Document:

Exhibit 10.29 Offer of Employment

    
      

    

                                                                                        Exhibit
      10.29

     

                                                                                                           Nephros,
      Inc.

                                                  
      3960 Broadway

                                                                New
      York, NY 10032

                                                                T:
      212.781-5113

                                                                F:
      212.781-5166

                                                                @nephros.com

    

     

     

    
      

    

    
 

    Mr.
      Mark
      W. Lerner            February
      24, 2006

    

    RE:
      OFFER
      OF EMPLOYMENT

    

    Dear
      Mark:

    

    On
      behalf
      of Nephros, Inc. (the "Company"). I am very pleased to offer you the position
      of
      Chief Financial Officer reporting to the Chief Executive Officer and the Board
      of Directors.

    

    1.    START
      DATE

    

    Unless
      we
      mutually agree otherwise, you will commence employment on March 6, 2006.

    

    2.    SALARY

    

    Your
      starting salary will be $175,000 annualized, payable bi-weekly or in accordance
      with the Company's standard payroll practice and subject to applicable
      withholding taxes. Because your position is exempt from overtime pay, your
      salary will compensate you for all hours worked. Your base salary will
      be
      reviewed annually by the Board of Directors or its Compensation Committee,
      and
      any increases will be effective as of the date determined by the Board or its
      Compensation Committee.

    

    3.    BONUS
      

    

    You
      will
      be eligible to receive a bonus of up to 20% of your base salary for achievement
      of performance objectives, subject to approval of the Chief Executive Officer
      and the Compensation Committee of the Board of Directors; this bonus can be
      increased above 20% at the discretion of the Chief Executive Officer and
      Compensation Committee of the Board of Directors, in keeping with Company
      policy.

    

    4.    BENEFITS

    

    You
      will
      also be entitled, during the term of your employment, to such vacation, medical
      and other employee benefits as the Company may offer from time to time, subject
      to applicable eligibility requirements. The Company does reserve the right
      to
      make any modifications in the benefits package that it

    deems
      appropriate. 

    

    
      	· 
               	
              Guardian
                Healthcare Plan - 20% Premium Employee
                Paid

            

    

    
      	· 
               	
              Guardian
                Dental Plan - 20% Premium Employee
                Paid

            

    

    
      	·
                	
              Life
                Insurance - Up to 100% of Base Salary - Company
                Paid

            

    

    
      	· 
                	
              Long
                Term Disability Plan - Company Paid

            

    

    
      	· 
               	
              401(k)
                Savings Plan

            

    

    
      	· 
               	
              Paid
                Holidays - Six designated holidays and four floating
                holidays

            

    

    
      	·
                	
              Vacation
                - Ten Days Paid vacation

            

    

    
      	·
                 	
              Parking
                and Commuter Tolls - Company Paid

            

    

    
      	· 
               	
              Sick
                Days- as reasonably required

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.    STOCK
      OPTIONS

    

    You
      will
      receive a grant of 40,000 stock options at an option exercise price to be set
      at
      grant date, subject to the approval of the Compensation Committee of the Board
      of Directors, which shall be governed by the terms of Nephros Inc.’s stock
      option plan. Your grant will be addressed at the next meeting of the
      Compensation and Audit Committees of the Board of Directors after your start
      date at Nephros. When granted these options will vest 25% on the grant date
      and
      the remainder of the options vest in three equal annual installments beginning
      on the first anniversary of the grant date. The option will be documented by
      delivery to you of a Stock Option Letter Agreement specifying the terms and
      conditions of the option. You will also be eligible to receive annual option
      grants in future years at the sole discretion of the Company subject to the
      approval of the Compensation Committee of the Board of Directors

    

    6.    EMPLOYMENT
      AT
      WILL

    

    If
      you
      accept our offer of employment, you will be an employee-at-will, meaning that
      either you or the Company may terminate our relationship at any time for any
      reason, with or without cause. Any statements to the contrary that may have
      been
      made to you or that may be made to you, by the Company, its agents, or
      representatives are superseded by this offer letter.

    

    7.    CONFIDENTIALITY,
      NON
      COMPETITION AND INVENTION ASSIGNMENT AGREEMENT

    

    As
      a
      condition of your employment pursuant to this offer letter, we do require that
      you sign the enclosed Confidentiality and Assignment of Invention
      Agreement.

    

    8.    TERMINATION

    

    Nephros
      may terminate your employment for Cause (as defined below), in which case the
      provision of paragraph (a) below shall apply. Nephros may also terminate your
      employment in the event of your Disability (as defined below), in which case
      the
      provisions of paragraph (b) below shall apply. Nephros may also terminate your
      employment for any other reason by written notice to you, in which case the
      provisions of paragraph (c) below shall apply. If your employment is terminated
      by reason of your death, retirement or voluntary resignation, then the provision
      of paragraph (a) below shall apply.

     

    (a)
      In
      the event that your employment hereunder is terminated by Nephros for Cause
      (as
      defined below), by reason of your death, or by reason of your voluntary
      resignation or retirement, then Nephros shall pay to you only your accrued
      but
      unpaid base salary for services rendered through the date of termination. You
      shall use your best efforts to provide Nephros with 90 days notice prior to
      your
      voluntary resignation or retirement. For purposes of this agreement, “Cause”
shall mean (i) conviction of any crime (whether or not involving Nephros)
      constituting a felony in the jurisdiction involved; (ii) engaging in any act
      which, in each case, subjects, or if generally known would subject, Nephros
      to
      public ridicule or embarrassment; (iii) gross neglect or misconduct in the
      performance of your duties hereunder; (iv) willful failure or refusal to perform
      such duties as may reasonably be delegated to you commensurate with your
      position; or (v) fraud or embezzlement involving assets of Nephros or any of
      its
      affiliates or other material misappropriation of Nephros’ or any of its
      affiliates’ assets or funds; (vi) any intentional act or acts or omission or
      omissions by your or at your direction, or any breach of a fiduciary duty by
      you
      to Nephros or its affiliates, that have a material adverse effect on Nephros’ or
      any of its affiliates’ operations, prospects, reputation or business; or (vii)
      material breach by you of any provision of this agreement or of the
      Confidentiality and Assignment of Invention Agreement.

    

    (b)
      In
      the event that your employment hereunder is terminated by Nephros for Disability
      (as defined below), then Nephros shall pay to you only your accrued but unpaid
      base salary for services rendered through the date of termination. For purposes
      of this agreement, “Disability” shall mean your incapacity due to physical or
      mental illness, as a result of which you shall have failed to perform your
      duties hereunder on a full time basis for either (i) one hundred twenty (120)
      days within any three hundred sixty-five (365) day period, or (ii) ninety (90)
      consecutive days. During any period that you fail to perform your duties
      hereunder as a result of incapacity due to physical or mental illness (a
“Disability Period”), you shall continue to receive the compensation and
      benefits provided by this agreement until your employment hereunder is
      terminated; provided, however, that the amount of compensation and benefits
      received by you during the Disability Period shall be reduced by the aggregate
      amounts, if any, payable to you under disability benefit plans and programs
      of
      Nephros or under the Social Security disability insurance program.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    (c
      ) In
      the event that your employment hereunder is terminated by Nephros for any reason
      other than as provided in Paragraphs (a) or (b) above, then Nephros shall pay
      to
      you:

    

    (i)
      any
      accrued but unpaid base salary for services rendered through such date of
      termination; and

     

    (ii)
      the
      continued payment of your base salary, in the amount as of the date of
      termination, for ninety (90) days subsequent to the termination date, such
      payments to be made at the times such base salary would have been paid had
      your
      employment not have terminated. 

    

    Notwithstanding
      anything to the contrary contained herein, in the event that you breach the
      Confidentiality and Assignment of Invention Agreement at any time, in addition
      to any other remedies Nephros may have therefore, Nephros’s obligation under
      clause (ii) of paragraph (c) above shall cease and your rights thereto shall
      terminate and shall be forfeited.

    

    Other
      than providing the compensation provided for in this agreement, upon termination
      of your employment, Nephros and its directors, officers, employees,
      subsidiaries, affiliates, stockholders, successors, assigns, agents and
      representatives shall have no further obligation or liability to you or any
      other person under this agreement. The payment of any amounts pursuant to this
      agreement (other than any payments required by law) upon your termination is
      expressly conditioned upon the delivery by you to Nephros of a release in form
      and substance satisfactory to Nephros of any and all claims you may have against
      Nephros and its directors, officers, employees, subsidiaries, affiliates,
      stockholders, successors, assigns, agents and representatives arising out of
      or
      related to you employment by Nephros and the termination of such
      employment.

    

    Your
      rights and obligations hereunder may not be assigned. Nephros may assign its
      rights, together with its obligations, hereunder (i) to any affiliate or (ii)
      to
      third parties in connection with any sale, transfer or other disposition of
      all
      or substantially all of its business or assets; in any event the obligations
      of
      Nephros hereunder shall be binding on its successors or assigns, whether by
      merger, consolidation or acquisition of all or substantially all of its business
      or assets.

    

    9.    ADDITIONAL
      PROVISIONS

    

    Your
      employment pursuant to this letter is also contingent upon your submitting
      the
      legally required proof of your identity and authorization to work in the United
      States. The terms described in this letter, if you accept this offer, will
      be
      the terms of your employment, and this letter supersedes any previous
      discussions or offers. Any additions or modifications of these terms would
      have
      to be in writing and signed by you and an officer of the company.

    

    If
      you
      wish to accept employment with the company, please indicate so by signing both
      copies of this letter and both copies of the enclosed Confidentiality and
      Assignment of Invention Agreement, retaining one of each for your files and
      returning the other to me on or before

    February
      27, 2006, upon which date this offer will expire.

     

    I
      look
      forward to having you join us.

    

    Best
      Regards,

    

    

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

    Norman
      Barta

    President
      & CEO

    Nephros,
      Inc.

    

    ACCEPTANCE

    I
      accept
      employment with Nephros, Inc. under the terms set forth in this letter:

    

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

    Mark
      Lerner             DateForm 10-KSB

    
      

    

    
      

        Exhibit
          10.31

         

        CONFIDENTIAL
          TREATMENT REQUESTED

         

        INFORMATION
          FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED IS OMITTED AND IS IDENTIFIED
          BY THREE ASTERISKS, AS FOLLOWS “* * *”, AN UNREDACTED VERSION OF THIS DOCUMENT
          HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
          COMMISSION.

