SPECIALTY RENAL PRODUCTS, INC.

 

RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT

 

THIS RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT (this “Agreement”), is made as
of September 5, 2018, by and among Specialty Renal Products, Inc., a Delaware
corporation (the “Company”), the Investors listed on Schedule A and the Key
Holders listed on Schedule B.

 

WHEREAS, each Key Holder is the beneficial owner of shares of Capital Stock;

 

WHEREAS, the Company and the Investors are parties to the Series A Preferred
Stock Purchase Agreement, of even date herewith (the “Purchase Agreement”),
pursuant to which the Investors have agreed to purchase shares of the Series A
Preferred Stock of the Company, par value $0.0001 per share (“Series A Preferred
Stock”); and

 

WHEREAS, the Key Holders and the Company desire to further induce the Investors
to purchase the Series A Preferred Stock;

 

NOW, THEREFORE, the Company, the Key Holders and the Investors, intending to be
legally bound, hereby agree as follows:

 

1. Definitions.

 

1.1 “Affiliate” means, with respect to any specified Investor, any other Person
who directly or indirectly, controls, is controlled by or is under common
control with such Investor, including, without limitation, any general partner,
managing member, officer or director of such Investor, or any venture capital,
hedge or private equity fund now or hereafter existing which is controlled by
one or more general partners or managing members of, or shares the same
management company with, such Investor.

 

1.2 “Capital Stock” means (a) shares of Common Stock and Preferred Stock
(whether now outstanding or hereafter issued in any context), (b) shares of
Common Stock issued or issuable upon conversion of Preferred Stock, and (c)
shares of Common Stock issued or issuable upon exercise or conversion, as
applicable, of stock options, warrants or other convertible securities of the
Company, in each case now owned or subsequently acquired by any Key Holder, any
Investor, or their respective successors or permitted transferees or assigns.
For purposes of the number of shares of Capital Stock held by an Investor or Key
Holder (or any other calculation based thereon), all shares of Preferred Stock
shall be deemed to have been converted into Common Stock at the then-applicable
conversion ratio.

 

1.3 “Change of Control” means a transaction or series of related transactions in
which a person, or a group of related persons, acquires from stockholders of the
Company shares representing more than fifty percent (50%) of the outstanding
voting power of the Company.

 

 

 

 

1.4 “Common Stock” means shares of Common Stock of the Company, $0.0001 par
value per share.

 

1.5 “Company Notice” means written notice from the Company notifying the selling
Key Holders that the Company intends to exercise its Right of First Refusal as
to some or all of the Transfer Stock with respect to any Proposed Key Holder
Transfer.

 

1.6 “Form S-1” means such form under the Securities Act as in effect on the date
hereof or any successor registration form under the Securities Act subsequently
adopted by the SEC.

 

1.7 “Form S-3” means such form under the Securities Act as in effect on the date
hereof or any registration form under the Securities Act subsequently adopted by
the SEC that permits incorporation of substantial information by reference to
other documents filed by the Company with the SEC.

 

1.8 “Investor Notice” means written notice from an Investor notifying the
Company and the selling Key Holder that such Investor intends to exercise its
Secondary Refusal Right as to a portion of the Transfer Stock with respect to
any Proposed Key Holder Transfer and shall indicate how much of the Transfer
Stock such Investor desires to purchase from the Key Holder.

 

1.9 “Investors” means the persons named on Schedule A hereto, each person to
whom the rights of an Investor are assigned pursuant to Subsection 6.9, each
person who hereafter becomes a signatory to this Agreement pursuant to
Subsection 6.11 and any one of them, as the context may require.

 

1.10 “IPO” means the Company’s first underwritten public offering of its Common
Stock under the Securities Act.

 

1.11 “Key Holders” means the persons named on Schedule B hereto, each person to
whom the rights of a Key Holder are assigned pursuant to Subsection 3.1, each
person who hereafter becomes a signatory to this Agreement pursuant to
Subsection 6.9 or 6.17 and any one of them, as the context may require.

 

1.12 “Nephros” means Nephros, Inc., a Delaware corporation.

 

1.13 “Person” shall mean an individual, firm, corporation, partnership,
association, limited liability company, trust or any other entity.

 

1.14 “Preferred Stock” means collectively, all shares of Series A Preferred
Stock.

 

1.15 “Proposed Key Holder Transfer” means any assignment, sale, offer to sell,
pledge, mortgage, hypothecation, encumbrance, disposition of or any other like
transfer or encumbering of any Transfer Stock (or any interest therein) proposed
by any of the Key Holders.

 

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1.16 “Proposed Transfer Notice” means written notice from a Key Holder setting
forth the terms and conditions of a Proposed Key Holder Transfer.

 

1.17 “Prospective Transferee” means any person to whom a Key Holder proposes to
make a Proposed Key Holder Transfer.

 

1.18 “Qualified Public Offering” shall have the meaning ascribed thereto in the
Restated Certificate.

 

1.19 “Restated Certificate” means the Company’s Amended and Restated Certificate
of Incorporation, as amended from time to time.

 

1.20 “Right of Co-Sale” means the right, but not an obligation, of an Investor
to participate in a Proposed Key Holder Transfer on the terms and conditions
specified in the Proposed Transfer Notice.

