Exhibit 10.2 Registration Rights Agreement


    
      

    


    EXHIBIT
      10.2

     

    REGISTRATION
      RIGHTS AGREEMENT

     

    This
      REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
      is
      made and entered into as of June __, 2006, among NEPHROS, INC., a Delaware
      corporation (the “Company”),
      and
      holders of securities of the Company listed as Investors on Schedule
      1
      (collectively, the “Holders”).

     

    WHEREAS, the
      Holders are the beneficial owners of certain securities issued by the Company;
      and

     

    WHEREAS,
      the Company and the Holders deem it to be in their respective best interests
      to
      set forth the rights of the Holders in connection with Registrable Securities
      (as defined below).

     

    NOW,
      THEREFORE, in consideration of the premises and mutual covenants and obligations
      hereinafter set forth, the Company and the Holders, intending legally to be
      bound, hereby agree as follows.

     

    Section
      1.    Definitions.
      As used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Affiliate”
      of any person means any other person who either directly or indirectly is in
      control of, is controlled by, or is under common control with such
      person.

     

    “Business
      Day” shall mean any Monday, Tuesday, Wednesday, Thursday or Friday that is not a
      day on which banking institutions in The City of New York are authorized by
      law,
      regulation or executive order to close.

     

    “Common
      Stock” shall mean the common stock, par value $0.001 per share, of the
      Company.

     

    “Exchange
      Act” shall mean the Securities Exchange Act of 1934, as amended (or any similar
      successor federal statute), and the rules and regulations thereunder, as the
      same are in effect from time to time.

     

    “Holder”
      shall have the meaning assigned to such term in the preamble
      hereof.

     

    “Other
      Securities” shall mean at any time those shares of Common Stock which do not
      constitute Primary Securities or Registrable Securities.

     

    “Person”
      shall mean an individual, partnership, corporation, limited liability company,
      joint venture trust or unincorporated organization, a government or agency
      or
      political subdivision thereof or any other entity.

     

    “Primary
      Securities” shall mean at any time the authorized but unissued shares of Common
      Stock and shares of Common Stock held by the Company in its
      treasury.

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    “Prospectus”
      shall mean the prospectus included in any Registration Statement, as amended
      or
      supplemented by a prospectus supplement with respect to the terms of the
      offering of any portion of the Registrable Securities covered by such
      Registration Statement and by all other amendments and supplements to the
      prospectus, including post-effective amendments and all material incorporated
      by
      reference in such prospectus.

     

    “Registrable
      Securities” shall mean (i) shares of Common Stock issuable upon conversion of 6%
      Secured Convertible Notes due 2012 of the Company or exercise of Warrants issued
      pursuant to 6% Secured Convertible Notes due 2012 of the Company, (ii) any
      other
      shares of Common Stock that are designated as such by the Board of Directors
      of
      the Company and are issued, or issuable upon conversion or exercise of
      securities issued, to a Person that executes a counterpart signature page hereto
      in substantially the form attached hereto as Exhibit
      A
      which
      counterpart is then countersigned by the Company, and (iii) any other securities
      issued as a result of, or in connection with, any stock dividend, stock split
      or
      reverse stock split, combination, recapitalization, reclassification, merger
      or
      consolidation, exchange or distribution in respect of the Common Stock referred
      to above.

     

    “Registration
      Statement” shall mean any registration statement which covers any of the
      Registrable Securities pursuant to the provisions of this Agreement, including
      the Prospectus included therein, all amendments and supplements to such
      Registration Statement, including post-effective amendments, all exhibits and
      all material incorporated by reference in such Registration
      Statement.

     

    “Restricted
      Securities” shall have the meaning set forth in Section 2 hereof.

     

    “Rule
      144” shall mean Rule 144 promulgated under the Securities Act, as amended from
      time to time, or any similar successor rule thereto that may be promulgated
      by
      the SEC.

     

    “Rule
      415” shall mean Rule 415 promulgated under the Securities Act, as amended from
      time to time, or any similar successor rule thereto that may be promulgated
      by
      the SEC.

     

    “Rule
      903” shall mean Rule 903 promulgated under the Securities Act, as amended from
      time to time, or any similar successor rule thereto that may be promulgated
      by
      the SEC.

     

    “Rule
      904” shall mean Rule 904 promulgated under the Securities Act, as amended from
      time to time, or any similar successor rule thereto that may be promulgated
      by
      the SEC.

     

    “SEC”
      shall mean the Securities and Exchange Commission, or any other federal agency
      at the time administering the Securities Act.

     

    “Securities
      Act” shall mean the Securities Act of 1933, as amended (or any similar successor
      federal statute), and the rules and regulations thereunder, as the same are
      in
      effect from time to time.

     


    
      
        
        

      

      
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    “Series
      D
      Restricted Shares” shall mean shares of Common Stock issued upon conversion of
      the Company’s previously existing Series D Convertible Preferred Stock, $.001
      par value per share, or any other securities of the Company issued from time
      to
      time to the holders thereof or their successors or assignees.

     

    “Underwritten
      Offering” shall mean a registered offering in which securities of the Company
      are sold to an underwriter for reoffering to the public.

     

    Section
      2.    Securities
      Subject to this Agreement.
      The
      securities entitled to the benefits of this Agreement are the Registrable
      Securities but, with respect to any particular Registrable Security, only so
      long as such security continues to be a Restricted Security. A Registrable
      Security that has ceased to be a Restricted Security cannot thereafter become
      a
      Restricted Security. As used herein, a Restricted Security shall cease to be
      a
      Restricted Security when: (i) it has been registered under the Securities Act,
      the registration statement in connection therewith has been declared effective
      and it has been disposed of pursuant to such effective registration statement;
      (ii) it is eligible to be sold or distributed pursuant to Rule 144 within any
      consecutive three month period (including, without limitation, Rule 144(k))
      without volume limitations; or (iii) they shall have ceased to be outstanding.
      

