EMPLOYMENT AGREEMENT
 
This EMPLOYMENT AGREEMENT (this “Agreement”), made in New York, New York as of
the 15th day of September 2008 (the “Effective Date”), between Nephros, Inc., a
Delaware corporation having its executive offices and principal place of
business at 3960 Broadway, New York, New York 10032 (the “Company”), and Ernest
A. Elgin III (“Executive”).
 
RECITALS
 
WHEREAS, the Company desires to employ Executive, and Executive desires to
accept such employment on the terms and conditions hereinafter set forth:
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and Executive agree as follows:
 
1. Term. The term of this Agreement shall be the period commencing on the
Effective Date and ending on September 14, 2011 (the “Expiration Date,” and
collectively, the “Term”).
 
2. Employment.
 
2.1 Employment by the Company; Duties. Executive agrees to be employed by the
Company during the Term upon the terms and subject to the conditions set forth
in this Agreement. Executive shall serve as President and Chief Executive
Officer (“CEO”), reporting to the Board of Directors of the Company (the
"Board”), and shall have such duties as may be prescribed by the Board from time
to time and which are commonly performed by presidents and chief executive
officer’s of similar sized companies conducting similar business, such as, but
not limited to, corporate planning and oversight of the financial, marketing,
research and other functions of the organization.
 
2.2 Performance of Duties. Throughout the Term, Executive shall faithfully and
diligently perform Executive's duties in conformity with the directions of the
Board and serve the Company to the best of Executive's ability. Executive shall
devote Executive's entire working time to the business and affairs of the
Company, subject to vacations and sick leave in accordance with Company policy
and as otherwise permitted herein and will not engage in any other employment,
occupation or consulting for any direct or indirect remuneration, nor engage in
any other activities that conflict with his obligations to the Company without
the prior written approval of the Board.
 
2.3 Place of Performance. During his employment with the Company, Executive will
work at the Company's offices in New York, New York, as necessary or
appropriate, or at such other location in the greater New York City area as the
Company may determine. Throughout the Term, Executive agrees to maintain
Executive's personal residence within reasonable access to Executive's place of
employment. Executive recognizes that his duties will require, from time to time
and at the Company's expense (subject to Section 3.6 below), travel to domestic
and international locations.
 
 
 

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2.4 At-Will Employment. The parties agree that Executive’s employment shall be
on an “at-will” basis, subject to the terms of this Agreement, and may be
terminated at any time, with or without good cause or for any or no cause, at
the option of either the Company or Executive with or without notice. Executive
understands and agrees that neither his job performance nor promotions,
commendations, bonuses or the like from the Company give rise to or in any way
serve as the basis for modification, amendment, or extension, by implication or
otherwise, of his employment with the Company.
 
3. Compensation and Benefits.
 
3.1 Base Salary. The Company agrees to pay to Executive a base salary ("Base
Salary") at the annual rate of $240,000, payable in equal installments
consistent with the Company's payroll practices.
 
3.2 Performance Bonus. The Company shall establish for Executive a target
discretionary bonus of 30% of annual base salary. The bonus amount, if any, will
be determined by the Compensation Committee of the Board (or the independent
members of the Board, if there is no Compensation Committee) (the “Compensation
Committee”) in its sole discretion, based in part on attainment of personal
objectives as determined by Executive and Compensation Committee, and based in
part on the Company achieving overall corporate targets. The Company will
provide a guaranteed bonus of $35,000 for the period beginning on Executive’s
start date and ending on December 31, 2008.
 
3.3 Grant of Options and Terms Thereof. Upon execution of this Agreement, the
Company shall grant to Executive options to purchase 750,000 shares of the
Company's common stock ("Options") pursuant to the Company’s 2004 Stock
Incentive Plan or successor plans, if applicable, subject to exercise price,
vesting and forfeiture as described in the Schedule A.
 
3.4 Change of Control. In the event of a Change of Control (as defined below),
all unvested Options shall vest and become exercisable immediately and, unless
all such options are cashed-out in the Change of Control transaction, shall
remain exercisable for a period of not less than 360 days, regardless of whether
Executive’s employment is terminated.
 

(i)
For purposes of this Agreement, a “Change of Control” shall mean (A) the
acquisition, directly or indirectly, following the date hereof by any person (as
such term is defined in Section 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended), in one transaction or a series of related
transactions, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company’s then outstanding securities
if such person or his or its affiliate(s) do not own in excess of 50% of such
voting power on the date of this Agreement, or (B) the disposition by the
Company (whether direct or indirect, by sale of assets or stock, merger,
consolidation or otherwise) of all or substantially all of its business and/or
assets in one transaction or series of related transactions (other than a merger
effected exclusively for the purpose of changing the domicile of the Company).