 

1.21 “Right of First Refusal” means the right, but not an obligation, of the
Company, or its permitted transferees or assigns, to purchase some or all of the
Transfer Stock with respect to a Proposed Key Holder Transfer, on the terms and
conditions specified in the Proposed Transfer Notice.

 

1.22 “SEC” means the U.S. Securities and Exchange Commission.

 

1.23 “Secondary Notice” means written notice from the Company notifying the
Investors and the selling Key Holder that the Company does not intend to
exercise its Right of First Refusal as to all shares of Transfer Stock with
respect to any Proposed Key Holder Transfer.

 

1.24 “Secondary Refusal Right” means the right, but not an obligation, of each
Investor to purchase up to its pro rata portion (based upon the total number of
shares of Capital Stock then held by all Investors) of any Transfer Stock not
purchased pursuant to the Right of First Refusal, on the terms and conditions
specified in the Proposed Transfer Notice.

 

1.25 “Securities Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

 

1.26 “Series A Conversion Price” shall have the meaning ascribed thereto in the
Restated Certificate.

 

1.27 “Series A Director” means any director of the Company that the holders of
the Series A Preferred Stock are entitled to elect pursuant to the Restated
Certificate.

 

1.28 “Transfer Stock” means shares of Capital Stock owned by a Key Holder, or
issued to a Key Holder after the date hereof (including, without limitation, in
connection with any stock split, stock dividend, recapitalization,
reorganization, or the like), but does not include any shares of Preferred Stock
or of Common Stock that are issued or issuable upon conversion of Preferred
Stock.

 

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1.29 “Undersubscription Notice” means written notice from an Investor notifying
the Company and the selling Key Holder that such Investor intends to exercise
its option to purchase all or any portion of the Transfer Stock not purchased
pursuant to the Right of First Refusal or the Secondary Refusal Right.

 

2. Agreement Among the Company, the Investors and the Key Holders.

 

2.1 Right of First Refusal.

 

(a) Grant. Subject to the terms of Section 3 below, each Key Holder hereby
unconditionally and irrevocably grants to the Company a Right of First Refusal
to purchase all or any portion of Transfer Stock that such Key Holder may
propose to transfer in a Proposed Key Holder Transfer, at the same price and on
the same terms and conditions as those offered to the Prospective Transferee.

 

(b) Notice. Each Key Holder proposing to make a Proposed Key Holder Transfer
must deliver a Proposed Transfer Notice to the Company and each Investor not
later than forty-five (45) days prior to the consummation of such Proposed Key
Holder Transfer. Such Proposed Transfer Notice shall contain the material terms
and conditions (including price and form of consideration) of the Proposed Key
Holder Transfer, the identity of the Prospective Transferee and the intended
date of the Proposed Key Holder Transfer. To exercise its Right of First Refusal
under this Section 2, the Company must deliver a Company Notice to the selling
Key Holder within fifteen (15) days after delivery of the Proposed Transfer
Notice. In the event of a conflict between this Agreement and any other
agreement that may have been entered into by a Key Holder with the Company that
contains a preexisting right of first refusal, the Company and the Key Holder
acknowledge and agree that the terms of this Agreement shall control and the
preexisting right of first refusal shall be deemed satisfied by compliance with
Subsection 2.1(a) and this Subsection 2.1(b). In the event of a conflict between
this Agreement and the Company’s Bylaws containing a preexisting right of first
refusal, the terms of this Agreement will control and compliance herewith shall
be deemed compliance with the Bylaws in full.

 

(c) Grant of Secondary Refusal Right to Investors. Subject to the terms of
Section 3 below, each Key Holder hereby unconditionally and irrevocably grants
to the Investors a Secondary Refusal Right to purchase all or any portion of the
Transfer Stock not purchased by the Company pursuant to the Right of First
Refusal, as provided in this Subsection 2.1(c). If the Company does not intend
to exercise its Right of First Refusal with respect to all Transfer Stock
subject to a Proposed Key Holder Transfer, the Company must deliver a Secondary
Notice to the selling Key Holder and to each Investor to that effect no later
than fifteen (15) days after the selling Key Holder delivers the Proposed
Transfer Notice to the Company. To exercise its Secondary Refusal Right, an
Investor must deliver an Investor Notice to the selling Key Holder and the
Company within ten (10) days after the Company’s deadline for its delivery of
the Secondary Notice as provided in the preceding sentence (each Investor which
delivers a Secondary Notice, an “Exercising Investor”). Each Investor may
purchase up to an amount of Transfer Stock equal to the product obtained by
multiplying (i) the aggregate number of shares of Transfer Stock subject to the
Proposed Key Holder Transfer (excluding shares purchased by the Company pursuant
to the Right of First Refusal) by (ii) a fraction, the numerator of which is the
number of shares of Capital Stock owned by such Investor immediately before
consummation of the Proposed Key Holder Transfer and the denominator of which is
the total number of shares of Capital Stock owned, in the aggregate, by all
Investors immediately prior to the consummation of the Proposed Key Holder
Transfer, plus the number of shares of Transfer Stock held by the selling Key
Holder.

