Exhibit 10.1 Subscription Agreement


    
      

    


    EXHIBIT
      10.1

     

     

    Name
      of
      Subscriber: ______________________________

     

    
 

    NEPHROS,
      INC.

     

    SUBSCRIPTION
      AGREEMENT

     

    Nephros,
      Inc.

    3960
      Broadway

    New
      York,
      New York, 10032

     

    Ladies
      and Gentlemen:

     

    1.    Subscription.
      (a) The
      undersigned, intending to be legally bound, hereby irrevocably subscribes to
      purchase from Nephros, Inc., a Delaware corporation (the “Company”),
      the
      principal amount of 6% Secured Convertible Notes due 2012 (the “6%
      Notes”),
      of
      the Company, set forth on the signature page hereof, for a purchase price equal
      to the principal amount thereof. This subscription is made in accordance with
      and subject to the terms and conditions described in this Subscription Agreement
      (this “Agreement”).
      The
      terms of the 6% Notes shall be substantially as set forth in the form of 6%
      Secured Convertible Note due 2012 attached hereto as Exhibit
      A
      (the
“Form
      of Note”).

     

    The
      6%
      Notes that are the subject of this Agreement are part of an offering by the
      Company (the “Offering”)
      of up
      to five million dollars ($5,000,000) aggregate principal amount of 6% Notes
      (the
“Maximum
      Amount”).
      The
      Company is offering 6% Notes until June 15, 2006, although the Company reserves
      the right, in its sole discretion, to extend the Offering period until some
      later date (such date, as the same may be extended, the “Expiration
      Date”).
      Each
      subscriber in the Offering shall enter into a registration rights agreement
      among the Company and the Investors (as defined therein), in substantially
      the
      form attached hereto as Exhibit
      B
      (the
“Registration
      Rights Agreement”).

     

    The
      Company may hold the first closing of the Offering (the “First
      Closing”)
      at any
      time on or prior to the Expiration Date. Following the First Closing, the
      Company may continue to sell 6% Notes up to the Maximum Amount and may conduct
      closings from time to time for additional shares sold. A final closing will
      be
      held promptly after the earlier to occur of (i) the Expiration Date and (ii)
      acceptance of subscriptions for sale of the Maximum Amount. The Company may
      terminate the Offering at any time without prior notice. Also, the Company
      may
      reject any subscription for 6% Notes in whole or in part for any reason in
      its
      sole discretion.

     

    The
      undersigned understands that the 6% Notes are being offered and issued pursuant
      to an exemption from the registration requirements of the Securities Act,
      provided by Section 4(2) of such Act. As such, the 6% Notes are being offered
      and sold

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    only
      to
      investors who qualify as “Accredited Investors” (as defined in Rule 501
      promulgated under the Securities Act), and the Company is relying on the
      representations made by the undersigned in this Agreement in determining the
      availability of such exemption. The 6% Notes are, and any shares of common
      stock, par value $0.001 per share, of the Company (the “Common Stock”) issued
      upon conversion thereof will be, “restricted securities” for purposes of the
      United States securities laws and cannot be transferred except as permitted
      under those laws.

     

    (b)    The
      undersigned is delivering (i) an executed copy of the signature page of and
      Exhibit
      C
      to this
      Agreement, (ii) an executed copy of the signature page, or counterpart signature
      page, to the Registration Rights Agreement, and (iii) the subscription payment,
      in immediately available funds, which may be made by wire transfer to the
      Company pursuant to the following instructions:

     

    
      
        	
                Bank:

              	
                 

              
	 	 
	
                ABA
                  No.:

              	
                 

              
	 	 
	
                Account
                  Name:

              	
                 

              
	 	 
	
                Account
                  No.:

              	
                 

              
	 	 
	
                Apply
                  To:

              	
                 

              
	 	 
	
                Attention:

              	
                 

              


      

    

     

    If
      the
      Offering is oversubscribed, or for any other reason determined by the Company
      in
      its discretion, the Company may determine to reject a subscription or to accept
      a subscription for only a portion of the 6% Notes for which the undersigned
      has
      subscribed in this Agreement. If this subscription is accepted by the Company,
      in whole or in part, then the Company will deliver to the undersigned 6% Notes
      in the aggregate principal amount for which the undersigned’s subscription is
      accepted. If this subscription is rejected in whole or in part, then the Company
      shall promptly refund to the undersigned, without interest, any funds that
      the
      undersigned had delivered to the Company in excess of the aggregate principal
      amount (and purchase price) of any 6% Notes for which the undersigned’s
      subscription is accepted.

     

    (c)    The
      undersigned may not withdraw this subscription or any amount paid pursuant
      thereto except as otherwise provided below. 

     

    2.    Conditions.
      It is
      understood and agreed that this subscription is made subject to the Company’s
      execution and delivery of the Registration Rights Agreement and acceptance
      of
      the undersigned as a Holder thereunder.

     

    3.    Representations
      and Warranties of the Company.
      The
      Company represents and warrants to the undersigned as follows, in each case
      as
      of the date hereof and in all material respects as of the date of any closing,
      except for any changes resulting solely from the Offering:

     


    
      
        
        

      

      
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    (a)    The
      Company is duly organized, validly existing and in good standing under the
      laws
      of the jurisdiction of its organization with full power and authority to own,
      lease, license and use its properties and assets and to carry out the business
      in which it proposes to engage.

     

    (b)    The
      Company has all requisite corporate power and authority to execute, deliver
      and
      perform its obligations under this Agreement and to issue and sell the 6%
      Notes subscribed for hereunder, the shares of Common Stock issuable upon
      conversion thereof, the Warrants (as defined below) issuable thereunder and
      the
      shares of Common Stock issuable upon exercise thereof (collectively, the
“Subject
      Securities”).
      All
      necessary proceedings of the Company have been duly taken to authorize the
      execution, delivery, and performance of this Agreement, the 6% Notes and the
      Registration Rights Agreement (collectively, the “Transaction
      Documents”).
      The
      Transaction Documents and the Warrants have been duly authorized by the Company
      and, when and, in the case of the Warrants, if, executed and delivered by the
      Company will constitute the legal, valid and binding obligation of the Company
      enforceable against the Company in accordance with their terms. The Common
      Stock
      issuable upon conversion of the 6% Notes and the Common Stock issuable upon
      exercise of the Warrants, when issued in compliance with the provisions of
      the
      Transaction Documents, will be validly issued, fully paid and nonassessable
      and
      free of any liens or encumbrances other than any liens or encumbrances that
      result from such 6% Common Stock being held by any person other than the
      Company. The 6% Notes are duly authorized, and when issued pursuant to the
      Transaction Documents, will be validly issued. The Warrants are duly authorized,
      and when issued, pursuant to the Transaction Documents, will be validly
      issued.