 
 
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  (ii) Notwithstanding Section 3.4(i) above, no transaction shall be considered
a Change of Control under this Agreement, and no Options shall vest, pursuant to
this Section 3.4:

 

 
a.
if the Company’s stockholders existing prior to such transaction(s) hold in the
aggregate more than fifty percent (50%) of the securities or assets of the
surviving or resulting company; or

 

 
b.
in connection with a private placement of equity securities of the Company in
connection with a financing of the Company’s on-going operations; or

 

 
c.
for any transaction ascribing a valuation to the Company of less than Seventy
Five Million Dollars ($75,000,000); provided, however, that such a transaction
may be considered as part of a series of transactions that gives rise to a
Change of Control pursuant to Section 3.4.

 
3.5 Benefits and Perquisites. Executive shall be entitled to participate in, to
the extent Executive is otherwise eligible under the terms thereof, the benefit
plans and programs, and receive the benefits and perquisites, generally provided
to the Company’s eligible employees. Executive shall be entitled to receive four
weeks of annual paid vacation in accordance with the Company’s vacation policy,
with the timing and duration of specific vacations mutually and reasonably
agreed to by the parties hereto. The Company reserves the right to cancel or
change the benefit plans and programs it offers to its employees at any time.
 
3.6 Travel and Business Expenses. Upon submission of itemized expense statements
in the manner specified by the Company, Executive shall be entitled to
reimbursement for reasonable travel and other reasonable business expenses duly
incurred by Executive in the performance of Executive's duties under this
Agreement in accordance with the policies and procedures established by the
Company from time to time for executives of the same level and responsibility as
Executive.
 
3.7 No Other Compensation or Benefits; Payment. The compensation and benefits
specified in this Section 3 and in Section 4 of this Agreement shall be in lieu
of any and all other compensation and benefits. Payment of all compensation and
benefits to Executive hereunder shall be made in accordance with the relevant
Company policies in effect from time to time to the extent the same are
consistently applied, including normal payroll practices, and shall be subject
to all applicable employment and withholding taxes and other withholdings.
 
3.8 Cessation of Employment. In the event Executive shall cease to be employed
by the Company for any reason, then Executive's compensation and benefits shall
cease on the date of such event, except as otherwise provided herein or in any
applicable employee benefit plan or program.
 
 
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4. Termination of Employment.
 
4.1 Termination. The Company may terminate Executive's employment for Cause (as
defined below), in which case the provisions of Section 4.2 of this Agreement
shall apply. The Company may also terminate Executive's employment in the event
of Executive's Disability (as defined below), in which case the provisions of
Section 4.4 of this Agreement shall apply. The Company may also terminate
Executive's employment for any other reason by written notice to Executive, in
which case the provisions of Section 4.5 of this Agreement shall apply. If
Executive's employment is terminated by reason of Executive's death, retirement
or voluntary resignation, the provisions of Section 4.3 of this Agreement shall
apply.
 
4.2 Termination for Cause. In the event that Executive's employment hereunder is
terminated during the Term by the Company for Cause (as defined below), then the
Company shall pay to Executive only the earned but unpaid Base Salary for
services rendered through the date of termination, and any and all unvested
Options shall automatically be cancelled and forfeited by Executive as of the
date of termination. Executive shall have the right to exercise any and all
vested Options within the period commencing on the date of termination and
ending ninety days after the date of such termination (the “Options Exercise
Period”). Any Options not exercised by Executive within the Options Exercise
Period shall be cancelled. In all other respects, all such Options shall be
governed by the plans, programs, agreements, and other documents pursuant to
which such Options were granted. For purposes of this Agreement, "Cause" shall
mean (i) an indictment, conviction, or plea of nolo contendere to, any felony or
a misdemeanor involving fraud or dishonesty (whether or not involving the
Company); (ii) engaging in any act which, in each case, subjects, or if
generally known would subject, the Company to public ridicule or embarrassment;
(iii) gross neglect or misconduct in the performance of Executive's duties
hereunder; or (iv) material breach of any provision of this Agreement by
Executive; provided, however, that with respect to clauses (iii) or (iv),
Executive shall have received written notice from the Company setting forth the
alleged act or failure to act constituting "Cause" hereunder, and Executive
shall not have cured such act or refusal to act within 10 business days of his
actual receipt of notice.
 
4.3 Termination by Reason of Death or Retirement or Voluntary Resignation. In
the event that Executive's employment hereunder is terminated during the Term
(x) by reason of Executive's death, or (y) by reason of Executive's voluntary
resignation or retirement, then the Company shall pay to Executive only the
earned but unpaid Base Salary for services rendered through the date of
termination. Any and all unvested Options shall automatically be cancelled and
forfeited by Executive as of the date of Executive's death or Executive's
voluntary resignation or retirement, except upon exercise of Executive’s Change
of Control Termination Option (as defined in Section 4.6). Executive or
Executive’s estate shall have the right to exercise any and all vested Options
within the Options Exercise Period. Any Options not exercised by Executive
within the Options Exercise Period shall be cancelled. In all other respects,
all such Options shall be governed by the plans, programs, agreements, and other
documents pursuant to which such Options were granted.
 