 

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(d) Undersubscription of Transfer Stock. If options to purchase have been
exercised by the Company and the Exercising Investors with respect to some but
not all of the Transfer Stock by the end of the ten (10) day period specified in
the last sentence of Subsection 2.1(c) (the “Investor Notice Period”), then the
Company shall, immediately after the expiration of the Investor Notice Period,
send written notice (the “Company Undersubscription Notice”) to those Exercising
Investors who fully exercised their Secondary Refusal Right within the Investor
Notice Period (the “Fully Exercising Investors”). Each Fully Exercising Investor
shall, subject to the provisions of this Subsection 2.1(d), have an additional
option to purchase all or any part of the balance of any such remaining
unsubscribed shares of Transfer Stock on the terms and conditions set forth in
the Proposed Transfer Notice. To exercise such option, a Fully Exercising
Investor must deliver an Undersubscription Notice to the selling Key Holder and
the Company within ten (10) days after the expiration of the Investor Notice
Period. In the event there are two (2) or more such Fully Exercising Investors
that choose to exercise the last-mentioned option for a total number of
remaining shares in excess of the number available, the remaining shares
available for purchase under this Subsection 2.1(d) shall be allocated to the
Fully Exercising Investors pro rata such that each Fully Exercising Investor may
purchase up to an amount of Transfer Stock equal to the product obtained by
multiplying (i) the aggregate number of shares of Transfer Stock subject to the
Proposed Key Holder Transfer (excluding shares purchased by the Company pursuant
to the Right of First Refusal) by (ii) a fraction, the numerator of which is the
number of shares of Capital Stock owned by such Fully Exercising Investor
immediately before consummation of the Proposed Key Holder Transfer and the
denominator of which is the total number of shares of Capital Stock owned, in
the aggregate, by all Fully Exercising Investors immediately prior to the
consummation of the Proposed Key Holder Transfer, plus the number of shares of
Transfer Stock held by the selling Key Holder. If the options to purchase the
remaining shares are exercised in full by the Fully Exercising Investors, the
Company shall immediately notify all of the Fully Exercising Investors and the
selling Key Holder of that fact.

 

(e) Consideration; Closing. If the consideration proposed to be paid for the
Transfer Stock is in property, services or other non-cash consideration, the
fair market value of the consideration shall be as determined in good faith by
the Board (including at least one Series A Director if then in office ) and as
set forth in the Company Notice. If the Company or any Investor cannot for any
reason pay for the Transfer Stock in the same form of non-cash consideration,
the Company or such Investor may pay the cash value equivalent thereof, as
determined in good faith by the Board (including at least one Series A Director
if then in office) and as set forth in the Company Notice. The closing of the
purchase of Transfer Stock by the Company and the Investors shall take place,
and all payments from the Company and the Investors shall have been delivered to
the selling Key Holder, by the later of (i) the date specified in the Proposed
Transfer Notice as the intended date of the Proposed Key Holder Transfer; and
(ii) forty-five (45) days after delivery of the Proposed Transfer Notice.

 

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2.2 Right of Co-Sale.

 

(a) Exercise of Right. If any Transfer Stock subject to a Proposed Key Holder
Transfer is not purchased pursuant to Subsection 2.1 above and thereafter is to
be sold to a Prospective Transferee, each respective Investor may elect to
exercise its Right of Co-Sale and participate on a pro rata basis in the
Proposed Key Holder Transfer as set forth in Subsection 2.2(b) below and,
subject to Subsection 2.2(d), otherwise on the same terms and conditions
specified in the Proposed Transfer Notice. Each Investor who desires to exercise
its Right of Co-Sale (each, a “Participating Investor”) must give the selling
Key Holder written notice to that effect within fifteen (15) days after the
deadline for delivery of the Secondary Notice described above, and upon giving
such notice such Participating Investor shall be deemed to have effectively
exercised the Right of Co-Sale.

 

(b) Shares Includable. Each Participating Investor which timely exercises its
Right of Co-Sale by delivering the written notice provided for above in Section
2.2(a) may include in the Proposed Key Holder Transfer all or any part of such
Participating Investor’s Capital Stock equal to the product obtained by
multiplying (i) the aggregate number of shares of Transfer Stock subject to the
Proposed Key Holder Transfer (excluding shares purchased by the Company or the
Participating Investors pursuant to the Right of First Refusal or the Secondary
Refusal Right) by (ii) a fraction, the numerator of which is the number of
shares of Capital Stock owned by such Participating Investor immediately before
consummation of the Proposed Key Holder Transfer and the denominator of which is
the total number of shares of Capital Stock owned, in the aggregate, by all
Participating Investors immediately prior to the consummation of the Proposed
Key Holder Transfer, plus the number of shares of Transfer Stock held by the
selling Key Holder. To the extent one (1) or more of the Participating Investors
exercise such right of participation in accordance with the terms and conditions
set forth herein, the number of shares of Transfer Stock that the selling Key
Holder may sell in the Proposed Key Holder Transfer shall be correspondingly
reduced.

