Exhibit 10.2


 


EMPLOYMENT
AGREEMENT


 


This EMPLOYMENT AGREEMENT
(this “Agreement”), made in River Edge, New Jersey as of the 20th day of April 2012 (the “Effective
Date”), between Nephros, Inc., a Delaware corporation having its executive offices and principal place of business at
41 Grand Avenue, River Edge, New Jersey 07661 (the “Company”), and John C. Houghton (“Executive”).


 


RECITALS


 


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


 


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


 


1.           Term.
The term of this Agreement shall be the period commencing on the Effective Date and ending on April 20, 2016 (the “Term”).


 


2.           Employment.


 


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


 


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


 


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


 



    	 



    	 



    

 


2.4           Directorship.
Subject to Executive meeting and maintaining the director eligibility requirements of the Board, the Company shall appoint
Executive as a director and thereafter include Executive in the management slate for election as a director at each stockholders
meeting during the Term at which his term as a director would otherwise expire. The Executive agrees to accept election, and to
serve during the Term, as director of the Company, without any compensation therefore other than as specified in this Agreement.


 


3.               Compensation
and Benefits.


 


3.1           Base
Salary. The Company agrees to pay to Executive a base salary (“Base Salary”) at the annual rate of $350,000,
payable in equal installments consistent with the Company’s payroll practices.


 


3.2           Performance
Bonus. The Company agrees to pay to Executive a target discretionary bonus of 30% of annual
Base Salary, as determined by the Company in its sole discretion. The bonus, if any, is subject to: (a) such objectives as may
be mutually determined by the Board and Executive from time to time; (b) the Company’s achievement of overall corporate targets
approved by the Board; and (c) the terms and conditions of any applicable incentive compensation plan then in effect for senior
executives of the Company. The targets with respect to the bonus for the period ending December 31, 2012 (the “Initial
Bonus Period”) shall be mutually agreed upon between the Executive and the Compensation Committee of the Board of Directors,
within sixty (60) days following the Effective Date and such bonus shall be prorated to reflect the Initial Bonus Period. The targets
with respect to the bonus for each annual period following the Initial Bonus Period shall be mutually agreed upon at the beginning
of each calendar year by the Executive and the Compensation Committee of the Board of Directors. Each bonus, if any, shall be paid
to the Executive not later than thirty (30) days after the issuance of the Company’s respective operating financial results
and in no event later than March 15 of the calendar year following the calendar year to which the bonus relates.


 


3.3           Grant
of Options and Terms Thereof. (a) Upon execution of this Agreement, the Company shall grant to Executive options to purchase
675,000 shares of the Company’s Common Stock (“Options”); and (b) subject to the approval by the stockholders
of a commensurate increase in shares authorized for issuance under the Plan, the Company shall grant to Executive 331,550 additional
Options no later than December 31, 2012, each such grant pursuant to the Company’s 2004 Stock Incentive Plan or successor
plans, if applicable, at the exercise price and subject to the vesting described in Schedule A (with credit for vesting
for the subsequently granted Options as if granted on the same date as the initial grant of Options).


 


3.4           Change
in Control. In the event of a Change in Control (as defined below), notwithstanding anything to
the contrary contained herein, all unvested Options shall vest and become exercisable immediately and, unless all such options
are cashed-out in the Change in Control transaction, shall remain exercisable for a period of not less than 360 days (or the expiration
of the Option term, if sooner), regardless of whether Executive’s employment is terminated in connection with such Change
in Control transaction. For purposes of this Agreement, “Change in Control” of the Company shall mean
the occurrence of any of the following events (i) any “person,” including a “group,” as such terms are
defined in sections 13(d) and 14(d) of the Securities Exchange Act of 1934 Act, as amended, and the rules promulgated thereunder,
becomes the beneficial owner, directly or indirectly, whether by purchase or acquisition or agreement to act in concert or otherwise,
of more than 50% of the outstanding shares of Common Stock, (ii) the complete liquidation of the Company, (iii) the sale of all
or substantially all of the assets of the Company, or (iv) a majority of the members of the Board are elected to the Board without
having previously been nominated and approved by a majority of the members of the Board incumbent on the day immediately preceding
such election. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred as a result of an underwritten
public offering of the Company’s Common Stock.