     

    Section
      3.    Demand
      Registration.

     

    (a)    Demand

     

    (i)    Upon
      the
      written request of a Holder or Holders of a majority of the then outstanding
      Registrable Securities requesting that the Company effect a registration under
      the Securities Act of Registrable Securities (a “Demand”), the Company will use
      its reasonable efforts to effect, as expeditiously as reasonably possible,
      and
      in any case to file a Registration Statement pursuant to this Section 3 within
      90 Business Days of delivery of a Demand, the registration (the “Demand
      Registration”) under the Securities Act of the Registrable Securities which the
      Company has been so requested to register by such Holders of the Registrable
      Securities; provided,
      however,
      that
      the Company shall not be obligated to effect more than two (2) Demand
      Registrations pursuant to this Section 3(a)(i). Except as provided in Section
      3(a)(v), a registration will not count as a requested registration under this
      Section 3(a)(i) unless and until the registration statement relating to such
      registration has been declared effective by the Commission at the request of
      the
      initiating Holders and remained effective for the Registration
      Period.

     

    (ii)    The
      Company shall not be obligated to effect any Demand Registration the anticipated
      aggregate offering price of which, net of underwriting discounts and
      commissions, if any, would not equal or exceed $3,000,000.

     

    (iii)    Anything
      to the contrary in this Agreement notwithstanding, the Company’s obligation to
      effect the Demand Registration, as described in paragraph 3(a)(i) shall be
      deemed to have been met in the event that the Company has filed any Registration
      Statement on or before the effectiveness of Demand pursuant to which
      the

     


    
      
        
        

      

      
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    Holders
      were given the opportunity to have 90% or more of the then outstanding
      Registrable Securities registered for sale.

     

    (iv)    Upon
      receipt of any request for registration pursuant to this Section 3 from any
      Holders of Registrable Securities, the Company shall, within 10 Business Days
      give written notice of such request to all other Holders. The Company shall
      include in the requested registration all Registrable Securities requested
      to be
      included by such of the other Holders who shall make such request by written
      notice to the Company delivered within 10 Business Days of their receipt of
      the
      Company’s notice. If the Company shall receive a request for inclusion in the
      registration of the Registrable Securities of additional Holders, it shall
      promptly so inform the Holders who made the initial request for
      registration.

     

    (v)    A
      Holder
      or Holders requesting a registration pursuant to Section 3(a)(i) may, at any
      time prior to the effective date of the Registration Statement relating to
      such
      registration, revoke such request by providing a written notice to the Company
      revoking such request. If a Holder or Holders shall revoke any demand for
      registration made pursuant to Section 3(a)(i) or such Demand Registration
      otherwise fails to become effective primarily as a result of any action or
      inaction by the Holder or Holders, such Holder or Holders, at their option,
      shall either pay all Registration Expenses with respect to such revoked demand
      or count such revoked demand as the completed Company-paid demand for
      registration to which Holders are entitled pursuant to Section
      3(a)(i).

     

    (b)    Effectiveness
      of Registration Statement.
      The
      Company agrees to use its reasonable best efforts (i) to cause the Registration
      Statement relating to any Demand Registration pursuant to this Section 3 to
      become effective as promptly as practicable and (ii) thereafter to keep such
      Registration Statement effective continuously for the period specified in the
      next succeeding paragraph (the “Registration Period”).

     

    A
      Demand
      Registration requested pursuant to this Section 3 will not be deemed to have
      been effected unless the Registration Statement relating thereto has become
      effective under the Securities Act and remained effective (except as otherwise
      permitted under this Agreement) for a period ending on the earlier of (i) one
      hundred eighty (180) days following the effective date of such Registration
      Statement (subject to extension as provided in Subsection 6(b) and Subsection
      7(b)) and (ii) the date on which all Registrable Securities covered by such
      Registration Statement have been sold and the distribution contem-plated thereby
      has been completed.

     

    Notwithstanding
      the foregoing, at the Company’s election, the Company may cease to keep such
      registration, qualification or compliance effective with respect to any
      Registrable Securities, and the registration rights of a Holder shall expire,
      at
      such time as the Holder may sell under Rule 144(k) under the Securities Act
      (or
      other exemption from registration acceptable to the Company) in a three-month
      period all Registrable Securities then held by such Holder.

     

    The
      Company shall be entitled to effect such registration on any available form
      and,
      if the Company is initially required to file such Registration Statement on
      Form
      S-1, the

     


    
      
        
        

      

      
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    Holders
      agree to cooperate fully to assist the Company in converting such Registration
      Statement on Form S-1 to a Registration Statement on Form S-3 when such Form
      S-3
      is available for use by the Company.

     