     

    (c)    No
      consent of any party to any contract, agreement, instrument, lease or license
      to
      which the Company is a party or to which any of its properties or assets are
      subject is required for the execution, delivery or performance by the Company
      of
      any of the Transaction Documents or the issuance and sale of the Subject
      Securities.

     

    (d)    The
      execution, delivery and performance of Transaction Documents and the Warrants
      and the issuance and sale of the Subject
      Securities will
      not
      violate or result in a breach of, or entitle any party (with or without the
      giving of notice or the passage of time or both) to terminate or call a default
      under any contract or agreement to which the Company is a party or violate
      or
      result in a breach of any term of the certificate of incorporation or by-laws
      of
      the Company, or, assuming compliance with applicable state securities or “blue
      sky” laws, violate any law, rule, regulation, order, judgment or decree binding
      upon, the Company, or to which any of their respective operations, businesses,
      properties or assets are subject, the breach, termination or violation of which,
      or default under which, would have a material adverse effect on the operations,
      business, properties or assets of the Company.

     

    (e)    The
      Company’s capitalization is disclosed in the Nephros SEC Filings and the Draft
      10-QSB provided to the undersigned pursuant to Section
      5(e)
      hereof.

     


    
      
        
        

      

      
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    (f)    Except
      as
      set forth on Schedule
      3(f),
      there
      are no brokerage commissions, finder’s fees or similar fees or commissions
      payable by the Company in connection with the transactions contemplated hereby
      based on any agreement, arrangement or understanding with or known to the
      Company.

     

    (g)    Except
      as
      would not reasonably be expected to have a Material Adverse Effect, the Company
      is not in violation or default of any provisions of its certificate of
      incorporation or bylaws, as may be amended, as applicable, any instrument,
      judgment, order, writ or decree, or any material provision of any contract
      or
      agreement, to which it is a party or by which it is bound or of any provision
      of
      federal, state or local statute, rule or regulation applicable to the Company
      or
      its business. Except as would not reasonably be expected to have a Material
      Adverse Effect, the execution, delivery and performance of the Transaction
      Documents and the consummation of the transactions contemplated thereby will
      not
      result in any such violation or be in conflict with or constitute, with or
      without the passage of time and giving of notice, either a default under any
      such provision, instrument, judgment, order, writ, decree, contract or
      agreement, or require any consent, waiver or approval thereunder, or constitute
      an event which results in the creation of any lien, charge or encumbrance upon
      any assets of the Company (solely except as provided in this
      Agreement).

     

    (h)    Except
      as
      disclosed in the Nephros SEC filings, the Company is not a party to any
      litigation, action, suit, proceeding or investigation, nor, to the knowledge
      of
      the Company, has any litigation, action, suit, proceeding or investigation
      been
      threatened against the Company where such litigation, action, suit, proceeding
      or investigation would, if adversely determined, reasonably be expected to
      (i)
      have a material adverse affect on the financial condition of the Company or
      (ii)
      have a material adverse effect on the ability of the Company to perform its
      obligations under this Agreement or any of the other Transaction Documents
      (either (i) or (ii), a “Material Adverse Effect”).

     

    (i)    The
      Company has good and marketable title to its properties and assets (including
      without limitation those
      assets pledged as collateral pursuant to this Agreement) held in each case
      free
      and clear of all liens, pledges, security interests, encumbrances, attachments
      or charges of any kind (each a “Lien”),
      except for (i) Liens for taxes that are not yet due and payable, (ii) Liens
      that
      do not or are not reasonably likely to result in a Material Adverse Effect
      or
      (iii) Liens arising under this Agreement (Liens described in clauses (i), (ii)
      and (iii) are referred to as “Permitted
      Liens”).
      With
      respect to the property and assets it leases, the Company is in compliance
      with
      such leases and, to the best of the Company’s knowledge, the Company holds valid
      leasehold interests in such property and assets free and clear of any Liens
      of
      any other party other than the lessors of such property and assets, except
      for
      Permitted Liens.

     

    (j)    Except
      as
      disclosed in the Financial Statements (as defined below) or incurred in the
      ordinary course of business, the Company has no obligations or liabilities
      of
      any kind (absolute or contingent, direct or indirect) pursuant to any agreement
      of any kind related to any indebtedness of any kind. 

     


    
      
        
        

      

      
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    (k)    Except
      for this Agreement, the Company has not heretofore assigned or granted a
      security interest in any of the assets pledged as collateral pursuant to this
      Agreement.

     

    (l)    The
      Company owns, free and clear of all Liens, or is licensed or otherwise possesses
      legally enforceable rights to use, all patents, trademarks, trade names, service
      marks and copyrights material to the operation of the Company’s business, and
      any applications related to any of the foregoing (collectively, “Intellectual
      Property”).

     

    (m)    All
      reports required to be filed by the Company since and including the Company’s
      Annual Report on Form 10-KSB for the year ended December 31, 2004, to and
      including the relevant Closing (collectively, the “Nephros
      SEC Filings”)
      have
      been duly filed with the Securities and Exchange Commission, complied at the
      time of filing in all material respects with the requirements of their
      respective forms and were complete and correct in all material respects as
      of
      the dates at which the information was furnished, and contained (as of such
      dates) no untrue statement of a material fact or omitted to state a material
      fact necessary in order to make the statements contained therein, in light
      of
      the circumstances under which they were made, not misleading. The parties agree
      that it shall not be a breach of this Section
      3(m)
      if the
      Company did not timely file any report.

     

    (n)    The
      financial statements and supporting schedules (the “Financial
      Statements”)
      included in the Company's Annual Report on Form 10-KSB for the year ended
      December 31, 2005 (the “Balance
      Sheet Date”)
      are
      complete and correct in all material respects and present fairly the financial
      position of the Company as of the dates specified and the results of operations
      for the periods specified, in each case, in conformity with generally accepted
      accounting principles applied on a consistent basis during the periods involved,
      except as indicated therein or in the notes thereto. Except as disclosed in
      the
      Draft 10-QSB provided to the undersigned pursuant to Section
      5(e)
      hereof,
      since the Balance Sheet Date there has not been, except where it would not
      reasonably be expected to have a Material Adverse Effect, (a) any payment of
      dividends on, or other distribution with respect to, or any direct or indirect
      redemption, purchase or acquisition of, any shares of the capital stock or
      other
      securities of the Company, (b) any disposition of any tangible or intangible
      material asset of the Company, (c) any damage, destruction or loss (whether
      or
      not covered by insurance) of any material asset of the Company, or (d) any
      change in the accounting methods, practices or policies followed by the Company
      or any change in depreciation or amortization policies or rates theretofore
      adopted, which has not been adequately provided for or disclosed in the
      Financial Statements.