 



    	2



    	 



    

 


3.5           Benefits
and Perquisites. Executive shall be entitled to participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and perquisites, generally provided to the Company’s eligible
employees, to the extent his age, health and other qualifications make him eligible to participate. Executive shall be entitled
to receive four weeks of annual paid vacation in accordance with the Company’s vacation policy, with the timing and duration
of specific vacations mutually and reasonably agreed to by the parties hereto.


 


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


 


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


 


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


 


4.            Termination
of Employment.


 


4.1           Termination.
The Company may terminate Executive’s employment for Cause (as defined below), in which case the provisions of Section 4.2
of this Agreement shall apply. The Company may also terminate Executive’s employment in the event of Executive’s Disability
(as defined below), in which case the provisions of Section 4.4 of this Agreement shall apply. The Company may also terminate Executive’s
employment for any other reason or no reason by written notice to Executive, in which case the provisions of Section 4.5 of this
Agreement shall apply. If Executive’s employment is terminated by reason of Executive’s death, retirement or resignation,
the provisions of Section 4.3 of this Agreement shall apply. If Executive’s employment terminates for Good Reason (defined
below), the provisions of Section 4.5 shall apply.


 



    	3



    	 



    

 


4.2           Termination
for Cause. In the event that Executive’s employment hereunder is terminated during the Term by the Company for Cause
(as defined below), then the Company shall pay to Executive only the: (a) earned but unpaid Base Salary for services rendered through
the date of termination; and (b) any and all unvested Options shall automatically be cancelled and forfeited by Executive as of
the date of termination. Employee shall have the right to exercise any and all vested Options within the period commencing on the
date of termination and ending ninety days after the date of such termination (or the expiration of
the Option term, if sooner), except as otherwise provided in Section 3.4 hereof in the event of a Change in Control (the
“Options Exercise Period”). Any Options not exercised by Employee within the Options Exercise Period shall be
cancelled. In all other respects, all such Options shall be governed by the plans, programs, agreements, and other documents pursuant
to which such Options were granted. For purposes of this Agreement, “Cause” shall mean (i) an indictment, conviction,
or plea of nolo contendere to, any felony or a misdemeanor involving fraud or dishonesty (whether or not involving the Company);
(ii) engaging in any act which, in each case, subjects, or if generally known would subject, the Company to public ridicule or
embarrassment; (iii) gross neglect or material misconduct in the performance of Executive’s duties hereunder; or (iv) material
breach of any provision of this Agreement by Executive; provided, however, that with respect to clauses (iii) or (iv), Executive
shall have received written notice from the Company setting forth the alleged act or failure to act constituting “Cause”
hereunder and Executive shall not have cured such act or refusal to act within twenty (20) business days of his actual receipt
of notice.


 


4.3           Termination
by Reason of Death or Retirement or Resignation. In the event that Executive’s employment hereunder is terminated during
the Term (x) by reason of Executive’s death, or (y) by reason of Executive’s resignation or retirement (as to which
Executive shall give Company at least two (2) weeks notice), then the Company shall pay to Executive only the earned but unpaid
Base Salary for services rendered through the date of termination. Any and all unvested Options shall automatically be cancelled
and forfeited by Executive as of the date Executive’s resignation or retirement. In the event of Executive's death, any and
all unvested Options shall automatically be cancelled and forfeited. Employee or Employee’s estate shall have the right to
exercise any and all vested Options within the appropriate options exercise period, which shall be one (1) year after the date
of termination in the event of Executive's death or ninety (90) days after the date of termination in the event of Executive's
resignation or retirement (or, in each case, the expiration of the Option term, if sooner), except as
otherwise provided in Section 3.4 hereof in the event of a Change in Control. Any Options not exercised by Employee within
the Options Exercise Period shall be cancelled. In all other respects, all such Options shall be governed by the plans, programs,
agreements, and other documents pursuant to which such Options were granted.


 



    	4



    	 



    

 