4.4 Disability. If, as a result of Executive's incapacity due to physical or
mental illness, the Company determines that Executive has failed to perform
Executive's duties hereunder on a full time basis for either (i) ninety (90)
days within any three hundred sixty-five (365) day period, or (ii) sixty (60)
consecutive days, the Company may terminate Executive's employment hereunder for
"Disability". In that event, the Company shall pay to Executive only the earned
but unpaid, Base Salary for services rendered through such date of termination.
Any and all unvested Options shall be cancelled as of the date of termination.
During any period that Executive fails to perform Executive's duties hereunder
as a result of incapacity due to physical or mental illness (a "Disability
Period"), Executive shall continue to receive the compensation and benefits
provided by Section 3 of this Agreement until Executive's employment hereunder
is terminated; provided, however, that the amount of compensation and benefits
received by Executive during the Disability Period shall be reduced by the
aggregate amounts, if any, payable to Executive under disability benefit plans
and programs of the Company or under the Social Security disability insurance
program. Additionally, the vesting of Executive’s Options shall be tolled during
the Disability Period and in the event of a termination of this Agreement as a
result of Executive’s Disability, any and all unvested Options shall
automatically be cancelled and forfeited by Executive as of the date of such
termination. Executive (or as applicable, his spouse or estate) shall have the
right to exercise any and all vested Options within the Options Exercise Period.
Any Options not exercised by Executive within the Options Exercise Period shall
be cancelled. In all other respects, all such Options shall be governed by the
plans, programs, agreements, and other documents pursuant to which such Options
were granted.
 
 
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4.5 Termination by Company for Any Other Reason. In the event that Executive's
employment hereunder is terminated by the Company prior to the expiration of the
Term for any reason other than as provided in Sections 4.2, 4.3 or 4.4 of this
Agreement, any and all unvested Options shall automatically be cancelled and
forfeited by Executive as of the date of such termination and the Company shall
pay to Executive:
 

 
(i)
any earned but unpaid Base Salary for services rendered through such date of
termination; and

 

 
(ii)
continuing payments of severance pay (less applicable withholding taxes) at a
rate equal to his Base Salary rate, as then in effect, for a period equal to the
lesser of (i) Maximum Severance Period (as defined below), and (ii) the
remaining Term from the date of such termination (herein after the “Severance
Term”), to be paid periodically in accordance with the Company's normal payroll
policies); provided that if Executive continues to be employed in any capacity
by a successor entity following a Change of Control, the severance pay that
would otherwise be payable under this Section 4.5 shall be reduced by the amount
of base compensation and guaranteed bonus (if any) Executive receives in such
capacity during or attributable to the Severance Term.

 
As used herein, the “Maximum Severance Period” shall mean three months, until
Executive has been employed hereunder for at least one year, and, thereafter,
shall mean six months.
 
Notwithstanding anything to the contrary contained herein, in the event that
Executive shall breach Sections 5, 6 or 7 of this Agreement at any time, in
addition to any other remedies the Company may have in the event Executive
breaches this Agreement, the Company's obligation under clauses (i) and (ii) of
this Section 4.5 shall cease and Executive's rights thereto shall terminate and
shall be forfeited.
 
 
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4.6 Change of Control Termination. As soon as reasonable prior any event
constituting a Change of Control, but no later than thirty one (31) days prior
thereto, the Company shall advise Executive of this pending occurrence (the
“Change of Control Notice”). Executive shall then have thirty one (31) days from
the date of the Change of Control Notice to discuss, negotiate and confer with
any successor entity regarding the terms and conditions of Executive's continued
employment with the successor Company following a Change of Control. If
Executive, acting reasonably, is unable to reach an agreement through good faith
negotiations with any successor to the Company during such 31 day period, then
Executive may elect (the “Change of Control Termination Option”) to terminate
his employment with the Company and receive the payments outlined in Section 4.5
hereof.
 
4.7 Release. Except for any accrued obligations, the severance payments
described in Section 4.5 will be provided to Executive only if the following
conditions are satisfied: (i) Executive agrees to continue to be bound by and
complies with all surviving provisions of the confidentiality and/or non-compete
provisions of this Agreement; and (ii) Executive executes and delivers to the
Company, and does not revoke, a full general release, in a form acceptable to
the Company, releasing all claims, known or unknown, that Executive may have
against the Company, and any subsidiary or related entity, their officers,
directors, employees and agents, arising out of or any way related to
Executive’s employment or termination of employment with the Company.
 
4.8 Section 409A. Notwithstanding the due date of any post-employment payments,
if at the time of the termination of employment Executive is a “specified
employee” (as defined in Section 409A of the Internal Revenue Code of 1986, as
amended (“Section 409A”)) as determined by the Compensation Committee of the
Board, Executive will not be entitled to any payments upon termination of
employment until the earlier of (i) the date which is six (6) months after the
termination of employment for any reason other than death or (ii) the date of
Executive’s death. The provisions of this paragraph will only apply if and to
the extent required to avoid any “additional tax” under Section 409A.
 