     

    4.    Representations,
      Warranties and Covenants of the Subscriber.
      The
      undersigned hereby represents and warrants to, and agrees with, the Company
      as
      follows:

     

    (a)    The
      undersigned is an Accredited Investor, as specifically indicated in Exhibit
      C
      to this
      Agreement, which is being delivered to the Company herewith. 

     


    
      
        
        

      

      
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    (b)    If
      a
      natural person, the undersigned is: a bona fide resident of the state or
      non-United States jurisdiction contained in the address set forth on the
      signature page of this Agreement as the undersigned’s home address; at least
      twenty-one (21) years of age; and legally competent to execute the Transaction
      Documents. If an entity, the undersigned has its principal offices or principal
      place of business in the state or non-United States jurisdiction contained
      in
      the address set forth on the signature page of this Agreement, the individual
      signing on behalf of the undersigned is duly authorized to execute the
      Transaction Documents.

     

    (c)    Each
      of
      the Transaction Documents has been duly executed and delivered by the
      undersigned and constitutes the legal, valid and binding obligation of the
      undersigned, enforceable against the undersigned in accordance with its
      terms.

     

    (d)    Neither
      the execution, delivery nor performance of the Transaction Documents by the
      undersigned violates or conflicts with, creates (with or without the giving
      of
      notice or the lapse of time, or both) a default under or a lien or encumbrance
      upon any of the undersigned’s assets or properties pursuant to, or requires the
      consent, approval or order of any government or governmental agency or other
      person or entity under (i) any note, indenture, lease, license or other
      agreement to which the undersigned is a party or by which it or any of its
      assets or properties is bound or (ii) any statute, law, rule, regulation or
      court decree binding upon or applicable to the undersigned or its assets or
      properties. If the undersigned is not a natural person, the execution, delivery
      and performance by the undersigned of the Transaction Documents, have been
      duly
      authorized by all necessary corporate or other action on behalf of the
      undersigned and such execution, delivery and performance does not and will
      not
      constitute a breach or violation of, or default under, the charter or by-laws
      or
      equivalent governing documents of the undersigned.

     

    (e)    The
      undersigned has received, read carefully and is familiar with the Transaction
      Documents and the Nephros SEC Filings.

     

    (f)    The
      undersigned is familiar with the business, plans and financial condition of
      the
      Company, the terms of the Offering and any other matters relating to the
      Offering; the undersigned has received all materials which have been requested
      by the undersigned; the undersigned has had a reasonable opportunity to ask
      questions of the Company and its representatives, and the Company has answered
      to the satisfaction of the undersigned all inquiries that the undersigned or
      the
      undersigned’s representatives have put to it. The undersigned has had access to
      all additional information that the undersigned has deemed necessary to verify
      the accuracy of the information set forth in this Agreement and the Nephros
      SEC
      Filings, and has taken all the steps necessary to evaluate the merits and risks
      of an investment as proposed under this Agreement.

     

    (g)    The
      undersigned acknowledges that this subscription is and shall be irrevocable
      and
      this subscription and the agreements contained herein shall survive the
      insolvency, death or disability of the undersigned (as applicable), except
      that
      the undersigned shall have no obligation hereunder in the event that its
      subscription is for

     


    
      
        
        

      

      
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    any
      reason rejected or the Offering is cancelled or terminated by the Company,
      which
      the Company reserves the right to do in its sole and absolute discretion and
      for
      any reason.

     

    (h)    The
      undersigned or the undersigned’s purchaser representative has such knowledge and
      experience in finance, securities, taxation, investments and other business
      matters so as to be able to protect the interests of the undersigned in
      connection with this transaction, and the undersigned’s investment in the
      Company hereunder is not material when compared to the undersigned’s total
      financial capacity.

     

    (i)    The
      undersigned hereby acknowledges and represents that: (i) the undersigned has
      prior investment experience, including investment in securities which are
      non-listed, unregistered and/or not traded on an automated quotation system;
      (ii) the undersigned recognizes the highly speculative nature of this
      investment; and (iii) the undersigned is able to bear the economic risk which
      the undersigned hereby assumes.

     

    (j)    The
      undersigned understands the various risks of an investment in the Company as
      proposed herein and can afford to bear such risks, including, without
      limitation, the risks of losing the entire investment.

     

    (k)    The
      undersigned acknowledges that no liquid market for the Subject Securities
      presently exists and none may develop in the future and that the undersigned
      may
      find it impossible to liquidate the investment at a time when it may be
      desirable to do so, or at any other time.

     

    (l)    The
      undersigned has been advised by the Company and understands that none of the
      Subject Securities have been registered under the Securities Act, that the
      Subject Securities are being offered and issued on the basis of the statutory
      exemption provided by Section 4(2) of the Securities Act, Regulation D
      promulgated thereunder or both, relating to transactions by an issuer not
      involving any public offering and under similar exemptions under certain state
      securities laws; that this transaction has not been reviewed by, passed on
      or
      submitted to any United States Federal or state agency or self-regulatory
      organization where an exemption is being relied upon; and that the Company’s
      reliance thereon is based in part upon the representations made by the
      undersigned in this Agreement. 

     

    (m)    The
      undersigned acknowledges that the undersigned has been informed by the Company
      of, or is otherwise familiar with, the nature of the limitations imposed by
      the
      Securities Act and the rules and regulations thereunder on the transfer of
      the
      Subject Securities. In particular, the undersigned agrees that no sale,
      assignment or transfer of any of the Subject Securities acquired by the
      undersigned shall be valid or effective, and the Company shall not be required
      to give any effect to such a sale, assignment or transfer, unless (i) the sale,
      assignment or transfer of such Subject Securities is registered under the
      Securities Act, it being understood that the Subject Securities are not
      currently registered for sale and that the Company has no obligation or
      intention to so register the Interests, except as contemplated by the terms
      of
      the

     


    
      
        
        

      

      
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    Registration
      Rights Agreement; (ii) the Subject Securities are sold, assigned or transferred
      in accordance with all the requirements and limitations of an exemption from
      registration under the Securities Act. The undersigned further understands
      that
      an opinion of counsel satisfactory to the Company and other documents may be
      required to transfer the Subject Securities.