    (c)    Inclusion
      of Other Securities.
      The
      Company, and any other holder of the Company’s securities who has registration
      rights, may include its securities in any Demand Registration effected pursuant
      to Section 3(a)(i); provided,
      however,
      that if
      the managing underwriter or underwriters of a proposed Underwritten Offering
      contemplated thereby advise the Holder or Holders in writing that the total
      amount or kind of securities which the Company or any such holder intends to
      include in such proposed public offering is sufficiently large to adversely
      affect the success of the proposed public offering requested by the Holder
      or
      Holders exercising their rights under Section 3(a)(i) (the “Demanding Holders”),
      then the amount or kind of securities to be offered for the account of the
      Company shall be reduced to the extent necessary to reduce the total amount
      or
      kind of securities to be included in such proposed public offering to the amount
      or kind recommended by such managing underwriter or underwriters; provided,
      further,
      that if
      such managing underwriter or underwriters advise the Holder or Holders in
      writing that the total amount or kind of securities which the Holders (other
      than the Demanding Holders) or other Persons holding registration rights similar
      to the rights of Holders under this Agreement (together with the Holders, the
      “Registration Rights Holders”) intend to include in such proposed public
      offering is sufficiently large, even without any securities for the account
      of
      the Company, to adversely affect the success of the proposed public offering
      requested by the Demanding Holders, then the amount or kind of securities to
      be
      offered for the account of the Registration Rights Holders (other than the
      Demanding Holders) shall be reduced pro rata,
      in
      accordance with the respective numbers of shares such Registration Rights
      Holders (other than the Demanding Holders) had requested to include in such
      proposed public offering; and provided,
      further,
      that if
      such managing underwriter or underwriters advise the Holder or Holders in
      writing that the total amount or kind of securities which the Demanding Holders
      intend to include in such proposed public offering is sufficiently large, even
      without any additional securities, to adversely affect the success of the
      proposed public offering requested by such Demanding Holders, then the amount
      or
      kind of securities to be offered for the account of the Demanding Holders shall
      be reduced pro rata,
      in
      accordance with the respective numbers of shares such Demanding Holders had
      requested to include in such proposed public offering. 

     

    Section
      4.    Piggyback
      Registration.
      

     

    (a)    If
      the
      Company at any time proposes to file a registration statement with respect
      to
      any Primary Securities or Other Securities (other than in connection with a
      Registration Statement on Form S-4 or S-8 (or any successor or substantially
      similar form), or of (i) an employee stock option, stock purchase or
      compensation plan or of securities issued or issuable pursuant to any such
      plan,
      or (ii) a dividend reinvestment plan), then the Company shall in each case
      give
      written notice of such proposed filing to the Holder of Registrable Securities
      at least thirty (30) days before the anticipated filing date of any such
      registration statement by the Company, and such notice shall offer to the Holder
      the opportunity to have any or all of the Registrable Securities held by the
      Holder included in such registration statement. The Holder of Registrable
      Securities desiring to have its Registrable Securities registered under this
      Section 4 shall so advise the Company in writing within twenty (20) days after
      the date such notice is given (which request shall set forth the amount of
      Registrable Securities for which registration is

     


    
      
        
        

      

      
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    requested),
      and the Company shall use its best reasonable efforts to include in such
      Registration Statement all such Registrable Securities so requested to be
      included therein. 

     

    (b)    Notwithstanding
      the foregoing, if the managing underwriter or underwriters of any such proposed
      public offering advise the Company that the total amount or kind of securities
      which the Holder of Registrable Securities, the Company and any other persons
      or
      entities intended to be included in such proposed public offering is
      sufficiently large to adversely affect the success of such proposed public
      offering, then the amount or kind of securities to be offered for the account
      of
      the Holder of Registrable Securities shall be included in the following
      order:

     

    (i)    If
      the
      Company proposed to register Primary Securities:

     

    (A)    first,
      the
      Primary Securities;

     

    (B)    second,
      the
      Series D Restricted Shares requested by the holders thereof to be included
      in
      such registration (or, if necessary, such Series D Restricted Shares
pro rata
      among
      the holders thereof based upon the number of such Series D Restricted Shares
      requested to be registered by each such holder); and

     

    (C)     third,
      the
      Registrable Securities that are not Series D Restricted Shares requested by
      the
      holders thereof to be included in such registration, together with Other
      Securities held by parties exercising similar piggy-back registration rights
      (or
      if necessary, such Registrable Securities and Other Securities pro rata
      among
      the holders thereof based upon the number of such Registrable Securities that
      are not Series D Restricted Shares and Other Securities requested to be
      registered by each such holder).

     

    (ii)    If
      the
      Company proposed to register Other Securities:

     

    (A)    first,
      the
      Other Securities requested to be included in such registration by holders
      exercising such demand registration rights;

     

    (B)    second,
      the
      Series D Restricted Shares requested by the holders thereof to be included
      in
      such registration (or, if necessary, such Series D Restricted Shares
pro rata
      among
      the holders thereof based upon the number of such Series D Restricted Shares
      requested to be registered by each such holder); and

     

    (C)    third,
      the
      Registrable Securities that are not Series D Restricted Shares requested by
      the
      holders thereof to be included in such registration, together with Other
      Securities held by parties exercising similar piggy-back registration rights
      (or
      if necessary, such Registrable Securities and Other Securities pro rata
      among
      the holders thereof based upon the number of such Registrable

     


    
      
        
        

      

      
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    Securities
      that are not Series D Restricted Shares and Other Securities requested to be
      registered by each such holder).

     

    Anything
      to the contrary in this Agreement notwithstanding, the Company may withdraw
      or
      postpone a Registration Statement referred to herein at any time before it
      becomes effective or withdraw, postpone or terminate the offering after it
      becomes effective without obligation to the Holder of the Registrable
      Securities.

     

    (c)    In
      connection with its obligation under this Section 4, the Company will
      (i) furnish to the Holder of Registrable Securities without charge, at
      least one copy of any effective Registration Statement and any post-effective
      amendments thereto, including financial statements and schedules, and, if the
      Holder so requests in writing, all documents incorporated therein by reference
      and all exhibits (including those incorporated by reference) in the form filed
      with the SEC; and (ii) deliver to the Holder of Registrable Securities and
      the
      underwriters, if any, without charge, as many copies of the then effective
      Prospectus (including each prospectus subject to completion) and any amendments
      or supplements thereto as such Persons may reasonably request.

     

    (d)    As
      a
      condition to the inclusion of its Registrable Securities, Holder shall furnish
      to the Company such information regarding the Holder and the distribution
      proposed by the Holder as the Company may request in writing or as shall be
      required in connection with any registration, qualification or compliance
      referred to in this Agreement.

