Document:

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                                                                    Exhibit 10.2

                                  NEPHROS, INC.
                            2004 STOCK INCENTIVE PLAN

                                    Article 1
                Establishment, Purpose and Effective Date of Plan

     1.1 Establishment of the Plan. Nephros, Inc. (the "Company") hereby
establishes an incentive compensation plan to be known as the "Nephros, Inc.
2004 Stock Incentive Plan" (the "Plan"), as set forth in this document. The Plan
permits the grant of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and phantom stock units to Key Persons.
Subject to ratification by a majority of the shareholders of the Company, the
Plan shall become effective as of July 8, 2004 (the "Effective Date"), and shall
remain in effect as provided in Section 1.3. Awards may be granted under the
Plan on or after the Effective Date, but shall in no event be exercisable or
payable to a Participant prior to such stockholder approval and, if such
approval is not obtained within twelve months after the Effective Date, such
awards and the Plan shall be of no force and effect.

     1.2 Purpose of the Plan. The purpose of the Plan is to promote the success
of the Company by providing incentives to Key Persons that will link their
personal interests to the long-term financial success of the Company and to
growth in stockholder value. The Plan is intended to provide flexibility to the
Company in its ability to motivate, attract, and retain the services of Key
Persons upon whose judgment, interest and special effort the successful conduct
of its operations is largely dependent.

     1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as
defined in Section 1.1, and shall remain in effect, subject to earlier
termination in accordance with Article 9, until all Stock subject to it shall
have been purchased or acquired according to its provisions. However, in no
event may an Award be granted under the Plan on or after the tenth anniversary
of the Effective Date.

                                    Article 2
                          Definitions and Construction

     2.1 Definitions. Whenever used in the Plan with the initial letter of the
word capitalized, the following terms shall have the meanings set forth below,
unless a different meaning is clearly intended by the context.

     (a)  "Award" means, individually or collectively, a grant under the Plan of
          Incentive Stock Options, Nonqualified Stock Options, Stock
          Appreciation Rights, Restricted Stock, or Phantom Stock Units.

     (b)  "Board" or "Board of Directors" means the Board of Directors of the
          Company.

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     (c)  "Cause" has the meaning set forth in any employment, severance or
          other agreement governing the relationship between the relevant
          Participant and the Company in effect as of the date the event giving
          rise to Cause occurred. In the absence of such a provision, "Cause"
          means (i) any material violation by the Participant of the terms of
          any agreement between the Participant and the Company, including,
          without limitation, any employment or non-competition agreement, (ii)
          the Participant's conviction (including conviction on a nolo
          contendere plea) of any crime (whether or not involving the Company)
          that either constitutes a felony in the jurisdiction involved or, in
          the good faith judgment of the Company, involves fraud or dishonesty,
          (iii) conduct of the Participant related to the Participant's
          employment for which either criminal or civil penalties against the
          Participant or the Company may be sought or which is otherwise
          materially injurious to the Company, (iv) material violation of the
          Company's policies, including, without limitation, those relating to
          sexual harassment, the disclosure or misuse of confidential
          information, or those set forth in Company manuals or statements of
          policy, or (v) gross neglect or misconduct in the performance of the
          Participant's duties for the Company or the Participant's willful or
          repeated failure or refusal to perform such duties.

          Any rights the Company may have under the Plan resulting from events
          giving rise to Cause shall be in addition to the rights the Company
          may have under any other agreement with a Participant or at law or in
          equity. Any determination of whether a Participant's employment is (or
          is deemed to have been) terminated for Cause shall be made by the
          Committee in its sole discretion, which determination shall be final
          and binding on all parties. If, subsequent to a Participant's
          termination of employment (whether voluntary or involuntary) without
          Cause, it is discovered that the Participant's employment could have
          been terminated for Cause, such Participant's employment shall be
          deemed to have been terminated for Cause. A Participant's termination
          of employment for Cause shall be effective as of the date of the
          occurrence of the event giving rise to Cause, regardless of when the
          determination of Cause is made.

     (d)  "Change in Control" means 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 1934 Act 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
          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 Stock.

     (e)  "Code" means the Internal Revenue Code of 1986, as amended from time
          to time.

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     (f)  "Committee" means the committee appointed by the Board to administer
          the Plan pursuant to Section 3.1.

     (g)  "Company" means Nephros, Inc., a Delaware corporation, or any
          successor as provided in Section 10.7.

     (h)  "Disability" means a permanent and total disability as determined by
          the Committee in good faith, provided that with respect to an ISO, it
          shall mean a disability described in Sections 422(c)(6) of the Code.

     (i)  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     (j)  "Fair Market Value" of a Share on a specified date means the average
          of the bid and asked closing prices at which one Share is traded on
          the over-the-counter market on that date, as reported on the National
          Association of Securities Dealers Automated Quotation system
          ("NASDAQ"), or the closing price at which a Share is listed if listed
          as a national market security on NASDAQ or on a national securities
          exchange on which Shares are primarily traded; but if no Shares were
          traded on such date, then on the last previous date on which a Share
          was so traded, or, if none of the above is applicable, the value of a
          Share as established by the Committee for such date using any
          reasonable method of valuation.

     (k)  "Incentive Stock Option" or "ISO" means an Option granted under
          Article 6 which is designated an Incentive Stock Option and is
          intended to meet the requirements of Section 422(b) of the Code.

     (l)  "Key Person" means an employee or director of or consultant to the
          Company or one of its Subsidiaries, who, in the opinion of the
          Committee, can contribute to the growth and profitability of the
          Company. "Key Person" also may include those employees, directors or
          consultants identified by the Committee in connection with situations
          concerning extraordinary performance, promotion, retention, or
          recruitment. The granting of an Award under the Plan shall be deemed a
          determination by the Committee that such individual is a Key Person.

     (m)  "Nonqualified Stock Option" or "NSO" means an Option granted under
          Article 6 which is not an Incentive Stock Option.

     (n)  "Option" means an Incentive Stock Option or a Nonqualified Stock
          Option. Subject to the terms and conditions of the Plan and of the
          relevant Option agreement, the grant of an Option entitles a
          Participant to purchase a pre-established number of Shares at an
          exercise price established by the Committee.

     (o)  "Participant" means a Key Person who has been granted an Award under
          the Plan.

     (p)  "Period of Restriction" means the period or periods during which the
          transfer of Shares of Restricted Stock is restricted pursuant to
          Article 7.

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     (q)  "Phantom Stock Unit" shall mean the right, pursuant to Article 8, to
          receive from the Company, in the discretion of the Committee, a Share
          or a cash payment equal to the Fair Market Value of such Share as of a
          specified date in the future.

     (r)  "Plan" means the Nephros, Inc. 2004 Stock Incentive Plan, as described
          in this document.

     (s)  "Restricted Stock" means restricted Shares granted to a Participant
          pursuant to Article 7.

     (t)  "Stock" or "Shares" means the common stock of the Company.

     (u)  "Stock Appreciation Right" or "SAR" means the right, subject to the
          terms of the Plan and the applicable Award agreement, to receive from
          the Company, with respect to each Share subject to the SAR, an amount
          in cash or Shares equal to the excess of the Fair Market Value of a
          Share on the date of exercise of the SAR over the exercise price per
          Share of the SAR.

     (v)  "Subsidiary" means any corporation (other than the Company) in an
          unbroken chain of corporations beginning with the Company if, at the
          time of reference, each of the corporations, other than the last
          corporation in the unbroken chain, owns stock possessing 50 percent or
          more of the total combined voting power of all classes of stock in one
          of the other corporations in such chain.

     2.2 References in the Plan to a "termination of employment" or a
Participant "terminating employment" and the like shall mean the Participant (i)
ceasing to be employed by, or to provide consulting or other services to, the
Company or a Subsidiary or any corporation (or any of its subsidiaries) which
assumes the Participant's award in a transaction to which section 424(a) of the
Code applies, or (ii) ceasing to be a member of the Board of Directors. For
purposes of the foregoing, if a Participant continues in a relationship with the
Company or a Subsidiary as an employee, a consultant or a member of the Board of
Directors, the Participant shall not be considered to have terminated employment
until he or she severs all such relationships with the Company, even if the
nature of his or her relationship changes. The Committee shall determine whether
any leave of absence constitutes a termination of employment for purposes of the
Plan and the impact, if any, of any such leave of absence on Awards previously
granted under the Plan.

     2.3 Gender and Number. Except where otherwise indicated by the context, any
masculine term used in this document also shall include the feminine; and the
plural shall include the singular and the singular shall include the plural.

     2.4 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

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                                    Article 3
                                 Administration

     3.1 The Committee. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee")
consisting of not less than two directors who shall be appointed from time to
time by, and shall serve at the discretion of, the Board of Directors. It is
intended that when the Stock becomes publicly traded each member of the
Committee shall be a "non-employee director" for purposes of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act") and an "outside
director" for purposes of Code Section 162(m) and the regulations thereunder or
that the members of the Committee who do not qualify as both outside directors
and non-employee directors will recuse themselves at the appropriate time to
permit grants hereunder to satisfy the requirements of Code Section 162(m) and
Rule 16b-3. Notwithstanding the foregoing, the fact that the Committee is not
comprised solely of outside directors and non-employee directors and such
members do not recuse themselves, will not invalidate the grant of any Award or
any other action that otherwise satisfies the terms of the Plan. If the
Committee does not exist, or for any other reason determined by the Board, the
Board may take any action under the Plan that otherwise would be the
responsibility of the Committee.

     3.2 Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have full power to construe and interpret the Plan and the terms
of any Award; to correct any defect, supply any omission and reconcile any
inconsistency in the Plan; to establish, amend or waive rules and regulations
for its administration; to make all other determinations that may be necessary
or advisable for the administration of the Plan; to accelerate the
exercisability or vesting of any Award or the end of a Period of Restriction;
and, subject to the provisions of Article 9, to amend the terms and conditions
of any outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Notwithstanding the
foregoing, no action of the Committee may, without the consent of the person or
persons entitled to exercise any outstanding Option or to receive payment of any
other outstanding Award, adversely affect the rights of such person or persons.
Any amendment that is intended to preserve the status of an Option as an
Incentive Stock Option or otherwise to obtain favorable tax treatment for an
Award shall not be considered as adversely affecting the rights of any person.

     3.3 Selection of Participants. The Committee shall have the authority to
grant Awards under the Plan, from time to time, to such Key Persons as it may
select in its discretion, to determine the time or times of receipt, the types
of Awards, and the number of Shares covered by each of the Awards, and to
establish the terms, conditions and provisions of each such Award, including any
vesting and exercisability schedules, performance criteria and restrictions
applicable to the Award.

     3.4 Decisions Binding. All interpretations, determinations and decisions
made by the Committee pursuant to the provisions of the Plan shall be final,
conclusive and binding on all persons, including the Company, its Subsidiaries,
stockholders and employees, and the Participants and their estates and
beneficiaries.