4.4           Disability.
If, as a result of Executive’s incapacity due to physical or mental illness, the Company determines that Executive has failed
to perform Executive’s duties hereunder on a full time basis for either: (a) ninety (90) days within any three hundred sixty-five
(365) day period; or (b) sixty (60) consecutive days, the Company may terminate Executive’s employment hereunder for “Disability”.
In that event, the Company shall pay to Executive the earned but unpaid, Base Salary for services rendered through such date of
termination. Any and all unvested Options shall be cancelled as of the date of termination. During any period that Executive fails
to perform Executive’s duties hereunder as a result of incapacity due to physical or mental illness (a “Disability
Period”), Executive shall continue to receive the compensation and benefits provided by Section 3 of this Agreement
until Executive’s employment hereunder is terminated; provided, however, that the amount of compensation and benefits received
by Executive during the Disability Period shall be reduced by the aggregate amounts, if any, payable to Executive under disability
benefit plans and programs of the Company or under the Social Security disability insurance program. Additionally, the vesting
of Executive’s Options shall be tolled during the Disability Period and in the event of a termination of this Agreement
as a result of Executive’s Disability, any and all unvested Options shall automatically be cancelled and forfeited by Executive
as of the date of such termination. Executive (or as applicable, his spouse or estate) shall have the right to exercise any and
all vested Options within1 one (1) year after the date of termination (or the expiration
of the Option term, if sooner) . Any Options not exercised by Employee within such period shall be cancelled. In all other
respects, all such Options shall be governed by the plans, programs, agreements, and other documents pursuant to which such Options
were granted.


 


4.5           Termination
by Company for Any Other Reason, including a Change in Control or by Executive for Good Reason. In the event that Executive’s
employment hereunder is terminated by the Company prior to the expiration of the Term for any reason other than as provided in
Sections 4.2, 4.3 or 4.4 of this Agreement or by Executive for Good Reason any and, all unvested Options shall automatically be
cancelled and forfeited by Executive as of the date of such termination (except as provided by Section 3.4 with respect to a Change
in Control), vested Options shall remain exercisable for the Options Exercise Period and the Company shall pay to Executive:


 


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


 


(b)          continuing
payments of severance pay (less applicable withholding taxes) at a rate equal to his Base Salary rate, as then in effect, for a
period equal to the Maximum Severance Period (as defined below), (hereinafter the “Severance Term”), to be paid
periodically in accordance with the Company’s normal payroll policies; provided that if Executive continues to be
employed in any capacity by a successor entity following a Change in Control, the severance pay that would otherwise be payable
under this Section 4.5 shall be reduced by the amount of base compensation and guaranteed bonus (if any) Executive receives in
such capacity during or attributable to the Severance Term. Due to the release requirements set forth in Section 4.6 below, any
payment under this Section 4.5(b) scheduled to occur during the first sixty (60) days following the date of termination of employment
shall not be paid until the Company's next regular payroll date on or immediately following expiration of the seven (7) day release
revocation period required by Section 4.6, and shall include payment of any amount that was otherwise scheduled to be paid prior
to the sixtieth (60th) day after such termination.


 



    	5



    	 



    

 


“Good Reason”
means the occurrence of any of the following events without Executive’s consent, subject to notice and an opportunity to
cure: (i) a material reduction in Executive’s Base Salary; (ii) material diminution in Executive’s
title, duties, authorities or responsibilities (other than temporarily during a Disability Period or as required by applicable
law); (iii) relocation of Executive’s primary work location of more than 35 miles from the Company’s then current
work location (unless the relocation would result in a commute by Executive of 35 miles or less as compared to Executive’s
then current commute to his then current location); or (iv) the Company’s material breach of this
Agreement with respect to the making of any compensation payments to Executive. Executive
must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without Executive’s
consent within sixty (60) days of the occurrence of such event. The Company or any successor or Affiliate will have a period of
twenty (20) business days to cure such event or condition after receipt of written notice of such event from Executive. Any voluntary
Termination of Employment for “Good Reason” following such twenty (20) business day cure period must occur no later
than the date that is sixty (60) days following the initial occurrence of one of the foregoing events or conditions without Executive’s
written consent.


 


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


 


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


 


4.6           Release.
Except for any accrued obligations, the severance payments described in Section 4.5 will be provided to Employee only if the following
conditions are satisfied: (a) Executive agrees to continue to be bound by and complies with all surviving provisions of Sections
5, 6 and 7 of this Agreement; and (b) Employee has entered into, within sixty (60) days following the termination date, a full,
irrevocable general release, in a form acceptable to the Company and Executive (which form shall be provided by Company to Executive
no later than seven (7) days following the termination date), releasing all claims, known or unknown, that Employee may have against
the Company, and any subsidiary or related entity, their officers, directors, employees and agents, arising out of or any way related
to Employee’s employment or termination of employment with the Company.


