Exhibit 10.1 Employment Agreement


    
      

    

     

    Exhibit
      10.1

    


     

    EMPLOYMENT
      AGREEMENT

     

    THIS
      AGREEMENT (the “Agreement”), made in New York, New York as of July 1, 2006,
      between Nephros, Inc., a Delaware corporation (the “Company”), and William J.
      Fox (“Executive”).

     

    WHEREAS,
      the Company desires to employ Executive as its Executive Chairman, 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.

     

    Unless
      earlier terminated in accordance with Section 4 hereof, the term of this
      Agreement shall be the two-year period commencing as of the date hereof and
      ending on June 30, 2008 (the “Initial Term”). Thereafter, this Agreement shall
      automatically be extended for one or more additional annual periods unless
      Executive or the Company gives written notice, no less than sixty (60) days
      prior to the end of the Initial Term or any extension thereof (the Initial
      Term
      and any extension, together, the “Term”), of his or its election not to renew
      this Agreement (in which case Executive’s employment shall terminate on the date
      of expiration of the Term, unless earlier terminated in accordance with Section
      4 hereof). In the event that Executive’s employment terminates because the
      Company has given written notice to Executive electing not to extend the Term,
      Executive shall upon such termination be entitled to receive the compensation
      and benefits set forth in Section 5(d) of the Agreement as if Executive’s
      employment had been terminated by the Company without Cause (as defined in
      Section 4(c) of the Agreement), as of the date of expiration of the Term. In
      the
      event that Executive’s employment terminates because Executive has given written
      notice to the Company electing not to extend the Term, Executive shall upon
      such
      termination be entitled to receive the compensation and benefits set forth
      in
      Section 5(b) of the Agreement as if Executive’s employment had been terminated
      by Executive without Good Reason (as defined in Section 4(e) of the Agreement),
      as of the date of expiration of the Term.

     

    2.     
      Employment.

     

    (a)  Employment
      by the Company; Director.
      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 the Executive Chairman of the Company and shall report to the Board of
      Directors of the Company (the “Board of Directors”). Executive agrees to (i)
      continue to serve as a member of the Board of Directors if appointed or elected
      to such position, (ii) resign as a member of the Board of Directors upon
      termination of his employment for any reason by him or the Company and (iii)
      execute such documents and take such other action (if any) as may be requested
      by the Company to give effect to any such resignation.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  Performance
      of Duties.
      Throughout the Term, Executive shall faithfully and diligently perform
      Executive’s duties in conformity with the directions of the Company and serve
      the Company to the best of Executive’s ability. Executive shall devote the
      substantial majority of his business time and best efforts to the business
      and
      affairs of the Company. In his capacity as the Executive Chairman of the
      Company, Executive shall have such duties and responsibilities as may be
      prescribed by the Board of Directors.

     

    (c)  Place
      of Performance.
      Executive shall be principally based at the Company’s offices in New York, New
      York or at such other location in Manhattan or northern New Jersey as the
      Company may determine in its sole discretion. Notwithstanding the foregoing,
      Executive shall be permitted to work from home on Fridays and from time to
      time
      on such other days as determined by the Company in its sole
      discretion. Executive
      recognizes that his duties will require, at the Company’s expense, travel to
      domestic and international locations. 

     

    3.    
Compensation
      and Benefits.

     

    (a)  Base
      Salary.
      The
      Company agrees to pay to Executive a base salary (“Base Salary”) at the annual
      rate of $277,500 during the first year of the Term (each year of the Term,
      a
“Term Year”). On July 1, 2007 and, if applicable, the July 1 of each Term Year
      thereafter, Executive’s Base Salary shall be increased by an amount equal to no
      less than the Base Salary in effect on June 30 of the Term Year then ended
      multiplied by the percentage increase, if any, in the CPI as of June 30 for
      the
      Term Year then ended as compared to the CPI as of June 30 for the year prior
      to
      the Term Year then ended. For purposes of this Section 3(a), “CPI” means the
“Consumer Price Index: New York, New York, All Items - Urban Wage Earners and
      Clerical Workers,” published by the United States Bureau of Labor Statistics of
      the United States Department of Labor. The Compensation Committee of the Board
      of Directors may determine in its sole discretion to further increase the Base
      Salary. Payments of the Base Salary shall be payable in equal installments
      in
      accordance with the Company’s standard payroll practices.