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     3.5 Delegation of Certain Responsibilities. The Committee, in its sole
discretion, may delegate to appropriate officers of the Company the
administration of the Plan under this Article 3, provided that the Committee may
not delegate its authority to grant Awards or to correct errors, omissions or
inconsistencies in the Plan. All authority delegated by the Committee under this
Section 3.5 shall be exercised in accordance with the provisions of the Plan and
any guidelines for the exercise of such authority that may from time to time be
established by the Committee. Notwithstanding the foregoing or any other
provision of the Plan, the Committee or, pursuant to Section 3.1, the Board, may
delegate to one or more officers of the Company the authority to designate the
Key Persons (other than such officer(s)), who will receive Awards under the Plan
and the size and other terms of each such Award, to the fullest extent permitted
by (S)157 of the Delaware General Corporation Law (or any successor provision).

     3.6 Procedures of the Committee. All determinations of the Committee shall
be made by a majority of its members present at the meeting (in person or
otherwise) at which a quorum is present. A majority of the entire Committee
shall constitute a quorum for the transaction of business. Any action required
or permitted to be taken at a meeting of the Committee may be taken without a
meeting if a unanimous written consent, which sets forth the action, is signed
by each member of the Committee and filed with the minutes for proceedings of
the Committee. No member of the Committee shall be liable, in the absence of bad
faith, for any act or omission with respect to his or her services on the
Committee. Service on the Committee shall constitute service as a director of
the Company so that members of the Committee shall be entitled to
indemnification (as provided in Section 10.6), and limitation of liability and
reimbursement with respect to their services as members of the Committee to the
same extent as for services as directors of the Company.

     3.7 Award Agreements. Each Award under the Plan shall be evidenced by an
award agreement or certificate which shall be signed by an officer of the
Company and by the Participant, as applicable, and shall contain such terms and
conditions as may be approved by the Committee, which need not be the same in
all cases. Any Award agreement or certificate may be supplemented or amended in
writing from time to time as approved by the Committee, provided that the terms
of such agreements or certificates as amended or supplemented, as well as the
terms of the original award agreement, are not inconsistent with the provisions
of the Plan. An Option agreement or certificate shall specify whether the Option
is intended to be an Incentive Stock Option or a Nonqualified Stock Option. If
an Option agreement or certificate does not expressly provide that the Option is
an ISO, the Option will be an NSO. Any reference in this Plan to an Award
agreement or the like shall mean an Award agreement or certificate, as the case
may be.

     3.8 Form and Time of Elections. Unless otherwise specified in the Plan,
each election required or permitted to be made by any Participant or other
person entitled to benefits under the Plan, and any permitted modification or
revocation of such election, shall be in writing filed with the Committee at
such times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Committee shall require.

     3.9 Information to be Furnished to the Committee. The Company shall furnish
the Committee with such data and information as it determines may be required
for it to discharge its duties. The records of the Company as to an employee's
or Participant's employment,

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termination of employment, leave of absence, reemployment and compensation, and
comparable information related to directors and consultants, shall be conclusive
on all persons unless determined to be incorrect. Participants and other persons
entitled to benefits under the Plan must furnish the Committee such evidence,
data or information as the Committee considers desirable to carry out the terms
of the Plan.

                                    Article 4
                            Stock Subject to the Plan

     4.1 Source of Shares. The Shares with respect to which Awards may be made
under the Plan shall be Shares either (a) currently authorized but unissued, (b)
authorized and issued and held in the Company's treasury, or (c) acquired by the
Company for the purposes of the Plan.

     4.2 Limits on Awards. The maximum number of Shares that may be granted to
Participants and their beneficiaries under the Plan shall be as follows:

     (a)  Aggregate Plan Limit. The total number of Shares with respect to which
          Awards may be granted is 1,711,500 Shares. Such amount may be adjusted
          under paragraph (e) below. To the extent that a SAR or Phantom Stock
          Unit does not provide for the issuance of Shares, there is no limit on
          the number of shares with respect to which such SARs or Phantom Stock
          Units may be granted.

     (b)  Individual Limit. The total number of Shares with respect to which
          Awards may be granted to any Key Person during any one calendar year
          shall not exceed 1,707,146 Shares. Such limit may be adjusted under
          paragraph (e) below. Notwithstanding paragraph (d) below, Options
          granted and subsequently canceled or deemed to be canceled in a
          calendar year count against this individual limit for the year in
          which granted, even after their cancellation.

     (c)  ISO Limit. To the extent that the aggregate Fair Market Value
          (determined as of the time the Option is granted) of Shares with
          respect to which ISOs are first exercisable by any employee during any
          calendar year shall exceed $100,000, or such other amount as may be
          established from time to time under Section 422 of the Code, such
          Options shall be treated as Nonqualified Stock Options regardless of
          the terms of the Award.

     (d)  Shares Available Again. The following Shares shall again become
          available for Awards: (i) Shares that are subject to an Option or SAR
          that remain unissued upon the cancellation or termination of such
          Option for any reason, (ii) Shares covered by an Award are not
          delivered to a Participant or beneficiary for any reason, whether
          because the Award is settled in cash or otherwise, (iii) Shares
          previously acquired through option exercise that are surrendered to
          the Company as payment of the Option exercise price, and (iv) Shares
          of Restricted Stock that are forfeited and with respect to which the
          dividends paid on such Shares are also forfeited.

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     (e)  Adjustments in Authorized Shares. In the event of any merger,
          reorganization, split-up, spin-off, consolidation, recapitalization,
          separation, liquidation, extraordinary cash dividend, stock dividend,
          stock split, share combination, exchange of shares, or other change in
          the corporate structure of the Company affecting the Stock, the
          Committee, in its sole discretion, shall adjust the limits set forth
          in paragraphs (a) and (b) above with respect to the number and class
          of Shares, as applicable, which may be granted and delivered under the
          Plan.

     4.3 General Restrictions. Delivery of Shares or other amounts under the
Plan shall be subject to the following:

     (a)  Notwithstanding any other provision of the Plan, the Company shall
          have no liability to deliver any shares of Stock under the Plan or
          make any other distribution of benefits under the Plan unless such
          delivery or distribution would comply with all applicable laws
          (including, without limitation, the requirements of the Securities Act
          of 1933) and the applicable requirements of any securities exchange or
          similar entity.

     (b)  To the extent that the Plan provides for issuance of stock
          certificates to reflect the issuance of Shares, the issuance may be
          effected in the discretion of the Committee on a non-certificated
          basis, to the extent not prohibited by applicable law or the
          applicable rules of any stock exchange.

     4.4 Grant and Use of Awards. In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be granted to a Participant. Awards may be granted
as alternatives to or replacement of awards granted or outstanding under the
Plan, or any other plan or arrangement of the Company (including a plan or
arrangement of a business or entity, all or a portion of which is acquired by
the Company).

     4.5 Settlement and Payments. Awards may be settled through cash payments,
the delivery of Shares, the granting of replacement Awards, or any combination
of such methods, as the Committee shall determine. Any Award settlement may be
subject to such conditions, restrictions and contingencies as the Committee
shall determine.

                                    Article 5
                          Eligibility and Participation

     5.1 Eligibility. Any person who, in the opinion of the Committee, is a Key
Person is eligible to participate in this Plan, provided, however, that
Incentive Stock Options only may be granted to Key Persons who are employees.

     5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may from time to time select those Key Persons to whom Awards shall be
granted and determine the nature and amount of each Award. No individual, even
if previously designated a Key Person, shall have any right to be granted an
Award under this Plan.

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                                    Article 6
                   Stock Options and Stock Appreciation Rights

     6.1 Grant of Options. Subject to the terms and provisions of the Plan, the
Committee may grant Options to Key Persons at any time and from time to time,
subject to such terms and conditions as the Committee shall determine in its
sole discretion. Subject to Article 4, the Committee shall have complete
discretion in determining the number of Shares subject to Options granted to
each Participant.

     6.2 Grant of Stock Appreciation Rights; Types of Stock Appreciation Rights.
Subject to the terms and provisions of the Plan, the Committee may grant SARs to
such Key Persons, and in such amounts and subject to such vesting and forfeiture
provisions and such other terms and conditions, as the Committee shall determine
in its sole discretion. A SAR may provide for payment by the Company upon
exercise to be in cash or Shares (valued at their Fair Market Value on the date
of exercise of the SAR), as the Committee may determine in its sole discretion.
A SAR may be granted in connection with all or any part of, or independently of,
any Option granted under the Plan. A SAR granted in connection with a
Nonqualified Stock Option may be granted at or after the time of grant of such
Option. A SAR granted in connection with an Incentive Stock Option may be
granted only at the time of grant of such Option. Upon the exercise of a SAR
granted in connection with an Option, the number of Shares subject to the Option
shall be reduced by the number of Shares with respect to which the SAR is
exercised. Upon the exercise of an Option in connection with which a SAR has
been granted, the number of Shares subject to the SAR shall be reduced by the
number of Shares with respect to which the Option is exercised, provided that if
the number of Shares initially subject to the SAR is less than the number of
Shares initially subject to the Option, the number of Shares subject to the SAR
only shall be reduced to the extent that it causes the same number of Shares to
be subject to the Option and the SAR.

     6.3 Adjustment of Options and SARs. The Committee shall adjust the number
of Shares subject to an Option or SAR and the terms of such Option or SAR, as
follows:

     (a)  Increase or Decrease in Issued Shares Without Consideration. Subject
          to any required action by the stockholders of the Company, in the
          event of any increase or decrease in the number of issued Shares
          resulting from a subdivision or consolidation of Shares or the payment
          of a stock dividend (but only on the Shares), or any other increase or
          decrease in the number of such shares effected without receipt of
          consideration by the Company, the Committee shall proportionally
          adjust the number of Shares subject to each outstanding Option and SAR
          and the exercise price-per-Share of each such Option and SAR.

     (b)  Certain Mergers. Subject to any required action by the stockholders of
          the Company, in the event that the Company shall be the surviving
          corporation in any merger or consolidation (except a merger or
          consolidation as a result of which the holders of Shares receive
          securities of another corporation and/or other property, including
          cash), each Option and SAR outstanding on the date of such merger or
          consolidation shall pertain to and apply to the securities which a
          holder of the

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          number of Shares subject to such Option or SAR would have received in
          such merger or consolidation.

