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      EXHIBIT
10.17

      

      

      FORM

      OF

      INDEMNIFICATION
AGREEMENT

      

      This
INDEMNIFICATION AGREEMENT (this “Agreement”) is made
as of [DATE], 2010,
between Kingold Jewelry, Inc., a Delaware corporation (the “Company”), and [INSERT NAME OF EXECUTIVE OFFICER OR
DIRECTOR] (collectively with such person’s heirs, executors,
administrators and other personal representatives, the “Indemnitee”), an
officer or director of the Company.

      

      WHEREAS,
the Board of Directors has concluded that Company’s officers and directors
should be provided with the maximum protection against risks relating to such
positions in order to insure that the most capable persons will be attracted to
such positions; and, therefore, has determined to contractually obligate itself
to indemnify its officers and directors, and to assume for itself liability for
expenses and damages in connection with claims lodged against such persons as a
result of their service to the Company as provided in this
Agreement;

      

      WHEREAS,
applicable law empowers corporations to indemnify a person who serves as a
director, officer, employee or agent of a corporation or a person who serves at
the request of a corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise;
and

      

      WHEREAS,
the parties believe it appropriate to memorialize and reaffirm the Company’s
indemnification obligations to the Indemnitee and, in addition, to set forth the
agreements contained herein.

      

      NOW,
THEREFORE, in consideration of the mutual agreements herein contained, the
parties agree as follows:

      

      1.  Indemnification. a)
The Indemnitee shall be indemnified and held harmless by the Company against any
judgments, penalties, fines, amounts paid in settlement and Expenses (as
hereinafter defined) incurred in connection with any Proceeding (as hereinafter
defined) to the maximum extent permitted by applicable law (including, without
limitation, the General Corporation Law of the State of Delaware (“Delaware Law”)) as in
effect on the date hereof and to such greater extent as Delaware Law may
hereafter from time to time permit.  In addition, the Company agrees
to advance to the Indemnitee Expenses incurred in connection with the
foregoing.  “Proceeding” includes,
without limitation, any threatened, pending, or completed claim, action, suit,
investigation, or proceeding, whether brought by or in the right of the Company
or otherwise and whether of a civil, criminal, administrative, or investigative
nature, including any Proceeding in which the Indemnitee may be or may have been
involved as a party, witness, or otherwise, (i) by reason of the fact that the
Indemnitee is or was a director or officer of the Company, or any subsidiary or
Affiliate (as defined below) of the Company, (ii) by reason of any actual or
alleged error or misstatement or misleading statement made or suffered by the
Indemnitee, (iii) by reason of any action taken by him or her or of any inaction
on his or her part while acting as such director or officer, or (iv) by reason
of the fact that he or she was serving at the request of the Company as a
director, trustee, officer, employee, manager or agent of another corporation,
limited liability company, partnership, joint venture, employee benefit plan,
trust, or other entity or enterprise.  As used in this Agreement, the
term “other
enterprise” shall include (without limitation) employee benefit plans and
administrative committees thereof, and the term “fines” shall include
(without limitation) any excise tax assessed with respect to any employee
benefit plan.  Any corporation, partnership, limited liability
company, joint venture, trust, employee benefit plan, or other entity or
enterprise on behalf of which the Indemnitee may be deemed to be acting in
connection with his or her service to the Company shall be entitled to the
benefits of the indemnity provided for by this Agreement to the same extent and
under the same conditions upon which the Indemnitee is entitled to such
indemnity.  As used in this Agreement, the term “Affiliate” shall
include any corporation, limited liability company, partnership, joint venture,
employee benefit plan, trust or other entity or enterprise affiliated with the
Company.

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

       

      (b)  The
termination of any Proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo
contendere or its equivalent, shall not, of itself (i) adversely affect
the rights of the Indemnitee to indemnification hereunder except as may be
specifically provided herein, (ii) create a presumption that the Indemnitee did
not act in good faith or in a manner which the Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company or (iii) create a
presumption that (with respect to any criminal action or proceeding) the
Indemnitee had reasonable cause to believe that the Indemnitee’s conduct was
unlawful.