     

    (n)    The
      undersigned acknowledges that the Subject Securities to be acquired will be
      subject to a stop transfer order and any certificate or certificates evidencing
      any Subject Securities shall bear the following or a substantially similar
      legend and such other legends as may be required by state blue sky
      laws:

     

    “THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
      SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
      OR
      HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
      IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT OR AN
      AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
      ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE
      SECURITIES LAWS.”

     

    (o)    The
      undersigned will acquire the Subject Securities for the undersigned’s own
      account (or, if such individual is married, for the joint account of the
      undersigned and the undersigned’s spouse either in joint tenancy, tenancy by the
      entirety or tenancy in common) for investment and not with a view to the sale
      or
      distribution thereof or the granting of any participation therein in violation
      of the securities laws, and has no present intention of distributing or selling
      to others any of such interest or granting any participation therein in
      violation of the securities laws.

     

    (p)    In
      subscribing for 6% Notes, the undersigned is not relying on any representations
      and warranties of the Company other than those in this Agreement.

     

    (q)    The
      undersigned is not subscribing for 6% Notes as a result of or subsequent to
      any
      advertisement, article, notice or other communication published in any
      newspaper, magazine or similar media or broadcast over television or radio,
      or
      presented at any seminar or meeting, or any solicitation of a subscription
      by a
      person other than a representative of the Company with which the undersigned
      had
      a pre-existing relationship in connection with investments in securities
      generally.

     

    (r)    The
      undersigned is not relying on the Company with respect to the tax and other
      economic considerations of an investment.

     

    (s)    The
      undersigned understands that the net proceeds from all subscriptions paid and
      accepted pursuant to the Offering (after deduction for any commissions,
      discounts, consulting fees and other expenses of the Offering) may be used
      for
      such purposes as the Company determines from time to time.

     


    
      
        
        

      

      
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    (t)    The
      undersigned acknowledges that the representations, warranties and agreements
      made by the undersigned herein shall survive the execution and delivery of
      this
      Agreement and the purchase of the 6% Notes.

     

    (u)    The
      undersigned has consulted the undersigned’s own financial, legal and tax
      advisors with respect to the economic, legal and tax consequences of an
      investment in the Subject Securities and has not relied on the Company, its
      officers, directors or professional advisors for advice as to such
      consequences.

     

    (v)    Except
      as
      set forth on the signature page hereto, the undersigned has not engaged any
      broker or other person or entity that is entitled to a commission, fee or other
      remuneration as a result of the execution, delivery or performance of this
      Agreement.

     

    (w)    The
      undersigned is not now nor shall it be at any time prior to or at the closing
      with respect to the undersigned’s subscription (the “Closing”)
      a
      person or entity (a “Person”)
      with
      whom a United States citizen, entity organized under the laws of the United
      States or its territories or entity having its principal place of business
      within the United States or any of its territories (collectively, a
“U.S.
      Person”),
      is
      prohibited from transacting business of the type contemplated by this Agreement,
      whether such prohibition arises under United States law, regulation, executive
      orders and lists published by the Office of Foreign Assets Control, Department
      of the Treasury (“OFAC”)
      (including those executive orders and lists published by OFAC with respect
      to
      Persons that have been designated by executive order or by the sanction
      regulations of OFAC as Persons with whom U.S. Persons may not transact business
      or must limit their interactions to types approved by OFAC “Specially
      Designated Nationals and Blocked Persons”)
      or
      otherwise. Neither the undersigned nor any Person who owns an interest in the
      undersigned (collectively, a “Purchaser
      Party”)
      is now
      nor shall be at any time prior to or at the Closing a Person with whom a U.S.
      Person, including a United States Financial Institution as defined in 31 U.S.C.
      Section 5312, as amended (“Financial
      Institution”),
      is
      prohibited from transacting business of the type contemplated by this Agreement,
      whether such prohibition arises under United States law, regulation, executive
      orders and lists published by the OFAC (including those executive orders and
      lists published by OFAC with respect to Specially Designated Nationals and
      Blocked Persons) or otherwise.

     

    (x)    The
      undersigned has taken, and shall continue to take until the Closing, such
      measures as are required by law to assure that the funds used to pay to the
      Company the purchase price for the Subject Securities are derived: (i) from
      transactions that do not violate United States law nor, to the extent such
      funds
      originate outside the United States, do not violate the laws of the jurisdiction
      in which they originated; and (ii) from permissible sources under United States
      law and to the extent such funds originate outside the United States, under
      the
      laws of the jurisdiction in which they originated.

     

    (y)    To
      the
      best of the undersigned’s knowledge, neither the undersigned nor any Purchaser
      Party, nor any Person providing funds to the undersigned:

     


    
      
        
        

      

      
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    (i)
       is under investigation by any governmental authority for, or has been
      charged with, or convicted of, money laundering, drug trafficking, terrorist
      related activities, any crimes which in the United States would be predicate
      crimes to money laundering, or any violation of any Anti-Money Laundering Laws
      (as hereinafter defined in this Section
      4(y));
      (ii)
      has been assessed civil or criminal penalties under any Anti-Money Laundering
      Laws; or (iii) has had any of its funds seized or forfeited in any action under
      any Anti-Money Laundering Laws. For purposes of this Section
      4(y),
      the
      term “Anti-Money
      Laundering Laws”
shall
      mean laws, regulations and sanctions, state and federal, criminal and civil,
      that: (i) limit the use of and/or seek the forfeiture of proceeds from illegal
      transactions; (ii) limit commercial transactions with designated countries
      or
      individuals believed to be terrorists, narcotics dealers or otherwise engaged
      in
      activities contrary to the interests of the United States; (iii) require
      identification and documentation of the parties with whom a Financial
      Institution conducts business; or (iv) are designed to disrupt the flow of
      funds
      to terrorist organizations. Such laws, regulations and sanctions shall be deemed
      to include the USA PATRIOT Act of 2001, Pub. L. No. 107-56 (the “Patriot
      Act”),
      the
      Bank Secrecy Act, 31 U.S.C. Section 5311 et. seq. (the “Bank
      Secrecy Act”),
      the
      Trading with the Enemy Act, 50 U.S.C. Appendix, the International Emergency
      Economic Powers Act, 50 U.S.C. Section 1701 et. seq., and the sanction
      regulations promulgated pursuant thereto by the OFAC, as well as laws relating
      to prevention and detection of money laundering in 18 U.S.C. Sections 1956
      and
      1957.

     

    (z)    The
      undersigned is in compliance with any and all applicable provisions of the
      Patriot Act, including, without limitation, amendments to the Bank Secrecy
      Act.
      If the undersigned is a Financial Institution, it has established and is in
      compliance with all procedures required by the Patriot Act and the Bank Secrecy
      Act.