 

(c) Purchase and Sale Agreement. The Participating Investors and the selling Key
Holder agree that the terms and conditions of any Proposed Key Holder Transfer
in accordance with Subsection 2.2 will be memorialized in, and governed by, a
written purchase and sale agreement with the Prospective Transferee (the
“Purchase and Sale Agreement”) with customary terms and provisions for such a
transaction, and the Participating Investors and the selling Key Holder further
covenant and agree to enter into such Purchase and Sale Agreement as a condition
precedent to any sale or other transfer in accordance with this Subsection 2.2.

 

(d) Allocation of Consideration.

 

(i) Subject to Subsection 2.2(d)(ii), the aggregate consideration payable to the
Participating Investors and the selling Key Holder shall be allocated based on
the number of shares of Capital Stock sold to the Prospective Transferee by each
Participating Investor and the selling Key Holder as provided in Subsection
2.2(b), provided that if a Participating Investor wishes to sell Preferred
Stock, the price set forth in the Proposed Transfer Notice shall be
appropriately adjusted based on conversion of the Preferred Stock into Common
Stock in accordance with the Series A Conversion Price.

 

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(ii) In the event that the Proposed Key Holder Transfer constitutes a Change of
Control, the terms of the Purchase and Sale Agreement shall provide that the
aggregate consideration from such transfer shall be allocated to the
Participating Investors and the selling Key Holder in accordance with Sections
2.1, 2.2 and 2.3 of Article IV(B) of the Restated Certificate as if (A) such
transfer were a Deemed Liquidation Event (as defined in the Restated
Certificate), and (B) the Capital Stock sold in accordance with the Purchase and
Sale Agreement were the only Capital Stock outstanding. In the event that a
portion of the aggregate consideration payable to the Participating Investor(s)
and selling Key Holder is placed into escrow, the Purchase and Sale Agreement
shall provide that (x) the portion of such consideration that is not placed in
escrow (the “Initial Consideration”) shall be allocated in accordance with
Section 2.1, 2.2 and 2.3 of Article IV(B) of the Restated Certificate as if the
Initial Consideration were the only consideration payable in connection with
such transfer, and (y) any additional consideration which becomes payable to the
Participating Investor(s) and selling Key Holder upon release from escrow shall
be allocated in accordance with Section 2.1, 2.2 and 2.3 of Article IV(B) of the
Restated Certificate after taking into account the previous payment of the
Initial Consideration as part of the same transfer.

 

(e) Purchase by Selling Key Holder; Deliveries. Notwithstanding Subsection
2.2(c) above, if any Prospective Transferee or Transferees refuse(s) to purchase
securities subject to the Right of Co-Sale from any Participating Investor or
Investors or upon the failure to negotiate a Purchase and Sale Agreement
reasonably satisfactory to the Participating Investors, no Key Holder may sell
any Transfer Stock to such Prospective Transferee or Transferees unless and
until, simultaneously with such sale, such Key Holder purchases all securities
subject to the Right of Co-Sale from such Participating Investor or Investors on
the same terms and conditions (including the proposed purchase price) as set
forth in the Proposed Transfer Notice and as provided in Subsection 2.2(d)(i);
provided, however, if such sale constitutes a Change of Control, the portion of
the aggregate consideration paid by the selling Key Holder to such Participating
Investor or Investors shall be deemed part of the aggregate consideration from
such transfer and shall be allocated in accordance with the first sentence of
Subsection 2.2(d)(ii). In connection with such purchase by the selling Key
Holder, such Participating Investor or Investors shall deliver to the selling
Key Holder any stock certificate or certificates, properly endorsed for
transfer, representing the Capital Stock being purchased by the selling Key
Holder (or request that the Company effect such transfer in the name of the
selling Key Holder). Any such shares transferred to the selling Key Holder will
be transferred to the Prospective Transferee against payment therefor in
consummation of the sale of the Transfer Stock pursuant to the terms and
conditions specified in the Proposed Transfer Notice, and the selling Key Holder
shall concurrently therewith remit or direct payment to each such Participating
Investor the portion of the aggregate consideration to which each such
Participating Investor is entitled by reason of its participation in such sale
as provided in this Subsection 2.2(e).

 

(f) Additional Compliance. If any Proposed Key Holder Transfer is not
consummated within forty-five (45) days after receipt of the Proposed Transfer
Notice by the Company, the Key Holders proposing the Proposed Key Holder
Transfer may not sell any Transfer Stock unless they first comply in full with
each provision of this Section 2. The exercise or election not to exercise any
right by any Investor hereunder shall not adversely affect its right to
participate in any other sales of Transfer Stock subject to this Subsection 2.2.

 

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2.3 Effect of Failure to Comply.

 

(a) Transfer Void; Equitable Relief. Any Proposed Key Holder Transfer not made
in compliance with the requirements of this Agreement shall be null and void ab
initio, shall not be recorded on the books of the Company or its transfer agent
and shall not be recognized by the Company. Each party hereto acknowledges and
agrees that any breach of this Agreement would result in substantial harm to the
other parties hereto for which monetary damages alone could not adequately
compensate. Therefore, the parties hereto unconditionally and irrevocably agree
that any non-breaching party hereto shall be entitled to seek protective orders,
injunctive relief and other remedies available at law or in equity (including,
without limitation, seeking specific performance or the rescission of purchases,
sales and other transfers of Transfer Stock not made in strict compliance with
this Agreement).