     (c)  Certain Other Transactions. In the event of (i) a dissolution or
          liquidation of the Company, (ii) a sale of all or substantially all of
          the Company's assets, (iii) a merger or consolidation involving the
          Company in which the Company is not the surviving corporation, or (iv)
          a merger or consolidation involving the Company in which the Company
          is the surviving corporation but the holders of Shares receive
          securities of another corporation and/or other property, including
          cash, the Committee, in its absolute discretion, shall have the power
          to:

          (A)  cancel, effective immediately prior to the occurrence of such
               event, each Option and SAR outstanding immediately prior to such
               event (whether or not then exercisable) and, in full
               consideration of such cancellation, pay to the Participant to
               whom such Option or SAR was granted an amount in cash, for each
               Share subject to such Option or SAR, equal to the excess of (i)
               the value, as determined by the Committee in its absolute
               discretion, of the property (including cash) received by the
               holder of a Share as a result of such event over (ii) the
               exercise price of such Option or SAR; or

          (B)  provide for the exchange of each Option and SAR outstanding
               immediately prior to such event (whether or not then exercisable)
               for an option or stock appreciation right, as appropriate, on
               some or all of the property which a holder of the number of
               Shares subject to such Option or SAR would have received in such
               transaction or on shares of the acquirer or surviving corporation
               and, incident thereto, make an equitable adjustment as determined
               by the Committee in its absolute discretion in the exercise price
               of the option or stock appreciation right, and/or the number of
               shares or amount of property subject to the option or stock
               appreciation right and/or, if appropriate, provide for a cash
               payment to the Participant to whom such Option or SAR was granted
               in partial consideration for the exchange of the Option or SAR.

     (d)  Other Changes. In the event of any change in the capitalization of the
          Company or corporate change, other than those specifically referred to
          in this Section 6.3, the Committee may, in its absolute discretion,
          make such adjustments in the number and class of Shares subject to
          Options and SARs outstanding on the date on which such change occurs
          and in the per-share exercise price of each such Option and SAR as the
          Committee may consider appropriate to prevent dilution or enlargement
          of rights. In addition, if and to the extent the Committee determines
          it is appropriate, the Committee may elect to cancel each Option or
          SAR outstanding immediately prior to such event (whether or not then
          exercisable), and, in full consideration of such cancellation, pay to
          the Participant to whom such Option or SAR was granted an amount in
          cash, for each Share subject to such Option or SAR, equal to the
          excess of (i) the Fair Market Value of each Share on the date of such
          cancellation over (ii) the exercise price of such Option or SAR.

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     6.4 Exercise Price. The exercise price-per-share of each Option and SAR
granted under this Article 6 shall be established by the Committee or shall be
determined by a method established by the Committee at the time that the Option
or SAR is granted, provided, however, that the exercise price-per-share of an
Incentive Stock Option shall not be less than the Fair Market Value of a Share
as of the date of grant, except as provided in Section 6.6 with respect to 10%
shareholders.

     6.5 Duration of Options and SARs. Each Option and SAR shall expire at such
time as the Committee shall determine at the time of grant; provided, however,
that no ISO shall be exercisable later than the tenth anniversary of the date of
its grant, except as provided in Section 6.6 with respect to 10% shareholders

     6.6 Special Rule for 10% Shareholders. An Incentive Stock Option granted to
an Employee who, at the time of grant, owns (within the meaning of Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, shall have an exercise price which
is at least 110% of the Fair Market Value of the Stock subject to the Option and
shall not be exercisable later than the fifth anniversary of the date of its
grant.

     6.7 Exercise of Options and SARs. Options and SARs granted under the Plan
shall be exercisable on such terms and conditions and during such periods as the
Committee shall in each instance establish, which need not be the same for all
Participants. In the event that the Committee, at the time of grant, does not
specify the period during which an Option or SAR will be exercisable, such
Option or SAR shall become exercisable with respect to 1/4 of the Shares subject
to such Option or SAR on each of the first four anniversaries of the date of
grant, provided that an SAR granted in connection with an Option may be
exercised only at such times and to the extent that the related Option may be
exercised. Notwithstanding the foregoing, unless the applicable Award agreement
otherwise provides, an Option or SAR shall become exercisable in full upon the
occurrence of a Change in Control. Unless the applicable Award agreement
otherwise provides, once a portion of an Option or SAR becomes exercisable, it
shall remain exercisable until the earlier of (i) the tenth anniversary of the
date of grant or (ii) the expiration, cancellation or termination of the Award.

     6.8 Payment of Option Exercise Price. Options shall be exercised by the
delivery of a written notice to the Company setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full payment
for the Shares, subject to the following:

     (a)  The full exercise price for Shares purchased upon the exercise of any
          Option shall be paid at the time of such exercise (except that payment
          pursuant to paragraph (c) shall be made as soon as practicable after
          exercise of the Option).

     (b)  The exercise price shall be payable in cash or, if permitted by the
          Committee, by tendering, by actual delivery of Shares or by
          attestation, Shares acceptable to the Committee in its discretion and
          valued at Fair Market Value as of the date of exercise, or in any
          combination of cash and Shares, as determined and permitted by the
          Committee.

                                      -11-

<PAGE>

     (c)  To the extent permitted by law, the Committee may, in its discretion,
          permit a Participant to elect to pay the exercise price by means of a
          brokered cashless exercise.

     As soon as practicable after receipt of written notification and payment,
the Company shall deliver to the Participant stock certificates issued in the
Participant's name with respect to the number of Shares purchased.

     6.9 Restrictions on Stock Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option or SAR
under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities law, the requirements of any
stock exchange upon which such Shares are then listed and any blue sky or state
securities laws applicable to such Shares.

     6.10 Termination of Employment. Unless the Committee determines otherwise,
if a Participant's employment with the Company or a Subsidiary terminates, any
outstanding Options and SARs that are not exercisable as of the date of
termination shall expire as of the termination of employment and shall be of no
further force or effect. The following provisions shall apply to Options and
SARs that were exercisable at the time the Participant's employment terminates:

     (a)  Death. If a Participant dies while employed by the Company or a
          Subsidiary, any outstanding Options and SARs, to the extent
          exercisable at the time of death, shall remain exercisable until the
          earlier of the expiration date of the Option or SAR and the first
          anniversary of the Participant's death. Any such Option or SAR may be
          exercised by the person or persons who acquire the Participant's
          rights under the Option or SAR by will or by the laws of descent and
          distribution.

     (b)  Disability. If a Participant's employment with the Company or a
          Subsidiary terminates by reason of Disability or if an employee of the
          Company or a Subsidiary is designated an inactive employee by reason
          of Disability, any outstanding Options and SARs, to the extent
          exercisable at the time of such termination or designation, shall
          remain exercisable until the earlier of the expiration date of the
          Option or SAR and the first anniversary of the Participant's
          termination or designation.

     (c)  Cause. If the employment of a Participant shall terminate for Cause,
          rights under all outstanding Options and SARs shall immediately expire
          as of the commencement of business of the effective date of the
          termination of employment and shall be of no further force or effect.

     (d)  Other Reasons. If a Participant's employment with the Company or a
          Subsidiary terminates for any reason other than death, Disability or
          for Cause, all outstanding Options and SARs, to the extent exercisable
          at the time of such termination, shall remain exercisable until the
          earlier of the expiration date of the Option or SAR and three months
          after such date of termination.

     6.11 Nontransferability of Options and SARs. Except as otherwise provided
by the Committee in the applicable Award agreement, no Option or SAR granted
under the Plan may be

                                      -12-

<PAGE>

sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Unless
otherwise determined by the Committee in accordance with the provisions of the
immediately preceding sentence, an Award may be exercised during the lifetime of
a Participant only by the Participant or, during the period that the Participant
is under a legal disability, by the Participant's guardian or legal
representative.

     6.12 Requirements of Law. Notwithstanding any other provision of the Plan,
the Committee may impose such conditions on exercise of an Option or SAR
(including without limitation the right of the Committee to limit the time of
exercise to specified periods) as may be necessary to satisfy the requirements
of Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934. An
Option or SAR may not be exercised if, in the determination of the Board of
Directors, such exercise would violate the Sarbanes-Oxley Act of 2002 or other
applicable law.

     6.13 Settlement in Cash. Upon the exercise of an Option by a Participant,
the Committee may in its discretion pay to the Participant in lieu of Shares, an
amount in cash equal to the excess of (a) the Fair Market Value at the time of
exercise of all or some of the number of Shares of Stock with respect to which
the Participant is exercising his or her Option, over (b) the total Exercise
Price for such Shares established by the Committee, reduced by (c) withholding
for all applicable taxes.

                                    Article 7
                                Restricted Stock

     7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Restricted
Stock to such Participants and in such amounts as it shall determine.

     7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock agreement that shall specify the Period of
Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine.

     7.3 Transferability. Except as provided in this Article 7, Shares of
Restricted Stock granted under the Plan may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the termination of the
applicable Period of Restriction or for such period of time as shall be
established by the Committee and specified in the Restricted Stock Agreement, or
upon earlier satisfaction of other conditions as specified by the Committee in
its sole discretion and set forth in the Restricted Stock Agreement. All rights
granted to a Participant with respect to the Restricted Stock during the Period
of Restriction shall be exercisable during his or her lifetime only by such
Participant.

     7.4 Other Restrictions. The Committee shall impose such other restrictions
on any Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions under applicable Federal
or state securities laws, and may legend the certificates representing
Restricted Stock to give appropriate notice of such restrictions.

                                      -13-

<PAGE>

     7.5 Issuance of Certificates; Shareholder Rights. Promptly after a
Participant accepts a restricted stock award, the Company or its exchange agent
shall issue to the Participant a stock certificate or stock certificates for the
shares of Restricted Stock covered by the Award or shall establish an account
evidencing ownership of the Shares in uncertificated form. The Participant shall
not be deemed for any purpose to be, or have rights as, a shareholder of the
Company by virtue of the grant of Restricted Stock, except to the extent a stock
certificate is issued or an account is established therefor pursuant to this
Section 7.5, and then only from the date such certificate is issued or such
account is established. Upon the issuance of such stock certificate(s), or
establishment of such account, the Participant shall have the rights of a
stockholder with respect to the Restricted Stock, including the right to vote
the shares, subject to (i) the nontransferability restrictions described in
Section 7.3 and the forfeiture provision described in Section 7.11, (ii) in the
Committee's discretion, a requirement that any dividends paid on such shares
shall be held in escrow until all restrictions on such shares have lapsed, and
(iii) any other restrictions and conditions contained in the applicable
Restricted Stock Agreement.

     7.6 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 7.4, each certificate representing Shares of Restricted
Stock granted pursuant to the Plan shall bear the following legend:

          "The sale or other transfer of the shares of stock represented by this
     certificate, whether voluntary, involuntary, or by operation of law, is
     subject to certain restrictions on transfer set forth in the Nephros, Inc.
     2004 Stock Incentive Plan, and in the rules and administrative procedures
     adopted pursuant to such Plan. A copy of the Plan, such rules and
     procedures may be obtained from the Secretary of Nephros, Inc."

     7.7 Custody of Stock Certificate(s). Unless the Committee shall otherwise
determine, any stock certificates issued evidencing Restricted Stock shall
remain in the possession of the Company or such other custodian as the Company
may designate until the end of the Period of Restriction.