     

    (aa)    After
      the
      Closing, the undersigned shall cooperate with the Company, and shall cause
      each
      Purchaser Party to cooperate with the Company, in providing such additional
      information and documentation on the undersigned’s and each Purchaser Party’s
      legal or beneficial ownership, policies, procedures and sources of funds as
      the
      Company deems necessary or prudent to enable the Company to comply with
      Anti-Money Laundering Laws now in existence or hereafter enacted or amended.
      

     

    (bb)    If
      any of
      the foregoing representations, warranties or covenants in Sections
      4(w)-(aa)
      hereof
      ceases to be true or if the Company no longer reasonably believes that it has
      satisfactory evidence as to their truth, notwithstanding any other agreement
      to
      the contrary, the Company may, in accordance with applicable regulations, and
      after giving the undersigned reasonable opportunity to provide such satisfactory
      evidence, freeze the undersigned’s investment, including without limitation,
      withholding any dividends or distributions otherwise payable to the undersigned,
      suspending the undersigned’s voting rights and rescinding the undersigned’s
      investment in Subject Securities, and the Company may also be required to report
      such action and to disclose the undersigned’s identity to OFAC or other
      authority. In the event that the Company is required to take any of the
      foregoing actions, the undersigned understands and agrees that it shall have
      no
      claim against the Company, the Escrow Agent and/or their respective affiliates,
      directors, members, partners, interest holders, officers, employees and agents
      for any form of damages as a result of any of the aforementioned
      actions.

     


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


     

    (cc)    The
      undersigned understands and agrees that any dividend, distribution, or
      rescission proceeds or other payments made to it will be paid to the same
      account from which the undersigned’s investment in the Company was originally
      remitted, unless the Company, in its sole discretion, agrees
      otherwise.

     

    (dd)    the
      undersigned represents and warrants that the undersigned has not during the
      last
      thirty (30) days, and hereby agrees that from the date hereof and continuing
      until the undersigned no longer holds any Subject Securities the undersigned
      shall not, without the prior written consent of the Company, directly or
      indirectly, through related parties, affiliates or otherwise, (i) sell “short”
or “short against the box” (as those terms are generally understood) any equity
      security of the Company or (ii) otherwise engage in any transaction which
      involves hedging of the undersigned’s position in any equity security of the
      Company, provided, however, that it shall not be a violation of this
Section
      4(dd),
      if the
      undersigned places a sell order for shares of Common Stock underlying the 6%
      Notes at or following the time conversion of such 6% Notes is requested or
      a
      sell order for shares of Common Stock issuable upon exercise of the Warrants
      at
      or following the time exercise of such Warrants has been requested and all
      conditions to exercise of such Warrants have been satisfied, relies on the
      Company to deliver such Common Stock in accordance with the Form of Note or
      Warrants as the case may be, and completes the sale of such Common Stock before
      the Company delivers the Common Stock to the undersigned.

     

    5.    Covenants
      of the Company.
      The
      Company hereby covenants with the undersigned as follows:

     

    (a)    Except
      for the 6% Notes, without
      the prior written consent of the
      Secured Party, the Company shall not create, issue, incur (by conversion,
      exchange or otherwise), assume, guarantee or otherwise become or remain directly
      or indirectly liable for Senior Debt (as defined below). “Senior
      Debt”
shall
      mean (without duplication) whether recourse to all or a portion of the assets
      of
      the Company and whether or not contingent, (i) every obligation of the Company
      for money borrowed and (ii) every obligation of the Company evidenced by bonds,
      debentures, notes or other similar instruments, including obligations incurred
      in connection with the acquisition of property, assets or businesses, in each
      case, that is senior or pari passu in right of payment to the 6% Notes. In
      no
      event shall “Indebtedness for Borrowed Money” include any trade payable or
      accrued expenses arising in the ordinary course of business which are not more
      than 180 days past due or which are being contested in good faith and by
      appropriate proceedings. 

     

    (b)    For
      each
      of the first, second and third fiscal quarters of each fiscal year, the Company
      shall furnish to the undersigned (which may be satisfied by filing the same
      with
      the Securities and Exchange Commission) no later than such time as the Company
      is required to file quarterly reports pursuant to the Exchange Act, financial
      statements consisting of a balance sheet of the Company as of the end of such
      fiscal

     


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    


    quarter,
      together with the statements of income, stockholders’ equity and changes in
      financial condition for such fiscal quarter, and for the portion of the
      Company’s fiscal year ending with the last day of such quarter, setting forth in
      comparative form the figures for such period and figures for the corresponding
      periods of the previous fiscal year, all in reasonable detail, and prepared
      and
      certified by the chief executive officer or the chief financial officer of
      the
      Company as fairly presenting in all material respects the financial condition
      and results of operations as of the balance sheet date for the period then
      ended
      in accordance with generally accepted accounting principles consistently
      applied, excluding footnotes, subject to normal year-end adjustments which
      in
      the aggregate shall not be material.

     

    (c)    For
      each
      fiscal year, the Company shall furnish to the undersigned (which may be
      satisfied by filing the same with the Securities and Exchange Commission) no
      later than such time as the Company is required to file its annual report
      pursuant to the Exchange Act, financial statements consisting of a balance
      sheet
      of the Company as of the end of such fiscal year, together with the statements
      of income, stockholders’ equity and changes in financial condition for such
      fiscal year, setting forth in comparative form the figures for such fiscal
      year
      and for the previous fiscal year, all in reasonable detail and duly certified
      by
      an opinion of its firm of independent certified public accountants, and prepared
      and certified by the chief executive officer or the chief financial officer
      of
      the Company as fairly presenting in all material respects the financial
      condition and results of operations as of the balance sheet date for the year
      then ended in accordance with generally accepted accounting principles
      consistently applied. 

     

    (d)    Prior
      to
      the Closing, and to the extent the Company has not yet filed its quarterly
      report with the Securities and Exchange Commission pursuant to the Exchange
      Act
      for the quarter ended March 31, 2006, the Company shall provide to the
      undersigned financial statements consisting of a balance sheet of the Company
      as
      of the end of such fiscal quarter, together with the statements of income,
      stockholders’ equity and changes in financial condition for such fiscal quarter,
      and for the portion of the Company’s fiscal year ending with the last day of
      such quarter, setting forth in comparative form the figures for such period
      and
      figures for the corresponding periods of the previous fiscal year, all in
      reasonable detail, subject to normal year-end adjustments which in the aggregate
      shall not be material (the “Draft
      10-QSB”),
      subject to an agreement of confidentiality executed by the undersigned in a
      form
      acceptable to the Company and the undersigned.