      

      (c)  For
purposes of any determination of good faith hereunder, the Indemnitee shall be
deemed to have acted in good faith if the Indemnitee’s action is based on the
records or books of account of the Company or an Affiliate (as such term is
defined below), including financial statements, or on information supplied to
the Indemnitee by the officers of the Company or an Affiliate in the course of
their duties, or on the advice of legal counsel for the Company or an Affiliate
or on information or records given or reports made to the Company or an
Affiliate by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or an
Affiliate.  The provisions of this Section 1(c) shall not be
deemed to be exclusive or to limit in any way the other circumstances in which
the Indemnitee may be deemed to have met any applicable standard of conduct
required to be indemnified or exercise rights pursuant to this
Agreement.

      

      (d)  The
knowledge and/or actions, or failure to act, of any director, officer, agent or
employee of the Company or an Affiliate shall not be imputed to the Indemnitee
for purposes of determining the right to indemnification under this
Agreement.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      2.  Interim
Expenses.  Expenses (including attorneys’ fees) incurred by the
Indemnitee in connection with any Proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Indemnitee to repay such amount if it
shall ultimately be determined that he or she is not entitled to be indemnified
by the Company hereunder.  The advances shall be paid by the Company
to or on behalf of the Indemnitee within ten (10) days following delivery of a
written request for an advance by the Indemnitee to the
Company.  “Expenses” means all
attorneys’ fees and expenses, retainers, court costs, transcript costs,
duplicating costs, fees of experts, fees of witnesses, travel expenses, printing
and binding costs, telephone charges, postage and delivery fees, service fees,
all other costs and expenses of the types customarily incurred in connection
with prosecuting, defending, preparing to prosecute or defend, investigating or
being or preparing to be a witness in a Proceeding and, in the event the
Indemnitee is not receiving payment full-time as an employee of the company, per
diem payments to the Indemnitee for each day spent by the Indemnitee in
connection with prosecuting, defending, preparing to prosecute or defend,
investigating or being or preparing to be a witness in a Proceeding in an amount
equal to (a) in the case of former employees that had employment agreements with
the Company, the last annual salary payable under the employment agreement
between the Company and the Indemnitee divided by 365 and (b) in the case of all
other Indemnitees that are former employees not described in clause (a) and
directors, $150,000 divided by 365 and includes any fees, costs and expenses
incurred in complying with requests of the Company or the Board of Directors
under Section 7 or establishing and enforcing a right to indemnification under
this Agreement

      

      3.  Exceptions to
Indemnifications.  Notwithstanding the foregoing, indemnity
pursuant to Sections 1 or 2 need not be paid by the Company if and then
only to the extent that payment is actually made irrevocably and in cash to the
Indemnitee under a valid and collectible insurance policy paid for by the
Company or under a valid and enforceable indemnity clause, bylaw or agreement of
the Company.

      

      4.  Notice of
Claim.  The Indemnitee, as a condition precedent to his or her
right to be indemnified under this Agreement, under any statute, or under any
provision of the Company’s certificate of incorporation (the “Certificate”) or the
Company’s bylaws (the “Bylaws”) providing
for indemnification, shall give to the Company notice in writing as soon as
practicable of any claim made against him or her for which indemnity will or
could be sought under this Agreement, but a failure to give such notice shall
affect the obligations of the Company hereunder only to the extent that the
Company is actually and materially prejudiced thereby. Determination of the
Indemnitee’s entitlement to indemnification shall be made promptly, but in no
event later than forty-five (45) days after receipt by the Company of the
Indemnitee’s written request for indemnification.  Further, if the
person or persons empowered pursuant to Section 5(a) hereof to make a required
determination with respect to entitlement to indemnification shall have failed
to make the requested determination within forty-five (45) days after receipt by
the Company of such request, the requisite determination in favor of entitlement
to indemnification shall be conclusively deemed to have been made and the
Indemnitee shall be absolutely entitled to such indemnification, absent (i)
misrepresentation by the Indemnitee of a material fact in the request for
indemnification or (ii) a final judicial determination that all or any part of
such indemnification is expressly prohibited by law.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      5.  Procedure After Notice of
Claim.