     7.8 Removal of Restrictions. Except as otherwise provided in this Article
7, Shares of Restricted Stock shall become freely transferable by the
Participant after the last day of the applicable Period of Restriction. Unless
the applicable Restricted Stock agreement otherwise provides, Shares of
Restricted Stock shall become freely transferable by the Participant and
nonforfeitable upon the occurrence of a Change in Control. Once the Shares are
released from the restrictions, the Participant shall be entitled to have the
legend set forth in Section 7.6 removed from his or her Stock certificate.

     7.9 Dividends and Other Distributions. Unless the Committee specifies
deferred payment of cash dividends in the Restricted Stock Agreement, a
Participant holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares during the Period of Restriction. If any such dividends or
distributions are paid in Shares of Stock, such Shares shall be Restricted Stock
and shall be subject to the same restrictions on transferability as the Shares
of Restricted Stock with respect to which such dividends or distributions were
paid.

                                      -14-

<PAGE>

     7.10 Termination of Employment for Other Reasons. Except as otherwise
provided by the Committee in the applicable Award agreement, in the event that a
Participant terminates his or her employment with the Company during the Period
of Restriction for any reason, any Shares of Restricted Stock and the related
cash dividends still subject to restrictions as of the date of such termination
shall automatically be forfeited and returned to the Company; provided, however,
that the Committee, in its sole discretion, may waive the automatic forfeiture
of any or all such Shares and may add such new restrictions to such Shares of
Restricted Stock as it deems appropriate.

     7.11 Adjustment of Awards. In the event of a stock dividend, stock split,
share combination, exchange of shares or any other change in the corporate
structure of the Company affecting Restricted Stock, including but not limited
to the events described in section 6.3(a), the Committee in its sole discretion
may adjust the number or class of Shares subject to a Restricted Stock Award
which have not yet been issued, as may be determined to be appropriate and
equitable, to prevent dilution or enlargement of rights.

                                    Article 8
                               Phantom Stock Units

     8.1 Grant of Phantom Stock Units. Subject to the terms and provisions of
the Plan, the Committee may grant awards of Phantom Stock Units to such key
persons, in such amounts, and subject to such terms and conditions as the
Committee shall determine in its discretion. Phantom Stock Units may be awarded
independently of or in connection with any other award under the Plan.

     8.2 Vesting. At the time of grant, the Committee shall specify the date or
dates on which the Phantom Stock Units shall become vested and nonforfeitable,
and may specify such conditions to vesting as it deems appropriate. Unless the
applicable Award agreement otherwise provides, Phantom Stock Units shall become
vested and nonforfeitable upon the occurrence of a Change in Control.

     8.3 Transferability. Except as otherwise provided by the Committee in the
applicable Award agreement, Phantom Stock Units granted under the Plan may not
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
and all rights with respect to the Phantom Stock Units granted to a Participant
under the Plan shall be exercisable during his or her lifetime only by such
Participant.

     8.4 Termination of Employment. Except as otherwise provided by the
Committee in the applicable Award agreement, in the event of the Participant's
termination of employment for any reason, Phantom Stock Units that have not
become vested and nonforfeitable shall be forfeited and cancelled; provided,
however, that the Committee, in its sole discretion, may waive the automatic
forfeiture of any or all such Phantom Stock Units and may add such new
restrictions to such Phantom Stock Units as it deems appropriate.

     8.5 Distribution. At the time of grant, the Committee shall specify the
maturity date applicable to each grant of Phantom Stock Units, which may be
determined at the election of the Participant. Such date may be later than the
vesting date or dates of the Phantom Stock Units.

                                      -15-

<PAGE>

On the maturity date of a Phantom Stock Unit, the Company shall transfer to the
Participant one unrestricted, fully transferable share of Common Stock or an
amount in cash equal to the Fair Market Value of one unrestricted, fully
transferable share of Common Stock.

     8.6 Adjustment of Awards. In the event of a stock dividend, stock split,
share combination, exchange of shares or any other change in the corporate
structure of the Company affecting Phantom Stock Units, including but not
limited to the events described in section 6.3(a), the Committee in its sole
discretion may adjust the award of Phantom Stock Units, as may be determined to
be appropriate and equitable, to prevent dilution or enlargement of rights.

                                    Article 9
                    Amendment, Modification, and Termination

     9.1 Amendment, Modification, and Termination. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend, or
modify the Plan. However, the approval of the stockholders of the Company is
required for such action to the extent required under the rules of any stock
exchange on which Stock is traded or to comply with section 422 or 162(m) of the
Code, including, without limitation, any amendment that:

     (a)  increases the total number of Shares which may be issued under this
          Plan, either in the aggregate or to an individual, except as provided
          in Section 4.2(d) above;

     (b)  changes the class of employees eligible to participate in the Plan; or

     (c)  changes the provisions of the Plan regarding the exercise price of an
          Option.

     9.2 Awards Previously Granted. No termination, amendment or modification of
the Plan shall in any manner adversely affect the rights of a Participant (or
any person or persons to whom an Award is permissibly transferred pursuant to
the Plan) with respect to an Award theretofore granted under the Plan without
the written consent of the Participant (or such other person or persons). Any
amendment that is intended to preserve the status of an Option as an Incentive
Stock Option or otherwise to obtain favorable tax treatment for an Award shall
not be considered as adversely affecting the rights of any person.

                                   Article 10
                                  Miscellaneous

     10.1 Beneficiary Designation. A Participant, from time to time, may
designate in writing a beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his or her death. Each designation will revoke all prior designations
by such Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed with the Committee during the Participant's lifetime.
In the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.

     10.2 No Right to Awards. No employee or other person shall have a right to
receive an Award or, having received an Award, to receive any additional Awards.
Neither a Participant

                                      -16-

<PAGE>

nor any other person shall, by reason of participation in the Plan, acquire any
right in or title to any assets, funds or property of the Company whatsoever,
including, without limitation, any specific funds, assets, or other property
which the Company or any subsidiary, in its sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the Stock or amounts, if any, payable under the Plan,
unsecured by any assets of the Company, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company shall be sufficient to pay
any benefits to any person.

     10.3 No Guarantee of Employment. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any Participant's
employment or services as a consultant at any time, nor confer on any
Participant any right to continue in the employ of or to perform services for
the Company. Except as otherwise provided in the Plan, no Award under the Plan
shall confer on its holder any rights as a shareholder of the Company prior to
the date on which the individual fulfills all conditions for receipt of such
rights.

     10.4 Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any cash, Shares or other benefits under the Plan on satisfaction of
the applicable withholding obligations. The Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy Federal, State and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any grant, exercise, or payment made under or as a result of this Plan.

     10.5 Limitations Imposed by Section 162(m). (b) Nonqualified Deferred
Compensation. Notwithstanding any other provision hereunder, if and to the
extent that the Committee determines the Company's federal tax deduction in
respect of an award may be limited as a result of section 162(m) of the Code,
the Committee may take the following actions:

     (a)  With respect to Options, SARs or Phantom Stock Units, the Committee
          may delay the exercise or payment, as the case may be, in respect of
          such Options, SARs or Phantom Stock Units until a date that is within
          30 days after the date that compensation paid to the Participant no
          longer is subject to the deduction limitation under section 162(m) of
          the Code. In the event that a Participant exercises an Option or SAR,
          or the maturity date with respect to Phantom Stock Units occurs, at a
          time when the Participant is a 162(m) covered employee, and the
          Committee determines to delay the exercise or payment, as the case may
          be, in respect of any such Award, the Committee shall credit cash or,
          in the case of an amount payable in Stock, the Fair Market Value of
          the Stock, payable to the Participant to a book account. The
          Participant shall have no rights in respect of such book account and
          the amount credited thereto shall not be transferable by the
          Participant other than by will or laws of descent and distribution.
          The Committee may credit additional amounts to such book account as it
          may determine in its sole discretion. Any book account created
          hereunder shall represent only an unfunded, unsecured promise by the
          Company to pay the amount credited thereto to the Participant in the
          future.

                                      -17-

<PAGE>

     (b)  With respect to Restricted Stock, the Committee may require the
          Participant to surrender to the Committee any Award agreement and
          stock certificates with respect to such Restricted Stock, in order to
          cancel the Award of such Restricted Stock. In exchange for such
          cancellation, the Committee shall credit to a book account a cash
          amount equal to the Fair Market Value of the shares of Common Stock
          subject to such Award. The amount credited to the book account shall
          be paid to the Participant within 30 days after the date that
          compensation paid to the Participant no longer is subject to the
          deduction limitation under section 162(m) of the Code. The Participant
          shall have no rights in respect of such book account and the amount
          credited thereto shall not be transferable by the Participant other
          than by will or laws of descent and distribution. The Committee may
          credit additional amounts to such book account as it may determine in
          its sole discretion. Any book account created hereunder shall
          represent only an unfunded, unsecured promise by the Company to pay
          the amount credited thereto to the Participant in the future.

     10.6 Indemnification. Each person who is or shall have been a member of the
Committee or of the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by such person in connection with or resulting from any
claim, action, suit, or proceeding to which such person may be a party or in
which such person may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid by such person
in settlement thereof, with the Company's approval, or paid by such person in
satisfaction of any judgment in any such action, suit, or proceeding against
such person, provided such person shall give the Company an opportunity, at its
own expense, to handle and defend the same before such person undertakes to
handle and defend it on such person's own behalf. The foregoing right of
indemnification shall be in addition to any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.

     10.7 Successors. All obligations of the Company under the Plan with respect
to Awards, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.

     10.8 Requirements of Law. The granting of Awards and the issuance of Shares
of Stock under this Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.

     10.9 Governing Law. The Plan, and all agreements under the Plan, shall be
construed in accordance with and governed by the internal laws of the State of
Delaware, without reference to principles of conflict of laws.

                                      -18-<PAGE>

                                                                    Exhibit 10.3

                             SUBSCRIPTION AGREEMENT

          THIS SUBSCRIPTION AGREEMENT (the "Agreement") is made as of the date
set forth on the signature page hereof between Nephros, Inc., a Delaware
corporation (the "Company"), and the undersigned (the "Subscriber").

                              W I T N E S S E T H:

          WHEREAS, the Company desires to issue $5,500,000 of Series A
Convertible Preferred Stock, par value $.001 per share, of the Company (the
"Preferred Stock" and collectively with the common stock underlying the
Preferred Stock hereinafter sometimes collectively referred to as the
"Securities") in a private placement of the Company's securities (the
"Offering");

          WHEREAS, the Subscriber desires to purchase that number of shares of
Preferred Stock set forth on the signature page hereof on the terms and
conditions hereinafter set forth;

          NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:

I    SUBSCRIPTION FOR PREFERRED STOCK AND REPRESENTATIONS BY SUBSCRIBER

     1    Subject to the terms and conditions hereinafter set forth, the
          Subscriber hereby subscribes for and agrees to purchase from the
          Company such number of shares of Preferred Stock (the "Shares") as set
          forth upon the signature page hereof at a price equal to $1.25 per
          Share and the Company agrees to sell such Shares to the Subscriber for
          said purchase price. Upon drawdown by the Company in accordance with
          Article III of this Agreement, the purchase price attributable to such
          drawdown will be payable by personal or business check, wire transfer
          of immediately available funds or money order made payable to
          "Nephros, Inc." The certificates representing the Securities will be
          delivered by the Company to the Subscriber within ten (10) business
          days following the receipt of Subscriber's payment of the applicable
          drawdown amount.

