGHTS AGREEMENT
 
This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into
as of September 19, 2007, among NEPHROS, INC., a Delaware corporation (the
“Company”), and holders of securities of the Company listed as Investors on
Schedule 1 attached hereto (collectively, the “Holders”).
 
WHEREAS, the Holders are the beneficial owners of certain securities issued by
the Company; and
 
WHEREAS, the Company and the Holders deem it to be in their respective best
interests to set forth the rights of the Holders in connection with Registrable
Securities (as defined below).
 
NOW, THEREFORE, in consideration of the premises and mutual covenants and
obligations hereinafter set forth, the Company and the Holders, intending
legally to be bound, hereby agree as follows.
 
Section 1. Definitions.  As used in this Agreement, the following terms shall
have the following meanings:
 
“Affiliate” of any person means any other person who either directly or
indirectly is in control of, is controlled by, or is under common control with
such person.
 
“Automatic Conversion Date” shall mean the twenty-first (21st) day after the
Company sends or gives its stockholders a definitive Schedule 14C information
statement.
 
“Business Day” shall mean any Monday, Tuesday, Wednesday, Thursday or Friday
that is not a day on which banking institutions in The City of New York are
authorized by law, regulation or executive order to close.
 
“Class D Warrants” shall mean the Class D Warrants for the purchase of shares of
Common Stock of the Company.
 
“Common Stock” shall mean the common stock, par value $0.001 per share, of the
Company.
 
“Conversion Amount” shall mean the principal amount of the Note and all accrued
but unpaid interest thereon as of the Automatic Conversion Date.
 
“Effectiveness Date” shall mean, with respect to the Initial Resale Registration
Statement, the one hundred eightieth (180th) day following the Filing Date;
provided that, if the Effectiveness Date falls on a Saturday, Sunday or any
other day which shall be a legal holiday or a day on which the SEC is authorized
or required by law or other government actions to close, the Effectiveness Date
shall be the following Business Day.
 
 

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

 
 
“Effectiveness Period” shall have the meaning set forth in Section 3(a).
 
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended (or
any similar successor federal statute), and the rules and regulations
thereunder, as the same are in effect from time to time.
 
“Exchanged Notes” shall mean 10% Secured Convertible Notes due 2008 convertible
into shares of Common Stock.
 
“Filing Date” shall mean, subject to Section 3(b) hereof, the sixtieth (60th)
day after the date the Company files a definitive Schedule 14C information
statement with the SEC; provided that, if the Filing Date falls on a Saturday,
Sunday or any other day which shall be a legal holiday or a day on which the SEC
is authorized or required by law or other government actions to close, the
Filing Date shall be the following Business Day.
 
“Holder” shall have the meaning assigned to such term in the preamble hereof.
 
“Initial Resale Registration Statement” shall mean the Registration Statement
referred to in Section 3(a).
 
“Losses” shall have the meaning set forth in Section 5(a).
 
“Notes” shall mean the Exchanged Notes and the Purchased Notes.
 
“Person” shall mean an individual, partnership, corporation, limited liability
company, joint venture, trust or unincorporated organization, a government or
agency or political subdivision thereof or any other entity.
 
“Placement Agent Warrants” shall mean, collectively, each Placement Agent
Warrant for the Purchase of Shares of Common Stock issued by the Company of even
date with the Class D Warrants.
 
“Prospectus” shall mean the prospectus included in any Registration Statement,
as amended or supplemented by a prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
 
“Purchased Notes” shall mean the 10% Secured Convertible Notes due 2008
convertible into shares of the Company’s Common Stock and Class D Warrants.
 
“Registrable Securities” shall mean (i) shares of Common Stock issuable upon
conversion of the Notes or exercise of Class D Warrants, and (ii) any other
securities issued as a result of, or in connection with, any stock dividend,
stock split or reverse stock split, combination, recapitalization,
reclassification, merger or consolidation, exchange or distribution in respect
of the Common Stock referred to above.
 
 
 

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

 
 
“Registration Statement” shall mean any registration statement which covers any
of the Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus included therein, all amendments and supplements to
such Registration Statement, including post-effective amendments, all exhibits
and all material incorporated by reference in such Registration Statement.
 
“Resale Registration Statement” shall have the meaning set forth in Section 3(b)
hereof.
 
“Restricted Securities” shall have the meaning set forth in Section 2 hereof.
 
“Rule 144” shall mean Rule 144 promulgated under the Securities Act, as amended
from time to time, or any similar successor rule thereto that may be promulgated
by the SEC.
 
“Rule 415” shall mean Rule 415 promulgated under the Securities Act, as amended
from time to time, or any similar successor rule thereto that may be promulgated
by the SEC.
 
“SEC” shall mean the Securities and Exchange Commission, or any other federal
agency at the time administering the Securities Act.
 
“Securities Act” shall mean the Securities Act of 1933, as amended (or any
similar successor federal statute), and the rules and regulations thereunder, as
the same are in effect from time to time.
 
“Underwritten Offering” shall mean a registered offering in which securities of
the Company are sold to an underwriter for reoffering to the public.
 