     

    (b)  Annual
      Performance Bonus.
      Executive shall be eligible to receive an annual cash bonus (the “Performance
      Bonus”) for each Term Year. The Performance Bonus, if any, will be based on the
      extent to which individual and Company-wide performance goals established by
      the
      Board of Directors for each Term Year have been met. Each Performance Bonus,
      if
      any, shall be paid on the September 30 following the completion of the
      applicable Term Year, provided that if such date falls on a Saturday or Sunday,
      such payment shall be made on the first business day following such date. Except
      as provided in Sections 5(c)(ii) and 5(d)(ii), Executive must be employed by
      the
      Company on the last day of the applicable Term Year to be eligible for the
      Performance Bonus.

     

    (c)  Option.
      The
      Company shall grant to Executive an option to purchase 450,000 shares of the
      common stock of the Company, in accordance with and subject to the provisions
      of
      the Nephros, Inc. 2004 Stock Incentive Plan , as it may be amended from time
      to
      time (the “2004 Stock Incentive Plan”), and a Non-Qualified Stock Option
      Agreement in substantially the form attached hereto as Exhibit 1.

     

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    (d)  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 by the Company to
      senior executives of the Company, including without limitation family medical
      insurance (subject to applicable employee contributions). Executive shall be
      entitled to receive thirty (30) days of annual paid vacation.

     

    (e)  Business
      Expenses.
      The
      Company agrees to reimburse Executive for all reasonable and necessary travel,
      business entertainment, professional dues and fees and other business expenses
      incurred by Executive in connection with the performance of his duties under
      this Agreement. Such reimbursements shall be made by the Company on a timely
      basis upon submission by Executive of such expenses in accordance with the
      Company’s standard procedures.

     

    (f)  Additional
      Monthly Cash Payment.
      The
      Company agrees that it will make an additional cash payment to Executive of
      $450
      per month (the “Additional Monthly Payment”) through the Additional Monthly
      Payment End Date (as defined below) in connection with payments under the
      Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
      which Executive’s daughter is currently making. The “Additional Monthly Payment
      End Date” shall be the earlier of (i) the date such current COBRA continuation
      coverage expires and (ii) the date Executive’s daughter becomes employed with a
      new employer and is eligible for coverage under the group benefits plan of
      the
      new employer. If during the period Executive is receiving the Additional Monthly
      Payment, Executive’s daughter obtains new employment and becomes eligible for
      coverage under the group benefits plan of the new employer, Executive must
      notify the Company in writing of such employment and coverage.

     

    (g)  No
      Other Compensation or Benefits; Payment.
      The
      compensation and benefits specified in this Section 3 and in Section 5 of this
      Agreement shall be in lieu of any and all other compensation and benefits.
      Payment of all compensation and benefits to Executive specified in this Section
      3 and in Section 5 of this Agreement (i) 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 (ii) shall be
      subject to all legally required and customary withholdings.

     

    (h)  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 specifically provided herein or in any applicable employee
      benefit plan or program or as required by law.

     

    4.     
      Termination
      of Employment.
      Executive’s employment hereunder may be terminated prior to the end of the Term
      under the following circumstances.

     

    (a)  Death.
      Executive’s employment hereunder shall terminate upon Executive’s
      death.

     

    (b)  Executive
      Becoming Totally Disabled.
      The
      Company may terminate Executive’s employment hereunder at any time after
      Executive becomes “Totally

     

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     Disabled.”
      For purposes of this Agreement, Executive shall be “Totally Disabled” in the
      event Executive is unable to perform the duties and responsibilities
      contemplated under this Agreement for a period of 90 consecutive days due to
      physical or mental incapacity or impairment. During any period that Executive
      fails to perform Executive’s duties hereunder as a result of incapacity due to
      physical or mental illness (the “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 base compensation and benefits received by Executive during the
      Disability Period shall be reduced by the aggregate amounts, if any, payable
      to
      Executive under any disability benefit plan or program provided to Executive
      by
      the Company.

     

    (c)  Termination
      by the Company for Cause.
      The
      Company may terminate Executive’s employment hereunder for Cause at any time
      after providing written notice to Executive. For purposes of this Agreement,
      the
      term “Cause” shall mean any of the following: (i) the neglect or failure or
      refusal of Executive to perform Executive’s duties hereunder (other than as a
      result of total or partial incapacity due to physical or mental illness);
      (ii) the engaging by Executive in gross negligence or misconduct which is
      injurious to the Company or any of its affiliates, monetarily or otherwise;
      (iii) perpetration of an intentional and knowing fraud against or affecting
      the
      Company or any of its affiliates or any customer, client, agent, or employee
      thereof; (iv) any willful or intentional act that could reasonably be expected
      to injure the reputation, business, or business relationships of the Company
      or
      any of its affiliates or Executive’s reputation or business relationships;
      (v) Executive’s material failure to comply with, and/or a material
      violation by Executive of, the internal policies of the Company or any of its
      affiliates and/or procedures or any laws or regulations applicable to
      Executive’s conduct as an employee of the Company; (vi) Executive’s conviction
      (including conviction on a nolo contendere
      plea) of
      a felony or any crime involving fraud, dishonesty or moral turpitude; (vii)
      the
      breach of a covenant set forth in Section 6; or (viii) any other material breach
      by Executive of this Agreement; provided, however, that, if susceptible of
      cure,
      a termination by the Company under Sections 4(c)(i), 4(c)(v) or 4(c)(viii)
      shall
      be effective only if, within 14 days following delivery of a written notice
      by
      the Company to Executive that the Company is terminating his employment for
      Cause, Executive has failed to cure the circumstances giving rise to
      Cause.