         

        MANUFACTURING
          AND SUPPLY AGREEMENT

         

        This
          manufacturing and supply agreement
          (the
“Agreement”)  is
          dated
March
          22,
          2005 (the “Contract Date”)
          and is
          between NEPHROS, INC., a Delaware corporation (“Nephros”)
          and
          inclusive of its subsidiary Nephros International Limited, incorporated
          in
          Ireland,
          and
          MEDICA s.r.l., an Italian company (“Medica”).
          This
          Agreement supercedes the previous agreement dated 12 May 2003.

         

        Nephros
          sells systems it has developed for treating end-stage renal disease. One
          component of these systems is the MD 190 hemodiafiltration cartridge (the
“Cartridge”)
          , or
          such other filters of similar design that Nephros may choose to designate
          as the
          Cartridge from time to time.

         

        Nephros
          and Medica wish for Medica to manufacture Cartridges for Nephros, using
          fiber
          provided by a supplier designated by Nephros, and ship them to
          purchasers,
          or
          warehouse facilities, or other locales
          designated by Nephros. 

         

        The
          parties therefore agree as follows:

         

        ARTICLE
          1

        SALE
          AND
          PURCHASE

         

        1.1  Supply
          of Cartridge.
          Subject
          to the terms of this agreement, Medica shall manufacture, in such quantities
          as
          Nephros orders, the Cartridge.

         

        1.2  Nephros
          Exclusive Purchaser.
          Medica
          may not without the prior written consent of Nephros provide Cartridges
          to any
          Person other than Nephros.

         

        1.3  Medica
          Exclusivity.
          Nephros
          shall purchase from Medica Cartridges as specified in
          Schedule 1.3.

         

        ARTICLE
          2

        FORECASTS

         

        2.1  Rolling
          Forecasts.
          (a) 
          On or
          prior to the Forecast Initiation Date (“FID”), as specified in Schedule 3.1,
          Nephros shall deliver to Medica a forecast of how many Cartridges it
          will

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        purchase
          for delivery in each of the nine consecutive months beginning one month
          following the FID. On or prior to one month following the FID, Nephros
          shall
          deliver to Medica a forecast of how many Cartridges it will purchase for
          delivery in each of the nine consecutive months beginning two months following
          the FID. On or prior to the first day of each subsequent month, Nephros
          shall
          deliver to Medica an update to its previously submitted forecast of its
          expected purchases
          of Cartridges (each forecast delivered pursuant to this
          Section 2.1(a),
          a
“Rolling
          Forecast”).
          Each
          such update must consist of a repetition of the eight later months of the
          immediately preceding Rolling Forecast along with a forecast for the month
          subsequent to the last month in the previous Rolling Forecast.

         

        (b)  Nephros
          may not revise in any subsequent Rolling Forecast the forecast for months
          2 and
          3 in any Rolling Forecast (month 1 being the earliest month in any Rolling
          Forecast). Nephros may revise in any subsequent Rolling Forecast the forecast
          for any other month in any Rolling Forecast.

         

        (c)  The
          forecast for any month specified in any Rolling Forecast may not be less
          than
          the total number of Cartridges for which Nephros, prior to delivery of
          that
          Rolling Forecast to Medica in accordance with Section 2.1(a), has submitted
          purchase orders in accordance with Section 3.2
          specifying a delivery date in that month.

         

        ARTICLE
          3

        ORDERS,
          SHIPMENT, AND PAYMENT

         

        3.1  Price.
          The
          price paid by Nephros for any given shipment of Cartridges is as stated
          in
Schedule 3.1.

         

        3.2  Purchase
          Orders.
          (a)
          Each
          purchase order that Nephros places for Cartridges must be in the form attached
          as Schedule
          3.2
          and must
          specify (1) how many Cartridges
          are
          desired, (2) the one or more places to which, and the manner and date by
          which, delivery is to be made, and (3) the applicable price per Cartridge.
          Nephros shall deliver all purchase orders by facsimile, or by one of the
          means
          specified in Section 14.8
          for
          giving notice, to
          Medica
          at the following address and facsimile number or as otherwise instructed
          by
          Medica:

         

        Medica
          s.r.l.

        Via
          Degli
          Artigiani, 6

        41036
          Medolla (MO) Italy

        Attention: Daniele
          Giubertoni

              
    MKTG
&
          sales Manager

        Facsimile: 39-0535-52605

        E-mail:
           sales@medica.it

         

        (b)  Nephros
          shall order for delivery in any given month an aggregate number of Cartridges
          equal to at least 90% of the final amount forecast for that month in the
          Rolling
          Forecasts (that quantity, the “Final
          Forecast Quantity”).
          Nephros may order for delivery in any

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        given
          Quarter an aggregate quantity of Cartridge not exceeding 110% of the Final
          Forecast Quantity. Only with Medica’s written consent may Nephros order for
          delivery in any given Quarter an aggregate number of Cartridges exceeding
          110%
          of the Final Forecast Quantity.

         

        (c)  Nephros
          shall deliver each purchase order for quantities of the Cartridge at least
          60
          days in advance of the delivery date specified in that purchase
          order.

         

        (d)  If
          Nephros delivers any purchase order with less lead time than is required
          under
          Section 3.2(c),
          then
          Medica shall use commercially reasonable efforts to fill that purchase
          order but
          will not be liable to Nephros if despite those best efforts they fail to
          do
          so.

         

        (e)  Medica
          shall acknowledge and accept in writing (by fax, email, or other means
          of
          correspondence, tbd) on behalf of Medica any purchase order that Nephros
          places
          for Cartridges. Any such purchase order will be deemed accepted by Medica
          if
          Medica does not reject it by written notice to Nephros delivered within
          seven
          Business Days of Medica’s receiving that purchase order. Medica may not reject
          any purchase order that complies with the provisions of this Article
          3.
          If the
          terms of any purchase order are inconsistent with the terms of this agreement,
          the terms of this agreement will control.

         

        (f)  If
          it
          notifies Medica no later than 30 days prior to the date of delivery specified
          in
          any purchase order, Nephros may elect, with respect to some or all of the
          Cartridges ordered in that purchase order, to postpone that date of delivery
          to
          a date that is a number of days after the date of delivery specified in
          that
          purchase order equal to the number of days between the date that purchase
          order
          was delivered to Medica and the delivery date specified in that purchase
          order.
          Nephros may not further postpone delivery of any Cartridges the delivery
          of
          which was previously postponed. For purposes of determining Nephros’s compliance
          with its obligations under Section 3.2(b),
          Nephros
          will be deemed to have purchased in the month of the original date of delivery
          any Cartridges the delivery of which was postponed in accordance with this
          Section 3.2(f).

         

        3.3  Delivery.
          Each
          shipment of Cartridges will be delivered by Medica FOB the applicable Medica
          manufacturing facility or retained in Medica’s warehouse facility, in accordance
          with Nephros instructions for each shipment. Subject to
          Section 3.2(f),
          Medica
          shall deliver by the delivery date specified in a purchase order all of
          the
          Cartridges specified in that purchase order. Nephros is only required to
          pay for
          Cartridges actually delivered. Medica shall make shipping arrangements
          with
          carriers designated in writing by Nephros from the FOB point to points
          specified
          by Nephros, under the agreements that Nephros has with those
          carriers.

         

        3.3.1 Customer
          Delivery.
          For
          cartridges retained in the Medica warehouse, Medica shall deliver these
          Cartridges, FOB the warehouse, in quantities and to addresses specified
          in
          writing (by fax, email, or other means of correspondence, tbd) by Nephros,
          in
          order to fulfill individual Nephros customer orders. Medica will confirm
          these
          orders for delivery in writing (by fax, email, or other means of correspondence,
          tbd), and will notify Nephros upon successful delivery of the Cartridges
          to the
          customer locations specified. 

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        
 

        3.4  Freight,
          Insurance, and Taxes.
          Nephros
          shall pay all freight, insurance, duties, and other fees (except tax on
          income
          to Medica) incurred in connection with sale and shipment of Cartridges
          under
          this agreement.

         

        3.4.1
           Delivery
          to European Community customer.
          Nephros
          will create a European business location holding a V.A.T. registration
          number
          (“Nephros International”).
          Medica will invoice all deliveries for European customers to Nephros
International ,
          which
          will also provide the payment. 

        

        3.5  Delay
          in Delivery.
          If for
          any reason other than an Event of Force Majeure Medica delivers any shipment
          of
          Cartridges later than the date of delivery set out in the Purchase Order,
          Nephros will be entitled to the following as an alternative, in its sole
          discretion, to its rights under Section 3.6
          and
          Section 13.2(a)(7):

         

        	(1)  	
                a
                  5% reduction in the price of each Cartridge in the shipment if
                  the
                  shipment is delivered more than 14 days but less than 21 days
                  late;

              

         

        	(2)  	
                a
                  10% reduction in the price of each Cartridge in the shipment if
                  the
                  shipment is delivered more than 21 days
                  late.

              

         

        3.6  Delivery
          Default Rights.
          If more
          than 28 days have passed since the delivery date for any Cartridges and
          Medica
          has, for any reason other than an Event of Force Majeure, failed to deliver
          those Cartridges, then, in addition to any other remedies it might have
          under
          this agreement or by law, Nephros may cancel that purchase order or the
          portion
          thereof relating to those cartridges, as applicable, and those Cartridges
          will
          constitute Default Cartridges for purposes of Section 1.3.

         

        3.7  Invoices
          and Payment Terms.
          On
          delivery by Medica of a shipment of Cartridges in accordance with
          Section 3.3,
          Medica
          shall issue to Nephros an invoice for that shipment
          stating a price consistent with the terms of this agreement. Nephros shall
          pay
          each such invoice in full within 45 Calendar Days from the date of invoice,
          unless Nephros has rejected the shipment in question in accordance with
          Section 4.2.
          If
          Nephros pays an invoice before Nephros examines the shipment as provided
          in
          Section 4.2
          and
          thereafter determines that one or more Cartridges do not meet the
          Specifications, Medica shall reimburse
          Nephros, by wire transfer, the purchase price of the nonconforming Cartridges
          within 14 Calendar Days of Nephros notifying Medica of that
          nonconformity.