 

(b) Violation of First Refusal Right. If any Key Holder becomes obligated to
sell any Transfer Stock to the Company or any Investor under this Agreement and
fails to deliver such Transfer Stock in accordance with the terms of this
Agreement, the Company and/or such Investor may, at its option, in addition to
all other remedies it may have, send to such Key Holder the purchase price for
such Transfer Stock as is herein specified and transfer to the name of the
Company or such Investor (or request that the Company effect such transfer in
the name of an Investor) on the Company’s books any certificates, instruments,
or book entry representing the Transfer Stock to be sold.

 

(c) Violation of Co-Sale Right. If any Key Holder purports to sell any Transfer
Stock in contravention of the Right of Co-Sale (a “Prohibited Transfer”), each
Investor who desires to exercise its Right of Co-Sale under Subsection 2.2 may,
in addition to such remedies as may be available by law, in equity or hereunder,
require such Key Holder to purchase from such Investor the type and number of
shares of Capital Stock that such Investor would have been entitled to sell to
the Prospective Transferee had the Prohibited Transfer been effected in
compliance with the terms of Subsection 2.2. The sale will be made on the same
terms, including, without limitation, as provided in Subsection 2.2(d)(i) and
the first sentence of Subsection 2.2(d)(ii), as applicable, and subject to the
same conditions as would have applied had the Key Holder not made the Prohibited
Transfer, except that the sale (including, without limitation, the delivery of
the purchase price) must be made within ninety (90) days after the Investor
learns of the Prohibited Transfer, as opposed to the timeframe proscribed in
Subsection 2.2. Such Key Holder shall also reimburse each Investor for any and
all reasonable and documented out-of-pocket fees and expenses, including
reasonable legal fees and expenses, incurred pursuant to the exercise or the
attempted exercise of the Investor’s rights under Subsection 2.2.

 

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3. Exempt Transfers.

 

3.1 Exempted Transfers. Notwithstanding the foregoing or anything to the
contrary herein, the provisions of Subsections 2.1 and 2.2 shall not apply (a)
in the case of Nephros, upon a transfer to its stockholders, (b) to a repurchase
of Transfer Stock from a Key Holder by the Company at a price no greater than
that originally paid by such Key Holder for such Transfer Stock (as adjusted for
any stock split, stock dividend, combination, or other recapitalization or
reclassification effected after the date hereof) and pursuant to an agreement
containing vesting and/or repurchase provisions approved by a majority of the
Board (including at least one Series A Director if then in office), (c) to a
pledge of Transfer Stock that creates a mere security interest in the pledged
Transfer Stock; provided that the pledgee thereof agrees in writing in advance
to be bound by and comply with all applicable provisions of this Agreement to
the same extent as if it were the Key Holder making such pledge, or (d) in the
case of a Key Holder that is a natural person, upon a transfer of Transfer Stock
by such Key Holder made for bona fide estate planning purposes, either during
his or her lifetime or on death by will or intestacy to his or her spouse, child
(natural or adopted), or any other direct lineal descendant of such Key Holder
(or his or her spouse) (all of the foregoing collectively referred to as “family
members”), or any other relative/person approved by the Board of the Company
(including at least one Series A Director if then in office), or any custodian
or trustee of any trust, partnership or limited liability company for the
benefit of, or the ownership interests of which are owned wholly by such Key
Holder or any such family members; provided that in the case of clause(s) (a),
(c), or (d), or, the Key Holder shall deliver prior written notice to the
Investors of such pledge, gift or transfer and such shares of Transfer Stock
shall at all times remain subject to the terms and restrictions set forth in
this Agreement and such transferee shall, as a condition to such issuance,
deliver a counterpart signature page to this Agreement as confirmation that such
transferee shall be bound by all the terms and conditions of this Agreement as a
Key Holder (but only with respect to the securities so transferred to the
transferee), including the obligations of a Key Holder with respect to Proposed
Key Holder Transfers of such Transfer Stock pursuant to Section 2; and provided
further in the case of any transfer pursuant to clause (a) or (c) above, that
such transfer is made pursuant to a transaction in which there is no
consideration actually paid for such transfer.

 

3.2 Exempted Offerings. Notwithstanding the foregoing or anything to the
contrary herein, the provisions of Section 2 shall not apply to the sale of any
Transfer Stock (a) to the public in an offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (a “Public
Offering”); or (b) pursuant to a Deemed Liquidation Event (as defined in the
Company’s Certificate of Incorporation).

 

3.3 Prohibited Transferees. Notwithstanding the foregoing, no Key Holder shall
transfer any Transfer Stock to (a) any entity which, in the determination of the
Company’s Board of Directors (the “Board”) (including at least one Series A
Director if then in office), directly or indirectly competes with the Company;
or (b) any customer, distributor or supplier of the Company, if the Board
(including at least one Series A Director if then in office) should determine
that such transfer would result in such customer, distributor or supplier
receiving information that would place the Company at a competitive disadvantage
with respect to such customer, distributor or supplier.