     

    (d)  Termination
      by the Company Without Cause.
      The
      Company may terminate Executive’s employment hereunder at any time for any
      reason or no reason by giving Executive thirty (30) days prior written notice
      of
      the termination. Following any such notice, the Company may reduce or remove
      any
      and all of Executive’s duties, positions and titles with the
      Company.

     

    (e)  Termination
      by Executive for Good Reason.
      Executive may terminate his employment hereunder for Good Reason at any time
      after providing written notice to the Company. For purposes of this Agreement,
      the term “Good Reason” shall mean any of the following: (i) the Company
      decreases or fails to pay the compensation described in Sections 3(a), 3(b)
      3(c)
      or 3(d) (in accordance with, and subject to, such provisions); (ii) Executive
      no
      longer holds the office of Executive Chairman or an office of equivalent
      stature, or his functions and/or duties as Executive Chairman are materially
      diminished; (iii) Executive’s job site is relocated to a location outside of
      Manhattan or northern New Jersey, unless the parties mutually agree to such
      relocation; or (iv) a Change in Control (as such term is defined in the 2004
      Stock 

     

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    Incentive
      Plan) occurs; provided, however, that a termination by Executive for Good Reason
      shall be effective only if, within 14 days following delivery of a written
      notice by Executive to the Company that Executive is terminating his employment
      for Good Reason, the Company has failed to cure the circumstances giving rise
      to
      Good Reason.

     

    (f)  Termination
      by Executive Without Good Reason.
      Executive may terminate his employment hereunder at any time for any reason
      or
      no reason by giving the Company thirty (30) days prior written notice of the
      termination. Following any such notice, the Company may reduce or remove any
      and
      all of Executive’s duties, positions and titles with the Company, and any such
      reduction or removal shall not constitute Good Reason.

     

    5.  Compensation
      Following Termination Prior to the End of the Term or Upon Nonrenewal of the
      Agreement.
      In the
      event that Executive’s employment hereunder is terminated prior to the end of
      the Term or upon nonrenewal of the Agreement, Executive shall be entitled only
      to the following compensation and benefits upon such termination or
      nonrenewal:

     

    (a)      
General.
      On any
      termination of Executive’s employment, he shall be entitled to:

     

    
      	(i)  	
              any
                accrued but unpaid Base Salary for services rendered through the
                date of
                termination; provided, however, that in the event Executive’s employment
                is terminated pursuant to Section 4(b), the amount of Base Salary
                received
                by Executive during the Disability Period shall be reduced by the
                aggregate amounts, if any, payable to Executive under any disability
                benefit plan or program provided to Executive by the
                Company;

            


    

     

    
      	(ii)  	
              any
                Performance Bonus not yet paid for any Term Year ending prior to
                or on the
                date of termination of Executive’s employment (payable as and when such
                bonus would have been paid had Executive’s employment continued);
                provided, however, that no such payment shall be due if Executive’s
                employment is terminated for Cause;

            


    

     

    
      	(iii)  	
              any
                vacation accrued to the date of
                termination;

            


    

     

    
      	(iv)  	
              any
                accrued but unpaid business expenses or monthly cash payments through
                the
                date of termination required to be reimbursed in accordance with
                Sections
                3(e) and 3(f) of this Agreement, respectively;
                and

            


    

     

    
      	(v)  	
              receive
                any benefits to which he may be entitled upon termination pursuant
                to the
                plans, programs and agreement referred to in Sections 3(c) and 3(d)
                hereof
                in accordance with the terms of such plans, programs and
                agreement.

            


    

     

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    (b)  Termination
      by the Company for Cause; Termination by Executive Without Good Reason;
      Nonrenewal of the Agreement by Executive.
      In the
      event that Executive’s employment is terminated prior to the expiration of the
      Term by the Company for Cause pursuant to Section 4(c) or by Executive without
      Good Reason pursuant to Section 4(f), or Executive gives written notice of
      his
      election not to renew the Agreement pursuant to Section 1, Executive shall
      be
      entitled only to those items identified in Section 5(a).