         

        ARTICLE
          4

        QUALITY
          OF THE CARTRIDGE

         

        4.1  Conformity
          with Specifications.
          Any
          Cartridges that Medica manufactures under this agreement must (1) conform
          to the specifications in Schedule 4.1
          (the
“Specifications”)
          and
          (2) be manufactured, labeled, packaged, stored, and tested (while in
          the possession of, stored by, or under the control of Medica) in accordance
          with cGMP.

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        4.2  Conditions
          to Rejection.
          In
          order to be entitled to reject any Cartridge, Nephros must notify
          Medica of any failure of the Cartridge to meet the Specifications or otherwise
          comply with this agreement.

         

        4.3  Rejection.
          (a)
          Nephros
          may reject any Cartridge that does not meet the Specifications or otherwise
          comply with this agreement (any such Cartridge, a “Nonconforming
          Cartridge”).
          If
          Medica accepts that Nephros was entitled to reject that Cartridge, Medica
          shall
          within 14 Calendar Days after Medica receives notice under
          Section 4.2
          replace
          the Nonconforming Cartridge at no additional cost to Nephros (if Nephros
          has
          paid for the Nonconforming Cartridge and Medica has not reimbursed Nephros
          the
          purchase price) or for payment consistent with Section 3.7
          (if
          Nephros has not paid for the Nonconforming Cartridge or if Medica has reimbursed
          Nephros the purchase price).

         

        (b)  If
          Medica
          does not agree that one or more Cartridges constitute Nonconforming Cartridges,
          the Joint Review Committee, consisting of Quality Assurance representatives
          from
          both companies, must consider the matter. If after consideration by the
          Joint
          Review Committee the parties are unable to reach agreement within 45 Calendar
          Days after the date Medica received notice from Nephros under
          Section 4.2,
          they
          shall submit the dispute to arbitration in accordance with
          Section 14.5.

         

        4.4  Nonconformity
          Default Rights.
          If for
          any reason other than an Event of Force Majeure Medica (1) fails to replace
          any Nonconforming Cartridge as required by Section 4.3
          or
          (2) fails to replace any Nonconforming Cartridge within 10 Business Days
          after a dispute
          regarding whether any rejected quantity of Cartridge constitutes Nonconforming
          Cartridge is decided in Nephros’s favor, then, in addition to any other remedies
          it might have under this agreement or by law, Nephros may cancel that purchase
          order or the portion thereof relating to those cartridges, as applicable,
          and
          those Cartridges will constitute Default Cartridges for purposes of
          Section 1.3.

         

        4.5  Acceptance
          of Cartridges.
          If
          Nephros does not notify Medica that one or more Cartridges do not meet
          the
          Specifications or
          otherwise fail to comply with this agreement, those Cartridges will be
          deemed to
          have been
          accepted by Nephros as being fully compliant with the Specifications and
          this
          agreement.

         

        ARTICLE
          5

        PRODUCTION
          PROCESS 

         

        5.1  Joint
          Review Committee.
          The
          parties shall establish and hold meetings of a Joint Review Committee
          annually.

         

        5.2  Material
          Review Board (MRB):
          Activities and trending resulting from materials, components and/or finished
          product manufactured for or under the auspices of Nephros shall be reported
          to
          Nephros Quality Assurance on a monthly
          quarterly
          basis.
          If
          such product and/or materials are

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        involved
          in an external complaint or vigilance report this shall be reported to
          Nephros
          in a timely manner.

         

        5.3  Yields:
          Medica
          product yields for Nephros Products shall be reported to Nephros Quality
          Assurance and R&D on a quarterly basis.

         

        5.4  Process
          Development.
          Medica
          shall use commercially reasonable efforts to develop technical know-how
          that
          would permit them to manufacture the Cartridge less expensively and shall
          no
          less than semiannually furnish the Joint Review Committee with a detailed
          report
          as to their progress in this area.
          Nephros
          and Medica shall at the time of each report determine jointly the actions
          to be
          taken with respect to these findings. 

         

        5.5  Fiber.
          (a)
          In
          manufacturing Cartridges, Medica shall use fiber supplied by Membrana
          Gmbhfiber
          supplier(s) (the “Fiber Supplier)”), a
          German
          company (“Membrana”),
          or
          other fiber suppliers as
          specified by Nephros.

         

        (b)  It
          is a
          condition of Medica’s ability to timely deliver the Cartridges ordered in any
          purchase order that Nephros International
          causes
          the
          Fiber
          Supplier,
          to
          deliver to Medica, at Nephros’ cost and no later than 45
          days
          prior to the delivery date specified in the purchase order, a sufficient
          quantity of fiber conforming to the Specifications to permit Medica to
          manufacture those Cartridges. 

         

        (c)  Medica
          shall store any fiber supplied by the
          Fiber
          Supplier
          in
          accordance with guidelines supplied to Medica by Nephros or the
          Fiber
          Supplier.

         

        (d)  If
          with
          respect to the Cartridges ordered in any given Year the fiber wastage (including
          without limitation as a result of use of fiber in Nonconforming Cartridges)
          exceeds 5%, then promptly after the end of that Year Medica shall reimburse
          Nephros half of the cost to Nephros (including any freight, insurance,
          and sales
          taxes and other duties, fees, and expenses) of the quantity of fiber represented
          by that excess wastage.

         

        5.6  Equipment
          Supplied by Nephros.
          Nephros
          shall supply equipment
          to
          Medica
          (the
“Equipment”),
          for use
          by Medica in performing its obligations under this agreement.
          Nephros
          will retain title to the
          Equipment that
          equipment and
          any
          other equipment that it supplies to Medica in the future for use by Medica
          in
          performing its obligations under this agreement.
          Medica
          shall retain complete and accurate records as to the Equipment, including
          date
          of receipt and maintenance records and traceability to manufactured products
          and/or components.

         

        5.7  Inventory
          of Raw Materials and Spare Parts.
          Medica
          shall at all times manage their inventories of raw materials so as to enable
          Medica to meet Nephros’s demand as specified in the Rolling Forecasts. Medica
          shall also maintain, consistent
          with the manufacturer’s recommendations, an inventory of spare parts of all
          equipment they use to manufacture the Cartridge.

         

        5.8  Sample
          Storage.
          Medica
          shall store no less than two Nephros product samples from each sterilization
          lot
          for the purpose of potential clinical or regulatory investigations.
          Samples

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        are
          to be
          stored in a controlled (warehouse-condition-equivalent) environment for
          at least
          one (1) year beyond their labeled expiration date.

         

        ARTICLE
          6

        QUALITY
          SYSTEM

         

        6.1  General
          Quality Statement:
          Nephros
          product shall be manufactured, assembled and tested in compliance with
          Medica’s
          internal quality system, Nephros supplied specifications and documentation,
          and
          to relevant ISO, EN and FDA standards, guidelines, and regulations.

         

        6.2  Quality
          System Changes:
          Any
          changes to the status of the Medica Quality System shall be reported to
          Nephros
          Quality Assurance and Executive Management within 72 hours. Status changes
          may
          include, but not be limited to the following:

         

        	a)  	
                ISO
                  Certifications or CE Marking status
                  changes

              

        

        	b)  	
                Process
                  or material failures, including significant vendor related failures
                  or
                  relevant vendor terminations due to quality related
                  issues

              

        

        	c)  	
                Direct
                  manufacturing process or materials
                  changes

              

        

        	d)  	
                Specification
                  changes for supplemental manufacturing processes, equipment, or
                  materials

              

        

        6.3  Vendor
          Quality:
          The
          quality ratings of vendors that supply materials used in the
          manufacture/assembly and/or testing of Nephros product shall be reported
          to
          Nephros quality in a manner consistent with the Medica quality system.
          Any
          corrective actions, regulatory holds, suspensions, or terminations of vendors
          related to Nephros product shall be reported to Nephros Quality Assurance
          in a
          timely manner.

         

        6.4  Vigilance
          System.
          Medica
          shall handle any and all international product complaints and vigilance
          reporting that results from the use of Nephros product. A monthly trending
          report shall be issued to Nephros Quality Assurance detailing the aforementioned
          complaints and vigilance incidents and corrective action activities. The
          following statements outline the responsibilities for the handling and
          reporting
          of complaints and vigilance reportable incidents:

         

        a)  All
          vigilance reports shall be communicated to Nephros Quality Assurance within
          24
          to 48 hours of evaluation and confirmation.

        

        b)  All
          individual complaints shall be communicated to Nephros for evaluation and
          confirmation.

        

        c)  Complaints
          shall be evaluated for confirmation both by Medica upon receipt and by
          Nephros
          following communication from Medica.

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        
 

        d)  Complaint
          investigations shall be a shared process between Medica (QA, Manufacturing,
          and
          Engineering) and Nephros (QA and R&D).

        

        e)  All
          investigation reports shall be issued jointly and in a timely manner to
          satisfy
          the requirements for vigilance reporting (when necessary).

         

        f)  When
          a
          complaint is determined to be a vigilance reportable event then Medica
          shall be
          responsible for administering and reporting Nephros product related vigilance
          incidents to the necessary competent authorities within 10 days or as outlined
          in the Nephros
          Quality
          System.

         

        g)  Any
          vigilance reportable complaint shall be forwarded to the
          Nephros Authorized Representative
          for
          reporting to the appropriate Competent Authority

         

        h)  Medica
          shall copy Nephros Quality Assurance within 24-48 hours on all and any
          vigilance
          reporting, including health outcome, relationship between the incidents,
          and
          timeliness of reporting the vigilance incident to the Competent
          Authorities.

        

        6.5  Quality
          Records and Reports: All
          manufacturing specifications and production records shall be maintained
          on-site
          (and when relevant, at an off-site storage facility) in compliance with
          Nephros
          policies and procedures, ISO, EN and MDD standards and guidelines. These
          records
          shall be made available for review by Nephros staff and appropriate third
          parties for auditing and monitoring purposes.