     

    (e)    Holder
      of
      Registrable Securities agrees by acquisition of such Registrable Securities
      that, upon receipt of any notice from the Company of the happening of any event
      that, in the good faith judgment of the Company’s Board of Directors, requires
      the suspension of the Holder’s rights under this Section 4, the Holder will
      forthwith discontinue disposition of Registrable Securities pursuant to the
      then
      current Prospectus until the Holder is advised in writing by the Company that
      the use of the Prospectus may be resumed. If the Company shall have given any
      such notice during a period when a Registration Statement is in effect, the
      Company shall extend the period during which such registration statement shall
      be maintained effective pursuant to this Agreement by the number of days during
      which any such disposition of Registrable Securities is discontinued pursuant
      to
      this Agreement. If so directed by the Company, on the happening of such event,
      the Holder will deliver to the Company (at the Company’s expense) all copies,
      other than permanent file copies then in the Holder’s possession, of the
      prospectus covering such Registrable Securities current at the time of receipt
      of such notice.

     

    (f)    Holder
      hereby covenants with the Company (i) not to make any sale of the
      Registrable Securities without effectively causing the prospectus delivery
      requirements under the Securities Act to be satisfied, and (ii) if such
      Registrable Securities are to be sold by any method or in any transaction other
      than on a national securities exchange, the Nasdaq National Market, Nasdaq
      SmallCap Market or in the over-the-counter market, in privately negotiated
      transactions, or in a combination of such methods, to notify the Company at
      least 5 Business Days prior to the date on which the Holder first offers to
      sell
      any such Registrable Securities.

     


    
      
        
        

      

      
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    (g)    Holder
      acknowledges and agrees that the Registrable Securities sold pursuant to the
      Registration Statement described in this Agreement are not transferable on
      the
      books of the Company unless the stock certificate submitted to the transfer
      agent evidencing such Registrable Securities is accompanied by a certificate
      reasonably satisfactory to the Company to the effect that (i) the
      Registrable Securities have been sold in accordance with such Registration
      Statement and (ii) the requirement of delivering a current Prospectus has
      been satisfied.

     

    (h)    Holder
      shall not take any action with respect to any distribution deemed to be made
      pursuant to such Registration Statement, which would constitute a violation
      of
      Regulation M under the Exchange Act, or any other applicable rule, regulation
      or
      law.

     

    (i)    Upon
      the
      expiration of the effectiveness of any Registration Statement, the Holder of
      Registrable Securities included in the Registration Statement shall discontinue
      sales of shares pursuant to such Registration Statement upon receipt of notice
      from the Company of its intention to remove from registration the shares covered
      by such Registration Statement which remain unsold, and the Holder shall notify
      the Company of the number of shares registered which remain unsold immediately
      upon receipt of such notice from the Company.

     

    (j)    In
      the
      case of the registration of any underwritten primary offering initiated by
      the
      Company (other than any registration by the Company on Form S-4 or Form S-8
      (or
      any successor or substantially similar form), or of (i) an employee stock
      option, stock purchase or compensation plan or of securities issued or issuable
      pursuant to any such plan, or (ii) a dividend reinvestment plan) or any
      underwritten secondary offering initiated at the request of a holder of
      securities of the Company pursuant to registration rights granted by the
      Company, Holder agrees not to effect any public sale or distribution of
      securities of the Company, except as part of such underwritten registration,
      during the period beginning fifteen (15) days prior to the closing date of
      such
      underwritten offering and during the period ending ninety (90) days after such
      closing date (or such longer period as may be reasonably requested by the
      Company or by the managing underwriter or underwriters).

     

    (k)    Anything
      to the contrary contained in this Agreement notwithstanding, when, in the
      opinion of counsel for the Company, registration of the Registrable Securities
      is not required by the Securities Act, in connection with a proposed sale of
      such Registrable Securities, the Holder shall have no rights pursuant to this
      Agreement. In furtherance and not in limitation of the foregoing, Holder shall
      have no rights pursuant to this Agreement at such time as all of Holder’s
      Registrable Securities may be sold in a three-month period pursuant to Rule
      144.

     

    Section
      5.    Form
      S-3 Registration

     

    (a)    Each
      Holder (an “Initiating Form S-3 Holder”) may request at any time that the
      Company file a Registration Statement under the Securities Act on Form S-3
      (or
      similar or successor form) (a “Form S-3 Registration”) covering the sale or
      other distribution of all or any portion of the Registrable Securities held
      by
      such Initiating Form S-3 Holder pursuant to Rule 415 under the Securities Act
      (a
“Form S-3 Demand”) if (i) the reasonably anticipated aggregate offering price,
      net of underwriting discounts and commissions, if any, would equal or exceed
      $3,000,000 and (ii) the Company is a registrant qualified to use Form S-3 (or
      any similar

     


    
      
        
        

      

      
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    or
      successor form) to register such Registrable Securities. If such conditions
      are
      met, then the Company shall file the requested Registration Statement within
      ninety (90) Business Days after receiving a Form S-3 Demand and shall use its
      reasonable best efforts to cause the same to be declared effective by the SEC
      as
      promptly as practicable after such filing. The Company shall be required to
      maintain the effectiveness of such Form S-3 Registration for as long as there
      are Registrable Securities registered thereunder. Notwithstanding the foregoing,
      if the Company shall furnish to the Initiating Form S-3 Holders a certificate
      signed by the Chief Executive Officer and Chief Financial Officer of the Company
      stating that in the good faith opinion of the Board of Directors of the Company,
      it would be seriously detrimental to the Company and its stockholders for such
      Registration Statement to be filed and that it is therefore essential to defer
      the filing of the Registration Statement (a “Valid Business Reason”), the
      Company shall have the right to delay or defer taking action with respect to
      filing an S-3 Registration Statement for a period of 90 Business Days after
      receipt of the Form S-3 Demand; provided,
      however,
      that
      such right to delay or defer a Form S-3 Demand shall be exercised by the Company
      not more than once in any 12 month period, and the Company shall only have
      the
      right to delay a Form S-3 Demand so long as such Valid Business Reason
      exists.