Section 2. Securities Subject to this Agreement.  The securities entitled to the
benefits of this Agreement are the Registrable Securities but, with respect to
any particular Registrable Security, only so long as such security continues to
be a Restricted Security.  A Registrable Security that has ceased to be a
Restricted Security cannot thereafter become a Restricted Security.  As used
herein, a Restricted Security shall cease to be a Restricted Security, and will
no longer be a Registrable Security hereunder, when:  (i) it has been registered
under the Securities Act, the registration statement in connection therewith has
been declared effective and it has been disposed of pursuant to such effective
registration statement; (ii) it is eligible to be sold or distributed pursuant
to Rule 144 within any consecutive three month period (including, without
limitation, pursuant to Rule 144(k)) without volume limitations; or (iii) it
shall have ceased to be outstanding.
 
Section 3. Required Resale Registration
 
(a)  On or prior to the Filing Date, the Company shall prepare and file with the
SEC an initial “resale” Registration Statement (once declared effective by the
SEC, the “Initial Resale Registration Statement”) providing for the resale of
(i) all Registrable Securities, and (ii) the other securities set forth in
Schedule 3(a) hereto (the “Other Registrable Securities”; provided, such
securities shall cease to be Other Registrable Securities if the warrants
pursuant to
 
 
 

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

 
 
which such securities may be purchased expire without being exercised) for an
offering to be made on a continuous basis pursuant to Rule 415.  The Initial
Resale Registration Statement shall be on Form SB-2 (except if the Company is
not then eligible to register for resale the Registrable Securities on Form
SB-2, in which case such registration shall be on another appropriate form in
accordance herewith and with the Securities Act and the rules promulgated
thereunder).  Such Initial Resale Registration Statement shall cover, to the
extent allowable under the Securities Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Registrable Securities.  The Company shall use its commercially
reasonable best efforts to cause the Initial Resale Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and to keep
such Initial Resale Registration Statement continuously effective under the
Securities Act until all of the Registrable Securities have ceased to be
Restricted Securities (the “Effectiveness Period”).  The Company shall
immediately notify the Holders via facsimile or electronic mail of the
effectiveness of the Initial Resale Registration Statement on the same trading
day that the Company telephonically confirms effectiveness with the SEC, which
date shall be the date effectiveness of the Initial Resale Registration
Statement is granted by the SEC.
 
(b)  Notwithstanding anything to the contrary set forth in this Section 3, in
the event it is determined that the Company is unable to register all of the
Registrable Securities and Other Registrable Securities in the Initial Resale
Registration Statement in order to comply with applicable securities rules and
regulations, including, without limitation, Rule 415, then the Company shall
register in the Initial Resale Registration Statement such number of Registrable
Securities and Other Registrable Securities determined on a pro rata basis among
the Holders thereof and the holders of Other Registrable Securities.  The
Company will use its commercially reasonable best efforts to register the
remaining Registrable Securities and Other Registrable Securities as soon as
reasonably practicable on additional “resale” Registration Statement(s) (each,
an “Additional Resale Registration Statement” and together with the Initial
Resale Registration Statement, the “Resale Registration Statement”) after such
registration is permitted, in each case in accordance with applicable securities
rules and regulations and including such number of Registrable Securities and
Other Registrable Securities determined on a pro rata basis among the Holders of
the Registrable Securities and the holders of the Other Registrable Securities,
until all Registrable Securities and Other Registrable Securities have been
registered.  The number of Registrable Securities to be included in any Resale
Registration Statement shall be equal to the total number of securities that may
be included in such Resale Registration Statement multiplied by a fraction, the
numerator of which is the total number of Registrable Securities and the
denominator of which is the sum of the total number of Registrable Securities
and the number of Other Registrable Securities, in each case as of the filing of
such Resale Registration Statement.  The actual Registrable Securities to be
included in any Resale Registration Statement shall be determined in the
following order: (i) first, the shares of Common Stock issuable upon conversion
of the Notes shall be registered on a pro rata basis among the holders of the
Notes, and (ii) second, the shares of Common Stock issuable upon exercise of the
Class D Warrants shall be registered on a pro rata basis among the holders of
the Class D Warrants.  The actual Other Registrable Securities to be included in
any Resale Registration Statement shall be allocated among the holders of the
Other Registrable Securities on a pro rata basis.  For purposes of this Section
3(b), “Filing Date” means with respect to each
 
 
 

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

 
 
Additional Resale Registration Statement filed pursuant hereto, the later of (i)
sixty (60) days following the sale of substantially all of the Registrable
Securities included in the Initial Resale Registration Statement or any
Additional Resale Registration Statement and (ii) six (6) months following the
effective date of the Initial Resale Registration Statement or any Additional
Resale Registration Statement, as applicable, or such earlier date as permitted
by the SEC.  The Company shall immediately notify the Holders via facsimile or
electronic mail of the effectiveness of any Additional Resale Registration
Statement on the same trading day that the Company telephonically confirms
effectiveness with the SEC, which date shall be the date effectiveness of any
such Additional Resale Registration Statement is granted by the SEC.
 