         

        a)  The
          distribution and storage records for Nephros products, including product
          status
          and transfer to warehousing facilities and/or end user distribution, shall
          be
          maintained and a report sent to Nephros QA (USA) and Finance (Dublin) on
          a
          quarterly basis.

         

        b)  Manufacturing
          reconciliation reports, which shall indicate final manufacturing yield
          quantities versus the amount of product and materials used in production
          for
          Quality Control testing and the amount lost as scrap, shall be presented
          to
          Nephros QA and Finance on a quarterly basis.

         

        6.6  Import/Export
          Compliance and Documentation:
          Medica
          shall remain in compliance with relevant domestic (European Union) and
          international regulations and standards governing the transportation, export
          and
          importation of Nephros product throughout the European Union, Free Trade
          States,
          and International locations and user port locations. All import/export
          related
          documentation including bills of lading, customs forms, carnets, government
          required certificates, tariff classifications and rulings, valuation information
          and calculations, invoices, and customs broker communications (including
          compliance forms) shall be maintained in discrete files on-site at Medica
          with
          an exact copy sent to Nephros QA for each shipment on a quarterly
          basis.

         

        a)  Tariff
          classifications and rulings, valuation (and associated calculations) and
          invoice
          data shall be checked for correctness and assured accurate.

         

        b)  All
          financial data as related to Nephros materials and equipment supplied to
          Medica
          for the manufacture of Nephros products and/or component materials free
          of
          charge

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        or
          at a
          reduced rate (including pro-rated or used supplies) and deemed a manufacturing
          Assist shall be fully documented relative to the use and price of such
          materials/equipment. The use of the aforementioned materials/equipment
          shall be
          tracked relative to overall value and production consumption - including
          an
          estimate of the value of such considered to be included in the overall
          final
          price of the Nephros product. These data shall be supplied to Nephros QA
          and
          Finance on a quarterly basis. 

         

        ARTICLE
          7

        OTHER
          OBLIGATIONS
          OF
MEDICA

         

        7.1  Debarment
          Certification.
          Medica
          may not knowingly, after due inquiry, employ, contract with, or retain
          any
          Person directly or indirectly in connection with its manufacture of Cartridges
          if that Person has been debarred by the FDA under 21 U.S.C. 335a(k) (Section
          306, Federal Food, Drug and Cosmetic Act). On written request from Nephros,
          Medica shall within 10 Business Days provide Nephros written confirmation
          that
          they have complied with the foregoing obligation.

         

        7.2  Permits
          and Certifications.
          Medica
          currently has all Permits and Certifications necessary to enable it to
          perform
          all its obligations under this agreement. At all times during the term
          of this
          agreement Medica shall maintain those Permits and secure any additional
          Permits
          that become necessary.

         

        7.3  Manufacturing
          Problems.
          Medica
          shall promptly notify Nephros if it experiences any significant problems
          in
          manufacturing Cartridges, shall use commercially reasonable efforts to
          resolve
          those problems, and shall keep Nephros informed of the status of those
          efforts.
          Medica
          shall send Nephros QA a quarterly report of the findings and resolutions
          of the
          internal Materials Review Board (MRB) - indicating any and all manufacturing
          quality issues as related to the production of Nephros product. 

         

        7.4  Insurance.
          (a)
          Medica shall at its cost obtain and maintain one or more insurance policies
          providing coverage as
          specified in Schedule 7.4 that
          covers
          Medica
          for fire, theft, fidelity, product liability, and any and all potential
          claims,
          suits, losses,
          expenses, or damages arising out of Medica’s obligations under this agreement.
          At Nephros’s request to Medica from time to time, Medica shall furnish Nephros
          with certification of insurance evidencing that insurance and shall provide
          at
          least 30 Business Days prior written notice to Nephros of any cancellation
          of or
          decrease in the dollar amount of coverage provided by any such
          policy. 

         

        (b)
          Nephros
          shall at its cost obtain and maintain product-liability insurance
          coverage as
          specified in Schedule 7.4 in
          relation to the Cartridge.
          At the
          request of Medica from time to time, Nephros shall furnish Medica with
          certification of insurance evidencing that insurance and shall provide
          at least
          30 Business Days prior written notice to Medica of any cancellation of
          or
          decrease in the amount of coverage provided by any such policy.

         

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        ARTICLE
          8

        INSPECTIONS;
          RECORDS

         

        8.1  Notification
          of Inquiries and Inspections.
          Medica
          shall notify Nephros within seven Business Days of any written or oral
          inquiries, notifications, or inspection activity by any Governmental Authority
          in regard to Medica’s manufacture of Cartridges. Medica shall permit up to two
          individuals selected by Nephros to attend any such inspections and shall
          provide
          Nephros with an accurate and reasonably complete description of any such
          inquiries, notifications, or inspections. Medica shall also furnish to
          Nephros
          (1) within three Business Days after receipt any report or correspondence
          issued by any Governmental Authority in connection with any such inquiries,
          notifications, or inspections, and (2) not later than ten Business Days
          prior to the time Medica proposes to send it, a copy of any proposed response
          or
          explanation relating to any such inquiries, notifications,
          or inspections or any report or correspondence issued by any Governmental
          Authority in connection therewith (each, a “Proposed
          Response”),
          in
          each case redacted of trade secrets or other confidential or proprietary
          information of Medica that are unrelated to Medica’s obligations under this
          agreement or are unrelated to manufacture of Cartridges. Medica shall discuss
          with Nephros any Proposed Response and shall incorporate in that Proposed
          Response any reasonable comments provided by Nephros with respect to that
          Proposed Response. After filing a response with any Governmental Authority,
          Medica shall within 5 Business Days notify Nephros of any further contacts
          with
          that Governmental Authority with respect to that response.

         

        8.2  Access
          to Medica Facilities and Records.
          Medica
          shall at Nephros’s request give Nephros and any designee of Nephros reasonable
          access to Medica’s facilities, procedures, and books and records, including
          Medica’s protocols, standard operating procedures (SOPs), equipment
          specifications, and manufacturing records, for purposes of (1) observing
          manufacturing operations and (2) auditing and inspecting Medica’s
          facilities for compliance with applicable Laws and the terms of this agreement.
          Nephros acknowledges that it and its designee may be permitted only to
          review,
          rather than
          obtain copies of, certain proprietary documents of Medica; Medica shall
          at
          Nephros’s request provide Nephros with a copy of any other document that Nephros
          requests.

         

        8.3  Records.
          Medica
          shall maintain all records necessary to evidence compliance with all applicable
          Laws and other requirements of applicable Governmental Authorities relating
          to
          the manufacture of the Cartridge. Medica shall also maintain records with
          respect to its costs, obligations, and performance under this agreement.
          All
          such records shall be maintained for a period of not less than two years
          from
          the date of expiration of each
          Cartridge batch to which those records pertain, or such longer period as
          may be
          required by Law,
          or
          cGMPs,
          and the
          MDD.

         

        ARTICLE
          9

        CARTRIDGE
          RECALLS

         

        9.1  Cartridge
          Recalls.
          If any
          Governmental Authority withdraws its approval to sell the Cartridge in
          any
          country or issues a directive or request that some or all Cartridges be
          recalled
          for safety reasons relating to the Cartridge or Nephros reasonably determines
          that some or all Cartridges should be recalled, and if that recall is due
          to any
          reason other than Medica having manufactured Cartridge that fails to conform
          to
          the Specifications or that was not manufactured in

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        accordance
          with any applicable Laws, Nephros shall pay all costs, including Medica’s
          reasonable out-of-pocket expenses, associated with that recall.

         

        9.2  Notice
          of Events that May Lead to Cartridge Recall.
          Medica,
          on the one hand, and Nephros, on the other hand, shall keep each other
          fully and
          promptly informed of any notification, event, or other information, whether
          received directly or indirectly, that might affect
          the marketability, safety or effectiveness of the Cartridge or might result
          in a
          recall of any Cartridges by any Governmental Authority.

         

        9.3  Recall
          Due to Breach By Medica.
          If
          there occurs any Cartridge recall that is due to Medica having manufactured
          one
          or more Cartridges that fail to conform to the Specifications or that were
          not
          manufactured in accordance with any applicable Laws, Medica will be responsible
          for the costs of that recall, Medica shall
          promptly, at the election of Nephros, compensate
          Nephros for the Cartridge so recalled by either replacing without charge
          Cartridges recalled or refunding Nephros the price paid by Nephros to Medica
          for
          the Cartridges recalled, plus freight, insurance, sales taxes, and other
          duties,
          fees, and expenses paid by Nephros.

         

        9.4  Definition
          of Recall.
          For
          purposes of this Article 8, “recall” means any action by Nephros or any of
          its Affiliates, or either Medica or any of its Affiliates, to recover title
          or
          possession or halt distribution or use of any Cartridges sold or shipped
          to any
          other Persons. The term “recall” also applies to Cartridge that would have been
          subject to recall if it had been sold or shipped.

         

        ARTICLE
          10

        PUBLICITY;
          CONFIDENTIALITY; INTELLECTUAL PROPERTY

         

        10.1  Publicity.
          (a)
          Except
          as required by Law or the standards of any securities or regulatory authority,
          including without limitation the National Association of Securities Dealers,
          Medica and Nephros may not make any official press release, announcement,
          or
          other formal publicity relating to the transactions
          that are the subject of this agreement without first obtaining in each
          case the
          prior written consent of Nephros and Medica, respectively (which consent
          may not
          be unreasonably withheld).
          If any party is required to file this agreement with the Securities and
          Exchange
          Commission or another applicable securities regulatory authority, that
          party
          must seek confidential treatment for any provisions of this agreement that
          either party believes would disclose trade secrets, confidential commercial,
          or
          financial information and thereby impair the value of the contractual rights
          represented by this agreement or provide detailed commercial and financial
          information to competitors or other Persons. Except as required by Law
          or the
          standards of any securities regulatory authority, Medica and Nephros may
          not use
          the name Nephros and Medica, respectively, or any director, officer or
          employee
          thereof or any adaptation thereof without the prior written approval of
          Nephros
          and Medica, respectively.