     

    6.    Indemnification.
      

     

    (a)    General.
      The
      undersigned understands the meaning and legal consequences of the
      representations, warranties and agreements contained in this Agreement and
      the
      other Transaction Documents, including without limitation Section
      4
      hereof,
      and agrees to indemnify and hold harmless the Company and each officer,
      director, partner, employee, agent and controlling person of the Company, past,
      present or future, from and against any and all loss, damage or liability
      (collectively, “Losses”)
      due to
      or arising out of a breach of any such representation, warranty or agreement.
      The Company shall indemnify and hold harmless the undersigned and each officer,
      director,

     


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    


    partner,
      employee, agent and controlling person of the undersigned, past, present or
      future, from and against any and all Losses due to or arising out of a breach
      of
      any representation, warranty or agreement by the Company in this Agreement
      or
      any other Transaction Document.

     

    (b)    Limitation
      on Indemnification.
      The
      maximum amount payable by the undersigned, on the one hand, or the Company,
      on
      the other hand, to all indemnified parties in respect of claims made for
      indemnification under Section 6(a) shall not exceed, in the aggregate, the
      aggregate purchase price of 6% Notes paid by the undersigned in the
      Offering.

     

    (c)    Sole
      Remedy.
      The
      parties hereto agree and acknowledge that subsequent to the Closing, the
      indemnification rights provided in this Section
      6
      shall be
      the exclusive remedy of the each party hereto against each other party hereto
      for breaches of the representations and warranties contained in this Agreement
      except with respect to (i) claims involving fraud or (ii) any injunctive relief
      to which any party may be entitled.

     

    (d)    Notice.
      (a) A
      party
      which is entitled to indemnification under Section
      6
      (in such
      capacity, individually and collectively, an “Indemnified
      Party”)
      with
      respect to any Loss shall give written notice thereof to the party required
      to
      provide such indemnification hereunder (in such capacity, individually and
      collectively, an “Indemnifying
      Party”)
      promptly after receipt of any written claim by any third party and in any event
      not later than twenty (20) business days after receipt of any such written
      claim
      (or not later than ten (10) business days after the receipt of any such written
      claim in the event such written claim is in the form of a formal complaint
      filed
      with a court of competent jurisdiction and served on the Indemnified Party),
      specifying in reasonable detail the amount, nature and source of the claim,
      and
      including therewith copies of any notices or other documents received from
      third
      parties with respect to such claim; provided,
      however,
      that
      failure to give such notice shall not limit the right of an Indemnified Party
      to
      recover indemnity or reimbursement except to the extent that the Indemnifying
      Party suffers any prejudice or harm with respect to such claim as a result
      of
      such failure. The Indemnified Party shall also provide the Indemnifying Party
      with such further information concerning any such claims as the Indemnifying
      Party may reasonably request by written notice.

     

    (e)    Payment
      of Losses.
      Within
      thirty (30) calendar days after receiving notice of a claim for indemnification
      or reimbursement, the Indemnifying Party shall, by written notice to the
      Indemnified Party, either (i) concede or deny liability for the claim in whole
      or in part, or (ii) in the case of a claim asserted by a third party, advise
      that the matters set forth in the notice are, or will be, subject to contest
      or
      legal proceedings not yet finally resolved. If the Indemnifying Party concedes
      liability in whole or in part, it shall, within twenty (20) business days of
      such concession, pay the amount of the claim to the Indemnified Party to the
      extent of the liability conceded. Any such payment shall be made in immediately
      available funds equal to the amount of such claim so payable. If the
      Indemnifying Party denies liability in whole or in part or advises that the
      matters set forth in the notice are, or will be, subject to contest or
      legal

     


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    


    proceedings
      not yet finally resolved, then the Indemnifying Party shall make no payment
      (except for the amount of any conceded liability payable as set forth above)
      until the matter is resolved in accordance with this Agreement.

     

    (f)    Defense
      of Claims.
      In the
      case of any third party claim, if within 20 days after receiving the notice
      described in the preceding Section
      6(d),
      the
      Indemnifying Party or Parties (i) gives written notice to the Indemnified Party
      stating that the Indemnifying Party would be liable under the provisions hereof
      for indemnity in the amount of such claim if such claim were valid and that
      the
      Indemnifying Party disputes and intends to defend against such claim, liability
      or expense at the Indemnifying Party’s own cost and expense and (ii) provides
      assurance reasonably acceptable to such Indemnified Party that such
      indemnification will be paid fully and promptly if required and such Indemnified
      Party will not incur cost or expense during the proceeding, then the
      Indemnifying Party shall be entitled to assume the defense of such claim and
      to
      choose counsel for the defense (subject to the consent of such Indemnified
      Party
      which consent shall not be unreasonably withheld) and such Indemnified Party
      shall not be required to make any payment with respect to such claim, liability
      or expense as long as the Indemnifying Party is conducting a good faith and
      diligent defense at its own expense; provided, however, that the assumption
      of
      the defense of any such matters by the Indemnifying Party shall relate solely
      to
      the claim, liability or expense that is subject or potentially subject to
      indemnification. If the Indemnifying Party assumes such defense in accordance
      with the preceding sentence, it shall have the right to settle (provided that
      any such settlement which results in any adverse consequences to the Indemnified
      Party shall require the consent of such Indemnified Party, which consent shall
      not be unreasonably withheld) all indemnifiable matters related to claims by
      third parties which are susceptible to being settled provided the Indemnifying
      Party’s obligation to indemnify such Indemnified Party therefor will be fully
      satisfied by payment of money by the Indemnifying Party pursuant to a settlement
      which includes a complete release of such Indemnified Party. The Indemnified
      Party shall not settle any claim with respect to which the Indemnifying Party
      has assumed the defense, without the prior written consent of the Indemnifying
      Party. The Indemnifying Party shall keep such Indemnified Party apprised of
      the
      status of the claim, liability or expense and any resulting suit, proceeding
      or
      enforcement action, shall furnish such Indemnified Party with all documents
      and
      information that such Indemnified Party shall reasonably request and shall
      consult with such Indemnified Party prior to acting on major matters, including
      settlement discussions. Notwithstanding anything herein stated, such Indemnified
      Party shall at all times have the right to participate in, but not control,
      such
      defense at its own expense directly or through counsel; provided,
      however,
      if the
      named parties to the action or proceeding include both the Indemnifying Party
      and the Indemnified Party and representation of both parties by the same counsel
      would be inappropriate under applicable standards of professional conduct,
      the
      reasonable expense of separate counsel for such Indemnified Party shall be
      paid
      by the Indemnifying Party provided that such Indemnifying Party shall be
      obligated to pay for only one such counsel. If no such notice of intent to
      dispute and defend is given by the Indemnifying Party, or if such diligent
      good
      faith defense is not being or ceases to be conducted, such Indemnified Party
      may
      undertake the defense of (with counsel selected by such Indemnified Party and
      paid by the Indemnifying Party), and shall have the right to compromise or
      settle, such claim, liability or expense (exercising

     


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    


    reasonable
      business judgment) with the consent of the Indemnifying Party, which consent
      shall not be unreasonably withheld. Such Indemnified Party shall make available
      all information and assistance that the Indemnifying Party may reasonably
      request and shall cooperate with the Indemnifying Party in such
      defense.