(c)  The Company and the Holders agree that the Holders will suffer damages if
the Initial Resale Registration Statement is not declared effective by the SEC
on or prior to the Effectiveness Date.  The Company and the Holders further
agree that it would not be feasible to ascertain the extent of such damages with
precision.  Accordingly, if the Initial Resale Registration Statement is not
declared effective by the SEC on or prior to the Effectiveness Date and to the
extent that the Holders owning a majority of the outstanding Registrable
Securities have not waived the application of this Section 3(c), for each thirty
(30) day period after the Effectiveness Date or portion thereof during which the
Initial Resale Registration Statement has not been declared effective, the
Company shall pay an amount as liquidated damages to each Holder, payable in
cash, equal to (i) one percent (1.0%) of the amount of such Holder’s Conversion
Amount for each of the first ten (10) 30-day periods after the Effectiveness
Date and two percent (2%) of the amount of such Holder’s Conversion Amount for
each 30-day period thereafter, until the Initial Resale Registration Statement
is declared effective by the SEC.  Liquidated damages payable by the Company
pursuant to this Section 3(c) shall be payable on the first (1st) Business Day
of each thirty (30) day period following the Effectiveness Date.  If the Company
fails to pay any liquidated damages pursuant to this Section 3(c) in full within
ten (10) business days after the date payable, the Company will pay interest
thereon at a rate of fifteen percent (15%) per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such liquidated damages are due until such amounts, plus all
such interest thereon, are paid in full.  In the event the Initial Resale
Registration Statement is not declared effective by the SEC on or prior to the
Effectiveness Date, the Holders’ sole remedy shall be receipt of the liquidated
damages payable pursuant to this Section 3(c); provided, nothing in this Section
3(c) shall limit the Holders’ right to specific performance of the Company’s
obligations under this Agreement.  For the avoidance of doubt: (x) if the
Initial Resale Registration Statement is declared effective on or before the
Effectiveness Date, no liquidated damages will be payable for any Holder’s
Conversion Amount that corresponds to Registrable Securities not permitted to be
included in the Initial Resale Registration Statement by applicable securities
rules and regulations, and (y) otherwise, after the Initial Resale Registration
Statement is declared effective by the SEC no further liquidated damages will be
payable for any Holder’s Conversion Amount that corresponds to Registrable
Securities not permitted to be included in the Initial Resale Registration
Statement by applicable securities rules and regulations.
 
(d)  As a condition to the inclusion of its Registrable Securities in any Resale
Registration Statement, each Holder shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may request in
 
 
 

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

 
 
writing or as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
 
(e)  In connection with the Company’s registration obligations hereunder, the
Company shall:
 
(A)  Prepare and file with the SEC such amendments, including post-effective
amendments, to the Resale Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Resale Registration
Statement continuously effective as to the applicable Registrable Securities for
the Effectiveness Period; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of this
Agreement), and as so supplemented or amended to be filed pursuant to Rule 424
of the Securities Act; (iii) respond as promptly as reasonably possible to any
comments received from the SEC with respect to such Resale Registration
Statement or any amendment thereto; and (iv) comply in all material respects
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by such Resale
Registration Statement during the applicable period in accordance (subject to
the terms of this Agreement) with the intended methods of disposition by the
Holders thereof set forth in the Resale Registration Statement as so amended or
in such Prospectus as so supplemented.
 
(B)           Notify the Holders of Registrable Securities to be sold (which
notice shall, pursuant to clauses (ii) through (v) hereof, be accompanied by an
instruction to suspend the use of the Prospectus until the requisite changes
have been made) as promptly as reasonably possible and (if requested by any such
Holder) confirm such notice in writing no later than one trading day following
the day (i)(X) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Resale Registration Statement is filed; and (Y) with respect to
the Resale Registration Statement or any post-effective amendment, when the same
has become effective; (ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to the Resale
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Resale Registration Statement
covering any or all of the Registrable Securities or the initiation of any
proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in the Resale Registration Statement
ineligible for inclusion therein or any statement made in the Resale
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Resale Registration Statement, Prospectus or other
documents so that, in the case of the Resale Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not
 
 

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

 
 
misleading; provided that any and all of such information provided pursuant to
clause (v) above shall remain confidential to each Holder until such information
otherwise becomes public, unless disclosure by a Holder is required by law;
provided, further, notwithstanding each Holder’s agreement to keep such
information confidential, the Holders make no acknowledgement that any such
information is material, non-public information.
 
(C)           Use its commercially reasonable best efforts to avoid the issuance
of, or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Resale Registration Statement, or (ii) any suspension of
the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
 
(D)           Furnish to each Holder, upon written request of such Holder,
without charge, at least one conformed copy of the Resale Registration Statement
and each amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference to the
extent requested by such Holder, and all exhibits to the extent requested by
such Holder (including those previously furnished or incorporated by reference).
 
(E)           Promptly deliver to each Holder, upon written request of such
Holder, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Holders may reasonably request in connection with resales by the Holder of
Registrable Securities.  Subject to the terms of this Agreement, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering and sale
of the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto, except after the giving of any notice pursuant to Section
3(e)(B).
 
(F)           Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or qualification (or
exemption from the registration or qualification) of such Registrable Securities
for the resale by the Holder under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests in
writing, to keep each registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by each Resale Registration Statement;
provided that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or subject the
Company to any material tax in any such jurisdiction where it is not then so
subject or file a general consent to service of process in any such
jurisdiction.
 