     

    (c)  Termination
      by Reason of Death or Executive Becoming Totally Disabled.
      In the
      event that Executive’s employment is terminated prior to the expiration of the
      Term by reason of Executive’s death pursuant to Section 4(a) or Executive
      becoming Totally Disabled pursuant to Section 4(b), Executive (or his estate,
      as
      the case may be) shall be entitled only to the following:

     

    
      	(i)  	
              those
                items identified in Section 5(a);
                and

            


    

     

    
      	(ii)  	
              a
                prorated portion of the Performance Bonus, if any, for the Term Year
                in
                which Executive’s employment terminated, based on the number of days
                Executive was employed by the Company in such year (such bonus, if
                any, to
                be paid as and when such bonus would have been paid had Executive’s
                employment continued).

            


    

     

    (d)      
Termination
      by the Company Without Cause; Termination by Executive for Good Reason;
      Nonrenewal of the Agreement by the Company.
      In the
      event that Executive’s employment is terminated prior to the expiration of the
      Term by the Company without Cause pursuant to Section 4(d) or by Executive
      for
      Good Reason pursuant to Section 4(e), or the Company gives written notice of
      its
      election not to renew the Agreement pursuant to Section 1, Executive shall
      be
      entitled only to the following:

     

    
      	(i)  	
              those
                items identified in Section 5(a);

            


    

     

    
      	(ii)  	
              a
                prorated portion of the Performance Bonus, if any, for the Term Year
                in
                which Executive’s employment terminated, based on the number of days
                Executive was employed by the Company in such year (such bonus, if
                any, to
                be paid as and when such bonus would have been paid had Executive’s
                employment continued) (it being understood by the parties that in
                the
                event Executive’s employment terminates because of the Company giving
                written notice of its election not to renew the Agreement pursuant
                to
                Section 1, no Performance Bonus shall be due pursuant to this Section
                5(d)(ii), and the only Performance Bonus due shall be pursuant to
                Section
                5(a)(ii) of the Agreement); and

            


    

     

    
      	(iii)  	
              the
                continued payment of the Base Salary (as determined pursuant to Section
                3(a)) for twelve months (such sums to be paid at the times and in
                the
                amounts such Base Salary 

            


    

     

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    would
      have been paid had Executive’s employment not
      terminated); provided, however, that if necessary to comply with Section
      409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “Code”),
      and applicable administrative guidance and regulations, the payment of such
      sums
      shall be made as follows: (A) no payments shall be made for a six-month period
      following the date of termination, (B) an amount equal to six months of Base
      Salary shall be paid in a lump sum six months following the date of termination,
      and (C) during the period beginning six months following the date of termination
      through the remainder of the twelve-month period, payment of the Base Salary
      shall be made at the times and in the amounts such Base Salary would have been
      paid had Executive’s employment not terminated.

     

    (e)  Effect
      of Material Breach of Section 6 on Compensation and Benefits Following
      Termination of Employment Pursuant to Section 5.
      If, at
      the time of termination of Executive’s employment for any reason prior to the
      expiration of the Term or any time thereafter, Executive is in material breach
      of any covenant contained in Section 6 hereof, Executive (or his estate, as
      applicable) shall not be entitled to any payment (or if payments have commenced,
      any continued payment) under Sections 5(c)(ii), 5(d)(ii) or 5(d)(iii), provided
      that the Company shall provide written notice to Executive generally describing
      such material breach. 

     

    (f)  No
      Further Liability; Release.
      Payment
      made and performance by the Company in accordance with this Section 5 shall
      operate to fully discharge and release the Company and its directors, officers,
      employees, affiliates, stockholders, successors, assigns, agents and
      representatives from any further obligation or liability with respect to
      Executive’s employment and termination of employment. Other than providing the
      compensation and benefits provided for in accordance with this Section 5, the
      Company and its directors, officers, employees, affiliates, stockholders,
      successors, assigns, agents and representatives shall have no further obligation
      or liability to Executive or any other person under this Agreement. The payment
      of any amounts pursuant to this Section 5 (other than payments required by
      law)
      is expressly conditioned upon the delivery by Executive to the Company of a
      release in form and substance reasonably satisfactory to the Company of any
      and
      all claims Executive may have against the Company and its directors, officers,
      employees, affiliates, stockholders, successors, assigns, agents and
      representatives arising out of or related to Executive’s employment by the
      Company and the termination of such employment.

