EMPLOYMENT
      AGREEMENT

     

    This
      EMPLOYMENT
      AGREEMENT (this
      “Agreement”), made in New York, New York as of the 15th day of September 2008
      (the “Effective Date”), between Nephros, Inc., a Delaware corporation having its
      executive offices and principal place of business at 3960 Broadway, New York,
      New York 10032 (the “Company”), and Ernest A. Elgin III
      (“Executive”).

     

    RECITALS

     

    WHEREAS,
      the Company desires to employ Executive, and Executive desires to accept such
      employment on the terms and conditions hereinafter set forth:

     

    NOW,
      THEREFORE, in consideration of the mutual covenants and agreements hereinafter
      set forth, the Company and Executive agree as follows:

     

    1. Term.
      The
      term of this Agreement shall be the period commencing on the Effective Date
      and
      ending on September 14, 2011 (the “Expiration Date,” and collectively, the
“Term”). 

     

    2. Employment.

     

    2.1 Employment
      by the Company; Duties.
      Executive agrees to be employed by the Company during the Term upon the terms
      and subject to the conditions set forth in this Agreement. Executive shall
      serve
      as President and Chief Executive Officer (“CEO”), reporting to the Board of
      Directors of the Company (the "Board”), and shall have such duties as may be
      prescribed by the Board from time to time and which are commonly performed
      by
      presidents and chief executive officer’s of similar sized companies conducting
      similar business, such as, but not limited to, corporate planning and oversight
      of the financial, marketing, research and other functions of the
      organization.

     

    2.2 Performance
      of Duties.
      Throughout the Term, Executive shall faithfully and diligently perform
      Executive's duties in conformity with the directions of the Board and serve
      the
      Company to the best of Executive's ability. Executive shall devote Executive's
      entire working time to the business and affairs of the Company, subject to
      vacations and sick leave in accordance with Company policy and as otherwise
      permitted herein and will not engage in any other employment, occupation or
      consulting for any direct or indirect remuneration, nor engage in any other
      activities that conflict with his obligations to the Company without the prior
      written approval of the Board.

     

    2.3 Place
      of Performance.
      During
      his employment with the Company, Executive will work at the Company's offices
      in
      New York, New York, as necessary or appropriate, or at such other location
      in
      the greater New York City area as the Company may determine. Throughout the
      Term, Executive agrees to maintain Executive's personal residence within
      reasonable access to Executive's place of employment. Executive recognizes
      that
      his duties will require, from time to time and at the Company's expense (subject
      to Section 3.6 below), travel to domestic and international locations.


     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2.4 At-Will
      Employment.
      The
      parties agree that Executive’s employment shall be on an “at-will” basis,
      subject to the terms of this Agreement, and may be terminated at any time,
      with
      or without good cause or for any or no cause, at the option of either the
      Company or Executive with or without notice. Executive understands and agrees
      that neither his job performance nor promotions, commendations, bonuses or
      the
      like from the Company give rise to or in any way serve as the basis for
      modification, amendment, or extension, by implication or otherwise, of his
      employment with the Company.

     

    3. Compensation
      and Benefits.

     

    3.1 Base
      Salary.
      The
      Company agrees to pay to Executive a base salary ("Base Salary") at the annual
      rate of $240,000, payable in equal installments consistent with the Company's
      payroll practices. 

     

    3.2 Performance
      Bonus.
      The
      Company shall establish for Executive a target
      discretionary bonus of 30%
      of
      annual base salary. The bonus amount, if any, will be determined by the
      Compensation Committee of the Board (or the independent members of the Board,
      if
      there is no Compensation Committee) (the “Compensation Committee”) in its sole
      discretion, based in part on attainment of personal objectives as determined
      by
      Executive and Compensation Committee, and based in part on the Company achieving
      overall corporate targets. The Company will provide a guaranteed bonus of
      $35,000 for the period beginning on Executive’s start date and ending on
      December 31, 2008. 

     

    3.3 Grant
      of Options and Terms Thereof.
      Upon
      execution of this Agreement, the Company shall grant to Executive options to
      purchase 750,000 shares of the Company's common stock ("Options") pursuant
      to
      the Company’s 2004 Stock Incentive Plan or successor plans, if applicable,
      subject to exercise price, vesting and forfeiture as described in the
Schedule
      A.
      

     

    3.4 Change
      of Control.
      In
      the
      event of a Change of Control (as defined below), all unvested Options shall
      vest
      and become exercisable immediately and, unless all such options are cashed-out
      in the Change of Control transaction, shall remain exercisable for a period
      of
      not less than 360 days, regardless of whether Executive’s employment is
      terminated.

     

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

            


    

     

    
      
         

      

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


    

     

    
      	 	
              a.

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

            


    

     

    
      	 	
              b.

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

            


    

     

    
      	 	
              c.

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

            


    

     

    3.5 Benefits
      and Perquisites.
      Executive shall be entitled to participate in, to the extent Executive is
      otherwise eligible under the terms thereof, the benefit plans and programs,
      and
      receive the benefits and perquisites, generally provided to the Company’s
      eligible employees. Executive shall be entitled to receive four weeks of annual
      paid vacation in accordance with the Company’s vacation policy, with the timing
      and duration of specific vacations mutually and reasonably agreed to by the
      parties hereto. The Company reserves the right to cancel or change the benefit
      plans and programs it offers to its employees at any time.