(G)           If requested by the Holders, use its commercially reasonable best
efforts to cause its transfer agent to prepare and deliver certificates
representing Registrable Securities to a transferee pursuant to the Resale
Registration Statement within
 
 

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

 
 
three (3) trading days of delivery to the transfer agent of certificates bearing
restrictive legends, which certificates shall be free, to the extent permitted
by the Subscription Agreement, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such Holders may request.
 
(H)           Upon the occurrence of any event contemplated by Section 3(e)(B),
as promptly as reasonably possible under the circumstances taking into account
the Company’s good faith assessment of any adverse consequences to the Company
and its shareholders of the premature disclosure of such event, prepare a
supplement or amendment, including a post-effective amendment, to the Resale
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, neither the Resale
Registration Statement nor such Prospectus will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.  If the Company notifies the Holders in
accordance with clauses (ii) through (v) of Section 3(e)(B) above to suspend the
use of any Prospectus until the requisite changes to such Prospectus have been
made, then the Holders shall suspend use of such Prospectus.  The Company will
use its commercially reasonable best efforts to ensure that the use of the
Prospectus may be resumed as promptly as is practicable.  The Company shall be
entitled to exercise its right under this Section 3(e)(H) to suspend the
availability of the Resale Registration Statement and Prospectus for a period
not to exceed 90 days (which need not be consecutive days) in any 365-day
period.
 
(I)           Comply in all material respects with all applicable rules and
regulations of the SEC and the American Stock Exchange (or any successor entity
or any other national securities exchange or automated quotation system on which
the Common Stock is then listed or quoted).
 
(J)           If requested by a Holder, the Company shall (i) as soon as
reasonably practicable incorporate in a prospectus supplement or post-effective
amendment such information as is reasonably required to be included therein
relating to any proposed sale and distribution of Registrable Securities by such
Holder, including, without limitation, information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering, and (ii) as soon as reasonably practicable make all
required filings of such prospectus supplement or post-effective amendment after
being notified of the matters to be incorporated in such prospectus supplement
or post-effective amendment.
 
(K)           Unless waived by Holders owning a majority of the outstanding
Registrable Securities, include in such Resale Registration Statement, amendment
thereto, or prospectus or prospectus supplement all material non-public
information made available by the Company to any Holder prior to the filing
thereof, except for material non-public information made available to a Holder
to whom knowledge of a member of the Board of Directors of the Company is
attributable.
 
 

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

 
 
(f)  Holder hereby covenants with the Company (i) not to make any sale of the
Registrable Securities pursuant to a Resale Registration Statement without
effectively causing the prospectus delivery requirements under the Securities
Act to be satisfied, and (ii) if such Registrable Securities are to be sold by
any method or in any transaction other than on a national securities exchange or
in the over-the-counter market, in privately negotiated transactions, or in a
combination of such methods, to notify the Company at least 5 Business Days
prior to the date on which the Holder first offers to sell any such Registrable
Securities.
 
(g)  Holder acknowledges and agrees that the Registrable Securities sold
pursuant to the Registration Statement described in this Agreement are not
transferable on the books of the Company unless the stock certificate submitted
to the Company’s transfer agent evidencing such Registrable Securities is
accompanied, if requested by the transfer agent, by a certificate reasonably
satisfactory to the transfer agent to the effect that (i) the Registrable
Securities have been sold in accordance with such Resale Registration Statement
and (ii) the requirement of delivering a current Prospectus has been satisfied.
 
(h)  Holder shall not take any action with respect to any distribution deemed to
be made pursuant to such Resale Registration Statement, which would constitute a
violation of Regulation M under the Exchange Act, or any other applicable rule,
regulation or law.
 
Section 4.  Registration Expenses.  All expenses incident to the Company’s
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Resale Registration Statement becomes effective,
including, without limitation: (i) all registration and filing fees; (ii) all
reasonable fees and expenses of compliance with federal securities and state
blue sky or securities laws; (iii) all reasonable expenses of printing
(including printing Prospectuses), messenger and delivery services and
telephone; (iv) all reasonable fees and disbursements of counsel for the
Company; (v) all applications and filing fees in connection with listing the
Registrable Securities on a national securities exchange or automated quotation
system pursuant to the requirements hereof; (vi) Securities Act liability
insurance, if the Company so desires such insurance and (vii) all reasonable
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).  Notwithstanding anything in this
Section 4 to the contrary, the Company shall not be required to pay any
underwriting discounts, commissions or transfer taxes, if any, relating to the
sale or disposition of any Holder’s Restricted Securities.
 
The Company will, in any event, bear its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any person, including special experts, retained by the Company.
 
Section 5.  Indemnification.
 