     

    6.     
      Exclusive
      Employment; Noncompetition; Nonsolicitation; Nondisclosure of Proprietary
      Information; Surrender of Records; Inventions and Patents.

     

    6.1     No
      Conflict; No Other Employment.
      During
      the period of Executive’s employment with the Company, Executive shall not,
      except as expressly provided in the last sentence of this Section 6.1: (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


     

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    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 Company (through the
      Chairman of the Compensation Committee of the Board of Directors or the Lead
      Director of the Company), or (ii)
      accept or engage in any other employment, whether as an employee or consultant
      or in any other capacity, and whether or not compensated therefor.
      Notwithstanding the foregoing, Executive may undertake the following activities
      during his employment with the Company, provided they do not conflict or
      unreasonably interfere with his responsibilities and obligations hereunder
      (including, without limitation, under Sections 2(a), 2(b), 6.2, 6.3, 6.4 or
      6.5
      of the Agreement) (a) manage his personal investments and otherwise attend
      to
      personal affairs, including charitable, social and political activities, (b)
      serve as a member on the boards of directors and advisory boards of those
      entities he currently serves (Executive to provide a written list of such
      entities to the Company simultaneously with the parties’ execution of this
      Agreement), as well as additional boards of directors and advisory groups,
      provided that Executive has provided written notice to the Company of such
      appointment or election prior to commencement of such service, and (c) provide
      consulting services to other entities, provided that such consulting
      engagement(s) are approved in advance in writing by the Company (the response
      to
      such request to be furnished by the Chairman of the Compensation Committee
      of
      the Board of Directors or the Lead Director of the Company no later than two
      weeks of receipt by each of them of Executive’s written request to provide such
      consulting services).

     

    6.2     Noncompetition;
      Nonsolicitation.

     

    (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 5 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 one year after the date
      of
      termination of employment (the “Post-Employment Period”), Executive shall not,
      directly or indirectly, engage (as owner, investor, partner, stockholder,
      employer, employee, consultant, advisor, director or otherwise) in any Competing
      Business, provided that the provisions of this Section 6.2(a) will not be deemed
      breached merely because Executive owns less than 1% of the outstanding common
      stock of a publicly-traded company. For purposes of this Agreement, “Competing
      Business” shall mean (i) any business in which the Company is currently engaged
      anywhere in the world, 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 purification systems; and (ii)
      any other business which the Company engages in anywhere in the world during
      Executive’s employment with the Company, provided that, solely for purposes of
      this clause (ii), such business represents more than 5% of the Company’s net
      sales or net income (as determined in accordance with generally accepted
      accounting principles) for the preceding twelve-month period.

     

    (b)    
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 5 hereof) and other
      obligations

     

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     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 6.2(b) 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.

     

    (c)    During
      Executive’s employment with the Company and during the Post-Employment Period,
      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 6 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 6 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.

     

    (d)  Executive
      understands that the provisions of this Section 6.2 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 5 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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    6.3    Proprietary
      Information.
      Executive acknowledges that during the course of his employment with the Company
      he will necessarily have access to and make use of proprietary information
      and
      confidential records of the Company and its affiliates. Executive covenants
      that
      he shall not during the Term or at any time thereafter, directly or indirectly,
      use for his own purpose or for the benefit of any person or entity other than
      the Company, nor otherwise disclose, any proprietary information to any
      individual or entity, unless such disclosure has been authorized in writing
      by
      the Company or is otherwise required by law. Executive acknowledges and
      understands that the term “proprietary information” includes, but is not limited
      to: (a) the software products, programs, applications, and processes utilized
      by
      the Company or any of its affiliates; (b) the name and/or address of any
      customer or vendor of the Company or any of its affiliates or any information
      concerning the transactions or relations of any customer or vendor of the
      Company or any of its affiliates with the Company or such affiliate or any
      of
      its or their partners, principals, directors, officers or agents; (c) any
      information concerning any product, technology, or procedure employed by the
      Company or any of its affiliates but not generally known to its or their
      customers, vendors or competitors, or under development by or being tested
      by
      the Company or any of its affiliates but not at the time offered generally
      to
      customers or vendors; (d) any information relating to the computer software,
      computer systems, pricing or marketing methods, sales margins, cost of goods,
      cost of material, capital structure, operating results, borrowing arrangements
      or business plans of the Company or any of its affiliates; (e) any information
      which is generally regarded as confidential or proprietary in any line of
      business engaged in by the Company or any of its affiliates; (f) any business
      plans, budgets, advertising or marketing plans; (g) any information contained
      in
      any of the written or oral policies and procedures or manuals of the Company
      or
      any of its affiliates; (h) any information belonging to customers or vendors
      of
      the Company or any of its affiliates or any other person or entity which the
      Company or any of its affiliates has agreed to hold in confidence; (i) any
      inventions, innovations or improvements covered by this Agreement; and
      (j) all written, graphic and other material relating to any of the
      foregoing. Executive acknowledges and understands that information that is
      not
      novel or copyrighted or patented may nonetheless be proprietary information.
      The
      term “proprietary information” shall not include information generally available
      to and known by the public or information that is or becomes available to
      Executive on a non-confidential basis from a source other than the Company,
      any
      of its affiliates, or the directors, officers, employees, partners, principals
      or agents of the Company or any of its affiliates (other than as a result of
      a
      breach of any obligation of confidentiality).