         

        (b)  Medica
          shall send to Nephros for its approval at least 30 Business Days before
          it is
          filed or submitted any publication, abstract, or patent application resulting
          from this agreement. The authorship on any publication or abstract will
          be
          determined by agreement of the parties or as deemed scientifically appropriate.
          Any publication resulting from this

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        agreement
          will be delayed or prohibited if, in Nephros’ reasonable opinion, delay or
          prohibition is required in order to file or procure patent application
          or rights
          protection in respect of any invention or discovery arising from this agreement.
          Publication by Medica of any information relating to the Cartridge is subject
          to
          the provisions of Section 10.2.

         

        10.2  Confidentiality.
          (a)
          It is
          contemplated that Medica may from time to time disclose Confidential Information
          to Nephros, or vice versa. Medica shall take all reasonable steps to prevent
          disclosure of Nephros Confidential Information and not to use any Nephros
          Confidential Information, and Nephros shall take all reasonable steps to
          prevent
          disclosure of Medica
          Confidential Information and not to use any Medica Confidential Information,
          in
          either case except for the limited purposes set forth in this
          agreement.

         

        (b)  A
          party
          receiving Confidential Information may disclose it to those of its
          Representatives who need to review that Confidential Information in connection
          with that party’s performance of its obligations and evaluation of its rights
          under this agreement. Any party who so discloses any Confidential Information
          pursuant to this Section 10.2(b)
          shall
          (1)  inform those Persons of the confidential nature of that Confidential
          Information, and (2) direct those Persons to keep that Confidential
          Information confidential.

         

        (c)  The
          provisions of this Section 10.2
          will
          survive termination or expiration of this agreement and will continue for
          a
          period of 5 years from the date of that termination or expiration.

         

        10.3  Pre-existing
          and Independently Developed Intellectual Property.
          Nothing
          in this agreement affects the ownership by any party of any Intellectual
          Property owned or in the possession of that party on the date of this agreement
          or Intellectual Property developed independently of this agreement or without
          reference to any of the Confidential Information or Intellectual Property
          of
          Medica (in the case of Nephros) or Nephros (in the case of Medica).

         

        10.4  Ownership.
          (a)
          Except
          as specified elsewhere in Section 10.4,
          all
          rights in patents, inventions, processes, discoveries, and other research
          materials and any other novel or valuable information reflected in any
          medium
          that arise or are created during the course of this agreement are the property
          of the creating party.

         

        (b)  Intellectual
          Property, whether or not patentable, that arises in connection with this
          agreement and is made solely by an employee or agent of Nephros and without
          reference to any Confidential Information or Intellectual Property disclosed
          by
          Medica will be owned by Nephros (that Intellectual Property, “Nephros
          Inventions”).

         

        (c)  Intellectual
          Property, whether or not patentable, that arises in connection with this
          agreement and is made solely by an employee or agent of a party with reference
          to Confidential Information or Intellectual Property of Medica (in the
          case of
          Nephros) or Nephros (in the case of Medica) or is made jointly by employees
          or
          agents of Nephros and Medica will be jointly owned (that Intellectual Property,
          “Joint
          Inventions”).

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        (d)  Intellectual
          Property, whether or not patentable, that arises under this agreement and
          is
          made solely by an employee or agent of Medica and without reference to
          any
          Confidential Information or Intellectual Property disclosed by Nephros
          will be
          owned by Medica (that Intellectual Property, “Medica
          Inventions”).

         

        (e)  Inventorship
          will be determined according to applicable patent law.

         

        (f)  Medica
          and Nephros shall promptly disclose to each other in writing each invention
          and
          discovery conceived or reduced to practice in connection with this
          agreement.

         

        (g)  Intellectual
          Property arising in connection with this agreement and in the possession
          of a
          party other than the party that owns that Intellectual Property will be
          treated
          as having been disclosed to that party by the party that owns that Intellectual
          Property and will constitute Confidential Information of the party that
          owns
          that Intellectual Property.

         

        (h)  Neither
          joint owner of any Joint Invention may sublicense that Joint Invention
          without
          the written consent of the other joint owner, which no joint owner may
          unreasonably withhold or delay.

         

        10.5  Limited
          License.
          Medica
          and Nephros each grants the other a limited, non-exclusive, royalty-free
          license
          to its Intellectual Property (whether pre-existing or arising in connection
          with
          this agreement) to the extent necessary to permit it to carry out its
          obligations under this agreement. Any
          such
          license will expire upon termination of this agreement and will not be
          transferable or sublicensable.

         

        10.6  Maintenance
          of Patents.
          (a)
          Nephros
          shall file, prosecute and maintain patent applications and resulting patents,
          if
          any, on Nephros Inventions and on any Joint Inventions insofar as they
          do not
          relate to manufacture of the Cartridge.

         

        (b)  Medica
          shall file, prosecute and maintain patent applications and resulting patents,
          if
          any, on Medica Inventions or on any Joint Inventions relating to manufacture
          of
          the Cartridge.

         

        (c)  Medica,
          on the one hand, and Nephros, on the other hand, shall share equally reasonable
          patent expenses for any Joint Invention, and shall promptly reimburse the
          filing
          party upon presentation of an invoice by the filing party.

         

        (d)  The
          non-filing party is entitled to review and comment in a timely manner on
          any
          such patent filings (applications and response to office actions) prior
          to
          submission to the relevant patent offices. Each party is responsible for
          filing,
          prosecuting, and maintaining patent applications and resulting patents
          on any
          invention owned solely by it.

         

        10.7  Reservation
          of All Other Rights.
          Except
          as expressly set forth in this agreement, nothing contained herein may
          be
          construed as doing the following:

         

        	(1)  	
                giving
                  Medica any rights to any Intellectual Property of Nephros or any
                  other
                  proprietary technology of Nephros (whether pre-existing Intellectual
                  Property or Intellectual Property arising in connection with this
                  agreement), including without limitation any of Nephros' patent
                  rights
                  relating to the design, development, testing, use, and sale of
                  the
                  Cartridge; or

              

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        	(2)  	
                giving
                  Nephros any rights to any Intellectual Property of Medica or any
                  other
                  proprietary technology of Medica (whether pre-existing Intellectual
                  Property or Intellectual Property arising in connection with this
                  agreement).

              

         

        ARTICLE
          11

        REPRESENTATIONS

         

        11.1  Representations
          of Medica.
          Medica
          represents to Nephros as follows:

         

        (a)  Medica
          is
          a corporation validly existing under the laws of its jurisdiction of
          organization with the power to own all of its properties and assets and
          to carry
          on its business as it is currently being conducted.

         

        (b)  Medica
          has the power to execute and deliver this agreement and to perform its
          obligations under this agreement.

         

        (c)  Medica’s
          Chief Executive Officer, or Amministratore Unico (AU), has duly authorized
          Medica to execute and deliver this agreement and perform its obligations
          under
          this agreement, and no other corporate proceedings of Medica are necessary
          with
          respect thereto.

         

        (d)  This
          agreement constitutes its valid and binding obligation, enforceable in
          accordance with its terms, except as enforceability is limited by
          (A) any
          applicable bankruptcy, insolvency, reorganization, moratorium or similar
          law
          affecting creditors’ rights generally, or
          (B) general
          principles of equity, whether considered in a proceeding in equity or at
          law.

         

        (e)  Medica
          is
          not required to obtain the Consent of any Person, including the Consent
          of any
          party to any Contract to which it is a party, in connection with execution
          and
          delivery of this agreement and performance of its obligations under this
          agreement.

         

        (f)  Medica
          is
          the rightful owner or licensee of any Intellectual Property that it may
          use in
          performing its obligations under this agreement.

         

        (g)  Medica’s
          execution and delivery of this agreement and performance of its obligations
          under this agreement do not (A) violate
          any provision of its articles of incorporation or by-laws, as applicable,
          as
          currently in effect, (B) conflict with, result in a breach of, constitute a
          default under (or an event which, with notice or lapse of time or both,
          would
          constitute a default under), accelerate the performance required by, result
          in
          the creation of any Lien upon any of its properties or assets under, or
          create
          in any party the right to accelerate, terminate, modify, or cancel, or
          require
          any notice under, any Contract to which it is a party or by which any of
          its
          properties or assets are bound, or
          (C) violate
          any Law or Order currently in effect to which it is subject.

         

        11.2  Representations
          of Nephros.
          Nephros
          represents to Medica as follows:

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        (a)  Nephros
          is a corporation validly existing and in good standing under the law of
          the
          State of Delaware with the power to own all of its properties and assets
          and to
          carry on its business as it is currently being conducted.

         

        (b)  Nephros
          has the power to execute and deliver this agreement and to perform its
          obligations under this agreement.

         

        (c)  Nephros’
          board of directors has duly authorized Nephros to execute and deliver this
          agreement and perform its obligations under this agreement, and no other
          corporate proceedings of Nephros are necessary with respect
          thereto.

         

        (d)  This
          agreement constitutes the valid and binding obligation of Nephros, enforceable
          in accordance with its terms, except as enforceability is limited by
          (A) any
          applicable bankruptcy, insolvency, reorganization, moratorium or similar
          law
          affecting creditors’ rights generally, or
          (B) general
          principles of equity, whether considered in a proceeding in equity or at
          law.

         

        (e)  Nephros’
          execution and delivery of this agreement and performance of its obligations
          under this agreement do not (A) violate
          any provision of Nephros’ articles of incorporation or by-laws as currently in
          effect, or (B) violate any Law or Order currently in effect to which
          Nephros is subject.

         

        ARTICLE
          12

        INDEMNIFICATION

         

        12.1  Indemnification.
          (a)
          Medica
          shall indemnify Nephros, each Affiliate of Nephros, each Representative
          of
          Nephros, and the heirs, executors, successors, and assigns of any of the
          foregoing, against the following Indemnifiable Losses:

         

        	(1)  	
                Indemnifiable
                  Losses arising out of breach by Medica of any of its obligations
                  under
                  this agreement;

              

         

        	(2)  	
                Indemnifiable
                  Losses arising out of any inaccuracy in any representations of
                  Medica
                  contained in this agreement;

              

         

        	(3)  	
                Indemnifiable
                  Losses arising out of any claim that any Intellectual Property
                  of Medica
                  employed by Medica under this agreement conflicts with the Intellectual
                  Property Rights of any other Person; and

              

         

        	(4)  	
                Indemnifiable
                  Losses arising out of any Cartridges that have been manufactured
                  by Medica
                  under this agreement, on condition that those Indemnifiable Losses
                  are due
                  to breach by Medica of any of its obligations under this agreement
                  or the
                  negligence or willful misconduct of Medica or any of its agents
                  or
                  Representatives.