5. Exclusive Employment; Noncompetition.
 
5.1 No Conflict; No Other Employment. During the period of Executive's
employment with the Company, Executive shall not: (i) engage in any activity
which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Board; provided, however, that
Executive shall be entitled to manage his personal investments and otherwise
attend to personal affairs, including charitable activities, in a manner that
does not unreasonably interfere with his responsibilities hereunder, or (ii)
accept any other employment, whether as an executive or consultant or in any
other capacity, and whether or not compensated therefor, unless Executive
receives the prior written approval of the Board.
 
 
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5.2 No Competition.
 
(a) Executive acknowledges and recognizes the highly competitive nature of the
Company’s business and that access to the Company’s confidential records and
proprietary information renders him special and unique within the Company’s
industry. In consideration of the payment by the Company to Executive of amounts
that may hereafter be paid to Executive pursuant to this Agreement (including,
without limitation, pursuant to Sections 3 and 4 hereof) and other obligations
undertaken by the Company hereunder, Executive agrees that during (i) his
employment with the Company and (ii) the period beginning on the date of
termination of employment for any reason and ending on the last day of the
Severance Term as defined in Section 4.5(ii) (the “Post-Employment Period”),
Executive shall not, directly or indirectly, for himself or any third party,
engage without the prior consent of the Company as owner, investor, financier,
partner, stockholder, employer, employee, consultant, advisor, director, officer
or otherwise in any firm, partnership, corporation, entity, or business that
engages or participates in a business that offers any product or service that
competes in any material respect with a product or service (i) provided by the
Company to customers or (ii) that the Company is developing, during the period
of Executive’s employment with the Company (a “Competing Business”) anywhere in
the world where the Company conducts its business, including but not limited to
(A) the development of medical equipment in the hemodiafiltration realm for use
in ESRD chronic therapy, and (B) the development of cold water or air
purification systems.
 
(b) The provisions of Section 5.2(a) will not be deemed breached merely because
Executive owns less than 1% of the outstanding common stock of a publicly-traded
company.
 
(c) The Company shall have the option to extend the No Competition Period for an
additional six months in return for a six-month extension of the Severance Term
and any such extension shall extend the Post-Employment Period.
 
(d) The covenants contained in Section 5.2(a) shall be construed as a series of
separate covenants, one for each county, city, state, or any similar subdivision
in any geographic area. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in Section
5.2(a). If, in any judicial proceeding, a court refuses to enforce any of such
separate covenants (or any part thereof), then such unenforceable covenant (or
such part) shall be eliminated from this Agreement to the extent permitted by
law and necessary to permit the remaining separate covenants (or portions
thereof) to be enforced. In the event that the provisions of this section are
deemed to exceed the time, geographic or scope limitations permitted by
applicable law, then such provisions shall be, to the extent permitted by law,
reformed to the maximum time, geographic or scope limitations, as the case may
be, permitted by applicable laws.
 
(e) Executive acknowledges that the limitations of time, geography and scope of
activity agreed to in this no competition provision are reasonable because,
among other things, (i) the Company is engaged in a highly competitive industry,
(ii) he will have access to trade secrets and know-how of the Company, (iii) he
will be able to obtain suitable and satisfactory employment without violation of
this agreement, and (iv) these limitations are necessary to protect the trade
secrets, confidential information and goodwill of the Company.
 
 
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5.3 Non-Solicitation. In further consideration of the payment by the Company to
Executive of amounts that may hereafter be paid to Executive pursuant to this
Agreement (including, without limitation, pursuant to Sections 3 and 4 hereof)
and other obligations undertaken by the Company hereunder, Executive agrees that
during his employment and the Post-Employment Period, he shall not, directly or
indirectly, (i) solicit, encourage or attempt to solicit or encourage any of the
employees, agents, consultants or representatives of the Company or any of its
affiliates to terminate his, her, or its relationship with the Company or such
affiliate; (ii) solicit, encourage or attempt to solicit or encourage any of the
employees of the Company or any of its affiliates to become employees or
consultants of any other person or entity; (iii) solicit, encourage or attempt
to solicit or encourage any of the consultants of the Company or any of its
affiliates to become employees or consultants of any other person or entity,
provided that the restriction in this clause (iii) shall not apply if (A) such
solicitation, encouragement or attempt to solicit or encourage is in connection
with a business which is not a Competing Business and (B) the consultant’s
rendering of services for the other person or entity will not interfere with the
consultant’s rendering of services to the Company; (iv) solicit or attempt to
solicit any customer, vendor or distributor of the Company or any of its
affiliates with respect to any product or service being furnished, made, sold or
leased by the Company or such affiliate, provided that the restriction in this
clause (iv) shall not apply if such solicitation or attempt to solicit is (A) in
connection with a business which is not a Competing Business and (B) does not
interfere with, or conflict with, the interests of the Company or any of its
affiliates; or (v) persuade or seek to persuade any customer of the Company or
any affiliate to cease to do business or to reduce the amount of business which
any customer has customarily done or contemplates doing with the Company or such
affiliate, whether or not the relationship between the Company or its affiliate
and such customer was originally established in whole or in part through
Executive’s efforts. For purposes of this Section 5.3 only, the terms
“customer,” “vendor” and “distributor” shall mean a customer, vendor or
distributor who has done business with the Company or any of its affiliates
within twelve months preceding the termination of Executive’s employment.
 