     

    6.4    Confidentiality
      and Surrender of Records.
      Executive shall not during the Term or at any time thereafter (irrespective
      of
      the circumstances under which Executive’s employment by the Company terminates),
      except as required by law, directly or indirectly publish, make known or in
      any
      fashion disclose any confidential records to, or permit any inspection or
      copying of confidential records by, any individual or entity other than in
      the
      course of such individual’s or entity’s employment or retention by the Company.
      Upon termination of employment for any reason or upon request by the Company,
      Executive shall deliver promptly to the Company all property and records of
      the
      Company or any of its affiliates, including, without limitation, all
      confidential records. For purposes hereof, “confidential records” means all
      correspondence, reports, memoranda, files, manuals, books, lists, financial,
      operating or marketing records, magnetic tape, or electronic or other media
      or
      equipment of any kind which may be in Executive’s possession or under his
      control or accessible to him which contain any proprietary information. All
      property and records of the Company and any of its

     

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     affiliates
      (including, without limitation, all confidential records) shall be and remain
      the sole property of the Company or such affiliate during the Term and
      thereafter.

     

    6.5    Inventions
      and Patents.
      All
      inventions, innovations or improvements (including policies, procedures,
      products, improvements, software, ideas and discoveries, whether patent,
      copyright, trademark, service mark, or otherwise) conceived or made by
      Executive, either alone or jointly with others, in the course of his employment
      by the Company, belong to the Company. Executive will promptly disclose in
      writing such inventions, innovations or improvements to the Company and perform
      all actions reasonably requested by the Company to establish and confirm such
      ownership by the Company, including, but not limited to, cooperating with and
      assisting the Company in obtaining patents, copyrights, trademarks, or service
      marks for the Company in the United States and in foreign
      countries.

     

    6.6    Enforcement.
      Executive acknowledges and agrees that, by virtue of his position, his services
      and access to and use of confidential records and proprietary information,
      any
      violation by him of any of the undertakings contained in this Section 6 would
      cause the Company and/or its affiliates immediate, substantial and irreparable
      injury for which it or they have no adequate remedy at law. Accordingly,
      Executive agrees and consents to the entry of an injunction or other equitable
      relief by a court of competent jurisdiction restraining any violation or
      threatened violation of any undertaking contained in this Section 6. Executive
      waives posting by the Company or its affiliates of any bond otherwise necessary
      to secure such injunction or other equitable relief. Rights and remedies
      provided for in this Section 6 are cumulative and shall be in addition to rights
      and remedies otherwise available to the parties hereunder or under any other
      agreement or applicable law.

     

    7.  Key
      Man Insurance.
      Executive recognizes and acknowledges that the Company or its affiliates may
      seek and purchase one or more policies providing key man life insurance with
      respect to Executive, the proceeds of which would be payable to the Company
      or
      such affiliate. Executive hereby consents to the Company or its affiliates
      seeking and purchasing such insurance and will provide such information, undergo
      such medical examinations (at the Company’s expense), execute such documents,
      and otherwise take any and all actions reasonably necessary or desirable in
      order for the Company or its affiliates to seek, purchase, and maintain in
      full
      force and effect such policy or policies.

     

    8.    
Assignment
      and Transfer.

     

    (a)  Company.
      This
      Agreement shall inure to the benefit of and be enforceable by, and may be
      assigned by the Company without Executive’s consent to, any purchaser of all or
      substantially all of the Company’s business or assets, or to any successor to
      the Company or any assignee thereof (whether direct or indirect, by purchase,
      merger, consolidation or otherwise).

     

    (b)  Executive.
      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.
      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 

     

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    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 estate.

     

    9.    
Miscellaneous.

     

    (a)       Other
      Obligations.
      Executive represents and warrants that neither Executive’s employment with the
      Company nor 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.