              

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        (b)  Nephros
          shall indemnify each Medica Entity, each Affiliate of each Medica Entity,
          each
          Representative of each Medica Entity, and the heirs, executors, successors,
          and
          assigns of any of the foregoing, against the following Indemnifiable
          Losses:

         

        	(1)  	
                Indemnifiable
                  Losses arising out of breach by Nephros of any of its obligations
                  under
                  this agreement;

              

         

        	(2)  	
                Indemnifiable
                  Losses arising out of any inaccuracy in any representations of
                  Nephros
                  contained in this agreement;

              

         

        	(3)  	
                Indemnifiable
                  Losses arising out of any claim that any Intellectual Property
                  of Nephros
                  required to manufacture the Cartridge conflicts with the Intellectual
                  Property Rights of any other Person; and

              

         

        	(4)  	
                Indemnifiable
                  Losses arising out of any Cartridges that have been manufactured
                  by Medica
                  under this agreement,
                  unless those Indemnifiable Losses are due to breach by Medica of
                  any of
                  its obligations under this agreement or the
                  negligence or willful misconduct of Medica or its agents or
                  Representatives.

              

         

        12.2  Procedures
          Relating to Indemnification. (a)
          In order
          to be entitled to indemnification under this Article 11 in connection with
          a claim made by any Person against any other Person with respect to which
          that
          other Person (an “Indemnified
          Party”)
          is
          entitled to indemnification pursuant to this Article 11 (any such claim, a
“Third
          Party Claim”),
          that
          Indemnified Party must do the following:

         

        	(1)  	
                notify
                  the Person or Persons obligated to indemnify it (the “Indemnifying
                  Party”)
                  in writing, and in reasonable detail, of that Third Party Claim
                  as soon as
                  possible but in any event within 10 Business Days after receipt
                  of notice
                  of that Third Party Claim, except that any failure to give any
                  such
                  notification will only affect the Indemnifying Party’s obligation to
                  indemnify the Indemnified Party if the Indemnifying Party has been
                  prejudiced as a result of that failure;
                  and

              

         

        	(2)  	
                deliver
                  to the Indemnifying Party as soon as possible but in any event
                  within 10
                  Business Days after the Indemnified Party receives a copy of all
                  notices
                  and documents (including court papers) delivered to that Indemnified
                  Party
                  relating to that Third Party Claim.

              

         

        (b)  In
          the
          event of a Third Party Claim against one or more Indemnified Parties, the
          Indemnifying Party may participate in the defense of that Third Party Claim
          and,
          if it so chooses, assume at its expense the defense of that Third Party
          Claim
          with counsel selected by the Indemnifying Party and reasonably satisfactory
          to
          the Indemnified Party. If the Indemnifying Party so elects to assume the
          defense
          of a Third Party Claim, the Indemnifying Party will not be liable to the
          Indemnified Party for any legal expenses subsequently incurred by the
          Indemnified Party in connection with the defense of that Third Party Claim,
          except that if, under applicable standards of professional conduct, there
          exists
          a conflict on any significant issue between the Indemnified Party and the
          Indemnifying Party in connection with that Third Party Claim, the Indemnifying
          Party shall pay the reasonable fees and expenses of one additional counsel
          to
          act

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        with
          respect to that issue to the extent necessary to resolve that conflict.
          If the
          Indemnifying Party assumes defense of any Third Party Claim, the Indemnified
          Party will be entitled to participate in the defense of that Third Party
          Claim
          and to employ counsel, at its own expense, separate from counsel employed
          by the
          Indemnifying Party, it being understood that the Indemnifying Party will
          be
          entitled to control that defense. The Indemnifying Party will be liable
          for the
          fees and expenses of counsel employed by the Indemnified Party for any
          period
          during which the Indemnifying Party did not assume the defense of any Third
          Party Claim (other than during any period in which the Indemnified Party
          failed
          to give notice of the Third Party Claim as provided above and a reasonable
          period after such notice). If the Indemnifying Party chooses to defend
          or
          prosecute a Third Party Claim, all the parties shall cooperate in the defense
          or
          prosecution of that Third Party Claim, including by retaining and providing
          to
          the Indemnifying Party records and information reasonably relevant to that
          Third
          Party Claim, and making employees available on a reasonably convenient
          basis. If
          the Indemnifying Party chooses to defend or prosecute any Third Party Claim,
          the
          Indemnified Party will agree to any settlement, compromise or discharge
          of that
          Third Party Claim that the Indemnifying Party recommends, except that the
          Indemnifying Party may not without the Indemnified Party’s prior written consent
          agree to entry of any judgment or enter into any settlement that provides
          for
          injunctive or other non-monetary relief affecting the Indemnified Party
          or that
          does not include as an unconditional term that each claimant or plaintiff
          give
          to the Indemnified Party a release from all liability with respect to that
          Third
          Party Claim. Whether or not the Indemnifying Party has assumed the defense
          of a
          Third Party Claim, the Indemnified Party shall not admit any liability
          with
          respect to, or settle, compromise or discharge, that Third Party Claim
          without
          the Indemnifying Party’s prior written consent.

         

        (c)  In
          order
          for any Indemnified Party to be entitled to any indemnification under this
          agreement in respect of a claim that does not involve a Third Party Claim
          (a
“Claim”),
          the
          Indemnified Party must reasonably promptly notify the Indemnifying Party
          of that
          Claim, and describe in reasonable detail the basis for that Claim, except
          that
          any failure to give any such notification will only affect the Indemnifying
          Party’s obligation to indemnify the Indemnified Party if the Indemnifying Party
          has been prejudiced as a result of that failure. If the Indemnifying Party
          does
          not dispute that the Indemnified Party is entitled to indemnification with
          respect to that Claim by notice to the Indemnified Party prior to the expiration
          of a 30-Business-Day period following receipt by the Indemnifying Party
          of
          notice of that Claim from the Indemnified Party, that Claim will be conclusively
          deemed a liability of the Indemnifying Party and the Indemnifying Party
          shall
          pay the amount of that liability to the Indemnified Party on demand or,
          in the
          case of any notice in which the amount of the Claim (or any portion thereof)
          is
          estimated, on such later date as the amount of the Claim (or any portion
          thereof) becomes finally determined. If the Indemnifying Party has timely
          disputed its liability with respect to the Claim, the Indemnifying Party
          and the
          Indemnified Party shall proceed in good faith to negotiate a resolution
          of the
          Claim and, if the Claim is not resolved through negotiations within 60
          Business
          Days following receipt by the Indemnifying Party of notice of that Claim
          from
          the Indemnified Party, the Indemnified Party may take the dispute to arbitration
          pursuant to Section 14.5.

         

        12.3  No
          Liability for Consequential Damages.
          No
          party will be liable to any other for any indirect, consequential, or special
          damages or for loss of profits. This limitation does not,

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        however,
          apply to any obligation of either party to indemnify the other in connection
          with any Third Party Claim. This Section 12.3
          does not
          apply to any liability of a party in respect of death or personal injury
          arising
          out of the negligence or willful misconduct of that party or its agents
          or
          Representatives.

         

        12.4  Limitation
          on Indemnification. (a)
          Each
          party’s exclusive remedy with respect to any Claims will be under the
          indemnification provisions of this Article 12.

         

        (b)  The
          liability of Medica, on the one hand, and Nephros, on the other hand, under
          this
          Article 12 will not exceed the
          purchase value of any quantities of the Cartridge that are the subject
          of any
          Claim or Third Party Claim.

         

        ARTICLE
          13

        TERM
          AND
          TERMINATION

         

        13.1  Term.
          The
          term of this agreement is specified
          in Schedule 13.1,
          with
          automatic renewal for additional successive one-year terms unless no
          later
          than 90 days prior to the end of the initial term or any one-year renewal
          term
          either party notifies the
          other
          that it wishes to terminate this Agreement effective the end of the initial
          term
          or that one-year renewal term, as applicable.

         

        13.2  Termination.
          (a)
          This
          agreement may be terminated as follows:

         

        	(1)  	
                by
                  Nephros upon 10 Business Days’ written notice to Medica if any
                  representation made in this agreement by Medica was materially
                  inaccurate
                  when made and either (1) that inaccuracy has contributed to Nephros’s
                  incurring Indemnifiable Losses or (2) Medica fails to take action to
                  render the inaccurate representation accurate as if it were made
                  on the
                  day Nephros would otherwise be entitled to terminate this agreement
                  under
                  this Section 13.2(a)(1);

              

         

        	(2)  	
                by
                  Medica upon 10 Business Days’ written notice to Nephros if any
                  representation made in this agreement by Nephros was materially
                  inaccurate
                  when made and either (1) that inaccuracy has contributed to either or
                  both Medica Entities’ incurring Indemnifiable Losses or (2) Nephros
                  fails to take action to render the inaccurate representation accurate
                  as
                  if it were made on the day Medica would otherwise be entitled to
                  terminate
                  this agreement pursuant to this Section 13.2(a)(2);

              

         

        	(3)  	
                by
                  Nephros immediately if Medica has breached any of its material
                  obligations
                  under this agreement and, if it is curable, has not cured that
                  breach
                  prior to expiration of a 45-Business-Day period from the date of
                  breach;

              

         

        	(4)  	
                by
                  Medica immediately if Nephros has breached any of its material
                  obligations
                  under this agreement and, if it is curable, has not cured that
                  breach
                  prior to expiration of a 45-Business-Day period from the date of
                  breach;

              

         

        	(5)  	
                by
                  Nephros immediately if there occurs an Event of Insolvency with
                  respect to
                  Medica;

              

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        	(6)  	
                by
                  Medica immediately if there occurs an Event of Insolvency with
                  respect to
                  Nephros;

              

         

        	(7)  	
                by
                  Nephros, if for any reason other than an Event of Force Majeure
                  Medica
                  fails to deliver within 40 days after the required delivery date,
                  or on
                  more than two occasions in any 90-day period fails to deliver within
                  20
                  Business Days after the required delivery day, any shipment of
                  Cartridge
                  it is required to deliver pursuant to Section 3.2,
                  Section 4.2,
                  or Section 9.3;

              

         

        	(8)  	
                by
                  Medica or Nephros on 15 Business Days’ prior written notice to Nephros or
                  Medica, respectively, if due to an Event of Force Majeure (A) Nephros
                  or (B) Medica or both of them, respectively, is prevented from
                  performing an obligation under this agreement for more than 60
                  days,
                  unless prior to the end of the 15-Business-Day period the Event
                  of Force
                  Majeure ceases to exist and the party prevented from performing
                  resumes
                  performance under this agreement and notifies the party giving
                  the notice
                  of termination; 

              

         

        (b)  The
          parties may terminate this agreement at any time by written
          agreement.