5.4 Notifications. During Executive’s employment with the Company and during the
Severance Term, Executive agrees that upon the earlier of Executive’s (i)
negotiating with any Competitor (as defined below) concerning the possible
employment of Executive by the Competitor, (ii) receiving an offer of employment
from a Competitor, or (iii) becoming employed by a Competitor, Executive will
(A) immediately provide written notice to the Company of such circumstances and
(B) provide copies of Section 5 of this Agreement to the Competitor. Executive
further agrees that the Company may provide notice to a Competitor of
Executive’s obligations under this Agreement, including without limitation
Executive’s obligations pursuant to Section 5 hereof. For purposes of this
Agreement, “Competitor” shall mean any entity (other than the Company or any of
its affiliates) that engages, directly or indirectly, in any Competing Business.
 
5.5 Sufficient Consideration. Executive understands that the provisions of this
Section 5 may limit his ability to earn a livelihood in a business similar to
the business of the Company or its affiliates but nevertheless agrees and hereby
acknowledges that the consideration provided under this Agreement, including any
amounts or benefits provided under Sections 3 and 4 hereof and other obligations
undertaken by the Company hereunder, is sufficient to justify the restrictions
contained in such provisions. In consideration thereof and in light of
Executive’s education, skills and abilities, Executive agrees that he will not
assert in any forum that such provisions prevent him from earning a living or
otherwise are void or unenforceable or should be held void or unenforceable.
 
 
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6. Inventions and Proprietary Property.
 
6.1 Definition of Proprietary Property. For purposes of this Agreement,
"Proprietary Property" shall mean non-public information that relates to the
actual or anticipated business or research and development of the Company,
designs, specifications, ideas, formulas, discoveries, inventions, improvements,
innovations, concepts and other developments, trade secrets, techniques,
methods, know-how, technical and non-technical data, works of authorship,
computer programs, computer algorithms, computer architecture, mathematical
models, drawings, trademarks, copyrights, customer lists and customers
(including, but not limited to, customers of the Company on whom Executive
called or with whom Executive became acquainted during the term of his
employment), marketing plans, and all other matters which are legally
protectable or recognized as forms of property, whether or not patentable or
reduced to practice or to a writing.
 
6.2 Assignment of Proprietary Property to the Company or its Subsidiaries.
 
(a) Executive hereby agrees to assign, transfer and set over, and Executive does
hereby assign, transfer and set over, to the Company (or, as applicable, a
subsidiary or designee of the Company), without further compensation, all of
Executive's rights, title and interest in and to any and all Proprietary
Property which Executive, either solely or jointly with others, has conceived,
made or suggested or may hereafter conceive, make or suggest, in the course of
Executive's employment with the Company, whether or not patentable or
registrable under copyright or similar laws, which Executive may solely or
jointly conceive or develop or reduce to practice, or cause to be conceived or
developed or reduced to practice, during the period of time Executive is in the
employ of the Company (collectively referred to as “Inventions”).
 
(b) The assignment of Proprietary Property hereunder includes without limitation
all rights of paternity, integrity, disclosure and withdrawal and any other
rights that may be known as or referred to as moral rights ("Moral Rights"). To
the extent that such Moral Rights cannot be assigned under applicable law and to
the extent the following is allowed by the laws in the various countries where
Moral Rights exist, Executive hereby waives such Moral Rights and consents to
any action of the Company or any subsidiary of the Company that would violate
such Moral Rights in the absence of such consent. Executive also will endeavor
to facilitate such use of any such Moral Rights as the Company, or, as
applicable, a subsidiary of the Company, shall reasonably instruct, including
confirming any such waivers and consents from time to time as requested by the
Company (or, as applicable, a subsidiary of the Company).
 
6.3 Works for Hire. Executive acknowledges that all original works of authorship
or other creative works which are made by Executive (solely or jointly with
others) within the scope of the employment of Executive by the Company and which
are protectable by copyright are "works made for hire," pursuant to United
States Copyright Act (17 U.S.C., Section 101). To the extent such original work
of authorship or other creative works are not works made for hire, Executive
hereby assigns to the Company (or, as directed by the Company, to a subsidiary
of the Company) all of the rights comprised in the copyright of such works.
 
 
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6.4 Disclosure of Proprietary Property and Execution of Documents. Executive
further agrees to promptly disclose to the Company any and all Proprietary
Property which Executive has assigned, transferred and set over or will assign,
transfer and set over as provided in Section 6.2 above, and Executive agrees to
execute, acknowledge and deliver to the Company (or, as applicable, to a
subsidiary of the Company), without additional compensation and without expense
to Executive, any and all instruments reasonably requested, and to do any and
all lawful acts which, in the reasonable judgment of the Company or its
attorneys (or, as applicable, a subsidiary of the Company or its attorneys) may
be required or desirable in order to vest in the Company or such subsidiary all
property rights with respect to such Proprietary Property.
 