     

    3.6 Travel
      and Business Expenses.
      Upon
      submission of itemized expense statements in the manner specified by the
      Company, Executive shall be entitled to reimbursement for reasonable travel
      and
      other reasonable business expenses duly incurred by Executive in the performance
      of Executive's duties under this Agreement in accordance with the policies
      and
      procedures established by the Company from time to time for executives of the
      same level and responsibility as Executive.

     

    3.7 No
      Other Compensation or Benefits; Payment.
      The
      compensation and benefits specified in this Section 3 and in Section 4 of this
      Agreement shall be in lieu of any and all other compensation and benefits.
      Payment of all compensation and benefits to Executive hereunder shall be made
      in
      accordance with the relevant Company policies in effect from time to time to
      the
      extent the same are consistently applied, including normal payroll practices,
      and shall be subject to all applicable employment and withholding taxes and
      other withholdings.

     

    3.8 Cessation
      of Employment.
      In the
      event Executive shall cease to be employed by the Company for any reason, then
      Executive's compensation and benefits shall cease on the date of such event,
      except as otherwise provided herein or in any applicable employee benefit plan
      or program.

     

    
      
         

      

      
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    4. Termination
      of Employment.
      

     

    4.1 Termination.
      The
      Company may terminate Executive's employment for Cause (as defined below),
      in
      which case the provisions of Section 4.2 of this Agreement shall apply. The
      Company may also terminate Executive's employment in the event of Executive's
      Disability (as defined below), in which case the provisions of Section 4.4
      of
      this Agreement shall apply. The Company may also terminate Executive's
      employment for any other reason by written notice to Executive, in which case
      the provisions of Section 4.5 of this Agreement shall apply. If Executive's
      employment is terminated by reason of Executive's death, retirement or voluntary
      resignation, the provisions of Section 4.3 of this Agreement shall
      apply.

     

    4.2 Termination
      for Cause.
      In the
      event that Executive's employment hereunder is terminated during the Term by
      the
      Company for Cause (as defined below), then the Company shall pay to Executive
      only the earned but unpaid Base Salary for services rendered through the date
      of
      termination, and any and all unvested Options shall automatically be cancelled
      and forfeited by Executive as of the date of termination. Executive shall have
      the right to exercise any and all vested Options within the period commencing
      on
      the date of termination and ending ninety days after the date of such
      termination (the “Options Exercise Period”). Any Options not exercised by
      Executive within the Options Exercise Period shall be cancelled. In all other
      respects, all such Options shall be governed by the plans, programs, agreements,
      and other documents pursuant to which such Options were granted. For purposes
      of
      this Agreement, "Cause" shall mean (i) an indictment, conviction, or plea of
      nolo
      contendere
      to, any
      felony or a misdemeanor involving fraud or dishonesty (whether or not involving
      the Company); (ii) engaging in any act which, in each case, subjects, or if
      generally known would subject, the Company to public ridicule or embarrassment;
      (iii) gross neglect or misconduct in the performance of Executive's duties
      hereunder; or (iv) material breach of any provision of this Agreement by
      Executive; provided, however, that with respect to clauses (iii) or (iv),
      Executive shall have received written notice from the Company setting forth
      the
      alleged act or failure to act constituting "Cause" hereunder, and Executive
      shall not have cured such act or refusal to act within 10 business days of
      his
      actual receipt of notice.

     

    4.3 Termination
      by Reason of Death or Retirement or Voluntary Resignation.
      In the
      event that Executive's employment hereunder is terminated during the Term (x)
      by
      reason of Executive's death, or (y) by reason of Executive's voluntary
      resignation or retirement, then the Company shall pay to Executive only the
      earned but unpaid Base Salary for services rendered through the date of
      termination. Any and all unvested Options shall automatically be cancelled
      and
      forfeited by Executive as of the date of Executive's death or Executive's
      voluntary resignation or retirement, except upon exercise of Executive’s Change
      of Control Termination Option (as defined in Section 4.6). Executive or
      Executive’s estate shall have the right to exercise any and all vested Options
      within the Options Exercise Period. Any Options not exercised by Executive
      within the Options Exercise Period shall be cancelled. In all other respects,
      all such Options shall be governed by the plans, programs, agreements, and
      other
      documents pursuant to which such Options were granted.

     

    4.4 Disability.
      If, as
      a result of Executive's incapacity due to physical or mental illness, the
      Company determines that Executive has failed to perform Executive's duties
      hereunder on a full time basis for either (i) ninety (90) days within any three
      hundred sixty-five (365) day period, or (ii) sixty (60) consecutive days, the
      Company may terminate Executive's employment hereunder for "Disability". In
      that
      event, the Company shall pay to Executive only the earned but unpaid, Base
      Salary for services rendered through such date of termination. Any and all
      unvested Options shall be cancelled as of the date of termination. During any
      period that Executive fails to perform Executive's duties hereunder as a result
      of incapacity due to physical or mental illness (a "Disability Period"),
      Executive shall continue to receive the compensation and benefits provided
      by
      Section 3 of this Agreement until Executive's employment hereunder is
      terminated; provided, however, that the amount of compensation and benefits
      received by Executive during the Disability Period shall be reduced by the
      aggregate amounts, if any, payable to Executive under disability benefit plans
      and programs of the Company or under the Social Security disability insurance
      program. Additionally, the vesting of Executive’s Options shall be tolled during
      the Disability Period and in the event of a termination of this Agreement as
      a
      result of Executive’s Disability, any and all unvested Options shall
      automatically be cancelled and forfeited by Executive as of the date of such
      termination. Executive (or as applicable, his spouse or estate) shall have
      the
      right to exercise any and all vested Options within the Options Exercise Period.
      Any Options not exercised by Executive within the Options Exercise Period shall
      be cancelled. In all other respects, all such Options shall be governed by
      the
      plans, programs, agreements, and other documents pursuant to which such Options
      were granted.