(a)  Indemnification by the Company. To the fullest extent permitted by law, the
Company shall, notwithstanding any termination of this Agreement, indemnify and
hold harmless each Holder of the Registrable Securities (including, its
officers, directors, members, partners, agents, brokers, investment advisors and
employees of each of them) and each person
 
 

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

 
 
controlling such Holder within the meaning of Section 15 of the Securities Act
(including the officers, directors, members, partners, agent and employees of
each such controlling person), with respect to which any registration has been
effected pursuant to this Agreement, against all claims, losses, damages,
liabilities, judgments, fines, penalties, charges, costs (including, without
limitation, reasonable attorneys’ fees and disbursements) and expenses
(collectively, “Losses”), as incurred, including any Losses incurred in
settlement of any litigation, commenced or threatened (subject to Subsection
5(c) below), arising out of or based on any untrue or alleged untrue statement
of a material fact contained in any Resale Registration Statement, Prospectus or
offering circular, or any amendment or supplement thereof, incident to any such
registration, or based on any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances in which they were made;
provided, that the Company shall not be liable in any such case to the extent
that any untrue or alleged untrue statement or omission or alleged omission is
made in reliance upon and in conformity with information furnished to the
Company by or on behalf of any Holder and stated to be specifically for use in
preparation of such Resale Registration Statement, Prospectus or offering
circular; provided, further, that the Company shall not be liable in any such
case where the Losses arise out of, or are related to, the failure of any Holder
to comply with the covenants and agreements contained in this Agreement.  The
Company will also indemnify underwriters participating in the distribution,
their officers, directors, employees, partners and agents, and each Person who
controls such underwriters (within the meaning of the Securities Act), to the
same extent as provided above with respect to the indemnification of the Holders
of Registrable Securities, if so requested.  The Company shall notify the
Holders promptly of the institution, threat or assertion of any legal proceeding
arising from or in connection with the transactions contemplated by this
Agreement of which the Company is aware.
 
(b)  Indemnification by Holders of Registrable Securities.  In connection with
any Resale Registration Statement in which a Holder of Registrable Securities is
participating, each such Holder will furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such Resale Registration Statement or Prospectus. Each
Holder will severally and not jointly, if Registrable Securities held by such
Holder are included in the securities as to which such registration is being
effected, indemnify the Company, each of its directors and officers, each
underwriter of an underwritten offering of the Registrable Securities in which
such Holder participates, each other Holder whose Securities are included in
such Resale Registration Statement and each person who controls the Company
within the meaning of Section 15 of the Securities Act (collectively, “Holder
Indemnitees”), against all Losses, as incurred, including any Losses incurred in
settlement of any litigation, commenced or threatened (subject to Subsection
5(c) below), arising out of, or based on, any untrue or alleged untrue statement
of a material fact contained in any Resale Registration Statement, Prospectus or
offering circular, or any amendment or supplement thereof, incident to any such
registration, or based on any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances in which they were made,
in each case to the extent, but only to the extent, that such untrue or alleged
untrue statement or omission or alleged omission is made in reliance upon and in
conformity with written information and/or affidavits furnished to the Company
by or on behalf of such Holder; provided, that the indemnity shall not apply to
the extent that such Losses result from the fact that a current copy of the
Prospectus was not made
 
 

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

 
 
available to the Holders and such current copy of the Prospectus would have
cured the defect giving rise to such Losses.  In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
covered by such Resale Registration Statement giving rise to such
indemnification obligation.  The Holder Indemnitees shall be entitled to receive
indemnities from underwriters participating in the distribution, to the same
extent as provided above, with respect to information furnished in writing by
such underwriters specifically for inclusion in any Registration Statement,
Prospectus or offering circular.
 
(c)  Conduct of Indemnification Proceedings.  Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel of such
indemnifying party’s choice; provided, however, that any Person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to the indemnified party in a timely
manner or (B) a written opinion of counsel reasonably acceptable to the
indemnifying party, asserts that a conflict of interest exists between such
person and the indemnifying party with respect to such claims (in which case, if
the indemnified Person notifies the indemnifying party in writing that such
Person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such Person).  The indemnifying party will not be
subject to any liability for any settlement made without its consent.  No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement unless (x) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation, and (y) the only consequence to the indemnified party under such
judgment or settlement is the creation of an obligation to pay money damages,
all of which are being satisfied by the indemnifying party.  An indemnifying
party who is not entitled to, or elects not to, assume the defense of the claim
will not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim.
 
(d)  Contribution.  If for any reason the indemnification provided for in
Subsection 5(a) or Subsection 5(b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by Subsection 5(a) and
Subsection 5(b), then the indemnifying party shall contribute to the amount paid
or payable by the indemnified party as a result of such Losses in such
proportion as is appropriate to reflect not only the relative benefits received
by the indemnifying party and the indemnified party, but also the relative fault
of the indemnifying party and the indemnified party, as well as any other
relevant equitable considerations.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentations.  Notwithstanding the provisions of this Section
5(d), no Holder shall be required to contribute, in the aggregate, any  amount
in excess of the amount by which the proceeds actually received by such Holder
from the sale of the Registrable Securities subject to the proceeding exceeds
the amount of any damages that such Holder has otherwise been
 
 

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

 
 
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, except in the case of fraud by such Holder.
 
Section 6.  Participation in Underwritten Registrations.
 
(a)  One or more Holders may elect to retain an underwriter to conduct an
Underwritten Offering of all or a portion of the Registrable Securities held by
such Holders.  In the event any Holders elect to conduct an Underwritten
Offering, each other Holder shall be entitled to participate in such
Underwritten Offering subject to Subsection 6(b) below.
 