6.5 Enforcement of Proprietary Rights.
 
(a) Executive will assist the Company (or, as applicable, a subsidiary of the
Company) in every proper way to obtain, assign to the Company (or, as directed
by the Company, to a subsidiary), confirm and from time to time enforce, United
States and foreign patent trade secret, trademark, copyright, mask work, and
other intellectual property rights relating to Proprietary Property in any and
all countries. To that end Executive will execute, verify and deliver such
documents and perform such other acts (including appearances as a witness) as
the Company, or, as applicable, a subsidiary of the Company, may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such proprietary rights and the assignment of such Proprietary
Property. In addition, Executive will execute, verify and deliver assignments of
such Proprietary Property and all rights therein to the Company, its subsidiary
or its or their designee. The obligation of Executive to assist the Company, or,
as applicable, a subsidiary of the Company, with respect to proprietary rights
relating to such Proprietary Property in any and all countries shall continue
beyond the termination of employment, but the Company, or as applicable, a
subsidiary of the Company, shall compensate Executive at a mutually agreed upon
fee, in addition to any expenses, after such termination.
 
(b) In the event the Company, or, as applicable, a subsidiary of the Company, is
unable for any reason, after reasonable effort, to secure the signature of
Executive on any document needed in connection with the actions specified in the
preceding paragraph, Executive hereby irrevocably designates and appoints the
Company and its duly authorized officers and agents as agent and attorney in
fact, which appointment is coupled with an interest, to act for and on behalf of
Executive, to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by Executive. Executive hereby
waives and quitclaims to the Company or, as applicable, a subsidiary of the
Company, any and all claims, of any nature whatsoever, which Executive now or
may hereafter have for infringement of any proprietary rights assigned hereunder
to the Company or such subsidiary.
 
6.6 Third Party Information. To the extent Executive has or possesses any
Confidential Information (as hereinafter defined) belonging to Executive or to
others, Executive shall not use or disclose to the Company or its subsidiaries
or induce the Company or its subsidiaries to use any such Confidential
Information unless the Company or its subsidiaries have a legal rights to use
such Confidential Information. Executive will promptly advise the Company in
writing if any of Executive's involvement with the Company or any subsidiary of
the Company might result in the possible violation of Executive's undertakings
to others or the use of any Confidential Information of Executive or of others.
 
 
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7. Confidential Information.
 
7.1 Existence of Confidential Information. The Company owns and has developed
and compiled, and the Company and its subsidiaries will develop and compile,
certain proprietary techniques and confidential information, which have and will
have great value to their businesses (referred to in this Agreement,
collectively, as "Confidential Information"). Confidential Information includes
not only information disclosed by the Company (or, as applicable, a subsidiary
of the Company) to Executive, but also information developed or learned by
Executive during the course or as a result of employment with the Company, which
information shall be the property of the Company or, as applicable, such
subsidiary. Confidential Information includes all information that has or could
have commercial value or other utility in the business in which the Company or
any of its subsidiaries is engaged or contemplates engaging, and all information
of which the unauthorized disclosure could be detrimental to the interests of
the Company or its subsidiary, whether or not such information is specifically
labeled as Confidential Information by the Company or such subsidiary. By way of
example and without limitation, Confidential Information includes any and all
information developed, obtained, licensed by or to or owned by the Company or
any of its subsidiaries concerning trade secrets, techniques, know-how
(including designs, plans, procedures, merchandising, marketing, distribution
and warehousing know-how, processes, and research records), software, computer
programs and designs, development tools, all Proprietary Property, and any other
intellectual property created, used or sold (through a license or otherwise) by
the Company or any of its subsidiaries, electronic data information know-how and
processes, innovations, discoveries, improvements, research, development, test
results, reports, specifications, data, formats, marketing data and plans,
business plans, strategies, forecasts, unpublished financial information,
orders, agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, budgets, projections, customer,
supplier, licensee, licensor and subcontractor identities, characteristics,
agreements and operating procedures, and salary, staffing and employment
information.
 
7.2 Protection of Confidential Information. Executive acknowledges and agrees
that in the performance of Executive's duties hereunder, the Company or a
subsidiary of the Company may disclose to and entrust Executive with
Confidential Information which is the exclusive property of the Company or such
subsidiary and which Executive may possess or use only in the performance of
Executive's duties to the Company. Executive also acknowledges that Executive is
aware that the unauthorized disclosure of Confidential Information, among other
things, may be prejudicial to the Company's or its subsidiaries’ interests, an
invasion of privacy and an improper disclosure of trade secrets. Executive shall
not, directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership or other entity, individual or other
third party, other than in the course of Executive's assigned duties and for the
benefit of the Company, any Confidential Information, either during the Term or
thereafter. In the event Executive desires to publish the results of Executive's
work for or experiences with the Company or its subsidiaries through literature,
interviews or speeches, Executive will submit requests for such interviews or
such literature or speeches to the Board at least fourteen (14) days before any
anticipated dissemination of such information for a determination of whether
such disclosure is in the best interests of the Company and its subsidiaries,
including whether such disclosure may impair trade secret status or constitute
an invasion of privacy. Executive agrees not to publish, disclose or otherwise
disseminate such information without the prior written approval of the Board.
 