 

4. Legend. Each certificate, instrument, or book entry representing shares of
Transfer Stock held by the Key Holders or issued to any permitted transferee in
connection with a transfer permitted by Subsection 3.1 hereof shall be notated
with the following legend:

 

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THE SALE, PLEDGE, HYPOTHECATION, OR TRANSFER OF THE SECURITIES REPRESENTED
HEREBY IS SUBJECT TO, AND IN CERTAIN CASES PROHIBITED BY, THE TERMS AND
CONDITIONS OF A CERTAIN RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT BY AND
AMONG THE STOCKHOLDER, THE CORPORATION AND CERTAIN OTHER HOLDERS OF STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF THE CORPORATION.

 

Each Key Holder agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares notated with the legend referred to
in this Section 4 above to enforce the provisions of this Agreement, and the
Company agrees to promptly do so. The legend shall be removed upon termination
of this Agreement at the request of the holder.

 

5. Market Standstill.

 

5.1 Lock Up. Each Key Holder and Investor hereby agrees that it will not,
without the prior written consent of the managing underwriter, during the period
commencing on the date of the final prospectus relating to the registration by
the Company of shares of its Common Stock or any other equity securities under
the Securities Act on a registration statement on Form S-1 or Form S-3, and
ending on the date specified by the Company and the managing underwriter (such
period not to exceed one hundred eighty (180) days in the case of the IPO, which
period may be extended upon the request of the managing underwriter, to the
extent required by any FINRA rules, for an additional period of up to fifteen
(15) days if the Company issues or proposes to issue an earnings or other public
release within fifteen (15) days of the expiration of the 180-day lockup
period), lend; offer; pledge; sell; contract to sell; sell any option or
contract to purchase; purchase any option or contract to sell; grant any option,
right, or warrant to purchase; or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable (directly or indirectly) for Common Stock held
immediately before the effective date of the registration statement for such
offering, or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
such securities, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or other securities, in cash,
or otherwise. The foregoing provisions of this Subsection 5.1 shall apply only
to the IPO, shall not apply to the sale of any shares to an underwriter pursuant
to an underwriting agreement, or the transfer of any shares to any Affiliate of
the Investor or any Key Holder or any trust for the direct or indirect benefit
of the Key Holder or the Investor or the immediate family of the Key Holder or
the Investor, provided that the trustee of the Affiliate or trust, as the case
may be, agrees to be bound in writing by the restrictions set forth herein, and
provided further that any such transfer shall not involve a disposition for
value, and shall be applicable to the Key Holders and the Investors only if all
officers and directors are subject to the same restrictions and the Company
obtains a similar agreement from all directors and stockholders individually
owning more than one percent (1%) of the Company’s outstanding Common Stock
(after giving effect to conversion into Common Stock of all outstanding Series A
Preferred Stock). The underwriters in connection with such registration are
intended third-party beneficiaries of this Subsection 5.1 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto. Each Key Holder and Investor further agrees to execute such
agreements as may be reasonably requested by the underwriters in connection with
such registration that are consistent with this Subsection 5.1 or that are
necessary to give further effect thereto. Any discretionary waiver or
termination of the restrictions of any or all of such agreements by the Company
or the underwriters shall apply pro rata to all Key Holders and all Investors
subject to such agreements, based on the number of shares subject to such
agreements.

 

10

 

 

5.2 Stop Transfer Instructions. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the shares of
Capital Stock of each Key Holder (and transferees and assignees thereof) until
the end of such restricted period.

 

6. Miscellaneous

 

6.1 Term. This Agreement shall automatically terminate upon the earlier of (a)
immediately prior to the consummation of the Company’s Qualified Public
Offering; and (b) the consummation of a Deemed Liquidation Event (as defined in
the Restated Certificate); provided however that Sections 5 and 6 shall survive
the termination of this Agreement.

 

6.2 Stock Split. All references to numbers of shares in this Agreement shall be
appropriately adjusted to reflect any stock dividend, split, combination or
other recapitalization affecting the Capital Stock occurring after the date of
this Agreement.

 

6.3 Ownership. Each Key Holder represents and warrants that such Key Holder is
the sole legal and beneficial owner of the shares of Transfer Stock subject to
this Agreement and that no other person or entity has any interest in such
shares (other than a community property interest as to which the holder thereof
has acknowledged and agreed in writing to the restrictions and obligations
hereunder).

 

6.4 Dispute Resolution.

 

(a) The parties (i) hereby irrevocably and unconditionally submit to the
jurisdiction of the state courts of New York and to the jurisdiction of the
United States District Court for the Southern District of New York for the
purpose of any suit, action or other proceeding arising out of or based upon
this Agreement, (ii) agree not to commence any suit, action or other proceeding
arising out of or based upon this Agreement except in the state courts of New
York and to the jurisdiction of the United States District Court for the
Southern District of New York, and (iii) hereby waive, and agree not to assert,
by way of motion, as a defense, or otherwise, in any such suit, action or
proceeding, any claim that it is not subject personally to the jurisdiction of
the above-named courts, that its property is exempt or immune from attachment or
execution, that the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court.
The prevailing party shall be entitled to reasonable attorney’s fees, costs, and
necessary disbursements in addition to any other relief to which such party may
be entitled. Each of the parties to this Agreement consents to personal
jurisdiction for any equitable action sought in the United States District Court
for the Southern District of New York or any court of the State of New York
having subject matter jurisdiction.