     

    (b)    Holders
      shall have the right to request an unlimited number of Form S-3
      Demands.

     

    (c)    Upon
      receipt of any Form S-3 Demand, the Company shall promptly (but in any event
      within 10 Business Days) give written notice of such proposed Form S-3
      Registration to all other Holders, who shall have the right, exercisable by
      written notice to the Company within 10 Business Days of their receipt of the
      Company’s notice, to elect to include in such Form S-3 Registration such portion
      of their Registrable Securities as they may request.

     

    (d)    The
      Company, and any other holder of the Company’s securities who has registration
      rights, may include its securities in any Form S-3 Registration effected
      pursuant to Section 5(a); provided,
      however,
      that if
      the managing underwriter or underwriters of a proposed Underwritten Offering
      contemplated thereby advise the Holder or Holders in writing that the total
      amount or kind of securities which the Company or any such holder intends to
      include in such proposed public offering is sufficiently large to adversely
      affect the success of the proposed public offering requested by the Holder
      or
      Holders exercising their rights under this Section 5 (the “Form S-3 Demanding
      Holders”), then the amount or kind of securities to be offered for the account
      of the Company shall be reduced to the extent necessary to reduce the total
      amount or kind of securities to be included in such proposed public offering
      to
      the amount or kind recommended by such managing underwriter or underwriters;
      provided,
      further,
      that if
      such managing underwriter or underwriters advise the Holder or Holders in
      writing that the total amount or kind of securities which the Holders (other
      than the Form S-3 Demanding Holders) or the Registration Rights Holders intend
      to include in such proposed public offering is sufficiently large, even without
      any securities for the account of the Company, to adversely affect the success
      of the proposed public offering requested by the Form S-3 Demanding Holders,
      then the amount or kind of securities to be offered for the account of the
      Registration Rights Holders (other than the Form S-3 Demanding Holders) shall
      be
      reduced pro rata,
      in
      accordance with the respective numbers of shares such Registration Rights
      Holders (other than the Form S-3 Demanding Holders) had requested to include
      in
      such proposed public offering; and provided,
      further,
      that if
      such managing underwriter or underwriters advise the Holder or Holders in
      writing that the total

     


    
      
        
        

      

      
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    amount
      or
      kind of securities which the Form S-3 Demanding Holders intend to include in
      such proposed public offering is sufficiently large, even without any additional
      securities, to adversely affect the success of the proposed public offering
      requested by such Form S-3 Demanding Holders, then the amount or kind of
      securities to be offered for the account of the Form S-3 Demanding Holders
      shall
      be reduced pro rata,
      in
      accordance with the respective numbers of shares such Form S-3 Demanding Holders
      had requested to include in such proposed public offering.

     

    (e)    Notwithstanding
      the foregoing, at the Company’s election, the Company may cease to keep such
      registration, qualification or compliance effective with respect to any
      Registrable Securities registered pursuant to this Section 5, and the
      registration rights of a Holder shall expire, at such time as the Holder may
      sell under Rule 144(k) under the Securities Act (or other exemption from
      registration acceptable to the Company) in a three-month period all Registrable
      Securities then held by such Holder.

     

    Section
      6.    Registration
      Expenses.
      All
      expenses incident to the Company’s performance of or compliance with this
      Agreement will be borne by the Company, regardless of whether a Registration
      Statement becomes effective, including, without limitation: (i) all registration
      and filing fees; (ii) all reasonable fees and expenses of compliance with
      federal securities and state Blue Sky or securities laws; (iii) all reasonable
      expenses of printing (including printing Prospectuses), messenger and delivery
      services and telephone; (iv) all reasonable fees and disbursements of counsel
      for the Company; (v) all applications and filing fees in connection with listing
      the Registrable Securities on a national securities exchange or automated
      quotation system pursuant to the requirements hereof; and (vi) all reasonable
      fees and disbursements of independent certified public accountants of the
      Company (including the expenses of any special audit and comfort letters
      required by or incident to such performance). Notwithstanding anything in this
      Section 6 to the contrary, the Company shall not be required to pay any
      underwriting discounts, commissions or transfer taxes, if any, relating to
      the
      sale or disposition of any Holder’s Restricted Securities.

     

    The
      Company will, in any event, bear its internal expenses (including, without
      limitation, all salaries and expenses of its officers and employees performing
      legal or accounting duties), the expenses of any annual audit and the fees
      and
      expenses of any person, including special experts, retained by the
      Company.

     

    Section
      7.    Indemnification.

     

    (a)    Indemnification
      by the Company.
      To the
      extent permitted by law, the Company shall indemnify each Holder of the
      Registrable Securities and each person controlling such Holder within the
      meaning of Section 15 of the Securities Act, with respect to which any
      registration has been effected pursuant to this Agreement, against all claims,
      losses, damages and liabilities (or action, in respect thereof), including
      any
      of the foregoing incurred in settlement of any litigation, commenced or
      threatened (subject to Subsection 7(c) below), arising out of or based on any
      untrue statement of a material fact contained in any Registration Statement,
      Prospectus or offering circular, or any amendment or supplement thereof,
      incident to any such registration, or based on any omission to state therein
      a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading, in light of the circumstances in

     