 
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7.3 Delivery of Records. In the event Executive's employment with the Company
ceases for any reason, Executive will not remove from the Company's premises
without its prior written consent any records (written or electronic), files,
drawings, documents, equipment, materials and writings received from, created
for or belonging to the Company or its subsidiaries, including those which
relate to or contain Confidential Information, or any copies thereof. Upon
request or when employment with the Company terminates, Executive will
immediately deliver the same to the Company.
 
8. Assignment and Transfer.
 
8.1 Company. This Agreement shall inure to the benefit of and be enforceable by,
and may be assigned by the Company to, any purchaser of all or substantially all
of the Company's business or assets, any successor to the Company or any
assignee thereof (whether direct or indirect, by purchase, merger, consolidation
or otherwise).
 
8.2 Executive. Executive's rights and obligations under this Agreement shall not
be transferable by Executive by assignment or otherwise, and any purported
assignment, transfer or delegation thereof shall be void; provided, however,
that if Executive shall die, all amounts then payable to Executive hereunder
shall be paid in accordance with the terms of this Agreement to Executive's
devisee, legatee or other designee or, if there be no such designee, to
Executive's estate.
 
9. Miscellaneous.
 
9.1 Other Obligations. Executive represents and warrants that neither
Executive's employment with the Company or Executive's performance of
Executive's obligations hereunder will conflict with or violate or otherwise are
inconsistent with any other obligations, legal or otherwise, which Executive may
have. Executive covenants that he shall perform his duties hereunder in a
professional manner and not in conflict or violation, or otherwise inconsistent
with other obligations legal or otherwise, which Executive may have.
 
9.2 Nondisclosure; Other Employers. Executive will not disclose to the Company
or any of its subsidiaries, or use, or induce the Company or any of its
subsidiaries to use, any proprietary information, trade secrets or confidential
business information of others. Executive represents and warrants that Executive
does not possess any property, proprietary information, trade secrets and
confidential business information belonging to prior employers.
 
 
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9.3 Cooperation. Following termination of employment with the Company for any
reason, Executive shall cooperate with the Company, as requested by the Company,
to effect a transition of Executive's responsibilities and to ensure that the
Company is aware of all matters being handled by Executive.
 
9.4 Protection of Reputation. During the Term and thereafter, Executive agrees
that he will take no action which is intended, or would reasonably be expected,
to harm the Company or any of its subsidiaries or its or their reputations or
which would reasonably be expected to lead to unwanted or unfavorable publicity
to the Company or any of its subsidiaries, other than those required in order to
permit Executive to comply with applicable law or those made in connection with
legal or arbitral process. During the Term and thereafter, the Company agrees
that it will take no actions which are intended, or would reasonably be
expected, to harm Executive or his reputation or which would reasonably be
expected to lead to unwanted or unfavorable publicity to Executive, other than
those required in order to permit the Company to comply with applicable law or
those made in connection with legal or arbitral process. Notwithstanding the
foregoing, this paragraph shall not prevent the Company or Executive from
exercising any of their respective rights under this Agreement.
 
9.5 Governing Law. This Agreement shall be governed by and construed (both as to
validity and performance) and enforced in accordance with the internal laws of
the State of New York applicable to agreements made and to be performed wholly
with such jurisdiction, without regard to principles of the conflict of laws
thereof or where the parties are located at the time a dispute arises.
 
9.6 Consent to Jurisdiction, Waiver of Jury Trial. Each of the parties hereby
irrevocably and unconditionally consents to the exclusive jurisdiction of any
federal or state court of New York sitting in New York County and irrevocably
agrees that all actions or proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby shall be litigated exclusively
in such Courts. Each of the parties agrees not to commence any legal proceeding
related hereto except in such Courts. Each of the parties irrevocably waives any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding in any such Court and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such Court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum. Each of the parties irrevocably waives any right it
may have to a trial by jury in any such action, suit or proceeding. Each of the
parties agrees that the prevailing party in any action or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby shall
be entitled to recover its reasonable fees and expenses in connection therewith,
including legal fees.
 
9.7 Entire Agreement. This Agreement (including all exhibits hereto) contains
the entire agreement and understanding between the parties hereto in respect of
Executive's employment and supersedes, cancels and annuls any prior or
contemporaneous written or oral agreements, understandings, commitments and
practices between them respecting Executive's employment, including all prior
employment agreements, if any, between the Company and Executive, which
agreement(s) hereby are terminated and shall be of no further force or effect.
 
 
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9.8 No Amendment/Waiver. This Agreement may not be amended or modified in any
manner nor may any of its provisions be waived except by written amendment
executed by the parties. A waiver, modification or amendment by a party shall
only be effective if (a) it is in writing and signed by the parties, (b) it
specifically refers to this Agreement and (c) it specifically states that the
party, as the case may be, is waiving, modifying or amending its rights
hereunder. Any such amendment, modification or waiver shall be effective only in
the specific instance and for the specific purpose for which it was given.
 