(b)  No Person may participate in any Underwritten Offering hereunder unless
such Person (i) agrees to sell such Person’s Registrable Securities on the basis
provided in any underwriting arrangements approved by the Holders of a majority
of the Registrable Securities included in such Underwritten Offering and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.  Nothing in this Section 6 shall be construed to
create any additional rights regarding the registration of Registrable
Securities in any Person otherwise than as set forth herein.
 
(c)  Nothing in this Section 6 (i) shall obligate the Company to pay any
underwriting discounts or commissions in connection with any underwritten
offering of Registrable Securities, or (ii) entitle the Holders to select the
underwriter of any underwritten primary offering of securities by the Company.
 
Section 7.  Rule 144. The Company agrees with each Holder, for so long as any
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of such Holder in connection with any sale thereof and
any prospective purchaser of such Restricted Securities designated by the
Holder, the information required by Rule 144A(d)(4) under the Securities Act in
order to permit resales of such Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15(d) of the Exchange Act, to use reasonable
efforts to make all filings required thereby in a timely manner in order to
permit resales of such Restricted Securities pursuant to Rule 144.
 
Section 8.  Legend.  Each Holder consents to the placing of the following legend
on all certificates representing shares of Registrable Securities and on any
certificate issued at any time in exchange or substitution for any certificate
bearing such legend, for so long as the securities represented thereby are
Registrable Securities:
 
THIS CERTIFICATE IS ISSUED SUBJECT TO THE PROVISIONS OF A REGISTRATION RIGHTS
AGREEMENT, AND ANY TRANSFEREE OF THIS CERTIFICATE OR OF THE SHARES REPRESENTED
BY IT SHALL BE BOUND BY THE PROVISIONS OF SAID AGREEMENT, A COPY OF WHICH IS ON
FILE WITH, AND AVAILABLE FROM, THE SECRETARY OF NEPHROS, INC.
 
Section 9.  Delay Periods; Suspension of Sales.  Each Holder shall suspend, upon
request of the Company, any disposition of Registrable Securities pursuant to
the Resale
 
 

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

 
 
 
Registration Statement and Prospectus contemplated herein during (i) any period
not to exceed two 30-day periods within any one 12-month period the Company
requires in connection with a primary underwritten offering of equity securities
and (ii) any period, not to exceed one 45-day period per circumstance or
development, when the Company determines in good faith that offers and sales
pursuant thereto should not be made by reason of the presence of material
undisclosed circumstances or developments with respect to which the disclosure
that would be required in such a prospectus is premature, would have an adverse
effect on the Company or is otherwise inadvisable; provided, however, the
aggregate number of days that such suspensions may apply during any 365-day
period is 90 days.  In the event of a delay period or suspension, the Company
will use its commercially reasonable best efforts to ensure that the use of the
Prospectus may be resumed as promptly as is practicable.  Nothing in this
Section 9 shall operate to extend the Effectiveness Date.
 
Section 10.  Miscellaneous.
 
(a)  Amendments and Waivers.  The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given, without the written consent of the
Company and the Holders of a majority of the outstanding Registrable Securities;
provided, however, that no such amendment, modification, supplement, waiver,
consent or departure shall distinguish between Holders or groups of Holders
unless any Holder adversely affected thereby shall have consented thereto in
writing.
 
(b)  Notices.  Except where expressly stated otherwise herein, all notices and
other communications provided for or permitted hereunder shall be made in
writing by hand-delivery, first-class mail (registered, return receipt
requested), or air courier guaranteeing overnight delivery:
 
    (i)    if to any Holder, at the address for such Holder set forth on the
records of the Company; and
 
    (ii)    if to the Company,
 
Nephros, Inc.
3960 Broadway
New York, New York  10032
Attention: President

With a copy to:
 
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention:  Thomas D. Balliett, Esq.

All such notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five Business Days after
being deposited in
 
 

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

 
 
the mail, postage prepaid, if mailed; and on the next Business Day, if timely
delivered to an air courier guaranteeing overnight delivery.
 
The address or person or entity to whose attention any notice or communication
shall be given may be changed by notice to the other parties in accordance with
the provisions of this Section 10(b).
 
(c)  Successors and Assigns; Third Party Beneficiaries.  This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties and shall inure to the benefit of each Holder, and it is not the
intention of the parties to confer upon any other person or entity any rights or
remedies, except the rights, remedies, obligations and liabilities of Section 5
herein shall be conferred upon National Securities Corporation, Dinosaur
Securities, LLC, and registered persons of such entities that own Placement
Agent Warrants to the same extent as if they were Holders hereunder and their
shares issuable upon exercise of Placement Agent Warrants and included in any
Resale Registration Statement were Registrable Securities.  The Company may not
assign its rights or obligations hereunder without the prior written consent of
the Holders of a majority of the outstanding Registrable Securities.  Each
Holder may assign its respective rights hereunder to any Person.  If any
transferee of a Holder shall acquire Registrable Securities in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and
such person shall be entitled to receive the benefits hereof.
 