 

(b) Waiver of Jury Trial: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE
OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR
THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE
PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH
PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED
THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.

 

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6.5 Notices. All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively given upon the
earlier of actual receipt or (a) personal delivery to the party to be notified,
(b) when sent, if sent by electronic mail or facsimile during normal business
hours of the recipient, and if not sent during normal business hours, then on
the recipient’s next business day, (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (d)
one (1) business day after deposit with a nationally recognized overnight
courier, freight prepaid, specifying next business day delivery, with written
verification of receipt. All communications shall be sent to the respective
parties at their address as set forth on Schedule A or Schedule B hereof, as the
case may be, or to such email address, facsimile number or address as
subsequently modified by written notice given in accordance with this Section
6.5. If notice is given to the Company, it shall be sent to 380 Lackawanna
Place, South Orange, NJ 07079, Attn: Chief Financial Officer, email:
andy@nephros.com; and a copy (which shall not constitute notice) shall also be
sent to Fredrikson & Byron, P.A., 200 South Sixth Street, Suite 4000,
Minneapolis, MN 55402-1425, Attn: Christopher J. Melsha, Esq., email:
cmelsha@fredlaw.com.

 

6.6 Entire Agreement. This Agreement (including, the Exhibits and Schedules
hereto) constitutes the full and entire understanding and agreement between the
parties with respect to the subject matter hereof, and any other written or oral
agreement relating to the subject matter hereof existing between the parties are
expressly canceled.

 

6.7 Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing to any party under this Agreement, upon any breach or default of
any other party under this Agreement, shall impair any such right, power or
remedy of such non-breaching or non-defaulting party nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.

 

12

 

 

6.8 Amendment; Waiver and Termination. This Agreement may be amended, modified
or terminated (other than pursuant to Section 6.1 above) and the observance of
any term hereof may be waived (either generally or in a particular instance and
either retroactively or prospectively) only by a written instrument executed by
(a) the Company, (b) the Key Holders holding at least a majority of the shares
of Transfer Stock then held by all of the Key Holders, and (c) the holders of a
majority of the shares of Common Stock issued or issuable upon conversion of the
then outstanding shares of Preferred Stock held by the Investors (voting as a
single class and on an as-converted basis). Any amendment, modification,
termination or waiver so effected shall be binding upon the Company, the
Investors, the Key Holders and all of their respective successors and permitted
assigns whether or not such party, assignee or other shareholder entered into or
approved such amendment, modification, termination or waiver. Notwithstanding
the foregoing, (i) this Agreement may not be amended, modified or terminated and
the observance of any term hereunder may not be waived with respect to any
Investor or Key Holder without the written consent of such Investor or Key
Holder unless such amendment, modification, termination or waiver applies to all
Investors and Key Holders, respectively, in the same fashion, and (ii) the
consent of the Key Holders shall not be required for any amendment,
modification, termination or waiver if such amendment, modification, termination
or waiver does not apply to the Key Holders, and (iii) Schedule A hereto may be
amended by the Company from time to time in accordance with the Purchase
Agreement to add information regarding Additional Purchasers (as defined in the
Purchase Agreement) without the consent of the other parties hereto. The Company
shall give prompt written notice of any amendment, modification or termination
hereof or waiver hereunder to any party hereto that did not consent in writing
to such amendment, modification, termination or waiver. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision. A waiver, modification or
amendment of this Agreement by a party shall only be effective if (a) it is in
writing and signed by applicable party(ies), as set forth in this Section 6.8,
(b) it specifically refers to this Agreement, and (c) it specifically states
that the party or parties, 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.

 

6.9 Assignment of Rights.

 

(a) The terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.

 

(b) Any successor or permitted assignee of any Key Holder, including any
Prospective Transferee who purchases shares of Transfer Stock in accordance with
the terms hereof, shall deliver to the Company and the Investors, as a condition
to any transfer or assignment, a counterpart signature page hereto pursuant to
which such successor or permitted assignee shall confirm their agreement to be
subject to and bound by all of the provisions set forth in this Agreement that
were applicable to the predecessor or assignor of such successor or permitted
assignee.

 

13

 

 

(c) The rights of the Investors hereunder are not assignable without the
Company’s written consent (which shall not be unreasonably withheld, delayed or
conditioned), except (i) by an Investor to any Affiliate, or (ii) to an assignee
or transferee who acquires at least 250,000 shares of Capital Stock (as adjusted
for any stock combination, stock split, stock dividend, recapitalization or
other similar transaction), it being acknowledged and agreed that any such
assignment, including an assignment contemplated by the preceding clauses (i) or
(ii) shall be subject to and conditioned upon any such assignee’s delivery to
the Company and the other Investors of a counterpart signature page hereto
pursuant to which such assignee shall confirm their agreement to be subject to
and bound by all of the provisions set forth in this Agreement that were
applicable to the assignor of such assignee.

 

(d) Except in connection with an assignment by the Company by operation of law
to the acquirer of the Company, the rights and obligations of the Company
hereunder may not be assigned under any circumstances.