      

      (a)  Upon
notice by the Indemnitee for indemnification pursuant to Section 4 above, unless
the Indemnitee has been successful on the merits in defense of any Proceeding or
in defense of any claim, cause of action or allegation related to such
Proceeding, a determination with respect to the Indemnitee’s entitlement thereto
shall be made in the specific case by one of the following methods, which shall
be at the election of the Indemnitee:  (i) by a majority vote of the
Disinterested Directors (as defined below), (ii) by a committee of Disinterested
Directors designated by a majority vote of the Disinterested Directors, (iii) by
the Independent Legal Counsel (as defined below) in a written opinion to the
Board of Directors of the Company, a copy of which shall be delivered to the
Indemnitee, or (iv) by approval of the stockholders of the
Company.  If it is so determined that the Indemnitee is entitled to
indemnification, or the Indemnitee is otherwise entitled to indemnification,
payment to the Indemnitee shall be made within thirty (30) days thereafter. The
Indemnitee shall reasonably cooperate with the person, persons, or entity making
such determination with respect to the Indemnitee’s entitlement to
indemnification, including providing to such person, persons, or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to the Indemnitee and reasonably necessary to such
determination.  Any costs or expenses (including attorneys’ fees and
disbursements) incurred by the Indemnitee in so cooperating with the person,
persons, or entity making such determination shall be borne by the Company
(irrespective of the determination as to the Indemnitee’s entitlement to
indemnification) and the Company shall indemnify and hold the Indemnitee
harmless therefrom.  The burden of proving that the Indemnitee is not
entitled to indemnification for any reason shall be upon the
Company.  It is the parties’ intention that if the Company contests
the Indemnitee’s right to indemnification, the question of the Indemnitee’s
right to indemnification shall be for the court to decide, and neither the
failure of the Disinterested Directors, the Independent Legal Counsel or the
stockholders of the Company, as applicable, to have made a determination that
indemnification of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Disinterested Directors, the Independent
Legal Counsel or the stockholders of the Company, as applicable, that the
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that the Indemnitee has or has not met the applicable standard of
conduct.  To the extent deemed appropriate by the court, interest
shall be paid by the Company to the Indemnitee at a reasonable interest rate for
amounts which the Company indemnifies or is obliged to indemnify the Indemnitee
for the period commencing with the date on which the Indemnitee requested
indemnification (or reimbursement or advance of an Expense) and ending with the
date on which such payment is made to the Indemnitee by the
Company.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      (b)  In
the event the determination of entitlement to indemnification is to be made by
the Independent Legal Counsel pursuant to Section 5(a) hereof,
the Independent Legal Counsel shall be selected as provided in this Section 5(b).  The
Independent Legal Counsel shall be selected by the Indemnitee (unless the
Indemnitee shall request that such selection be made by the Board of Directors
of the Company), and the Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Legal Counsel so
selected.  If the Independent Legal Counsel is selected by the Board
of Directors at the request of the Indemnitee, the Company shall give written
notice to the Indemnitee advising him or her of the identity of the Independent
Counsel so selected.  In either event, the Indemnitee or the Company,
as the case may be, may, within ten (10) days after such written notice of
selection shall have been received, deliver to the Company or to the Indemnitee,
as the case may be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Legal Counsel
so selected does not meet the requirements of “Independent Legal Counsel” as
defined below, and the objection shall set forth with particularity the factual
basis of such assertion.  Absent a proper and timely objection, the
person so selected shall act as the Independent Legal Counsel.  If
such written objection is so made and substantiated, the Independent Legal
Counsel so selected may not serve as the Independent Legal Counsel unless and
until such objection is withdrawn or a court of competent jurisdiction has
determined that such objection is without merit.  If, within ten (10)
days after the submission of a notice by the Indemnitee for indemnification in
accordance with Section 5(a) hereof, the Indemnitee elects (in accordance with
Section 5(a) hereof) that an Independent Legal Counsel shall make such
determination and an Independent Legal Counsel shall not have been selected
without objection, either the Company or the Indemnitee may petition a court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or the Indemnitee to the other’s selection of the
Independent Legal Counsel and/or for the appointment as the Independent Legal
Counsel of a person selected by such court, and the person with respect to whom
all objections are so resolved or the person so appointed shall act as the
Independent Legal Counsel under Section 5(a) hereof.  Upon the
non-appealable judgment, on the merits, pursuant to any judicial proceeding,
that a person selected to serve as Independent Legal Counsel does not meet the
requirements of “Independent Legal Counsel”, such person shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).