         

        13.3  Effect
          of Termination.
          (a)
          Expiration of the term of this agreement and termination under 13.2
          will
          have one or more of the following consequences according to the table set
          out
          below:

         

        
          	
                  A

                	
                  Nephros
                    shall pay to Medica, and Medica shall pay to Nephros, all amounts
                    payable
                    up to the date of termination but not yet paid.

                

        

         

        
          	
                  B

                	
                  Nephros
                    shall purchase and Medica shall manufacture and deliver to Nephros
                    consistent with the terms of this agreement all Cartridges ordered
                    by
                    Nephros but not yet delivered to
                    Nephros.

                

        

         

        
          	C            
                  	
                  Nephros
                    shall pay Medica an amount equal to the purchase price of any
                    Cartridges
                    manufactured in connection with purchase orders that remain open
                    on the
                    date of termination of this agreement and Medica shall deliver
                    to Nephros
                    pursuant to Section 3.2
                    those Cartridges.

                

        

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        
          	
                  Grounds
                    for Termination

                   

                	
                  Consequences

                   

                
	
                  Expiration
                    under 13.1

                   

                	
                  A

                   

                
	
                  13.2(a)(1)

                   

                	
                  A
                    and, at Nephros’ option, either B or C

                   

                
	
                  13.2(a)(2)

                   

                	
                  A
                    and, at Nephros’ option, either B or C

                   

                
	
                  13.2(a)(3)

                   

                	
                  A
                    and, at Nephros’ option, either B or C

                   

                
	
                  13.2(a)(4)

                   

                	
                  A
                    and, at Nephros’ option, either B or C

                   

                
	
                  13.2(a)(5)

                   

                	
                  A
                    and, at Nephros’ option, either B or C

                   

                
	
                  13.2(a)(6)

                   

                	
                  A
                    and, at Nephros’ option, either B or C

                   

                
	
                  13.2(a)(7)

                   

                	
                  A
                    and, at Nephros’ option, either B or C

                   

                
	
                  13.2(a)(8)

                   

                	
                  AB

                   

                
	
                  13.2(b)

                   

                	
                  A

                   

                

        

         

        (b)  Upon
          any
          termination (including expiration) of this agreement, each party shall
          return to
          the other party all documents and other tangible items it or its employees
          or
          agents have received or created pursuant to this agreement pertaining,
          referring, or relating to Confidential Information of the other
          party.

         

        (c)  Termination
          of this agreement will not affect rights and obligations of either party
          that
          may have accrued prior to the date of termination or any obligation contained
          in
          Sections 10.1 and 10.2, Article
          122,
          Article
          133,
          and
          Sections 14.3,
          14.4,
          and
14.5.

         

        ARTICLE
          14

        MISCELLANEOUS

         

        14.1  Definitions.
          When
          used in this agreement, the following terms have the following
          meanings:

         

        “Affiliate”
          means,
          with
          respect to any given Person, any other Person at the time directly or indirectly
          controlling, controlled by or under common control with that Person, or
          (2) any
          director, officer or employee of that Person. For purposes of this Agreement,
          “control”
means
          the possession, directly or indirectly, of the power to direct or cause
          the
          direction of the management and policies of a Person, whether through ownership
          of voting securities, by contract or otherwise.

         

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

         

        “cGMPs”
means
          current Good Manufacturing Practices (as provided for, respectively, in
          the
          Rules Governing Medicinal Products in the European Community Volume 4 (Guide
          to
          Good

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        Manufacturing
          Practice for Medicinal Products) and by the FDA as set out in 21 C.F.R.
          210 and
          21 C.F.R. 211, as amended from time to time).

         

        “Confidential
          Information”
means
          all data, specifications, training, and any other know-how related to the
          design, development, manufacture, or performance of the Cartridge, as well
          as
          all other information and data provided by either party to the other party
          pursuant to this agreement in written or other tangible medium and marked
          as
          confidential, or if disclosed orally or displayed, confirmed in writing
          within
          30 Business Days after disclosure and marked as confidential, except that
          the
          term “Confidential Information” does not include the following:

         

        
          	
                  (1)

                	
                  information
                    that is or becomes generally available to the public other than
                    as a
                    result of a breach of this agreement by the receiving party or its
                    Representatives;

                

        

         

        
          	
                  (2)

                	
                  information
                    that was within the receiving party’s possession or knowledge prior to its
                    being furnished to the receiving party by or on behalf of the
                    disclosing
                    party, on condition that the source of that information was not
                    bound by a
                    confidentiality agreement with or other contractual, legal or
                    fiduciary
                    obligation of confidentiality to the disclosing party or any other
                    Person with respect to that
                    information;

                

        

         

        
          	
                  (3)

                	
                  information
                    that is or becomes available to the receiving party on a non-confidential
                    basis from a source other than the disclosing party or any of
                    its
                    Representatives, on condition that that source was not bound
                    by a
                    confidentiality agreement with or other contractual, legal or
                    fiduciary
                    obligation of confidentiality to the disclosing party or any
                    other Person
                    with respect to that information;
                    or

                

        

         

        
          	
                  (4)

                	
                  information
                    that is independently developed by the receiving party without
                    use of
                    Confidential Information and otherwise in a manner not inconsistent
                    with
                    this letter agreement.

                

        

         

        “Consent”
means
          any approval, consent, ratification, filing, declaration, registration,
          waiver,
          or other authorization.

         

        “Contract”
means
          any oral or written agreement, contract, obligation, promise, arrangement,
          or
          undertaking that is legally binding.

         

        “Event
          of Insolvency”
with
          respect to any Person means any of the following:

         

        
          	
                  (1)

                	
                  the
                    institution by that Person of proceedings under the United States
                    Bankruptcy Code, or any other applicable U.S. federal or state
                    Law or any
                    applicable foreign Law seeking an order for
                    relief;

                

        

         

        
          	
                  (2)

                	
                  the
                    consent of that Person to the institution of bankruptcy or insolvency
                    proceedings against that Person;

                

        

         

        
          	
                  (3)

                	
                  the
                    filing by that Person of a petition seeking reorganization or
                    release
                    under the Federal Bankruptcy Reform Act or any other applicable
                    U.S.
                    federal or state Law or applicable foreign Law, or the consent
                    by that
                    Person to the filing of any such petition or to the appointment
                    of a
                    receiver, liquidator, assignee, trustee, sequestrator (or other
                    similar
                    official) of that Person or of any substantial part of the property
                    of
                    that Person;

                

        

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          	
                  (4)

                	
                  the
                    making by that Person of an assignment for the benefit of
                    creditors;

                

        

         

        
          	
                  (5)

                	
                  admission
                    by that Person of its inability to pay its debts generally as
                    they become
                    due;

                

        

         

        
          	
                  (6)

                	
                  the
                    entry of a decree or order by a court having jurisdiction adjudging
                    that
                    Person bankrupt or insolvent, or approving as properly filed
                    a petition
                    seeking reorganization, arrangement, adjustment or composition
                    of or in
                    respect of that Person under the U.S. Bankruptcy Code or any
                    other
                    applicable U.S. federal or state Law or any applicable foreign
                    Law, or
                    appointing a receiver, liquidator, assignee, trustee, sequestrator
                    (or
                    other similar official) of that Person, or of any substantial
                    part of the
                    property of that Person, or ordering the winding up or liquidation
                    of the
                    affairs of that Person, and
                    (A) that
                    Person consents to that decree or order or
                    (B) that
                    decree or order remains unstayed and in effect for more than
                    60
                    consecutive days.

                

        

         

        “FDA”
means
          the U.S. Food and Drug Administration.

         

        “FOB”
means
          “Free on Board,” as that term is defined in INCOTERMS 2000.

         

        “Governmental
          Authority”
means
          any
          (1) nation,
          state, county, city, town, village, district, or other jurisdiction of
          any
          nature,
          (2) federal,
          state, local, municipal, or other government,
          whether
          U.S. of foreign, (3) governmental
          or quasi-governmental authority of any nature (including any governmental
          agency, branch, department, official, or entity and any court or other
          tribunal,
          including an arbitral tribunal),
          (4) multi-national
          organization or body including the EU and notified bodies, or
          (5) body
          exercising, or entitled to exercise, any administrative, executive, judicial,
          legislative, police, regulatory, or taxing power of any nature.

         

        “Indemnifiable
          Losses”
means
          all losses, liabilities, taxes, damages, deficiencies, obligations, fines,
          expenses, claims, demands, actions, suits, proceedings, judgments or
          settlements, whether or not resulting from Third Party Claims, incurred
          or
          suffered by an Indemnified Party, including interest and penalties with
          respect
          thereto and out-of-pocket expenses and reasonable attorneys’ and accountants’
and experts’ fees and expenses incurred in the investigation or defense of any
          of the same or in asserting, preserving or enforcing any of the Indemnified
          Party’s rights hereunder, net of any amounts recovered or recoverable under any
          insurance policy.

         

        “Intellectual
          Property”
means,
          with respect to any Person, all trademarks, patents, copyrights, and any
          applications for registration thereof, and trade secrets of that Person,
          whether
          owned, used, or licensed by that Person as licensee or licensor.

         

        “Law”
means
          any federal, state, local, municipal, foreign, international, multinational,
          or
          other administrative order, constitution, law, ordinance, principle of
          common
          law, regulation, statute, or treaty.