     

    
      
         

      

      
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    4.5 Termination
      by Company for Any Other Reason.
      In the
      event that Executive's employment hereunder is terminated by the Company prior
      to the expiration of the Term for any reason other than as provided in Sections
      4.2, 4.3 or 4.4 of this Agreement, any and all unvested Options shall
      automatically be cancelled and forfeited by Executive as of the date of such
      termination and the Company shall pay to Executive:

     

    
      	 	
              (i)

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

            


    

     

    
      	 	
              (ii)

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

            


    

     

    As
      used
      herein, the “Maximum Severance Period” shall mean three months, until Executive
      has been employed hereunder for at least one year, and, thereafter, shall mean
      six months.

     

    Notwithstanding
      anything to the contrary contained herein, in the event that Executive shall
      breach Sections 5, 6 or 7 of this Agreement at any time, in addition to any
      other remedies the Company may have in the event Executive breaches this
      Agreement, the Company's obligation under clauses (i) and (ii) of this Section
      4.5 shall cease and Executive's rights thereto shall terminate and shall be
      forfeited.

     

    
      
         

      

      
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    4.6 Change
      of Control Termination.
      As soon
      as reasonable prior any event constituting a Change of Control, but no later
      than thirty one (31) days prior thereto, the Company shall advise Executive
      of
      this pending occurrence (the “Change of Control Notice”). Executive shall then
      have thirty one (31) days from the date of the Change of Control Notice to
      discuss, negotiate and confer with any successor entity regarding the terms
      and
      conditions of Executive's continued employment with the successor Company
      following a Change of Control. If Executive, acting reasonably, is unable to
      reach an agreement through good faith negotiations with any successor to the
      Company during such 31 day period, then Executive may elect (the “Change of
      Control Termination Option”) to terminate his employment with the Company and
      receive the payments outlined in Section 4.5 hereof.

     

    4.7 Release.
      Except
      for any accrued obligations, the severance payments described in Section 4.5
      will be provided to Executive only if the following conditions are satisfied:
      (i) Executive agrees to continue to be bound by and complies with all surviving
      provisions of the confidentiality and/or non-compete provisions of this
      Agreement; and (ii) Executive executes and delivers to the Company, and does
      not
      revoke, a full general release, in a form acceptable to the Company, releasing
      all claims, known or unknown, that Executive may have against the Company,
      and
      any subsidiary or related entity, their officers, directors, employees and
      agents, arising out of or any way related to Executive’s employment or
      termination of employment with the Company.

     

    4.8 Section
      409A.
      Notwithstanding the due date of any post-employment payments, if at the time
      of
      the termination of employment Executive is a “specified employee” (as defined in
      Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”))
      as determined by the Compensation Committee of the Board, Executive will not
      be
      entitled to any payments upon termination of employment until the earlier of
      (i)
      the date which is six (6) months after the termination of employment for any
      reason other than death or (ii) the date of Executive’s death. The provisions of
      this paragraph will only apply if and to the extent required to avoid any
“additional tax” under Section 409A.

     

    5. Exclusive
      Employment; Noncompetition.

     

    5.1 No
      Conflict; No Other Employment.
      During
      the period of Executive's employment with the Company, Executive shall not:
      (i)
      engage in any activity which conflicts or interferes with or derogates from
      the
      performance of Executive's duties hereunder nor shall Executive engage in any
      other business activity, whether or not such business activity is pursued for
      gain or profit, except as approved in advance in writing by the Board; provided,
      however, that Executive shall be entitled to manage his personal investments
      and
      otherwise attend to personal affairs, including charitable activities, in a
      manner that does not unreasonably interfere with his responsibilities hereunder,
      or (ii) accept any other employment, whether as an executive or consultant
      or in
      any other capacity, and whether or not compensated therefor, unless Executive
      receives the prior written approval of the Board.

     

    
      
         

      

      
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    5.2 No
      Competition.
      

     

    (a) Executive
      acknowledges and recognizes the highly competitive nature of the Company’s
      business and that access to the Company’s confidential records and proprietary
      information renders him special and unique within the Company’s industry. In
      consideration of the payment by the Company to Executive of amounts that may
      hereafter be paid to Executive pursuant to this Agreement (including, without
      limitation, pursuant to Sections 3 and 4 hereof) and other obligations
      undertaken by the Company hereunder, Executive agrees that during (i) his
      employment with the Company and (ii) the period beginning on the date of
      termination of employment for any reason and ending on the last day of the
      Severance Term as defined in Section 4.5(ii) (the “Post-Employment Period”),
      Executive shall not, directly or indirectly, for himself or any third party,
      engage without the prior consent of the Company as owner, investor, financier,
      partner, stockholder, employer, employee, consultant, advisor, director, officer
      or otherwise in any firm, partnership, corporation, entity, or business that
      engages or participates in a business that offers any product or service that
      competes in any material respect with a product or service (i) provided by
      the
      Company to customers or (ii) that the Company is developing, during the period
      of Executive’s employment with the Company (a “Competing Business”) anywhere in
      the world where the Company conducts its business, including but not limited
      to
      (A) the development of medical equipment in the hemodiafiltration realm for
      use
      in ESRD chronic therapy, and (B) the development of cold water or air
      purification systems.