 



    	6



    	 



    

 


4.7           Section
409A. Notwithstanding the foregoing, if necessary to comply with the restriction in Section 409A(a)(2)(B) of the Internal Revenue
Code of 1986, as amended (the “Code”) concerning payments to “specified employees,” any payment
on account of Executive’s separation from service that would otherwise be due hereunder within six months after such separation
shall nonetheless be delayed until the first business day of the seventh month following Executive’s date of termination
and the first such payment shall include the cumulative amount of any payments that would have been paid prior to such date if
not for such restriction, together with interest on such cumulative amount during the period of such restriction at a rate, per
annum, equal to the applicable federal short-term rate (compounded monthly) in effect under Section 1274(d) of the Code on the
date of termination. For purposes of this Agreement, Executive shall be a “specified employee” for the 12-month period
beginning on the first day of the fourth month following each “Identification Date” if he is a “key employee”
(as defined in Section 416(i) of the Code without regard to Section 416(i)(5) thereof) of the Company at any time during the 12-month
period ending on the “Identification Date.” For purposes of the foregoing, the Identification Date shall be December
31.


 


This Agreement is intended to comply with
the requirements of Section 409A of the Code and regulations promulgated thereunder (“Section 409A”), but the
Company does not guarantee such compliance. To the extent that any provision in this Agreement is ambiguous as to its compliance
with Section 409A, to the extent possible the provision shall be read in such a manner so that no payments due under this Agreement
shall be subject to an "additional tax" as defined in Section 409A(a)(1)(B) of the Code. For purposes of Section 409A,
each payment made under this Agreement shall be treated as a separate payment. In no event may Executive,
directly or indirectly, designate the calendar year of payment. Notwithstanding anything contained herein to the contrary,
in the event any payment on account of Executive’s separation from service constitutes nonqualified deferred compensation
subject to (and not exempt from Section 409A), Executive shall not be considered to have terminated employment with the Company
for purposes of the right to receive such payment hereof unless he would be considered to have incurred a “termination of
employment” from Employer within the meaning of Treasury Regulation §1.409A-1(h)(1)(ii). All reimbursements provided
under this Agreement shall be made or provided in accordance with the requirements of Section 409A, including, where applicable,
the requirement that (i) any reimbursement is for expenses incurred during Executive’s lifetime (or during a shorter period
of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect
the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made
on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement
is not subject to liquidation or exchange for another benefit..


 



    	7



    	 



    

 


5.             Exclusive
Employment; Noncompetition.


 


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


 


5.2          No
Competition.


 


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


 


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


 


(c)          The
Company shall have the option in its sole and absolute discretion, to extend the restrictions set forth in Section 5.2(a) for an
additional six months in return for a six-month extension of the Severance Term and any such extension shall extend the Post-Employment
Period accordingly.


 



    	8



    	 



    

 


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


 


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


 


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


 



    	9



    	 



    

 


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


 


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


 


6.             Inventions
and Proprietary Property.


 


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


 


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


 


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


 



    	10



    	 



    

 


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


 


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


 


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


 


6.5          Enforcement
of Proprietary Rights.


 


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


 



    	11



    	 



    

 


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


 


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


 


7.             Confidential
Information.


 


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


 



    	12



    	 



    

 


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


 


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


 


8.             Assignment
and Transfer.


 


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


 


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


 



    	13



    	 



    

 


9.             Miscellaneous.


 


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


 


9.2           Nondisclosure;
Other Employers. Executive represents and warrants that he has not taken or otherwise misappropriated and does not have in
his possession or control any confidential and proprietary information belonging to any of his prior employers or connected with
or derived from your service to prior employers. Executive represents and warrants that he has returned to all prior employers
any and all such confidential and proprietary information. Executive further acknowledges, represents and warrants that the Company
has informed Executive that Executive is not to use or cause the use of such confidential or proprietary information in any manner
whatsoever in connection with your employment by the Company. Executive agrees, represents and warrants that he will not use such
information in connection with his employment by the Company. Executive shall indemnify and hold harmless the Company from any
and all claims arising from any breach of the representations and warranties in this Section.


 


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


 


9.4           Indemnification.
The Company shall defend and indemnify the Executive in his capacity as President and CEO of the Company to the fullest extent
permitted by applicable law. The Company shall also establish a policy for indemnifying its officers and directors, including but
not limited to the Executive, for all actions or omissions permitted under applicable law taken in good faith pursuant of their
duties for the Company, including but not limited to the obtaining of an appropriate level of Directors and Officers Liability
coverage and including such provisions in the Company’s by-laws or certificate of incorporation, as applicable and customary.
The rights to indemnification shall survive any termination of this Agreement.