     2    The Subscriber recognizes that the purchase of the Preferred Stock
          involves a high degree of risk in that, among other things, (i) the
          Company is a development stage business with no operating history and
          requires substantial funds in addition to the proceeds of the
          Offering; (ii) an investment in the Company is highly speculative, and
          only investors who can afford the loss of their entire investment
          should consider investing in the Company and the Preferred Stock;
          (iii) the Subscriber may not be able to liquidate the Subscriber's
          investment; (iv) transferability of the Securities is extremely
          limited and (v) in the event of a disposition, the Subscriber could
          sustain the loss of the Subscriber's entire investment.

     3    The Subscriber represents that the Subscriber is an "accredited
          investor," as such term is defined in Rule 501 of Regulation D
          promulgated under the Securities Act

<PAGE>

          of 1933, as amended (the "Act"), as indicated by his responses to the
          questions contained in Article VI hereof, and that the Subscriber is
          able to bear the economic risk of an investment in the Preferred
          Stock. The Subscriber covenants to notify the Company at any time
          prior to the second drawdown (as defined in Article 3) if it is no
          longer an "accredited investor."

     4    The Subscriber hereby acknowledges and represents that (i) the
          Subscriber has prior investment experience, including investment in
          non-listed and unregistered securities, or, to the extent necessary,
          the Subscriber has employed at its own expense and relied upon the
          services of an investment advisor, attorney and/or accountant to read
          all of the documents furnished or made available by the Company both
          to the Subscriber and to all other prospective investors in the
          Preferred Stock and to evaluate the investment, tax and legal merits
          and the consequences and risks of such an investment on the
          Subscriber's behalf; (ii) the Subscriber recognizes the highly
          speculative nature of this investment, and (iii) the Subscriber is
          able to bear the economic risk which the Subscriber hereby assumes.

     5    The Subscriber hereby acknowledges receipt and careful review of the
          Confidential Term Sheet dated July 15, 1997 and the attachments and
          exhibits thereto, all of which constitute an integral part thereof
          (the "Term Sheet"). The Subscriber further represents that it has been
          furnished by the Company during the course of this transaction with
          all information regarding the Company which the Subscriber has
          requested or desired to know, has been afforded the opportunity to ask
          questions of and receive answers from duly authorized officers or
          other representatives of the Company concerning the terms and
          conditions of the Offering and has received any additional information
          which the Subscriber has requested.

     6    (a) The Subscriber has relied solely upon the information provided by
          the Company in the Term Sheet in making the decision to invest in the
          Preferred Stock and the Subscriber covenants that no person other than
          the Company has supplied the Subscriber with any information relating
          to an investment in the Preferred Stock.

          (b) The Subscriber covenants that no Preferred Stock was offered or
          sold to it by means of any form of general solicitation or general
          advertising, and in connection therewith the Subscriber did not (A)
          receive or review any advertisement, article, notice or other
          communication published in a newspaper or magazine or similar media or
          broadcast over television or radio whether closed circuit or generally
          available, or (B) attend any seminar meeting or industry investor
          conference whose attendees were invited by any general solicitation or
          general advertising.

     7    The Subscriber agrees that the Subscriber will not sell or otherwise
          transfer the Securities unless they are registered under the Act or
          unless an exemption from

                                      - 2 -

<PAGE>

          such registration is available and until such Subscriber complies with
          the transfer restrictions set forth in herein.

     8    The Subscriber understands that the Securities have not been
          registered under the Act by reason of a claimed exemption under the
          provisions of the Act which depends, in part, upon the Subscriber's
          investment intention. In connection herewith, the Subscriber hereby
          represents that the Subscriber is purchasing the Securities for the
          Subscriber's own account for investment and not with a view toward the
          resale or distribution to others. The Subscriber, if an entity, was
          not formed for the purpose of purchasing the Securities. The
          Subscriber understands that Rule 144 promulgated under the Act
          requires, among other conditions, a one (1) year holding period prior
          to the resale (in limited amounts) of securities acquired in a
          non-public offering without having to satisfy the registration
          requirements under the Act.

     9    Other than as set forth in Article IV hereof, the Subscriber
          understands and hereby acknowledges that the Company is under no
          obligation to register the shares of common stock (the "Common Stock")
          underlying the Preferred Stock under the Act or any state securities
          or "blue sky" laws. The Subscriber consents that the Company may, if
          it desires, permit the transfer of the Securities out of the
          Subscriber's name only when the Subscriber's request for transfer is
          accompanied by an opinion of counsel reasonably satisfactory to the
          Company that neither the sale nor the proposed transfer results in a
          violation of the Act or any applicable state "blue sky" laws
          (collectively, the "Securities Laws").

     10   The Subscriber agrees to hold the Company and its directors, officers,
          employees, controlling persons and agents and each of their respective
          heirs, representatives, successors and assigns harmless and to
          indemnify them against all liabilities, costs and expenses incurred by
          them as a result of any misrepresentation made by the Subscriber
          contained in this Agreement (including the Confidential Investor
          Questionnaire contained in Article VI herein) or any sale or
          distribution by the Subscriber in violation of the Securities Laws.

     11   The Subscriber consents to the placement of a legend on any
          certificate, or other document evidencing the Securities, that such
          Securities have not been registered under the Securities Laws and
          setting forth or referring to the restrictions on transferability and
          sale thereof contained in this Agreement. The Subscriber is aware that
          the Company will make a notation in its appropriate records with
          respect to the restrictions on the transferability of such Securities.

     12   The Subscriber understands that the Company will review this Agreement
          and the Company is hereby given authority by the Subscriber to call
          the Subscriber's bank or place of employment or otherwise review the
          financial standing of the Subscriber; and it is further agreed that
          the Company reserves the unrestricted right, without further
          documentation or agreement on the part of the Subscriber, to reject
          all or a portion of any subscription, to accept subscriptions for
          lesser amounts than subscribed for and to close the Offering to the
          Subscriber at any

                                      - 3 -

<PAGE>

          time. In addition, the Subscriber understands and agrees that the
          during the Drawdown Period (as hereinafter defined), the Subscriber
          shall have no rights in or to purchase Securities and the Company, in
          its sole discretion, shall have the right to drawdown in whole or in
          part or to cancel any subscription.

     13   The Subscriber hereby represents that the address of the Subscriber
          furnished by the Subscriber on the signature page hereof is the
          Subscriber's principal residence if the Subscriber is an individual or
          its principal business address if it is a corporation or other entity.

     14   The Subscriber represents that the Subscriber has full power and
          authority (corporate, statutory and otherwise) to execute and deliver
          this Agreement and to purchase the Preferred Stock. This Agreement
          constitutes the legal, valid and binding obligation of the Subscriber,
          enforceable against the Subscriber in accordance with its terms.

     15   If the Subscriber is a corporation, company, trust, employee benefit
          plan, individual retirement account, Keogh Plan, or other tax-exempt
          entity, it is authorized and qualified to become an investor in the
          Company and the person signing this Agreement on behalf of such entity
          has been duly authorized by such entity to do so.

     16   The Subscriber acknowledges that if the Subscriber is a Registered
          Representative of a National Association of Securities Dealers, Inc.
          ("NASD") member firm, the Subscriber must give such firm the notice
          required by the Rules of Fair Practice promulgated by the NASD,
          receipt of which must be acknowledged by such firm in Article 6.4
          below.

II   REPRESENTATIONS BY AND COVENANTS OF THE COMPANY

     The Company hereby represents and warrants to the Subscriber that:

     1    Organization, Good Standing and Qualification. The Company is a
          corporation duly organized, validly existing and in good standing
          under the laws of the State of Delaware and has full corporate power
          and authority to conduct its business as described in the Term Sheet.

     2    Capitalization and Voting Rights. The authorized, issued and
          outstanding capital stock of the Company is as follows: 30,000,000
          authorized shares of Common Stock, of which 5,500,000 shares are
          currently issued and outstanding and 5,000,000 authorized shares of
          Preferred Stock of which none are currently issued or outstanding. All
          issued and outstanding shares of capital stock of the Company are
          validly issued, fully paid and nonassessable. The Preferred Stock has
          been duly and validly authorized and, when issued and paid for
          pursuant to this Agreement, will be validly issued, fully paid and
          nonassessable. Except as set forth in the Term Sheet, there are no
          outstanding options, warrants, agreements, convertible securities,
          preemptive rights or other rights to subscribe for or to purchase any
          shares of capital stock of the Company. Except as set forth in this

                                      - 4 -

<PAGE>

          Agreement and as otherwise required by law, there are no restrictions
          upon the voting or transfer of the Securities pursuant to the
          Company's Certificate of Incorporation, Bylaws or other governing
          documents or any agreement or other instruments to which the Company
          is a party or by which the Company is bound.

     3    Authorization; Enforceability. This Agreement has been duly and
          validly authorized by the Company and is enforceable against the
          Company in accordance with its terms, except as enforceability may be
          limited by applicable bankruptcy, insolvency, reorganization,
          moratorium or similar laws affecting the enforcement of creditors'
          rights generally and by general principles of equity (regardless of
          whether enforcement is sought in a proceeding in equity or at law).
          The Company has full power and lawful authority to authorize, issue
          and sell the Preferred Stock to be sold by it hereunder on the terns
          and conditions set forth herein.

     4    Reservation of Common Stock Issuable Upon Conversion. The Company
          shall at all times reserve and keep available out of its authorized
          but unissued shares of Common Stock, solely for the purpose of
          effecting the conversion of the shares of the Preferred Stock, such
          number of its shares of Common Stock as shall from time to time be
          sufficient to effect the conversion of all outstanding shares of the
          Preferred Stock and all shares of Preferred Stock that may be issued
          upon drawdown of subscriptions by the Company.

     5    Certificate of Designations of Series A Preferred Stock. The Series A
          Preferred Stock has the rights, preferences and privileges
          substantially as set forth in the Form of Certificate of Designations
          attached as Exhibit B to the Term Sheet with the conversion ratio as
          set forth therein.

     6    No Conflict; Governmental Consents.

          (a)  The execution and delivery by the Company of this Agreement and
               the consummation of the transactions contemplated hereby will not
               result in the violation of any law, statute, rule, regulation,
               order, writ, injunction, judgment or decree of any court or
               governmental authority to or by which the Company is bound, or of
               any provision of the Certificate of Incorporation or Bylaws of
               the Company, and will not conflict with, or result in a breach or
               violation of, any of the terms or provisions of, or constitute
               (with due notice or lapse of time or both) a default under, any
               lease, loan agreement, mortgage, security agreement, trust
               indenture or other agreement or instrument to which the Company
               is a party or by which it is bound or to which any of its
               properties or assets is subject, nor result in the creation or
               imposition of any lien upon any of the properties or assets of
               the Company.