     

    (b) The
      provisions of Section 5.2(a) will not be deemed breached merely because
      Executive owns less than 1% of the outstanding common stock of a publicly-traded
      company. 

     

    (c) The
      Company shall have the option to extend the No Competition Period for an
      additional six months in return for a six-month extension of the Severance
      Term
      and any such extension shall extend the Post-Employment Period.

     

    (d) The
      covenants contained in Section 5.2(a) shall be construed as a series of separate
      covenants, one for each county, city, state, or any similar subdivision in
      any
      geographic area. Except for geographic coverage, each such separate covenant
      shall be deemed identical in terms to the covenant contained in Section 5.2(a).
      If, in any judicial proceeding, a court refuses to enforce any of such separate
      covenants (or any part thereof), then such unenforceable covenant (or such
      part)
      shall be eliminated from this Agreement to the extent permitted by law and
      necessary to permit the remaining separate covenants (or portions thereof)
      to be
      enforced. In the event that the provisions of this section are deemed to
      exceed the time, geographic or scope limitations permitted by applicable law,
      then such provisions shall be, to the extent permitted by law, reformed to
      the
      maximum time, geographic or scope limitations, as the case may be, permitted
      by
      applicable laws.

     

    (e) Executive
      acknowledges that the limitations of time, geography and scope of activity
      agreed to in this no competition provision are reasonable because, among other
      things, (i) the Company is engaged in a highly competitive industry, (ii)
      he will have access to trade secrets and know-how of the Company, (iii) he
      will
      be able to obtain suitable and satisfactory employment without violation of
      this
      agreement, and (iv) these limitations are necessary to protect the trade
      secrets, confidential information and goodwill of the Company.

     

    
      
         

      

      
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    5.3 Non-Solicitation.
      In
      further consideration of the payment by the Company to Executive of amounts
      that
      may hereafter be paid to Executive pursuant to this Agreement (including,
      without limitation, pursuant to Sections 3 and 4 hereof) and other obligations
      undertaken by the Company hereunder, Executive agrees that during his employment
      and the Post-Employment Period, he shall not, directly or indirectly, (i)
      solicit, encourage or attempt to solicit or encourage any of the employees,
      agents, consultants or representatives of the Company or any of its affiliates
      to terminate his, her, or its relationship with the Company or such affiliate;
      (ii) solicit, encourage or attempt to solicit or encourage any of the
      employees of the Company or any of its affiliates to become employees or
      consultants of any other person or entity; (iii) solicit, encourage or attempt
      to solicit or encourage any of the consultants of the Company or any of its
      affiliates to become employees or consultants of any other person or entity,
      provided that the restriction in this clause (iii) shall not apply if (A) such
      solicitation, encouragement or attempt to solicit or encourage is in connection
      with a business which is not a Competing Business and (B) the consultant’s
      rendering of services for the other person or entity will not interfere with
      the
      consultant’s rendering of services to the Company; (iv) solicit or attempt to
      solicit any customer, vendor or distributor of the Company or any of its
      affiliates with respect to any product or service being furnished, made, sold
      or
      leased by the Company or such affiliate, provided that the restriction in this
      clause (iv) shall not apply if such solicitation or attempt to solicit is (A)
      in
      connection with a business which is not a Competing Business and (B) does not
      interfere with, or conflict with, the interests of the Company or any of its
      affiliates; or (v) persuade or seek to persuade any customer of the Company
      or
      any affiliate to cease to do business or to reduce the amount of business which
      any customer has customarily done or contemplates doing with the Company or
      such
      affiliate, whether or not the relationship between the Company or its affiliate
      and such customer was originally established in whole or in part through
      Executive’s efforts. For purposes of this Section 5.3 only, the terms
“customer,” “vendor” and “distributor” shall mean a customer, vendor or
      distributor who has done business with the Company or any of its affiliates
      within twelve months preceding the termination of Executive’s
      employment.

     

    5.4 Notifications.
      During
      Executive’s employment with the Company and during the Severance Term, Executive
      agrees that upon the earlier of Executive’s (i) negotiating with any Competitor
      (as defined below) concerning the possible employment of Executive by the
      Competitor, (ii) receiving an offer of employment from a Competitor, or (iii)
      becoming employed by a Competitor, Executive will (A) immediately provide
      written notice to the Company of such circumstances and (B) provide copies
      of
      Section 5 of this Agreement to the Competitor. Executive further agrees that
      the
      Company may provide notice to a Competitor of Executive’s obligations under this
      Agreement, including without limitation Executive’s obligations pursuant to
      Section 5 hereof. For purposes of this Agreement, “Competitor” shall mean any
      entity (other than the Company or any of its affiliates) that engages, directly
      or indirectly, in any Competing Business.