      

      (c)  The
Company shall pay the reasonable fees and expenses of the Independent Legal
Counsel and shall fully indemnify and hold harmless such Independent Legal
Counsel against any and all Expenses, claims,
liabilities, and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.

      

      (d)  As
used herein, “Disinterested
Director” shall mean a director of the Company who is not and was not a
party to the Proceeding in respect of which indemnification is sought by the
Indemnitee.

      

      (e)  As
used herein, “Independent Legal
Counsel” shall mean a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither presently is, nor in the
past five years has been, retained to represent:  (i) the Company or
the Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification
hereunder.  Notwithstanding the foregoing, the term “Independent Legal
Counsel” shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or the Indemnitee in an action to determine the
Indemnitee’s rights under this Agreement.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      (f)  To
the extent that a determination is made or deemed to have been made pursuant to
the terms of this Section 5 that the Indemnitee is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding in
the absence of (i) a misrepresentation of a material fact by the Indemnitee or
(ii) a final judicial determination that all or any part of such indemnification
is expressly prohibited by law.

      

      6.  Failure to
Indemnify.  b) If a claim under this Agreement, under any
statute, or under any provision of the Certificate or Bylaws providing for
indemnification, is not paid in full by the Company promptly following a
determination of entitlement to indemnification pursuant to Sections 4 and 5,
the Indemnitee may, but need not, at any time thereafter bring an action against
the Company to recover the unpaid amount of the claim and, if successful in
whole or in part, the Indemnitee shall also be entitled to be paid for the
Indemnitee’s reasonable expenses, including attorneys’ fees, actually and
necessarily incurred in connection with successfully establishing the right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Company.

      

      (b)  It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in connection with any action, suit or proceeding in
advance of its final disposition) that the Indemnitee has not met the standards
of conduct that make it permissible under Delaware Law for the Company to
indemnify the Indemnitee for the amount claimed, but the burden of proving such
defense shall be on the Company and the Indemnitee shall be entitled to receive
interim payments of Interim Expenses pursuant to Section 2 hereof unless and
until such defense may be finally adjudicated by court order or judgment from
which no further right of appeal exists.

      

      (c)  In
the event a determination has been made in accordance with the procedures set
forth in Section 5 hereof, in whole or in part, that the Indemnitee is not
entitled to indemnification, any adjudication referred to in Section 6(a) hereof
shall be de
novo and the
Indemnitee shall not be prejudiced by reason of any such prior determination
that the Indemnitee is not entitled to indemnification, and the Company shall
bear the burden of proof specified in Section 5 hereof in such
proceeding.

      

      7.  Certain Agreements of the
Indemnitee.

      

      (a)  The
Indemnitee agrees to cooperate with reasonable requests by the Board of
Directors of the Company to enable the Company to coordinate the Indemnitee’s
defense with, if applicable, the Company’s defense, provided, however, that the
Indemnitee shall not be required to take any action that would in any way
prejudice his or her defense or waive any defense or position available to him
or her in connection with any action;

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      (b)  If
the Company has previously paid or advanced any Expenses of the Indemnitee in
connection with any Proceeding, the Indemnitee agrees to cooperate with
reasonable requests by the Board of Directors of the Company to subrogate to the
Company any rights of recovery under insurance policies purchased by the Company
or indemnities from third persons in favor of the Company;

      

      (c)  The
Indemnitee agrees to be represented in any action by a law firm mutually
acceptable to the Company and the Indemnitee; and

      

      (d)  The
Indemnitee agrees to cooperate with the Company and its counsel and maintain any
confidences revealed to him or her by the Company in connection with the
Company’s defense of any action.  The Company agrees to cooperate with
the Indemnitee and his or her counsel and maintain any confidences revealed to
it by the Indemnitee in connection with the Indemnitee’s defense of any
action.