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        “Lien”
means
          any charge, claim, community property interest, condition, equitable interest,
          lien, option, pledge, security interest, right of first refusal, or restriction
          of any kind, including any restriction on use, voting, transfer, receipt
          of
          income, or exercise of any other attribute of ownership.

         

        “Month”
means
          any of the twelve months of a year.

         

        “Order”
means
          any award, decision, injunction, judgment, order, ruling, subpoena, or
          verdict
          of any court, arbitral tribunal, administrative agency, or other Governmental
          Authority.

         

        “Person”
means
          any individual, corporation (including any non-profit corporation), general
          or
          limited partnership, limited liability company, joint venture, estate,
          trust,
          association, organization, labor union, Governmental Authority or other
          entity.

         

        “Representative”
means,
          with respect to a particular Person, any director, officer, employee, agent,
          consultant, advisor, or other representative of that Person, including
          legal
          counsel, accountants, and financial advisors.

         

        “Year”
means
          (1) the period commencing with the date of this agreement and ending on
          December 31, 20032005,
          (2) any subsequent 12-month period commencing on January 1st and
          ending on December 31st, and (3) the period beginning January 1st of the
          year in which this agreement expires or is terminated and ending on the
          date
          this agreement expires or is terminated.

         

        14.2  Further
          Assurances.
          At any
          time or from time to time from the date of this agreement, Medica, on the
          one
          hand, and Nephros, on the other hand, shall at the request, and at the
          expense,
          of the other do the following:

         

        	(1)  	
                 to
                  the extent consistent with this agreement deliver to the other
                  such
                  records, data, or other documents requested by the other;
                  and

              

         

        	(2)  	
                 take
                  or cause to be taken all such other actions as are reasonably necessary
                  or
                  desirable in order to permit the other to obtain the full benefits
                  of this
                  agreement.

              

         

        14.3  Governing
          Law.
          This
          agreement is governed by the laws of the State of New York without giving
          effect
          to principles of conflict of laws.

         

        14.4  Dispute
          Resolution.
          The
          parties shall attempt in good faith to resolve any controversy
          or claim
          that may
          arise concerning their respective rights and obligations under this agreement.
          If they are unable to do so within 30
          Business
          Days from the date that controversy or
          claim
          arose, they shall refer the controversy
          or claim
          to the
          AU of
          Medica
          and the CEO of Nephros, who shall meet in person or telephonically within
          20
          Business Days of being requested to do so and shall in good faith attempt
          to
          resolve the dispute.
          If the
          controversy or claim cannot then be resolved, the parties hereby agree
          first to
          try in good faith to settle the dispute by mediation administered by the
          American Arbitration Association at its New York City offices before resorting
          to arbitration.

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        14.5  Arbitration.
          Any
          controversy or claim arising out of or relating to this agreement or the
          applicability of this Section 14.5
          that is
          not resolved pursuant to Section 14.4
          will be
          determined by arbitration in accordance with the International Arbitration
          Rules
          of the American Arbitration Association. Unless the parties agree otherwise
          the
          number of arbitrators will be three, each of whom will be appointed by
          the
          American Arbitration Association. One arbitrator must
          be a
          lawyer, the second must be an expert in financial matters, and the third
          must
          have expertise in the manufacture of hemodialysis products. The place of
          arbitration will be New York, New York, U.S.A. The language of the arbitration
          will be English. Prior to the commencement of hearings, each of the arbitrators
          appointed must provide an oath or undertaking of impartiality. Judgment
          upon the
          award rendered by the arbitrators may be entered by any court having
          jurisdiction thereof. The cost of any such arbitration will be divided
          equally
          between Nephros, on the one hand, and Medica, on the other hand, with each
          party
          bearing its own attorneys’ fees and costs.

         

        14.6  Force
          Majeure.
          (a)
          No party
          will be responsible to the other under this agreement for failure or delay
          in
          performing any obligations under this agreement, other than payment obligations,
          due to factors beyond its control, including without limitation any war,
          fire,
          earthquake, or other natural catastrophe, or any act of God, or
          any
          catastrophic supply chain failure, but
          excluding labor disputes involving all or any part of the work force of
          that
          party (each such factor, an “Event
          of Force Majeure”).
          Upon
          the occurrence of an Event of Force Majeure, the party failing or delaying
          performance shall promptly notify the other party in writing, setting forth
          the
          nature of the occurrence, its expected duration, and how that party's
          performance is affected. Any party subject to an Event of Force Majeure
          shall
          use commercially reasonable efforts to resume performing its obligations
          under
          this agreement as soon as practicable. Except as provided in
          Section 14.6(b),
          if an
          Event of Force Majeure occurs, the affected party will be excused from
          performing and the time for performance will be extended as long as
          that
          party
          is unable to perform as result of the Event of Force Majeure.

         

        (b)  If
          any
          Event of Force Majeure prevents Medica from delivering any shipment of
          Cartridges for more than 30 Business Days beyond the scheduled delivery
          date,
          then Nephros may cancel its order without incurring any liability to Medica
          with
          respect thereto and those Cartridges will constitute Default Cartridges
          for
          purposes of Section 1.3.

         

        14.7  Assignment.
          This
          agreement inures to the benefit of and is binding upon the successors and
          assignees of the parties. Neither party may assign any of its rights or
          obligations under this agreement without the prior written consent of the
          other,
          which the other party may not unreasonably withhold, except that Nephros
          may
          upon giving written notice to Medica assign or transfer its rights and
          obligations under this agreement to an Affiliate of Nephros or a successor
          to
          all or substantially all of its assets or business relating to this agreement,
          whether by sale, merger, operation of law, or otherwise.

         

        14.8  Notices. (a)
          Every
          notice or other communication required or contemplated by this agreement
          must be
          in writing and sent by one of the following methods:

         

        	(1)  	
                personal
                  delivery, in which case delivery will be deemed to occur the day
                  of
                  delivery;

              

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        	(2)  	
                by
                  a recognized overnight delivery service such as Federal Express
                  or DHL
                  Worldwide Express, in which case delivery will be deemed to occur
                  the day
                  of delivery.

              

         

        (b)  In
          each
          case, a notice or other communication sent to a party must be directed
          to the
          address for that party set forth below, or to another address designated
          by that
          party by written notice.
          All
          notices to be given by a Medica Entity may be given on its behalf by the
          other
          Medica Entity following consultation between Medica.

         

        if
          to
          Nephros:

         

        Nephros,
          Inc.

        3960
          Broadway

        New
          York,
          NY 10032

        Attention: Norman
          Barta

         

        with
          a
          copy to:

         

        Kramer
          Levin Naftalis & Frankel LLP

        919
          Third
          Avenue

        New
          York,
          NY 10022-3852

        Attention:
          tbd

         

        if
          to
          Medica:

         

        Medica
          s.r.l.

        Via
          Degli
          Artigiani, 6

        41036
          Medolla (MO) Italy

        Attention: Luciano
          Fecondini

         

        14.9  Severability.
          If
          any
          provision of this agreement is held unenforceable by any court of competent
          jurisdiction, all
          other
          provisions of this agreement will remain
          effective. If any
          provision of this agreement is held to be unenforceable only in part or
          degree,
          it will remain effective to the extent not held unenforceable.

         

        14.10  Entire
          Agreement.
          This
          agreement constitutes the entire agreement of the parties pertaining to
          the
          subject matter of this agreement. It supersedes all prior agreements of
          the
          parties, whether oral or written, pertaining to the subject matter of this
          agreement.

         

        14.11  Amendment.
          This
          agreement may not be amended except by an instrument in writing signed
          on behalf
          of both parties.

         

        14.12  Independent
          Contractor.
          Nothing
          in this agreement creates, or will be deemed to create, a partnership or
          the relationship of principal and agent or employer and employee between
          the
          parties. Each party agrees to perform under this agreement solely as an
          independent contractor.

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

        14.13  Counterparts.
          This
          agreement may be executed in counterparts, each of which is an original
          and all
          of which together constitute one and the same instrument.

         

        The
          undersigned are executing this agreement on the date stated in the introductory
          clause.

         

        NEPHROS,
          INC.

         

        By:                                                     

           Name:
          Norman
          J. Barta

           Title:
          CEO

         

        MEDICA
          s.r.l._______________

         

        By:                                                     

          Name:
          Luciano
          Fecondini

           Title:
          Amministratore Unico

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        Manufacturing
          and Supply Agreement: Nephros/Medica

        

        Schedule
          1.3: Medica Exclusivity

        

        Nephros
          shall purchase from Medica the Cartridges directly marketed in Europe by
          Nephros
          (and in such other regions as determined by Nephros) or marketed by Nephros’s
          distributor in Italy. Medica will also be given first consideration in
          good
          faith for the manufacture of Cartridges not otherwise directly marketed
          by
          Nephros. For purposes of Section 1.3, Nephros will be deemed to have
          purchased from Medica any Cartridges that it purchases from any Person
          other
          than Medica to replace Cartridges ordered from Medica that constitute “Default
          Cartridges” under the terms of this Agreement.

         

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        Manufacturing
          and Supply Agreement: Nephros/Medica

        

        Schedule
          3.1:  Forecast
          Initiation Date and Price Schedule

        

        Forecast
          Initiation Date: April 2005

        

        Price
          Schedule:

        

        *
          *
          *

        

        

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        

        Schedule
          3.2:  Purchase
          Order Form

        

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        

        Schedule
          4.1:  Filter
          Specifications

        

        The
          MD
          190 filterCartridge is to be produced in accordance with Medica procedure
          M12.301 as per Medica Bill of Material M.07492, M.07676 (as required),
          or as
          otherwise agreed between the Parties.

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        Schedule
          7.4:  Insurance

        

        

        Medica
          shall at its cost obtain and maintain one or more insurance policies providing
          coverage of at least five million (5,000,000) Euro in the aggregate, for
          coverage as specified in Section 7.4.

        

        Nephros
          shall at its cost obtain and maintain product-liability insurance coverage
          in
          the amount of five million U.S. dollars ($5,000,000) in relation to the
          Cartridge, for coverage as specified in Section 7.4.

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        Schedule
          13.1: Term

        

        

        The
          term
          of this Agreement is through May 12, 2009, with other conditions as specified
          in
          Section 13.1.

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