     

    5.5 Sufficient
      Consideration.
      Executive understands that the provisions of this Section 5 may limit his
      ability to earn a livelihood in a business similar to the business of the
      Company or its affiliates but nevertheless agrees and hereby acknowledges that
      the consideration provided under this Agreement, including any amounts or
      benefits provided under Sections 3 and 4 hereof and other obligations undertaken
      by the Company hereunder, is sufficient to justify the restrictions contained
      in
      such provisions. In consideration thereof and in light of Executive’s education,
      skills and abilities, Executive agrees that he will not assert in any forum
      that
      such provisions prevent him from earning a living or otherwise are void or
      unenforceable or should be held void or unenforceable. 

     

    
      
         

      

      
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    6. Inventions
      and Proprietary Property.

     

    6.1 Definition
      of Proprietary Property.
      For
      purposes of this Agreement, "Proprietary Property" shall mean non-public
      information that relates to the actual or anticipated business or research
      and
      development of the Company, designs, specifications, ideas, formulas,
      discoveries, inventions, improvements, innovations, concepts and other
      developments, trade secrets, techniques, methods, know-how, technical and
      non-technical data, works of authorship, computer programs, computer algorithms,
      computer architecture, mathematical models, drawings, trademarks, copyrights,
      customer lists and customers (including, but not limited to, customers of the
      Company on whom Executive called or with whom Executive became acquainted during
      the term of his employment), marketing plans, and all other matters which are
      legally protectable or recognized as forms of property, whether or not
      patentable or reduced to practice or to a writing.

     

    6.2 Assignment
      of Proprietary Property to the Company or its Subsidiaries.

     

    (a) Executive
      hereby agrees to assign, transfer and set over, and Executive does hereby
      assign, transfer and set over, to the Company (or, as applicable, a subsidiary
      or designee of the Company), without further compensation, all of Executive's
      rights, title and interest in and to any and all Proprietary Property which
      Executive, either solely or jointly with others, has conceived, made or
      suggested or may hereafter conceive, make or suggest, in the course of
      Executive's employment with the Company, whether or not patentable or
      registrable under copyright or similar laws, which Executive may solely or
      jointly conceive or develop or reduce to practice, or cause to be conceived
      or
      developed or reduced to practice, during the period of time Executive is in
      the
      employ of the Company (collectively referred to as “Inventions”). 

     

    (b) The
      assignment of Proprietary Property hereunder includes without limitation all
      rights of paternity, integrity, disclosure and withdrawal and any other rights
      that may be known as or referred to as moral rights ("Moral Rights"). To the
      extent that such Moral Rights cannot be assigned under applicable law and to
      the
      extent the following is allowed by the laws in the various countries where
      Moral
      Rights exist, Executive hereby waives such Moral Rights and consents to any
      action of the Company or any subsidiary of the Company that would violate such
      Moral Rights in the absence of such consent. Executive also will endeavor to
      facilitate such use of any such Moral Rights as the Company, or, as applicable,
      a subsidiary of the Company, shall reasonably instruct, including confirming
      any
      such waivers and consents from time to time as requested by the Company (or,
      as
      applicable, a subsidiary of the Company).

     

    6.3 Works
      for Hire.
      Executive acknowledges that all original works of authorship or other creative
      works which are made by Executive (solely or jointly with others) within the
      scope of the employment of Executive by the Company and which are protectable
      by
      copyright are "works made for hire," pursuant to United States Copyright Act
      (17
      U.S.C., Section 101). To the extent such original work of authorship or other
      creative works are not works made for hire, Executive hereby assigns to the
      Company (or, as directed by the Company, to a subsidiary of the Company) all
      of
      the rights comprised in the copyright of such works.

     

    
      
         

      

      
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    6.4 Disclosure
      of Proprietary Property and Execution of Documents.
      Executive further agrees to promptly disclose to the Company any and all
      Proprietary Property which Executive has assigned, transferred and set over
      or
      will assign, transfer and set over as provided in Section 6.2 above, and
      Executive agrees to execute, acknowledge and deliver to the Company (or, as
      applicable, to a subsidiary of the Company), without additional compensation
      and
      without expense to Executive, any and all instruments reasonably requested,
      and
      to do any and all lawful acts which, in the reasonable judgment of the Company
      or its attorneys (or, as applicable, a subsidiary of the Company or its
      attorneys) may be required or desirable in order to vest in the Company or
      such
      subsidiary all property rights with respect to such Proprietary
      Property.

     

    6.5 Enforcement
      of Proprietary Rights.
      

     

    (a) Executive
      will assist the Company (or, as applicable, a subsidiary of the Company) in
      every proper way to obtain, assign to the Company (or, as directed by the
      Company, to a subsidiary), confirm and from time to time enforce, United States
      and foreign patent trade secret, trademark, copyright, mask work, and other
      intellectual property rights relating to Proprietary Property in any and all
      countries. To that end Executive will execute, verify and deliver such documents
      and perform such other acts (including appearances as a witness) as the Company,
      or, as applicable, a subsidiary of the Company, may reasonably request for
      use
      in applying for, obtaining, perfecting, evidencing, sustaining and enforcing
      such proprietary rights and the assignment of such Proprietary Property. In
      addition, Executive will execute, verify and deliver assignments of such
      Proprietary Property and all rights therein to the Company, its subsidiary
      or
      its or their designee. The obligation of Executive to assist the Company, or,
      as
      applicable, a subsidiary of the Company, with respect to proprietary rights
      relating to such Proprietary Property in any and all countries shall continue
      beyond the termination of employment, but the Company, or as applicable, a
      subsidiary of the Company, shall compensate Executive at a mutually agreed
      upon
      fee, in addition to any expenses, after such termination.