     

    (b)       Nondisclosure;
      Other Employers.
      Executive will not disclose to the Company, use, or induce the Company 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 any prior employers.

     

    (c)       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. The Company shall reimburse
      Executive’s reasonable out-of-pocket expenses incurred in connection with the
      obligations in this Section 9(c). 

     

    (d)      
Mitigation.
      Executive shall not be required to mitigate damages or the amount of any payment
      provided to him under Section 5 of this Agreement by seeking other employment
      or
      otherwise, nor shall the amount of any payments provided to Executive under
      Section 5 be reduced by any compensation earned by Executive as the result
      of
      employment by another employer after the termination of Executive’s employment
      or otherwise.

     

    (e)      
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
      affiliates or its or their reputation or which would reasonably be expected
      to
      lead to unwanted or unfavorable publicity to the Company or its affiliates.
      Nothing herein shall prevent Executive from making any truthful statement in
      connection with any legal proceeding or investigation by the Company or any
      governmental authority.

     

    (f)      
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 within such
      jurisdiction, without regard to the principles of conflicts of law or where
      the
      parties are located at the time a dispute arises.

     

    (g)         
Arbitration.

     

    
      	(i)  	
              General.
                Executive and the Company specifically, knowingly, and voluntarily
                agree
                that they shall use final 

            


    

     

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    and
      binding arbitration to resolve any dispute (an
“Arbitrable Dispute”) between Executive, on the one hand, and the Company (or
      any affiliate of the Company), on the other hand. This arbitration agreement
      applies to all matters relating to this Agreement and Executive’s employment
      with and/or termination of employment from the Company, including without
      limitation disputes about the validity, interpretation, or effect of this
      Agreement, or alleged violations of it, any payments due hereunder and all
      claims arising out of any alleged discrimination, harassment or retaliation,
      including, but not limited to, those covered by Title VII of the Civil Rights
      Act of 1964, as amended, the Age Discrimination in Employment Act of 1967,
      as
      amended, and the Americans With Disabilities Act or any other federal, state
      or
      local law relating to discrimination in employment.

     

     

    
      	(ii)  	
              Injunctive
                Relief.
                Notwithstanding anything to the contrary contained herein, the Company
                and
                any affiliate of the Company (if applicable) shall have the right
                to seek
                injunctive or other equitable relief from a court of competent
                jurisdiction to enforce Section 6 of this Agreement. For purposes
                of
                seeking enforcement of Section 6, the Company and Executive hereby
                consent
                to the jurisdiction of any state or federal court sitting in the
                City,
                County and State of New York.

            


    

     

    
      	(iii)  	
              The
                Arbitration.
                Any arbitration pursuant to this Section 9(g) will take place in
                New York,
                New York, under the auspices of the American Arbitration Association,
                in
                accordance with the Employment Arbitration Rules and Mediation Procedures
                of the American Arbitration Association then in effect, and before
                a panel
                of three arbitrators selected in accordance with such rules. Judgment
                upon
                the award rendered by the arbitrators may be entered in any state
                or
                federal court sitting in the City, County and State of New
                York.

            


    

     

    
      	(iv)  	
              Fees
                and Expenses.
                In any arbitration pursuant to this Section 9(g), except as otherwise
                required by law, each party shall be responsible for the fees and
                expenses
                of its own attorneys and witnesses, and the fees and expenses of
                the
                arbitrators shall be divided equally between the Company, on the
                one hand,
                and Executive, on the other hand.

            


    

     

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      	(v)  	
              Exclusive
                Forum.
                Except as permitted by Section 9(g)(ii) hereof, arbitration in the
                manner
                described in this Section 9(g) shall be the exclusive forum for any
                Arbitrable Dispute. Except as permitted by Section 9(g)(ii), should
                Executive or the Company attempt to resolve an Arbitrable Dispute
                by any
                method other than arbitration pursuant to this Section 9(g), the
                responding party shall be entitled to recover from the initiating
                party
                all damages, expenses, and attorneys’ fees incurred as a result of that
                breach.

            


    

     

    (h)  Entire
      Agreement.
      This
      Agreement (including the plans and agreement referenced in Sections 3(c) and
      3(d)) 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 between the Company and Executive, which
      agreement(s) hereby are terminated and shall be of no further force or
      effect.

     

    (i)  Amendment.
      This
      Agreement may be amended only by a writing which makes express reference to
      this
      Agreement as the subject of such amendment and which is signed by Executive
      and,
      on behalf of the Company, by its duly authorized officer.