      

      8.  Partial
Indemnification.  If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify the Indemnitee for the portion of such Expenses to
which the Indemnitee is entitled.

      

      9.  Successors.  This
Agreement establishes contract rights that shall be binding upon, and shall
inure to the benefit of, the successors, assigns, heirs and legal
representatives of the parties hereto.

      

      10.  Contract Rights Not
Exclusive.  The contract rights conferred by this Agreement
shall be in addition to, but not exclusive of, any other right which the
Indemnitee may have or may hereafter acquire under any statute, provision of the
Certificate or Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.

      

      11.  Notice
Obligations.  The Indemnitee shall give the Company notice of
the institution of any investigation, claim, action, suit, or proceeding which
is or may be subject to this Agreement and generally keep the Company informed
of, and consult with the Company with respect to, the status of any such
investigation, claim action, suit or proceeding.  In addition, all
notices, requests, demands, and other communications under this Agreement shall
be in writing and shall be deemed duly given on the date actual notice is
received (including by facsimile or email).  The address for notice to
the Indemnitee is as provided on the signature page of this Agreement, or as
subsequently modified by written notice, and for notice to the Company is at its
corporate headquarters and directed to the corporate secretary (or such other
designee as the Company shall designate in a notice to the
Indemnitee).

      

      12.  Severability.  Should
any provision or section of this Agreement, or any clause hereof, be held to be
invalid, illegal or unenforceable, in whole or in part, the remaining
provisions, sections and clauses of this Agreement shall remain fully
enforceable and binding on the parties.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      13.  Choice of
Law.  The validity, interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of Delaware,
without giving effect to the conflict of law provisions thereof.

      

      14.  Continuation of
Indemnification.  The indemnification under this Agreement
shall continue as to the Indemnitee even though he or she may have ceased to be
a director, officer, employee and/or agent of the Company and shall inure to the
benefit of the heirs, executors, administrators and personal representatives of
the Indemnitee.  The Company acknowledges that, in providing services
to it, the Indemnitee is relying on this Agreement.  Accordingly, the
Company agrees that its obligations hereunder will survive (i) any actual or
purported termination of this Agreement by the Company or its successors or
assigns whether by operation of law or otherwise, (ii) any change in the
Certificate or Bylaws and (iii) termination of the Indemnitee’s services to the
Company (whether such services were terminated by the Company or the
Indemnitee), whether or not a claim is made or an action or Proceeding is
threatened or commenced before or after the actual or purported termination of
this Agreement, change in the Certificate or Bylaws or termination of the
Indemnitee’s services.

      

      15.  Counterparts.  This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one instrument.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and signed as of the day and year first above written.

      

      

      
        	 
      	
                KINGOLD
      JEWELRY, INC.

              	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	
                By:

              	 
      	 	 
      
	 
      	
                Name:

              	 
      	 
      	 	 
      
	 
      	
                Title:

              	 
      	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	
                INDEMNITEE:

              	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	 
      	 	 
      
	 
      	
                Printed
      Name:

              	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	 
      	
                Address:

              	 
      	 
      	 	 
      
	 
      	 
      	 
      	 
      	 
      	 	
                 

              
	 
      	 
      	 
      	 
      	 
      	 	
                 

              

      

      

      
        
           

        

        
          9Exhibit
4.11

       

      
        
          	
                  Certificate
      No._____

                	
                  No.
      of Rights _____

                
	 
      	
                  CUSIP
      __________

                

        

      THE TERMS
AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY’S PROSPECTUS
DATED [•], 2010 (THE “PROSPECTUS”) AND ARE INCORPORATED HEREIN BY
REFERENCE.  COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
MORROW & CO., LLC, THE INFORMATION AGENT.

      

      NEPHROS,
INC.

      (Incorporated
under the laws of the State of Delaware)

      

      NON-TRANSFERRABLE
SUBSCRIPTION RIGHTS CERTIFICATE

      

      Evidencing
Subscription Rights, each to Purchase 4.185496618 Units, each Unit consisting of
One Share of Common Stock and a Warrant to Purchase 0.924532845 Shares of Common
Stock of Nephros, Inc.