          (b)  No consent, approval, authorization or other order of any
               governmental authority is required to be obtained by the Company
               in connection with the authorization, execution and delivery of
               this Agreement or with the

                                      - 5 -

<PAGE>

               authorization, issue and sale of the Securities, except such
               filings as may be required to be made with, the Securities and
               Exchange Commission (the "SEC"), any state or foreign "blue sky"
               or securities regulatory authority.

     7    Licenses. Except as set forth herein, the Company has sufficient
          licenses, permits and other governmental authorizations currently
          required for the conduct of its business or ownership of properties
          and is in all material respects complying therewith.

     8    Litigation. The Company knows of no pending or threatened legal or
          governmental proceedings against the Company which could materially
          adversely affect the business, property, financial condition or
          operations of the Company.

     9    Representations and Warranties Correct. The representations and
          warranties made by the Company in Article II hereof shall be true and
          correct in all material respects when made, and except for Article
          2.2, shall be true and correct in all material respects on the date of
          each drawdown with the same force and effect as if they had been made
          on and as of such date.

III  TERMS OF SUBSCRIPTION

     1    There will be no minimum commitment amount required for the closing of
          this Offering. Accordingly, the Company may drawdown on subscriptions,
          subject to Article 3.2, immediately following receipt of such
          subscriptions without regard to the aggregate number of shares of
          Preferred Stock subscribed for in the Offering.

     2    The Company shall be permitted to drawdown up to fifty percent (50%)
          of each investors subscription immediately upon acceptance by the
          Company of such subscription and shall be permitted to drawdown the
          remaining fifty percent (50%) of each investors subscription on or
          after the date which is one (1) year from the date of acceptance of
          subscriptions pursuant to this Offering. The Company shall send a
          notice (the "Drawdown Notice") to each Subscriber specifying the
          drawdown amount. The Subscriber shall be required to fund the amount
          specified in the Drawdown Notice within ten (10) business days of
          receipt by the Subscriber of such notice. Any amount of this
          subscription not drawn down upon shall expire on the date which is
          three (3) years from the date of this Agreement (the "Drawdown
          Period").

IV   REGISTRATION RIGHTS

     1    Registration Rights. The Company covenants and agrees as follows:

     2    Definitions. For purposes of this Article IV:

          (a)  The term "Act" means the Securities Act of 1933, as amended.

                                      - 6 -

<PAGE>

          (b)  The term "Holder" means any person owning or having the right to
               acquire Registrable Securities or any assignee thereof.

          (c)  The term "1934 Act" shall mean the Securities Exchange Act of
               1934, as amended.

          (d)  The terms "register", "registered" and "registration" refer to a
               registration effected by preparing and filing a registration
               statement or similar document in compliance with the Act, and the
               declaration or order of effectiveness of such registration
               statement or document.

          (e)  The term "Registrable Securities" shall mean (i) the shares of
               Common Stock issuable upon the conversion of the Preferred Stock,
               (ii) any shares of Common Stock issued as (or issuable upon the
               conversion or exercise of any warrant, right or other security
               which is issued as) a dividend or other distribution with respect
               to or in replacement of the Preferred Stock; provided, however,
               that securities shall only be treated as Registrable Securities
               if and only for so long as they (A) have not been disposed of
               pursuant to a registration statement declared effective by the
               Commission, (B) have not been sold in a transaction exempt from
               the registration and prospectus delivery requirements of the Act
               so that all transfer restrictions and restrictive legends with
               respect thereto are removed upon the consummation of such sale or
               (C) are held by a Holder or a permitted transferee of a Holder.

     3    "Piggy-back" Registration Rights. If (but without any obligation to do
          so), at any time after the initial public offering (the "IPO") of the
          Company's Common Stock, the Company proposes to register any of its
          stock or other equity securities under the Act in connection with the
          public offering of such securities solely for cash (other than a
          registration relating solely to the sale of securities to participants
          in a Company stock plan, a registration on any form which does not
          include substantially the same information as would be required to be
          included in a registration statement covering the sale of the
          Registrable Securities or a registration in which the only Common
          Stock being registered is Common Stock issuable upon conversion of
          debt securities which are also being registered), the Company shall,
          at such time, promptly give each Holder written notice of such
          registration. Upon the written request of each Holder given within ten
          (10) days after mailing of such notice by the Company in accordance
          with Article 4.1, the Company shall, on up to two (2) occasions and
          subject to the limitations set forth in this Agreement (including the
          provisions of Article 4.8), include in the Company's registration
          statement under the Act all of the Registrable Securities that each
          such Holder has requested to be registered; provided, however, that
          nothing in this Article 4.3 shall prevent the Company from at any time
          abandoning or delaying any such registration without obligation to any
          Holder.

                                      - 7 -

<PAGE>

     4    Obligations of the Company. Whenever required under this Article IV to
          include Registrable Securities in a Company registration statement,
          the Company shall, as expeditiously as reasonably possible:

          (a)  Use its reasonable best efforts to cause such registration
               statement to become effective, and, upon the request of the
               Holders of a majority of the Registrable Securities registered
               thereunder, keep such registration statement effective for a
               period of up to one hundred twenty (120) days or until the
               distribution contemplated in the Registration Statement has been
               completed; provided, however, that such 120-day period shall be
               extended for a period of time equal to the period that the Holder
               refrains from selling any securities included in such
               registration at the request of an underwriter of Common Stock (or
               other securities) of the Company, and provided further that if
               applicable rules under the Act governing the obligation to file a
               post-effective amendment permits, in lieu of filing a
               post-effective amendment which (x) includes any prospectus
               required by Section 10(a)(3) of the Act or (y) reflects facts or
               events representing a material or fundamental change in the
               information set forth in the registration statement, the Company
               may incorporate by reference information required to be included
               in (x) and (y) above to the extent such information is contained
               in periodic reports filed pursuant to Section 13 or 15(d) of the
               1934 Act in the registration statement.

          (b)  Prepare and file with the SEC such amendments and supplements to
               such registration statement, and the prospectus used in
               connection with such registration statement, as may be necessary
               to comply with the provisions of the Act with respect to the
               disposition of all securities covered by such registration
               statement.

          (c)  Furnish to the Holders such numbers of copies of a prospectus,
               including a preliminary prospectus, in conformity with the
               requirements of the Act, and such other documents as they may
               reasonably request in order to facilitate the disposition of
               Registrable Securities owned by them.

          (d)  Use its reasonable best efforts to register and qualify the
               securities covered by such registration statement under such
               other securities or Blue Sky laws of such jurisdictions as shall
               be reasonably requested by the Holders; provided that the Company
               shall not be required in connection therewith or as a condition
               thereto to qualify to do business or to file a general consent to
               service of process in any such states or jurisdictions, unless
               the Company is already subject to service in such jurisdiction
               and except as may be required by the Act.

          (e)  In the event of any underwritten public offering, enter into and
               perform its obligations under an underwriting agreement, in usual
               and customary form, with the managing underwriter of such
               offering. Each Holder

                                      - 8 -

<PAGE>

               participating in such underwriting shall also enter into and
               perform its obligations under such an agreement.

          (f)  Notify each Holder of Registrable Securities covered by such
               registration statement at any time when a prospectus relating
               thereto is required to be delivered under the Act of the
               happening of any event as a result of which the prospectus
               included in such registration statement, as then in effect,
               includes an untrue statement of a material fact or omits to state
               a material fact required to be stated therein or necessary to
               make the statements therein not misleading in the light of the
               circumstances then existing.

          (g)  Cause all such Registrable Securities registered hereunder to be
               listed on each securities exchange on which similar securities
               issued by the Company are then listed.

          (h)  Provide a transfer agent and registrar for all Registrable
               Securities registered pursuant hereunder and CUSIP number for all
               such Registrable Securities, in each case not later than the
               effective date of such registration.

     5    Furnish Information. It shall be a condition precedent to the
          obligation of the Company to take any action pursuant to this Article
          IV with respect to the Registrable Securities of any selling Holder
          that such Holder shall furnish to the Company such information
          regarding the Holder, the Registrable Securities held by the Holder,
          and the intended method of disposition of such securities as shall be
          required to effect the registration of such Holder's Registrable
          Securities.

     6    Expenses of Company Registration. The Company shall bear and pay all
          expenses incurred in connection with any registration, filing or
          qualification of Registrable Securities with respect to the
          registrations pursuant to Article 4.3 for each Holder, including
          (without limitation) all registration, filing, and qualification fees,
          printers and accounting fees relating or apportionable thereto, but
          excluding underwriting discounts and commissions relating to
          Registrable Securities; provided, however, that the Company shall not
          bear the cost of any professional fees or costs of accounting,
          financial or legal advisors to any of the Holders. Notwithstanding the
          foregoing, each Holder shall pay all registration expenses which such
          Holder is required to pay under applicable law.

     7    Underwriting Requirements. In connection with any offering involving
          an underwriting of shares of the Company's capital stock, the Company
          shall not be required under Article 4.3 to include any of the Holders'
          securities in such underwriting unless they accept the terms of the
          underwriting as agreed upon between the Company and the underwriters
          selected by it (or by other persons entitled to select the
          underwriters), and then only in such quantity as the underwriters
          determine in their sole discretion will not jeopardize the success of
          the offering by the Company. If the total amount of securities,
          including Registrable Securities, requested by stockholders to be
          included in such offering

                                      - 9 -

<PAGE>

          exceeds the amount of securities sold other than by the Company that
          the underwriters determine in their sole discretion is compatible with
          the success of the offering, then the Company shall be required to
          include in the offering only that number of such securities, including
          Registrable Securities, which the underwriters determine in their sole
          discretion will not jeopardize the success of the offering (the
          securities so included to be apportioned pro rata among the selling
          stockholders according to the total amount of securities entitled to
          be included therein owned by each selling stockholder or in such other
          proportions as shall mutually be agreed to by such selling
          stockholders). For purposes of the preceding parenthetical concerning
          apportionment, for any selling stockholder that is a holder of
          Registrable Securities and that is a partnership or corporation, the
          partners, retired partners and stockholders of such holder, or the
          estates and family members of any such partners and retired partners
          and any trusts for the benefit of any of the foregoing persons shall
          be deemed to be a single "selling stockholder", and any pro-rata
          reduction with respect to such "selling stockholder" shall be based
          upon the aggregate amount of shares carrying registration rights owned
          by all entities and individuals included in such "selling
          stockholder", as defined in this sentence.

     8    Delay of Registration. No Holder shall have any right to obtain or
          seek an injunction restraining or otherwise delaying any such
          registration as the result of any controversy that might arise with
          respect to the interpretation or implementation of this Article IV.