 


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


 



    	14



    	 



    

 


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


 


9.7          Arbitration.


 


(a)          If
any dispute arises between Executive and the Company that the parties cannot resolve themselves, including any dispute over the
application, validity, construction, or interpretation of this Agreement, arbitration in accordance with the then-applicable employment
law rules of the American Arbitration Association shall provide the exclusive remedy for resolving any such dispute, regardless
of its nature; provided, however, that the Company may enforce may enforce Executive’s obligation to provide services under
this Agreement and Executive’s obligations under Sections 5 through 7 of this Agreement by an action for injunctive relief
and damages in a court of competent jurisdiction at any time prior or subsequent to the commencement of an arbitration proceeding
as herein provided. This Section 9.6 shall apply to any and all claims arising out of Executive’s employment and its termination,
under state and federal statutes, local ordinances, and the common law including, without limitation Title VII of the Civil Rights
Act of 1964, as amended, the Civil Rights Act of 1991, the Equal Pay Act, the Employee Retirement Income Security Act, as amended,
the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act
of 1993, the Fair Labor Standards Act, the New Jersey Family Leave Act, the New Jersey Conscientious Employee Protection Act, the
New Jersey Civil Rights Act and the New Jersey Law Against Discrimination.


 


(b)          Executive
has read and understand this Section 9.7 which discusses arbitration. Executive understands that by signing this Agreement, Executive
agrees to submit any claims arising out of, relating to, or in connection with this Agreement, or the interpretation, validity,
construction, performance, breach or termination thereof, or Executive’s employment or the termination thereof, to binding
arbitration, and that this arbitration provision constitutes a waiver of Executive’s right to a jury trial and relates to
the resolution of all disputes relating to all aspects of the employer/employee relationship. Executive further understands that
other options such as federal and state administrative remedies and judicial remedies exist and know that by signing this Agreement
those remedies are forever precluded and that regardless of the nature of Executive’s complaint, Executive knows that it
can only be resolved by arbitration.


 


(c)          Unless
the parties agree otherwise, any arbitration shall be administered by and take place in the offices of the American Arbitration
Association in Bergen County, New Jersey. If that office is not available, then the arbitrator shall determine the location of
the arbitration within New Jersey.


 



    	15



    	 



    

 


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


 


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


 


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


 


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


 



    	16



    	 



    

 


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


 


9.13         Notices.
Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law shall be sufficient
if in writing, and if and when sent by certified or registered mail, return receipt requested, with postage prepaid, or by overnight
courier, to Executive’s residence, as reflected in the Company’s records with a copy that shall not constitute notice
to Julie L. Werner, Esq., Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, NJ 07068, or as otherwise designated by Executive,
or to the Company’s principal executive office, attention: Chairman of the Compensation Committee of the Board of Directors
with a copy (which shall not constitute notice) to: Michael T. Rave, Attorney at Law, Day Pitney LLP, One Jefferson Road, Parsippany,
NJ 07054-2891, as the case may be. All such notices, requests, consents and approvals shall be effective upon being deposited in
the United States mail. However, the time period in which a response thereto must be given shall commence to run from the date
of receipt on the return receipt of the notice, request, consent or approval by the addressee thereof. Rejection or other refusal
to accept, or the inability to deliver because of changed address of which no notice was given as provided herein, shall be deemed
to be receipt of the notice, request, consent or approval sent.


 


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


 


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


 


[Signature page follows]


 



    	17



    	 



    

 


IN WITNESS WHEREOF,
each of the parties hereto has duly executed this Agreement as of April 20, 2012, to be deemed effective as of the date first written
above.


 





	 	EMPLOYER
	 	 
	 	NEPHROS, INC.
	 	 
	 	By:	/s/ Gerald J. Kochanski
	 	Name: Gerald J. Kochanski
	 	Title:  Chief Financial Officer
	 	 
	 	EXECUTIVE
	 	 
	 	/s/ John C. Houghton
	 	John C. Houghton







  



    	18



    	 



    

 


SCHEDULE A


 


Options


 


	Options:	The Options shall vest in equal monthly installments over the Term commencing on the date of initial grant; provided that Executive remains employed by the Company at such time. The Options shall be exercisable at an exercise price equal to the Common Stock’s closing price on the OTC Bulletin Board on the date of grant.


 



    	19