      

      Subscription
Price: $0.02 per Unit

      

      THE
SUBSCRIPTION RIGHTS WILL EXPIRE IF NOT EXERCISED ON OR BEFORE 5:00 P.M., EASTERN
TIME, ON [•], 2010, UNLESS EXTENDED BY THE COMPANY.

      

      THIS
CERTIFIES THAT

      

      the
registered owner whose name is inscribed hereon is the owner of the number of
non-transferrable subscription rights (“Rights”) set forth on the face of this
certificate.  Each whole Right entitles the holder thereof to
subscribe for and purchase 4.185496618 Units (the “Units”), each consisting of
one share of common stock, with a par value of $0.001 per share, and a warrant
to purchase 0.924532845 shares of common stock of Nephros, Inc., a Delaware
corporation (the “Company”), at a subscription price of $0.02 per Unit (the
“Basic Subscription Privilege”), pursuant to a rights offering (the “Rights
Offering”), on the terms and subject to the conditions set forth in the
Prospectus and the “Instructions for Use of Subscription Rights Certificates”
accompanying this Subscription Rights Certificate.  The Rights
represented by this Subscription Rights Certificate expire at 5:00 p.m., Eastern
Time, on [•], 2010, unless
extended. If any Units available for purchase in the Rights Offering are not
purchased by other holders of Rights pursuant to the exercise of their Basic
Subscription Privilege (the “Available Units”), any Rights holder that exercises
its Basic Subscription Privilege in full may subscribe for a number of Available
Units pursuant to the terms and conditions of the Rights Offering, subject to
proration, as described in the Prospectus (the “Over-Subscription
Privilege”).  The Rights represented by this Subscription Rights
Certificate may be exercised by completing the Form of Election to Purchase on
the reverse side hereof and by returning the full payment of the subscription
price for each Unit in accordance with the “Instructions for Use of Subscription
Rights Certificates” that accompanies this Subscription Rights
Certificate.

      

      This
Subscription Rights Certificate is not valid unless countersigned by the
transfer agent and registered by the registrar.

      

      WITNESS
the facsimile signatures of two duly authorized officers of Nephros,
Inc.

      

      
        
          
            
              	
                      ________________________________________

                    	                           	
                            
                        ________________________________________

                      

                    
	
                      Acting
      Chief Executive Officer

                    	 	
                      Chief
      Financial Officer

                    

            

          

        

      

      

      
        
          
            
              
                	 
      	
                        COUNTERSIGNED AND REGISTERED

                      
	  	
                        CONTINENTAL STOCK TRANSFER & TRUST COMPANY

                      
	 
      	 
      
	 
      	
                        BY:

                      	
                        _________________________________________

                      
	 
      	 
      	
                        as
      TRANSFER AGENT AND REGISTRAR

                      
	
                        DATED:
      [•], 2010

                      	 
      

              

            

          

        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      DELIVERY
OPTIONS FOR SUBSCRIPTION RIGHTS CERTIFICATE

      

      Delivery
other than in the manner or to the address listed below will not constitute
valid delivery.

      

      If delivery by hand, mail,
or overnight courier:

      

      Continental
Stock Transfer & Trust Company

      17
Battery Place, 8th
Floor

      New York,
NY 10004

      (212)
509-4000, ext. 536

       

      PLEASE
PRINT ALL INFORMATION CLEARLY AND LEGIBLY.

       

      
        
          
            
              	
                      FORM
      1 – EXERCISE OF SUBSCRIPTION RIGHTS

                       

                      To
      subscribe for Units pursuant to your Basic Subscription Privilege, please
      complete lines (a) and (c) and sign under Form 3 below.  To
      subscribe for Units pursuant to your Over-Subscription Privilege, please
      also complete line (b) and sign under Form 3 below.  To the
      extent you subscribe for more Units than you are entitled under either the
      Basic Subscription Privilege or the Over-Subscription Privilege, you will
      be deemed to have elected to purchase the maximum number of shares for
      which you are entitled to subscribe under the Basic Subscription Privilege
      or Over-Subscription Privilege, as applicable.