(d)  Counterparts.  This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
 
(e)  Headings.  The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
 
(f)  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF THE CONFLICT OF LAWS THEREOF.
 
(g)  Severability.  In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
 
(h)  Jurisdiction; Forum.  Each party hereto consents and submits to the
exclusive jurisdiction of any state court sitting in the County of New York or
federal court sitting in the Southern District of the State of New York in
connection with any dispute arising out of or relating to this Agreement, and
agrees that all suits, actions and proceedings brought by such
 
 
 

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

 
 
party hereunder shall be brought only in such jurisdictions.  Each party hereto
waives any objection to the laying of venue in such courts and any claim that
any such action has been brought in an inconvenient forum.  To the extent
permitted by law, any judgment in respect of a dispute arising out of or
relating to this Agreement may be enforced in any other jurisdiction within or
outside the United States by suit on the judgment, a certified copy of such
judgment being conclusive evidence of the fact and amount of such
judgment.  Each party hereto agrees that personal service of process may be
effected by any of the means specified in Section 10(b), addressed to such
party.  The foregoing shall not limit the rights of any party to serve process
in any other manner permitted by law.
 
(i)  Entire Agreement.  This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto with respect
to registration rights granted with respect to Registrable Securities.  There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the registration rights granted with
respect to the Registrable Securities.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
 
(j)  Independent Nature of Holders’ Obligations and Rights.  The obligations of
each Holder hereunder are several and not joint with the obligations of any
other Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder.  Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement.  Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.
 
(k)  Attorneys’ Fees.  In the event of any litigation or other proceeding
concerning this Agreement or the transactions contemplated hereby, including any
such litigation or proceeding with respect to the enforcement of this Agreement
against any defaulting party, the prevailing party in such litigation or
proceeding shall be entitled to reimbursement from the party opposing such
prevailing party for all attorneys’ fees and costs incurred by such prevailing
party in such litigation or proceeding.
 
(l)  Inclusion of Placement Agent Shares.  The parties hereto agree that the
shares of Common Stock issuable pursuant to the Placement Agent Warrants may be
included in the Resale Registration Statements.  For purposes of making
allocations pursuant to Section 3(b), such shares shall be treated as
“Registrable Securities” and as “shares of Common Stock issuable upon exercise
of the Class D Warrants” and the holders of such warrants shall be treated as
“holders of the Class D Warrants”.
 
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]

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

 
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
 
                                                NEPHROS, INC.
 
 
                                By: /s/ Norman J. Barta
                                Name: Norman J. Barta
                                Title: President and Chief Executive Officer
 
 
 

 

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

 
                                                    INITIAL HOLDER:  Southpaw
Credit Opportunity Master Fund LP
                                                    By: Southpaw GP LLC
 

                                                    By: /s/ Kevin
Wyman                                      
                                                       Name: Kevin Wyman
                                                       Title: Managing Member
 
 
                                                    Address for Notices:
                                                    c/o Southpaw Asset
Management LP
 
                                                     4 Greenwich Office Park    
 
                                                                                          
                                                    (Street Address)

                                                    Greenwich,             
CT                   06831       
                                  (City)           (State/Country)   (Zip Code)

                                                    Attention: Bob
Thompson                            

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

 
                                                    INITIAL HOLDER:  Lambda
Investors LLC

                                                    By: /s/ Arthur
Amron                             
                                                       Name: Arthur Amron
                                                       Title: Vice President
 
                                                    Address for Notices:
                                                    c/o Wexford Capital LLC
 
                                                    411 West Putnam
Avenue                    
                                                                
                                                    (Street Address)

                                                    Greenwich,       
 CT           06830    
                                                                
                                                      (City)        (State/Country)  (Zip
Code)

                                                    Attention: Arthur
Amron                       

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

                                                        INITIAL HOLDER:  GPC 76,
LLC
                                                        By: Southpaw Asset
Management LP
 

                                                        By: /s/ Kevin
Wyman                                      
                                                           Name: Kevin Wyman
                                                           Title: Investment
Manager
 
 
                                                        Address for Notices:
                                                        c/o Southpaw Asset
Management LP
 
                                                        4 Greenwich Office
Park                                 
                                    (Street Address)

                                                        Greenwich,           
CT                    06831        
                                    (City)          (State/Country)     (Zip
Code)

                                                        Attention: Bob
Thompson                          

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

                                                INITIAL HOLDER: 3V Capital
Master Fund Ltd.
                                                By:  3V Capital Management LLC

                                                By: /s/ Scott A.
Stagg                                   
                                                                
                                                   Name: Scott A. Stagg
                                                   Title: Managing Member
 
                                                Address for Notices:
 
                                                3 Greenwich Office
Park                              
                                                                
                                                (Street Address)

                                                Greenwich,      
CT                   06831          
                                                                
                                                (City)        (State/Country)  (Zip
Code)

                                                Attention: Mark
Focht                                

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

                                                INITIAL HOLDER: Distressed/High
Yield Trading Opportunities, Ltd.
                                                By:  Eliteperformance Fund, Ltd.