    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    


    which
      they were made, and shall reimburse each Holder of the Registrable Securities
      and each person controlling such Holder, for legal and other expenses reasonably
      incurred in connection with investigating or defending any such claim, loss,
      damage, liability or action as incurred; provided,
      that
      the Company shall not be liable in any such case to the extent that any untrue
      statement or omission is made in reliance upon and in conformity with
      information furnished to the Company by or on behalf of any Holder and stated
      to
      be specifically for use in preparation of such Registration Statement,
      Prospectus or offering circular; provided,
      further,
      that
      the Company shall not be liable in any such case where the claim, loss, damage
      or liability arises out of, or is related to, the failure of any Holder to
      comply with the covenants and agreements contained in this Agreement. The
      foregoing indemnity is subject to the condition that, insofar as it relates
      to
      any such untrue statement or alleged untrue statement or omission or alleged
      omission made in the preliminary Prospectus but eliminated or remedied in the
      amended Prospectus on file with the SEC at the time the Registration Statement
      becomes effective or in the amended Prospectus filed with the SEC pursuant
      to
      Rule 424(b) of the Securities Act or in the Prospectus subject to completion
      and
      term sheet under Rule 434 of the Securities Act, which together meet the
      requirements of Section 10(a) of the Securities Act (the “Final Prospectus”),
      such indemnity shall not inure to the benefit of any such Holder or any such
      controlling person. The Company will also indemnify underwriters participating
      in the distribution, their officers, directors, employees, partners and agents,
      and each Person who controls such underwriters (within the meaning of the
      Securities Act), to the same extent as provided above with respect to the
      indemnification of the Holders of Registrable Securities, if so
      requested.

     

    (b)    Indemnification
      by Holders of Registrable Securities.
      In
      connection with any Registration Statement in which a Holder of Registrable
      Securities is participating, each such Holder will furnish to the Company in
      writing such information and affidavits as the Company requests for use in
      connection with any such Registration Statement or Prospectus. Each Holder
      will
      severally, if Registrable Securities held by such Holder are included in the
      securities as to which such registration is being effected, indemnify the
      Company, each of its directors and officers, each underwriter of the Registrable
      Securities, each other Holder whose Securities are included in such Registration
      Statement and each person who controls any of the foregoing Persons within
      the
      meaning of Section 15 of the Securities Act (collectively, “Holder
      Indemnitees”), against all claims, losses, damages and liabilities (or actions
      in respect thereof), including any of the foregoing incurred in settlement
      of
      any litigation, commenced or threatened (subject to Subsection 7(c) below),
      arising out of, or based on, any untrue statement of a material fact contained
      in any Registration Statement, Prospectus or offering circular, or any amendment
      or supplement thereof, incident to any such registration, or based on any
      omission to state therein a material fact required to be stated therein or
      necessary to make the statements therein not misleading, in light of the
      circumstances in which they were made, and will reimburse the Holder Indemnitees
      for reasonable legal and any other expenses reasonably incurred in connection
      with investigating or defending any such claim, loss, damage, liability or
      action as incurred, in each case to the extent, but only to the extent, that
      such untrue statement or omission is made in reliance upon and in conformity
      with written information and/or affidavits furnished to the Company by or on
      behalf of such Holder; provided,
      that
      the indemnity shall not apply to the extent that such claim, loss, damage or
      liability results from the fact that a current copy of the Prospectus was not
      made available to the Holders and such current copy of the Prospectus would
      have
      cured the defect giving rise to such loss, claim, damage or liability. The
      foregoing indemnity is subject to the condition that, insofar as it relates
      to
      any such untrue statement or

     


    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    


    alleged
      untrue statement or omission or alleged omission made in the preliminary
      Prospectus but eliminated or remedied in the Final Prospectus, such indemnity
      shall not inure to the benefit of any Holder Indemnitee. The Holder Indemnitees
      shall be entitled to receive indemnities from underwriters participating in
      the
      distribution, to the same extent as provided above, with respect to information
      furnished in writing by such underwriters specifically for inclusion in any
      Registration Statement, Prospectus or offering circular. 

     

    (c)    Conduct
      of Indemnification Proceedings.
      Any
      Person entitled to indemnification hereunder will (i) give prompt notice to
      the
      indemnifying party of any claim with respect to which it seeks indemnification
      and (ii) permit such indemnifying party to assume the defense of such claim
      with
      counsel of such indemnifying party’s choice; provided,
      however,
      that
      any Person entitled to indemnification hereunder shall have the right to employ
      separate counsel and to participate in the defense of such claim, but the fees
      and expenses of such counsel shall be at the expense of such indemnified party
      unless (A) the indemnifying party shall have failed to assume the defense of
      such claim and employ counsel reasonably satisfactory to the indemnified party
      in a timely manner or (B) a written opinion of counsel reasonably acceptable
      to
      the indemnifying party, asserts that a conflict of interest exists between
      such
      person and the indemnifying party with respect to such claims (in which case,
      if
      the indemnified Person notifies the indemnifying party in writing that such
      Person elects to employ separate counsel at the expense of the indemnifying
      party, the indemnifying party shall not have the right to assume the defense
      of
      such claim on behalf of such Person). The indemnifying party will not be subject
      to any liability for any settlement made without its consent. No indemnified
      party will be required to consent to entry of any judgment or enter into any
      settlement which does not include as an unconditional term thereof the giving
      by
      the claimant or plaintiff to such indemnified party of a release from all
      liability in respect of such claim or litigation. An indemnifying party who
      is
      not entitled to, or elects not to, assume the defense of the claim will not
      be
      obligated to pay the fees and expenses of more than one counsel for all parties
      indemnified by such indemnifying party with respect to such claim. 

     

    (d)    Contribution.
      If for
      any reason the indemnification provided for in Subsection 7(a) or Subsection
      7(b) is unavailable to an indemnified party or insufficient to hold it harmless
      as contemplated by Subsection 7(a) and Subsection 7(b), then the indemnifying
      party shall contribute to the amount paid or payable by the indemnified party
      as
      a result of such loss, claim, damage or liability in such proportion as is
      appropriate to reflect not only the relative benefits received by the
      indemnifying party and the indemnified party, but also the relative fault of
      the
      indemnifying party and the indemnified party, as well as any other relevant
      equitable considerations. No Person guilty of fraudulent misrepresentation
      (within the meaning of Section 11(f) of the Securities Act) shall be entitled
      to
      contribution from any Person who was not guilty of such fraudulent
      misrepresentations.