     

    7.    Creation
      of Security Interest.

     

    (a)    Grant
      of Security Interest.
      The
      Company hereby grants and pledges to Southpaw Credit Opportunity Master Fund
      LP
      (the “Secured Party”) a continuing security interest in the Collateral (as
      defined in the Form of Note) in order to secure prompt payment of the principal
      sum and interest evidenced by the 6% Notes. Such security interest shall
      automatically terminate upon the (i) earlier of the payment of principal and
      interest on the 6% Notes and (ii) such time as notice of prepayment of the
      6%
      Notes pursuant to Section 2 of the 6% Notes is made and the Company designates
      sufficient funds (which may be proceeds from the sale of Collateral) for the
      prepayment thereof (the “Security Interest Termination Date”). 

     

    (b)    Designation
      of Secured Party as Agent.
      Each
      purchaser of 6% Notes, by its acceptance of the benefits of this Agreement
      and
      the Subject Securities, hereby irrevocably designates the Secured Party to
      act
      as Secured Party such purchaser’s behalf. The undersigned hereby irrevocably
      authorizes, and each holder of any Subject Securities, by such holder’s
      acceptance of such Subject Securities, shall be deemed irrevocably to authorize,
      the Secured Party to take such action on its behalf under the provisions of
      this
      Agreement and any other instruments and agreements referred to herein or therein
      and to exercise such powers and to perform such duties hereunder and thereunder
      as are specifically delegated to, or required of, the Secured Party by the
      terms
      hereof or thereof and such other powers as are reasonably incidental thereto.
      The undersigned, on behalf of itself and future holders of the Subject
      Securities issued to the undersigned, hereby authorizes and directs the Secured
      Party, from time to time in the Secured Party’s discretion, to take any action
      and promptly to execute and deliver on the undersigned’s behalf any document or
      instrument that the Company may reasonably request to effect, confirm or
      evidence the provisions of this Section
      7,
      the
      occurrence of the Security Interest Termination Date, any subordination
      agreement, or otherwise. Pursuant to Section 9-509(d) of the Uniform Commercial
      Code as in effect on the date hereof in the State of New York, the Secured
      Party
      hereby authorizes the Company to file a termination statement upon the
      occurrence of the Security Interest Termination Date; the Secured Party agrees
      to provide any further authorizations of such filing if requested by the
      Company.

     

    (c)    Delivery
      of Additional Documentation Required.
      The
      Company shall from time to time execute and deliver to Secured Party, at the
      request of Secured Party, all financing statements and other documents that
      Secured Party may reasonably request and take any action that Secured Party
      may
      reasonably request to perfect and continue perfected Secured Party’s security
      interests in the Collateral, it being understood and agreed by the Purchasers
      and the Secured Party that the Company need not deliver possession or control
      of
      any Collateral to the Secured Party or take any action to perfect the security
      interest granted hereby other than the filing of financing statements


     


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    


    under
      the
      Uniform Commercial Code. The
      Secured Party may, at any time and from time to time, file financing statements,
      continuation statements and amendments thereto that describe the
      Collateral
      as all
      assets of the Company or words of similar effect.

     

    8.    Transferability.
      Neither
      this Agreement, nor any interest of the undersigned herein, shall be assignable
      or transferable by the undersigned in whole or in part except by operation
      of
      law. Any attempt to assign or transfer this agreement or any interest therein
      other than by operation of law shall be void.

     

    9.    Confidentiality.
      The
      undersigned acknowledges and agrees that all information, written and oral,
      concerning the Company furnished from time to time to the undersigned,
      including, without limitation, the Memorandum, has been and is provided on
      a
      confidential basis pursuant to a confidentiality agreement between the
      undersigned and the Company.

     

    10.    Expenses.
      The
      Company shall pay, in connection with the preparation, execution and delivery
      of
      this Agreement, the other Transaction Documents and the consummation of the
      transactions contemplated hereby and thereby, all reasonable fees and out of
      pocket expenses of the undersigned up to an aggregate maximum of $50,000,
      whether or not the transactions contemplated by the Transaction Documents are
      consummated. 

     

    11.    Miscellaneous.

     

    (a)    This
      Agreement, including the exhibits hereto, sets forth the entire understanding
      of
      the parties with respect to the undersigned’s purchase of 6% Notes from the
      Company, supersedes all existing agreements among them concerning such subject
      matter, and may be modified only by a written instrument duly executed by the
      party to be charged.

     

    (b)    Except
      as
      otherwise specifically provided herein, any notice or other communication
      required or permitted to be given hereunder shall be in writing and shall be
      mailed by certified mail, return receipt requested, or by Federal Express,
      Express Mail or similar guaranteed overnight delivery or courier service or
      delivered in person against receipt to the party to whom it is to be
      given,

     

    
      	 	
              (i)

            	
              if
                to the Company, 

            


    

     

    Nephros,
      Inc.

    3960
      Broadway

    New
      York,
      New York 10032

    Attn:
      President

    


     

     


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    
      (ii)
        with
        a copy to,

       

    

    Kramer
      Levin Naftalis & Frankel LLP

    1177
      Avenue of the Americas

    New
      York,
      New York 10036

    Attention:
      Thomas D. Balliett, Esq.

     

     

    (ii)
      if
      to the undersigned, at the address set forth on the signature page
      hereof,

     

    or
      in
      either case, to such other address as the party shall have furnished in writing
      in accordance with the provisions of this Section
      11(b).
      Any
      notice given by means permitted by this Section
      11(b)
      shall be
      deemed given at the time of receipt thereof at the address specified in this
      Section
      11(b).

     

    (c)    This
      Agreement shall be binding upon and inure to the benefit of the parties hereto,
      the successors and assigns of the Company, and the permitted successors,
      assigns, heirs and personal representatives of the undersigned, not including,
      however, any transferees of the Subject Securities.

     

    (d)    The
      headings in this Agreement are solely for convenience of reference and shall
      be
      given no effect in the construction or interpretation of this
      Agreement.