9.9 Severability. If any term, provision, covenant or condition of this
Agreement or part thereof, or the application thereof to any person, place or
circumstance, shall be held to be invalid, unenforceable or void by a court of
competent jurisdiction, the remainder of this Agreement and such term,
provision, covenant or condition shall remain in full force and effect, and any
such invalid, unenforceable or void term, provision, covenant or condition shall
be deemed, without further action on the part of the parties hereto, modified,
amended and limited, and the court shall have the power to modify, to the extent
necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful. In this regard, Executive acknowledges that the
provisions of Sections 5, 6 and 7 of this Agreement are reasonable and necessary
for the protection of the Company.
 
9.10 Construction. The headings and captions of this Agreement are provided for
convenience only and are intended to have no effect in construing or
interpreting this Agreement. The language in all parts of this Agreement shall
be in all cases construed according to its fair meaning and not strictly for or
against the Company or Executive. The use herein of the word "including," when
following any general provision, sentence, clause, statement, term or matter,
shall be deemed to mean "including, without limitation." As used herein,
"Company" shall mean the Company and its subsidiaries and any purchaser of,
successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement or otherwise. As used herein, the words "day" or "days" shall
mean a calendar day or days. As used herein, "Compensation Committee" means the
Compensation Committee of the Board or, if no such committee is then serving, at
least two members of the Board as selected by the Board.
 
9.11 Remedies for Breach. The parties hereto agree that Executive is obligated
under this Agreement to render personal services during the Term of a special,
unique, unusual, extraordinary and intellectual character, thereby giving this
Agreement special value, and, in the event of a breach or threatened breach of
any covenant of Executive herein, the injury or imminent injury to the value and
the goodwill of the Company's and its subsidiaries' businesses could not be
reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive acknowledges that the Company (and as applicable, one or
more of its subsidiaries) shall be entitled to seek injunctive relief or any
other equitable remedy against Executive in the event of a breach or threatened
breach of Sections 5, 6 or 7 of this Agreement. The rights and remedies of
Executive and Company are cumulative and shall not be exclusive, and Executive
and Company shall be entitled to pursue all legal and equitable rights and
remedies and to secure performance of the obligations and duties of the other
under this Agreement, and the enforcement of one or more of such rights and
remedies by Executive or Company shall in no way preclude Executive or Company
from pursuing, at the same time or subsequently, any and all other rights and
remedies available to Executive or Company.
 
 
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9.12 Notices. Any notice, request, consent or approval required or permitted to
be given under this Agreement or pursuant to law shall be sufficient if in
writing, and if and when sent by certified or registered mail, return receipt
requested, with postage prepaid, or by overnight courier, to Executive's
residence, as reflected in the Company's records or as otherwise designated by
Executive, or to the Company's principal executive office, attention: Chairman
of the Compensation Committee of the Board of Directors with a copy (which shall
not constitute notice) to: David M. Zlotchew, Esq., Haynes and Boone, LLP, 153
East 53d Street, New York, NY 10022, as the case may be. All such notices,
requests, consents and approvals shall be effective upon being deposited in the
United States mail. However, the time period in which a response thereto must be
given shall commence to run from the date of receipt on the return receipt of
the notice, request, consent or approval by the addressee thereof. Rejection or
other refusal to accept, or the inability to deliver because of changed address
of which no notice was given as provided herein, shall be deemed to be receipt
of the notice, request, consent or approval sent
 
9.13 Assistance in Proceedings, Etc. Executive shall, without additional
compensation during the Term and with complete reimbursement of expenses after
the expiration of the Term, upon reasonable notice, furnish such information and
proper assistance to the Company as may reasonably be required by the Company in
connection with any legal or quasi-legal proceeding, including any external or
internal investigation, involving the Company or any of its subsidiaries or in
which any of them is, or may become, a party.
 
9.14 Survival. Cessation or termination of Executive's employment with the
Company shall not result in termination of this Agreement. To the extent that
any of the obligations of this Agreement constitute continuing obligations, they
shall survive any termination or expiration of this Agreement or of Executive’s
employment hereunder.
 
[Signature page follows]
 
 
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement
as of September 15, 2008, to be deemed effective as of the date first written
above.
 

          EMPLOYER           NEPHROS, INC.  
   
   
      By:  /s/ Gerald J. Kochanski  

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Name: Gerald J. Kochanski   Title: V.P. & CFO           EXECUTIVE      
/s/ Ernest A. Elgin III

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Ernest A. Elgin III

 
 
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SCHEDULE A

Options

Options:
Options to purchase 750,000 shares of Common Stock. The Options shall vest in
four equal installments on each of September 15, 2009, September 15, 2010,
September 15, 2011 and September 15, 2012; provided that Executive remains
employed by the Company at such time. The Options shall be exercisable at an
exercise price equal to the Common Stock’s closing price on the American Stock
Exchange on the date of grant.

 
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