     

    (b) In
      the
      event the Company, or, as applicable, a subsidiary of the Company, is unable
      for
      any reason, after reasonable effort, to secure the signature of Executive on
      any
      document needed in connection with the actions specified in the preceding
      paragraph, Executive hereby irrevocably designates and appoints the Company
      and
      its duly authorized officers and agents as agent and attorney in fact, which
      appointment is coupled with an interest, to act for and on behalf of Executive,
      to execute, verify and file any such documents and to do all other lawfully
      permitted acts to further the purposes of the preceding paragraph with the
      same
      legal force and effect as if executed by Executive. Executive hereby waives
      and
      quitclaims to the Company or, as applicable, a subsidiary of the Company, any
      and all claims, of any nature whatsoever, which Executive now or may hereafter
      have for infringement of any proprietary rights assigned hereunder to the
      Company or such subsidiary.

     

    6.6 Third
      Party Information.
      To the
      extent Executive has or possesses any Confidential Information (as hereinafter
      defined) belonging to Executive or to others, Executive shall not use or
      disclose to the Company or its subsidiaries or induce the Company or its
      subsidiaries to use any such Confidential Information unless the Company or
      its
      subsidiaries have a legal rights to use such Confidential Information. Executive
      will promptly advise the Company in writing if any of Executive's involvement
      with the Company or any subsidiary of the Company might result in the possible
      violation of Executive's undertakings to others or the use of any Confidential
      Information of Executive or of others.

     

    
      
         

      

      
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    7. Confidential
      Information.

     

    7.1 Existence
      of Confidential Information.
      The
      Company owns and has developed and compiled, and the Company and its
      subsidiaries will develop and compile, certain proprietary techniques and
      confidential information, which have and will have great value to their
      businesses (referred to in this Agreement, collectively, as "Confidential
      Information"). Confidential Information includes not only information disclosed
      by the Company (or, as applicable, a subsidiary of the Company) to Executive,
      but also information developed or learned by Executive during the course or
      as a
      result of employment with the Company, which information shall be the property
      of the Company or, as applicable, such subsidiary. Confidential Information
      includes all information that has or could have commercial value or other
      utility in the business in which the Company or any of its subsidiaries is
      engaged or contemplates engaging, and all information of which the unauthorized
      disclosure could be detrimental to the interests of the Company or its
      subsidiary, whether or not such information is specifically labeled as
      Confidential Information by the Company or such subsidiary. By way of example
      and without limitation, Confidential Information includes any and all
      information developed, obtained, licensed by or to or owned by the Company
      or
      any of its subsidiaries concerning trade secrets, techniques, know-how
      (including designs, plans, procedures, merchandising, marketing, distribution
      and warehousing know-how, processes, and research records), software, computer
      programs and designs, development tools, all Proprietary Property, and any
      other
      intellectual property created, used or sold (through a license or otherwise)
      by
      the Company or any of its subsidiaries, electronic data information know-how
      and
      processes, innovations, discoveries, improvements, research, development, test
      results, reports, specifications, data, formats, marketing data and plans,
      business plans, strategies, forecasts, unpublished financial information,
      orders, agreements and other forms of documents, price and cost information,
      merchandising opportunities, expansion plans, budgets, projections, customer,
      supplier, licensee, licensor and subcontractor identities, characteristics,
      agreements and operating procedures, and salary, staffing and employment
      information.

     

    7.2 Protection
      of Confidential Information.
      Executive acknowledges and agrees that in the performance of Executive's duties
      hereunder, the Company or a subsidiary of the Company may disclose to and
      entrust Executive with Confidential Information which is the exclusive property
      of the Company or such subsidiary and which Executive may possess or use only
      in
      the performance of Executive's duties to the Company. Executive also
      acknowledges that Executive is aware that the unauthorized disclosure of
      Confidential Information, among other things, may be prejudicial to the
      Company's or its subsidiaries’ interests, an invasion of privacy and an improper
      disclosure of trade secrets. Executive shall not, directly or indirectly, use,
      make available, sell, disclose or otherwise communicate to any corporation,
      partnership or other entity, individual or other third party, other than in
      the
      course of Executive's assigned duties and for the benefit of the Company, any
      Confidential Information, either during the Term or thereafter. In the event
      Executive desires to publish the results of Executive's work for or experiences
      with the Company or its subsidiaries through literature, interviews or speeches,
      Executive will submit requests for such interviews or such literature or
      speeches to the Board at least fourteen (14) days before any anticipated
      dissemination of such information for a determination of whether such disclosure
      is in the best interests of the Company and its subsidiaries, including whether
      such disclosure may impair trade secret status or constitute an invasion of
      privacy. Executive agrees not to publish, disclose or otherwise disseminate
      such
      information without the prior written approval of the Board.

     

    
      
         

      

      
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    7.3 Delivery
      of Records.
      In the
      event Executive's employment with the Company ceases for any reason, Executive
      will not remove from the Company's premises without its prior written consent
      any records (written or electronic), files, drawings, documents, equipment,
      materials and writings received from, created for or belonging to the Company
      or
      its subsidiaries, including those which relate to or contain Confidential
      Information, or any copies thereof. Upon request or when employment with the
      Company terminates, Executive will immediately deliver the same to the
      Company.