     

    Section
      8.    Participation
      in Underwritten Registrations.

     

    (a)    The
      determination of whether any offering of Registrable Securities will be an
      Underwritten Offering shall be made in good faith judgment of the Board of
      Directors of the Company. In the event that the Board of Directors of the
      Company determines that such offering shall be an Underwritten Offering, the
      investment banker or investment bankers and manager or managers that will
      administer the offering will be selected by the Company.

     


    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    


    (b)    No
      Person
      may participate in any Underwritten Offering hereunder unless such Person (i)
      agrees to sell such Person’s Registrable Securities on the basis provided in any
      underwriting arrangements approved by the Persons entitled hereunder to approve
      such arrangements and (ii) completes and executes all questionnaires, powers
      of
      attorney, indemnities, underwriting agreements and other documents required
      under the terms of such underwriting arrangements. Nothing in this Section
      8
      shall be construed to create any additional rights regarding the registration
      of
      Registrable Securities in any Person otherwise than as set forth
      herein.

     

    Section
      9.    Rule
      144.
      The
      Company agrees with the Holder, for so long as any Restricted Securities remain
      outstanding and during any period in which the Company (i) is not subject
      to Section 13 or 15(d) of the Exchange Act, to make available, upon request
      of
      the Holder in connection with any sale thereof and any prospective purchaser
      of
      such Restricted Securities designated by the Holder, the information required
      by
      Rule 144A(d)(4) under the Securities Act in order to permit resales of such
      Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section
      13 or 15(d) of the Exchange Act, to use reasonable efforts to make all filings
      required thereby in a timely manner in order to permit resales of such
      Restricted Securities pursuant to Rule 144.

     

    Section
      10.    Legend.
      Each
      Holder consents to the placing of the following legend on all certificates
      representing shares of Registrable Securities and on any certificate issued
      at
      any time in exchange or substitution for any certificate bearing such legend,
      for so long as the securities represented thereby are Registrable
      Securities:

     

    THIS
      CERTIFICATE IS ISSUED SUBJECT TO THE PROVISIONS OF A REGISTRATION RIGHTS
      AGREEMENT, AND ANY TRANSFEREE OF THIS CERTIFICATE OR OF THE SHARES REPRESENTED
      BY IT SHALL BE BOUND BY THE PROVISIONS OF SAID AGREEMENT, A COPY OF WHICH IS
      ON
      FILE WITH, AND AVAILABLE FROM, THE SECRETARY OF NEPHROS, INC.

     

    Section
      11.    Delay
      Periods; Suspension of Sales.
      Each
      Holder shall suspend, upon request of the Company, any disposition of
      Registrable Securities pursuant to the Registration Statement and Prospectus
      contemplated herein during (i) any period not to exceed two 30-day periods
      within any one 12-month period the Company requires in connection with a primary
      underwritten offering of equity securities and (ii) any period, not to exceed
      one 45-day period per circumstance or development, when the Company determines
      in good faith that offers and sales pursuant thereto should not be made by
      reason of the presence of material undisclosed circumstances or developments
      with respect to which the disclosure that would be required in such a prospectus
      is premature, would have an adverse effect on the Company or is otherwise
      inadvisable.

     

    Section
      12.    Miscellaneous.

     

    (a)    Amendments
      and Waivers.
      The
      provisions of this Agreement may not be amended, modified or supplemented,
      and
      waivers or consents to or departures from the

     


    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    


    provisions
      hereof may not be given, without the written consent of the Company and the
      Holders of a majority of the outstanding Registrable Securities.

     

    (b)    Notices.
      All
      notices and other communications provided for or permitted hereunder shall
      be
      made in writing by hand-delivery, first-class mail (registered, return receipt
      requested), or air courier guaranteeing overnight delivery:

     

    (i)    if
      to any
      Holder, at the address for such Holder set forth on the records of the Company;
      and

     

    (ii)    if
      to the
      Company:

     

    Nephros,
      Inc.

    3960
      Broadway

    New
      York,
      New York 10032

    Attention:
      President

     

    With
      a
      copy to:

     

    Kramer
      Levin Naftalis & Frankel LLP

    1177
      Avenue of the Americas

    New
      York,
      New York 10036

    Attention:
      Thomas D. Balliett

    


    All
      such
      notices and communications shall be deemed to have been duly given: at the
      time
      delivered by hand, if personally delivered; five Business Days after being
      deposited in the mail, postage prepaid, if mailed; and on the next Business
      Day,
      if timely delivered to an air courier guaranteeing overnight
      delivery.

     

    The
      address or person or entity to whose attention any notice or communication
      shall
      be given may be changed by notice to the other parties in accordance with the
      provisions of this Section 9(b).

     

    (c)    Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      assigns of the Company, without the need for an express assignment; provided,
      however,
      (i)
      this Agreement cannot be assigned or transferred by any Holder without any
      prior
      written consent of the Company which shall not be unreasonably withheld, and
      (ii) nothing herein shall be deemed to permit any assignment, transfer or other
      disposition of Registrable Securities in violation of the terms hereof. If
      any
      transferee of a Holder shall acquire Registrable Securities in any manner,
      whether by operation of law or otherwise, such Registrable Securities shall
      be
      held subject to all of the terms of this Agreement, and by taking and holding
      such Registrable Securities such person shall be conclusively deemed to have
      agreed to be bound by and to perform all of the terms and provisions of this
      Agreement, including the restrictions on resale set forth in this Agreement
      and
      such person shall be entitled to receive the benefits hereof.