     9    Indemnification. In the event any Registrable Securities are included
          in a registration statement under this Article IV:

          (a)  To the extent permitted by law, the Company will indemnify and
               hold harmless each Holder, any underwriter (as defined in the
               Act) for such Holder and each person, if any, who controls such
               Holder or underwriter within the meaning of the Act or the 1934
               Act, against any losses, claims, damages, or liabilities (joint
               or several) to which they may become subject under the Act, or
               the 1934 Act, insofar as such losses, claims, damages, or
               liabilities (or actions in respect thereof) arise out of or are
               based upon any of the following statements, omissions or
               violations (collectively a "Violation"): (i) any untrue statement
               or alleged untrue statement of a material fact contained in such
               registration statement, including any preliminary prospectus or
               final prospectus contained therein or any amendments or
               supplements thereto, (ii) the omission or alleged omission to
               state therein a material fact required to be stated therein, or
               necessary to make the statements therein not misleading, or (iii)
               any violation or alleged violation by the Company of the Act, the
               1934 Act, or any rule or regulation promulgated under the Act, or
               the 1934 Act, and the Company will pay to each such Holder,
               underwriter or controlling person, as incurred, any legal or
               other expenses reasonably incurred by them in connection with
               investigating or defending any such loss, claim, damage,
               liability, or action; provided, however, that the indemnity
               agreement

                                     - 10 -

<PAGE>

               contained in this Article 4.9(a) shall not apply to amounts paid
               in settlement of any such loss, claim, damage, liability, or
               action if such settlement is effected without the consent of the
               Company (which consent shall not be unreasonably withheld), nor
               shall the Company be liable in any such case for any such loss,
               claim, damage, liability, or action to the extent that it arises
               out of or is based upon a Violation which occurs in reliance upon
               and in conformity with written information famished expressly for
               use in connection with such registration by any such Holder,
               underwriter or controlling person.

          (b)  To the extent permitted by law, each selling Holder will
               indemnify and hold harmless the Company, each of its directors,
               each of its officers who has signed the registration statement,
               each person, if any, who controls the Company within the meaning
               of the Act, any underwriter, any other Holder selling securities
               in such registration statement and any controlling person of any
               such underwriter or other Holder, against any losses, claims,
               damages, or liabilities (joint or several) to which any of the
               foregoing persons may become subject, under the Act, or the 1934
               Act, insofar as such losses, claims, damages, or liabilities (or
               actions in respect thereto) arise out of or are based upon any
               Violation, in each case to the extent (and only to the extent)
               that such Violation occurs in reliance upon and in conformity
               with written information furnished by such Holder expressly for
               use in connection with such registration; and each such Holder
               will pay, as incurred, any legal or other expenses reasonably
               incurred by any person intended to be indemnified pursuant to
               this Article 4.9(b), in connection with investigating or
               defending any such loss, claim, damage, liability, or action;
               provided, however, that the indemnity agreement contained in this
               Article 4.9(b) shall not apply to amounts paid in settlement of
               any such loss, claim, damage, liability or action if such
               settlement is effected without the consent of the Holder, which
               consent shall not be unreasonably withheld; provided, that, in no
               event shall any indemnity under this Article 4.9(b) exceed the
               gross proceeds from the offering received by such Holder.

          (c)  Promptly after receipt by an indemnified party under this Article
               4.9 of notice of the commencement of any action (including any
               governmental action), such indemnified party shall, if a claim in
               respect thereof is to be made against any indemnifying party
               under this Article 4.9, deliver to the indemnifying party a
               written notice of the commencement thereof and the indemnifying
               party shall have the right to participate in, and, to the extent
               the indemnifying party so desires, jointly with any other
               indemnifying party similarly notified, to assume the defense
               thereof with counsel selected by the indemnifying party and
               approved by the indemnified party (whose approval shall not be
               unreasonably withheld); provided, however, that an indemnified
               party (together with all other indemnified parties which may be
               represented without conflict by one counsel) shall have the right
               to retain one separate counsel, with the fees and expenses to be
               paid

                                     - 11 -

<PAGE>

               by the indemnifying party, if representation of such indemnified
               party by the counsel retained by the indemnifying party would be
               inappropriate due to actual or potential differing interests
               between such indemnified party and any other party represented by
               such counsel in such proceeding. The failure to deliver written
               notice to the indemnifying party within a reasonable time of the
               commencement of any such action, if prejudicial to its ability to
               defend such action, shall relieve such indemnifying party of any
               liability to the indemnified party under this Article 4.9, but
               the omission so to deliver written notice to the indemnifying
               party will not relieve it of any liability that it may have to
               any indemnified party otherwise than under this Article 4.9.

          (d)  If the indemnification provided for in this Article 4.9 is held
               by a court of competent jurisdiction to be unavailable to an
               indemnified party with respect to any loss, liability, claim,
               damage, or expense referred to therein, then the indemnifying
               party, in lieu of indemnifying such indemnified party hereunder,
               shall contribute to the amount paid or payable by such
               indemnified party as a result of such loss, liability, claim,
               damage, or expense in such proportion as is appropriate to
               reflect the relative fault of the indemnifying party on the one
               hand and of the indemnified party on the other in connection with
               the statements or omissions that resulted in such loss,
               liability, claim, damage, or expense as well as any other
               relevant equitable considerations. The relative fault of the
               indemnifying party and of the indemnified party shall be
               determined by reference to, among other things, whether the
               untrue or alleged untrue statement of a material fact or the
               omission to state a material fact relates to information supplied
               by the indemnifying party or by the indemnified party and the
               parties' relative intent, knowledge, access to information, and
               opportunity to correct or prevent such statement or omission.

          (e)  Notwithstanding the foregoing, to the extent that the provisions
               on indemnification and contribution contained in the underwriting
               agreement entered into in connection with the underwritten public
               offering are in conflict with the foregoing provisions, the
               provisions in the underwriting agreement shall control.

          (f)  The obligations of the Company and Holders under this Article 4.9
               shall survive the completion of any offering of Registrable
               Securities in a registration statement under this Article IV, and
               otherwise.

     10   Reports Under Securities Exchange Act of 1934. With a view to making
          available to the Holders the benefits of Rule 144 promulgated under
          the Act and any other rule or regulation of the SEC that may at any
          time permit a Holder to sell securities of the Company to the public
          without registration or pursuant to a registration on Form S-3, the
          Company agrees to:

                                     - 12 -

<PAGE>

          (a)  make and keep public information available, as those terms are
               understood and defined in SEC Rule 144, at all times after ninety
               (90) days after the effective date of the registration statement
               filed in connection with an IPO by the Company;

          (b)  file with the SEC in a timely manner all reports and other
               documents required of the Company under the Act and the 1934 Act;
               and

          (c)  furnish to any Holder, so long as the Holder owns any Registrable
               Securities, forthwith upon request (i) a copy of the most recent
               annual or quarterly report of the Company and such other reports
               and documents so filed by the Company, and (ii) such other
               information as may be reasonably requested in availing any Holder
               of any rule or regulation of the SEC which permits the selling of
               any such securities without registration or pursuant to such
               form.

     11   Lock-Up Provision. In connection with the IPO, the Holder hereby
          agrees to be subject to a lock-up for a period of one hundred eighty
          (180) days following the IPO or such longer period as may be required
          by the underwriter or underwriters of such IPO. In connection with any
          subsequent public offering of the Company's securities, the Holder
          hereby agrees to be subject to a lock-up for a period of sixty (60)
          days or such longer period following such public offering as required
          by the underwriter or underwriters of such public offering. During
          such periods, the Holder agrees not to directly or indirectly sell,
          offer to sell, contract to sell, including, without limitation,
          "short" or "short against the box" (as those terms are generally
          understood), grant any option to purchase or otherwise transfer or
          dispose of (other than to donees who agree to be similarly bound) any
          securities of the Company held by it at any time during such period.
          This Article 4.11 shall be binding upon any transferee of the
          Securities.

          In order to enforce the foregoing covenant, the Company may impose
          stock-transfer instructions with respect to the Registrable Securities
          of each Holder (and the shares or securities of every other person
          subject to the foregoing restriction) until the end of such period.

          Notwithstanding the foregoing, the obligation described in this
          Article 4.11 shall not apply to a registration relating solely to
          employee benefit plans on Form S-1 or Form S-8 or similar forms which
          may be promulgated in the future, or a registration relating solely to
          a Commission Rule 145 transaction on Form S-4 or similar forms which
          may be promulgated in the future.

     12   Termination of Registration Rights. In addition, the right of any
          Holder to request inclusion in any registration pursuant to Article
          4.3 shall terminate if all shares of Registrable Securities held by
          such Holder may immediately be sold under Rule 144 or Rule 701 during
          any 90-day period; provided, however, that the provisions of this
          Article 4.12 shall not apply to any Holder who owns more than two
          percent

                                     - 13 -

<PAGE>

          (2%) of the Company's outstanding stock until such time as such Holder
          owns less than two percent (2%) of the outstanding stock of the
          Company.

V    MISCELLANEOUS

     1    Any notice or other communication given hereunder shall be deemed
          sufficient if in writing and sent by (a) telecopy or facsimile at the
          address or number designated below (if delivered on a business day
          during normal business hours where such notice is to be received); or
          (b) registered or certified mail, return receipt requested, or
          delivered by hand against written receipt therefor, addressed to
          Nephros, Inc., c/o 787 Seventh Avenue, New York, New York, 10019,
          Attn: Michael S. Weiss, or such other office designated by the
          Corporation, and to the Subscriber at his address indicated on the
          signature page of this Agreement. Notices shall be deemed to have been
          given or delivered on the date of mailing, except notices of change of
          address, which shall be deemed to have been given or delivered when
          received.

     2    This Agreement shall not be changed, modified or amended except by a
          writing signed by the parties to be charged, and this Agreement may
          not be discharged except by performance in accordance with its terms
          or by a writing signed by the party to be charged.

     3    This Agreement shall be binding upon and inure to the benefit of the
          parties hereto and to their respective heirs, legal representatives,
          successors and assigns. This Agreement sets forth the entire agreement
          and understanding between the parties as to the subject matter hereof
          and merges and supersedes all prior discussions, agreements and
          understandings of any and every nature among them.

     4    Upon the execution and delivery of this Agreement by the Subscriber,
          this Agreement shall become a binding obligation of the Subscriber
          with respect to the purchase of Preferred Stock as herein provided;
          subject, however, to the right hereby reserved to the Company to
          reject or decrease any subscription, enter into the same agreements
          with other subscribers and to add and/or delete other Persons as
          subscribers.

     5    NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
          OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS
          AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND
          GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
          PRINCIPLES OF CONFLICTS OF LAW.

     6    In order to discourage frivolous claims, the parties agree that unless
          a claimant in any proceeding arising out of this Agreement succeeds in
          establishing his claim and recovering a judgment against another party
          (regardless of whether such claimant succeeds against one of the other
          parties to the action), then the other party shall be entitled to
          recover from such claimant all of its/their reasonable

                                     - 14 -

<PAGE>

          legal costs and expenses relating to such proceeding and/or incurred
          in preparation therefor.