     

    (e)    This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument.

     

    (f)    This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York, without giving effect to principles governing conflicts
      of
      law that would defer to the substantive law of another
      jurisdiction.

     

    (g)    In
      the
      event that any provision of this Agreement shall be determined to be illegal
      or
      unenforceable, that provision will be limited or eliminated to the minimum
      extent necessary so that this Agreement shall otherwise remain in full force
      and
      effect and enforceable.

     

    (h)    This
      Agreement does not create, and shall not be construed as creating, any rights
      enforceable by any person not a party to this Agreement.

     

    (i)    The
      parties hereto irrevocably consent to the jurisdiction of the courts of the
      State of New York and of any federal court located in such State in connection
      with any action or proceeding arising out of or relating to this Agreement,
      any
      document or instrument delivered pursuant to, in connection with or
      simultaneously with this Agreement, or a breach of this Agreement or any such
      document or instrument.

    


    [Signature
      page follows immediately]


    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    


    SIGNATURE
      PAGE

     

    IN
      WITNESS WHEREOF,
      the
      parties hereto have executed this Agreement as of the day and year this
      subscription has been accepted by the Company as set forth below.

     

    

      
        	
                 

                 

                Aggregate
                  principal amount of 6% Notes subscribed for (and purchase
                  price):

                 

                $_______________

                 

              	
                Print
                  Name of Subscriber:

                 

                _________________________________

                 

                _________________________________

                Social
                  Security Number or other Taxpayer ID Number

                 

                By:
                  ______________________________

                (Signature
                  of Subscriber or Authorized Signatory)

                Name:

                Title:

                 

                Address:
                  __________________________

                 

                __________________________

                 

                Telephone:_________________________

                 

                Fax:_______________________________

              
	 	 
	 	 
	
                If
                  the 6% Notes will be held as joint tenants, tenants in common,
                  or
                  community property, please complete the following:

                 

              
	 	
                
                  _________________________________

                

                Print
                  name of spouse or other co-subscriber

                 

                
                  _________________________________

                

                Signature
                  of spouse or other co-subscriber

                 

                _________________________________

                Social
                  Security Number or other Taxpayer ID Number

                 

                 

                Print
                  manner in which shares will be held

                 

              
	
                If
                  the 6% Notes have been purchased through a broker or other intermediary,
                  please identify such entity:    

              


      

      


            

    

     

    [Please
      complete Signature Page for each
      subscriber.]

     


    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    


    ACCEPTANCE
      OF SUBSCRIPTION

    


    


                                        _____________________________

                                        Name
      of
      Subscriber

    


    


    ACCEPTED
      BY:

    


    NEPHROS,
      INC.

     

    


     

    By:
      ____________________________

    Name:

    Title:

     

    Date:
      _______________________, 2006

    


    


    


    Accepted
      for $   
      principal amount of 6% Notes

    


    


    



    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    



    Schedule
      3(f)

    


    


    In
      connection with the offering, the Company may enter into an agreement with
      Dutton Associates (“Consultant”)
      pursuant to which Consultant will provide the Company with consulting services
      for the one year period commencing with the initial closing of the Offering,
      in
      exchange for monthly consulting fees equal to one two hundred fortieth (1/240)
      of the aggregate amount of subscriptions received by the Company from investors
      introduced to the Company by Consultant.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    



    EXHIBIT
      A

    (Form
      of
      Note)

    


    



    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    



    EXHIBIT
      B

    (Form
      of
      Registration Rights Agreement)

    


    



    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    



    EXHIBIT
      C

    ACCREDITED
      INVESTOR STATUS

     

    The
      subscriber represents that it is an Accredited Investor on the basis that it
      is
      (check all that apply): 

     

    _____(i)
      A bank as defined in Section 3(a)(2) of the Act, or a savings and loan
      association or other institution as defined in Section 3(a)(5)(A) of the Act,
      whether acting in its individual or fiduciary capacity; a broker dealer
      registered pursuant to Section 15 of the Securities Exchange Act of 1934; an
      insurance company as defined in Section 2(13) of the Act; an investment company
      registered under the Investment Company Act of 1940 (the “Investment
      Company Act”)
      or a
      business development company as defined in Section 2(a)(48) of the Investment
      Company Act; a Small Business Investment Company licensed by the U.S. Small
      Business Administration under Section 301(c) or (d) of the Small Business
      Investment Act of 1958; a plan established and maintained by a state, its
      political subdivisions or any agency or instrumentality of a state or its
      political subdivisions for the benefit of its employees, if such plan has total
      assets in excess of $5,000,000; an employee benefit plan within the meaning
      of
      the Employee Retirement Income Security Act of 1974 (“ERISA”),
      if
      the investment decision is made by a plan fiduciary, as defined in Section
      3(21)
      of ERISA, which is either a bank, savings and loan association, insurance
      company, or registered investment advisor, or if the employee benefit plan
      has
      total assets in excess of $5,000,000 or, if a self-directed plan, with
      investment decisions made solely by persons that are accredited
      investors.

     

    _____(ii)
      A private business development company as defined in Section 202(a)(22) of
      the
      Investment Advisers Act of 1940.

     

    _____(iii)
      An organization described in Section 501(c)(3) of the Internal Revenue Code,
      corporation, Massachusetts or similar business trust, or partnership, not formed
      for the specific purpose of acquiring the securities offered, with total assets
      in excess of $5,000,000.

     

    _____(iv)
      A director or executive officer of the Company.

     

    _____(v)
      A natural person whose individual net worth, or joint net worth with that
      person’s spouse, at the time of his or her purchase exceeds
      $1,000,000.

     

    _____(vi)
      A natural person who had an individual income in excess of $200,000 in each
      of
      the two most recent years or joint income with that person’s spouse in excess of
      $300,000 in each of those years and has a reasonable expectation of reaching
      the
      same income level in the current year.

     

    _____(vii)
      A trust, with total assets in excess of $5,000,000, not formed for the specific
      purpose of acquiring the securities offered, whose purchase is directed by
      a
      sophisticated person as described in Rule 506(b)(2)(ii) (i.e., a person who
      has
      such knowledge and experience in financial and business matters that he is
      capable of evaluating the merits and risks of the prospective
      investment).

     

    _____(viii)
      An entity in which all of the equity owners are accredited investors. (If this
      alternative is checked, the undersigned must identify each equity owner and
      provide statements signed by each demonstrating how each is qualified as an
      accredited investor. Further, the undersigned represents that it has made such
      investigation as is reasonably necessary in order to verify the accuracy of
      this
      alternative.)

    
 

    C-1