     

    8. Assignment
      and Transfer.

     

    8.1 Company.
      This
      Agreement shall inure to the benefit of and be enforceable by, and may be
      assigned by the Company to, any purchaser of all or substantially all of the
      Company's business or assets, any successor to the Company or any assignee
      thereof (whether direct or indirect, by purchase, merger, consolidation or
      otherwise). 

     

    8.2 Executive.
      Executive's rights and obligations under this Agreement shall not be
      transferable by Executive by assignment or otherwise, and any purported
      assignment, transfer or delegation thereof shall be void; provided, however,
      that if Executive shall die, all amounts then payable to Executive hereunder
      shall be paid in accordance with the terms of this Agreement to Executive's
      devisee, legatee or other designee or, if there be no such designee, to
      Executive's estate.

     

    9. Miscellaneous.
      

     

    9.1 Other
      Obligations.
      Executive represents and warrants that neither Executive's employment with
      the
      Company or Executive's performance of Executive's obligations hereunder will
      conflict with or violate or otherwise are inconsistent with any other
      obligations, legal or otherwise, which Executive may have. Executive covenants
      that he shall perform his duties hereunder in a professional manner and not
      in
      conflict or violation, or otherwise inconsistent with other obligations legal
      or
      otherwise, which Executive may have.

     

    9.2 Nondisclosure;
      Other Employers.
      Executive will not disclose to the Company or any of its subsidiaries, or use,
      or induce the Company or any of its subsidiaries to use, any proprietary
      information, trade secrets or confidential business information of others.
      Executive represents and warrants that Executive does not possess any property,
      proprietary information, trade secrets and confidential business information
      belonging to prior employers.

     

    
      
         

      

      
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    9.3 Cooperation.
      Following termination of employment with the Company for any reason, Executive
      shall cooperate with the Company, as requested by the Company, to effect a
      transition of Executive's responsibilities and to ensure that the Company is
      aware of all matters being handled by Executive.

     

    9.4 Protection
      of Reputation.
      During
      the Term and thereafter, Executive agrees that he will take no action which
      is
      intended, or would reasonably be expected, to harm the Company or any of its
      subsidiaries or its or their reputations or which would reasonably be expected
      to lead to unwanted or unfavorable publicity to the Company or any of its
      subsidiaries, other than those required in order to permit Executive to comply
      with applicable law or those made in connection with legal or arbitral process.
      During the Term and thereafter, the Company agrees that it will take no actions
      which are intended, or would reasonably be expected, to harm Executive or his
      reputation or which would reasonably be expected to lead to unwanted or
      unfavorable publicity to Executive, other than those required in order to permit
      the Company to comply with applicable law or those made in connection with
      legal
      or arbitral process. Notwithstanding the foregoing, this paragraph shall not
      prevent the Company or Executive from exercising any of their respective rights
      under this Agreement.

     

    9.5 Governing
      Law.
      This
      Agreement shall be governed by and construed (both as to validity and
      performance) and enforced in accordance with the internal laws of the State
      of
      New York applicable to agreements made and to be performed wholly with such
      jurisdiction, without regard to principles of the conflict of laws thereof
      or
      where the parties are located at the time a dispute arises.

     

    9.6 Consent
      to Jurisdiction, Waiver of Jury Trial.
      Each of
      the parties hereby irrevocably and unconditionally consents to the exclusive
      jurisdiction of any federal or state court of New York sitting in New York
      County and irrevocably agrees that all actions or proceedings arising out of
      or
      relating to this Agreement or the transactions contemplated hereby shall be
      litigated exclusively in such Courts. Each of the parties agrees not to commence
      any legal proceeding related hereto except in such Courts. Each of the parties
      irrevocably waives any objection which it may now or hereafter have to the
      laying of the venue of any such proceeding in any such Court and hereby further
      irrevocably and unconditionally waives and agrees not to plead or claim in
      any
      such Court that any such action, suit or proceeding brought in any such court
      has been brought in an inconvenient forum. Each of the parties irrevocably
      waives any right it may have to a trial by jury in any such action, suit or
      proceeding. Each of the parties agrees that the prevailing party in any action
      or proceeding arising out of or relating to this Agreement or the transactions
      contemplated hereby shall be entitled to recover its reasonable fees and
      expenses in connection therewith, including legal fees.

     

    9.7 Entire
      Agreement.
      This
      Agreement (including all exhibits hereto) contains the entire agreement and
      understanding between the parties hereto in respect of Executive's employment
      and supersedes, cancels and annuls any prior or contemporaneous written or
      oral
      agreements, understandings, commitments and practices between them respecting
      Executive's employment, including all prior employment agreements, if any,
      between the Company and Executive, which agreement(s) hereby are terminated
      and
      shall be of no further force or effect.

     

    
      
         

      

      
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    9.8 No
      Amendment/Waiver.
      This
      Agreement may not be amended or modified in any manner nor may any of its
      provisions be waived except by written amendment executed by the parties. A
      waiver, modification or amendment by a party shall only be effective if (a)
      it
      is in writing and signed by the parties, (b) it specifically refers to this
      Agreement and (c) it specifically states that the party, as the case may be,
      is
      waiving, modifying or amending its rights hereunder. Any such amendment,
      modification or waiver shall be effective only in the specific instance and
      for
      the specific purpose for which it was given.