 
                                                By: /s/ Scott A.
Stagg                                   
                                                                
                                                   Name: Scott A. Stagg
                                                   Title: Portfolio Manager
 
                                                Address for Notices:
 
                                                3 Greenwich Office
Park                              
                                                                
                                                (Street Address)

                                                Greenwich,      
CT                   06831          
                                                                
                                                (City)        (State/Country)  (Zip
Code)

                                                Attention: Mark
Focht                                

 
 
 
 
 

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

 
                                                INITIAL HOLDER:  Lewis P.
Schneider
 

                                                By: /s/ Lewis P.
Schneider                         
                                                   Name: Lewis P. Schneider
                                                           Title:
 
                                                       Address for Notices:
 
                                                10 Dunmore
Road                                                
                                  
                                                                
                                                (Street Address)

                                                New City,          NY         
       10956                  
                                                (City)        (State/Country)  (Zip
Code)

                                                        Attention: Lewis P.
Schneider                                

 

 

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

                                                INITIAL HOLDER:  Kudu Partners,
LP
 

                                                By: /s/ Brian P.
Lupien                           
                                                   Name: Brian P. Lupien
                                                   Title: Treasurer
 
                                                Address for Notices:
 
                                1900 Country Road 124                        
                                                                
                                                (Street Address)

                                                Hesperus,       
 CO                   81326     
                                                (City)       (State/Country)   (Zip
Code)

                                                Attention: Bill
Lupien                            

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

                                                        INITIAL HOLDER:  LJHS
Company
 

                                                        By: /s/ Jack A.
McLeod                            
                                                           Name: Jack A. McLeod
                                                           Title: Agent
 
                                                        Address for Notices:
 
                                                        50 No. Sierra St.,
Palladio Apt. 1313       
                                                        (Street Address)

                                                        Reno,            
NV             89501-1340      
                                                                
                                                        (City)   (State/Country)  (Zip
Code)      

                                                        Attention: Jack
McLeod                         

 
 

 
 

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

 

 
                                                    INITIAL HOLDER:  Enso Global
Equities Partnership LP
 
 
                                                    By: /s/ Joshua A.
Fink                            
                                   Name: Joshua A. Fink
                                                       Title:  Director of GP
 
                                                    Address for Notices:
 
                                                    540 Madison Avenue, 18th
Floor         
                                                    (Street Address)

                                                    New York,    New York      
   10022       
                                                     
(City)      (State/Country)  (Zip Code)

                                                    Attention: Salina
Love                           
 
 
 

 
 
 

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

 
SCHEDULE 1

Investor
Registrable Securities
   
Lambda Investors Inc.
Common Stock issuable upon exercise of $10,000,000 aggregate principal amount of
Series A 10% Secured Convertible Notes due 2008 and Common Stock issuable upon
exercise of Class D Warrants to purchase Common Stock
   
Enso Global Equities Partnership LP
Common Stock issuable upon exercise of $2,400,000 aggregate principal amount of
Series A 10% Secured Convertible Notes due 2008 and Common Stock issuable upon
exercise of Class D Warrants to purchase Common Stock
   
GPC 76, LLC
Common Stock issuable upon exercise of $176,500 aggregate principal amount of
Series A 10% Secured Convertible Notes due 2008 and Common Stock issuable upon
exercise of Class D Warrants to purchase Common Stock
   
Lewis P. Schneider
Common Stock issuable upon exercise of $100,000 aggregate principal amount of
Series A 10% Secured Convertible Notes due 2008 and Common Stock issuable upon
exercise of Class D Warrants to purchase Common Stock
   
Southpaw Credit Opportunity Master Fund L.P.
Common Stock issuable upon exercise of $2,038,461.54 aggregate principal amount
of Series B 10% Secured Convertible Notes due 2008
   
3V Capital Master Fund Ltd.
Common Stock issuable upon exercise of $1,528,846.15 aggregate principal amount
of Series B 10% Secured Convertible Notes due 2008
   
Distressed/High Yield Trading Opportunities Ltd.
Common Stock issuable upon exercise of $1,528,846.15 aggregate principal amount
of Series B 10% Secured Convertible Notes due 2008
   
Kudu Partners
Common Stock issuable upon exercise of $101,923.08 aggregate principal amount of
Series B 10% Secured Convertible Notes due 2008
   
LJHS Company
Common Stock issuable upon exercise of $101,923.08 aggregate principal amount of
Series B 10% Secured Convertible Notes due 2008

 

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

SCHEDULE 3(a)

Other Registrable Securities

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

EXHIBIT A
 
Form of Counterpart Signature Page
 
IN WITNESS WHEREOF, the undersigned has caused this counterpart to the
Registration Rights Agreement among Nephros, Inc. and the Holders (as defined
therein), dated as of ______ __, 2007, as amended from time to time, to be duly
executed and delivered as of _______ __, ____.
 
            [__________________], as an additional Holder

            By: ________________________________________                                                             
            Name:
            Title:
 
            Notice Address:
 
                                        ____________________________
 
                                        ____________________________
 
                                        ____________________________
            Attention:                                      
            Tel:(___) ___-___
            Fax:(___) ___-___

 
Accepted and agreed to as of the
__ day of _________, ____:
 
NEPHROS, INC.
 
By:                                                      
Name:
Title: