Document:

Exhibit 10.2 Registration Rights Agreement

    
      

    

    EXHIBIT
      10.2

     

    REGISTRATION
      RIGHTS AGREEMENT

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    Section
      3.    Demand
      Registration.

     

    (a)    Demand

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    Section
      4.    Piggyback
      Registration.
      

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    (A)    first,
      the
      Primary Securities;

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    Section
      5.    Form
      S-3 Registration

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    Section
      7.    Indemnification.

     

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

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

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

     

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

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

    Section
      8.    Participation
      in Underwritten Registrations.

     

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

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

    Section
      12.    Miscellaneous.

     

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

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

    (ii)    if
      to the
      Company:

     

    Nephros,
      Inc.

    3960
      Broadway

    New
      York,
      New York 10032

    Attention:
      President

     

    With
      a
      copy to:

     

    Kramer
      Levin Naftalis & Frankel LLP

    1177
      Avenue of the Americas

    New
      York,
      New York 10036

    Attention:
      Thomas D. Balliett

    

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

    [SIGNATURE
      PAGE FOLLOWS IMMEDIATELY]

    

    

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

        
        

      

    

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

     

    NEPHROS,
      INC.

     

    By:_______________________________________ 

       Name:

       Title:

    

     

    THE
      INITIAL HOLDERS:

     

    SOUTHPAW
      CREDIT OPPORTUNITY MASTER FUND LP

     

    

    

    By:_______________________________________

      Name:
  

      Title:

     

    Address
      for Notices:

    
       

      _________________________________________ 

    

    (Street
      Address)

    

    

    
      _________________________________________ 

    

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

    

    

    Attention:_________________________________

     

    
 

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    

    DISTRESSED/HIGH
      YIELD TRADING OPPORTUNITIES, LTD.

    By:
      Eliteperformance Fund, Ltd., its investment manager

    

    

    By:_______________________________________

      Name:
      Scott A.
      Stagg  

      Title:  
      Portfolio Manager

     

    Address
      for Notices:

     

    _________________________________________

          (Street
      Address)

    

    

    _________________________________________

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

    

    

    Attention:_________________________________

    

    

    3V
      CAPITAL MASTER FUND LTD

    By:
      3V
      Capital Management LLC, its investment manager

    

    
      By:_______________________________________

         
Name:
      Scott A. Stagg  

      Title:
      Managing
      Member

     

    
      Address
        for Notices:

       

      _________________________________________

            (Street
        Address)

      

      

      _________________________________________

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

      

      

      Attention:_________________________________

    

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1

    

    
      	
              Investor

               

            	
              Registrable
                Securities

               

            
	
              3V
                CAPITAL MASTER FUND LTD

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

            
	 	 
	
              Distressed/High
                Yield Trading Opportunities, Ltd.

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

            
	 	 
	
              SOUTHPAW
                CREDIT OPPORTUNITY MASTER FUND LP

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

            

    

    

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

    Form
      of
      Counterpart Signature Page

     

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

     

                    [__________________],
      as an
      additional Holder

    

    

    

                    By:
      ______________________________________

                      Name:

                   Title: 

     

                    Notice
      Address:

                    ___________________________________

                    ___________________________________

                    ___________________________________

                    Attention:
      ___________________________

                    Tel:(___)
      ___-___

                    Fax:(___)
      ___-___

    

     

    Accepted
      and agreed to as of the 

    __
      day of
      _________, ____:

     

    NEPHROS,
      INC.

     

    By:
      __________________________________

    Name:

    Title:

     

    
-19-Exhibit 4.1 Stock Incentive Plan

    
      
        

      

    

                                             

    EXHIBIT
      4.1

     

     

    

     

       
      COMMAND SECURITY CORPORATION

     

    
      	 	
              2005
                STOCK INCENTIVE PLAN

            

    

     ARTICLE
      I

     General

    

    1.1
      Purpose

    

    The
      Command Security Corporation 2005 Stock Incentive Plan (the "Plan")
      is designed to provide certain key persons, on whose initiative and

    efforts
      the successful conduct of the business of Command Security Corporation
(the
      "Company") depends, and who are responsible for the management, growth
      and

    protection
      of the business of the Company, with incentives to: (a) enter into and
      remain in the service of the Company or a Company subsidiary, (b) acquire
      a

    proprietary
      interest in the success of the Company, (c) maximize their performance
      and (d) enhance the long-term performance of the Company (whether

    directly
      or indirectly through enhancing the long-term performance of a Company
subsidiary
      ). The Plan is also designed to provide certain "performance-based"

    compensation
      to these key persons.

    

    1.2
      Administration

    

    (a)
      Administration by Committee; Constitution of Committee. The Plan shall
      be
      administered by the compensation committee of the Board of

    Directors
      of the Company (the "Board") or such other committee or subcommittee
      as the Board may designate or as shall be formed by the

    abstention
      or recusal of a non-Qualified Member (as defined below) of
      such
      committee (the "Committee"). The members of the Committee

    shall
      be
      appointed by, and serve at the pleasure of, the Board. While
      it
      is intended that at all times that the Committee acts in

    connection
      with the Plan, the Committee shall consist solely of Qualified
      Members, the number of whom shall not be less than two,

    the
      fact
      that the Committee is not so comprised will not invalidate any
      grant
      hereunder that otherwise satisfies the terms of the Plan.

    A
      "Qualified Member" is both a "non-employee director" within the meaning
      of Rule 16b-3 ("Rule 16b-3") promulgated under the

    Securities
      Exchange Act of 1934 (the "1934 Act") and an "outside director"
      within the meaning of section 162(m) of the Internal

    Revenue
      Code of 1986, as amended (the "Code"). 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 would otherwise be the responsibility
      of the Committee.

    

      
       (b) Committee's
      Authority. The Committee shall have the authority (i) to exercise
      all of the powers granted to it under the Plan, (ii) to

    construe,
      interpret and implement the Plan and any Option Certificates
      executed pursuant to Section 2.1, (iii) to prescribe,

    amend
      and
      rescind rules and regulations relating to the Plan, including
      rules governing its own operations, (iv) to make all

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    determinations
      necessary or advisable in administering the Plan, (v) to
      correct any defect, supply any omission and reconcile any

    inconsistency
      in the Plan, and (vi) to amend the Plan to reflect changes
      in applicable law.

    

      
      (c) Committee
      Action; Delegation. Actions of the Committee shall be taken
      by
      the vote of a majority of its members. Any action may be

    taken
      by
      a written instrument signed by a majority of the Committee members,
      and action so taken shall be fully as effective as if it

    had
      been
      taken by a vote at a meeting. Notwithstanding the foregoing or
      any
      other provision of the Plan, the Committee or, pursuant to

    Section
      1.2(a), the Board, may delegate to one or more officers of the
      Company the authority to designate the individuals (other than

    such
      officer(s)), among those eligible to receive options pursuant to
      the
      terms of the Plan, who will receive options under the Plan

    and
      the
      size of each such option, to the fullest extent permitted under
      the
      New York Business Corporation Law (or any successor

    provision
      thereto).

    

      
      (d) Determinations Final. The determination of the Committee on all matters
      relating to the Plan or any Option Certificate shall be final,
      binding and conclusive.

    

      
      (e) Limit
      on
      Committee Members' Liability. No member of the Committee shall
      be
      liable for any action or determination made in good faith

    with
      respect to the Plan or any award thereunder.

    

       
      1.3 Persons Eligible for Awards

    

    The
      persons eligible to receive awards under the Plan are those officers,
      directors (whether or not they are employed by the Company), and

    executive,
      managerial, professional or administrative employees of, and consultants
      to, the Company and its subsidiaries (collectively, "key persons")

    as
      the
      Committee in its sole discretion shall select. No incentive stock option
may
      be
      granted to a person who is not an employee of the Company on the date
      of

    grant.

    

       
      1.4 Types of Awards Under Plan

    

    Awards
      may be made under the Plan in the form of (a) incentive stock options
      and (b) non-qualified stock options, as more fully set forth in
      Article

    II.
      The
      terms "award" and "option" mean either of the foregoing.

    

       
      1.5 Shares Available for Awards

    

       
      (a) Aggregate
      Number Available; Certificate Legends. The total number of shares
      of
      common stock of the Company ("Common Stock") with respect

    to
      which
      awards may be granted pursuant to the Plan shall not exceed the
      sum
      of 1,000,000 shares. Shares issued pursuant to the Plan may

    be
      authorized but unissued Common Stock, authorized and issued Common
      Stock held in the Company's treasury or Common Stock acquired

    by
      the
      Company for the purposes of the Plan. The Committee may direct
      that any stock certificate evidencing shares issued pursuant

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    to
      the
      Plan shall bear a legend setting forth such restrictions on transferability
      as may apply to such shares.

    

       
      (b) Adjustment
      Upon Changes in Common Stock. Upon certain changes in Common
      Stock, the number of shares of Common Stock available for

    issuance
      with respect to awards that may be granted under the Plan pursuant
      to Section 1.5(a), shall be adjusted pursuant to Section

    3.5(a).

    

      
      (c) Certain
      Shares to Become Available Again. Any shares of Common Stock that
      are
      subject to an award under the Plan and that remain unissued

    upon
      the
      cancellation or termination of such award for any reason whatsoever
      shall again become available for awards under the Plan.

    

      
      (d) Individual
      Limits. Except for the limits set forth in this Section 1.5(d)
      and in Section 2.2(e), no provision of this Plan shall be

    deemed
      to
      limit the number or value of shares with respect to which the
      Committee may make awards to any eligible person. Subject to

    adjustment
      as provided in Section 3.5(a), the total number of shares of
      Common
      Stock with respect to which awards may be granted to any

    one
      employee of the Company or a subsidiary during any one calendar year
      shall not exceed 500,000shares. Stock options granted and

    subsequently
      canceled or deemed to be canceled in a calendar year count
      against this limit even after their cancellation.

    

       
      1.6 Definitions of Certain Terms

    

      
      (a) The
      "Fair
      Market Value" of a share of Common Stock on any day shall be
      the
      closing price as reported for such day in The Wall Street

    Journal
      or, if no such price is reported for such day, the average of
      the
      high bid and low asked price of Common Stock as reported for

    such
      day.
      If no quotation is made for the applicable day, the Fair Market
      Value of a share of Common Stock
      on
      such day shall be determined in the manner set forth in the

    preceding
      sentence using quotations for the next preceding day for which
      there were quotations, provided that such quotations shall

    have
      been
      made within the ten (10) business days preceding the applicable
      day. Notwithstanding the foregoing, if deemed necessary

    or
      appropriate by the Committee, the Fair Market Value of a share of Common
      Stock on any day shall be determined by the Committee. In no

    event
      shall the Fair Market Value of any share of Common Stock be less
      than
      its par value.

    

    (b) The
      term "incentive stock option" means an option that is intended to
      qualify for special federal income tax treatment pursuant to

    sections
      421 and 422 of the Code as now constituted or subsequently amended,
      or pursuant to a successor provision of the Code, and which

    is
      so
      designated in the applicable Option Certificate. Any option that
      is
      not specifically designated as an incentive stock option

    shall
      under no circumstances be considered an incentive stock option.
      Any option that is not an incentive stock option is referred

    to
      herein
      as a "non-qualified stock option."

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     (c) A
      grantee shall be deemed to have a "termination of employment" upon (i)
      the
      date the grantee ceases to be employed by, or to provide

    consulting
      services for, the Company or any Company subsidiary, or any
      corporation (or any of its subsidiaries) which assumes the

    grantee's
      award in a transaction to which section 424(a) of the Code applies;
      or (ii) the date the grantee ceases to be a Board member,

    provided,
      however, that in the case of a grantee (x) who is, at the time
      of
      reference, both an employee or consultant and a Board

    member,
      or (y) who ceases to be engaged as an employee, consultant or
      Board
      member and immediately is engaged in another of such

    relationships
      with the Company or any Company subsidiary, the grantee
      shall be deemed to have a "termination of employment" upon

    the
      later
      of the dates determined pursuant to subparagraphs (i) and (ii)
      above. For purposes of clause (i) above, a grantee who

    continues
      his or her employment or consulting relationship with a Company
      subsidiary subsequent to its sale by the Company shall have

    a
      termination of employment upon the date of such sale. TheCommittee
      may in its discretion 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

    theretofore
      made under the Plan.

    

    (d)
      The
      terms
      "parent corporation" and "subsidiary corporation" shall have
      the
      meanings given them in sections 424(e) and (f) of the Code,

    respectively.

    

    (e)
      The
      term
      "employment" shall be deemed to mean an employee's employment
      with, or a consultant's provision of services to, the

    Company
      or any Company subsidiary and each Board member's service as a
      Board
      member.

    

    (f)
      The
      term "cause" in connection with a termination of employment by reason
      of
      a dismissal for cause shall mean:

    

    (i) to
      the extent that there is an employment, severance or other agreement
      governing the relationship between the grantee and the

    Company
      or a Company subsidiary, which agreement contains a definition
      of "cause," cause shall consist of those acts or

    omissions
      that would constitute "cause" under such agreement;

    and
      otherwise,

    

    (ii)
      the
      grantee's termination of employment by the Company or an affiliate
      on account of any one or more of the following:

    

    A.
      grantee's
      willful and intentional repeated failure or refusal, continuing
      after notice that specifically identifies the breach(es)

    complained
      of, to perform substantially his or her material duties, responsibilities
      and obligations (other than a failure resulting from

    grantee's
      incapacity due to physical or mental illness or other reasons beyond
      the control

    of
      grantee), and which failure or refusal results in demonstrable direct
and
      material injury to the Company;

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    B.
      any
      willful and intentional act or failure to act involving fraud, misrepresentation,
      theft, embezzlement, dishonesty or moral turpitude

    (collectively,
      "Fraud") which results in demonstrable direct and material
      injury to the Company; and

    

    C.
      conviction
      of (or a plea of nolo contendere to) an offense which is a felony
      in
      the jurisdiction involved or which is a misdemeanor in the

    jurisdiction
      involved but which involves Fraud.

    

    For
      purposes of determining whether cause exists, no act, or failure to act,
      on
      grantee's part shall be deemed "willful" or "intentional" unless
      done,

    or
      omitted to be done, by grantee in bad faith, and without reasonable belief
      that
      his
      or her action or omission was in the best interests of the Company.

    

    Any
      rights the Company may have hereunder in respect of the events giving
rise
      to
      cause shall be in addition to the rights the Company may have under
      any

    other
      agreement with a grantee or at law or in equity. Any determination of
whether
      a
      grantee's employment is (or is deemed to have been) terminated for

    cause
      for
      purposes of the Plan or any award hereunder shall be made by the Committee
      in its discretion. If, subsequent to a grantee's voluntary
      termination

    of
      employment or involuntary termination of employment without cause, it is
discovered
      that the grantee's employment could have been terminated for cause,

    the
      Committee may deem such grantee's employment to have been terminated for
cause.
      A
      grantee'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.

    

    ARTICLE
      II

    Awards
      Under the Plan

    

    2.1
      Certificates Evidencing Options

    

    Each
      award granted under the Plan shall be evidenced by a written certificate
      ("Option Certificate") which shall contain such provisions as the

    Committee
      may in its sole discretion deem necessary or desirable. By accepting
an
      award
      pursuant to the Plan, a grantee thereby agrees that the award shall
      be

    subject
      to all of the terms and provisions of the Plan and the applicable Option
Certificate.

    

    2.2
      Grant
      of Stock Options

    

    (a)
      Stock
      Option Grants. The Committee may grant incentive stock options and
      non-qualified stock options (collectively, "options") to

    purchase
      shares of Common Stock from the Company, to such key persons,
      and in such amounts and subject to such vesting and

    forfeiture
      provisions and other terms and conditions, as the Committee
      shall determine in its sole discretion, subject to the

    provisions
      of the Plan.

    

    (b)
      Option
      Exercise Price. Each Option Certificate shall set forth the amount
      (the "option exercise price") payable by the grantee to the

    Company
      upon exercise of the option evidenced thereby. The option exercise
      price per share shall be determined by the Committee in its

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    sole
      discretion; provided, however, that the option exercise price shall
      be
      at least 100% of the Fair Market Value of a share of Common

    Stock
      on
      the date the option is granted, and provided further that in
      no
      event shall the option exercise price be less than the par

    value
      of
      a share of Common Stock.

    

    (c)
      Exercise
      Period. Each Option Certificate shall set forth the periods during
      which the option evidenced thereby shall be exercisable,

    whether
      in whole or in part. Such periods shall be determined by the Committee
      in its sole discretion; provided, however, that no stock

    option
      shall
      be
      exercisable more than 10 years after the date of grant. (See
      the
      default exercise period provided for under Sections 2.3(a)

    and
      (b).)

    

    (d)
      Reload
      Options. The Committee may in its sole discretion include in any
      Option Certificate with respect to an option (the "original

    option")
      a provision that an additional option (the "reload option") shall
      be
      granted to the grantee if, pursuant to Section 2.3(e)(ii),

    the
      grantee delivers shares of Common Stock in partial or full payment
      of the exercise price of the original option. The reload

    option
      shall be for a number of shares of Common Stock equal to the number
      thus delivered, shall have an exercise price equal to the

    Fair
      Market Value of a share of Common Stock on the date of exercise of
      the
      original option, and shall have an expiration date no later

    than
      the
      expiration date of the original option. In the event that a Option
      Certificate provides for the grant of a reload option, such

    Option
      Certificate shall also provide that any shares that are delivered
      pursuant to Section 2.3(e)(ii) in payment of such exercise

    price
      shall have been held for at least six months (or such other period
      as
      the Committee may from time to time determine).

    

    (e)
      Incentive
      Stock Option Limitation: $100,000 Limitation. To the extent
      that the aggregate Fair Market Value (determined as of the

    time
      the
      option is granted) of the stock with respect to which incentive
      stock options are first exercisable by any employee during

    any
      calendar year shall exceed $100,000, or such other amount as may be
      specified from time to time under section 422 of the Code, such

    options
      shall be treated as non-qualified stock options.

    

    (f)
      Incentive
      Stock Option Limitation: 10% Owners. Notwithstanding the provisions
      of paragraphs (d) and (e) of this Section 2.2, an

    incentive
      stock option may not be granted under the Plan to an individual
      who, at the time the option is granted, owns stock

    possessing
      more than 10% of the total combined voting power of all classes
      of stock of his or her employer corporation or of its parent

    or
      subsidiary corporations (as such ownership may be determined for purposes
      of section 422(b)(6) of the Code) unless (i) at the time

    such
      incentive stock option is granted the option exercise price is at
      least
      110% of the Fair Market Value of the shares subject thereto

    and
      (ii)
      the incentive stock option by its terms is not exercisable after
      the
      expiration of 5 years from the date it is granted.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.3
      Exercise of Options

    

    Subject
      to the other provisions of this Article II, each option granted under
      the
      Plan shall be exercisable as follows:

    

    (a)
      Beginning
      of Exercise Period. Unless the applicable Option Certificate
      otherwise provides, an option shall become exercisable

    with
      respect to one quarter (1/4) of the shares subject to such option
      on
      each of the first four anniversaries of the date of grant.

    

    (b)
      End
      of
      Exercise Period. Unless the applicable Option Certificate otherwise
      provides, once an installment becomes exercisable, it

    shall
      remain exercisable until the earlier of (i) the tenth anniversary
      of the date of grant of the award or (ii) the expiration,
      cancellation or termination of the award.

    

    (c)
      Timing
      and Extent of Exercise. Unless the applicable Option Certificate
      otherwise provides, an option may be exercised from time

    to
      time
      as to all or part of the shares as to which such award is then
      exercisable.

    

    (d)
      Notice
      of
      Exercise. An option shall be exercised by the filing of a written
      notice with the Company or the Company's designated exchange

    agent
      (the "exchange agent"), on such form and in such manner as the Committee
      shall in its sole discretion prescribe.

    

    (e)
      Payment
      of Exercise Price. Any written notice of exercise of an option
      shall be accompanied by payment for the shares being

    purchased.
      Such payment shall be made: (i) by certified or official bank
      check (or the equivalent thereof acceptable to the Company or

    its
      exchange agent) for the full option exercise price; or (ii) with the
      consent of the Committee, by delivery of shares of Common Stock

    owned
      by
      the grantee (whether acquired by option exercise or otherwise,
      provided that if such shares were acquired pursuant to

    the
      exercise of a stock option, they were acquired at least six months
      prior to the option exercise date or such other period as the

    Committee
      may from time to time determine) having a Fair Market Value
      (determined as of the exercise date) equal to all or part of

    the
      option exercise price and a certified or official bank check (or the
      equivalent thereof acceptable to the Company or its exchange

    agent)
      for any remaining portion of the full option exercise price; or
      (iii)
      at the discretion of the Committee and to the extent

    permitted
      by law, by such other provision, consistent with the terms of
      the
      Plan, as the Committee may from time to time prescribe.

    

    (f)
      Delivery
      of Certificates Upon Exercise. Promptly after receiving payment
      of the full option exercise price, the Company or its

    exchange
      agent shall, subject to the provisions of Section 3.2, deliver
      to the grantee or to such other person as may then have the

    right
      to
      exercise the award, certificate or certificates for the shares
      of
      Common Stock for which the award has been exercised. If

    the
      method of payment employed upon option exercise so requires, and if
      applicable law permits, a grantee may direct the Company, or its

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    exchange
      agent, as the case may be, to deliver the stock certificate(s)
      to the grantee's stockbroker.

    

    (g)
      No
      Shareholder Rights. No grantee of an option (or other person having
      the right to exercise such award) shall have any of the

    rights
      of
      a shareholder of the Company with respect to shares subject
      to such award until the issuance of a stock certificate to

    such
      person for such shares. Except as otherwise provided in Section 1.5(b),
      no adjustment shall be made for dividends, distributions or

    other
      rights (whether ordinary or extraordinary, and whether in cash,
      securities or other property) for which the record date is

    prior
      to
      the date such stock certificate is issued.

    

    2.4 
      Termination of Employment; Death Subsequent to a Termination of Employment

    

    (a)
      General
      Rule. Except to the extent otherwise provided in paragraphs (b),
      (c)
      or (d) of this Section 2.4, a grantee who incurs a

    termination
      of employment may exercise any outstanding option on the following
      terms and conditions: (i) exercise may be made only to the

    extent
      that the grantee was entitled to exercise the award on the termination
      of employment date; and (ii) exercise must occur within

    three
      months after termination of employment but in no event after the
      original expiration date of the award.

    

    (b)
      Dismissal
      for Cause; Resignation. If a grantee incurs a termination of
      employment as the result of a dismissal for cause, all options

    not
      theretofore exercised shall terminate upon the commencement of business
      on the date of the grantee's termination of employment.

    

    (c)
      Disability.
      If a grantee incurs a termination of employment by reason
      of
      a disability (as defined below), then any outstanding

    option
      shall be exercisable on the following terms and conditions: (i)
      exercise may be made only to the extent that the grantee was

    entitled
      to exercise the award on the termination of employment date;
      and
      (ii) exercise must occur by the earlier of (A) the first

    anniversary
      of the grantee's termination of employment, or (B) the original
      expiration date of the award. For this purpose "disability"

    shall
      mean: (x) except in connection with an incentive stock option, any
      physical or mental condition that would qualify a grantee for a

    disability
      benefit under the long-term disability plan maintained by the
      Company or, if there is no such plan, a physical or mental

    condition
      that prevents the grantee from performing the essential functions
      of the grantee's position (with or without reasonable

    accommodation)
      for a period of six consecutive months and (y) in connection
      with an incentive stock option, a disability described in

    section
      422(c)(6) of the Code. The existence of a disability shall be
      determined by the Committee in its absolute discretion.

    

    (d)
      Death.

    

    (i)
      Termination
      of Employment as a Result of Grantee's Death. If a grantee
      incurs a termination of employment as the result of

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    death,
      then any outstanding option shall be exercisable on the following
      terms and conditions: (A) exercise may be made only

    to
      the
      extent that the grantee was entitled to exercise the award
      on
      the date of death; and (B) exercise must occur by the

    earlier
      of (1) the first anniversary of the grantee's death, or
      (2)
      the original expiration date of the award.

    

    (ii)
      Death
      Subsequent to a Termination of Employment. If a grantee dies
      subsequent to incurring a termination of employment but

    prior
      to
      the expiration of the exercise period with respect to a
      stock
      option (as provided by paragraphs (a) or (c) above),

    then
      the
      award shall remain exercisable until the earlier to occur
      of
      (A) the first anniversary of the grantee's death or

    (B)
      the
      original expiration date of the award.

    

    (iii)
      Restrictions
      on Exercise Following Death. Any such exercise of an
      award
      following a grantee's death shall be made only by the

    grantee's
      executor or administrator or other duly appointed representative
      reasonably acceptable to the Committee, unless

    the
      grantee's will specifically disposes of such award, in which
      case such exercise shall be made only by the recipient

    of
      such
      specific disposition. If a grantee's personal representative
      or the recipient of a specific disposition

    under
      the
      grantee's will shall be entitled to exercise any award
      pursuant to the preceding sentence, such representative

    or
      recipient shall be bound by all the terms and conditions of the
      Plan
      and the applicable Option Certificate which would

    have
      applied to the grantee including, without limitation, the provisions
      of Sections 3.2.

    

    (e)
      Special
      Rules for Incentive Stock Options. No option that remains exercisable
      for more than three months following a grantee's

    termination
      of employment for any reason other than death (including death
      within three months after the termination of employment or

    within
      one year after a termination due to disability) or disability,
      or for more than one year following a grantee's

    termination
      of employment as the result of disability, may be treated
      as an incentive stock option.

    

    (f)
      Committee Discretion. The Committee may waive or modify the application
      of the foregoing provisions of this Section 2.4.

    

    2.5
      Transferability of Options

    

    Except
      as
      otherwise provided in an applicable Option Certificate evidencing
      an option, during the lifetime of a grantee, each option granted to
      a

    grantee
      shall be exercisable only by the grantee and no option shall be assignable
      or transferable otherwise than by will or by the laws of descent
      and

    distribution.
      The Committee may, in any applicable Option Certificate evidencing an
      option
      (other than an incentive stock option to the extent inconsistent
      with

    the
      requirements of section 422 of the Code applicable to incentive stock
options),
      permit a grantee to transfer all or some of the options to (A) the

    grantee's
      spouse, children or grandchildren ("Immediate Family Members"), (B) a

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    trust
      or
      trusts for the exclusive benefit of such Immediate Family Members,
      or

    (C)
      other
      parties approved by the Committee in its absolute discretion. Following
      any such transfer, any transferred options shall continue to be

    subject
      to the same terms and conditions as were applicable immediately prior to
the
      transfer.

    

    2.6
      Right
      of Recapture

    

    If
      at any
      time after the date on which a grantee has been granted or become
      vested in an award pursuant to the achievement of performance goals ,
      the

    Committee
      determines that the earlier determination as to the achievement
      of the performance goals was based on incorrect data and that in

    fact
      the
      performance goals had not been achieved or had been achieved to a lesser
      extent than originally determined, then (i) any award or portion of
      an

    award
      granted based on such incorrect determination shall be forfeited, and (ii)
      any
      award
      or portion of an award that became vested based on such incorrect

    determination
      shall be deemed to be not vested.

    

    ARTICLE
      III

    Miscellaneous

    

    3.1
      Amendment of the Plan; Modification of Awards

    

    (a)
      Amendment
      of the Plan. Subject to Section 3.1(b), the Board may from time
      to
      time suspend, discontinue, revise or amend the Plan in any

    respect
      whatsoever, except that no such amendment shall materially impair
      any rights or materially increase any obligations under any

    award
      theretofore made under the Plan without the consent of the grantee
      (or, upon the grantee's death, the person having the right

    to
      exercise the award). For purposes of this Section 3.1, any action of
      the
      Board or the Committee that in any way alters or affects the

    tax
      treatment of any award or that in the sole discretion of the Board
      is
      necessary to prevent an award from being subject to tax

    under
      Section 409A of the Code shall not be considered to materially impair
      any rights of any grantee.

    

    (b)
      Shareholder
      Approval Requirement. Shareholder approval shall be required
      with respect to any amendment to the Plan (i) which

    increases
      the aggregate number of shares which may be issued pursuant
      to incentive stock options or changes the class of

    employees
      eligible to receive such options, (ii) which otherwise materially
      increases the benefits under the Plan, (iii) to the

    extent
      required by stock exchange rules, or (iv) to the extent the Board
      determines that shareholder approval is necessary to enable

    awards
      under the Plan to comply with Sections 422 or 162(m) of the Code.

    

    (c) Modification
      of Awards. The Committee may cancel any award under the Plan.
      The
      Committee also may amend any outstanding Option

    Certificate,
      including, without limitation, by amendment which would:
      (i) accelerate the time or times at which the award becomes

    vested
      and exercisable; (ii) waive or amend any goals, restrictions or
      conditions set forth in the Option Certificate; or (iii) waive or

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    amend
      the
      operation of Section 2.4 with respect to the termination of
      the
      award upon termination of employment, provided however, that

    no
      such
      amendment may lower the exercise price of an outstanding option.
      However, any such cancellation or amendment (other than an

    amendment
      pursuant to Section 3.5) that materially impairs the rights
      or
      materially increases the obligations of a grantee under an

    outstanding
      award shall be made only with the consent of the grantee (or,
      upon
      the grantee's death, the person having the right to

    exercise
      the award). Under no circumstances may the Committee modify an
      award
      in a manner that would cause the award to be subject to tax

    under
      Section 409A of the Code.

    

    3.2
      Consent Requirement

    

    (a)
      No
      Plan
      Action without Required Consent. If the Committee shall at any
      time
      determine that any Consent (as hereinafter defined) is

    necessary
      or desirable as a condition of, or in connection with, the granting
      of any award under the Plan, the issuance or purchase of

    shares
      or
      other rights thereunder, or the taking of any other action thereunder
      (each such action being hereinafter referred to as a

    "Plan
      Action"), then such Plan Action shall not be taken, in whole or
      in
      part, unless and until such Consent shall have been effected

    or
      obtained to the full satisfaction of the Committee.

    

    (b)
      Consent
      Defined. The term "Consent" as used herein with respect to any
      Plan
      Action means (i) any and all listings, registrations or

    qualifications
      in respect thereof upon any securities exchange or under
      any
      federal, state or local law, rule or regulation, (ii) any

    and
      all
      written agreements and representations by the grantee with respect
      to the disposition of shares, or

    with
      respect to any other matter, which the Committee shall deem necessary
      or desirable to comply with the terms of any such listing,

    registration
      or qualification or to obtain an exemption from the requirement
      that any such listing, qualification or registration be

    made
      and
      (iii) any and all consents, clearances and approvals in respect
      of a Plan Action by any governmental or other regulatory bodies.

    

    3.3
      Requirement of Notification Upon Disqualifying Disposition Under Section
      421(b) of the Code

    

    Each
      grantee of an incentive stock option shall notify the Company of any
disposition
      of shares of Common Stock issued pursuant to the exercise of such

    option
      under the circumstances described in section 421(b) of the Code (relating
to
      certain disqualifying dispositions), within 10 days of such
      disposition.

    

    3.4
      Withholding Taxes

    

    The
      Company shall be entitled to require as a condition of delivery of shares
      of
      Common Stock upon exercise of an option that the grantee remit to
      the

    Company
      an amount sufficient, in the opinion of the Company, to satisfy all federal,
      state and other governmental tax withholding requirements related

    thereto.
      With the approval of the Committee, which the Committee shall have sole

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    discretion
      whether or not to give, the grantee may satisfy the foregoing condition
      by electing to have the Company withhold from delivery shares having a
value
      equal to the amount of tax to be withheld. Such shares shall be valued at
their
      Fair Market Value as of the date on which the amount of tax to be withheld
      is
      determined. Fractional share amounts shall be settled in cash. Such a
withholding
      election may be made with respect to all or any portion of the shares
      to
      be delivered pursuant to an award.

    

    3.5
      Adjustment Upon Changes in Common Stock

    

    (a)
      Shares
      Available for Options. In the event of any change in the number
      of
      shares of Common Stock outstanding by reason of any stock

    dividend
      or split, reverse stock split, recapitalization, merger, consolidation,
      combination or exchange of shares or similar

    corporate
      change, the maximum number of shares of Common Stock with respect
      to which the Committee may grant awards under Article II

    hereof,
      as described in Section 1.5(a), and the individual annual limit
      described in Section 1.5(d), shall be appropriately adjusted

    by
      the
      Committee. In the event of any change in the number of shares of
      Common
      Stock outstanding by reason of any other event or

    transaction,
      the Committee may, but need not, make such adjustments in
      the
      number and class of shares of Common Stock with respect to

    which
      awards: (i) may be granted under Article II hereof and (ii) granted
      to any one employee of the Company or a subsidiary during

    any
      one
      calendar year, in each case as the Committee may deem appropriate.

    

    (b)
      Outstanding
      Options -- Increase or Decrease in Issued Shares Without Consideration.
      Subject to any required action by the shareholders of

    the
      Company, in the event of any increase or decrease in the number of
      issued
      shares of Common Stock resulting from a subdivision or

    consolidation
      of shares of Common Stock or the payment of a stock dividend
      (but only on the shares of Common Stock), 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 of Common Stock subject to
      each
      outstanding option and the exercise price-per-share of

    Common
      Stock of each such option.

    

    (c)
      Outstanding
      Options -- Certain Mergers. Subject to any required action
      by
      the shareholders 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 of Common Stock receive securities of another corporation),
      each option outstanding on the date of such merger or

    consolidation
      shall pertain to and apply to the securities which a holder
      of
      the number of shares of Common Stock subject to such

    option
      would have received in such merger or consolidation.

    

    (d)
      Outstanding
      Options -- 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 of Common Stock receive securities of another corporation
      and/or other property, including cash, the Committee

    shall,
      in
      its absolute discretion, have the power to:

    

    A.
      cancel,
      effective immediately prior to the occurrence of such event,
      each option outstanding immediately prior to such event

    (whether
      or not then exercisable), and, in full consideration of such
      cancellation, pay to the grantee to whom such option was

    granted
      an amount in cash, for each share of Common Stock subject
      to such option equal to the excess of (x) the value, as

    determined
      by the Committee in its absolute discretion, of the property
      (including cash) received by the holder of a share of

    Common
      Stock as a result of such event over (y) the exercise price
      of
      such option; or

    

    B.
      provide
      for the exchange of each option outstanding immediately prior
      to
      such event (whether or not then exercisable) for an

    option
      on
      some or all of the property which a holder of the number
      of
      shares of Common Stock subject to such option would

    have
      received and, incident thereto, make an equitable adjustment
      as determined by the Committee in its absolute

    discretion
      in the exercise price of the option, or the number of shares
      or
      amount of property subject to the option or, if

    appropriate,
      provide for a cash payment to the grantee to whom such
      option was granted in partial consideration for the

    exchange
      of the option.

    

    (e)
      Outstanding
      Options -- Other Changes. In the event of any change in the
      capitalization of the Company or a corporate change other than

    those
      specifically referred to in Sections 3.5(b), (c) or (d) hereof,
      the Committee may, in its absolute discretion, make such

    adjustments
      in the number and class of shares subject to options outstanding
      on the date on which such change occurs and in the

    per-share
      exercise price of each such option 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

    outstanding
      immediately prior to such event (whether or not then exercisable),
      and, in full consideration of such cancellation, pay

    to
      the
      grantee to whom such option was granted an amount in cash, for
      each
      share of Common Stock subject to such option equal to the

    excess
      of
      (i) the Fair Market Value of Common Stock on the date of such
      cancellation over (ii) the exercise price of such option.

    

    (f)
      No
      Other
      Rights. Except as expressly provided in the Plan, no grantee
      shall have any rights by reason of any subdivision or

    consolidation
      of shares of stock of any class, the payment of any dividend,
      any increase or decrease in the number of shares of stock

    of
      any
      class or any dissolution, liquidation, merger or consolidation
      of the Company or any other corporation. Except as

    expressly
      provided in the Plan, no issuance by the Company of shares

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    of
      stock
      of any class, or securities convertible into shares of stock
      of
      any class, shall affect, and no adjustment by reason thereof
      shall be made with respect to, the number of shares of Common
      Stock subject to an award or the exercise price of any option.

    

    3.6
      Limitations Imposed by Section 162(m)

    

    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: The Committee may delay the exercise of such

    options
      and, in lieu of such exercise, the Committee shall credit the Fair Market
      Value of the Common Stock that would be payable to the grantee upon
      such

    exercise
      to a book account. The Committee may credit additional amounts to such
book
      account as it may determine in its sole discretion. The amounts credited
      to

    any
      such
      book account shall be paid to the grantee on the date that is six months
      after the grantee's termination of employment. Any book account
      created

    hereunder
      shall represent only an unfunded, unsecured promise by the Company
      to pay the amount credited thereto to the grantee in the

    future.
      The amount credited to any such book account shall not be transferable
      by the grantee other than by will or laws of descent and
      distribution.

    

    3.7
      Right
      of Discharge Reserved

    

    Nothing
      in the Plan or in any Option Certificate shall confer upon any grantee
      the right to continue employment with the Company or a subsidiary of
      the

    Company
      or affect any right which the Company or a subsidiary of the Company may
have
      to
      terminate such employment.

    

    3.8
      Nature of Payments

    

    (a)
      Consideration
      for Services Performed. Any and all grants of awards and
      issuances of shares of Common Stock under the Plan shall be in

    consideration
      of services performed for the Company by the grantee.

    

    (b)
      Not
      Taken
      into Account for Benefits. All such grants and issuances shall
      constitute a special incentive payment to the grantee and

    shall
      not
      be taken into account in computing the amount of salary or compensation
      of the grantee for the purpose of determining any

    benefits
      under any pension, retirement, profit-sharing, bonus, life insurance
      or other benefit plan of the Company or under any

    agreement
      between the Company and the grantee, unless such plan or agreement
      specifically otherwise provides.

    

    3.9
      Non-Uniform Determinations

    

    The
      Committee's determinations under the Plan need not be uniform and may
be
      made
      by it selectively among persons who receive, or who are eligible to

    receive,
      awards under the Plan (whether or not such persons are similarly situated).
      Without limiting the generality of the foregoing, the Committee
      shall

    be
      entitled, among other things, to make non-uniform and selective 

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    determinations,
      and to enter into non-uniform and selective Option Certificates, as
      to (a)
      the persons to receive awards under the Plan, (b) the terms and provisions
      of awards under the Plan, and (c) the treatment of leaves of absence
pursuant
      to Section 1.6(c).

    

    3.10
      Other Payments or Awards

    

    Nothing
      contained in the Plan shall be deemed in any way to limit or restrict
      the Company from making any award or payment to any person under
      any

    other
      plan, arrangement or understanding, whether now existing or hereafter
      ineffect.

    

    3.11
      Headings

    

    Any
      section, subsection, paragraph or other subdivision headings contained
herein
      are for the purpose of convenience only and are not intended to
      expand,

    limit
      or
      otherwise define the contents of such subdivisions.

    

    3.12
      Effective Date and Term of Plan

    

    (a)
      Adoption;
      Shareholder Approval. The Plan was adopted by the Board as of
      July
      29, 2005, subject to approval by the Company's shareholders.

    All
      awards under the Plan prior to such shareholder approval are subject
      in their entirety to such approval. If such approval is not

    obtained
      prior to the first anniversary of the date of adoption of the
      Plan,
      the Plan and all awards thereunder shall terminate on that date.

    

    (b)Termination
      of Plan. Unless sooner terminated by the Board or pursuant
      to paragraph (a) above, the Plan shall terminate on the

    tenth
      anniversary of the adoption of the Plan by the Board, and no such
      options shall thereafter be granted under the Plan. All options

    granted
      under the Plan prior to the termination of the Plan shall remain
      in
      effect until such options

    have
      been
      satisfied or terminated in accordance with the terms and provisions
      of the Plan and the applicable Option Certificates.

    

    3.13
      Restriction on Issuance of Stock Pursuant to Awards

    

    The
      Company shall not permit any shares of Common Stock to be issued pursuant
      to Awards granted under the Plan unless such shares of Common Stock
      are

    fully
      paid and non-assessable, within the meaning of the New York Business
Corporation
      Law.

    

    3.14
      Deferred Compensation

    

    The
      Plan
      is intended to comply with the requirements of Section 409A of the
      Code
      so as not to be subject to tax under Section 409A, and shall be

    interpreted
      accordingly. After final guidance is issued by the Internal Revenue Service
      with respect to Section 409A, the Board will amend the Plan as
      necessary

    to
      ensure
      compliance with Section 409A.

    

    3.15
      Governing Law

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    Except
      to
      the extent preempted by any applicable federal law, the Plan will
      be
      construed and administered in accordance with the laws of the State
      of

    New
      York,
      without giving effect to principles of conflict of
      laws.

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