     

    9.9 Severability.
      If any
      term, provision, covenant or condition of this Agreement or part thereof, or
      the
      application thereof to any person, place or circumstance, shall be held to
      be
      invalid, unenforceable or void by a court of competent jurisdiction, the
      remainder of this Agreement and such term, provision, covenant or condition
      shall remain in full force and effect, and any such invalid, unenforceable
      or
      void term, provision, covenant or condition shall be deemed, without further
      action on the part of the parties hereto, modified, amended and limited, and
      the
      court shall have the power to modify, to the extent necessary to render the
      same
      and the remainder of this Agreement valid, enforceable and lawful. In this
      regard, Executive acknowledges that the provisions of Sections 5, 6 and 7 of
      this Agreement are reasonable and necessary for the protection of the
      Company.

     

    9.10 Construction.
      The
      headings and captions of this Agreement are provided for convenience only and
      are intended to have no effect in construing or interpreting this Agreement.
      The
      language in all parts of this Agreement shall be in all cases construed
      according to its fair meaning and not strictly for or against the Company or
      Executive. The use herein of the word "including," when following any general
      provision, sentence, clause, statement, term or matter, shall be deemed to
      mean
      "including, without limitation." As used herein, "Company" shall mean the
      Company and its subsidiaries and any purchaser of, successor to or assignee
      (whether direct or indirect, by purchase, merger, consolidation or otherwise)
      of
      all or substantially all of the Company's business or assets which is obligated
      to perform this Agreement by operation of law, agreement or otherwise. As used
      herein, the words "day" or "days" shall mean a calendar day or days. As used
      herein, "Compensation Committee" means the Compensation Committee of the Board
      or, if no such committee is then serving, at least two members of the Board
      as
      selected by the Board.

     

    9.11 Remedies
      for Breach.
      The
      parties hereto agree that Executive is obligated under this Agreement to render
      personal services during the Term of a special, unique, unusual, extraordinary
      and intellectual character, thereby giving this Agreement special value, and,
      in
      the event of a breach or threatened breach of any covenant of Executive herein,
      the injury or imminent injury to the value and the goodwill of the Company's
      and
      its subsidiaries' businesses could not be reasonably or adequately compensated
      in damages in an action at law. Accordingly, Executive acknowledges that the
      Company (and as applicable, one or more of its subsidiaries) shall be entitled
      to seek injunctive relief or any other equitable remedy against Executive in
      the
      event of a breach or threatened breach of Sections 5, 6 or 7 of this Agreement.
      The rights and remedies of Executive and Company are cumulative and shall not
      be
      exclusive, and Executive and Company shall be entitled to pursue all legal
      and
      equitable rights and remedies and to secure performance of the obligations
      and
      duties of the other under this Agreement, and the enforcement of one or more
      of
      such rights and remedies by Executive or Company shall in no way preclude
      Executive or Company from pursuing, at the same time or subsequently, any and
      all other rights and remedies available to Executive or Company.

     

    
      
         

      

      
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    9.12 Notices.
      Any
      notice, request, consent or approval required or permitted to be given under
      this Agreement or pursuant to law shall be sufficient if in writing, and if
      and
      when sent by certified or registered mail, return receipt requested, with
      postage prepaid, or by overnight courier, to Executive's residence, as reflected
      in the Company's records or as otherwise designated by Executive, or to the
      Company's principal executive office, attention: Chairman of the Compensation
      Committee of the Board of Directors with a copy (which shall not constitute
      notice) to: David M. Zlotchew, Esq., Haynes and Boone, LLP, 153 East 53d Street,
      New York, NY 10022, as the case may be. All such notices, requests, consents
      and
      approvals shall be effective upon being deposited in the United States mail.
      However, the time period in which a response thereto must be given shall
      commence to run from the date of receipt on the return receipt of the notice,
      request, consent or approval by the addressee thereof. Rejection or other
      refusal to accept, or the inability to deliver because of changed address of
      which no notice was given as provided herein, shall be deemed to be receipt
      of
      the notice, request, consent or approval sent

     

    9.13 Assistance
      in Proceedings, Etc.
      Executive shall, without additional compensation during the Term and with
      complete reimbursement of expenses after the expiration of the Term, upon
      reasonable notice, furnish such information and proper assistance to the Company
      as may reasonably be required by the Company in connection with any legal or
      quasi-legal proceeding, including any external or internal investigation,
      involving the Company or any of its subsidiaries or in which any of them is,
      or
      may become, a party.

     

    9.14 Survival.
      Cessation or termination of Executive's employment with the Company shall not
      result in termination of this Agreement. To the extent that any of the
      obligations of this Agreement constitute continuing obligations, they shall
      survive any termination or expiration of this Agreement or of Executive’s
      employment hereunder.

     

    [Signature
      page follows]

     

    
      
         

      

      
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    IN
      WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement
      as
      of September 15, 2008, to be deemed effective as of the date first written
      above.

     

    
      	 	 	 
	 	 	EMPLOYER
	 	 	 
	 	 	NEPHROS, INC.
	 
 	 
 	 
 
	 	 	By:  /s/ Gerald
              J. Kochanski
	 	
              
Name:
              Gerald J. Kochanski
	 	Title:
              V.P. & CFO
	 	 
	 	 
	 	EXECUTIVE
	 	 
	 	
              /s/ Ernest A. Elgin III

              
                

              
Ernest A. Elgin
              III


    

     

    
      
         

      

      
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    SCHEDULE
      A

    


    Options

    


    
      	
              Options:

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

            


    

    


    


    
      
         

      

      
        17