     7    The holding of any provision of this Agreement to be invalid or
          unenforceable by a court of competent jurisdiction shall not affect
          any other provision of this Agreement, which shall remain in full
          force and effect. If any provision of this Agreement shall be declared
          by a court of competent jurisdiction to be invalid, illegal or
          incapable of being enforced in whole or in part, such provision shall
          be interpreted so as to remain enforceable to the maximum extent
          permissible consistent with applicable law and the remaining
          conditions and provisions or portions thereof shall nevertheless
          remain in full force and effect and enforceable to the extent they are
          valid, legal and enforceable, and no provisions shall be deemed
          dependent upon any other covenant or provision unless so expressed
          herein.

     8    It is agreed that a waiver by either party of a breach of any
          provision of this Agreement shall not operate, or be construed, as a
          waiver of any subsequent breach by that same party.

     9    The parties agree to execute and deliver all such further documents,
          agreements and instruments and take such other and further action as
          may be necessary or appropriate to carry out the purposes and intent
          of this Agreement.

     10   This Agreement may be executed in two or more counterparts each of
          which shall be deemed an original, but all of which shall together
          constitute one and the same instrument.

     11   (a) The Subscriber agrees not to issue any public statement with
          respect to the Subscriber's investment or proposed investment in the
          Company or the terms of any agreement or covenant between it and the
          Company without the Company's prior written consent, except such
          disclosures as may be required under applicable law or under any
          applicable order, rule or regulation.

          (b) The Company agrees not to disclose the names, addresses or any
          other information about the Subscribers, except as required by law;
          provided, that the Company may use the name (but not the address) of
          the Subscriber in registration materials filed with the SEC.

     12   The Subscriber represents and warrants that it has not engaged,
          consented to or authorized any broker, finder or intermediary to act
          on its behalf, directly or indirectly, as a broker, finder or
          intermediary in connection with the transactions contemplated by this
          Agreement. The Subscriber hereby agrees to indemnify and hold harmless
          the Company from and against all fees, commissions or other payments
          owing to any such person or firm acting on behalf of the Subscriber
          hereunder.

                                     - 15 -

<PAGE>

     13   Nothing in this Agreement shall create or be deemed to create any
          rights in any Person not a party to this Agreement, except for the
          holders of Registrable Securities.

VI   CONFIDENTIAL INVESTOR QUESTIONNAIRE

          6.1 The Subscriber represents and warrants that the Subscriber comes
within one category marked below, and that for any category marked, the
Subscriber has truthfully set forth, where applicable, the factual basis or
reason the Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO
THIS Article WILL BE KEPT STRICTLY CONFIDENTIAL. The Subscriber agrees to
furnish any additional information which the Company deems necessary in order to
verify the answers set forth below.

Category A |_|   The Subscriber is an individual (not a partnership,
                 corporation, etc.) whose individual net worth, or joint net
                 worth with his or her spouse, presently exceeds $1,000,000.

                      Explanation. In calculating net worth you may include
                      equity in personal property and real estate, including
                      your principal residence, cash, short-term investments,
                      stock and securities. Equity in personal property and real
                      estate should be based on the fair market value of such
                      property less debt secured by such property.

Category B |_|   The Subscriber is an individual (not a partnership,
                 corporation, etc.) who had an income in excess of $200,000 in
                 each of the two most recent years, or joint income with his or
                 her spouse in excess of $300,000 in each of those years (in
                 each case including foreign income, tax exempt income and full
                 amount of capital gains and losses but excluding any income of
                 other family members and any unrealized capital appreciation)
                 and has a reasonable expectation of reaching the same income
                 level in the current year.

Category C |_|   The Subscriber is a director or executive officer of the
                 Company which is issuing and selling the Preferred Stock.

                                     - 16 -

<PAGE>

Category D |_|   The Subscriber is a bank; a savings and loan association,
                 insurance company, registered investment company; registered
                 business development company; licensed small business
                 investment company ("SBIC"); or employee benefit plan within
                 the meaning of Title 1 of ERISA and (a) the investment decision
                 is made by a plan fiduciary which is either a bank, savings and
                 loan association, insurance company or registered investment
                 advisor, or (b) the plan has total assets in excess of
                 $5,000,000 or is a self directed plan with investment decisions
                 made solely by persons that are accredited investors.

                           --------------------------

                           --------------------------
                                (describe entity)

Category E |_|   The Subscriber is a private business development company as
                 defined in Article 202(a)(22) of the Investment Advisors Act of
                 1940.

                           --------------------------

                           --------------------------
                                (describe entity)

Category F |_|   The Subscriber is a corporation, partnership, Massachusetts
                 business trust, or a non-profit organization within the meaning
                 of Article 501(c)(3) of the Internal Revenue Code, in each case
                 not formed for the specific purpose of acquiring the Preferred
                 Stock and with total assets in excess of $5,000,000.

                           --------------------------

                           --------------------------
                                (describe entity)

Category G |_|   The Subscriber is a trust with total assets in excess of
                 $5,000,000, not formed for the specific purpose of acquiring
                 the Preferred Stock, where the purchase is directed by a
                 "sophisticated person" as defined in Regulation 506(b)(2)(ii).

                                     - 17 -

<PAGE>

Category H |_|   The Subscriber is an entity all the equity owners of which are
                 "accredited investors" within one or more of the above
                 categories. If relying upon this Category alone, each equity
                 owner must complete a separate copy of this Agreement.

                           --------------------------

                           --------------------------
                                (describe entity)

Category I |_|   The Subscriber is not within any of the categories above and is
                 therefore not an accredited investor.

          6.2 SUITABILITY (please answer each question)

          (a) For an individual Subscriber, please describe your current
employment, including the company by which you are employed and its principal
business:

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

          (b) For an individual Subscriber, please describe any college or
graduate degrees held by you.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

          (c) For all Subscribers, please list types of prior investments:

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

          (d) For all Subscribers, please state whether you have participated in
other private placements before:

                                YES |_|   NO |_|

          (e) For all Subscribers, please indicate frequency of such prior
participation in private placements of:

                                     - 18 -

<PAGE>

                     Public
                    Companies   Companies   Biotechnology Companies

     Frequently        |_|         |_|               |_|

     Occasionally      |_|         |_|               |_|

     Never             |_|         |_|               |_|

          (f) For individual Subscribers, do you expect your current level of
income to significantly decrease in the foreseeable future:

                                YES |_|   NO |_|

          (g) For individual Subscribers, do you expect your total net worth to
significantly decrease in the foreseeable future:

                                YES |_|   NO |_|

          (h) For trust, corporate, partnership and other institutional
Subscribers, do you expect your total assets to significantly decrease in the
foreseeable future:

                                YES |_|   NO |_|

          (i) For all Subscribers, do you have any other investments or
contingent liabilities which you reasonably anticipate could cause you to need
sudden cash requirements in excess of cash readily available to you:

                                YES |_|   NO |_|

          (j) For all Subscribers, are you familiar with the risk aspects and
the non-liquidity of investments such as the securities for which you seek to
subscribe?

                                YES |_|   NO |_|

          (k) For all Subscribers, do you understand that there is no guarantee
of financial return on this investment and that you run the risk of losing your
entire investment?

                                YES |_|   NO |_|

                                     - 19 -

<PAGE>

          6.3 MANNER IN WHICH TITLE TO BE HELD (circle one)

               (a)  Individual Ownership

               (b)  Community Property

               (c)  Joint Tenant with Right of Survivorship (both parties must
                    sign)

               (d)  Partnership*

               (e)  Tenants in Common

               (f)  Corporation*

               (g)  Trust*

               (h)  Other

          *If Preferred Stock is being subscribed for by an entity, the attached
          Certificate of Signatory must also be completed.

          6.4 NASD Affiliation

Is the Subscriber affiliated or associated with an NASD member firm (please
check one):

YES |_|   NO |_|

If Yes, please describe:

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:

The Subscriber NASD member firm acknowledges receipt of the notice required by
Article 3, Articles 28(a) and (b) of the Rules of Fair Practice.

-----------------------------------
Name of NASD Member Firm

By:
   --------------------------------
           Authorized Officer

Date:
     ------------------------------

                                     - 20 -

<PAGE>

          6.5 REPRESENTATIONS AND WARRANTIES

               The Subscriber hereby represents and warrants to the Company as
     follows:

               The Subscriber has been informed of the significance to the
     Company of the foregoing representations and answers contained in this
     Confidential Investor Questionnaire and this Agreement.

               The answers to the foregoing questions are true, complete and
     correct and have been provided with the understanding that the Company will
     rely upon them for all purposes, including but not limited to the purpose
     of determining whether the offering in which the Subscriber proposes to
     participate is exempt from registration under federal and state securities
     laws.

               The Subscriber will notify the Company immediately, at any time
     on or prior to the Final Closing Date, in the event that the
     representations and warranties in this Agreement shall cease to be true,
     accurate and complete.

               The Subscriber is able to bear the economic risk of the
     investment and, at the present time, can afford a complete loss of such
     investment.

                                     - 21 -

<PAGE>

                                                   [Signature Page]
NUMBER OF SHARES          X $1.25 = $        (the "Purchase Price")
                 --------            -------

---------------------------------------   --------------------------------------
Signature                                 Signature (if purchasing jointly)

---------------------------------------   --------------------------------------
Name Typed or Printed                     Name Typed or Printed

---------------------------------------   --------------------------------------
Address                                   Address

---------------------------------------   --------------------------------------
City, State and Zip Code                  City, State and Zip Code

---------------------------------------   --------------------------------------
Telephone -- Business                     Telephone -- Business

---------------------------------------   --------------------------------------
Telephone -- Residence                    Telephone -- Residence

---------------------------------------   --------------------------------------
Telephone -- Business                     Telephone -- Business

---------------------------------------   --------------------------------------
Telephone -- Residence                    Telephone -- Residence

---------------------------------------   --------------------------------------
Tax ID# or Social Security #              Tax ID or Social Security #

Name in which Securities should be issued :
                                           -------------------------------------

Dated:                    , 1997.
       -------------------

     This Subscription Agreement is agreed to and accepted as of   , 1997.
                                                                 --

                                          NEPHROS, Inc.

                                          By:
                                             -----------------------------------
                                          Name:
                                          Title:

                                     - 22 -

<PAGE>

                            CERTIFICATE OF SIGNATORY

                     (To be completed if Preferred Stock is
                       being subscribed for by an entity)

          I,                                 , am the                      of
             -------------------------------          --------------------
                                                                 (the "Entity").
----------------------------------------------------------------

          I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the Preferred Stock, and certify further that the Subscription
Agreement has been duly and validly executed on behalf of the Entity and
constitutes a legal and binding obligation of the Entity.

          IN WITNESS WHEREOF, I have set my hand this                     day of
                                                      -------------------
      ,      .
------  -----

                                                  ------------------------------
                                                            (Signature)

                                     - 23 -

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