     

    (d)    Counterparts.
      This
      Agreement may be executed in any number of counterparts and by the parties
      hereto in separate counterparts, each of which when so executed shall
      be
      deemed to be an original and all of which taken together shall constitute one
      and the same agreement.

     


    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    


    (e)    Headings.
      The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

    (f)    Governing
      Law.
      THIS
      AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
      THE
      STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF THE CONFLICT OF LAWS
      THEREOF.

     

    (g)    Severability.
      In the
      event that any one or more of the provisions contained herein, or the
      application thereof in any circumstance, is held invalid, illegal or
      unenforceable, the validity, legality and enforceability of any such provision
      in every other respect and of the remaining provisions contained herein shall
      not be affected or impaired thereby.

     

    (h)    Jurisdiction;
      Forum.
      Each
      party hereto consents and submits to the exclusive jurisdiction of any state
      court sitting in the County of New York or federal court sitting in the Southern
      District of the State of New York in connection with any dispute arising out
      of
      or relating to this Agreement, and agrees that all suits, actions and
      proceedings brought by such party hereunder shall be brought only in such
      jurisdictions. Each party hereto waives any objection to the laying of venue
      in
      such courts and any claim that any such action has been brought in an
      inconvenient forum. To the extent permitted by law, any judgment in respect
      of a
      dispute arising out of or relating to this Agreement may be enforced in any
      other jurisdiction within or outside the United States by suit on the judgment,
      a certified copy of such judgment being conclusive evidence of the fact and
      amount of such judgment. Each party hereto agrees that personal service of
      process may be effected by any of the means specified in Section 12(b),
      addressed to such party. The foregoing shall not limit the rights of any party
      to serve process in any other manner permitted by law.

     

    (i)    Entire
      Agreement.
      This
      Agreement is intended by the parties as a final expression of their agreement
      and intended to be a complete and exclusive statement of the agreement and
      understanding of the parties hereto with respect to registration rights granted
      with respect to Registrable Securities. There are no restrictions, promises,
      warranties or undertakings, other than those set forth or referred to herein
      with respect to the registration rights granted with respect to the Registrable
      Securities. This Agreement supersedes all prior agreements and understandings
      between the parties with respect to such subject matter.

     

    [SIGNATURE
      PAGE FOLLOWS IMMEDIATELY]

    


    


     


    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

        
        

      

    



    IN
      WITNESS WHEREOF,
      the
      parties hereto have executed this Agreement as of the date first written
      above.

     

    NEPHROS,
      INC.

     

    By:_______________________________________ 

       Name:

       Title:

    


     

    THE
      INITIAL HOLDERS:

     

    SOUTHPAW
      CREDIT OPPORTUNITY MASTER FUND LP

     

    


    


    By:_______________________________________

      Name:
  

      Title:


     

    Address
      for Notices:

    
       

      _________________________________________ 

    

    (Street
      Address)

    


    


    
      _________________________________________ 

    

    (City)  (State/Country) 
(Zip
      Code)

    


    


    Attention:_________________________________

     

    
 

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    


    


    DISTRESSED/HIGH
      YIELD TRADING OPPORTUNITIES, LTD.

    By:
      Eliteperformance Fund, Ltd., its investment manager

    


    


    By:_______________________________________

      Name:
      Scott A.
      Stagg  

      Title:  
      Portfolio Manager

     

    Address
      for Notices:

     

    _________________________________________

          (Street
      Address)

    


    


    _________________________________________

    (City)  (State/Country)    (Zip
      Code)

    


    


    Attention:_________________________________

    


    


    3V
      CAPITAL MASTER FUND LTD

    By:
      3V
      Capital Management LLC, its investment manager

    


    
      By:_______________________________________


         
Name:
      Scott A. Stagg  

      Title:
      Managing
      Member

     

    
      Address
        for Notices:

       

      _________________________________________

            (Street
        Address)

      


      


      _________________________________________

      (City)  (State/Country) 
(Zip
        Code)

      


      


      Attention:_________________________________

    


    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1

    


    
      	
              Investor

               

            	
              Registrable
                Securities

               

            
	
              3V
                CAPITAL MASTER FUND LTD

            	
              Common
                Stock issuable upon exercise of $1,500,000 aggregate principal amount
                of
                6% Secured Convertible Notes due 2012

            
	 	 
	
              Distressed/High
                Yield Trading Opportunities, Ltd.

            	
              Common
                Stock issuable upon exercise of $1,500,000 aggregate principal amount
                of
                6% Secured Convertible Notes due 2012

            
	 	 
	
              SOUTHPAW
                CREDIT OPPORTUNITY MASTER FUND LP

            	
              Common
                Stock issuable upon exercise of $2,000,000 aggregate principal amount
                of
                6% Secured Convertible Notes due
                2012

            


    

    



    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

     

    Form
      of
      Counterpart Signature Page

     

    IN
      WITNESS WHEREOF,
      the
      undersigned has caused this counterpart to the Registration Rights Agreement
      among Nephros, Inc. and the Holders (as defined therein), dated as of ______
      __,
      2006, as amended from time to time, to be duly executed and delivered as of
      _______ __, ____.

     

                    [__________________],
      as an
      additional Holder

    


    


    


                    By:
      ______________________________________

                      Name:

                   Title: 

     

                    Notice
      Address:


                    ___________________________________

                    ___________________________________

                    ___________________________________

                    Attention:
      ___________________________

                    Tel:(___)
      ___-___

                    Fax:(___)
      ___-___

    


     

    Accepted
      and agreed to as of the 

    __
      day of
      _________, ____:

     

    NEPHROS,
      INC.

     

    By:
      __________________________________

    Name:

    Title:

     

    
-19-