 

6.10 Severability. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.

 

6.11 Additional Investors. Notwithstanding anything to the contrary contained
herein, if the Company issues additional shares of the Company’s Series A
Preferred Stock after the date hereof, the Company shall cause any purchaser of
such shares of Series A Preferred Stock to become a party to this Agreement by
causing such party to execute and deliver an additional counterpart signature
page to this Agreement and thereafter shall be deemed an “Investor” for all
purposes hereunder.

 

6.12 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.

 

6.13 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

6.14 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Counterparts may be
delivered via facsimile, electronic mail (including pdf or any electronic
signature complying with the U.S. federal ESIGN Act of 2000, e.g.,
www.docusign.com) or other transmission method and any counterpart so delivered
shall be deemed to have been duly and validly delivered and be valid and
effective for all purposes.

 

6.15 Aggregation of Stock. All shares of Capital Stock held or acquired by
Affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement and such
Affiliated persons may apportion such rights as among themselves in any manner
they deem appropriate.

 

6.16 Specific Performance. In addition to any and all other remedies that may be
available at law in the event of any breach of this Agreement, each Investor
shall be entitled to specific performance of the agreements and obligations of
the Company and the Key Holders hereunder and to such other injunction or other
equitable relief as may be granted by a court of competent jurisdiction.

 

14

 

 

6.17 Additional Key Holders . In the event that after the date of this
Agreement, (i) the Company issues shares of Common Stock, or options to purchase
Common Stock, to any employee or consultant, (ii) or any Person otherwise
becomes a holder of shares of Common Stock, which shares or options would
collectively constitute with respect to such employee or consultant (taking into
account all shares of Common Stock, options and other purchase rights held by
such employee or consultant) one percent (1%) or more of the Company’s then
outstanding Common Stock (treating for this purpose all shares of Common Stock
issuable upon exercise of or conversion of outstanding options, warrants or
convertible securities, as if exercised or converted), the Company shall, as a
condition to such issuance, cause such Person, employee or consultant to execute
a counterpart signature page hereto as a Key Holder, and such Person shall
thereby be bound by, and subject to, all the terms and provisions of this
Agreement applicable to a Key Holder.

 

6.18 Consent of Spouse. If any Key Holder is married on the date of this
Agreement, such holder’s spouse shall execute and deliver to the Company a
consent of spouse in the form of Exhibit A hereto (“Consent of Spouse”),
effective on the date hereof. Notwithstanding the execution and delivery
thereof, such consent shall not be deemed to confer or convey to the spouse any
rights in such Key Holder’s shares of Transfer Stock that do not otherwise exist
by operation of law or the agreement of the parties. If any Key Holder should
marry or remarry subsequent to the date of this Agreement, such Key Holder shall
within thirty (30) days thereafter obtain his/her new spouse’s acknowledgement
of and consent to the existence and binding effect of all restrictions contained
in this Agreement by causing such spouse to execute and deliver a Consent of
Spouse acknowledging the restrictions and obligations contained in this
Agreement and agreeing and consenting to the same.

 

[Remainder of Page Intentionally Left Blank]

 

15

 

 

IN WITNESS WHEREOF, the parties have executed this Right of First Refusal and
Co-Sale Agreement as of the date first written above.

 

  SPECIALTY RENAL PRODUCTS, INC.:         By: /s/ Andrew Astor   Name: Andrew
Astor   Title: Chief Financial Officer         Address: 380 Lackawanna Place    
South Orange, NJ 07079

 

SIGNATURE PAGE TO RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Right of First Refusal and
Co-Sale Agreement as of the date first written above.

 

  KEY HOLDERS:       NEPHROS, INC.         By: /s/ Andrew Astor     Andrew Astor
    Chief Financial Officer

 

SIGNATURE PAGE TO RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Right of First Refusal and
Co-Sale Agreement as of the date first written above.

 

  INVESTORS:         By:              Name:     Title:  

 

SIGNATURE PAGE TO RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 

 

 

 

SCHEDULE A
INVESTORS

 

 

 

 

SCHEDULE B

 

KEY HOLDERS

 

Name of Key Holders

  Nephros, Inc.

 

 

 

 

EXHIBIT A
CONSENT OF SPOUSE

 

I, [____________________], spouse of [______________], acknowledge that I have
read the Right of First Refusal and Co-Sale Agreement, dated as of [_____ __,
201__], to which this Consent is attached as Exhibit A (the “Agreement”), and
that I know the contents of the Agreement. I am aware that the Agreement
contains provisions regarding certain rights to certain other holders of Capital
Stock of the Company upon a Proposed Common Holder Transfer of shares of
Transfer Stock of the Company which my spouse may own including any interest I
might have therein.

 

I hereby agree that my interest, if any, in any shares of Transfer Stock of the
Company subject to the Agreement shall be irrevocably bound by the Agreement and
further understand and agree that any community property interest I may have in
such shares of Transfer Stock of the Company shall be similarly bound by the
Agreement.

 

I am aware that the legal, financial and related matters contained in the
Agreement are complex and that I am free to seek independent professional
guidance or counsel with respect to this Consent. I have either sought such
guidance or counsel or determined after reviewing the Agreement carefully that I
will waive such right.

 

Dated as of the [__] day of [__________, _____].

 

      Signature           Print Name