     

    (j)  Severability.
      If any
      provision of this Agreement or the application of any such provision to any
      party or circumstances shall be determined by any court of competent
      jurisdiction or arbitration panel to be invalid or unenforceable to any extent,
      the remainder of this Agreement, or the application of such provision to such
      person or circumstances other than those to which it is so determined to be
      invalid or unenforceable, shall not be affected thereby, and each provision
      hereof shall be enforced to the fullest extent permitted by law. If any
      provision of this Agreement, or any part thereof, is held to be invalid or
      unenforceable because of the scope or duration of or the area covered by such
      provision, the parties hereto agree that the court or arbitration panel making
      such determination shall reduce the scope, duration and/or area of such
      provision (and shall substitute appropriate provisions for any such invalid
      or
      unenforceable provisions) in order to make such provision enforceable to the
      fullest extent permitted by law and/or shall delete specific words and phrases,
      and such modified provision shall then be enforceable and shall be enforced.
      The
      parties hereto recognize that if, in any judicial or arbitral proceeding, a
      court or arbitration panel shall refuse to enforce any of the separate covenants
      contained in this Agreement, then that invalid or unenforceable covenant
      contained in this Agreement shall be deemed eliminated from these provisions
      to
      the extent necessary to permit the remaining separate covenants to be enforced.
      In the event that any court or arbitration panel determines that the time period
      or the area, or both, are unreasonable and that any of the covenants is to
      that
      extent invalid or unenforceable, the parties hereto agree that such covenants
      will remain in full force and effect, first, for the greatest time period,
      and
      second, in the greatest geographical area that would not render them
      unenforceable.

     

    (k)  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


     

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    according
      to its fair meaning and not strictly for or against the Company or Executive.
      As
      used herein, the words “day” or “days” shall mean a calendar day or
      days.

     

    (l)  Nonwaiver.
      Neither
      any course of dealing nor any failure or neglect of either party hereto in
      any
      instance to exercise any right, power or privilege hereunder or under law shall
      constitute a waiver of any other right, power or privilege or of the same right,
      power or privilege in any other instance. All waivers by either party hereto
      must be contained in a written instrument signed by the party to be charged
      and,
      in the case of the Company, by its duly authorized officer.

     

    (m)  Notices.
      Any
      notice required or permitted hereunder shall be in writing and shall be
      sufficiently given if personally delivered or if sent by registered or certified
      mail, postage prepaid, with return receipt requested, addressed: (i) in the
      case
      of the Company, to Nephros, Inc., 3960 Broadway, New York, New York 10032,
      attn.: (a) Chairman of the Compensation Committee of the Board of Directors
      and
      (b) Lead Director, with a copy to Kramer Levin Naftalis & Frankel LLP, 1177
      Avenue of the Americas, New York, New York 10036, attn.: Kevin B. Leblang,
      Esq.;
      and (ii) in the case of Executive, to Executive’s last known address as
      reflected in the Company’s records, or to such other address as Executive shall
      designate by written notice to the Company. Except as otherwise provided in
      Section 6.1 of this Agreement, any notice given hereunder shall be deemed to
      have been given at the time of receipt thereof by the person to whom such notice
      is given if personally delivered or at the time of mailing if sent by registered
      or certified mail.

     

    (n)  Assistance
      in Proceedings, Etc.
      Executive shall, without additional compensation, during and after 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 affiliates. The Company
      shall
      reimburse Executive’s reasonable out-of-pocket expenses incurred in connection
      with the obligations in this Section 9(n).

     

    (o)  Survival.
      Cessation or termination of Executive’s employment with the Company shall not
      result in termination of this Agreement. The respective obligations of Executive
      and the Company as provided in Sections 5, 6, 8 and 9 of this Agreement shall
      survive cessation or termination of Executive’s employment
      hereunder.

     

    (p)  Section
      409A of the Code.
      The
      Company makes no representations regarding the tax implications of the
      compensation and benefits to be paid to Executive under this Agreement,
      including, without limitation, under Section 409A of the Code. Executive and
      the
      Company agree that in the event the Company reasonably determines that the
      terms
      hereof would result in Executive being subject to tax under Section 409A of
      the
      Code, Executive and the Company shall negotiate in good faith to amend this
      Agreement to the extent necessary to prevent the assessment of any such tax,
      including by delaying the payment dates of any amounts hereunder.

     

     

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    IN
      WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement
      on
      August 2, 2006, to be deemed effective as of the date first written
      above.

     

    


     

    NEPHROS,
      INC.                                                      
      EXECUTIVE:

    


    


     

    By:  /s/
      Norman J. Barta                          
/s/
      William J.
      Fox            

    Name:  Norman
      J.
      Barta

      
Title: 
      President and Chief
      Executive Officer

     

    16