                       

                      (a) 
      EXERCISE OF BASIC SUBSCRIPTION PRIVILEGE:

                       

                      I
      subscribe for ___________
      Units               
      ×       
      $0.02              
      =        
      $______________

                       (no.
      of
      Units)                      (Subscription
      Price)                     (Payment)

                       

                      (b)
       EXERCISE OF OVER-SUBSCRIPTION PRIVILEGE:

                       

                       If you have
      exercised your Basic Subscription Privilege in full and wish to subscribe
      for
      additional  Available Units
      pursuant to your Over-Subscription
      Privilege:

                       

                       
      I subscribe for ___________ Available Units    ×
            $0.02              
      =         
      $______________

                        (no.
      of
      Units)                                (Subscription
      Price)                 (Payment)

                       

                      (c)
      TOTAL AMOUNT OF PAYMENT
ENCLOSED: $___________________

                    	 
      	
                      FORM
      2 – DELIVERY TO DIFFERENT ADDRESS

                       

                      If
      you wish for the Units underlying your subscription right or a certificate
      represented unexercised subscription rights to be delivered to an address
      different from that shown on the face of this Subscription Rights
      Certificate, please enter the alternate address below, sign under Form 3
      and have your signature guaranteed under Form 4.

                       

                      ____________________________________________

                       

                      ____________________________________________

                        

                      ____________________________________________

                       

                      FORM
      3 – SIGNATURE

                       

                      TO
      SUBSCRIBE: I acknowledge that I have received the Prospectus for this
      Rights Offering and I hereby irrevocably subscribe for the number of Units
      indicated above on the terms and conditions specified in the Prospectus
      and the “Instructions for Use of Subscription Rights Certificates”
      accompanying this Subscription Rights Certificate..

                       

                      Signature(s):  __________________________________________________________________

                       

                      IMPORTANT:
      The signature(s) must correspond to the name(s) as printed on the reverse
      of this Subscription Rights Certificate in every particular, without
      alteration or enlargement, or any other change
  whatsoever.

                    
	 	 	 
	
                      METHOD
      OF PAYMENT (CHECK ONE)

                       

                      o
           Check drawn on a U.S. bank payable to
      “Continental Stock Transfer &
      Trust
      Company

                         (acting
      as
      subscription
      agent
      for Nephros, Inc.).”  Funds
      paid by a personal check may take

                        
      at  least
      five business days to clear.

                       

                      o
           U.S. Postal money order payable to
      “Continental Stock Transfer & Trust
      Company
      (acting

                         as
      subscription
      agent
      for Nephros, Inc.).”

                       

                      o Wire
      transfer of immediately available funds directly to the account 
      maintained
      by

                        Continental
      Stock
      Transfer
      & Trust Company
      as agent for Neptros, Inc., for purposes of

                       
      accepting subscriptions in the Rights Offering,
      at JPMorgan Chase, ABA
      #021-000021,

                        Account  
      #475-508351 FBO Nephros, Inc. Subscription, with reference
      to the Rights holder’s

                       
      name.

                    	 
      	
                      FORM
      4 – SIGNATURE GUARANTEE

                       

                      This
      form must be completed if you have completed any portion of Form
      2.

                       

                      Signature
      Guaranteed:
      ___________________________________________________

                                                                                            (Name
      of Bank or Firm)

                       

                      By:
      ___________________________________________

                                                      (Signature
      of Officer)

                       

                      IMPORTANT:
      The signature(s) should be guaranteed by an eligible guarantor institution
      (bank, stock broker, savings & loan association or credit union) with
      membership in an approved signature guarantee medallion program pursuant
      to Securities and Exchange Commission Rule
  17Ad-15.

                    

            

          

        

      

       

      FOR
ADDITIONAL INSTRUCTIONS ON THE USE OF NEPHROS, INC. SUBSCRIPTION RIGHTS
CERTIFICATES, CONSULT MORROW & CO., LLC, THE INFORMATION AGENT, AT (800)
414-4313.

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